Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:53 AM EST
S&P 500: -4.40; 1,535.20
NASDAQ 100: -7.25; 1,925.00
Dow: -24.00; 13,665.00
NIKKEI 225: +0.08%; 17,973.42 (+14.54)
HANG SENG: +0.62%; 20,729.59 (+126.72)
S&P/ASX 200: +0.94%; 6,392.90 (+59.40)
FTSE 100: -0.34%; 6,654.00 (-22.70)
CAC 40: -0.87%; 6,114.29 (-53.86)
XETRA-DAX: -0.34%; 7,960.45 (-27.40)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.23%; $64.93 (-$0.15)
Gold: +0.01%; $677.70 (+$0.10)
Natural Gas: +0.37%; $7.907 (+$0.03)
Silver: +0.73%; $13.84 (+$0.10)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Avaya Sale to TPG/Silver Lake May Be Imminent -- WSJ and NYT
Private-equity firms TPG Capital and Silver Lake Partners are the frontrunners to purchase telecom-equipment company Avaya Inc. for about $17/share (or $20/share [Light Reading], the Wall Street Journal and New York Times report, citing people familiar with the matter. The deal could be announced as early as today, but it could easily fall through, or a third-party such as Nortel Networks (with whom sources say Avaya has talked over the last month) could emerge. Avaya has a market cap of over $7 billion, $829 million in cash, and no debt. The deal would be the second private-equity takeout of a telecom firm: In May, wireless carrier Alltel Corp. was taken out by TPG Capital and the private-equity arm of Goldman Sachs Group Inc. The Journal says more telecom deals are likely to emerge because of the industry's high cash/low debt balance sheets. A former Lucent unit, Avaya's equipment and technology are used to migrate traditional corporate phone traffic to internet-based networks. About 50% [--WSJ or 33% NYT] of its revenue is from long-term service contracts, though the company warns that as these expire, customers may demand lower fees. Avaya shares closed after-hours at $17.18 on Friday, up 25% from a week earlier when buyout rumors first surfaced.
Sources: Wall Street Journal, New York Times, Light Reading
Commentary: Avaya: Report Company Close To $9B-Plus Sale • Is Nortel Eyeing Avaya? • Will Avaya Dance with Nortel, Cisco, or Silver Lake?
Stocks/ETFs to watch: Avaya Inc. (NYSE:AV), Nortel Networks Corp. (NT), Alltel Corp. (NYSE:AT), Goldman Sachs Group Inc. (NYSE:GS). Competitors: Alcatel-Lucent (ALU), Cisco Systems Inc. (NASDAQ:CSCO), Plantronics Inc. (NYSE:PLT). ETFs: iShares Goldman Sachs Network Index Fund (NYSEARCA:IGN), PowerShares Dynamic Networking (NYSEARCA:PXQ)
Dominion Resources to Sell $6.5B of Assets to Loews Corp and XTO Energy
Loews Corporation announced it has agreed to purchase natural gas exploration and production assets at a cost of $4.025 billion from Dominion Resources. The primary assets and properties are located in Texas, Michigan and Alabama. Loews' CEO commented: "These long-lived and low-risk natural gas producing assets represent an excellent platform for Loews to enter the exploration and production business. We have a favorable long-term view of natural gas pricing in the US and believe natural gas will increasingly be the fuel of choice in the future." The deal is expected to close during Q3 subject to customary conditions. Reuters reports the acquisition is part of another transaction in which Dominion will sell other U.S.-based natural gas and oil exploration operations to XTO Energy for $2.5b. Loews is untraded so far in pre-market trading; Dominion is up 0.7% to $88.25, and XTO is trading nearly 5% higher to $61.18.
Sources: Press release, Reuters
Commentary: XTO Energy: Best Track Record In Energy Stocks • Oil Deals and Debacles • GS and MS Dominion Buyout: Liar's Poker
Stocks/ETFs to watch: Dominion Resources Inc. (NYSE:D), Loews Corp. (LTR), XTO Energy Inc. (XTO). ETFs: Utilities Select Sector SPDR (NYSEARCA:XLU), Utilities HOLDRs (NYSEARCA:UTH), iShares Dow Jones US Oil & Gas Ex Index (NYSEARCA:IEO)
Conference call transcripts: Dominion Resources Q1 2007
Flextronics to Acquire Solectron for $3.6B, 15% - 20% Premium
Singapore-based Flextronics International, a contract manufacturer of electronic devices, has agreed to acquire Solectron, its California-based smaller rival in a deal valued at $3.6 billion. Subject to certain conditions, Solectron shareholders can receive 0.345 shares of Flextronics, equal to a 20% premium over Solectron's Friday close of $3.37, or they can receive $3.89 in cash, representing a 15% premium. The transaction is expected to close this year, pending shareholder and regulatory approvals. Solectron will become a wholly-owned subsidiary of Flextronics, while owning 20% - 26% of Flexronics' shares. The combined entity will have more than 200,000 employees and $30b in annual sales. Realization of full synergy potential is expected to take up to 18 - 24 months, at which point annual after-tax cost savings of $200m are forecast. Flextronics' CFO expects by that time the deal will be 15% accretive to EPS. Shares of Flextronics are unchanged at $11.70 in thin pre-market trading. Solectron was last trading at $3.84 (+14%) on light volume of 91,200.
Sources: Press release, MarketWatch
Commentary: Contract Electronics Manufacturing: Tough Place to Make Money • Solectron Misses Estimates; Shares Rise On Strong Guidance • Jim Cramer's Take on Flextronics
Stocks/ETFs to watch: Flextronics International Ltd. (NASDAQ:FLEX), Solectron Corp. (SLR)
Conference call transcripts: Flextronics F4Q07
American Express to Sell Private Banking Unit Within Weeks -- Reuters
American Express will sell its private banking unit within weeks, Reuters reports citing a source familiar with the matter. The unit -- which offers investment services, deposit accounts, treasury services, loans, fiduciary services and insurance -- will most likely go to a global institution, the source said. "It's a significant [sale]," he said, "because it's one brand that disappears from the wealth management scene. The brand can't be sold." Amex private banking has offices in Europe, Asia, Latin America, the United States and Canada. In a May letter to private banking clients, Vice Chairman Sergio Masvidal made no mention of any planned sale. Reuters says global wealth management is a highly fragmented sector, but it is dominated by large players including UBS, Credit Suisse, Merrill Lynch and Citigroup.
Commentary: American Express: Watch the Dividend • Misreading American Express Earnings • Jim Cramer's Take on AXP
Stocks/ETFs to watch: American Express Company (NYSE:AXP), UBS AG (NYSE:UBS), Credit Suisse Group (NYSE:CS), Merrill Lynch & Co. Inc. (MER), Citigroup Inc. (NYSE:C), Bank of America Corp. (NYSE:BAC). ETFs: iShares KLD Select Social Index Fund (NYSEARCA:KLD), Financial Select Sector SPDR ETF (NYSEARCA:XLF), Vanguard Financials VIPERs (NYSEARCA:VFH)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
News of higher growth, lower inflation, an increase in jobs, better auto sales and more merger-and-acquisition action on Friday led to a continuation of the stock market rally.
The Institute of Supply Management reported that its May index of manufacturing activity rose to 55% from 54.7 in April and that's the fourth-consecutive month of growth. Coupled with a report from the Commerce Department that core consumer price inflation increased by a mere 0.1% in April -- making the year-over-year increase to just 2% --this was just what economists wanted to see.
Since this is the first time in more than a year that core prices have been within acceptable limits of the Fed's target, there was renewed optimism of an interest-rate cut before the end of the year. And except for deteriorating home sales and a slightly lower revision of the University of Michigan's consumer sentiment survey, there was nothing to dampen investors' spirits.
Even the auto industry, which has been hurting badly because of slow sales, reported that each of the Big Four exceeded forecasts. General Motors (NYSE:GM) said that May sales rose more than 4%, Toyota (NYSE:TM) was up 1.8%, Chrysler U.S. (DCX) was up 4%, but Ford (NYSE:F) was down 6.8%.
Finally, Dow Jones (DJ) said that it would meet with suitors to discuss a possible sale, and the stock rose by 14.8%. Meanwhile, Wal-Mart Stores (NYSE:WMT) was up almost 4% on news that the company would buy back up to $15 billion of its stock. What a meaty news day!
At the close Friday, the Dow Industrials rose by upward of 40 points to 13,668, the S&P 500 gained six at 1,536, and the Nasdaq rose by nine to close at 2,614. Volume on the NYSE was 1.5 billion shares and 1.9 billion traded on the Nasdaq, while breadth was a positive 11-to-5 on the New York and 18-to-11 on the Nasdaq.
Despite the shortened trading week due to the Memorial Day holiday, the Dow Industrials were up 1.2%, the S&P 500 gained 1.4% and the Nasdaq was up 2.2%. High M&A activity enabled investors to shake off the impact of a tightening of the Chinese markets, the relatively upbeat tone of the Federal Open Market Committee's notes from its last meeting, and the excellent economic news on Friday all contributed to the steady rate of buying.
What the Markets are Saying
Standard & Poor's has an interesting comment about various statistics relating to the S&P 500 and its makeup. "The P/E ratio in 2000 on the S&P 500 was almost 28; now it is about 17. The dividend yield was 1.2%, and is now 1.8%. Cash held by companies in the '500' as a percentage of market value has risen from 2.5% to 2.8%. The largest issue was Microsoft (NASDAQ:MSFT) with a market cap of $553 billion, while the largest component today is ExxonMobil (NYSE:XOM) with a market cap of $465 billion."
Compared to the year 2000, not only are stocks cheaper now but, since the S&P 500 just broke into a new high, there are also fewer sellers to resist an immediate move to higher prices. The S&P's chief technician puts a target of 1,619 on the overall bull market, but I'll still stick with my reading of 2,250. Either way, the future looks bright.
Today's Trading Landscape
Today the only economic reports are due at 10 a.m. and they are the April factory orders and factory inventories. Earnings are slated from Angelica Corp. (AGL), Financial Federal Corp. (NYSE:FIF) and Krispy Kreme (KKD).
Bonds have been dropping lately, raising yields, which could bleed money from the stock market. Investors will be focusing on the 10-year Treasury note this week, since a rise above 5% could spell some trouble for stocks. China's markets are sharply lower, and this is putting pressure on world markets.
Asian Headlines (via Bloomberg.com)
• Japan's Companies Invest More Than Expected, Signaling Export Confidence Spending by Japan's largest companies rose to a record in the first quarter, indicating the world's second-largest economy probably grew at a faster pace than the government initially estimated.
• China's CSI 300 Plunges 7.7 Percent, Extending Stocks Rout to $350 Billion China's key stock index plunged by a record number of points after the government's main securities daily signaled officials won't try to halt a slump that's erased more than $350 billion of market value in four days.
• China Mobile to Seek Bids for as Much as $784 Million in High-Speed Phones China Mobile Communications Corp., parent of the world's largest wireless-phone operator by users, will seek bids in October for as much as six billion yuan ($784 million) worth of handsets based on a locally developed high- speed standard, an industry group said.
• Asian Stocks Climb to Third Straight Record on U.S. Growth; Toyota Gains Asian stocks advanced to a third straight record after Japanese companies increased spending and reports showed U.S. employment and manufacturing expanded more than expected.
• Australian Company Profits Rise at Fastest Pace in Two Years, Led by Banks Australian company profits rose at the fastest pace in almost two years in the first quarter as an accelerating economy fueled earnings at banks and retailers.
European Headlines (via Bloomberg.com)
• Stocks in Europe Advance on Takeover Speculation; Iberdrola, Lafarge Rise European stocks climbed for a second day as takeover speculation buoyed the utility and construction industries and investors bet a report today will show economic growth in the U.S. is rebounding.
• European Stocks Drop, Paced by Banks on Downgrade; Deutsche Bank, BNP Fall European stocks dropped for the first time in three days, led by Deutsche Bank AG and BNP Paribas SA, after JPMorgan Chase & Co. cut its recommendation on the investment-banking industry.
• SNS Reaal Agrees to Buy Axa's Dutch Insurance Businesses for $2.35 Billion SNS Reaal Groep NV, the Dutch financial- services company that sold shares to the public last year, agreed to buy Axa SA's insurance businesses in the Netherlands for 1.75 billion euros ($2.35 billion) to almost double its market share.
• New Star's Ward Expects Another U.K. Rate Increase, Defies Consensus Again The last time Simon Ward had a hunch the Bank of England would blindside investors by raising interest rates, he was the only economist to get it right. Five months on, he says traders should brace for another surprise.
• British Airways Cuts Chief Walsh's Pay 30 Percent as Profit Target Missed British Airways Plc, Europe's third- largest airline, reduced Chief Executive Officer Willie Walsh's pay 30 percent in fiscal 2007 as the company failed to meet a profitability target.
• European Investment-Banks' Ratings Cut to `Underweight' by JPMorgan Chase Deutsche Bank AG, Europe's biggest investment bank by revenue, and BNP Paribas SA, France's largest lender by market value, had their ratings cut by analysts at JPMorgan Chase & Co., who cited a lower earnings outlook.