Wall Street Breakfast: Must-Know News

Today's Markets

• In Asia, markets fell hard Wednesday. Nikkei -3.3%. Hang Seng -2.2%. Shanghai -2.1%.
• European markets were down but less volatile in midday trading: FTSE -1.6%. CAC -1.4%. DAX -1.55%.
• U.S. index futures are down in pre-market trading at 7:25. Dow -0.7%. S&P -0.9%. Nasdaq -0.8%.

Must-Know News

• $100 oil! Crude-oil closed above $100/barrel for the first time ever Tuesday, surprising analysts who foresaw lower oil prices amid a U.S. economic slump and growing oil reserves. Unless prices fall, OPEC is unlikely to reduce its output. $3.50-3.60/gallon gasoline is a worrisome prospect for an already cautious U.S. consumer. In overnight trading, oil futures are down $1 to $99.
• KKR: Today's credit crunch casualty. KKR Financial (KFN), 12% owned by private-equity firm Kohlberg Kravis Roberts, disclosed (.pdf) it is in talks to restructure billions of dollars in debt, and that it delayed short-term repayments that came due last Friday. The latest sign of a liquidity crunch, the news stoked concerns that foreign investors would pull funds out of Asia in order to meet domestic obligations; Japan's Nikkei fell 3.3%.
• Banks could be in the hole for $30B on bond insurer woes. Moody's says financial institutions with about $120 billion in credit default swaps on CDOs insured by bond insurers may have to ante up as much as $30 billion if bond insurers like Ambac Financial Group (ABK) and MBIA (MBI) are unable to retain their AAA ratings. Moody's did not disclose which institutions relied most on bond insurers to guarantee their CDOs.
• Superb Q1 for HP. Hewlett-Packard (HPQ) knocked out estimates with Q1 EPS of $0.86 vs. consensus of $0.81; revenue of $28.5B vs. estimates of $27.6B; Q2 guidance of $0.83-$0.84/share vs. consensus of $0.82, and revenue of $27.7B-$27.9B vs. estimates of $27.4B; 2008 guidance of $3.50-3.54/share vs. consensus of $3.36 and revenue of $113.5B-$114B vs. consensus of $111.7B. Profits grew 38% on revenue growth of 13%. Analysts agreed with CEO Mark Hurd's assessment that the company is well-insulated against a potential economic downturn. Shares surged nearly 6% in extended trading.
• Garmin's Q4 puts analysts in their place. Garmin (GRMN) blasted past Q4 EPS estimates, posting a $0.20 beat of $1.31/share. Revenues rose 99.1% to $1.22B, vs. consensus estimates of $1.05B. Looking ahead, the company sees 2008 EPS in line at $4.40, and revenue at $4.5B, vs. estimates of $4.26B. Garmin also announced a 5 million share buyback authorization.
• Proxy threats, more suitors, enhanced severance complicate Microsoft bid. Microsoft's (MSFT) $31/share bid, now worth only $28.89, might not be enough to take over Yahoo (YHOO) in a threatened proxy battle. Losing would be a massive blow to MSFT's image, while winning could create insurmountable bitterness between the two sides. Meanwhile, Yahoo's talks with News Corp. (NWS) to trade a 20% stake for MySpace and other considerations continue. Yahoo is also talking with AT&T (T). Yesterday, Yahoo disclosed enhanced severance packages for all full-timers, which could make post-takeover job-cuts an expensive proposition.
• Pilot seniority issue puts airline merger at risk. A serious rift in pilot-union negotiations has put a proposed merger between Delta (DAL) and Northwest Airlines (NWA) in serious jeopardy. The unions have agreed on a joint contract, but are bickering over how seniority for the joint company's 12,000 pilots would be determined. DAL and NWA boards had planned to meet today to vote on the proposal; it's unclear whether the present snag will cause votes to be postponed.
• Copycat carriers. In a game of Tuesday-tag, Verizon Wireless (VZ) launched a $100/month unlimited U.S. calling plan. AT&T (T) was soon to follow. Not to be outdone, T-Mobile (DT) jumped on the bandwagon late in the day, and kicked in unlimited text and picture messaging. Shares fell. T -5.25%; VZ -6.6%; DT -2.6%. Sprint (S), the only major carrier left out (thus far) still dropped 3.55%. Besides each other, the group also compete with VoIP providers like Comcast (CMCSA) and Vonage (VG), who offer unlimited plans for as little as $25.
• MySpace's Music play. News Corp. (NWS) is in talks with major music labels about a venture that would offer music through 1) ad-based downloads and 2) streaming to a PC. The labels have been offered an equity stake in the site, MySpace Music. Social networks Imeem and Last.fm already have streaming deals with music labels. Labels approached include Vivendi's Universal, Warner (WMG), EMI Group, and Sony (SNE) BMG. Complications include Universal Music's outstanding copyright infringement suit against MySpace.
• Staples solicitation scorned. Dutch office-products supplier Corporate Express rejected Staples' (SPLS) €2.5 billion ($3.7B) buyout offer, saying the €7.25/share, 34% premium significantly undervalues the company. The bid is 67% higher than Corporate Express' Feb. 4 close, the day before rumors first broke. An acquisition would give Staples a stronger presence in direct sales of office supplies to businesses and government. Staples' main competitors are Office Depot (ODP) and OfficeMax (OMX).
• Sharper Image: Cloudy future. Electronics retailer Sharper Image (SHRP) filed for bankruptcy protection last night, citing declining sales and profitability. It listed assets of $251.5M and debt $199M. SHRP wants to borrow $60M long-term, and another $35M on an interim basis.
• BlackRock rebounds. Merrill Lynch (MER) affiliate BlackRock (BLK) bounced back after the asset manager denied rumors of heavy mortgage-related losses. BLK told investors it "has no material exposure or losses related to either subprime assets or CDO investments, whether held in the U.S. or in off-shore vehicles," in reaction to rumors it would suffer a fate similar to that of Credit Suisse (CS). Shares, which fell as much as 8%, closed down 3%.
• ING profit rises 18% as company avoided writedowns
• Whole Foods profit falls 27%
• Metal prices boost Anglo American
• Tim Hortons Q4 net, revenue, same-store sales up
• Intel gets subpoena from New York AG on antitrust issues

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Comments

[mooreden]

Pilot seniority issues always put airline mergers at risk. They're as big as any other single barrier. Union differences stopped United from taking over US Air back in the 80s. They're one reason so many airlines pursued code-sharing to avoid the issue.

[Tom B]

"Losing would be a massive blow to MSFT's image,"

Best outcome: Yahoo takeover fails; MSFT retains Monkey-boy as CEO, against all reason; Monkey-boy blows 40 B on AOL or some other weak property as an ego-massage; MSFT bones up on Chapter 11 laws. I can dream can't I?