Office Properties Sizzle as Home Sales Slacken
Office property rents jumped Q2 2007, even as the residential real estate market continues to show signs of weakness, according to data from Reis Inc. and ZipRealty Inc. Effective office property rents gained 3.1% in Q2 -- their sharpest increase in seven years -- following 2.8% and 2.1% gains in earlier periods according to the Reis report, to be released today. The office-vacancy rate of 12.7% is at its lowest level in six years, a sign the economy is producing more office jobs, says Reis's chief economist Sam Chandan. In particularly strong markets, rents are up 20% and more over the past year, as big-name companies like Blackstone and Morgan Stanley continue to build large stakes in the market. In contrast to the sizzling commercial market, home listings in 18 metropolitan areas were up 2.5% from May according to ZipRealty, suggesting continued weakness in housing sales and prices. Also this week, the NAR reported pending home sales declined 3.5% in May and has dropped 13% y/y.
Sources: Wall Street Journal I, II
Commentary: Investing in Commercial Real Estate • Housing ETFs: iShares Home Construction Down, Barclays' New REITS Offerings
Stocks/ETFs to watch: Blackstone Group LP (BX), Morgan Stanley (MS). Homebuilder ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB). Office REITs: HRPT Properties Trust (HRP), Liberty Property Trust (LRY), Mack-Cali Realty Corp. (CLI)
Nokia Siemens Announces Deals in India, China
In the past two days Nokia Siemens Networks announced a $900 million GSM expansion deal with India's Bharti Airtel Ltd. and one with China Mobile Group Yunnan Co. valued at €70m ($95m). Nokia Siemens will expand Airtel's GSM wireless service in eight regions in India. It will also install 1.8 million next-generation long distance ports on Airtel's fixed-line network and increase its international pre-paid calling card service capacity by 4.5m users. Rival Ericsson has an existing $1b GSM expansion contract with Airtel. A spokeswoman said Ericsson is in negotiations with Airtel about a new contract similar to Nokia Siemens'. On Monday, Nokia Siemens said it plans to invest $100m over three years in India on building a manufacturing plant. It also plans to expand its research facilities in Bangalore. The GSM expansion deal in China with Yunnan covers 11 provincial cities totaling 12m subscribers. The agreement includes various equipment and service provisions and will be operational this October.
Sources: Press release I, II, Bloomberg, MarketWatch, Wall Street Journal
Commentary: Nokia Siemens Networks To Slash 15% of Its Workforce; Shares Decline • Nokia Siemens JV Cuts '07 Market Outlook • Nokia Siemens JV Finalized
Stocks/ETFs to watch: Nokia Corp. (NOK), Siemens AG (SI). Competitors: LM Ericsson Telephone Co. (ERIC), Cisco Systems Inc. (CSCO), Alcatel-Lucent (ALU), Motorola Inc. (MOT). ETFs: iShares Goldman Sachs Network Index Fund (IGN), PowerShares Dynamic Networking (PXQ), iShares MSCI Germany Index (EWG)
Conference call transcripts: Nokia Q1 2007, LM Ericsson Q1 2007
BlackBerry Receives China Go-Ahead
Research in Motion has finally received permission to sell its BlackBerry devices in China, after an eight year wait. A manager at the company's Beijing office said it will start selling the BlackBerry 8700g handset from the end of August for the equivalent of about $700. The manager said there are nearly 5,000 advance orders, primarily from corporate customers from multinational firms. RIM is considering a plan to manufacture the devices in China, according to the manager. RIM has launched the BlackBerry across Asia including Japan, South Korea, Singapore and India. Analysts estimate RIM could boost its subscriber growth rate to 25%, from 15% currently, once the BlackBerry is fully operational in China. One of its competitors, the suspiciously named "RedBerry," was launched by China Unicom in spring 2006.
Sources: The Globe and Mail I, II
Commentary: RIM Gets Approval To Sell Handsets In China • Research In Motion Moves Up 20% As Outlook Amazes Investors • RIM CEO Hints At New Multimedia BlackBerrys
Stocks/ETFs to watch: Research In Motion Ltd. (RIMM), China Mobile Limited (CHL). Competitors: China Unicom Ltd. (CHU), Motorola Inc. (MOT), Nokia Corp. (NOK), Palm, Inc. (PALM), Microsoft Corp. (MSFT), Apple Inc. (INC). ETFs: iShares S&P GSTI Networking (IGN), Wireless HOLDRs (WMH), iShares MSCI Canada Index (EWC)
Conference call transcripts: Research In Motion F1Q08
EBay Launches Craigslist Rival
In a partial challenge to itself, eBay launched classifieds sites for 220 U.S. cities Friday under the Kijiji name (Kijiji means "village" in Swahili). The new network of sites, which eBay has run successfully under the Kijiji name in Canada, Germany, Italy and Taiwan since 2005, are in direct competition to internet classifieds leader Craigslist, in which eBay has owned a 25% stake since 2004. EBay spokesman Hani Durzy: "We've learned a lot from Craigslist. We think this market has room for several classified services." Durzy added eBay has no plans to divest its stake in Craigslist. Greg Sterling of Sterling Market Intelligence says "there is definitely a conflict of interest" in eBay's latest move, considering its stake in Craigslist. Craigslist CEO Jim Buckmaster said “One of the beauties of viewing our world through public service goggles is that there is no need to worry about what other companies are doing. Many companies offer classifieds, but since we don’t concern ourselves with considerations such as market share or revenue maximization, we don’t think of them as competition, or as a challenge to Craigslist.” While Kujiji will begin as a 100% free service, Durzy says that could change, with the possibility of generating revenue through display advertising or by offering premium services.
Sources: Wall Street Journal, New York Times, Bizjournals.com, CNet News, Globe and Mail
Commentary: eBay Continues to Punch Self in Head By Importing Kijiji • eBay Launches US Classified Ads Site: A Good Idea That Won't Work • A Way to Invest in Craigslist
Stocks/ETFs to watch: eBay Inc. (EBAY). Competitors: Yahoo (YHOO), News Corp. (NWS). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcripts: eBay Q1 2007 Earnings Call Transcript
Digital Singles Sales Continue to Outstrip Albums
Album sales dropped 15% in the first half of 2007, while digital track sales gained 49% over the same period, as music buyers continue to move from the physical to the digital. According to data released Wednesday by Nielsen SoundScan, 229.8 million albums were sold in H1 2007, while 417.3 million digital tracks were bought. Digital track sales are up 659% since 2004. The decline is steeper than in previous years: 2006 saw a 4% H1 drop, and 2005 sales fell 10%. The numbers highlight one of the reasons analysts say buyers prefer the digital format: it allows them to buy only the songs they want, and skip albums. Case in point: the Now That’s What I Call Music! series -- a compilation of the season's hottest tracks -- routinely debuts as a No. 1 best-seller. The loss of almost shuttered 1,000 Tower and Musicland retail outlets also likely cut into album sales.
Sources: AP, USA Today
Commentary: Universal Challenges Apple's iTunes Hegemony By Refusing Long-term Contract • The Day Sony's Music Business Died • Apple, Listen Up: Asia's Getting Hooked On Mobile Music
Stocks/ETFs to watch: Warner Music Group Corp. (WMG), EMI Group plc (OTC:EMIPY), Digital Music Group (DMGI), Image Entertainment Inc. (OTC:DISK), Sony Corp. (SNE)
Related: Wikipedia: List of Now That's What I Call Music! albums, Nielsen SoundScan
Triarc Activist Peltz Attacks Wendy's Sale Process
Nelson Peltz's Triarc Cos. contended Tuesday that Wendy's is trying to block it from participating in Wendy's sale process, despite it being a "natural, strategic buyer" of the chain.In a letter to Wendy's dated July 3 and filed with the SEC (in which Triarc also disclosed it upped its Wendy's stake from 8.4% to 9.8%), Peltz said Triarc had been invited to participate in the sale process, but contended that the confidentiality agreement accompanying the invitation contained a "restrictive one-year standstill clause to which Triarc has objected... The feedback we are hearing from the market clearly indicate that Wendy's would prefer to sell itself to anyone other than Triarc," he said. A previous standstill clause expired June 30, and Peltz, it appears, has no desire to be drawn into another. A Wendy's spokesman had no comment. In the letter, Triarc said its strategies might include shareholder participation in a bid by Triarc to acquire Wendy's either through the company's sale process or otherwise. UBS analyst David Palmer wrote in a research note that the letter may be an attempt to boost Wendy's share price, and is not necessarily an indication he wants to buy the company: "We believe Trian (owner of Triarc) is more likely interested in pushing for a competitive bidding process and a timely sale of the company as a liquidity event to sell its shares." It is also possible Peltz wants to bring together Wendy's and Triarc-owned Arby's.
Sources: Wall Street Journal, Dow Jones, Bloomberg
Commentary: Wendy's International: Peltz Wants His Triarc Unit to Participate in Sale Process • A Final Word On Wendy's • Citigroup: Wendy's Turnaround Appears On Track
Stocks/ETFs to watch: Wendy's International Inc. (WEN), Triarc Companies Inc. (TRY). Competitors: Applebee's International Inc. (APPB) [also on the auction block], McDonald's Corp. (MCD), Yum! Brands Inc. (YUM), Burger King Corp. (BKC). ETFs: PowerShares Dynamic Leisure & Entertainment ETF (PEJ), Rydex S&P Equal Weight Consumer Discretionary ETF (RCD), PowerShares Dynamic Food & Beverage (PBJ)
Conference call transcript: Wendy's Q1 2007
Coca-Cola, Eyeing Snapple, Approaches Bidders for Cadbury's Drinks Business
Coca-Cola is considering making a play for Snapple, the iced tea brand owned by Cadbury Schweppes, and has reportedly made contact with several private equity firms that are bidding for Cadbury's beverages unit. Coke has not approached Cadbury directly. Coke CEO E. Neville Isdell told Reuters Wednesday the company is assessing "whether it [Snapple] is of interest to us or whether we can do it on our own." An acquisition of Snapple would coincide with Coke's strategy of broadening its portfolio in the growing juice, tea and water market. Two private equity groups will be submitting second-round bids next week, and Cadbury is expected to make a selection by the end of July. Analysts are forecasting the beverages business will sell for over $10 billion. In March, Cadbury separated its beverages unit, which also includes Dr Pepper and 7 UP, from its confectionery business. The Wall Street Journal notes that a Snapple sale by a private equity buyer is by no means a certainty, since that buyer would be left with a beverages portfolio that is missing Cadbury's strongest noncarbonated brand. In February, Coke acquired Fuze Beverage LLC for approximately $250 million, and in May, it agreed to pay $4.1 billion for vitamin-enhanced water manufacturer Energy Brands Inc.
Sources: Reuters, Wall Street Journal, Bloomberg, MarketWatch, AP
Commentary: Cadbury Schweppes to Sell Beverage Unit • Private Equity Eyes Cadbury's U.S. Beverages, Shares Higher • Coca-Cola to Acquire Glaceau (Vitaminwater) for $4.1B
Stocks/ETFs to watch: The Coca-Cola Company (KO), Cadbury Schweppes plc [ADR] (CSG). Competitors: Pepsico, Inc. (PEP), Hansen Natural (HANS), Jones Soda (OTCQB:JSDA), National Beverage (FIZ). ETFs: iShares Dow Jones US Consumer Goods (IYK), Ultra Consumer Goods ProShares (UGE), Vanguard Consumer Staples ETF (VDC)
Conference call transcripts: Coca-Cola Q1 2007
Insider Trading Suspected Ahead of Hilton Buyout
Shares of Hilton Hotels Corp. rose 6.44% to close at $36.05 Tuesday -- ahead of the announcement of the company's sale to the Blackstone Group for approximately $20 billion in cash. After the close, Blackstone said it would pay $47.50 per share for Hilton, a 32% premium. The pre-news rise -- the shares' strongest surge since 2005 -- has prompted calls of insider trading. Options volume also surged Tuesday to 9x the 20-day average. August $40 calls surged 8x to $0.85 while July $30 puts shed 67% to a nickel. Implied volatility -- which indicate expectations of big moves in the underlying stock -- surged to 40.87%, its highest since October 2005. The SEC has been increasing its scrutiny of insider trading: it sued a Hong Kong couple in May for trading ahead of Rupert Murdoch's $5 billion offer for Dow Jones, and is investigating suspect trading at other companies ahead of buyout offers, including TXU Corp. The Hilton acquisition, which totals $26 billion including debt, is "a classic Blackstone play," according to money manager Michael Pralle, because of its "size, the asset class, the management and the brand." The deal has raised speculation that Marriott and Starwood might be takeover targets as well.
Sources: Bloomberg I, II, Wall Street Journal I, II
Commentary: Share, Options Movement Leading Up To Hilton Buyout Reeks of Insider Trading • For a 40% Premium, How Could Hilton Hotels Say No To Blackstone? • Blackstone, While Buying Up the World, Adds Hilton Hotels
Stocks/ETFs to watch: Hilton Hotels Corp. (HLT), The Blackstone Group L.P. (BX). Competitors: Marriott International Inc. (MAR), Intercontinental Hotels Group plc (IHG), Starwood Hotels & Resorts Worldwide, Inc. (HOT). ETFs: PowerShares Dyn Leisure & Entertainment (PEJ), iShares Morningstar Mid Growth Index (JKH)
Conference call transcripts: Hilton Hotels Q1 2007
TRANSPORT AND AEROSPACE
Big Three Automakers Lose Ground to Japanese in June
General Motors, Ford and DaimlerChrysler's Chrysler Group all posted sales drops in June as Toyota, Honda and Nissan continued to put pressure on the U.S. auto giants. General Motors did especially poorly, recording a 21.3% decline in light vehicle sales from last year on retail weakness and slow sales to rental car companies. Analysts were expecting an 8% drop. "Our retail performance for the month was also below the solid running rate we've experienced for the first half of the year, which we attribute to a soft industry and lower incentive spending than our competitors," said Mark LaNeve, GM's head of sales and marketing. GM shares fell up to 4.8% in AH trading Tuesday after the report. Sales at Ford and the Chrysler Group fell less steeply, by 8.1% and 1.8%, respectively, with Ford's decline attributable entirely to low rental fleet sales and Chrysler pinched by competition for its trucks and SUVs as well as high gasoline prices. (Chrysler is in the midst of being sold to Cerberus Capital Management.) Japanese auto manufacturers all posted double-digit sales increases, reflecting consumer interest in their fuel-efficient models and incentive programs. According to Autodata Corp., they increased their share of U.S. light-vehicle sales in June to 32.9% from 28.3% a year ago. The combined market share of the Big Three fell to 50.2% from 56.1% a year ago.
Sources: Wall Street Journal I, II, MarketWatch
Commentary: June U.S. Light Vehicle Sales Preview • General Motors: This Stock is Out of Gas • Are Domestic Auto Manufacturers Losing Consumer Interest?
Stocks/ETFs to watch: General Motors Corp. (GM), Ford Motor Company (F), DaimlerChrysler AG (DCX), Toyota Motor Corp. (TM), Nissan Motor Co., Ltd. [ADR] (OTCPK:NSANY), Honda Motor Co., Ltd. [ADR] (HMC). ETFs: PowerShares FTSE RAFI Consumer Goods (PRFG), WisdomTree International Cons Cyclical (DPC), BLDRS Asia 50 ADR Index (ADRA)
Conference call transcripts: General Motors Q1 2007, DaimlerChrysler Q1 2007, Ford Motor Q1 2007
ENERGY AND MATERIALS
Apollo Tops Basell with $6.35 Billion Bid for Huntsman
U.S. chemicals group Huntsman Corp., which accepted a $5.6 billion offer Tuesday from Dutch polypropylene plastic manufacturer Basell Holdings, has received a $6.35 billion counterbid from a division of private-equity firm Apollo Management. Basell is a unit of Access Industries Holdings, a conglomerate owned by billionaire Len Blavatnik. The Apollo division, Hexion Specialty Chemicals, has offered $27.25 per share in cash, 8% more than Basell's $25.25 per share offer. Including debt, Basell's bid is worth about $9.6 billion and Apollo's $10.4 billion. If Huntsman chooses not to take Basell's offer, that company will be entitled to a $200 million breakup fee, half of which Hexion has agreed to pay as part of its offer. Huntsman's products are used in paint, shoes and cleaning materials. The Basell offer values Huntsman at about 8.6x Ebitda. In May, Apollo and Access were rival bidders for G.E.’s plastics unit. They eventually lost out to the Saudi Basic Industries Corp., which paid $11.6 billion.
Sources: Bloomberg, MarketWatch, Reuters, New York Times
Commentary: Chemical Convergence: Basell Buys Huntsman Corp. For $9.6 Billion Including Debt • Apollo Trumps Basell with $10.4 Billion Huntsman Bid [Chemical Reaction]
Stocks/ETFs to watch: Huntsman Corp. (HUN). Competitors: BASF AG (BF), Dow Chemical Co. (DOW), EI DuPont de Nemours & Co. (DD). ETFs: Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials Index (IYM), Vanguard Materials VIPERs (VAW)
BP and Shell in Merger Talks -- Times of London
BP and Royal Dutch Shell are said to be in merger talks that would create a £250 billion oil giant, according to the Times of London. "The City is awash with talk that Britain’s two largest oil companies have engaged financial advisors to discuss terms for a so-called friendly merger that could result in £2.5 billion of cost savings for the enlarged group," it wrote. It says BP, under previous CEO Lord Browne, was thought to have approached Shell last year, and that those plans have now been rekindled under current CEO Tony Hayward. According to website This is Money, company advisors and executives are involved in 'round the clock' negotiations. It says the combined entity would produce over 70% more oil and gas than industry leader ExxonMobil. BP shares are up 2% over the past three days, while Royal Dutch Shell shares have gained 4.5% over the same stretch.
Sources: Times of London, This is Money
Commentary: Option update 7-3-07: Royal Dutch Shell volatility flat [Blogging Stocks] • Oil Majors: Earnings Per Second • Barron's: Oil Guru Art Smith's Picks for 2007
Stocks/ETFs to watch: BP plc (BP), Royal Dutch Shell (RDS.A), ExxonMobil Corp. (XOM)
KKR Files for $1.25 Billion IPO
Private equity group Kohlberg Kravis Roberts [KKR] submitted a filing with the SEC Tuesday for a $1.25 billion IPO. The firm plans to expand its business by using funds for debt investments and minority stakes in public companies, and is constructing a capital-markets business through which it will syndicate out to investors much of the debt and equity it uses in its LBOs. The Wall Street Journal explains that the "self-contained financing ecosystem" which KKR says will reduce its reliance on "third-party sources of capital" is a means of positioning it as a competitor to the investment banks from which it had previously sourced funding. KKR's $200 billion LBO tally over the past 12 months exceeds that of its two strongest competitors, Blackstone and the Carlyle Group. Blackstone went public last month, and hedge fund Och-Ziff filed for an IPO earlier this week. The recent flurry of interest in public offerings among private equity and hedge fund managers is seen by some analysts to signal a private equity market top. KKR founders Henry Kravis and George Roberts will not sell shares at the offering, distinguishing this IPO from that of Blackstone, whose founder Stephen Schwarzman pocketed $677 million from his IPO's proceeds. Blackstone's 2006 net income was $2.27 billion against KKR's $1.1 billion; its annual return after fees is 22.6% vs. KKR's 20.2%.
Sources: KKR's filing with the SEC, Wall Street Journal I, II, Bloomberg, Financial Times, Reuters
Commentary: Och-Ziff Hedge Fund Files for IPO • Apollo Management Said to Be Considering IPO • Blackstone's Bad Week: Stock Loses 11.5% Since IPO
Stocks/ETFs to watch: Competitors: Blackstone Group LP (BX), Fortress Investment Group LLC (FIG). ETFs: streetTRACKS KBW Capital Markets (KCE)
Conference call transcripts: Fortress Investment Group Q1 2007
Major Shareholder to Vote Against CME Bid for CBOT -- Reuters
Australian fund manager Caledonia Investments, a 6.5% shareholder of CBOT Holdings, said it would vote against Chicago Mercantile Holdings's revised $10.5 billion bid for CBOT, according to Reuters. "We are not commenting on whom we agree with. At the moment what the CME has bid isn't attractive to us," said Caledonia Managing Director William Vicars in an interview. Vicars disagreed with the fund's reputation as an activist shareholder. He said price (not management) is the issue in the CBOT/CME deal. CBOT's members and shareholders are scheduled to vote on CME's bid July 9th. CBOT's Board of Directors said in a statement Tuesday that IntercontinentalExchange Inc.'s revised bid is not superior to CME's: "Nothing important has changed from the offer ICE submitted on June 12th. ICE has not resolved the significant risks identified during the comprehensive due diligence we conducted of ICE and its trading and clearing systems." Shares of CBOT were down slightly on Tuesday to $204.25, while CME rose 1.3% to $539.35 and ICE was unchanged at $148.88.
Sources: Press release, Reuters, RTTNews
Commentary: ICE-CME Exchange Wars: A Mexican Standoff? • ICE-CME Exchange Wars Redux • CME, ICE Bids for CBOT Expected to Enter Round 3 -- Bloomberg
Stocks/ETFs to watch: CBOT Holdings, Inc. (BOT), Chicago Mercantile Exchange Holdings Inc. (CME), IntercontinentalExchange, Inc. (ICE). Competitors: NYSE Euronext (NYX), NYMEX Holdings Inc. (NMX), International Securities Exchange Inc. (ISE)
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