Annaly Capital Management Inc. (NYSE: NLY) Cut to Market Perform at FBR.
ArcelorMittal (NYSE: MT) Cut to Sell at S&P Capital IQ.
BP PLC (NYSE: BP) Raised Estimates by UBS; Cut to Hold at Soc-Gen.
CBOE Holdings, Inc. (NASDAQ: CBOE) Cut to Underperform at KBW.
Demand Media Inc. (NYSE: DMD) Cut to Underweight at Morgan Stanley.
Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) Cut to Neutral at Credit Suisse.
ING Group, N.V. (NYSE: ING) Cut to Neutral at Goldman Sachs.
Morgan Stanley (NYSE: MS) Cut to Hold at Collins Stewart.
National Oilwell Varco Inc. (NYSE: NOV) raised target to $96 at Argus.
OpenTable Inc. (NASDAQ: OPEN) Cut to Perform at Oppenheimer; Cut to Neutral at Credit Suisse; Raised to Overweight at Piper Jaffray.
Sohu.com Inc. (NASDAQ: SOHU) lowered targets by Credit Suisse and Nomura.
UBS AG (NYSE: UBS) Cut to Sell at Deutsche Bank.
Vishay Intertechnology, Inc. (NYSE: VSH) Raised to Overweight at JPMorgan.
Yum! Brands Inc. (NYSE: YUM) Raised to Neutral at Goldman Sachs.

Credit Suisse makes a change to its favorite biotech list.

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JON C. OGG

Many of Apple’s suppliers are well-known, but the list includes Advanced Micro Devices Inc. (NYSE: AMD), Cypress Semiconductor Corp. (NASDAQ: CY), Broadcom Corp. (NASDAQ: BRCM), Fairchild Semiconductor International Inc. (NYSE: FCS), Flextronics International Ltd. (NASDAQ: FLEX), Jabil Circuit Inc. (NYSE: JBL), Vishay Intertechnology Inc. (NYSE: VSH), TriQuint Semiconductor Inc. (NASDAQ: TQNT), SanDisk Corp. (NASDAQ: SNDK), ON Semiconductor Corp. (NASDAQ: ONNN), and Qualcomm Inc. (NASDAQ: QCOM).

The report is based on 229 audits, of which 14 were specialized environmental audits and 27 process safety audits. Apple found 6 current cases of suppliers hiring underage workers and 13 historical cases of child labor violations. About these violations, the company said:

In each case, the facility had insufficient controls to verify age or detect false documentation. We found no instances of intentional hiring of underage labor. We required the suppliers to support the young workers’ return to school and to improve their management systems—such as labor recruitment practices and age verification procedures—to prevent recurrences.

Chinese environmental groups last year charged that 27 of Apple’s suppliers were dumping toxic gases and heavy metal sludges into the country’s land and air. The company’s audits revealed that 112 supplier facilities were not properly storing, moving, or handling hazardous chemicals correctly; 69 facilities were illegally dumping or failing to recycle hazardous waste; and 52 facilities failed to label hazardous materials. Apple also reported that 58 facilities failed to monitor and control air emissions.

Apple had come under increasing pressure to name its suppliers and to hold them to a higher standard following suicide attempts by 18 workers and 14 deaths at China’s Foxconn facility in 2010.

Paul Ausick

The list of corporations for 2010 is major and includes companies such as American International Group Inc. (NYSE: AIG), Prudential plc (NYSE: PUK), AMR Corp. (NYSE: AMR), Bank of America Corporation (NYSE: BAC), Barclays plc (NYSE: BCS), BP plc (NYSE: BP), General Electric Co. (NYSE: GE), Genzyme Corporation (NASDAQ: GENZ), HSBC Holdings (NYSE: HBC), Lockheed Martin Corporation (NYSE: LMT), McDermott International Inc. (NYSE: MDR), Motorola Inc. (NYSE: MOT), Questar Corporation (NYSE: STR), Sunoco Inc. (NYSE: SUN), Verizon Communications Inc. (NYSE: VZ) (NASDAQ: VZ), Frontier Communications Corporation (NYSE: FTR), and Vishay Intertechnology Inc. (NYSE: VSH).

This comes to about 15 deals in the spin-off and disposition category that is part of special situation and value investing.  This is also key for dividend investors.  We have outlined the units up for grabs or pending in each company.  We have also tried to look for relative value comparisons and financial comparisons on each where applicable and when possible.

American International Group Inc. (NYSE: AIG) lost out on its $35.5 billion sale of the its main Asian unit and crown jewel, AIA Group.  If you read reports, it looks as though the secondary bidders behind Prudential plc (NYSE: PUK) were lower than what AIG would accept.  The company has toyed with  spinning assets off, and that looks to be one of the biggest issues today.  If AIG was getting a cash sale of $35.5 billion, who knows where this would come of it was parceled off in an IPO.  It could get a few strong minority shareholders and secure many more today for that growing unit.  What the price tag will be, that is another question and one that is dependent upon the DJIA and the world markets.  The company has little choice to spin the company off and CEO Benmosche is at the point that he’d probably like to offer some proof to taxpayers that he’s ready to start paying back that huge debt owed.  This is not the first sale or divestiture inside AIG, and it won’t be the last.

AMR Corp. (NYSE: AMR) may be an unlikely spin-off company considering that the industry is consolidating.  The parent of American Airlines said recently that it may revive plans to jettison its regional air-carrier arm of American Eagle.  This is partly in response to criticism over its long-term strategy.  The company has gone as far as putting one of its more senior and well-respected executives in charge of American Eagle.  AMR tried this before and the two companies were not solid enough.  It is also a safe bet that the two may be more intertwined than they would believe just on the surface.  After going through the spin-off candidates out there, this is one to watch.

Bank of America Corporation (NYSE: BAC) is not going to be a game-changer, but it is expected to bring in around $4 billion by selling off its stake in Brazilian bank preferred shares and common stock in Itau Unibanco Holding SA.  This is part of the company’s effort to raise additional capital by June 30 and helps BofA meet a capital requirement to lift its common equity level by about $3 billion, via asset sales and holdings sales, as part of a regulatory agreement from when it paid back $45 billion for its bailout.

Barclays plc (NYSE: BCS) has a spin-off or sale coming, maybe.  Barclays Private Equity is expected to be spun out of the bank as soon as this summer.  That will allow its management to raise between €1.5 billion and €2 billion for their next fund, something that is going to be hard to do under the coming financial regulatory changes coming in the U.K. and in the U.S.  Talks have been ongoing and it seems that a management buyout is the likely end game.

BP plc (NYSE: BP) is in the pending-pending category.  Telling you about the Gulf of Mexico woes is not even needed, but the talk over the weekend is that now BP may look to raise as much as $50 billion.  This would be from bank loans, bond sales, and even from asset sales.  BP solar would be one of the world’s largest independent solar companies, and you know that employees now at this unit aren’t feeling as proud of their name as they were about 60 days ago.  BP has toiled with consolidating before, and BP solar is one of the operations some feel could make the grade.  It is still too soon to know if even could get anything sold off.  It is not as if there are not creative enough of attorneys in the United States that know how to try to enjoin assets even after a disposition of those assets.

General Electric Co. (NYSE: GE) is probably not a huge shock that it is on the list of spin-offs and unit divestitures.  Recent reports put GE as shopping around its Latin American bank and credit card business called BAC-Credomatic GECF.  Reuters noted that the proposed sale is part of a plan already outlined in April aimed at trimming down financial services as a percentage of the company.  Reuters also sourced about $1.5 billion as a price tag in today’s markets versus about $500 million paid for the near-half stake in BAC-Credomatic in 2005 before then raising the stake to 75%.  Is this one a done deal for sure?  Probably not.  The $170 billion market cap makes this one of a gesture of goodwill on the surface.

Genzyme Corporation (NASDAQ:GENZ) used to have tracking stocks for the Genzyme Biosurgery and Genzyme Molecular Oncology units, and it ended that by acquiring the units in 2003.  But the new recent shareholder value plan shows Genzyme is now considering strategic options for its Genetic testing, Diagnostic products, and for its pharmaceutical intermediates operations.  The company said the consideration involves a sale, a spin-off or even a management buyout. The company said that it has already selected some possible partners for the units and that it has even received some initial inquiries.  The company also contacted Goldman Sachs and Credit Suisse for assistance.  With a $14 billion market cap, and a $2 billion share buyback plan ($1 billion just accelerated now), this could greatly change the focus of Genzyme in a more narrow manner.

HSBC Holdings (NYSE: HBC) has announced that it was in talks in recent weeks to sell off its private equity fund management businesses in England, Hong Kong, the United States, Canada and elsewhere. This sale appears to be similar to Barclays as being management buyouts.  After looking around for figures, the private-equity businesses under consideration have close to $8.8 billion in funds under management, but the kicker is that about 20% of the assets are HSBC’s.  Predicting a sale price here at this juncture may be far too soon, but there is now way it could be sold for under 1% of assets under management and probably not more than 10% of assets under management.

Lockheed Martin Corporation (NYSE: LMT) has already begun to brace for different forms of military spending in the future.  The company has begun to reshape its portfolio to  drive its longer-term performance.  Up for grabs are most of the Enterprise Integration Group and also Pacific Architects and Engineers, which are both under its Information Systems & Global Services operations today.  EIG provides independent systems engineering and integration products and services and the PAE unit is in mission readiness, global infrastructure support, and in disaster relief activities; the two units are said to comprise only about 3% total revenue and less than 3% of operating profits.  With close to a $30 billion market cap, straight-line accounting would put this being close to $1 billion on the market at current prices.

McDermott International Inc. (NYSE: MDR) has been given a tax-free spin-off status under IRS ruling for its Babcock & Wilcox Company, its power generations systems unit and government operations.  McDermott and B&W are continuing to work to satisfy all the conditions to the spin-off transaction, including obtaining applicable governmental approvals, and the company expects the spin-off to be completed in the third quarter of this calendar.  The engineering and construction company said in May that spin-off costs ended up taking a bite out of earnings, but a 21% revenue decline worked its magic too.  The company is also set to spin out the J. Ray McDermott S.A. unit into another independent and publicly traded company.  Due to sector issues and due to a $5.6 billion market cap, McDermott is probably not one to ignore.

Motorola Inc. (NYSE: MOT) has restructured literally for almost the entire time I have covered equities.  The mobile communications technology giant is about to be much different after its cell phone spin-off comes.  Unfortunately, that is not expected until 2011.  As disappointment as lingered here forever, it is probably safe to assume that Hello-Moto could always yell “Do-Over!” and change its mind.  Motorola recruited Sanjay Jha in 2008 as the turnaround man by making him co-CEO and the head of mobile phone and cable set-top box operations.  If this sounds familiar, it should.  The first spin-off (or sale) was expected in 2008 but things in the markets caused that spin-off to get delayed.

Questar Corporation (NYSE: STR) recently announced that its board of directors approved and set the record and distribution dates for its tax-free spin-off of its natural gas and oil exploration and production and midstream field services businesses to shareholders on June 30, 2010 to Questar shareholders of record as of the close of business on June 18, 2010. Questar’s shareholders will receive one share of QEP common stock for each share of Questar common stock held as of the record date, and this includes fractional shares. With an $8.7 billion market cap, the Questar deal is oe to watch.  In the spin-off are:

• QEP Energy Company, formerly Questar Exploration and Production, a diversified natural gas and oil-exploration, development and production company;
• QEP Field Services Company, formerly Questar Gas Management, a midstream field services company that gathers and processes natural gas in the Rocky Mountain region and northwest Louisiana;
• and QEP Marketing Company, formerly Questar Energy Trading, which markets natural gas and oil on behalf of QEP Energy Company and others and operates a natural gas storage facility in western Wyoming.

Sunoco Inc. (NYSE: SUN) is going to separate its coke business to unlock shareholder value. The company also said it anticipates its refining segment to report a profit for the quarter ending June 30, so things at the core business may be improving.  With the woes of refining margins seen at competitors like Valero, a focus here may not be such a surprise.  The $4 billion market cap might not be changed drastically here, but a recent upgrade to “Overweight” by Barclays with a $45 per share price target make it less surprising that Sunoco is close to 52-week highs while refining stocks are generally lower.

Verizon Communications Inc. (NYSE: VZ) (NASDAQ: VZ) has established a record date of June 7, 2010 for the proposed spin-off of shares of subsidiary New Communications Holdings Inc. to Verizon stock holders.  This spin-off and the merger of New Communications with Frontier Communications Corporation (NYSE: FTR) is expected to occur on July 1, 2010, at last look and is subject to closing conditions in the merger agreement(s) among Verizon, Frontier and New Communications.  Immediately after the completion of the merger, Verizon holders will own between about 66% and 71% of the shares of Frontier common stock; and Frontier’s common holders will collectively own 29% to 34% before accounting for the elimination of fractional shares.  Verizon common holders will not be required to pay for any shares of Frontier common stock that they receive and will also retain all of their shares of Verizon common stock.  Verizon has spun-off Idearc and the biggest change that could ever come down the road is that Vodafone plc (NYSE: VOD) relationship over Verizon Wireless.

Vishay Intertechnology Inc. (NYSE: VSH) has six major business lines: Automotive, Computer, Consumer, Industrial, Medical, and Telecom.  Last week the company said it has set tentative spin-off dates for Vishay Precision Group Inc., its measurements and foil resistor business, of July 6, 2010.  This is subject to satisfaction of all conditions and will give stockholders one share of the new company for every 14 of Vishay Intertechnology shares owned.  Vishay Precision shares will trade under the stock ticker “VPG” on the NYSE.  As it stands today it seems that Vishay has over 22,000 employees, and Vishay has a market cap of only $1.64 billion as of Friday.

Asset sales, spin-offs, divestitures, distributions and more are all part of corporate strategies.  This also becomes the “special situation” category of investing.  If units can enhance shareholder value more by being sold or by being put on their own, hen that is the job of management to decide.  But these also are brought up often after pressure from activist shareholders.  These also often create many more shareholder opportunities in either the old parent company or in the spin-co.  Stay tuned.

JON C. OGG

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Dendreon Corp. (NASDAQ: DNDN) Started as Overweight and $46 target at JPMorgan.
E*TRADE Financial (NASDAQ: ETFC) Started as Market Perform and $1.70 Target at KBW.
Evergreen Solar Inc. (NASDAQ: ESLR) Cut to Underweight at Barclays.
Human Genome Sciences (NASDAQ: HGSI) Resumed at Buy at BofA/Merrill Lynch.
LDK Solar Co.Ltd. (NYSE: LDK) Cut to Underweight at Barclays.
Lifepoint Hospitals (NASDAQ: LPNT) Cut to Market Perform at Wells Fargo.
Monster Worldwide, Inc. (NYSE: MWW) Raised to Buy at Stifel Nicolaus.
PNC Financial (NYSE: PNC) Raised to Outperform at Bernstein.
Skyworks Solutions Inc. (NASDAQ: SWKS) Raised to Buy at Deutsche Bank.
Suntech Power Holdings Co. Ltd. (NYSE: STP) Cut to Equal Weight at Barclays.
Vishay Intertechnology Inc. (NYSE: VSH) Cut to Market Weight at Thomas Weisel.

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JON C. OGG

Waste Management Inc. (NYSE: WMI) withdrew a $6.7 billion offer to acquireRepublic Services Inc. (NYSE: RSG).  Waste Management shares are up more than 10% and Republic Services shares are up about 6% on the news.  Thereason cited was the current turmoil in the financial markets.  WasteManagement had even raised its offer, but is now unwilling to risk itsfinancial strength to go after a hostile merger that would be for terms that are now way out of the money.  This now leaves AlliedWaste Industries Inc. (NYSE: AW) as a potential target again ofRepublic Services.  Bill Gates has been a serial acquirer of RepublicServices’ shares, and he’d be sitting on about a 50% gain from today’s pricesif that merger was accepted.  Imagine a software pioneer gone garbageman.

Vishay Intertechnology Inc. (NYSE: VSH) threw out its proposed offer toacquire International Rectifier Corp. (NYSE: IRF).  That $23.00 bid had essentially become a hostile merger, and in today’s climate payingup for a company that doesn’t really want to sell is a riskyventure when the capital markets are closed or illiquid.  InternationalRectifier shareholders rejected the nomination of three oppositioncandidates for its board of directors just last week.  That merger wasalso raised from its initial level and it would have been a $1.7billion deal.

Diebold Inc. (NYSE: DBD) has beenfending off a buyout offer from United Technologies Corp. (NYSE: UTX).This offer was a $2.63 billion buyout that would have valued Diebold at$40.00 per share.  Management of Diebold had refused requests to speakand was not allowing the internal due diligence to make any formal dealclose.  That was more than a 60% premium from the price at the time ofthe offer, but it was also more than 20% down from its trailing 52-weekhighs at the time the offer was made.

This merger has had no updates today, but there is also this pending"troubled" acqusition of SanDisk Corp. (NASDAQ: SNDK).  Samsung in Korea has sent a$5.8 billion offer to management at SanDisk which would value it at$26.00 per share.  Again management of SanDisk is fighting this andeven cited its 52-week high as part of the reason it won’t allow thedue diligence and negotiations to proceed.  Shares of SanDisk aretrading under $17.00 today, which would net more than a 50% return ifit somehow went through.  Of course that will also destroy many holdersas the 52-week high is north of $50.00. 

What is very interesting here is that companies are wanting more andmore to be acquired and they are  acting to not sell their companiesfor what a "mark to market" merger of today would be worth.  Going backin time and picking all-time highs or 52-week highs is not really howthe market values companies.  The market price is the vote of today forwhat a company is worth.  But when managers only want to sell at whatcompanies were once worth at the peak, then it can get in the way ofthe shareholder agendas of today.

It is important to remember one thing about merger investing.  You canfrequently pick that actual target of a buyout.  But he thing youcannot accurately do is predict the reaction to the offer.  Some public companies run by founders or run by strong managers do not wantto sell at all.  Some only want to sell at prices that are notreflective of the realities of today’s prices.

The buyers can only buy companies which they either deem as cheap orbolt-on companies that give a lock over an industry or give a bettercompetitive advantage.  In either case, the price often makes thatdetermination.

None of these mergers being broken todayhave anything to do with the woes in private equity.  These issues hereare essentially either management of the target company not wanting tosell or it is an issue of the cost not making sense.  In a world wherecompanies have to hoard cash and run lean to protect their debt ratingsand to protect their ability to raise cash, it might be an easy call tosay that mergers with wildly high premiums are probably not going to beseen for a while.

Jon C. Ogg
October 13, 2008