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U.S. Retail Sales Fall Short

U.S. retail sales fell short of predictions after netting out gas price increases, according to data released by MasterCard. Total U.S. retail sales were up 3.6% from a year ago for the holiday season, which begins the day after Thanksgiving and ends midnight Dec. 24, but just 2.4% net of gas prices. Forecasts were for a retail sales gain of 3.5% to 4.5%. Internet retailers were a standout with a 22.4% gain. Luxury retailers, not including jewelry, saw sales rise 7.1%. But they fell 1.9% including jewelry, which retailers said sold poorly (see: Online Sales Grow, But Luxury Items Suffer). Women's clothing sales fell 2.4%, while menswear sales were increased 2.3%. Electronics sales were up 2.7%, but that includes appliances whose weak sales likely dragged down surging sales of game consoles and software, DVDs and flat-panel TVs. MasterCard's Michael McNamara says post-holiday sales, which have grown steadily in recent years, will likely be strong due to promotions and gift-card redemptions. "This last week of December, I wouldn't be surprised if we see upwards of $60 billion spent," he said. "There's still some work to be done on the retail front here." Retail ETFs Consumer Discretionary SPDR ETF (NYSEARCA:XLY), Retail HOLDRS ETF (NYSEARCA:RTH) and ST SPDR RETAIL ETF (NYSEARCA:XRT), among others (see: Retail and Consumer Goods & Services ETFs) offer U.S. investors broad retail exposure.

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TECH

Matsushita, Hitachi, Canon Forge Flat-Panel Alliance

Matsushita Electric (NYSE:MC), Hitachi (HIT) and Canon (NYSE:CAJ) announced Tuesday that they will combine their liquid crystal display businesses, the next in a series of collaborations in the flat-panel industry. Matsushita, which manufactures Panasonic-brand electronics, is the world's leading producer of plasma TVs. "Under this alliance, the three companies will merge their strengths to accelerate the development of cutting-edge display technologies and expand their scope of application," they said in a statement. The WSJ notes that the link-up will create a "third major force in the flat-panel industry" following the Sony (NYSE:SNE)-Samsung combination and the Sharp (OTCPK:SHCAY)-Toshiba (OTCPK:TOSBF) alliance announced a week ago. Hitachi will cut its position in loss-making subsidiary Hitachi Displays to just over 50%, with the remaining shares to be split equally between Matsushita and Canon. Canon said it might ultimately take a majority stake in the unit. Hitachi Displays produces small and mid-sized LCD panels that Canon will use for digital camera monitors. Matsushita will nearly double its stake in LCD manufacturer IPS Alpha Technology, a JV between the three companies and Toshiba, to over 50%. "Th[is] move will give Matsushita a foothold to expand in LCDs," said SBI E*Trade Securities analyst Hideyuki Suzuki. "There's been a concern with Matsushita because it's focusing on plasma screens at a time when LCD screens are overwhelmingly better." JPMorgan Chase estimates that global shipments of LCD TVs -- which are brighter and thinner than plasma TVs -- will rise 33% to 94.7 million units in 2008 while plasma set sales should rise 26% to 13.1 million units.

Wipro Readies $6.4-$7B Bid for Capgemini - Hindustan Times

India's number-three software exporter, Wipro (NYSE:WIT), will make a bid for France's Capgemini by the end of January in a deal that puts a $6.4 billion to $7 price tag on the company, the Hindustan Times reported Monday. Shares of Capgemini rose over 9% in Paris trading on the report. Investment advisors Citigroup (NYSE:C) and HSBC (HBC) have been frantically trying to finalize a plan for financing the deal before year-end. "Details about leveraged buyout financing and other options were discussed," a banker close to the deal said. Wipro's bid for Europe's number-one computer consultancy firm could come in at about €48/share, the Times said. Shares closed at €40.71 on Friday. "We would not want to comment on market speculation. Of course, we are interested in larger deals and aggressively looking for inorganic growth options," Sudip Nandy, chief strategic officer of Wipro, said. There have been rumors of a possible bid by Wipro, or by larger rival Infosys (NYSE:INFY), for months. Analysts say Capgemini would give Wipro a strong foothold in the consulting business. “Capgemini has a good presence in Europe and it would help Wipro to insulate itself from the weak dollar earnings,” said one analyst. Another expressed concerns about integration. Paris-based Capgemini has units in North America, northern, central and southern Europe, and Asia Pacific, as well as India. It boasts 75,000 employees. A spokeswoman for Capgemini said Monday it has had no contact with Wipro. "For several weeks, there have been rumors that this or that Indian firm would want to bid for our company," she said in the name of a board member. "There are no talks going on of any kind with the Indian group being mentioned and we repeat our conviction that any hostile bid in the IT-sector is doomed to fail." Shares of Wipro gained 2.2% Monday.

INTERNET

NTT Docomo To Link Up With Google - Reports

NTT DoCoMo (NYSE:DCM), the biggest mobile phone carrier in Japan, plans to join with Google (NASDAQ:GOOG) to provide web-search and e-mail services on its handsets, according to reports in the Japanese press. Business daily The Nikkei reported Tuesday that by this spring, users will be able to access Google search, e-mail, scheduling and photo-saving features via DoCoMo's i-Mode Internet network. DoCoMo is also said to be weighing development of a next-generation handset using Google's free OS for mobile devices. The Nikkei did not identify its sources for the story, a similar version of which was published by the Kyodo News agency. DoCoMo spokeswoman Makiko Furuta said the company is looking at potential relationships with both domestic and foreign search service providers, but no alliances have been concluded as yet. DoCoMo is trying to stem the loss of young consumers to rivals KDDI Corp. and Softbank Mobile Corp., while Google hopes to better penetrate the Japanese search engine market, where it lags Yahoo Japan (NASDAQ:YHOO).

Sources: AP

FINANCIAL

Merrill Sells Up To $6.2B Stake at Discount

Merrill Lynch (MER) announced Monday it would receive a cash infusion of up to $6.2 billion by selling new common stock to Temasek Holdings Ltd., an investment vehicle for the government of Singapore, and Davis Selected Advisors LP. Shares initially rose about 4%, but later fell into negative territory when it was disclosed the shares were being sold at a discount. Temasek will buy $4.4 billion worth of Merrill stock, with an option for $600 million more by the end of March. U.S. asset manager Davis Selected Advisers will buy another $1.2B. The firms will pay $48/share, a nearly 14% discount to Friday's close of $55.54. Shares fell 3% to $53.90. Merrill said the investors will not play a role in its governance. Analysts said that despite diluting existing shares, a cash infusion is a better choice than a weak balance sheet on the heels of mortgage-related losses. The infusion is likely a precursor to a large Q4 writedown that analysts say may outdo Merrill's Q3 writedown of $8.4 billion. Merrill had 855.4 million shares outstanding at the end of September; the current issue would bring that number to about 984 million, or about 15%. "It's very positive that Merrill Lynch is taking the steps that it needs to shore up its balance sheet," said Sean Egan of credit-rating firm Egan-Jones Ratings.
Singapore's investment is the latest in a growing number of sovereign wealth funds to take stakes in Wall Street firms. Morgan Stanley (NYSE:MS) recently received $5 billion from China (Morgan Stanley Gets $5B Cash Infusion After Huge Q4 Loss); Citigroup (C) last month agreed to sell up to a 4.9% stake to Abu Dhabi for $7.5 billion (Citigroup Receives $7.5 Billion Capital Infusion from Abu Dhabi); and UBS (NYSE:UBS) recently took on a $9.75 billion investment from a different Singapore sovereign fund (UBS Raises $11.5 Billion; Writes Down Another $10B).

CME Down on Rival Exchange; Analysts Downplay Threat

Shares of CME Group (NASDAQ:CME) fell more than 3.5% in Monday trading after the Wall Street Journal reported over the weekend that a consortium including JPMorgan (NYSE:JPM) and Deutsche Bank (NYSE:DB) plans to launch a competitor the Chicago Mercantile Exchange in some of its most lucrative futures contracts (see: JPMorgan, Deutsche Bank to Open CME Rival - WSJ). In a note to clients this morning, Credit Suisse said it expects minimal impact to the CME from the rival exchange. Analysts noted history is littered with failed U.S. future trading venues, and that CME has deeply-entrenched liquidity pools and many other competitive advantages. "This is not the first threat against CME/CBOT," Citigroup analyst Donald Fandetti noted. "The exchanges have faced three competitive threats over the last decade including Eurex, BrokerTech and Cantor/eSpeed; all failed to take liquidity, though the most recent attack by Eurex led CBOT to 'sharply' lower trading fees." CBOT is now owned by CME. Citi noted rival contracts would not be 'fungible' (able to be cancelled out by an opposing contract on another exchange), and thus CME's superior liquidity pool "would naturally offer the better bid/ask spread." He concedes the move is a negative for CME, but "needs to be kept in perspective." In a larger sense, he notes, "The exchange sector may pull back a bit on the broader implications of this news."

RETAIL

Costco Says Holiday Sales "Pretty Good"

Holiday sales have been "pretty good," Costco (NASDAQ:COST) CFO Richard Galanti said Monday in an interview with the Wall Street Journal. "Generally speaking, our season went well," he said. "We were left pretty clean in terms of seasonal markdowns." Big sellers included DVDs (specifically Discovery Channel's Planet Earth series), health-and-beauty gift packs and women's outerwear. The strength in women's apparel is in stark contrast to many industry reports of weak sales; MasterCard reported an overall 2.4% drop in women's clothing sales (see: U.S. Retail Sales Fall Short). Jewelry sales were weak, as has been the case industry wide (see: Online Sales Grow, But Luxury Items Suffer). Costco sells high-end merchandise to compliment its bulk items, unlike competitors Sam's Club (NYSE:WMT) and BJ's (NYSE:BJ). Analysts predicted Costco would lead the pack during the 2007 holiday season due to its appeal to higher-income customers who are less likely to cut back their spending.

Hollywood Media Rises 15% on Disclosure of Acquisition Discussions

Shares of online ticketing and movie info company Hollywood Media rose 15% Monday after the company filed a 13-D disclosing discussions that may lead to the acquisition of the company. According to the filing, Coghill Capital Management owns over 10% of Hollywood Media, and its principals:

"are engaged in discussions with management and representatives of the board of directors of the Issuer concerning various strategic alternatives, including a number of potential extraordinary transactions that could result in a change of control of the issuer, and intend to evaluate confidential information relating to the Issuer in connection therewith. For this purpose, the Reporting Persons and the Issuer have entered into a non-disclosure agreement (including certain related provisions). The Reporting Persons intend to continue these discussions and to closely evaluate the performance of the Issuer, including, but not limited to, the continued analysis and assessment of the Issuer's share price, business, assets, operations, financial condition, capital structure, management and prospects."

Hollywood Media owns Broadway.com, Hollywood.com and 26% of MovieTickets.com. The company earlier conducted a strategic review to better realize the value of its assets, but terminated the review with limited results to the disappointment of investors (summary). MovieTickets.com competitor Fandango was acquired by Comcast (NASDAQ:CMCSA) in April 2007 (summary). In its most recent filings, Hollywood Media disclosed that it has over $34 million of cash on its balance sheet, equivalent to over $1 per share. The stock closed Tuesday in shortened trading at $2.84. HOLL was downgraded by Roth Capital November 16th, having closed the previous day at $2.97.
Full disclosure: Seeking Alpha founder David Jackson is long HOLL.

ENERGY/MATERIALS

Berkshire Acquires 60% of Pritzkers' Marmon Holdings for $4.5B

Berkshire Hathaway (BRK.A) announced Tuesday it will purchase 60% of privately-held industrial conglomerate Marmon Holdings, Inc., for $4.5 billion. Berkshire will acquire the remainder of the company by 2014 at a price based on future earnings. Warren Buffett, CEO of Berkshire, reportedly needed only two weeks to reach a deal after being approached by Marmon. The transaction is expected to close in Q1-2008. The acquisition is Berkshire's largest since 2005 and its largest outside of the insurance industry.
Marmon is owned by trusts for Chicago's Pritzker family. It had operating income of $794M in 2006 on revenues of $7B. The company has been improving its profitability in recent years, as it continues to undergo a breaking up of its vast holdings in order to distribute proceeds to family members. The Marmon Group includes more than 125 manufacturing and services businesses. Marmon Chairman Tom Pritzker and CEO Frank Ptak will retain their positions during the acquisition period. The Pritzker family acquired Marmon in 1953. They still own a controlling stake in the Hyatt hotel chain and TransUnion, as well as a big stake in Royal Caribbean Cruises (NYSE:RCL). Berkshire Hathaway's A-shares gained 3% to $137,980 on Monday.

TRANSPORT/AEROSPACE

Toyota Raises Sales Forecast; Set To Topple GM

Toyota (NYSE:TM) said Tuesday it expects to sell 9.36 million vehicles in 2007, 6% more than in 2006. If it accomplishes this goal, it will unseat General Motors (NYSE:GM) as the world's leading auto manufacturer on an annualized basis, a position GM has held for 76 years. Toyota also raised its 2008 sales forecast to 9.85 million vehicles, a 5.2% increase over 2007. GM has not announced 2008 projections but forecasts it will sell almost 9.26 million vehicles this year. Toyota's growth is being driven by strong demand in emerging markets: the company expects to increase sales in Asia by 20% in 2008. The American market remains relatively stagnant, however, affected as it is by the subprime crisis and the housing downturn. GM sales and marketing head Mark LaNeve responded to Toyota's projections with equanimity. "We are most interested in turning our business around and delivering great value to our customers and shareholders," he said. "Leadership is important, and we continue to be the leader in 12 or 13 of the top 15 markets." Ashvin Chotai, auto analyst for Global Insight, sees an implicit danger in Toyota's strong projections. "We're getting to the stage where Toyota has grown so impressively in recent years that it's going to find the next stage of growth quite difficult" in the U.S., he said.

CN Rail Saves Critical Link to Alberta Oil Sands Region

Canadian National Railway Co. (NYSE:CNI) said Monday it will acquire the Athabasca Northern Railway [ANY] for $25 million, in order to preserve a critical rail link to the oil sands region of northern Alberta. It will also invest another $135M over the next three years in rail-line upgrades to improve transit times and service consistency, it said. The purchase and upgrades, CN said, are premised on long-term traffic volume guarantees it has negotiated with its shippers "CN is focused on the future. While ANY’s current traffic volumes are too low to keep it going as a stand-alone operation, we and our shipper partners see the ANY playing a critical role in one of the world’s largest construction projects – the oil sands reserves in northern Alberta are second only to Saudi Arabia’s, and industry is expected to invest more than C$100 billion over the next decade in oil sands development, construction and infrastructure upgrading.” Shares gained 1.6% to $47.74 in a shortened NYSE trading session.

INTERNATIONAL

Mitsubishi UFJ Economist Sees US$ Falling to ¥95

Bloomberg reports Kazuo Mizuno, chief economist at Mitsubishi UFJ Securities, the brokerage arm of Japan's largest bank (Mitsubishi UFJ Financial Group (NYSE:MTU)), predicts the dollar may fall 20% against the yen to ¥95/$1 in 2008. In an interview Wednesday with Bloomberg, Mr. Mizuno explained his dollar bearishness based on "the adjustment in the U.S. housing market (having) just begun." He believes the housing market will bottom in three to four years, as corporate earnings erode and the Federal Reserve continues to cut rates, with consumption, employment and the dollar taking a pounding.
Mr. Mizuno's target of ¥95/$1 is one of the most pessimistic, especially compared to the median estimate of ¥110/$1 among 42 economists. Bloomberg says only Deutsche Bank, the world's largest currency trader, has as bearish a forecast. "Now is the beginning of the end to dollar standard system," commented Mr. Mizuno. The dollar has lost around 4% against the yen in 2007. Late in Tokyo the dollar was up a tenth of a percent against the yen at about ¥114.30/$1. The dollar last traded at ¥95 in Aug. 1995. CurrencyShares Japanese Yen Trust (NYSEARCA:FXY) offers U.S. investors a play on yen strength. It lost 0.3% to $87.18 on Monday.
Additional Reading: Foreign Currency Trading: Can Investors Profit From Trends?

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