Credit-card concerns Visa, Inc. (NYSE: V) and MasterCard, Inc. (NYSE: MA) will be shelling out up to $2.75 billion to settle an antitrust suit with Discover Financial Services (NYSE: DFS). Specifically, MasterCard will pay Discover $862.5 million in the fourth quarter, while Visa will fork over $1.89 billion over the course of 2009. Following the release of the settlement's details, an analyst at Keefe, Bruyette & Woods is weighing in favorably on all three firms.
Sanjay Sakhrani called the news "a big win for Discover, as it provides an additional cushion to contend with the implications of a weaker U.S. economy." He expects the payments will add about $1.75 to Discover's earnings per share. However, he also cited the report as an upside catalyst for MasterCard and Visa, as it eliminates an overhang on shares of both companies -- an assertion supported by analyst Julio C. Quinteros, Jr., of Goldman Sachs.
Unfortunately, though, it's not all sunshine and rainbows in the credit-card group today. Morgan Stanley (NYSE: MS) has filed its own suit against Discover in New York State Supreme Court, alleging that it's entitled to a chunk of the $2.75-billion settlement. DFS was spun off from Morgan Stanley last year, and the latter company claims that it should receive a portion of the award under the terms of a special dividend agreement.
Not so fast, says Discover, which alleges that its parent company is in violation of their spinoff agreement, and "the amount of Morgan Stanley's special dividend is a matter of dispute." Morgan fired back that "there is absolutely no basis for Discover's claim that the agreement was breached." Stay tuned to see how this credit-card drama plays out -- in early trading, shares of all three credit card companies were higher.
The market for private mortgage insurance has narrowed and is tougher to obtain, further pressuring home buyers and affecting the market, the Wall Street Journal reported. "Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting," said Len Sweeney, the chief risk officer at AIG United Guaranty, a part of American International Group Inc (NYSE: AIG).
In a agreement with Viacom Inc (NYSE: VIA), Google Inc (NASDAQ: GOOG) said it will remove visitor data from YouTube before it fulfills a judge's order to send data to Viacom, as a part of a larger copyright lawsuit, the Wall Street Journal reported.
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As part of its effort to emerge from bankruptcy protection, the Detroit News reported that Delphi Corp (OTC: DPHIQ) announced plans to sell its brake business. Delphi has retained W.Y. Campbell and Co to help sell the unit, which has around 1,000 employees worldwide.
The New York Post learned that Dick Fuld, the CEO of Lehman Brothers Holdings Inc (NYSE: LEH), is seriously considering ways to take the company private. The Post said that talks centering on the privatization of Lehman have "gotten very serious consideration," according to sources, although details on how a maneuver may work remain unclear.
It was announced today that soft drink giant Coca Cola (NYSE: KO) had settled an almost 8-year-old lawsuit today for $137.5 million. The case originated back in October of 2000, and alleged that the company had artificially boosted its strike price in 1999.
According to the lawsuit, back in late 1999 Coca Cola applied pressure to some of its bottlers to buy unnecessary beverage concentrate. By adding "hundreds of millions of dollars" to the books, the company was allegedly able to report much higher sales volumes to its shareholders and keep its stock price artificially inflated. This practice is typically referred to as "channel surfing".
Despite the fact that the company decided to settle, there was definitely no admission to any wrongdoing. A company representative stated that the decision to go ahead and settle out was merely a move meant to avoid any length and drawn out legal battle, and by no means should be viewed as any admission of guilt in the charges.
Sherwin-Williams (NYSE: SHW) shares are trading higher today after the Rhode Island Supreme Court overturned a $2.4 billion ruling against SHW and two other former lead-paint producers that would have ordered the companies to inspect and clean thousands of homes built before 1980 that were likely to contain lead paint. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on SHW.
After hitting a one-year high of $73.96 last July, the stock hit a one-year low of $45.89 yesterday. SHW opened this morning at $48.29. So far today the stock has hit a low of $45.82 and a high of $48.86. As of 11:55, SHW is trading at $47.36, up $1.43 (3.1%). The chart for SHW looks bearish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.
For a bullish hedged play on this stock, I would consider an August bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just seven weeks as long as SHW is above $55 at August expiration. Sherwin-Williams would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
Mastercard (NYSE: MA) shares are trading higher today after the company announced it will pay competitor American Express (NYSE: AXP) up to $1.8 billion to settle an antitrust lawsuit. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on MA.
After hitting a one-year low of $120.00 in August, the stock hit a one-year high of $320.30 in May. MA opened this morning at $291.10. So far today the stock has hit a low of $290.10 and a high of $295.16. As of 12:40, MA is trading at $294.10, up $13.17 (4.9%). The chart for MA looks bullish but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $195 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in four months as long as MA is above $195 at October expiration. Mastercard would have to fall by more than 33% before we would start to lose money. Learn more about this type of trade here.
Hertz (NYSE:HTZ) has decided to give up on the cash cow of wildly overcharging customers for filling up the tank. Instead of charging $7 a gallon for gas, they'll charge the market price. Oh, don't get me wrong, they'll still charge an outrageous fee for putting gas in the tank when the deal kicks in on July 1. They'll just charge a flat fee of $7 to fill up, plus the market price of gas. What does that translate to in terms of pay, about $100 an hour to pump gas?
I'm pleased that Hertz is getting out of the gas gouging business. Maybe that field has just gotten too competitive lately. It's getting harder to shock Americans with preposterous gas prices. Rental car companies have been charging insane gas rates -- almost what you'd pay in Europe at the pump -- for years. Consumers think of it as their evil little profit center, like phone charges at hotels.
In a story at USAToday, the industry claims that it's only overcharging to scare people into bringing the car back full, so they don't have to hassle with storing the fuel and filling up cars. So why don't they charge that rate for prepaid gas? USAToday did a survey and found that rental car companies sold pre-paid gas at about $4 a gallon, but charged about $8 when someone returned the car less than full.
I love the long-term prospects of Visa (NYSE: V) and MasterCard (NYSE: MA), but I do have to concede that a pesky lawsuit by Discover (NYSE: DFS) is the one big fly in this story's soup. According to the following article, Discover wants both credit-card companies to pay $6 billion for perceived violations of antitrust regulations. Unfortunately, these damages could be tripled if Visa and MasterCard lose. One of the big problems here is that American Express (NYSE: AXP) already won a settlement of $2.1 billion from Visa late last year and the company established an escrow fund worth $3 billion for litigation payments.
I'll admit, this lawsuit does give me and my credit-card investment thesis a little case of the shivers. After all, tripling $6 billion to $18 billion means that a huge amount of money is in play here, and a successful outcome for Discover would hamper the stocks of the two big card entities. When you read through the litigation risks in Visa's SEC filings (out of MasterCard and Visa, the latter is my favorite since it is still relatively fresh off its IPO and MasterCard has already had a big run), they are pretty scary. And the fact that the $6 billion figure just came to light this week has probably soured the perception of some investors and analysts. Nevertheless, all the previous litigation talk didn't stop Visa's stock from taking off after its IPO earlier this year.
According to a BBC report, It appears that life at Craigslist has become even more interesting. As you may know, Craigslist has been embroiled in a legal tussle with Internet giant eBay Inc. (NASDAQ: EBAY). After purchasing a 28.4% stake in the company over a year ago, eBay now claims that Craigslist's founder Craig Newmark and its chief executive Jim Buckmaster have done things to disadvantage eBay's stake in the company. The BBC report didn't specify exactly what eBay claims Craiglist officials have done to "dilute" eBay's interests. Craigslist has now filed a counter suit against eBay, alleging illegal competition. You can get more information on eBay's original lawsuit here.
The BBC report states: "The lawsuit demands that eBay restore all shares of Craigslist owned by eBay or for the court to require eBay to divest its holdings in Craigslist." This demand is apparently supported by the premise that after acquiring its stake in Craigslist, eBay gleaned operating information from that company and then used it to launch Kijiji. Craigslist also insists that eBay, "[...] violated [Craigslist] trademarks and used misleading advertising on Google to run ads for its rival Kijiji site."
What a pretty picture of corporate raiding we have here. I think the outcome of this legal battle shall be dictated by two particular things. First, Craigslist will need to provide a first class package of documentation to support its legal counter claims. Second, it wouldn't hurt if it could find a judge who has been ripped off using eBay...
A man traveling on an employee buddy pass (and thus presumably flying for free) was ordered to sit in the bathroom of a packed JetBlue Airways Corporation (NASDAQ: JBLU) flight. He is now suing the company for $2 million.
Gokhan Mutlu claims that the pilot of a JetBlue flight from New York City to San Diego ordered him to sit in the bathroom after a flight attendant claimed his seat. The attendant apparently felt that her jump seat was uncomfortable; since Mutlu was not an employee, he couldn't sit in her jump seat. And on a full plane, that left the toilet as the only seating option on the five hour flight.
Mutlu wasn't crazy about the idea, but the pilot soon set him straight. According to the lawsuit, the pilot said that "he was the pilot, that this was his plane, under his command that (Mutlu) should be grateful for being on board." So the bathroom it was. Eventually, Mutlu was allowed to return to his original seat.
Whatever really happened, JetBlue can't afford any more bad press. The airline is still trying to make customers forget about trapping passengers on their planes for up to nine hours during bad weather last year.
On the other hand, maybe this isn't such bad news. It might just show that JetBlue pilots have a wicked sense of humor. Given the crowds expected on planes and runways this coming summer, that could be a good thing. JetBlue could even build an ad campaign around it: JetBlue - there's always an extra seat!
Craigslist is certainly a funky company. In light of its huge traffic numbers, it could easily post huge profits. Or, it could sell out for a big payday or even go public. Yet, such things seem to be anathema to the company – at least to its founder, Craig Newmark.
And now there's a big issue with eBay (NASDAQ: EBAY), which owns 28.4% of Craiglist. Apparently, the relationship has been somewhat rocky as is evident by the lawsuit announced last night. eBay is claiming that the board of Craigslist (which consists only of Newmark and the CEO, Jim Buckmaster) has attempted to water down the ownership position – to a mere 10%.
I can certainly understand Craigslist's actions. After all, eBay has its own classifieds service called Kijiji. But hey, in the tech world, such arrangements are nothing new. It's to be expected (and so are lawsuits).
Interestingly enough, Newmark is not being shy about things and has responded via his blog. According to him, the lawsuit is a surprise and he claims that eBay has "ulterior motives," which may involve a hostile takeover.
Really? Let's see, how many times has eBay launched a hostile deal? I can't remember. Plus, such a thing is nearly impossible for a minority shareholder to pull off (and, even more difficult if the ownership position has been heavily diluted).
Unfortunately, eBay's legal complaint was not disclosed (because of confidentiality reasons), but the venue is Delaware, which has lots of expertise in shareholder disputes and usually handles things fairly quickly. 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 MergerBook.com.
This year, the International Trade Commission is set to issue rulings on whether Samsung and Nokia Corporation (NYSE: NOK) have infringed patents from InterDigital Inc (NASDAQ: IDCC). If InterDigital, who licenses its patents to iPhone maker Apple Inc (NASDAQ: AAPL), wins, fees from the deals could double its revenue over the next few years, the Wall Street Journal contended.
According to FDA commissioners, the New York Times reported that Baxter International Inc's (NYSE: BAX) critical blood thinner heparin, which has been linked to nearly 20 deaths and whose base was created in China, contained a "possibly counterfeit" ingredient that "mimicked the real drug."
In his opening arguments in the state of Alaska's lawsuit against Eli Lilly & Company (NYSE: LLY), an attorney for the state alleged the drug maker failed to warn doctors and patients of dangerous side effects associated with its drug Zyprexa, the Associated Press reported.
The Goldman Sachs Group Inc (NYSE: GS) plans to back a $2B private equity fund set up by Fang Fenglei, its Chinese partner, sources said. The Wall Street Journal reported Goldman will invest about $300M in the fund.
Warren Buffett's Berkshire Hathaway Inc (NYSE: BRK.A) continued setting up a new bond insurance company last month, after Berkshire was urged to enter the bond insurance market by New York government official Eric Dinallo, the Financial Times reported.
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The LA Times reported that the Air Force could shrink its fleet of F-15 fighter jets, many of them up to 30 years old, because of critical structural flaws.
According to the Detroit News, people familiar with the deal said that General Motors Corporation (NYSE: GM) agreed to settle a class-action lawsuit for about $39M. The suit was brought about by retirees and employees for claims that involved retirement funds and pension.
When Hewlett-Packard Co. (NYSE: HPQ) bought Mercury Interactive a little over a year ago, the company probably did not know that a pretty large settlement would be forthcoming from several pension funds that accused the now-subsidiary of stock-option backdating. The settlement reached earlier this week was $117.5 million, the largest of its kind.
The second-largest out-of-court settlement due to accusatory stock options backdating was $18 million, so the Mercury case seems unique: why such a large settlement here? HP knew of the shenanigans when it purchased the company in 2006, although the extent was probably unknown at the time. Even with the $4.5 billion purchase price and the $117.5 million settlement, Mercury was still a wise investment for HP moving forward, as it's already become a lucrative area within the company.
HP wants this situation and settlement to quickly be swept under the rug, which is no surprise. HP is shining these days under operational CEO Mark Hurd and from all appearances, can do little (or no) wrong on its march to continue crushing sales numbers and margins from competitors like IBM Corp. (NYSE: IBM) and Dell, Inc. (NASDAQ: DELL). Oddly, the company has done an admirable job of taking focus away from the corporate spying situation from a year ago and other problems by using its core business strengths to perform very well quarter to quarter.
Microsoft Corp. (NASDAQ: MSFT) has overcome some legal hurdles in the U.S. in recent years (and has been slammed as well), but the world's largest software maker continues to see complete opposition from its European Union buddies (heh), as evidenced by last week's ruling. It's tough these days for regulatory governments and agencies not to have a say in the role of high-tech now that the sector is one of the world's largest. The largest kid on the block is always (always) the biggest target. Think about Wal-Mart Stores, Inc. (NYSE: WMT) for another example.
In many cases, in the name of "protecting consumers" the stepped-up efforts to curb certain practices end up hurting future innovation, a fact proved over and over in history but shunned by lawmaking bodies consumed with a play for power and the banishment of a main tenet of capitalism -- staying the heck out of the way and letting market forces define equilibrium. But, the equilibrium can be tilted with corporate abuse and monopolistic practices, and so government and private enterprise enter into a grudge match. It's very accusatory, and generally a very expensive process for both sides.
Should the EU examine Microsoft, it would see that the software giant is under attack now more than ever, even as it continues raking in growth and profits every quarter. There are so many alternatives to many of Microsoft's products it could boggle anyone's mind. Who legislates this kind of sea-change as it happens? Customers and market forces, of course. Microsoft was found guilty of anti-competitive practices, which is a fact. It's still vulnerable from being popped off its perch.
Everything from open-source web server software to free operating system and office productivity packages will challenge (oops, is challenging) Microsoft like never before, and the company up for the fight of its life. That's what capitalism is: creating competition by taking power away from government and letting the principles of economics take over. In Microsoft's case, it's unfortunately not that easy when it comes to the EU.
A few weeks ago, I wrote about the class-action lawsuits being filed against Heelys Inc. (NASDAQ: HLYS):
I could swear securities lawyers have invented a sophisticated computer program capable of seeking out public companies to target with class-action lawsuits. A company reports a bad quarter, the stock tanks, and then for the next few weeks, press releases seem to come out daily announcing a class-action lawsuit "commenced ... on behalf of purchasers of ... stock issued pursuant or traceable to the false and misleading Registration Statement filed with the Securities and Exchange Commission in connection with the Company's ... initial public stock offering.
While I certainly support the right of shareholders to collect damages in instances of real fraud, it seems that every time a stock price drops, multiple firms file lawsuits. These suits divert management's attention from the business and burn up resources on legal fees. All of this would be fine, except that these suits very rarely go anywhere. And even when they do, shareholders rarely collect anything.
I'm not sure what the solution to this situation is, or even if there is one, but it's an important issue for the SEC to be looking at.
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Cramer on BloggingStocks: A troika of opportunity and trouble 
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
