Wal-Mart's 401K Plan, TreeHouse Foods, Jarden, Chattem, Kissing Cousins and More!

2500! Thanks and Merry Christmas to our friends and colleagues. Hard to believe that it’s been one year since we launched this newsletter. We count over 2,500 subscribers and growing. Our following among business leaders on LinkedIn is equally gratifying – this newsletter group is now one of the largest in Arkansas.

No Lumps of Coal in Wal-Mart’s FY2010 Profit-Sharing Plan

Wal-Mart Associates have close to $11 billion in assets in the company 401(k) plan (see the SEC filing here). Gains in Wal-Mart stock (one-third of the plan assets) and the second largest holding, the Merrill Lynch Equity Index Trust, have so far clawed back about $1.0 billion of the $2.1 billion lost in the previous year. Though market conditions have been challenging, the company and associates have steadily plowed increasing amounts into the plan. Below we show a reconciliation of the plan’s activity over the past five years. Next year, look to see if any significant dollars move between plan choices since Wal-Mart has modified its menu of investment offerings. Source: Company filings

With M&A activity in the CPG industry picking up recently, we couldn’t resist passing along some deal details and our own two-cents.

TreeHouse Foods (15% sales to Wal-Mart; see our March 2009 analysis) will gain about $340 million in revenue and $14 million in net income via its acquisition of Sturm Foods. Wisconsin-based Sturm, the leading private label manufacturer of hot cereal and powdered soft drink mixes, gives TreeHouse the leading position in those double-digit growth categories. With $100 million of the $660 million purchase price funded from stock issuance, existing shareholders can expect about 8%-10% dilution; and a much more leveraged balance sheet as debt doubles to over $1 billion post-deal.

Our Take - TreeHouse Foods appears to be paying a lofty price for growth, and diluting shareholders and doubling debt to do so.

Jarden (20% sales to Wal-Mart) is buying Mapa Spontex, its first significant acquisition in over 2 years, for $500 million in cash. Mapa brings about $800 million in sales and our estimated $30 million in net income, and increases Jarden’s revenue and bottom line each by about 15%. Mapa (currently owned by French oil company Total S.A.), with its leading market positions in baby and home care categories in Europe, Brazil and Argentina, should meaningfully expand and diversify Jarden’s business, most notably increasing its non-US annual revenue by about 40%, or $680 million.

Our Take – Good things really do come to those who wait. Jarden seems to be buying a nice business with healthy cash flow at a reasonable price.

Chattem Inc. (30% sales to Wal-Mart) is being acquired by Paris-based sanofi-aventis for $1.9 billion cash, or about 20x expected 2009 net income of $90 million. Sanofi, with annual sales and income of roughly $40 billion and $5 billion, respectively, expects to enhance its ability to convert prescription medicine like Allegra to OTC with Chattem’s sales, marketing and distribution channels.

Our Take – Looks like a great deal for Chattem shareholders. Yes Chattanooga, there is a Santa Claus!

Procter and Gamble (15% sales to Wal-Mart) is buying Sara Lee’s Ambi Pur for $470 million. Ambi Pur, with estimated revenue and operating income of $382 million and $35 million, respectively, will further expand PG’s reach within the air care category, particularly in Europe and Asia.

Our Take - One down, dozens to go...

Window on the Economy

Homeowners with $1.0 million mortgages are defaulting at 2x the U.S. rate. Even with low interest rates, the carrying costs are forcing owners of McMansions to abandon ship. Unlike the bottom end of the housing market, pol’s in Washington won’t be chunking taxpayer-funded life preservers in now “underwater” gated communities – it’s not as politically palatable to bail out a million dollar homeowner. Read the full story here. Source: Bloomberg.com

Cocktail Party Fodder - Why Europeans are White

Fascinating theory on how the jet stream & eating cereal caused the unique skin de-pigmentation of Northern Europeans. Here’s the full article. Source: Knol

More Cocktail Party Fodder – Doug Kass’s 20 surprises for 2010

A hedge fund manager’s always interesting and provocative list of predictions: teaser – the economy provides a head fake in the first quarter. See the full list here. Source: Paul Kedrosky’s Infectious Greed.

MENTAL BREAK

Jack Bauer’s Last Minute Shopping Ideas

For fans of “24” and perhaps the paranoid, a nice collection of holiday items including a Spy Camera Pen, Faux Wrigley’s Chewing Gum Spy Camera, and an array of GPS and phone signal jammers. Source: Chinavision.com

Kissing Cousins

It’s actually illegal to marry your first cousin in Arkansas, but legal in 25 other states, including California, New York and Connecticut (see the map and read the article here). Source: The New York Times

Animated Map of EBAY’s Black Friday Transactions

Here’s the link. Source: Chart Porn

Parting Thoughts:

Innovation is great for science, maybe not so great for finance. We’ve reached a point where there are three times as many mutual funds, Exchange-Traded Funds ETF’s), hedge funds, and fund of funds than there are actual stocks to invest in (~22,000 vs. 6,700 U.S. stocks).

“Whenever there is a simple error that most laymen fall for, there is always a slightly more sophisticated version of the same problem that experts fall for.”

–Amos Tversky

“It's interesting that the [banking] industry has invented new ways to lose money when the old ways seemed to work just fine."

–John Stumpf, CEO, Wells Fargo

“A limited partnership is a business where the general partner brings experience to the situation, and the limited partners bring money. At the end of the limited partnership, the general partner has the money and the limited partners have the experience.”

–Anon

Have a thought or comment? Give us a call or email.

Scott Alaniz, CFA

scott@bostonmmm.com

Joe Chumbler, CFA

joe@bostonmmm.com

Rogers (479) 657-6940

Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Procter and Gamble and Wal-Mart Stores at the time of this newsletter.