Sony Cuts PS3 Price by $100, Announces 80GB Version
Sony has announced a $100 price cut effective Monday, to the 60GB model of its PlayStation 3 console for sale in North America (US$499, C$549). This comes despite President Ryoji Chubachi denying rumors of such a move on Friday. Sony also announced a new 80GB model available from August in N. America for $599/C$659. The $499 60GB PS3 is now priced more competitively against Microsoft's high-end Xbox 360 Elite at $480. The low-end Xbox 360 costs $299 and Nintendo's Wii costs $249. The Wii has consistently outsold the PS3 in Japan with the latest estimates showing a 6-1 margin. Year-to-date through May in the U.S., Microsoft has sold twice as many Xbox 360s (5.6m) than Wiis and quadruple the number of PS3s, according to NPD Group. Sony is aiming to double its sales of the 60GB version. Shares of Sony fell 0.15% to ¥6,530 ($52.91) Monday in Tokyo. Its ADRs rose 1.5% to $53.14 Friday. Nintendo gained 1.3% to ¥49,800 ($50.45 ADR equiv), a new all-time high.
Sources: Press release [pdf], Bloomberg, Reuters, Wall Street Journal
Commentary: Sony Denies Rumors It Will Cut PS3 Prices • Wii Extends Lead Over PS3 • Goldman Keeps 'Buy' Rating on Sony, Raises Target
Stocks/ETFs to watch: Sony Corp. (SNE) (JP: 6758). Competitors: Microsoft Corp. (MSFT), Nintendo Co. Ltd. (OTCPK:NTDOY) (JP: 7974). Gaming software publishers: Electronic Arts (ERTS), Activision (ATVI), Konami (KNM), Take Two (TTWO), THQ (THQI). ETFs: BLDRS Asia 50 ADR Index (ADRA), iShares MSCI Japan Index (EWJ)
Earnings call transcripts: Sony F4Q06, Microsoft F3Q07
Dow Jones: Report of a Completed Sale Is Premature
Dow Jones has denied an unsourced report that appeared Friday morning in London newspaper The Business claiming Rupert Murdoch has succeeded in buying the company. The report said the board expects the controlling Bancroft family to accept the deal within a few days. It claims the sale was completed at Murdoch's original price of $5 billion and includes a "legally enforceable agreement...[to] guarantee the integrity and independence of the Wall Street Journal." The agreement allegedly gives Murdoch's News Corp. the power to hire and fire top editors, but a "nominally independent" five-member committee would have the right of veto. "An article...stating that an agreement in principle has been reached for the sale of Dow Jones & Company to News Corp. is incorrect," Dow Jones said in a statement. Despite the disavowal, Dow Jones shares closed up 2.1% at $59.07. In related news, the Journal reports the company is making a last-minute push to find an alternative bidder. A special board committee will meet Tuesday with billionaire Ron Burkle, who is assisting the Dow Jones union in finding a rival suitor. Dow Jones director Leslie Hill, who strongly opposes a Murdoch takeover, is pressing the company to meet with MySpace co-founder Brad Greenspan, who is seeking other parties to join his $60 per share bid for a portion of the company.
Sources: The Business, Wall Street Journal, Bloomberg, MarketWatch
Commentary: Is Rupert Ready To Close The Dow Jones Deal? • Bancroft Trustees Might Hold Final Say on Dow Jones Sale -- WSJ • Murdoch: Dow Jones Bid Stays at $60 per Share
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Earnings call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
TRANSPORT AND AEROSPACE
Airbus A350 Could Face More Delays in Engine Dispute with GE
The Wall Street Journal reports Airbus's A350 could face more setbacks, as it already lags Boeing's 787 Dreamliner, which was unveiled over the weekend, by at least five years. Talks between Airbus and engine supplier General Electric are at a stalemate over the redesigned A350, which competes with Boeing's 777. GE is the exclusive 777 engine supplier and argues Airbus created its own problems when it redesigned the A350 and increased its size last year. GE has offered Airbus a version of the engine it will supply Boeing, but it only works with two of three A350 models. Airbus claims GE appears to be favoring Boeing, in what could become a U.S. - European polarization among engine makers: GE versus Rolls-Royce, similar to Boeing vs. Airbus in airplane manufacturing. However, Rolls-Royce CEO Sir John Rose commented, "It's absolutely not the intent for us, Boeing or Airbus [to choose sides]." Further complicating the situation, GE says there's uncertainty whether supplying the larger engine to Airbus would be profitable.
Sources: Wall Street Journal
Commentary: Boeing Unveils 787 Dreamliner and Announces 35 New Orders • Airbus 'Handily' Outmaneuvers Boeing At This Year's Paris Air Show • Boeing, Airbus Duel Continues at Paris Air Show
Stocks/ETFs to watch: EADS (Paris: 005730), General Electric Co. (GE), The Boeing Company (BA)
Earnings call transcripts: General Electric Q1 2007, Boeing Q1 2007
Boeing Unveils 787 Dreamliner and Announces 35 New Orders
Boeing announced this weekend that it has inked 35 new orders for its 787 Dreamliner. It also unveiled the new jet at a televised gala. Boeing now has 677 orders from 47 customers for the Dreamliner, which is the company's first new jetliner in 12 years. Of the 35 new orders, Air Berlin took 25 and Alafco Aviation Lease and Finance Company of Kuwait took 10. The Air Berlin order is worth $4 billion list and the Aviation Lease order $1.62 billion. The Dreamliner is distinctive because it is made of a lightweight combination of carbon-fiber composites, aluminum and titanium that should make it less expensive to operate and maintain. It will require 20% less fuel per passenger than the Boeing 767 it is replacing. The Dreamliner is soundly beating rival Airbus's A350 XWB, which has been plagued with expensive design problems. "Even if tomorrow Airbus will get back to the business of competing vigorously, today is Boeing's day -- a day to celebrate the 787," said Airbus CEO Louis Gallois. In related news, All Nippon Airways -- the Dreamliner's launch customer -- said Sunday the first 787s in its 50-plane order will be overweight. ANA president and CEO Mineo Yamamoto said he is not concerned and expects Boeing to fix the problem on later aircraft.
Sources: Wall Street Journal, TheStreet.com, Reuters I, II, MarketWatch, Bloomberg, MoneyCentral, AP
Commentary: ILFC Places Big Order with Boeing, Favors 787 Over A350 • Airbus 'Handily' Outmaneuvers Boeing At This Year's Paris Air Show • Boeing, Airbus Duel Continues at Paris Air Show
Stocks/ETFs to watch: The Boeing Company (BA), Northrop Grumman Corp. (NOC), Lockheed Martin Corp. (LMT), General Electric Co. (GE). ETFs: iShares DJ US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
Earnings call transcripts: Q1 2007
Related: 787 Dreamliner rollout [video]
ENERGY AND MATERIALS
IEA Predicts Oil Demand To Increase More Than Expected Through 2012
The International Energy Agency said Monday that global oil demand will continue to increase faster than expected to at least 2012, while supply will lag the increase in demand, creating an increasingly tighter market for crude oil. The IEA mid-term forecast report shows demand will increase by an average 2.2% a year through 2012, versus prior forecasts of just a 2% rise. According to the report, "It is possible that the supply crunch could be deferred -- but not by much." By the numbers, the report, which assumes 4.5% annual GDP growth, believes global demand will reach 95.8 million bbl/day, from its current level of 86.1 million bbl/day. The report further sees production of biofuels such as ethanol doubling to 1.75 million bbl/day by 2012, remaining essentially marginal relative to total crude oil consumption.
Sources: Reuters, IEA.org
Commentary: Crude Oil and Gasoline: The Illusion of Equality • Crude Oil , Gasoline Futures Becoming More Uncorrelated • How Crude Oil Inventories Impact The Market
Stocks/ETFs to watch: United States Oil Fund ETF (USO), Barclays Bank Zero Cpn ETN (OIL), PowerShares DB Oil Fund (DBO)
Apollo Raises Huntsman Bid to $28 per Share -- WSJ
Private equity firm Apollo Management, which last week topped a $25.25 per share bid for Huntsman Corp. by Dutch chemical manufacturer Bassell Holdings, has raised its counteroffer by another $0.75 to $28.00 per share, according to a report in the Monday WSJ. The new offer values Huntsman at approximately $6.5 billion. The bid-and-raise appears intended to pre-empt a counteroffer from Basell. Basell, a unit of Access Industries, agreed last month to buy Huntsman for $5.6 billion excluding debt. Apollo's object is to combine Huntsman with its Hexion Specialty Chemicals unit. Basell has until Wednesday to match the new offer. Huntsman's shares traded at $28.00 Friday on speculation that a bidding war will develop.
Sources: Wall Street Journal, MarketWatch, Reuters
Commentary: Apollo Tops Basell with $6.35 Billion Bid for Huntsman • Chemical Convergence: Basell Buys Huntsman Corp. For $9.6 Billion Including Debt
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)
CME Boosts CBOT Bid Again; Merger Approval Expected in Monday Vote
Chicago Mercantile Exchange Holdings [CME] increased its bid for CBOT Holdings by 7.1% to an exchange ratio of 0.375 shares (approx. $11.9b) on Friday, leading to what CME chief executive Craig Donohue described as "an absolutely overwhelming response (of approval) from CBOT shareholders." Rival bidder Intercontinental Exchange Inc. [ICE] has decided it won't counteroffer, according to a report in Monday's Wall Street Journal. CME still plans to pay a $9.14/share special dividend to CBOT shareholders. In a press release, CME-CBOT said Australia's Caledonia Investments PYT. Ltd., CBOT's largest shareholder, has announced it will endorse the revised bid, which CME said is its "best and final" offer. The merger is expected to be accretive to earnings on a cash basis within 12-18 months. CBOT shareholders are scheduled to vote on the merger with CME Monday afternoon; It is urging shareholders and members to vote in favor of the merger. Shares of CBOT climbed 8.7% to $224 on Friday. CME rose 3.4% to $574.80 and ICE gained 2.8% to $156.09.
Sources: Press release, Bloomberg, Reuters, Wall Street Journal
Commentary: Major Shareholder to Vote Against CME Bid for CBOT -- Reuters • ICE-CME Exchange Wars: A Mexican Standoff? • ICE-CME Exchange Wars Redux
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)
Moody's Attacks Private Equity; European Leveraged Finance Market Is a Bubble -- FT
Moody's will issue a report Monday lambasting private equity for its liberal use of debt and contesting its refrain that public companies are better off in private hands. Private equity firms, some of which have gone public themselves or are planning to do so, are facing a downturn in the debt markets. The ratings agencies, too, are being criticized for minimizing the risks inherent in securities backed by subprime mortgages. In a challenge to assertions by buyout firms that private ownership alleviates the short-term pressure of the equity markets, Moody's says: "The current environment does not suggest that private equity firms are investing over a longer-term horizon than do public companies despite not being driven by the pressure to publicly report quarterly earnings." The report cites buyout firms' tendency to bulk up a portfolio group's indebtedness to pay themselves large dividends as evidence that they are not operating with a long-term horizon. Thomas H. Lee, Bain Capital and Providence Equity, for example, paid themselves handsome dividends following their 2004 buyout of Warner Music. In related news, a survey conducted by law firm White & Case of banks, private equity firms and turnround specialists indicated that almost 60% view the European leveraged finance market as a bubble. Almost 80% believe the bubble will burst within 6-12 months.
Sources: Financial Times I, II
Commentary: Rating Agencies Could be Liable for Investor Losses -- Study • Moody's Corporation: Risk Outweighs Reward • Chanos Selling Moody’s Short: The Blowup Bargain Hunters Hoped For
Stocks/ETFs to watch: Moody's Corp. (MCO), The Blackstone Group LP (BX). ETFs: iShares Lehman 1-3 YR Treasury Bond (SHY), iShares Lehman 7-10 YR Treasury Bond (IEF), iShares Lehman 20+ YR Treasury Bond (TLT)
Bristol-Myers Shares Look Good Despite Analyst Skepticism -- Bloomberg
Bloomberg says despite a majority of analysts rating Bristol-Myers Squibb Co. shares Hold or Sell, new medicines and takeover speculation could keep shares climbing even as they trade at five-year highs. A June court ruling that forbid generic manufacturers from copying its $3.3 billion/year anti-clotting pill Plavix until 2012 means the company will have spare cash to invest in developing pipeline drugs. JP Morgan analyst Chris Shibutani says its new diabetes drugs may generate $1 billion in revenues by then, and called the company's pipeline an "underappreciated asset." He also says new cancer therapies may yield $3.5 billion in sales by 2012. The court win also reduced uncertainty related to the company's revenue streams, making a rumored takeover more likely. Potential suitors include sanofi-aventis (its Plavix partner), Pfizer and AstraZeneca (each with agreements with Bristol-Myers to develop experimental drugs).
Commentary: Plavix Patent Upheld; Bristol-Myers Shares Rise on Renewed Buyout Chatter • WSJ: Bristol-Myers Transaction Price Already Priced In
Stocks/ETFs to watch: Bristol-Myers Squibb Co. (BMY), sanofi-aventis (SNY), AstraZeneca plc (AZN)
Bayer Drug Bests Sanofi-Aventis's Lovenox in Study
Bayer's experimental drug rivaroxaban, an oral anticoagulant, has been demonstrated to be much more effective than Lovenox injections in preventing blood clots after knee surgery. Lovenox, manufactured by sanofi-aventis, is the standard treatment. A 2,531-patient Phase III clinical trial showed that 9.6% of subjects on rivaroxaban suffered blood clots following total knee replacement versus 18.9% of subjects on Lovenox. Life-threatening VTE (venous thromboembolism) occurred among 1% of the rivaroxaban group and 2.6% for the Lovenox group. Rivaroxaban is a one-a-day pill, giving it an advantage over the injectable Lovenox in terms of patient comfort and ease of monitoring. Sanofi claims Lovenox is more effective against blood clots if taken for five weeks rather than the standard 10-day treatment. The search for anticoagulants has intensified since 2004, when AstraZeneca's drug Exanta was rejected by the FDA over concerns about liver toxicity. Bayer, which is developing rivaroxaban in collaboration with Johnson & Johnson, hopes to submit it for European approval as an anticoagulant later this year and in the U.S. next year. It sees the drug as a potential $2.7 billion-per-year blockbuster if it is approved for use as an anti-stroke therapy in patients with atrial fibrillation. If successful in that capacity, the drug will replace Bristol-Myers Squibb's warfarin. Bayer will submit rivaroxaban for stroke-prevention approval in 2010.
Sources: Reuters, RTTNews, Bloomberg
Commentary: Say Ach Ya To Germany: A Global Powerhouse • Sanofi Can Blame Itself for FDA Rejection of Acomplia Weight Drug • Sanofi-Aventis and Bristol-Myers Squibb Victorious Over Apotex in Plavix Case
Stocks/ETFs to watch: Bayer AG [ADR] (BAY), sanofi-aventis [ADR] (SNY), Johnson & Johnson (JNJ). Competitors: Eli Lilly & Co. (LLY), Pfizer Inc. (PFE), Bristol Myers Squibb Co. (BMY). ETFs: WisdomTree International Basic Materials (DBN), iShares MSCI Germany Index (EWG), iShares S&P Global Materials (MXI)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- SonoSite (SONO), which makes compact ultrasound machines, is starting to feel the pinch of GE Healthcare's new LOGIQe, which competes directly with its flagship MicroMaxx. In a lawsuit that could cripple the one-product company, GE has sued SonoSite, saying MicroMaxx and another product infringe on five of its patents. Other problem areas include high sales expenses, negative operating margins, and dwindling sales growth (18% vs. a historical 50%). Shares ($36) could hit $30. [Read full summary]
- Gilead Sciences (GILD) shares are up 40% over the past year on its world-leading AIDS treatments. Its single-pill fixed-dose drugs save AIDS sufferers the hassle of complex multi-pill regimens. Its latest anti-HIV drug, Atripla, blasted though estimates in its first nine months. Its Tamiflu anti bird-flu treatment is being stockpiled worldwide, and last month it got FDA approval for a new pulmonary arterial hypertension treatment that could capture 25% ($500m) of a $2 billion/year market. Shares could still climb another 20-25%. [Read full summary]
- Illinois Tool Works (ITW) should capitalize on a worldwide infrastructure boom that will boost shares of heavy-equipment makers. At 15x 2008 earnings, it trades at a 10% discount to similar companies, while Goldman Sachs analyst Deane Dray contends it deserves a 10% premium. Its corporate structure is "ultra-lean," and managers are adept at focusing resources on their biggest and most profitable clients. Shares ($56) could hit to $67-68 in the next year. [Read full summary]
- Interest rates on $800 billion in subprime loans will reset in 2007-2009, further endangering residential mortgage-backed securities. Rating agencies have sugar-coated so-called 'mezzanine' CDOs by rating 80% of them AAA. Moody's forecasts 2006 subprime mortgage losses of between 6%-8%; some foresee 10%. The ABX subprime index has lost almost 50% since January, and Barron's says subprime losses could surpass $100b. [Read full summary]
- The glut caused by home overbuilding should prolong the housing market downturn. Home prices still have another 10-15% to fall; if not, sales could drop another 20-25%. Rising mortgage applications offer only illusory hope because subprime borrowers often submit multiple applications. If the downtrend continues, housing-related industries like construction, furniture and appliances will suffer. [Read full summary]
- Steady growth numbers and exposure to the relatively stable ground and freight transport sector should make shipping giant FedEx (FDX) attractive to potential buyers. Recent buyouts suggest LBO firms are attracted to sturdy large-cap growth companies of its ilk. Considering its 700 aircraft and 44,000 trucks, debt market hesitance shouldn't be an issue in a LBO. 70% of its $3.5 billion planned capital spending in 2007 is growth oriented, and underperforming Kinko's unit is attractive to fix-it-up oriented buyers. Even without a deal, shares are reasonable at 15x 2008e earnings. [Read full summary]
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