According to an article on Bloomberg, "European defense contractors have sought work and acquisitions in the U.S., where military spending has grown faster than in their home markets. BAE Systems Plc, Europe's largest weapons maker, bought Jacksonville, Florida-based Armor Holdings Inc., the biggest maker of armor for Humvee transports, last year for more than $4.1 billion."
Now an Italian firm is bidding $5.2 billion for DRS Technologies (NYSE: DRS). According to the same article in Bloomberg, the acquiring firm, Finmeccanica, makes carbon-fiber frames for Boeing Co. (NYSE: BA)'s 300-seat 787 Dreamliner, and its AgustaWestland helicopter division has a supply contract with Lockheed Martin Corp. (NYSE: LMT) for the U.S. presidential fleet. DRS makes flight recorders, sensors and thermal-imaging devices that are used on U.S. military helicopters and ships.
Finmeccanica is partly owned by the Italian government. An acquisition like this rounds out the Italian defense supplier's product-line and positions it well to penetrate U.S. military spending. Much of the premium paid by the Italians has been realized already as the venerable Wall Street Journalreported of the possible deal last week.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
The Wall Street Journal reported that, in an attempt to toughen its regulation standards, SEC chairman Christopher Cox said earlier this week the agency would push Wall Street investment houses will have to reduce borrowing and rely less on short-term financing.
As part of plans to reduce costs and restore profit growth, people close to the situation said that Citigroup Incorporated (NYSE: C) is likely to today identify up to $400B in non-core assets that could be sold. Additionally, the Financial Times reported that Citigroup CEO Vikram Pandit will confirm his pledge to cut the bank's cost base by about 20% at a meeting with analysts today. Sources familiar with the matter believe Pandit will dismiss calls for a break-up of the company.
MOST NOTEWORTHY: Procter & Gamble, Human Genome and Arcelor Mittal were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Procter & Gamble (NYSE:PG) to Hold from Buy on valuation and their expectation for slowing short-term industry growth, especially in beauty.
Citigroup downgraded Human Genome (NASDAQ:HGSI) to Hold from Buy as they believe giving up Syncria's royalties removes an important value driver for the stock.
HSBC downgraded shares of Arcelor Mittal (NYSE:MT) to Neutral from Overweight on valuation and believes the company needs to raise prices more than costs have risen for iron ore, coking coal and steel scrap.
OTHER DOWNGRADES:
BAE Systems (NASDAQ:BAESY) was cut to Equal Weight from Overweight at Morgan Stanley.
Merrill downgraded Zoltek (NASDAQ:ZOLT) to Neutral from Buy.
To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.
OTHER PAPERS:
The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.
The Wall Street Journal reported that the Fed may act soon to confront banks' unwillingness to lend to each other.
After several months of delays, The Boeing Company (NYSE: BA) said its 787 Dreamliner is on track to fly its first aircraft in the first quarter of next year and deliver the plane to its first customer by the end of 2008. Full-rate aircraft production is slated for 2008 and 2009, the Wall Street Journal reported.
OTHER PAPERS:
The Seattle Times reported that Cellcyte Genetics Corp (OTC: CCYG) has risen to a value of over $440M, a figure which the CEO says is an "amazing" show of investor confidence in the company's stem cell technology. The B.C. Securities Commission has cautioned that this may be a pump-and-dump stock scheme, where promoters take a large position in an inexpensive stock, hype it, and unload it onto unsuspecting investors.
According to the UK Times, BAE Systems (OTC: BAESY) is looking to outbid rivals in what could be an A$1B deal for Australia's second-largest defense company, Tenix. Other bidders may include L-3, Carlyle Group and Leighton Holdings Ltd (OTC: LGTHF).
MOST NOTEWORTHY: BAE Systems, VASCO Data Security, Salesforce.com, Tempur Pedic and Fidelity National were today's noteworthy upgrades:
Goldman added BAE Systems (OTC: BAESY) to its Conviction Buy List, as they believe the company's defensive growth characteristics will lead to outperformance.
Salesforce.com Inc (NYSE: CRM) was upgraded to Outperform from Market Perform at Piper to reflect the company's strong cash flow generation and the firm's belief that CRM is a core holding in the enterprise application market.
Citigroup upgraded shares of Tempur Pedic International Inc (NYSE: TPX) to Buy from Hold, as they believe double-digit sales growth and margin expansion will drive 25% EPS growth over the next few years.
"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock market crash of 1987, I suspect what we saw in the land boom collapse of 1837 and certainly [the bank panic] 1907," said Alan Greenspan, the former Federal Reserve chairman, reported the Wall Street Journal.
In an attempt to reverse slow North American sales of Gatorade, PepsiCo Inc (NYSE: PEP) is launching a low calorie version, reported the Wall Street Journal.
OTHER PAPERS:
British arms manufacturer BAE Systems (OTC: BAESY) will reportedly receive a GBP20B deal next week to supply 72 Eurofighter Typhoon jets to Saudi Arabia, reported the U.K. Times.
British telecom company Vodafone Group (NYSE: VOD) is considering buying the Italian and Spanish operations of Swedish telecom company Tele2, reported the Guardian.
NYSE Euronext Inc (NYSE: NYX) runs cash equity exchanges in five countries and six derivative markets worldwide, and Birkelbach Investment Securities feels the stock is "very undervalued."
The outlook for Access Pharmaceuticals Inc (NASDAQ: ACCP) and ProLindac has vastly improved, said Steven Rouhandeh, CEO of SCO Financial Group, which owns a 30% stake in the company.
NeoStem Inc (NYSE: NBS) is a tiny company that specializes in collecting, processing, and storing stem cells from healthy adults for their personal medical use, and Equity Dynamics is positive on the company's technology.
On Thursday, the United States approved the $4.1 billion takeover of Armor Holdings Inc (NYSE: AH) by BAE Systems PLC (OTC: BAESY). Sources speculated the deal could come under intense scrutiny by the U.S. Department of Justice and Congress after BAE was accused of bribery, paying money to a Saudi prince as part of a 1980s arms deal.
After a standard 30-day review, the Committee on Foreign Investment said they found "no issues of national security to warrant an investigation." The proposed takeover is currently under antitrust review by the DoJ, who is still considering an investigation into whether BAE violated anti-bribery laws.
Some sources thought a deal may not have been a certainty, as the U.S. government has been increasingly tough on approving foreign transactions following last year's controversy surrounding Dubai Ports World's failed takeover of five U.S. port terminals.
The Financial Times reported that Congress removed blocks on arms transfer requests by U.K. weapons manufacturer BAE Systems plc (OTC: BAESY), acting after BAE assured them that the transfer requests were unrelated to a defunct British investigation into bribery allegations involving Saudi Arabia and BAE.
According to Barron's Online's "Weekday Trader," Sony Corporation (NYSE: SNE) is climbing its way back to electronic prominence, but more work remains, and it may be time to take profits.
WEBSITES:
LiveMint.com reported that Citigroup Inc's (NYSE: C) emerging markets private-equity investment arm, Citigroup Venture Capital International, will reportedly invest $1.5B in India over the next three years, the largest investment by a single private-equity investor in the Indian markets.
The story has all the stuff of a steamy summer novel. A large British defense contractor pays millions to a Saudi prince, and now Washington regulators are trying to figure out if U.S. banks played a role. A BBC investigative report reveals that a Saudi prince who worked out an $80 billion arms arrangement between Britain and Saudi Arabia took secret payments for at least a decade. According to the probe, BAE Systems ADR (OTC: BAESY), one of Europe's largest arms dealers, distributed hundreds of millions of dollars to the ex-Saudi ambassador to the U.S., Prince Bandar bin Sultan. Evidently, money changed hands with the full knowledge of the U.K.'s Ministry of Defence. Neither the Prince, nor the Defense Ministry would comment on the arrangement.
Former BAE chief executive Sir Raymond Lygo told the BBC there was "nothing untoward" about the arms deal, but he had nothing to say about the payments to the Prince. Britain's Serious Fraud Office first revealed the payments. It was trying to figure out whether or not they were illegal under British law when the office's investigations were halted out of fear of angering Saudi authorities, according the the BBC. They stopped in 2006. Prince Bandar is well connected. His father is the Saudi defense minister. The Prince now runs the Saudi national security council. He served as U.S. ambassador for two decades and the payments allegedly were funneled through Washington bank accounts.
The American connection: Marketplace reports that there are two key U.S. links to this story. The U.S. Department of Justice is taking an interest in the imbroglio because if it's true that money went through American banks, the case would fall under scrutiny of U.S. authorities. What's more, there's a political connection. The Pentagon is a huge customer of BAE. If anyone can think of a better plot line than the one threading this story, send us your ideas.
MOST NOTEWORTHY: Today's most noteworthy downgrades included Armor Holdings, Inc (AH), Alcan Inc (AL), Advance Auto Parts, Inc (AAP) and Reuters Group PLC (RTRSY):
Armor Holdings Inc (NYSE: AH) was downgraded to Neutral from Overweight at JP Morgan based on the news that the company will be sold to BAE Systems PLC (BAESY) for $88 a share in cash. The firm expects the deal to close with no higher offers. Bear Stearns cut Armor Holdings to Peer Perform from Outperform and Friedman Billings cut shares of the vehicle armorer to Market Perform from Outperform.
Alcan Inc (NYSE: AL) was cut to Neutral from Buy at Bank of America and DA Davidson following the Alcoa (AA) bid.
Baird cut Advance Auto Parts (NYSE: AAP) to Neutral from Outperform following CEO Michael Coppola's resignation. Kevin Dann downgraded Advance to Hold from Buy to reflect an increased level of uncertainty following Mr. Coppola's departure.
Lehman Brothers downgraded Reuters Group (NASDAQ: RTRSY) to Equal Weight from Overweight pending further information on the Thompson Corp (TOC) bid; Credit Suisse cut shares to Neutral from Outperform and Deutsche Bank cut shares to Hold from Buy.
OTHER DOWNGRADES:
Matrix downgraded UST Inc (NYSE: UST) to Sell from Hold.
According to the Wall Street Journal, citing people familiar with the situation, the NY Attorney General and the SEC are both investigating "suspicious trading" in shares and options of Dow Jones and Company Inc (NYSE: DJ) prior to the $5B offer by News Corporation (NYSE: NWS).
The Wall Street Journal reported that the UK's financial-services regulator has begun a preliminary review of trading by hedge funds in ABN Amro Holdings (NYSE: ABN), according to people familiar with the situation.
BAE Systems (OTC: BAESY), the British defense contractor, is in the final stages of its $3.5B takeover of Armor Holdings Inc (NYSE: AH), the U.S. manufacturer of military and heavy vehicles, reported the Wall Street Journal.
The Wall Street Journal reported that a consortium led by the Royal Bank of Scotland Group (OTC: RBSPY) has made a formal $24.5B offer for ABN Amro's LaSalle Bank, according to people familiar with the situation.
The Financial Times reported that Dutch bank ABN Amro rejected a $24.5B offer for its U.S. bank, LaSalle, from a consortium led by Royal Bank of Scotland today. However, ABN said it would allow its shareholders to vote on the offer.
According to TheAlarmClock.com, Global Equities Research analyst Trip Chowdry believes Google Inc (NASDAQ: GOOG) is "stepping up its efforts" to acquire job search engine SimplyHired.
The Wall Street Journal's "Heard on the Street" column discussed Rupert Murdoch's $5B play for Dow Jones and Company (NYSE: DJ), saying the Bancroft family may eventually find it difficult not to take Murdoch's offer.
OTHER PAPERS:
The U.K. Times has learned that the U.S. Department of Justice is in talks to launch a formal inquiry into "alleged bribery and corruption" at BAE Systems (OTC: BAESY).
According to a New York Post exclusive, Gap Inc (NYSE: GPS) is considering sizeable layoffs, to reduce expenses at the struggling retailer.
As unpleasant as it may be to consider the business of war, the War on Terrorism has had a significant impact on our economy. The Defense Department today released figures showing which companies are garnering the largest portions of the military spending to support both the war and ongoing operations.
The Pentagon's Top 10 Prime Contact award winners for 2006 are:
Lockheed Martin (NYSE:LMT), $26.6 billion, up from $19.4b in 2005.
MOST NOTEWORTHY: The New York Times Co (NYT), Moody's Corp (MCO), Nokia Corp ADS (NOK) and Circuit City Stores (CC) were some of today's most notable downgrades:
Lehman Brothers cut the New York Times Co (NYSE: NYT) to Underweight from Equal-Weight as they believe the company's recent cost cuts reflect management's concerns over its top-line.
Moody's Corp (NYSE: MCO) was downgraded to Underperform from Neutral at Credit Suisse based on the potential to impact from a slowdown in collateralized debt obligation issuance on growth.
Nokia Corp ADS (NYSE: NOK) was removed from Goldman Sachs's Conviction Buy List based on its recent strength.
William Blair cut Circuit City Stores (NYSE: CC) to Underperform from Market Perform as the firm has concerns over the slowing of the advanced TV cycle and challenges to the company's turnaround plans.
OTHER DOWNGRADES:
UBS lowered Cypress Semiconductor Corp's (NYSE: CY) rating to Neutral from Buy based on valuation.
Citigroup cut BAE Systems plc ADR (OTC: BAESY) to Hold from Buy.
Raymond James downgraded Caremark RX (NYSE: CMX) to Market Perform from Outperform.
Matrix USA downgraded The Goodyear Tire & Rubber Co (NYSE: GT) to Hold from Buy and removed the company from its Focus List as they see little upside from its recent rally.
Nollenberger downgraded shares of Station Casinos (NYSE: STN) to Neutral from Buy after the company accepted a revised buyout offer from Fertitta Colony Partners as they feel the chance for a higher offer to emerge is unlikely.
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As unpleasant as it may be to consider the business of war, the War on Terrorism has had a significant impact on our economy. The Defense Department today released figures showing which companies are garnering the largest portions of the military spending to support both the war and ongoing operations.
Yogi is right: Ninety percent of this (economics) game is half-mental
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