Monthly Archives: April 2008

Should The Feds Do More For Housing

The Chairman of the Federal Deposit Insurance Corporation says that the government is not doing enough to help the housing market.

In a piece written for the FT by Sheila Bair, she argues that "The US should fight the housing crisis by using low-cost government loans to help borrowers pay down unaffordable mortgages".

"These loans, which would be interest-free for the first five years, would be used to pay down part of the existing mortgage."

It may take more than that to bring the housing market back.

Douglas A. McIntyre

Posted on: April 30, 2008 – 5:38 am in Uncategorized

Alcatel-Lucent (ALU): How Does Pat Russo Keep Her Job?

Alcatel-Lucent (ALU) hit the market with more bad news. For the quarter ended March 31, the company reported a net loss of €181 million, compared with an €8 million loss a year earlier.

Worse, the company said that there are more bad times coming.

According to The Wall Street Journal the company "expects revenue to fall 2% to 5% in 2008 due to the weak dollar and potential lower spending by operators." ALU now losses more money and downgrades it forecasts every quarter.

How does CEO Pat Russo keep her job?

Douglas A. McIntyre

Posted on: April 30, 2008 – 5:33 am in Earnings Warning,

Microsoft (MSFT): A Few Dollars For The Yahooligans

Microsoft (MSFT) may decide to pay $1.5 billion in payments to retain key employees at Yahoo!. (YHOO).

According to Reuters "The $1.5 billion figure was discussed in a communication between the general counsels of Microsoft and Yahoo."

No wonder Redmond does not want to raise its bid.

Douglas A. McIntyre

Posted on: April 30, 2008 – 5:21 am in Mergers and Buy Outs, ,

Will Countrywide’s (CFC) Goon Squad Go To The Gallows?

The FBI appears to have uncovered some fraud in lending practices at Countrywide (CFC) and now the question is whether management knew. As Captain Renault said in a scene in Casablanca "I’m shocked, shocked to find that gambling is going on in here." Of course, he owned part of the casino.

According to The Wall Street Journal the Feds have "turning up evidence that sales executives at the company deliberately overlooked inflated income figures for many borrowers." Some loans were made without income verification or tax returns. Worse, in other cases sales people inflated the income numbers from certain borrowers to help close the deals. Of course the sales people were getting a piece of the action. Who can blame them?

The first problem that CFC has is that making loans based on false data is usually frowned upon. Not disclosing the practice and its potential impact on earnings is also something about which the government takes a dim view.

The most intriguing question now if whether there is evidence to be had that the people in the corner offices at CountryWide knew what was going on. Were they so many Nixons covering their trails?

Mozilo and his thugs must have known something was up. They did not build the largest mortgage bank in the US by being idiots.

Bank of America (BAC), which is about to buy Countrywide, is going to get more than its hands dirty because of the transaction. The web of bad, and perhaps illegal, practices at CFC gets worse by the day. B of A. would be best to sneak out a side door.

Douglas A. McIntyre

Posted on: April 30, 2008 – 5:13 am in Law, ,

Citigroup (C): A Promise Broken

The promise from Wall St. firms was implied, not spoken. The heads of operations like Morgan Stanley (MS) and Merrill Lynch (MER) said that the worst was probably over in the credit markets. It was OK for mortgage companies like Washington Mutual (WM) to raise money, but the big banks and brokerages could get by with better risk management and through selling some assets.

Merrill sold some bonds recently to put a tiny amount of meat on its balance sheet. The move almost went without notice.

That was not true when Citigroup (C) said it would sell $3 billion in new equity. As The Wall Street Journal points out "The move comes barely a week after the New York bank raised $6 billion in the credit markets." With Citi’s market cap down to $138 billion all this fund-raising is costing current shareholder a bunch.

Raising capital not only implies that things have been bad; it indicates that things could get worse. Citi is saying, without any subtlety, that it does not have any confidence in a short-term recovery and that the next few quarters will bring more write-offs.

Astute investors will be keeping their eyes on the rest of the money center banks and large brokers. If two or three more have to go into the capital markets for cash, it is time to run for the hills.

Douglas A. McIntyre

Posted on: April 30, 2008 – 4:50 am in Banking, , , ,

Starbucks (SBUX): New Drinks For Coffee Haters

In a sign of self-loathing, Starbucks (SBUX) is turning to non-coffee drinks to rescue it. The coffee chain will begin selling smoothies and Italian iced drinks this summer. The firm hopes the new offerings will bring in additional customers and get old ones to visit more often.

The company claims a method to it madness. According to The Wall Street Journal "Starbucks says they’re the first stage of a broader push into healthier drink and food offerings."

A year-and-a-half ago, Starbucks founder and now CEO Howard Schultz sent a memo to his management saying that the chain was getting away from its quaint coffee store roots. He wanted customers to smell that fresh-brewed Java when they came though the door and see the merriment among the other customers who were so happy to be there.

Instead, now Starbucks sells dozens of drinks, food, music, DVDs, WiFi, coffee makers, and washer-drier sets.

Adding goofy new fruit drinks to the Starbucks menu will not do anything to bring in enough customers to offset declines. It is simply a portent that the chain has lost its way.

Douglas A. McIntyre

Posted on: April 30, 2008 – 4:36 am in Food,

No Fed Rate Cut

In what may be the last great act of his presidency, George Bush is sending many Americans tax rebates. The checks began going out this week. Some households may get as much as $1,200.

What is not clear is how many citizens will go out and buy a new washer-dryer set and how many will simply stuff the money into their mattresses. One would cause inflation, while the other would only serve to hoard money as many families are beginning to hoard food.

The Fed has several reasons not to cut rates again.

First among those may be that inflation is rising much faster than government figures would show, at least for the goods and services that count most. Gas will probably hit $4 this summer. A bagel could cost $10. The price of corn is up 23% this year.

The governors at the central bank have also become concerned, quite rightly, that banks are passing none of the Fed’s cuts on to consumers or businesses. Mortgages are only given to the most credit-worthy. Financial institution would rather keep cheap money to help build reserves against the next set of write-downs which are likely to come in Q2. Many soothsayers claim that banks are out of the woods. Their stock prices and the worsening housing crisis would portend otherwise.

The cost of money for the man in the street is high and may go higher.

There are almost no reasons for the Fed to cut rates again now and plenty of reasons for it to stand pat. If Bush and Congress are right, they have done something to stimulate the economy. Doing two things at once as the price of everything from Cheerios to bug spray is going up does not increase the chance of inflation.

Inflation is already here. Fighting it has become the new priority

Douglas A. McIntyre

Posted on: April 30, 2008 – 4:22 am in Economy

Media Digest 4/30/2008 Reuters, WSJ, NYTime, FT, Bloomberg

According to Reuters, the Fed will probably cut rates and them pause for some time

Reuters writes that senior financiers see the current economic situation as a recession on Main Street and  depression on Wall St.

Reuters writes that Microsoft (MSFT) may spend as much as $1.5 billion to retain Yahoo! (YHOO) employees.

Reuters wrtes that Rockefeller family members are pushing for governance changes at Exxon (XOM).

The Wall Street Journal writes that an investigation of Countrywide (CFC) is turning up information showing sale people overlooked inflated income from borrowers.

The Wall Street Journal reports that Iraq may have a $70 billion wind-fall from higher oil prices.

The Wall Street Journal writes that Starbucks (SBUX) will unveil two new drink lines.

The Wall Street Journal reports that Citigroup (C) will sell $3 billion in new stock.

The Wall Stree Journal writes that GM (GM) now faces more obstacles than Ford (F) does.

The New York Times writes that farmers are facing a shortage in fertilizer

The FT writes that one senior bank regulator says the US should fight the housing crisis by using low-cost government loans to help borrowers pay down unaffordable mortgages.

The FT reports that the Treasury is seeking broader powers for the Fed.

The FT reports that Dubai has warned the EU over restricting investments by sovereign funds.

Bloomberg reports that Siemens (SI) profits dropped 68%.

Douglas A. McIntyre

Posted on: April 30, 2008 – 2:51 am in Uncategorized, , , , , , , ,

Asia Markets 4/30/2008 (SNP)(HMC)

Markets in Asia were mixed.

The Nikkei fell .3% to 13,450. Dentsu fell 4.4% to 239000. Honda (HMC) fell 3.8% to 3300.

The Hang Seng fell .3% to 25,836. China Netcom (CN) fell 2.7% to 23.5. China Petroleum (SNP) rose 2.9% to 8.46.

The Shanghai Composite rose 4.8% to 3,693.

Data from Reuters

Douglas A. McIntyre

Posted on: April 30, 2008 – 2:28 am in International Markets, , ,

Yes, We Have No Bananas: Did Chiquita (CQB) and Del-Monte (FDP) Pick-Pocket Wal-Mart (WMT)?

Fresh Del-Monte (FDP) came out with some pretty strong earnings today. Income climbed to $63.6 million, or $1 per share, compared with $51.6 million, or 89 cents per share a year ago. Much of the improvement was due to “higher banana selling prices: industrywide shortages due to bad weather in Central America.”

Most of those higher prices appear to have been passed along to retailers like Wal-Mart (WMT) and Kroger (KR). The quarterly numbers certainly don’t indicate that Del-Monte ate the increase.

But, was the reason for price increases the weather or was it Russian buyers moving into the market to import more fruit to their country? Four Russian companies including JFC and Sunway Group began aggressive bidding on bananas last fall. Between then and January the bid on a box of Ecuadorian bananas went from a range of $6 to $7 to a $13 to $14 range.

Much of the banana supply taken out of Ecuador by Dole and Del Monte is based on fixed annual contracts. Chiquita (CQB), on the other hand, buys in the spot market and ran into real trouble.

The weather must not have been all that bad. On April 21 there were news reports that banana exports out of Ecuador were rising. That usually works against higher prices. About the same time there was a report that the country’s growers were dumping bananas onto the market because of falling demand and a shortage of reefer capacity.

None of that prevented Chiquita’s president, Brian Kocher, from writing the company’s retail customers in February saying that flooding in Ecuador had cut down the company’s supply of bananas. Chiquita said it was applying the Force Majeure section of its contract and raising the price per box by $2.00.  The flooding was an ‘act of God.” The Russian buyers must not have fallen under that rubric.

The Chiquita letter went on to mention weather problems in countries in the Caribbean which also export the fruit. However, the company did not mention that most of that supply has gone to Europe for many years.

There is certainly some evidence that the banana market was not in as much trouble as Chiquita was saying. It passed the $2 per box fee on to retailers like Wal-Mart and Kroger nonetheless. Since about 14 million boxes of bananas come into the US each month, the amount of cost being passed on to retailers or consumers is fairly large

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Chiquita’s costs break down this way: pricing of 40 lb.box of bananas on the East Coast of $6.50 fruit on the boat price plus $4.80 surcharge plus $2.00 force majeure or approx. $13.30 per box. The letter from Mr. Kocher was worth a lot of money to Chiquita.

Dole sent out a similar letter at about the same time. It added a Force Majeure charge of $1.89. Del Monte’s Force Majeure price was $1.94.

It is clear from the Del Monte earnings that the company is making much more money than it did last year. As the cost of bananas went up, they passed that along to their retailers. But, the reasons given in their earnings release many not be the entire story.

It may have been Russians and not an “act of God” that pushed prices up. That extra $2 a box will be a nice bonus for earnings.

Yes, we have no bananas. We have no bananas today.

Douglas A. McIntyre

Posted on: April 29, 2008 – 5:20 pm in Food, , , ,

SPAC Dissolving: Shanghai Sentry Acquisition Corp.

Today, we have seen what may be one of the few special purpose acquisition companies, or SPAC’s, see a return of capital with a proposed deal voted down by shareholders.

Shanghai Sentry Acquisition Corp. (AMEX: SHA) just announced today that its annual and extraordinary meeting of shareholders was held and shareholders have voted down its proposed acquisition of Asia Leader Investments Limited.

Under the terms of the charter, the company is not permitted to pursue any other transactions and will shortly begin the process of liquidating and dissolving itself in accordance with the charter.  Applicable laws will result in the amount held in its trust account (together with interest) will be returned to the public shareholders.  No payments will be made in respect of the outstanding warrants or to any of its initial shareholders in the initial public offering. 

This company was formed in April 2006 and it raised $115 million through an initial public offering.  Back in February, this company terminated one acquisition to pursue the other and this vote had been delayed.

You can join our open email distribution list to hear about previews for other mergers, spin-offs, break-ups, IPO’s, special financings, and other special situations.

Jon C. Ogg
April 29, 2008

Posted on: April 29, 2008 – 5:15 pm in China, Mergers and Buy Outs, Shareholder Issues,

AT&T (T) To Make Big Apple (AAPL) iPhone Price Cut

To keep customers coming in when the new Apple (AAPL) 3G iPhone comes out, probably in June. AT&T (T) will cut prices on the current model by as much as $200.

According to Fortune," AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts."

Recent research from Changewave indicates that the lack of a 3G product is the primary reason that customers don’t like the current iPhone.

Apple and AT&T could both run into inventory trouble. There is no guarantee that a large price cut will clear out the old 2.5G units.

Someone still may be left holding the bag.

Douglas A. McIntyre

Posted on: April 29, 2008 – 5:07 pm in Telecom, ,

Citi Taps The Shareholder Keg (C)

Citigroup Inc. (NYSE: C) has come out tonight saying it will sell some $3 Billion in common stock.  Citi claims that after its last $6 Billion, this $3 Billion would take its Tier One capital ratio to 8.5% as of March 31, 2008.  Since when do companies get to retro-act dates like that?   

The company is underwriting its own offering.

While it is good that the company is able to raise funds this easily, and while the worst implosion fears at least appear behind us, this is just one more bit of further evidence that Citi and probably a dozen other of the behemoth former financial leaders are not totally out of the woods yet and that they might not all be entirely finished tapping the liquidity well again.

Citigroup already closed down 1.8% today at $26.32, and it is down about 3% at $25.50 in after-hours trading. 

Jon C. Ogg
April 29, 2008

Posted on: April 29, 2008 – 4:49 pm in Banking, Financial Stocks, Secondary Offering,

T. Boone Pickens: Energy Equities Reflect $75 Oil Rather Than $100 Oil

CNBC just hosted another interview with oil magnate and billionaire T. Boone Pickens today after the close.   With recent prices of oil having been near $120 at the high, Pickens still thinks $125.00 is the oil target based on supply and demand.  With a constant of 85 million barrels per day, the prices have to go up.  As far his position he is long oil and natural gas, and he said those old short positions were covered long ago.

As far what are the answers are to price and depending upon foreign oil, Pickens said that a combination of coal, natural gas, wind, solar, biofuels and hydroelectric is the answer.  He also said we need to figure out how to move these around to fix the problem.

He thinks energy equities are not reflecting $100 oil, he thinks energy stock prices are reflecting $70 or $75 oil.  If Pickens has said this about oil and energy stocks before, it’s been a while since he noted the price of energy specific stocks relative to energy prices.

Of these, natural gas is his first choice and wind is next for power generation.  He also said coal is our number one resource, but we need to get the coal cleaner.

As far as whether or not investors have missed the big move, Pickens said investors haven’t missed the big move… particularly in natural gas.

Jon C. Ogg
April 29, 2008

Posted on: April 29, 2008 – 3:23 pm in Interview, Oil & Gas

The 52-Week Low Club (GIL)(ENR)(SUN)(TRID)(TUNE)(UNH)

Gildan Activewear (GIL) Company cuts guidance. Drops to $23.75 from 52-week high of $46.47.

Energizer (ENR) Profit falls almost 9%. Sells off to $71.25 from 52-week high of $119.60.

Sunoco (SUN) Broker downgrade. Falls to $45.85 from 52-week high of $86.40.

Unitedhealth Group (UNH) Healthcare down as sector. Off to $32.94 from 52-week high of $59.46.

Trident Microsystems (TRID) Poor quarterly outlook. Sells down to $4.18 from 52-week high of $21.80.

Microtune Inc (TUNE) Revenue miss and broker downgrade. Drops to $3.20 from 52-week high of $6.88.

Douglas A. McIntyre

Posted on: April 29, 2008 – 2:58 pm in HI/LOW, , , , , ,

Take-Two’s GTA4 Retail Checks…. Maybe Take-Two Can Defend Against EA (TTWO, ERTS, GME, BBY)

We at 247WallSt.com have made calls doing our own checks to see just how the new blockbuster mega-hit Grand Theft Auto 4 video game from take-Two Interactive (NASDAQ: TTWO) is selling at some of video game dedicated stores.  Figures that have been thrown around for the first week are $400 million, and if you do a Google search under "GTA4 $400M" you’ll see how many are running this figure.

As Take-Two Interactive (NASDAQ: TTWO) tries to defend itself against a takeover (or to get a higher price) from Electronic Arts (NASDAQ: ERTS), we wanted to see just how well this game could do.  This is being sold through thousands of stores and many of the locations are completely sold out.  Only a few acted like they had an oversupply of games.  Literally many of the larger stores were stocked with games for those who did not pre-order, but those supplies were being eaten through quickly.  This is also before school and work ended for the bulk of the gaming population, so that’s another catch.

We decided to run a store check the opening morning at store locations for GameStop Corp. (NYSE: GME), Best Buy (NYSE: BBY), and even the new entrant called Play N Trade.  It goes quite simply like this, the larger the store the harder it is to round up someone that can or will give you an answer.  As well as this game is selling, and with a record breaking sales projection because of the dual-console platform launch, it’s hard to imagine that the company is just going to fold up its tent in defending itself.  If Electronic Arts wants the video game maker, they are trying to buy a company that will have a remarkably improved sales position compared to when the bid was first launched.  The opposite side of the argument is that one title might not make a difference in a decade long time frame.

Many did well in the midnight sales, and here are just a handful of the comments that the employees at the stores said from each store listed.  Please note that while these are in quotes, they are in context but this was the general comment of what we were told at each individual store:

Read More »

Posted on: April 29, 2008 – 2:26 pm in Mergers and Buy Outs, Product Review, Video Games, , , ,

Survey Shows No 3G Apple (AAPL) iPhone Hurts Product’s Perception

ChangeWave Research recently ran a survey about what customers like and disliked about the Apple (AAPL) iPhone and Research-In-Motion (RIMM) Blackberry. At the top of the dislikes among iPhone customers was the lack of 3G capacity. According to the poll "In terms of dislikes, there is no doubt about what iPhone owners hate most. It’s the speed of the AT&T (T) EDGE network."

It is still an open question about when Apple and AT&T (T) will have that fixed. It would argue that iPhone sales could move up sharply when a 3G product comes around.

What iPhone owners liked the most was the "seamless integration of its phone, iPod and Internet browser."

Over at RIMM the feature "BlackBerry users like best is its exceptional access to email." No surprise there.

The survey covered 864 smartphone owners.

Douglas A. McIntyre

Posted on: April 29, 2008 – 12:08 pm in Consumer Electronics, ,

Secondary Takes Air From Titan’s Sails (TITN)

Titan Machinery (NASDAQ: TITN) had been one of the best performing IPO’s since the end of 2007.  The owner and operator of full service agricultural and construction equipment stores in North America.  As you can imagine, the ties to agriculture have made this one a winner.

Monday, the company reported fourth quarter and fiscal results. Revenue increased by 61% from $84.0 million a year ago to $135 million this quarter. They posted a net income of $270,000, or $0.02 EPS, meeting guidance. The company recently signed an agreement to acquire Quad Country Implement, a single store in Iowa. Titan raised its 2009 outlook for revenues and earnings per share. Excluding the stock offering filed today, the company would have 13.8 million shares outstanding, for guidance estimates of $0.87 to $0.92 EPS in 2009.

The company now plans to issue 3 million shares of common stock and selling stock holders are planning to sell an additional 500,000 shares. They intend to use the proceeds from the offering to fund potential acquisitions of CNH agricultural and construction equipment dealerships or for general corporate purposes. Additionally, they may invest the proceeds in short to medium term interest bearing securities. The interest will be used for the above purposes.

The company began trading publicly December 6, 2007 at $8.50 per share. The share price has risen to the lower twenties.

The underwriters for the offering are listed as Craig-Hallum Capital Group and Robert W. Baird and Co. They have been given the option to purchase 525,000 shares for over-allotments.

Shares for Titan are down almost 13% after 90-minutes of trading to $19.38 on heavy trading volume. The post-IPO range is $11.50 to $24.50.

Rachel Lopez
April 29, 2008

Posted on: April 29, 2008 – 10:13 am in Agriculture, Secondary Offering,

Andersons Does Small Roll-Up Acquisition (ANDE)

The Andersons, Inc. (NASDAQ: ANDE) is making a niche acquisition to fit into its fertilizer operations.  It has acquired Douglass Fertilizer & Chemical Inc. as an addition to its Plant Nutrient Group to diversify the group’s product line offering.  It will also expand Andersons market "outside the traditional Midwest row crops and into Florida’s rich specialty crops."

Douglass Fertilizer is based in Maitland, Florida and is primarily a specialty liquid nutrient manufacturer, retailer and wholesaler.

Douglass Fertilizer is a specialty liquid nutrient manufacturer and retailer primarily serving Florida and to a lesser degree the Southeastern U.S. and the Caribbean; and it generated revenues of $48 million in 2007.

As fas as a comparison, Andersons Inc. generated some $2.379 Billion in revenues during 2007.  Depending upon the expansion that the company can make with a deeper pocketbook, that’s only about a 2% revenue bump. 

The Anderson’s market cap is $843 million and with a $46.50 stock price is toward the higher-end of its $38.10 to $52.67 trading range over the last year.

You can join our open email distribution list to hear about previews for other mergers, spin-offs, break-ups, IPO’s, special financings, and other special situations.

Jon C. Ogg
April 29, 2008

Posted on: April 29, 2008 – 8:51 am in Agriculture, Mergers and Buy Outs,

Genentech & Biogen-Idec Tank Rituxan Hopes on Lupus Treatment (DNA, BIIB)

Genentech, Inc. (NYSE:DNA) and Biogen Idec, Inc. (Nasdaq:BIIB) came out this morning with some disappointing news. 

The biotech giants have announced that a Phase II/III study of Rituxan for lupus has failed to meet its primary endpoint defined as the proportion of Rituxan treated patients who achieved a major clinical response or partial clinical response.

Unfortunately, this study results also failed to meet any of the six secondary endpoints.  Genentech and Biogen Idec said they will continue to analyze the study results and will submit the data for presentation at an upcoming medical meeting.

Based on the reaction, they can analyze all they want and it doesn’t look like it will matter.  Right before the open, Genentech shares are down almost 5% to $69.70 and Biogen-Idec shares are down almost 5% at $61.50.

Jon C. Ogg
April 29, 2008

Posted on: April 29, 2008 – 8:29 am in Biotech, ,