Housing Market At Its Worst Since 1997
Several home price indexes show the housing market is likely at its weakest since 1997. The median home price fell by a fifth of a percent - the third straight monthly decline in price - according to the S&P/Case-Shiller home-price index. The data is based on median prices in a cross-section of 20 American cities; the worst declines occurred in San Diego, Tampa and Cleveland. The data concurs with a recent report by the National Association of Realtors, which showed a 3.5% year-over-year decrease in home prices in October. Last week, Dallas Fed President Richard Fisher said the sharp correction in housing may not be over and could even worsen in 2007. Decreasing housing prices can lead to tightening of consumer spending, as consumers borrow less against their existing homes. On a positive note, the fall in prices led to a 0.5% increase in sales of existing homes in October.
• Sources: U.S. Single-Family Home Prices by Metropolitan Area (PDF file), Chicago Tribune, Newsday/AP
• Related commentary: Housing Bubble and Real Estate Market Tracker, Housing Realism Enters the Mainstream Media, New Home Construction Rises, But Inventory Levels Still High, Hovnanian Enterprises Suffers Gruesome Fourth Quarter
• Potentially impacted stocks and ETFs: iShares Dow Jones US Real Estate (IYR), iShares Cohen & Steers Realty Majors (ICF), SPDR Homebuilders (XHB), iShares Dow Jones US Home Construction (ITB)
TECHNOLOGY AND INTERNET
Judges Approve Nortel Settlement of Around $2.45 Billion
Two U.S. judges approved a settlement of approximately $2.45 billion which Nortel Networks Corp is expected to pay shareholders following two class-action suits over an accounting scandal. Shareholders tentatively agreed to the payment which is entering its final stage of approval from various Canadian courts. If the settlement goes through, the Canada-based networking equipment company will pay $575 million in cash and issue shares equivalent to around 14.5 percent of its current outstanding equity, worth more than $1.64 billion based on present stock value. In addition, Nortel's insurers will pay$228.5 million and shareholders will also receive 50% of any reward from lawsuits against former CEO Frank Dunn and other executives dismissed for their involvement in the scandal. U.S. District Judges Richard Berman and Loretta Preska presided over the cases.
• Sources: MSNMoney, Reuters, AP
• Related commentary: Reverse Split Should Catalyze Nortel's Turnaround, Ready to Wait for Nortel's Turn Around, Nortel to Undertake Dramatic Cost-Cutting Plan, Nortel Reports Smaller Loss. Conference call transcripts: Nortel Q3 2006
• Potentially impacted stocks and ETFs: Nortel (NT). Competitors: Alcatel-Lucent (ALU), Cisco (CSCO), Siemens AG (SI)
Savvis' Content Delivery Network Will Complement Level 3's Internet Backbone
Level 3 will purchase the content delivery network of Savvis for $135 million. Level 3 will use the network's intellectual property and customer contracts to meet the growing demand for online gaming and entertainment. The unit to be acquired has 50 employees, and generated around $15 million in revenue for the nine months ending Sept. 30. As Microsoft is one of Savvis' largest customers, analysts are suggesting that this move is an attempt on the part of Level 3 to profit from the software giant's expanding interest in Internet search and entertainment. Savvis' CDN unit includes IP transit, wavelengths, metro transport, and collocation which complements Level 3's existing national fiber network. The company will now be able to offer end-to-end content-distribution solutions. Yesterday, Level 3's stock remained at $5.66 while Savvis shares gained about 1%.
• Sources: Reuters, InformationWeek, MarketWatch.com
• Related commentary: Level3 and Akamai Can't Both Win In Internet Video Delivery, Level 3's Recent Press Release Tells Us There's Still Plenty of Fiber Capacity Out There, Level 3 Communications Up After Cramer's Lightning Round 'Booyah'
• Potentially impacted stocks and ETFs: Level 3 (LVLT), Savvis (SVVS), Microsoft MSFT) Competitors: Broadwing Corp. (BWNG), Google (GOOG), Global Crossing (GLBC), Verizon Communications (VZ), Sprint Nextel Corporation (S), Lucent Technologies Inc. (LU) ETFs: PowerShares Dynamic Networking (PXQ), iShares Goldman Sachs Networking Index (IGN)
Will Yahoo's 'Panama' Be Enough To Close Its Google Gap?
Yahoo hopes to put a weak 2006 behind it with the full release of its 'Panama' advertising platform in early 2007. The company would love to forget a year in which it lost search market share to Google, saw online ad revenues increase at a slower-than-expected pace and watched its share price plummet by 40%. But while Yahoo spent the last two years developing 'Panama,' which is supposed to narrow the gap with online search and advertising leader Google by increasing the accuracy of search-related ads and the accompanying click-throughs, companies like Google have already moved beyond search into 'non-premium' online ad venues, inking deals with social networking sites like MySpace while also encroaching into Yahoo's specialty, online branded advertising. BusinessWeek claims the consensus on the Street is that if Yahoo doesn't expand into markets like social networking, while finding new ways to increase the monetization of its content specific portals (like Auto and Finance), the company will continue to remain a "Google laggard."
• Sources: Business Week
• Related commentary: TechCrunch: Why Yahoo’s Panama Project Is Important, Don Dodge: Why Yahoo's Panama Project won't be enough, Yahoo Expands Panama Launch to Newcomers, RBC Trims Yahoo Numbers, Better Safe Than Sorry With Yahoo in 2007, I Think Yahoo Will Surpass Google In 2007: Here's Why, Yahoo!'s Reorg: Has Anything Actually Changed?. Conference call transcripts: Yahoo! Q3 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: Yahoo (YHOO). Competitors: Google (GOOG), Microsoft (MSFT), IAC/InterActiveCorp (IACI), Time Warner/AOL (TWX). ETFs: First Tr DJ Internet Index Fd (FDN), Internet HOLDRS (HHH)
Essar Group Offers Surprise Bid for Hutchinson Essar
The Indian conglomerate Essar Group has made an offer to buy out the Hutchinson Group's 67% share in Hutchinson Essar, a leading wireless telecom provider in India, for an approximate $17-18 billion. Hutchinson Essar is a joint venture between Essar and Hutchinson Whampoa of Hong Kong. The offer surprised the market and places new pressure on Hutchinson Essar's other suitors to either top the bid or back away. Vodafone, which indicated last week that it is interested in the telecom, will have to reconsider, as will Reliance Communications, India's second-largest mobile operator, which has been talking with private equity firms about making an offer. Essar's offer gives it the option to match any subsequent offer made by an Indian bidder, which will work to the disadvantage of Reliance. The Hutchinson Group has not yet responded to Essar's offer. Essar had been silent in recent weeks while Vodafone and Reliance made their interest in Hutchinson Essar known, sparking speculation that Essar was planning either to buy out Hutchinson, sell its own 33% stake, or stay on as a partner with the successful bidder. With its surprise move, Essar is now the only entity to have placed a formal bid.
• Source: Economic Times
• Related commentary: Vodafone In Booming Indian Wireless: Tread Carefully, Reliance prepares for Hutchison Essar bid (Financial Times)
• Potentially impacted stocks and ETFs: Vodafone Group plc (VOD). ETFs: WisdomTree Europe High-Yielding Equity (DEW), BLDRS Europe 100 ADR Index (ADRU), iShares MSCI EAFE Value Index (EFV)
McClatchy Co.: Avista Capital to Acquire Star Tribune for $530 Mln
McClatchy Co. announced yesterday that it will sell the Minneapolis Star Tribune to Avista Capital Partners, a private equity firm, for $530 million, less than half of the $1.2 billion McClatchy paid for the paper in 1998. The company said it will use proceeds from the sale, including $160 million in tax benefits, to decrease tax debt incurred from its acquisition of Knight Ridder and to make further media investments both web-based and traditional. McClatchy bought Knight Ridder for $4 billion in June and had announced previously that it will sell 12 of the newspapers that were included in the acquisition. Avista, a newly established firm, is confident about the newspaper industry and the Star Tribune in particular, though many consider it a fading media. McClatchy still owns 31 newspapers, making it America's number three newspaper publisher in terms of weekday circulation behind Gannett Co. and Tribune Co.
• Sources: Bloomberg, WSJ, Reuters
• Related commentary: McClatchy Selling The Trib: Sign Of Our Communication Times, Fewer Newspapers With Lower Circulation Is the Way of the Future, Newspapers: Another Slide Coming? Conference call transcripts: The McClatchy Company Q3 2006
• Potentially impacted stocks and ETFs: The McClatchy Company (MNI) Competitors: Dow Jones & Company (DJ), The New York Times Co. (NYT), Gannett Co. (GCI), The Washington Post Co. (WPO), Tribune Company (TRB), News Corp. (NWS)
Reader's Digest Buyout Price Lower Than It Could Have Been
When the shareholders of Reader's Digest convene on February 2 to vote on whether to accept a buyout offer from Ripplewood Holdings, they can ponder the nearly 10% discount they will be giving Ripplewood on their shares from the previously offered price. Twice, Ripplewood offered Reader's Digest $18.50 a share to take the company private only to be rebuffed by Reader's Digest's board who felt they could get a better price. After Ripplewood made its second offer - Reader's shares were trading for a mere $13.44 at the time - the company empowered Goldman Sachs to seek other bidders in the hopes of igniting a bidding war which would jack up the buyout price. But that scenario never emerged; by Sept. 22, the stock was down to $12.45 a share and prospects for a buyout were nil. Ripplewood came back with a counteroffer for $16.50, which it claimed was a reflection of the company's falling share price. As the price of the stock recovered, Ripplewood made its final offer of $17 a share - the one which was ultimately accepted. Goldman received $11 million for its services.
• Sources: Press Release, TheStreet.com, The Milwaukee Business Journal
• Related commentary: Reader's Digest Acquisition: Last Minute Severance Changes for Departing Chairman, Blue Harbour Cashes In On Reader's Digest Takeover Bid, Reader's Digest Agrees To $1.6 Billion Buyout, Cramer's Take on RDA
• Potentially impacted stocks and ETFs: Reader's Digest (RDA). Competitors: Scholastic Corporation (SCHL), Meredith Corporation (MDP)
ENERGY AND MATERIALS
T. Boone Pickens-Backed Exco Picks Up Natural Gas Fields for $1.6B
Anadarko Petroleum and Exco Resources have agreed to a deal in which the latter will buy gas and oil fields located in Louisiana from the former, for $1.6 billion. Anadarko CEO Jim Hackett comments, "This divestiture is an important step in refocusing the portfolio following our acquisitions of Kerr-McGee and Western Gas Resources in August ..." A Sanford Bernstein analyst says Exco paid a 'reasonable price,' but from Anadarko's perspective, he adds, "... it's never a question of what the price is. It's a question of what the price was relative to what they bought in the first place [$22.5b for Kerr and Western]." As Anadarko has been divesting assets to pay off debt, Exco, the T. Boone Pickens backed oil and gas venture has been on an acquisition spree following its February IPO. This latest purchase is the largest of six this year, and it will nearly double its oil and gas reserves, according to Bloomberg. Exco's president comments, "We believe there's more upside there than maybe (Anadarko CEO) Hackett believes."
• Sources: Press Releases [I, II], Bloomberg, Forbes-AP, Reuters
• Related commentary: Anadarko: They've Got It Rigged, News From the Horizontal Drilling Front, EXCO and Comstock Resources: Two Cotton Valley E&P Long Plays
• Potentially impacted stocks and ETFs: Anadarko Petroleum (APC), Exco (XCO). ETFs: iShares Dow Jones US Oil & Gas Ex Index (IEO), PowerShares Dyn Energy Exploration (PXE)
Anadarko: They've Got It Rigged
Wall Street Journal’s Heard on the Street column highlights Anadarko Petroleum, which "has something harder to find than oil -- the floating rigs that explorers need for drilling." Deep-water oil and natural-gas wells in the Gulf of Mexico and off the coasts of Brazil and West Africa require specialized rigs in order to work at those depths. Companies are now scrambling to get their hands on the deep-water rigs, which are in short supply. Anadarko recognized the looming scarcity early and moved quickly, spending $1b last year securing rig leases. It now has a larger inventory of Gulf-based rigs than any other major oil company, which gives it an extraordinary bargaining chip to negotiate for stakes in more deep-water projects. Yet its moves seem largely unappreciated by Wall Street, which has focused on balance sheet concerns: Anadarko stock is down 10% this year, compared with a 20% gain for Dow Jones' Wilshire Oil & Gas Index.
• Sources: Wall Street Journal
• Related commentary: T. Boone Pickens-Backed Exco Picks Up Natural Gas Fields for $1.6B, Study: Washington's Oil Incentives Offer Little in Return, SeaDrill: Rig Rates Remain High Despite Oil's Fall, Precision Drilling Trust: Offering Income & Growth, Rig Shortages Delay Gulf Exploration and Production as Costs Jump
• Potentially impacted stocks and ETFs: Anadarko Petroleum Corp. (APC). Oil Exploration Companies mentioned in the article: Exco Resources Inc. (XCO), Devon Energy Corp. (DVN), XTO Energy Inc. (XTO), BP PLC (BP), Newfield Exploration Co. (NFX), Norsk Hydro ASA (NHY). ETFs PowerShares Dynamic Oil & Gas Services (PXJ), iShares Dow Jones U.S. Oil & Gas Exploration/Production (IOE), iShares Dow Jones US Oil Equipment Index (IEZ), SPDR Oil & Gas Equipment & Services (XES), SPDR Oil & Gas Exploration & Production ETF (XOP), Oil Service HOLDRs ETF (OIH)
Heads of Ford and Toyota Meet in Tokyo
The chief executives of Ford and Toyota, Alan R. Mulally and Fujio Cho, met in Tokyo last week for talks about the environment, hybrid car development and manufacturing efficiencies. Though there are no indications that the auto makers are considering joining forces, the meeting was reminiscent of the ultimately unproductive talks held this summer by GM, Renault and Nissan about possible joint ventures. Ford is suffering one of the worst periods in its history, while Toyota is surging toward the number-one position in auto manufacturing. It is currently the second-biggest car company in the world behind General Motors, which it should surpass within a year, and is expected to unseat Ford from its number-two position in the U.S. market in 2007. Toyota has licensed hybrid technology to Ford, though Ford has opted to place greater emphasis on "flexible fuel" vehicles that can run on both gas and other fuels. Mr. Mullaly has a longstanding familiarity with the Toyota Production System, which is designed to eliminate waste and improve production at every level of an assembly line. Mullaly put a modified version of that system into place at Boeing, where he ran the airplanes division prior to joining Ford.
• Sources: New York Times, Wall Street Journal, Reuters
• Related commentary: Toyota Versus GM/Ford: Classic Hedged Pair Trade, Ford's Internal Projections: Toyota Will Be #2 Within Months, Toyota Production Surges to Meet Global Demand, Toyota To Become World's Largest Automaker in '07, No Tough Times For Toyota. Conference call transcripts: Ford
• Potentially impacted stocks and ETFs: Ford Motor Co. (F), Toyota Motor Corp. (TM). Competitors: General Motors (GM), DaimlerChrysler AG (DCX). ETFs: Rydex S&P 500 Pure Value (RPV), iShares Russell Midcap Value Index (IWS), BLDRS Asia 50 ADR Index (ADRA), BLDRS Developed Markets 100 ADR Index (ADRD), iShares NYSE Composite Index (NYC)
Telik Plummets After Its Only Drug Fails Phase-3 Testing
Telik Inc. shares fell 70% yesterday, plummeting from $11.49 to $4.77, after the company said its lead cancer drug candidate, Telcyta, failed three late-stage trials. Telcyta didn't prolong survival in patients with advanced non-small cell lung cancer and platinum-resistant ovarian cancer. Edward Nash of Stifel Nicolaus: "We see no residual value in Telik's technology beyond Telcyta." He lowered shares from Buy to Sell. On Dec. 12 the price of Telik Jan07 $5 put options more than tripled to 35 cents on heavier-than-normal trading of 4,017 contracts, indicating some traders were betting on the fail. The options were up to $0.55 Tuesday with 19,000 contracts changing hands. Noting this, a spokeswoman said, "The data from all three of these trials were unblinded only in the last few days. We announced the results as quickly as we could once we had the information. The results were not available to anyone." But Eric Ende of Merill Lynch had this to say: "We believe management's timing of data disclosure raises serious red flags. It is unusual for companies to withhold phase 3 data for extended periods, especially negative data as was presented today."
• Sources: Bloomberg, Reuters
• Related commentary: Telik Blowup and the Case Against Efficient Market Theory, Options Trader: Tuesday Morning Ideas
• Potentially impacted stocks and ETFs: Telik Inc. (TELK). Competitors: Amgen Inc. (AMGN), Cell Therapeutics Inc. (CTIC), Novo Nordisk A/S (NVO)
Over Capacity in China's Booming Auto Industry Fuels Government Intervention
The Chinese auto industry's double-digit growth (sales est. 22% in '06 and 15% in '07) is not necessarily a good thing for the Communist Party as it tries to balance growth with other concerns, while keeping the industry competitive. The industrial policy planners at the National Development and Reform Commission announced new rules yesterday in an attempt to control plant expansion, such as requiring manufacturers to meet/exceed 80% of government approved capacity before applying for a permit to build production facilities in new locations. The NDRC reports on its website that production was only 72% of capacity in '05, with more than 100 automakers and counting. The WSJ mentions NDRC is urging Chinese automakers to become more competitive by creating their own designs, consolidating nationally in order to compete globally, and for government agencies to buy Chinese-made environmentally friendly autos to "set an example for ordinary consumers." The Detroit Free Press reports GM couldn't be reached for comment, while Ford declined and DaimlerChrysler's spokesmen said he'd "... have to get more information to see how it would affect us."
• Sources: Detroit Free Press, People's Daily Online, WSJ
• Related commentary: Bill Ford Jr. On the Importance of China's Auto Market, Shanghai Automotive to Beef Up Assets, A Disconnect Between Beijing and Provincial Governments
• Potentially impacted stocks and ETFs: General Motors (GM), Ford (F), DaimlerChrysler (DCX), Volkswagen (WLKAY.PK), Honda (HMC), Nissan (OTCPK:NSANY), Toyota (TM)
U.S. Markets: Some Friendly Advice From the Tooth Fairy: Don't "Wait" To Buy Stocks
Long Idea: Cintas: Rising Earnings, Falling Multiple, Flat Stock
Internet: Yahoo!/AOL Merger Implications for Google
Telecom: Verizon Dips Its Toe Into Mobile Phone Advertising
Hardware: How Hewlett-Packard Got Its Groove Back
Software: Israeli Software Roundup: Silicom, Ness, Blue Phoenix
Consumer Electronics: Panasonic Pushes Plasma Over LCD
Media: WSJ.com Managing Editor On Blogs And Digital Strategy
Healthcare: Top Pharma Innovations In 2006
Retail: More Grinch Than Santa This Holiday Sales Season, An Optimistic Outlook On Consumer Spending
Transport: Eye on GE's Transportation Business
Gold: Banro Corporation CEO Speaks About His Company
Energy: American Ecology Corp. Is Still A Good Buy
Financial: Goldman Bonuses: Pure Greed?
Asia: Mixed Economic Data May Force BoJ to Postpone Hike
ETFs: The Style Cube: Third Dimension Is International
Small-Caps: VIVUS Looking to Profit from Obesity and Sexual Dysfunction
IPO Analysis: China Life to List on Shanghai Exchange
Sound Money Tips: (Another) Tip on Comparison Shopping Engines
Jim Cramer: Latest stock picks
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