UBS AG (NYSE: UBS) won't comment on write-down estimates, but according to the Wall Street Journal, investors are expecting it as prices for mortgage securities have significantly gotten worse over the past several weeks as evidenced by Lehman Brothers Holdings Inc (NYSE: LEH) profit warnings.
Yesterday Lehman's stock fell 8.7% as the firm announced a projected $2.8B second quarter loss and a $6B capital raise. Options activity indicated a lessening volatility, the Wall Street Journal reported, a sign that perhaps the worst may be over.
According to a person familiar with the matter, the Financial Times reported that China's Qingdao Haier has approached investment banks to advise it on a bid for General Electric Company's (NYSE: GE) appliance business.
OTHER PAPERS:
A brief filed by plaintiffs in a shareholder lawsuit against Yahoo! Inc (NASDAQ: YHOO) and its directors claimed that an employee severance plan put in place to protect workers after a merger with Microsoft Corporation (NASDAQ: MSFT) should be repealed immediately. The New York Times reported that the plaintiffs believe the plan could skew the outcome of a proxy battle between Yahoo! and Carl Icahn for control of the company.
The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.
WEB SITES:
AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.
Shares of radio broadcaster Clear Channel Communications Inc. (NYSE: CCU) were slightly up in early trading after the company posted higher first-quarter profit boosted in part by gains in its outdoor advertising unit. Though, the company was not able to beat analysts' predictions as the weak economy put pressure on the overall advertising market.
Clear Channel Communications announced that its quarterly profit surged to $799.7 million, or $1.61 per share. The income figures were definitely something to cheer about. During its first quarter last year, the company had net income of $102.2 million or 21 cents per share. Excluding one-time items, earnings for the quarter would have been $0.19 per share. Analysts' forecast (which typically exclude one-time items) was for $0.21 per share, according to Thomson Reuters.
The media and advertising display company also said that quarterly revenue rose 3.9% to $1.56 billion, compared with $1.51 billion reported in the same period a year ago, helped by favorable foreign exchange rates; excluding the effect of the week dollar, revenue rose only 1%. Analysts had been expecting to see slower sales of $1.53 billion.
A memo sent by Delta Air Lines Inc (NYSE: DAL) to the company's employees regarding Delta's merger talks with Northwest Airlines Corporation (NYSE: NWA) stated that that no "potential transaction meets all [of Delta's] principles." The memo, the Wall Street Journal reported, is seen as a sign that merger talks between Delta and Northwest have stalled.
A group of 14 hospitals and the Securities Industry and Financial Markets Association, a Wall Street trade group, asked the SEC to buy back the debt they had issued, the Wall Street Journal also reported.
German lender HSH Nordbank has filed a lawsuit against UBS AG (NYSE: UBS) for allegedly maneuvering to saddle the German bank with troubled securities. HSH Nordbank contends that UBS sold it $500M in complex investments, which a UBS hedge fund later used as a receptacle for troubled subprime-mortgage securities, according to the Wall Street Journal.
WEB SITES:
According to FAO Newsroom, world fertilizer production is expected to outstrip demand over the next five years and will support higher levels of food and biofuel production.
Rio Tinto (NYSE: RTP) might accept a higher takeover bid from rival BHP Billiton (NYSE: BHP). So far, Rio has told the markets that a deal is not possible.
Perhaps Rio's shareholders are putting some pressure on management. After rising to $484 on BHP's initial bid, RTP shares have fallen as low as $341 in the last week. That's a lot of money out the window. Management at Rio Tinto says it can improve returns at the company to get its share price up, but Wall Street clearly does not believe that.
According to Reuters, "Rio Tinto Chief Executive Tom Albanese on Sunday left the door open to a sweetened takeover offer from BHP."
A merger of the two companies has every chance of failing. Even with its recent dip, Rio Tinto's shares have moved from a 52-week low of $200 to $367. If a premium offer is made to close the deal, the price could be well over $400 a share. Commodities prices would have to continue to rise to justify such a high price for the miner, and a global slowdown could actually cause prices to retreat. RTP's shares are also up more than BHP's in the past year, so, if the deal is mostly done in stock, the acquirer will pay an especially rich price.
No wonder most mergers don't work.
Douglas A. McIntyre is an editor at 247wallst.com.
According to people familiar with the situation, the Wall Street Journal reported that Hurray! Holding Co Ltd (NASDAQ: HRAY) and Enlight Media have agreed to a merger valued at about $160M, that could be announced as early as Monday afternoon.
The Financial Times reported that anti-corruption investigators are probing payments by Chevron Corporation's (NYSE: CVX) ChevronTexaco and Royal Dutch Shell PLC (NYSE: RDS.A) to a company owned by powerful Nigerian politician James Ibori, whom they suspect has laundered tens of millions of dollars in British banks, cars and property.
The Financial Times also reported that Vodafone Group Plc (NYSE: VOD) is looking to increase its presence in China through a government-led restructuring of the country's telecommunications industry.
The merger, announced today, between Zipcar and Flexcar (whose corporate identity is Mobility, Inc.) is a survival strategy in a business that pits our desire for a greener future against the hard reality of expensive assets and resource allocation.
I discovered Flexcar a few years ago, when a friend went to work at its Portland office. Soon I was trying the service as part of a "low car diet," giving up my car in order to walk, bike, bus, car share. I loved the idea but was struck with the high cost and relatively low efficiency of the service; in order for the service to pencil out (and pay for those many hours cars spent sitting in festively-marked parking spaces) the hourly rates for using a car were $8 to $9. When you consider a typical person's car usage -- get up in the morning, drive somewhere, leave car there for several hours, drive home, doing errands along the way -- you quickly realize it doesn't pencil out ($90-100 a day to use a car). However, if you're only using cars for very brief errands; picking up recycled lumber for your chicken coop, for instance; $20 a trip versus $300 or more each month to maintain a car, works out.
So it's economical for an individual who makes (say) a couple of monthly jaunts to an out-of-town picnic site or party each month, one errand around town in a week, and a weekend bed & breakfast getaway every year. It's sensible for corporations who would rather put the liability involved with company vehicles on another entity. But does it pencil out for the asset and liability holder: Flexcar and its chief competitor, Zipcar?
A former Royal Bank of Canada (NYSE: RY) trader alleged that some employees "miss-marked" bonds to increase profits at the New York office's investment banking unit, the Wall Street Journal reported.
The WSJ also reported that private-equity firm J.C. Flowers & Co is in talks with UK lender Northern Rock, but has not confirmed it will launch a bid for the troubled firm wrapped up in the subprime meltdown.
OTHER PAPERS:
The New York Times reported Merrill Lynch & Co Inc (NYSE: MER) CEO Stanley O'Neal contacted Wachovia Corporation (NYSE: WB) CEO G. Kennedy Thompson last week to discuss the possibility of a merger between the companies, according to inside sources; Merrill's board has reportedly started considering candidates to replace him.
The Times also reported that designer Tommy Hilfiger agreed to sell his biggest clothing line exclusively at Macy's Inc (NYSE: M). Under the agreement, Mr. Hilfiger would remove his clothing lines from stores like The Bon-Ton Stores Inc (NASDAQ: BONT) and Dillard's Inc (NYSE: DDS).
Until a decision on XM Satellite Radio Holding (NASDAQ: XMSR)'s hoped-for merger with Sirius Satellite Radio Inc. (NASDAQ: SIRI) is made, both companies are forced to proceed independent of one another. While wishing for the best, the companies must also prepare for the worst, should they lose their hope for synergy.
Part of the companies' continued day-to-day operations include visiting the earnings confessional once a quarter. XM's turn comes tomorrow after the closing bell. According to Zacks, the consensus analyst estimate stands at a per-share loss of 44 cents, with the high end at a 40-cent loss and the low end at a 52-cent loss. This is a decline from a year-ago loss of 32 cents, which positively surprised the Street's consensus view by a healthy margin.
As the firm heads under the earnings spotlight, the shares appear to be bottoming out from a technical perspective. After tiptoeing along the 9-10 range for several months, XMSR has broken out into double-digit territory, gaining nearly 50% since mid-August. This month, the equity has taken out its 10-month and 20-month moving averages. A monthly close atop these long-term trendlines would be the first of its kind since September 2005.
Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) surged yesterday after Citigroup analyst Eileen Furukawa estimated that the proposed multibillion-dollar merger has a greater than 60% chance to succeed. The analyst believes regulators have shifted in favor of the merger and that the market, currently giving the deal only a 24% chance of passing regulatory muster, is underestimating the chances and is too bearish. Furukawa has upped XM's price target to $19.50 from $15.
Still, if the merger goes through, Furukawa estimates it could produce up to $7.2 billion in cost savings and further, this estimate might be conservative as it does not include capex savings. In addition, the merged company could drive higher ad revenues and move away from the subscriber-based model into the ad-revenue one that seems to be where many believe the money is, especially as the early subscriber growth both companies experienced has cooled.
If the merger indeed succeeds and the cost savings are achieved, there may be a chance the combined company could rediscover the earlier growth it once witnessed. As Dana Cimilluca of the WSJ Deal Journal notes, this cost savings is bigger than XM's market cap of $4.67 billion, so no wonder both companies and their shareholders pushed the merger forward so passionately. They know what might happen if the merger doesn't go through.
One last comment on this. Contrary to Furukawa, Jonathan Jacoby of Banc of America Securities thinks that the stocks' recent prices actually imply that investors think there is an 85% chance of the merger succeeding. I'm not sure what could explain such a big difference in the two opinions, but I do know what mine has been all along and why I'm in trouble with many satellite fans. I do believe these to be too risky for their potential upside and I'm staying out.
Tuesday, SIRI shares closed up 3.77% to $3.5799 and XMSR shares up 6.87% to $15.24. Today, XM shares are cooling a bit, down over 1% to $15.08, while Sirius shares are continuing to climb, up more than 3% to $3.69 by midday.
According to a statement from Sprint, CFO Paul Saleh will serve as interim CEO while the board finds (finishes finding?) a new CEO. Interestingly, Sprint says it is targeting candidates outside the company. And in what seems to be a "might as well dish all our dirt at once" move, Sprint said it was forecasting a third-quarter net loss of 337,000 post-paid subscribers (the ones who have annual contracts and pay their bills each month).
The news was already cheering up investors; after a nasty drop of 51 cents, or 2.68%, to $18.50 on the day, the stock was up in after-hours trading to $19.05; erasing all the day's losses and then some. The company's stock is near a two-year low.
Michael Copps, a member of the FCC, said that the tests for some upcoming mergers should be set higher. Two deals over which he showed special concern were the Sirius (NASDAQ: SIRI) merger with XM (NASDAQ: XMSR) and the News Corp (NYSE: NWS) purchase of Dow Jones (NYSE: DJ).
Mr Copps' worries about Dow Jones are simple enough. He is troubled that Mr. Murdoch will have such a large concentration of media in New York
He shows even more interest in the Sirius plan. The Wall Street Journal writes that "as one of five FCC commissioners, Mr. Copps will cast a vote on whether the Sirius-XM merger and Tribune sale should be allowed to proceed." Copps may want the satellite radio companies to give more guarantees on prices charged to consumers.
XM and Sirius stocks have both moved off lows as it appeared that approval for their merger looks more certain. The stocks are sill severely depressed. Copps comments may help push them down again.
While the satellite radio company merger may face more opposition than was anticipated recently, the firms still have a compelling argument about how competitive the marketplace is. They continue to lose money and, without some change in their structures, their debt loads could sink them. Perhaps someone will point that out to Copps.
XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) is higher this morning and has climbed recently as current investor buzz is that the merger with Sirius (NASDAQ: SIRI) looks more and more likely to succeed. Analysts have said the Department of Justice could make a ruling on the merger within the next month, and they believe there is a better than even money chance the merger will be approved. If you think 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 XMSR.
After hitting a one-year high of $17.70 in January, the stock has been shaky all year as investors await firm news on the status of the planned SIRI deal. XMSR opened this morning at $13.32. So far today the stock has hit a low of $13.26 and a high of $13.64. As of 10:50, XMSR is trading at $13.55, up $0.35 (2.7%). The chart for XMSR looks bullish and steady, but S&P gives the stock its lowest 1 STAR (out of 5) strong sell rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $10 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 16.3% return in just 5 months as long as XMSR is above $10 at January expiration. XM would have to fall by more than 26% before we would start to lose money.
XMSR hasn't been below $10 by more than a few cents since 2003 and has shown support around $11 recently. This trade could be risky if the merger is not allowed, but even if that happens, this position could be protected by the strong support the stock formed just above $10 over the last year.
Delta Air Lines (NYSE: DAL) named Richard Anderson, the former head of Northwest Airlines (NYSE: NWA), its new CEO yesterday. The move follows Delta's 19 ½ month reorganization under bankruptcy protection.
Seth Tobias of Circle T Partners told Bloomberg, "This could spur the possibility of further consolidation in the industry." The Board's Chairman, Daniel A. Carp, said that Anderson "possesses the right blend of seasoned leadership, strategic skills, international experience and airline knowledge the company needs to navigate the industry's challenges and capitalize on its opportunities."
Bear Stearns agreed with Tobias and Carp this morning. They said Anderson could reshape the U.S. airline industry, claiming that he and the current Northwest CEO, Douglas Steenland, are able to understand each other. Bear Stearns believes a merger between to two would create over $5 billion in incremental equity value.
Despite all the speculation, Anderson said he had no plans for a merger with Northwest on CNBC this morning. He did, however, predict there will be future consolidation within the industry, but failed to name names in the comment.
Anderson told reporters on a conference call that Delta is in a "position of strength" after leaving bankruptcy. The airliner that emerged from bankruptcy only months ago is certainly stronger than it was last year, but the company still faces significant headwinds, including the possibility of a slowdown, growing fuel costs and competition with the growing number of discount airlines. While the idea of Delta acquiring Northwest may sound like a logical move, the thought of taking over an airliner that has a disgruntled union, crew shortages, a horrible reputation and a $3.57 billion market cap is just too much to swallow.
Antitrust is always tough to predict. The laws are sketchy -- and markets can change quickly. Besides, politics can play a big role.
That's why the Federal Trade Commission (FTC)'s antitrust lawsuit -- on the Whole Foods Market (NASDAQ: WFMI) and Wild Oats Markets (NASDAQ: OATS) linkup -- is so interesting.
The FTC believes that the transaction will reduce competition and, as a result, be harmful to consumers.
However, federal Judge Paul Friedman doesn't think so. In fact, yesterday we got his 93-page opinion on the matter (according to a report in Reuters).
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It can't be a good thing when a CEO resigns without even the pretense of "spending more time with his family." 
Antitrust is always tough to predict. The laws are sketchy -- and markets can change quickly. Besides, politics can play a big role.
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