Daily Archives: February 21, 2008

EMC Buys Into Personal Information Management (EMC)

EMC Corporation (NYSE: EMC) has announced it will acquire Seattle-based Pi Corporation.  This is a small merger, but this company is one we have actually had under watch as a development stage operation that could have gone public via an IPO down the road.

Pi is a privately-held developer of software and provider of services for personal information management.  Pi develops software and online services to enable individuals to control how they find, access, share and protect their increasing volumes of digital information; it owns SmartDesktop.  Its products are also in beta as of now. Pi now has roughly 100 engineers located in the U.S., Canada and India.

Pi founder and CEO Paul Maritz, will join EMC’s executive management team as President and GM of the newly formed Cloud Infrastructure and Services Division upon completion of the deal.  Financial terms were not disclosed, but the merger is apparently all-cash and will be dilutive by $0.01 to EMC’s 2008 GAAP EPS.

This won’t be as big as Virtualization was, but this is yet another new avenue of products that we’ll all be using in the future.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 4:44 pm in Software, ,

The 52-Week Low Club (PSYS)(NVTL)(VDSI)(BYD)(ESI)(LAD)

Lithia Motors (NYSE: LAD) Bad quarter, analyst downgrades. Falls to $9.78 from 52-week high of $30.54.

ITT Educational Services (NYSE: ESI) Student loan market getting very tight. Falls to $57.66 from 52-week high of $131.82.

Boyd Gaming (NYSE: BYD) No news. Falls to $23.32 from 52-week high of $54.22.

Vasco Data (NASDAQ: VDSI) Big earnings miss. Sells off to $11.22 from 52-week high of $44.25.

Novatel Wireless (NASDAQ: NVTL) Tough earnings and some downgrades. Flops to $10.20 from 52-week high of $28.14.

Psychiatric Solutions (NASDAQ: PSYS) Market does not like most recent numbers. Sells off to $27.17 from 52-week high of $42.75.

Douglas A. McIntyre

Posted on: February 21, 2008 – 4:41 pm in HI/LOW, , , , , ,

An ETF Launch For Private Equity, Actually An ETN (PPE, PSP)

Today was the launch of the Lehman Brothers’ first exchange traded note with the initial listing of the "Opta S&P Private Equity ETN" on NYSE Arca.  This ETN will trade under the ticker "PPE" on NYSE, or go by (NYSE: PPE).

The Opta S&P Private Equity ETN is set up to mimic and track the performance of 30 leading private equity companies that are included in the S&P Listed Private Equity Index Net Return Index.

Here was a list of the constituent stocks on last look straight from the S&P website.

There is a competing ETF called the PowerShares Listed Private Equity (AMEX:PSP), and you can at least see the performance for a comparison.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 3:51 pm in ETF, ,

Starbucks Opts For Reshuffle (SBUX)

Starbucks (NASDAQ: SBUX) is making some changes today in what it hopes will streamline certain aspects of its operations.  The press release notes that this will "better focus efforts on enhancing the customer experience," but as always follow the money.

Howard Schultz has sent a letter to "all partners" of Starbucks to outline key strategic customer initiatives.  A change it has already set in motion is an end to warm sandwiches in the mornings to go back to its core.  Schultz said this is his most difficult communication date and the company must analyze and review every part of its operations.

For starters, 600 "positions and partners": "This total includes the elimination of existing positions and open headcount, as well as the reduction of our current workforce. Within this context, approximately 220 partners have separated from the company. Nearly all were U.S. partners serving in non-retail support roles." In short, some middle managers are going, as are some vendors and suppliers.

In field operations, is two U.S. divisions will become four: Western/Pacific, Northwest/Mountain, Southeast/Plains and Northeast/Atlantic.  It is also reorganizing and consolidating support functions for U.S. store development, licensed stores, finance, partner resources, marketing, in-store experience, supply chain, communications, and protection.  It is also making partner care and support changes. 

If you have ever followed a reorganization and redirection of efforts after a founder returns, this sounds just like the second step of a ten step process.  For better or worse, more changes are coming.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 3:02 pm in Food, Retail,

US Search Engine Market Share: Yahoo! (YHOO) Running Out Of Time

Based on the January US search engine numbers, Yahoo! (NASDAQ: YHOO) needs to hurry up and get itself sold.

The Google (NASDAQ: GOOG) share barely moved according to comScore. It had 58.5% of the market in January compared to 58.4% in December 2007.

The Yahoo! share dropped .7% from 22.9% to 22.2%. It would not take many months like that to get out of hand.

The combined Yahoo!/Microsoft figure was 32%. Not a bad set of numbers to support the buy-out.

Douglas A. McIntyre

Posted on: February 21, 2008 – 1:54 pm in Internet, , ,

Failed Private Equity Deal Blow-Ups, Major Share Erosions Remain (COMS, ADS, BX, SLM, URI, CCU)

There is a menagerie of companies with stocks that look like the boulevard of broken dreams because of the woes in the stock market and economy in January.  But no group looks as bad as the group of the recently failed private equity buyouts.  Some of the losses here may seem excessive compared to what would have been the buyout price, but that is the new private equity M&A world for you. 

You can see how wide these spreads would be if they magically reappeared.  And NO, these prices won’t come back any time soon.

The freshly failed acquisition of 3Com Corp. (NASDAQ: COMS) by Bain Capital Partners LLC & Huawei was originally $5.30 cash, although the last ditch effort to please CIFIUS via a unit sale would have resulted in a lower price. If that magically came back, you’d be looking at an 82% gain.

The deal for Alliance Data Systems Corp. (NYSE: ADS) from The Blackstone Group, LP (NYSE: BX) may or may not happen, but the original price of the buyout offer was $81.75.  It is nearly impossible to think that price would ever be a buyout price in today’s environment, but that would represent a 54% premium to current prices.

SLM Corp. (NYSE: SLM), or Sallie Mae, was being J.C. Flowers & Co. before that merger was called off.  The company was originally being offered $60 per share and then it was briefly revised lower to $50 per share before being ditched altogether.  If that $50 number magically came back, that would represent a whopping 127% premium.  If that $60 pipe dream ever came back, the gains compared to today would be a whopping 172% gain.

United Rentals (NYSE: URI) buyout from Cerberus was $34.50, but it at least looks like it got its $100 million deal termination fee.  If that premium magically came back, that would be more than an 80% premium compared to today.

Clear Channel Communications Inc. (CCU), Thomas H. Lee Partners LP/Bain Capital Group is not yet a busted deal, although this $39.20 cash price is roughly 25% above today’s share prices.  This one has taken long enough that it seems Methuselah is in charge of this approval and decision process.

For whatever this is worth, investors looking at any of these companies better be looking at each company individually.  It isn’t like there weren’t some problems that either kept these mergers from happening, even if the buyout firms have had to gear down their efforts to more of true private equity firms instead of LBO firms.

Jon C. Ogg
February 21, 2008

On our open email distribution list you can see more detailed merger-arb spreads and other key issues in private equity, M&A, IPO’s, spin-offs and more.

Posted on: February 21, 2008 – 12:53 pm in Mergers and Buy Outs, Private Equity, , , , , ,

SPAC IPO FILING: Redstar Partners on the OTCBB

Redstar Partners, Inc. is another blank check company, although this IPO filing looks a little different than many other SPAC IPO filings.  For starters, this blank check company will sell its units for $8.00 rather than the normal $10.00 per unit offering seen from most SPAC’s.

Morgan Joseph is listed as the underwriter and the company has noted for filing purposes that it will sell up to $36 million in securities.  Redstar will also be listed on the OTCBB rather than being a fully-listed SPAC on AMEX or NASDAQ.

Redstar Partners, Inc. is a Cayman Islands blank check company recently formed (incorporated on January 3, 2008) for the purpose of acquiring, through a share capital exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or other similar business combination, or control through contractual arrangements, an operating business having significant operations in the People’s Republic of China.  It says that it will not be limited to a particular industry, although it notes that it does intend to focus on the electrical equipment and components industry.

Read More »

Posted on: February 21, 2008 – 11:37 am in IPOs, , ,

Microsoft & Interoperability (MSFT)

Microsoft (NASDAQ: MSFT) is implementing four new interoperability principles and corresponding actions across its high-volume business products:

  • ensuring open connections;
  • promoting data portability;
  • enhancing support for industry standards;
  • fostering more open engagement with customers and the industry, including open source communities.

This isn’t a full open-source initiative.  We wouldn’t expect that the company will ever make all of its efforts open source, although "ever" is quite a long time.  It is also aimed at being being more EU-compliant.  We’d encourage you to go straight to the guts of the company release because the list of initiatives and comments is rather long.

Microsoft shares have pulled back about 1% since this news first broke as traders are not looking at this as any major change to its revenue or earnings structure.  Shares are still up 0.7% at $28.42 in mid-morning trading.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 11:21 am in Software, , , ,

Intel Goes More After AMD Turf (INTC, AMD)

The WSJ has reported that Intel Corp. (NASDAQ: INTC) is completing a new processor called Diamondville that is for computers of $250 and under.  The size of this processor is tiny at a whopping 25 square millimeters.

We do not have any pricing plans for how much, actually how little, these new processors will cost.  If this is for sub-$250 PC’s and whatever future geared down net devices we end up using then it can’t be too costly.

Advanced Micro Devices (NYSE: AMD) looks like it is being fought on all sides.  AMD is one we frequently cover in our weekly "10 stocks under $10" newsletter.  We noted yesterday how AmTech had laid out the possibilities of the ailing company being acquired.  Depending on how aggressive Intel gets for lower-end PC’s, the value there seems to revolve more and more around the point that AMD’s only real value is that it keeps Intel from being classified as a true monopoly.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 11:00 am in Semiconductor, ,

Teva’s Lofty Goals Seem Attainable (TEVA)

Teva Pharmaceutical (NASDAQ: TEVA – News) has some pretty loft goals for itself at its Investor Day presentation.  If you trust the company’s history and its pipeline of candidates under trials and under pending FDA review, these goals are attainable.

Teva has presented the results of its strategic review and identified its growth and long term goals of doubling the size of its business by 2012, and generating revenues of $20 billion and net income margins exceeding 20%.

What is both interesting and intriguing about Teva is that while it has its Copaxone for MS, it has become essentially the largest clearing house for generics out there.  Regardless of who wins the US presidential election, all indications point to generic drugs winning in a world where Big Pharma drug companies, and even some biotechs, have been under fire for pricing.

Teva’s current market cap is just over $37 Billion. Teva had already given 2008 and 2009 guidance that is in-line with today’s growth, and it also recently bumped up its dividend.  At the time, Teva said expected net sales for 2008 to be roughly $10.75 billion with earnings between $2.60 to $2.75 on non-GAAP EPS. For 2009, it had also reiterated guidance of greater than $3.00 EPS.

Teva shares are up almost 1% this morning at $48.35 and the 52-week trading range is $34.52 to $50.00.  Analysts have an average price target of just under $52.00 on the stock.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 10:11 am in Drug companies,

T. Boone Pickens Calling For An Oil Pullback (CLNE, OIH)

If there is one public oil and energy sage that the markets like to listen to, you need to look no further than T. Boone Pickens.  He’s been a bull all the way up.  In fact, last year he called for "$80 oil before he’s 80" and after that hurdle was reached he laid out the case for $100 oil.

This morning he was just on CNBC with his new outlook for oil and energy prices.  This morning Pickens said he thinks oil is going to back off maybe $10 to $15 in Q2 but prices will come back up in the second half of the year.

He also noted that natural gas was too high and when asked if he was short natural gas he responded, "Well, Yeah."  He did say that natural gas will become a transportation fuel, and you can see his Clean Energy Fuels Corp. (NASDAQ: CLNE) that is positioned to run natural gas for autos.  He also noted about the need to clean up coal.  He also noted that wind and solar are going to have to be used, and we need to get on board with alternative energy.  While Pickens is calling for a pullback here, he said that if we do not get on the alternative energy bandwagon and if we don’t have a global recession we could be sitting on $150 oil in two-years.

This morning, one of the ministers in Qatar also noted that the recent run up to $100 in oil is speculation from traders.  The Oil Services HOOLDRs (AMEX: OIH) are still up 0.4% at $176.77 in pre-market trading.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 8:18 am in Oil & Gas, , ,

Record Revenues on TheStreet.com (TSCM)

TheStreet.com (NASDAQ: TSCM) has just posted earnings at $0.17 pro forma EPS on a 38% jump in revenues to a record $19.9 million.  First Call had estimates at $0.16 on $19.95 million in revenues.

TheStreet.com reported a 125% year-over-year increase in non-financial advertising revenue, which is now 52% of ad revenues; total advertising revenue reached a record $6.8 million, which is a 43% increase over Q4-2006.  Paid services revenue in the fourth quarter of 2007 (subscription, syndication, licensing and information services) rose 8% to $10.4 million for the quarter.  Syndication is winning out over subscriptions it looks like: subscription revenues fell 4% to $8.5 million while syndication, licensing, and info services rose 142% to $1.9 million.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 8:03 am in Cramer, Earnings, Financial Stocks, Internet, ,

Microsoft (MSFT) Says XBox Live May Double

If the Microsoft (NASDAQ: MSFT) Xbox 360 will stop overheating, the company believes that it can double the number of Xbox Live users.

The Live product has 10 million users now who spend $50 a year to play video games online and also download movies and games over the web. The company told Reuters "We want to take the system to the next level. We want to get to 20 million (users) quicker than we got to 10 million."

Hitting that higher number may be very difficult. Xbox trailed both Sony (NYSE: SNE) PS3, and Nintendo Wii sales in the US last month. The product has had reliability problems.

Microsoft also sided with the Toshiba HD DVD systems for playback on its game console. That format is now dead, beaten by Sony’s Blu-ray offering. How long will it take Microsoft to get Blu-ray working on the Xbox. It won’t be tomorrow.

Douglas A. McIntyre

Posted on: February 21, 2008 – 8:02 am in Consumer Electronics, ,

Microsoft (MSFT) Gets Good News From Asia

Microsoft (NASDAQ: MSFT) says that its sales to PC makers in Taiwan are running up and should rise about 10% this year. Manufacturers in Taiwan make about 60% of PCs sold around the world by companies including Dell (NASDAQ: DELL), HP (NYSE: HPQ), and Lenovo.

According to Reuters, Redmond says it has "started to see a drop in exports to the United States amid worries of a slowing U.S. economy, but sales to countries such as China, Africa and Eastern Europe remained robust." That would tend to confirm what HP said when it announced earnings.

Douglas A. McIntyre

Posted on: February 21, 2008 – 7:53 am in Software, , ,

Blue Coat Earnings Technicolor (BCSI)

Blue Coat Systems (NASDAQ: BCSI) is seeing shares surge in early pre-market trading after its earnings release.

The data monitoring company posted earnings of $0.38 non-GAAP EPS on a 73% revenue jump to $81.4 million, while First Call estimates were $0.33 EPS and $80.1 million.  It also gave a forecast of $0.37 to $0.41 EPS on revenues of $88 to $91 million, while First Call has estimates at $0.35 EPS on $85.2 million.

The most recent analyst calls have been positive, and Lazard Capital and Brean Murray have both just started this with a Buy over the last two weeks.  We have an average current analyst target price of $38.57, so even with this jujmp in shares its stock price is well under "valuation limits: from the current analyst crowd.

Shares are trading up some 12% at $32.00 in early pre-market trading.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 7:51 am in Earnings, Software, Technology Companies,

Headwinds For New Google (GOOG) Video Ads

Google (NASDAQ: GOOG) is launching a new program to put ads at third party sites which have video content. The program will work much like its Adsense text product. The display ads and video overlays which will go with the moving pictures will be targeted based on the content itself.

While the text ads from Google Adsense sit off to the side of content, the new ad program, especially the overlays which run on top of the video, can be seen as interfering with the viewer’s experience. Some online video users may not like that which could cut views and viewing time down.

The new project may seem like a good way to make money on the rising amount of video content on the web,but it will probably PO a lot of consumers.

Douglas A. McIntyre

Posted on: February 21, 2008 – 7:47 am in Internet,

Research in Motion Soars on Subscriber Adds (RIMM)

Research in Motion NASDAQ: RIMM) has raised its subscriber forecasts this morning.  The maker of Blackberry now expects its net subscriber additions for its fourth quarter to be approximately 15% to 20% higher than the 1.82 million net subscriber account additions forecast by R-I-M back on December 20, 2007.

This will make the total BlackBerry subscriber account base roughly 14 million at the end of the quarter.  The company also said it continues to expect Q4 revenue and earnings per share to be within the range previously given in December: Revenue is expected to be $1.80 to $1.87 Billion and its sees $0.66 to $0.70 per share diluted; First Call has estimates at $1.85 Billion revenues and $0.69 EPS.

If you want to know how the economy is affecting them, we need to look no further than its CEO commentary.  Jim Balsillie, Co-CEO: "The seasonal slowdown in net subscriber account additions that we expected in the new year did not occur and our focused execution with partners has continued to produce strong results within both enterprise and consumer segments."

Shares of RIMM are spiking higher in very early pre-market trading with a near-7% gain to $104.55.  If these levels hold, this will mark the highest share prices since the first days of 2008.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 7:12 am in Wireless,

Top 10 Pre-Market Analyst Calls (AEM, MDRX, BP, CSCO, ENR, GRMN, SHW, STI, TGT, RIG)

These are the early bird analyst calls we are focusing on this Thursday morning at 247WallSt.com:

  • Agnico-Eagle Mines Ltd. (NYSE: AEM) cut to Neutral at UBS.
  • Allscripts (NASDAQ: MDRX) raised to Buy from Neutral at UBS.
  • BP (NYSE: BP) downgraded to Sell from Hold at Citigroup.
  • Cisco Systems (NASDAQ: CSCO) raised to Buy from Hold at Citigroup.
  • Energizer (NYSE: ENR) raised to Buy from Hold at Citigroup.
  • Garmin (NASDAQ: GRMN) raised to Outperform at Baird.
  • Sherwin Williams (NYSE: SHW) raised to Overweight from Neutral at JPMorgan.
  • SunTrust (NYSE: STI) cut to Underperform at Oppenheimer.
  • Target (NYSE: TGT) downgraded to Sell from Hold at Citigroup.
  • Transocean (NYSE: RIG) raised to Buy at Goldman Sachs.

Jon C. Ogg
February 21, 2008

Posted on: February 21, 2008 – 7:01 am in Analyst Calls, , , , , , , , , ,

Winning The War On Stagflation

In one of those odd time warps in history inflation and a stagnant economy are coming together. Inflation is growing primarily because of the high price of oil and grain. The GDP is barely moving because of a credit market crunch and home prices which are in a flat spin downward.

The Fed has as much as admitted that it has to fight a two-front war now and that could call a halt to its dropping of interests.On the other hand lower money costs could fuel re-away prices.

Everyone is wrong on how to handle stagflation because the cure for inflation kills growth and vice-versa. But, it is certain that no one knows which will hurt the economy more because almost all economic models which look out a year or two are flawed, otherwise economists would be the most highly paid people in the world. Unknowns like war, hurricanes, foreign politics, and drought play too large an unanticipated role

That means that the Fed, and to some extent the Treasury and Congress have to pick which battle to fight and hope that they are right.

A deep recession is almost certainly a worse result than rising prices. An economy in shambles hurts employment and makes the housing crisis much worse. That, in turn, undermines financial derivative products based on home loans, credit cards borrowing and auto financing. A drop in those values could lead to a collapse of the mono-line insurance firms and another huge series of write-offs at banks.

More than anything else, elected officials hate to see people standing in unemployment lines. It is bad for the re-election odds and even politicians, some of them, have compassion

Fighting inflation means believing that the government can undercut the rising price of oil and commodities like wheat and corn. But, the chances of success in those arenas is doubtful. With higher interest rates consumers may curb spending, but OPEC has said it may raise oil prices without regard to economic conditions. The cartel likes the extra money too much. Commodity costs are also likely to stay high. In a global economy demand from countries like China, were the costs of oil and some agricultural products are underwritten by the central government, becomes perverse and misshapened.

The Fed has to make a bet now. No bet could lead to stagflation. The wrong bet will be painful but it leads to addressing one problem and not two. Lowering rates saves the economy. Raising rates may not cut the price of most critical goods at all.

Douglas A. McIntyre

Posted on: February 21, 2008 – 6:21 am in Economy

The Telecom Price Wars: Murder For Telcos, Magic For Consumers (T)(VZ)(CMCSA)(S)

Industry-wide price wars are like the old Western range wars. They don’t happen often but when they do they are violent and have sudden onsets. A new home-phone program from T-Mobile is about to bring telco competition to a bloody head.

Just a few months ago Verizon (NYSE: VZ) and AT&T (NYSE: T) were in fantastic positions. Both had fast-growing cellular operations. But had shrinking landline business under siege by VoIP products from cable companies like Comcast (NASDAQ: CMCSA). The landline businesses were still profitable and the fall-off in revenue was moderate. Phone companies were also building out fiber to compete with cable in the TV and broadband sectors.

The only real losers on the scene were Sprint (NYSE: S) and T-Mobile, the US cellular operation of Deutsche Telekom. Both were smaller than their rivals and Sprint’s merger with Nextel had ruined its customer service and subscriber retention.

It has taken about a week for all of that to change. AT&T and Verizon Wireless have introduced flat-rate unlimited calling plans at $99.99 a month. Both stocks hit 52-week lows on concerns about how much revenue this would take from the companies. At least the damage was restricted to their wireless operations.

Now T-Mobile has made a potentially wider-ranging move. It will offer its subscribers VoIP service in their homes to replace their landline service from the big telcos. According to The Wall Street Journal "to sign up, [customers] must buy a $50 Internet router from T-Mobile and pay $10 a month for unlimited local and long-distance domestic calling. Consumers can connect any home phone into the router via a traditional phone cord."

For the time being only T-Mobile cell phone customers can get the service, but, if it is a way to get new customers for its wireless operation, that is likely to spread. That probably means AT&T and Verizon will be forced to field their own competing products. These will cannibalize their own landline products. Better to cut prices for landline service than to lose the customer completely.

All of this is leading to the largest tectonic shift in the industry since the break-up of the old AT&T in 1974.

The new pricing structure and the ability for telcos to enter one another’s markets with ease is based to a large extent on technology which did not exist 10 years ago especially VoIP and 3G. It is enabling modest competitors like T-Mobile to disrupt the business of the largest companies in the industry.

The rapid changes in the telco market are likely to cut consumer phone costs considerably. It is also likely to cost shareholders in the big telcos tens of billions of dollars. In just the last year, AT&T has lost $75 billion in market cap, and, it will lose more All of that because of $10 home phone service

Douglas A. McIntyre

Posted on: February 21, 2008 – 5:52 am in Telecom, , , ,