Daily Archives: June 11, 2008

Anheuser-Busch Buyout, Round 1: $65 From InBev

Anheuser-Busch Companies Inc. (NYSE: BUD) came out and confirmed some discussions that were making the rounds today.  The beer giant noted that it has received a unsolicited and non-binding $46 Billion proposal from InBev to acquire all of the outstanding shares of the company with a buyout price of $65.00 per share.  The company said it will evaluate the proposal carefully and "in the context of all relevant factors" including the company’s own long-term strategic plan.  As far as when a decision will be made, that is noted merely as "in due course."

We noted the highly unusual options activity in the stock options that were seen this afternoon about an hour before CNBC’s David Faber broke a story about an unsolicited bid coming soon.

Another US brand may bite the dust as foreign buyers can acquire our top brands at a mere discount because the US Dollar is so weak it should be called the Peso or the Lira.

Our feeling is that $65.00 isn’t going to make the company jump entirely in favor of the deal here.  This friendly offer isn’t likely to stay that way indefinitely, at least that’s how we see it.  Based on the history of mergers and cross border deals, this is probably only ROUND 1 of a boxing match.

Shares closed up 2.1% at $58.35 on the day and shares are up another 7% at $62.75 in after-hours trading.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 4:04 pm in Mergers and Buy Outs,

The 52-Week Low Club (MTG)(LCC)(RBS)(BAC)(MER)(CAL)(GHS)(EWBC)

MGIC Investment (MTG) Money still moving out of bond insurers. Down to $8.75 from 52-week high of $62.94.

US Airways Group (LCC) Oil prices up driving airlines down. Company say fuel bill could move up $2 billion of year. Down to $3.11 from 52-week high of $36.81.

Royal Bank of Scotland (RBS) Still dropping for losses and concerns about balance sheet. Down to $4.18 from 52-week high of $11.50.

Bank of America (BAC) Worries over losses and buy-out of Countrywide (CFC) Sells down to $28.93 from 52-week high of $52.96.

Merrill Lynch (MER) Brokerage stocks still being hurt by Lehman (LEH) results. Sell off to $35.66 from 52-week high of $91.95.

Continental Airlines (CAL) Like the rest, pressured by high fuel prices. Drops to $12.08 from 52-week high of $39.79.

Gatehouse (GHS) Newspaper stocks continue to fall. Dips to $3.18 from 52-week high of $19.60.

East West Bancorp (EWBC) Regional banks keep falling on mortgage concerns. Drops to $9.86 from 52-week high of $40.88.

Douglas A. McIntyre

Posted on: June 11, 2008 – 2:58 pm in HI/LOW, , , , , , , ,

InBev/Bud Merger Closer? (BUD)

CNBC’s David Faber just broke news that InBev is closer to making a formal bid for Anheuser-Busch Companies Inc. (NYSE: BUD).  He said that this bid could come in the next couple of weeks and may likely be on an unsolicited basis.  Over at Volume Spike (vsinvestor.com) we just noted in the last 60 minutes about a sudden increase in the call option activity in the near months expiration dates.

Shares had been down prior to the Faber report, but now shares are up 1.2% at $57.80 and have now traded more than average day’s trading volume.

We had noted the same sort of movement a couple weeks ago and that was also right ahead of some additional stories pointing to the possibility of a bid coming.  The expected amounts for a bid at the current time have only been "discussed" as being in the $60 to $65 per share range.

Stay tuned.  As this still has founding family descendants involved, it could get interesting.  As a reminder, until InBev or others come out with formal terms that this is still not much of a step above "rumor" status because of how long this has been pending and discussed.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 2:11 pm in Food, Mergers and Buy Outs, Rumors,

Wall St. Capitulates On Financial Shares (C)(MER)(BAC)(WB)(LEH)(AIG)

From the viewpoint of pessimists, it was just a matter of time. The run-up in financial shares which began in mid-March would be tomahawked by a flailing economy and the leprosy of mortgage-backed paper.

Several of the banks and brokerage CEOs went on TV and out to investor conferences with news that, in their opinions, the worst was over. It has been a short and messy few months, but the world could move back to spinning on its axis.

If nothing else did, AIG (AIG) and Lehman (LEH) put an end to the fantasy. Financial companies have several quarters of rough earnings ahead. (Of course, Goldman Sachs will do just fine). Some of the weakest companies may even be dissolved or sold.

Whatever hope the market had ended earlier this week, but the sentiment became more grim today. Citigroup (C) fell below $20 for the first time in almost three months. Wachovia (WB) moved near to its low. Bank of America (BAC) and Merrill Lynch found new bottoms.

For these companies, 2008 is dead. They can only hope for some faltering improvement next year. No one wanted to believe that it is a fifty-year storm.

Douglas A. McIntyre

Posted on: June 11, 2008 – 11:58 am in Financial Stocks, , , , , ,

S&P Hikes Amazon.com Corporate Credit Ratings (AMZN)

Standard & Poor’s Ratings Services has raised its corporate credit rating on Amazon.com (NASDAQ: AMZN) to ‘BB+’ from ‘BB’. While this is still junk status, it is now just a notch under "investment grade" rated for corporate credit ratings.  Amazon has also been removed from CreditWatch with positive implications that were imposed in February.

S&P raised the rating on the company’s 4.75% convertible subordinated notes due February 2009 and its 6.875% premium adjustable convertible securities to ‘BB+’ from ‘B+’ and assigned both issues a recovery rating of ‘3′.  That indicates the expectation of meaningful  recovery noted as a 50% to 70% in the event of default and the outlook is positive.

This reflects Amazon’s trailing 12-month growth rate of 39.4% as of March 31, as well as its  ability to manage sustained growth with beneficial impact on credit measures from the recent redemption of the $500 million 4.75% convertible subordinated notes.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 11:44 am in Analyst Calls, Bonds, Internet,

Private Equity Still Outperforming Over Long-Term

Have you wondered if the current environment was going to signal the death or a serious blow to the end of private equity as we know it?  It seems that the reports of private equity’s death may be grossly exaggerated.  Does that means the private equity sector is immune from troubles?  Of course not.

State Street has reported its calculation for various 2007 private equity returns.  While the numbers are backward looking and do not indicate anything for tomorrow, the numbers are still staggering considering all of the problems that started hitting private equity firms last year.

The State Street Private Equity Index(sm) posted its returns for the index date December 31, 2007 based on the latest quarterly statistics from State Street Investment Analytics’ Private Edge(R) Group.  It is a detailed analysis of private equity investments for a diverse client base covering public and private pensions, endowments and foundations, representing more than 4,000 commitments totaling more than $160 billion.

State Street Private Equity Index(sm) Composition and long-term IRR as of December 31, 2007: 

  • This measured "Buyout" funds with some 634 funds with $852.0 billion in commitments with a long-term internal rate of return showing a 15.9% return.  This was above the 614 Venture Capital funds measured, which had $206.4 billion in commitments and a 12.8% long-term internal rate of return.

This also notes that investors with access to the largest buyout managers have outperformed the best.  Keep in mind that this pertains to a "since inception" and long-term internal rate of return rather than just in 2007.  But this also dispels many of the notions that the current environment will signal the death of private equity buyout funds.

Jon C. Ogg
April 11, 2008

Posted on: June 11, 2008 – 11:01 am in Private Equity, ,

ETF Filed To Track Housing Prices (UMM, DMM)

MacroMarkets LLC has announced that its subsidiary MacroShares Housing Depositor has now filed with the Securities and Exchange Commission for exchange-traded securities that will allow investors to invest in the upward and the inverse movement of U.S. home prices.

MacroShares Major Metro Housing Up and Down securities will be based on the S&P/Case-Shiller Composite-10 Home Price Index, which is a a nationally recognized gauge for U.S. home prices.  For a representation, it tracks the following cities: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington D.C. 

We would like to note that with this not having any representation in Texas at all that it is not at all a full representation, and we’d even argue that based on city selection those using this index for a comparison are using it to keep the average housing prices higher.  regardless of our opinion on the index not being a fully representative representation of the US housing market, it will allow investors to access what MacroShares itself calls "this important, but illiquid, asset class."

When these are launched, these paired securities will have a 10-year term and will feature a 2x (200%) leverage factor.  MacroMarkets LLC plans to launch the new securities on the NYSE Arca under the ticker symbols:

  • UMM – MacroShares Major Metro Housing Up
  • DMM – MacroShares Major Metro Housing Down

And who says that ETF’s and ETN’s have ceased being creative?

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 10:00 am in ETF, Housing, ,

New Commodity ETF/ETN (LSC)

NYSE Euronext has announced that the ELEMENTS(SM) S&P Commodity Trends Indicator Total Return Index ETN listed and began trading under the ticker symbol "LSC" on NYSE Arca.  This ETN was issued by HSBC USA Inc., and Nuveen and Merrill will co-distribute the ETNs.

"LSC" tracks the prices of a diversified portfolio of sixteen traditional, physical commodity futures contracts.  The Index Components are grouped into six sectors and each sector is represented on either a “long” or “short” basis, depending on recent price trends of that sector.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 9:47 am in ETF,

Martha Stewart (MSO): Firing The Wrong Person

Martha Stewart Living (MSO) CEO Susan Lyne was asked to leave the table today. Two other executives at the company replaced here. The market did not like the news and pushed the stock down over 3%.

Odd, MSO shares have outperformed Time Warner (TWX), News Corp (NWS), CBS (CBS), and Meredith (MDP) over the last three months. They have done almost as well year-to-date.

Neither of the people replacing Lynn has done a terribly good job. Wenda Harris Millard runs the media group. In the last quarter, advertising was flat at $40.7 million. Robin Marino who runs merchandising turned in equally dismal results with the revenue in her group slightly down at $13 million.

Anyway, always nice to get a raise.

Douglas A. McIntyre

Posted on: June 11, 2008 – 9:05 am in Old Media, , , , ,

Traders Bracing for Capstone Turbine Earnings Call (CPST)

Capstone Turbine Corporation (NASDAQ: CPST) is set to report earnings this Thursday, June 12, 2008 after the market closes and a conference call will follow at 4:45 PM EST. 

This stock is still extremely thin in analyst coverage and no bulge bracket firms cover this stock (yet) because of its size.  First Call has estimates for Q1-2008 pegged at -$0.05 EPS on $9.27 million in revenues.  As a result of the small number of estimates, you should rely more on the overall feel and sound pertaining to long-term growth goals perhaps more than the actual firm numbers.  Capstone is still at the emerging revenue stages of its business and its business revenues and its stock have both been plagued by vast irregularity until the last 7 months.

As far as if the company will give guidance, First Call has estimates for Q2-2008 at -$0.05 EPS on $9.44 million in revenues; and fiscal 2008 estimates are -$0.24 EPS on $31.5 million in revenues.  Be advised that we think the annual estimates are not updated and are likely more "carryover numbers" that do not reflect the reality of many new orders that it has won.  Most of the recent orders are likely to be noted more as "backlog" and may not show up until later this year or even Fiscal-2009 as revenues on the books.

As the field of analysts is literally less than a handful, the $4.50 to $5.00 average target is also of little use here.  The 52-week trading range is $0.91 to $4.01 and its market cap is now $503 million after the large run that it has seen.  This was higher just last week, but traders have been lightening up ahead of earnings after such a huge price move.

This was our number one pick for our weekly "10 Stocks Under $10" newsletter from back in late 2007 at $1.21.  We have never removed it from our list even after a 200% gain, and the only selling we ever modeled was around $3.00 to take the original investment amount off the table and to let the rest ride.  We have other alternative energy picks in this sector that have not run 200%.

After a 200% run up in 7-months it would not at all be out of the ordinary to see selling regardless of the news.  But if that occurs on strong numbers it would likely be short-lived.  Now that Capstone has a $500+ million market cap it can actually come into the screens for some of the larger investment banks and bulge bracket brokerage firm analysts to initiate coverage on the stock.  We believe that is imminent.

The analyst that has been most dead-on here is Lazard Caital Markets’ Sanjay Shrestha and we’ll be watching for his comments on Tuesday or Wednesday.  Shrestha has a target of $6.00 per share, significantly higher than when he first made his call.

The company also saw a significant gain in short selling after such a huge run.  Its May 30 short interest just came out and was listed as 15,602,150 shares, up about 21% from the may 15 reading of 12,860,110 shares listed as short.

Lastly, we would like to note thattraders have been hiding in longer-dated stock options in this stock for their speculative play on the stock.  You have to go out to July to see any real open interest but the July $5 Calls had 3,399 contracts in the open interest.  The January 2009 CALLs are more active than any though, and the open interest is rather large there:
$2.50 Calls 15,837 contracts
$5.00 Calls 10,060 contracts
$7.50 Calls 10,307 contracts

This one has enjoyed a huge run and its low share price makes the interest in this one that much more.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 8:27 am in Alternative Energy, Earnings,

Agrium and Ag Still Rocking (AGU)

Agrium Inc. (NYSE: AGU) is seeing a surge in shares this morning after the agriculture player raised its guidance for part of 2008.  The firm raised guidance for its second quarter to $2.80 to $3.00 EPS from a prior range of $1.92 o $2.22, yet consensus estimates were already at $2.50 EPS. 

The company said this is due to its strong performance from both  the retail level and growth from the wholesale operations.  The company also noted that this is during a time that the North American spring application season has been hampered by excessively cold and wet weather so far this year.   You can bet what else is driving the results: continued strong global crop prices and unprecedented demand for crop inputs.  The company also noted that it foresees an extended demand-driven cycle.

Shares closed yesterday at $92.16 and the 52-week trading range has been $34.60 to $96.40.  So far we are seeing a price indication surge in pre-market trading indications take this to a new 52-week high with shares trading north of $97.00.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 6:58 am in Agriculture,

Goldman Sachs Conviction List Changes (LO, STT, MI, NGG)

Goldman Sachs has made some changes to its highly watched "CONVICTION" lists this morning.

  • Lorillard (NYSE: LO) and State Street (NYSE: STT) were both added to the CONVICTION BUY LIST this morning.
  • Marshall & Ilsley (NYSE: MI) and National Grid (NYSE: NGG) were put on the bulge bracket firms CONVICTION SELL LIST this morning.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 6:42 am in Analyst Calls, , , ,

Top 10 Pre-Market Analyst Calls (AA, ACAS, NLY, ARRS, BYD, CCJ, INTU, ISRG, MCHP, PETM)

These are ten of the analyst calls we are focusing on this Wednesday morning in the early pre-market hours:

  • Alcoa (NYSE: AA) cut to Neutral at JP Morgan.
  • American Capital (NASDAQ: ACAS) started as Neutral at Robert W. Baird.
  • Annaly Mortgage (NYSE: NLY) cut to Neutral at JPMorgan.
  • Arris (NASDAQ: ARRS) cut to Perform at Oppenheimer.
  • Boyd Gaming (NYSE: BYD) raised to Neutral at Banc of America.
  • Cameco (NYSE: CCJ) raised to Buy at UBS.
  • Intuit (NASDAQ: INTU) started as Neutral at Goldman Sachs.
  • Intuitive Surgical (NASDAQ: ISRG) started as Outperform at William Blair.
  • Microchip (NASDAQ: MCHP) cut to Neutral at JPMorgan.
  • PETsMART (NASDAQ: PETM) raised to Overweight at JPMorgan.

Jon C. Ogg
June 11, 2008

Posted on: June 11, 2008 – 6:31 am in Analyst Calls, , , , , , , , , ,

Slapping Sense Into Market, BP Chair Says $250 Oil Is Hogwash

No sooner than the CEO of Russia-owned oil company Gazprom said oil would hit $250 a barrel next year, the head of BP called him criminally insane.

According to Reuters, Peter Sutherland, "the chairman of British oil major BP (BP) rejected as "apocalyptic" a prediction by the head of Russian gas giant Gazprom of oil prices soaring to $250 a barrel by the end of next year.

Sutherland also challenged his Russian counterpart to a duel.

The reasons that the head of BP gave for moderating oil prices made sense. A need for new investment in developing existing fields and more exploration should help offset demand.

Is it any wonder that most people liked Churchill more than Stalin?

Douglas A. McIntyre

Posted on: June 11, 2008 – 5:26 am in Oil & Gas

Free Internet For The Masses

FCC chair Kevin Martin can’t get off the "free internet" hobby-horse. US citizens do not get free water, electricity, gas, or telephone service. Mr. Martin believes that access to the worldwide web should be different.

It is old news that Martin wants buyers of wireless spectrum to provide no-cost internet as a part of the package. Companies who want to send signals perhaps, data, voice, and video, through the air can pay a big buck for the priviledge and then give a money-making service away. It is a plan that even Karl Marx would love.

Some members of Congress and other FCC commissioners don’t seem to see it Martin’s way. According to The Wall Street Journal, "Mr. Martin said he pulled the item from Thursday’s FCC agenda because other members of the five-member commission had questions about it."

Among those questions is why the hell would anyone do that.

Douglas A. McIntyre

Posted on: June 11, 2008 – 4:52 am in Wireless

Toyota’s (TM) Electric Razor Car (GM)(F)

Detroit may be falling behind the curve again. Toyota (TM) will begin to mass produce lithium ion-batteries in less than two years, making the chances that a working electric car will be in the market shortly.

According to Reuters, Toyota "is keen to bring such vehicles into the mainstream by lowering their cost premium as more consumers around the world demand higher fuel economy." The power plant is plugged into an outlet and takes a charge which can be renewed a large number of time. Toyota may be able to put out a million batteries a year before the end of the decade.

The news cannot be good for Toyota’s competition, especially if the new car works. A vehicle which costs about the same as gas-powered car but does not require money for gas should be a big seller. That is the theory and it is hard to find fault with it.

In Detroit, GM (GM), Ford (F), and Chrysler managements are scratching their heads wondering how Toyota got out of the box faster, again.

Douglas A. McIntyre

Posted on: June 11, 2008 – 4:41 am in Autos, , ,

Crude At $250: The Mad Hatter Seizes The Oil Prediction Racket

"Alice, it would be nice if something made sense for a change"–Mad Hatter, in "Alice In Wonderland"

Overnight, the head of Russia’s state-owned oil company, Gazprom, said that crude would hit $250 next year. He does not want to be bested by rising predictions from investment bankers and agencies in the US. Alexi Miller, the company CEO did say “Today we are witnessing a very great change for hydrocarbons. The level is very high and we think it [the price of oil] will reach $250 a barrel," according to the FT.

Alexi may have gotten a bit of support for his opinion. China said the its oil imports were up 13% for the first five months of the year. In May, the number was 25% or 3.8 million barrels a day.

China’s exports rose 28% last month. The central government knows that oil drives the infrastructure build-out and transportation costs that make the big machine run. In all likelihood, China’s claims that it will raise fuel prices are thin. It cannot afford to wring its own neck.

The Gazprom figure may be wishful thinking. Russia would like to get $250 a barrel for all of its oil. Alexi may be wrong, but he may not be wrong by much.

Douglas A. McIntyre

Posted on: June 11, 2008 – 4:30 am in Oil & Gas

Short Sellers Move Into Yahoo! (YHOO), Exit Sirius (SIRI)

A look at short interest for stocks traded on the Nasdaq as of May 30 show that traders moved into Yahoo! (YHOO) and out of Sirius (SIRI) Shares short in Yahoo! rose 19.2 million shares to 66.6 million. Share short in Sirius fell 29.1 million to 141.3 million.

Short sellers also moved out of several tech, telecom, and cable companies. Shares short in Dell (DELL) fell 3.5 million to 50 million. Shares short in Oracle (ORCL) moved down 2.3 million to 49.4 million. Short seller pulled out of Level 3 (LVLT), dropping their positions by 7 million shares to 231.9 million. Shares short in Comcast (CMCSA) moved down 7.5 million to 59.2 million.

Short seller did move into some techs, most notably Juniper (JNPR) where the short interest was up 8.7 million to 43.3 million and Symantec (SYMC) where shares short went up 4.3 million to 33.7 million. Shares short in Intel (INTC) were up 2.5 million to 53.3 million. Short interest in Qualcomm (QCOM) rose 2.8 million to 25.3 million.

Data from Nasdaq

Douglas A. McIntyre

Posted on: June 11, 2008 – 3:07 am in Short Interest, , , , , , , , , ,

Media Digest 6/11/2008 Reuters, WSJ, NYTimes, FT, Bloomberg

According to Reuters, volume sales are now the key to success for Apple’s (AAPL) new iPhone.

Reuters reports that the head of Merrill Lynch (MER) supports ongoing regulatory access to data from brokerages and believes the system needs further reform.

Reuters writes that Corporate Express will support  an improved buy-out offer from Staples (SPLS).

Reuters writes that Toyota (TM) will start lithium ion-battery output next year.

Reuters reports that Chrysler may cut output due to a downturn in truck sales.

Reuters writes that Lehman (LEH) may raise capital from Korea.

MarketWatch writes that China’s imports of crude oil rose almost 13% in the period from January to May.

The Wall Street Journal writes that inflation is heating up around the world.

The Wall Street Journal reports that if Carl Icahn buys Yahoo! (YHOO) it would trigger a huge severance plan for employees.

The Wall Street Journal reports that the IEA said the global oil demand would fall but that supply was becoming harder to find.

The Wall Street Journal reports that the USDA has cut its forecast for the US corn crop by over 3%.

The Wall Street Journal writes that the FCC is still pushing free web access for many Americans.

The Wall Street Journal writes that the CEO of Merrill Lynch believes that brokers should be able to borrow from the Fed on different terms than banks do.

The Wall Street Journal writes that GAP (GPS) will start to combine its brands in single stores to save money.

The New York Times writes that concerns about the economy are shifting to inflation.

The New York Times reports that broadcaster have done extremely well with ad sales for this year.

The FT writes that several banks including Merrill Lynch  and Citigroup (C) could face $10 billion due to the falling ratings of the monoline insurers like Ambac (ABK) and MBIA (MBI).

Bloomberg reports that Cbina exports grew 28% in May.

Douglas A. Mcintyre

Posted on: June 11, 2008 – 2:55 am in Press Digest, , , , , , , , ,

Asia Markets 6/11/2008 (SNP)(CHU)

Most markets in Asia were higher.

The Nikkei rose 1.2% to 14,183. Canon rose 3.4% to 5520. Fuji Heavy Industries rose 8.8% to 581.

The Hang Seng was flat at 23,272. China Petroleum (SNP) was down 2.1% to 7.60. China Unicom (CHU) was 2.2% to 14.22.

The Shanghai Composite fell 1.6% to 3,024.

Data from Reuters.

Douglas A. Mcintyre

Posted on: June 11, 2008 – 2:29 am in International Markets, ,