Jim Crane’s bumpy ride continues

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EGL%20logo%20030107.pngEGL Global Logistics founder and chairman Jim Crane’s efforts to take the Houston-based transport company private (see earlier posts here, here and here) continued this week as Crane hooked up with New York City-based private investment firm Centerbridge Partners LP and Toronto-based The Woodbridge Co. Ltd., to propose buying all the outstanding common stock of EGL for $36 per share in cash. The new proposal provides EGL shareholders with the same consideration that Crane offered in his earlier proposal to acquire the company, which amounted to about a 20 percent premium over the closing price of EGL stock on Dec. 29 of $29.78. The Woodbridge Company plans to team up with Merrill Lynch to provide the $1.175 billion of debt financing necessary to complete the transaction.
EGL is a good example of a company that could benefit from a management-led leveraged buyout. The company’s growth has lagged over the past couple of years, so the 20% premium that Crane is willing to pay would likely not be available to EGL shareholders anytime soon. Crane built the business since starting it back in the 1980’s, so he understandably remains bullish on its future prospects. However, the market generally is not as sanguine about EGL’s future. Thus, this looks on the surface like a good deal for EGL shareholders, despite what Ben Stein would probably say.

Eric, we hardly knew ye!

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moulds%20122807.jpgSo, the Texans traded a low draft pick last summer to Buffalo for the contract rights to veteran wide receiver Eric Moulds in a much ballyhooed deal. The theory of the deal was that the veteran receiver would help take the pressure off of the Texans’ stud receiver, Andre Johnson.
So much for that theory.
Meanwhile, the guy who Moulds replaced came within a couple of minutes of playing in the Super Bowl this past season.
Even if such deals don’t work out, it’s a good thing for the Texans to be taking well-calculated risks in attempting to improve the chronically underachieving team. However, regular readers of this blog knew that the Moulds deal was probably a loser well before Moulds ever played a down for the Texans. Why didn’t the Texans’ personnel evaluators realize that Moulds was washed up before the team blew a five million dollar signing bonus on him? That’s the question that Bob McNair ought to be asking himself this morning.
At least the Texans cut their losses on Moulds early. In the low expectation world of Texansville, that signals progress.

Al Gore’s big utility bill

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al_gore.jpgDrudge and parts of the political blogosphere made a big deal out of Al Gore’s supposed hypocrisy in personally consuming more than average amounts of energy while advocating conservation of energy to reduce global warming. But my sense is that James H. Joyner, Jr. has the right perspective on Gore’s energy usage:

Regardless of what Al Gore preaches about these matters, the way he lives strikes me as reasonable. He was of the manor born, to be sure, but he has earned a lot of money on his own. He has every right to a ginormous house, a fleet of cars, and to be flown around the world in private planes to speak out against the dangers of global warming. While itís funny in microcosm, it strikes me as a perfectly defensible trade-off to use a thousand times more energy than the average guy in an effort to influence macro-level energy and environmental policy.
Where Gore and I differ is that my aim is for more people to get to live like Gore. While environmental degradation in general and global warming in particular are real problems, certainly a serious case can be made that they pale in comparison with the ravages of poverty. Further, if millions of people not starving to death isnít its own reward, UC-Berkeley professor emeritus of energy and resources Jack Hollander explains in The Real Environmental Crisis: Why Poverty, Not Affluence, Is the Environmentís Number One Enemy, that, contrary to conventional wisdom, as societies become more affluent, they produce less pollution. Thatís not particularly surprising, when you think about it, as those whose basic human needs are met have both the inclination and resources to worry about cleaning up their environment.

Read the entire piece.

Peak Oil — Much ado about nothing?

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peak_oil_flat.jpgVaclav Smil is a distinguished professor of economics at the University of Manitoba and, based on this TCS Daily op-ed, doesn’t think much of Peak Oilers, including well-known Houston-based Peak Oil advocate, Matt Simmons:

Simmons claims that Saudis have falsified their oil reserve data so much that in reality they have only a fraction of the claimed oil left in the ground, and that their, and the world’s, largest oilfield, al-Ghawar, has been so damaged by waterflooding (used for enhanced recovery of oil) that it faces imminent and massive extraction downturn. And yet Saudis will be investing nearly $50 billion between 2007 and 2011 to get this nonexistent oil to the global market. Perhaps they know something that Simmons is not aware of (these days it is, after all, de rigueur to say only bad things about Saudis).

Smil concludes by reminding us of something that is not well understood by the political forces that frequently attempt to heap even more taxes on the energy industry — that is, that investing in oil and gas exploration is not necessarily the lucrative long-term investment that many believe:

Finally, a practical reminder: If there is an imminent peak of oil extraction, should not then the prospective shortage of that increasingly precious fuel result in relentlessly rising prices and should not buying a barrel of oil and holding onto it be an unbeatable investment? But a barrel of a high-quality crude, say West Texas intermediate, bought at $12.23/b in 1976 as a nest-egg for retirement and sold before the end of 2006 at $60/b would have earned (even when assuming no storage costs) about 1.2% a year, a return vastly inferior to almost any guaranteed investment certificate and truly a miserable gain when compared with virtually any balanced stock market fund. And a freedom-at-55 investor who bought that barrel at 30 years of age in 1980 and sold in 2005 would have realized a nearly forty per cent loss on his precious investment. Being a true believer in imminent peak oil may be fine as a provocative notion but not as a means of securing a comfortable retirement.

Anthony Buzbee places foot squarely in his mouth

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Buzbee.jpgAs noted previously here and here, it is well known around the U.S. that the Rio Grande Valley and much of the Coastal Plain southwest of the Houston metro area is a plaintiff’s lawyer’s paradise.
It’s just not everyday that a plaintiff’s lawyer — in this case, Friendswood lawyer Anthony Buzbee — brags about it to a roomful of defense lawyers. While being recorded. Which results in a prominent Nathan Koppel/Wall Street Journal ($) article and a blog post in Peter Lattman’s popular WSJ Law Blog.
Not surprisingly, the recording of Buzbee’s talk is being used at the state legislature by lobbyists and legislators wanting to change one of the favorable venue provisions that Buzbee bragged about in his talk.
Longtime Houston plaintiff’s lawyer Ronnie Krist pretty well summed up in the WSJ article how most plaintiff’s lawyers are reacting to Buzbee’s talk:

“Lawyers are always looking for a more favorable venue, but to say in a public forum that notwithstanding the evidence, an Hispanic jury and judge will allow you to win undermines public confidence” in the system, he says. “Those are the sorts of things you shouldn’t whisper to your wife in the middle of the night.”

The remarkable evolution of open heart surgery

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openheartsurgery.jpegGiven the importance of Houston’s Texas Medical Center in the development of open heart surgery (see here and here), a couple of recent NY Times articles focusing on open heart surgery caught my attention.
First, in this article, David Schribman compares his recent open heart surgery to the heart surgery that a childhood friend endured 42 years ago.
Next, following on this earlier post, this NY Times article reports that safety concerns are increasing over the long-term risks of stents used in angioplasty procedures. New data is indicating that the sickest heart patients may actually live longer if they receive bypass surgery rather than the angioplasty, which is prompting some well-known heart surgeons and cardiologists to conclude that the pendulum has swung too far away from bypass surgery.
Finally, the Times provides this extraordinary slide show of open heart surgery. The slide show is a powerful reminder that — despite the now common nature of bypass surgery — it is still not as routine as changing a flat tire.

The curious attraction of the NFL Draft

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nfldraft.jpgThis earlier post noted the institutionalized fanaticism that is involved in the recruitment of big-time college football players. But that fanaticism is really nothing compared to the obsession that many professional football fans will indulge over the next several weeks as National Football League teams prepares for its annual draft of minor league, er . . I mean, “college” players in mid-April.
Inasmuch as many folks in Houston believe that the poor performance of the Houston Texans during their five seasons of existence is attributable to the poor draft picks of Texans’ management (I’m not convinced that’s entirely correct, but oh well), we are bombarded in these football-crazed parts over the next several weeks with media coverage of who the Texans and other NFL teams should choose in the draft. I’ve always had this vague notion that all this attention given to who NFL teams should choose might actually push the teams toward making poor choices, but I’ve never really been able to put my finger on any support for that notion.
Well, American Enterprise Institute scholar Kevin Hassett just might have the answer. According to an ongoing study that Yale University economist Cade Massey and University of Chicago economist Richard Thaler are conducting, Hassett reports that the Texans likely would have been much better off trading their high draft picks from past drafts for mutiple lower draft picks that the team could have used to buy more good players:

To recap, Massey and Thaler studied the draft and found that teams make systematic errors. They tend to place too high a value on the top players and too low a value on draft picks a little farther down.
The problem is, the very top players in the draft receive very high salaries. Even if they compete brilliantly, it’s hard for them to outperform their earnings. But by definition, since all teams have to operate within the same salary cap, winners have to have teams that are filled with players who outperform their paychecks.
Last year’s top overall pick, Mario Williams of the Houston Texans, is a nice example. He received a salary package worth $54 million over six years — and proceeded to play like a fairly mediocre defensive end. He was the sixth-leading tackler on his team, and recorded only 4 1/2 sacks.
While those numbers suggest Williams will be a serviceable NFL competitor, he was compensated as one of the best defensive players in the league. And since the total salary bill for the team is capped by the league, the money spent on Williams is money that can’t be spent on players at other positions. That undermines their ability to compete.
On the other hand, players a little farther down in the draft can be enormous bargains. Take Houston’s second-round pick DeMeco Ryans. He led the NFL in tackles, but only received a contract of $5 million over four years. Good teams fill their roster with such deals and avoid committing huge resources to the big-money players like Williams.

In other words, the Texans need more DeMeco Ryans and fewer David Carrs and Mario Williams, although it’s a bit early to write off the Williams pick as a bust on the level of the Carr pick. Hassett’s point is also supported by the success of the New England Patriots, who have used a model of emphasizing quality depth over star players in building one of the most successful NFL teams over the past decade. During most of that time, the Patriots were picking at the bottom of the draft board while, over the past five years, the Texans have been picking at or near the top.

Enronizing the Nacchio trial

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cliff%20stricklin%20022707.jpgPeter Lattman notes this Jeff Smith/Rocky Mountain News article on Cliff Stricklin, the former Enron Task Force prosecutor who is gearing up as lead prosecutor in the upcoming criminal trial in Denver of Joseph Naccio, the former Qwest CEO. Naccio is charged with several fraud counts alleging that he sold over $100 million of stock during the first five months of 2001 while knowing that the telco’s finances were weakening. Naccio contends that he believed that the company’s finances and prospects were fine, and that his stock sales were simply a diversification strategy that he was pursuing at the behest of his investment advisors.
Although the article describes Stricklin’s goal of keeping the Naccio trial simple, it does note Stricklin’s dubious (and rather complicated) handling of the trial of the first Enron Broadband case, which ended in a crushing prosecution defeat:

In the Enron Broadband case in 2005, Stricklin failed to win convictions against the five former executives on trial. Three were acquitted on some charges, and the jury deadlocked on charges against the other two.
During the trial, the prosecution presented a videotape it said had been shown to stock analysts in 2000 when it hadn’t, a mistake Stricklin apologized for in his closing arguments. Stricklin also had to rebut defense arguments that some of the prosecution witnesses had tailored their testimony out of fear of being charged themselves.

That description soft-pedals Stricklin’s performance in the first Enron Broadband trial, which — as noted earlier here — exemplified the DOJ’s “anything for a conviction” attitude toward businesspeople in the post-stock market bubble era. Stricklin might also remember to be careful about what he asks on re-direct examination of cooperating witnesses during the Naccio trial.

The ruse of dieting

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diet%20scales.jpgThis earlier post made the point that a sound understanding of nutritional principles and moderate eating habits are far more likely to result in proper personal weight management than relying on the dozens of fad diets that are available to the American consumer.
Along those lines, this Sandy Szwarc post reports on some rather startling statistics relating to one such diet program:

A study on one of the largest commercial weight-loss programs was just published in the International Journal of Obesity but has been ignored by the press. Understandably, a major media campaign and flurry of press releases have not trumpeted its findings.
Researchers at four major research centers across the country followed 60,164 adults enrolled in the Jenny Craig Platinum program in 2001-2002 to evaluate how long people were able to stick with this program and how much weight they lost.
They found that a quarter dropped out the first month, 42% after 3 months, 22% after 6 months, and only 6.6% were able to stick with the program for a year.
Unlike Kirstie Alley, the weight loss among people not being paid as celebrity spokespersons was considerably less notable. For a 200 pound woman able to keep with the program an entire year, according to this study, she would have lost half a pound a week….except fewer than 7 out of 100 were able to hang in for a full year. Hardly winning endorsement for the success and palatability of the program.

Read the entire post. Research is increasingly concluding that being overweight does not equate with increased mortality risk. Rather, physical activity and fitness have a far greater impact on lowering mortality risk than one’s body mass index or waist measurements. Despite our cultural stereotypes of what ìfitî looks like, research on obese adults has shown that about half rate highly fit on maximal exercise testing, which is not much different from slender people.
Thus, there is nothing wrong with wanting to lose a few pounds, but forget about the latest fad diet. Instead, understanding nutrition and modifying eating habits over the long-term is much more likely to produce the calorie deficit that will eventually result in permanent weight loss. But if the goal is to reduce mortality risk, the better bet is simply to increase the exercise and recreation regimen, and more exercise is not necessarily better ó a couple of hours total spread over 3-5 days a week is fine.

Barack Obama’s questionable economics

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Thomas%20Sowell%20022607.jpegThe exceedingly clear thinking Thomas Sowell (earlier posts here and here) is reviewing Democratic Party Presidential candidate Barack Obama’s positions on economic policy and doesn’t much like what he sees:

Senator Barack Obama recently said, “let’s allow our unions and their organizers to lift up this country’s middle class again.”
Ironically, he said it at a time when Detroit automakers have been laying off unionized workers by the tens of thousands, while Toyota has been hiring tens of thousands of non-union American automobile workers. [. . .]
Senator Obama is being hailed as the newest and freshest face on the American political scene. But he is advocating some of the oldest fallacies, just as if it was the 1960s again, or as if he has learned nothing and forgotten nothing since then. [. . .]
Senator Obama is not unique among politicians who want to control prices, as if that is controlling the underlying reality behind the prices. [. . .]
The underlying reality that politicians do not want to face is that here, too, prices convey a reality that is not subject to political control. . .

One of the hardest things for politicians to resist is indulging most voters’ tendency to believe economic fallacies. Unfortunately, most politicos do the easy thing and give the voters what they want to hear. That is probably a good approach to getting elected, but it’s a lousy one for governing.