Wall Street Breakfast

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MACRO AND HOUSING

Tishman & Lehman Near Agreement to Acquire Archstone-Smith REIT for Over $20 Billion

Shares of apartment REIT Archstone-Smith gained 8% Friday to close at $55.23 on news that Tishman Speyer Properties and Lehman Brothers Holdings are in negotiations to buy it for more than $20 billion, including debt. Archstone-Smith's market cap is $12.3 billion, and according to the WSJ has $6.3 billion of debt. The company is expected to sell at a premium. The purchase will follow the $23 billion buyout of Equity Office Properties Trust by the Blackstone Group in February. Archstone-Smith owns 86,000 apartments in 344 complexes in dense metropolitan areas across the country. According to UBS analyst Alexander Goldfarb, the company offers "high-quality assets, presence in key markets, low leverage and high-rise properties that can be viewed as call options on the next condo wave." The company also owns DeWAG, a German apartment developer. Before takeover speculation began to swirl around Archstone-Smith, its stock was trading at a 13% discount to NAV. Tishman Speyer is a large real estate developer with properties around the world. In October, together with Blackrock, Tishman bought New York apartment complexes Stuyvesant Town and Peter Cooper Village from MetLife for $5.4 billion.
Sources: Wall Street Journal, Bloomberg, TheStreet.com
Commentary: Housing Bubble and Real Estate Market Tracker [May 17, 2007] • iShares REIT ETF Drops: Could Be a Long Way Down • Bidding War Between Blackstone and Vornado For EOP Finally Ends With Blackstone On Top
Stocks/ETFs to watch: Archstone-Smith Trust (ASN). Competitors: Apartment Investment & Management Co. (AIV), Avalonbay Communities Inc. (AVB), Equity Residential (EQR). ETFs: DJ Wilshire REIT ETF (RWR), Vanguard REIT Index ETF (VNQ), Vanguard Mid-Cap Value ETF (VOE)

TECHNOLOGY

Nokia Readies for China's 3G Rollout

Nokia's spokesman in China said the Company sees demand for 3G handsets from the first half of 2008, and stated Nokia will "have some kind of offering on the market." Beijing is slowly rolling out 3G in pre-commercial testing, using a domestic standard, TD-SCDMA. Analysts say the testing, which was expanded to 10 cities earlier this year, from five previously, favors local handset makers, since foreign manufacturers are on the W-CDMA and CDMA2000 standards. 3G licenses have not been officially issued to-date. Some analysts expect they won't be until next year. Separately, Nokia's CTO Tero Ojanpera acknowledged increased competition in 3G handsets as smaller rivals look to offer cheaper models. Also, Nokia's ongoing patent dispute with QUALCOMM could hurt broader 3G adoption, as alternative technologies such as WiMax gain popularity, said the CTO. Ordinary shares of Nokia in Helsinki are mostly flat in morning trading. Nokia's ADRs closed Friday up 1.6% to $26.67.
Sources: Reuters [i, ii]
Commentary: Nokia Hits Multi-Year High on Forecast of Market Share Gains, Motorola Dips • QUALCOMM's Conference Call: All the Hot Air We Expected • Profiting From the Global Cellular Wireless Boom
Stocks/ETFs to watch: Nokia Corp. (NOK), QUALCOMM (QCOM) Inc. Competitors: Motorola Inc. (MOT), Samsung [not traded in the U.S., but an 18% component of iShares MSCI S. Korea (EWY)], Sony Corp. (SNE), Telefonaktiebolaget LM Ericsson ADR (ERIC), China Techfaith Wireless Comm. Tech. Ltd. (CNTF), Palm Inc. (PALM), Research In Motion Ltd. (RIMM). ETFs: streetTRACKS Morgan Stanley Technology Index Fund (MTK), HOLDRS Wireless (WMH)
Conference call transcripts: Nokia Q1 2007, Motorola Q1 2007, QUALCOMM F2Q07

Vodafone's Shares Jump On Emerging Market Growth Forecast, Dividend Increase

Shares of Vodafone Group shot up in London by nearly 5% Tuesday after the company reported a narrowed full-year loss, coupled with better-than-expected earnings forecasts for FY2008 on strong emerging market performance. The company raised its dividend yield to 4.4%, also more than analysts were expecting. Vodafone narrowed its loss in the latest fiscal year to £5.4 billion ($10.71 billion), vs. -£21.92 billion the prior year, on cost-cutting in Europe and strong growth in emerging markets. Vodafone recently purchased a controlling stake in India's fourth largest mobile operator Hutchison Essar and increased its global customers to 206 million. Total revenue increased 6% to £31.1 billion. EBITDA was £11.766 billion, below Reuters analyst forecasts of £12.130 billion on revenue of £31.385 billion. CEO Arun Sarin said the last year has seen "further increasing the group's exposure to the exciting growth opportunities in emerging markets. We are well placed to continue delivering on our strategy." In the statement, the company provided outlook for (current) FY 2008, forecasting revenue in a range of £33.3 billion-£34.1 billion, with adjusted operating profit of £9.3 billion-£9.8 billion. Shares rose in London trading to almost 5% to £158.30, their highest point since the beginning of 2002.
Sources: Wall Street Journal, Bloomberg.com, Reuters, MarketWatch [check back for VOD's latest conference call transcript later today]
Commentary: Stocks That Yield - Barron's • Vodafone's New Data Plan Leaves Loopholes and Questions • Vodafone's Hutchison Essar Bid Hits Regulatory Snags
Stocks/ETFs to watch: Vodafone Group Plc (VOD). Competitors: Verizon (VZ), AT&T (T), Telecom Italia S.p.A. (TI), NTT DoCoMo (DCM), Sprint Nextel (S), France Telecom (FTE), Deutsche Telekom (DT). ETFs: Wireless HOLDRS (WMH), iShares S&P Global Telecommunications (IXP)
Conference call transcripts: Vodafone Group F1H06 Earnings Call Transcript

Madison Dearborn in Talks to Buy CDW -- WSJ

Technology retailer CDW Corp. is in discussions with private equity firms about a buyout, according to the Wall Street Journal. Madison Dearborn Partners is believed to be the leading contender, although the negotiations are said to be at a delicate stage and could be spoiled by competitive offers from other firms. CDW is a reseller of computers and software to large companies and to the government. Its products come from companies including HP, Microsoft and Cisco. It also sells Apple products through its Mac Warehouse unit. The company serves retail customers as well through physical and online catalogues. In 2006, the company posted net income of $266.1 million on sales of $6.79 billion. During that year, CDW restructured its corporate sales organization into five regions in order it achieve consistency between the corporate and public-sector sales forces. The benefits were seen in the most recent quarter, when the company beat Street expectations on sales and earnings. On Friday, CDW's shares traded at $75.56, $4 below their 52-week high.
Sources: Wall Street Journal, Reuters, RTTNews
Commentary: Unlucky Number Seven: Sideways Performers Since 2000 - Part Deux • CDW Corp. Accelerates Off Solid Growth • CDW Corp. Growth Now Qualifies As Solid
Stocks/ETFs to watch: CDW Corp. (CDWC). Competitors: Insight Enterprises Inc. (NSIT), PC Connection Inc. (PCCC), Systemax Inc. (SYX)
Conference call transcripts: Q1 2007

Avaya Pursuing Sale

Network equipment manufacturer Avaya is talking with private equity firms and rival companies about a sale of all or part of itself, according to company executives. Avaya's strong cash flow, lack of debt and increasing profit margins have reportedly attracted the interest of competitors Cisco Systems and Nortel Networks as well as equity buyout company Silver Lake Partners. Avaya, formerly a division of Lucent, provides equipment that moves traditional phone systems onto integrated IP network platforms that provide voice, email, conference, IM and video communications. About half Avaya's revenue is derived from long-term service contracts. Company executives said Monday that although talks about a sale are proceeding, negotiations are at an early stage and a sale will not necessarily take place. Last year, Avaya posted net profit of $201 million on revenue of $5.12 billion. The deal, if it occurs, will follow last week's agreement by wireless provider Alltel to be bought out by the Texas Pacific Group and a unit of Goldman Sachs for $27.5 billion. Last year, telecom equipment manufacturers Alcatel and Lucent merged in an $11.6 billion transaction.
Sources: Wall Street Journal, News.com, MarketWatch
Commentary: Avaya Inc.: Value Act Capital Cuts Stake to 3.9% • TPG, Goldman Private Equity Buy Alltel for $27.5 Billion • The Marriage of Alcatel-Lucent: One Step Closer to a Telecommunications Monopoly
Stocks/ETFs to watch: Avaya Inc. (AV), Cisco Systems, Inc. (CSCO), Nortel Networks Corp. (NT). Competitors: Alcatel-Lucent (ALU). ETFs: iShares Goldman Sachs Networking (IGN), PowerShares Dynamic Networking (PXQ)
Conference call transcripts: F2Q07

INTERNET

Google's Purchase of DoubleClick Faces Antitrust Scrutiny

The Federal Trade Commission has asked Google for additional information on possible business overlaps with DoubleClick, the Internet ad broker Google agreed in April to purchase for $3.1 billion, beyond the materials it provided when the deal was originally announced. Google rivals Microsoft, AT&T and Time Warner have all said they believe the deal should be examined closely, since it would give Google ostensible control over the online ad market. The deal has also been criticized by consumer privacy advocates who are concerned about the access it will provide Google to data about individuals' online activities. Google has cited other deals that have been inked since the DoubleClick agreement as evidence that "the online advertising industry is a dynamic and evolving space," not a looming monopoly. Since mid-April, Yahoo has announced it is paying $680 million for the 80% of online ad exchange operator Right Media it did not previously own; AOL LLC bought a controlling interest in online ad company Adtech AG; WPP Group agreed to buy 24/7 Real Media for $649 million; and Microsoft offered $6 billion for aQuantive. The DoubleClick deal "poses no risk to competition and should be approved," according to Don Harrison, senior corporate counsel for Google.
Sources: MarketWatch, MoneyCentral, Wall Street Journal
Commentary: Microsoft, AT&T Press for Review of Google-DoubleClick Deal • WPP Group Buys 24/7 Real Media for $649 Million • Why aQuantive Was Worth Twice As Much As DoubleClick
Stocks/ETFs to watch: Google Inc. (GOOG), Microsoft Corp. (MSFT), AT&T (T). ETFs: iShares Goldman Sachs Technology (IGM), iShares Goldman Sachs Software (IGV), First Trust Dow Jones Internet Index (FDN), First Trust IPOX-100 Index (FPX)
Conference call transcripts: Google Q1 2007

ENERGY AND MATERIALS

URS to Acquire Washington Group for $2.6 Billion

Engineering and construction company URS Corp. is buying competitor Washington Group for approximately $2.6 billion in cash and stock. The $80-per-share purchase price amounts to a 14% premium to Washington Group's Friday close. Washington Group shareholders will receive $43.80 in cash and 0.772 shares of URS common stock for each Washington Group share. The deal will unite two of the country's largest construction firms. The combined company will manage huge water, transportation and wastewater projects around the globe and will also provide engineering, construction and maintenance for fossil fuel and nuclear power plants. It also hopes to become a main contractor for the U.S. government. URS anticipates the purchase will enhance revenue growth, long-term profitability and cash flow and add to earnings in 2009 and beyond. The company is anticipating cost synergies of $50-55 million. The combined company, which will be called URS Corp., is expected to post 2007 revenues of approximately $8.6 billion. Washington Group, which was involved in the construction of the Hoover Dam and the San Francisco Bay Bridge, earned almost $81 million on over $3.4 billion in revenue last year. The deal should close in H2 2007.
Sources: Wall Street Journal, Reuters, Bloomberg, MoneyCentral
Commentary: Another holding gets taken out [Rampant Speculations]
Stocks/ETFs to watch: Washington Group International, Inc. (WNG), URS Corp. (URS). Competitors: KBR, Inc. (KBR), Fluor Corp. (FLR), Jacobs Engineering Group, Inc. (JEC). ETFs: PowerShares Dynamic Building & Construction (PKB), PowerShares Water Resources (PHO), iShares S&P SmallCap 600 Value Index (IJS)

FINANCIAL

RBS Consortium Formalizes Bid for ABN

A consortium of three banks led by the Royal Bank of Scotland announced Tuesday that it will proceed with its €71.1 billion ($95.61 billion) takeover offer for ABN Amro Holding. At the same time, the consortium is struggling with Bank of America for control of LaSalle Bank, ABN's U.S. holding. The RBS, Fortis and Santander consortium, which wants to break up ABN, has raised the cash component of its offer from 70% to 79%; the remainder will consist of new shares of RBS. The €38.40 ($51.59) per share price represents a 13.7% premium over Barclays' all-stock offer, which was accepted by ABN in April. When it announced the agreement with Barclays, ABN also said it had sold LaSalle to Bank of America for $21 billion, a sale that was later frozen by a Dutch judge. BofA has sued ABN in U.S. federal court to enforce the sale. On May 7, the RBS consortium offered ABN $24.5 billion for LaSalle, contingent on ABN's agreement to be purchased as well; the offer was turned down. The consortium says its €71.1 billion offer for ABN, which is fully financed, is conditional on ABN shareholders' voting to block the sale of LaSalle to BofA. A vote has not yet been scheduled.
Sources: Wall Street Journal, Bloomberg, MarketWatch
Commentary: ABN Amro Opposes RBS-Led Rival Bid for LaSalle • ABN Amro Takeover: Rival Trio Tops Barclays with $98.5 Billion Bid • ABN Amro Agrees to Sell Itself to Barclays for $91 Billion
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), Bank of America Corp. (BAC). 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

• Companies that invent ways to find more oil stand to gain from high energy prices and ever-depleting reserves: (1) EOG (EOG) [$76] is worth $84 for its horizontal drilling techniques that open up new natural-gas reserves in the Barnett Shale. (2) Devon Energy's (DVN) GoM deepwater, natural-gas shale and oil sands holdings make it a play on emerging technologies. (3) Oil-service companies that specialize in deepwater and sub-sea technologies like Cameron International (CAM), FMC Technologies (FTI) and Weatherford International (WFT). (1) Schlumberger's (SLB) Q seismic technology uses sound waves to evaluate formations and faults; its surveys are unparalleled.
• Stricter subprime lending guidelines are putting homebuyers back in trailers. Expert George Allen likes Affordable Residential Communities (ARC). He says trailers are nicer and bigger than ever, trailer parks have more amenities, fewer trailer parks are being built, and parks are cheap to maintain and operate. ARC owns 57,264 trailer parks in 23 states, and 22 million+ Americans live in trailers. Investors should refuse Farallon Capital's $9.35-9.40/share bid -- shares could reach $15.
• The action in enterprise software has moved to the middle-market, where Lawson Software (LWSN) has built itself into the #3 enterprise resource-planning vendor in the world. Total cost of software ownership, very important to small/mid-size businesses, is 33% of that of Oracle's and 25% of SAP's. Shares, about $9, up from a 52-week low of $5.39 last July, trade at about 2x annual sales, vs. 4x for SAP and 5x for Oracle. Cowen's Peter Goldmacher says they will hit $14.
• Jones Soda (JSDA) shares are up 256% since August on frothy earnings expectations and takeover rumors. But insiders have been dumping shares, and big profits on new healthier sodas are already priced in. Shares trade at 170x 2006 earnings ($0.13/share), while rivals Hansen Natural (HANS) and giants Coca Cola (KO) and PepsiCo (PEP) trade at mid-teens. Even a wide 20 P/E for JSDA would denote $7 shares, vs. the current $21.24.
• On Wednesday Syntax-Brillian Corp. (BRLC) struggled to raise $125 million in a follow-on stock offering. In its prospectus, the low-price TV maker declared a large profit over the last nine months. A careful examination reveals that bottom-line profits were fed by massive rebates from Taiwan Kolin, who contract manufactures most of its TVs, without which sterling profits would have amounted to a $64 million loss. Kolin is also be Syntax's #1 shareholder. It dumped $5 million stock in last week's offering, and is registered to sell half of its remaining stake.
• Last Tuesday Harbinger Capital Partners said it offered $8.30/share to boost its Openwave (OPWV) stake from 13% to 62%. The bid raises speculation about competitive takeover bids: Abbott Capital Partners' Michael Goldman says Sybase (SY) has already made a conditional bid for Openwave, which hinges on identifying enough operating-cost cuts to ensure an immediate earnings boost. If true, Sybase could justify paying $10-11/share. Oracle (ORCL) has also done due diligence, but hasn't made a formal offer. Other potential bidders include IBM (IBM), Hewlett-Packard (HPQ) and Siemens (SI).
• A housing slump, tighter lending and lower spending curb meat consumption. Ethanol-driven corn feed prices, and gas/transport costs make meat more expensive to produce. Rare Hospitality (RARE), Morton's Restaurants (MRT) and Ruth's Chris Steak House (RUTH) shares have fallen 13%, 19% and 16% respectively since Jan-Feb. Until production costs settle down and consumer spending begins to indicate retail gains, steakhouses will have to raise prices or choke back higher costs and lower profits.
• Before its acquisition of Hummingbird, shares of Open Text Corp. (OTEX) languished at $13; now they trade at $23, giving it a P/E multiple of its most successful quarter. Tech Trader Bill Alpert can't figure out why, since post acquisition, Hummingbird sales are down 20%, combined licence revenues are down 22%, a former Hummingbird salesman has testified he was fired for refusing to cooperate with a scheme to inflate revenues, and pre-acquisition Hummingbird took reserves amounting to 23% of its gross receivables, which have since vanished. The company already carries $33 million in restructuring reserves from eight previous acquisitions, meaning it may have inflated charges in order to absorb post-acquisition operating expenses.

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market:	Cracks in the Wall Street Ice - Bull Run Coming To an End?
What's New on SA:	Hedge Fund Jobs Board On Seeking Alpha
IPO Analysis:	This Week's IPOs: Amicus Therapeutics, Jazz Pharmaceuticals, LDK Solar, Response Genetics
Long Idea:	10 Stocks That Should Shine In The Next 12 Months
Short Idea:	Dell's Rally Likely To End
Internet:	The Google Godzilla: Will This Stock Double In Two Years?
Telecom:	Apple's iPhone and the Future of AT&T
Networking:	Ditech Networks: Riley Investment Requests Dutch Tender Auction
Hardware:	Owens Corning: My Enthusiasm Is Shared by Insiders and Officers
Chips:	Lam Research Jumps On Rumors Of Bid By Tokyo Electron
Software:	Google Wants To Go Horizontal In The Applications Market
Gadgets:	Nintendo to Dominate Portable Gaming Market
Media:	Is Marchex Encouraging Click Fraud?
Healthcare:	Three Staffing Firms That Might Benefit from the Nursing Shortage
Biotech:	Why Did Google Invest in Sergey Brin's Wife's Biotech Start-Up?
Retail:	Is Wal-Mart The Answer To Dell's Problems? Not Likely
Transport:	Tsakos: Undervalued Shipping Giant
Gold:	Aurelian Resources: A Gift to Value Hunters
Energy:	UBS: Canadian Natural Resources' Biggest Resource is Its 'Wall of Cash'
Financial:	TD Bank Should Continue To Ring Up Greater Profits
Asia:	iPath India ETN: What You Need to Know Before Investing
ETFs:	An Endowment Portfolio From Publicly-Traded Vehicles
Hedge Funds:	Hedge Fund Asset Pricing: It's All About the Process
Small-Caps:	Microvision Moving Higher: Pure Speculation?
Sound Money Tips:	Smash Your Fax Machine
Jim Cramer:	Latest stock picks
Earnings Transcripts:	Hurray! Holding Q1 2007 • Jabil Circuit F2Q07 • SkillSoft F1Q08

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