MAJOR PAPERS:

• After less than a year in office, Shinzo Abe, the prime minister of Japan, resigned, reported the Wall Street Journal.
• With its sights set on Toyota Motor Corporation (NYSE: TM), Volkswagen AG (OTC: VLKAY) CEO Stefan Jacoby says he'll nearly triple sales of vehicles in the U.S. over the next decade, reported the Wall Street Journal.
• Barron's Online's "Inside Scoop" column reported that director James Burke purchased $1.1M worth of AnnTaylor Stores Corporation (NYSE: ANN) stock on Friday, marking the first open-market purchase by an AnnTaylor insider in at least five years, according to InsiderScore.com.

OTHER PAPERS:

• According to the U.K. Times, British bank Barclays (NYSE: BCS) has invested $1.5B in Golden Key, a fund that has gotten into trouble as a result of the global liquidity squeeze.
• Aluminum company Alcan Inc (NYSE: AL) is reportedly in talks to sell its packaging unit to India's Essel Group, reported the Economic Times.
• Music publishers have intensified their efforts to shut down popular Web sites that publish song lyrics without permission, reported the New York Post. The publishers are also demanding that Google Inc (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO) remove all references to the offending sites from their search engines.

MOST NOTEWORTHY: Polo Ralph Lauren (RL), Alcan (AL), Alcoa (AA) and Conn's, Inc (CONN) were today's noteworthy initiations:

• Polo Ralph Lauren (NYSE: RL) was initiated with a Market Perform rating at Piper Jaffray. The firm feels the risk/reward is balanced at current levels given the near-term risks from increased investment and exposure to inconsistent U.S. wholesale markets.

• Goldman Sachs resumed coverage of Alcan (NYSE: AL) and Alcoa (NYSE: AA) with Neutral ratings and a $101 target and $48 target, respectively.

• Morgan Joseph is positive on Conn's Inc's (NASDAQ: CONN) strong track record of growth, new store growth and easy comps, and initiated shares with a Buy rating and $34 target.

OTHER INITIATIONS:

• Merriman initiated shares of Blue Coat Systems (NASDAQ: BCSI) with a Buy rating.

• Stifel initiated shares of Pharmerica (NASDAQ: PMC) with a Hold rating on valuation.

• Equinix (NASDAQ: EQIX) and SAVVIS, Inc (NASDAQ: SVVS) were initiated at CIBC World Markets with Sector Performer ratings.

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

MAJOR PAPERS:

• Barron's Online's (subscription required) "Inside Scoop" reported that a batch of sales at Alcoa Inc (NYSE: AA) has followed Alcoa's withdrawal of its offer to purchase Alcan Inc (NYSE: AL): from July 13-17, four senior executives grossed $41.3M by selling 877,600 shares on the open market at per-share prices ranging from $46.67 to $47.47, according to SEC data.
• Andrew McKelveey, the founder and former CEO of Monster Worldwide Inc (NASDAQ: MNST) was allegedly involved in the backdating of stock option grants for employees, reported the Wall Street Journal (subscription required).
  

OTHER PAPERS:

• Vodafone Group plc (NYSE: VOD) CEO Arun Sarin made a concession to rebel shareholders yesterday by promising to release value from Verizon Wireless, a joint venture in which Vodafone has a 45% stake, reported the U.K. Times.
• From BusinessWeek's "Inside Wall Street" column:
• Activist shareholders are putting pressure on Brink's Company (NYSE: BCO) to spin-off its home security unit, so that it can trade independently of the armored cars.
• Pipex Pharmaceuticals Inc (AMEX: PP) has been off Wall Street's radar screen, but perhaps not for long. Pipex may have a stable of winners in the making, including an orphan drug designation.
• The aircraft, auto, and architecture sectors are expected to be big users of Research Frontiers Inc's (NASDAQ: REFR) SmartGlass technology, which lets glass go from clear to opaque fast.

It is hard not to find one large metals company that is not trying to buy another or get bought. Alcan (NYSE: AL) looks like it will be sold to Rio Tinto (NYSE: RTP), although Alcoa (NYSE: AA) had hoped to be the winner in that auction.

But now, The Times of London has written that one or more unidentified hedge funds are trying to get Alcoa (NYSE:AA) to put itself on the block.

Another UK newspaper, the Observer, writes that Australia-based BHP Billiton (NYSE:BHP), which has retained Merrill Lynch and JP Morgan, may be the company that will take Alcoa out of the hands of its public shareholders.

Compared to Alcan, Alcoa looks cheap. While the Canadian company's shares are up well over 100% in the last year, Alcoa's are up only 60%.

The race now is to see which companies can lock up the most manufacturing capacity, mining, and buying leverage. Rio Tinto and Alcan are about to create an extremely large operation and no one else wants to be left standing when the music stops.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MAJOR PAPERS:

• IHOP (NYSE: IHP), of pancake house fame, is buying Applebee's International Inc (NASDAQ: APPB), the huge casual dining restaurant chain, for $2.2 billion in a deal concluded last night, reported the Wall Street Journal (subscription required).
• Vodafone Group (NYSE: VOD) is looking at a possible $160 billion bid for Verizon Communications Inc (NYSE: VZ), reported the Financial Times (subscription required).

OTHER PAPERS:

• The U.K. Times reported that Ford Motor Company (NYSE: F) is preparing to sell Volvo, the Swedish car group it bought eight years ago, in a move that could raise $8 billion.
• The Observer reported that BHP Billiton (NYSE: BHP) is lining up a £20 billion bid for Alcoa Inc (NYSE: AA), after its bid for rival Alcan Inc (NYSE: AL) was trumped by Rio Tinto (NYSE: RTP).
• Large American Internet companies, possibly including Google Inc (NASDAQ: GOOG) and Yahoo Inc (NASDAQ: YHOO), are considering snapping up Rediff.com India (NASDAQ: REDF), which runs one of India's most popular consumer Internet portals, reported the Hindustan Times.

Option players made some nice profits in the Rio Tinto (NYSE: RTP)'s offer for Alcan Inc. (NYSE: AL). It was widely reported yesterday afternoon in Toronto's Globe and London's Times that a proposal could be coming from Rio Tinto. Another offer for Alcan is not surprising since Alcoa Inc. (NYSE: AA) previously offered $76.03 a share.

A call option can be a great way to play news events like this as it has an unlimited upside and limited downside. A call option is advanced financial instrument that gives the buyer the right to purchase a stock at a set price. If the stock goes above that price investors can either sell the appreciated option or exercise them buying the stock at the predetermined strike and selling it at market.

Yesterday, with the news on Alcan, there were 14,884 call options traded versus 3,124 put options. There were four times as many call options traded on Alcan as put options. Total open interest on Alcan was 103,926 call options and 66,229 put options. That means that about 14.3% of all the open calls on Alcan were traded just yesterday -- a very active day for the options on the stock.

Some of these call buyers did quite well -- the most active strike was the August 90 call (AL HR), which saw 3,787 contracts trade against an open interest of only 760 contracts. These contracts traded for less than $4.00 a piece yesterday, and are now worth about $8.30, a 107% gain.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Alcoa (NYSE: AA) made its best offer for Alcan (NYSE: AL) or so its seems. The U.S. company was willing to spend $28 billion to buy its Canadian rival.

The bid was bested today [subscription required] by Rio Tinto (NYSE: RTP), another metals company. Its bid is $38 billion. That offer is unlikely to be topped. According to The Wall Street Journal, the combined company will have over $16 billion in cash flow. Assuming, of course, that the price of aluminum stays near historic highs.

The most stunning thing about the Rio Tinto bid is that Alcan was trading at $45 a share at the beginning of the year. Rio Tinto's offer is about $101 a share in cash.

If the forecasts for future earnings are off by much, Rio Tinto's shareholders could end up paying the freight.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MAJOR PAPERS:

• Thanks to a downturn in sales, sportswear maker Liz Claiborne Inc (NYSE: LIZ) will seek to divest itself of 16 of its 36 apparel brands, equal to about $800 million of its $5 nillion in annual revenue, reported the Wall Street Journal (subscription required)
• The Financial Times (subscription required) reported that Dell Inc (NASDAQ: DELL) has listened to customer concerns and has moved to eliminate "trialware" from a range of small business laptops and desktops computers.

OTHER PAPERS:

• British mining company Rio Tinto plc (NYSE: RTP) is believed to be preparing a $34 billion, or $90 per share, takeover bid for Canadian aluminum company Alcan Inc (NYSE: AL), reported the U.K. Times.
• According to the Economic Times, FedEx Corporation (NYSE: FDX) has failed in its attempt to buy out Indian logistics company SafeExpress.
• The Chicago Tribune reported that the U.S. faces an "increased risk" of a terror attack this summer, according to U.S. Homeland Security Secretary Michael Chertoff.

Stock futures are lower this morning, indicating a similar start for U.S. stock markets following the earnings warning from retailer Home Depot (NYSE: HD) that has raised more concerns about the housing sector. This comes a day after the Dow came near to breaking yet another record close.

Today, Federal Reserve chairman Ben Bernanke will speak about inflation at the National Bureau of Economic Research in Cambridge, Mass., at 1 p.m. EDT.
At 10:00 a.m., May wholesale inventories data is due.

Overseas, Asian markets ended mostly lower but kept at near record levels. European stocks turned lower after the Home Depot cut its outlook for the year, concerned about the struggling U.S. housing market and its impact on the economy.
China meanwhile reported a record trade surplus in June of $26.9 billion, exceeding economists' estimates.

Corporate news:

Home Depot (NYSE: HD) cut its annual forecasts for revenue, same-store sales, and earnings for the fiscal year, saying the it was still feeling the effects of the sluggish housing market. HD shares are down 0.6% in pre-market trading (7:10 a.m.) but were down nearly 1.4% in Frankfurt.

Alcoa Inc. (NYSE: AA) was the first of the Dow industrials to report last night as it kicked off earnings season. Alcoa reported a 4% decline in net income to $715 million, or 81 cents per share, despite top line growth. The company also extended its offer for Alcan (NYSE: AL), but in the mean time BHP Billiton (NYSE: BHP) was reported to be seeking a partner to acquire Alcoa.

J.P. Morgan upgraded General Motors Corp. (NYSE: GM) to Overweight from Neutral and Ford Co. (NYSE: F) to Overweight from Underweight. GM shares are up 1.2% in pre-market traing (7:24 a.m.) while F shares are up 1.9% (7:25 a.m.).

Alcoa (NYSE: AA) announced modest earnings yesterday. Net income was down slightly, but revenue hit a record $8.1 billion. The big aluminum company also extended its offer to buy shares in rival Alcan (NYSE: AL) until August 10. Alcan's board keeps saying that the offer is not high enough, and this has fueled rumors that metals company Rio Tinto (NYSE: RTP) might make a run at the Canadian company.

But, the M&A circle would not be complete if someone did not want to buy Alcoa. Indeed its appears that a shopper has stepped forward as Australian metals giant BHP Billiton (NYSE: BHP) is looking for a partner to buy Alcoa. Merrill Lynch has been retained to help line up private equity money. Alcan may be an alternate target if a deal for Alcoa cannot be struck

The stunning aspect of these buyout offers is the amount that all of the metals stocks are up already. Metal commodities prices are rising, but can't go up indefinitely.

Alcoa's shares are up the least in the last year, only 30% or so, making it a tempting target. Alcan's shares are up 80%, which probably makes it expensive. Rio and BHP are each up about 60%.

BHP has a natural advantage which makes it the most likely company to suck up another company. It has a market cap of over $200 billion to Alcoa's $36 billion. Big difference.

Douglas A. McIntyre is a partner at 24/7 Wall St.

With second quarter earnings season kicking off at the closing bell, all eyes are on Alcoa, Inc. (NYSE: AA). AP reports that investors are expecting it to post a profit of 83 cents a share.

As I've posted many times, we live in a beat-and-raise market. That means a company needs to beat quarterly earnings expectations and raise its guidance for future revenues and profit in order for the stock to rise after it reports. So investors will be looking closely at Alcoa's results and listening closely to management's conference call for signs of whether to buy or sell its stock.

Investors may be concerned about how Alcoa will achieve the objectives it had for its hostile effort to merge with Alcan, Inc. (NYSE: AL) if the deal falls through. Bloomberg News reports that absent the deal, Alcoa could tumble to the third rank among the world's largest aluminum producers. Meanwhile, production losses at two U.S. smelters hurt net income, according to Credit Suisse analysts including David Gagliano, who forecast earnings of 75 cents a share -- well below the 83 cents consensus.

Alcoa has exceeded earnings estimates in four of the the last five quarters. But this one looks dicey.

Update: Alcoa reported earnings of 81 cents a share -- two pennies short of expectations. However, Bloomberg News reports that profit excluding items topped analysts' estimates by one cent. Sales climbed 3.5% to $8.07 billion. The stock fell 1.1% in after hours trading.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.

Alcoa, Inc (NYSE: AA) opened at $41.57. So far today the stock has hit a low of $41.54 and a high of $42.00. As of 10:45, AA is trading at $41.70, up $.35 (0.8%).

The stock has been rising over the last few months, hitting a one-year high of $42.90 in mid-June. Antitrust investigators have requested additional information regarding the company's hostile takeover offer for Canadian rival Alcan (NYSE: AL), extending the waiting period imposed by the Hart-Scott-Rodino antitrust laws. An Alcoa executive explained that this is an expected part of the process and that the company has a detailed plan in place to resolve the issues and move forward. The alternative news would probably have been that the takeover was not allowed, so this is a positive sign for AA. Recent technical indicators for AA have been bullish but deteriorating, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $32.50 range. AA hasn't been below $32.50 since January and has shown support around $38.50 recently. This trade could be risky if the company's earnings on Monday disappoint, but even if that happens, it looks like this stock could find support right near $34, plus it could be propped up by its 200-day moving average, which is around $33 and rising.

Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Brent neither owns nor controls a position in AA or AL.

Main market news here.

UBS upgraded US Airways Group Inc. (NYSE: LCC) to Neutral from Reduce, saying a capacity cut by rival Southwest Airlines Co. (NYSE: LUV) could improve the outlook for domestic fares. In addition US Airways shares are down more than 50% so far this year and should move higher on any good news.

The Wall Street Journal reported that Delta Air Lines Inc. (NYSE: DAL) is negotiating a deal for a possible order of 125 of Boeing Co.'s (NYSE: BA) new 787 Dreamliner aircraft. The deal could be worth $20 billion. But AP is reporting that Jim Whitehurst, Delta's COO said the airline was in the deciding stage between Boeing's new 787 Dreamliner and the Airbus A350.

Alcoa (NYSE: AA) shares jumped nearly 3% to a six-year-high yesterday on renewed speculation that BHP Billiton Ltd. (NYSE: BHP) has revived plans for a $40 billion takeover of Alcoa. Alcoa has eased to close up 0.7%. Today, however, Alcoa's shares were down 2% in Europe after sources said BHP is actually more interested in Alcan (NYSE: AL) and may offer a competing bid to that of Alcoa's hostile takeover one for Alcan. Alcan shares rose 1% in Europe.

Expedia Inc. (NASDAQ: EXPE) said it plans to buy back up to 42% (116.7 million) of its common stock for $3.5 billion at prices ranging between $27.50 and $30.00. With the stock closing at $25.50 yesterday, the stock is up 16.4% in pre-market trading (8:09 a.m.) to $29.67.

Yesterday, Whole Foods Market Inc. (NASDAQ: WFMI) said it extended its offer to buy Wild Oats Market Inc. (NASDAQ: OATS). The deal, worth about $565 million, is opposed by federal antitrust regulators. Jon Ogg also has another suggestion, perhaps Kroger (NYSE: KR) should bid for OATS.

Surprising analysts who didn't think Citi had the means in its current cost structure, Citigroup (NYSE: C) flagged its interest in buying a bank in Germany that would be for sale, but played down recent talk that it was about to swoop on Commerzbank.

General Electric Co.'s (NYSE: GE) energy unit will pay $603 million for an estimated 37% stake in Regency Energy Partners LP (NASDAQ: RGNC), an owner of natural gas pipelines and storage equipment.

Apple Inc. (NASDAQ: AAPL) climbed 3.8% yesterday on news of a longer battery life (8 hours of talk time) as well as other improvements in its iPhone over the current standards of handset devices. However, the WSJ writes that many businesses don't plan to switch from their current internal email system (could be RIM, Microsoft etc.) and sync with the iPhone.

Hewlett-Packard Co. (NYSE: HPQ) said it signed a definitive agreement to acquire SPI Dynamics Inc., a provider of Web application security assessment software and services, for undisclosed terms.

SIRIUS Satellite Radio (NASDAQ: SIRI) today announced that Volkswagen of America, Inc. will offer SIRIUS as standard equipment in several models including the Jetta, Passat and EOS models.

Alcoa (NYSE: AA) has been trying to buy rival aluminum company Alcan (NYSE: AL) for several months. But it now appears that the hunter may become the hunted.

Australian metals company BHP Billiton (NYSE: BHP) is considering making a bid for Alcoa. According to The Times of London, the value of the buy-out could be as high as $40 billion.

BHP can afford the purchase, but it comes with a very substantial risk. The company has a market cap of $194 billion. Alcoa's is $36 billion.

Any bid for Alcoa, however, will rest on the high price that the company can get for aluminum and growing demand for the metal. The price of the metal averaged $1.16 per pound last year. Over the six previous years, the price averaged $0.72. Global supplies are still tight.

Like all commodities, the price of aluminum could fall quickly. Production in China is up sharply, which could eventually put pressure on prices.

Buying Alcoa is only a good deal if aluminum prices rise and that can only go on for so long.

Douglas A. McIntyre is a partner at 247 Wall St.

MOST NOTEWORTHY: Some of today's more noteworthy downgrades included Dean Foods Co (DF), Louisiana-Pacific Corp (LPX), Costco Wholesale Corp (COST), Alcan Inc (AL) and Horizon Offshore, Inc (HOFF):

• Dean Foods Co (NYSE: DF) was cut to Neutral from Overweight at JP Morgan to reflect future guidance concerns after management's cautious tone.

• Louisana-Pacific Corp (NYSE: LPX) was downgraded to Strong Sell from Buy at Matrix USA. The firm believes a weak housing market is having a significant negative impact on shares and sees downside to $14/share.

• Costco Wholesale Corp (NASDAQ: COST) was taken off the Strategic Stock List at UBS based on valuation.

• Bear Stearns cut Alcan (NYSE: AL) to Peer Perform from Outperform based on valuation.

• Oppenheimer downgraded Horizon Offshore (NASDAQ: HOFF) to Neutral from Buy on news of the acquisition by Cal Dive International (NYSE: DVR) as the firm believes the likelihood of a materially higher bid is low...

OTHER DOWNGRADES:

• Goldman cut Federal Signal Corp (NYSE: FSS) to Sell from Neutral.

• AG Edwards downgraded EPIQ Systems, Inc (NASDAQ: EPIQ) to Hold from Buy.

• Raymond James downgraded United Community Banks, Inc (NASDAQ: UCBI) to Neutral from Buy.

• Wachovia cut Targa Resources Partners LP (NASDAQ: NGLS) to Market Perform from Outperform.

• Gerdau Ameristeel Corp (NYSE: GNA) was downgraded to Sell from Neutral at Goldman.

• Nucor Corp (NYSE: NUE) was taken off Goldman's Conviction Buy List.

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