Vornado, Blackstone Continue To Duke It Out In EOP Bidding War
In a bidding war that continues to heat up, Vornado Realty Trust published a press release yesterday evening in which it offered to accelerate payment of the cash portion of its offer for Equity Office Properties Trust, a REIT with the largest commercial real estate holding in the U.S. Despite outbidding private equity group Blackstone's $54-a-share all-cash bid by two dollars with a combined cash and share offer, Equity Office's board swiftly rejected Vornado's latest offer, expressing concerns that Vornado's offer would take months to close. Vornado returned with a guarantee that it would pay the cash portion of its offer within three weeks of the deal closing, meaning shareholders would begin to reap the benefits of its offer almost immediately; the stock portion of the deal would be paid upon the deal's completion which Vornado estimates would take 3 and a half months after signing. Equity Office's shareholders were supposed to vote today over which deal they preferred but the company has now delayed that vote to Wednesday to allow both of its bidders to sweeten their offers. The deal also still requires a majority vote by Vornado shareholders.
Sources: Press Release, Wall Street Journal, NY Times, Reuters/NY Times
Commentary: Vornado Outbids Blackstone (Again), Sam Zell's Genius, ISS Advises Equity Office Shareholders to Accept Blackstone's Bid
Stocks/ETFs to watch: Equity Office Properties Trust (EOP), Vornado Realty Trust (VNO). Competitors: Boston Properties Inc. (BXP), Mack-Cali Realty Corp. (CLI). ETFs: iShares Cohen & Steers Realty Majors (ICF), Vanguard REIT Index ETF (VNQ), WisdomTree Dividend Top 100 (DTN), streetTRACKS DJ Wilshire REIT (RWR)
Bidding War over Mills Corp Heats Up with $1.56B Bid
The Wall Street Journal reports Simon Property Group, the largest retail REIT in the U.S., and Farallon Capital Management, a $26 billion hedge fund, have bid $1.56b for Mills Corp, topping the $1.35b offer Mills had already reached agreement with Canada-based Brookfield Asset Management. The significance of the bid includes the growing presence of hedge funds in takeover bidding and their collaboration with corporations in deals. Also, there seems to be no hesitation to breakup agreed-upon deals. The Simon Property-Farallon Capital bid represents $24/share in cash, or $3 higher than Brookfield's offer. Simon and Farallon will reportedly make a tender offer, which will result in a quicker payment to shareholders, at least six months ahead of Brookfield's. Mills also has more than $6b in debt and preferred stock that will have to be assumed. Separately, there's an ongoing bidding war over Equity Office Properties Trust which could settle this week in a deal valued in excess of $40b.
Sources: NY Times, Wall Street Journal
Commentary: The Mills Saga Is Not Over • Brookfield Announces Intent To Buy Mills Corp. - Gazit Globe Reacts With Higher Bid • Mills Corporation - How Badly is it Doing?
Stocks/ETFs to watch: Simon Property Group (SPG), Mills Corp (MLS), Brookfield Asset Management (BAM). Competitors: Developers Diversified Realty (DDR), General Growth Properties (GGP). ETFs: iShares Cohen & Steers Realty Majors (ICF), iShares Dow Jones US Real Estate (IYR), DJ Wilshire REIT (RWR), Vanguard REIT Index (VNQ)
Michael Dell to Cancel 2006 Bonuses, Streamline Bureaucracy
Dell CEO Michael Dell has informed his workforce by email that there will be no bonuses for 2006. On January 31, Dell took back the CEO position from Kevin Rollins, who had held the job less than three years. Rollins's tenure was marked by missed profit forecasts for two straight quarters last year, a slowing of sales growth to its lowest point in four years, and a recall of 4.2 million notebook batteries. The company was also obliged to commit $150 million to improving customer service. Results for the three months ended in January are projected to trail expectations. Dell stated that he will be CEO "for the next several years" and is streamlining the company's corporate structure from 20 managers to 12. He also plans to speed up development of new products, push more effectively into the consumer and small-business markets, and build up Dell's global services business. In addition to consistently disappointing results and loss of market share to Hewlett-Packard, Dell is the subject of a federal investigation into its accounting procedures and a class-action suit charging that the company inflated profits with secret payments of about $1 billion annually from Intel.
Sources: Wall Street Journal, Bloomberg
Commentary: Michael Dell's Return: Greener Pastures? • What Will Save Dell? • Suit Claims Dell Got Billions in Illegal Kickbacks from Intel
Stocks/ETFs to watch: Dell Inc. (DELL). Competitors: Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Sun Microsystems Inc. (SUNW). ETFs: Internet Architecture HOLDRs (IAH), iShares Dow Jones US Technology (IYW), iShares Goldman Sachs Technology Indx (IGM), Fidelity Nasdaq Composite Index Tracking (ONEQ)
Google Forced To Remove 100,000 Viacom Clips From YouTube
In a clash that highlights the different approaches of 'new' and 'old' media, Viacom demanded Google remove more than 100,000 Viacom-produced clips from its YouTube video site. Without a formal agreement in place, Google had no choice but to comply. Viacom management claims the roughly 100,000 clips it ordered removed have provided YouTube users with roughly 1.2 billion video streams. While Google claims it will use software in the future to weed out unauthorized video clips, Viacom claims no such software is as of yet in place. The two sides had met several times but failed to reach an agreement. Said Viacom CEO Philippe Dauman, "We have been quite indulgent to this point... we cannot continue to allow YouTube or Google to continue to profit from our content without a reasonable commercial agreement." Google management counters that Viacom is acting in a short-sighted manner: "They are more focused on the money they can make in the short term... we're still more focused on innovation than the short-term economics." Google still hopes to reach a licensing agreement with Viacom; there are some industry observers who believe Viacom's latest move is merely a ploy to sweeten its bargaining position.
• Sources: YouTube.com, Wall Street Journal, Bloomberg, MSN/Financial Times
• Commentary: Viacom Plays Hardball With Google on YouTube • Media Giants to Form YouTube Rival
• Stocks and ETFs to watch: Viacom (VIA), Google (GOOG). ETFs: First Trust Dow Jones Internet Index (FDN)
Yahoo Launches Panama Ad Ranking Model Amidst Increased Competition
Yahoo launches a key element in its long-awaited Panama online ad platform today, following months of delays to a system the company hopes will help close the gap Google has opened in that lucrative market. While Yahoo previously rendered search-related ads based merely on price paid in auction, Panama will today adopt Google's more effective approach of mixing that factor with relevance to the search query, which produces more click-throughs and revenue. Yahoo will also offer advertisers the ability to target ads geographically, a feature already offered by the number three player in the market, Microsoft. The three search giants are increasingly challenged in this market by products like Fast Search and Transfer's 'AdMomentum', which offers website publishers the ability to create their own ads, independently from Google and the other large networks. eMarketer expects search engine advertising will generate $8.3 billion in sales in 2007.
Sources: New York Times, Associated Press, Yahoo press release
Commentary: A Closer Look At Yahoo!'s Quarter - And Its Future • Yahoo! Investors Pin Hopes on Early Launch of Panama • Yahoo: The Real Problem With Panama
Stocks/ETFs to watch: Yahoo (YHOO). Competitors: Google (GOOG), Microsoft (MSFT). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
TRANSPORT AND AEROSPACE
Project X: Chrysler's Bold Revitalization Plan
The Detroit Free Press quotes insiders who say Chrysler will announce a "bold revitalization plan" that calls for cuts of up to 10,000 jobs. There had been speculation its parent company, DaimlerChrysler, might spin-off its U.S. operations at Chrysler, but insiders doubt that's likely after the years spent blending the German and American businesses. The Detroit News reports that the plan, dubbed "Project X" and to be unveiled on Feb. 14, "calls for unprecedented sharing of vehicle architectures and parts between Chrysler and Mercedes, including developing small cars and SUVs together." The revitalization plan is the handiwork of Chairman Dieter Zetsche, Chrysler CEO Tom LaSorda and Mercedes-Benz Chief Operating Officer Rainer Schmückle. Chrysler currently employs about 80,000 people.
Sources: Detroit News, Detroit Free Press, MarketWatch
Commentary: Chrysler's Woes Continue To Weigh on DaimlerChrysler Stock • Chrysler Pounces on Minivan Market as GM and Ford Retreat • DaimlerChrysler's New Marketing Strategy: The Beginning of the End for Car Dealerships?
Stocks/ETFs to watch: DaimlerChrysler (DCX), Ford Motor Co. (F), General Motors Corp. (GM)
Ryanair: Q3 Net Soars Above Estimates, Lifts Guidance, Shares Fly to New Highs
Ryanair reports Q3 net income rose 30% to €47.7 million ($61.7m), or 6.12 euro cents/share on a 33% increase in revenue to €492.8m driven by 19% growth in passenger travel to 10.3m and higher fare and baggage charges. The average net income estimate was €21m among nine analysts surveyed by Bloomberg. Ryanair raised its full-year net profit guidance by 11% to €390m. An analyst at BGC Partners LP comments, "Ryanair always surprises and they've surprised again." Ryanair's deputy CEO says, "It's not an issue of anything other than supply and demand. What's driving the demand for our business is the fuel charges that are being levied unnecessarily (by other airlines)." Separately, Ryanair reports January passenger traffic increased 23% y-o-y to 3.13m. In intra-day trading in London, Ryanair's shares are up 6.4% to €11.95.
Sources: Earnings release and Jan. passenger data, Bloomberg
Stocks/ETFs to watch: Ryanair Holdings (RYAAY). Competitors: British Airways (BAB). ETFs: Europe 2001 HOLDRs (EKH)
Insider Selling at Harley-Davidson: Reason for Concern?
Wall Street Journal's Heard on the Street column says that Harley-Davidson Inc. management may be less loyal than its riders, based on a recent spat of insider selling: in November and October seven executives including its Chairman and CEO sold a record number of shares as prices hit record highs of $75.87 (now $70.10). Other similar clusters of sales in 2001 and 2004 preceded price falls or flatlining. 2006 U.S. sales were up just 0.3%, worrisome since domestic sales account for 80% of its revenue. Sales financed by internal loans are up to 48% from 21% in 2000, seemingly indicating the company is being more aggressive in extending credit. The number of days that payments were outstanding is 188 vs. 69.5 in 2000. Douglas Pratt of Mesa Capital: "It may be somewhat concerning that accounts-receivables days outstanding is rising at the same time that the credit quality is deteriorating."
Sources: Wall Street Journal
Commentary: Harley Davidson Stalls: Problems Beyond Subprime Loans? • S&P Gives Harley Davidson Securitization Negative Bias • What's in a Name? Value, at Times
Stocks/ETFs to watch: Harley-Davidson Inc. (HOG)
Triad Hospitals: Latest Healthcare Facility Manager To Go Private
ACTIONABLE BARRON'S CALLS
After months of speculation, Triad Hospitals announced early Monday morning it was being bought out by private equity investors CCMP Capital Advisors LLC and the private-investment arm of Goldman Sachs Group for $4.4 billion. The deal values Triad at $50.25 a share, a 16% premium over Friday's close of $43.27; the company's board is recommending shareholders accept the deal. As of early 2006, Triad held 51 general acute-care hospitals and 10 ambulatory-surgery centers mainly in small, southern U.S. cities. Due to their extensive cash flows, hospitals have been popular recent LBO targets; former Triad owner HCA Inc. was among those sold within the past year. This, despite the fact that hospital companies have been reporting a rising rate of bad debt due to a higher number of uninsured patients.
Sources: Press Release, Wall Street Journal, Reuters
Commentary: Updating Triad's LBO Hopes, What Triad Hospitals Must Do to Improve, Cramer's Take on TRI
Stocks/ETFs to watch: Triad Hospitals (TRI), Goldman Sachs (GS). Competitors: Tenet Healthcare Corporation (THC), Community Health Systems (CYH), United Surgical Partners (USPI), Universal Health Services (UHS), LifePoint Hospitals (LPNT), Health Management Associates (HMA)
Barron's articles likely to move stocks today, culled from our Barron's Excerpts
- Over the past month Microsoft's (MSFT) Vista was rolled out to business and then retail customers. MSFT shares are up 40% since the summer in anticipation, but post-release reaction is lukewarm. Some hardware is still incompatible, new security features make downloading complex, and its price-tag leaves investors wondering if users will rush to upgrade. Some bulls think Vista could deliver another 20%, but at this stage the downside looks even greater.
- Activist shareholder William Ackman is already up 20% on his 11% Ceridian (CEN) stake, but what he really wants is a spinoff of the company's gift card unit. Known as "Stored Value," it loaded $20b onto cards in 2005 on operating margins of 30%. More importantly, 'payroll cards,' with which companies pay employees with plastic, promise to be a huge growth area. With $6.3b plastic payments booked in 2005, analyst Tim Sloane sees $52b in salary cards by 2009. If Ceridian is split up, investors could reap another 20%, or more. Potential buyers: American Express Company (AXP) and MasterCard Inc. (MA).
- Barron's interviews tech guru Michael Cahill. His 2007 picks: (1) Microsoft Corp. (MSFT) -- Vista is perfectly positioned for the PC upgrade cycle, as is Xbox 360 for the game console cycle. (2) ANADIGICS Inc. (ANAD) -- this cell phone and video-over-internet chip maker is on the verge of massive earnings acceleration. (3) EchoStar Communications Corp. (DISH) -- at 7.7x Ebitda and 16x free cash flow... this is the year AT&T Inc. (T) buys EchoStar. (4) MEMC Electronic Materials Inc. (WFR) -- polysilicon promises to be a huge growth industry. (5) Sify (SIFY) -- its internet cafes are positioned to capture India's growing internet use.
- SulphCo Inc. (SUF) could be a poster stock for due diligence and the risks of betting on unsubstantiated science. The company claimed it could turn sulfurous crude into clean-burning oil, but anyone with an internet connection could have figured out that founder Rudolph W. Gunnerman had cost investors millions in previous schemes. Shares, which peaked at $19.70, now trade at $3.91 after falling as low as $2.25.
- Carpet maker Mohawk Industries Inc.'s (MHK) shares dropped to the low-60s in the summer, hurt by slumping homebuilding and high oil prices. Shares currently trade at $86, and $6/share earnings should send shares above $90. Analyst Keith Hughes forecasts $7.25 EPS. With its $800m cash flow, the company is an LBO target, and a housing recovery and lower oil prices could send shares over $100.
- Investors likely overreacted in selling off Ericsson (ERIC) Friday after the company reported 14% earnings gains but lowered 2007 estimates. Recent acquisitions are progressing smoothly, and Ericsson's margins still rise above its peers despite their recent drop. It is well positioned at the high-end of cell-handsets.
- Wall Street was not enthralled with EMC Corp.'s (EMC) RSA acquisition 1/2-year ago. At an industry conference this week EMC is expected to roll out a new line of storage arrays with RSA's token authentication systems pre-loaded. This is a big deal for companies that operate PC centers to which many people need access -- but not to the storage arrays.
- After an initial jump, Dell Inc. (DELL) shares settled back to $23.50 after investors decided not much was likely to change with Michael Dell replacing Kevin Rollins as CEO. But Mr. Dell is respected within and outside of the company as a visionary, and his presence could help renew employee and investor confidence. The company is working to improve PC quality, and there are signs it will eventually revamp its sagging direct-sales model. Citigroup analyst Richard Gardner sees shares climbing 23% to $29.
- SVB Financial Group (SIVB) shares jumped when Merrill Lynch & Co. Inc. (MER) announced last week it was paying a 44% premium to acquire First Republic Bancorp Inc. (FRC). SVB's wealthy client base would be hard for a bigger bank to replicate, and its clients would benefit from the broad services of a big operation, making it a likely buyout candidate. SVB is less tied to residential mortgage weakness than most banks. Merrill Lynch analyst L. Erika Penala calls the stock one of the most attractively valued in the small-cap financial sector. Oppenheimer's Christopher Nolan thinks shares ($47) are worth $54, and $61 on a buyout.
- Allstate Corp. (ALL) shares dropped 7.6% in January after its operating income fell short of analyst estimates, and its decision to stop issuing guidance left some investors worried. But its shortfall was due to what's likely a fluke rise in injury severity, and the company has a stellar ROE of well over 20%. Its current price of $61 puts it at 1.7x book value, in-line with other insurers, but Allstate has historically commanded a premium. Bear Sterns analyst David Small has a $69 target.
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