Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday December 8.

Disney (DIS), Marvel Entertainment (MVL)

It should come as little surprise that many stocks that make it into the Magic Formula Investing [MFI] screen are attractive acquisition targets. Many, if not most, are good businesses selling at cheap prices, exactly what the screen is designed to find. When you have quality selling cheap, not only individual investors but business managers, both public and private, take notice as well. Particularly if the screened business is one that is a current or potential competitor, or a business that nicely compliments current operations, it makes sense to acquire it at a favorable price. When this happens, investors reap big rewards in short periods of time.

Of course, there is the other side of the coin too - declining businesses or heavy cyclicals can find their way onto the screen as well, usually well into the downside. With these firms we need to be very careful - too much debt can land them in bankruptcy court. Unfortunately, MFI has turned up a few of these as well. Let's take a look at some individual "buyouts and bankruptcies" on the MFI screen in 2009.

Marvel Entertainment Inc. (MVL), a character-based entertainment company engaged in the licensing, publishing and film production businesses, recently reported third-quarter 2009 results.

The quarterly earnings of 26 cents a share bettered the Zacks Consensus Estimate of 24 cents but fell sharply by 59.4% from 64 cents delivered in the prior-year quarter. Total revenue also tumbled 42.1% year-on-year to $105.7 million. The fall in both the top and bottom lines was due to lower licensing and film production revenues.

• Buffett buys Burlington for a cool $44B. Berkshire Hathaway (BRK.A) announced it will acquire the 77.4% of Burlington Northern (BNI) it doesn't already own for $100/share in cash and stock - a 30% premium to Monday's close of $76.07. The transaction is worth $44B, including $10B in outstanding debt. Here's what Warren Buffett had to say: "Our country's future prosperity depends on its having an efficient and well-maintained rail system. Conversely, America must grow and prosper for railroads to do well. Berkshire's $34B investment in BNI is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry. Most important of all, however, it's an all-in wager on the economic future of the U.S. I love these bets."
• Stocks slide; futures fall. Global stock markets painted a gloomy picture Tuesday, with bourses in Asia and Europe taking 2%-plus losses as risk appetite took a breather and investors clamored for safe-haven assets, sending the dollar and U.S. Treasurys climbing and futures tumbling (see data below in Today's Markets). "The basis for the correction seems to rest on three legs," Merrill economist Bill O'Neill said. "Worries over prospects for holders of equity in banks; concern that interest-rate hikes are imminent; and paradoxically, that recovery in 2010 will be crippled by a U.S. consumer unwilling or unable to open his or her wallet." Others took the recent downturn as a sign equity prices had gotten ahead of real improvements in the economy.
• Stanley, B&D craft $8.4B merger. Stanley Works (SWK) agreed to buy rival Black & Decker (BDK) for $4.5B in stock, the culmination of a courtship that spanned 27 years and three other attempts. The bid values B&D at about $57.57/share, a 22% premium to Monday's close. "The more we talked, the more we felt like these were two very complementary and unique companies," BDK CEO Nolan Archibald said, adding both CEOs were "totally swayed" by potential synergies of $350M. Stanley shareholders will own about 50.5% of the combined company; B&D shareholders will get 49.5%.
• Lloyds, RBS diverge on aid. Lloyds (LYG) and Royal Bank of Scotland (RBS) unveiled agreements with the U.K. Treasury over their participation in its program to insure toxic assets, and detailed the divestments they will need to make to satisfy EU regulators. Lloyds opted out of the expensive U.K. asset-protection scheme, saying it would raise £21B, including a £13.5B rights issue; the government will maintain its 43% stake in the bank. The move subjects Lloyds to more modest EU demands: Lloyds said it will dispose of "a retail banking business" with a 4.6% market share and about 19% of its mortgage portfolio; sell £180B in noncore assets; and limit acquisitions over the next 3-4 years. RBS will enter the asset-protection scheme to insure £282B of its illiquid loans, with the first £60B in losses borne by RBS. The government will inject another £25.5B into RBS, raising its stake to 84.4%. RBS will sell its RBS retail network in England and Wales and NatWest branches in Scotland; RBS insurance; Global Merchant Services; and its stake in RBS Sempra Commodities. LYG +2.8% premarket. RBS -8%.
• Outflows continue to plague UBS. Shares of UBS (UBS) are -7% premarket after the Swiss bank said it doesn't expect client inflows to recover anytime soon due to its mangled reputation as a result of its tax dispute with the IRS. UBS posted a fourth straight quarterly loss of 564M francs (-$552M), worse than the 207M loss expected by the Street. Total client outflows rose to 36.6B francs ($35.8B), led by a doubling of outflows at its Americas wealth-management division. On a media call, CFO John Cryan cited UBS's "residual reputational issue" along with "some morale issues among advisers" that it needs to face, and said UBS expects "modest outflows from Swiss clients until we return to profit."
• EU sees gradual recovery. The EU lifted its 2010-2011 growth forecast to 0.75% and 1.5% respectively, but cautioned its outlook is "highly uncertain" given that "significant fiscal and monetary policy measures" are supporting the recovery. Predicting government deficits will swell to 7.5% of GDP, the Commission said a "protracted period of fiscal consolidation will have to follow at some stage to put public debt back on a sustainable footing."
• RBA hikes rates again. Australia's central bank, the first G-20 member to break from super-loose monetary policy, raised interest rates for the second time in two months - to 3.5% - amid a rapidly improving economic outlook. The bank hinted it may not boost rates again in December, saying the rises in October and November would work to temper inflation and ensure a sustainable upswing in the economy, which sent the Aussie dollar (ETF: EWA) lower. The central bank has never hiked rates three months in a row.
• CRE breaks death spiral. Prices of investment-grade commercial real estate rose 4.4% in Q3, according to the MIT CRE's transaction-based index, possibly signaling an end to the sector's year-long downward spiral. "One quarter does not a trend make and we are still well below normal trading volume," David Geltner, director of research at MIT/CRE, said. "Nevertheless, this is the strongest sign of a bottom that we've had in two years." The positive news comes in stark contrast to gloomy remarks from the Fed's John Greenlee, who said Monday (.pdf) that regional banks building up "unprecedented concentrations of CRE loans" will suffer the impact of worsening conditions in real estate markets, and warned, "Poor loan quality, subpar earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions."
• Hat trick of upside surprises. U.S. manufacturing activity hit its highest level in 3.5 years and pending home sales contracts unexpectedly surged, reducing fears the economy's budding recovery would falter. ISM's manufacturing index climbed 3.1 points to 55.7 (vs. 53.3 consensus) as companies began rebuilding inventories. "Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode," ISM said. Pending home sales rose for the eighth straight month, the longest streak on record, with NRA's index gaining 6.1% (vs. +0.7% consensus) to 110.1. The index is now at its highest since Dec. 2006. And construction spending (.pdf) rose 0.8% (vs. -0.3% consensus) to an annual $940B, though the gain was offset by a large downward revision to August's number.
• Pensions bulge while market caps shrink. Pensions rose an average of 19% for top executives in 2008, even as their companies' stock prices fell by 37% amid a global downturn, according to an analysis of SEC filings. The growth was largely due to arcane pension formulas that have received little scrutiny.

Earnings: Tue. Before Open

• Alpha Natural Resources (ANR): Q3 EPS of $0.47 beats by $0.09. Revenue of $729M (+5.9%) in-line. Shares -0.9% premarket. (PR)
• American Tower (AMT): Q3 EPS of $0.17 in-line. Revenue of $444M (+8.5%) vs. $430M. (PR)
• AmerisourceBergen (ABC): FQ4 EPS of $0.44 beats by $0.04. Revenue of $18.27B (+9.7%) vs. $18.06B. Shares +5.5% premarket. (PR)
• Archer Daniels Midland (ADM): FQ1 EPS of $0.77 beats by $0.20. Revenue of $14.9B (-29.5%) vs. $17.9B. Shares +0.1% premarket. (PR)
• Cameron International (CAM): Q3 EPS of $0.58 beats by $0.05. Revenue of $1.23B (-18.1%) in-line. Shares -0.3% premarket. (PR)
• Cognizant Technology Solutions (CTSH): Q3 EPS of $0.45 beats by $0.04. Revenue of $853M (+16.2%) vs. $806M. Sees Q4 EPS of $0.45 vs. $0.42 and revenue of at least $880M vs. $830M. Shares +6.9% premarket. (PR)
• Emerson Electric Company (EMR): FQ4 EPS of $0.67 beats by $0.07. Revenue of $5.32B (-20.5%) in-line. Sees 2010 revenue of $19.45-19.87B vs. $20.21B. "We are well positioned for economic recovery, but the shape and speed of the recovery remains unknown and we expect weakness to continue in the near-term." Shares -1% premarket. (PR)
• Expeditors International of Washington (EXPD): Q3 EPS of $0.27 misses by $0.02. Revenue of $1.04B (-33.7%) in-line. "There certainly were significant challenges during the latter part of this quarter as both air and ocean carriers imposed capacity reductions in order to implement very aggressive price increases. While we wouldn't call it 'The Perfect Freight Storm,' the rapidity of these carrier moves created a pricing environment that resulted in our experiencing single digit airfreight yields out of Asia during the first several weeks of September. Ocean yields were also significantly impacted." (PR)
• Frontier Communications (FTR): Q3 EPS of $0.17 beats by $0.02. Revenue of $527B (-5.6%) in-line. Shares -0.3% premarket. (PR)
• Gaylord Entertainment (GET): Q3 EPS of -$0.32 misses by $0.21. Revenue of $199M (-12.2%) vs. $202M. (PR)
• IntercontinentalExchange (ICE): Q3 EPS of $1.18 beats by $0.03. Revenue of $256M (+27.3%) in-line. Shares +0.2% premarket. (PR)
• Marathon Oil (MRO): Q3 EPS of $0.61 beats by $0.04. Revenue of $14.48B (-37.9%) vs. $13.7B. Shares +1.3% premarket. (PR)
• Marvel Entertainment (MVL): Q3 EPS of $0.26 beats by $0.02. Revenue of $106M (-42.1%) vs. $92.5M. Disney (DIS) is due to acquire Marvel by year-end. (PR)
• MasterCard (MA): Q3 EPS of $3.48 beats by $0.54. Revenue of $1.36B (+1.9%) in-line. Gross dollar volume +0.3%. Purchase volume +0.4%. Shares +3.3% premarket. (PR)
• Medco Health Solutions (MHS): Q3 EPS of $0.75 beats by $0.03. Revenue of $14.79B (+17.8%) in-line. Shares +2.5% premarket. (PR)
• Northgate Minerals (NXG): Q3 EPS of $0.03 misses by $0.01. Revenue of $120M. (PR)
• Oshkosh Truck (OSK): FQ4 EPS of $0.27 beats by $0.11. Revenue of $1.49B (-19.8%) vs. $1.4B. "We expect to be solidly profitable in fiscal 2010, led by significant revenue growth in our defense business, which should more than offset anticipated low demand at our construction-related businesses." Shares +3.8% premarket. (PR)
• Petroquest Energy (PQ): Q3 EPS of $0.07 misses by $0.06. Revenue of $50.3M (-35.8%) vs. $52.2M. Shares -6.5% premarket. (PR)
• Polo Ralph Lauren (RL): FQ2 EPS of $1.75 beats by $0.44. Revenue of $1.37B (-3.8%) vs. $1.31B. "We are raising our sales expectations for the remainder of the year, but we continue to be cautious with our outlook and are planning accordingly." Shares +2.7% premarket. (PR)
• Rockwell Collins (COL): FQ4 EPS of $0.84 misses by $0.03. Revenue of $1.19B (-7%) in-line. Shares -2.7% premarket. (PR)
• Royal Caribbean Cruises (RCL): Q3 EPS of $1.07 beats by $0.07. Revenue of $1.8B (-14.5%) in-line. Sees "a slight loss" in Q4 vs. consensus of +$0.04. "Like many other travel companies, we saw more strength than we expected during our peak season but have been experiencing more pricing pressure on some of our traditionally softer fall season sailings." Shares -3.2% premarket. (PR)
• St. Joe Company (JOE): Q3 EPS of -$0.08 misses by $0.02. Revenue of $43.2M (+30.1%) vs. $28.9M. (PR)
• Teva Pharmaceutical Industries (TEVA): Q3 EPS of $0.89 beats by $0.01. Revenue of $3.55B (-7.6%) vs. $3.63B. Shares -2% premarket. (PR)
• Viacom (VIA): Q3 EPS of $0.69 beats by $0.12. Revenue of $3.32B (-2.7%) in-line. Shares +0.7% premarket. (PR)
• Vornado (VNO): Q3 FFO of $1.25 beats by $0.08. Revenue of $671M (-0.7%) vs. $637M. Shares -0.5% premarket. (PR)

Earnings: Mon. After Close

• Anadarko (APC): Q3 EPS ex-items of $0.40 may not compare to estimate of -$0.33. Gains that may affect comparability, including reversed accrual and unrealized derivatives loss, of $0.51/share. Revenue of $2.7B (-55%) vs. $2B. Shares +0.7% AH. (PR)
• Avis Budget Group (CAR): Q3 EPS of $0.54 misses by $0.01. Revenue of $1.5B (-14%) vs. $1.6B. Shares +6.5% AH. (PR)
• Axis Capital (AXS): Q3 EPS of $1.05 beats by $0.33. Revenue of $452M (-29%) vs. $581M. (PR)
• Chesapeake Energy (CHK): Q3 EPS of $0.70 beats by $0.05. Revenue of $1.8B (-76%) vs. $2B. Shares -1.1% AH. (PR)
• Forest Oil (FST): Q3 EPS of $0.48 misses by $0.04. Revenue of $177M (-50%) vs. $252M. Shares -1.8% AH. (PR)
• Hecla Mining (HL): Q3 EPS of $0.09 beats by $0.09. Revenue of $95.2M (+39%) vs. $68.7M. Shares +2.4% premarket. (PR)
• Kinross Gold (KGC): Q3 EPS of $0.00 misses by $0.12. Revenue of $582M (+16%) vs. $578M. Shares +0.4% AH. (PR)
• MannKind (MNKD): Q3 EPS of -$0.42 beats by $0.06, on no revenues. "While we continue to be fully engaged in the task of navigating our NDA through the FDA review process, we are continuing to run additional studies of AFRESA." Shares +4.5% AH. (PR)
• Republic Services (RSG): Q3 EPS of $0.32 misses by $0.04. Revenue of $2.07B (+149%) in-line. Sees full-year EPS of $1.46-1.48 vs. $1.46. Shares -0.2% AH. (PR)
• Principal Financial Group (PFG): Q3 EPS of $0.74 beats by $0.09. Revenue of $2.3B (-9%) vs. $2.5B. Shares +2.4% AH. (PR)
• St. Mary Land (SM): Q3 EPS of $0.23 beats by $0.03. Revenue of $186M (-43%) vs. $187M. (PR)

Today's Markets

China was the lone gainer on an otherwise dismal Tuesday in Asia. Europe shares are getting pummeled. Stock futures are under severe pressure. Treasurys and the dollar are up strongly.

Yesterday, we looked at the best performing S&P 500 stocks since the index's all-time closing high on 10/9/07. This morning we highlight the 25 best performing stocks in the S&P 400 (mid cap) and S&P 600 (small cap) indices. As we saw yesterday with the S&P 500, sectors dominating both lists come from the Consumer Discretionary, Health Care, and Technology sectors. While the presence of tech stocks on these tables is not surprising, given the weak consumer and prospects for nationalized health care, it is surprising to see pockets of strength in the Consumer Discretionary and Health Care sectors.

Merger and acquisition rumors have reemerged as drivers of media stocks after a mutli-year absence. The latest rumor was posted by The Wall Street Journal in a Heard on the Street column speculating about a possible Verizon Communications Inc. (VZ) takeover of DIRECTV Group Inc. (DTV). The speculation emanated from Verizon CEO Ivan Seidenberg discussing TV as the "core product" for the company's wireless network.

Given that FiOS TV, despite having more than 2 million customers, lags far behind the major cable and satellite distributors, an acquisition of DIRECTV is a logical way to quickly expand Verizon's TV business. Of course, DIRECTV would do virtually nothing to directly help the company's fixed-line phone business, which is rapidly losing residential phone customers to cable companies and wireless substitution.

Last week I discussed winners and losers in M&A deals (see Acquisitions: A Great Shareholder Ripoff?). I lamented what I see as a transaction that too often rewards interested parties, top executives, and shareholders of the target firm at the expense of acquiring firm shareholders. I mentioned, in particular, how top executives on the sell-side stand to benefit from a takeover of their firm – e.g., via handsome golden parachutes and the immediate vesting of generous option packages.

I was therefore interested to stumble across a recent academic study (mentioned on CNBC.com) that details one interesting way top executives from target firms may be appropriating private rents at the expense not only of acquiring firm shareholders, but also at the expense of their own shareholders (see Should CEO Buyout Options be a Securities Violation?).

Walt Disney (DIS) CEO Bob Iger is likely to couple the appointment of a new studio chief with new initiatives and changes aimed at reinventing the film business for the digital age.

The recent, abrupt departure of veteran studio chief Dick Cook frees Iger to revamp the studio process and structure in response to the intensifying impact of the digital tsunami and the recession on Disney's free-falling filmed entertainment revenues and earnings. The studio, which has contributed as much as 15% of Disney's total operating income, has posted its first quarterly losses in about five years.

The cross-company leveraging of Disney's evergreen brand and character franchises, a hallmark of Iger's four-year tenure, has been a vulnerable defense to rapidly changing consumer behavior. Iger is likely to embrace some dramatic new approaches to film distribution, marketing, merchandising and financing.

• Dell buys Perot for $3.9B. Dell (DELL) said early Monday it will acquire Perot Systems (PER) for $3.9B, or $30/share, creating a "comprehensive, customer-focused IT-solutions company." Perot will become Dell's services unit, to be headed by Perot CEO Peter Altabef; Dell directors will 'consider' chairman Ross Perot Jr. for appointment to its board. Over the past year, the two have produced a combined $16B in enterprise-hardware and IT-services revenue, with half of that coming from enhanced services and support. Shares of Perot closed at $17.91 on Friday.
• Building a more robust global economy. Ahead of this week's Pittsburgh summit, G-20 leaders are scrambling to finalize a framework that will promote stable global growth in part by correcting imbalances in the U.S. and China. The U.S.-led proposal, known as the Framework for Sustainable and Balanced Growth, involves broad changes to economic policies in the U.S., Asia, and Europe, including the U.S. saving more and reducing its deficit, and China relying less on exports. Potential sticking points include China's reluctance to participate, how to enforce any commitments, and a divergence of opinions on how to estimate future world growth.
• BofA forced to spill the beans. A House panel has told Bank of America (BAC) it cannot use attorney-client privilege to keep details of its purchase of Merrill Lynch out of Congress. Panel chairman Edolphus Towns wants Bank of America to reveal information it's kept secret for months, which could impact a range of ongoing probes into the merger, including one by the SEC, another by NY AG Andrew Cuomo and a third by the DoJ. Towns has given BofA until noon today to provide answers and documentation.
• Fed rejects public review. Sources say the Fed has rejected a request by Treasury Secretary Tim Geithner for a public review of its structure and governance. Fed officials say the review - which would have examined the Fed's ability to accomplish its existing and proposed functions, and the role of regional Fed banks - could have threatened its independence.
• FCC to push for open internet. The FCC will today recommend broad new rules that aim to force internet carriers to treat all traffic equally. Currently, some providers block and/or slow the transfer of large files such as videos and music, which they say hogs bandwidth. Sources say FCC chief Julius Genachowski will also push to expand net equality to wireless internet access, a concept fiercely opposed by wireless carriers like AT&T (T). If implemented, net neutrality could drastically impact how ISPs and wireless carriers charge for access, and could encourage internet companies to launch new data-intensive services.
• RBS weighs huge share sale. Royal Bank of Scotland (RBS) is in talks with shareholders to gauge the appetite for a £5B ($8.1B) share issue in an attempt to stop the British government's stake in the bank from creeping higher. The U.K.'s stake in RBS is set to reach more than 80% under the terms of its toxic asset insurance program. Last June, RBS raised £12.3B in a disastrous takeover of ABN Amro.
• Ka-boom! Walt Disney's (DIS) $4B acquisition of Marvel Entertainment (MVL) hit a snag Sunday after heirs to revered comic book artist Jack Kirby, creator of many of Marvel's mainstays, filed claims challenging Marvel's long-term rights to some of its superheros. In a statement, Disney said the claims are an attempt to terminate Marvel's rights 7-10 years from now, and "were fully considered in the acquisition."
• Santander to raise $7.35B in Brazilian IPO. Santander (STD) plans to raise almost €5B ($7.35B) through the previously announced IPO of 16% of its Brazilian unit. The target is well above the €2.5B analysts expected. The bulk of the proceeds will be spent opening another 600 branches in Brazil.
• Heading off say on pay. A group of companies including AT&T (T), Cisco (CSCO), H-P (HPQ) and Tyco (TYC) will announce today a joint effort to voluntarily change their pay practices, a move aimed at heading off potentially more onerous restrictions out of Washington. The group, led by the Conference Board, will endorse principles that tie incentives to long-term success rather than short-term gains, and advocates doing away with 'overly generous' golden parachutes, but stops short of signing off on 'say on pay' legislation that would give shareholders a vote on executive pay.
• The return of risk appetite. Global and emerging-markets bond funds, and global stock funds and sector funds, saw the highest inflows this year in the latest week, while money-market funds had their second-biggest weekly outflows. Risk appetite is clearly on the rise, although the move remains cautious, with bond funds growing at a faster clip than stock funds.
• One more chance. The IRS will announce today it's extending its amnesty program, giving wealthy Americans with secret offshore accounts another 22 days, until Oct. 15, to come forward. The program, which began in March as a way of luring UBS (UBS) clients of out of the woodwork, has attracted 3,000 taxpayers so far, compared with just 80 last year.

Earnings: Before Open

• Lennar (LEN): Q3 EPS of -$0.97, including $0.42 charge for valuation adjustments and writeoffs and another $0.34/share charge, vs. consensus of -$0.46. Revenue of $721M (-34.9%) vs. $774M. New home deliveries decreased to 2,660 from 3,694 last year. Backlog grew 19% from Q2 to $647M. (PR)

Today's Markets

Asia markets, only partially open, were mixed overnight, but Europe has turned lower, as have futures.

Media stocks continue to be market leaders in the latest phase of the stock market rally. The market rally is based on improved sentiment and data toward a global economic recovery. Most revenue drivers for media companies are highly sensitive to economic growth so it is not surprising that media stocks are among the sectors leading the rally. However, I think another is at work. After a multi-year lull, mergers and acquisitions have returned to the forefront of media company strategic planning.

Until this decade, media companies were very acquisitive providing strong support for media stock prices. The AOL-Time Warner (TWX) merger represented the peak and quickly went wrong putting an end to media M&A except for divestitures. The recession, the collapse of credit markets in 2008, and accelerating secular challenges completely took takeover activity off the table. Now it appears that activity is picking up. In the past, media properties always were sold at a premium to their public market values because they were trophies and often produced good cash flow. Renewed acquisition activity now supports higher valuations for media properties which still trade at a discount to private market value.

This bull market is getting, like Rodney Dangerfield, no respect. Expect the underinvested to capitulate (and buy stocks) by the end of the year.

- Steve Leuthold, Chief Investment Officer, The Leuthold Group, quoted in “Time To Reassess If Stocks Can Gain More”, E.S. Browning, The Wall Street Journal, September 8, C1

September 8, 2009

Prediction is very difficult, especially about the future.—Niels Bohr, Danish Physicist

Weekly percentage performance for the major indices based on last Friday’s official settlement...

It's safe to say when Walt Disney Co. (DIS) announced its purchase of Marvel Entertainment Inc. (MVL) and its 5,000-strong character stable for $50 a share earlier this week it was going after Captain America of the Avengers and not, say, Captain Britain of Team Excalibur.

Now, before all the Captain Britain fans get up in arms (you know who you are) the fact that Marvel's top brands -- Spider-Man and the X-Men -- are already spoken for is just one of several reasons why, for Citi analyst Jason Bazinet, the deal will be a bad one for the House of Mouse.

As I mentioned on Monday, Disney's (DIS) acquisition of Marvel Entertainment (MVL) is a 'money' deal for both companies - in my opinion, and while shares of MVL traded up to nearly forty dollars, DIS could still be had in the mid $20s, and I love the future prospects of Disney right now.

The 5,000+ 'Marvel Universe' of super heroes and villains added to Disney's existing reach and character base gives the company the market in everything kids - Princesses for the girls and Super Heroes for the boys.

In a blockbuster deal, Disney (DIS) announced that they will acquire Marvel Entertainment (MVL) for cash and stock equal to about $50 per share. Marvel began as a simple comic book company in the 1930’s, and is now a $4 billion dollar business with some of the most well known characters in the world. Through the years, Marvel has developed its characters into brands in and of themselves, and they have more than 5,000 characters in their stable. Recently, most of Marvel’s revenue has come in the form of licensing out their characters for films and video games, toys and television shows.

The success of Marvel’s characters is no surprise to cinephiles as franchises for Spider-Man, Iron Man, and X-Men have been among the highest grossing blockbusters of the past few years. Since 2002, movies based on Marvel characters have grossed more than $4.8 billion at the box-office. Of course, there have been even greater revenues from DVD sales, video games, etc. Consumers love these action packed movies, and there is a seemingly limitless appetite for sequels as the latest installments of Spider-Man and X-Men have been the strongest performers yet.

• Skype to get new owner. eBay (EBAY) is expected to announce this morning that it has reached a deal to sell its Skype unit to a group of private investors. The investment group likely includes new venture capital firm Andreessen Horowitz, as well as early Skype investor Index Ventures and private-equity firm Silver Lake Partners. The price of the deal is still unknown, but eBay has said previously that it wants around $2B for Skype. Shares +2% premarket (7:00 ET).
• BoA ready to repay? Bank of America (BAC) is reportedly offering to repay part of its bailout money, and the U.S. is pressuring the bank to pay at least $500M to cancel a potential loss-share deal with the government. Sources said both sets of discussions relate to extra aid Bank of America received to complete its acquisition of Merrill Lynch. If Bank of America repays the additional $20B it was given in January, it will no longer be considered an 'exceptional' aid recipient and therefore won't be subject to the intense scrutiny of Congress and pay czar Kenneth Feinberg. Shares -2.4% premarket (7:00 ET).
• Disney's marvelous acquisition. Disney (DIS) agreed to acquire Marvel Entertainment (MVL) in a stock-cash transaction worth around $4B, a 29% premium for Marvel shareholders. Disney will begin to feature Marvel's portfolio of over 5,000 characters in Disney movies, theme park rides, TV shows and merchandise, a move which may help Disney better target the demographic of boys from their preteen years into young adulthood. S&P warned it may downgrade Disney because the relatively expensive acquisition, combined with stock buyback plans and the potential for continued recession-related declines, could lead to "debt leverage remaining above our threshold for an extended period." The deal is a setback for Paramount (VIA), which will be able to complete but not extend a recent distribution deal with Marvel, and for Electronic Arts (ERTS), which some analysts had thought might be acquired by Disney, a deal that no longer seems likely in the short term. (Read Disney's press release)
• AIG loses Starr case. A federal judge ruled against AIG (AIG) in its efforts to win $4.3B in damages from Starr International, the company run by former AIG chief Hank Greenberg. The judge affirmed a jury verdict that found no breach of trust by Starr for selling AIG stock rather than using its AIG shares to fund an executive retirement program for generations of the insurer's employees. Separately, AIG, Greenberg and former CFO Howard Smith agreed to enter binding arbitration by October 15 to settle various outstanding legal disputes. Shares -6.9% premarket (7:00 ET).
• Citi sheds credit card portfolios. As part of its effort to shed weak businesses, Citigroup (C) said it sold three credit card portfolios representing $1.3B in managed assets, but didn't disclose the terms of the deal. Though the sale is relatively small, the lack of transparency didn't sit well with critics, who noted the taxpayer-funded bank "said it had sold undisclosed assets to an undisclosed buyer for an undisclosed price, resulting in an undisclosed profit or loss." Sources said the buyer is likely U.S. Bancorp (USB). C -3.6% premarket (7:00 ET).
• PetroChina buys Canadian oil stake. PetroChina (PTR) moved forward in its quest for overseas expansion, agreeing to pay C$1.9B ($1.7B) to closely-held Athabasca Oil Sands Corp. for a stake in a Canadian oil sands project. PetroChina's deals represent around 20% of China's $17B in spending on overseas energy assets since December, and this is PetroChina's largest North American acquisition to date.
• Icahn offloads Yahoo shares. Activist investor Carl Icahn disclosed in a regulatory filing that he sold 12.7M shares of Yahoo (YHOO) at the end of August, bringing his stake down to 4.48%. Icahn said he remains 'optimistic' about Yahoo's long-term outlook and the sales were only meant to 'provide a more desired balance' in his portfolios.
• Sony goes Chrome. Sony (SNE) plans to put Google's (GOOG) Chrome browser on Vaio laptops in the U.S., the first such deal for Chrome since it was announced last year. Google declined to disclose details of the deal, which went into effect this summer, and said it's looking to reach similar arrangements with other computer makers. Without those partnerships, Google's Sony deal may be too small to matter.
• Apple may opt for more carriers, face SEC probe. Piper Jaffray analyst Gene Munster wrote in a research note that Apple (AAPL) is likely to add new U.S. carriers for its iPhone within a year. Repeated speculation points to Verizon (VZ) as a likely addition, while AT&T (T) faces questions about how much it really gained from its role as exclusive carrier. Separately, the Huffington Post reported the SEC is investigating possible insider-trading offenses in shares of Apple, including whether anyone was given enhanced insight into Steve Jobs' health condition or if some investors had advanced notice of iPod sales results. Both Apple and the SEC declined to comment. AAPL -1.3% premarket (7:00 ET).
• JetBlue, Lufthansa to share codes. JetBlue (JBLU) and Lufthansa announced a code-sharing agreement allowing the airliners to expand their networks through connecting flights. Lufthansa holds a 19% stake in JetBlue, but the relationship has raised some concerns among rivals and this latest move will likely exacerbate those concerns. The deal must be approved by the Department of Transportation.
• Big Tobacco files free speech suit. Tobacco company R.J. Reynolds (RAI) joined other tobacco makers in suing the FDA, challenging the regulator's new authority over tobacco. The companies say their First Amendment rights to free speech have been violated and the law's provisions "severely restrict the few remaining channels we have to communicate with adult tobacco consumers."
• Charities scammed by Madoff face clawbacks. Madoff liquidator Irving Picard said he may sue charities that were Madoff clients to reclaim the fake profits they withdrew. By law, Picard must file clawback suits against investors that profited from Madoff's scam, even if they did so unknowingly. Picard, who until now hadn't outlined his strategy for dealing with charities, said charitable organizations aren't exempt from such 'avoidance actions.'
• Cities are gloomy on shrinking revenues. City revenues fell in FY '09 for the first time in seven years, according to a report by the National League of Cities to be released later today. Weak growth in property taxes and sharp declines in sales taxes, income taxes and state aid contributed to a 0.4% decline in city revenues even as expenses rose 2.5%, creating the worst outlook in the 24 years since surveying began. Nor is relief in sight, as tax revenue is expected to lag any economic recovery.
• European leaders target bank pay. German Chancellor Angela Merkel and French President Nicolas Sarkozy promised to fight excessive pay in financial firms and to toughen regulation of the financial sector. The U.K.'s Gordon Brown echoed those sentiments, saying excessive pay must be reined in and compensation should be based on long-term success rather than short-term speculative gains. The comments come ahead of a G-20 meeting in Pittsburgh on Sept. 24-25.
• Commercial mortgage defaults rising. The commercial mortgage default rate more than doubled in Q2 as compared to the year before, reaching 2.88% of outstanding balances. Commercial mortgage-backed securities [CMBS] account for 22% of the $3.4T in commercial real estate debt, and researchers believe defaults on CMBS could pass 7% by the end of the year.
• Chicago business activity improves (.pdf). The Chicago Purchasing Managers Index registered at 50 in August, better than the consensus of 48 and up from 43.4 in July. This is the index's highest level since September 2008. New orders were up 4.5 to 52.5, while prices paid jumped 15 points to 50.
• European joblessness climbs (.pdf). Unemployment in the 16-nation eurozone climbed to a new ten-year high of 9.5% in July even as the economy began to signal a recovery. Across the entire 27-nation European Union, unemployment rose to 9% in July. Spain leads the bloc in joblessness, with nearly one in five workers without a job.

Earnings: Monday After Close

• Benihana (BNHN): FQ1 EPS of $0.05 misses by $0.05. Revenue of $96M (+2%) vs. $97M. Sees full-year EPS of $0.40-0.45 vs. $0.46, and full-year revenue of $305M-310M vs. $323M. (PR)
• Culp (CFI): FQ1 EPS of $0.15 beats by $0.03. Revenue of $46M (-23%) vs. $45M. Sees Q2 revenue down 5%. (PR)
• Sina (SINA): Q2 EPS of $0.29 in-line. Revenue of $90M (-1%) vs. $88M. Sees Q3 revenue of $91M-94M vs. $96M. (PR)

Today's Markets

In Asia, stocks managed to pull back into positive territory after yesterday's selloff. European markets and U.S. futures are slipping.

Shareholders of Marvel Entertainment (MVL) were met with great news on Monday morning when it was announced that Disney (DIS) will acquire Marvel for a cash and stock deal worth four billion dollars.

Shares of MVL were up by over ten dollars during premarket trading and opened regular trading 27% higher.

The Walt Disney Company (DIS) set its mouse ears on the biggest name in comic books in a purchase agreement that will bring all of Marvel Entertainment's (MVL) characters into the Disney fold. The $4Billion purchase agreement with Marvel is similar to Disney's previous $8Billion buy of animation powerhouse Pixar, which has already reaped dividends with film, toy and video sales of features Wall-E and this summer's hit Up.

Marvel, a newcomer in the movie production business but with two self-financed films under its belt and another four in development, is riding a high after the blockbuster success of Iron Man and the subsequent revenue tail that film has provided. With the eagerly-anticipated sequel set to be an even bigger box-office draw, the opportunity was ripe, and Disney went after it. Marvel's upcoming film slate looks like this:

Sentiment

The major averages slipped Monday morning amid concerns about weakness in China and cautious trading ahead of key economic data later this week. China's Shanghai lost another 6.7 percent Monday and suffered its second biggest monthly loss ever. Other markets in the Asia/Pacific and Europe were mostly lower before the start of trading in New York.

The tone of trading remains cautious late Monday, as the historically volatile month of September begins tomorrow and ahead of key economic data later this week. Construction spending and auto sales are due out tomorrow. Investors get a peek at the August employment situation courtesy ADP private's sector report Wednesday. The Labor Department's monthly jobs data are due out Friday.