According to people familiar with the discussions, the Wall Street Journal reported that Microsoft Corporation (NASDAQ: MSFT) has held discussions with Time Warner Inc (NYSE: TWX) and News Corporation (NYSE: NWS), among others, about joining it in a deal that could lead to the breakup of Yahoo! Inc (NASDAQ: YHOO). Some of the sources said the preliminary talks are unlikely to result in a deal with Yahoo!
Johnson & Johnson (NYSE: JNJ) is reportedly in exclusive talks to sell its wound-care business Ethicon to the private-equity arm of JP Morgan Chase & Co (NYSE: JPM), according to the Wall Street Journal. Terms of the potential deal were not disclosed.
OTHER PAPERS:
Sources familiar with the inquiry said that the Justice Department has opened a formal antitrust investigation into a deal that would allow Google Inc (NASDAQ: GOOG) to provide some search advertising for Yahoo!. The Washington Post reported that investigators will demand documents from Google and Yahoo!, as well as other large companies in the media and Internet industries.
WEB SITES:
Reuters reported that regulators in the European Union are looking at the long-term effects of BHP Billiton Limited's (NYSE: BHP) $170B bid for Rio Tinto Group (NYSE: RTP). Sources familiar with the EU questionnaire said regulators have asked competitors and customers about effects of the deal on their businesses through 2015.
Since 1975, Lakshmi Mittal has turned ArcelorMittal (NYSE: MT) into a global steel powerhouse. As a result, he's worth in excess of $45 billion. Actually, as an indication of his power, Mittal is now a board member of Goldman Sachs Group, Inc. (NYSE: GS).
And, no doubt, his dealmaking is likely to continue. In fact, there are reports that ArcelorMittal will make a play for Rio Tinto Group, which is the #2 ore producer in the world. The company is currently ensnared in a hostile takeover from BHP Billiton Ltd. (NYSE: BHP). Basically, ArcelorMittal may make an equity investment, which could exceed $10 billion.
Why? ArcelorMittal needs to find ways to stabilize its raw material supplies. After all, with pricing pressures, it's important to contain things.
Then again, this may ultimately be mostly noise -- to get traders excited. But, in light of ArcelorMittal's global power, investors will definitely listen.
Future crude oil supplies may be a lot tighter than thought. That is what the International Energy Agency in Paris is expected to find when it releases its assessment of the world's 400 major oil fields in November, according to the Wall Street Journal, a reversal from previous reports and is based on a lack of investment and aging oil fields.
The Institute for Safe Medication Practices, a nonprofit safety organization, found serious side effects linked to Pfizer Inc's (NYSE: PFE) Chantix, a smoking cessation drug. Chantix, which has been banned by the FAA for use by pilots and air-traffic controllers, is already tied to psychiatric issues, including depression and suicide, according to the Wall Street Journal, and the report also points to heart trouble, seizures and diabetes.
OTHER PAPERS:
The New York Times reported that the Jacksonville Police and Fire Pension Fund has accused American International Group Inc (NYSE: AIG), along with several of its executives, of inflating its stock price artificially by understating the company's exposure to the subprime mortgage crisis. According to the lawsuit, AIG's Q1 loss of $7.8B shocked investors because the insurance giant assured them that any losses on credit insurance "would be limited".
Following speculation a Chinese entity would look to take a stake in Australian miner BHP Billiton Limited (NYSE: BHP), Huang Tianwen, the president of Sinosteel Corp, said the company has not formed a bid for the firm. The Australian reported that Chinese steel mills may look to buy into iron ore miner Fortescue Metals Group.
TheStreet.com's Jim Cramer says that rebuilding from natural disasters can alter the growth picture for a country.
Is it Katrina all over again? Or is it bigger? Much bigger? That's what I am thinking about this Chinese earthquake.
Katrina distorted the U.S.'s growth pattern for more than a full year. The raw materials, the effort, the work, the reconstruction affected businesses from small-scale retail to refining and infrastructure.
We don't really know how China works, although a lot of people tell us they do. To me, the Chinese are always a day away from revolution or civil war and the trick of the government is to stay one step ahead of the posse. (Chinese hands will dispute that, but you have to appreciate that it takes a special skill to be wrong for more than a century and still maintain credibility.)
That means massive reconstruction: bricks, lumber, cement, steel and all the trimmings. Massive imports, not controlled by the Chinese and their little negotiation games like they play with iron and steel and coal. Just full-bore buying and something that could take growth for China back to the levels that everyone thought it couldn't absorb without more inflation.
Macy's (NYSE: M), which was forecast to report a loss of a penny a share in the first quarter, said the difficult retail environment hurt sales and it incurred costs from a restructuring. The loss came to $59 million, or 14 cents a share, compared with a profit of $36 million, or 8 cents a share, a year earlier. (As the numbers are quite fresh, it's possible they include one-time item not yet sorted out and not comparable to analyst expectations.)
John Deere (NYSE: DE) said its second-quarter profit rose 22%. Deere experienced increased demand for its farm equipment, as crop prices kept rising, posting an 18% increase in sales. Profit for the quarter jumped to $763.5 million, or $1.74 per share, a penny below analyst estimates. From premarket early action, it seems shares of DE might start much lower.
Freddie Mac (NYSE: FRE) also reported this morning, saying its first quarter loss widened to $151 million as the U.S. housing market worsened. Somehow, though, the results were not as poor as expected and FRE's loss of 66 cents a share beat estimates of a 92 cents a share loss. FRE's shares are up over 6% in premarket trading.
Still on earnings, last night Whole Foods (NASDAQ: WFMI) and Electronic Arts (NASDAQ: ERTS) reported results. Shares of WFMI are plunging nearly 9% in premarket trading as the organic grocery chain reported a worse-than-forecast 13% profit fall.
Electronic Arts (NASDAQ: ERTS) shares are also declining over 2.8% in premarket trading after the suitor of Take-Two Interactive (NASDAQ: TTWO) reported a widening quarterly loss and a disappointing outlook.
The Wall Street Journal reported that Ford Motor Company (NYSE: F) CEO Alan Mulally isn't done cost-cutting. According to people close to the situation, Mulally is considering more job cuts, selling its Volvo brand and closing the troubled Mercury brand.
BHP Billiton Limited (NYSE: BHP) CEO Marius Kloppers strongly criticized Rio Tinto Plc (NYSE: RTP) and its CEO yesterday, the Financial Times reported. BHP Billiton has outperformed Rio Tinto in several areas, including share price appreciation and EPS growth, said Kloppers, adding, "On every metric I can envisage they [Rio] have been beaten."
OTHER PAPERS:
According to the Economic Times, AT&T Inc (NYSE: T) is reportedly in preliminary talks with Malaysia's Maxis Communications about buying its 74% stake in Indian cellular phone company Aircel, sources said.
The United Auto Workers union has rejected several "generous" benefit and wage proposals, according to American Axle & Manufacturing Holdings Inc (NYSE: AXL). In a statement yesterday, the Detroit News reported that American Axle said while tentative agreements had been reached on several issues, the UAW "repeatedly rejected" other proposals that were "considerably higher than the market rate."
"A once in a lifetime super bull market in commodities is underway," note resource experts Mary Anne and Pamela Aden. Here, the advisors look at some favorite commodity stocks in their The Aden Forecast.
"Commodities are in a mega super rise is because of the dramatic changes in the global economy. The rise that started in commodities in 2001 has continued to expand over the years and we believe the upmove is just warming up and it has years to run.
"There are several reasons for this. The weakening dollar and low interest rates have certainly helped push up the whole sector while investment demand grew as an inflation hedge. But the key reason why the commodities are in a mega super rise is because of the dramatic changes in the global economy.
MOST NOTEWORTHY: Jefferies Group, Quality Systems and Techwell were today's noteworthy initiations:
Friedman Billings initiated Jefferies Group (NYSE: JEF) with a Market Perform citing the difficult underwriting environment and challenging credit market.
JMP Securities initiated Quality Systems (NASDAQ: QSII) with an Outperform rating and $35 target. The firm expects the company's practice management and electronic medical record solutions to benefit from growth opportunities within the ambulatory market.
Techwell (NASDAQ: TWLL) was assumed with an Overweight rating and $14 target at Thomas Weisel, as they expect TWLL to have continued stable revenue growth given its market leadership and increased global security demand.
OTHER INITIATIONS:
Bernstein initiated NetSuite (NYSE: N) with a Market Perform rating and $23 target.
Keefe Bruyette started Comerica (NYSE: CMA) with a Market Perform rating and $37 target.
MOST NOTEWORTHY: BHP Billiton, Rio Tinto and Prudential Financial were today's noteworthy upgrades:
Bernstein upgraded shares of BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) to Outperform from Market Perform as they believe urbanization in China will increase demand for metals.
Prudential Financial (NYSE: PRU) was raised to Overweight from Underweight at Lehman as they believe the company's exposure to commercial mortgage-backed securities is limited.
As the mega-merger that created Citigroup (NYSE: C) is nearing ten years, the Financial Times interviewed John Reed, one of the masterminds behind the deal. Interestingly, he told the paper that the deal was a mistake and blasted several segments and personnel at the bank.
In other Citi news, the bank has agreed to pay $33 million to settle a discrimination lawsuit involving about 2,500 current and former female brokers at the company's Smith Barney subsidiary.
The Wall Street Journal reports that senior executives of Microsof (NASDAQ: MSFT) and Yahoo! (NASDAQ: YHOO) met this week to discuss Microsoft's bid for Yahoo!. Already we heard a few days ago that Microsoft is unwilling to raise its offer, and for now at least, Yahoo! continues to refuse to enter formal negotiations without a better offer. While no doubt Microsoft wants Yahoo!, it may be that Yahoo! needs Microsoft. On that basis, it's possible Microsoft could hold its own, betting Yahoo! would cave in first.
BHP Billiton Ltd. (NYSE: BHP) shares are trading higher today after the company announced that it has declared a force majeure at its Colombian Cerro Matoso nickel mine due to an ongoing strike. A spokesman said the force majeure will not be called off until the strike ends and production resumes. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BHP.
After hitting a one-year low of $47.30 last March, the stock hit a one-year high of $87.43 in October. BHP opened this morning at $66.27. So far today the stock has hit a low of $65.73 and a high of $66.49. As of 12:15, BHP is trading at $65.81, up 75 cents (1.1%). The chart for BHP looks bearish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just 2 months as long as BHP is above $50 at May expiration. BHP would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.
BHP hasn't been below $55 since August and has shown support around $62 recently. This trade could be risky if the commodities market weakens due to the slowing economy, but even if that happens, this position could be protected by the support the stock might find around $58, where it bottomed out in January.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BHP.
To help stabilize the housing market, the Wall Street Journal reported that the Bush Administration is planning to help create fresh funding for mortgages. The plan, which still requires final approval, is said to ease an excess-capital requirement for government sponsored organizations Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, and the Federal Housing Administration.
The Wall Street Journal also reported that a merger between Northwest Airlines Corporation (NYSE: NWA) and Delta Air Lines Inc (NYSE: DAL) may be derailed after Delta pilots notified executives they remain unable to reach an agreement with Northwest pilots on how to integrate pilot ranks should the two combine.
The Financial Times reported that BAE Systems Plc (OTC: BAESY) won a $715M order to supply nearly 1,500 mine-resistant vehicles from the U.S. government.
OTHER PAPERS:
The Chinese government has locked out Australian mining giants BHP Billiton Limited (NYSE: BHP) and Rio Tinto Plc (NYSE: RTP) from selling iron ore into its daily spot market, the Sydney Morning Herald reported. Mining sources said that the decision may have already cost Australia up to $300M in export profits.
According to sources, the Wall Street Journal reported that Countrywide Financial Corporation (NYSE: CFC) is under investigation for possible securities fraud. People close to the situation say the inquiry is in its early stages but it involves an inquiry into alleged misrepresentations of the company's financial position and the quality of its mortgage loans.
The Financial Times reported that Credit Suisse Group (NYSE: CS) has teamed up with three leading academics to create products that will deal with the potentially lucrative hedge fund replication industry. The upcoming suite of products will attempt to mechanically replicate the returns of the major hedge fund strategies.
OTHER PAPERS:
Rio Tinto Plc (NYSE: RTP) is expected to announce this week that its aluminum business is worth up to $20B more than current estimates, after a rise in aluminum prices; the UK Times reported that the statement could raise pressure on BHP Billiton Limited (NYSE: BHP) to increase its takeover bid for Rio.
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