Daily Archives: July 2, 2007

Rival Movie Gallery (MOVI) Falls Apart As Blockbuster (BBI) Gets New CEO

The day started well enough for the bricks-and-mortar movie rental companies. Blockbuster (BBI) hired a new CEO and its shares jumped 3.5% to $4.46, but still down from over $9 two years ago.

Then, as the market closed, Movie Gallery (MOVI), the second largest player in the industry, said its second quarter had been "soft" and it would be in default over terms of its senior credit facility. The company is down to a cash balance of about $50 million.

Movie Gallery must now look to renegotiated terms with its lenders, which are unlikely to be favorable, or a sales of the company, which could wipe out common shareholders.

All of the news sent the company’s shares down 60% after hours to $.77. The stock’s 52-week high was $6.78. (Oddly, the MOVI shares appear to have taken a sharp drop about 20 minutes before the close, and then recovered slightly.)

Quite a welcome mat for the new guy over at Blockbuster.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 2, 2007 – 4:26 pm in Uncategorized, ,

The 52-Week Low Club

Lennar (LEN), Hovnanian (HOV), and Beazer Homes (BZH). Forget the stock price. Each has lost about 50% of its market value of the last year.

Journal Register (JRC) Newspaper chain. Down to $4.41 from 52-week high of $8.60.

Psivida (PSDV) Biotech announces placement to raise $16.3 million. Shares fall to $1.17 from 52-week high of $3.14.

Trump Entmt Resorts (TRMP) Attempt to sell casino company fails. Shares drop to $10.05 from 52-week high of $23.80.

Packeteer (PKTR) The developer of bandwidth management systems gets a visit from the IRS. They want more cash. Piper Jaffray downgrades. Shares fall to $7.33 from 52-week high of $13.96.

Douglas A. McIntyre

Posted on: July 2, 2007 – 3:45 pm in Uncategorized, , , , , , ,

Blockbuster (BBI): Close All The Stores

Start with this. Blockbuster (BBI) has $2.4 billion in rent due from now until its last current store lease expires. Of its 5,194 stores, 939 were operated through franchisees. Blockbuster only pays rent on the stores it operates directly. The company has 3,166 stores overseas. Most of the company’s 67,000 employees work in these stores.

In its DVD online business, Blockbuster believes it will have four million customers at the end of the year.

Closing 5,000 or more stores and laying off 40,000 plus people would, on a one-time basis, but very expensive. But, the leases could probably be converted into a security instrument. Blockbuster would have to try to sell those leases, at a loss, to an entity that believes it can work a number of them out for less than their full value.

Blockbuster’s store business is so bad that the company now has a market cap of only $850 million. NetFlix (NFLX) has a market cap of $1.3 billion. NetFlix is considerable smaller, with a revenue run rate of about $1 billion and an operating income run rate of $75 million. Blockbuster’s revenue is over $5.5 billion, but it has not grown in several years.

If Blockbuster were to have mass store closings and lay-offs and could roll its leases off its balance sheet, the most important issue would be how many of its store customers would convert to online DVD renters. NetFlix has seven million subscribers. It is probably not a bad gamble that Blockbuster could get at least that many online accounts from its current rental base.

Does it work? It might.

Does closing stores a few hundred at a time work. Almost certainly not.

It leaves Blockbuster with a tough problem.

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

Posted on: July 2, 2007 – 3:07 pm in Uncategorized, ,

The Share Price Humiliation Continues At The New York Times (NYT)

Goldman Sachs made about as brutal a call as it could have on The New York Times Company (NYT). It added it to its American Investments Sell List.

The price target was set at $18. On Friday, the shares closed at $25.40, so Goldman believes the shares will drop almost 30%.

While all newspaper groups are doing badly and many have lost 40% of their market caps over the last two years, the Times has moved up some recently, perhaps on some hope that if Dow Jones (DJ) can be sold, so can NYT.

But, that bubble is bursting.

Douglas A. McIntyre

Posted on: July 2, 2007 – 11:47 am in Uncategorized, ,

OGE Corp: Unloading OGE Enogex, Its MLP, In An IPO (OGE, OGP)

A subsidiary of OGE Corp (NYSE:OGE), OGE Enogex Partners L.P., has filed registration papers with the SEC for an IPO of 7.5 million common units in a master limited partnership (MLP) that will trade under the symbol "OGP." OGE will retain a 63.9% limited partner interest in OGP, and will also claim the 2% general partner interest.  An overallotment of 1.125 million units will be made available to the underwriters, UBS and Lehman Brothers. The IPO is expected to raise about $130 million.

OGE has a market cap of $3.42 billion and is the largest public utility in the state of Oklahoma. The mid-stream assets that it is passing along to OGP include nearly 5,500 miles of natural gas gathering systems and almost 2,300 miles of gas transmission lines from the Arkoma and Anadarko basins, and include 64 interconnection points with other pipelines transporting gas to the west.

As pipeline MLPs go, OGP will be relatively small; Kinder Morgan owns and operates more than 15,000 miles of natural gas pipelines. But, OGP starts life with a ‘AAA’ rating from Fitch Ratings. That’s a good thing, particularly as MLPs are notorious borrowers. Leverage of 50% or even more is not uncommon as these partnerships try to keep returns flowing both to their parent companies and to the limited partners. OGE has been well-managed and its Enogex subsidiary have been well-managed to this point, and Fitch is betting that will continue. As OGP tries to keep its returns high, the temptations will be many.

Paul Ausick
July 2, 2007

Posted on: July 2, 2007 – 10:40 am in IPOs, Oil & Gas, ,

Limelight (LLNW): Cowen Wears The Dunce Cap

Last week Cowen & Co. released a note on Limelight Networks (LLNW), a recent IPO in the content delivery industry, quoting UCLA law professor and patent expert Doug Lichtman. Lichtman said he thought there was an 80% to 85% chance that Limelight would lose its patent battle with rival Akamai (AKAM).

The next day, the court hearing the IP dispute issued a ruling saying that Akamai could not patent the way that files are deliverd over the internet, according to industry publication Light Reading. 

On Friday, after the ruling Limelight’s stock moved from $15.30 to $20.23.

The whole matter raises the question of whether a research firm should ever issue an opinion based on a conversation with one "expert".

In this case, it did not work out well for Cowen, and, perhaps, some of its customers.

Douglas A. McIntyre

Posted on: July 2, 2007 – 9:04 am in Uncategorized, ,

Local.com (LOCM): A Little Blackmail With Your Patent?

Local.com (LOCM) received a couple of patents that would appear to be pretty valuable. The first patent number 7,231,405 is for the process of indexing and retrieving web-related information by geographical location. The second patent number 7,200,413 is for the method of responding to enhanced directory assistance inquiries using various protocols including voice-enabled and SMS systems.

Local.com’s CEO made a couple of telling statements: "In our view, the burgeoning free 411 marketplace is being underwritten by a variety of advertising supported models. Our patent 7,200,413 is directly related to a referral advertising model such as pay-per-click or pay-per-call listings, which are delivered to consumers as a result of an enhanced directory assistance inquiry or local search, where the results can be provided to consumers via many mobile channels, including voice," said Heath Clarke, Chairman and CEO, Local.com.

"We encourage directory assistance and free 411 companies that are interested in using our intellectual property to enter into licensing agreements with Local.com." He made the same comment about the first patent.

In other words, which, with a 40% run-up so far today to a 52-week high of $10 and a market cap of $89 million intends to become an intellectual property licensing company. Based on the company’s falling annual revenue and an operating loss of $13.6 million in 2006, the new model may be a good idea.

But, the patents are almost certain to be challenged in court, so Local may want to raise a legal fund.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 2, 2007 – 8:42 am in Uncategorized,

IPO FILING: Och-Ziff, A Hedge Fund Manager

OCH-ZIFF CAPITAL MANAGEMENT GROUP LLC, a hedge fund manager with some $26.8 Billion in assets under management from more than 700 institutional investor clients, has filed to come public via an IPO. The company will trade on the NYSE under the stock ticker “OZM.”  Interestingly enough, the only two underwriters are Goldman Sachs and Lehman Brothers.

Returns have been steady and consistent with a 15.7% return over the last year and 12.2% over the last 2 and 5 year periods.  $1.8 Billion of the assets under management are actually the funds of the partners.

This hedge fund is a multi-strategy fund with merger arbitrage, convertible arbitrage, equity restructuring, credit and distressed credit investments, private equity and real estate. The media can focus on all the tax issues out of Washington D.C. that they want regarding hedge funds and private equity firms, but it’s obvious that this is going to become a trend that allows fund managers to attract talent and have a currency.

Jon C. Ogg
July 2, 2007

Posted on: July 2, 2007 – 8:35 am in Financial Stocks, IPOs

Apple (AAPL) iPhone’s Big Profit Margin

According to BusinessWeek, Apple (AAPL) sells its iPhone for $499 to $599, but the handset only costs $200 to $220 to make. The figures are from research firm Portelligent.

While the figures may spell short-term good news for Apple, the very large profit that the company makes on the device could encourage both AT&T (T), the exclusive carrier for the phone, and consumers to wonder why they should not get a better deal.

Apple’s profit would certainly allow it to lower the price if it needs to stimulate sales. Bloomberg reports that estimates for initial sales of the phone are about 500,000 units, ahead of most industry estimates.

For now, Apple is getting two benefits–sales volume and gross margin. If it can hold both, the iPhone could be a bigger financial success than most analysts believed.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 2, 2007 – 8:18 am in Uncategorized, , ,

Pre-Market Research And News 7/2/2007

Wachovia says that it believes shares in Echostar (DISH) will go higher.

Bloomberg writes that Apple (AAPL) sold 500,000 iPhones, more than most estimates.

Stifel says that concerns about Q3 numbers make Broadom (BRCM) a near-term buy.

Stifel says Cisco (CSCO) is having strong orders in current month and is short-term buy.

Blockbuster (BBI) says James W. Keyes, former 7/11 chief is named CEO of movie rental firm.

Douglas A. McIntyre

Posted on: July 2, 2007 – 7:48 am in Uncategorized, , , , , , ,

Morning Research Calls 7/2/2007

SIA says that May semiconductor sales rose 2.4% from the same month last year.

Piper Jaffray upgrades Packeteer (PKTR)

Lehman starts Take Two (TTWO) at Underweight

Credit Suisse reaffrims Outperform on Staples (SPLS).

Friedman Billings voices near-term challenges at Talbots (TLB) still exist.

Bank of America says its is bullish on Ebay (EBAY) near-term prospect.

Jeffries says RFMD channel sales are still weak.

JMP Securities says investors should buy RIMM and sell MOT based on Apple (AAPL) iPhone intro.

Citi downgraded several homebuilders including Hovnanian (HOV) and Lennar (LEN)

Douglas A. McIntyre

Posted on: July 2, 2007 – 7:40 am in Uncategorized, , , , , , , , ,

Pre-Market Stock News (July 2, 2007)

(BCE) BCE reaches definitive agreement to be acquired by Teachers Private Capital led group for $40.13 per share in cash.
(BOT) CBOT urges stockholders to vote for CME merger.
(C) Citigroup confirms it will buy Automated Trading Desk for $680 million.
(DCEL) Dobson Communications being acquired by AT&T for $13 per share.
(FMCN) Focus Media delays 2006 annual report.
(FRZ) Reddy Ice being acquired by GSO Capital Partners LP for $1.1 Billion, a deal valued at $31.25 per share.
(LCRY) LeCroy lowered guidance.
(MOC) Command Security signed a $2.8 million contract.
(NPSI) North Pittsburgh Systems being acquired for $375.1 million in a deal valued at either $25 in cash or 1.1061947 shares of Consolidated common stock.
(NTES) Netease.com announced a $120 million share buyback.
(SPNC) Spectranetics received FDA clearance to market Turbo-booster for the treatment of arterial stenosis and occlusions
(VIAC) Viacell named a new CFO.

Posted on: July 2, 2007 – 7:37 am in Uncategorized

Pre-Market Analyst Calls (July 2, 2007)

ADM raised to Buy at B of A.
AMB raised to Buy at UBS.
AFR raised to Buy at UBS.
ALO started as Buy at B of A.
ATVI started at Equal Weight at Lehman.
BRE cut to Neutral at UBS.
COV started as Hold at Deutsche Bank.
CPT cut to Neutral at UBS.
ERTS started as Overweight at Lehman.
HPY cut to Mkt Perform at Piper Jaffray.
IP cut to Neutral at Credit Suisse.
MMPI cut to Neutral at UBS.
MNI raised to Outperform at Wachovia.
PKTR cut to Mkt Perform at Piper Jaffray.
PVTB started as Overweight at JPMorgan.
PWAV cut to Equal Weight at Lehman.
RRR started as Outperform at CIBC; started as Outperform at Baird; started as Equal Weight at Lehman.
SIRT started as Outperform at R&R; started as Outperform at CIBC; started as Outperform at JMP Securities.
SNDK cut to Sector Perform at CIBC.
SNTS raised to Neutral at Susquehanna.
TEL started as Neutral at JPMorgan.
TRB raised to Buy at Deutsche Bank.
THQI started as Equal Weight at Lehman.
TTWO started as Underweight at Lehman.

Posted on: July 2, 2007 – 7:15 am in Analyst Calls

Microsoft (MSFT) Attacks The Living Room Through The Back Door

Microsoft (MSFT) has been trying for years to get consumers to use its software to bridge the digital divide between their PCs and TV. The latest attempt is the company’s Media Center. There is little evidence that it has sold well.

Almost by accident, the world largest software company has discovered another conduit to the TV–the Xbox 360. Microsoft has launched a new service called Xbox LIVE Marketplace. The purpose of the new operation is to allow Xbox users to have access to movies and TV shows, some for free and others for a modest price. As one industry executive told The New York Times: “We need to find viewers wherever they are,” said Michele Ganeless, the executive vice president and general manager of Comedy Central. “Some of them are firing up their Xbox rather than their cable box. They have so many entertainment options. Being on Xbox is a perfect way for us to reach them in their own environment.”

Microsoft claims that revenue from the service is rising at double digits month over month, It also say that over 400,000 copies of an HDTV version of South Park where downloaded recently.

Big marketing dollars and sophisticated software could not help Microsoft in the home, but the Xbox has worked.

Better to be lucky than good.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 2, 2007 – 5:08 am in Uncategorized, ,

Apple’s (AAPL) iTunes: Custer’s Last Stand

The record industry is being destroyed by a combination of cheap digital downloads and falling CD sales. Apple’s (AAPL) iTune operation is now the third largest seller of music in the US behind big box retailers Wal-Mart (WMT) and Best Buy (BBY).

The ripping of CDs pulls untold millions of dollars from potential legitimate sales. And, shareholders in music publishers are paying for it. Warner Music Group’s (WMG) stock is down 50% in the last year.

So, it should not be terribly surprising that the publishers want more money, a bigger cut, from what is likely to be their largest sales outlet within the next year, iTunes. Apple is likely to object to the idea, but the music guys are running out of options. Animals can be dangerous when cornered.

According to The New York Times, Universal Music, a unit of Vivendi, the largest music publisher in the world, had decided not to renew its deal with iTunes for another year. Instead, it will offer music to Apple as long as it likes the terms. By going that route, Universal could put individual titles at will.

Universal’s music accounts for one out of every three albums sold in the US, according to Nielsen. Universal could hurt iTunes, But, perhaps iTunes could hurt Universal more by refusing to carry its titles at all. That would probably lead to protracted anti-trust litigation, the kind that has haunted Microsoft (MSFT) for years.

But, in the short term the question will be whether other large publisher like Warner would join a revolt and whether the artists represented by the large music companies will have a problem with having their music pulled from the iTunes platform.

Artists may be finding another way to market their music, and that could work against Apple. Music company EMI and tech firm Snocap have set up a system so that artists can sell their records in an MP3 format, which would work on a number of devices including the iPod. The techology would allow them to sell their songs directly from their own websites or from social network sites.

Up to now, Apple has been able to hold the music companies in line. That may be ending.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com

Posted on: July 2, 2007 – 4:49 am in Uncategorized, , , , , ,

Countries Vie For Biggest Buy-Out Title

Over the last two days, BCE (BCE) the largest phone company in Canada, was purchased by the investment arm of Ontario Teachers’ Pension Plan and several private equity firms. The price was over $32 billion making it the largest buy-out in Canada’s history.

A day later, Australian conglomerate Wesfarmers offered $19 billion for the country’s second largest retailer, Coles. It would be the largest buy-out in Australia’s history.

So, over $50 billion went for buyouts in a little over 24 hours. And, that was over a weekend.

Shares in private buy-out firms Blackstone (BX) have been falling since its IPO. But, the sell-off might be premature.

There have been recent rumors of a sale of Freeport-McMoran (FCX). The company has a market cap of over $31 billion. In the car industry, Delphi is likely to be taken private as it comes out of Chapter 11. Ford (F) has Jaguar and Land Rover on the block.

Macy’s (M) may be in play. The company has a market cap near $20 billion. Expedia (EXPE) is rumored to be a target. The price tag there would be about $10 billion.

Credit may be tightening, but the appetite for big risk does not seem to be.

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

Posted on: July 2, 2007 – 4:26 am in Uncategorized, , , , , ,

Media Digest 7/2/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, Australian conglomerate Wesfarmers bought retailer Coles for $18.8 billion, the largest buy-out in Australian history.

Reuters writes that Virgin Media (VMED) is seeking a buyer, and Carlyle Group is considering a $20 billion offer.

Reuters writes that some Apple (AAPL) iPhone buyers have had activation problems getting onto the AT&T (T) network.

The Wall Street Journal writes that Bear Stearns (BSC) may take until July 16 to add up all of the loses from its hedge funds because some of the securities they own are so thinly traded.

The Wall Street Journal says Universal Music may not renew its deal with Apple (AAPL) for a long contract term. It may opt for s shorter deal. Music publishers have been upset about their royalties from the music store.

The Wall Street Journal writes that surveys show the teenagers are more likely to accept ads on social networks if the come in the form of widgets, small interactive software downloads.

The Wall Street Journal writes that Altria (MO) is creating cigarettes aimed at Indonesia, the world’s firth largest cigarette market.

The Wall Street Journal writes that Gap (GPS) is launching a credit card that can earn point for Gap products even if the card is used for charges outside the company’s stores.

The Wall Street Journal writes that music publisher EMI and tech company Snocap have reached a deal so that music artists can sell their albums directly from their own websites.

The New York Times writes that Asia consumer electronics markets are trying to keep from being hurt by the Apple iPhone the way that they were the iPod.

The New York Times writes that Yahoo! (YHOO) is introducing ads targeted by behavior in an attempt to offer a product that its rivals do not have.

The New York Times reports that the Microsoft (MSFT) Xbox Live is being used to market movie and TV show downloads.

FT reports that Kraft (KFT) is in talks with Danone about buying its biscuit unit.

Barron’s writes that Earthlink (ELNK) will probably go through a restructuring to make the company more attractive to investors.

Douglas A. McIntyre

Posted on: July 2, 2007 – 3:28 am in Uncategorized, , , , , , , , , ,

Asia Markets 7/2/2007

Markets in Asia were mixed and Hong Kong was closed for a holiday.

The Nikkei was up a fraction to 18,146. Sony (SNE) was down .3% to 6310. Toyota (TM) was flat at 7600.

The Shanghai Composite rose .4% to 3,836.

Data from Reuters

Douglas A. McIntyre

Posted on: July 2, 2007 – 2:46 am in Uncategorized, ,