No. of Recommendations: 2
Ptheland asks: I am curious, though. Did you hold the shares until the buyout was consummated? So you effectively sold to the LBO group?

Ptheland, I held until the buyout was consummated. The stockholder does not have to do anything. Your brokerage automatically puts the funds into your account and removes the shares.

Had I sold the shares one day earlier, I would NOT have been sued as I understand it. It was only the folks that received the funds from the LBO group. And I am sure that some folks bought shares the day before the close. If they ended up owning >=$100k shares, they got sued. As I mentioned, I owned my shares for about 30 days. I cannot remember if I voted to approve the deal or not. The deal might have already been approved by the Lynondell shareholders before I bought them.

My reply to the court stated that I had no knowledge of the Investment Bank reports, nor the board level discussions and I only owned the stock for 30 days. There is a lot of legalize also. In sum, all of the arguments by all of the stockholders have NOT persuaded the BK judge to dismiss any of the claims against stockholders. The only shareholders that have been released are the ones that agreed to pay the BK trustee some amount.

As a background, here is the strategy I was using at the time for these purchases.

1. I tracked all announced mergers, in total 488 companies over a few years.

2. For each company, I assigned a probability of a successfully completed merger, plus a target date, plus a “final” price if I thought the buyout price might go up.

3. Some deals like Lyondell were all cash deals. Others involved receiving stock in the buying company.

4. I updated the prices every day and calculated a risk adjusted internal rate of return for all of the issues.

5. At the time, money market funds were paying ~5.0%. Since I was overall bearish on equities, this was the benchmark. If the calculations showed IRR’s greater than 5% plus margin, I bought the shares.

6. In general if the IRR went below ~ 5%, I sold the shares before the deal closed. I cannot remember exactly why I did not sell Lyondell in advance.

7. I would have to go back to get an exact number, but I bought many of these issues. Most of the time, the IRR’s were NOT attractive because the Wall Streeters were on top of them. Maybe 5% to 10% of the issues made sense for investment.

8. The strategy was hitting for singles, instead of home runs. I was able to hit quite a few singles, until this Lyondell lawsuit came up. It was NOT a perfect strategy though and I did strike out on one deal. The buyout was an American company being bought by a foreign company. Essentially local racism killed the deal. Something to the effect of “we don’t trust them foreigners to buy our fine American company.”

9. I knew this strategy had a limited life. It was clear to me that the LBO’s were a massive bubble. That is why I would never have bought any of the debt aka bonds they issued. My mistake was thinking that once the buyout funds hit our accounts, the book was closed for life.

As I described in the original post, this was a “black swan” to me. . .


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