WSJ: Viacom Nears Online Video Deal With Joost.com
Viacom has come up with a solution to its ongoing copyright battle with Google's YouTube: give its content to someone who is willing to protect its copyrights. Enter Joost.com. The site, which went by the name The Venice Project until recently, is on the cusp of inking the deal Google hasn't been able to close despite months of negotiations, the Wall Street Journal reports. Viacom will provide Joost hundreds of hours of licensed programming from Viacom cable networks such as MTV and Comedy Central as well as movies from Viacom-owned Paramount studios. Unlike YouTube which features short-length, relatively low quality clips, Joost plans to run full episodes with high-quality resolution, creating a 'real TV experience online' according to founder Janus Friis. Joost's video service is still in beta testing but according the the website, Joost plans to roll out a fully functional version this year. While the companies didn't disclose financial details of the proposed deal, Viacom has received two-thirds of the advertising revenue in similar deals in the past.
Sources: Wall Street Journal, New York Times, MarketWatch, Joost.com
Commentary: Viacom's Joost Deal May Create Real YouTube Competition • Google Forced To Remove 100,000 Viacom Clips From YouTube • Viacom Plays Hardball With Google on YouTube; YouTube Capitulates
Stocks/ETFs to watch: Viacom (VIA). Competitors: Google (GOOG)
Sirius and XM Satellite to Merge - If They Can Clear Regulatory Hurdles
Satellite radio companies Sirius and XM have signed a merger agreement. The tax-free, all-stock deal values the combined company at $13 billion, including $1.6 billion in debt. Holders of XM shares would get 4.6 Sirius shares for each XM share they own. The deal would value XM shares at $17.02, 22% above their Friday close. The companies have lost $7 billion over the past eight years as they have battled for subscribers and high-profile talent, and their share prices have fallen 47% over the past year. Together, they can offer subscribers greater variety, including sports, news, and hosts like Oprah Winfrey and Howard Stern. The deal will require the creation of a new consumer radio that can receive both signals, and will require the FCC to waive a rule that forbids the merger. The DoJ, too, will need to decide whether the combination would violate antitrust regulations. Sirius and XM claim their marriage would not create a monopoly, since they compete with media offerings like iPods, cellphones, and HD Radio. In addition to regulatory issues, there is concern how Sirius investors will respond to the issuance of over a billion shares of rival XM, and doubts whether a combined company will be any better equipped to stem the slowdown in satellite subscriber growth.
Sources: Press release, Bloomberg, USAToday, CNN, MarketWatch (I, II), Wall Street Journal, TheStreet
Commentary: Bear Stearns Rekindles XM/Sirius Merger Chatter • Sirius and XM Soar on Merger Speculation, Tank on FCC Chairman's Comments • XM Softens Stance on a Merger with Sirius, But DoJ and FCC Stand in the Way
Stocks to watch: Sirius Satellite Radio Inc. (SIRI), XM Satellite Radio Holdings Inc. (XMSR). Competitors: Clear Channel Communications Inc. (CCU), Cumulus Media Inc. (CMLS)
EMI Shares Jump on 'Approach' from Warner Music
EMI's London-listed shares are up over 5.5% in intra-day trading following the firm's acknowledgement it received an "approach" from U.S. rival Warner Music Group. Some analysts believe a merger will pass regulatory scrutiny following recent profit warnings from EMI and continued struggles for the music companies. In a brief statement, EMI explains there is no proposal for its board to consider and says, "There can be no certainty that this approach will lead to any proposal or offer being made for the Company." Furthermore, EMI says, "If a proposal is made, it will be considered with a particular focus on conditionality, the regulatory and operational risk profile, and on valuation in relation to the Company’s stand alone value and the value creation available from a combination." EMI has previously rejected offers from both private equity and Warner. The ongoing attempt between EMI and Warner to join forces began in 2000.
Sources: Press release, CNN-Reuters, MSNMoney-FT.com
Commentary: Warner Music's Bronfman Takes On Steve Jobs Over DRM • Warner Music Earnings Down, Misses Forecasts • Financial Impact of Baidu-EMI Partnership Difficult To Assess; Likely Positive
Stocks/ETFs to watch: Warner Music Group (WMG), EMI Group plc (OTC:EMIPY). Competitors: Sony (SNE), Vivendi [Paris: VIV]
Dell Nabs Motorola's Ron Garriques To Run Its Consumer Unit
Motorola's loss is likely to be Dell's gain. Friday, Dell Inc. announced Motorola's Ron Garriques was leaving his post at the handset maker to run its consumer unit. Garriques (pictured) stepped down from his position as Executive VP in charge of Motorola's mobile devices business to assume his new post. Dell's consumer unit currently accounts for just 15% of its total sales; the hope is that Garriques will revitalize Dell's product design as he did with Motorola's best-selling Razr phone and thus help Dell recapture market share it lost to Hewlett-Packard and foreign computer makers such as Lenovo and Acer. The defection may spell bad news for Motorola as CEO Ed Zander tries to boost eroded profit margins.
Sources: Bloomberg, MarketWatch, Reuters
Commentary: Dell Jumps Back on the Consumer Bandwagon • Dell Needs Less Bland PCs To Target Retail Sales • PC Sales Jump on Demand for Vista
Stocks/ETFs to watch: Dell (DELL), Motorola (MOT). Competitors: Gateway (GTW), Hewlett-Packard (HPQ), Lenovo (OTCPK:LNVGY). ETFs: iShares Goldman Sachs Technology (IGM), iShares Dow Jones US Technology (IYW)
Wal-Mart Nears India Expansion
Details of a potential joint-venture between Wal-Mart and India's Bharti Retail are mostly one-sided, but it appears the two may finalize an agreement as early as this week to bring Wal-Mart into India. Multi-brand foreign retailers are only allowed to operate in India with a local joint-venture partner. Bharti said yesterday it plans to invest $2 to $2.5 billion by 2015 to build approximately 10 million square feet of stores, employing 60,000 across 30 Indian cities each with a population greater than 1 million. It is not clear whether the Wal-Mart brand will be used, but Bharti said it will own the stores. Wal-Mart has not said how much it plans to invest. At this stage Wal-Mart's role seems focused on providing supply-chain and technology management to the venture. Coverage by the Associated Press notes the Indian government has not raised any objections to a prospective deal so far, but a high ranking official warned last week any deal will be subject to scrutiny.
Sources: Press release, Forbes-AP, The Wall Street Journal
Commentary: Berkshire Hathaway: Notable 13F Changes • Retailers Post January Same Store Sales • Wal-Mart: Priced At a Discount With Room to Grow
Stocks/ETFs to watch: Wal-Mart (WMT). Competitors: Carrefour [Paris: CA], Tesco plc (OTCPK:TSCDY). ETFs: ML Retail HOLDRS (RTH), Consumer Staples Select Sector SPDR (XLP), Vanguard Consumer Staples (VDC)
TRANSPORT AND AEROSPACE
DaimlerChrysler Is Disclosing Chrysler's Financial Information to Suitors
DaimlerChrysler investors are cheering the news that the company is circulating Chrysler's financial information to prospective buyers. DCX shares have gained 5.5% since last Wednesday, when the company announced it was keeping "all options open" with regard to Chrysler, and reached a 5.5-year high in Frankfurt. J.P. Morgan Chase is circulating an investment book containing private data on Chrysler to interested parties and DaimlerChrysler has reportedly opened talks with GM on a possible sale. Renault and PSA Peugeot-Citroën, both of which have been out of Sources: New York Times, Wall Street Journal, MarketWatch
Commentary: Daimler-Chrysler: Does Divorce Really Loom? - Barron's • DaimlerChrysler Earnings: Chrysler Weak, Mercedes and Trucks Strong • DaimlerChrysler Takes a Serious Look at Chrysler Spinoff -- German Papers
Stocks/ETFs to watch: DaimlerChrysler AG (DCX). Competitors: Ford Motor Co. (F), General Motors Corp. (GM), Toyota Motor Corp. (TM). ETFs: iShares MSCI Germany Index (EWG)
JetBlue CEO Promises Big Changes After Week-Long Snafu
David Neeleman, CEO of low-fare airline JetBlue, expressed mortification that communications breakdowns had stranded passengers for almost a week and vowed to pay penalties in future to customers trapped on planes. JetBlue bet that an East coast ice storm last Wednesday would pass quickly and refrained from cancelling flights right away, as other airlines did. The storm intensified, and JetBlue ended up cancelling 1,000 flights within five days and shutting down service in 11 cities. At one point, nine full JetBlue planes sat on the runway at JFK for up to 10 hours. The company's communication system failed to cope: pilots and flight attendants were not where they were needed, and there was no method in place to contact them. Neeleman says he will enact a "customer bill of rights" that will pay stranded passengers -- a notion echoed by Democratic legislators Barbara Boxer and Michael Thompson, who are introducing bills requiring airlines to provide adequate food and water during delays and permit passengers to leave stranded planes. Neeleman will implement a communications upgrade within a week and will increase the size of the emergency staff. He expects the meltdown to be a "meaningful" factor in the company's Q1 results, though it is too soon to estimate the damage done.
Sources: New York Times, Wall Street Journal, Bloomberg
Commentary: There's a Reason There Is No Airline ETF • Why I'm Bullish On Airline Stocks • Jim Cramer's Mad Money Lightning Round Picks, Feb. 12
Stocks to watch: JetBlue Airways Corp. (JBLU). Competitors: AMR Corp. (AMR), Southwest Airlines Co. (LUV), UAL Corp. (UAUA)
ENERGY AND MATERIALS
Vulcan Materials Buys Florida Rock for 45% Premium Over Current Price
Vulcan Materials Co. announced yesterday it had agreed to acquire Florida Rock Industries Inc. for $4.6 billion in a cash and stock offer that provides a 45% premium to Florida Rock's current closing price. Already the biggest producer of highway construction materials in the U.S., the acquisition allows Vulcan to expand into a Florida building market that has been one of the nation's most profitable in recent years - and also one of the hardest hit in the housing downturn of the last year. The deal, which values Florida Rock shares at $68.03, will pay 70% in cash and supplement that with shares in Vulcan on a pro-rated basis. Another perk for Vulcan is an increase in its reserve of the crushed stone and sand used to make concrete, especially in resource-light Florida. The acquisition should close in the middle of this year. Shares in Florida Rock jumped $15.04, or 32.03%, to $62.00 on the news; competitor Rinker Group traded higher by 6.7% in Australia on hopes it too would be the target of a lucrative buyout offer from Cemex.
Sources: Press Release, Bloomberg, MSN/FT.com, Reuters (i), (ii), (iii)
Commentary: Cramer's Take on VMC • Ten Value Stocks To Consider (scroll to middle of post for FRK analysis)
Stocks/ETFs to watch: Florida Rock Industries, Inc. (FRK), Vulcan Materials Company (VMC). Competitors: Rinker Group Limited (RIN), Cemex S.A. B de C.V. (CX). ETFs: PowerShares Dynamic Bldg. & Const. (PKB)
Citigroup: Japan Expansion and M&A Could Bring Tokyo Exchange Listing
A Tokyo-based Citigroup spokeswoman acknowledged the bank is "considering a listing on the TSE" and said, "Japan is one of our key strategic markets and we are committed to it for the long term." Citigroup already has the largest foreign banking presence in Japan and last month said it plans to double the number of its retail outlets to 50 over several years. This all fits into a larger strategy involving local incorporation as a holding company by July, likely in order to take advantage of a change in law this May, allowing local foreign-owned subsidiaries to use shares in acquiring Japanese companies. However, Citi has encountered difficulties recently with some of its Japan operations including facing a possible delisting for brokerage Nikko Cordial, of which it owns a 4.9% stake. Also, a new law capping lending rates compelled Citi to reserve $375 million for losses and $40m for costs related to downsizing its consumer finance business.
Sources: Bloomberg, MarketWatch
Commentary: Eye on the Prize: Citigroup and Mizuho Battle for Nikko Cordial • Citigroup to Expand in Japan, Considers Listing on Tokyo Stock Exchange • Foreign Listings on Tokyo Stock Exchange Stagnant, Only 7 American Co's Remain
Stocks/ETFs to watch: Citigroup (C). Competitors: Mitsubishi UFJ Financial Group (MTU), Mizuho Financial Group (MFG), ABN Amro Holding N.V. (ABN). ETFs: iShares S&P Global Financial Index Fund (IXG), iShares Dow Jones US Financial Services (IYG), Financial Select Sector SPDR (XLF)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Barron's Excerpts
- No matter which platform wins the console wars, everyone needs games. Electronic Arts (ERTS) has positioned itself well, spending $200m/y developing games for cell phones and mobile devices. With a goal of reaching 20% market share, analysts are positive. Consensus is for EPS of $2.15-$2.30 towards 2009, triple this year, justifying its high P/E of 38 on 2007e earnings. Shares could jump from $51 to $65 within the year.
- Global guru David Herro looks for stocks trading substantially below their intrinsic value, with healthy cash flow, and whose management allocates capital astutely. He likes: GlaxoSmithKline (GSK), DaimlerChrysler (DCX) ["50% undervalued"], Honda Motor Co. (HMC) ["20% undervalued"], HSBC Holdings (HBC), Credit Suisse Group (CS), UBS (UBS), Publicis Groupe (PUB) and British Sky Broadcasting Group (BSY).
- Daimler-Chrysler (DCX) CEO Dieter Zetsche's recent suggestion Chrysler spinoff or sale may be in retaliation for the UAW's refusal to agree to the same wage and health care cuts as Ford and GM workers. Bulls see the stock at $80 if a buyer were found, but there are many challenges: A $2.5b 2006 loss with more on the way, and ongoing UAW disputes (pension and healthcare currently adds $1,000 to each car sold). Its troubles likely make Chrysler currently "unsaleable."
- Brown Forman's (BF.B) Jack Daniels is the #6 liquor in the world. Shares are down to $66 from $82 last March because of a slight earnings miss. Investors are overlooking consistent earnings growth, double digit forecasts, a growing global penchant for whiskey, and the potential of an LBO. Some analysts say the stock could reach $80 in 12 months.
- Timken (TKR) reported disappointing earnings of $0.37 a share (-63%) two weeks ago. Heavy reliance on the automotive industry (its parts are found in every U.S.-made vehicle) has backfired due to motor industry troubles. Its plans to become a specialty producer for aerospace, energy and rail equipment have convinced investors to hold the faith. They may need a lot of patience.
- Many feel Sony's (SNE) huge expansion into everything from movies to insurance have caused it to lose focus. Predictions of resurgence have often been premature, but a recent surge in share prices see its stock up 23% this year and above its 50- and 200-day moving averages. A sum-of-the-parts evaluation pegs Sony shares at 22% above today's prices. Recent cost-cutting in its semiconductor unit and market-share gains from its LCD section should pay off for investors.
- CONSOL Energy Inc. (CNX) shares are up 15.3% since the beginning of January when the weather turned cold. The hot streak leaves room for a substantial pullback. Margins are under pressure, changes in union conditions could add 5% to unit costs, and warm weather will strain future negotiations with utility companies. Sales are flat. Traders betting on a correction should buy puts: With shares at $35, March 35 puts trade at $1.25.
- On Wednesday a bipartisan group introduced a bill in Congress that would have the FDA give approval to generic biologic drugs, something traditional drugs have had for 20 years. Biotech's biggest customer is Medicare (which spent $3 billion on just three anemia drugs from Amgen Inc. (AMGN) in F2005), causing one analyst to remark "Amgen is obviously the big target here." Backers of the bill include General Motors Corp. (GM), Aetna Inc. (AET), Teva Pharmaceutical Industries (TEVA) and Express Scripts Inc. (ESRX). Other companies who have shown an interest in the bill: Novartis AG (NVS), Pfizer Inc. (PFE), Barr Pharmaceuticals Inc. (BRL), and Medco Health Solutions Inc. (MHS).
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