Posts: 26

1. Can Investors Trust Thain?

   29.Jul.08, 13:35 EDT
   
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   Merrill Lynch & Co., Inc. (NYSE: MER) shares fell sharply today after the troubled investment bank priced its share offering at $22.50. This pricing point suggests that they weren't able to sell shares at the current market price and raises questions about both dilution and the company's ability to maintain its share price. Shares fell sharply before recovering to $23.90 on the news today.
   
   Merrill Lynch told investors yesterday that it would raise $8.5 billion by selling newly issued stock despite the fact that CEO John Thain repeatedly denied that the firm would need to raise more capital. In fact, back in January Thain was quoted as saying, "We're very confident that we have the capital base now that we need to go forward in 2008." Such comments had many investors convinced that such dilution wouldn't occur anymore.
   
   In fact, on April 4th of 2008 he even commented: "In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don't need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I'm sure we have enough capital."
   
   Merrill Lynch needs the capital after unloading more than $30.6 billion in repackaged debt at a fire sale price ealier this month in an attempt to reduce the risk on its balance sheet. Such news only underscores the fact that the financial sector remains exposed to losses that will require more loan loss reserves, more write-offs, and more capital to keep afloat. All of this is bad news for Merrill Lynch and others in the financial sector, except perhaps Goldman Sachs.

2. Rio Tinto Day of Reckoning Approaches (BHP, RTP)

   05.Feb.08, 19:24 EST
   
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   All eyes are on BHP Billiton Limited (NYSE: BHP) and Rio Tinto plc (NYSE: RTP) this week as a deadline for a mega-merger between the two quickly approaches. The UK Takeover Panel required that BHP submit a formal bid for Rio Tinto by February 6th or it will not be able to make any future bids for at least six months. The current offer is a 3-for-1 share deal that Rio Tinto rejected as bid that grossly undervalued their company. Many shareholders believe that the mega-merger may be stalled as the deadline quickly approaches.

   BHP is a $190 billion company with mining interests all over the world. It specializes in petroleum, aluminum, base metals, stainless steel, iron ore, manganese, coal, and diamond and specialty products. Meanwhile, Rio Tinto is almost as large at $130 billion and it specializes in aluminum, copper, diamonds, energy products, gold, industrial minerals and iron ore. Combined, these two companies would corner 38% of the iron ore market, 6% of the copper market, and become the world’s largest coal supplier. As a result, many eyes are on this potential merger.

   Interestingly, there may be others that are also interested in Rio Tinto. Alcoa and Aluminum Corporation of China announced the joint acquisition of 12% of the company just recently. The two described the acquisition as a “strategic stake” and reserved the right to make a bid for the company if a third party made a firm offer. Presumably, if BHP made an offer, then a bidding war may ensue for Rio Tinto, which is great news for its shareholders but potentially bad news for many others.

   In the end, it will be interesting to see how this situation unfolds. BHP has its own earnings to deal with this week, but the February 6th deadline is quickly approaching and they may be forced to act if they want to make a serious attempt to buy Rio Tinto. Combined, these factors make this stock one that is definitely worth watching!

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   Alcoa Inc. (AA)
   Anglo American (AAL)
   Rio Tinto Limited (RTP)

3. MBIA Gets More Cheerleaders (MBI)

   01.Feb.08, 17:57 EST
   
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   MBIA Inc. (NYSE: MBI) may now hold the record for the world’s longest conference call, which came in at something near four hours with more than 200 questions thrown at the troubled bond insurance company. Luckily, it paid big dividends as shares rose more than 30% from an opening level of $11.80 to $15.90. The marathon call came after activist investor William Ackman sent a long letter detailing problems facing bond insurers and MBIA and Ambac in general. Shareholders are now bullish on the stock once again, despite a negative credit watch from the S&P.

   MBIA’s main point seemed to be that the credit-default swaps that they write don’t behave the same way that credit-default swaps that banks write. Notably, they cannot be accelerated, except by the firm, which means that any claims will trickle out rather than be all subjected to be paid at once. However, even if the have liquidity concerns under control, that doesn’t mean there won’t be problems with solvency. Many also saw the CFOs attempt to showing lots of excess capital unconvincing as he was forced to guess (like everyone else) at the level of capital that ratings agencies would require going forward. However, he did say (perhaps ironicaly), “It is virtually impossible to imagine a circumstance under which MBIA would become insolvent.”

   Many continue to wonder how a company with a market cap of $2 billion that just announced that it lost $2.3 billion last quarter was able to have its share price soar as a result. Some are speculating that it could be a short squeeze while others. The CEO insisted that MBIA would not get taken over by New York State regulators because it would have to be insolvent and the company said it would show excess capital of billions above NYS’s capital requirements. However, the accuracy of these and other statements and the health of MBIA remain to be seen. Regardless, this is definitely a stock worth watching!

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   Triad Guaranty Inc. (TGIC)
   The PMI Group, Inc. (PMI)

4. Google Future Looks Cloudy (GOOG)

   01.Feb.08, 17:56 EST
   
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   Google Inc. (NDAQ: GOOG) shares fell today after the company announced disappointing fourth quarter earnings showing slower growth than analysts predicted. The search giant earned $4.43 per share on revenue of $3.39 billion compared to analyst expectations of $4.44 per share on revenues of $3.45 billion. The company continues to feel the heat from rising traffic acquisition costs and operating expenses that are putting pressure on its margins. Shareholders sold on the news sending shares down more than 9 percent in early trading.

   Google’s traffic acquisition costs have been increasingly lately due to the rising guaranteed payments the company owes through advertising deals to MySpace, Ask.com and others and without operating leverage. There is also larger concern that online ad spending may be hurt by any recession in the United States and abroad. Since Google derives the vast majority of its revenues through Google AdWords, this could spell trouble for the company. And finally, there is also the rising concern over declining keyword costs that has affected the entire industry as it matures.

   Google is taking some steps in the right direction, however. First, the search giant is finally starting to control its head count by hiring just 6% over the third quarter. This was a major problem last year that is one of the culprits behind its high operating expenses. Secondly, Google generated more than 50 percent of its traffic internationally and there has been substantial improvement in the international markets that should drive pay-per-click growth.

   In the end, there are no short-term catalysts that will help Google so investors may want to shy away from the stock until things improve. It will also be interesting to see how a combined Microsoft-Yahoo will affect the search giant that currently commands a 58% market share. Combined, these are all factors that make Google a stock worth watching!
   
   Related Companies
   Google Inc. (GOOG)
   Microsoft Corp. (MSFT)
   Yahoo Inc. (YHOO)

5. A Look at the Microsoft/Yahoo Deal (MSFT, YHOO)

   01.Feb.08, 17:55 EST
   
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   Yahoo Inc. (NDAQ: YHOO) shares are up over 40 percent today after Microsoft Corporation (NDAQ: MSFT) revealed a $31 per share friendly takeover offer for the troubled web portal. The cash-or-stock proposal represents a 62% premium to the closing price of Yahoo shares yesterday - a compelling value by any financial measure. Microsoft believes that this combination would enable them to better capitalize on web and display advertising trends. Shareholders applauded the deal sending share substantially higher, but still left some room for opposition.

   “Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers,” said Microsoft in their letter to Yahoo. “We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities.”

   The offer comes at an opportune time as Yahoo shares have been beaten down and many have lost faith in the company. Shareholders have been looking for an exit strategy that has clearly presented itself in the form of a cash-rich buyer like Microsoft. Meanwhile, employees have been looking for new direction and job security, and Microsoft has already promised “significant retention packages” to “engineers, key leaders and employees across all disciplines”. The offer is also a great deal for Microsoft as Yahoo shares are available at bargin basement prices!

   A combined Microsoft and Yahoo would have revenues of $65 billion per year with net profits of around $17.6 billion per year and about 90,000 employees. Perhaps most importantly, it would command a 32.7% marketshare in the U.S. search industry. This is still behind Google’s 58.4% by a wide margin, but it does represent a substantial step in the right direction. Microsoft’s more organized culture, cash in the bank, and talented engineers may be just what Yahoo’s technologies need to get off the ground and compete.

   In the end, there is still a lot of question as to whether this deal will even go through as planned. Yahoo’s Terry Semel stepped down from the board yesterday, presumably because of this deal taking place. Whether it was in protest or because he felt it was a “sure thing” remains to be seen, but many shareholders are also likely to oppose an acquisition at such historically low levels. However, many others are simply looking for an exit and may take up Microsoft stock to benefit from future growth. Regardless, this is definitely a situation worth watching!

   Related Companies
   Google Inc. (GOOG)
   Microsoft Corp. (MSFT)
   Yahoo Inc. (YHOO)

6. Dillards Vs. the Activists, Part 2 (DDS)

   31.Jan.08, 22:08 EST
   
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   Dillard’s Inc. (NYSE: DDS) management received some advice from two hedge funds looking to boost the company’s share price earlier this week. James Mitarotonda’s Barington Capital and Michael Popson’s Clinton Group disclosed a letter to the board of directors suggesting that the company better manage its inventory, close under performing stores, and sell properties or sell and lease back some stores. The move follows a 52 percent drop in the company’s share price since it began making changes last summer. Shareholders are hoping that the company will heed the advice and work to turn itself around with the help of two great activists.

   “Given the Company’s poor share price performance over the past six months, we are convinced that Dillard’s is an undervalued asset with tremendous opportunity for improvement,” the pair said in their letter. “Unfortunately, it appears to us that you have not only ignored our letters but have also done little to improve the Company on your own initiative, as Dillard’s financial results have gone from bad to worse since our initial communication in June 2007.”

   The activist hedge funds made a series of specific proposals to the company. First, they suggested initiatives aimed at improving cost containment, inventory management and the company’s merchandising strategy. Secondly, they encouraged measures to enhance the value of the company’s real estate properties, including the conversion of certain properties into higher and better uses, the closure of underperforming stores and the sale/leaseback of owned properties. Thirdly, they suggested a boad evaluation of the company’s management team and executive compensation. And finally, they encouraged the company to improve its record in corporate governance by removing the dual class share structure, terminating the poison pill, and separating the chairman and chief executive positions.

   “Dillard’s can and must deliver considerably better financial and share price performance,” said the hedge funds. “As significant stockholders of the Company, we are committed to taking all actions necessary to enhance shareholder value.”

   In the end, it will be interesting to see if the company listens this time around given their failures when ignoring the hedge funds last time. The pair of hedge funds are known for their activist involvements, so they may take future actions in order to attempt to overtake the board. Unfortunately, there is a poison pill in place that would make this extremely difficult; however, it would be an expensive and annoying process for the company who may just decide to listen if such a threat surfaced. Combined, these factors make DDS a stock worth watching!

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   Macy’s Inc. (M)
   The Bon-Ton Stores, Inc. (BONT)
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7. What is Garmin Worth? (GRMN)

   31.Jan.08, 22:07 EST
   
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   Garmin Ltd. (NDAQ: GRMN) are trading sharply off of their highs of around $120 per share in late October to their current levels of around $70 per share on concerns about consumer spending and market saturation. Many shareholders are hoping that these concerns are overblown and that the company can work to turn itself around and return to its previous highs. So, what is the company really worth and what do its future prospects look like?

   Many analysts are now saying that it may be time to buy as the GPS-maker isn’t seeing any signs of weakness impacting its U.S. business and management believes the concerns surrounding European personal navigation market saturation are overblown. The company expect growth of at least 40% in 2008 in all but the most penetrated countries with Garmin taking share. These were the two largest concerns that weighed on the stock in recent months, particularly as the U.S. economy moves closer to a recession that could spread to other developed countries as well.

   There are still some problems with Garmin, however. Many analysts believe that the current margin relief is only temporary and that negative structural trends in mix and pricing should make it difficult for the stock to sustainably outperform. In other words, more competition will force the company to compete on pricing and bundle addtional products and services, which will make it difficult to live up to the high expectations that it has from its past. Many are also concerned about the company’s attempts to penetrate the handset market and would prefer to see a greater focus on software partnerships.

   In the end, the first quarter is likely to be a good one with seasonable shifts to higher-end merchandise should prop up margins and ease investor concerns. However, increased competition and competitive pricing will likely keep the company from seeing the earnings surprises to which many are accustomed. This means that we may not see another run-up in the stock price as we did last year. However, many believe that the stock could reach $80 to $85 per share in the near term. This make GRMN a stock worth watching!

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8. Why the Surprise at MasterCard? (MA)

   31.Jan.08, 22:06 EST
   
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   Mastercard Inc. (NYSE: MA) rose rose over 10 percent in early trading after the credit card company announced better-than-expected fourth quarter results despite concerns about pressure on U.S. consumers. The jump was primarily attributed to international growth and the sale of its holdings in Brazilian credit card company Redecard. Mastercard did note a slowdown in domestic consumer spending, but is more insulated with about half of their business being generated outside of the United States. Shareholders are hoping that the U.S. can stay out of a recession and the rest of the world can stay on track.

   Mastercard reported fourth quarter net income of $304.2 million, or $2.26 per share, versus $40.9 million, or 30 cents per share, a year earlier. Results did include $1.37 per share from the sale of its stake in Brazil’s Redecard that went public in July. The company is also facing less stress than others like Amex because it doesn’t issue cards itself; rather, it makes money from processing and transaction fees that it charges bank customers. Consequently, the company could see lower profits if there were a global slowdown, but right now worldwide gross dollar volume jumped 15% this year, processed transactions increased 17% and the number of cards in circulation rose 13%.

   Mastercard offered some useful insight into the domestic economy as well. The firm noted that consumers were spending more money on staples than discretionary items. Consumers are moving away from items like jewelry, restaurants, and home furnishings to instead purchase things like gasoline, groceries, and personal health care items. The company also noted a slowdown in spending in the U.S.; however, spending still did manage to grow at 5.1%. However, countries in Asia, Middle East, and Africa saw their spending increase an astounding 42%. Meanwhile, our neighbors in Latin America saw spending increase 28%. So, while things may be bad in the U.S., they are certainly booming abroad.

   In the end, this is another interesting stock that many investors grouped with consumer spending in the United States alone. It is important to research companies as anyone who did their homework would realize that much of Mastercard’s profits are derived abroad and the company is not responsible for any loans that are defaulted on as it does not issue the cards itself. Combined, these factors make MA a stock that is definitely worth watching!

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9. Exchanges See More M&A (CME, NMX)

   28.Jan.08, 16:27 EST
   
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   CME Group Inc. (NYSE: CME) and Nymex Holdings Inc. (NYSE: NMX) confirmed rumorsthat the two companies are engaged in preliminary discussions regarding a potential deal worth an estimated $11.3 billion. The deal would create the largest derivatives and over-the-counter exchange market in the world. CME is reportedly ready to offer Nymex shareholders $36 in cash and 0.1323 of a share of CME stock in exchange for each share of Nymex, which would value Nymex shares at around $119.22 a piece. The companies were also quick to note that the deal is stil in the early stages and the terms and price could be subject to materially change.

   
   The move follows countless other mergers and acquisitions of exchanges around the world making a bid to expand their offerings and become more internationally exposed. The CME Group itself is composed of a recent merger between the Chicago Board of Trade (CBOT) and the Chicago Merchentile Exchange (CME). Other acquisitions include the NYSE’s recent purchase of EuroNext and the Nasdaq’s acquisition of OMX. The new NYSE Euronext combo is also now in a deal to purchase the American Stock Exchange. Rumors have also surfaced of potential acquisitions of other smaller futures, options, and derivatives exchanges like IntercontinentalExchange.

   
   The CME Group is the world’s largest derivatives trading organization that enables investors to bet on anything from interest rates to corn by trading contracts whose value derives from the price of the underlying commodity or event. Meanwhile, the Nymex is well known as being the largest exchange for energy and metal trading. Notably, the Nymex has already partnered with the CME and listed several of its contracts on the CME’s electronic exchange. This move is considered to be great for the Nymex because it had been struggling with the idea of an electronic platform, losing market share to companies like the IntercontinentalExchange. Now, the Nymex would be able to utilize the CME’s technology to adapt itself to the new electronic trading environment.

   
   In the end, this is great news for shareholders of both companies as the combination would create a much stronger company. The Nymex exchange would likely see substantial improvement due to electronic trading while the cME will establish itself as an even more dominant player in the exchanges sector. The industry is now one in which M&A is taking place at an increasingly rapid pace, and this deal should also help prop up the value of firms that are still strong an independent like ICE. Combined, these are all stocks worth watching in today’s environment!
   

   
   Related Companies
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   Nasdaq Stock Market (NDAQ)
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10. Icahn Seeks Changes at Biogen (BIIB)

    28.Jan.08, 16:26 EST
    
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    Biogen Idec (NDAQ: BIIB) directors may be in for a fight after billionaire activist Carl Icahn announced the nomination of three candidates to the company’s board of directors. The news comes shortly after the investor bought up millions of Biogen shares last summer, which led to a search for potential suitors in October. The company then abandoned the idea in December when no bidders emerged, which sent shares plummeting. Carl Icahn now believes that he can do better - the question is whether shareholders should believe him.

    
    Carl Icahn is well known for actively pushing for changes in companies he invests in, and he is no stranger to the pharmaceutical scene. Last spring, he successfully fought for MedImmune to sell itself, which led to its acquisition by AstraZeneca for $15.6 billion. He has also pushed for changes in hundreds of other companies in order to drive impressive returns throughout his tenure as one of the most successful activist investors in the marketplace ever. Many, however, point to his recent failure at Motorola as a sign that the times may be changing.

    
    Many shareholders are speculating that Icahn’s recent investment in Biogen suggests that hecould be preparing a buyout bid or may seek to unlock value in the firm’s shares by encouraging a higher bid by a major pharmaceutical company. The shares ran up substantially when the company announced its previous search for a buyer, and the same thing could happen now if the investor pushes for a sale. However, there is one key difference this time around - the credit markets. It is very difficult to obtain attractive financing in this environment for M&A, which could be a major barrier to any potential sale.

    
    In the end, Biogen shareholders should be happy that a well known activist at least has an interest in their company. A potential sale process could send shares much higher in the short-term while a turnaround could help shareholders in the long run. Either way, these options are better than what the current management can offer and you can be sure that Icahn’s interests are aligned with those of shareholders given his four percent stake in the company. Combined, these factors make BIIB a stock worth watching!
    

    
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