Daily Archives: October 7, 2007

Will One Of The Home Builders Go Bankrupt? (DHI)(HOV)(BZH)(PHM)

The housing situation in the US may be getting bad enough so that one or more of the major home builders could face Chapter 11, especially if the downturn goes deep into 2008.

Bloomberg writes that "at least five of the top 15 homebuilders by revenue are burdened with too much debt, Agency Trading’s Barron said. They are Hovnanian (HOV), California-based Standard Pacific(SPF), WCI (WCI), Beazer Homes (BZH), and TOUSA Inc (TOA)."

“We would not be surprised to see one or more of the larger homebuilders become insolvent if current pricing trends persist into 2008,” Mark A. Morgan, senior equity financial analyst with New York-based Rochdale Securities LLC. Some media reports already indicate that several of these companies are in negotiations with their banks to improve payment terms on debt.

But, banks may not be able to help the larger homebuilders, especially in a market where investors are watching the banks themselves. Huge write-offs at Citicorp (C) and other big US financial companies have put pressure on managements at the firms to be more prudent.

If share price fall-off is any indication, Beazer and Standard Pacific are the most likely homebuilders to file for bankruptcy. While shares in most of the larger companies in the sector are off about 40% over the last year, shares in these two firms are down closer to 80%.

If one company files for Chapter 11, does it cause a huge shareholder stampede out of all of the others? Probably. Which means by early 2008 stocks in all of these companies could all be down by 80% from their late 2006 peaks.

Douglas A. McIntyre

Posted on: October 7, 2007 – 5:52 pm in Housing, , , , , , , ,

SAP (SAP) Buys Business Objects (BOBJ) For $6.8 Billion

Enterprise software giant SAP (SAP) has agreed to buy Business Objects (BOBJ), a pioneer in business intelligence, for $6.8 billion or $59.35 a share. BOBJ closed at $50.27 on Friday.

Douglas A. McIntyre

Posted on: October 7, 2007 – 4:09 pm in Mergers and Buy Outs, ,

MSNBC Buys Newsvine

The hard news television and online property MSNBC, a joint venture between Microsoft (MSFT) and the NBC Universal division of GE (GE) has just bought Newsvine, according to TechCrunch.

Newsvine describes its business as allowing visitors to read content from established media organizations like the Associated Press and ESPN as well as individual contributors from all around the world. Placement of stories is determined by a multitude of factors including freshness, popularity, and reputation. Contribution is open to all, and editorial judgment is in the hands of the community.

The Newsvine traffic ranks the site No. 4,499 among all websites according to Alexa.

Douglas A. McIntyre

Posted on: October 7, 2007 – 4:02 pm in Mergers and Buy Outs, ,

$100 Oil? China Crude Imports Up 18%

China news agency Xinhua says that the country’s imports of crude oil rose 18% in the first eight months of the year to hit 108.2 million tons. "From January to August, China imported 110.4 million tons of crude oil and exported 2.18 million tons, said the General Administration of Customs (GAC)." And economists wonder whether the price of oil will continue to rise from its current level of $80.

OPEC recently agreed to raise oil output, but only by about 2% beginning next month. In the meantime, concerns about future production capacity appear to get worse. "The two arguments against 100-dollar oil, the ability of technology to raise new supply and the ability of prices to limit demand, are falling quickly by the wayside," said Jeffrey Rubin, an economist at CIBC World Markets told AFP news. And, his comments came before the news from China.

A CIBC report notes that China consumes more than double its daily production of 3.5 million barrels, while other fast-growing Asian nations like India, Malaysia and Thailand are also boosting petroleum use.

The move toward $100 per barrel oil has begun to look inevitable.

Douglas A. McIntyre

Posted on: October 7, 2007 – 1:46 pm in Oil & Gas

Will CEO Change At Sprint (S) Ruin Clearwire (CLWR)?

Clearwire (CLWR), the WiMax IPO run by telecom legend Craig McCaw, has been up and down over the last six months. It hit $33 in July, but now trades closer to $20.

Clearwire faces a tremendous headache if the person picked to replace Sprint’s (S) current CEO, Gary Forsee, does not support the telecommunication company’s $5 billion WiMax build-out. By 2010, Sprint plans to reach over 120 million people in the US with the next-generation wireless broadband tech. It will compete with the 3G systems used by its competitors AT&T (T) and Verizon Wireless.

One of the reasons that Clearwire shares have been depressed is the concern that the company will have to take on billions of dollars in debt to complete its own national WiMax network. But, a month ago, Sprint and Clearwire agreed to a partnership where customers of each company could use the network of the other. In theory, it should save substantial capex for both firms.

If Sprint backs off of WiMax and decides to use a more tradition technology, Clearwire loses the ability to share a big network, and its cost to do business could sky-rocket.

There are other potential losers if Sprint changes course. Intel (INTC) has put a lot of money into WiMax. It plans to supply WiMax-enabled chips for PCs and handheld devices. INTC also put several hundred million dollars into Clearwire. Another earlier investor in McCaw’s company was Motorola (MOT). It is hoping to sell handsets and infrastructure to make the national WiMax system work.

If Sprint’s WiMax plans blow-up, there will be a lot of wounded.

Douglas A. McIntyre

Posted on: October 7, 2007 – 1:28 pm in Uncategorized, , , , ,

Will Citigroup (C) Bail Out Northern Rock?

The Telegraph has a story indicating the Citigroup (C) may offer British mortgage company Northern Rock at $20 billion line of credit to remain independent and work itself out of its lending mess. After Citi’s losses, some of which had to do with problems in the mortgage markets, perhaps someone should tell them that getting deeper into the quicksand is a bad idea.

Northern Rock was saved by funds from the UK government, but now that company has to find a way to stand on its own. US hedge funds JC Flowers and Cerberus have considered buying the bank, or its assets. But, such a move could wipe out all of the shareholders, and some of the company’s bonds. A credit line that would give the company time to dig itself from under its mountain of problems might be preferable.

Of course, if Citi puts the money up, it is risking taking a bigger bet on a business that has already bitten it. But, the US bank has not been adroit managing its affairs over the last few months, so why should this case be any different?

Douglas A. McIntyre

Posted on: October 7, 2007 – 8:17 am in Banking,