Daily Archives: April 9, 2008

AOL-Yahoo! Versus Microsoft-Yahoo!…???? (YHOO, TWX, MSFT, GOOG, IACI)

There is a report out of the Wall Street Journal that Yahoo! Inc. (NASDAQ: YHOO) and Time Warner Inc. (NYSE: TWX) may be close to inking a deal that would potentially combine Internet operations of the web giants.  Obviously, this would be directed right at thwarting the current attempts by Microsoft (NASDAQ: MSFT) to acquire Yahoo!.

According to the WSJ, Time Warner would make a large cash investment into Yahoo! and then Yahoo! would repurchase "billions of dollars" worth of its own shares in the mid-$30’s.  While this is an attempt from Jerry Yang to fetch a higher valuation, there is no guarantee that any such valuation would net a higher return for shareholders.  There were headlines earlier today tying Yahoo! into running some "test search-ads" via Google (NASDAQ: GOOG).  Google still owns 5% of AOL as well. 

We have considered all the possibilities in a similar situation, and what the ramifications for other Internet and media players out there.  For starters, we’d even call it a rumor, and we’d even note the possibility that this could be a "test announcement" from the companies to see what the reaction would be if such a deal was formally struck (that wouldn’t be the first time any company has done that).  This entire situation should still all be considered hearsay at this point as there have been no press releases issued by any of the companies on any such merger terms, investment terms, and ad terms.  If it is real, then we’d be expecting a press release from one of the companies at some point by Thursday or Friday… if not sooner.

There are also no assurances that the shareholders of any of the Yahoo!-Microsoft-Time Warner trifecta would even back such efforts or anything at all related.  There are not even assurances that this would net more money to Yahoo! shareholders in the end. 

You can join our open email distribution list to hear about M&A, joint ventures, special financings, secondary offerings, IPO’s, and more previews for other special situations in various stages.

This might also drive up the price of poker over at IAC/Interactive (NASDAQ: IACI) and play right into our most recent special situation newsletter scenarios.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 8:47 pm in Internet, Mergers and Buy Outs, Rumors, , , , ,

The 52-Week Low Club (BID)(AVR)(MNKD)(GRMN)(SSCC)

Sotheby’s Holdings (BID) Market is turning against companies with rick customers are they become poor. Fallst to $24.37 from 52-week high of $61.40.

Aventine Renewable Energy (AVR) Crop prices go up, ethanol stocks down. Sells off to $4.55 from 52-week high of $20.85.

Mannkind Corp (MNKD) Inhaled insulin products run into FDA approval trouble. Shares drop 60% and hit low of $2.15 from 52-week high of $15.65.

Garmin (GRMN) Still dropping on earnings concerns. Bottoms at $45.38 down from 52-week high of $125.68.

Smurfit-Stone Container (SSCC) Paper companies hit by commodities costs and rising price of oil. Runs down to $6.65 from 52-week high of $14.08.

Douglas A. McIntyre

Posted on: April 9, 2008 – 2:40 pm in HI/LOW, , , , ,

Yahoo! (YHOO) To Test Outsourcing Search Ads From Google (GOOG)

According to The Wall Street Journal, Yahoo! (NASDAQ: YHOO) will start to test search advertising from Google (NASDAQ: GOOG). The agreement could grow.

Microsoft (NASDAQ: MSFT) is not going to be happy.

Douglas A. McIntyre

Posted on: April 9, 2008 – 2:13 pm in Internet, , ,

Nike’s Knight Sells $30 Million In Stock (NKE)

There were four separate filings today showing that co-founder and Chairman Philip Knight of Nike, Inc. (NYSE: NKE) filed to sell shares.  The trade dates were listed as April 8, 2008.  The four separate filings show a total of 465,000 Class B common shares with prices going from $67.43 to $67.08, then at $67.07 to $66.78, then $66.77 to $66.48, and finally then $66.47 to $66.38.  If we just take a simple rounded average, this appears to be a total share sale in the vicinity of $30 million.

Before pushing the panic switch, he does hold more than 2.6 million shares of Class B common stock. There is also more.   According to the last filing he also holds more than 95 million shares of the Class A Common Convertible shares.

Shares sit barely in negative territory today at $66.41.  The trading volume is also rather light at less than half a normal trading day.  Nike’s 52-week trading range is $51.50 to $70.60.

You can join our open email distribution list to hear about special financings, secondary offerings, IPO’s, M&A, and more previews for other special situations in various stages.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 1:47 pm in Apparel, Insider Activity,

The $1,000 Hamburger

The high price of food is not an aberration. According to the World Bank crop prices are likely to stay above 2004 levels until 2015.

Reuters writes the "World Bank said food prices are set to remain high in 2008 and 2009, and then decline as supply and demand respond to high prices."

High prices for grains are fueling massive inflation in China and a tripling of the price of wheat has raised the cost of a number of food items in the US and elsewhere. Coupled with rising oil prices, it is hard not to imagine that inflation is on its way back into the economy.

Another problem for the Fed to solve.

Douglas A. McIntyre

Posted on: April 9, 2008 – 1:45 pm in Food

Globalstar, Waiting For Secondary Pricing (GSAT)

Globalstar Inc. (NASDAQ: GSAT) is apparently set to price its (up to) $135 million securities offering tonight. In a previous article, we discussed the terms of the offering, including the fact that underwriter Merrill Lynch is expected to sell anywhere from 15 to 20 million shares at a fixed price in addition to the offering. 

Tuesday, April 1st, before the filing, shares opened at $7.39 and jumped to $7.59 at close. Shares dropped to $7.05 on Wednesday. Today, Globalstar hit a new 52-week low of $4.85 earlier today on an 11% drop.  Shares have recovered to $5.20 early afternoon, although that is still down 5% today.  The prior 52-week range before today was $5.24 to $12.35.

You can join our open email distribution list to hear about buybacks, special financings, secondary offerings, M&A, and more previews for other special situations.

This was weak enough early this morning that it looked like it was at risk of not even coming.  There is still no assurance that this will price tonight, but that has been the expectation this week.  This was one of the more unique securities filings so what structurethat last filing ultimately takes and at what price is still up in theair.

Rachel Lopez
April 9, 2008

Posted on: April 9, 2008 – 1:18 pm in Satellite, Secondary Offering,

Bed Bath & Beyond, Bracing For Earnings (BBBY)

Bed Bath & Beyond, Inc. (NASDAQ: BBBY) is set to report earnings for its Feb-2008 fiscal fourth quarter today after the close.  First Call has estimates at $0.65 EPS on $1.96 Billion in revenues for the quarter.  As far as guidance or estimates ahead, its fiscal first quarter is expected to see $0.36 EPS on $1.65 Billion in revenues.  If the home furnishings retail giant is willing to go out on the limb with guidance for the next year, First Call has its fiscal Feb-2009 estimates at $2.15 EPS on revenues of $7.6 Billion.  As far as how that compares to today’s fiscal end expectations, that would represent roughly a 3% gain on EPS on slightly more than an 8% gain in revenues.

Analysts have gone more cautious on this one in recent months, and the average price target from analysts is just north of $30.00.  As a reminder, this was just downgraded over the last two weeks by JPMorgan (from Neutral to underweight).  Options traders appear to be braced for this stock to move more than $1.00 in either direction based on a static snapshot of early afternoon put/call prices today. 

The chart for Bed Bath & Beyond shows an old retail growth stock that has become just another cyclical play.  In recent weeks shares are up close to 10%, but that is well off of recent highs around $32.00.  The 50-day moving average is $29.92 and the 200-day moving average is $32.10.

We’d caution that some of these last minute numbers may be out of normal pre-earnings comparison.  The culprit for today’s 5% drop to $29.35 is a downgrade just this morning from Piper Jaffray.  That may throw many of the last minute figure off the mark.  Its 52-week trading range is $24.49 to $41.90. 

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 12:24 pm in Earnings, Retail,

Oncothyreon Cleared To Raise Cash (ONTY)

Oncothyreon Inc. (NASDAQ: ONTY), a therapeutic cancer treatment biotech firm, announced today that the SEC has made their filing for periodic offering of up to $50,000,000 in securities effective. The offering was filed March 20 and will allow them to offer from time to time any combination of common stock, debt securities, warrants, preferred stock, and depository shares. The proceeds will be used to fund clinical trials, finance capital expenditures, or for general working capital uses. Also on March 20, they were issued a patent for PX-867, a small molecule compound in the pre-clinical development stages for cancer and cardiovascular treatments.

Shares have hardly reacted to the news, and are flat today at $2.78 on somewhat light trading for a very thin volume stock. The 52-week range is $1.47 to $8.82.

You can join our open email distribution list to hear about special financings, secondary offerings, IPO’s, M&A, and more previews for other special situations in various stages.

Rachel Lopez
April 9, 2008

Posted on: April 9, 2008 – 11:50 am in Biotech, Secondary Offering,

Behringer Harvard REIT II: A $2 Billion Private REIT Filing

Behringer Harvard REIT II, Inc., a REIT, or real estate investment trust, submitted a filing to allow for a share offering today. The offering shows a $10 price per share for 200 million shares for proceeds of up to $2,475,500,000. The REIT does not intend to trade on a national securities exchange and no underwriters were listed for the offering.  The filing also goes out to 2010.

Dallas-based Behringer Harvard REIT II plans to conduct its operations through its Operating Partnership with Behringer Harvard Operating Partnership II LP. They intend to focus on seasoned and stable commercial real estate and real estate-related assets, rather than opportunistic real-estate investments, in the United States and possibly in other countries. They are advised by Behringer Advisors II LP, an affiliate of their sponsor, Behringer Holdings LLC. As the company plans to structure the offering as a REIT, it will be exempt from federal income tax on income distributed to their shareholders. The CEO, Chief Investment Officer, and Chairman of the Board, Robert Behringer has sponsored four publicly-offered REITs as well as several other real estate-related holdings.

You can join our open email distribution list to hear about special financings, secondary offerings, IPO’s, M&A, and more previews for other special situations in various stages.

Rachel Lopez
April 9, 2008

Posted on: April 9, 2008 – 11:43 am in IPOs, REIT

Palm (PALM): The End Is Nigh

Wall St. is beginning to think Palm (NASDAQ: PALM) will give up the ghost soon. And, no wonder. The company has not made a product anyone wants in years.

According to Barron’s an analyst from Nomura writes “We think that it will continue to lose market share and market relevance, leading to an eventual closing of its doors.”

Elevation Partners, lead by Roger McNamee, gave the company an infusion of capital just as things began to fall apart. It is likely that the venture firm would like a "do over" on that.

Palm trades at $5.72 now. It was over $9 in October. At the present rate of decline, it should be at zero before Labor Day.

Douglas A. McIntyre

Posted on: April 9, 2008 – 11:24 am in Consumer Electronics,

IPO FILING: Apollo Global Management, Semi-Public to Fully Public

Apollo Global Management, LLC, appears to be planning to become fully public as it submitted an S-1 filing with the SEC.   The company is currently semi-public on the Goldman Sachs GSTruE over-the-counter private market with an initial offering of $24 per share that has since fallen to $14 per share.

The current shareholders are offering 29.8 million shares at a maximum proposed share price of $14 (current price) per Class A share to be traded on the New York Stock Exchange. As the current holders are selling the shares, Apollo will not receive any proceeds from the offering that could total a maximum of $417.5 million.

No exchange or OTC market exists for Apollo’s Class A shares, although Class A shares issued to qualified institutional buyers in the August 2007 exempt sale are traded through the Goldman Sachs private over-the-counter market for Tradable Unregistered Equity Securities (the “GSTrUESM OTC market) are noted under the symbol “APOLLZ.”

Apollo Global Management manages private equity, distressed asset, and mezzanine investments globally that total approximately $40.3 Billion according to its own data. The company is managed by Leon Black, Joshua Harris, and Marc Rowan and operates two business, private-equity and credit-oriented capital market investments.

You can join our open email distribution list to hear about special financings, secondary offerings, M&A, and more previews for other special situations in various stages.

Rachel Lopez
April 9, 2008

Posted on: April 9, 2008 – 11:18 am in Financial Stocks, IPOs, Private Equity,

Goldman Sachs (GS) Finally Does Badly At Something

Nothing ever goes wrong at Goldman Sachs (NYSE: GS). Their uncanny ability to do well irratates thei competitors to the point of distraction. Due to the company’s performance its shares have done better so far this year than rivals Lehman (NYSE: LEH) and Morgan Stanley (NYSE: MS).

Today news came out that Goldman lost money on more trading days than either Lehman or Goldman. According to Bloomberg "In the three months through Feb. 29, Goldman lost money on 17 days, compared with eight days at Morgan Stanley and seven at Lehman Brothers."

On the days that the company was up, it was probably up well more than its peers. Goldman made over $100 million on twenty-eight of the days in question.

Douglas A. McIntyre

Posted on: April 9, 2008 – 11:03 am in Brokerage Firms

TheStreet.com Signs 3-Year Cramer Contract (TSCM)

Many people think of Jim Cramer as being MAD MONEY on CNBC now, but his full-time gig is still at TheStreet.com, Inc. (NASDAQ: TSCM).  The company gave an SEC filing this morning that shows the company has secured his contract ahead.  After all, he is the co-founder and chief voice of the company.  Many would argue that he IS the company.

Jim Cramer has entered into a new employment agreement with a retroactive effective date of January 1, 2008 to author articles for the ad-supported and paid publications (Action Alerts PLUS) product and to "provide reasonable promotional and other services…"

Cramer will receive an annual salary of $1,300,000, $1,560,000 and $1,872,000, respectively, for the three successive years of the agreement.  Cramer will also receive a signing bonus in the amount of $100,000 and will be eligible for an annualized target bonus equal to 75% of salary based upon achievement of company determined financial targets.

Read More »

Posted on: April 9, 2008 – 9:46 am in Cramer, Insider Activity, Management Change, ,

Goldman Sachs Changes Consumer Products Coverage (AVP, CL, BARE, PG, KMB)

Goldman Sachs has made some changes in coverage to its consumer products universe. 

The bulge bracket brokerage firm favors Avon Products, Inc. (NYSE: AVP) and Colgate-Polmolive Co. (NYSE: CL) and gave both companies some increased earnings target estimates for both this year and next, while making downgrades and some estimate cuts elsewhere in the household consumer products sector. 

The brokerage firm has transitioned a Neutral rating down to a "Sell" rating on Kimberly-Clark Corp. (NYSE: KMB).  Also, both Bare Escentuals, Inc. (NASDAQ: BARE) and Procter & Gamble Co. (NYSEL PG) were downgraded from Buy ratings down to "Neutral" ratings.

This was a coverage transition in an analysts this morning at Goldman Sachs, with Andrew Sawyer assuming US Household Products coverage from Amy Chasen.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 8:21 am in Analyst Calls, Consumer Goods, , , , ,

Circuit City & Profits, Still More Questions Than Answers (CC, BBY)

Circuit City Stores, Inc. (NYSE: CC) announced something this morning that many thought could not be done.  The company is posting a profit.  It posted a profit of $4.85 million shares, or $0.03 EPS, on $3.65 Billion in revenues (7.7% decrease from last year on same store sales of -10.4%).  Analysts according to First Call were expecting -$0.07 EPS on $3.79 Billion in revenues.

The troubled electronics and entertainment retailer exceeded its fiscal 2008 cost cutting plans by $50 million, reducing SG&A expenses by approximately $200 million. It also showed a 21% increase in direct channel sales and a 29% increase in Firedog(SM) PC services and home theater installation revenues.  The company also cut cap-ex by 11% compared with originally planned fiscal 2008.  It is also claiming consolidated gross profit margin was 20.6%.   At February 29, 2008, it had cash and short term investments of $297.4 million.  Its fourth quarter had a $7.3 million tax gain in it, but that profit posted is recorded as "from continuing operations."

The company has also issued financial guidance out for Fiscal Feb-2009.  It sees sales flat for the year on a mid-single digit decline in same store sales and earnings before income taxes of as a percent of net sales improving by 50 to 100 basis points.  Cap-ex is forecast as $130 to $150 million, while depreciation and amortization if $185 million.  It also sees another drop in domestic net inventory this year of $50 to $100 million.  Including 6 or 8 relocations, it sees 45 to 55 domestic superstore openings.

For the next quarter, it sees a loss from continuing operations (before income taxes) of $180 to $195 million.  The loss increase is based on the expectation of a continuation of the operating trends seen in the second half of fiscal 2008, including a year- over-year decline in gross margin and de-leveraged expenses.  It sees a gradual recover coming in the second half of this year and it believes it has ample cash and borrowing capacity to complete the next phase of its turnaround plan.

Shares of Circuit City closed at $4.53 yesterday ahead of earnings, but they are trading higher by more than 10% at $5.01 in pre-market trading.  Its 52-week trading range is $3.44 to $19.12.

The company still has some serious trust issues at the corner of Wall & Main, and it still has an activist on its heels.  It is hard to trust the actual gains here for about eighteen to months of SNAFU and the conference call at 10:00 AM may put more light on that profit from operations.  Our caveat here is that some companies can actually engineer a turnaround, and maybe that even includes the down and out Circuit City.  It’s still too soon to yell the all-clear signal, but this report is actually not near as bad as many would have guessed.

If things are not that bad at Circuit City, then Wall Street will likely deduce that the guidance at Best Buy Co. Inc. (NYSE: BBY) is reachable as well.  We’d caution that comparing these two is difficult as Best Buy is not in a turnaround and as it generated $33.3 Billion in its annual revenues, almost thrice that of the $11.74 Billion posted by Circuit City.  Best Buy shares are trading up 0.5% at $42.40 in pre-market trading.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 7:59 am in Consumer Electronics, Earnings, Retail, ,

Another Disappointment From Boeing (BA)

As expected by many and hoped for by few, Boeing (NYSE: BA) delay, once again, the launch date of its 787 Dreamliner. It may want to drop the "Dreamliner" part of the name.

Boeing said the first flight of the all-new airplane will move into the fourth quarter of this year rather than the end of the second quarter, and first delivery is now planned for the third quarter of 2009 instead of first quarter.

The firm insisted that its financial guidance would not be affected. That hardly matters to the airlines who ordered the plane.

Douglas A. McIntyre

Posted on: April 9, 2008 – 7:48 am in Aerospace,

A Day After Huge Gains, Antigenics Taps Capital in Private Placement (AGEN)

Antigenics Inc. (NASDAQ: AGEN) has announced this morning that it has entered into definitive agreements to sell 7 million shares of its common stock at a price of $3.00 per share in a private placement.  The gross proceeds to the company will be $21 million before deducting filing and placement fees. The investors buying into this private placement are also receiving five-year warrants to purchase up to an additional 7 million shares of common stock at an exercise price of $3.75 per share.  Rodman & Renshaw is acting as the exclusive placement agent for this offering.

The company noted that the proceeds from the financing will be used primarily for funding key commercial and regulatory efforts.  That shall include the launch of Oncophage(R) (vitespen) in Russia, as well as possible filings in Europe and Canada.

This placement is on the heels of a gain of more than 20% yesterday on more than 15 million shares traded because of its Oncophage(R) being approved in Russia.  Shares yesterday closed at $3.03, so all in all it does not look like Antigenics had to give away the keys to the lab here to secure that money.  Their December 31, 2007 balance sheet showed only $16.679 million in cash and short term investments, while its short term liabilities were $8.38 million and total liabilities with long-term debt were more than $91.5 million.

Shares are indicated down 1.6% at $2.98 this morning and the 52-week trading range is $1.95 to $5.42.  Before the placement shares, Antigenics’ market cap is $171 million.

You can join our open email distribution list to hear about buybacks, special financings, secondary offerings, M&A, and more previews for other special situations.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 7:13 am in Biotech, Secondary Offering,

Top 10 Pre-Market Analyst Calls (ATHN, BBBY, CNQ, CCU, COCO, EL, ESI, CRM, PCU, URBN)

Below are the top analyst calls we are focusing on this Wednesday morning in pre-market trading:

  • AthenaHealth (NASDAQ: ATHN) started as Outperform at JMP Securities.
  • Bed Bath & Beyond (NASDAQ: BBBY) cut to Sell at Piper Jaffray.
  • Canadian Natural Resources (NYSE: CNQ) raised to overweight at Lehman Brothers.
  • Clear Channel (NYSE: CCU) cut to Hold at Stanford Research.
  • Corinthian Colleges (NASDAQ: COCO) cut to Neutral at Piper Jaffray
  • Estee Lauder (NYSE: EL) cut to Sell at Piper Jaffray.
  • ITT Educational (NYSE: ESI) cut to Neutral at Piper Jaffray.
  • Salesforce.com     (NYSE: CRM) cut to Market Perform at Bernstein.
  • Southern Copper (NYSE: PCU) started as Sell at Citigroup.
  • Urban Outfitters (NASDAQ: URBN) cut to Neutral at Piper Jaffray.

Jon C. Ogg
April 9, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 9, 2008 – 6:59 am in Analyst Calls, , , , , , , , , ,

Citigroup (C): Why Sell Loans Someone Else Wants?

Citigroup (NYSE: C) seems to have come up with a deal to sell over $12 billion in problem corporate debt, some of it likely from LBO transactions. The buyers are the astute private equity firms Blackstone (NYSE: BX), Apollo Management, and TPG.

The odd aspect of the transaction is that the portfolio is being sold for "an average of slightly less than 90 cents on the dollar," according to The Wall Street Journal. The firms doing the buying have reputations for being unusually adroit at making money. It would be safe to assume, then, that they think the paper is worth closer to 95 cents.

The news of the transaction shows that the sentiment about debt, especially debt which is only moderately impaired, has gone too far. The private equity firms are probably correct that what they are buying is worth more than they are paying. If so, Citi should keep the loans and take the write-down. The great pressure banks are facing should not put them in a position to leave money on the table. It is hard to see how their shareholders are helped by that.

Panic often makes for poor decisions. Citi has one in the making by dumping debt which has a fairly high inherent value.

Douglas A. McIntyre

Posted on: April 9, 2008 – 5:50 am in Banking,

As Hong Kong Airline Fails, Large US Carriers Face Trouble

Oasis Airlines in Hong Kong is shutting down. According to MarketWatch "Oasis Chief Executive Stephen Miller told a news conference all flights were being canceled immediately."

Oasis gets to join a growing list of airlines which have vanished into thin air. Large US carrier ATA is one of these, and Alitalia says it is almost out of money.

So far, the market’s reaction to the risk to large US carriers has been muted. The stocks of AMR (AMR), Delta (DAL), United (UAUA), and Northwest (NWA) may be at 52-week lows, but they have found, at least for now, a bottom.

In most industries staying out of Chapter 11 is a badge of honor. The sole exception to that is the airline business where bankruptcy is embedded in the culture like ticks are on the hide of a deer.

One of the few large US airlines which stayed out of a significant financial mess over the last decade is AMR. In the most perverse sort of way, a Chapter 11 filing four or five years ago might have spared AMR from its current perilous state.

One advantage that carriers like Northwest have in the present difficult economic environment is that they used their trips through the Chapter 11 process to tear away debt as well as employees which they deemed to be redundant. By several accounts, NWA has saved over $2 billion a year because it went through bankruptcy.

All of the large US airlines are at risk now. Fuel costs are up sharply and passenger revenue and revenue miles are likely to fall as the economy keeps people off commercial carriers The very rich can continue to operate their own fleets of private jets.

The present financial trouble does not strike each large US airline equally. Largely because of an advantage of Chapter 11, NWA has $6 billion in debt to its $3 billion in cash. At AMR, long-term debt totals $15.6 billion compared to its $4.6 billion in cash. Last year, AMR’s EBITDA was only about two times it interest expenses. By paying all of its bills over the years, AMR has been placed at a great disadvantage.

AMR had very modest operating income of $965 million last year compared to its $22.9 billion in revenue. The market has figured out the problem. While shares in other national carriers are off about 50% in the last six months, AMR is off 60%. That is a significant negative premium, a vote saying AMR is in a different bucket than its competitors are.

Several carriers reported falling traffic for March. At AMR, domestic traffic fell 5.9% for the month.

At some point soon, the dropping revenue effect and rising expenses cross where interest payments matter.

That will be soon at AMR and it puts the company at great peril.

Douglas A. McIntyre

Posted on: April 9, 2008 – 5:32 am in Airlines, , , ,