Yahoo Shakeout: CEO Semel Out, Co-Founder Yang In
Yahoo CEO Terry Semel announced his resignation late Monday, ending months of speculation. Semel, who joined the company in 2001, will be replaced by co-founder Jerry Yang. He will remain with company as non-executive chairman and advisor. Susan Decker, previously executive VP, was named president. Earlier in the day, shares surged 3% as rumors of Semel's resignation began to circulate. The stock gained another 4.2% in AH trading to $29.34. Semel has been the subject of shareholder dissatisfaction over the company's lackluster performance, loss of key staff, and his generous compensation package. "Terry Semel lost the confidence of the board... shareholders, and to some extent he lost the confidence of the employees," said Forrester's Charlene Li. In a research note, S&P analyst S. Kessler downplayed the news: "Over the past 6 months, Yahoo has now set two major restructurings and experienced sizable management turnover. Without a single wholly new principal announced, we don't necessarily see major changes." On a conference call, Yang hinted that the company would remain independent: "We believe Yahoo can be a vibrant independent company."
Sources: Press release, Wall Street Journal, CNBC, Bloomberg
Commentary: Sell-Side Responses To Semel's Departure From Yahoo • Yahoo Can Use Management Shakeup As Social Search Catalyst • Why Was Jerry Yang Appointed as the New CEO? • Semel's Departure: More Than Meets the Eye
Stocks/ETFs to watch: Yahoo! Inc. (YHOO). Competitors: Google Inc. (GOOG), Microsoft Corp. (MSFT), Time Warner Inc. (TWX). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcript: Yahoo! Q1 2007
Related: An audio replay of the conference call can be accessed at http://yhoo.client.shareholder.com/index.cfm or by dialing (888) 286-8010 or (617) 801-6888 #14345291 • Letter from Terry Semel to Yahoo! Board of Directors
Burkle and Yahoo Might Bid for Dow Jones - Fortune
Supermarket mogul Ron Burkle, who is advising Dow Jones on locating potential suitors to rival Rupert Murdoch's $5 billion offer, might himself make an offer in league with Yahoo, according to a report in Fortune magazine. Other parties have emerged as possibilities, including Pearson, GE and the Philadelphia Inquirer's Brian Tierney, but none has put a counteroffer on the table. Fortune cites a "source in the Burkle camp" as saying Burkle has been trying to bring Yahoo on board as a co-bidder, despite what some observers consider the obscure logic of the Internet giant entering the troubled newspaper market while struggling to keep its footing opposite search rival Google. Burkle is a member of Yahoo's board of directors. He has tried unsuccessfully to acquire other newspaper properties, including the Tribune Company and 12 Knight-Ridder dailies. The Bancroft family, which holds a controlling interest in Dow Jones, objects to a Murdoch stewardship on the grounds that he would likely tamper with the editorial independence of the Wall Street Journal. Fortune points out that Burkle, too, might influence the paper's editorial stance. Burkle has favored media-unfriendly legislation in the past, and is a public supporter of Democratic and liberal candidates. Fortune speculates that Burkle is an attractive potential acquirer to Dow Jones's owners and employees not because he will keep his hands off the paper, but because he is a union supporter, in sharp contrast to Murdoch.
Sources: Fortune, Editor & Publisher
Commentary: Which Would Be Worst for Dow Jones: Murdoch, Burkle or Pearson? [Time] • Yahoo should avoid Dow Jones buyout battle as it fixes company [BloggingStocks.com] • Dow Jones Bid: Is Newsroom Integrity Truly the Key Issue?
Stocks/ETFs to watch: Dow Jones & Company, Inc. (DJ), Yahoo! Inc. (YHOO), News Corp. (NWS), General Electric Co. (GE), Pearson plc (PSO). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Koninklijke Philips Electronics To Buy Color Kinetics For 14% Premium
Koninklijke Philips Electronics announced early Tuesday morning it was buying Boston-based Color Kinetics for $34 a share in cash, a 14% premium to Monday's closing price of $29.79 The offer represents a 131% premium to Color Kinetics 52-week low of $14.70. Color Kinetics CEO Bill Sims believes "joining Philips...is in the best interest of our shareholders, customers, partners, and employees." The deal gives Philips, the world's largest lighting company, an 'in' to the American professional LED market, of which Color Kinetics was a part. Philips Lighting CEO Theo Van Deursen said the price being offered for Color Kinetics was "very fair." The deal is expected to close in the third quarter.
Sources: Press Release, Reuters, AP, MarketWatch
Commentary: Light-Emitting Diodes Stocks Get Some Respect • The Nexxus of the LED Universe • Cree & Color Kinetics: LED Kills the Incandescent Bulb Star
Stocks/ETFs to watch: Koninklijke Philips Electronics NV (PHG), Color Kinetics Incorporated (CLRK). Competitors: General Electric (GE), Sony (SNE), Matsushita Electric (MC)
Conference call transcripts: Royal Philips Electronics Q1 2007 Earnings Call Transcript
AT&T: $10-a-Month DSL; Complains to FCC About Cablevision
AT&T is now offering DSL internet service for $10/month, something it is apparently trying to keep secret. The cheap broadband, which offers download speeds of 768 kbps and upload speeds of 128 kbps, was part of AT&T's deal with the FCC when it acquired BellSouth in December for $86 billion. The $10 DSL offer is available only to AT&T customers who never previously had AT&T or BellSouth broadband, and it requires customers sign up for at least a year of local phone service. The plan is somewhat hard-to-find on the company's website. AT&T must offer the plan for a minimum of 2.5 years as part of its agreement with the FCC. Separately, AT&T filed a regulatory complaint with the FCC against Cablevision, claiming the company is improperly withholding regional sports programming from its cable video rollout in Connecticut. A Cablevision spokesman responded that the company had not reached a program sharing agreement with AT&T due to "outstanding questions regarding AT&T's violation of prior distribution agreements and about certain aspects of AT&T's technology and the protection of our programming." Also separately, The Financial Times reports that new CEO Randall Stehpenson denies the company is planning to buy a major European telecom company. There has been speculation the company was planning a bid for Vodaphone. He also implied that more large domestic acquisitions were not likely, but said the company does have its eye on international expansion.
Sources: Wall Street Journal, Reuters, Uneasy Silence, Financial Times
Commentary: AT&T, Comcast: How Much Bandwidth is Enough? • AT&T Takes Lead Over Comcast In Broadband Battle • Worldwide Fiber to the Home: Stakeholders And Shareholders
Stocks/ETFs to watch: AT&T (T), Cablevision (CVC), Vodafone Group plc (VOD). Competitors: Verizon (VZ), Time Warner [AOL] (TWX), Comcast (CMCSA), Qwest Communications (Q). ETFs: Wireless HOLDRs (WMH), Telecom HOLDRs (TTH), iShares Dow Jones US Telecom (IYZ)
Earnings call transcripts: AT&T Q1 2007
Related: AT&T.com • DSL Price Comparison
Overhyped? Apple Gains 3.8% on iPhone Battery, Display Upgrade
Apple announced enhanced battery life for its much anticipated iPhone and said its 3.5" display has been upgraded from plastic to optical-quality glass for better scratch resistance and clarity. The news sent its shares up 3.8% to $125.09. In a press release, CEO Steve Jobs commented, "With 8 hours of talk time, and 24 hours of audio playback, iPhone’s battery life is longer than any other ‘Smartphone’ and even longer than most MP3 players." An analyst, however, said sources told him heavy use of the product could lower its battery life to four to five hours, similar to typical smart phones. A Pacific Crest analyst commented that the iPhone was probably receiving more than its fair share of attention, but admitted, "it's hard to underhype the importance of this project," since a meaningful grab of market share would lead to "a big opportunity for new services." The iPhone is scheduled for release June 29 in two models priced at $499 (4GB) and $599 (8GB).
Sources: Press release, Bloomberg, MarketWatch
Commentary: Apple's iPhone Battery Worth Two Billion Dollars an Hour • Apple Announces Longer iPhone Battery Life • Apple, Jobs and the iPhone Strategy • Mobile Players Take On Apple iPhone With Flat-Rate Mobile Music Service
Stocks/ETFs to watch: Apple Inc. (AAPL), AT&T Inc. (T). Competitors: Motorola Inc. (MOT), Research In Motion Limited (RIMM), Palm, Inc. (PALM), Microsoft Corp. (MSFT). ETFs: Internet Architecture HOLDRs (IAH), PowerShares QQQ (QQQQ), Technology Select Sector SPDR (XLK)
Conference call transcripts: Apple F2Q07
Wendy's Slashes Earnings Forecast; Exploring Possible Sale
Shares of burger chain Wendy's International closed down 3.7% at $38.26 Monday after the company cut its full-year earnings forecast. Wendy's also said -- for the third time since April -- that it is considering a sale. The company lowered its 2007 EPS guidance to $1.09-1.23, down from a $1.26-1.32 March forecast and below analyst expectations of $1.27. Ebitda is now forecast at $295-315 million versus a prior range of $330-340 million. Wendy's, which is facing intense competitive pressure, has also had to contend with agitation from activist investor Nelson Peltz and former shareholder William Ackman that action be taken to boost the company's share price. Higher menu prices, the result of high beef and dairy costs, have kept customers away, resulting in a scant 0.7% increase in Q2 same-store sales against a 3.8% rise in Q1. A sale "merits more thorough examination," said Chairman James Pickett in a statement. The company has formed a special committee to investigate options, one of which might be a securitization financing. Credit-default swaps based on $10 million of Wendy's bonds popped $6,000 to $196,000 Monday and even reached $200,000, indicating that the perceived risk of owning the bonds has increased since the company made its statement.
Sources: Press release, Wall Street Journal, Dow Jones, WSJ Deal Blog, WSJ MarketBeat Blog, MarketWatch, Bloomberg I, II
Commentary: Magna, Borgwarner, Wendy's, Appllebee's Cited By Citigroup As Possible Takeover Candidates • Wendy's International: Largest Holder Highfields Capital Urges Sale • Wendy's Mulling Sale; Posts Sharp EPS Drop; Beats Street
Stocks/ETFs to watch: Wendy's International Inc. (WEN). Competitors: Burger King Corp. (BKC), McDonald's Corp. (MCD), Yum! Brands Inc. (YUM). ETFs: Rydex S&P Equal Weight Consumer Discr (RCD), PowerShares Dyn Leisure & Entertainment (PEJ)
Conference call transcripts: Wendy's Q1 2007
TRANSPORT AND AEROSPACE
Airbus Flies High at Paris Air Show; Delta, Boeing Negotiate $20B Order
On the opening day of the Paris Air Show, Airbus announced orders worth approximately $43 billion (list price), nearly ten times Boeing's $4.4b. Airbus said orders for 114 of 339 aircraft were for its A350, which has been plagued with problems, and significantly trailed orders for rival Boeing's 787 Dreamliner prior to the Show. Shares of Boeing fell 0.8% to $97.40 Monday, while Airbus parent EADS lost 0.6% in Paris. The Wall Street Journal says that Delta Airlines' CEO said the company is likely to order as many as 125 Boeing 787s ($20B list price) by the end of 2007 as it expands overseas. The order is still being negotiated; a Delta spokeswoman said the company is also in talks with Airbus. Separately, Boeing CEO James McNerney told a Spanish newspaper he expects rising aerospace competition from China. McNerney said "there is room for a third large planemaker in the next two decades," and noted China is also a "good client."
Sources: New York Times, Reuters, Wall Street Journal
Commentary: Boeing Announces 737 / 777 Orders • Airbus Secures Large A350 Sale To US Airways, Hopes To Build Momentum • Boeing's Conflicted Future
Stocks/ETFs to watch: Boeing (BA), EADS (Paris: 005730), Delta Air Lines, Inc. (DAL). ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
Earnings call transcripts: Boeing Q1 2007
Related: Paris Air Show Notebook [WSJ]
ENERGY AND MATERIALS
Analysts Skeptical of BHP Bid for Alcoa, Alcan; Shares of All Three Rise
Separate reports involving Australia's BHP Billiton say the firm is considering a rival, white knight bid for Alcan -- which has received a $28.7 billion hostile bid from Alcoa -- or a $40b takeover bid for Alcoa, per The Times of London. Reuters cited sources familiar with the matter between BHP-Alcan, and said BHP has hired Merrill Lynch to assist with the bid. A BHP spokesman said, "We don't comment on market rumours," when asked about reports of both deals. An ABN Amro analyst is skeptical, noting BHP would likely have to sell either target's manufacturing assets after paying a premium for them. He also said aluminum has lagged other metals. One analyst called a BHP bid for either company "rubbish." BHP credit-default swaps rose in Australia out of concern it may need to take on debt in order to finance a takeover. BHP shares were up 0.7% to A$34.92 at the close of Tuesday trading. Shares of Alcoa rose 0.7% to $41.88 Monday, while Alcan gained 0.8% to $83.55 and BHP's ADRs rose 1.3% to $58.60.
Sources: AFX newswire, Bloomberg, MarketWatch, Reuters
Commentary: BHP's Incoming CEO Expresses Interest In Bidding For Alcoa • Alcoa Could Still Get Alcan With An Increased Offer • Alcan Rejected Marriage Proposal; Now Alcoa Has Something to Prove
Stocks/ETFs to watch: BHP Billiton (BHP), Alcoa (AA), Alcan (AL).
Competitors: Rio Tinto plc (RTP), Anglo American plc (AAUK), Companhia Vale do Rio Doce (RIO). ETFs: Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials Index (IYM), Vanguard Materials VIPERs (VAW)
Conference call transcripts: Alcoa Q1 2007
Merrill Lynch Postpones Auction of Bear Stearns Fund Assets
Merrill Lynch has elected to postpone an auction of $400 million in seized assets of the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund, which is down 23% through April after being hit by losses from bonds backed by subprime mortgages. Merrill made the decision after being informed by the fund that it has assembled a recapitalization plan. After intense negotiations, several firms, including Citigroup and Barclays, have agreed to give the fund an infusion of approximately $500 million to be used for margin calls. The fund will also invest about $1.5 billion of its own money, a significant bump in Bear's exposure from a prior $40 million. The plan obliges the lenders to refrain from making margin calls for 12 months, a commitment some of them are reluctant to make. Final approval of the plan will depend on the agreement of all the fund's creditors. If they do not all agree, the fund could face liquidation. A final decision is expected late Tuesday or early Wednesday.
Sources: Wall Street Journal, Reuters, CNBC
Commentary: Bear Stearns Hedge Fund Facing Mortgage Losses -- WSJ • Cracks in the Wall Street Ice - Bull Run Coming To an End? • Bear Stearns Criticized For Helping Delinquent Subprime Borrowers
Stocks/ETFs to watch: Merrill Lynch & Co., Inc. (MER), The Bear Stearns Companies Inc. (BSC). ETFs: iShares Dow Jones US Broker-Dealers (IAI), KBW Capital Markets ETF (KCE)
Conference call transcripts: Merrill Lynch Q1 2007
Supreme Court Tosses Class-Action Suit Against I-Banks
In a 7-1 decision, the U.S. Supreme Court has thrown out a class-action antitrust suit brought by investors seeking billions in damages from 16 Wall Street I-banks and institutional investors for alleged misconduct during the tech bubble. The ruling overturned a federal appeals court decision alleging "an epic Wall Street conspiracy." The plaintiffs claim the banks colluded to drive up the prices of about 900 IPOs during the late 1990s, including those of Amazon.com, eBay.com and Priceline.com. The suit also accuses the banks of giving preferential treatment to certain investors through a now-outlawed practice called "laddering." Justice Breyer defended the newly created antitrust shield on the grounds that suits that bypass the authority of the SEC create "a substantial risk of injury to the securities markets." The defendants included Citigroup, Morgan Stanley, Lehman Brothers, Bank of America, Fidelity Investments, Janus Capital and Comerica. The Court will rule shortly on the Tellabs case, in which the high-tech company stands accused by investors of falsely inflating its stock price. The Court's recent inclination toward imposing limits on investor lawsuits will likely complicate the task of plaintiffs in pending securities fraud cases, like those surrounding the Enron scandal.
Sources: Supreme Court opinion, New York Times, Bloomberg, Wall Street Journal I, II
Commentary: Supreme Court Unfairly Throws Out Investors' Antitrust Suit • When The Supreme Court Weighs In, Investors Had Better Pay Attention • Supreme Court Sides with Innovators Over Patent Holders
Stocks/ETFs to watch: Tellabs, Inc. (TLAB), The Bear Stearns Companies Inc. (BSC), Comerica Inc. (CMA), Deutsche Bank AG [USA] (DB), Goldman Sachs Group, Inc. (GS), Janus Capital Group Inc. (JNS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co., Inc. (MER), Morgan Stanley (MS). ETFs: streetTRACKS KBW Capital Markets (KCE)
Conference call transcripts: Goldman Sachs F2Q07, Merrill Lynch Q1 2007, Tellabs Q1 2007
MACRO AND HOUSING
Homebuilder Confidence Drops to 16-Year Lows
Homebuilder confidence dropped two points in June, dropping the Wells Fargo Housing Market Index [HMI] to 28 -- its lowest point in 16 years, according to National Association of Home Builders [NAHB] data released Monday (see MarketWatch graph). An index rating of 50 means positive and negative builder confidence were equal. The decline was in line with economist expectations. The index bounced in early 2007 on unseasonably warm weather, but builders have renewed their pessimistic outlook with new vigor as delinquencies and foreclosures are forcing lenders to send potential home buyers away. The index is down 11 points from February's 39. It peaked at 72 in 2005, and was 42 last year at this time. NAHB chief economist David Seiders: "Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007." On June 6, the National Association of Realtors lowered its forecasts for homebuilding and sales again. It said a tightening of lending standards are making homes less affordable and buyers less plentiful.
Sources: Press release, Index data, Bloomberg, MarketWatch
Commentary: Housing Market Index Plumbs New Lows • S&P 500 Performance and the NAHB Home Builder Index: How Correlated? • Housing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)
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