Apple iPhone Makes Strong Debut
Apple's much anticipated iPhone went on sale Friday evening in the U.S.; analysts estimate sales of up to 200,000 units in the first 24 hours and more than 500,000 units over the weekend. CEO Steve Jobs has said Apple aims to sell 10 million phones in 2008, gaining 1% of global market share. Piper Jaffray analyst Gene Munster estimated weekend sales totaled around 500,000 phones, while Global Equities Research analyst Trip Chowdhry put the figure at 525,000. According to Chowdhry, AT&T (the exclusive service provider for the iPhone) said most of its 1,800 stores sold out within 24 hours. Piper Jaffray said Apple had iPhones available at all of its stores Saturday and 84% of stores Sunday. Ninety-five percent of buyers in three markets -- San Francisco, New York and Minneapolis -- purchased the more expensive 8GB model ($599 vs. $499 for the 4GB model), according to a survey by Piper Jaffray. There were reports of service activation delays. One source said about 2% of buyers were affected.
Sources: Bloomberg, CNET News Blog, Reuters
Commentary: iDay for the iPhone: Apple Lands on Microsoft's Beach • Barron's Gets It Wrong On Apple, Post-iPhone • iPhone Mania: Case Study of the Better Mousetrap Principle
Stocks/ETFs to watch: Apple Computer Inc. (NASDAQ:AAPL), AT&T Inc. (NYSE:T). Competitors: Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Ericsson ADR (NASDAQ:ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM), Verizon Comm. Inc. (NYSE:VZ), Sprint Nextel Corp. (NYSE:S), Microsoft Corp. (NASDAQ:MSFT). ETFs: Internet Architecture HOLDRs (NYSE:IAH), PowerShares QQQ (QQQQ), Technology Select Sector SPDR (NYSEARCA:XLK), DIAMONDS Trust, Series 1 (NYSEARCA:DIA), iShares DJ U.S. Telecom Sector Index ETF (NYSEARCA:IYZ)
Conference call transcripts: Apple F2Q07, AT&T Q1 2007
AT&T to Buy Dobson in $5.1B Deal, 17% Premium
Late Friday, AT&T agreed to purchase Dobson Communications, a mobile-phone service provider under the Cellular One brand, for $2.8 billion in cash, or $13.00 per share, representing a 17% premium to its Friday close of $11.11. Including debt, the deal is valued at $5.1b. It is subject to regulatory approval, but both parties aim to close the deal within the year. AT&T expects EPS dilution of $0.03-$0.04 in year one, with a positive impact on EPS and free cash flow from year two. It is maintaining its financial outlook for double-digit EPS growth in 2007 and 2008. AT&T said it expects potential synergies of around $2.5b. Dobson has 1.7 million subscribers with network reach of about 13m consumers in 17 states. Dobson has been providing AT&T with roaming service since 1990. Dobson shares rose to their buyout price of $13.00 in extended trading. AT&T lost nearly 0.5% to $41.31 in the after-hours, following a 1.9% gain to $41.50 in regular trading.
Sources: Press release, Bloomberg, MarketWatch
Commentary: AT&T: Apple iPhone, Broadband Boost Target Price • AT&T Rebrands Ahead of iPhone Launch • Dobson Communications: Hang Up and Sell
Stocks/ETFs to watch: AT&T Inc. (T), Dobson Communications Corp. (DCEL). Rural Cellular Providers: Rural Cellular Corp. (RCCC), Centennial Communications Corp. (CYCL), United States Cellular Corp. (NYSE:USM). Competitors: Sprint Nextel Corp. (S), Verizon Communications Inc. (VZ), Qwest Communications International Inc. (NYSE:Q). ETFs: DIAMONDS Trust, Series 1 (DIA), iShares DJ U.S. Telecom Sector Index ETF (IYZ), iShares S&P Global Telecom ETF (NYSEARCA:IXP), Telecom HOLDRS ETF (NYSEARCA:TTH), Vanguard Telecom Services (NYSEARCA:VOX)
Conference call transcripts: AT&T Q1 2007
SAVVIS, Inc. Sells Two Data Centers To Microsoft For $200M
SAVVIS, Inc. announced Friday the sale of two adjacent data centers in Santa Clara, California to Microsoft Corp., the buildings' sole occupant, for $190 million, plus $10 million in advanced revenue. The agreement involves the termination of Microsoft's service contracts with SAVVIS, which wouldn't have expired until 2010. As a result of the sale, SAVVIS, which is a global IT services provider, was required to reduce its revenue and earnings outlook to $805-$820 million and $155 million-$165 million respectively. Analysts polled by both Thomson Financial and Reuters were looking for 2007 revenue of $828 million. According to SAVVIS CFO Jeff Von Deylen, "As the market dynamics changed, we recognized that if we were able to sell (the facilities), we could diversify our footprint... which is better risk management for us." Shares of SAVVIS fell 2.04% to $49.51 Friday.
Sources: Press Release, Reuters, AP, Dow Jones Newswire, MarketWatch
Commentary: Verizon Could Improve Competitive Position By Buying Savvis • Savvis' Content Delivery Network Will Complement Level 3's Internet Backbone
Stocks/ETFs to watch: SAVVIS, Inc. (NASDAQ:SVVS), Microsoft (MSFT). Competitors: Level 3 (NYSE:LVLT)Global Crossing (NASDAQ:GLBC), Electronic Data Systems Corporation (NASDAQ:EDS). ETFs: PowerShares Dynamic Networking (NYSEARCA:PXQ), iShares Goldman Sachs Networking Index (NYSEARCA:IGN)
BCE Agrees to $48.8 Billion Buyout
BCE, the largest telecom in Canada and owner of the Bell Canada brand, said Saturday it has accepted a US$48.8 billion offer from a consortium led by the Ontario Teachers Pension Plan and including Providence Equity Partners and Madison Dearborn Partners LLC. The offer consists of C$34.8 billion in cash (C$42.75, or US$40.13, per share) and the assumption of C$16.9 billion (US$15.9 billion) in debt. The price represents a 6% premium to the shares' Friday close and a 40% premium to their average price during Q1, prior to the revelation that the company might be bought out. The pension plan will hold about 52% of the company; 32% will go to Providence; Madison Dearborn will hold just under 10%; and 7% will be held by unnamed Canadian shareholders. The consortium beat out Cerberus Capital Management LP and another Canadian pension plan backed by KKR. BCE's smaller rival Telus had considered bidding but withdrew after expressing dissatisfaction with the auction process. "This represents very, very substantial value for our shareholders," said BCE CEO Michael J. Sabia. "Bell will continue as a Canadian company held in the majority by a Canadian pension plan."
Sources: Press release, MarketWatch, Wall Street Journal, New York Times, TheStreet.com
Commentary: Telus Decides Against Takeover Bid for BCE; Three Suitors Remain • Why Isn't Telus Bidding for BCE? • BCE: Full Fledged Bidding War May Break Out
Stocks/ETFs to watch: BCE, Inc. (NYSE:BCE). Competitors: Rogers Communications Inc. (NYSE:RCI), Telus Corp. (NYSE:TU). ETFs: iShares Dow Jones U.S. Telecom Sector Index ETF (IYZ), Telecom HOLDRS ETF (TTH), Vanguard Telecom Services ETF (VOX)
Yahoo to Announce New Targeted Ad Tool
Yahoo is expected Monday to unveil a new advertising tool called SmartAds that will enable marketers to personalize their ads by age, sex, location and online activities. This kind of "behavioral targeting...makes display (advertising) more of a direct response vehicle than just branding," said Yahoo spokeswoman Gaude Paez. SmartAds will integrate the company's demographic, geographic and behavioral targeting capabilities with an ad construction platform that customizes ads in real time. The ads will appear on Yahoo's publisher sites and eventually on the sites of its newspaper partners, as well as on ComCast, eBay, and the sites contained on Right Media's advertising network. Yahoo agreed in April to buy Right Media for $680 million. SmartAds gives Yahoo a boost as it struggles to overcome declining growth in display advertising. Yahoo is the market leader in display ads, but trails rival Google in search advertising. Google recently purchased online ad broker DoubleClick for $3.1 billion and Microsoft has agreed to pay $6 billion for aQuantive.
Sources: New York Times, News.com, Reuters
Commentary: Yahoo Purchase of Right Media Gives It Added Liquidity, Exit From DoubleClick • Yahoo Merges Ad Businesses; Reshuffles Sales Executives • Yahoo Takes Huge Step Towards Image Search Supremacy
Stocks/ETFs to watch: Yahoo! Inc. (NASDAQ:YHOO). Competitors: Google Inc. (NASDAQ:GOOG), Microsoft Corp (MSFT). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN)
Conference call transcripts: Q1 2007
Universal Challenges Apple's iTunes Hegemony By Refusing Long-term Contract
The long-standing disagreement between Apple and the music industry's major players is heating up, according to reports in both the New York Times and the Wall Street Journal. Vivendi-owned Universal Music Group has decided not to renew its annual contract with #1 digital music retailer iTunes, according to the Times, quoting executives in the know who asked for anonymity. The companies have argued over pricing and interoperability between non-iTunes digital download and the Apple-produced iPod. Not negotiating a long-term contract gives Universal leverage against iTunes' policies, especially with regards to pricing, by allowing it to sell its music through competitors' download sites. It also allows Universal to pull some or all of its music from iTunes as it sees fit. Both companies stand to lose if they cease cooperating. Universal Music and its related companies account for one in three new albums released in the U.S., including major sellers like Eminem, 50 Cent, U2 and Sting. Meanwhile, digital music sales account for 15% of Universal's total sales, much of that from iTunes, and the number is growing (Universal doesn't break down exactly how much of its sales are from iTunes versus other digital sources).
Sources: Wall Street Journal, New York Times
Commentary: ITunes Now Number Three Music Retailer in U.S. -- Survey • Apple's DRM-free Music: Balancing Consumer Rights with Accountability • What’s Next For Apple As The DRM-Free Music Era Begins?
Stocks/ETFs to watch: Vivendi (OTCPK:VIVEF). Competitors: Apple (AAPL). Microsoft (MSFT), Napster (NAPS), Wal-Mart Stores (NYSE:WMT), Best Buy (NYSE:BBY), RealNetworks (NASDAQ:RNWK), Amazon.com (NASDAQ:AMZN). ETFs: Internet Architecture HOLDRS (IAH), Internet HOLDRS (HHH), Consumer Discretionary SPDR ETF (NYSEARCA:XLY), Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR)
Earnings call transcript: Apple F2Q07
Bancroft Trustees Might Hold Final Say on Dow Jones Sale -- WSJ
The final decision on whether or not to accept Rupert Murdoch's $5 billion offer for Dow Jones might reside not with the Bancroft family, which holds a 64% interest, but with their legal trustees, according to the Wall Street Journal. Hemenway & Barnes, the family's longtime lawyers, are trustees on funds that control a majority of the Bancrofts' stake. "The vote really resides with them," said a Bancroft who favors the sale. The 35 adult Bancrofts are divided on the sale, but less than half their votes would be required for the sale to go through, since 20-25% of the 36% stake held by non-Bancrofts is expected to be cast in favor. Last week the Dow Jones board reached agreement with Murdoch's News Corp. on safeguards to protect the editorial integrity of the Journal. The sides are still negotiating on price, though Murdoch has said he will not sweeten his original $60/share offer. Once the price is finalized, the Bancrofts will be polled. Michael B. Elefante, a Hemenway & Barnes partner and the family's lead trustee, is believed to favor a sale, and his opinion is valued by family members. "If Elefante tells them that the agreement on editorial independence can be enforced and the principles are protected, they'll support him," said an unnamed Bancroft who supports the sale.
Sources: Wall Street Journal
Commentary: Dow Jones, News Corp. Reach 'Editorial Pact' • Murdoch: Dow Jones Bid Stays at $60 per Share • Murdoch and Dow Jones Near Deal -- WSJ
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NASDAQ:NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Carlyle Group Ready to Bid for Virgin Media -- Report
The private equity firm Carlyle Group is prepared to make an $8 billion (£4 billion not including £6B in debt) bid for cable company Virgin Media, according to British newspaper the Sunday Telegraph. The unsourced report claims the offer will likely begin an auction process, and Goldman Sachs is said to be preparing documents on the company's financial position to circulate among potential suitors. Sir Richard Branson's Virgin Group holds a 10.5% stake in Virgin Media, making him its biggest shareholder. The Telegraph reports that Providence Equity, which tried last summer as part of a consortium to buy Virgin Media for $10 billion, "is understood to have signaled its interest again." Virgin Media is the product of a merger between NTL and Telewest. The company's share price has dropped amid an ongoing battle with satellite operator BSkyB, which Virgin Media has sued over a fee dispute. In May, the company posted its seventh straight quarterly loss following subscriber defections after Virgin dropped five BSkyB channels. The Financial Times notes that Huff Asset Management, the shareholder believed to have blocked the Providence bid for Virgin Media, has reduced its stake from 6.7% to 4.9% and is no longer considered an obstacle to a buyout. UPDATE: Dow Jones reported early Monday that the Carlyle Group has made an offer of $33-35 per share for Virgin Media, valuing the company at approximately £11.5 billion including debt. An unnamed source told Dow Jones that Virgin Media has responded by asking Goldman Sachs to "effectively start to run an auction."
Sources: Telegraph, Dow Jones, MarketWatch, Reuters, New York Times, Financial Times
Commentary: Providence Equity Mulls $15 Billion Bid for Virgin Media -- The Observer • Virgin Media and Sky: Report From The Battlefield • Virgin Media: Good News All Around
Stocks/ETFs to watch: Virgin Media Inc. (NASDAQ:VMED). Competitors: British Sky Broadcasting Group plc (BSY), BT Group plc (NYSE:BT). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS), PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ)
Kraft Is In Talks to Buy Danone's Biscuit and Cereal Unit -- FT
Kraft is in talks to buy the biscuit and cereal unit of Danone, sealing its post as the world's number-one cookie maker, according to a report in the Financial Times. Kraft has been under pressure from activist shareholder Nelson Peltz, who revealed last month he had amassed a 3% stake ($1.7 billion) in the company. Peltz has criticized the company of poor management and under-performing assets. Peltz's activism may have been instrumental in Cadbury Schweppes's American beverage unit auction and Wendy's recent move to put itself on sale. Kraft's biscuit sales were $5 billion in 2006, while Danone's biscuit and cereal division -- the smallest of its three units behind dairy and mineral-- had a €2.2 billion ($3 billion) turnover. While there are likely synergies that would result in cost-cuts, some analysts question whether Kraft will be able to buy the unit at a reasonable price. UBS analyst David Palmer predicted in a recent note that Danone may be a target for Kraft, as midsize ($10-20B) global food companies are swallowed up by larger foes. Danone shares gained 1.9% in French trading Monday morning.
Sources: Financial Times, 24/7 Wall Street, Dealscape
Commentary: Kraft Foods May Go On a Value-Creating Acquisition Spree • Kraft Foods Jumps On Reports of Peltz's 3% Stake
Stocks/ETFs to watch: Kraft Foods Inc. (KFT), Groupe Danone (DA). Competitors: General Mills Inc. (NYSE:GIS), Del Monte Foods Company (DLM), Kellogg Company (NYSE:K). ETFs: PowerShares Consumer Goods ETF (PRFG), Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Ultra Consumer Goods ProShares (NYSEARCA:UGE)
Bear Stearns Hedge Fund Investors Must Wait to Learn Losses
It could take Bear Stearns until July 16 to calculate investor losses at the two hedge funds that recently plummeted in value after a downturn in mortgage-backed securities, the Wall Street Journal reported Monday. Bear's asset management arm sent a letter to investors Friday informing them it is proving unusually difficult to determine the funds' NAVs, since the securities in which they were invested were highly illiquid and their market volatile. Bear "has determined not to release an estimated NAV in the interim," the letter said. Investors are watching Bear closely because other hedge funds are also holding thinly traded mortgage-backed securities, and Bear's assessment of their value will likely affect them. The more leveraged of the two funds, the High Grade Structured Credit Strategies Enhanced Leverage fund, lost 18% of its value in April and is believed to have fallen even more. Bear said last week it will take over $1.6 billion of the debt of the less leveraged fund, the High Grade Structured Credit Strategies fund. In June, the funds had to liquidate $4 billion of assets to meet margin calls.
Sources: Wall Street Journal, Reuters
Commentary: Collateral Debt Obligations: Mark-to-Dealer • Bear Stearns Knows What Its Doing: Bailout Just Another Investment Strategy • Bear Stearns: Bigger Fund Doesn't Need a Bailout
Stocks/ETFs to watch: Bear Stearns Companies Inc. (NYSE:BSC). Competitors: Goldman Sachs Group Inc. (NYSE: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)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- At 5x sales and 34x 2007 earnings, the market has already priced in a lot of Apple's (AAPL) post-iPhone-release growth. An analyst notes that letdowns have followed previous launches; another says he's cutting his Apple stake with the goal of rebuilding it once the dust settles. Barron's suggests taking some short-term profits and getting back in on a dip -- perhaps spurred by the fall arrival of Mac OS Leopard, with its ability to boot into Windows. [See full summary]
- Earthlink's (NASDAQ:ELNK) new CEO Rolla Huff will develop his plans to overhaul the company over the next 90 days. Dial-up internet stays due to its enormous cash flow. Question marks include its Helio JV, which resells Sprint (S) 3G service with nifty phones, and its municipal WiFi startup. Huff bought $750k of shares on the day he took over "because I think I am going to make a great return on that money." Barron's Eric Savitz says that with his aggressive approach, "Earthlink is going to be fixed, and soon." [See full summary]
- Collegiate Pacific (BOO) changed its name Sunday to Sport Supply Group (RBI) to mark its focus on sports equipment supplies. Analysts expect $0.72 EPS in F2008 (up from $0.46 in 2007 and $0.29 in 2006). Shares, trading at 13.5 P/E, rose 6% to $9.71 on Friday, but are down 10% YTD due to a bumpy merger integration. Its new technology platform, streamlined catalog and manufacturing operations, and growing sales are behind Carlson Capital's 14% stake buildup, and Oppenheimer's $1 EPS projection for F2009. Bulls expect good news, possibly even a buyout. [See full summary]
- Seaspan (NYSE:SSW) leases ships and containers. Its shares carry a 6% dividend yield and significant China exposure -- which accounts for 1/3 of global shipping. Seaspan has expanded its fleet to 55 ships from 23 ships since its 2005 IPO, and anticipates 100 ships by 2010. Its fleet is younger than that of rivals like Danaos (NYSE:DAC), and its shares' 49% rise this year pales next to rival Dryships' (NASDAQ:DRYS) 262% -- leaving it more upside potential. Shares should rise 15%. [See full summary]
- Fund Manager Peter Siris's picks. Longs: (1) China: China 3C Group (CHCG.OB), China Security & Surveillance Technology (CSCT.OB), and General Steel Holdings (GSHO.OB). (2) Retail: Sonic (NASDAQ:SONC), United Auto Group (NYSEARCA:UAG) [which changes this week to Penske Automotive Group (NYSE:PAG)], Nordstrom (NYSE:JWN) and Bon-Ton Stores (NASDAQ:BONT). (3) Night clubs: VCG Holding (PTT) and Rick's Cabaret (NASDAQ:RICK). Shorts:Casual restaurants: P.F. Chang (NASDAQ:PFCB), Cheesecake Factory (NASDAQ:CAKE), Red Robin Gourmet Burgers (NASDAQ:RRGB), Buffalo Wild Wings (NASDAQ:BWLD) and California Pizza Kitchen (NASDAQ:CPKI). [See full summary]
- Shares of Morgan Stanley (NYSE:MS) spinoff Discover (NYSE:DFS) will trade at about $30 on a when-issued basis. Analyst Craig Maurer is concerned the card may have a hard time breaking the dominance of rivals MasterCard (NYSE:MA), Visa and American Express (NYSE:AXP), seeing as it trails them on nearly every metric: It's accepted by less than 5 million merchants (vs. 9M for AmEx and 25M for Visa and MasterCard); cardholders' 5.4% spending growth is tepid compared to 14.6% for MasterCard and 16.8% for AmEx; gross dollar volume is $115B vs. $562B for AmEx and $1.9T for MasterCard; and its fee is just 1.76% vs. AmEx's 2.41%. Maurer has a Sell rating and a target of $22. [See full summary]
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