Daily Archives: May 22, 2008

Yahoo!’s Board Defections Begin (YHOO, MSFT)

Yahoo Inc. (NASDAQ: YHOO) submitted and SEC filing today after the close that Edward Kozel resigned from the board of directors.  This filing said he had originally intended to leave in February but decided to stay on after Microsoft (NASDAQ: MSFT) made its offer for the company.

It would be nice to know if Mr. Kozel was one of the board members that had allegedly sought independent legal counsel after it became known that Yang was going to turn down Ballmer’s buyout offer.

As a result of this exit, Yahoo! has cut the size of its board of directors from 10 down to 9.  If Mr. Yang doesn’t take this opportunity to add on one of the Carl Icahn designates, then he is just asking for even more trouble while he sticks his head in the sand.

It’s up to you whether or not to believe the company on the timing and more.  Our bet is that more board members look for an exit.

Yahoo! also filed to delay its annual meeting to around the end of July.  It cited the Icahn proxy fight.

Jon C. Ogg
May 22, 2008

Posted on: May 22, 2008 – 4:35 pm in Internet, Management Change, ,

NRG & Calpine: Insanity or Opportunistic? (NRG, CPN)

After last night’s disclosure and confirmation that NRG Energy, Inc. (NYSE: NRG) had sent a buyout offering letter to Calpine Corporation (NYSE: CPN), we wanted to let the dust settle here before calling this insane or genius. 

NRG sent a $23.00 buyout offer to Calpine back on May 14, which was a 16% premium to the day’s prior close and roughly 20% higher than the daily average.

NRG stated in its letter that this "creates a combined company the likes of which this industry has never seen: a fully capable, multi-fuel, across-the-merit order company with four highly coherent regional businesses, of at least 8 GW each, spanning all of the major competitive power generation markets in the United States. As such, we are contemplating a transaction that is transformative to our respective companies, transformative to the industry and transformative to our respective shareholders from the point of view of present and future value creation."

So this merger for the 500 million shares of Calpine outstanding after its bankruptcy would be an all-stock offer for 0.534 shares of NRG per Calpine share.  After looking at its ten points, here are some of the expectations that NRG sees from the combined operations:

  • A 45,000MW producer, with a $38 Billion enterprise value and a $20 Billion market cap.
  • A diversified power source producer with regional diversification.
  • Stock liquidity as a must-own company for investors in the sector.
  • Tax optimization.
  • Savings in general and administrative costs of $100 million annually, with additional savings as well.
  • Stronger financial and credit enhanced operations.
  • A growth platform not dependent upon chapter 11; and advocacy in carbon and other areas.

Right before the close today, NRG shares were off almost 5% at 40.45 and Calpine shares were up 6.4% at $22.65.  NRG shares are still close to 52-week highs and this is the highest that Calpine has been in post-bankruptcy stock trading.

If NRG can pull this off in an all-stock transaction without having to sacrifice its cash, this will ultimately end up being a major victory.  Because of Calpine’s recent years, it isn’t as though the company can claim it is insulted by the offer nor that this wouldn’t help stabilize a post-bankruptcy situation.

Jon C. Ogg
May 22, 2008

Posted on: May 22, 2008 – 3:01 pm in Alternative Energy, Mergers and Buy Outs, Utilities, ,

The 52-Week Low Club (GE) (EK)

Dick’s Sporting Goods (DKS) has weak profits. Share drop to $21.07 from 52-week high of $36.78.

GE (GE) falls to $30.80 on general economic malaise. The company’s 52-week high is $42.15.

Blue Coat Systems (BCSI) Misses street estimates. Sells down to $16.20 from 52-week high of $53.37.

Eastman Kodak (EK) Recent patent settlement may still be weighing. Slides to $15.65 from 52-week high of $30.20.

Douglas A. McIntyre

Posted on: May 22, 2008 – 2:19 pm in HI/LOW, , , ,

McDonald’s (MCD) Foots The Bill

McDonald’s (MCD) is taking a risk, but it may be a clever one.

The world’s largest fast food chain will absorb most of the rising prices of food commodities to keep prices which customers pay low. That means the $1 menu items will not go to $1.50.

According to Reuters, MCD Chief Executive Jim Skinner said "This is not the time to be passing that on to consumers. They have long memories."

The move could push down margins in during the next year, but it should cause same-store sales to outpace virtually all MCD competitors.

Douglas A. McIntyre

Posted on: May 22, 2008 – 1:51 pm in Food,

Google (GOOG) Grabs More Search Engine Share

Prospects in the search arena look more troubling for Yahoo! (YHOO) and Microsoft (MSFT) as each month passes.

According to comScore, in April, Google (GOOG) picked up 1.8% more of the US market to move from 59.8% in March to 61.6%. That is a very large land grab in a very short time.

Over at Yahoo!, share dropped from 21.3% to 20.4%, which is brutal. Microsoft say its piece move from 9.4% to 9.1%.

Even if Microsoft and Yahoo! can get together, the market is slipping away fast

Douglas A. McIntyre

Posted on: May 22, 2008 – 11:10 am in Internet, , ,

Evergreen Solar (ESLR) Up 20%, Caveat Emptor

Evergreen Solar (ESLR) is trading up 20% to $10.86 on news that it signed $1 billion worth of contracts.

The larger of the deals involved is with German-based Ralos Vertriebs GmbH and has a face value of $750 million. But, the terms spread the agreement over five years, ending in 2013. It is not clear what the cost of sales here is. Wall St. may look at this as roughly $150 million per annum with a return which may be modest.

ESLR traded above $18 at Christmas last year.

Solar companies have done well lately because of the alternative energy craze. But, Evergreen Solar has been something of an exception. Its first quarter earnings were very disappointing. Revenues were $18.3 million for the first quarter of 2008, compared to $16.9 million for the fourth quarter of 2007 and $12.6 million in the first quarter of 2007. For a company in a "hot" sector, that growth is modest.

And, the company had an operating loss of $7.5 million, about two-thirds of that for facility start-up and write-off costs. That would tend to speak poorly of management.

Evergreen looks good on the news, but no so strong on its merits.

Douglas A. McIntyre

Posted on: May 22, 2008 – 11:03 am in Micro Cap,

Ford (F) Falls On Its Sword

After over a year of saying it would make a profit in 2009, the new management at Ford (F) has given up the ghost. Once auto sales started to move down sharply the middle of last year, the company never had a chance. It is a shame that they did not admit their mistake earlier. Getting back on Wall St.’s good side will take months if not a year or more.

Ford’s shares opened down over 7% on word that "it no longer expects to meet a long-held goal of returning to profitability in 2009 and would cut production through the remainder of this year to adjust to a slumping U.S. market," according to Reuters.

So much for the investors who bought the stock over the last five weeks on the Ford’s assurance that things were going well.

Douglas A. McIntyre

Posted on: May 22, 2008 – 8:49 am in Autos,

Goldman Sachs: Sirius & XM To Raise Capital (SIRI, XMSR)

Goldman Sachs has issued a research report noting that Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR) are likely going to need to raise capital.

The note projects that it believes the combined companies may need to raise $500 million to $1 Billion on top of the need to refinance $1.46 Billion in putable debt that XM has, or $1.06 Billion if some debt is converted.  This puts the estimated time frame as soon as Q3 2008 but more likely by Q1 2009.

Goldman Sachs noted that the companies can both get through 2008, but not comfortably given the $120 million MLB escrow funding and pending maturities in 2009.

Their belief is that the capital raise is tangible based on declining cash cushions, contract cash payments, compensating balance requirements, merger integration costs, putable debt, existing debt servicing and maturities.

Jon C. Ogg
May 22, 2008

Posted on: May 22, 2008 – 8:04 am in Analyst Calls, Satellite, ,

OPEC Claims It Can Do Nothing About Oil Prices

Someone is not telling the truth about oil supply and demand. It appears to be the fellows over at OPEC.

According to Bloomberg, Abdullah bin Hamad al-Attiyah, Qatar’s oil minister said The Organization of Petroleum Exporting Countries, which produces 40 percent of the world’s oil, has no plans to react before its scheduled meeting in September because there is nothing it can do.

Odd, since Saudi Arabia did push up production, only a little, after a visit from President Bush, and left the impression that there is more where that came from

Douglas A. McIntyre

Posted on: May 22, 2008 – 7:01 am in Oil & Gas, ,

Suntech Scores on Earnings (STP)

Suntech Power Holdings (NYSE: STP) has posted earnings ahead of expectations.  The earnings were $0.35 EPS and revenues rose 76% to $434.5 million; First Call estimates were  $0.28 and $378 million.  The gross margin increased to 22.2% in Q108 compared to 19.0% for Q107.

The company also sees Q2 revenues of $430 to $440 million, above the $426.62 million consensus. 

PV cell production capacity was 540MW at end of the first quarter and it is on track to reach its goal of 1GW PV cell production capacity by 2008 year-end.

Suntech shares are up 6% pre-market at $49.20; its 52-week trading range is $28.19 to $90.00.

Jon C. Ogg
May 22, 2008

Posted on: May 22, 2008 – 6:58 am in Alternative Energy, Earnings,

Top 10 Pre-Market Analyst Calls (AKAM, AEP, AAPL, BIDZ, CHINA, FMD, LVLT, PNRA, CRM, SPLS)

These are ten of the analyst calls we are focusing on this Thursday morning:

  • Akamai Tech (NASDAQ: AKAM) cut to Sell at Goldman Sachs.
  • American Electric Power (NYSE: AEP) Cut to Hold From Buy at Jefferies.
  • Apple (NASDAQ: AAPL) started as Outperform at Oppenheimer.
  • Bidz.com (NASDAQ: BIDZ) Started as Buy at Merriman Curhan Ford.
  • CDC (NASDAQ: CHINA) Cut to Neutral From Buy at Piper Jaffray.
  • First Marblehead (NYSE: FMD) Raised to Market Perform at FBR.
  • Level 3 Communications (NASDAQ: LVLT) Raised to Market Perform from Underperform at Wachovia.
  • Panera Bread (NASDAQ: PNRA) Started as Buy at Jefferies.
  • Salesforce.com (NYSE: CRM) Raised to Buy From Hold at Jefferies.
  • Staples (NASDAQ: SPLS) Started as Buy at Citigroup.

Jon C. Ogg
May 22, 2008

Posted on: May 22, 2008 – 6:40 am in Analyst Calls, , , , , , , , , ,

Tearing The Guts Out Of The Sirius (SIRI) Merger With XM Satellite (XMSR)

Some of the fat cats in the Senate think that the Sirius Satellite (SIRI) merger with XM Satellite might be OK if the combined company would give up a large portion of its spectrum. According to The Wall Street Journal, these legislators would propose that the firms “divest as much as half of their combined radio spectrum as a condition of their proposed merger.”

Although it is not clearly articulated, the reason for the proposal is so that the US government could, if it wanted to, sell that spectrum to another party to start a new satellite radio company. Even that option would allow the government to view XM plus Sirius as something short of a monopoly.

The Senate and the FCC actually know better than to push their deal. Over the year-and-a-half that the merger has been pending, the two companies have gone from being in bad financial share to being in a dire set of circumstance. Each company has well in excess of $1 billion in debt. Neither has ever made a dime and their losses last quarter were not encouraging.

Satellite radio has lost much of its appeal for consumers. The slowing subscription growth rates at the two companies show that. HD radio and the Apple (AAPL) iPod, which can be plugged into a car sound system, have taken away much of the uniqueness of getting music, Howard Stern, and Oprah off the big bird in the sky

The merger may go through. It may be killed. Either way, satellite radio has a dim and perilous future.

Douglas A. McIntyre

Posted on: May 22, 2008 – 5:52 am in Satellite, ,

As UBS (UBS) Gives Away The Farm, US Banks Look Very Expensive (C)(JPM)(GS)(MER)

UBS (UBS) had to raise money. The sins of its subprime addiction have come back to haunt it. US bank shareholders should shudder when they look at the pricing that the Swiss bank had to offer to get $15.5 billion. The rights offering is at a discount of over 30% to where the stock currently trades.

UBS would make the case that each subscription right per share held will entitle the owner to buy more shares in the future. The bank must reason that its price will go up and that the right will be worth something. That may be a victory of hope over reason.

The deal has attracted Goldman Sachs (GS), Morgan Stanley (MS), and JP Morgan (JPM) as underwriters. Smart money moving in for a killing.

The pricing of the transaction speaks volumes about the value of other large money center banks, especially those which hold subprime paper and other consumer debt. Several analysts have recently come out with predictions that firms like Citigroup (C) may not make much money for the next year or two. The media has been filled with notions planted by experts that say that brokerages like Lehman (LEH) have several more quarters of write-downs. The short interest in financial companies has been rising over the last several weeks.

For a month or two there was some real optimism that the credit system would pull a rabbit out of its hat. The Fed had done its work. The worst was behind the industry and the hangover would be modest. But, in the last few days, reports of more disasters have gained currency. As the economy falls apart and housing gets worse, the big banks have to suffer. It is inevitable.

Looking at the UBS pricing, it would not be fair to deduce that Citi is not worth much more than $17. That would take it back to its 52-week low reached about two months ago. It would put JP Morgan (JPM) down to $33, just below its 52-week low. A similar analysis holds for Merrill Lynch (MER) and Goldman Sachs (GS). The “UBS math” applied to US firms puts most of them almost exactly at their  one-year nadirs.
What things sell for is a better benchmark of value than what analysts and pundits think they should sell for. That being the case, bank stocks are about to hit a sell-off.

Douglas A. McIntyre

Posted on: May 22, 2008 – 5:36 am in Financial Stocks, , , , , ,

Blacking Out The Sun: Falling In Love With Filthy Fuel

The International Energy Agency, the most well-regarded oil-price think tank in the world, says it is now concerned with whether the global supply of oil will be adequate to meet demand over the next two decades. The group had spent most of its time in recent years looking at the dynamics of demand, especially in crude-hungry regions like the US and China.

The prevailing wisdom has been that oil supplies are ample in places like Saudi Arabia and Kuwait. The kings and princes who run those countries just wanted to hold back shipments to keep prices high. That thinking is changing. The IEA “is preparing a sharp downward revision of its oil-supply forecast,” according to The Wall Street Journal. By way of turning modest hope into hopelessness, the analysis also points out that big oil producing countries are spending much less on exploration.

The thought that oil could move closer to $200 may not be so misguided.

Dirty energy is coming back into vogue. According to The New York Times, “in Japan (coal) production has jumped to its highest in nearly four decades.”

In Beijing there are days when the sun is barely visible. Smog hangs over the city, most of it from coal and wood burned for heat and energy. The Chinese central government has tried to clean some of that up for the Olympics. It has not worked entirely. A number of athletes won’t be showing up for the games. They claim the air quality it too poor. But, China drags on oil like an old man does on a cigarette. What does not kill him makes him stronger.

The US has an abundance of coal. Mining is becoming more profitable as oil prices rise and demand for anthracite soars. A little pollution could go a long way to cut dependence on oil.

The 1986 problems at Chernobyl put the West off nuclear energy. Having citizens who glow in the dark did not seem worth having cheap and abundant energy. The US does not build nuclear plants anymore. When oil hits $150, the sentiment about that may change. The government may even look at granting incentives to energy companies who want to put a carrier-class plants next to a big cities.

Energy alternatives which seemed unimaginable just months ago are starting to look like beauty queens. Solar and ethanol will not be able to replace oil, at least not for years. With uranium and coal, it is a different matter.

Douglas A. McIntyre

Posted on: May 22, 2008 – 5:06 am in Oil & Gas, , , ,

Pfizer (PFE): Stop Smoking And Go Insane

It looks like Pfizer’s (PFE) anti-smoking drug Chantix makes people kick the habit but at the same time can push them toward suicide or depression. It is a hard decision whether patients want to die slowly or fast.

The Institute for Safe Medication Practices wants the warning labels on the drug to be changed, and, is it any wonder? The organization looks at problems with major drugs. According to The Wall Street Journal, in its most recent study the ISMP “found 988 serious incidents linked to Chantix in the U.S. during last year’s fourth quarter.” Pfizer says that the label on the product already states that the drug may have problems, but they are “infrequent” or “rare.” Tell that to the person who tried to kill himself.

The whole mess points to the catastrophe surrounding the drug industry. Big Pharma needs to get new product to market fast. Many of its most reliable money makers are coming “off patent”, which means that generic manufacturers can pump out cheaper versions of the drugs which were so profitable. The large drug companies are pressured by stockholders to keep up earnings, so they fire their sales staffs and push what popular treatments they still have as hard as possible

.The FDA often claims that it does not have the staff to look at every drug as well as it might. A great deal of the research on drugs is funded by drug companies. That seems like a sensible way to make certain that the concoctions are safe

No true believer in capitalism thinks that the drug companies are unaware of what the unintended consequences of using their products are. They just don’t want to tell anyone else.

Douglas A. McIntyre

Posted on: May 22, 2008 – 4:38 am in Pharmaceuticals,

Short Sellers Make Huge Bets Against Financials, Flee Tech

Short sellers are making significant bets that most financial stocks traded on the NYSE will fall sharply. Data is as of May 15 and compares to information on April 30.

Short interest in Countrywide (CFC) rose 26 million shares to 102.4 million Share sold short in National City rose 39.6 million to 138.8 milion. Shares short in Fannie Mae (FNM) rose 17.9 to 104.3 million. Short interest in Washington Mutual (WM) moved up 8.4 million to 192.7 million. Shares short in Freddie Mac (FRE) rose 10 million to 63.2 million. Short interest in Ambac (ABK) moved up 10.1 million to 58.2 million.

Among large cap stocks, the short interest was also up in CBS (CBS) rising by 6.7 million to 37.2 million. Short interest in Motorola (MOT) was up 8.8 million to 48.8 million.

The once sector in which short sellers made a major exit was tech and telecom. Share short in Sprint (S) fell 13.6 million to 83.7 million. Short interest in Texas Intruments (TXN) fell 12.2 million to 35.2 million. Short interest in Micron (MU) dropped 6.4 million to 76.9 million. Shares short in HP (HPQ) fell 4.3 million to 23.2 million. And short interest in AMD (AMD) dropped 1.1 million shares to 98 million.

Data from NYSE

Douglas A. McIntyre

Posted on: May 22, 2008 – 3:14 am in Short Interest, , , , , , , , , , , ,

Media Digest 5/22/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, the Fed lower growth expectations and noted rising inflation.

Reuters writes that AMR (AMR) will sharply cut the number of routes its serves and take certain planes out of service.

Reuters writes that AIG (AIG) faces a lawsuit from a Florida pension fund.

Reuters reports that Moody’s (MCO) launched an investigation into a computer problem which caused inaccurate ratings.

Reuters reports that a break-through in the success of mobile advertising may be years away.

The Wall Street Journal writes that the International Energy Agency has may cut its estimates of oil production, a move that may take oil prices higher.

The Wall Street Journal writes that Calprine has received a $22 billion offer to be bought by NRG.

The Wall Street Journal writes that a Canadian court rejected the buy-out of BCE (BCE) siding with sharedholders who think the deal is unfair.

The Wall Street Journal says that UBS (UBS) set its $15.5 billion rights issue at a share discount to it share price.

The Wall Street Journal says that the sale of its appliance units comes in a difficult economic period.

The Wall Street Journal say that the head of Boeing (BA) claims that the airline is making good progress with the 787.

The Wall Street Journal writes that Sallie Mae will continue its lending.

The Wall Street Journal writes that the prices of solar energy stocks may be getting ahead of themselves.

The Wall Street Journal reports that Pfizer’s (PFE) drug Chantix has been tied to heart problems.

The Wall Street Journal reports that Ford (F) will cut production of SUVs and pick-ups.

The Wall Street Journal reports that Senators are asking Sirius (SIRI) and XM (XMSR) to release some spectrum to create possible competition.

The New York Times writes that Senators had sharp questions for oil officials about the size of their profits.

The New York Times reports that high oil prices are increasing coal production.

The New York Times writes that Google (GOOG) will defend the competitive rationale of a tie-up with Yahoo! (YHOO).

The FT writes that British Airways has asked Continental (CAL) to join its alliance of global airlines.

The FT reports that mapping looks like the next big business on the internet.

Douglas A. McIntyre

Posted on: May 22, 2008 – 2:59 am in Press Digest, , , , , , , , , , ,

Asia Markets 5/22/2008 (LFC)(SNP)

Markets in Asia were mixed.

The Nikkei was up .4% to 13,978. NEC was up 3.9% to 534. Nissan was down 2.4% to 913.

The Hang Seng was down 1.9% to 24,974. China Life (LFC) was down 3% to 32.15. China Petroleum (SNP) was off 3.4% to 7.31.

The Shanghai Composite dropped 1.7% to 3,486.

Data from Reuters

Douglas A. McIntyre

Posted on: May 22, 2008 – 2:29 am in International Markets, ,