Thursday, September 07, 2006

Cherokee Nation

As I mentioned yesterday, I went back and did a little digging regarding the $33m owed to CHKE. It looks like it is real. Here is the verbage from the 10K:

On April 3, 2006, Mossimo announced that the licensing agreement between Mossimo and Target was renewed until January 31, 2010, and that Mossimo had entered into a definitive agreement to be acquired by Iconix Brand Group, Inc., for a price of $7.50 per share. On April 6, 2006 Mossimo filed a form 8-K regarding the amended Target License Agreement, which required a $6.0 million payment from Mossimo to Target on or before June 30, 2006. On April 17, 2006, we made an unsolicited proposal to acquire all of the outstanding capital stock of Mossimo Inc. for $8.50 per share, subject to due diligence and other conditions. On April 21, 2006, we signed a confidentiality agreement with Mossimo and began due diligence shortly thereafter. On April 27, 2006 we announced that we had entered into an agreement with Iconix to: (i) terminate our Cherokee-Mossimo Finders Agreement, contingent upon the closing of the Iconix acquisition of Mossimo in exchange for Iconix's agreement to pay us a termination fee equal to $33.0 million plus payment of all past royalties due to Cherokee from Mossimo, which we expect will include (a) the $900,000 shortfall from the First Quarter, and (b) the royalty revenues due to Cherokee for the months of May, June and July (through and including the date of closing of the merger with Mossimo); and (ii) to withdraw our proposal to acquire Mossimo Inc. for $8.50 per share. We subsequently filed a Form 8-K which included a copy of this signed agreement with Iconix. The Iconix acquisition of Mossimo and Iconix's payment of approximately $33.0 million to us are currently expected to close in the 3rd calendar quarter of 2006. However, no assurances can be made that these transactions will close as expected.

To me that means that CHKE will be getting $33m plus another 900K for backing off acquiring Mossimo. That makes me feel much better about the quarterly $5.3m dividend... they can certainly afford to keep that up for quite a while. I wonder what they'll do with all that cash? Does that make CHKE a stronger buy? They will certainly have an impeccable balance sheet.

I just rolled my eyes when my latest MFI purchase, BBSI started off the day down 50 cents. Might as well join the rest of the stocks in the red! FTO also started off the day sharply lower (again), but then bounced back into the green. I saw where TSCM has proclaimed that the glory days for Oil are gone (Oil Stocks' Outperformance Is Over). Perhaps. But these stocks were never priced assuming $70 oil was here to stay. And last time I looked people are still driving cars and they aren't building new refineries. I think an investor can still get some satisfactory returns from stocks like FTO.

KG moved up smartly today as they bolstered their medicine cabinet (King acquires rights to Avinza pain medicine).

A couple of weeks ago I commented that the MSN Strategy Lab was pretty poor at record keeping. My favorite International guru, Vivian Lewis sure did a little venting in her journal (Journal Entry: 9/7/2006). Here is what she said:

"While I am venting, I think I should point out a few things wrong with the Strategy Lab. While there is no way I could honestly advise anyone to put all their money on red, my performance in fact is being understated by the site. I am not at the top, but I am better than what the site shows.
First of all, dividends received for ENEL (
EN, news, msgs) and BG Group (BRG, news, msgs) (which are high-yielding stocks) are not being counted. So Strategy Lab undercounts my performance. (Editor's note: Dividends are counted in Strategy Lab portfolios, but details on some of the ADRs Lewis trades have proven difficult to keep up to date.)

Secondly, as even the site managers admit, the performance numbers do not correctly state the return on one of my holdings, a very large and very expensive pink sheet stock called Areva (
ARVCF, news, msgs). It is traded daily in large amounts in Paris; its price is tracked by the International Herald Tribune every day; its price in the U.S. is posted daily on

Thirdly, because I am pretty bearish right now (I seem to be the last bear left in the contest) I am heavily into cash. The Strategy Lab portfolio correctly says that I hold $22,628 in cash. That is not really all: there is another $20,000-plus in foreign currency-denominated cash ETFs. That is a very high 45% of the total. So my performance record comes in spite of being very heavily in cash."

I had to laugh when the editor tried to defend them saying her picks were difficult to keep up-to-date. How hard can it be? They have 6 professionals in the lab with 10 to 15 stocks a piece. There have probably been 3 dividends that needed manual adjustments during the quarter. I am able to track dividends on my ADRs. I suspect her reference to betting "all on red" is about Thomas Ko buying $50,000 worth of small cap stocks at a time. I am guessing Ms Lewis will not be signing up for the next round. Fine by me as I get the newsletter.

It is the end of the day. While it was not a very good day, my MFI portfolio held up reasonably well. ORCT was the big dog (in a bad way), dropping about 5%. No clue as to why. FTO, MTEX and KG were the best of my limited green stocks. MTEX has actually done well of late and is now up 15% or so. It must frustrate the shorts out there as I believe MTEX is the stock in my portfolio with the highest short ratio.

I started thinking a little bit today about retirement... not a total dream. If you were retired, would it make sense to use MFI to put together a portfolio that would provide you with dividend income? Or at that point would you be better off in banks and utilities etc? I would think that if you ran the MFI screens at various market cap levels, you could put together a portfolio of 20 to 40 stocks that would yield 2 to 3% in aggregate. I think you'd have to supplement some with some financial stocks. Hmmm.

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