Wall Street Breakfast: Must-Know News

• AIG aches. Global insurer American International Group (AIG) was pummeled with a $5.3B Q4 loss on a massive $11.12B writedown on subprime mortgages and other debt-based assets, combined with a $2.63B loss on general investments and another $643M loss from investments in its financial products unit. AIG doesn't see any share buybacks in its immediate future. On Feb. 11, AIG announced a $4.88B writedown after accountants found "material weakness" in its accounting systems; apparently things got $6.12B worse since then.
• Dell turnaround stalls. Dell (DELL) came up short with Q4 EPS of $0.31 vs. consensus estimates of $0.36 as profits fell 6.5% even as revenue increased 10%. The drop in earnings, after last quarter's 27% profit growth, raises concerns Dell's 'turnaround' may be stumbling due to its heavy reliance on U.S. sales (51%). Rival Hewlett-Packard (HPQ), with 69% overseas revenue, appears to be weathering a difficult economic environment with greater aplomb.
• Email trail reveals Intel's influence over Microsoft. Internal documents indicate Microsoft (MSFT) acknowledges it made an error by dropping the minimum requirements to run Vista -- a move it made in order to help Intel (INTC) meet quarterly earnings targets. Meanwhile, Microsoft cut Vista retail prices between 20% and 40%, a move its hopes may encourage more Windows users to upgrade to Vista.
• Wilbur Ross rests Assured. Assured Guaranty (AGO) said Friday distressed-assets investor Wilbur Ross will take a $250M stake in the company, and may buy another $750M in shares. Assured is one of the few debt insurers which has not been hit with threats of ratings downgrades. "We believe that Assured has an excellent opportunity during this time of uncertainty in the financial markets to provide investors with credit enhancement products in both the public and structured finance markets," he said.
• Slowdown, not recession - Bush. President Bush said the U.S. is not heading in to a recession, merely a 'slowdown,' and criticized a Senate proposal to help struggling homeowners, saying it amounts to a bailout of overzealous lenders and speculators. The administration's $152B stimulus package, due to hit American homes in mid-May, is aimed at the consumer, he said. "We want to sustain the American consumer."
• Battle brewing between music marketers. IAC/InterActiveCorp's (IACI) Ticketmaster and Cablevision (CVC) are in negotiations to acquire a 49% (15% and 34% respectively) stake in number-two concert promoter AEG Live, in an apparent bid to challenge concert promoter Live Nation (LYV). This after recent moves by Live Nation that indicate its desire to become a full-service music promoter, such as its break off from Ticketmaster to form its own ticketing business, and its signing artists to merchandise deals and new recordings.
• Take-Two gets some sniffs. In a SEC filing, Take-Two Interactive Software (TTWO) disclosed it has received additional interest since Electronic Arts (ERTS) made public its $2B bid for the company Sunday. It has not, however, received a written offer nor entered "substantive discussions" with any suitors. Viacom CEO Philippe Dauman said yesterday he's not considering a bid for Take-Two.
• HSBC receives €2.1B offer for French branches. HSBC (HBC) said it has received a firm cash offer of €2.1 billion ($3.2) for its French regional banking subsidiaries from Banque Federale des Banques Populaires. The banks were acquired in 2000 as part of an €11.6B acquisition of France's Credit Commercial de France. HSBC can't immediately assess what its gain on the sale would be, but said the move would allow it to redeploy capital to other (apparently more lucrative) investments.
• Sears makes amended (lower) bid for Restoration. Late Thursday Sears (SHLD) revised its buyout bid for Restoration Hardware (RSTO) $4.55/share from a previous $6.75, and offered reverse break-up fee that is $5M greater than the break-up fee Restoration set in its negotiations with private-equity firm Catterton Partners. Sears offered $6.75/share in December after Restoration agreed to be acquired by Catterton for $6.70/share in November. Catterton later dropped its bid to $4.50/share. Sears apparently likes to one-up Catterton by increments of 5.
• Viacom net rises 16%. Viacom (VIA.B) beat estimates by $0.01 with adjusted EPS of $0.84 as net income jumped 16% from a year ago. Revenue was up 19% to $4.25B, vs. consensus estimates of $3.99B. Viacom said it expects low-double-digit EPS growth over the coming three years. Rival CBS (CBS), which relies more heavily on ad revenue, reported a 14% drop in Q4 earnings.
• Gap gains on full-price sales. Gap (GPS) reported in-line EPS and revenue of $0.35 and $4.7B. Q4 income grew 5.7%, the first time in three years, as Gap managed to stay away from heavy discounting. Looking ahead, it sees in-line 2008 EPS of $1.20-1.27. Gap announced a $1B share buyback, of which it expects $158M will be bought from Fisher family members. It upped its dividend to $0.34 from $0.32. Comps fell 3%. "Gap is turning around, getting a fashion point of view and controlling their inventory," S&P's Marie Driscoll said. Shares rose 5.7% in AH trading.
• Circuit City 6.5% Holder Proposes To Remove Board Members
• Sepracor Swings To 4th Quarter Loss, Revenue Falls 3.8%
• Investor Seeks Circuit City Board Seats
• Peloton Blames Wall Street's Lending Crackdown for Collapse of Hedge Fund

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Comments

[Tom B:]

"Slowdown, not recession - Bush. President Bush said the U.S. is not heading in to a recession, merely a 'slowdown,'"

Bush is "reality challenged". Troubles will continue at least until lenders start offering mortgages at competitive rates again.

2008 Feb 29 09:10 AM

[John Capozzi:]

MICROSOFT better raise their bid for Yahoo quickly. A great speculation and move by Yahoo would be to have Softbank and llibba team up and buy out the rest of Yahoo at between 45 to 50 dollars a share. It would be investing in themselves where their mix i products would fit in better and stronger then a merger with Microsoft. Their close contacts with the Chinese and Japan governments would blend very easily with no anti trust problems for Yahoo. Combining the three into one and when completed make an offer for NTT of Japan and become one of the biggest power houses in wireless and internet media add content. The merger of the three will also save jobs because their would be less over lapping of product lines and they will be able to add more. They could also add the smart phone market to their mix. They would also be able to access cash backing from the Chinese and Japan governments because of the close ties of Jack Ma and Softbanks close ties in Japan. The merger would go though faster and friendlier and would be the best solution to all shareholder value of the three companies. Microsoft is not well liked in Asia and major parts of Europe because of their old school ways of GM bullying which would slow down the merger and even have them have to sell off major assets and properties to complete it. So Microsoft make a 40 to 43 dollar a share new bid now or move on. Newscorp will make a higher bid because of the news released in the last few days if you have been following their business moves. My bet is Yahoo and i truly believe in the long run Yahoo will be king and Microsoft and Google will begin to lose major market share in Asia to Allibba, Softbank and Yahoo. If they all merger into one and keep the Yahoo name their potential has great potential. Better then a Microsoft take over of Yahoo.

2008 Feb 29 11:05 AM