Icahn Pushes for Motorola Board Seat; Urges Postponement of Buyback
Activist investor Carl Icahn has sent a letter to Motorola's shareholders calling for the company to solve its operational problems before proceeding with a share buyback. He also urged shareholders to vote for his election onto the board at the company's May 7 annual meeting. "Until our operational problems are corrected, buybacks and other transactions that might have looked appropriate earlier need to take a back seat," Icahn said in the letter, dated April 12 and disclosed in an SEC filing on Friday. Icahn's affiliates hold a 2.9% stake in Motorola. At the end of March, Motorola warned it would post a Q1 loss and gave a grim 2007 forecast on weak cellphone sales. The company has lost a third of its value over the past five months, a situation for which Icahn holds the Board substantially responsible. "In my view," wrote Icahn, "an engaged Board of Directors should have been able to help Motorola avoid the missteps that currently plague its business." Motorola Chairman and CEO Ed Zander wrote a letter of his own in which he defended the Board and urged shareholders not to vote for Icahn. Motorola will not "'simply add' Carl Icahn to the Board to avoid a proxy fight," Zander wrote.
Sources: Wall Street Journal, Reuters
Commentary: Shareholder Activism At Motorola: The Power Of Free Markets • Icahn Files to Buy Another $2B Motorola Shares • Motorola's Shares Jump on News of Icahn Seeking Board Seat; Some Analysts Skeptical
Stocks/ETFs to watch: Motorola Inc. (MOT). Competitors: LM Ericsson Telephone Co. (ERIC), Nokia Corp. (NOK). ETFs: Broadband HOLDRs (BDH), Wireless HOLDRs (WMH), Vanguard Information Technology ETF (VGT)
Conference call transcripts: Q4 2006
Google to Buy DoubleClick for $3.1 Billion
Google announced on Friday that it will acquire Internet advertising company DoubleClick for $3.1 billion in cash. The deal, which follows Google's $1.65 billion acquisition of video-sharing site YouTube by only six months, is thought by some analysts to have been expedited by the interest rival Microsoft showed in the company. DoubleClick, which connects ad agencies and marketers with website publishers, was bought by private equity firm Hellman & Friedman for $1.1 billion in 2005. The purchase -- the largest in Google's history -- will integrate Google's targeted search-ad technology with DoubleClick's graphic display ad technology, allowing Google to offer a wider array of options to advertising customers. Branded visual ads are expected by some analysts to outpace search ads by H2 2007. Up to this point, most of Google's revenue has derived from short text ads that appear beside search results. DoubleClick brings Google an extensive roster of clients, including Time Warner's AOL and News Corp.'s MySpace. In the wake of the deal, Yahoo, Time Warner and Microsoft are charging Google with anti-competitive behavior. The transaction will be reviewed by either the Department of Justice or the Federal Trade Commission.
Sources: Wall Street Journal, Reuters, paidContent (I, II)
Commentary: Google Buys DoubleClick, Leaves Microsoft Way Behind • Google's Mad Dash [TheStreet.com] • Google Acquisition of DoubleClick Could Significantly Improve Its IP
Stocks/ETFs to watch: Google Inc. (GOOG), Microsoft Inc. (MSFT). ETFs: SPDR DJ Wilshire Large Cap (ELR), First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX)
Conference call transcripts: Google Q4 2006, Microsoft F2Q07 (Qtr End 12/31/06)
Google and Clear Channel Set to Announce Advertising Deal
Google and Clear Channel Communications are expected to announce a multi-year deal today featuring Google brokering a portion of Clear Channel's radio ads across its more than 650 stations. Financial details have yet to be provided, but Google will sell less than 5% of Clear Channel's ads, exclusively in 30-second spots. The arrangement will reportedly begin by the end of this quarter. News of this deal follows reports last week of a deal under negotiation between Google and DirecTV, which came a week after an announcement of an agreement between Google and EchoStar's Dish Network. The CEO of Clear Channel's radio division called the deal a "true win-win," saying, "Clear Channel Radio gets access to an entirely new group of advertisers within a new and complementary sales channel, and Google adds another option for its existing customers." Google Audio's national sales director commented, "This radio partnership with Clear Channel is a pretty big statement that Google is in the radio industry to stay and have a big impact." Google announces Q1 earnings on Thursday after the markets close and Clear Channel is unofficially scheduled to report on May 25. Separately, Wall Street Journal reports that two "big (unnamed) investment funds" said parties involved in the Clear Channel deal had reached out to them at the start of last week to suggest terms that might satisfy them. Further, Goldman Sachs met with Clear Channel's board Sunday to discuss last minute options, including a special private security that would give shareholders the rights to some of the private company's future cash flow.
Sources: Associated Press, Wall Street Journal I, II
Commentary: Google to Buy DoubleClick for $3.1 Billion • Google, DirecTV Advertising Deal in the Works • Clear Channel Communications: Get Up, Stand Up - Shareholders Fight Back
Stocks/ETFs to watch: Google (GOOG), Clear Channel Communications (CCU), DirecTV Group (DTV), EchoStar Communications (DISH), Liberty Media Capital (LCAPA), eBay (EBAY), Yahoo! (YHOO), Time Warner (TWX), Cablevision Systems Corporation (CVC), Comcast (CMCSA), Viacom (VIA), TiVo (TIVO), News Corp (NWS). ETFs: PowerShares Dynamic Media (PBS), First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX)
Conference call transcripts: Google Q4'06
McDonald's Reports Better Than Expected Same Store Sales, Ups 1Q Forecast
McDonald's announced Friday that its first quarter results should easily surpass Wall Street's expectations, sending its shares higher by more than 2% in composite trading, their highest level since before 2000. Mickey D's credits robust March results, international growth and demand for its Snack Wrap and other new offerings as powering its better than expected first quarter results. McDonald's is now expecting to report EPS of $0.62 a share, versus prior Thomson Financial consensus estimates of just $0.57 per share in 1Q07. The company also reported U.S. same store sales rose 6.2% in March and that was on the low end globally, where same store sales jumped 8.2% for the month; Reuters analysts were expecting less than 4% growth. Powering the global numbers were European same-store sales which rose 11.2%, while same store numbers climbed a combined 9.6% for the Asian-Pacific, Middle East and African regions. McDonald's plans to continue its overseas push, especially in China, where it first opened drive-through branches last year.
Sources: Reuters, Wall Street Journal, AP, Forbes
Commentary: McDonald's Versus Starbucks: McBucks? • Ronald McDonald's Rivals May Not Be Grinning - Barron's • Cramer's Take on MCD
Stocks/ETFs to watch: McDonald's Corporation (MCD). Competitors: Burger King Corp. (BKC), Yum! Brands Inc. (YUM), Wendy's (WEN), Starbucks Corp. (SBUX). ETFs: Consumer Discretionary SPDR ETF (XLY), PowerShares Dynamic Food & Beverage (PBJ), Vanguard Consumer Discretionary VIPERs (VCR)
TRANSPORT AND AEROSPACE
Nissan Likely to Miss Next FY Sales Target
Nissan announced today it might have to extend its vehicle sales target for the fiscal year ending March 2009, by another year. This news comes after disappointing Q3 earnings and a projected decline in annual earnings (through Mar. '07) -- its first in seven years -- on sustained weakness at home, and in N. America where demand was particularly hurt by a lack of new models at Nissan and luxury brand Infiniti. In April '05, as part of CEO Carlos Ghosn's three-pronged "Nissan Value-Up Plan," Nissan set a target of 4.2 million vehicle sales for the one year period ending in Mar. '09. A spokeswoman said Nissan still plans to achieve its two other goals of having the highest operating profit in the global auto industry and an average ROIC of 20%. Ghosn is expected to provide more details when Nissan reports Q4 and FY earnings on Apr. 26. Ordinary shares of Nissan lost less than a tenth of a percent today to ¥1,227 ($20.55 ADR equiv. at ¥119.4/$1), after falling 1.9% on Friday.
Sources: Bloomberg, The Wall Street Journal
Commentary: GM's Q1 Sales Strong in China, but Likely Down in U.S. for March • Carlos Ghosn To Cease Heading Nissan's N. American Operations • Nissan's Earnings Disappoint Across the Board, Outlook Lowered
Stocks/ETFs to watch: Nissan (OTCPK:NSANY) [JP: 7201]. Competitors: Toyota (TM), Honda (HMC), General Motors (GM), Ford (F), DaimlerChrysler (DCX)
ENERGY AND MATERIALS
ConocoPhillips, Tyson to Manufacture Diesel Fuel from Animal Fat
In a bid to capture a greater share of the growing alternative energy market, ConocoPhillips and Tyson Foods have reached an agreement to manufacture "renewable diesel" fuel out of animal fat. Tyson will transport beef, pork and chicken fat from a Texas processing plant to a local ConocoPhillips refinery. ConocoPhillips is planning to modify several other refineries for the purpose. President Bush has urged use of renewable fuels to combat the country's dependence on Middle Eastern oil. Environmentalists, too, have pressed energy companies to boost renewable fuel production. Tyson has access to an annual 2.3 billion pounds of animal fat, or 20,000 barrels a day of renewable fuel feedstock. Renewable diesel, unlike biodiesel, will be manufactured in oil refineries using a chemical process similar to that which converts crude oil into motor fuel. ConocoPhillips and Tyson view renewable diesel as more congruent with their product lines and equipment than either biodiesel or corn-based ethanol. One 42-gallon barrel of renewable diesel requires approximately one barrel of animal fat, which derives from either two steers, 16 hogs or 1,300 chickens. Over the next 18 months, the companies plan to ramp up to an annual 175 million gallons of renewable diesel, well beyond the average 40 million gallons produced by biodiesel plants.
Sources: Wall Street Journal, Reuters
Commentary: Tyson Foods: Earnings Disappoint; Looks To Turn Animal Fat Into Fuel • Why ConocoPhillips is a Buy and Hold • Ethanol: You Can Bet The Farm On It
Stocks/ETFs to watch: ConocoPhillips (COP), Tyson Foods, Inc. (TSN). Competitors: Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Pilgrim's Pride Corp. (PPC), Smithfield Foods Inc. (SFD). ETFs: PowerShares FTSE RAFI Energy (PRFE), Vanguard Energy ETF (VDE), Rydex S&P Equal Weight Consumer Staples (RHS), Rydex S&P 500 Pure Value (RPV)
Conference call transcripts: ConocoPhillips Q4 2006
Bidding On UAE Sour Gas Project May Reach $10 Billion
At least five multinational oil companies have placed bids on a new oil development project in the United Arab Emirates, in collaboration with state-run Abu Dhabi National Oil Company [ADNOC]. The giant sour gas project in expected to fetch as much as $10 billion in international bidding, with the winner taking 40% of the project and ADNOC taking the rest. The project opens up Middle Eastern oil development to outside players usually not allowed to take a part as Saudi development is off limits to outsiders and Qatar has a moratorium on new projects. The list of current bidders includes BP, Royal Dutch Shell, Total, ConocoPhillips and Occidental Petroleum Corp., industry sources said. ADNOC had invited bids from other major American oil companies including Exxon Mobil and Chevron.
Sources: Reuters, GulfNews.com
Commentary: The Nor'easter May Be Good for Natural Gas Stocks • Understanding OPEC: Cheaters Never Win • IEA Warns of Low Global Oil Production, Diminishing Stocks
Stocks/ETFs to watch: BP (BP), Royal Dutch Shell (RDS.A), Total (TOT), ConocoPhillips (COP), Occidental Petroleum Corp. (OXY). Competitors: Exxon Mobil (XOM), Chevron (CVX). ETFs: SPDR Oil & Gas Exploration & Production ETF (XOP), iShares Dow Jones U.S. Oil & Gas Exploration/Production (IEO)
Sallie Mae to be Taken Private for $25 Billion -- WSJ
Student loan provider Sallie Mae has agreed to be acquired in a complex transaction by two private equity firms and two investment banks for $25 billion, according to the Wall Street Journal. JC Flowers & Co. and Friedman Fleischer & Lowe will share a 50.2% stake in the company while J.P. Morgan and Bank of America will each hold 24.9%. The group will pay $60 per share, a near-50% premium to the shares' Thursday close prior to news that a deal might take place. The group beat out the Blackstone Group, which considered making a $20 billion offer for Sallie Mae over the weekend. J. Christopher Flowers, CEO of his namesake firm, said Sallie Mae attracted him -- despite the traditional reluctance of private equity firms to invest in financial services companies -- because student lending is growing, the investor group can increase the company's growth rate, and Sallie Mae is generating strong cash flow. The sale should enable Sallie Mae to move further into private student loans, which carry higher rates and fees -- but will also likely intensify ongoing federal scrutiny of the terms of those loans. The deal closely follows Sallie Mae's $2 million settlement with the New York Attorney General over deceptive sales practices.
Sources: Wall Street Journal (I, II), Reuters, Bloomberg
Commentary: Sallie Mae Might Go Private -- New York Times • Sallie Mae Looks Oversold - Barron's • Sallie Mae's Hard Lesson: Washington Giveth, Washington Taketh Away
Stocks/ETFs to watch: SLM Corp. (SLM), Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM). Competitors: KeyCorp (KEY), Student Loan Corp. (STU), Nelnet, Inc. (NNI), The First Marblehead Corp. (FMD)
Trio of European Banks Eyes ABN Amro
A consortium of three of the biggest banks in Europe has approached ABN Amro about a possible takeover, potentially disrupting ABN's talks with Barclays. The Royal Bank of Scotland [RBS] has joined forces with Spain's Banco Santander Banespa Spa and Belgium's Fortis in asking ABN to share its books after its period of exclusivity with Barclays ends tomorrow. ABN is under pressure from activist shareholders to exact the highest price possible, so it is expected to grant the trio access to its financial data -- particularly as RBS will allegedly "go hostile" if its friendly overture is rebuffed. The trio's joint bid is said to entail the breakup of ABN's retail and wholesale operations. RBS would take over ABN's U.S. retail bank, LaSalle, and ABN's wholesale bank in London; while Santander would take ABN's assets in Brazil and Italy and Fortis would acquire ABN's Benelux assets. Analysts believe the group's higher cost savings should allow it to offer upward of €40 per share, while Barclays is said to have a ceiling at €35.
Sources: Wall Street Journal, Reuters, Forbes
Commentary: Hedge Fund Threatens Legal Action Unless ABN AMRO Listens to All Offers • Barclays To Acquire ABN: Long-term Investor Horizon Required • Citigroup Advising Barclays on ABN Amro Bid
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (DB), UBS AG (UBS). ETFs: First Trust Morningstar Div Leaders Idx (FDL), PowerShares Intl Dividend Achievers (PID), iShares MSCI Netherlands Index (EWN)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Even at a rich 28.6x 2007e earnings, vs. rival Microsoft's (MSFT) 19x), shares of Adobe (ADBE) may be cheap. Conservative 20% growth estimates could easily come in as high as 30%, and its free cash flow (over 30% of sales) makes it one of the most cash-rich stocks around. Initial reviews of its much-anticipated CS3 suite have been 'strikingly favorable.' Its Flash software dominates close to 99% of user-submitted web video content, as well as online video ads which are growing in triple digits. Even bigger may be the potential growth in mobile video on iPods, cellphones and gadgets. Bulls say shares ($41.64) should hit at least $50 (+20%) within a year.
- Veteran analyst Charles Wolf isn't concerned about Apple's (AAPL) recent delay of its newest OS release. The news shaved 1.6% off Apple shares Friday morning, to $90.68. But Wolf says, "The long-term impact will be absolutely zero," though "it might postpone the upgrade cycle by a quarter or so." The company's fiscal year ends in September, so Wolf has lifted his 2008 profit forecast by $0.10 to $3.85/share.
- Barron's is underwhelmed by Irish budget airline Ryanair's (RYAAY) planned foray into the transatlantic market ('Ryanair USA'). The airline saves money by flying to cheaper airports about 60 miles outside of big cities, and turns its planes around in just 25 minutes. Cross-Atlantic travel regulations that require minimum 12-hour between-flight breaks will force its current 13% staff costs way up, and the larger planes required won't allow for such efficient turnaround times. Barron's suggests CEO Michael O'Leary recall his own late-2005 comment: "Somebody at some stage is going to do a long-haul low-cost airline. Will it be successful? I doubt it."
- Barron's interviews International guru Jason Trennert, a 15-year veteran of International Strategy & Investment Group. He is bullish U.S. stocks -- but worried about emerging markets. He thinks it might be late to join the private equity party, says a U.S. recession is very unlikely with both corporate and consumer markets at very strong levels, finds the concerns over reduced mortgage equity withdrawals on the economy overrated, and sees interest rates down slightly through year-end. He's bullish tech (undervalued/overpunished) and biotech (any +$1 billion company is a takeover candidate). His current asset allocation: 75% equities, 10% bonds and 15% cash.
- Office Depot's (ODP) 30% annual earnings increase since 2005 show it's recovered from the dot.com office bust, price wars and market share loss. Its 15 P/E ratio is lower than Staples' 18. Office Depot earned $1.94/share on $15b revenue in 2006, should earn $2.31 this year, and $2.70 in 2008 -- equaling 17% growth. Shares are down 25% to $35 from a high of $46.52. Its low P/E and healthy earnings growth give it a mid-$40s upside.
- Last Thursday boat retailer MarineMax (HZO) reported a 20% drop in Q1 sales and issued another profit warning. Shares of leisure-boat maker Brunswick (BC) dropped 4% on the news. Brunswick may not be able to cut production fast enough to avoid excess inventory; price discounting may lead to further margin pressure. Small-boat buyers are among the hardest hit by post-adjusted interest rates and rising fuel costs, and analysts' hopes that earnings, currently at $1.80/share, have bottomed and will soon return to $2.15, are unrealistic.
- Biosite's (BSTE) buyout generated enough Cepheid (CPHD) buyout rumors to move shares from March's $7.40 to Friday's $12.19. But at a current 5.5 P/E on 2007e revenue -- the same as Biosite's final price -- there's little upside. 2006 losses of $26 million are double 2005 losses, and revenues grew just 3%. Bioterrorism products like anthrax screening are down 17%. Its other key product, staph infection tests, are up against stiff competition from competitor Becton Dickinson (BDX).
- Late February sneaker maker K-Swiss (KSWS) reported an 18% drop Q4 domestic sales. At $27, shares are down over 25% from October highs. CEO Steven Nichols is determined to create a turnaround by sharpening design, widening product development and going deeper into the sports arena. At 13.8x 2007e earnings, the stock may be cheap. Shares could hit $32.
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