Daily Archives: December 2, 2007

A Huge Oil Find In Very, Very Deep Water

It’s nice to find a lot of oil, but only if drillers can get to it. Brazil is in that position now that a field with as much eight billion barrels of light oil and natural gas. McClatchy Newspapers reports that "the deposit would be the largest petroleum find in seven years."

The news agency adds "It’s among the most complicated projects in the world in terms of deep water," said Caio Carvalhal , a Brazil -based research associate with the U.S. consulting firm Cambridge Energy Research Associates

Production from the field will probably not start until 2012. If they can get at it.

Douglas A. McInyre

Posted on: December 2, 2007 – 4:43 pm in Oil & Gas

Activision (ATVI) Ads Vivendi Games, Creates Giant

The video game business just got a new leader. Activision (ATVI) will merge its operations with the game division of Vivendi.

According to the parties the newly named Activision Blizzard, is expected to have approximately $3.8 billion in pro forma combined calendar 2007 revenues and the highest operating margins of any major third-party video game publisher. Activision, one of the world’s leading independent publishers of interactive entertainment, is best known for its top- selling franchises, including Guitar Hero®, Call of Duty® and the Tony Hawk series, as well as Spider-Man™, X-Men™, Shrek®, James Bond™ and TRANSFORMERS™.

Under the terms of the agreement, Vivendi Games will be merged with a wholly owned subsidiary of Activision. In the merger, shares of Vivendi Games will be converted into 295.3 million new shares of Activision common stock. Based on the transaction price of $27.50 per share of Activision common stock, this implies a value of approximately $8.1 billion for Vivendi Games. Concurrently with the merger, Vivendi will purchase 62.9 million newly issued shares of Activision common stock at a price of $27.50 per share – a premium of 31% to Activision’s average closing price over the past 20 trading days – for a total of $1.7 billion in cash. As a result of these transactions, Vivendi will own an approximate 52% ownership stake in Activision Blizzard on a fully diluted basis.

This is far different from the merger we were expecting in the sector, and we’ll send out the new game plan to our Special Situation Investing Newsletter subscribers shortly.  Within five business days after closing the transaction, Activision Blizzard will launch a $4 billion all-cash tender offer to purchase up to 146.5 million Activision Blizzard common shares at $27.50 per share. The tender offer will be funded by Activision Blizzard’s cash on hand at closing, including the $1.7 billion in cash received from the Vivendi share purchase.

Douglas A. McIntyre

Posted on: December 2, 2007 – 2:18 pm in Mergers and Buy Outs, Video Games,

How Bad Will Down Trend In Shanghai Market Get?

In only three weeks, shares of PetroChina (PTR have lost about a third of their value, which at one point was about one trillion dollars. The Shanghai Composite has fallen from over 6,000 in mid-October to 4,872.

As the Telegraph points out "What began as a bout of profit-taking in Shanghai now risks turning into a serious correction as the government steps up efforts to ration credit and drain liquidity."

The fortunes of the stock market in China may be tied to the economy and money policy in the country, but is the economy tied to the stock market? Probably not. A drop in the market could do financial damage to the Chinese middle class, but there is no reason to believe that it would do significant damage to exports or to GDP growth. The government still underwrites too much of the critical commodity base which helps that country grow, especially by keeping energy costs at an unreasonable low. It also still owns or controls the lion’s share of business and industry.

The Chinese may get killed in their own markets, but, in an odd way, it could make investing in the US and Europe more attractive. The Dow could use a little lift.

Douglas A. McIntyre

Posted on: December 2, 2007 – 12:28 pm in China,