Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:30 AM EST
S&P 500: +4.20; 1,549.30
NASDAQ 100: +2.25; 2,057.50
Dow: +40.00; 13,978.00
NIKKEI 225: -1.07%; 17,963.64 (-194.29)
HANG SENG: +0.32%; 23,365.56 (+73.66)
SHANGHAI SE COMPOSITE: +3.81%; 4,213.36 (+154.51)
BSE SENSEX 30: +1.07%; 15,732.20 (+166.65)
FTSE 100: +0.20%; 6,598.30 (+13.10)
CAC 40: +0.17%; 5,967.49 (+10.33)
XETRA-DAX: -0.01%; 7,874.04 (-0.81)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.58%; $75.35 (-$0.44)
Gold: -0.22%; $683.20 (-$1.50)
Natural Gas: -3.91%; $6.19 (-$0.25)
Silver: -0.06%; $13.395 (-$0.008)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Transocean and GlobalSantaFe Announce Merger
The boards of directors of Transocean Inc. and GlobalSantaFe Corp. have unanimously approved a definitive agreement for a merger of equals. The combined entity -- to be known as Transocean Inc. and continue trading under symbol "RIG" on the NYSE -- has an enterprise value of around $53 billion, based on Friday's closing share prices. Transocean shareholders will receive $33.03 in cash and 0.6996 shares of the combined company for each share of Transocean they own. GlobalSantaFe shareholders will receive $22.46 in cash and 0.4757 shares of the combined company. The total number of shares outstanding post-merger will be around 318 million. Shareholders of both firms will receive an aggregate payment of $15b in cash financed by a bridge loan. Cost reduction opportunities totaling $100m - $150m are targeted by 2010. "GlobalSantaFe's outstanding rig fleet complements Transocean's ... we will be positioned to better offer the full scope of drilling services to customers in all geographical areas," said Robert L. Long who will remain Transocean's CEO. Goldman Sachs advised Transocean and Lehman Brothers advised GlobalSantaFe.
Sources: Press release, MarketWatch
Commentary: Oil Prices and Gasoline Prices: A Noteworthy Divergence • Deep Sea Drilling: A Risk Worth Taking? • Transocean: A Case Study of Risk vs. Reward
Stocks/ETFs to watch: GlobalSantaFe Corp. (NYSE:GSF), Transocean Inc. (NYSE:RIG). Competitors: Noble Corp. (NYSE:NE), Diamond Offshore Drilling Inc. (NYSE:DO). ETFs: Oil Services HOLDRs (NYSEARCA:OIH), PowerShares Dynamic Oil & Gas Services (NYSEARCA:PXJ), iShares Dow Jones US Oil Equipment Index (NYSEARCA:IEZ)
HP to Buy Opsware for $1.6B, 39% Premium
Hewlett-Packard announced it has signed a definitive agreement to purchase Opsware Inc., a market-leading data center automation software company, for $14.25/share through a cash tender offer, which represents a 38.6% premium over its Friday close of $10.28. HP's offer gives Opsware an enterprise value of $1.6b on a fully diluted basis. The transaction is expected to close by the end of Q4, subject to customary closing conditions. "The acquisition of Opsware is intended to enable HP Software to help our customers resolve one of their critical pain points: controlling the increasing complexity and cost of managing the data center," said Thomas E. Hogan, senior VP of Software at HP. Opsware CEO Ben Horowitz commented, “We are about to see one of the biggest application and infrastructure build-outs in history. The addition of Opsware to the HP Software portfolio will make HP the obvious choice for powering the next generation of data centers to come.” Shares of Opsware last traded up 36.6% to $14.04 in pre-market activity.
Sources: Press release, MarketWatch
Commentary: Eye on Opsware • Hewlett-Packard Purchases Security Software Maker SPI Dynamics • HP Reports Solid Q2, In-line with Estimates, Shares Trade Higher
Stocks/ETFs to watch: Opsware Inc. (OPSW), Hewlett-Packard Company (NYSE:HPQ)
Conference call transcripts: Hewlett-Packard F2Q07
Merck Raises and Beats on Strong Vaccine, Medicine Sales
Global pharmaceutical company Merck & Co. said second-quarter earnings rose 12% to $1.68 billion ($0.82/share after items) from $1.50 million ($0.69/share) a year ago. Strong sales of its new vaccines and medicines helped boost revenue to $6.11 billion from $5.77 billion. The company also raised its full-year profit forecast to $3-3.10/share from $2.80-2.85/share amid continuing strong demand. Analysts were expecting $0.72/share on revenue of $5.77 billion, and full-year EPS of $2.94.Deutsche Bank analyst Barbara Ryan said in a July 11 note, "Merck's strong performance is being driven by cost-cutting via restructuring and strong sales of new products, namely Gardasil and Januvia, both of which have $2 billion peak annual sales potential." CEO Richard T. Clark said in the press release: "A broad range of our newer and established products delivered strong growth again during the second quarter. Our overall performance has positioned us well to achieve our business targets, meet the challenges that lie ahead, and continue to invest in drug discovery." Merck has scheduled its earnings conference call for 9 a.m. ET (see transcript later today).
Sources: Press release, Reuters, MarketWatchBloomberg
Commentary: Merck: Making a Big Pharma Comeback
Stocks/ETFs to watch: Merck & Co. Inc. (NYSE:MRK). Competitors: Bristol-Myers Squibb Co. (NYSE:BMY), Pfizer Inc. (NYSE:PFE), sanofi-aventis (NYSE:SNY). ETFs: HOLDRS Pharmaceutical (NYSEARCA:PPH)
Earnings call transcript: Merck Q1 2007
Schering-Plough Beats on Strong Cholesterol Drug Sales
Global science-based healthcare company Schering-Plough said Q2 earnings more than doubled to $539M from $259M a year ago on strong sales of its cholesterol drugs Vytorin and Zetia. EPS excluding items were $0.41, up from $0.25 last year, beating analyst estimates of $0.35. Revenue climbed 13% to $3.18B, also beating estimates of $3.07B.In a July 12 note, A.G. Edwards said, "SGP remains well positioned for growth driven in the near-term by continued strong performance of its cholesterol franchise and by an emerging pipeline that holds several compelling high-risk/high reward product opportunities." CEO Fred Hassan: "Schering-Plough's second quarter performance shows clearly that we have sustained our momentum. Our strategy to grow the top line is succeeding - we have now recorded our 11th consecutive quarter of double-digit adjusted sales growth." Cholesterol drug sales have been driven by a $128 million advertising campaign, according to Nielsen Monitor-Plus, co-sponsored by Merck & Co., with whom SGP splits the drug's revenue. Shares are up 4.3% in pre-market trading to $32.85.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Schering-Plough Soundly Beats Q1 Forecasts • Getting High on Drug Stocks
Stocks/ETFs to watch: Schering-Plough Corp (SGP), Merck & Co. Inc. (MRK). Competitors: GlaxoSmithKline plc (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), sanofi-aventis (SNY). ETFs: iShares Dow Jones U.S. Pharmaceuticals (NYSEARCA:IHE), SPDR Pharmaceuticals (NYSEARCA:XPH)
Halliburton Beats, Increases Share Buybacks By $2B
The world's second-largest oilfield contractor, Halliburton Co., reported 2Q net income Monday of $1.53 billion, good for EPS of $1.62 on 20% higher revenue. The net total includes a gain of $933 million from the spinoff of KBR Inc. in January. Earnings from continuing operations were $595 million, good for EPS of $0.63; revenue jumped 20% to $3.74 billion. Consensus analyst estimates were for EPS of $0.56 on revenue of $3.50 billion. In the press release, Chairman, President and CEO Dave Lesar said: "We are pleased with this quarter's results in the Eastern Hemisphere, where we posted 14% revenue and 21% operating income growth as compared to the first quarter of 2007. Our operating income margins in the Eastern Hemisphere increased to nearly 22%... In addition, we have seen a strong recovery in the United States well stimulation market from the slowdown we experienced last winter." Additionally, Halliburton's board of directors increased the company's share repurchase program by an additional $2 billion to a total of $5 billion. Competitor Schlumberger also reported a beat quarter Friday on international sales strength. Halliburton's shares are higher by 2.46% in pre-market action as of 7:34 a.m. EST.
Sources: Press Release, Bloomberg, Wall Street Journal, Reuters, MarketWatch
Commentary: Schlumberger Beats As Strong International Operations Offset N. American Weakness • Halliburton Seeking Investors; Considering $80 Billion in Projects Over 5 Years • Halliburton: Is Its Discount Warranted?
Stocks/ETFs to watch: Halliburton Company (NYSE:HAL). Competitors: Schlumberger Limited (NYSE:SLB), Baker Hughes Inc. (NYSE:BHI), BJ Services (BJS). ETFs: iShares Dow Jones US Oil Equipment (IEZ), Oil Service HOLDRs (OIH), Vanguard Energy (NYSEARCA:VDE)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
Whatever euphoria there was after Thursday's Dow close above 14,000 was short-lived, as the subprime issue took center stage again on Friday.
Adding to those problems, two companies stumbled that have thus far enjoyed double-digit growth, creating a new level of uncertainty regarding others' upcoming earnings numbers.
First it was Caterpillar (NYSE:CAT), which has benefited from foreign buying, that finally got hit by the weakness in the building markets and suffered a profit decline of 21%. Then Google (NASDAQ:GOOG), one of the real tech success stories of the year, missed Wall Street's earnings target. And even though many analysts upheld their "Buy" ratings, the stock fell more than $28 (5.2%).
The government bonds of many nations rallied as investors sought greater safety, and Standard & Poor's downgraded a number of European collateralized debt obligations. Citigroup (NYSE:C) also warned of weakness in other areas, including the financing of private-equity buyouts.
The 10-year U.S. Treasury note's yield fell to 4.958%; meanwhile China, which experienced a Q2 growth rate of 11.95%, raised rates again in order to slow down its economy in an attempt to control inflation.
At Friday's close, the Dow Industrials had lost 149 points and closed at 13,851. The S&P 500 was off 19 points at 1,534, and the Nasdaq was off 32 to close at 2,687. Volume on the NYSE increased with the crossing of 2 billion shares, and almost 2.4 billion traded on the Nasdaq. Decliners were greater than advancers by more than 3-to-1 on both exchanges.
For the week, the Dow lost 0.4%, the S&P 500 was down 1.2%, the Nasdaq lost 0.7% and the NYSE Composite dropped 1.4%.
In other markets, on Friday crude oil (August contract) closed 35 cents lower at $75.57 a barrel, but on the week it gained more than 2.2%. The Amex Energy SPDR (NYSEARCA:XLE) lost 40 cents on Friday but gained a nickel for the week to close at $74.
August gold futures closed at a two-month high on Friday, up $6.60 to $684.70 per troy ounce, and was up 2.6% for the week. The Philly Gold and Silver Index [XAU] gained 26 cents on Friday and closed at $158.38, up $7.30 for the week.
What the Markets Are Saying
It is not at all unusual for the market to achieve a big, round number and almost immediately reverse course -- that's what happened on Friday. And we may even see some more selling before things settle down.
Technically speaking, it is a bit comforting to have such a broad zone of support on virtually all of the averages. For the Dow Industrials, that support is 13,207 to 13,685, for the S&P 500 it is 1,487 to 1,534, and for the Nasdaq it's 2,530 to 2,652.
On a more positive note, look for the bull market to continue with the following short-term (October) targets: 15,000 on the Dow, 1,650 on the S&P 500 and 2,900 for the Nasdaq.
Today's Trading Landscape
Look for earnings from the following major corporations today: American Express (NYSE:AXP), Amylin Pharma (AMLN), Arch Coal (NYSE:ACI), Forward Air (NASDAQ:FWRD), Equifax (NYSE:EFX), Gentex (NASDAQ:GNTX), Halliburton (HAL) (read above), Hasbro (NASDAQ:HAS), Hercules (HPC), Merck (MRK) (read above), Netflix (NASDAQ:NFLX), Pactiv (PTV), Plum Creek Timber (NYSE:PCL), Schering-Plough (SGP) (read above), Texas Instruments (NASDAQ:TXN), Thomas & Betts (TNB), Weatherford International (NYSE:WFT) and Zoran (NASDAQ:ZRAN), among others.
The focus today will no doubt be on any developing subprime-related problems and the bond markets. And mergers and acquisitions are still alive with Transocean (RIG) and GlobalSantaFe (GSF) agreeing to merge in a $53 billion deal (read above).
Asian Headlines (via Bloomberg.com)
• Asian Stocks Fall From a Record; Honda, Exporters Decline on U.S. Concern Asian stocks fell, led by Japanese exporters, after the dollar declined to a six-week-low against the yen amid concern the U.S. economy is slowing.
• Marubeni, Keppel, Sembcorp Plan Bids for Temasek Power Units, Bankers Say Marubeni Corp., Keppel Corp. and Sembcorp Industries Ltd. plan to bid for the electric utilities being sold by Temasek Holdings Pte, Singapore's government-owned investment company, three bankers with knowledge of the deal said.
• KDDI's First-Quarter Net Rises 9 Percent on Increase in Mobile Phone Users KDDI Corp. (OTC:KDDIF), Japan's second-biggest mobile-phone carrier, said first-quarter profit rose 9 percent after winning customers from NTT DoCoMo Inc. (NYSE:DCM) and Softbank Corp. (OTCPK:SFTBF).
• Bank of China Says Loan Irregularities Occurred Before Initial Stock Sale Bank of China Ltd., the nation's second largest, said lending irregularities uncovered by the government auditor last month took place before its initial public offering a year ago.
European Headlines (via Bloomberg.com)
• European Stocks Gain, Led by Friends Provident, Resolution, Depfa, TomTom European stocks advanced, lifted by takeovers in the financial and technology industries.
• Hypo Real Estate Agrees to Buy Depfa Bank for $7.9 Billion in Cash, Stock Hypo Real Estate Holding AG agreed to buy Depfa Bank Plc for 5.7 billion euros ($7.9 billion) to form Germany's biggest real-estate financing company.
• Turkish Markets Rise After Erdogan Is Elected on Economic-Reform Program Turkey's benchmark stock index surged to a record and bonds and the lira gained after voters re-elected Prime Minister Recep Tayyip Erdogan, strengthening his mandate to pursue European Union talks, asset sales and budget discipline.
• TomTom Plans to Acquire Netherlands-Based Tele Atlas for $2.8 Billion Cash TomTom NV, the world's largest maker of car navigation devices, agreed to buy digital-mapping company Tele Atlas NV for about 2 billion euros ($2.77 billion) in cash, allowing it to provide more routes for drivers.