Under The Radar News - Tuesday

JPM/Bear deal: Coup or fiasco? Analysts differ wildly on JPMorgan's (JPM) quintupled $10/share offer for Bear Stearns (BSC): It "avoids criticism that [J.P. Morgan] took advantage of a troubled situation over the prior weekend," Fox-Pitt Kelton's David Trone says. BMO's George Lazarevski says Dimon averted a major hurdle. But Punk Ziegel analyst Dick Bove can't figure out what motivated JPMorgan CEO Jamie Dimon to bid against himself. "J.P. Morgan thinks there is massive value here," Bove said. "But I just don't see it." Legal expert Roger Kirby notes shareholders can refuse any offer they feel is unfair. "They'd be frozen out but could then go to the Delaware courts for an appraisal, where they'd ask for a new appraisal of what the company is worth," he says.

Trading suggests higher Bear bid. Options traders are still betting on a higher bid for Bear Stearns (BSC). "There's more life in this Bear, and the Bear may come back to bite a lot of the shorts," Oppenheimer options strategist Michael Schwartz says.

BlackRock cashes in on Fed participation. The Fed has appointed BlackRock (BLK) to manage the $30B portfolio of Bear Stearns' (BSC) securities it took on. Expected fees? A cool $54M a year.

Prescient fund manager. Janus Capital (JNS) dumped its entire 2.7M share stake in Bear Stearns (BSC) before the company imploded, though it still took a hit on the trade. Still, they fared a lot better than poor Joe Lewis and mutual fund Van Kampen Asset Management who still own their stakes.

Flight from quality. Traders are abandoning short-term Treasurys as stocks continue to climb. Three month Treasurys bulged half a point to 1.1%, up from a low of 0.39% last week, and a sale of three- and six-month T-bills was weak. Has the "flight to quality" exhausted itself?

Microhoo where art thou? Oppenheimer says that based on recent meetings with Microsoft (MSFT) management, MSFT remains very committed to the Yahoo (YHOO) offer. It believes MSFT will ultimately raise its bid to speed up the process, but only by about 10%. Citigroup upgraded YHOO to Buy from Hold and raised its target to $34 from $31. Citi continues to view a MSFT/YHOO deal as the most likely outcome, because it's unlikely MSFT will walk away due to its weak presence in online advertising. No other step can potentially help the scale and liquidity challenges of Microsoft's ad platform, it says.

Sony BMG developing online music service. The CEO of Sony BMG Music Entertainment (SNE) says Sony is developing an unlimited online music subscription service that would be compatible with a host of digital music players, including Apple's (AAPL) iPod. CEO Rolf Schmidt-Holtz said he's thinking about $9-12/month for access to Sony's entire catalog, and didn't rule out that clients "could keep some songs indefinitely." It's not clear how today's news affects recent rumors of a MySpace (NWS), Sony, Warner Music (WMG) JV.

Freddie's delinquency rate balloons. The delinquency rate in Freddie Mac's (FRE) $710B home-loan portfolio swelled to 0.71% in January from 0.65% in December and 0.43% in February 2007. Its mortgage portfolio grew 12% during the month.

Home prices plummet. U.S. home prices fell 11.4%, the steepest drop since S&P/Case-Shiller started keeping track 20 years ago. Prices have now fallen for 19 straight months.

Pasta Hut. Yum Brands' (YUM) Pizza Hut unveils plans to start delivering pasta, something no other national pizza chain does. "If we do it right, pasta could become as big a business as pizza," it says. Creamy Chicken Alfredo and Meaty Marinara (baked, not boiled) will run you $11.95 with five breadsticks, same as a large pizza with one topping; Pizza Hut says they'll feed a family of six. Domino's (DPZ) and Papa John's (PZZA) say they have no such plans. "The main thing is to keep the main thing the main thing," Papa John's U.S. president William Van Epss quips, quoting the company's founder.

Cisco in India talks. Cisco (CSCO) is in talks with India's Future Group to implement Radio Frequency Identification technology [RFID] in all of Future's retail outlets; an agreement is expected later next month. "By the year 2010-11, we will need to scan close to 30 million pieces per day. That is humanly impossible and RFID becomes the essential ingredient," GS1 India CEO Ravi Mathur says.

Giving investor friendly new meaning. Blockbuster (BBI) has adopted a resolution that will allow shareholders to vote on executive compensation at annual shareholder meetings.

Weakness seen at Harley. Soleil analysts say traffic at Harley-Davidson (HOG) stores has been down for several months, leading them to believe management's 2008 guidance is "too optimistic."

More analysts diss Merrill. JPMorgan and UBS joined the crowd of analysts cutting Q1 estimates for Merrill Lynch (MER). JPMorgan analyst Ken Worthington sees about $6B in writedowns, but says CEO John Thain may be able to restore investor confidence if he can "clean up the subprime mess, improve and rebuild risk-management systems and controls and prevent talent drainage." UBS sees a $4.5B writedown. On Monday, Fox-Pitt Kelton analyst David Trone mentioned an $8B writedown.

Student loans: Who will step up to the plate? The credit crisis, shrinking government subsidies and weak profits are forcing student loan lenders out of the federal program. Who will pick up the slack? The government could but may not; banks such as Citigroup (C) and Wells Fargo (WFC) are stretched thin. One study says as much as 10% of all loans needed will be hit by the dry up.

China still loves us. After China Life (LFC) bought $300M worth of shares in Visa's (V) IPO and Beijing's $200B sovereign wealth fund took another $100M, there is speculation CIT Group (CIT), which is looking for an overseas parter to help it rebuild, could be the next beneficiary of China's seemingly insatiable appetite for U.S. financials.

Morningstar goes ETF. Mutual-fund grader Morningstar (MORN) has finally embraced ETFs. It's starting a service that allows investors to buy into actively managed ETF portfolios.

AMD chief to brief Schumer. New York Senator Charles Schumer will reveal details today of a conversation with Advanced Micro Devices' (AMD) CEO Hector de J. Ruiz about the company's plan to build a $3.2B computer chip plant in New York. AMD can receive $1.2B in incentives if it commits to the project by July 2009.

America needs to spruce things up. The U.S. needs to reinvest in its aging, overused transportation networks or risk losing ground to other leading economies, UPS (UPS) CEO Scott Davis says.

Comments

[GregY:]

More analysts diss Merrill. - Perhaps these analysts should be involved in assessment of their employers. They seem to have more insight into financial health of this troubled market than people who run it. Isn't is great to be paid for just an opinion and have no accountability for an outcome? Oh, wait, don't their bosses are doing just the same for even more money? Why do we care what they estimate?

2008 Mar 26 12:50 PM