Wall Street Breakfast: Must-Know News

• Microsoft/Yahoo tango increases pace. Microsoft's (MSFT) challenge to Yahoo (YHOO): Agree to a sale within the next three weeks, or we'll go straight to your shareholders, attempt to take over your board, and may reduce our bid. Yahoo responded to Microsoft this morning, rejecting CEO Steve Ballmer's contention that Yahoo's business is deteriorating, and saying it is not opposed to a sweetened deal. Sources say there is opposition within Microsoft which, while unlikely to derail the deal, might preclude a raised bid. MSFT's $31/share cash-and-stock offer is now worth $29.36.
• Yahoo!s AMP! yay! Yahoo! (YHOO) unveiled AMP!, a platform it says will significantly simplify the process of buying and selling ads online by enabling advertisers to "precisely yet easily target audiences, while enabling publishers to better monetize their content," slated for Q3. First to use AMP! will likely be Yahoo's Newspaper Consortium, one of whom seemed quite excited: "We're blown away by how Yahoo! is working with intensity and commitment to create a collaborative and very efficient platform that we expect will have a significant impact on our sales capabilities. This is a turning point for our industry," Cox Newspapers' Jay Smith effused.
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• Novartis spends $39B for Alcon stake. Novartis (NVS) is buying Nestle's (NSRGY.PK) 77% stake in U.S. eye-care care company Alcon (ACL) for $39B. Novartis will buy a 25% stake this year for $11B, and has the rights to buy Nestle's remaining 52% stake for $28B in coming years; Nestle can force Novartis to purchase the stake. The first tranche comes at a 5% discount; overall, Novartis will pay a premium of about 13%. Novartis will borrow $5.5B to finance the first 25%, and expects its long-term credit rating to be downgraded. Alcon makes eye surgery devices and eye-care products; 2007 profits were $1.6B on sales of $5.6B.
• WaMu to get $5B injection. Shares of Washington Mutual (WM) gained 4.2% in early Frankfurt trading after sources said private-equity firm TPG and others are near a deal to invest $5B in the company. The proposal would allow WaMu to meet all its capital requirements amid deep subprime losses, but would dilute current shareholders' stakes (feel the pain: they've already lost 74% over the past year). TPG's stake would be less than 25%; it is also thought to want a seat on the board. The plan likely rules out a much-speculated buyout by JPMorgan (JPM) or whomever.
• Buffett under pressure to sack General Re CEO. Federal prosecutors want Warren Buffett's Berkshire Hathaway (BRK.A) to fire General Re CEO Joseph Brandon following fraud convictions of four former employees. The case charged General Re and AIG (AIG) forged a sham deal that inflated AIG's earnings; prosecutors say Brandon was a co-conspirator. Buffett had no knowledge of the wrongdoings. The possibility of prosecutors trying to strong-arm management despite their inability to bring a case against Brandon will raise eyebrows. WSJ says General Re has a strong bench, should it choose to take that course.
• Airline merger talks fly again. Delta (DAL) and Northwest (NWA) have revived merger talks, stalled since late February. This despite the objections of Delta's pilots' union -- perhaps a reflection of the industry's increasingly gloomy outlook. Previous talks were for Northwest to trade its shares for those of Delta at little or no premium, with the new entity operating from Delta's Atlanta HQ. Meanwhile, sources say United (UAUA) is considering a possible tie-up with Delta, and that Continental (CAL) held exploratory talks with American (AMR).
• Shell, Aramco to pump $7B into Texas "heavy oil" refinery. Shell (RDS.A) and Saudi Aramco are investing an estimated $7B in Port Arthur in order to double its capacity to 600K barrels/day from 275K. The heavier oil they expect to draw shows how refiners are bracing for an increasing need to process the more difficult crudes.
• Biosurgery firms sew deal. Kinetic Concepts (KCI) will acquire LifeCell (LIFC) for $51/share ($1.7B in cash), an 18% premium over Friday and 26% over its 90-day volume weighted price. The companies said their combination establishes a leading platform in the rapidly-growing biosurgery market. Bank of America (BAC) and JPMorgan (JPM) are underwriting the debt financing. LifeCell's best-selling AlloDerm, which repairs damaged hernia and breast reconstruction tissues, generated $167M in revenue last year.
• Discover devours Diners. Discover Financial Services (DFS) is acquiring Diners Club International from Citigroup (C) for $165M.
• Baidu, Sohu sued by music distributors. Sony BMG (SNE), Bertelsmann, Warner Music (WMG) and Universal are suing Baidu.com (BIDU) and Sohu.com (SOHU) for $9M and $7.5M in a Beijing court for copyright infringement. Potential damage claims could potentially run into the billions, based on the amount of illicit music downloaded in China. The music industry hopes the lawsuit will increase awareness and help introduce change into internet practices in China.
• Coping with lighter leverage. Wall Street firms (GS, MS, LEH and MER) are grappling with how to reduce their leverage in order to reassure spooked investors, yet retain profitability expectations that were largely built on their ability to borrow funds many times their assets. A separate report says Goldman is the lone holdout, refusing to reduce its leverage.

Today's Markets

• Markets were cheery in Asia Monday. Nikkei +1.18% to 13,450. Hang Seng +1.29% to 24,579. Shanghai +4.45% to 3,600. BSE Sensex +2.7% to 15,757.
• In Europe, markets were higher across the board at midday. FTSE +0.62% to 5,984. CAC +0.83% to 4,942. DAX +0.84% to 6,820.
• U.S. equity futures are all higher at 7:10 AM. Dow +0.57% to 12,684. S&P +0.71% to 1,382. Nasdaq +0.59% to 1,884.
• Gold is up 0.88% to $921/ounce. Oil is up 1.04% to $107.32/barrel.

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Comments

[windinmyface2:]

Baidu, Sohu sued by music distributors. Did anyone read the artical about Google supplying free music down loads to China? They say because they can't stop those sneaky little, you know whats from pirating over there, so we will just let them down load all they want for free. Its just another way to get their foot in the door in China, and to try to beat BIDU in China. Here in America, people were being sued for down loading Lime wire music, and are forbidden to do the same on others. I wish people would forgo using Google until they also allow us to do, what they will let others do, just for greed. Also, don't think they will let this happen forever. Once they have a hold on the Chinese market, guess what, they will charge them also.

2008 Apr 07 10:04 AM

[jimocarroll:]

As always, thank you for putting together a quick, cogent and productive read.

2008 Apr 07 11:22 AM

[Rick S.:]

I am surprised that all the investment banks aren't maintaining superstratispheric leverage and not just Goldman, in light of the fact that the Federal Reserve has shown it will bail anybody out that's big enough. Talk about moral hazard.

The new leverage limiting factor, if there is any, might just be the size you can puff up to and stay within the limits of the Fed's ability to bail out rather than its willingness to do so.

2008 Apr 07 02:59 PM