While the deals almost always push up the stock price of the company being acquired, the M&A activity is a welcome development for the investment banking industry, which is still suffering from the hangover of the financial crisis of 2008 and 2008. Investment banks have received nearly $4 billion in revenue from these transactions in 2009, and should this consolidation trend continue, it could be very good news for the entire financial sector.

Networking and security services provider 3Com (COMS) got hit by a shareholder class action suit seeking to block the $2.7 billion merger agreement with HP (HPQ) that was announced last week. The core allegation: 3Com was sold off too early, for too little.

DOW's 10 Year Performance:

The S&P 500 shed 1% Thursday, having reversed modest gains made earlier in the session spurred by Hewlett-Packard’s (HPQ) takeover of 3Com (COMS). The IEA raised its forecasts for 2010 demand, but US crude inventories rose more than expected last week. Southwestern Energy (SWN) and Range Resources (RRC) slid more than 4%, helping lead 39 of 40 oil and gas companies in the Standard & Poor’s 500 Index lower as Crude Oil tumbled. Commodities were generally weaker across the board, even with the Baltic Dry Freight Index having returned to levels last exceeded in late June.

There is a lot of chatter Friday about Bernanke’s speech in New York next Monday for the potential for him to make some Dollar supportive comments rather than the usual lip service a la Geithner with his fingers crossed behind his back. Should he do so in more forceful terms that the platitudes we’ve heard of late then there is an expectation that stocks will sell off due to the high correlation between a weak Dollar (as a low interest rate funding currency) and the rise in risk assets.

• NYSE down 92.31 (1.3%) to 7,063.05.
• DJIA down 93.79 (0.9%) to 10,197.
• S&P 500 down 11.3 (1%) to 1,087.
• Nasdaq down 17.9 (0.8%) to 2,149.

GLOBAL SENTIMENT

Stocks fell despite merger news, a better-than-expected earnings report from Wal-Mart (WMT), and data that showed a decline in weekly jobless claims. Wal-Mart is one of only 5 Dow stocks moving higher after the retailer reported a quarterly profit of 84 cents, which beat Street estimates by 3 cents. On the economic front, the latest weekly jobless claims showed some improvement. According to the Labor Department, filings fell by 12,000 to 502,000 in the week ended November 7. Economists were looking for a smaller 4,000 drop. Meanwhile, the tech sector was in focus on news H-P (HPQ) made a bid for 3Com (COMS) and Advanced Micro (AMD) rallied on news of a long-awaited settlement with Intel (INTC).

However, the tech-heavy NASDAQ gave up its early gains and weakness in the commodities markets sent many metals, mining and energy names lower. Crude oil is down $2.52 to $76.76 on bearish weekly inventory data. Gold lost $8.50 to $1106.10 after the buck bounced a bit higher against the euro.

So how much of a challenge to Cisco is this? A comparison of revenue is revealing. The following table comes from HP's 10-Q from September 2009 and shows the most recent quarter:

Fast forward to yesterday, and COMS now finds itself in the crosshairs of another potential insider trading scandal. Following last night's announcement that Hewlett-Packard (HPQ) would buy COMS for $7.90 per share in cash, many bloggers have been quick to point out the surge in yesterday's option volume. Zero Hedge notes that yesterday's volume in COMS call options was three times the existing open interest, and that $1.5 million was made in profits as a result.

The theme over the past 24 hours has been one of a remarkable harmonious dove commentary from the world’s Central Banks, rallying front ends and thus providing a degree of support to equity markets. European bourses closed with solid gains, while the S&P500 also closed higher, albeit well off the highs for the session. Gold is now worth its weight in gold.

Starting in the US, Dallas Fed President Fisher opined that we could see a pause in the US recovery (or at least several quarters of weak growth) while Richmond Fed President Lacker told his audience that it was too soon to say when the Fed would lift rates (he said it could be 2010, but it could take longer). In Europe the ECB’s Wellink said that the world economy was still fragile, a comment that was seconded by ECB colleague Weber. Weber also said that it was presently too early to reverse the Bank’s expansionary measures although he also warned that the right time for exit must not be missed.

• H-P grabs 3Com, takes on Cisco. Hewlett-Packard (HPQ) agreed to acquire networking-equipment maker 3Com (COMS) for $2.7B, or $7.90/share - a 39% premium to Wednesday's close. With 3Com, H-P - the world's largest PC maker - gains a networking business that competes directly with Cisco's (CSCO) core business of routing and switching, and a strong foothold in China, which accounts for half of 3Com's revenue. Analysts were largely enthusiastic about the deal, saying 3Com was one of the biggest values in the networking space, second only to Cisco in the breadth of its enterprise portfolio. Cisco responded swiftly, saying on its blog that networking acquisitions "only validate the fact that networking is becoming the platform for all forms of communications and (information technology)." H-P also preannounced Q4 EPS of $1.14 vs. consensus of $1.12, and revenue of $30.8B vs. $29.8B. After hours, HPQ was -0.6%, and COMS was +35%.
• UTech buys GE Security for $1.8B. GE (GE) agreed to sell its fire alarm and security systems unit to United Technologies (UTX) for $1.82B in cash, as had been widely speculated. UTX said its customers "will see increased breadth and depth of product offerings" as a result of the deal. The unit includes Edwards Systems Technology, which GE bought for $1.4B from SPX Corp. (SPW) in 2005. The business offers building management systems that help control commercial structures during fires, earthquakes and other emergencies, and would take United "beyond just perimeter and access security," one analyst said.
• Benmosche stays put. AIG (AIG) CEO Robert Benmosche told employees Wednesday in an internal memo he remains "totally committed to leading AIG through its challenges" despite his frustrations with government curbs on compensation at the company. The reassurance came after reports Benmosche might bail after just three months at the helm, saying strict compensation rules made it almost impossible to retain talent. In the memo, he called the pay curbs a "barrier" that "stand in the way of restoring AIG's value" and repaying its debt.
• World banks prop up dollar. Central banks say they've been snapping up dollars this week in an effort to stem its slide and hold down the value of their currencies. While Geithner continues to pay lip service to maintaining a strong dollar, Washington has yet to take any concrete steps to stop the bleeding, which is beneficial to U.S. exports and tourism.
• TARP repayments reduce gov't borrowing. The U.S. will borrow "substantially less" than initially anticipated, with banks already repaying rescue funds and more "significant repayments" ahead, Treasury's Geithner says. Reduced borrowing, a narrowing of the current account deficit, and signs that Americans are saving more all contribute to global confidence that the U.S. can rein in its deficit, he said today in Singapore.
• High oil prices could derail recovery. The IEA revised its 2010 world oil demand forecast slightly higher, but warned that rising crude prices could smother the fragile economic recovery. IEA now expects global oil demand to rise to 86.2M barrels a day, up 140K from October. Rising stock markets, a weak U.S. dollar, and rebounding world economies have driven crude prices up almost 80% this year, despite a persistent overhang in oil inventory which now stands at 60 days of forward cover.
• Foreclosures fall, but for how long? Foreclosures slowed for a third straight month, but remain sharply higher than a year ago. The number of homeowners who received foreclosure notices fell 3% month-on-month to 333K, up 18.9% from the same month in 2008. Rick Sharga of RealtyTrac, which released the report, cautioned the improvement was likely temporary: “It’s good to see that foreclosures have slowed down marginally, but we don’t really think it’s a trend." The firm predicts 3.2-3.4M properties will go into foreclosure in 2009, up from 2.3M in 2008.
• Art auction smokes projections. A very positive art auction at Sotheby's (BID) has some thinking the art-market recession may be on the mend. Sotheby's brought in $134.4M at an auction of post-war and contemporary art Wednesday night in Manhattan, including a smoky sheet of dollar bills by Andy Warhol that went for $43.7M. Total proceeds blew away Sotheby's' internal estimate of $67.9-$97.7M, and also outdid its $125M sale of a year ago. 52 of the 54 works offered found buyers.
• Microsoft strikes back at modders. Microsoft (MSFT) booted as many as 1M players from its Xbox Live gaming service on suspicions they modified their consoles to play illegally downloaded games. The move comes amid this week's release of "Call of Duty: Modern Warfare 2" (ATVI), the most highly-anticipated Xbox game of the year. "All consumers should know that piracy is illegal and that modifying their Xbox 360 console to play pirated discs violates the Xbox Live terms of use, will void their warranty, and result in a ban from Xbox Live," Microsoft said in a statement. It's not clear how Microsoft detected the Xbox rigging.
• Turkeyless Thanksgiving for BofA? Bank of America (BAC) may miss its internal deadline of naming a new CEO by Thanksgiving, due in part to its inability to zero in on a clear frontrunner, and amid worries that the process must be approved by the Fed.
• Mortgage apps rise. Mortgage applications rose 3.2% from a week ago, led by a 11.3% gain in refinancing, which now accounts for 71.5% of all applications, up from 66% last week. MBA said the average 30-year mortgage rate fell to 4.9% from 4.97% in last week's survey. Freddie Mac's weekly survey of mortgage rates comes out at 10:00.

Earnings: Before Open

• AECOM Tech (ACM): FQ4 EPS of $0.48 beats by $0.02. Revenue of $1.63B (-0.2%) in-line. Sees 2010 EPS of $1.90-2.00 vs. $2.03. (PR)
• EnCana (ECA): Q3 EPS of $1.03 misses by $0.14. Revenue of $3.88B (-64.2%) vs. $3.08B. (PR)
• Kohl's (KSS): Q3 EPS of $0.63 beats by $0.02. Revenue of $4.05B (+6.5%) in-line. Sees Q4 EPS of $1.14-1.24 vs. $1.25. (PR)
• Urban Outfitters (URBN): Q3 EPS of $0.36 beats by $0.01. Revenue of $506M (+6%) in-line. Operating margin 19% vs. 17.1% in Q2. (PR)
• Wal-Mart (WMT): Q3 EPS of $0.84 beats by $0.03. Revenue of $98.66B vs. $99.88B. Sees Q4 EPS of $1.08-1.12 vs. $1.12 consensus. "The sales environment continued to be difficult this quarter, but customer traffic is up throughout the company." (PR)

Earnings: Wed. After Close

• Advance Auto Parts (AAP): Q3 EPS of $0.69 beats by $0.03. Revenue of $1.3B (+6%) in-line. Third-quarter same-store sales increased 4.7%. Shares -3.7% AH. (PR)
• Applied Materials (AMAT): FQ4 EPS of $0.13 beats by $0.10. Revenue of $1.5B (-25%) vs. $1.3B. Expects revenue growth of more than 30% in fiscal 2010. Reports "increased net sales and profitability in our semiconductor equipment business, with improved demand and financial performance in all of our segments." Shares +0.7% AH. (PR)
• Computer Sciences (CSC): FQ2 EPS of $1.40 beats by $0.05. Revenue of $4B (-5%) in-line. Shares -2.9% AH. (PR)
• Ctrip.com (CTRP): Q3 EPS of $0.44 (RMB3.03) beats by $0.12. Revenue of $80M (+47%) vs. $72M. Sees Q4 revenue of $100M-104M vs. $75M. Shares +10.5% AH. (PR)
• Green Mountain Coffee Roasters (GMCR): FQ4 EPS of $0.34 beats by $0.01. Revenue of $222M (+65%) vs. $217M. Shares -9.1% AH. (PR)

Today's Markets

Asia markets headed lower Thursday. Europe stocks are flat at midday, and futures are under some selling pressure.

1. Due to egos and compensation, CEOs bias towards creating bigger but not necessarily better companies.
2. Adding revenues without increasing profitability does not improve a company’s strategic position.
3. When you are doing a major acquisition, there are two types of companies available: expensive good companies and lousy cheap ones.

I also point out that 99% of “mergers” are actually acquisitions, with a clear dominant partner. (NB: HP (HPQ)-Compaq).

COMS made the fund I manage and me a 277% gain in 1 year. My average cost is $2.10 a share. My last COMS article was a year ago (3Com Back on Sale).

HP (HPQ) is acquiring network infrastructure manufacturer 3Com (COMS) for $2.7 billion. 3Com provides networking, switching, routing and security components.

Since then, news from one of the most widely read publications in the world has taken on a life of it’s own as the industry leveraged the full capabilities of social networking to speculate on the endless possibilities.

3Com Corp. (COMS) is in the news for winning new business deals across geographies. The first one of them is the “Brazil's Airport Administration” deal, where 3Com and its H3C enterprise networking solutions will provide the network infrastructure for the network upgrade project of 11 main airports in Brazil. Under this project, 3Com will be upgrading the wired and wireless network of the Airport, in order to support the increasing traffic of passengers and employees.

This upgrade of Brazil Airports is expected to improve the performance on data, voice and video applications used for flight information systems, air traffic control, surveillance and IP telephony systems substantially, while reducing the total networking cost considerably.

• House dissects the bailout. The government's guarantee of $300B in corporate bonds saved a handful of giant companies up to $25B in borrowing costs, and put taxpayers at great risk, the Congressional panel charged with overseeing TARP says. In one of the first systematic efforts to analyze TARP, the panel, headed by Elizabeth Warren, found seven companies (GE, GS, C, BAC, JPM, MS, WFC) received 82% of the benefits of lower borrowing costs. The good news for taxpayers is that the bet has worked out: feds so far have collected a total of $17B in fees for all their emergency guarantees, while losing a paltry $2M. (read the COP's latest TARP report)
Attention Wall Street Breakfast readers: We're looking for a freelance financial journalist to produce WSB and help with our Market Currents blog in Rachael's absence. More details here.
• Insider probe grows tentacles. Authorities filed criminal charges against 14 people, including lawyers and an ex-Moody's (MCO) analyst, widening their crackdown on insider trading. At the center of yesterday's arrests, Zvi Goffer, a trader nicknamed "Octopussy" because his tentacles gripped so many confidential sources. Unlike the Galleon scheme, which was built on corporate insiders passing on early earnings estimates to fund operators, the newer ploy involves investors obtaining advanced information about pending deals - including Bain Capital's 2007 attempt to buy 3Com (COMS) - from people involved in them. Dow Jones has details of the 14 people arrested so far.
• Fannie wants another $15B. Fannie Mae (FNM) plans to tap emergency funds for a fourth time this year, bringing its draws of taxpayer money to $60B. According to an SEC filing late yesterday, Fannie Mae will seek $15B in Treasury financing after posting an $18.9B Q3 net loss. Analysts say the government-sponsored lender will likely tap its entire $200B lifeline, and may still need more.
• FHFA approves tax credit sale. Also buried in Fannie Mae's (FNM) SEC filing yesterday was that it agreed to sell $2.6B in unused tax credits to unnamed buyers, and received approval for the deal from its regulator, the FHFA. But the Treasury is thought to be leery of signing off on the sale, reportedly to Goldman Sachs (GS) and Berkshire Hathaway (BRK.A). In a statement (.pdf) Thursday, the FHFA said the sale "is consistent with FHFA's ongoing efforts to conserve Enterprise assets and with the Enterprise's multifamily housing mission."
• Bursting the next bubble. U.K. Chancellor of the Exchequer Alistair Darling set the agenda ahead of the G20 meetings in St. Andrews today, saying leaders needed to develop a technique to deflate asset bubbles before they explode: "We have got to make sure we don't get ourselves into a situation where some pressure starts to rise and then it becomes bigger and bigger and when the whole thing comes to an end it has catastrophic consequences," he said in an interview. Russian Finance Minister Alexei Kudrin noted Darling's concerns weren't out in the ether: "We need to be very careful with this huge amount of injected liquidity." A recent survey of investment managers by Goldman Sachs found 75% think low rates are already triggering "too-strong" climbs in assets.
• OECD registers global uptick. Signs of improvement have emerged in most major economies, with a marked recovery in the U.S. and Japan, and strong indications of growth in several European economies and China, the OECD said Friday. However the OECD warned that signals of expansion should be interpreted with caution, because it's still unclear how much of the measured increase of economic activity is due to a true improvement, and how much is due to a drop in long-term expectations, against which current activity is measured.
• Moynihan to address Congress on Merrill merger. Sources say Brian Moynihan, head of Bank of America's (BAC) consumer banking unit and a contender to succeed CEO Ken Lewis, has agreed to testify before Congress about his role in the Merrill Lynch takeover. He’ll be joined by Timothy Mayopoulos, whom Moynihan replaced as general counsel in December as the Merrill deal almost unraveled. Mayopoulos, who is now is general counsel at Fannie Mae (see above), has said he was given no reason for his dismissal. Moynihan's testimony could center on why Mayopoulos was given the boot, and what legal advice Moynihan gave to Ken Lewis prior to his meeting with the board.
• Retail sales climb for second month. U.S. retailers had their best month in more than a year, with major chains reporting a combined 1.8% year-on-year gain. In a promising note, upscale chains Nordstrom (JWN) and Saks (SKS) beat expectations, the first signs of recovery in among high-end shoppers. The big question is whether shoppers - many who are in the throes of joblessness - will turn out in force for the holidays.
• New rule cripples injured banks. A new rule that will cap the interest rates paid to depositors by banks deemed "not well capitalized" will likely accelerate the rate of bank failures. The cap - 0.75% above the U.S. average - is meant to prevent weaker banks from driving up costs for the rest of the industry.

Earnings: Fri. Before Open

• AIG (AIG): Q3 EPS of $2.85 beats by $0.87. Total equity $76.5B, up $14.4B from Q2. "Our results reflect continued stabilization in performance and market trends." Shares -4.8% premarket. (PR)
• Fortress Investment Group LLC (FIG): Q3 EPS of $0.11 beats by $0.02. Revenue of $144M (-22.4%) vs. $123M. (PR)
• Mirant (MIR): Q3 EPS of $0.38 misses by $0.78. Revenue of $454M (-79.1%) vs. $734M. (PR)
• Scripps Networks (SNI): Q3 EPS of $0.39 beats by $0.03. Revenue of $364.5M (+0.1%) in line. (PR)
• Suncor Energy (SU): Q3 EPS of C$0.23 misses by C$0.06. (PR)

Earnings: Thur. After Close

• Activision Blizzard (ATVI): Q3 EPS of $0.04 in-line. Revenue of $755M vs. $724M. Sees Q4 EPS of $0.43 vs. $0.44, on revenues of $2.22B vs. $2.3B. Sees full-year EPS of $0.63 vs. $0.64. Shares +2.8% AH. (PR)
• Atmel (ATML): Q3 EPS of -$0.01 beats by $0.01. Revenue of $318M (-21%) vs. $304M. Sees Q4 revenue up 3-7%. Shares -0.3% AH. (PR)
• CBS (CBS): Q3 EPS of $0.39 beats by $0.17. Revenue of $3.35B (flat) vs. $3.19B. Operating income before depreciation and amortization of $566M compared with year-ago loss of $13.48B. Sees full-year OIBDA of $1.725B-1.925B. Shares -1.4% AH. (PR)
• Crocs (CROX): Q3 EPS of $0.01 beats by $0.09. Revenue of $177M (+2%) vs. $156M. Shares -6.3% AH. (PR)
• EOG Resources (EOG): Q3 EPS of $0.81 beats by $0.15. Revenue of $1B (-69%) vs. $1.1B. Raises full-year production growth targets to 6% from 5.5%. Shares +0.1% AH. (PR)
• Hansen Natural (HANS): Q3 EPS of $0.60 misses by $0.03. Revenue of $308M (+8%) vs. $309M. Shares -8.2% AH. (PR)
• International Game Technology (IGT): FQ4 EPS of -$0.07 may not be comparable to estimate of $0.17. Revenue of $231M (-23%) vs. $498M. Unfavorable items affecting comparability reduce income by $0.30/share. Shares -0.3% AH. (PR)
• Intrepid Potash (IPI): Q3 EPS of $0.13 misses by $0.01. Revenue of $66M (-55%) vs. $64M. Shares -1.3% AH. (PR)
• JDS Uniphase (JDSU): FQ1 EPS of $0.04 beats by $0.02. Revenue of $298M (-21%) vs. $292M. Sees Q2 sales of $320M-345M vs. $306M. Shares +4.9% AH. (PR)
• Leap Wireless International (LEAP): Q3 EPS of -$0.85 misses by $0.33. Revenue of $600M (+21%) vs. $620M. Shares +0.5% AH. (PR)
• Nvidia (NVDA): Q3 EPS of $0.19 beats by $0.09. Revenue of $903M (+1%) vs. $838M. Sees Q4 sales up 2%. Shares +5.9% AH. (PR)
• Public Storage (PSA): Q3 FFO of $1.44 beats by $0.19. Revenue of $352M (-5%) vs. $405M. Shares -0.9% AH.(PR)
• SandRidge Energy (SD): Q3 EPS of $0.16 in-line. Operating cash flow of $85.6M (-38%). Shares -5.8% AH. (PR)
• Skyworks Solutions (SWKS): FQ4 EPS of $0.24 beats by $0.02. Revenue of $228M (-2%) vs. $222M. Shares +3.5% AH. (PR)
• Sotheby's (BID): Q3 EPS of -$0.89 misses by $0.58. Revenue of $45M (-41%) vs. $60M. Shares -3.8% AH. (PR)
• Starbucks (SBUX): FQ4 EPS of $0.24 beats by $0.03. Revenue of $2.4B (-4%) in-line. Expects full-year EPS growth of 15-20% from $0.80, and sees little net impact from commodities, with favorable coffee prices offsetting higher dairy prices. Expected capex of $500M-$550M. Shares +3.9% AH. (PR)
• Sunoco (SUN): Q3 EPS of -$0.29 misses by $0.19. Revenue of $8.7B (-43%) vs. $7.8B. Shares -0.6% AH. (PR)
• Tenaris (TS): Q3 EPS of $0.19 misses by $0.18. Revenue of $1.8B (-42%) vs. $1.9B. Shares -1.1% AH. (PR)
• VeriSign (VRSN): Q3 EPS of $0.33 beats by $0.01. Revenue of $258M (+5%) vs. $259M. Shares -4.8% AH. (PR)

Today's Markets

Asia markets headed higher Friday. Europe stocks are flat at midday, and futures are flat heading into the nonfarm payroll data on deck at 8:30.

Bullish Calls:

Freeport McMoRan (FCX): "When we do minerals, we're going to recommend Freeport-McMoRan."