Commercial Real Estate Could Be Next Victim of Credit Market Woes
Recent credit market woes could reduce the hefty prices that industrial real estate has commanded over the past few years, analysts say. "The sale prices of assets are going to decrease," said Robert Horowitz, of Cooper-Horowitz Inc. "Prices are a reflection of what people can borrow. The buyers can't get the level of financing that they were able to obtain six months ago." Compounding the issue is the fact that commercial mortgage interest rates are up at least 0.5%, he said. Cheap credit and and high demand has kept commercial real estate prices elevated even as a housing slowdown has hurt pricing and sales of new homes. However, experts say borrowers with good credit histories can still get loans. "There is still capital available for well-underwritten deals, said William Rudin, president of New York real estate company Rudin Management Co. But, he said, "For some people the window is closed."
Commentary: Donald Trump - Bah Humbug! Buy, Buy, Buy! • Centerline Looks Sturdy, Standard Pacific Will Be Further Pressured • Mortgage Originated Credit Crunch May Just Be Beginning
Stocks/ETFs to watch: ICF, IYR
Motorola Inks $400M in Contracts With China Mobile
Motorola announced Monday it has secured $394 million in contracts from China's largest mobile carrier, China Mobile, during the first half of 2007, it said. The contracts were for GSM equipment (the prevalent wireless standard in Europe and Asia) including base stations and other infrastructure, which will be used to expand and upgrade China Mobile's network. Approximately 60% of the contracts' revenue was recognized in the first half of 2007. "Today's announcement clearly illustrates Motorola's continued success in the GSM market and its position as one of the leading equipment and services suppliers in China," said Ruey-Bin Kao, president of Motorola China. "Our goal is to continue to provide China Mobile with a state-of-the-art GSM network that enlarges its network coverage, maximizes investment and delivers the best services to its customers."
Sources: Press release, Reuters
Commentary: Goodbye Moto, Hello Nokia • Motorola Noticeably Absent From Krusell's List of Top 10 Handset Models • A 'Plan B' for Motorola • China: 'In Cyberspace They Trust'
Stocks/ETFs to watch: MOT, CHL
Earnings call transcript: Motorola Q2 2007
Court Says Novell, Not SCO, Owns Unix
In a win for open source software and Linux, a federal court has ruled against SCO Group Inc., indicating that Novell Inc. is the rightful owner of the Unix operating system copyright. SCO had been seeking billions of dollars, or $700 for every computer that runs Linux -- from hundreds of companies including IBM -- and is also in litigation with Red Hat, a maker of Linux software, an alternative to Microsoft's Windows. "The court's ruling has cut out the core of SCO's case and, as a result, eliminates SCO's threat to the Linux community based upon allegations of copyright infringement of Unix," said Novell general counsel Joe LaSala. SCO claimed to have purchased Unix (originally developed by AT&T in the 70s) from Novell in 1995, and in 2003 said Linux was an illegal knockoff of Unix and filed suit against IBM, claiming that Big Blue had unfairly taken part of the Unix code and given it to the Linux developers. The Utah court, however ruled that SCO merely licensed and never purchased Unix from Novell ("The bill of sale is clear: all copyrights were excluded from the transfer," the ruling said), meaning SCO probably can't sue Linux users or IBM for copyright infringement. James Zemlin, executive director of the Linux Foundation called the ruling "a meaningful message in terms of people adopting open-source software." SCO and IBM couldn't be reached to comment. In the wake of the ruling, some are questioning the future of SCO, which trades around $1.50/share, and posts quarterly losses of more than $1M on revenue of just about $6M.
Sources: New York Times, Bloomberg, Wall Street Journal
Commentary: The Future Of Linux Still Dark [24/7 Wall Street] • Open Source to Compete With Traditional Networking FirmsMicrosoft’s Open Source Claim: What Are These Patents Really All About?
Stocks/ETFs to watch: SCOX, NOVL, IBM
Microsoft to Dispute FCC's Rejection of White Space Proposal -- Washington Post
Microsoft plans to file a report with the FCC Monday disputing the agency's claim that its internet-over-TV airwaves prototype interferes with TV signals, the Washington Post reports. Microsoft admits its first prototype was defective, but says a subsequent model worked successfully in a demonstration made to the FCC last week. Microsoft has been petitioning the FCC to allow a new generation of portable, wireless devices to connect to the internet using vacant TV airwaves, known as 'white space' (see diagram) -- effectively allowing it to bypass wireless carriers. The airwaves will be left vacant when TV broadcasters go digital in early 2009. Microsoft is part of a coalition, which also includes Intel, Dell and Google, that seeks regulatory approval to use white space to connect devices like digital cameras and music players to the internet. They argue TV-spectrum-based access would be less expensive and more accessible than current options, which will in turn lower pricing on current access models. The revised prototype "reliably detected occupied television channels," Microsoft writes in the planned filing. National Association of Broadcasters spokesman Dennis Wharton disagrees. He says the FCC's original report is accurate, and that Microsoft's 'self-serving' agenda may jeopardize "America's access to interference-free television reception."
Sources: Washington Post
Commentary: Microsoft Google Dell Coalition "White Space" Prototypes Get Knocked By FCC: Device Gallery and Details [Gizmodo] • FCC chimes in on 'white space' device from Google, Microsoft and others: it doesn't work [Engadget]
Stocks/ETFs to watch: MSFT, GOOG, INTC, DELL
Related: Wikipedia on White Space Coalition
PepsiCo Reportedly in Deal for Russian Juice Maker
PepsiCo will buy a 76.1% stake in OAO Lebedyansky, Russia's top juice maker Lebedyansky for $1.5B-$2B, Russia's Kommersant business daily reported Monday. The upper end of the range would be a premium to the whole company's market capitalization, which was $1.95B on Friday as the shares traded at a record high. The acquisition of Lebedyansky, which controls more than 30% of Russia's juice market, was expected to be completed by year-end. Pepsico has about 20% of the country's soft drink market, but its Tropicana unit controls just 2% of the juice business. The company has no juice-producing assets in the country. Pepsi rival Coca-Cola controls more than 20% of the Russian juice market. Lebedyansky declined to comment, PepsiCo was unavailable. Some 76% of Lebedyansky is controlled by a group of Russian businessmen, including the company's chairman Yuri Bortsov. PepsiCo was advised by Deutsche Bank, Kommersant said.
Sources: Dow Jones, Reuters
Commentary: Pepsi Covered Call Hits the Spot • Is Pepsico Stock Overvalued?
Stocks/ETFs to watch: PEP. Competitors: KO, CSG, JSDA, FIZZ
Earnings call transcript: PepsiCo Q2 2007
TRANSPORT AND AEROSPACE
Midwest to Take Off With TPG Capital, Northwest
Midwest Air Group said Monday it will pursue a $16/share all cash offer (more than $400M) acquisition deal with TPG Capital, rather than a $389M hostile bid from AirTran Airways. The deal with TPG includes a passive investment with number-five U.S. airline Northwest Airlines, with whom Midwest has a codeshare alliance. TPG said the deal is not subject to financing conditions, a plus given difficulties in closing other private equity deals resulting from problems in credit markets. Midwest said it expects to sign a definitive agreement by Wednesday. Northwest said it has no plans to participate in management or control of Midwest. AirTran, which had a hostile bid outstanding and already has three representatives on Midwest's board, said it was abandoning its pursuit, saying its sweetened $15.75/share cash and stock bid was final. Although TPG said it anticipated no regulatory problems, AirTran said antitrust concerns could be raised given Northwest's participation. Northwest already has a substantial presence in the Milwaukee are where Midwest is based.
Sources: Press release, Reuters, Wall Street Journal
Commentary: 21 Airline Stocks to Keep You Flying High This Summer • Midwest Air /AirTran Merger Update
Stocks/ETFs to watch: MEH, NWA, AAI
Citigroup Faces $700M in Credit-Related Losses
Citigroup is among the casualties of the current credit crisis, having lost over $700 million in credit-related business in recent weeks, the Financial Times reports. A source briefed on the situation says the losses stem mainly from the company's structured credit business. The losses are non-critical for the company, which netted more than $20 billion in 2006. But they may be a source of extreme embarrassment for CEO Chuck Prince, who said in July that the bank was "still dancing" in the credit markets, and could undermine Prince's efforts to revive the company's lethargic shares and restore investor confidence. "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing," Price told the Financial Times on July 10.
Sources: Financial Times
Commentary: Now Is The Time To Buy Citigroup • Prepare Yourself To Buy Financials • A Contrarian Look at the Financial Sector
Stocks/ETFs to watch: C
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Hedge funds have been pummeled by recent market action. Some may not survive 25%-plus losses as nervous investors pull funds, which may tell of hidden promise for cash-rich, tightly-controlled companies willing to make opportunistic investments. Berkshire Hathaway (NYSE:BRK.A) has about $40 billion to spend, and CEO Warren Buffett to seek out attractive investments. Shares trade for just 1.5x book value and under 20x earnings. Loews Corp. (LTR), controlled by the Tisch family, is a bargain at $44 -- a 23% discount to its estimated NAV of $57/share. Other cash-rich investment companies include Leucadia National (NYSE:LUK), Alleghany (NYSE:Y) and Carl Icahn's American Real Estate Partners (NYSE:ACP). (full summary)
- After near-bankruptcy, Corning (NYSE:GLW) has maintained profitability for two years through innovative developments in hot markets. LCD technology appears to be beating plasma, and analysts expect demand to grow 30% by 2008. Corning's nanotechnology advances in fiber optics offers lucrative potential as giants like Verizon (NYSE:VZ) scrap coppera. And sales of Corning's advanced truck filters and substrates, which convert gas fumes into water vapor, should be buoyed by stricter U.S. transmission emissions rules. Bulls say shares ($24) could go to $32 by 2008. (full summary)
- During the company's conference call (full transcript), Cisco (NASDAQ:CSCO) CEO John Chambers told investors he was raising growth forecasts from 10-15% to 12-17%. In a subsequent interview, Chamber's was undisturbed by the global credit crisis, saying it won't stop companies from investing in network infrastructure or new technologies. He says the global economy is the strongest he's ever seen it. One analyst says he's surprised by Cisco's lack of aggressiveness in using its $22 billion in cash to buy back shares, leading him to speculate a major acquisition may be in the making. Chambers says the company's present situation reminds him of Cisco more than a decade ago: "We were a routing company [back in the early 1990s], and we bought switches, and we had to learn about that. Now, we are a networking company that is expanding dramatically and rapidly into collaboration." (full summary)
- Credit market woes have hurt Bear Stearns' (NYSE:BSC) mortgage trading and LBO financing businesses; shares are down 32% this year, vs. 10% for rivals Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). Barron's says deflated share prices make Bear an attractive takeover target: 1) Shares ($110) are just 1.2x book value vs. rival Lehman Brothers' (LEH) 1.6x and Goldman's 2.2x. 2) Bear will swallow easier as a "small cap" with just $13 billion in equity capital vs. MS's $40B and Goldman's $35B. 3) Bear owns valuable real estate. 4) Bear is 1/3 employee-owned; loyal workers may prefer a potential $200/share buyout price over volatile market gyrations. (full summary)
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