Analyst upgrades

• Baird upgraded Con-Way (NYSE: CNW) and Old Dominion (NASDAQ: ODFL) to Outperform from Neutral due to the benefits of a likely bankruptcy of YRC Worldwide (NASDAQ: YRCW). Old Dominion's target was raised to $40 from $26 and Con-Way's was raised to $42 from $22.
• Citigroup upgraded Pride International (NYSE: PDE) to Hold from Sell as it believes higher valuation levels are warranted with the upcoming spin-off of Seahawk Drilling. Citi raised its target on shares to $25 from $18.
• Jesup & Lamont upgraded FedEx (NYSE: FDX) to Buy from Hold with a $63 target as it believes the worst is largely behind the company.
• Hewitt Associates (NYSE: HEW) was upgraded to Neutral from Underweight at JPMorgan.
• ArvinMeritor (NYSE: ARM) was upgraded to Buy from Neutral at Goldman.
• Abercrombie & Fitch (NYSE: ANF) was upgraded to Buy from Neutral at SunTrust.

Goldman Sachs downgraded Daimler (NYSE: DAI) to Neutral from Buy, according to MarketWatch.

Citigroup downgraded Genentech (NYSE: DNA) to Hold from Buy, according to Briefing.com. The news service also writes that UBS downgraded Johnson & Johnson (NYSE: JNJ) to Hold from Buy.

Priceline.com (NASDAQ: PCLN) was raised to Buy at Citigroup, according to Briefing.com. The financial site also reports that Harman (NYSE: HAR) was cut to Neutral at Baird.

For the private equity space, it's been a mixed bag this week. The good news is that the $17.1 billion acquisition of Harrah's Entertainment got done (the largest casino deal in history). The buyers included TPG and Apollo Global Management LP.

But there was some bad news too -- it looks like Blackstone (NYSE: BX)'s proposed buyout of Alliance Data Systems (NYSE: ADS) is on the rocks.

So, in this environment, it's understandable that Wall Street is jittery with buyout deals. Just look at the pending buyout of Clear Channel Communications (NYSE: CCU).

Wall Street has its own brand of breaking up. There may not be 50 ways but there are at least two -- the easy way and the hard way. According to the New York Times, KKR and The Goldman Sachs Group (NYSE: GS) are splitting with Harman International (NYSE: HAR) the easy way while J.C . Flowers is taking the hard route to killing its deal with SLM Corp (NYSE: SLM).

The easy way, in the Harman case, is for the buyers to buy $400 million worth of Harman bonds instead of paying $8 billion to own the company. Under the new agreement, the buyout deal struck in April will be dissolved, with no litigation or payment of the $225 million termination fee. Instead, KKR and Goldman will buy bonds that can be exchanged for Harman shares at $104, below the $120-a-share price of the original offer -- but much higher than its current $85.87.

Harman gets some cash and saves face while KKR and Goldman get out of investing in a cratering company -- its earnings of 50 cents a share for the most recent quarter are expected to be less than half of the $1.02 analysts had forecast.

Despite some improvement, the private equity folks are having some problems. Just take a look at the implosion of deals like Harman (NYSE: HAR). And, of course, major Wall Street banks are taking massive write-offs for problematic buyout loans.

Oh, and there's something else; that is, private equity firms also must deal with a possible tax hike. In fact, Senator Charles Schumer plans to introduce a bill on the matter according to Bloomberg.

Even if dealmaking slows down, a private equity surcharge could be a nice source of revenues. With current rates at only 15%, there is certainly lots of opportunity for Congress to soak.

Interestingly enough, Schumer is not too optimistic about his bill. That is, he thinks that President Bush will use his veto pen.

But, I have a feeling the tax issue won't go away. Simply put, it's just too big to ignore. And, no doubt, I'm sure private equity heavies are paying some big bucks for their tax advisers to gin up some creative strategies.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

MOST NOTEWORTHY: BT Group, Luminent Mortage, Cognos, Thor Industries and Watson Pharmaceuticals were today's noteworthy upgrades:

• ING Group upgraded shares of BT Group (NYSE: BT) to Hold from Sell to reflect the company's more stable revenue trend and improving cash flow generation.
  
• Deutsche Bank upgraded shares of Luminent Mortgage Capital (NYSE: LUM) to Hold from Sell, as they believe the company's portfolio is beginning to stabilize and its liquidity has improved.
  
• Goldman upgraded Cognos Inc (NASDAQ: COGN) to Buy from Neutral following its Q2 report.
  
• Thor Industries (NYSE: THO) was raised to Sector Perform from Underperform at RBC Capital Markets. The firm's checks indicate strengthening backlog and lower promotional spending.
  
• Roth Capital believes Watson Pharmaceuticals (NYSE: WPI) is about to enter a growth phase with Paul Bisaro at the helm and is positive on Silodosin potential. The firm upgraded shares to Buy from Hold.

OTHER UPGRADES:

• Bank of the Ozarks (NASDAQ: OZRK) was upgraded to Buy from Neutral at B. Riley.
  
• Bear upgraded Harman International (NYSE: HAR) to Outperform from Market Perform.
  
• Goldman upgraded Packagaing Corporation (NYSE: PKG) and Smurfit-Stone Container (NASDAQ: SSCC) to Buy from Neutral.
  
• Friedman Billings raised Conseco Inc (NYSE: CNO) to Outperform from Market Perform.

First Data, the first of the large PE deals seeking financing following the meltdown of the credit markets, placed $9.4 billion in loans yesterday. Supposedly, the amount of debt sold was nearly double the $5 billion banks targeted.

Also, Oaktree Capital Management, BlackRock and Eaton Vance are forming funds to buy up some of this debt. The 400 bps banks have had to add on to yields are beginning to pique investor's interest.

What should also begin to be seen is that the amount of debt that needs to be placed should start coming down. News reports cite as much as $330 to $370 billion in loans need to be placed. However, this number seemed to grow as the credit-market meltdown fears hit the markets. Prior to the panic hitting a crescendo, $200 billion in leveraged loans and some $75 to $100 billion of high yield bonds were the target that needed to be sold.

However, take away First Data and TXU Corporation (NYSE: TXU), the two large deals being financed, and add to that Harman International Industries Incorporated (NYSE: HAR) and Sallie Mae that look like they might not get financed, and this number drops rather quickly. Plus add all the smaller deals that are not household names that will not get done and next thing you know this problem is being resolved.

Once again, free markets are correcting the problem that they created.

Since the dog days of August, a chill has spread through the hallowed halls of private equity. $350 billion worth of leveraged buyout loans are sitting on the books of banks, looking for a home with investors. While one deal that was on the rocks, First Data's acquisition by KKR, managed to close, there are others, like J.C. Flowers' proposed $60 a share takeover of SLM Corp. (NYSE: SLM) which have fallen through.

As more and more deals go the way of Sallie Mae, you'll be hearing a lot more of the expression Material Adverse Change (MAC). MAC is a standard contract clause in a merger agreement which gives the acquirer the right to back out of a deal if there is a material adverse change -- an unexpected and permanent impairment in the value of the company. If an acquirer can successfully "call a MAC," it can get out of a deal without paying the breakup fee.

In the case of the SLM deal, J.C. Flowers announced it was backing out due to legislation signed by the president which makes the student lending business less attractive by cutting subsidies to student-loan providers, thus reducing Sallie Mae's profit prospects. In the case of KKR and The Goldman Sachs Group's (NYSE: GS) effort to welch on its proposed deal to acquire Harman International (NYSE: HAR), the MAC is an earnings report that came in lower than expected -- 93 cents instead of $1.22.

Time can be the enemy of buyout deals. It gives the parties more time to think about things -- or get frustrated. Just look at what happened with the Harman International Industries, Inc. (NYSE: HAR) implosion.

But, in the case of the buyout of Clear Channel (NYSE: CCU), the deal somehow appears to be mostly complete (the process took about 10 months). That is, today the company announced that its shareholders approved the transaction. As a result, the company's buyers -- Bain Capital Partners, LLC And Thomas H. Lee Partners, L.P. -- will become the new owners of the radio powerhouse.

In fact, during the buyout process, Clear Channel increased the price tag two times. There was also another interesting feature added along the way; that is, the shareholders have the right to roll over some of their equity into the private entity.

But, ultimately, the key takeaway is that radio has proven to be quite resilient. Despite competition from satellite providers and the Internet, the fact remains that traditional radio continues to be a big part of people's lives -- and more to the point, a nice cash-cow business.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

KKR is known as a tough negotiator. After all, the firm walked from its $8 billion deal for Harman International (NYSE: HAR), which crushed the stock by 24% on Friday.

But, as for the First Data Corp. (NYSE: FDC) transaction, KKR is certainly jazzed. Despite talk that financing had dried up, it now looks like the debt offering is oversubscribed -- at least for a $5 billion tranche (this is according to a story in Bloomberg.com). Although, to generate more demand, there was a 4% discount on the notes.

But for the most part, it looks like things should pan out and based on the stock price of First Data, Wall Street also agrees.

Does this mean things will get easier for other deals? To some degree, I think the answer is yes. Liquidity is coming back into the system and fear is dissipating.

However, I think there will still be some carnage, especially for those deals that may not have the strong fundamentals of First Data or that were aggressively priced and structured.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

MAJOR PAPERS:

• Kohlberg Kravis Roberts & Co and Goldman Sachs Group (NYSE: GS) may not go through with their expected buyout of Harmon International Industries (NYSE: HAR), according to the Wall Street Journal, as a result of the credit crisis and lower results at Harmon.
• The Financial Times reported that Chinese PC maker Lenovo Group (OTC: LNVGY) is open to acquiring companies, but buying companies is not a top priority, according to Lenovo CEO Bill Amelio.

OTHER PAPERS:

• The Guardian reported that Google Inc (NASDAQ: GOOG) is considering a move into the U.K. wireless market after regulator Ofcom proposed taking back over a third of the mobile phone spectrum that Vodafone Group (NYSE: VOD) and O2 have been using for 22 years to auction it for new entrants.
• From BusinessWeek's "Inside Wall Street" column:
  
• How much higher can Apple Inc (NADSAQ: AAPL) go? Of the 27 analysts who track Apple, 23 still recommend buying it, 4 rate it a hold, while none advise selling it.
• A week after Boone Pickens disclosed a 9.9% stake in InterOil Corporation (NYSE: IOC), the stock gushed from $28 on Aug. 8 to $40.75 on Aug. 13, the day the oil-and-gas explorer disclosed it found evidence of oil in its Elk-2 well in Papua New Guinea.
  
• Bioenvision Inc (NASDAQ: BIVN), the small biotech that Genzyme Corporation (NASDAQ: GENZ) agreed to acquire in May at $5.60 a share, may not close on the deal unless Genzyme raises its offer.

U.S. stock futures are indicating a higher open for U.S. stocks at this time (7:05 a.m.). A day after markets took a little breather from the rally sparked by the Federal Reserve rate cut on Tuesday, they're right back at it following positive earnings reports from Oracle and Nike.

Yesterday, U.S. stocks ended lower as the National Retail Federation gave its reduced outlook to this year's holiday season. With mixed earnings reports, a weak dollar and record-high oil, stocks lost some ground with the Dow industrials falling 48 points (0.36%), the S&P 500 10 points (0.67%) and the Nasdaq Composite 12 points (0.46%).

Not much economic news is due out today so investors will likely focus on earnings. Former Federal Reserve Chairman Alan Greenspan's comments regarding housing prices will not go unnoticed either. Greenspan said that due to large supplies, U.S. house prices will go down further, but, he added, that it is too early to say if the economy will plunge into recession. Other Fed officials will also speak today.

While the upbeat mood seems to be back with the Dow only 1.7% away from its record close, renewed inflation concerns from rising oil prices could dampen that mood. The low dollar and lingering problems in the credit markets and the housing sector are additional causes for concern.

Overseas, Asian markets ended mostly lower except for Hong Kong. In Europe, stocks seem to generally trade higher despite a report indicating economic growth may be slowing as Europe's manufacturing and service industries grew the slowest in two years this month after paralysis in the credit markets hurt banks.

Yesterday after the close, Oracle (NASDAQ: ORCL) reported a 25% jump in its net income for the first quarter. Revenue surged 26% to $4.53 billion, marking the sixth straight quarter with sales growth of 20% or more.

Nike (NYSE: NKE) also reported after the close yesterday. The company's profit grew 51% to $569.7 million, or $1.12 per share, from $377.2 million, or 74 cents, in the year-ago period. Excluding a one-time 20-cent charge released to a tax benefit, the company would have earned 92 cents, besting analysts' expectations of 87 cents per share.

The problems in the credit market continue to be apparent in deal making (or lack thereof). KKR and Goldman Sachs (NYSE: GS) may be walking away from a deal to buy Harman International (NYSE: HAR), the big audio components company, according to The Wall Street Journal.

General Motors (NYSE: GM)'s latest offer on the issue was rejected by the UAW president, but the two continued to discuss the automaker's proposal to pay the union to take on retiree health expenses.

This will begin to seem like a broken record now.

KKR and Goldman Sachs (NYSE: GS) are close to either renegotiating or walking away from a deal to buy Harman International (NYSE: HAR), the big audio components company, according to the Wall Street Journal because of "a credit crunch and lackluster financial results from Harman."

Most of the buyout deals have clauses that say that if a company's fortunes go through a "material change" that buyers can back out. But, operating income at Harman in the June quarter was more than $81 million on revenue of $911 million. Not as good as some quarters in the past, but hardly a disaster.

The buyout does have a $225 million break-up fee, but Harman's board is likely to insist that KKR and Goldman stay in the deal The stock trades at about $112 a share which is well below the $125 offer. Harman traded under $100 before the offer to take the company private was made.

Although KKR and Goldman could have their reputations harmed by walking away from a deal, they may feel that it is better to face this kind of setback than to loose billions of dollars on a company that they no longer believe can cover the debt that a buyout would create. But, Harman's board and management are unlikely to be satisfied with that explanation. It is not much to take to their shareholders.

If the transaction falls apart, the odds are very high that Harman will take the two big financial firms to court. And, it may be only the first case among many brought on by a tough credit environment where risk is no longer popular.

Douglas A. McIntyre is a partner at 247wallst.com.

MOST NOTEWORTHY: Dendreon Corp (DNDN), Whole Foods Market, Inc (WFMI), Rio Tinto plc (RTP), El Paso Corp (EP), and Oplink Communications, Inc (OPLK) were today's more notable downgrades:

• Banc of America downgraded shares of Dendreon Corp (NASDAQ: DNDN) to Sell from Neutral following the FDA's request for additional clinical data for Provenge.

• HSBC cut Whole Foods Market (NASDAQ: WFMI) to Underweight from Neutral after the second quarter miss.

• BMO Capital downgraded Rio Tinto plc (NYSE: RTP) to Underperform from Market Perform based on valuation.

• El Paso Corp (NYSE: EP) was cut to Sell from Buy at Matrix after the company's weak operating performance.

• Merriman downgraded shares of Oplink Communications (NASDAQ: OPLK) to Sell from Neutral based on concerns over the OCP acquisitions and inventory...

OTHER DOWNGRADES:

• 24/7 Real Media, Inc (NASDAQ: TFSM) was cut to Hold from Buy at Jefferies.

• Credit Suisse downgraded shares of RadioShack Corp (NYSE: RSH) to Neutral from Outperform.

• Bear Stearns cut Harman International Industries (NYSE: HAR) to Peer Perform from Outperform.

• Piper Jaffray downgraded shares of Cache, Inc (NASDAQ: CACH) to Market Perform from Outperform.

• Restoration Hardware, Inc (NASDAQ: RSTO) was cut at Caris to Average from Above Average.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Amazon.com, Inc (AMZN), WellCare Health Plans, Inc (WCG) and agricultural chemical stocks were today's more noteworthy downgrades:

• BWS Financial downgraded Amazon.com Inc (NASDAQ: AMZN) to Hold from Buy citing valuation.

• Jefferies cut WellCare Health Plans Inc (NYSE: WCG) to Underperform from Hold and lowered their target to $69 from $80 as the firm believes higher-than-expected medical costs in Georgia will put significant pressure on earnings.

• Citigroup downgraded Agrium Inc (NYSE: AGU), CF Industries Holdings, Inc (NYSE: CF), Potash Corp (NYSE: POT) and Terra Industries Inc (NYSE: TRA) to Hold from Buy given the year-to-date share appreciation, as their analysis suggests near-term positive earnings revisions are near a peak and should slow going forward. Citigroup remains positive on the fertilizer industry over the long-term.

OTHER DOWNGRADES:

• Keefe Bruyette downgraded Federated Investors, Inc (NYSE: FII) to Market Perform from Outperform citing the potential impact from Bank of New York Co (BK)/ Mellon Financial Corp (MEL) transactions.

• Jefferies cut Amerigroup Corp (NYSE: AGP) to Underperform from Hold with a $25 target.

• Stephens downgraded Pacer International, Inc (NASDAQ: PACR) to Equal Weight from Overweight.

• Atlantic Equities downgraded Adobe Systems Inc (NASDAQ: ADBE) to Neutral from Overweight.

• Harman International Industries Inc (NYSE: HAR) was taken down to Hold from Buy at Gabelli.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).