Under The Radar News - Wednesday

by: SA Eli Hoffmann

Just say no. Sources say Microsoft (NASDAQ:MSFT) is waiting for a formal refusal of its $31/share (now $28.89) bid for Yahoo (YHOO) before making its next move. "Yahoo needs to show a willingness to engage and have a conversation, and in less than 24 hours, we would be available to respond," a source said. A source familiar with Yahoo's thinking explains its silence, despite Microsoft's understandable unwillingness to 'bid against itself': "Sometimes in negotiations, you have to bid against yourself."

Gates: It's the people. Asked what makes Yahoo (YHOO) worth more than $40 billion, Microsoft (MSFT) chairman Bill Gates didn't cite its products, huge ad-customer base, or its impressive internet market share -- but rather Yahoo's engineers. They, he said, are what Microsoft needs to go after Google (NASDAQ:GOOG). Gates said Microsoft's plan to take on Google requires "breakthrough engineering," which would be accelerated by a tie-up with Yahoo.

Pilots want piece of pie. Aside from their quarrel over seniority, pilots are trying to negotiate a $50,000-100,000 stake per pilot in a combined Delta (NYSE:DAL) / Northwest Airlines (NWA). The pilots would end up with a 5-7% stake in the new entity.

Lufthansa wants a piece of the other pie. Sources say Lufthansa is considering an equity stake in a combined Continental (NYSE:CAL) / United Airlines (UAUA). Air France previously indicated it wants to invest in a combined Delta (DAL) / Northwest Airlines (NWA).

Clickthrough pizza. The average online pizza order is $6-9 higher than the average telephone order, because online customers can order without feeling rushed, and because they have access to the entire menu. Strong email pizza marketers like Papa John's (NASDAQ:PZZA) and Domino's Pizza (NYSE:DPZ) have web traffic growth that is far more robust than firms who don't promote their web sales by email.

Seeking economic relief online. 84% of consumers say they have changed shopping habits amid a recent economic slowdown, a trend that may have implications for how retailers market their wares. 66% say they are doing more online research, comparing brands and prices, while 60% say they are more likely to register to a website that offers coupons and money-saving ideas.

No-wait default. Perhaps adjustable rate mortgage resets aren't the problem after all; it turns out many borrowers weren't able to afford their mortgages even at introductory rates. Defaults on subprime loans issued in 2007, which are yet to roll into to real rates, hit 11.2% in November.

Blues get bluer for music industry. Digital music sales are set to grow an average of 23%/year over the next five years, passing CD sales by 2012. Not particularly good news for the music industry, for which revenue will shrink to $8.6B in 2012 from $14.2B in 2000. Research firm Forrester says it believes DRM-free and streaming music sites mean ad-supported downloads will have a hard time making an imprint.

GMAC to shrink operations. Auto lender GMAC, partially owned by GM (NYSE:GM), will announce today that it is closing 75% of its auto-financing offices in the U.S. and Canada, after losing $2.3B last year.

Xbox to stream Netflix movies? Stay tuned. There is speculation Xbox Live (MSFT) executive John Schappert will announce a deal with Netflix (NASDAQ:NFLX) to stream its movies directly to Xbox. Currently, Xbox users can rent 300 movies through Xbox live, vs. NFLX's 7,000 Watch Instantly titles. Last week Netflix distributed a survey to its members in which it asked, "If, as part of your Netflix membership, you could instantly watch movies and TV episodes on your TV with your Xbox 360, how likely would you/anyone in your household be to do that?"

Potash considered going private. Potash (POT) CEO William Doyle says rising global consumption of high-protein foods is eroding worldwide grain inventories, helping lift crop prices and boosting demand for its fertilizers. Global grain inventories relative to demand, at 53 days, are at all-time lows. "There's tremendous pressure on grains," Doyle says. "`We don't see this backing off." Business is so great that it considered taking itself private after shares fell more than 21% in January, he disclosed.

Asyst rebuffs solicitations. Semi equipment maker Asyst Technologies (ASYT) refused two private-equity buyout offers for as much as $6/share, sources say. Asyst's board felt the company could do better for shareholders by remaining independent.

Unisys buckles to shareholders, hires advisor. Unisys (NYSE:UIS) has hired Bear Stearns (NYSE:BSC) to look at "certain portfolio rationalization and other actions that may enhance shareholder value," after 9.9% stakeholder MMI Investments pushed for the computer services company to split itself amid weak earnings and revenue.

CDNs due for shakeout. More than 30 content delivery networks [CDNs] have raised money over the past year. The market cannot likely support so many CDNs, so a shakeout may be forthcoming, including consolidation and some companies going under. Big players include Akamai Technologies (NASDAQ:AKAM), Limelight Networks (NASDAQ:LLNW) and Level 3 Communications (NASDAQ:LVLT).

Going after Big Pharma. Last week's FTC suit against Cephalon (NASDAQ:CEPH) -- in which it alleges a $200M payout from Cephalon to four generic drugmakers in exchange for them agreeing not to develop a generic version of its Provigil violates antitrust law and harms consumers -- is aimed at more than just this one case. The FTC hopes the Supreme Court will issue a precedent-setting ruling that such deals, a common tactic of Big Pharma faced with generic competition to its blockbusters, are illegal. In Europe, AstraZeneca (NYSE:AZN), GlaxoSmithKline (NYSE:GSK), Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), Pfizer (NYSE:PFE) and sanofi-aventis (NYSE:SNY) are under probes for similar tactics.

Check out Check Point - Barron's. Barron's likes Check Point Software (NASDAQ:CHKP) as a "nice place to hide amid the current tech-stock meltdown." Shares can rise 25% if CHKP can regain last year's P/E multiple of 15.4, vs. today's 12.3. Money manager Paul Wick laments: "There's a certain sub-sector of the deep value side of the market that has latched onto the absolute worst companies in technology," such as Motorola (MOT), "passing by anything that has a clean balance sheet and good fundamentals and throws off a lot of cash," like Check Point.

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