Daily Archives: February 18, 2007

Is The Formal Bidding For Chrysler On?

The UK Times Online is reporting that JP Morgan, Daimler’s (DCX) investment adviser, will begin to take bids for Chrysler as early as this week. Potential buyers may include GM (GM), one or two car companies in China and Korea’s Hyundai.

The price quoted in The Times is 7 billion pounds. close to $14 billion.

24/7 Wall St. analysis based on comparable price to sales ratios at Ford (F) and other metrics of the Daimler US division would put that price about double any reasonable bid. The value of Chrysler is probably not much above $7 billion if most of its US liabilities go with it.

The company may be sold, but Morgan’s price may be way too high.

Douglas A. McIntyre

Posted on: February 18, 2007 – 6:18 pm in Mergers and Buy Outs

YouTube’s “Mafia Shake Down”

According to CNNMoney, Google’s (GOOG) is only offering anti-piracy software to content owners who have a commercial deal with the huge video sharing site.

YouTube says that locating pirated material requires direct cooperation with the individual media companies, so perhaps it has a case. It can’t cooperate with companies that are not customers.

Sounds weak.

Companies like Viacom (VIA) liken the move by YouTube to blackmail. And, YouTube does not need to go any further to alienate media firms.

The prevailing wisdom is that media companies need YouTube to get promotion for their programs because YouTube’s audience is so large. But, a look at the most popular clips on YouTube does not turn up a lot of programming from "big media".  There is a clip called Gladys Hardy on The Ellen DeGeneres Show, but it would not appear to be anything that viewers would pay for.

If media companies need promotion for their programming, YouTube is hardly their only option, and it may not be their best.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: February 18, 2007 – 3:46 pm in Media

SanDisk’s Stock Prices Catches Up To It

Sandisk traded below $38.50 after hours on Friday, very close to its 52-week low. The company has traded as high as $66.20 in the last year.

The company is firing 10% of its workforce, bending to the reality of failing prices for memory chips. The price for NAND flash memory chips has fallen an astonishing 50% in the last 2 months.  Micron Tech (MU) made a similar warning on chip prices recently.

Interestingly, some analysts think the company is a buy. Morningstar says the company is cheap now. Royalties from companies like Samsung help diversity its diversify revenue. The company also makes most of its chips in its own fabs which allows it to use low priced technology that is fairly new.

Sandisk is down more than Micron over the last year.

But, one key measure would seem to make Sandisk expensive. Over the two years, the price of the stock is up over 50%. By contract, large chip company Intel (INTC) is down. They are not is exactly the same business, but they are in the same sector. By that measure, Sandisk could move much lower.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: February 18, 2007 – 3:25 pm in Semiconductor

Could XM & SIRIUS Merge Before Earnings?

Sirius Satellite Radio (SIRI-NASDAQ) and XM Satellite Radio (XMSR-NASDAQ) are both 1 week from earnings:  SIRI reports early morning on February 27 and XMSR reports on February 26 early morning.  The past quarters that will be reported are largely irrelevant.  The guidance for 2007 and the subscriber numbers are what will guide the street, and most important will be the question if these two are finally going to tie the knot.  The companies already gave 2006-end subscriber numbers so the actual revenues should be quite close to estimates.  UBS also made some subscriber targets earlier this month for this year.  Here are the current forecasts for the results and there is guidance for Q1 and 2007:

XM Satellite Radio (XMSR-NASDAQ)
Q4 2006: -$0.72 & $243M
Q1 2007: -$0.38 & $268M
FY 2007: -$1.65 & $1.2 Billion(+/-)

SIRIUS Satellite Radio (SIRI-NASDAQ)
Q4 2006: -$0.19 & $171.9M
Q1 2007: -$0.11 & $212.5M
FY 2007: -$0.45 & $1.0 Billion(+/-)

XMSR ended 2006 with 7.63 million subscribers and that was up just under 1.7 million from 2005 (442,000 in Q4).  SIRI ended 2006 with 6.02 million subscribers and that was up roughly 2.7 million for 2005 (905,000 in Q4).

At the current growth rates SIRI ‘could’ pass up XMSR in total subscribers around the presidential election at the end of 2008, and after next weel we should get some ‘business plans for 2007′ out of each.  These two companies have been hinted at, rumored to be, speculated about, written about, and hoped for a big merger between the two.  My guess is that whatever happens after earnings if there is no merger or no one-sided expression of interest in a merger then the street will start looking at these as individual satellite stocks again.  They might not blow off a merger hope with 100% certainty, but the cult stock traders will have much less to talk about in these names if they are going to remain independent.  Both companies are projected to lose money on a yearly basis and the street would treat any capital raising attempts with some skepticism and punishment.  There is also the question of SIRIUS on a long-term basis on its own and share values.

Bear Stearns issued a research note Friday that was almost demanding that there two companies merge.  There is going to be a regulatory issue to overcome and there is the argument over who gets more of the company, but neither are such large hurdles that they will not be able to rectify.  This created more buzz ahead of earnings and these companies should really push for this.  If they are smart they would do it before earnings so they remove any of that combined pressure.  That doesn’t mean they will at all, but the savings would be astronomical.  There is also the issue of who will rin the combined operation, and back in December we noted it could be either with one on top.

What is interesting is that just this week XMSR did a sale and lease-back of the transponders for its XM-4 satellite for some $288.5 million.  This is going to change the operational structure and it certainly just created a ’satellite asset marketplace’ for both XMSR and for SIRI.  Have you priced a satellite launch?  It ain’t cheap by any measure, nor is the satellite itself.  There is also the music companies wanting more out of the satellite companies now.  The gains from capitalizing their satellites to unlock some of that value could be somewhat offset by higher content costs.

There are other avenues that the companies can use for future revenues and the combined companies could have more offerings than just satellite radio competition.  These companies can send all sorts of data and could potentially offer some combined services in the GPS arena (supposed to already be in the works).  The satellite as a ‘real estate play’ and as a securitized asset has already been established.  Go ahead and expect many more articles comparing these two in the coming days, and probably even from us.

Jon C. Ogg
February 18, 2007

Jon Ogg is a partner in 24/7 Wall St., LLC and can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: February 18, 2007 – 2:26 pm in Bait Shop, Earnings, Media, Satellite, Technology Companies, Wireless

The Sullying Of JetBlue’s Brand

JetBlue’s (JBLU) stock has already dropped 20% from mid-January, but it may drop a lot further. The airline has billed itself as the customer friendly airline, but after leaving boatloads of customers on runways for hours in New York and canceling hundred of flight, the airline now is no better of that Northwest or Delta. Just another airline.

The airline is doing well financially. In the fourth quarter, up 41% to $633 million. Operating margin was over 10%.

The company’s promise is "To Bring Humanity Back To Air Travel". Leaving people on runways for hours does not really qualify.

JetBlue may find out something that countless other companies have discovered. Gaining a reputation can take years. Losing it can take a day.

Douglas A. McIntyre

Posted on: February 18, 2007 – 12:13 pm in Airlines

Barron’s February 17, 2007 Issue

According to Barron’s, Alcoa (AA) could fetch $40 billion. BHP Billiton (BHP) and Rio TInto are both possible bidders.

Share in Sotheby’s (BID) are still hot. The number of people with large fortunes is growing increasing the pool of worldwide collectors.

Webex (WEBX) may still have room to run. The company believes that web collaboration is the "killer app" over the internet.

When companies end giving guidance, investors’ worries often increases and share prices can go down according to several studies.

Timken (TKR), the ball bearing maker, is restructuring. Investors may want to see the fruits of the plan. The sotck, at $29, may go to the mid-$30s, but its could drop first as investor "wait and see".

Electronic (ERTS) could benefit tremendously for new game platforms and cellphone games. Its earnings could more than triple of the next two years as Sony’s (SNE) PS3 sales grow along with Microsoft (MSFT) Xbox and Nintendo Wii. Some analysts think shares could jump from $51 to $65 over the next year.

Shareholder advocate helped push out the CEO of Home Depot (HD). His firm, Relational, has $6 billion of assets. His next targer appears to be Ceridian (CEN). His firm also has investments in Soverign Bank (SOV) ConAgra Foods (CAG), National Semi (NSM), Prudential Finacial (PRU) and Baxter International (BAX).

Brown Forman (BF/B) has turned Jack Daniel’s into a major global brand. Some analysts think this could push the stock from its current $65 to $80.

Generic competition may be getting closer for Amgen (AMGN) and Genentech (DNA) as Congress and several large companies try to know down healthcare cost. Some of the companies backing an effort to lower these costs are General Motors (GM), Teva (TEVA) and Aetna.

Digital TV is finally beginning to see the light of day. And, video advertising could become the fastest growing ad segment on the internet. This could help online portals like Google (GOOG) and Yahoo! (YHOO) but also other online sites like car destination Autobytel (ABTL), gay portal PlanetOut (LGBT) and certain ad agencies like aQuantive (AQNT).

Univision (UVN) LBO will give the broadcaster $10 billion in debt. That could be very bad news for shareholders.

Principal Financial (PFG) may have a lot of upside as it moves from insurance into funds and retirement services.

Douglas A. McIntyre

Posted on: February 18, 2007 – 11:09 am in Press Digest