TPG, Goldman Private Equity Buy Alltel for $27.5 Billion
TPG Capital and Goldman Sachs' private equity unit said Sunday they had agreed to acquire #5 U.S. wireless provider Alltel Corp. for about $27.5 billion. The buyout price, $71.50/share, is about 10% higher than Friday's close of $65.21, and a 23% premium on its price since it was identified as a target in December. The deal is the largest ever buyout in the telecom sector. People familiar with the matter said the deal was rushed through because the buyers needed the liquidity available in today's debt markets in order to finance the deal. They said two other groups, one consisting of Providence Equity and Blackstone, and the other KKR and Carlyle, were expecting the auction to end on June 6, and were surprised by Sunday's announcement. The group will put up $4 billion of its own funds; a Citigroup consortium is making 'bridge' loans of another $600 million. It's unclear how Alltel shareholders will perceive the deal, but in other recent buyout attempts, shareholders have often pushed to reject initial offers in the hopes of something more. TPG founding partner Jim Coulter said in the press release: "Alltel is a great company with a terrific management team... we look forward to working with them to continue to grow one of the nation's premier wireless providers." Other telecom providers whose names have been circulated as possible buyout targets include BCE (KKR and three pension funds) and Sprint-Nextel. Alltel shares are up 5.3% in the pre-market to $68.65; Goldman Sachs shares are up 0.4% to $231.25; Sprint-Nextel shares are up 1.5% to $21.10.
Sources: Press release, Wall Street Journal, New York Times
Commentary: Alltel Still A Pricey Buy • Corporate Debt Picks for a High Risk Market • Goldman Sachs Loves Blackstone - Just Starting Own Buyout Fund, That's All
Stocks/ETFs to watch: Alltel Corp. (AT), Goldman Sachs Group Inc. (GS), BCE Inc. (BCE), Sprint Nextel Corp. (S)
Conference call transcript: Alltel Q1 2007, Goldman Sachs F1Q07
AT&T Rebrands Ahead of iPhone Launch
AT&T will Monday begin the final phase of an estimated $1 billion rebranding campaign, changing the name of its retail chain from Cingular to AT&T. The company hopes a single name will convince shoppers AT&T is a one-stop shop for long-distance/local phone service, wireless, TV and internet access. The final phase comes just before AT&T begin selling the Apple iPhone, slated for release in June. Apple and Cingular announced in January that Cingular would be the only iPhone carrier; the companies have since received more than a million inquiries about the phone. "The iPhone is one of the most anticipated handsets ever in the wireless industry, and we want to make sure that every drop of equity from the iPhone accrues to the AT&T brand," AT&T spokesman Michael Coe said. Some analysts believe AT&T is associated by younger consumers as a "stodgy institution," but VP Wendy Clark says the company is confident younger consumers will appreciate the breadth and sophistication of its offerings. The company said the campaign thus far has performed above expectations. The final phase will launch with the tagline: "Your world is wireless. AT&T is wireless."
Sources: New York Times, Reuters
Commentary: AT&T May Offer $50-$150 Rebate On iPhone • Cingular Hopes iPhone Will Distract Consumers From Unreliable Voice Service • Minor iPhone Impact on AT&T • The iPhone Effect: What Will Happen to Apple's Other Products?
Stocks/ETFs to watch: AT&T Inc. (T), Apple Computer Inc. (AAPL)
Conference call transcript: AT&T Q1 2007, Apple F2Q07
Google and Salesforce.com Discussing Alliance -- WSJ
The Wall Street Journal reports Google and Salesforce.com are discussing an alliance aimed at competing against mutual rival Microsoft, according to sources familiar with the matter. A deal could be announced in the next few weeks. The two are seen combining their online services and software offerings in a single package for corporate customers. Google offers a variety of online services including email, instant-messaging, a calendar and word processing and spreadsheets as part of its Google Apps. Salesforce.com provides online customer relationship management services. Microsoft has similar products, and has been gradually expanding them to the web. Separately, Google announced a Partner Edition of its Apps on Friday, which allows third-parties to build Google's services into their own products. There is both a free and paid package; the latter includes phone support, branding and advertising features.
Sources: Wall Street Journal
Commentary: Google Unveils "Universal Search," New Features • Microsoft Pays Up for aQuantive • Salesforce.com Swings to Q1 Profit
Stocks/ETFs to watch: Google (GOOG), Salesforce.com (CMR), Microsoft (MSFT). Competitors: Oracle (ORCL), SAP AG (SAP). ETFs: First Trust Dow Jones Internet Index (FDN), iShares S&P GSTI Software (IGV), PowerShares QQQ (QQQQ)
Conference call transcripts: Google Q1 2007, Salesforce.com F1Q08, Microsoft F3Q07
Clear Channel to Launch Ad-Supported Radio/Cellphone Platform
Clear Channel Communications will launch Monday an advertising-supported program that enables radio listeners to text-message song requests from their cell phones and get real-time traffic updates. In September Clear Channel tested a $2.99/month service with Cingular Wireless customers that included streaming live broadcasts, but now says it's dropping that test and pursuing the free model, minus streamed broadcasts. The new program involves five New York area stations, and will be accessible to anyone with a SMS-enabled cellphone. It plans to launch similar programs on up to 100 more radio stations over the next 1.5 years. CEO John Hogan was vague about specific terms, but said companies would pay "for the number of people we are able to reach." Other uses for the platform include viewing playlists and participating in contests and polls.
Sources: CNET News.com, Reuters,
Commentary: Clear Channel & Citadel: There's Still Life In Radio • The Consolidation of Local Media • Clear Channel Buyout Vote: No Is the Way to Go - Barron's
Stocks/ETFs to watch: Clear Channel Communications Inc. (CCU). Competitors: Citadel Broadcasting Corp. (CDL), Cumulus Media Inc. (CMLS), Yahoo! Inc. (YHOO), Google Inc. (GOOG)
Conference call transcript: Clear Channel Q3 2006
Providence Equity Mulls $15 Billion Bid for Virgin Media -- The Observer
A private equity consortium led by Providence Equity Partners is weighing a $15 billion bid (£7.5 billion) for Virgin Media, according to The Observer. The other parties to the consortium are Blackstone, KKR and Cinven. Richard Branson is the largest shareholder in Virgin Media, which is the product of a recent merger between NTL, Telewest and Virgin's cellphone unit. Last summer, the Providence consortium attempted to buy Virgin Media for $31 per share, but was thwarted by opposition from investor Bill Huff, who has since reduced his holding. The share price has fallen to $24 on a drop in customers in Q1 2007 and concerns over a content dispute with cable company BSkyB. Last year, BSkyB prevented Virgin Media from taking over ITV by buying a blocking stake. The two companies are now squabbling over how much BSkyB should receive for its channels being broadcast on Virgin's cable network. If the takeover occurs, Branson could net $400 million.
Sources: The Observer, Reuters, Forbes
Commentary: Virgin Media Poised to Monetize Infrastructure Investment - Barron's • Virgin Media: The Lady Doth Protest Too Much • Virgin Media: This Cherry is Not Worth Plucking
Stocks/ETFs to watch: Virgin Media Inc. (VMED). Competitors: British Sky Broadcasting Group plc (BSY), BT Group plc (BT). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (PEJ)
ENERGY AND MATERIALS
Atlas Energy to Acquire DTE's Antrim Shale Gas E&P Properties
Atlas Energy Resources, a limited liability company that produces natural gas primarily in the Appalachian Basin, will purchase DTE Energy's Antrim Shale gas exploration and production properties for $1.23 billion in cash. The properties are in the northern part of Michigan's lower peninsula. Atlas forecasts that it will distribute $2.20-2.40 per common unit in 2008 and plans to increase its distribution coverage ratio from 1.1x to 1.2x. At $2.30, this would amount to a 34% premium over Atlas's current distribution rate of $0.43 per quarter, or $1.72 annualized. Atlas will finance the transaction by selling $600 million in shares in a private placement. DTE's board has authorized up to a $1.55 billion common share buyback, up from $700 million. DTE is expecting after-tax proceeds of $1.25-1.55 billion by the end of the year. The deal is expected to close at the end of June. DTE will hold a conference call to discuss the asset sale at 8:30 Monday morning.
Sources: Press release, EarthTimes.org, MarketWatch, MSNmoney
Commentary: The Top Dividend Paying ETFs and Stocks • Ten Highest Yielding Electric Utility Stocks • Atlas America and Other Long Picks in the Oil & Gas Sector
Stocks/ETFs to watch: Atlas Energy Resources, LLC (ATN), DTE Energy Co. (DTE). Competitors: CMS Energy Corp. (CMS), Integrys Energy Group, Inc. (TEG), Wisconsin Energy Corp. (WEC), EOG Resources, Inc. (EOG), Equitable Resources Inc. (EQT), Penn Virginia Corp. (PVA). ETFs: WisdomTree Dividend Top 100 (DTN), Rydex S&P 500 Pure Value (RPV), iShares Dow Jones Select Dividend Index (DVY)
Related: Atlas Energy Resources: IPAA Oil & Gas Investment Symposium Presentation Transcript
Hologic Acquiring Cytyc for $6.2 Billion
Diagnostic imaging company Hologic Inc. is acquiring Cytyc, a medical device manufacturer, for $6.2 billion in cash and stock. Cytyc shareholders are to receive 0.52 shares of Hologic common stock and $16.50 in cash for each share of Cytyc stock. That amounts to $46.46 per share, a 33% premium to Cytyc's Friday close. Both companies are leaders in women's healthcare: Hologic is known for its digital breast cancer screening and Cytyc for its minimally invasive surgical treatment for menorrhagia, a menstrual disorder. Cytyc's core business is Pap smear tests for cervical cancer, a business that has slowed recently as research has shown that they don't need to be done as often as was previously thought. Cytyc's device sales, particularly the menorrhagia device, have outperformed the Pap smear test business. In 2006, Cytyc posted revenue of $608 million, up 20% from the year before. Hologic's digital mammography machines, though relatively expensive, have been popular among doctors because of their crisp images. Hologic saw sales of $463 million in fiscal 2006 and its stock has risen sevenfold in five years. The transaction is expected to close in Q3 and is forecast to add to Hologic's earnings in the first year thereafter. For fiscal 2008, combined sales are projected at over $1.7 billion and combined adjusted EPS at $2.35-2.40.
Sources: Press release, Forbes, New York Times, MarketWatch, Reuters, Wall Street Journal
Commentary: Biotech Day In Review: Merger Monday [Feb 13th, 2007] • Cytyc Buys New Device; Q3 Results Promising • Negative CAD Research Shouldn't Impact Hologics, iCAD
Stocks/ETFs to watch: Hologic, Inc. (HOLX), Cytyc Corp. (CYTC). Competitors: Boston Scientific Corp. (BSX), Digene Corp. (DIGE), Koninklijke Philips Electronics NV (PHG). ETFs: HealthShares Diagnostics (HHD), iShares S&P SmallCap 600 Growth (IJT), PowerShares Value Line Timeliness Select (PIV), Rydex S&P Midcap 400 Pure Growth (RFG)
China's State Investment Co. to Take $3B, 9.9% Stake in Blackstone
On Sunday the Chinese government announced plans to invest $3 billion in U.S. private equity firm Blackstone Group; its 9.9% stake will not require U.S. govt. approval and it also voluntarily abandoned any voting rights. The announcement comes ahead of Tuesday's second biannual U.S.-China Strategic Economic Dialogue. "This is a huge sign that the country is prepared to recycle its reserves and liberalize capital flows from China," said Steve Schwarzman, co-founder of Blackstone. As part of the transaction, Central Huijin (the investment arm of the People's Central Bank of China) agreed not to sell shares for four years and will not invest in rival private equity firms for one year. It will receive a 4.5% discount to the public offering price. Blackstone's IPO is scheduled for June and will be expanded to $7b to include the investment from China. The PBoC announced in March that Central Huijin will manage a portion of the nation's foreign reserves now exceeding $1.2 trillion. Blackstone is its first investment.
Sources: Bloomberg, Wall Street Journal
Commentary: China Loosens Clamp on Yuan, Tightens Rates and Reserve Ratio • Beijing Ready to Take on More Risk with Foreign Reserves • Global Sources: Profit from China's Growing Trade Surplus
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT), PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE), CurrencyShares Japanese Yen Trust (FXY)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Barron's says many companies are missing the shift in retail demand for yield by not paying dividends, or paying less than they should. Stocks investors can turn to for yield: (1) Windstream Corp. (WIN), Citizens Communications (CZN) are the only S&P 500 companies that yield above 6%. Washington Mutual Inc. (WM) [5.1%] is the only other company over 5%. (2) Banks: U.S. Bancorp (USB), Bank of America (BAC) and Citigroup (C) yield over 4%. (3) Coca-Cola (KO), PepsiCo (PEP), Proctor & Gamble (PG), Altria (MO) and Bank of America have raised dividends for 25 years straight. (4) Pfizer (PFE) leads the drug sector at 4.2%. (5) Foreign oil stocks like BP (BP) and Royal Dutch Shell (RDS.A) at 4% out-do U.S. counterparts. Other foreign stocks also fare better: Vodafone (VOD), Deutsche Telekom (DT), HSBC (HBC) and British American Tobacco (BTI) all range from 4-5%. (6) Reynolds American (RAI) and Consolidated Edison (ED) -- 4.5%. Verizon (VZ) -- 3.8%. New York Times (NYT) -- 3.7%.
- Just 45% of sheetrock maker USG's (USG) $5.8 billion in revenue derive from new homes; the rest comes from residential remodeling (15%) and commercial construction (40%) markets. This seems to have been lost on investors; shares trade at less than half of their pre-bubble prices. Berkshire Hathaway owns 17% and counting. When the housing market turns, USG shares could double back to over $90.
- With Cerberus assuming Chrysler's $18 billion in unfunded medical benefits, the new Daimler is a bargain. Mercedes made €792 million in Q1 2007, vs. a €735 loss a year ago, and truck unit profits were up to €528 million from €422 million. New models are set to share components, boosting profitability. If Cerberus turns Chrysler profitable, Daimler could reap more from its remaining 20% than it did when it owned the company. Analysts say shares (now $87) are worth over $100.
- Cliff Hoover of Dreman Value Management looks for low-P/E and dividend stocks trading below their intrinsic value. He likes: (1) ConocoPhillips (COP) -- 7.5x earnings and 5x cash flow. (2) Smaller exploration/production companies like Anadarko Petroleum Corp. (APC), Devon Energy Corp. (DVN) and Apache Corp. (APA) should be taken out within two years. (3) Amgen Inc. (AMGN) -- recent selloffs have brought share prices down to very attractive levels. (4) Pfizer Inc. (PFE) is on sale. (5) Bank of America Corp. (BAC) at 10x earnings, 10% earnings growth and a 4%+ yield. (6) Fannie Mae (FNM) and Freddie Mac (FRE) will benefit from mortgage lending problems as smaller players fold.
- Concerns over its mortgage insurance portfolio have seen Genworth Financial (GNW) shares underperform. But it has relatively light subprime exposure. Its 10x 2008e earnings multiple trails the industry by 13%, and its 1.2x book value multiple makes for a 28% discount. Management foresees 8-10% revenue growth and 12-15% earnings growth over the next three years. Olstein analyst Tim Kang sees shares up 24% in the next 1.5-2 years.
- Just because everyone seems to believe the acquisition fever is in itself making stocks drop-dead attractive doesn't make it wrong -- yet." Average buyout premiums of only 20-30% leave room to go up before M&A fever subsides. Deals have been logical, if pricey. Investors still have plenty of time enjoy the 'resilient ticker tape' before they need to get out. HSBC's Kevin Gardiner: "The froth is yet to come.
- Worries about subprime fallout have kept regional bank stocks flat. Fund manager David Ellison suggests buying banks with deep deposit bases: (1) Cullen/Frost Bankers Inc. (CFR) -- its current $13.2 billion in assets includes $10.3 billion in deposits. Its 4.65% net-interest margin makes it "the envy of [its] peers." Shares (now $52) could hit $62 within the year. (2) Seacoast Banking Corp. of Florida (SBCF) -- $2 billion of its $2.5 billion in assets are from deposits, and non-interest-bearing deposits account for a full 20% of its base. Shares (now $23.50) could hit $27 within the year. Both should benefit from their attractiveness to bigger banks.
- Xinhua Finance Media Limited [ADR] (XFML) provides financial news, stock indexes and ratings for the Chinese markets. A March U.S. IPO raised $300 million, and it bought "hard-hitting proxy advisory firm" Glass Lewis. But last week Glass Lewis's head of research and its managing director resigned after learning that Xinhua's prospectus failed to mention that then CFO Shelly Singhal is being tried for racketeering, and has been a major investor in two "outrageous frauds." CEO Freddy Bush now admits she intentionally omitted the information on her lawyers' advice.
- In February, Nokia (NOK) announced it would be buying chips for its entry-level cellphones from Infineon (IFX), a blow to Texas Instruments (TXN), who had been its near-exclusive supplier. Now there's speculation Nokia will partially abandon TI on its high-end handsets too, opting for chipsets from Freescale and Broadcom (BRCM) alongside TI's. TI says the trend could ultimately prove advantageous; TI recently won new business from Motorola Inc. (MOT). Shares are up 35% since July on forecasts of profit margin increases. If its high-end business starts to wane, TI may have a hard time reaching its goals.
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