Eurozone Crisis Meetings

The financial disaster in the eurozone is still without a systematic solution. The European Central Bank leaders will meet this week. It is nearly certain that the central bank will keep rates low, or perhaps even drop them. But, as the U.S. has demonstrated, low rates are not the key to GDP improvement. The ECB also has said it will not be the financial catalyst of a rescue of weak nations in the region. Germany’s Merkel and France’s Sarkozy are set to meet to discuss how job growth might be renewed in the region. How a fund to help save the eurozone might be structured will also be part of talks. As long as each of these issues is open, the rescue of the eurozone will remain incomplete.

Chevy Volt Production

General Motors (NYSE: GM) said it will match demand for its Chevy Volt electric car with adequate production. That should not be difficult. Battery fire problems have prompted analysts to question whether GM can sell many of the cars. GM has offered to reinforce battery housings in the Volt. This is an admission there is more risk to owning a Volt than anyone might have expected. Production of the Volt could be so tiny that it will become uneconomic for GM to stick with the model at all.

Gadgets on Parade

The International Consumer Electronics Show opens this week in Las Vegas. It is the world’s largest exhibition of gadgets each year. All of the major software, hardware and internet companies will display their latest products. So will hundreds of small firms, each with hopes it can strike gold with consumers, and perhaps with big companies that will buy or license their technologies. The show is so vast that it will be hard for any product, whether from a big company or a small one, to rise above the chaos of an event attended by hundreds of companies and tens of thousands of potential customers.

Douglas A. McIntyre

A judge blocks the $285 million settlement between Citigroup (NYSE: C) and the SEC. (Reuters)

Amazon.com (NASDAQ: AMZN) says Kindle sales rose 4X on Black Friday compared to the same day a year ago. (Reuters)

General Motors (NYSE: GM) offers loaner cars to Chevy Volt owners. (Reuters)

Thomas H. Lee Partners may bid for the U.S. operations of Yahoo! (NASDAQ: YHOO). (Reuters)

Some MF Global customer money may have been found in Europe. (Reuters)

Research In Motion (NASDAQ: RIMM) may offer some of its BlackBerry security features on the Apple (NASDAQ: AAPL) iPhone and Google (NASDAQ: GOOG) Android devices. (Reuters)

Aol (NYSE: AOL) says it does not compete with Yahoo!, but still could hire good talent. (Reuters)

Facebook may launch an IPO in the spring that would raise $10 billion and value the company at $100 billion. (WSJ)

Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS) and other financial firms are in settlement talks with MBIA (NYSE: MBI) over losses incurred during the financial crisis. (WSJ)

Amazon.com’s Kindle emerges as the primary competition to the Apple iPad. (WSJ)

Seagate (NASDAQ: STX) increases its forecast for annual earnings. (WSJ)

Toyota (NYSE: TM), a huge employer in Japan, may move production because of the value of the yen. (WSJ)

The Federal Reserve Bank of New York says Americans cut debt 0.6% in the third quarter, mostly through defaults and debt repayment. (WSJ)

The National Governors Association and the National Association of State Budget Officers say state budget deficits have improved. (WSJ)

The OECD says global growth will slow. (WSJ)

Cyber Monday sales rise 18% by some measures. (WSJ)

Black Friday sales may not help forecasts for the balance of the holiday season. (WSJ)

Summit Entertainment and Lions Gate (NYSE: LGF) are in M&A talks. (WSJ)

Icahn Enterprises (NYSE: IEP) offers to buy Commercial Metals (NYSE: CMC) for $1.73 billion. (WSJ)

The UK will increase its bank levy to raise $3.9 billion. (WSJ)

Nomura Holdings (NYSE: NMR) sharply decreases its exposure to eurozone paper. (WSJ)

Bets against the euro hit a 17-month high. (WSJ)

Tightened credit at EU banks hampers business growth. (NYT)

Silver Lake and Microsoft (NASDAQ: MSFT) may bid for a stake in Yahoo! (NYT)

Tokyo Electric Power Company will sell assets to raise $3.2 billion. (NYT)

The Polish foreign minister says that only Germany can save the eurozone. (FT)

The FHFA Office of Inspector-General says that mortgage companies often press his agency in a way that hurts its financial position. (FT)

Moody’s may cut the ratings of a number of European banks. (Bloomberg)

The Fiscal Policy Institute says most New York State growth since 2008 has come in low-level jobs. (Bloomberg)

Douglas A. McIntyre

Lions Gate has priced this secondary public offering of 19,201,000 shares of common stock at $7.00 per share.  Shares closed yesterday at $7.10 and the 52-week range is $5.69 to $7.84. 

All of the shares are being sold by certain investment funds affiliated with Carl Icahn.  After the offering is completed the Carl Icahn funds will still own approximately 3.1% of the outstanding common shares of Lions Gate.  The sellers have also granted an overallotment option to the sole underwriting firm of Piper Jaffray to purchase up to an additional 2,879,985 common shares.   & Co. is acting as the sole underwriter in the offering.

Shares of Lions Gate are right at the $7.00 pricing, so the stock is down 1.4% from yesterday’s close.  Frankly, for a stock that trades only about 550,000 shares per day, an offering of this size is being very well absorbed even though this technically does not change the real float.

When you consider that Icahn was adding to the Lions Gate stake in 2009 at less than $5.00 per share, this was not exactly a bad outcome for Icahn.

JON C. OGG

Now that Icahn has fled his efforts in Clorox Corporation (NYSE: CLX) and jettisoned his Lions Gate Entertainment Corp. (NYSE: LGF) efforts, Icahn has some spare time and some spare cash to slosh back into another activist effort.

There is no easy solution here, not even for Carl Icahn.  R-I-M is Canadian outfit.  Despite its massive sell-off this year, R-I-M still has a market value of $12 billion.  Lions Gate is worth less than $1 billion and Clorox is worth nearly $9 billion.  Moving up the food chain in size gets harder and harder to do.

If there is truth here, Mr. Icahn might want to consider the case where he got stuck in Yahoo! Inc. (NASDAQ: YHOO).  He was not able to force a buyout there.

The rumor is that Carl Icahn has made an approach of some sort to the troubled company.  He does have the success of Motorola to trump as a winning card, but R-I-M has such troubles that you wonder if anyone (even a new CEO) could make a real difference here.

The rumor could be a buyout, but more likely it would be a rumor to push the company into acting faster, with new leadership, and with a more aggressive nature.  It could end up being a very painful situation to simply acquire a company when it is losing this much market share this rapidly.

RIM is up nearly 6% at $22.95.

JON C. OGG

The market’s faith that there could be more interest in Clorox has disappeared. Shares fell as low as $64 in early August. That was after the firm announced its results for the most recent fiscal quarter. The company reported 4% sales growth and 20% growth in diluted earnings per share from continuing operations in the fourth quarter. Its forecast for the upcoming year was disappointing.

If Icahn cannot sell his shares at more than $70, the investment will begin to look like those he made in Lions Gate (NYSE: LGF), Blockbuster, and Motorola, before the handset and mobile equipment firm was split into two pieces. Icahn recently sold his stake in Lions Gate for $7 a share, which is about what he paid for his position. Icahn’s decision to buy Motorola, which he did in 2007, has not paid off. He held his shares for most of that period. Blockbuster declared Chapter 11 bankruptcy nearly two years ago.

Icahn’s recent track record is an example of how a large institutional investor can lose his touch. It may be that he has taken on too many investments and cannot focus on the complexities of all of them at once. Or, he may have just become a below average investor.

Douglas A. McIntyre

In the Clorox deal, Icahn would like to initiate a competitive auction for Clorox with potential buyers like Proctor & Gamble Co. (NYSE: PG), Colgate-Palmolive Co. (NYSE: CL), Kimberley-Clark Corp. (NYSE: KMB), and Japanese giant Kao Corp. Clorox’s board has already rejected Icahn’s latest move, a so-called ‘back-stop’ offer which is predicated on Icahn’s success in replacing the 11 current directors. If he manages to do that, and is still unable to find a buyer for Clorox, Icahn will buy the company himself for $78/share in cash and debt. Clorox has not yet scheduled its 2011 annual meeting, putting off the vote Icahn seeks to replace the company’s directors.

Dumping Lions Gate acknowledges that Icahn doesn’t believe the company is worth all the headaches. Icahn has long argued that Lions Gate should get out of the production business and instead focus on distribution of independent films. Lions Gate has lost money in three of the last four quarters, proving Icahn’s point to some degree. The $7/share price that Icahn will take for the shares is approximately what he paid for them.

There are some other weak spots in Icahn’s portfolio. Dynegy Inc. (NYSE: DYN) has been stumbling due to weak natural gas prices. Icahn and Seneca Capital own the company, which is mostly high-priced debt. The problem here is whether or not there is a taker for Dynegy. It’s struggles with debt and low prices will continue.

Another possible dump would be Chesapeake Energy Corp. (NYSE: CHK), and not because the stock is a particularly bad performer. The natural gas giant is just too big, at a market cap of nearly $21 billion, for Icahn to have much influence without making another big purchase of Chesapeake’s stock. The offer for Clorox could also force Icahn to raise some cash, if the deals breaks Icahn’s way.

Icahn also holds about 19% (about 60 million) of outstanding shares in Motorola Mobility Holdings, Inc. (NYSE: MMI), which Google Inc. (NASDAQ: GOOG) has offered to pay $40/share for.

Icahn also owns about 25% of Mentor Graphics Corp. (NASDAQ: MNTR), a relatively small computer software maker with a market cap of just under $2 billion. The company doesn’t look to be on either a growth path or a decline path. Neither is particularly good for Icahn over the short term.

Lions Gate’s shares are down more than -5% in the pre-market this morning, at $7.13, in a 52-week range of $5.69-$7.84. Clorox shares are down fractionally in the pre-market, at $70.50, in a 52-week range of $60.56-$75.44.

Paul Ausick

Bank of America (NYSE: BAC) knew of a suit by AIG (NYSE: AIG) since early this year, but did not disclose it. (Reuters)

Exxon Mobil (NYSE: XOM) and Russia’s Rosneft set a deal to seek oil and natural gas in the Arctic Circle area controlled by Russia. (Reuters)

A member of Congress says Irene relief must be offset by budget cuts. (Reuters)

Brent trades at $114 on hope of a U.S. stimulus package. (Reuters)

AT&T (NYSE: T) promises to add 5,000 jobs if its buyout of T-Mobile is approved. (Reuters)

Sony (NYSE: SNE), Toshiba and Hitachi (NYSE: HIT) to merge their small display units. (Reuters)

Hewlett-Packard (NYSE: HPQ) to resume making TouchPad tablets. (Reuters)

Bank of America to get out of the mortgage correspondent business. (WSJ)

The SEC to review certain Oracle (NASDAQ: ORCL) deals done overseas. (WSJ)

Traders in oil and other commodities may have to reveal details of their trades. (WSJ)

Fitch posts a warning about China’s banking system. (WSJ)

The National Labor Relations Board sides with unions in several recent cases, which draws criticism from some in Congress. (WSJ)

A demand by Finland for collateral before a bailout of Greece may still derail plans. (WSJ)

Nook sales help Barnes & Noble (NYSE: BKS) earnings. (WSJ)

Carl Icahn to sell his shares in Lions Gate Entertainment (NYSE: LGF).  (WSJ)

A new version of Boeing’s (NYSE: BA) 737 to be launched in 2017; the company says it has 496 commitments to purchase them. (WSJ)

EU banks raise $17.4 billion with an instrument similar to mortgage-backed securities. (WSJ)

The International Accounting Standards Board says some EU banks have not written down Greek loans enough. (WSJ)

Home builders may run out of capital as the housing market enters a fifth year of falling prices. (WSJ)

Ford (NYSE: F) to supply Zipcar autos for use on college campuses. (NYT)

US Bancorp (NYSE: USB) sues to block an $8.5 billion mortgage settlement from Bank of America. (FT)

Sony to release a line of tablet PCs to challenge Apple (NASDAQ: AAPL). (Bloomberg)

Douglas A. McIntyre

Of course the fight would be tougher, but Chesapeake has lost about two-thirds of its value since mid-2008. What was once a $67/share stock now trades at around $22/share.

The Wall Street Journal notes in an article about Chesapeake that the single biggest buyer of the company’s stock in the first nine months of 2010 is Carl Icahn.  He now owns a 2.5% stake in Chesapeake. As the WSJ points out, maybe Icahn is betting that natural gas prices will rise, but that’s not likely.

Icahn was instrumental in killing The Blackstone Group LP’s (NYSE: BX) buyout of Dynegy Inc. (NYSE: DYN). That deal failed because Icahn and Seneca Capital both thought that Dynegy was worth more than the $5/share Blackstone offered. Since mid-2008, Dynegy’s share price has fallen about 90%.

Chesapeake’s attractiveness is the estimated 16 trillion cubic feet equivalent of the company’s proved reserves and the nearly 14 million acres worth of leases it holds. The issue is can Chesapeake, or any other natural gas producer, make a profit while gas prices remain below $5/thousand cubic feet.

Chesapeake also believes it owns 4 billion barrels of “unrecognized” oil reserves on the leases and properties it now holds. That’s even more reason for Icahn to be interested in Chesapeake.

A report in Platts Energy Economist provides a detailed look at Chesapeake’s history of sales, joint ventures, and production deals, most of which began in 2008. Platts also notes that since the company’s founding in 1992, Chesapeake “has reported a cumulative net income of minus $368 million”, and that’s before natural gas prices fell through the floor earlier this year.

The short version of this story is that the parts of Chesapeake are absolutely worth more than the sum. Management’s course through the past few years has been to cut debt and fund additional production by issuing more stock and selling off assets. That’s basically Icahn-ization without Icahn. He undoubtedly thinks he can do it better.

Paul Ausick

• “These are our directors.  They are supposed to be safeguarding our assets. Shareholders, would you want these guys running your family business, let alone Lions Gate?”

Icahn further noted, “Through the years I have seen many transgressions of corporate governance but they all pale in comparison to what has taken place during a week in mid-July 2010 at Lions Gate.  Some of the emails that were found in discovery make for fascinating reading.”

The terms and conditions of the Icahn offer is for the purchase of up to all of Lions Gate’s common shares for $7.50 per share.  The shares have traded in a range of $4.81 to $7.84.  Icahn’s tender efforts have definitely driven shares higher as the stock had slid to under $6.00 for much of 2009 and early in 2010.  The average share price from 2005 to 2008 was generally $10.00 as the pivot point.

Today’s news is being treated just as an update or just as though Icahn is not going to make much difference.  Shares are down 0.4% at $7.33.

Carl Icahn is rarely a man who holds his words back and he is often very vocal when he goes after companies.  If he really wants to make more noise, he might need to offer more money in another higher bid.

JON C. OGG

The deal is a five-year pact that will allow Netflix subscribers to watch Epix partners’ movies through the Netflix streaming web service. Epix will make its new releases and other titles available to Netflix subscribers 90 days after those titles debut on pay-TV and on-demand where the titles generate a higher sale for Epix.  If the L.A. Times is right, this will send about $1 billion in license fees to Epix and its partners over the course of the term.

Netflix has been one force in killing Blockbuster along with a slew of other factors.  There is also competition that the company faces.  Coinstar Inc. (NASDAQ: CSTR) has the Redbox video rental service that is located in grocery stores and other settings.  While Coinstar was hit on its growth rates, these boxes are a threat as newer boxes can hold more titles.

The move to streaming video and higher postal rates in 2011 and beyond may also increase its operating costs and lower the margins as the company has a hard time passing on higher costs. More than 60% of customers have opted for a streaming service according to the company.  Netflix also seems to have more demand for its lower-priced service over the premium service, and that means that Netflix will have to add even more and more subscribers to keep up with growth targets.

Despite a continually surging membership growth, Netflix is unlikely to be able to continually add subscribers.  As with all high growth stories, there is only so much market penetration that can occur.  It is a great service and it also has many addicts.

Netflix shares are down 2.25% at $114.25 right after the open, although it is worth noting that this is already more than $1.00 above the early trading lows of $113.20.

JON C. OGG