Daily Archives: June 2, 2008

Senior Housing Selling Shares (SNH)

Senior Housing Properties Trust (NYSE: SNH) has just announced that it has commenced a proposed secondary public offering of 10,000,000 common shares.

the company expects to use these proceeds to repay debt and for general business purposes, which includes funding acquisitions.  It has in fact recently made an acquisition of 48 medical office, clinic and biotech laboratory buildings for $565 Million. 

Underwriters will also be granted a 30-day option to purchase up to an additional 1,500,000 shares to cover over allotments.

UBS, Merrill Lynch, and Morgan Stanley are the book-running managers; while co-lead managers are listed as Citi and RBC Capital Markets.  The co-managing underwriters for this offering are Robert W. Baird, Janney Montgomery Scott, Keefe Bruyette & Woods, Morgan Keegan, Oppenheimer, and Stifel Nicolaus.

Shares closed down at 1.3% at $21.91 on the day, and shares are indicated down over 1% in after-hours trading.

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 3:17 pm in REIT, Secondary Offering,

The 52-Week Low Club (GHS)(RBS)(RF)(UCBH)

Gatehouse Media (GHS) Hard period for newspaper stocks. Falls to $3.75 from 52-week high of $20.15.

Royal Bank of Scotland (RBS) Fear about more write-offs sends bank stocks down. Drops tpo $4.48 from 52-week high of $11.50.

Regions Finance (RF) Banking concerns claim another victim. Down to $17.21 from 52-week high of $36.05.

UCBH (UCBH) Another regional bank sells off.Down to $4.25 from 52-week high of $20.22

Douglas A. McIntyre

Posted on: June 2, 2008 – 2:53 pm in HI/LOW, , , ,

S&P Knocks the Banks, Again (LEH, MER, MS, BAC, JPM, C, WB)

Standard & Poor’s has come out with a report that is actually weighing down on the entire market even though it is sector specific.  The ratings agency has cut ratings on several major brokers today from to ‘A/A-1′ from ‘A+/A-1′ and has issues a "negative outlook" on the following:

  • Lehman Brothers (NYSE: LEH)
  • Merrill Lynch (NYSE: MER)
  • Morgan Stanley (NYSE: MS)

S&P also went out on money center banks as well with the following note:

  • It revised its outlooks on Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) to negative.
  • It affirmed its ratings on Citigroup Inc. (NYSE: C), removed the ratings from CreditWatch negative, and assigned a negative outlook.

There is a more interesting call on this though.  It has also downgraded the COUNTERPARTY CREDIT ratings of all of those except for Citigroup, and it lowered counterparty credit ratings of Wachovia Corp. (NYSE: WB).

As a reminder, we’d note that even while this is a market moving event it is also an after-the-fact event.  If you have followed the independent ratings agency follies over the last year and longer, they haven’t exactly been on top of their game.

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 12:10 pm in Analyst Calls, Banking, Brokerage Firms, Financial Stocks, , , , , , ,

Templeton Dragon Fund, Staying Closed-End (BEN, TDF)

There was some interesting news over at Franklin Resources, Inc. (NYSE:BEN) today.  The company manages the Templeton Dragon Fund, Inc. (NYSE:TDF), a closed-end mutual fund run by legendary emerging market investment manager Mark Mobius which invests at least 45% of its total assets in Chinese equities.

The fund announced today that the votes at the Fund’s Annual Meeting of Shareholders held on May 30, 2008 have been tallied.  Shareholders approves the election of directors, but the voted down a shareholder proposal to consider approving and submitting for shareholder approval at a future shareholder meeting a proposal to convert the closed-end status of the fund to an open-end fund.

The Fund currently has total assets in excess of $1.2 billion, and while that is big in size it is small compared to Franklin Templeton’s $617+ Billion in assets under management as of April 30, 2008.  It won’t have any impact at all on franklin Resources, but this will at least in theory keep one more fund from raising several billion that could have run up more Chinese shares.  It also allows the fund managers to work within size constraints without having to make investment decisions based largely upon inflows and redemptions.

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 11:49 am in China, Mutual Funds, ,

Final Leg of Huge Natural Gas Pipeline Approved (KMP, SRE, COP)

Rockies Express Pipeline, LLC today announced that it has received certification from the FERC for the third and final phase of it’s 1,697-mile, 42-inch natural gas pipeline running from western Wyoming to eastern Ohio. The project is jointly owned by Kinder Morgan Energy Partners (NYSE:KMP), a division of Sempra Energy (NYSE:SRE), and ConocoPhillips (NYSE:COP). Since it was first announced in November 2005, the first two phases of the project have been completed, and the pipeline now transports 1.8 billion cubic feet/day of natural gas to Audrain County, Missouri. The final 638-mile segment is expected to become partially operational by the end of this year.

Kinder Morgan originally owned 67.7% of the project and SRE owned 33.3%. In June 2006, ConocoPhillips purchased 24% from Kinder Morgan and may purchase an additional 1% once the pipeline is completed. This is one of the largest natural gas pipelines ever built in the US, and is expected to close the price differential (about $3/thousand cubic feet) between Rocky Mountain gas and Gulf of Mexico gas. The state of Wyoming was so eager for the pipeline that it agreed to ship 200 million cubic feet/day on the new line.

The pipeline is expected to exceed its current projected cost of about $5 billion by 5%-10%. The first cost estimate tagged the project at about $3 billion, with an expected in-service date of December 2007. But the project partners can certainly afford it, and the eventual payoff will certainly be a positive addition to cash flow. That’s what makes pipelines so attractive: they’re not really transporting oil or gas, but cash.

Paul Ausick
June 2, 2008

Posted on: June 2, 2008 – 10:55 am in Oil & Gas, , ,

Harris Value Trumps Merger (HRS)

Harris Corp. (NYSE: HRS) is seeing shares down 15% at $55.66 on almost 4-times average trading volume today.  This is after the company said it wasn’t for sale after it was believed that offers were going to be made to the company.  The truth is that offers may have been made or they might have been hinted at, but that doesn’t mean they would have been attractive offers.

Last week, we went cautious on a high volume alert at VOLUME SPIKE (Vsinvestor.com).  While "reviewing offers" sounds good to most, we dug into this one and weren’t too excited over the high valuations and the size that the deal would have to see.

"Unfortunately for it, the bids are not said to be very high for the communications and IT company for government and commercial markets…..With a $8.8 Billion market cap, it doesn’t exactly fit the mold of “an easy deal” during the credit crunch and more selective private equity buyers."

Any rumors you see in companies with market caps this high and with valuations that high have to be taken with at least some skepticism for now.  Even in our SPECIAL SITUATIONS letter we have had to revise almost every criteria for companies which may ultimately become acquisition targets.

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 10:39 am in Defense, Mergers and Buy Outs,

Cerberus Dumped Chrysler And GMAC, Great New For Autos (GM)(F)

A lot of analysts thought that Cerberus management, usually so clever and sharp, made a buffoon’s move when they bought into Chrysler and GMAC. The auto market immediately went South.

It turns out the money management firm was not so dumb. According to the FT, "the buy-out firm has sold "significantly" more than half its equity to about 90 investors." That does not say much for the fund’s view of the recovery of the auto industry. GM (GM) and Ford (F) shares have been hit recently as high gas prices cut into auto sales.

Now, another group of smart funds gets to hold the bag.

Douglas A. McIntyre

Posted on: June 2, 2008 – 7:41 am in Autos, ,

China’s Complicated Telecom Mergers (CHU, CN, CHA, QCOM)

There is a complicated merger in the Chinese telecom market, which is part of the government mandate to consolidate a fragmented telecom industry in China.

China Unicom Ltd. (NYSE: CHU) has formalized a deal that came out over the weekend to acquire China Netcom Group Corp. (NYSE: CN) in a deal that puts the debt and equity value around $56.3 Billion.  In a separate deal, China Telecom Corp. (NYSE: CHA) will acquire China Unicom parent’s CDMA network for roughly $15.86 Billion in cash.  China Netcom will be delisted and will become a wholly-owned subsidiary of China Unicom.

Recently, China’s government had mandated a restructuring of the country’s six major telecom operators where these will become three entities.  Interestingly enough, China believes that the more consolidated players will create more competition and prevent any single carrier from a winner take all position. 

China Unicom is the major CDMA service provider in China, and it has some 42 million subscribers as of the end of 2007.  Because these stocks were all tied up in a coming deal, some of the shares had been halted on local exchanges while these terms were being worked out.

While it may be hard to interpret or play play the consolidation waves in China’s telecom mergers, one winner of this merger will likely be Qualcomm Inc. (NASDAQ: QCOM) because it wins on every new CDMA user it gets.  This of course assumes that the other deals don’t take away from the company’s CDMA and WCDMA user base, and that is not necessarily an assured outcome.

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

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 7:12 am in China, Mergers and Buy Outs, Telecom, , , ,

Wachovia’s (WB) CEO Walks The Plank, Morgan, Lehman May Be Next

Billions of dollars in losses and a falling stock price can cost a CEO his job. Wachovia (WB) announced today that its current Chairman, Lanty Smith, has been appointed interim Chief Executive Officer, succeeding Ken Thompson, who is retiring at the request of the Board.

The bank’s stock has dropped from a 52-week high of $54.95 to $23.80, near a one-year low.

If the firing begins a trend, a number of bank and investment firm chiefs could go this summer. No one should be surprised if John Mack is pushed out a Morgan Stanley (MS) if it has a poor Q2. The investment bank’s share are off by half ove the last three quarters and the firm has already fired its president.

Richard Fuld could be let go at Lehman (LEH). The brokerage’s shares are off 60% and he has indicated the worst is behind his firm. That better turn out to be true.

The other prime candidate for a sacking is Ken Lewis at Bank of America (BAC). The money center operation has a share price at its bottom and investors are unhappy about its buy-out of Countrywide (CFC).

Boards don’t want investors suits, so they need to find someone to blame.

Douglas A. McIntyre

Posted on: June 2, 2008 – 6:45 am in Banking, , , ,

Apple (AAPL): New iPhone To Hit Europe Next Month

The new version of the Apple (AAPL) iPhone should hit Europe next month. It will be much less expensive for consumers to buy because Apple will also cellular providers to underwrite the price of the phone.

According to The Times, "Apple is expected by analysts to allow mobile phone operators to subsidise the touch-screen handset, which is likely to use third-generation technology, giving it much faster internet access and download speeds."

The combination of low price and the ability to run on a much faster network could push iPhone sales up sharply which would give Apple a new, very large source of revenue to add to the Mac and iPod. Analysts assumed that it might take a year or two for iPhone sales to ramp up, but many potential buyers have been waiting for a version of the handset that would work on faster broadband networks.

If the AT&T (T) sells the phone below its costs, say for $200, US sales could explode.

Douglas A. McIntyre

Posted on: June 2, 2008 – 6:40 am in Wireless, ,

Top 10 Pre-Market Analyst Calls (ANR, NILE, ENER, IFX, LH, NVS, SOV, TSCO, WY, YGE)

These are ten of the analyst calls we are focusing on this Monday morning in pre-market trading:

  • Alpha Natural Resources (NYSE: ANR) Raised to Overweight at Morgan Stanley.
  • Blue Nile (NASDAQ: NILE) started as Hold at Deutsche Bank.
  • Energy Conversion (NASDAQ: ENER) started as Equal Weight at Lehman Brothers.
  • Infineon (NYSE: IFX) cut to Hold at Citigroup.
  • Laboratory Corp. (NYSE: LH) Started as Overweight at Morgan Stanley.
  • Novartis (NYSE: NVS) started as Overweight at JPMorgan.
  • Sovereign Banc (NYSE: SOV) raised to Outperform at KBW.
  • Tractor Supply (NASDAQ: TSCO) raised to Buy at UBS.
  • Weyerhaeuser (NYSE: WY) cut to Hold at Deutsche Bank.
  • Yingli Green Energy (NYSE: YGE) raised to Buy at Citigroup.

Jon C. Ogg
June 2, 2008

Posted on: June 2, 2008 – 6:37 am in Analyst Calls, , , , , , , , , ,

Driving Banks Out Of Complex Securities

Central banks are sick of big banks losing money by putting cash into instruments which are poorly understood and financially dangerous. So, why not may it extremely expensive to buy them?

According to the FT, "International regulators and supervisors have started drawing up plans to make it far more expensive for investment banks to hold large volumes of complex financial instruments, such as mortgage-linked securities, in their trading books." Banks would have an economic penalty for holding this paper and not circulating it by selling it to other companies. Then, those firms could take the losses.

It is very heavy-handed, but it might work.

Douglas A. McIntyre

Posted on: June 2, 2008 – 5:33 am in Banking

Hedge Funds Dump Oil, OPEC Gets Tested

If the smart money is right, the price of oil is going down. According to Bloomberg "Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading."

If the movement out of crude continues, firms with long bets in oil may start to lose money. As they sell out of their positions, prices should start to move lower.

The falling interest in betting that oil will go higher should expose the extent to which real global supply and demand are supporting crude. OPEC continues to insist that prices are unnaturally high because of speculation. Their theory is about to be tested.

Those who support the "fundamental" theory of oil price movement believe that crude is at $130 or so because supply is dwindling in places like Mexico and Russia. Oiler fields pump less. More oil is kept "in country" for cars, trucks, and infrastructure building.

On the other side of the coin, the demand for oil is not dropping much in the US and it is still rising in big countries like China and India.

As financial players move out of the market, OPECs theory gets tested. It may be found wanting.

Douglas A. McIntyre

Posted on: June 2, 2008 – 5:24 am in Oil & Gas

Hope For Future Earnings At Chip Firms: The Rise Of The Little Machines (AAPL)(RIMM)(INTC)(NVDA)(QCOM)

The sales of PCs and servers, especially in the US and Europe, is slowing due to market saturation. The same holds true for cellular phones. Chip companies now have to rely on improved sales in emerging markets to drive demand for the products that they power.

But, looking for growth in China and India is not sufficient for the likes of Intel (INTC), Qualcomm (QCOM), and Nvidia (NVDA). They plan to create chips for a new generation of products and assume that the availability of these chips will force the development of a series of machines that are more than a handset but less than a PC. These new electronics devices will run on all current broadband networks from WiMax to WiFi to 3G.

According to The Wall Street Journal, the gadgets are called "mobile Internet devices." While they are only the size of an Altoids box, they have keyboards, operating systems, and little screens.

The machines sound nice, but there will probably not be much demand for them. PCs come smaller than they used to and smartphones from Apple (AAPL) and RIM (RIMM) already fit the bill as being quasi-computers. These devices are constantly being improved, so it may be a hard luck story to think slightly larger, more expensive products will take much share.

Intel and its peers want to believe that a new generation of devices will drive more chip sales. The next generation is already here and their silicon isn’t a part of it.

Douglas A. McIntyre

Posted on: June 2, 2008 – 5:14 am in Semiconductor, , , , ,

Finally, Real Economic Slowing In China

There have been rumors that the economy in China might slow. They have gone on for almost a year. Now, the evidence is mounting that the growth of GDP in the big Asia country is actually dropping off.

According to Bloomberg, Weaker expansions in economies around the world are cooling demand for made-in-China goods, leading the central bank to last week forecast a “moderate” slowing of economic growth this year.

Governments around the world are notorious for being too optimistic about their economies. China may be doing worse than the internal figures let on.

The drop-off in China is, of course, due to problems in the West hurting demand for its exports. That trouble has only just begun. The consumer, at least in the US, can’t afford gas, food, and a mortgage. That leave the hunger for goods, Chinese or otherwise, undermined.

It is clear to see what a slowdown in America and Europe does to the China economy, but it is harder to see what trouble in China does to the countries which take most of its exports.

The answer is probably fairly little. It is likely that the central government in China will continue to support investment in major industries like telecom, consumer electronics manufacturing, and transportation. China cannot cut back much on infrastructure building because that would leave it a quart low when the economy begins to rebound. The government will, in essence, support strategic imports from overseas even if exports from the country falter.

There are few benefits to having a central political and economic authority, but during the current circumstances, the Chinese government may actual support the growth of goods and services in the West. It is about time that the world’s most populated country returns the favor.

Douglas A. McIntyre

Posted on: June 2, 2008 – 4:58 am in China

The Death Of Creative Destruction: Planes, Trains, And Automobiles (GM)(TM)(DAL)(NWA)(CAL)(AMR)

One of the most brilliant theories in business is that large companies are destroyed by more nimble competitors. Over time, the small companies become the large ones. The genius and capacity for quick decisions move them to the top of the hill.

The theory works until its doesn’t. What is not taken into account is that the economy itself might eat its own young.

According to the FT, Toyota (TM) will cut its production estimates for the US. The Wall Street Journal writes that GM’s (GM) domestic market share may fall below 20% for the first time since the company was formed by Alfred P. Sloan.

It could be argued that GM sowed the seeds of its own troubles when it moved heavily into the SUV and pick-up markets. The company never planned for really bad years again once it made it out of the cruel 1970s with its skin intact. UAW contracts and pension funds were not set up for lean years.

But, the real problems facing Toyota, GM, and others is the macro trouble of oil prices. The industry is being laid waste not so much by competition as by the broader failure of government and business to find a solution to the huge demand for crude.

The same holds true for the airline industry. Not matter how perverse it sounds carriers are now glad that Boeing (BA) and Airbus are late with their big new planes. It allows companies carriers to keep passenger capacity low and, perhaps, to raise ticket prices. The situation bites back at innovation. Better aircraft are worse of the industry.

Competition is secondary to the damage done to the airline industry. Oil is primary. Did the carriers prepare for higher fuel costs? Perhaps not to the extent that they might have, but foreseeing a doubling of their key commodity in a year is not part of most short-range planning. The industry leaders like AMR (AMR), Delta (DAL), Continental (CAL), and Northwest (NWA) could lose close to $10 billion this year.

The issue of creative destruction and innovation is put onto it head when industries cannot support new player no matter how ingenious they are. The trend actually work against advancing competition and protects the old guard, not matter how battered it is by circumstances.

It is unfortunate that the historic way for solving sea changes in industries, those that are not are forced by clever new players but by the broader economy, is through bankruptcy. That, at least, allows a reordering of priorities on the most brutal level. It hits the reset button which may let competition begin again in earnest. This is a state of affair which may not have exited since the Depression

Not much of a system.

Douglas A. McIntyre

Posted on: June 2, 2008 – 4:43 am in Transports, , , , , ,

Media Digest 6/2/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, the head of Harris Bank said the company was not for sale.

Reuters writes that Toyota (TM) will cut its sales forecasts for the US.

Reuters reports that Nomura will enter the US mutual fund market.

The Wall Street Journal writes that Americans in need of cash are turning to risky ways of getting it as the recession deepens.

The Wall Street Journal writes that delays in delivery from planes from Boeing (BA) and Airbus is making its easier for airlines to keep capacity low and to raise fares.

The Wall Street Journal writes that rising energy costs may keep corporate earnings from turning around.

The Wall Street Journal reports that chip makers like Nvidia (NVDA) are making more products for mobile devices.

The Wall Street Journal writes that GM’s (GM) domestic market share may fall below 20%.

The New York Times writes that Paulson sees not quick fix for high oil prices.

The FT writes that international regulators are working on plans that would make it more expensive for banks to hold complex securites like mortgage-backed paper.

Bloomberg writest that hedge funds are cutting their bets that oil will go higher.

Bloomberg writes that companies like GM (GM), Motorola (MOT), and The New York Times (NYT) are eating up their cash by paying dividends.

Douglas A. McIntyre

Posted on: June 2, 2008 – 2:49 am in Press Digest, , , , ,

Asia Markets 6/2/2008 (SNE)(TM)(LFC)(CHL)(SNP)

Markets in Asia were mostly higher

The Nikkei rose .7% to 14,440. Sony (SNE) rose 4.6% to 5520. Toyota (TM) rose 1.9% to 5470.

The Hang Seng was up 1.5% to 24,890. China Life (LFC) was up 3.7% to 32.50. China Mobile (CHL) was up 3.1% to 118.20. China Petroleum (SNP) was up 3.7% to 8.15.

The Shanghai Coimposite rose .2% to 3,440.

Data from Reuters

Douglas A. McIntrye

Posted on: June 2, 2008 – 2:25 am in International Markets, , , , ,