New Century Financial Begins a New Chapter: 11
Battered subprime lender New Century announced yesterday it filed for bankruptcy protection under Chapter 11. It will receive up to $150 million in debtor-in-possession financing from The CIT Group and Greenwich Capital Financial Products. Also, it has entered an agreement to sell its servicing assets and platform to Carrington Capital Management for around $139m. Greenwich Capital will buy certain loans and residual interests in some securitized trusts for $50m. These sales are subject to Bankruptcy Court approval. CEO Brad A. Morrice called the sales agreements a "positive development," noting the difficult but appropriate decision of proceeding through bankruptcy protection. New Century said it will immediately cut its workforce by about 3,200, or 54%, in order to align its cost structure and in preparation for a possible sale of its businesses. Shares of New Century trading on the pink sheets lost 13.7% to $0.92.
Sources: Press release, MarketWatch, Reuters, The Wall Street Journal
Commentary: Troubled New Century Cuts Ties With Freddie Mac • Financial Sector: Sometimes Bad Gets Worse • US Mortgage Liquidity Crisis Spreading to Private Equity
Stocks/ETFs to watch: New Century Financial (OTCPK:NEWC), CIT Group (NYSE:CIT). Largest New Century Creditors: Barclays (NYSE:BCS), Citigroup (NYSE:C), Countrywide Financial (CFC), Credit Suisse (NYSE:CS), Goldman Sachs (NYSE:GS), Lehman Brothers (LEH), Morgan Stanley (NYSE:MS). Subprime Lenders: Accredited Home Lenders (LEND), Novastar Financial (NFI), Fremont General (FMT), Fieldstone (FICC)
Related: New Century Financial Restructuring Information web site
HARDWARE - TECHNOLOGY
Xerox to Acquire Global Imaging Systems for $1.5B
News that Xerox intends to buy Global Imaging Systems, an office technology dealer, for $29 per share in cash, sent Global's shares up 47% to $28.64. The transaction is expected to close next month, subject to antitrust approval and tender of at least a majority of Global's shares. It is the largest of three acquisitions made by Xerox over the past year. Global gives Xerox access to nearly 200,000 consumers, served by more than 1,400 sales representatives, increasing Xerox's distribution to small and mid-sized businesses by 50%. Xerox CEO Anne M. Mulcahy said she thinks it's a "very significant" transaction, calling it "sizable" and saying "it clearly transforms our ability to grow our top line." Global's sales totaled more than $1b for the year ending in Mar. '06 and net income was nearly $62m. Global currently does not sell Xerox products. Shares of Xerox gained 1.1% to $17.08 and have a 52-week trading range of $13.16 - $18.32.
Sources: Press release, Associated Press
Commentary: Xerox Does the Right Thing and Cuts Estimates - Will Analysts Follow Suit? • The Spirit of Honest Debate: Xerox Responds To Criticism
Stocks/ETFs to watch: Xerox (NYSE:XRX), Global Imaging Systems (GISX). Competitors: IKON Office Solutions (IKN). ETFs: PowerShares Dyn Hardware&Con Electronics (PHW)
Zell Wins Bid for Tribune at $34 Per Share
In what's being dubbed a "complex" deal, real estate mogul Sam Zell will invest $315 million in a two-stage transaction and take the Tribune Company private at $34/share, or $8.2b. In a press release, the Tribune says an Employee Stock Ownership Plan [ESOP] will hold all of the company's common stock after the transaction is completed via tender offer, with Zell holding a subordinated note and warrant allowing him to acquire 40% of Tribune's common stock. Zell will join the Tribune board after his initial $250m investment and will become chairman when the merger between Tribune and the ESOP closes. Dennis FitzSimons will remain president, CEO and a board member. The complexity of the deal -- which includes taking on as much as $13b in debt -- and the challenges facing the Tribune's newspapers (inc. the Chicago Tribune and L.A. Times) and broadcasting operations, means Zell, who has no background in media, will have his hands full. It's unclear how he plans to proceed, but it seems certain the Chicago Cubs baseball team will have to be sold, because he is part owner of the Chicago White Sox. Shares of the Tribune gained 2.2% to $32.81 yesterday, trading as high as $33.10 intra-day.
Sources: Press release, BusinessWeek, The Wall Street Journal
Commentary: Tribune Considering Two Sweetened Offers; Said to Be Favoring Zell • Will a Buyout Save The Tribune Company? • A Sam Zell Takeover May Be Tribune's Best Bet - Barron's
Stocks/ETFs to watch: The Tribune Co. (TRB). Competitors: Gannett Co. (NYSE:GCI), The New York Times Co. (NYSE:NYT), The Washington Post Co. (WPO), The McClatchy Company (NYSE:MNI)
Conference call transcript: Tribune Q4'06
Google to Broker TV Ads for EchoStar
Google and EchoStar are set to announce a deal today involving Google selling spots for TV commercials on EchoStar's Dish Network satellite service using an online auction system. Google will reportedly accept bids from advertisers based on an amount to be paid per 1,000 household commercial views, offering specific bidding for channels, times and regions. It will provide advertisers with data screened from EchoStar's set-top boxes, but will be limited at least initially, in terms of identifying and targeting commercials at individual viewers and matching with content from TV programs. Still, Google will be able to offer advertisers with better and faster commercial-related data than currently available. EchoStar has 13.1 million subscribers and broadcasts 125 TV channels. The Wall Street Journal notes EchoStar's executive VP of advertising said, 'Google would account for only a small percentage of the ads EchoStar has to sell.' The Journal also mentions eBay, with a group of large advertisers, is working on a similar system. The S.F. Chronicle says there will be no Google branding. Coverage by CNET includes comments by analysts who said cable TV offers better opportunities for direct interaction and ad targeting. Google is reportedly in discussions with several cable providers.
Sources: Associated Press, CNET, San Francisco Chronicle, The New York Times, The Wall Street Journal
Commentary: Google In the Running to Buy DoubleClick • Will Internet Companies Have to Share Profits With Telcos? • Competition for Spectrum Set to Spread to TV Airwaves
Stocks/ETFs to watch: Google (NASDAQ:GOOG), EchoStar Communications (NASDAQ:DISH), eBay (NASDAQ:EBAY), Yahoo! (NASDAQ:YHOO), DIRECTV Group (DTV), Time Warner (NYSE:TWX), Cablevision Systems Corporation (NYSE:CVC), Comcast (NASDAQ:CMCSA), Viacom (NYSE:VIA), TiVo (NASDAQ:TIVO). ETFs: PowerShares Dynamic Media (NYSEARCA:PBS), First Trust Dow Jones Internet Index (NYSEARCA:FDN), First Trust IPOX-100 Index (NYSEARCA:FPX)
Conference Call Transcripts: Google Q4'06, EchoStar Comm. Q4'06
Apple, EMI to Offer DRM-free 'Premium' Tracks, but No Beatles
As expected, Apple and EMI Group announced a deal yesterday to sell a large selection of the latter's music catalog on Apple's iTunes online music store, without anticopying (digital-rights management [DRM]) software. From next month, iTunes will sell DRM-free EMI songs with higher sound quality at 256 kbps, compared to the 128 kbps standard, but at a 30% premium: $1.29/song vs. $0.99/song. In a press release, Apple said iTunes customers can upgrade previously purchased EMI songs to DRM-free versions for $0.30/song. DRM-free means such songs from iTunes are playable on devices other than iPods. Also, due to the higher quality, songs will take up twice as much space. EMI also plans to offer DRM-free tracks to other digital music services. Analysts seem to agree other record labels will have to offer DRM-free tracks, especially if EMI's sales increase. Separately, The Wall Street Journal reports the European Commission sent a statement of objections to Apple and four music companies including EMI last Friday, regarding possible antitrust violations with the pricing structure of iTunes, in which prices vary by country. "Apple has always wanted to operate a single pan-European iTunes Store ... and we don't think Apple did anything to violate EU law," said a company spokesman. Shares of Apple gained 0.8% to $93.65 and EMI's OTC ADRs rose 3.5% to $9.00.
Sources: Press release, Associated Press, Bloomberg, Red Herring, The Wall Street Journal
Commentary: Steve Jobs Figures Dealmaking, Dollars Have Killed DRM • EMI Group To Sell Catalog on iTunes Without DRM Protection • Report: Warner Music Prepared to Sweeten Bid for EMI
Stocks/ETFs to watch: EMI Group plc (OTC:EMIPY), Apple (NASDAQ:AAPL). Competitors: Warner Music Group (NYSE:WMG), Sony (NYSE:SNE), Digital Music Group (DMGI), Napster (NAPS), Microsoft (NASDAQ:MSFT). ETFs: Internet Architecture HOLDRS (NYSE:IAH)
GM's Q1 Sales Strong in China, but Likely Down in U.S. for March
General Motors and its JV partners in China reported their sales in the world's second-largest and fastest growing auto market rose 25% in Q1, solidifying GM's leading market share at 13.9%. Q1 sales totaled 291,588 vehicles and in March alone, exceeded 100,000 monthly sales for just the second time ever. Buick -- GM's best-selling brand in China -- posted a 25.3% quarterly sales increase to 82,195 units. Separately, monthly U.S. sales results for March will be released this afternoon. A Bloomberg survey of 10 auto analysts shows GM's sales are expected to fall 3.2%, which among estimates for U.S. big-3 sales tops -5.5% for DaimlerChrysler and -13.8% for Ford. Sales for Japan's big-3 are expected to be positive in the single digits, led by Toyota. Analysts cite reduced rental car sales as the reason behind the monthly decline expected from GM and Ford. March was the peak month in '06 for Ford, GM and industry-wide U.S. auto sales.
Sources: Associated Press, Bloomberg
Commentary: Chrysler Receiving Bids, Worth Up to $9B -- Report • Big 3 Sit Down With President to Discuss Flex-Fuel Production • GM Vehicle Sales, U.S. Market Share Rise; Japan's 'Big 3' Continue to Roll [Feb.]
Stocks/ETFs to watch: General Motors (NYSE:GM), Ford (NYSE:F), DaimlerChrysler (DCX), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY)
ENERGY AND MATERIALS
Crude Oil Dips on Possibility of Iran-U.K. Diplomatic Resolution
Crude oil for May delivery edged $0.07 higher to $65.94 per barrel during normal trading in New York, after climbing as high as $66.69 intra-day, and trading as low as $65.49 (-0.7%) in after-hours activity, following comments by Iran's National Security Council chief, who said Iran doesn't see a need for the 15 U.K. sailors detained since Mar. 23 to face a trial. He also said Iran is "not interested in having this issue get further complicated." In London, Brent crude hit $69.54 intra-day, its highest level since last Sept. A broker at Altavest Worldwide Trading commented, "We could probably drop a couple of dollars" if tomorrow's U.S. gasoline inventory rose last week. Goldman Sachs analysts however, noted "In the current tight supply environment, a potential disruption of Iran's oil supply could have a very significant impact on global oil balances." Nearly 25% of the world's oil is transported through the Strait of Hormuz between Iran and Oman.
Sources: Bloomberg, Reuters
Commentary: Reaction to Iran Rumors: Energy Should Be Owned as a Geopolitical Hedge • Geopolitical Risk Returns • Gold Remains In Up Trend vs. Oil
Stocks/ETFs to watch: United States Oil Fund ETF (NYSEARCA:USO), Barclays Bank Zero Cpn ETN (NYSEARCA:OIL), PowerShares DB Oil Fund (NYSEARCA:DBO), Claymore MACROshrs Oil Down (DCR)
Big Nikko Shareholder Signals Unwillingness to Accept Citi's Bid
Orbis Investment Management, a 5.8% Nikko Cordial shareholder and among four non-Japanese funds owning a 25+ percent stake, placed a sell order today for 56.5 million shares on the Tokyo Stock Exchange at ¥1,900, or 11.8% above Citigroup's raised bid price of ¥1,700. Citi has already publicly stated its ¥1,700 bid, valuing Nikko at approximately $13.4 billion, is final (expiring Apr. 26). Leading overseas shareholders however, continue to voice their dissatisfaction, with some claiming Nikko is worth at least ¥2,000. Bloomberg reports sell orders today at ¥1,900 totaled 71 million shares, according to Instinet Japan. In a statement, Orbis said the sell orders "will be visible to the market in the order book" of the TSE, adding that "This open format permits the marketplace to decide what the shares are worth." A Tokyo-based fund manager commented, "It will be an incentive for Citigroup to raise the offer as it can monitor how many shareholders will be willing to sell at 1,900 yen." Separately, the Nikkei English News (not citing a source) reported a growing list of Japanese corporate shareholders appear willing to sell their stakes in Nikko to Citi at its raised offer price. Nikko's shares gained one yen (+0.06%) to ¥1,686.
Sources: Bloomberg, Reuters, Forbes XFN newswire
Commentary: Nikko Cordial: 6.6% Shareholder Southeastern Says Citi Bid Too Low • Citi Says Bid for Nikko is Fair; Citi Also Eying Growth in China • Mizuho Cuts FY Guidance; Plans to Accept Citi's Offer for Nikko
Stocks/ETFs to watch: Citigroup (C), Nikko Cordial (OTC:NIKOY) (JP: 8603), Mizuho Financial Group (NYSE:MFG). Competitors: Mitsubishi UFJ Financial Group (NYSE:MTU), Nomura Holdings (NYSE:NMR). ETFs: iShares S&P Global Financial Index Fund (NYSEARCA:IXG), iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF)
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