Daily Archives: December 6, 2007

When You Want To Like Palm, But Just Can’t (PALM)

Palm, Inc. (NASDAQ: PALM) is perhaps becoming the poster child of "What Not To Do As A PDA/Smartphone Company."  The stock is getting crushed again on yet one more warning.  Palm now expects revenues to be in a new lower range of $345 million to $350 million for the second quarter, compared with earlier guidance of $370 million to $380 million provided October 1, 2007.  Palm states that this is "due to a delay in shipping a product that the company had previously expected to have certified within the quarter."

The company warned on margins and warned on expenses and "unforeseen increase in warranty repair expenses during the quarter, a shift in product mix that included higher-than-expected shipments of Palm Centro™ smartphones and the delayed product shipment."  It will also post a loss instead of an expected positive earnings report.

The company goes on with more explanation but it just doesn’t matter.  I have personally been a Palm user for more than two-years and despite some problems here and there have been relatively happy with the product and am considering the newer Palm PDA/Smartphone through Verizon.  I won’t personally be switching over to Sprint to take advantage of the new Palm Centro, but I have heard many talking about getting it.  This has a shot at being revolutionary as a Smartphone gateway product, but the truth is that Palm just seems like they can’t get anything right.

But you have to wonder about these guys.  Palm does come up from time to time now in our screen for our "STOCKS UNDER $10 NEWSLETTER" but this is becoming one discouraging company.

A few months back I had noted how Cisco Systems (NASDAQ: CSCO) was dumping Palm as a supplier to its mobile workforce, although one of the heads of communications at Cisco informed me that Palm was still a partner.  I really wonder how long that will last as none of the news that comes out of Palm is ever good anymore. 

Shares are down 17% at $5.45 in after-hours trading. 

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 7:29 pm in Consumer Electronics, Earnings Warning, Wireless,

10 CEO’s That Need To Leave in 2008: Angelo Mozilo of Countrywide (CFC)

When all the CEO’s and corporate officers are lumped together for playing down the sub-prime mess in the summer and for all the sub-prime loans that were made, one CEO is thought of as the proverbial poster child.  This is Angelo Mozilo of Countrywide Financial Corporation (NYSE: CFC).

Before you think that we are just calling for him to leave openly, we are not.  In fact it is the opinion of 24/7 Wall St. that he has dodged the biggest bullets already and that the board of directors won’t try to fire him nor that they will be pressured to.  This is even sort of his show as far as we are concerned because he’s not only Chairman and CEO.  He’s also the founder.

This is actually a prediction piece, and 24/7 Wall St. thinks that at some point in 2008 when and if the dust settles in all the mortgage soup that Mozilo will announce his retirement and succession plans.  But…. we think that the retirement may only be as CEO and it is possible that he’ll stay at Countrywide as non-Executive Chairman.  We also believe that he’ll be able to take basically as long as he wants to name a successor and it may be 2009 before he is out.  He’s roughly 68 years old, so he isn’t at any crucial age in today’s world.

All things being equal, it is also the belief of 24/7 Wall St. that  Countrywide will survive and likely thrive again in the future.   That may of course change if there are more insurmountable developments that come across the news tape, but that is our opinion as of today.  It’s obviously not entirely out of the woods but it isn’t in the graveyard either.  Shares are down almost 75% from 52-week highs of $45.26, but they are also up almost 50% from lows of $8.21 in recent weeks. 

  • While the criticisms have been harsh, we do not actually hold his personal stock sales as anything we’d raise much of a stink about like many others have.  These sales were all under a planned 10b5-1 sale program and he was never a serial stock seller before.  His case to the SEC inquiry should actually be easy to prove that he didn’t get to sell out at the top and leave everyone else holding the bag.
  • He didn’t do Bank of America (NYSE:BAC) any favors when he came out the day after their $2 Billion equity stake and predicted on CNBC that the U.S. economy is almost certain to go into a recession.
  • Press about Countrywide paying large bonuses to their mortgage brokers when the mortgage was a bad deal for the home buyer didn’t help.
  • Analysts are still well above current stock prices with their older price targets that haven’t been fully updated.
  • Some have called for the axing of Mozilo.  They were also hit quite hard for the harsh wording in their SEC Filings
  • Mozilo in an interview yesterday with CNBC’s Maria Bartoromo said he had discussed this current mortgage bailout package with Paulson, so if this actually comes to pass it will likely be the stabilizing act that keeps the company easily intact and out of the public spotlight like it had been in recent weeks and months.  But the sub-prime rate freeze may help him as long as there are not waves and waves of foreclosures.

because everyone ran for the hills.Once again, we do not believe that Mozilo can’t survive nor do we believe that he has to leave the company as of today.  We just think he’s going to announce a quasi-retirement that won’t really be a full retirement.

GUIDELINES FOR CEO’s THAT NEED TO GO

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 5:37 pm in Financial Stocks, Management Change, , , ,

Another SIV Bail-Out

Another SIV has been bailed out by a major bank. Dutch bank Rabobank will move $7.6 billion of SIV assets onto its balance sheet.

The SIV in question, Tango Finance, was co-managed with Citigroup (C).

According to the FT management at the financial firm explained the move: Eddie Villiers, responsible for European sales at Rabobank, said: “The current SIV business model is dead and so there is no prospect of its survival in its current form.

While two other overseas banks, HSBC (HBC) and Standard Chartered, have also taken SIV assets onto their balance sheets, no US bank has taken a similar move.

But, it may well happen.

Douglas A. McIntyre

Posted on: December 6, 2007 – 5:22 pm in Banking, ,

UnitedHealth Dodges A Big One in SEC Options Backdating Settlement (UNH)

UnitedHealth Group (NYSE: UNH) appears to have escaped any serious hooks of the SEC in its stock options backdating fiasco.  Its Special Litigation Committee, an independent committee comprised of two former Minnesota Supreme Court Justices, has concluded its review of claims relating to the UnitedHealth historical stock option practices brought against certain current and former officers and directors in federal and state derivative lawsuits.

Based on a 15 month review, the SLC reached settlement agreements on behalf of UnitedHealth with UnitedHealth Group’s former Chairman and CEO William W. McGuire, M.D., former General Counsel David J. Lubben, and former Director William G. Spears.

McGuire is paying out a fortune of roughly $600 million, but he got to the point that he buily dynasty money from what appeared to be obvious backdating on his stock options grants:

  • He will surrender to UnitedHealth Group certain stock options to acquire 9,223,360 shares of common stock, which the SLC has valued at approximately $320 million;
  • He will surrender his interest in the company Supplemental Executive Retirement Plan, valued at approximately $91 million;
  • He will surrender approximately $8 million to the company in his Executive Savings Plan Account; and
  • He will relinquish claims to other post-employment benefits under his Employment Agreement.

The SLC has valued the total amount to be relinquished by current and former officers pursuant to these settlement agreement to be approximately $900 million in total.  The settlement agreements and the dismissal of the derivative actions are subject to notice to the Company’s shareholders and Court approval.

Don’t feel too sorry for Mr. McGuire.  His original golden parachute was somewhere in the vicinity of $1.1 Billion.  He and many of the McGuire clan should now have dynasty money for many generations.  Shares are calm in after-hours trading as this was ultimately expected to be a formality by the time you consider its massive size.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 4:36 pm in Options, , ,

The 52-Week Low Club

Verifone (PAY) Accounting problems still taking shares down. Falls to $19.57 from 52-week high of $50.

Blockbuster (BBI) Concerns about postal costs. Down to $2.99 from 52-week high of $7.30.

Williams Partners (WPZ) Brings new stock offering to market. Falls to $36.95 from 52-week high of $50.

UTI Worldwide (UTIW) Loses deal with Wal-Mart (WMT). Trades down to $18.40 from 52-week high of $32.

Zumiez (ZUMZ) Poor same-store sales. Falls to $24.95 from 52-week high of $53.99.

Savvis (SVVS) Drops outlook for next quarter. Drops to $27.68 from 52-week high of $53.47

Douglas A. McIntyre

Posted on: December 6, 2007 – 4:31 pm in HI/LOW, , , , , ,

Dow Jones (DJ)(NWS) Gets New CEO, New Publisher For WSJ

Les Hinton, a senior executive as News Corp (NWS) has been named the head of Dow Jones (DJ).

Times of London editor Robert Thomson has been named Publisher of The Wall Street Journal

Douglas A. McIntyre

Posted on: December 6, 2007 – 4:14 pm in Media, ,

10 CEO’s That Need To Leave in 2008: Hector Ruiz of AMD (AMD)

When you think of one CEO that went from hope to hype to outright disappointment in technology, the top name that comes to mind after 2006 and then after 2007 is Hector Ruiz of Advanced Micro Devices (NYSE:AMD).  If Ruiz manages to hang on for many more quarters it may just be in the role of non-executive Chairman rather than CEO & Chairman of the company.

But AMD did the unthinkable a couple years back and that decision is made at the top.  It picked a pricing war with near-monopoly Intel Corp. (NASDAQ: INTC) and as it turns out it really seems that the limitations of Moore’s Law seems to apply to AMD much more than Intel.  This could have had a shot at being a David vs. Goliath, but this David turned out to be really near-sighted and incapable of using a sling.  Now AMD can’t even really just back away from higher-end chips to focus on the lower-end because it gets to fight Intel there too.  Intel seems to have its legal advantages intact too.

NVIDIA (NASDAQ: NVDA) also seems to have an upper hand over AMD’s ATI unit, although we know if ATI loyalists that would argue this and each generation of new graphic chips from one to another seems to leapfrog the competing graphic chip.  As far as the computing power that we use ourselves in computing and gaming it is more of a six-five pick-em.  But AMD has been criticized over and over for its ATI acquisition.

We criticized its first financing round as being voodoo financing, although the second round didn’t seem as bad.  We have not heard of any Hail Mary passes that are expected during an upcoming analyst meeting, although we can’t hang our hats on that with any certainty.

We also have pointed out how we found some notes from this Monday that are turning out to be reality about serious problems with the new Barcelona chips and its chips were falling far short of the GHz goals originally set out and short of you know who’s processors.  We also would take the "show-me attitude" in believing that just because AMD indicates that a quarter delay is really just a one quarter delay.  It is quite possible that analysts will have to trim down estimates yet again.  As it stands now AMD is not expected to be profitable this year nor in 2008 and investors have seemed to shift to preferring to buy quality rather than hope.

Ruiz also has an image issue that can’t really be repaired overnight.  Some analysts have noted how he has been very difficult to pin down historically.  One analyst has said directly that it seems a little different than before because he cannot ignore a 75% stock drop as an anomaly and he is almost forced to deal a bit more openly.  But having many of your underlings having very little respect for you and having an almost open lack of respect shown when he’s not around can’t be good.  All those employee stock options aren’t really worth any money when your stock hits 52-week lows every single day.

Our contacts tell us of in-fighting between design groups and that many managers don’t exactly think all that fondly of Mr. Ruiz.  We will be the first to admit that this is the same as the legal term hearsay and that if it was a trial it would not be admissible.  But we’ve seen that most of he hearsay from some of our sources on this topic is usually true on the bad things behind the scenes and turns out to be gossip or rumor when it is positive.

This last financing investment announced out of the Middle East did actually create a rift from some shareholders who have been holding AMD stock.  The last reported $622 million investment from a unit of Mubadala Development Co. in Abu Dhabi represents roughly an 8.1% stake and some institutions have considered it an insult since they didn’t get to participate.

But there is actually at least some good news for shareholders:

  • AMD doesn’t need cash now;
  • AMD may have a large grant coming down the pipe and it may be able to monetize some of its existing fabs;
  • Analysts are already mostly negative, so downgrades may just be "estimate cuts.’
  • The ATI unit could be converted to cash and the company could clean its books entirely, although it is a written down asset;
  • AMD has an implied permanent safety net  in that it is deemed to be a "must survive company" because it keeps Intel (NASDAQ: INTC) from being a total outright monopoly;
  • The worst of the stock drop is likely behind it if you believe they have a perpetual place; It is quite possible that an IBM (NYSE: IBM), Taiwan Semi (NYSE: TSM) or another giant tech company could come in and partner with AMD.  We cannot neglect that possibility, although they may want to install their own leader to save it.
  • An activist investor like Carl Icahn could always decide that enough is enough and want to stir up the pot, although we think he’d rather focus on profitable companies that can be made more profitable.

Lastly we want to caution one key issue:

  • There are very few readily available names that could step into this role and immediately make a difference.  With no heir apparent Ruiz might be able to shun any serious efforts against him for quite a long time.  In light of reports that Dell isn’t focusing on AMD chips to the point that had been hoped, you can probably forget about a Kevin Rollins being asked to step in.  When we have discussed an heir apparent or even a candidate with others there has yet to be a single solid candidate that everyone likes or would say is the perfect replacement.  picking one senior manager may result in others defecting.  Once again, just because things don’t go well under a leader doesn’t mean he or she can be readily axed without a long hard fight.

At roughly $9.00, shares are only 2% or 3% above 52-week lows.  The 52-week high is $23.00, but the two-year high is above $40.00.

GUIDELINES FOR OUR CEO SELECTION

AMD probably won’t appear in our special situation newsletter but may appear in our "10 Stocks Under $10" newsletter.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 4:03 pm in Management Change, Semiconductor, Shareholder Issues, , , , ,

Yahoo! Finance (YHOO) Loses It Focus

The most visited website at the 24/7 Wall St. New York news desk is Yahoo! Finance. We actually pay to use Yahoo! (YHOO) real time quotes. Based on syndicated research, Yahoo Finance! is the most visited financial website in the US

Yahoo! Finance announced that it would start a new video show that will run at its website starting next month. They found some good hosts including blogger Paul Kedrosky.

Odd as it may seem, within a few days of the news about the new video show, Yahoo! Finance started to run links to its video section on all of its quote pages. The current TV content comes from Fox Business, TheStreet.com, Minyanville, and a few other places.

But, promoting the new video products seems to have gotten in the way of company news which would normally go hand-in-hand with stock quotes. For years, if a user put LVLT into the Yahoo! Finance quote box, the news section on that quote page would have articles about Level 3 from The Associated Press, The Motley Fool, CNN Money, Forbes, and other sources. Now the first links are to videos. The problem is that the videos have nothing to do with most of the stocks being looked up!

24/7 Wall St. checked dozens of quote pages. Put in AKAM. The first four news links are to videos which have nothing to do with Akamai. They are from Fox, TheStreet, BBC, and ABC. How about MO? If you want news about Altria, you have to sort through five headlines, four of them are the same videos found under the Akamai news section. ANSW. The first four stories listed under Answer Corp are the same video clips that we found on almost every other quote page at Yahoo! Finance.

This is a fairly malicious perversion of the process of delivering news to people. The headlines for each company are supposed to to be about the company.  Every other major financial website does it that way and for years Yahoo! Finance did, too.

Is Yahoo! being paid for this, or are they priming the pump to get audience for the online financial TV channel that comes online in January? There’s no way to tell.

The companies who are legitimate news parters with Yahoo! Finance are probably putting in calls to Yahoo! president Sue Decker to find out why they are bring pushed off the bottom of the quote pages by unrelated content. If they are paying for their news to be there, they are getting robbed.

The whole business smells a bit. There are other ways to promote the new video products. Twisting the user experience and suckering people by putting a "Top 5 Large-Cap Stocks" video on each quote page just makes investors think it is about a company that they are looking up. Play the video. The content is about something else

Looking out the window at the front of The New York Stock Exchange, there are traders burning the Yahoo! Finance logo in effigy.

Come back to us Yahoo! Finance. Before it’s too late.

Douglas A. McIntyre

Posted on: December 6, 2007 – 3:27 pm in Internet,

Dolans Save $3 Billion On Rejected CVC Buyout

From Silicon Alley Insider

The Dolan family, which controls Cablevision (CVC), Madison Square Garden and the New York Knicks, are starting to look like financial geniuses. Or at the very least, they put one over on Mario Gabelli and the rest of Cablevision’s minority shareholders.

continued here…

Posted on: December 6, 2007 – 2:39 pm in Uncategorized

10 CEO’s That Need To Leave in 2008: BigBand Networks’ Amir Bassan-Eskenazi (BBND)

BigBand Networks, Inc. (NASDAQ: BBND) is looking to be one of the poorest IPO’s of 2007.  Management has lost credibility with the underwriters and with analysts that initially gave this favorable coverage.  Amir Bassan-Eskenazi is Co-Founder, Chairman, Chief Executive Officer and President.  Sometimes the founders of a business need to ultimately step aside to let in stronger operators and that appears to be the case over at BigBand.  If you read further on they have at least named a COO, but BigBand needs to loosen up the tight control that is appears to be present.  We’ve called this guy out before.

This is not necessarily the worst IPO of 2007 if you can believe it, but it was one of the most easily recognizable out of the losers considering the "hot" IPO status at a cautious time.  In fact, its network-based platforms that enable cable operators and telephone companies to offer video, voice, and data services across broadband and legacy networks had been discussed by some as a possible challenge to Cisco Systems (NASDAQ: CSCO) down the road and on a limited basis.  Because of a sharp focus we aren’t sure that was really the case, but their pre-IPO and post-IPO indications were quite strong.  As it turns out, the only challenge this has posed was an investor loss test to see if investors could lose more money buying BigBand stock or by purchasing CDO’s blindly.

Shares rose to just over $20 before summer after its "hot" IPO in March and two underwriters gave positive recommendations with a "buy" rating and an "outperform" rating.  Those look like ancient history if you read them now.  The company disappointed in late summer as not being good enough for a recent hot-IPO, but then it posted results that failed to impress again since then.  The stock has never recovered and the analyst reports aren’t exactly a great courage builder.  Even its recent announcement of "five contract wins in China" has failed to attract the "China hype" traders.

On October 30, BigBand announced a restructuring plan "to increase its efforts on video networking." As part of its plan, BigBand said it would reduce its workforce by 15% and retire its Cuda CMTS platform.  Is that the success a post-IPO company wants to signal?

Simultaneously the company announced that its general manager of product operations, David Heard, would become its C.O.O. and assume combined responsibility for research & development, marketing, sales, services and operations.  Heard joined BigBand earlier in 2007, after having leadership positions at data and telecom companies, including Tekelec, Lucent, AT&T and Somera Communications.  The potential good news is that at least shareholders have a shot at putting him in charge IF they can march the CEO out.

Class action settlements (looks like 4 class action suits) are a potential threat to the $140+ million cash on the books, so don’t even use the market cap to net cash metric to derive if BigBand has become a "value stock" or not.  It isn’t.  The short interest on last look was over 2.3 million shares.

Because of the series of disappointing earnings and the lowered guidance and losses posted, we do not even know if the First Call estimates ahead are worth as much as toilet paper. Estimates have come down drastically and its forward P/E is still over 100. The point that some key orders didn’t go through has merely shown that this is just a big risk in investing in stocks where one or two contracts make or break a quarter.  From our view don’t have any assurances that they will be profitable ahead, although there may be some negative personal opinion there that isn’t in agreement with the company’s management.  But we’d argue that morale is probably only high among the sales staff when they are at happy hour.

Amir Bassan-Eskenazi might, and we key on might, be able to satiate hostile shareholders by merely loosening up on some of his titles with a stronger operations team if he isn’t willing to leave outright and just hold his shares.  We are also not certain that a disgruntled base of shareholders would greet an outright departure with open arms because it could signal even more trouble.  So we’d suggest that Amir Bassan-Eskenazi keep the Chairman role and go find a real ball-buster of an action hero that can assume all of his operation roles that aren’t handled by David Heard.  Because of insider ownership and alternatives we believe the board could take if it wanted, he has to willingly do this or the effect could take this one further south.  Wanting someone out doesn’t mean they can be automatically outed, even if they have done a poor job. 

We haven’t calculated or been able to make a ‘guestimate’ on what his outright and complete departure would be worth because it may be viewed as a drastic signal.  But if they do have decent technology that can be sold and is actually competitive to others on the market, then it’s at least time for the founder to become more of an oversight position rather than the operator.

Shares sit at $5.71 today, and its short post-IPO trading range is $5.47 to $21.63.

GUIDELINES FOR OUR CEO SELECTION

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 2:02 pm in Management Change, Telecom,

10 CEO’s That Need To Leave in 2008: CIRCUIT CITY’s Schoonover (CC)

Out of large electronics retailers, Circuit City (NYSE: CC) has become the irrelevant shopping destination and it has a stock that proves it.  Its CEO, Chairman, and Chief Supreme Leader Philip Schoonover is probably hanging by a thread.  It’s time for the board of directors to stomach up some liquid courage and take back control.  In fact, they need to tell Mr. Schoonover that his new name is "Scoot-over."

Mr. Schoonover joined the company in October 2004 as executive vice president and chief merchandising officer. He was elected president in February 2005, joined the board of directors in December 2005, was elected chief executive officer in March 2006 and was elected chairman of the board in June 2006.

Early in 2007, the company lost more confidence from Wall Street when the announcement came that its CFO was leaving the company.  It was also recently announced that David Mathews, EVP of merchandising, services and marketing was leaving his position to become president of Orchard Brands.  Losing your merchandising officer in Q4 ahead of the period after Christmas is not the greatest signal.  Schoonover’s turnaround team under him hasn’t stayed long enough to make a difference.

In a world where your technology customers might have no conscience, having too flexible of a return policy on high-end items isn’t a win.  Flat panel LCD or plasma TV seem to be priced lower and lower each month, and making it too easy for customers to return these hurt.  Firing the rest of your more tech-savvy salespeople and getting rid of your only advantage over rival Best Buy (NYSE:BBY) to go to a lower-paid hourly worker that doesn’t understand the technology as well was perhaps the dumbest attempt to save cash we’ve seen from any retailer all year.  Even though it has asked some workers to return, there is some pretty bad blood that management created.

If you will recall the company received a private equity bid at $17.00 per share in cash from Highfields Capital Management LP back on February 11, 2005.  Even if there wasn’t a private equity crunch and liquidity shortage right now to do deals, there is no way on earth that Highfields would come back with this price and they refused to chase the stock higher.  Circuit City shares actually rose after the buyout offer, although the cracks in the armor started appearing late last year and the cracks broke the armor apart and all that is left is an emperor who wears no clothes.  "Scoot-over" wasn’t the head of the entire show for the entire time but he’s been there long enough to do far more damage.  Mr. Schoonover probably wishes he had a fabled time machine to go back and fix this.

Even the potential InterTAN sale in Canada may not yield enough help here.  S&P has noted that this had one of the largest share price drops compared to prices paid for shares by the company itself during a share repurchase program.  The only thing that occasionally saves Circuit City stock down at such low share prices is the occasional takeover rumor.  We have reviewed this over and over for our Special Situations subscriber letter, but we have not been able to make ourselves see the light.  The earnings have been a disappointment and First Call shows a loss expected for Fiscal FEB-2008, so any would-be buyer today has to be a far better turnaround player rather than an enhancement team that can engineer a 12-month to 18-month flip.

A new CEO with a vision might actually be able to woo back some of the old employees.  Best Buy does roughly 3.5-times the revenues, yet its market cap of almost $22 Billion dwarfs that of Circuit City’s $1.25 Billion.  Analysts have all bailed on the stock, so even if it has recovered off recent lows you could expect a series of upgrades (or at least waves of more positive comments) from Wall Street if "Scoot-over" left or was forced to leave.

Based upon the low share price, the dismay for Schoonover, the gross mismatch in revenue multiple comparisons, the ability to spruce up the stores, the possibility of a new leader getting some workers back, and a dozen more factors…. 24/7 Wall St. feels that if Philip Schoonover would take our "Scoot-over" name to heart that Circuit City shares would potentially rise more than 10% IF he was simultaneously replaced with someone who could turn this around. 

Shares are up $2.00 from its recent lows, but it still looks dismal.  At $7.39, the 52-week trading range of $5.35 to $25.25 makes this party just less-dull.  Circuit City is regularly reviewed for our "10 Stocks Under $10" newsletter.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 12:20 pm in Management Change, Retail, Shareholder Issues, , , ,

10 CEO’s That Need To Leave in 2008: ALCATEL-LUCENT’s Patricia Russo (ALU)

If Wall Street could cheer for one CEO to leave in the telecom equipment and communications equipment sector, it would be Patricia Russo of Alcatel-Lucent (NYSE:ALU). She had her time briefly, but frankly she has been almost 100% ineffective. 

You don’t even want to know what a former Lucent employee’s comments were a year or so ago, although this has been so bad for employee stock options there that in all fairness the comments might have been that bad about all of the top brass at Lucent.  We have never met her and she may be the nicest lady around for all we know.  But her stock since that merger has gone from a dead money stock play to a total and complete flame-out. 

As Lucent’s CEO since January 2002, Patricia Russo led the company through one of the most challenging periods in the telecom industry’s history and helped return the company to some profitability after the tech meltdown of 2000 and the following recession.  After she took over as CEO of Lucent in January 2002, Lucent shares continued their Bataan death march before recovering sharply in 2003.  But things haven’t gone well since then and shares reflected that.  Then Lucent merged with Alcatel and it hasn’t helped shareholders of the combined operations (even with the Euro gains that should have been seen from currency in Europe).  We even expect the old Alcatel heads to begin rattling their swords if they haven’t already.

Integrating Lucent and Alcatel would not have been an easy task.  And she just proved it.  The truth is that we cannot blame a consolidating customer environment and a Cisco Systems (NASDAQ:CSCO) dominated industry on her 100%, but we know with certainty that shareholders are so frustrated at this point that they would rather see Britney Spears running the show rather than Russo.  But she is an obvious leader who has fallen from grace and the company is large enough that shareholders should be demanding more. 

One thing she sort of can be considered is the token-American to keep the American regulators happy since this deal was closely reviewed because this meant so many key telecom and communications patents would be under French ownership.  Forbes had Russo on a list of most powerful women in the world ranked as #10 in August, but barring any Hail Mary touchdown pass we do not expect that she will be very high on that list (if at all) going forward.

Over the last year, Alcatel-Lucent has dipped to under $8.00.  The 52-week trading range $7.28 to $15.43.  Had this stock remained above $10.00 we would have excused her for being merely in a tough spot.  But this stock broke its $10 to $15 multi-year trading range in September and now shareholders are willing to take a blue dog over the current situation.  Shareholders would gladly accept her severance package to get new blood in the door.

24/7 Wall St. believes that a new CEO for announcement might be worth somewhere around 6% to shareholders, although part of that might be due to the low share prices.  The French are probably considering who they can transition into the role that would keep CIFIUS happy.

GUIDELINES FOR OUR CEO SELECTION

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 11:31 am in Management Change, Shareholder Issues, Telecom, , , ,

10 CEO’s That Need To Leave in 2008: Michael Cherkasky of Marsh & McLennan (MMC)

MARSH & MCLENNAN COMPANIES INC. (NYSE: MMC) is guilty of having one of the TOP 10 CEO’s TO GO FOR 2008.  Michael Cherkasky is both President & CEO of the broader "Marsh-Mac" group of companies.  One real problem is that Cherkasky came into this position as a legacy chief executive officer left over when Kroll was acquired.  He was also chief of investigations for the New York County District Attorney before joining Kroll.  He is the right guy for the risk segment and Kroll was a success under him, but he is not at all the right guy to be head of the entire Marsh-Mac group of companies.

The dislike and dismay for Cherkasky hasn’t and won’t end with Monday’s announcement that AIG’s Daniel Glaser will become CEO of the Marsh Inc. insurance brokerage unit.  Wall Street really does want Cherkasky to go back into the risk management side of the equation (or just out), and after being top dog at the parent he won’t likely accept the deserved demotion. 

Marsh-Mac’s core earnings just fell 40% and were under expectations.  Standard & Poor’s lowered the counterparty credit rating of risk to "BBB-" just this week and that is now the lowest investment grade ranking.  If the rating drops to junk, it may have severe issues in its clients accepting business from them because of the credit risks.

A Toronto-based private investment management firm K.J. Harrison & Partners has asked Marsh-Mac for a shareholder vote to spin off its Kroll subsidiary and its Mercer subsidiary units at the 2008 annual meeting in an attempt to maximize shareholder value. CEO Jim Harrison has stressed that the financial services company has little credibility with its shareholders and little credibility with the investment community.

The recent sale of its Putnam mutual fund subsidiary, which was sold to Power Corporation of Canada, was not effective nor was the value maximized as it could have been spun off to Marsh shareholders in a tax savings and giving more value to investors. It sold Putnam for $3.9 Billion but received only about $2.5 Billion net of taxes and minority interests.  This whole $3.9 Billion could have gone in a tax-free spin-off to shareholders (short of minority interests), and it has done nothing to bolster its credit ratings.

Over the last two years this stock is down roughly 22%, and it’s down about 18% in the last year as well.  Since the investigations in late 2004, Marsh-Mac has become dead money and rides still at the bottom of what feels like a permanent trading range and it cannot blame the CDO and liquidity crisis as the culprit.  Cherkasky hasn’t even been able to offset the negativity despite an accelerated share repurchase program that has taken the share count from 558 million down to 540 million with more share buybacks in this quarter.  It isn’t working and a CEO should only be allowed to spend so much money out of the coffers merely to appease holders.  Even its 3% dividend isn’t viewed favorably.

There are many actions that a newer CEO could implement and there are several key issues surrounding the company:

  • because of its size it arguably has the lowest price-book ratio in the sector;
  • its P/E ratio is under 20 and it trades under 16-times 2008 estimates;
  • it can be re-carved back into pure-play organizations as marsh, Mercer, and Guy Carpenter and even Kroll could be spun-off, even though it was acquired.

The raw truth is that there is actually considerable value here in the stock compared to peers, but Wall Street wants this ongoing turnaround to be re-initiated by a new head (and maybe a mostly new team).  24/7 Wall St. believes that if Mr. Cherkasky doesn’t do the right thing by leaving on his own, then the board of directors will make Cherkasky’s retirement announcement for him before the 2008 annual meeting.  We believe that a Cherkasky departure might be worth as much as 5% to 8% alone, although the company needs to learn the lessons of Citigroup and have a successor in mind (but not Chuck Prince).

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 11:25 am in Financial Stocks, Management Change, Shareholder Issues, ,

Guidelines for 10 CEO’s Who Need To Go In 2008

It’s December already, and some of us have started considering what new year’s resolutions will be after the holidays.  Companies make their annual projections and many boards of directors need to make their new year’s resolutions to be "I gotta get rid of our CEO."

The front-runners on this list were actually quite simple a few weeks ago because several legacy soon-to-be has-beens were still somehow in place.  We’ve had several of our top picks on our list leave as Caplan of E*Trade (NASDAQ:ETFC), Forsee of Sprint (NYSE:S), and Zander of Motorola (NYSE:MOT) have been cleaned out of the top positions.  O’Neal of Merrill Lynch (NYSE:MER) was on the list but the problems there were obviously not going to let him remain in the catbird seat until December.

Out of the 24/7 Wall St. list issued in December 2006 for the 2007 new year’s corporate resolutions 6 of our 8 that we said "had to go" were axed:

  • Rollins of Dell;
  • Nardelli of Home Depot;
  • Prince of Citigroup;
  • Semel of Yahoo!;
  • Pressler of Gap Inc.;
  • Panero of Sirius/XM Satellite. 

These are all obvious now, but some were not so obvious and many had never been under much public scrutiny at the time in December 2006.  The two survivors were Lee Scott of Wal-Mart (NYSE:WMT) and Antonio Perez of Eastman Kodak (NYSE"EK).  We still feel these companies would both be under better and newer leadership, but we have no interest in re-commenting about the department of redundancy department.  So we’d still recommend for shareholders to keep the pressure on these two.

It should be very clear by now that all board of directors should have a go-to list of 10 people they would each individually think of to go after in their industry before firing a CEO, CFO, or COO.  What Citigroup did was an outright disgrace.  Chuck Prince was a company dead man in January of 2007 and they had all year to line up a successor, even if the successor wouldn’t want to come in until the bad things were made public.

For starters, we did not include all of the heads of brokerage firms and the heads of banks, lenders, homebuilders and more.  The truth is that in hindsight any or all of these CEO’s would be at risk.  But the herd mentality makes them more of a bad group rather than all bad individually and we are honing in on individual poor performance. There are some candidates here for CEO’s of these companies, but it is specifically tied to individual situations.

We have also honed in on CEO’s where we’d expect their underlying stock to rally upon the announcement of their resignations or terminations.  We have even given some of these an out by transitioning part of their role out as a good enough reward.  This is not personal at all and we have not met these CEO’s personally.  As always, we hold no shares in any companies and have not been given any financial incentive to put this together.

Our selections have been completed and you can expect to see this list of CEO’s that need to go over today, tomorrow, and maybe a couple next week.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 10:30 am in Management Change

Herb Greenberg Names Eddie Lampert Worst CEO of 2007 (SHLD)

Herb Greenberg at MarketWatch wrote a column that will be stirring some of the Sears Holdings (NASDAQ: SHLD) shareholders and true believers.  He has named Chairman Eddie Lampert as the worst CEO of the year.  He notes that Lampert is Chairman rather than CEO but the operations and the stock has been bad enough that Lampert won the dubious honor.

247 Wall St. recently asked if CEO Lewis was going to get to keep his job at Sears, although for whatever it is worth he is really a true reporting person to Lampert.

Shares of Sears have performed dismally this year with its stock down to $112.33 as of yesterday’s close.  Its 52-week trading range is $98.25 to $195.18.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 8:32 am in Management Change, , ,

Another Big Setback For AMD (AMD)

AMD (AMD) told investors and the media that one of its key chip projects is being delayed. The new flagship Barcelona chip will not be ready for use in servers until next year. At one point the product had a release date of last September.

The New York Times writes that “We’re continuing to ship it but only to specific customers,” said John Taylor, spokesman for A.M.D., which is based in Sunnyvale, Calif. As a result, many server manufacturers have not been able to sell the products they expected based on the new chip.

With each passing week, AMD management looks more like the "gang that couldn’t shoot straight." The company’s shares now make new 52-week lows almost daily, Yesterday the stock dropped to $8.83 down from a period high of $23.

AMD is still saddled by a huge debt load, some of it taken on when it bought chip company ATI. With negative operating income, AMD does not have a long runway to get the ship in the air.

In other words, the company gets into more trouble as time passes.

Douglas A. McIntyre

For more analysis on stocks under $10 subscribe to the 24/7 Wall St. "Ten Stocks Under $10" weekly newsletter.

Posted on: December 6, 2007 – 8:22 am in Semiconductor,

Hoku Scientific Financing Brings Hope & Plans Closer to Fruition (HOKU)

After the close of trading on Wednesday, Hoku Scientific, Inc. (NASDAQ: HOKU) announced that it signed a non-binding term sheet with Merrill Lynch (NYSE:MER) to borrow up to roughly $185 million for the construction, procurement and start-up of its planned polysilicon production plant in Pocatello, Idaho.

The closing of the loan and the availability of the funds is subject to several conditions:

  • completion by Merrill Lynch of its due diligence,
  • negotiation and execution of definitive loan and collateral documents,
  • and the receipt of third-party consents.

Hoku Scientific will also be required to provide its Hoku Materials unit with approximately $35 million in cash for use in the construction of the planned polysilicon plant. To meet this and other capital requirements, Hoku Scientific will be required to secure additional financing.

The Idaho facility is expected to produce approximately 2,500 metric tons of polysilicon per year, and the first customer shipments are planned for the beginning of 2009.  Hoku just recently announced its Phase II of its planned polysilicon facilities to increase its capacity beyond 2,500 metric tons per year.

This non-binding term sheet will expire on the earlier of the termination of negotiations between the parties or May 31, 2008 and there may be additional material closing conditions required.  So this is not a 100% done and completed deal, but if all goes well the company has gotten more of its hopes and plans that much closer to fruition.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 8:19 am in Alternative Energy, ,

Pre-Market Stock News (December 6, 2007)

Below is some of the top pre-market news affecting individual shares that 247WallSt.com is reviewing:

  • AMERCO (NASDAQ: UHAL) announce a $50 million share buyback plan.
  • Children’s Place Retail Stores (NASDAQ: PLCE) NOV s-s-s were +3%.
  • Coca-Cola (NYSE: KO) announced its CEO succession plan, Kent will replace Isdell in July 2008.
  • Costco (NASDAQ: COST) same-store sales rose 9%. Analysts had expected 6.6%.
  • Eli Lilly (NYSE: LLY) put 2008 EPS guidance at $3.85-4.00, slightly above consensus.
  • Family Dollar (NYSE: FDO) issued downside guidance with same-store-sales.
  • Freeport-McMoRan (NYSE: FCX) was noted as Cramer’s Top Mining & Minerals stock on MAD MONEY.
  • GameStop Corp. (NYSE:GME) will replace Dow Jones (NYSE:DJ) in the S&P 500 Index on date TBA.
  • Hoku Scientific (NASDAQ: HOKU) shares trading up 35% after it signed a term sheet for financing its Polysilicon Plant in Idaho with $185 million.
  • Limited Brands (NYSE: LTD) NOV s-s-s -7%.
  • Pacific Sunwear (NASDAQ: PSUN) NOV s-s-s +2.3%.
  • Rambus (NASDAQ: RMBS) rose 1.7% to $20.19 as SEC dropped options investigation with no action recommended.
  • Sierra Pacific (NYSE: SRP) filed to sell 12 million shares in a secondary.
  • Toll Brothers (NYSE: TOL) reported its first quarterly loss in two decades; EPS were -$0.52 versus -$0.47 estimates.
  • VF Corp. (NYSE: VFC) noted as Buy by Cramer on MAD MONEY.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 8:06 am in Pre-Market Activity, , , , , , , , , , , , , , ,

Top 10 Analyst Calls (AIG, AAPL, CMCSA, CAG, DRIV, ETEL, DNA, PBG, PDLI, SURW)

These aren’t the only analyst calls we are watching, but these are the top ten that 247WallSt.com is reviewing:

  • AIG (AIG) reiterated Buy at Goldman Sachs.
  • Apple (AAPL) target raised to $249 from $243 and estimates raised to $5.40 at Bear Stearns.
  • Comcast (CMCSA) downgraded to Neutral from Buy at Goldman Sachs (maybe late yesterday call).
  • ConAgra (CAG) started as Outperform at Bear Stearns.
  • Digital River (DRIV) downgraded to Hold from Buy at Deutsche Bank.
  • eTelecare (ETEL) started as Outperform at FBR.
  • Genentech (DNA) downgraded to Hold at Jefferies.
  • Pepsi Bottling Group (PBG) downgraded to SELL from Neutral at Goldman Sachs.
  • PDL BioPharma (PDLI) raised to Overweight Lehman Brothers.
  • SureWest Comms (SURW) started as Buy at Jefferies.

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 6, 2007 – 8:01 am in Analyst Calls, , , , , , , , , ,

Google (GOOG) Makes Mobile Software For Apple (AAPL) iPhone

Google (GOOG) is challenging Apple (AAPL) to a cyber-duel. Google will make software that will work on the iPhone. The product will offer a "new interface that provides iPhone users with a more intuitive way to access Google’s online services," according to InformationWeek.

Who needs the iPhone OS if consumers can use Google?

Douglas A. McIntyre

Posted on: December 6, 2007 – 6:40 am in Wireless, ,