Daily Archives: July 3, 2007

Blackstone (BX) To Buy Hilton (HLT)

Blackstone (BX) has agreed to buy Hilton Hotels (HLT) for $47.50 a share, a premium of about 40% of where the stock traded two days ago. The total purchase price is over $26 billion.

According to the FT: "The acquisition gives Blackstone, whose 2,800 hotels include brands such as Hilton, Doubletree, Embassy Suites, Hampton Inn, Homewood Suites and The Waldorf-Astoria Collection, just under 500,000 hotel rooms."

Oddly enough, the stock ran up from $33.85 at yesterday’s close to to finish the day at $36.05.

Must just be a coincidence.

Douglas A. McIntyre

Posted on: July 3, 2007 – 5:08 pm in Uncategorized, ,

KKR Prospectus Details

From S-1 filed with SEC:

Founded in 1976, we are a leading global alternative asset manager. Our 399 employees, including our 139 investment professionals, are led by our founders, Henry Kravis and George Roberts, who are pioneers of the leveraged buyout industry.

We have grown our assets under management significantly, from approximately $18.3 billion as of December 31, 2002 to approximately $53.4 billion as of March 31, 2007, representing a compounded annual growth rate of 28.7%.

Total distribution to investors from 2002 through Q1 2007: $20.5 billion.

Net income 2006: $1.1 billion. Net income first quarter 2006: $261 million. Net income first quarter 2007: $381 million.

Douglas A. McIntyre

Posted on: July 3, 2007 – 4:58 pm in Uncategorized,

KKR IPO

KKR announced that it has filed a registration statement with the Securities and Exchange Commission (SEC) for a proposed initial public offering of its common units representing limited partner interests in its partnership. The firm intends to apply to list its common units on the New York Stock Exchange under the symbol "KKR".

The registration statement relates to an aggregate amount of $1.25 billion of common units. KKR expects to use the net proceeds from the offering to grow its business, to make additional capital commitments to its funds and portfolio companies, and for general corporate purposes. KKR’s existing owners will not sell any common units or otherwise receive any of the net proceeds from the offering. KKR expects to complete the proposed offering during the third or fourth quarter of 2007.

Posted on: July 3, 2007 – 4:45 pm in Uncategorized

eBay’s (EBAY) Big Giveaway

eBay (EBAY) has started a free classified advertising site. It is not unlike the highly successful Craigslist. The site is called Kijiji.

According to The Wall Street Journal, eBay may start to charge for display advertising at the website at some future point in time.

The real loser, if the site becomes successful, is the large newspaper chains like McClatchy (MNI) and Gannett (GCI). They hardly need more competition for their flagging print classified sections, which are already being bled dry by online sites that charge for ad that compete with them.

"Free" makes the competition even harder.

Douglas A. McIntyre

Posted on: July 3, 2007 – 4:40 pm in Uncategorized, , ,

Gutting The Apple (AAPL) iPhone Like A Fish

Too much has already been written about the costs of the components of the Apple (AAPL) iPhone. Several research firms have spent their $599 per unit simply to tear the thing into little pieces and count up the value of the parts. iSupply says that all of the hardware taken together costs Apple $266, giving them a 55% gross margin.

But, all of this work is as misleading as it is incomplete. There has been no analysis of what it cost Apple to develop the project both in terms of engineering man hours and on-going work to keep the product current. Also, no cost analysis for development of new versions. And, there are the delays in the new Mac operating system, Leopard, which became a victim of the iPhone time table. That cost Apple something in terms of deferred or lost revenue.

Gross margins don’t tell much.

The other supposition is that the margins were ever going to be below those for the iPod. Jobs & Co. would not bother to go to effort. He has admitted that Apple’s TV product is an experiment as much as a product. Industry analsysts say that its gross margins for that product are not high. But, it is not the product that takes the stock to $200.

The iPhone is. The margin on the handset was always going to be as good or better than the iPod.

Why is anyone surprised?

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

Posted on: July 3, 2007 – 4:16 pm in Uncategorized, , ,

GM’s (GM) Armageddon

Not enough lip stick for this pig. GM’s (GM) June sales dropped 21%. The company has no excuses, since its sales of low margin vehicle to rental car fleets were down 22%. Total units were off almost 90,000 for the month compared to June last year down to 320,668.

Ford’s (F) sales were down slightly to 246,415, but it cut rental car sales by 29%, so its numbers were actually encouraging.

Toyota’s (TM) sales rose 13% to 245,739, but the frightening number for Detroit is that sales of its full-size pick-up, the Tundra, doubled to almost 22,000. The product is aimed at the heart of GM and Ford’s highly profitable light truck businesses.

GM simply got beaten like a red-headed mule. It can’t take many more months like this.

Douglas A. McIntyre

Posted on: July 3, 2007 – 1:50 pm in Uncategorized, , ,

Baidu.com (BIDU) Gets Too High

Baidu.com (BIDU) hit a 52-week high of almost $194 today. That puts the shares up over 110%. And, the company has a market cap of $6.4 billion. That is 49 times trailing sales. Google (GOOG) trades at less than 14x.

Baidu has the lion’s share of the search market in China, but it does have some real problems. First, it estimates that its revenue for the current quarter will be $50 million. That is an indication that the search business is not nearly as robust in China as it is elsewhere although the company has a huge number of people online. And, there is no guarantee that this dynamic of low yield on the Chinese search market will change.

Another potential head wind for Baidu is that Google will go to great ends to knock the company off its perch as No.1 in China. The big US search operation has just set up a partnership with Sina (SINA), the largest web portal in China. Google seemed impressed with the deal as well it should be. The company told the AP: "Sina is the most influential portal in China and a household brand in China’s Internet industry," said Kai-Fu Lee, vice president of Google and president of Google Greater China.

Baidu’s share of Chinese searches at 55% is about double Google’s. But, it is not a safe bet that it will stay that way.

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

Posted on: July 3, 2007 – 9:41 am in Uncategorized, , ,

A BP (BP) Merger With Royal Dutch Shell (RDS.B)?

Late word from ThisIsMoney in the UK is that BP (BP) and Royal Dutch Shell (RDS.B) are discussing a merger "which would be producing more than 70% more oil and gas than industry leader ExxonMobil." The deal seems far-fetched.

A merger would certainly allow for significant cost savings, but getting the approval of governments that are already concerned about big oil profits would be another matter. The perception that the largest oil companies have too big a hand in setting prices may not be true, but it creates a reaction that has political ramifications well beyond the profit and loss statements of the big oil firms.

A rumor. That is all.

Douglas A. McIntyre

Posted on: July 3, 2007 – 9:14 am in Uncategorized, ,

Intel’s (INTC) New 52-Week High

After a long time in purgatory, Intel’s (INTC) shares hit a 52-week high of $24.46 today. The stock has not been at level since early 2006.

There is certainly some hope that PC sales will begin to move up at a quickening pace with Microsoft (MSFT) Vista now in the market for six months. And, server sales continue to do fairly well and companies store and send more data.

But, the real reason for the stock moving this far is the market’s perception that Intel rival AMD (AMD) is so badly wounded that it could take years for it to come back. Even its new Barcelona chip is being released with less computing power than the market expected. And, surveys of the server market indicate that Intel is taking back market share from its smaller competitor.

Intel is a prime example of a market leader that becomes dangerous when threatened. It may have taken awhile but the results were devastating for AMD.

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

Posted on: July 3, 2007 – 9:02 am in Uncategorized, , ,

Chrysler (DCX) Goes To China, Tough Day For UAW

The deal for Chinese car company Chery to build small cars for DaimlerChrysler’s (DCX) Chrysler unit is finally sealed. The UAW, which will start contract negotiations with the US car companies in September, is not likely to be amused. But, for Cerberus, the hedge fund buying just over 80% of the car company, the deal could give the Chrysler another avenue for cutting costs.

The announcement may be an early warning for US and European car companies who fear that if Chery gets too much experience making products for markets outside China while working with Chrysler, it will help them export attractive vehicles of their own.

But, those concerns don’t acknowledge the export plans of Chinese car companies that are almost certainly already in place. After watching Japan, and then Korea, move into the vehicle export business, there is no reason that China cannot be next. It does not need help from Chrysler.

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

Posted on: July 3, 2007 – 8:05 am in Uncategorized,

Oil At $71: Exxon’s Wildest Dream

Exxon’s (XOM) shares are up about 40% over the last year and trade near their high of $86 and change. But, in American lives, there are no second acts. Or, so said F. Scott Fitzgerald.

But, $71 oil is the stuff that dreams are made of, at least at Exxon. The company announces earnings on July 26, and, although they will be strong, the focus should be on how the second half looks. If oil stays high, it should be spectacular.

Based on Exxon’s performance in the third quarter of last year, when oil also spiked above $70, Exxon had revenue of $99.6 billion and operating income $18.8 billion. The third quarter of 2007 could be better. Revenue could top $100 billion and operating income could approach $20 billion.

Skeptics would argue that the Exxon Express cannot run forever, but the next year or two could be records on top of records. OPEC shows no signs of increasing output. Venezuela and Nigeria present problems that could keep output tight. And, unrest in the Middle East will almost certainly continue indefinitely.

It is the Exxon decade, whether consumers and businesses that use oil like it or not.

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

Posted on: July 3, 2007 – 5:20 am in Uncategorized

GM Recovery: An Illusion Of Success?

GM’s (GM) stock has doubled in 18 months to over $38. There are ample reasons. A settlement of the UAW’s fight with GM parts supplier Delphi fixes the amount of the large car company’s obligations to its former division. It also averts a strike at Delphi which could shut GM down.

GM has sliced $9 billion a year from annual costs. Folks like Kirk Kerkorian and Nissan’s Carlos Ghosn said that it could not be done. But, they took the last train out of town.

And, Wall St. thinks that the UAW has finally come around to the reality of needing to help US manufacturers with some relief on pension and medical benefits. If GM can strike a good deal with the union, its costs should improve even more.

The Wall Street Journal says that the gain in GM’s stock may be a sucker rally. The paper puts it this way: "GM’s business is still under stress. It is burning cash, its core North American operations aren’t making money and several broad industry trends are combining to damp its ability to boost revenue."

Unfortunately for GM, there may be some truth that North American sales growth will continue to be hard to come by. Credit Suisse predicts that GM’s US sales could have dropped as much as 13% in June. If that trend continues, making money in its home market may be very hard for the car company.

But, the focus on North America may miss much of the point about GM. The company is doing OK in Europe. It is, along with joint venture partners, the No. 1 car company in China. It is moving into India, and the options of closing down some of its US brands is still a potential hole card.

As GM gets stronger overseas, management’s goal in the US may simply be to hit a cash break-even. Having a profit in North America may not even be in the play book.

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

Posted on: July 3, 2007 – 5:08 am in Uncategorized,

As Microsoft (MSFT) Sales Improve, Can A PC Rally Be Far Behind?

The Vista train may be pulling out of the station. After checking a number of software sales indicators, an analyst quoted in Barron’s says that Microsoft (MSFT) OS sales should handily exceed expectations in second half of the year.

Since Vista was first released in beta, Wall St. has harbored a "domino theory" about the effect that the new software will have on the broader tech industry. As sales of Vista begin to spike up, PC demand will rise sharply. Companies including Dell (DELL) and HP (HPQ) will benefit from the new unit shipments.

As the PC domino falls, the large chip-makers will begin to see improvement in their sales. Intel (INTC) and AMD (AMD) benefit within a quarter or two of Vista’s success.

After that, tech integration companies like EDS (EDS) and Accenture (ACN) will be called in to integrate Vista and Microsoft’s new server software throughout the tech infrastructure of large enterprises.

The Achilles heel in all of this is that rumors of improved Vista sales have been around since the beginning of the year. MSFT CEO Steve Ballmer threw cold water on the idea that the software was flying off the shelves. Analysts looking for a big short-term profit in the stock got burned.

Burned once, shame on me. After that, it’s all your fault.

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

Posted on: July 3, 2007 – 4:52 am in Uncategorized, , , , , , ,

SAP (SAP): The Dog Ate My Downloads

It may go down in history as one of the most elaborate defenses of trade secret theft. Oracle (ORCL) has accused German rival SAP (SAP) of systematically downloading sensitive documents to get a "leg up" on the competition.

After denying the allegations for a time, SAP has now said that at least some of the downloads did take place, but, it mounted a three-part defense:

1. An SAP operating company, TomorrowNow, and not SAP itself downloaded and had access to the documents. The parent company never saw them.

2. Oracle should have called SAP when its discovered the problem. Of course, SAP would have immediately made sure that the practice ended.

3. The material which was downloaded was of a nature that Oracle could not have been harmed by a unit of SAP having access to it.

While the defense may have some chance of working, it is extremely odd that it comes so late. Oracle first filed a suit over the matter on March 22. The idea that it took over three months for SAP to find all of this out is thin, at best.

The CEO of SAP is taking a real chance by endorsing the story. If the court finds that defense is inaccurate, even in some of its details, SAP Chief Executive Officer Henning Kagermann could find himself looking for a new job. Perhaps as an actor.

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

Posted on: July 3, 2007 – 4:34 am in Uncategorized, ,

Media Digest 7/3/2007 Reuters, WSJ, NYTimes, FT, Barron’s

According to Reuters, SAP (SAP) admitted that one of its divisions has inappropriately downloaded documents from rival Oracle (ORCL), but said the parent company never had access to them.

Larry Ellison’s company, NetSuite, a potential competitor to Oracle, has filed to go public leaving the executive with a tough balancing act.

The European Union is probing whether DVD format Blu-ray employed any anti-competitive practices to get relationships with Hollywood studios, according to the WSJ

The Wall Street Journal writes that Danone’s (DA) possible sale of its biscuit business to Kraft (KFT) could make the balance of the business a takeover target.

The Wall Street Journal says Blackstone (BX) is considering taking a stake in a state-owned chemical company in China.

The Wall Street Journal writes that a new study shows that Merck’s (MRK) Vioxx started to cause heart problems in some patients almost immediately after taking the drug. The research could hurt the company’s defense of product liability claims.

The Wall Street Journal writes that while GM (GM) has good short-term prospects due to cost-cutting, longer terms it still faces challenge on the revenue side of its business.

The Nokia-Siemens joint venture in the telecom equipment business will make a large investment in India to strengthen its foothold there as a provider of infrastructure, according to WSJ.

The New York Times writes that Och-Ziff Capital Management, a $26.8 billion hedge fund, filed for a $2 billion IPO.

Barron’s writes that Local.com rose sharply as investors speculated that its new patents could bring in millions in royalties.

Douglas A. McIntyre

Posted on: July 3, 2007 – 3:20 am in Uncategorized, , , ,

Asia Markets 7/3/2007

Markets in Asia rose.

The Nikkei was up a fraction to 18,150. Hitachi (HIT) was up 1% to 882. Sony (SNE) was down 1.9% to 6190. Softbank was up 2.8% to 2745.

The Hang Seng rose 1.4% to 22,077. China Mobile (CHL) was up 2.7% to 86.2. China Petroleum (SNP) was up 4.2% to 9.02.

The Shanghai Composite was up 1.7% to 2,900.

Data from Reuters

Douglas A. McIntyre

Posted on: July 3, 2007 – 2:48 am in Uncategorized, , , ,