Daily Archives: May 15, 2008

Yahoo! (YHOO) Calls Icahn An Old Fool

In a letter which basically called Carl Icahn a dummy, Yahoo! (YHOO) responded to the billionaire’s plan to offer an alternate slate of directors by writing that his understanding of the portal company’s M&A negotiations "reflects a significant misunderstanding of the facts."

The letter was has two core arguments. The first is that the board offered a legal defense of its fiduciary actions by saying it has met twenty times to talk about the offer from Microsoft (MSFT). Then the board made the point that, based on Yahoo!’s future prospects, the company is worth at least $37 a share. It traded at about $19 before the Redmond approach.

The response is terribly flawed but reflects all that the Yahoo! board can say. The reality of the situation is that it does not matter how many times the board met or how many projections it reviewed. No one outside the board and senior management believes that there is any case for a valuation for Yahoo! that is above $30 or so, and that is only to Microsoft, which wants it for strategic reasons.

No other company made an offer for Yahoo!. If Icahn fails and Microsoft does not return, the stock will move back toward $20. That is the only part of the present situation which is crystal clear.

Douglas A. McIntyre

Posted on: May 15, 2008 – 6:49 pm in Mergers and Buy Outs, ,

Buffett & Berkshire Hathaway Holdings A-H (BRK-A, BRK-B, AXP, BUD, BNI, KMX, KO, CMCSA, CDO, COP, COST, GCI, GSK, HD)

After today’s close, we got to see which stocks that Warren Buffett Held in the Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) as of March 31, 2008.  Buffett’s filing cut off date as he has 45-days to make his filings.  Below is a snapshot of the various holdings, and we broke these down as they were in the fed filings.  Some have multiple positions because of the various entities that are held.  Here goes:

American Express (NYSE: AXP) $753M for 17,225,400 shares.

  •     $349M 7,994,634 shares
  •     $5.25B for 120,255,879 shares
  •     $84.9M for 1,943,100 shares
  •     $61M for 1,399,713 shares
  •     $36.7M for 839,832 shares
  •     $85.3M for 1,952,142 shares

Anheuser-Busch (NYSE: BUD)

  •     $1.678 BIL for 35,371,000 shares
  •     $9,120 for 192,200 shares

Burlington-Northern-Santa Fe NYSE: BNI) increased position

  •     $5.88B for 63,785,418 shares

Carmax Inc. (NYSE: KMX)

  •     $413.6M for 21,300,000 shares

Coca-Cola (NYSE: KO)

  •     $108.1M for 1,776,000 shares
  •     $438.6M for 7,205,600 shares
  •     $2.443 BIL for 40,141,600 shares
  •     $8.518 BIL for 139,945,600 shares
  •     $556.3M for 9,139,200 shares
  •     $29.2M for 480,000 shares
  •     $55.5M for 912,000 shares

Comcast (NASDAQ: CMCSA)

  •     $227.6M  12,000,000 shares

Comdisco (NYSE: CDO) very small position still…..
ConocoPhillips (NYSE: COP)

  •     $1.334 BIL for 17,508,700 shares

CostCo Wholesale (NASDAQ: COST)

  •     $341.3M for 5,254,000 shares

Gannett (NYSE: GCI)

  •     $100.1M for 3,447,600 shares

General Electric (NYSE: GE)

  •     $287.8M for 7,777,900 shares

GlaxoSmithKline (NYSE: GSK) small position
Home Depot (NYSE: HD)

  •     $116.9M for 4,181,000 shares

Very Small Position defined as "under $100 Million."  That may be an empire for the rest of us, but it isn’t worth nothing on Mr. Buffett’s scale.

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Buffett & Berkshire Hathaway Holdings I – S

Buffett & Berkshire Hathaway Holdings T – Z

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 5:08 pm in Buffett, Buffett Holdings, , , , , , , , , , , , , ,

Buffett & Berkshire Hathaway Holdings I-S (BRK.A, BRK.B, IR, IRM, JNJ, KFT, MTB, MCO, NKE, NSC, PG, SNY, STI)

After today’s close, we saw which stocks Warren Buffett held in Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) as of March 31, 2008.  Buffett’s filing cut off date is longer as he has 45-days to make his filings.  This is a snapshot of his various holdings, and these were broken down.  Some of these have multiple positions because of the various entities that are held.

Ingersoll Rand (NYSE: IR) small position

Iron Mountain (NYSE: IRM) small position

Johnson & Johnson (NYSE: JNJ)

  • $280M for 4,322,500 shares
  • $1.314 BIL for 20,266,300 shares
  • $1.711 BIL for 26,386,148 shares
  • $21M for 325,300 shares
  • $589M for 9,087,200 shares
  • $51 for 792,000 shares
  • $37M for 575,000 shares

Kraft Foods (NYSE: KFT) 

  • $2.766 BIL for 89,222,400 shares
  • $954.8M for 30,790,300 shares
  • $310M for 10,000,000 shares
  • $8M for 259,800 shares
  • $248M for 8,000,000 shares

M & T Bank (NYSE: MTB)

  • $483.1M for 6,003,360 shares
  • $43.9M for 546,000 shares
  • $13.3M for 165,700 shares

Moody’s (NYSE: MCO)

  • $1.124 BIL for  32,280,600 shares
  • $547.5M for 15,719,400 shares

Nike (NYSE: NKE)

  • $519.5M for 7,641,000 shares

Norfolk Southern (NYSE: NSC)

  • $105M for 1,933,000 shares

Procter & Gamble (NYSE: PG)

  • $4,099 BIL for 58,500,000 shares
  • $1.524 BIL for 21,752,000 shares
  • $437M for 6,240,000 shares
  • $501M for 7,154,500 shares
  • $54,655 for 780,000 shares
  • $109,309 for 1,560,000 shares
  • $384,369 for 5,485,500 shares
  • $306,556 for 4,375,000 shares

Sanofi-Aventis (NSE: SNY)

  • $18.3M for 488,500 shares
  • $96.8M for 2,578,933 shares
  • $6.3M for 169,300 shares
  • $13.1M    350,000 shares

SunTrust Banks (NYSE: STI)

  • $129.2M for 2,344,600 shares
  • $47.4M for 860,000 shares

Very Small Position defined as "under $100 Million."  That may be anempire for the rest of us, but it isn’t worth nothing on Mr. Buffett’sscale.

You can join our open email distribution list hear about specialfinancings, M&A, IPO’s, secondary offerings, and other specialsituations.

Buffett & Berkshire Hathaway Holdings A – H

Buffett & Berkshire Hathaway Holdings T – W

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 5:03 pm in Buffett, Buffett Holdings, , , , , , , , , , , , ,

Buffett & Berkshire Hathaway Holdings T – W (BRK-A, BRK-B, TMK, TT, USB, USG, UNP, UPS, UNH, WBC, WMT, WPO, WFC, WLP, WSC)

After today’s close, we saw the filing showing which stocks Warren Buffett held in Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) at the cut off date of March 31, 2008. This is a snapshot of his various holdings that were broken down alphabetically.  Some have multiple positions because of various entities that are held.  Here goes:

Torchmark Corp. (NYSE: TMK)

  • $4.6M for 77,551 shares
  • $27M for 449,728 shares
  • $99.5M for 1,656,900 shares
  • $38.4M for 639,700 shares

Trane Inc. (NYSE: TT)

  • $500M for 10,901,900 shares

US Bancorp. (NYSE: USB)

  • $754,224 for 23,307,300 shares
  • $911,692 for 28,173,426 shares
  • $270,691 for 8,365,000 shares
  • $157,473 for 4,866,300 shares
  • $70,351 for 2,174,000 shares
  • $56,468 for 1,745,000 shares

USG Corp. (NYSE: USG)

  • $628.5M for 17,072,192 shares

Union Pacific (NYSE: UNP)

  • $558.3M for 4,453,000 shares

United Parcel Service (NYSE: UPS)

  • $104.3M for 1,429,200 shares

United Health Group (NYSE: UNH)

  • $219.9M for 6,400,000 shares

Wabco Holdings (NYSE: WBC)

  • $123.1M for 2,700,000 shares

Wal-Mart Stores (NYSE: WMT)

  • $1.00 BIL for 18,998,300 shares
  • $49.8M for 946,000 shares

Washington Post (NYSE: WPO)

  • $591.5M for 894,304 shares
  • $98.1M for 148,311 shares
  • $428.7M for 648,165 shares
  • $24.4M for 36,985 shares

Wells Fargo (NYSE: WFC)

  • $1.556 BIL for 53,489,420 shares
  • $367.9M for 12,643,200 shares
  • $1.114 BIL for 38,313,040 shares
  • $81.1M for 2,788,000 shares
  • $29.1M for 1,000,000 shares
  • $3.771 BIL for 129,591,488 shares
  • $46.8M for 1,609,720 shares
  • $49.4M for 1,700,000 shares
  • $23.8M for 820,000 shares
  • $582M for 20,000,000 shares
  • $465.6M for 16,000,000 shares
  • $232.8M for 8,000,000 shares
  • $78.57M for 2,700,000 shares
  • $58.2M for 2,000,000 shares

Wellpoint (NYSE: WLP)

  • $211.8M for 4,800,000 shares

Wesco Financial (AMEX: WSC)

  • $2.3 BIL for 5,703,087 shares

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

Buffett & Berkshire Hathaway Holdings A – H
Buffett & Berkshire Hathaway Holdings I – S

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 5:01 pm in Buffett, Buffett Holdings, , , , , , , , , , , , , , ,

Berkshire Hathaway Dumps Ameriprise (AMP, BRK.A, BRK.B)

Ameriprise Financial Inc. (NYSE: AMP) was the stand out stock in Warren Buffett’s holdings today.  Beakshire Hathaway inc. (NYSE: BRK.A, BRK.B) held some 661,742 shares and listed as worth some $36.4 million back at the end of 2007.  NO MORE….

Ameriprise was not in the holdings listed. today.  It was really a small position anyhow.

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 3:56 pm in Buffett, , ,

The 52-Week Low Club (UNH)(CNB)(SSTR)(SLRY)

Unitedhealth Group (UNH) Concerns about healthcare cost cuts still bother stock. Drops to $31.50 from 52-week high of $59.46.

The Colonial BancGroup (CNB) No bad news. Just part and parcel of being a bank. Down to $7.18 from 52-week high of $25.50

Silverstar (SSTR) Unpleasantness over quarterly report. Sells off to $.72 from 52-week high of $5.48.

Salary.Com (SLRY) Quartely loss and downgrades. Slips to $3.88 from 52-week high of $16.32.

Douglas A. McIntyre

Posted on: May 15, 2008 – 2:55 pm in HI/LOW, , , ,

Time To Switch From Wal-Mart Back To Target? (TGT, WMT)

On Tuesday, May 20, 2008, we’ll see earnings out of Target Corporation (NYSE: TGT) and we’ll get to see just how the "recessed" client base is as far as shopping on a relative basis.  Since Wal-Mart Stores, Inc. (NYSE: WMT) has enjoyed such a nice run-up while its prior thorn in the side (Target) has suffered, we wanted to see which stock represents the better investor choice for growth and for value based on today’s expectations and past performance.  We had to peg prices, so we used $54.75 for Target and $57.00 for Wal-Mart.  Essentially, we are looking at this no different than a pairs trader would look at the companies.

As we noted on Wal-Mart, analysts were all under the company’s own guidance.  On Target, analyst expectations have come down for this year and next year over the last 90 days.  Based upon the current analyst targets ahead, so below are some figures to outline this.

Target trades at 15.7-times Jan-2009 fiscal EPS and 13.7-times Jan-2010 estimates.  Wal-Mart simultaneously trades at 16.5-times Jan-2009 fiscal EPS and 14.9-times fiscal Jan-2010 estimates.  So the next fiscal earnings growth expectations from Wall Street are 14.6% for Target and 10.4% for Wal-Mart. 

We also wanted to look at forward revenue projection.  At almost $226 Billion in market cap, Wal-Mart trades at 0.55-times Jan-2009 revenues and 0.51-times Jan-2010 revenues.  With a $44.7 Billion market, Target trades at 0.65-times Jan-2009 revenues and 0.6-times Jan-2010 revenues.  The reason for this discrepancy on higher revenue multiple at Target is fairly simple to interpret since it has higher growth and higher margins. 

According to Capital IQ: Target’s gross and net income margin for this last year were 31.6% and 4.5% respectively; and Wal-Mart’s gross and net income margin for this last year were 24.4% and 3.4% respectively.

Read More »

Posted on: May 15, 2008 – 12:55 pm in Retail, Value Investing, ,

Busted IPO: Verso Paper Corp. (VRS, IP)

Verso Paper Corp. (NYSE: VRS) was one we noted yesterday as "slashing terms" after the pricing level was dropped and the share count in the sale was dropped.  The company priced 14 million shares at $12.00 a piece, and shares are now under $10.00.  It’s also only the first day.

Verso was formed as an independent company that was acquired out of International Paper in the last few years, and the problem here is that the company’s use of funds is to repay debt that was used to pay Apollo Management L.P. a dividend last year.

Many investors don’t mind buying from private equity in an IPO, particularly if the investor group made the company stronger.  But investors often shy away from deals where all of the funds are directly or indirectly are going away from the company.

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

Jon C. Ogg
May 15, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.

Posted on: May 15, 2008 – 10:49 am in IPOs, ,

Trouble Brewing In Oil & Gas MLP Land? (PAA, OGE, DVN, XCO, VQ, WES, APC, BSR)

We have tracked these Master Limited Partnerships (MLP’s) and spin-offs or carve-out IPO’s from larger oil and gas companies for quite some time.  What is amazing is that despite the rapid rise in oil and energy-related commodities has not translated to the "peak-IPO rush" like we saw with dot.com IPO flame-outs from 1999 and 2000.  Many have been withdrawn and many have gone in limbo.

Earlier this week, Plains All American Pipeline LP (NYSE: PAA) completed a public offering of 6.9 million common units at $46.31/unit, generating net proceeds of $315 million. In February, Plains withdrew a proposed IPO for a master limited partnership (MLP) in its general partner, which may have generated much more cash.

OGE Corporation (NYSE: OGE) withdrew a proposed MLP IPO in January, citing "market volatility."

Devon Energy (NYSE: DVN) had planned an MLP IPO for the third quarter of 2007, but the offering has neither gone forward nor been withdrawn.  This one is still in the "pending" category.

EXCO Resources Inc. (NYSE: XCO) filed in September 2007 for a public offering of 75 million common units in an MLP. Exco withdrew the offer in January, stating that "current market conditions do not support the completion of the offering in a manner that would result in the value enhancement to EXCO and its shareholders that was anticipated upon the initial filing of the registration statement."

Venoco Inc. (NYSE: VQ) announced an E&P MLP in February. This one is still outstanding as it is only 3-months old.  Venoco enjoyed a $3.00/share price jump on Monday’s earnings report.

Last week we saw a pricing from Western Gas Partners L.P. (NYSE: WES),a spin-out from Anadarko Petroleum Corp. (NYSE: APC) saw a lacklusterIPO with a pricing below the indicated levels.

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

If you want to see an even more broad example of this trend in MLP’s, you can look at the ETF: BearLinx Alerian MLP Select Index ETN (NYSE: BSR)… This is technically an ETN, but who’s counting.  Its chart has been highly unimpressive.

It’s not all bad out there.  Some will still come public and some will still continue to do well.  We’ll be showing some other pending or withdrawn IPO’s in deals thatare similar, but aren’t going to be oil and gas or pipeline MLP IPO’s.Stay tuned.

Paul Ausick
May 15, 2008

Posted on: May 15, 2008 – 9:34 am in IPOs, Oil & Gas, , , , , , , ,

CBS + CNet = The Worst M&A Deal Of The Year

It is almost impossible to imagine what the CBS (CBS) management and board were thinking when they bought CNET (CNET) for $11.50 a share or $1.8 billion. CNET has done so poorly that the shares have not been above $10 since April 2006. The high price CBS is paying borders on being irresponsible.

A look at CNET’s last 10-Q shows how troubled the company is .A large internet content operation should probably be showing revenue increases of 12% to 18%. In the last quarter, CNET revenue went from $89.1 million to $91.4 million, an increase of under 3%. CNET claims it has the premier technology news sites on the internet.

After backing out restructuring costs, CNET had an operating loss of about $13 million, almost double the number from the same quarter the year before.

CNET claims it has a growing customer base. The firm says it had an average of 161.3 million unique users per month in the first quarter of 2008 compared to 143.7 million unique users in the first quarter of 2007. And, the users generated 89.7 million web page views per day during the first quarter of 2008 and 81.2 million web pages views per day during the first quarter of 2007.

How is it possible that the company’s revenue would not move up with those audience figures unless CNET is offering advertisers much better rates than it did last year? CNET is not likely to be able to raise those rates anytime soon.

The deal is made worse by the fact that CBS is almost as bad off as CNET, but on a larger scale. The company’s revenue in the first quarter was flat as was operating income. Wall St. appreciates how poorly CBS has performed. Its shares are down almost 25% over the last year. Shares in rivals Viacom (VIA) and Disney (DIS) are down only slightly over the same period.

The buy-out can only be based on one premise which is that CBS can run CNET much better than CNET can, Given the pressure CNET’s management has faced over the last year, it is likely that the company did everything it could to improve earnings. That did not work out.

It won’t work out for CBS either.

Douglas A. McIntyre

Posted on: May 15, 2008 – 8:54 am in Mergers and Buy Outs, , , ,

Blackstone Loses & Contracts, Yet Assets Grow To Record (BX)

The Blackstone Group L.P. (NYSE: BX) has reported earnings this morning, and it’s really hard to find anything pretty in the release. 

The private equity leader posted a GAAP net loss of $246.7 million after items, and its "economic net income" was listed also a s a loss at -$93.6 million.  Its total net reportable segment revenues were $32.3 million, driven down by declines in all business segments from $1.23 billion in 2007.  Its GAAP revenues were $68.5 million.

This will show you the magnitude of the drops in segments reported:

  • Corporate Private Equity had negative first quarter revenues;
  • Real Estate revenues down 94%;
  • Marketable Alternative Asset Management down 81%;
  • Financial Advisory Revenues decreased 24%.

You can look through the entire release, but as the company noted, most business segments were indeed lower.

Interestingly enough, the company now has $113.53 billion in assets under management.  That assets under management figure represents a 37% increase from last year. It has also decided to make a dividend payment of $0.30.

Shares of Blackstone are down about 4% at $18.70 in pre-market trading with about 30 minutes to the open.

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 8:09 am in Earnings, Private Equity,

JDS Uniphase Votes For Buyback Over Expansion (JDSU)

JDS Uniphase Inc. (NASDAQ: JDSU) has just announced that its board of directors has authorized the repurchase of up to $200 million in shares of common stock.  The repurchases can be via open market or private transactions, and it set this as a two year period ending May 14, 2010.

JDS Uniphase’s market cap is roughly $2.6 Billion.  Based upon today’s prices, this would net out approximately 17 million shares.  That in turn is representative of nearly 2.5 days worth of average trading volume.

As far as how this relates to total cash, as of March 29, 2008, JDSU had $1.045 Billion in cash and short-term investments, and still had $26.7 million listed as long-term investments.  Its total liabilities were also $1.13 Billion. 

Unfortunately, this buyback doesn’t sound like it is going to be large enough to make any massive dent even though shares should run up initially on this news.  It also signals that there might not be that many great niche and complimentary or adjacent mergers it wants to make.

Shares closed at $11.51 yesterday and are up almost 1% pre-market at $11.61; its 52-week trading range is $9.49 to $16.05.

Jon C. Ogg
May 15, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.

Posted on: May 15, 2008 – 7:44 am in Stock Buybacks, Technology Companies,

Blockbuster Managing Earnings (BBI)

Blockbuster Inc. (NYSE: BBI) managed to beat earnings expectations this morning.  The company posted $0.20 EPS on a 5.4% revenue decrease to $1.39 Billion.  First Call had estimates at $0.15 EPS on $1.44 Billion in revenues.

Operating income was $70.2 million.  The company’s same store sales rose 2.9%, but this was on a smaller number of stores.  The company also noted that BLOCKBUSTER Total Access(TM), its subscription rental offering, is now profitable and positioned for growth.

Here were some balance sheet highlights:
Cash and cash equivalents             $137.7
Merchandise inventories                 $397.4
Rental library                                 $444.8
Accounts payable                          $453.8
Total debt (w/ capital lease
     obligations)                               $751.4

Blockbuster shares are up 10% pre-market at $3.40; its 52-week trading range is $2.52 to $5.80.

Jon C. Ogg
May 15, 2008

Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.

Posted on: May 15, 2008 – 7:25 am in Earnings, Entertainment,

UBS Hikes Oil (CVX, DO, HERO, NE, PDE, RDC, RIG)

UBS has raised its raw oil price targets for 2008 to 2010 and has lifted its coverage in the oil sector.  UBS also initiated coverage on some of the oil and drilling companies this morning.  Here are a few of the stocks they initiated coverage on:

  • Chevron (NYSE: CVX) raised to Buy from Neutral.
  • Diamond Offshore (NYSE: DO) started as Buy with a $160 target.
  • Hercules Offshore (NASDAQ: HERO) started as Neutral with a $35.00 price target.
  • Noble Corp. (NYSE: NE) started as Buy with $81.00 target.
  • Pride (NYSE: PDE) started as Neutral.
  • Rowan (NYSE: RDC) started as Buy with $53.00 target.
  • Transocean (NYSE: RIG) started as Buy with a $200 target.

As far as average oil price, UBS raised those as well:

  • $115.00 average per barrel for 2008.
  • $120.00 average per barrel for 2009.
  • $116.50 average per barrel for 2010.

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 7:01 am in Analyst Calls, Oil & Gas, , , , , , ,

Top 10 Pre-Market Analyst Calls (CEL, EVEP, GMT, ITRN, CEC, LDG, NSM, SLRY, ELOS, TIVO)

Analyst coverage is looking pretty thin on individual calls this morning, but here are ten of the analyst calls we are looking at this Thursday morning:

  • Cellcom Israel (NYSE: CEL) raised to Buy at Jefferies.
  • EV Energy (NASDAQ: EVEP) started as Buy at Citigroup.
  • GATX (NYSE: GMT) Raised to Outperform from Market Perform at Morgan Keegan.
  • Ituran Location and Control (NASDAQ: ITRN) raised to Overweight at JPMorgan.
  • CEC Entertainment (NYSE: CEC) cut to Hold at KeyBanc Capital Markets.
  • Longs Drug Stores (NYSE: LDG) Started as Buy at UBS.
  • National Semiconductor (NYSE: NSM) cut to Neutral at Merrill Lynch.
  • Salary.com Inc. (NASDAQ: SLRY) Cut to Market Perform from Outperform at Wachovia.
  • Syneron Medical (NASDAQ: ELOS) raised to Buy at Merriman Curhan Ford.
  • TiVo (NASDAQ: TIVO) Raised to Market Perform at FBR.

Jon C. Ogg
May 15, 2008

Posted on: May 15, 2008 – 6:43 am in Analyst Calls, , , , , , , , , ,

CBS (CBS) To Buy CNET (CNET): Odd News

In a move that makes little sense, a TV network, CBS (CBS) will buy a tech website business, Cnet (CNET).

The price was $11.50. Cnet has been under pressure by activist shareholders to sell the company or restructure units.

According to CBS "The acquisition will make CBS one of the 10 most popular Internet companies in the United States, with a combined 54 million unique users per month, and approximately 200 million users worldwide."

It is, however, a TV company buying a online tech business. Nice match

Douglas A. McIntrye

Posted on: May 15, 2008 – 6:21 am in Mergers and Buy Outs, ,

GE (GE): A Proxy For US Economy Anymore?

For years, GE (GE) has been considered the single best corporate proxy for the US economy. For years it led all American companies in market cap. It businesses range from entertainment to medical equipment to infrastructure services to finance. It be hard to find as broad a representative for the scope of American business. Or is it?

GE has fallen out of favor and now it is selling one of its oldest businesses, its appliance operation. Investors have been calling for a break-up of the parent company for years. When the firm had a bad quarter earlier this year, the pressure to do something radical with the company increased. The appliance company auction is throwing the dogs a bone.

If GE is the best measure of the economy, then the economy is in bad shape. GE trades at $32.51, near its 52-week low and at about the same level as when Jack Welch left to marry his lover, the former editor of The Harvard Business Review.

Despite its size, it is not terribly hard to make the case that GE no longer looks anything like the larger economy as a whole.

The companies at the top of the market cap list of US firms look very little like GE now. They include Exxon (XOM), Microsoft (MSFT), AT&T (T), Procter & Gamble (PG), Johnson & Johnson (JNJ), IBM (IBM), and Google (GOOG). In other words, a close look at the most success firms in the US, at least judged on market value, shows that GE is not like any of them in any way.

GE has become out of step with American business and the stock market as a whole because it has not sold "old economy" businesses and used the capital to buy "new economy" businesses.

Selling a division which markets refrigerators will not help that.

Douglas A. McIntyre

Posted on: May 15, 2008 – 5:50 am in Conglomerates, , , , , , , ,

IAC/Interactive (IACI): Another Foolish Move

No one needs to be reminded that IAC/Interactive (IACI) is breaking itself into five pieces to improve "shareholder value". The fight between Barry Diller and John Malone over whether the move was OK played out in all of the papers.

IACI was always a badly conceived company. It tried to put together things like a home shopping network, a lending operation, a ticket sales firm, and an unusually weak group of internet properties. As part of the preparation, for the spin-offs, the world’s smallest search engine, Ask.com, part of the Diller internet division is buying Lexico which owns Dictionary.com, Thesaurus.com and Reference.com. According to The Wall Street Journal. "Lexico sites drew about 15.6 million unique U.S. visitors in March, according to comScore Inc., compared with 55.4 million for Ask and an array of affiliated sites."

Ask.com has about 5% of the US search market while Google (GOOG) has close to 60% and Yahoo! (YHOO) about 25%.

The purchase of Lexico is based on deeply flawed thinking. Consumers who use an online dictionary are not likely to use the search engine which is owned by the same company, especially if that search engine is Ask.com. Ask has already lost the search race because it is a weak product. People using the internet can click from Dictionary.com to their favorite search engine, probably Google, in one click which takes one second.

Buying a potential audience for an internet property that very few people use will not change consumer habits and that makes the investment a waste.

Douglas A. McIntyre

Posted on: May 15, 2008 – 5:31 am in Internet, , , ,

China: Inflation On Fire

It is not enough that the cost of food is moving up by double digits in China. Now other components of the economy are showing even worse inflation.

In April, factory and property spending rose 26% in the world’s most populated country. The banks in the country are still tightening credit, but, so far that has not done much yet. According to Bloomberg, one senior Chinese official said  “New local government officials who took office in March are politically motivated to expand their local economies.”

That motivation could do a lot to hurt China’s GDP growth. Not only is the country’s middle class being squeezed by rising food costs, but now the building industry may find that rising demand for the supplies required for commercial construction may make that process much more expensive.

The inflation pressure in the country is likely to meet falling demand for the nation’s goods as Western economies slow and import less from China. If that happens, there will be a partial economic collapse in the country. No wonder the Shanghai Composite is down 50% from its peak last October.

Douglas A. McIntyre

Posted on: May 15, 2008 – 5:13 am in China

Toyota (TM) Prius: No Longer Just For Sissies

No one can make the case that the Toyota (TM) Prius is just a car for tree-hugging environmentalists. The vehicle has now sold one million units worldwide. The figure is particularly impressive because the Prius tends to cost more than its "gas only" counterparts. The addition of the electric engine is expensive.

The Japanese car company says that the Prius has done a lot to please Al Gore. It even has the numbers to prove it, according to Reuters "Toyota believes that Prius vehicles worldwide have contributed to a reduction in carbon dioxide emissions by producing approximately 4.5 million tonnes less CO2 when compared with gasoline-powered vehicles in the same class and of similar size and driving performance."

Toyota has effectively trumped is competitors again by coming out with a popular model in mass productions years ahead of the rest of the industry. It did the same thing almost three decades ago when it put "zero defect" vehicles into the US market when cars from Detroit were still just a bucket of bolts. Matching Toyota on the quality meter took years and billions of dollars in production and design work.

Having jumped out to another lead, what can Toyota do next? A flying car is probably already on the drawing board.

Douglas A. McIntyre

Posted on: May 15, 2008 – 4:58 am in Autos,