Over the past few months, there's been a fall-off in M&A dealmaking. But that's not stopping traders.
According to a report from Reuters, there is some buzz that Microsoft (Nasdaq: MSFT) might buy SAP (NYSE: SAP). Hey, keep in mind that – several years ago – both companies talked about a combination.
On its face, it seems like a smart deal. SAP has a lucrative franchise in the enterprise resource planning (ERP) space. It's a business that should last for a long time – despite the competitive threats, even from Oracle (Nasdaq: ORCL).
However, SAP is currently in the process of closing its biggest acquisition – that is, the acquisition of Business Objects (Nasdaq: BOBJ). So does it have time to do a mega deal with Microsoft?
Besides, I suspect there would be serious integration issues. No doubt, cross-border deals can be very complex. Just take a look at the Alcatel-Lucent (NYSE: ALU) fiasco.
But as seen lately, the software space is consolidating rapidly. So, you really count anything out – even a transformative deal that would shake-up the industry.
MOST NOTEWORTHY: HSBC Holdings, AstraZeneca, Syneron Medical, Talbots, BankUnited and First Fed Financial were today's noteworthy downgrades:
UBS downgraded shares of HSBC Holdings(NYSE: HBC) to Neutral from Buy on valuation, rising customer defaults and slower growth at the company's the U.S. consumer-finance unit.
UBS also downgraded AstraZeneca (NYSE: AZN) to Sell from Neutral, as they believe the company faces major risks from drug approvals, competition and lawsuits.
Merriman downgraded shares of Syneron Medical (NASDAQ: ELOS) to Neutral from Buy following the company's Q3 earnings preannouncement due to near-term margin erosion and growth drivers that remain four quarters away.
CIBC downgraded shares of Talbots (NYSE: TLB) to Sector Performer from Outperformer as they believe 2H07 expectations are too high given the current weakness in the Missy space.
Friedman Billings downgraded BankUnited (NASDAQ: BKUNA) to Market Perform from Outperform and FirstFed Financial (NYSE: FED) to Underperform from Market Perform based on credit trends that are eroding faster than anticipated.
OTHER DOWNGRADES:
Merrill downgraded JMP Group (NYSE: JMP) to Neutral from Buy.
Baird downgraded Cabela's (NYSE: CAB) to Neutral from Outperform.
On Monday, Jim Cramer suggested to quickly buy BEA Systems before it gets a bid. Today, Oracle Corp. (NASDAQ: ORCL) indeed said it has proposed to buy business software maker BEA Systems Inc. (NASDAQ: BEAS) for more than $6.66 billion or $17 a share, a 25% premium over Thursday's close. Yet, BEA shares are up over 32% to $18+, suggesting shareholders expect an even higher bid to come.
SAP (NYSE: SAP) acquiredBusiness Objects (NASDAQ: BOBJ) on Monday. Following the deal, many pundits, including Cramer, called the market of business intelligence hot. So the question now is how hot? Will BEA Systems see a proposal from SAP as it wants to give an answer to its rival's growth and thwart its plans for more? Maybe from International Business Machines Corp. (NYSE: IBM) as it might try to halt Oracle's advance into an area it is now dominant in, the middleware programs that connect server computers? Will Oracle simply increase its own proposal despite Oracle President Charles Phillips saying his company has made a "serious proposal including a substantial premium for BEA."
Despite BEA sales declining, now trailing IBM's, no doubt Oracle could use BEA's footprint in the middleware software biz, not to mention access to more customers. Perhaps it could lure some of those BEA customers that are now using SAP. BEA would also bring support fees. These are all good reasons for Oracle, which has grown remarkably well by growth (PeopleSoft notwithstanding).
No doubt, the signs were there. First, Carl Icahn had announced recently his stake in BEA Systems reached 13.22%. Of course, the line BEA executives have often used, "BEA is not for sale," is pretty much meaningless now with Icahn in the picture. Icahn has been pushing to have BEA sold. Then, SAP acquired Business Objects and pundits started calling for consolidation in the business with BEA being on the short list. If you had listened to Cramer on Monday, you could have sold your BEAS shares 32% higher today. Not bad for a week.
MOST NOTEWORTHY: UQM Technologies, Blue Nile, NPS Pharmaceuticals, Massey Energy and Hartford Financial were today's noteworthy downgrades:
Merriman downgraded shares of UQM Technologies Inc (AMEX: UQM) to Neutral from Buy after Phoenix Motorcars delayed its electric vehicle manufacturing ramp, as they view the company's Phoenix Motorcars relationship as the primary driver for near-term growth.
Citigroup downgraded shares of Blue Nile Inc (NASDAQ: NILE) to Sell from Hold on valuation as they believe near-term risks outweigh rewards. They see risk to Q3 revenue estimates and their analysis suggests an in-line quarter at best.
NPS Pharmaceuticals Inc (NASDAQ: NPSP) was downgraded to Neutral from Buy at Oppenheimer and to Hold from Buy at Jefferies. Oppenheimer lowered shares following disappointing Gattex data; Jefferies believes the P3 GATTEX results in short bowel syndrome make the chances of successful low-dose approval unpredictable.
Friedman Billings downgraded Massey Energy Company (NYSE: MEE) to Underperform from Market Perform based on valuation, 2008/2009 outlook, spinoff of Patriot Coal appears to be a better investment option, and another blow to mountaintop mining and permit issues.
JP Morgan removed The Hartford Financial Services Group Inc (NYSE: HIG) from their Focus List; however, they believe the company's fundamental outlook remains positive and expects strong Q3 results.
OTHER DOWNGRADES:
Morgan Stanley downgraded EV3 Inc (NASDAQ: EVVV) to Underweight from Equal Weight.
MOST NOTEWORTHY: Coca-Cola, PepsiCo, Business Objects, Cognos and Cooper Companies were today's noteworthy downgrades:
Deutsche Bank downgraded Coca-Cola Company (NYSE: KO) and PepsiCo (NYSE: PEP) to Hold from Buy on valuation, as they believe shares reflect prospects for growth.
Business Objects (NASDAQ: BOBJ) was downgraded to Neutral from Buy at UBS following the acquisition by SAP AG (NYSE: SAP) and to Hold from Buy at Jefferies, as the firm finds the acquisition price fair and does not expect a counter-bid. Soleil believes the SAP offer is reflected in the stock price, and downgraded Business Objects to Hold from Buy.
Roth Capital downgraded shares of Cognos (NASDAQ: COGN) to Hold from Buy based on recent share appreciation as shares capture a vast majority of a potential takeover bid; Goldman downgraded shares to Neutral from Buy and Jefferies downgraded shares to Hold from Buy on valuation.
JP Morgan lowered shares of Cooper Companies (NYSE: COO) to Underweight from Neutral. The firm believes Street estimates are too high given a negative mix shift in the company's contact lens business, which could lead to a FY08 EPS shortfall.
Elizabeth Arden (NASDAQ: RDEN) was downgraded to Neutral from Buy at SunTrust.
UBS downgraded Healthcare REITs to Market Weight from Overweight. UBS downgraded Health Care REIT (NYSE: HCN) and Ventas (NYSE: VTR) to Neutral from Buy and Omega Healthcare (NYSE: OHI) to Sell from Neutral.
Business Objects (NASDAQ: BOBJ) was downgraded to Neutral from Outperform at Baird following its acquisition by SAP AG (NYSE: SAP).
Wachovia downgraded Allstate Corporation (NYSE: ALL) to Market Perform from Outperform and P&C Insurance (NYSE: PGR) citing deteriorating fundamentals in personal lines.
OTHER DOWNGRADES:
UBS downgraded BEA Systems (NASDAQ: BEAS) to Neutral from Buy.
JP Morgan downgraded Merrill Lynch (NYSE: MER) to Neutral from Outperform.
Sealy Corporation (NYSE: ZZ) was downgraded to Neutral from Buy at Banc of America.
Business Objects is effectively an American company, despite its location in France. Almost two-thirds of its revenue comes from here. SAP can pour on the strong euro and make things happen here that no domestic company can.
So why BEAS? Because BEAS is a direct competitor to Oracle (NASDAQ: ORCL) (Cramer's Take), which is the worldwide nemesis to SAP. If you go listen to the Oracle conference call where they make fun of BEAS, you have to be thinking that if SAP combined the strong -- and I think wildly overvalued - euro with BEA Systems, the Oracle competition won't look as steep as it does now.
BEAS, of course, says it is not for sale. It is still one more company that is stupidly ignoring the buildup of stock by Carl Icahn. My prediction: This ridiculous acquisition of the just-now blowing up Business Objects, a company that was getting its butt kicked, presages another buy from SAP of BEAS, regardless of the sinking in price of SAP's stock, something they knew would happen and did the deal anyway.
BEAS is cheap, with lots of cash and a burgeoning business in China. Business Objects was a much tougher sell.
BEAS is next, in my opinion, and the fact that it hasn't gone higher yet with Icahn's buying is the real opportunity.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.
Stock futures were lower this morning, indicating stocks are poised for a similar start after Friday's record breaking session. Perhaps some profit taking will take place today following last week's rally, perhaps some position adjustments ahead of the beginning of third quarter earnings season. Investors will want to see if their economic view matches corporate profits. Regardless, today -- Columbus Day -- is historically a quieter trading day. Treasury bond market is closed today.
Last week, U.S. stocks rallied with the S&P 500 reaching an all-time high. On Friday, nonfarm payrolls data showed a significant increases, allaying economic concenrs. The Dow industrials ended the day 91.7 points higher or 0.66%, the S&P 500 rose 4.75 points, or 0.96% and the Nasdaq Composite added 46.75 points, or 1.71%. For the week, the Dow rose 1.21%, the S&P 500 2.02% and the Nasdaq 2.92%.
Without economic data today, investors will look to the first round of earnings. Of the Dow companies, Alcoa Inc. (NYSE: AA) will report Tuesday and General Electric Co. (NYSE: GE), which recently announcing it was taking a charge in the quarter will report Friday. Big consumer brands are also due to report this week including Yum Brands Inc. (NYSE: YUM) which is to report earnings today after the close -- 45 cents earnings per share expected, Costco Wholesale Corp. (NASDAQ: COST) on Wednesday, and PepsiCo (NYSE: PEP) on Thursday.
Overseas, Asian stocks were mixed but China's benchmark Shanghai Composite Index rose 2.5% to a record close. Australian stocks also reached a record close. European stocks were lower by midday trading.
Other corporate news:
SAP AG (NYSE: SAP) are down nearly 6% in premarket trading after the company announced its intentions to buy Business Objects SA (NASDAQ: BOBJ) for €4.8 billion (or $6.79 billion). This comes to €42 (US$59.35) per share in cash -- a 20% premium over Friday's close. Investors, it seems, think the price was too high for the recently disappointing company and will put a dent in earnings. BOBJ shares are up nearly 15% in premarket action.
SAP (NYSE: SAP), the world's largest enterprise software company, bought business intelligence software firm Business Objects (NASDAQ: BOBJ) for $6.8 billion. The move should give SAP a leg up on global rival Oracle (NASDAQ: ORCL). The deal represents a 20% premium to Business Objects' closing price on Friday.
Business Objects is attractive to SAP because of the "firm's leadership in business intelligence, software that tracks and analyzes a company's performance as well as that of competitors," writes The Wall Street Journal. Because of SAP's focus on Fortune Global 1000 companies, the company has good penetration of its main products in these firms. It could use another line of products to sell into the world's largest companies.
Oracle has made a number of acquisitions over the last two years, which has helped to fuel its revenue growth. But, just as important, it allows the company's sales force to market most large customers several lines of software. SAP has probably lost an important competitive edge by having a more narrow product line.
SAP and Oracle's shares move up and down almost in parallel. If the European company can begin to distinguish what its can market into its customer base, it may be able to break out of that trading range. Business Objects may be just the beginning of a strategy that follows Oracle's "growth through acquisition" strategy.
MOST NOTEWORTHY: Monster Worldwide, Business Objects, Arcelor Mittal, Walgreen and Sealy Corp were today's noteworthy downgrades:
Wachovia downgraded shares of Monster Worldwide (NASDAQ: MNST) to Market Perform from Outperform citing increased risk of an economic slowdown and execution issues in its N.A. Careers segment.
Credit Suisse downgraded shares of Business Objects (NASDAQ: BOBJ) to Neutral from Outperform on valuation with shares above their $46 target.
Banc of America downgraded Arcelor Mittal (NYSE: MT) to Neutral from Buy on valuation. The firm also downgraded Walgreen (WAG) to Sell from Buy, as they see further downside following the Q4 miss and believes the problems in Q4 are company-specific and not industry-wide.
Citigroup downgraded shares of Sealy Corporation (NYSE: ZZ) to Sell from Hold following the Q3 results, as they believe Sealy faces increased competitive pressures at the high end of the market where the best margins are derived.
OTHER DOWNGRADES:
Goldman Sachs removed Cisco Systems (NASDAQ: CSCO) and Nucor (NYSE: NUE) from its Conviction Buy List.
Oracle (NASDAQ: ORCL) is expected to release 1st quarter EPS of .21 after the close on 9/20. Goldman Sachs says "ORCL currently trades at a significant discount to the group on an EPS basis at 16X our CY08 EPS estimate (ex-ESOs) vs. the group median of 20X." GSCO has a $24 price target on ORCL. ORCL September 20 straddle is priced at .95 cents. ORCL October option volatility of 32 is above its 26-week average of 28 according to Track Data, suggesting larger near term fluctuations.
Business Objects (NASDAQ: BOBJ), a global provider of business intelligence software solutions, is recently up $2.52 to $44.90. BOBJ has a market cap of $4.2 billion. Bank America says "French newspaper Le Figaro has reported that BOBJ has put itself up for sale and citing interest by several companies, including SAP. BOBJ & SAP have declined to comment on the speculation." BOBJ September 45 straddle is priced at $2.65. BOBJ October option implied volatility of 48 is above its 26-week average of 34 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Intel (INTC), European investment banks, American Express (AXP), and ImClone (IMCL) were today's noteworthy downgrades:
Intel Corporation (NASDAQ: INTC) was downgraded to Neutral from Buy at Merrill Lynch, which cited valuation.
European investment banks were downgraded by Societe Generale on concerns that investment banking revenue will decline. Deutsche Bank AG (NYSE: DB) was downgraded to Sell from Hold. Credit Suisse Group (NYSE: CS) was downgraded to Sell from Buy, and UBS AG (NYSE: UBS) was downgraded to Hold from Buy.
American Express Company (NYSE: AXP) was downgraded to Neutral from Buy by Merrill Lynch, which cited slower consumer spending.
ImClone Systems Incorporated (NASDAQ: IMCL) was downgraded to Market Perform from Outperform at Friedman Billings, which lowered their estimates following feedback regarding the FLEX study announcement.
MOST NOTEWORTHY: Siemens AG (SI), Business Objects (BOBJ), Continental Airlines (CAL), Lawson Software (LWSN) and Trump Entertainment Resorts, Inc (TRMP) were today's noteworthy upgrades:
Lehman upgraded shares of Siemens AG (NYSE: SI) to Overweight from Neutral reflect the potential major portfolio reorganization over the next few years as well as the strong momentum in the group.
UBS upgraded shares of Business Objects (NASDAQ: BOBJ) to Buy from Neutral to reflect easy compares in Q2 and signs of improving underlying European demand.
Soleil upgraded Continental (NYSE: CAL) to Buy from Hold as they believe better-than-expected June consolidated revenue growth suggests strong enough revenue momentum to offset above-average domestic capacity growth affecting its important Newark hub.
Matrix upgraded Lawson Software (NASDAQ: LWSN) to Sell from Strong Sell to reflect increasing revenues from software licenses.
Brean Murray upgraded shares of Trump Entertainment (NASDAQ: TRMP) to Buy from Hold citing recent share weakness, improving trends, potential monetization of excess real estate and the use of the Trump brand outside of Atlantic City...
As Tom Taulli wrote earlier, Oracle Corp. (NASDAQ:ORCL) announced its intention to buy Hyperion Solutions Corp. (NASDAQ:HYSL) for $3.3 billion this morning. This will of course trigger speculation that the other two key players in the business intelligence space will go the same route. The players are French-based Business Objects (NASDAQ:BOBJ) and Canada-based Cognos Inc. (NASDAQ:COGN). The bottom line is that all three companies have been in play and facing buy-out rumors for the last three years. The only problem was they could not capture an enhanced valuation until they demonstrated real growth -- top and bottom line.
But what does this signal for Oracle? Oracle is the undisputed worldwide leader in database products. All competitors in the database field are dwarfed by Oracle. The operating margins for Oracle in pure database sales is north of 40%.
However, two problems have emerged for the company these past 4-5 years: 1) Its internally developed applications software has been a disaster, forcing Oracle to purchase Seibel Systems and PeopleSoft. 2) Database margins are being scrutinized by the customer base.
MOST NOTEWORTHY: Travelzoo Inc (TZOO) and Cisco Systems Inc (CSCO) topped today's list of noteworthy upgrades:
Travelzoo Inc (NASDAQ: TZOO) was upgraded to Strong Buy from Underperform with a $38 target at First Albany based on valuation and the potential for significant upside in first quarter. Stifel upgraded Travelzoo to Hold from Sell, also on valuation.
Following the company's Q2 results and guidance, Baird upgraded shares of Cisco Systems Inc (NASDAQ: CSCO) to Outperform from Neutral with a $32 target.
OTHER UPGRADES:
AG Edwards upgraded shares of Marriott Int'l Inc (NYSE: MAR) to Buy from Hold with a $56 target. The firm believes that given recent indications of sulid industry fundamentals, Marriott is being overlooked. In addition, AG Edwards believes Marriot is poised to report strong earnings on Thursday.
Broadcom Corp (NASDAQ: BRCM) was upgraded to Overweight from Equal Weight with a $40 target at Morgan Stanley.
FEI Company (NASDAQ: FEIC) was upgraded by Credit Suisse to Neutral from Underperform following its Q4 report and outlook.
Goldman added Gilead Sciences Inc (NASDAQ: GILD) to the America's Buy List based on its HIV franchise and pipeline. Goldman also upgraded Earthlink (ELNK) to Neutral from Sell on valuation.
Baird upgraded Business Objects ADS (NASDAQ: BOBJ) to Outperform from Neutral following the company's solid Q4 report.
Merrill Lynch upgraded British Airways ADS (NYSE: BAB) to Buy from Neutral.
Digene Corp (NASDAQ: DIGE) was upgraded to Outperform from Market Perform at Piper Jaffray.
Over the past few months, there's been a fall-off in M&A dealmaking. But that's not stopping traders.
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On Monday, Jim Cramer suggested to quickly 
TheStreet.com's Jim Cramer shows you what one company's deal means to its competitor.
Stock futures were lower this morning, indicating stocks are poised for a similar start after Friday's record breaking session. Perhaps some profit taking will take place today following last week's rally, perhaps some position adjustments ahead of the beginning of third quarter earnings season. Investors will want to see if their economic view matches corporate profits. Regardless, today -- Columbus Day -- is historically a quieter trading day. Treasury bond market is closed today.
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