Letter Of Intent’s Most Important Requirement

Whether contemplating the purchase of a business or the desire to make a charitable contribution, an underutilized mechanism is the “Letter of Intent.” This document refers to making a solicitation to an offer, rather than an offer itself. This has important legal consequences, as the other party’s response to a “solicitation to offer” places no obligation upon the letter of intent writer, whereas an offer gives the other party the power to legally bind you to your statements in the event that what you see is construed as an offer.

The distinguishing characteristic of a letter of intent (LOI) is that it suggests a contemplation that an agreement can be reached in the future rather than uses language that suggests that a deal can be consummated right now. Most notably, a letter of intent states uses word like “It is our expectation that we will be able to offer…” or … Read the rest of this article!

Papa John Schnatter Resigns Despite Creating Enormous Wealth

In lieu of ejection by the Board of Director, Papa John’s CEO John Schnatter has chosen to step down from his management at the company that he founded by opening up a pizza business in a spare space in his father’s restaurant. From his own work ethic, he created a business that is worth over $2 billion.

As a wealth creator, I don’t think you could find 1,000 individuals in the past century that had a greater impact than he did. Schnatter’s secret to pizza wealth creation consisted of the following: (1)  perpetual price hikes that were just a little bit higher than the rate of inflation, which he sustained perpetually until Domino’s decided to become the low-cost market participating and forced the other national chains to compete; (2) a fanatical focus on “order bundling”, or the recognition that a lot of money can be made when you can regularly Read the rest of this article!

Understanding PG&E’s Dividend Cut

Today, Pacific Gas and Electric (PCG) is down in after-hours trading to $46 per share on the news that the Board of Directors has elected to suspend the $0.53 quarterly dividend. A PG&E press release blamed the California wildfires for the dividend cut, as California law does not shield utility companies for they damage they cause during natural disasters even if they are in compliance with the applicable health and safety laws.

Initial estimates suggest that PG&E’s liability could be in the $1.0 billion to $1.5 billion range. Presently, Pacific Gas maintains an insurance policy covering natural disaster damage up to a maximum amount of $800 million. Assuming that Pacific Gas triggers this cap, the California wildfires stand to cause $200 million to $700 in losses to shareholders. Considering that there are 515 million shares, this could be a maximum hit of $1.35 per share (with the lower end ranges Read the rest of this article!

Seth Klarman Compares Bitcoin to Trading Sardines

In his recent letter to Baupost Group investors, Seth Klarman compared bitcoin investing to the allegory of the sardine trader. To wit, he wrote:

“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, ‘You don’t understand. These are not eating sardines, they are trading sardines.’

Like sardine traders, many financial-market participants are attracted to speculation, never bothering to taste the sardines they are trading. … trading in and of itself can be exciting and, as long as the market is rising, lucrative. But essentially it Read the rest of this article!

How Religious Institutions Manipulate Charitable Giving

C.S. Lewis lamented the use of hyperbole and superlatives like “awesome”, “most magnificent”, and “greatest ever” being used in ordinary discourse because it leaves no elevated terms remaining to use when the elevated term would actually be appropriate.

That came to mind recently when I concluded that nauseating is the appropriate term to describe the difference between donors and recipients of large charitable contributions in the United States today (especially religious institutions).

Often, when making pitches for donations, religious institutions will invoke the prospect of heavenly rewards and including messaging that conveniently argues that giving money to them constitutes “doing the right thing.” The campaigns are conducted in the most moral terms you can imagine, with consultants and advertising employees often hired to help craft letters that use the most effective words and craftsmenship that induce wealthy individuals to make gifts and bequests.

The nauseating part is that, after making … Read the rest of this article!