Wall Street Breakfast

by: SA Editors
SA Editors
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Blackstone IPO: $31/Share, Upper-End of Guidance

Blackstone priced its much-anticipated IPO at $31/share, the top-end of its $29-31 range. Issuing 133.3 million shares, the IPO -- which represents a 12% stake in the firm -- raised $4.13 billion. The sale values the company at $33.5 billion. A last-minute request from House Oversight and Government Reform Committee Chairman Henry Waxman (D-Ca.) that the SEC delay the IPO until after Congress holds hearings to determine if the offering exposes unsophisticated investors to undue risk, was refused. Private equity firms like Blackstone and rival Fortress Investment Group are currently taxed at a 17% partnership rate, not the 35% that applies to other corporations, a loophole that has recently been challenged in congress. Last Friday Blackstone warned investors that proposed changes in tax legislation might affect its business and share valuation. The offering was said to be 5-to-6-times oversubscribed, driven by international investors. Blackstone confirmed that it was also selling $3 billion in shares "to an investment vehicle established by the People's Republic of China." The company will use the money raised to expand buyout and asset management units, and pay founders Stephen Schwarzman and Peter G. Peterson a combined $2.33 billion. Shares sold for 12.6x 2006 earnings of $2.66 billion; Fortress shares, up 40% since its IPO, now trade at 21x 2006 earnings. Shares begin trading Friday on the NYSE under the ticker BX.
Sources: Press release (.pdf), MarketWatch, TheStreet, Bloomberg
Commentary: Blackstone Group IPO to Take Wall Street By StormBlackstone Group IPO Trades Today - I Will Stay AwayWhy Are Lawmakers Afraid of the Blackstone IPO?
Stocks/ETFs to watch: Blackstone Group LP (NYSE:BX). Competitors: Fortress Investment Group LLC (NYSE:FIG)
Related: Company overview, Wikipedia on Blackstone Group

KKR Eyes IPO After Rival Blackstone Prices at High End of Range

The Wall Street Journal and New York Times report Kohlberg Kravis Roberts & Co. [KKR] is now planning its own IPO, after closely following the IPO of rival Blackstone Group, which priced at the top of its range at $31/share, raising $4.13b, and begins trading Friday. Strong investor interest in Blackstone, despite adverse tax-related implications, among other matters, has prompted KKR to pursue a public listing, according to unnamed sources. Still, KKR chief Henry Kravis is upset by a recent Congressional ruling that exempted Blackstone for five years from higher taxes to be levied on partnerships that go public, a priviledge future candidates like KKR would not receive. Sources say KKR has retained investment banks including Morgan Stanley, and could file a prospectus within the next month. In addition to KKR, private equity firms including Carlyle Group, TPG and Apollo Management, are all said to be considering a public listing. Private equity firm Fortress Investment Group has gained 40% since its IPO in February.
Sources: New York Times, Wall Street Journal
Commentary: Blackstone IPO: $31/Share, Upper-End of GuidanceBlackstone Group IPO to Take Wall Street By StormWhy Are Lawmakers Afraid of the Blackstone IPO?
Stocks/ETFs to watch: Fortress Investment Group LLC (FIG), Blackstone Group LP (BX), Morgan Stanley (NYSE:MS)
Related: KKR website, KKR Investments

Supreme Court Raises Bar for Securities Fraud Class-Action Suits

The U.S. Supreme Court ruled 8-1 on Thursday in favor of defendant Tellabs Inc. in a class-action suit in which shareholders alleged the company had committed securities fraud. The decision, which overturns an appellate court ruling, further toughens the standards of evidence required of plaintiffs in cases of this kind. TLAB 22 June 2007The case will now be returned to a lower court. In an opinion written by Justice Ruth Bader Ginsburg, the Court said plaintiffs must demonstrate that company executives had a "cogent and compelling" intent to deceive. Tellabs shareholders filed suit in 2001 after a steep drop in the company's share price, alleging that former executives misled them by overstating revenue and demand projections. Tellabs management says it was as surprised as anyone by the abrupt drop in the share price, which coincided with a wider downturn across the telecom sector. The Court's decision follows a ruling earlier this week that made it harder for investment banks to be successfully sued for antitrust violations. Senior officials of the Bush administration have been urging the courts to limit shareholder lawsuits on the grounds that they discourage investment and push companies to raise capital abroad.
Sources: Supreme Court opinion, CNN.com, Bloomberg, Forbes, New York Times
Commentary: Supreme Court Tosses Class-Action Suit Against I-BanksWhen The Supreme Court Weighs In, Investors Had Better Pay AttentionSupreme Court Sides with Innovators Over Patent Holders
Stocks/ETFs to watch: Tellabs, Inc. (NASDAQ:TLAB). ETFs: Broadband HOLDRs (NYSE:BDH), PowerShares Dynamic Networking (NYSEARCA:PXQ)


Jabil Circuit Jumps On Beat, Strong Forward Sales Guidance

Contract electronics manufacturer Jabil Circuit Inc. reported profits dropped 90% in its latest quarter due to large one-time expenses. But earnings results were better than consensus estimates, as were sales forecasts, sending shares higher by 8% in AH trading. Shares had already gained 2.76% during regular trading. jbl Net income was $6.2 million ($0.03/share), vs. EPS of $0.30 in the prior-year period. Excluding one-time restructuring costs ($19.4 million), amortization costs ($7.5 million) and stock-based compensation costs ($14.3 million), EPS would have been $0.23. Consensus analyst estimates were for EPS of $0.21. Revenue climbed 16% to $3 billion, slightly higher than consensus estimates of $2.95 billion. Looking ahead, Jabil expects sales of $3 billion in its next quarter, vs. a consensus prediction of $2.97 billion. President and CEO Timothy L. Main told analysts on the conference call: "A year ago, we entered what has turned out to be an extremely challenging period for us. We are not where we wanted to be a year ago, but we are not necessarily at such a bad place either." Shares had been down 13.6% YTD.
Sources: Earnings Call Transcript, Press release, Reuters, Bloomberg, AP, Dow Jones Newswires
Commentary: Cognos, Jabil Report In-Line With ExpectationsContract Electronics Manufacturing: Tough Place to Make MoneyJabil Circuit Slips On Soft Guidance
Stocks/ETFs to watch: Jabil Circuit (NYSE:JBL). Competitors: Solectron Corporation (SLR), Flextronics International (NASDAQ:FLEX), Sanmina-SCI Corporation (NASDAQ:SANM)

NVIDIA Shares Hit All-Time High on Analyst Actions, New Chips

NVIDIA jumped 7.8% to $42.98, a new all-time high, on two target share price hikes and optimism over its new "Tesla" chip family geared for high-performance computing. A Deutsche Bank analyst raised his target share price to $54 (from $48), saying he expects stronger growth with multiple product cycles in 2007 and 2008. NVIDIA-chart-06-21-07 Lehman Brothers upgraded NVIDIA to "Overweight" from "Equal-weight," with a target of $47/share. At its annual "Financial Analyst Day" Wednesday, NVIDIA unveiled the Tesla GPU (graphics processing unit), marking its entry into the high-performance computing market (used by geosciences, molecular biology and medical diagnostics), one it values at $6 billion by 2010. An American Technology analyst said NVIDIA will likely challenge IBM and Intel, but cautioned the market might not be ready for a GPU-based supercomputer yet. The analyst also questioned NVIDIA's ability to roll out a solution "in any meaningful volume" in 2007.
Sources: Press release, Bloomberg, eWEEK.com, MarketWatch, newratings.com
Commentary: Six Reasons For Strength In The PC Supply ChainJim Cramer's Take on NVIDIANVIDIA Q1 Earnings Beat Street
Stocks/ETFs to watch: NVIDIA Corp. (NASDAQ:NVDA). Competitors: Advanced Micro Devices Inc. (NYSE:AMD), Broadcom Corp. (BRCM), Creative Technology Ltd. (OTCPK:CREAF), Intel Corp. (NASDAQ:INTC), IBM Corp. (NYSE:IBM). ETFs: SPDR S&P Semiconductor (NYSEARCA:XSD), PowerShares Dynamic Semiconductors (NYSEARCA:PSI), iShares Goldman Sachs Semiconductor (IGW)
Conference call transcripts: NVIDIA F1Q08
Related: Webcast of NVIDIA's 2007 Annual Shareholder Meeting and Financial Analyst Day 2007, Tesla GPU


GE and Pearson Will Not Pursue Dow Jones

General Electric and Pearson plc, publisher of the Financial Times [FT], have decided not to pursue an acquisition of Dow Jones & Co., the companies announced Thursday. DJ 22 June 2007In April, Dow Jones received a $60 per share offer from Rupert Murdoch, owner of News Corp. GE owns NBC Universal, which operates business news channel CNBC. CNBC will soon face a new rival in Murdoch's Fox Business Channel, to be launched this fall. GE and Pearson had discussed spinning off CNBC and the FT into a closely held unit that would then buy Dow Jones. Sources close to the companies say they decided they could not justify an offer equal or superior to Murdoch's $5 billion bid, though they will continue to discuss cooperation between CNBC and the FT. The Bancroft family, which holds a controlling stake in Dow Jones and has resisted the Murdoch offer on concerns about editorial independence, has not commented. Yesterday, the Dow Jones board took over takeover negotiations from the Bancrofts, a move widely expected to hasten a sale. Although no rival bidder has emerged with an offer for the entire company, MySpace co-founder Brad Greenspan has offered $60 per share for a 25% stake.
Sources: Dow Jones Newswire, Reuters, Bloomberg, Wall Street Journal, Financial Times
Commentary: Pearson and GE Considering Joint Bid for Dow JonesMatchmaker, Matchmaker: Pearson Looks For Partner To Beat News Corp. For Dow Jones BidIs Brad Greenspan the Bancrofts' White Knight?
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), Pearson plc [ADR] (NYSE:PSO), General Electric Co. (NYSE:GE), News Corp. (NASDAQ:NWS). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07, General Electric Q1 2007


Jones Apparel May Sell Barneys Today -- New York Times

Jones Apparel is on the verge of closing a deal to sell its Barneys New York luxury department store chain to the Dubai government for about $825 million, according to the New York Times. Unnamed sources say a deal could be announced today. The price is $125 million less than the $950 million reported by the New York Post on June 13. Jones' CEO Peter Boneparth bought Barneys in 2004 for $400 million. He has been under pressure from shareholders to boost the company's share price in the face of weak sales; shares are down 15.2% YTD. The deal would be partial vindication for Jones 22 06 2007 ChartBoneparth. Barneys' 35-odd stores -- including flagships in NYC, Beverly Hills, Boston and Chicago -- sell designer apparel, shoes, accessories and home furnishings. The buyer, private equity firm Istithmar, is owned by the oil-rich Dubai government. The firm has purchased $1.6 billion of 'high-profile' businesses and real estate in the last three years.
Sources: New York Times
Commentary: Jones Apparel on the Verge of Selling Barneys -- NY PostJones Apparel Reportedly Considering Sale of BarneysJones Apparel: Room to Grow -- Barron's
Stocks/ETFs to watch: Jones Apparel Group Inc. (NYSE:JNY). Competitors: AnnTaylor Stores Corp. (NYSE:ANN), Brown Shoe Company Inc. (BWS), Liz Claiborne Inc. (LIZ). ETFs: Retail HOLDRS ETF (NYSEARCA:RTH)

Equity Inns Goes for $2.2 Billion; Other Hotel Companies May Be Undervalued

Playing off the growing strength of the U.S. lodging industry, Equity Inns, owner of 132 limited-service hotels and motels, has agreed to be taken private by Goldman Sachs' Whitehall Street Global Real Estate LP for $2.2 billion, including debt.enn Without debt the price is $1.27 billion, or $23/share, a 19% premium to Wednesday's closing price. Equity Inns' shares were up 25% YTD before the announcement. The deal is expected to close in the fourth quarter, pending shareholder approval; the board supports the deal. Equity Inns counts Hampton Inn and Courtyard by Marriott among its better known brand names, and generally operates in areas with lower entry barriers for competitors. Since 9/11, the hotel industry has rebounded, with supply of new rooms failing to keep pace with growing demand. According to Smith Travel Research, the average daily room rate rose 7.2% in 2006 to $97.61, lifting industry profits to a record $26.6 billion. Lodging industry analyst Will Marks: "This is as high of a price as we've ever seen for a limited-service hotel company. If this is a statement of an accurate value for hotels, then the rest of the publicly traded hotel companies are trading at 20% or greater discounts to net asset value."
Sources: Press Release, Reuters, Bloomberg, Wall Street Journal, MarketWatch
Commentary: Seeking Alpha/HotelsEight Hotel Stocks To Watch This Summer
Stocks/ETFs to watch: Equity Inns, Inc. (ENN), Goldman Sachs (NYSE:GS). Competitors: Hospitality Properties Trust (NYSE:HPT), FelCor Lodging Trust Incorporated (NYSE:FCH), Sunstone Hotel Investors (NYSE:SHO), Innkeepers USA Trust (KPA), Ashford Hospitality Trust (NYSE:AHT)
Related: Equity Inns Homepage

Starbucks Falls on CFO's Guidance Statement

Shares of Starbucks lost 3.9% to $26.26 on their highest trading volume in almost six years after CFO Michael Casey said achieving the high-end of the company's 2007 EPS guidance of $0.87-0.89 will be "very challenging." Consensus estimates were for $0.89/share. Starbucks-SBUX-chart-06-21-07 Casey cited current market conditions, and in particular rising dairy costs. Same-store sales are still expected to rise 3-7% this year, with net revenue growth of 20%. Starbucks still intends to open 2,400 stores in 2007, including 1,700 in the U.S., and plans to maintain the level of U.S. openings over the next several years. International store openings are forecast to increase 20% annually over the next few years. Shares, which have fallen 25.9% YTD, reached their lowest levels since October 2005. Casey was presenting at the William Blair Growth Stock Conference in Chicago.
Sources: Reuters
Commentary: Starbucks: Where Growth is Not an IllusionStarbucks and McDonald's: Goldman Makes Deutsche Look ReasonableStarbucks Shares Have to Fall Before Anyone Should Consider Them
Stocks/ETFs to watch: Starbucks (NASDAQ:SBUX). Competitors: Tim Hortons Inc. (THI), Peet's Coffee & Tea Inc. (NASDAQ:PEET), McDonald's Corp. (NYSE:MCD), Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), Krispy Kreme Doughnuts (KKD). ETFs: Vanguard Consumer Discretionary ETF (NYSEARCA:VCR), iShares DJ US Consumer Services (NYSEARCA:IYC), PowerShares Dynamic Food & Beverage (NYSEARCA:PBJ)
Conference call transcripts: Starbucks F2Q07
Related: CFO Michael Casey's Presentation [pdf], Webcast of Starbucks at William Blair Annual Growth Stock Conference


NYSE Euronext Takes on LSE in Borsa Italiana Bidding War -- WSJ

NYSE Euronext has submitted a preliminary offer for Italian markets operator Borsa Italiana, according to a report in the Wall Street Journal. On Thursday, Borsa received a cash/share bid from the London Stock Exchange Group plc [LSE] of about €1.5 billion. NYSE Euronext's offer is reported to be in the same price range. NYSE told the Borsa it has a more diverse business than the LSE, and more experience in the successful integration of exchanges. NYSE Euronext has a partnership with Borsa in the MTS European bond-trading platform, which it says it wants to keep. The Borsa has triggered an option to buyout NYSE's stake in the project. NYSE Euronext already owns four European exchanges (Paris, Amsterdam, Brussels and NYSE Euronext 22 06 2007 ChartLisbon). Borsa Italiana is Europe's seventh largest exchange. LSE is 30% owned by Nasdaq Stock Market, which tried unsuccessfully to take it over in early 2007. NYSE Euronext shares are down 20.9% YTD.
Sources: Wall Street Journal
Commentary: NYSE Euronext Weakness ContinuesNYSE-Euronext Definitely a Buy At Current LevelsNYSE Euronext: Is a Sell Rating Justified?
Stocks/ETFs to watch: NYSE Euronext (NYSE:NYX), Nasdaq Stock Market Inc. (NASDAQ:NDAQ). Competitors: IntercontinentalExchange Inc. (NYSE:ICE), International Securities Exchange Inc. (ISE), Chicago Mercantile Exchange Holdings (NASDAQ:CME), CBOT Holdings Inc. (BOT). ETFs: Financial Select Sector SPDR ETF (NYSEARCA:XLF), iShares Dow Jones US Financial ETF (NYSEARCA:IYF)

Bear Stearns Attempting $3.2 Billion Hedge Fund Rescue

In what would be the biggest hedge fund bailout since 1998, Bear Stearns has offered a deal to several creditors of the less leveraged of its two collapsing hedge funds whereby it will assume $3.2 billion of the fund's debt, according to Bloomberg. BSC 22 June 2007Unnamed sources say that in exchange, the creditors must agree not to seize any of the fund's collateral for 90 days. It is not known whether any of them have agreed to the terms. Merrill Lynch, a creditor of both funds, has already seized $850 million in assets and put them on the market, and others are considering seizing collateral. The two funds made bad bets on collateralized debt obligations (CDOs), an investment which pools mortgage-backed bonds, loans and derivatives. Bear would seemingly rather assume the fund's risk than to allow a 'fire sale' that would flood the market with CDOs, which could precipitate a wide-scale repricing of the securities. CDOs are estimated to have lost over $25 billion because of subprime defaults. The two Bear funds had borrowed $9 billion and made bets of over $11 billion, primarily in CDOs backed by subprime loans. In the wake of the near-collapse, Bear Stearns has cancelled its planned IPO of Everquest Financial, which touted Ralph Cioffi's expertise in its IPO filing last month. Cioffi is the manager of the failing hedge funds.
Sources: Bloomberg, MoneyCentral, FinFacts Ireland, Financial Times
Commentary: Bear Stearns Blowout: Who Will Buy These Assets?Merrill Lynches Bear?J.P. Morgan Holds Off on Bear Fund Asset Auction
Stocks/ETFs to watch: Bear Stearns Companies Inc. (NYSE:BSC). Competitors: Goldman Sachs Group Inc. (GS), Lehman Brothers Holdings Inc. (LEH), Merrill Lynch & Co. Inc. (MER). ETFs: iShares Dow Jones US Broker-Dealers (NYSEARCA:IAI), KBW Capital Markets ETF (NYSEARCA:KCE)

ABN Amro and ING Groep Were Near Merger in March -- Report

Dutch banking giant ABN Amro -- now the subject of competing bids from Barclays and a Royal Bank of Scotland-led consortium -- nearly merged with ING Groep three months ago, a Dutch daily reported Thursday. ABN 22 June 2007NRC Handelsblad said ING began takeover negotiations with ABN last November but halted them mid-March, when ABN's share price rose above €27. The Dutch Central Bank and European Competition Commissioner Neelie Kroes had received details about the potential merger and expressed approval. When the talks began, ABN's shares were trading at €23. The shares rose sharply in February, when activist shareholder TCI Fund publicly demanded the bank either split itself up or sell itself. ABN has since accepted an offer from Barclays worth €34.93 per share that is contingent on the sale of ABN's U.S. asset, LaSalle Bank, to Bank of America. The LaSalle sale was frozen by a Dutch court, however, after ABN shareholders claimed it was an attempt to dampen the interest of RBS. The consortium's bid for ABN is worth €38.40 per share. In related news, the consortium said Friday it expects to file all change-of-control and antitrust draft documentation for the bid by next week and should issue the offering document and public SEC filing in July. "What is remarkable," said Gilissen analyst Herman Bots, "is that the consortium...hasn't waited for a Dutch Supreme Court ruling or a deal with Bank of America on LaSalle before proceeding with their offer."
Sources: CNN.com I, II, Forbes, Reuters
Commentary: ABN Mulling RBS Consortium Bid; Supervisory Board Enters Takeover FrayABN Amro Agrees to Sell Itself to Barclays for $91 BillionHedge Fund Threatens Legal Action Unless ABN AMRO Listens to All Offers
Stocks/ETFs to watch: ABN Amro Holding N.V. [ADR] (ABN), ING Groep N.V. [ADR] (NYSE:ING). ETFs: First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares Intl Dividend Achievers (NASDAQ:PID), iShares MSCI Netherlands Index (NYSEARCA:EWN)


U.S. Market: Agflation!
Housing: Eleven Good Points On Residential Real Estate
Long Idea: Best Buy Is Looking Good; Eddie Lampert Should Buy Circuit City
Short Idea: Short Interest Hits New Record High On NYSE
Internet: Yahoo/eBay Merger Case Strengthened By Semel Departure
Telecom: Verizon: More Upside Ahead In Wireless
Networking: Radvision: Capitalize On the Growing Video Conferencing Trend
Hardware: Western Digital: Second to None in the Data Storage Industry
Chips: Intel’s Move To “Core” Design Should Cement Lead Against AMD
Software: Cognos: The Competitive Edge of Intelligent Business
Gadgets: Apple's iPhone Buzz: YouTube Accessible, Should Businesses Reject It?
Media: Is Brad Greenspan the Bancrofts' White Knight?
Healthcare: TLC Vision: Glenhill Advisors Cuts Stake By 2.8M Shares
Biotech: Novo Nordisk: Doing Nicely
Retail: Why I'm Not Buying Crocs or Heelys: A Fast Eddie Story
Gold: HUI and Gold Price: Best Future Return Likely In Junior Miners
Energy: Two of My Favorite High-Yielding Stocks: BBVA Provida and Centerline Holdings
Financial: Two Stocks Poised To Profit From A Debt Collection Boom
Asia: Is Syntel Ready to Become a Tier-1 IT Outsourcing Company?
ETFs: Large Cap Growth and Value: A Dirty Little Secret
Hedge Funds: CV Therapeutics Takes Off Right Out of Gate On Takeover Talk
Small-Caps: Shengda Tech: A Cheap Chinese Smallcap
Sound Money Tips: Don't Go Paperless
Jim Cramer: Latest stock picks
Earnings Transcripts: Jabil Circuit F3Q07Cognos F1Q08

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