Business Reporting 101 - prepositions are important

It's always important to get the numbers right, but I can't think of areas where it's more important than in science and business reporting. People make decisions based on what you report in those areas -- decisions that can affect their health or their wealth.

Thus comes today's lesson that not only the numbers -- but the prepositions -- are critical. The story is the recapitalization plan by troubled banking company South Financial Group. (Yahoo finance link).

From The State newspaper this morning (that link will expire in about seven days because of McClatchy's ill-advised archive policy -- someday someone's going to get that even if you put it behind the wall, leaving a link to find it on the general Web is smart; you might even sell a few more archive hits):

South Financial is raising $250 million from a preferred stock offering, up to an additional $100 million from other borrowings and cutting the common share dividend by four cents a year — a move bank officials estimate will save about $52 million in 2008.

From the company's news release (which you will also find picked up at Reuters and several other places):

TSFG's common stock cash dividend will be reduced to $0.04 per share on an annualized basis. This will enable TSFG to preserve approximately $52 million annually in retained capital.

You might notice a small difference -- with a big effect: The State uses "by," while TSFG uses "to." It's a 68-cent difference per share, as a matter of fact, and that adds up pretty quickly. The State would lead people to believe the drop in the dividend is 5 percent (based on the current dividend of 76 cents per share), when the actual drop is 94 percent.

The State's graphic just reinforces the error.

The Greenville News, TSFG's hometown paper, got it right and threw in a few other useful details, but everyone missed the bigger story here, and that is how a recapitalization plan is going to drastically change the common stock picture of this bank. Instead of throwing around arcane terms, it would have been nice to see business stories cut to the point: TSFG's shareholders will see serious dilution of their investment along with the slash in the dividend. And it appears some insiders may be getting a sweet deal in the process.

The explanation:

• The 250,000 shares of preferred stock ($1,000 each) at a 10 percent dividend are mandatory convertible shares. In other words, the bank has no choice. Three years from now those shares must be converted into common stock.
• When they are converted, at 153.846 shares of common to one share of preferred, the resulting addition of almost 38.5 million shares will increase the outstanding shares by more than 50 percent. That seriously dilutes current equity.
• The conversion is at $6.50 per share, a highly favorable price (shares closed at $6.86 Friday), unless the bank's executives are, essentially, saying they think the bank will actually tank in the next three years.
• The preferred holders get voting rights as though they held all those common shares. If current shareholders don't approve granting those rights, the yield on the preferred shares increases substantially.
• The company press release just talks about unidentified "institutional" investors, but the 8-K and Tampa Bay Business Journal say some current directors also are buying the shares. Their identities are not disclosed, and apparently neither Columbia nor Greenville thought to ask about what would seem to be highly relevant information (though Greenville did a follow-up interview with CEO Mack Whittle).
  

As you might guess, I was a business reporter at one time in my life. And the current state of business reporting at too many papers is distressing. Nothing I've laid out here was hard to find or particularly arcane if you are supposed to be covering business. It's all in the company's release and its 8-K filed with the SEC. Those and other links are available at several places on the Web, most commonly Yahoo finance. A moment of thinking would have brought it all together.

It took me about 10 minutes to read them and lay out the numbers. Should we expect anything less from our newspapers whose writings may be affecting people's lives?

I don't have a problem with newspapers cutting back. It's a business reality. But if you are going to do less, do it right.

South Financial - Follow

As reported here in early June, The South Financial Group subpoenaed Yahoo for the names of people who have been posting to Yahoo's TSFG message board, especially those commenting on the company's executives and a lawsuit brought by a former employee.

The Greenville News has now followed up with some details.

The lawyers still aren't talking, but in court filings they say they think that with the subpoenas they can find "admissible evidence" for the lawsuit involving former employee Ben Floyd, who says he was fired after revealing that security equipment was put in CEO Mack Whittle's home.

According to the story:

According to court records, South Financial has subpoenaed Yahoo e-mail messages for user accounts identified as: “stinkinattorney,” “nobuytsfgdog,” “themgamecocks,” “anotherscbanker,” “laurenschwalje,” “blackbeasst,” and “nomospag.”

South Financial wants the Internet protocol, or IP, records of all user profiles found on Yahoo’s message board titled South Financial Group (TSFG), including the dates and times each user profile was first created, according to court records.

The company also wants stored e-mails, postings, user profile data and IP addresses that belong to each user profile found at Yahoo; records, instructions, or directions that placed any of the user profiles under surveillance by Yahoo; and dates and times any passwords were changed for each user profile, according to court records.

South Financial also is seeking data that could identify any user that included conversations related to the South Financial message board where a user used “anonymous” as the login to gain access to the message board, according to court records.

One wonders specifically what "admissible evidence" TSFG hopes to find. Judging by the names and their posts, however, it sounds more like TSFG wants to find out whether any of its critics are current or former workers and whether they've been posting on company time -- and the lawsuit provides the cover to do it.

South Financial Subpoenas Yahoo Account Info

Greenville-based South Financial Group, which is being sued by its former chief of security, has apparently subpoenaed Yahoo for information about people who commented on a financial message board about the case.

One poster on the message board revealed on Saturday morning that he had received notice of the subpoena from Yahoo. Others confirmed they had received a similar notice from the company, whch is the parent of Carolina First Bank:

NOTICE OF SUBPOENA
We are writing to inform you that Yahoo! has been served with a subpoena requiring disclosure of information related to your user account at Yahoo!

The subpoena was issued in an action entitled:
Ben D. Floyd v. Mack I. Whittle, Jr., et al.
pending in:
Superior Court of California, County of Santa Clara, Case No. 107CV-086642
The subpoena, dated May 24, 2007, requires that Yahoo! produce documents related to your Yahoo! account. Please be aware that your communications with Yahoo! may also be discoverable.

The attorney for the subpoenaing party, The South Financial Group, is
Gregory C. Cheng, Esquire
Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
633 West Fifth Street, 53rd Floor
Los Angeles, CA 90071
213-239-9800 (p)
213-239-9045 (f)
Please be advised that Yahoo! will respond to the subpoena 15 days from the date of this notice, unless we have notice that a motion to quash the subpoena (or other legally appropriate challenge to the subpoena) has been filed, or the matter has been otherwise resolved.
You may wish to consult an attorney to advise you about the foregoing.
Please contact the subpoenaing party to obtain a copy of the subpoena. If you wish to contact Yahoo! regarding this matter, please direct your correspondence to notice-user@yahoo-inc.com.

Cheng, reached at his office on Monday, said, "I can't really talk about it" and would not provide any details.

None of those on the Yahoo board use their real names on their posts, and there was no way to contact them. One speculated, however, that their information was being subpoenaed because they participated in a discussion about the original lawsuit -- a discussion that at times became hostile toward the company's executives.

The original reports were on a lawsuit filed in March in Richland County, S.C., by former security chief Ben Floyd, who alleges bank security equipment was put in South Financial CEO Mack Whttle's home.

This latest lawsuit was filed May 25 in Santa Clara County (Calif.) Superior Court. The online site does not provide full-text access to the complaint.