BUKU's Stock Market (Short) Picks

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I wanted to start this thread to practice on shorting stocks. I have paper traded a few and have done well. I know the risks involved, but would like to add another way to make money trading stocks. I will be posting stock picks that I feel will decline in value and provide DD, explanations of why I picked it, and other info. Like I said, I am sort of new to Shorting stocks, so if anyone has any tips or cautions for all of us please feel free to post.

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My first couple of picks are going to be in the Airline sector. Since I fly for an airline I am pretty familiar with this industry. So here goes. I chose XJT ExpressJet Holdings. A couple of days ago Skywest Airlines INC. SKYW offered to by XJT for $3.50 a share. At the time XJT's stock had fallen and was trading at just under $2.00 until the announcement that XJT had refused the offer from SKYW. Everyone instantly thought XJT was worth $3.50/share so the stock price increased throughout the day to close at $3.25/share. Knowing this airline I knew that was overvalued. They are a great airline but are getting ready to lose flying from a contract with Continental Airlines. I woke up early today Apr. 28 to short it. I was able to short at a price of $3.18/share. It closed at $3.04. I believe this stock is going to decline more and more in the future. I will be posting DD and reasons why in the following posts.

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ExpressJet Holdings, Inc. (Holdings) has investments in the air transportation industry. The Company’s principal asset is XJT Holdings, Inc., the sole stockholder of ExpressJet Airlines, Inc. ((Airlines) and together with Holdings is referred as ExpressJet). Airlines operates a fleet of 274 aircraft. As of December 31, 2007, ExpressJet provides services, which include 205 aircraft for Continental as Continental Express; 10 aircraft for Delta Air Lines (Delta) as Delta Connectio); operates a 9 aircraft through its Corporate Aviation division in charter service; 39 aircraft under its ExpressJet brand, and 11 aircraft under a agreement with Delta. It also provide aviation services, such as ground-handling at airport locations across the United States, as well as aircraft repair, overhaul, interior refurbishments and paint, through its wholly owned subsidiary, ExpressJet Services, LLC (Services), and a majority owned subsidiary, Saltillo Jet Center (Saltillo).



700 North Sam Houston Parkway West, Suite 200
Houston, TX 77067
United States - Map
+1-832-3531000 (Phone)
+1-713-3244915 (Fax)

http://www.expressjet.com

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Press Release


ExpressJet Special Committee Rejects SkyWest's Unsolicited Proposal and Commences Review of Strategic and Operational Alternatives
HOUSTON, April 25 /PRNewswire-FirstCall/ -- ExpressJet Holdings, Inc. (NYSE: XJT) today announced that a Special Committee composed of independent outside members of its Board of Directors has unanimously rejected a proposal from SkyWest, Inc. (Nasdaq: SKYW) to acquire the Company for $3.50 per share in cash.

The Special Committee, which was formed to evaluate the SkyWest proposal, has commenced a full review of strategic and operational alternatives available to ExpressJet. The strategic review will include, among other options, immediately engaging in discussions with SkyWest and other potentially interested parties to evaluate a merger at a higher price, as well as entering into discussions with Continental Airlines, Inc. regarding a new capacity purchase agreement.

The Special Committee reached the decision to reject the SkyWest proposal after careful consideration, including a thorough review of the proposal with Goldman Sachs & Co., its independent financial advisor, and Abrams & Laster LLP, its independent legal advisor. In making its determination to reject the SkyWest proposal, the Special Committee considered a number of factors, including:


The Special Committee believes that the fair value of the Company's stock is substantially higher than the current SkyWest proposal and the $3.50 per share price proposed by SkyWest does not fully and fairly reflect the inherent value of ExpressJet or its prospects, whether as a stand-alone company or part of a larger entity.
While the Special Committee recognizes that a combination of ExpressJet and SkyWest would likely produce meaningful synergies, SkyWest's current proposal does not deliver the value of these synergies to ExpressJet's stockholders. Therefore, the initial SkyWest offer is inadequate and represents an opportunistic attempt by SkyWest to acquire the Company at a price well below the true value that ExpressJet would bring to a combination.
The Special Committee reaffirmed its confidence in management's ability to successfully execute the Company's current strategic plan. Pat Kelly, Chairman of the Special Committee, noted "The ExpressJet Board and management are committed to taking all appropriate and necessary actions to enhance value for ExpressJet stockholders. As the Special Committee reviews the strategic alternatives available to the Company, we have a solid management team and employees dedicated to providing our customers with exceptional service and conducting business as usual."

In making today's announcement, ExpressJet cautions its stockholders and others considering trading in its securities that there can be no assurance that any definitive offer will be made, any agreement will be executed, or any transaction will be approved or consummated. The Company does not intend to disclose developments relating to this review unless and until the Special Committee and its Board of Directors has approved a specific agreement or transaction.

Going forward, the Special Committee will work together with its financial and legal advisors to evaluate the Company's options and determine the course of action it believes is in the best interests of all ExpressJet stockholders.

ExpressJet Background

ExpressJet Holdings operates several divisions designed to leverage the management experience, efficiencies and economies of scale present in its subsidiaries, including ExpressJet Airlines, Inc. and ExpressJet Services, LLC. ExpressJet Airlines serves 175 destinations in North America and the Caribbean with approximately 1,500 departures per day. Operations include capacity purchase and pro-rate agreements for mainline carriers; providing clients customized 50-seat charter options; training services through its world-class facility in Houston, Texas; and ExpressJet branded flying, providing non-stop service to markets concentrated in the West, Midwest and Southeast regions of the United States. ExpressJet Services is the North American partner to three major European original equipment manufacturers and provides composite, sheet metal, interior and thrust reverser repairs throughout five facilities in the United States. For more information, visit http://www.expressjet.com.

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These are probably the most important emails for me when I made this decision to short the stock.

These emails are from the 8-K filing

The first one is from the Skywest CEO to the Expressjet CEO

Confidential

April 7, 2008

Mr. James B. Ream
Chief Executive Officer and President
ExpressJet Holdings, Inc.
700 North Sam Houston Parkway, Suite 200
Houston, Texas 77067


Mr. George R. Bravante, Jr.
Chairman
ExpressJet Holdings, Inc.
700 North Sam Houston Parkway, Suite 200
Houston, Texas 77067


Dear Jim and George:

I enjoyed speaking with each of you by phone earlier today regarding this letter. On behalf of the Board of Directors of SkyWest, Inc., I am writing to express our interest in acquiring ExpressJet Holdings, Inc. (“ExpressJet”) and to make a proposal for such a transaction. This transaction would represent a compelling combination and excellent strategic fit for our companies, and create superior value for our respective stockholders.

We are prepared to acquire all of the outstanding shares of ExpressJet common stock at a purchase price of $3.50 per share in cash. This represents a significant 59% premium over ExpressJet’s closing price today and a 63% premium over ExpressJet’s average closing price for the last 30 days. We believe that $3.50 per share is a full and fair price for ExpressJet’s common stock and provides an attractive opportunity for your stockholders to maximize the value of their investment in ExpressJet. This transaction would not be subject to a financing condition or approval by our stockholders. We would finance the purchase price with existing cash on hand and, if appropriate, other readily available financing.

We have negotiated a new capacity purchase agreement with Continental Airlines, Inc., which will become effective upon satisfactory completion of due diligence and consummation of the proposed transaction. In connection with that agreement, Continental would consent to the change of control that would occur upon the consummation of the proposed transaction. For your information, Continental has informed us that they are not in discussions with any other carrier regarding a Capacity Purchase Agreement.

We believe that our proposal would be in the best interests of ExpressJet and its stockholders, particularly given the uncertainty in the airline sector, the high price of oil and, as outlined in your public filings, the risks of your business related to your relationship with Continental. We also believe that our proposal would be beneficial to other ExpressJet constituencies. Additionally, we believe our proposal is compelling given your current cash burn rate and the need to satisfy the redemption of approximately $130 million of convertible notes this summer.

We have engaged Raymond James as our financial advisor and Parr Waddoups and Skadden Arps as legal counsel to advise us in this transaction. We and our advisors are ready to meet with you and your advisors at any time to discuss all aspects of our proposal and to answer any questions you or they may have about the proposal.

This proposal is subject to reaching a mutually satisfactory definitive acquisition agreement, our completion of due diligence, the completion by Continental of due diligence and final approval of the transaction and Capacity Purchase Agreement by our Board of Directors. We would like to commence the due diligence and negotiation of an acquisition agreement as soon as possible. Given our familiarity with your business and the industry, we are confident that once our management team and legal and financial advisors are given access to ExpressJet’s books and records, they will be able to complete their due diligence on an expeditious and accelerated basis. Continental will coordinate its due diligence efforts with you.

This proposal is also conditioned upon ExpressJet obtaining a clarification and/or amendment, satisfactory to us, to the collective bargaining agreement (the “CBA”) between ExpressJet Airlines, Inc. and the pilots in the service of ExpressJet Airlines, as represented by the Air Line Pilots Association, International (“ALPA”), dated December 1, 2004. First, we need clarification that nothing in the CBA (including, but not limited to, Section 1.D.3) would obligate us to merge the operations of ExpressJet Airlines with those of any or all of our currently-owned airline subsidiaries, or any airline subsidiaries we may acquire in the future, or otherwise apply to us or any of our subsidiaries or affiliates (other than ExpressJet and its subsidiaries). Secondly, we need the agreement of ALPA that the certain undated letter among ExpressJet, XJT Holdings, Inc., ALPA and the ExpressJet MEC, appended as pages 223 through 226 of the CBA, shall be revoked and deemed null and void, prior to the conclusion of the acquisition.

To effect this transaction, we and a newly-formed wholly owned subsidiary would enter into a definitive acquisition agreement with ExpressJet. Assuming that the conditions relating to the amendment of ExpressJet’s CBA discussed in the preceding paragraph has been fulfilled, we would be prepared to structure the transaction as a first-step tender offer followed by a second-step acquisition. The tender offer would be conditioned on the tender of a majority of the fully-diluted shares of ExpressJet’s common stock, the receipt of all necessary regulatory approvals, the absence of a material adverse change and other customary conditions. In order to allow for a second-step “short form” acquisition, we also would anticipate receiving a customary “top up option” to purchase an amount of ExpressJet common stock that, when added to the number of shares owned by SkyWest at the time of exercise of the option, constitutes one share more than 90% of the fully diluted shares of ExpressJet common stock. We and our legal counsel have completed a preliminary review of the transaction in light of regulatory approvals and do not foresee any impediments to the completion of the transaction.

Subject to events as they may develop, and depending upon ExpressJet’s response to our proposal, we hope to be able to discuss this with you and your Board on a non-public basis. We ask that you advise us of any plan by you to make our proposal public prior to doing so.

We hope you share our enthusiasm for the proposed transaction and we look forward to hearing from you. Please contact me as promptly as possible to discuss how we may best proceed, and in any event, please respond by next Monday, April 14th.

Sincerely yours,


Jerry C. Atkin
Chairman and Chief Executive Officer
SkyWest, Inc.

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This email is from the Continental Airlines CEO to the XJT CEO

CONFIDENTIAL

April 7, 2008

Mr. James B. Ream
Chief Executive Officer and President
ExpressJet Holdings, Inc.
700 North Sam Houston Parkway, Suite 200
Houston, TX 77067


Mr. George R. Bravante, Jr.
Chairman
ExpressJet Holdings, Inc.
700 North Sam Houston Parkway, Suite 200
Houston, TX 77067


Dear Jim and George:

We understand that SkyWest, Inc. (“SkyWest”) has delivered to you an offer to acquire ExpressJet Holdings, Inc. (“ExpressJet”). In connection with your consideration of such offer, we wanted to inform you of our understanding with SkyWest regarding a new capacity purchase agreement (“CPA”) and our intentions regarding our existing contractual relationship.

First, we confirm that we have negotiated a new CPA with SkyWest, which would become effective if SkyWest is successful in acquiring ExpressJet (which, in turn, is subject to due diligence, among other things), and that we would consent to the change of control that would occur upon such an acquisition.

Second, absent our entering into a new CPA with savings of the magnitude we have negotiated with SkyWest, we currently expect to deliver to ExpressJet on June 28, 2008, a notice to withdraw 51 of the existing 205 Covered Aircraft from the current CPA, beginning in December 2009. Further, although we have the right to terminate the existing CPA at any time, we currently anticipate we will not extend the term of the current CPA (which we must do, if at all, by December 31, 2008), and thus the current CPA would simply expire in accordance with its terms beginning on December 31, 2010, with the expectation that all aircraft would be removed from the current CPA by the end of 2012.

We hope this information is helpful to you.

Sincerely,

Jeffrey J. Misner
Executive Vice-President and Chief Financial Officer
Continental Airlines, Inc.

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My price target to cover is $2.25

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OK, well, PATIENCE is something that I really need to learn. I was stupid and covered my short position at $2.92 and made a little money. The sad part was that if you look at todays price, I would have made a killing. The low for the day was $1.55

So, at least that one worked out for me. I could have been MUCH better but ohh well, another lesson learned.

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On another note, I know this is my Short Picks thread, but I did rebuy at $1.95

From my understanding and from people who are reliable sources, this deal is going to go through. If and when it does, then this should be able to be profitable at the current prices.