According to people familiar with the matter, the Wall Street Journal reported that American International Group Inc's (NYSE: AIG) airplane-leasing unit is considering a split from the company. The people said International Lease Finance Corp have grown "increasingly concerned" the company will be hurt by AIG's financial troubles.
Royal Dutch Shell Plc (NYSE: RDS.A) and Spain's Repsol YPF SA (NYSE: REP) are pulling out of one of Iran's biggest gas projects, the $10B-plus development of phase 13 of South Pars, the world's largest gas field, the Financial Times reported.
WEB SITES:
Bloomberg reported that HSBC Holdings Plc (NYSE: HBC) set aside a smaller-than-forecast $3.2B for bad loans in the U.S. The bank also said its Q1 profit was higher than Q107.
Tribune Co. (NYSE: TRB) is bracing for the "Sam Zell era" as he is set to take the ailing newspaper and TV company private with the expected closing of his $8.2 billion buyout as soon as Thursday.
According to Think Secret, Apple Inc. (NASDAQ: AAPL) and Think Secret have settled their lawsuit in a confidential, "amicable" settlement. While no sources were revealed, Think Secret will no longer be published. Bloggers lament ThinkSecret: TUAW and Engadget -- if this is true, I wonder if Apple made the right move.
Research In Motion (NASDAQ: RIMM) is expected to post earnings of 62 cents a share in the third quarter. Cruise operator Carnival Corp. (NYSE: CCL) is also scheduled to report earnings today.
Banks that include Merrill Lynch & Co Inc (NYSE: MER) and The Bear Stearns Companies Inc (NYSE: BSC) are reportedly in talks to help bail out struggling bond insurer ACA Capital Holdings, which lost $1B in the most recent quarter, according to two people briefed on the situation and reported by the New York Times; ACA Capital has guaranteed $26B in mortgage securities.
Executives at Tribune Company (NYSE: TRB) were faced with last-minute questioning from bankers that were reluctant to fund the final portion of the $8.2B deal to take the company private, according to sources close to the company, the Chicago Tribune reported.
WEB SITES:
Barron's Online's "Inside Scoop" reported that analysts are not convinced that the deal with Citadel is enough to save E*Trade Financial Corporation (NASDAQ: ETFC), as it does not eliminate E*Trade's $12.4B second-lien mortgage exposure, and the company could potentially face further customer attrition, which many think will continue to pressure the shares.
Tribune Co. (NYSE: TRB) shares are rising this morning as the U.S. Federal Communications Commission is expected to approve a measure that will ease restrictions on media ownership. The plan would lift a ban in the twenty largest American cities restricting media outlets from owning a newspaper, and a television or radio station in the same market.If you think that the company 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 TRB.
After hitting a one-year low of $22.78 in August, the stock has hit a new one-year high of $33.40 today. TRB opened this morning at $33.37. So far today the stock has hit a low of $33.09 and a high of $33.40. As of 11:05, TRB is trading at $33.28, up 99 cents (3.1%). The chart for TRB looks bullish 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 a February bull-put credit spread below the $27.50 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 4.2% return in just 2 months as long as TRB is above $27.50 at February expiration. Tribune would have to fall by more than 17% before we would start to lose money.
TRB hasn't been below $27.50 since October and has shown support around $29.50 recently. This trade could be risky if the stock breaks its upward trend, but even if that happens, this position could be protected by support the stock has formed around $31 over the past week. Plus, TRB might find some support at its 200 day moving average, which is currently at $30 and rising.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TRB.
The Wall Street Journal's "Deal Journal" reported that Sam Zell's planned buyout of Tribune Company (NYSE: TRB) is contingent on the receipt of a solvency opinion, and that this is the first time they have ever seen a deal dependant on this.
The WSJ's "Heard on the Street" reported that Countrywide Financial Corporation (NYSE: CFC) may not be out of the woods yet. Despite executives promising a return to profitability, there is still a risk the company may eventually seek bankruptcy protection or "resort to huge sales" of new stock.
U.S. private equity group JC Flowers "is understood" to have walked away from the auction for troubled bank Northern Rock, the Financial Times reported.
Rupert Murdoch is shaking up the management of News Corp (NYSE: NWS.A), the Financial Times reported, giving his son, James Murdoch, control over the company's European and Asian operations, and appointing two trusted executives to lead Dow Jones & Company Inc (NYSE: DJ) and the Wall Street Journal.
WEB SITES:
Barron's Online's "Weekly Trader" said AutoNation Inc (NYSE: AN) looks attractive now, despite hovering near a multi-year low. The company has also been on a slow but steady quest to diversify away from unpopular domestic brands by snapping up luxury and import dealerships.
CNBC's David Faber says the TRB deal could close very soon. TRB has expected its $34 per share sale to Sam Zell, private equity, debt holders and employees to be closed by year-end. The FCC granted temporary waivers to complete the deal. TRB announced this morning it intends to use cash on hand to reduce total amount of bridge loan to $1.6 billion from $2.1 billion. TRB January option implied volatility of 33 is below a level of 79 from Dec 6th and below its 26-week average of 38 according to Track Data, suggesting the close of the $34 deal is near.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Tribune (NYSE: TRB) is recently down 55 cents to $29.95. TRB expects its $34-per-share sale to Sam Zell, private equity, debt holders and employees to be closed by end of 2007. The FCC granted temporary waivers to complete the deal on Dec. 30. TRB call option volume of 2,688 contracts compares to put volume of 15,775 contracts. TRB December option implied volatility of 80 is above its 26-week average of 36 according to Track Data, suggesting larger price risks.
LDK Solar (NYSE: LDK) is a manufacturer of multicrystalline solar wafers. Dow Jones reported LDK will tap $700 million in long-term debt and credit lines, as well as about $100 million in customer prepayments. LDK auditing report on the investigation of allegations of inaccurate inventory is expected in early December. LDK has said the company has correctly reported its inventories. LDK is expected to report Q3 EPS in mid-December. LDK December option implied volatility is at 165 and March is at 133; above its 21-week average of 98, according to Track Data, suggesting larger risk.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
TheStreet.com's Jim Cramer says if any of your holdings in this sector have too much of any one kind of credit, use current market strength to sell.
Getting our arms around the problem. That's the real way we get closure on this credit problem. That's why the market was able to rally Tuesday, even though no one says the problem is getting better.
At last we're just trying to figure out how bad it can be because we know it is worse than the $42 billion that has already been charged off in subprime. By the way, even that figure, which seems staggeringly high, is only a fraction of the $250 billion minimum number I am using.
What's so maddening is that there isn't one kind of debt problem. There are three kinds of debt, with a subset for the worst kind. You have to run the gauntlet of all three kinds if you are going to be blessed by the market. And so far, only Goldman (NYSE: GS) (Cramer's Take) has done that.
Most mergers are driven by the notion, sometimes wildly mistaken, that the combination will bring both a competitive advantage. Some pairs of companies, however, seem so intuitively right for one another, no bottom-line considerations should be allowed to interfere with their matrimony. Like a foul ball and a plate glass window, these two were meant for one another.
Pity the poor Chicago Cubs fan. The modern Sisyphus has spent a century coaxing his baseball team to the verge of greatness, only to see it collapse into a pile of baseline chalk time after time. The 2007 season was especially painful, after investing $136 million in slugger Alfonso Soriano and inking one of the game's best managers, Lou Piniella. The team eked into the playoffs, only to be swept in three games by the Arizona Diamondbacks.
Given that the Cubs have provided a century of heartbreak to the windy city, perhaps the team should merge with a company that can make money off of fans' paroxysms. Emergency Medical Services (NYSE: EMS) could be such a partner.
MOST NOTEWORTHY: Apollo Group, Zoran, AmSurg Corp, Apple and Tribune Co were today's noteworthy upgrades:
Baird upgraded shares of Apollo Group (NASDAQ: APOL) to Outperform from Neutral based on positive enrollment and revenue trends, margin improvement, and a strategic international announcement.
CIBC upped its rating on Zoran Corporation (NASDAQ: ZRAN) to Sector Outperformer from Sector Performer following strong Q3 results and guidance.
Jefferies upgraded shares of AmSurg Corp (NASDAQ: AMSG) to Buy from Hold as they believe the new CEO is preparing to drive earnings growth through acquisitions.
ThinkEquity continues to expect Apple (NASDAQ: AAPL) to outpace the industry in growth. The firm upgraded shares to Buy from Accumulate.
Barrington upgraded shares of Tribune Company (NYSE: TRB) to Market Perform from Underperform on valuation, as they believe the current price significantly discounts the risks of the going private transaction getting done.
Many people are puzzled over Sam Zell's highly leveraged $8.2 billion purchase of the Tribune Co. in light of the decline in the newspaper business. One of the diamonds in the deal, however, is the Chicago Cubs, and indications are that he intends to quickly mine that gem for all it's worth.
According to the Los Angeles Times, the Tribune Co.'s (NYSE:TRB) avowed intention to sell the Cubbies may be considerably more complex than most franchise sales. The Tribune owns not only the ball club, but also the ballpark, and 25% of the cable TV network that carries its broadcasts, and could choose to sell them separately.
The Cubs, despite a century-long title drought, continue to draw capacity crowds to legendary Wrigley Field, over three million last year alone. This year, to the surprise of most prognosticators, the team is fighting for the NL Central pennant, great timing for the sellers. According to Forbes, the team alone is currently worth $592 million, on an operating income of $22 million.
It is getting very hard to believe that Sam Zell can close his deal to buy-out the public shareholders at The Tribune Company (NYSE: TRB). Shareholders approved the $34 a share deal on Tuesday, but the stock stands at $28.98.
This morning, the Tribune announced that revenue for July fell another 5.9% to $467 million. Advertising revenue tumbled 10.3% to $247 and classified advertising revenues decreased 18.2%. At least sales at the company's TV and radio operations were flat.
According to The Motley Fool "On Monday, in part because of the expected continuing slide in a number of the company's properties, Standard & Poor's took the company's debt to a B + rating from BBB-, casting it smack-dab into the world of "junk." And as if that weren't enough, S&P has indicated that it'll further knock the rating down to B after the deal is completed." The company's debt burden will be $8.2 billion.
A quick look at the Tribune's latest 10-Q shows operating profit of just under $196 million. Perhaps on an annual run rate that could be $800 million a year. Of course, this would depend on revenue staying steady, and that is not going to happen.
Over the course of last night, bankers and private equity interests battled over the funding for buying Home Depot's (NYSE: HD) wholesale supply business. JP Morgan (NYSE: JPM), Lehman (NYSE: LEH), and Merrill Lynch (NYSE: MER) have come close to walking away from the buy-out lead by Bain Capital, Carlyle Group and Clayton, Dubilier & Rice. The price for the unit may be cut by as much as $1.2 billion from its original $10.3 billion price.
The banks are concerned about the risky debt and the fact that the business is being hurt by the falling housing market, according to (subscription required) a story in The Wall Street Journal.
The banks have made billions of dollars from lending money to the larger private equity operators. When business was good the door to the vault almost always open. Now that it is clear that some of the buy-out loans will sour, the same lenders want to save their own skins.
Is there a solution to this, or will many of the largest private equity deals fall apart? One obvious answer is that private equity firms may have to put up more than the 10% or so that they normally like to contribute to these transactions. That would let them take on more of the risk and mitigate the problems for the banks. Another answer is that the price for deal like Home Depot and the Tribune (NYSE: TRB) will simply drop to adjust for risk, leaving the sellers holding the bag.
The most likely set of circumstances is that in more of these deals, the buyers will simply walk away. Current owners of these businesses will be left to make them work through cost cuts and supporting them financially until better times come around again.
For the past few years, things have been nearly perfect for the private equity world. Credit was cheap and public companies were certainly willing to go private.
But, of course, things are much different now. In fact, there is some doubt that mega deals -- such as for TXU Corp. (NYSE: TXU) and SLM Corp. (NYSE: SLM) -- may not get done because of the tough credit environment.
However, can buyers legally walk from a deal?
Not very easily, actually. After all, when a buyer signs a merger agreement, it's an enforceable contract. And, if it is breached, the consequences can be severe. In fact, in some cases, the buyer may be required to complete the deal. The New York Times looks at this issue in depth today. (registration required).
The New York Times reported that the market is having doubts about the deal for the Tribune Company (NYSE: TRB), despite confidence from those involved that the deal will be done.
Just weeks after acquiring its first pension scheme, Citigroup Incorporated (NYSE: C) is looking for another; Citi is said to be looking at a European scheme that is worth about £200M, reported the U.K. Times.
While the rugged cowboy has been the face for Altria Group Inc's (NYSE: MO) Philip Morris for many years now, the global brand could be fading, according to the U.K. Times.
American Express Company (NYSE: AXP) has put its private banking business, which could be worth $400M-$500M, up for sale, according to the U.K. Times.
The Telegraph reported that a subsidiary of HSBC Holdings (NYSE: HBC), the Hong Kong and Shanghai Banking Corporation, is in talks to buy a 51% controlling stake in Korea Exchange Bank, which would cost in the region of £2.5B.
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TheStreet.com's Jim Cramer says if any of your holdings in this sector have too much of any one kind of credit, use current market strength to sell.
Most mergers are driven by the notion, sometimes wildly mistaken, that the combination will bring both a competitive advantage. Some pairs of companies, however, seem so intuitively right for one another, no bottom-line considerations should be allowed to interfere with their matrimony. Like a foul ball and a plate glass window, these two were meant for one another..gif){kind=logo}
Many people are puzzled over Sam Zell's highly leveraged .gif){kind=logo}
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Closing Bell: Torch Passing on a Friday Rally
