“Takeover Target Poised to Explode!” (Friday File Rerun)

By Travis Johnson, Stock Gumshoe, October 6, 2010

A confession: I just made a huge rookie mistake — I was finishing up a different article for you and kicked the computer’s plug out of the wall … plenty of cussing going on here at Gumshoe HQ today. And worse, I screwed up my backup system and wasn’t logged in right, so I lost today’s article. I can re-create it, perhaps even better and stronger than before, but it will take a bit of time, so in the meanwhile I’m sharing this older Friday File article with the crowd. The teaser is still actively being circulated by Elliott Gue, there hasn’t been any big news on the company but the stock is up a few dollars from when I first wrote this piece about a month ago. The copy that follows has not been updated or edited since it first appeared in the Friday File on September 13.

Today I thought we’d take a look at an Elliott Gue teaser for a stock that he thinks will be taken over by, of all people, the Rockefellers. Or maybe it’s The Rockefellers. He’s selling his Energy Strategist newsletter … and you’ll see why this teaser specifically appealed to me in a minute.

Here’s a bit from the ad to give you a taste of his pitch:

“Follow the Money from a Top-Secret Meeting Inside Room 5600 of Rockefeller Center and You Stand to Make Life-Changing Money on One Blockbuster Trade….

“Male heirs of the wealthiest family in America traveled in stealth to midtown Manhattan from the far corners of the earth to attend their annual meeting deep inside this cavernous limestone structure. As stipulated by the oil titan himself over a century ago, women are barred from Rockefeller business and excluded from all meetings….

“The financial affairs of the Rockefeller family—numbering around 150 blood relatives of John D. Rockefeller—are run from the family office in Rockefeller Center, Room 5600, known officially as Rockefeller Family and Associates.

“This Rockefeller family gathering wasn’t just any business meeting. Something big went down. An initiative to take a controlling interest in the deepwater drilling business was unanimously approved.

“As a result of this under-the-radar meeting in New York City, the Rockefeller family will move rapidly to gain control of the one remaining segment of the global oil business they do not already dominate.”

Drawing the connections in the ad seems like a bit of a stretch — Gue goes on to explain that the Rockefellers built their fortune in oil and still have huge influence in the global oil business, both directly and indirectly, and that he believes the family investment funds (particularly Rockefeller Family & Associates, though they have dozens) or their affiliated oil companies (the family still holds shares in ExxonMobil, which evolved from John D. Rockefeller’s Standard Oil).

And I have no idea what source he has about the Rockefellers and their investment policies, so perhaps the family did indeed unanimously decide to invest in deepwater oil drilling — I certainly can’t confirm anything about that, and if he can he’s not citing his sources in the ad.

But the point, we must remember, is that he thinks the Rockefellers will be buying a deepwater driller, directly or indirectly …

“After drilling down for 40 night and 40 days, I’ve deciphered the answer! There is absolutely no doubt in my mind that this drilling company will be acquired in the next year or two by an oil firm that Rockefellers either directly or indirectly control.

“This Under-the-Radar Millionaire-Maker is Paying a 10% Yield Right Now. And the Stock is Poised to Gap Higher in the Next 6 Months and Triple Upon Being Acquired!

“This deepwater driller that I believe the Rockefellers will move to seize control of is an offshore deepwater driller. The company operates a fleet of over 40 units comprised of drill ships, jack-up rigs, semi-submersible rigs and tender rigs. They have 7,000 employees across 15 countries on five continents.

“Consolidation in the offshore drilling rig industry is rapidly approaching. This narrowing of the field of play would only improve the pricing and earnings visibility for this millionaire-maker’s services.

“Such consolidation activities may be in the form of transactions for specific offshore drilling units or entire companies. I believe the Rockefellers will acquire this under-the-radar winner and then turn around and use the firm as a powerful M&A vehicle. This millionaire-maker will definitely take part in the future consolidation of deepwater oil extraction services.

“Future M&A activity aside, the company is on an amazing organic growth track. With a backlog of projects worth nearly $30 billion and rapid-fire expansion plans, current quarterly earnings targets are going to be hit and exceeded for years to come.”

Well, what do you know: This is our old favorite Seadrill (SDRL), a stock I own and the first stock I profiled for the Irregulars back in 2008 (when it was at all-time highs, I’m afraid — with dividends, that pick has tracked just about even with the S&P, but that’s not saying much). And the numbers are a little bit stale in that tease, they’re now up to 9,300 employees.

For what it’s worth, I continue to own shares in Seadrill personally, and I noted for the Irregulars that the shares, which finally got listed in NY this year to make trading easier, started getting interesting again when they dipped to around $20 a few months ago. I’d have to say that I personally have strong doubts that they’ll be acquired by an oil company anytime soon (though of course, anything is possible, and there is lots of chatter about M&A activity in the offshore drilling space, a space in which Seadrill is the second biggest publicly traded company, depending on how you measure, after Transocean).

And yes, Seadrill pays a big ‘ol dividend — their founder has followed a fairly standard blueprint with the companies he builds, leveraging up assets, holding roughly 30% of the shares and “paying himself back” by pushing for large dividends that distribute a large portion of earnings (or even free cash flow) to shareholders … and if we hold shares along with him, we get those dividends too. The most recent dividend was 61 cents/share for the second quarter, which went “ex dividend” last week, so if you annualize that it’s $2.44 for a yield of a bit under 10% (thanks to a boost in the share price over the past week — it was well over 10% for a while). This is the third quarter in a row with a dividend hike, coinciding with increasing earnings, though the previous hikes were each more substantial.

Seadrill has been a fascinating story ever since the company was launched in the over the counter market in Oslo just a few years ago with a market cap of just a couple hundred million dollars (they now have an enterprise value of over $12 billion) — John Fredriksen is a modern-day Rockefeller of sorts, a first generation gazillionaire who came up as a scrappy shipping broker. He bought up a few oil tankers decades ago in Norway, and later expanded his fortune dramatically on the back of oil tanker company Frontline (FRO) during the first boom in double-hull tankers a few years ago (and he’s faced plenty of controversy, too, including for trading with apartheid-era South Africa, and with Iran during the Iran-Iraq war, both before the Frontline days). Frontline was Fredriksen’s first big publicly traded company, and he used good timing to build a double hulled fleet after a series of spills made double hulls much more valuable, and leverage and financial engineering (including the launch of his own financing firm, Ship Finance Ltd (SFL), to pay out