Update:  Xerox (XRX) may find that IBM (IBM) or HP (HPQ) outbid it for ACS (ACS)  (Barron’s)

Update:  Apple (AAPL) may be working on a touchscreen remote for an upcoming TV product.  (The Boy Genius Report)

Update: Sequenom (SQNM) is recovering some losses, perhaps due to rumors it may be sold (TheStreet)

Warner Music (WMG) may be near a licensing deal with Google’s (GOOG) YouTube. (WSJ)

Hedge fund manager John Paulson may try to merge CIT (CIT) with IndyMac Federal Bank (NYPost)

Cytokinetics (CYTK) continues to rise despite denying rumorsthat it may be bought by Amgen (AMGN) (DJ Newswires).

AMD (AMD) could be at riskfor bankruptcy. (MarketWatch)

Alexion Pharmaceuticals (ALXN) and Vertex Pharmaceuticals (VRTX) may be acquisition targets.  (The Deal)

Douglas A. McIntyre

Reuters:   The head of the AIG (AIG) unit that caused most of the firm’s losses is back in US.

Reuters:   The G20 has set up a long struggle over bank capital rules.

Reuters:   Xerox (XRX) is buying ACS (ACS) to increase it software business.

Reuters:   BNP Paribas raised money and will pay back the government early.

Reuters:   China will cut fuel prices, probably by 3%.

Reuters:   UBS (UBS) will hold off selling its wealth management unit.

Reuters:   Dell (DELL) launched a high-end business PC.

Reuters:   Starbucks (SBUX) has debuted its new Via instant coffee across the US.

WSJ:   Johnson & Johnson (JNJ), Abbott (ABT), and Merck (MRK) are making big flu vaccine bets.

WSJ:   The FDIC is likely to make banks pre-pay their assessments for the next three years.

WSJ:   Big Wall St. firms will resist the “uptick” rule which affects short selling.

WSJ:   Warner (TWX) and YouTube are near a video deal.

WSJ:   The return of special purpose acquisition companies is showing an increase appetite for financial risk.

WSJ:   Bank of America (BAC) was sued by pension funds over the Merrill deal.

WSJ:   China antitrust authorities approved GM’s plan to buy part of Delphi.

WSJ:   The sale of Opel still faces uncertainty.

WSJ:   Sequenom Inc (SQNM) fired its CEO over tainted test results.

WSJ:   Consumer electronics companies are likely to have a rough holiday season.

WSJ:   Virtual desktops are making gains.

WSJ:   China’s exporters are eying sales to Chinese consumers.

WSJ:   The SEC is looking into more disclosures in the securities lending business.

WSJ:   Singapore’s investment arm lost $42 billion in the last fiscal year.

WSJ:   Public companies are doing well selling follow-on offerings.

WSJ:   Realogy restructured its debt with help from Icahn.

WSJ:   Asia’s IPO boom is slowing.

WSJ:   The recent rise in stocks has been led by companies with the largest percentage of their shares sold short.

WSJ:   Toyota (TM) and Nissan said their China sales in August were not as bad as in past months this year.

WSJ:   SK Telecom will sell back its stake in China Unicom (CHU).

WSJ:   France Telecom’s (FTE) Orange unit will sell the Apple (AAPL) iPhone in the UK.

NYT:   The head of the World Bank sees the role of the dollar diminishing.

NYT:   G.I.C., Singapore’s giant sovereign wealth fund, said it had recovered some losses because of the market rally.

NYT:   Foreign airlines are ahead of US carriers in use of cellphones on flights.

FT:   China’s CNOOC is in talks to buy one-sixth of Nigeria’s oil reserves.

Bloomberg:   Bank pay rules may put B of A and Citigroup (C) at recruiting disadvantages.

Bloomberg:   Xerox’s (XRX) deal to buy ACS (ACS) underscores that more companies want to be like IBM (IBM)

Douglas A. McIntyre

Aspect Medical (ASPN) up sharply on buy-out.

Cal-Maine (CALM) down on earnings (details).

Big moves in Xerox (XRX) and ACS (ACS) on M&A.

Gander Mountain (GMTN) goes private (details).

Douglas A. McIntyre

Xerox has a market cap of a mere $7.8 billion. The company’s primary reason for making the acquisition is that “Xerox becomes a $22 billion global company, of which $17 billion is recurring revenue – a significant boost to our profitable annuity stream.” The market is likely to drive Xerox’s stock into the ground.

The $2 billion premium that Xerox is paying is especially hard to prove because ACS is trading near its 52-week high of $52. In other words, the market has said the company is fully valued. And, it is. Last quarter ACS made only $97 million of net income on $1.7 billion in revenue, an awful margin.

Xerox, its business already only a shadow of what it was when the company was one of the top IT companies in the world three decades ago, may feel it needs a deal, but it cannot afford a bad one.

Douglas A. McIntyre

• Dick’s Sporting Goods (DKS) Raised to Outperform at Baird.
• IDEXX Laboratories (IDXX) Started as Buy at Piper Jaffray.
• Mastercard (MA) Raised to Buy at Goldman Sachs.

• Wipro (WIT) Raised to Neutral at Goldman Sachs.
• Affiliated Computer Services (ACS) Cut to Neutral at Goldman Sachs.
• Automatic Data Processing (ADP) Cut to Neutral at Goldman Sachs.
• Chunghwa Telecom Co. Ltd. (CHT) Cut to Neutral at Goldman Sachs.
• Focus Media (FMCN) kept as Buy but Target cut to $59 from $80 at Citigroup.
• Nortel (NT) Started as Sector Perform at CIBC.
• Patni Computer Systems (PTI) Cut to Sell at Goldman Sachs.
• Total System Services (TSS) Cut to Sell at Goldman Sachs.

Jon C. Ogg
August 19, 2008

• Accenture Ltd. (NYSE: ACN), although maybe too large;
• CA, Inc. (NYSE: CA);
• Computer Sciences Corp. (NYSE: CSC);
• Affiliated Computer Services, (NYSE: ACS);
• Perot Systems Corp. (NYSE: PER);
• Unisys Corp. (NYSE: UIS);
• Acxiom Corp. (NASDAQ: ACXM);
• Bearingpoint, Inc. (NYSE: BE)…..

If we took the mid-point of the pricing at $12.5 Billion we would have a rough share price of $25.00 per share on EDS.  At that rough price, you would have a company that analysts expect to be priced at 18.2 times DEC-2008 earnings and 0.55-times revenue estimates.

Any such deal for EDS would likely have to come in the form of a friendly buyout.  This company doesn’t protect itself as hard as other companies, but Capital IQ does note the following tools the company has:

• Removal of directors only for cause;
• Board can change size of members;
• Advanced Notice for director nominations;
• Move by 50% of shareholders to remove directors;
• Board Indemnification;
• Blank Check Preferred Stock.

EDS is seemingly involved in more aspects of IT outsourcing and consulting than it isn’t.  Because of the rate that IT-workers come and go inside the Indian IT-outsourcing companies and because of laws restricting total foreign ownership in India, we did not include the public Indian-IT operations in this report 

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

Jon C. Ogg
May 12, 2008

• Affiliated Computer Services (NYSE: ACS) Raised to Buy from Neutral at Goldman Sachs.
• American Electric Power (NYSE: AEP) Raised to Buy from Neutral at Banc Of America.
• Calpine (NYSE: CPN) cut to Hold at Jefferies & Co.
• Chevron Corp. (NYSE: CVX) Raised to Buy from Neutral at Goldman Sachs.
• Citrix Systems (NASDAQ: CTXS) Started as Overweight at Thomas Weisel.
• Ford (NYSE: F) Raised to Hold from Sell at Citigroup.
• Potash Corp. of Saskatchewan (NYSE: POT) cut to Outperform from top Pick at RBC Capital Markets.
• Symantec (NASDAQ: SYMC) Cut to Market Perform at Morgan Keegan.
• Tenet Healthcare (NYSE: THC) cut to Hold at Deutsche Bank.
• Wachovia (NYSE: WB) Raised to Buy from Hold at Deutsche Bank.

Jon C. Ogg
April 29, 2008

• Affiliated Computer (ACS) raised to Buy from Neutral at UBS.
• Amdocs (DOX) raised to Buy from Neutral at UBS.
• Bed Bath & Beyond (BBBY) raised to Outperform from Neutral at Credit Suisse.
• Express Scripts (ESRX) downgraded to Neutral from Overweight at JP Morgan.
• Home Depot (HD) & Lowe’s (LOW) both raised to Outperform from Neutral at Credit Suisse.
• Northwest Airlines (NWA) raised to Outperform from Neutral at Credit Suisse.
• RF Micro Device (RFMD)raised to Buy from Hold at Deutsche Bank.
• Sears Holdings (SHLD) downgraded to Underperform from Outperform at Credit Suisse.
• Under Armour (UA) raised to Buy from Hold at Citigroup.

UBS Downgrades IT and Outsourcing/Business Process sector:

• Automatic Data (ADP), BearingPoint (BE), Computer Sciences Corp. (CSC), Paychex (PAYX), and Sapient (SAPE) were all downgraded from BUY to NEUTRAL;
• Hewitt Associates (HEW) downgraded from Neutral to Sell.

Jon C. Ogg
January 14, 2008

But there are many other mergers out there that have misleading merger-arb spreads that are indicative of potential trouble as far as a closing at all or at least a risk of the stated merger price being sent to a reduced buyout price. Almost all of these mergers are different than the ones from September that we deemed at risk.

Tribune (NYSE:TRB) $34 buyout from Sam Zell and employees….
Shares reached almost $30.50 yesterday and today’s $29.90 is representative of a 13.7% merger-arb spread for a merger that shareholders have already approved.  24/7 Wall St. has given our own prediction for a buyout price that Sam Zell would likely offer if financing gets tight in this LBO-OPM (leverage buyout, other peoples money) offer.  We are looking at updating this in our New Media/Old Media subscriber letter next week.

PHH Corp. (NYSE:PHH) $31.50 buyout……
With a near-50% merger-arb spread consider this one toast or revised far lower or maybe only even by one of the buyout partners.  The Blackstone (NYSE:BX) buyout is supposedly to be revisited momentarily, although JPMorgan and Lehman that were financing a portion of the deal have (as of last look) maintained a $750 million shortfall on the debt portion here.  General Electric (NYSE:GE) was Blackstone’s buyout partner and the deal as originally intended was going to send the fleet services group (corporate car and truck fleets) to GE and the mortgage business to Blackstone. 

Genesco (NYSE:GCO) $54.50 buyout……
The $1.5 billion footwear acquisition that had been agreed to in June was scheduled to close last month, but would-be acquirer Finish Line (NASDAQ:FINL) and investment bank UBS stalled on the deal because of concerns over Genesco’s financial performance after the $54.50 buyout deal was announced.  At $45.40 there is a 20% merger-arb spread.  24/7 Wall St.’s belief is that Finish Line is in no position to do the deal whether it "states uncomfort and concerns" or not.

3Com (NASDAQ:COMS) $5.30 buyout…..
3Com’s buyout is not at risk over shareholder revolts nor over financing.  This one is at risk over China’s Huawei holding a stake after the Bain Capital buyout over "national security concerns" because many US and partner government agencies still relying on 3Com’s communication equipment. Senators are reviewing the deal and saber rattling here.  Boy, those must be some old systems.  24/7 Wall St. is reviewing this one now for the Special Situation Investing Newsletter since at $4.86 this has only a 9% merger arb-spread for an at-risk deal on a company that management can’t fix on its own.

Cumulus Media (NASDAQ:CMLS) $11.75 management-led buyout…..
The $1.3 Billion MBO agreement announced on July 23, 2007 has been a quiet one.  When announced this was almost a 40% premium.  At $10.12 today, there is still a 16% merger-arb spread.  The Board of Directors approved the deal and recommended that shareholders vote for it, but the financing from Merrill Lynch Global Private Equity and Merrill Lynch Capital Corporation "could" be up for interpretation.  Jim Cramer actually called this a takeover candidate before the MBO was announced.  Cumulus is also a name 24/7 Wall St. has under review for its New Media Old Media subscriber newsletter.

Jon C. Ogg
November 1, 2007

Jon Ogg produces the subscriber-based Special Situation Investing Newsletter where we cover buyout candidates, restructurings, spin-offs, and more.  We recently issued our "Small Cap Internet Watch List" PART 1 of 2 that showed a list of smaller web related properties we think could be acquired under the right circumstances, and we even listed which predator companies could or would acquire them under the right circumstances.

Cerberus did not blame the company for "material business changes" here like the weasel efforts of some competitor deals that have been called off.  According to the WSJ, the reason here is because of continuing poor conditions in the credit markets.  In other words, "we can’t finance the debt portion of the buyout."  Cerberus’ offer was made in March as a partial management-led buyout with founder Darwin Deason whom already owned some 42% of the company.

But the group does blame the special committee for taking to long in its search for a potential higher offer, because the group is reported to have said that it is confident the deal would have closed had the schedule proposed been adhered to.

The truth is that shares were trading under $51 yesterday, so this was already on the ropes.  The WSJ is also reporting that the two largest shareholders are unhappy about the board’s actions (or inaction), and the word from Pzena Investment Management according to the WSJ was "I don’t know why the board didn’t respond to us. They were radio silent."

Affiliated Computer is indicated lower, although it is still too early to tell the exact indications.  If you are a board member at Affiliated Computer that was in that special committee, it’s probably a good time to start finding out how much personal insurance you have protecting you from shareholder lawsuits.

Acxiom faced a similar drop.

Carl Icahn is going after BEA Systems over the board being childish.

Cablevision’s deal from the Dolan’s being called off was more the fault of holders.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.