Pearson and GE Considering Joint Bid for Dow Jones
Shares of Dow Jones gained almost 2% to close at $59.01 Friday on news that Pearson PLC, publisher of the Financial Times [FT], is seeking partners for a joint counteroffer for the company that would compete with Rupert Murdoch's $5 billion bid. One company Pearson has approached is General Electric, which owns business news channel CNBC. They are said to have discussed combining the FT, CNBC and Dow Jones into a privately held JV. The two companies would have equal shares, and the Bancroft family, which holds a controlling interest in Dow Jones, would keep a minority stake. In addition to the Wall Street Journal, the FT and CNBC, the JV would own Barron's weekly and half the Economist, as well as Dow Jones Newswires and the Factiva news database. CNBC's online profile would be enhanced by FT.com, WSJ.com and MarketWatch.com. If, on the other hand, Murdoch acquires Dow Jones, the Journal will compete more directly with the FT in Europe and Asia, and News Corp.'s plans for a Fox News business channel -- which would compete with CNBC -- will gain traction. The Bancrofts, who are reluctant to put the Journal's editorial integrity in Murdoch's hands, are expected to warm to a Pearson approach, but it is viewed as "a long shot" because of the difficulty of three-way mergers, the lack of a leader, and the expensive problem of cashing out the company's shareholders.
Sources: Wall Street Journal I, II, Financial Times, Bloomberg, Reuters (I, II)
Commentary: Matchmaker, Matchmaker: Pearson Looks For Partner To Beat News Corp. For Dow Jones Bid • Is Rupert Murdoch Overpaying For Dow Jones? • Philadelphia Inquirer's Tierney Mulls Dow Jones Bid -- WSJ • Microsoft, GE Considered Dow Jones Bid -- WSJ
Stocks/ETFs to watch: Dow Jones & Company, Inc. (DJ), News Corp. (NASDAQ:NWS), Pearson PLC [ADR] (NYSE:PSO), General Electric (NYSE:GE). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Blockbuster Chooses Sony's Blu-ray Over Microsoft's HD DVD
In a boost for Sony, Blockbuster says it will carry exclusively Blu-ray high definition DVDs, over competing format HD DVD at 1,450 of its 1,700 U.S. locations. During a trial run at 250 Blockbuster locations, 70% of consumers chose Blu-ray formated DVDs over rival Microsoft supported HD DVD. "Consumers are sending us a message. I can't ignore what I'm seeing," said Blockbuster merchandising VP Matthew Smith. The move could have ramifications in the video-game-console battle; Microsoft's XBox 360 uses HD DVD formating, while Sony's PS3 utilizes the company's Blu-ray technology. Tech website Engadget believes the deciding factor was that Blu-ray-only hits like Spiderman and Pirates of the Carribean outmatched HD DVD exclusives. Blockbuster will continue to offer both formats in the 250 stores it has been conducting testing of the two formats.
Sources: Press Release, AP, Reuters, MarketWatch
Commentary: Blockbuster Chooses Blu-ray: Is the War Over? • Another Victory For Blu-ray, Courtesy Blockbuster • HD-DVD vs. Blu-Ray Sales
Stocks/ETFs to watch: Sony (NYSE:SNE), Blockbuster (BBI). Competitors: Toshiba (OTCPK:TOSBF), Matsushita Electric (NYSE:MC), Koninklijke Philips Electronics (NYSE:PHG), Microsoft (NASDAQ:MSFT), Netflix (NASDAQ:NFLX)
Conference call transcripts: Sony F4Q06, Microsoft F3Q07
Related: Sony Blu-ray
Nokia Unveils New Mid-Range Handsets
World-leading cell phone manufacturer Nokia unveiled three new mid-range handsets on Monday it expects will raise its market share above the current estimated 36%. Nokia leads the low-end handset market and has an extensive array of high-end models, but mid-range has been its weak point. The new models include the Nokia 6267, a 3G music and multimedia unit to be sold for €240; the 3G Nokia 6121 (€260); and the "traditional-looking" 3500 (€135). "Nokia has not been terribly strong in the mid-range, and these might help somewhat," said analyst Jari Honko. "The new phones are good looking, they look like improved versions of older ones, but they will not change the world." The phones will be released for sale next quarter. Nokia also said it has reached an agreement with Malaysia's MiTV Corp. to introduce commercial broadcast mobile TV services there in H2 2007.
Commentary: Nokia's N95: The iPhone's European Competitor • Nokia Hits Multi-Year High on Forecast of Market Share Gains, Motorola Dips
Stocks/ETFs to watch: Nokia Corp. (NYSE:NOK). Competitors: LM Ericsson Telephone Co. (NASDAQ:ERIC), Motorola Inc. (MOT). ETFs: First Trust Value Line Equity Allc Index (FVI)
Conference call transcripts: Q1 2007
Cadence Buyout Talks with Blackstone, KKR Suspended -- NYT
The New York Times reports people close to the buyout negotiations between Cadence Design Systems and two private equity firms (the Blackstone Group and KKR) say the talks have stalled over price. Although the talks may resume, they are reportedly suspended for now. The Times notes private equity has historically shunned the tech sector due to its volatility and R&D requirements. The recent run-up in Cadence's shares (following a Times report of talks with Blackstone and KKR) may also pose a problem for return on investment, in addition to the rising interest rates of late, which makes it more difficult to finance a deal. Cadence had a market capitalization of $6.49 billion based on its Friday close of $23.30. Its shares have lost 4% after gaining 6% to $24.22 ($24.90 intra-day) reaching a 52-week high on June 4th, when the Times reported of talks with the private equity groups.
Sources: New York Times
Commentary: Private Equity to Buy Cadence Design Systems? • Cadence Design Negotiates With Buyout Firms -- NYT
Stocks/ETFs to watch: Cadence Design Systems (NASDAQ:CDNS), Intel Corp. (NASDAQ:INTC). Competitors: Magma Design Automation Inc. (NASDAQ:LAVA), Mentor Graphics Corp. (NASDAQ:MENT), Synopsys Inc. (NASDAQ:SNPS). ETFs: PowerShares Dynamic Software (NYSEARCA:PSJ)
Conference call transcripts: Cadence Design Systems Q1 2007, Synopsys F2Q07
ECI Telecom Acknowledges Buyout Talks at $10/Share
ECI Telecom, an Israeli telecom equipment manufacturer, confirmed media reports Sunday that it is in talks with a group of investors led by Swarth Investments, to be wholly acquired for $10 per share in cash. A definitive agreement has not been reached and until one has, or unless the talks are terminated, ECI said it will not comment further on the matter. Shares of ECI Telecom rose 3.8% to $8.92 in normal trading Friday. With 121 million fully diluted shares outstanding, a $10 per share acquisition values it at $1.21b. Reuters reports an RBC Capital Markets analyst said he believed $10/share was a "fair price," adding that he "doesn't think there will be a competing bid, given the tepid business momentum and lack of strategic differentiation regarding its pipeline." ECI is 28% owned by Tel Aviv-based holding company Koor Industries, which says it stands to profit approximately $143.2m based on the $10/share price. ECI owns a 23% stake in Veraz Networks, per its Q1 earnings release.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: ECI Telecom: Wait on the Sidelines • ECI: Israel’s Technological Flagship • Veraz Networks Inc. IPO
Stocks/ETFs to watch: ECI Telecom Ltd. (ECIL), Koor Industries Ltd. (OTC:KORIY), Veraz Networks, Inc. (VRAZ)
May comScore Ratings: Yahoo Maintains Lead, Amazon and Ask.com Move Up
Yahoo attracted more unique visitors in May than any other sites, maintaining its #1 spot on comScore's monthly web rankings (see table; . The company said May saw heavy traffic on movie-related sites: "With this year’s impressive lineup of big-money summer blockbusters, it’s no surprise that Americans flocked to movie sites in May." Time Warner Network retained its #2 spot over all, as did Google sites at #3. Amazon (#7) and Ask.com (#8) each moved up a spot in the rankings. Advertising.com topped the list of internet advertisers, reaching 87% of all internet users in May, followed by Yahoo and ValueClick (each at 73%). Big gainers were ARTISTdirect Network, which jumped 13% in moving to #35, and Photobucket.com which moved up four spots to #29.
Commentary: Yahoo! Keeps It Lead: May Internet Traffic [24/7 WallSt.] • Major Ad Spenders Moving 20% of Budget to Online Media • Google Only Search Provider With YoY Gains
Stocks/ETFs to watch: Yahoo! Inc. (YHOO), Time Warner Inc. (NYSE:TWX), Google Inc. (NASDAQ:GOOG), Microsoft Corp. (MSFT), ValueClick Inc. (VCLK), Amazon.com Inc. (NASDAQ:AMZN), IAC/InterActiveCorp (IACI). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN)
Cadbury Schweppes to Sell Beverage Unit
Cadbury Schweppes is expected to announce Tuesday that it will sell its U.S. beverage unit, which includes 7-Up, Dr Pepper and Snapple. Since Cadbury made public in March that it was planning to split its confectionery and soft drink businesses, its stock has gone up 30%. It was unclear at the time of the announcement whether the company planned to sell the $15.8 billion drinks business or spin it off. On Friday, the last day to submit bids, Cadbury received offers from three consortia: Bain Capital Partners, Thomas H. Lee Partners and the Texas Pacific Group; Blackstone, KKR and Lion Capital; and a group led by Canadian private-label beverage maker Cott. It is not yet known which offer was highest. A Sunday Times of London report said Cadbury is evaluating a £300 million cost-cutting plan that would entail the cutting of 5,000 jobs. Analysts speculate that the beverages sale will enhance Cadbury's ability to boost its confectionery business, possibly through an acquisition of Hershey (which has shown itself resistant to takeover attempts). Another possibility is that the Cadbury confectionery unit will itself be bought out, possibly by Kraft.
Sources: New York Times
Commentary: Private Equity Eyes Cadbury's U.S. Beverages, Shares Higher • Barron's Mid-2007 Analyst Roundtable • Cadbury Schweppes: Activist Holder Peltz is Moving Fast
Stocks/ETFs to watch: Cadbury Schweppes plc [ADR] (NYSE:CSG), The Hershey Company (NYSE:HSY), Kraft Foods Inc. (KFT). Competitors: Coca-Cola Co. (NYSE:KO), Pepsico, Inc. (NYSE:PEP), Hansen Natural (HANS), Jones Soda (NASDAQ:JSDA), National Beverage (FIZ)
Penn National to Be Acquired for $6.1 Billion
Casino stocks rose Friday on news that casino and racetrack owner Penn National Gaming will be taken private by two buyout firms for $6.1 billion. Fortress Investment Group and Centerbridge Partners will pay Penn National shareholders $67 in cash per share, 31% above the company's Thursday close of $51.14. The transaction also involves $2.8 billion in assumed debt. The deal follows the acquisition of world-leading casino operator Harrah's Entertainment by private equity firms for $17 billion and the $5.4 billion management-led buyout of Station Casinos. The prospect of more potential buyouts sent shares of Pinnacle Entertainment up 8.25% to $30.83 and MGM Mirage up 4.23% to $85.70, among other sector gainers. Akre Capital Management, Penn National's biggest shareholder with an 8.7% stake, has not yet decided if it will back the bid. According to JP Morgan analyst Harry Curtis, the final pricetag for Penn National will likely be 10-20% above the current offer. In related news, Standard & Poor's has lowered its corporate credit rating on Penn National to "BB-" from "BB" following news of the buyout.
Sources: Press release, Bloomberg, Chron.com, Reuters, TheStreet.com, Forbes
Commentary: Six Racetracks Worth Betting On • A Quick Guide to the Major Gambling Stocks • Cramer's Take on PENN
Stocks/ETFs to watch: Penn National Gaming, Inc. (NASDAQ:PENN). Competitors: MGM Mirage (NYSE:MGM), Pinnacle Entertainment, Inc. (NYSE:PNK), MTR Gaming Group Inc. (MNTG)
TRANSPORT AND AEROSPACE
Airbus Secures Large A350 Sale To US Airways, Hopes To Build Momentum
Airbus has secured a deal to sell as many as 30 revamped A350 aircraft to US Airways Group, in a move the company hopes will allow it to make in-roads against market leader Boeing's 787 Dreamliner model. It is believed Airbus offered US Airways strong incentives to accept the deal, which is worth $7 billion at list prices. WSJ quotes unnamed sources who claim the agreement includes an offer to renegotiate existing orders for other models, possibly saving hundreds of millions of dollars for the struggling airline. Airbus has had to redesign the twin-aisle, twin-engine, mid-size, long-haul airliner three times since 2005 amid criticism. US Airways was one of the highest profile airlines to back out of buying the A350 originally, and Airbus is hoping its ability to retain the company will translate into other orders. Airbus COO John Leahy believes "this will be the year of the 350.” Leahy expects at least 200 orders for the A350 this year, with as many as half coming at this week's Paris Air Show.
Sources: Wall Street Journal, The New York Times, MarketWatch, Reuters
Commentary: Spirit AeroSystems Looks at Airbus Plants -- Paper• Aeroflot Books Order for 22 Boeing Dreamliners • Boeing One-Ups Airbus Yet Again With FedEx Contract
Stocks/ETFs to watch: US Airways Group (LCC), EADS NV (Airbus) [public EPA:EAD). Competitors: Boeing (NYSE:BA), Embraer-Empresa Brasileir de Aero (NYSE:ERJ). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)
Conference call transcripts: Boeing Q1 2007 Earnings Call Transcript
Related: Airbus Aircraft Families - A350 Family
CME, ICE Bids for CBOT Expected to Enter Round 3 -- Bloomberg
Bloomberg reports both the Chicago Mercantile Exchange [CME] and Intercontinental Exchange [ICE] are set to sweeten their offers for the Chicago Board of Trade [CBOT]. Shares of CBOT rose 1% to $206.98 on Friday, setting a new all-time high. Two CBOT investors told Bloomberg that CME executives contacted CBOT shareholders last week about making a higher bid and were told to boost their offer by 14% to $11.7b (from $10.3b prior). CBOT now has a market cap over $10.9b. ICE's latest bid values CBOT at $11.8b. Bloomberg mentions sources say ICE is not considering raising its stock ratio of 1.42 in a revised bid, but is looking at sweetening the payout some CBOT investors will receive involving settling a dispute over ownership rights of the Chicago Board of Options Exchange. Full CBOT members with exercise rights would receive as much as $800,000 (vs. $500,000 prior), compared to the CME's $250,000 offer based on a $485m ($9.14/share) special dividend and another $250,000 to those who sell their exercise rights. Shares of ICE climbed 7.8% to $156.98 last week, while the CME rose 0.6% to $552.70 and CBOT gained 4.3%.
Commentary: CME Counters ICE's Enhanced Bid For CBOT With Special Dividend Offer -- WSJ • Who Will Acquire CBOT Holdings? • CBOT To Launch Cash-Settled Credit Default Contract
Stocks/ETFs to watch: CBOT Holdings, Inc. (BOT), Chicago Mercantile Exchange Holdings Inc. (NASDAQ:CME), IntercontinentalExchange, Inc. (NYSE:ICE). Competitors: NYSE Euronext (NYSE:NYX), NYMEX Holdings Inc. (NMX), International Securities Exchange Inc. (ISE)
Atticus Capital: We Can Block Barclays' Bid for ABN
David Slager of hedge fund Atticus Capital will warn Barclays CEO John Varley on Wednesday that Atticus will block Barclays' pending offer to buy ABN Amro, according to reports. Atticus, which holds a 1% stake in Barclays, views the acquisition as contrary to shareholder interest. "Barclays should not be using its undervalued paper to buy ABN Amro in a competitive auction," said Slager. Though the fund does not have enough voting power to block the purchase unilaterally, Slager is "canvassing shareholders" and is "confident...the deal will be blocked" if Barclays does not withdraw it. The tactic is reminiscent of that of TCI Fund, which instructed then-CEO Werner Seifert of Deutsche Börse to drop his bid for the London Stock Exchange and then forced him out when he did not comply. Naguib Kheraj, the Barclays executive running the bid, said, "We’ve spoken to a lot of shareholders and while there will always be some who express doubts, the vast majority are supportive." Barclays is considering adding a cash sweetener to its €65 billion offer in the event that it will have to match or exceed a rival bid from a Royal Bank of Scotland-led consortium for ABN. All parties to the sale of ABN are awaiting the decision by a Dutch court on whether or not ABN's sale of LaSalle Bank to Bank of America can go through. The Barclays offer for ABN is contingent on completion of that sale.
Sources: Times Online, MarketWatch, Hemscott, Forbes
Commentary: Atticus Fund to Barclays: Drop Your Bid for ABN Amro • Barclays Might Sweeten Bid for ABN -- FT • ABN Mulling RBS Consortium Bid
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (NYSE:BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (NYSE:BAC). ETFs: First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares Intl Dividend Achievers (NASDAQ:PID), iShares MSCI Netherlands Index (NYSEARCA:EWN)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Barron's 2007 mid-year survey of influential fund managers. Long picks: iShares MSCI EAFE Index Fund ETF (NYSEARCA:EFA), Pimco Floating Rate Strategy Fund (NYSE:PFN), Cablevision (NYSE:CVC), Cadbury Schweppes (CSG), Hilton Hotels (NYSE:HLT), Midas (NYSE:MDS), Sequa (SQA.A), United States Cellular (NYSE:USM), Heineken (HINKY.PK), Apollo Group (NASDAQ:APOL), Research In Motion (RIMM), Baidu.com (NASDAQ:BIDU), Wells Fargo (NYSE:WFC), Valero Energy (NYSE:VLO), Lyondell Chemical Company (LYO), American Eagle Outfitters (NYSE:AEO), ChipMOS Technologies (NASDAQ:IMOS), Citigroup (NYSE:C), Endo Pharmaceuticals (NASDAQ:ENDP), ULURU (OTCQB:ULUR), Hewlett-Packard (NYSE:HPQ), Pier 1 Imports (NYSE:PIR). Short picks: Apple Computer (NASDAQ:AAPL) [post-iPhone], Research In Motion (RIMM), NetLogic Microsystems (NASDAQ:NETL), Consumer Discretionary SPDR (NYSEARCA:XLY). [See full summary]
- A new leader, looser regulations, high commodity prices, strong GDP growth, political trouble in Thailand, and high-flying Chinese stocks have made Malaysia an attractive market. U.S. investors can buy Barclays' iShares MSCI Malaysia Index (NYSEARCA:EWM). [See full summary]
- Boxing equipment maker Everlast Worldwide (EVST) wants to sell the company to one of its licensees for $26.50/share -- a 14.5% premium over the previous day's close and 30% higher than its May average. Shareholders say management is low-balling the company; shares have skyrocketed 560% over the past 19 months. Everlast has new growth vehicles lined up. A shareholder argues that with assumed 20% revenue growth, 10x 2008 Ebitda makes shares worth $40. [See full summary]
- Sotheby's (NYSE:BID) shares are up 42% to $49 since October. Traders shouldn't expect the usual summer slump. Its 11% short-sellers make it a good contrarian play, and the art boom usually peaks after the stock market -- which hasn't yet. [See full summary]
- Lehman Brothers' (LEH) Q2 earnings were 18% better than forecasted, but analysts fret over its subprime exposure (3% of its revenues). Its price-to-book multiple (2.1) trails Morgan Stanley (NYSE:MS) [2.6] and Goldman Sachs (NYSE:GS) [2.9]. Risk-averse CEO Fuld keeps earnings volatility at about 1/2 of most brokerage firms, leading Barron's to call it "smaller, more risk-averse Goldman Sachs." [See full summary]
- Internet video is overrated as a challenger to cable TV. So are worries about fiber-optic TV, and digital recorders, which have done little more than create cheap stock prices. A cable analyst notes that just 1% of all video watched is via the internet, 2% is via DVD, while 97% still comes from traditional television. He says Comcast (NASDAQ:CMCSA) is among the 15 cheapest S&P 500 stocks, and raised his targets on Time Warner Cable (TWC), DirecTV (DTV) and EchoStar (NASDAQ:DISH). [See full summary]
- $3 billion Alleghany Corp. (NYSE:Y) is "the closest thing to a small-scale Berkshire in the public market." At 1.3x book value, it's cheaper than Berkshire's 1.5, and it can make a difference with investments as small as $100M. Barron's says shares could jump 50% by 2010 -- "not bad for a low-risk investment." [See full summary]
- Due to ongoing SEC and internal investigations, wireless equipment/technology company UTStarcom Inc. (NASDAQ:UTSI) has published no meaningful information over the past year. Co-founder Ying Wu mysteriously resigned on June 1. Wu was seen as the key link between the company and Chinese bureaucrats, and was slated to become its next CEO. Critics say new products are weak. [See full summary]
- HSBC's (HBC) underperforming shares have lead some shareholders to call for a breakup which would localize its units. Barron's disagrees, saying global exposure is why it has historically dealt with systemic risk better than its peers. What it does need is a board shakeup (non-executive directors met only twice last year vs. Citigroup's (C) seven times), tighter control, to accelerate the transfer of strategies between regions, and to learn how to integrate its acquisitions more quickly. [See full summary]
- Goldman Sachs (GS) thinks Q2 earnings forecasts are low, and likes big-caps due to their global exposure and clean balance-sheets. Goldman suggests selling three-month puts on: Target (NYSE:TGT), AT&T (NYSE:T), PepsiCo (PEP), Coca-Cola (KO), Comcast (CMCSA), Oracle (NYSE:ORCL), Sears (NYSE:S), IBM (NYSE:IBM), Wells Fargo (WFC), Merrill Lynch (MER), Johnson & Johnson (NYSE:JNJ), Morgan Stanley (MS), Amgen (NASDAQ:AMGN), General Electric (GE), and Disney (NYSE:DIS). [See full summary]
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