Monday, January 26, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Wyeth, Pfizer reach deal. Wyeth (WYE) has agreed to be acquired by rival Pfizer (PFE) for $68B. Wyeth shareholders will get $50.19 per share in a stock-cash combo, a 29% premium to Wyeth's trading price before talks became public. The largest pharmaceutical deal in almost ten years, Pfizer will borrow $22.5B to finance the acquisition and will cut its quarterly dividend to $0.16/share. Pfizer CEO Jeffrey Kindler will lead the combined behemoth of a company which will have 130,000 employees and annual revenue 55% higher than GlaxoSmithKline (GSK), the world's second-largest drugmaker. Premarket: WYE +6.2%, PFE -4.2% (7:00 ET). (See below for Pfizer and Wyeth earnings, released today)
  • Barclays balances writedowns with growth. Barclays (BCS) wrote down around £8B ($11B) of credit assets in 2008, and said 'record revenue' will cover writedowns and the bank won't raise additional capital. Barclays pointed to its investment bank and Lehman Brothers Holdings North American assets acquired last year as strong profit drivers. The bank has £17B more than regulators' capital requirement. Trying to calm investor concerns after a sharp drop in stock price this month, Barclays has advanced its earning release to Feb. 9 from Feb. 17. Shares +51.5% premarket (7:00 ET).
  • Pressures rise for auto dealers, parts suppliers. Chrysler is pressuring dealers to accept cost cuts, reduce profit margins and refrain from slashing orders for new vehicles despite a forecasted slump in sales. "Dealers understand the need for all parties to put some skin in the game," said Chrysler Vice Chairman Jim Press, as the car companies rush to meet a March 31 deadline to prove their viability. Meanwhile, several auto parts suppliers are preparing for possible bankruptcy, including Visteon Corp. (VC), one of Ford's (F) largest parts suppliers. Some analysts worry the industry may be headed for mass liquidations as auto companies scale back production, and lobbying efforts are growing for the industry to secure at least $10B of TARP aid.
  • Skipping out on Skype? Speculation is growing that eBay (EBAY) is getting ready to sell its Skype internet telephone division if it gets a substantial bid. Industry insiders point to comments by CEO John Donahue who called Skype a 'great stand-alone business' and admitted 'the synergies between Skype and the other parts of our portfolio are minimal.' eBay bought Skype in 2005 for $2.6B but has since admitted that it vastly overpaid for the business. Potential buyers could include Google (GOOG), AT&T (T) or Verizon (VZ).
  • Losses sting at ING. ING Group (ING) will post a €3.3B ($4.27B) underlying loss for Q4, including €2B in losses from its structured credit portfolio, after what it called the worst quarter for equity and credit markets in over half a century. This is its second consecutive quarterly loss. The Dutch financial group will tap into €22B of Dutch state loan guarantees for its ailing portfolio, and will cut 7,000 jobs to save €1B of costs in 2009. CEO Michel Tilmant will step down, to be replaced by Board Chairman Jan Hommen, former CFO of Philips Electronics (PHG). Shares +19.0% premarket (7:00 ET).
  • Tax case widens as UBS looks for settlement. Sources say U.S. prosecutors are expanding their tax case against UBS (UBS), and that the number of U.S. clients that UBS helped to avoid taxes is potentially much higher than the previously disclosed estimate of 17,000. Investigators are also looking into assisted tax evasion in other parts of the bank besides for the wealth-management unit. UBS is said to be in talks with the Justice Department to avoid a possible felony indictment by admitting to criminal conduct and paying a $1.2B penalty. UBS has publicly denied any wrongdoing.
  • Tighter lending with TARP. Lending at major banks has fallen in recent months, despite large influxes of taxpayer money. Ten of 13 major TARP beneficiaries saw their outstanding loan balances decline by a total of around $46B from Q3 to Q4 2008, a 1.4% decline. Just three of the banks reported growth in their loan portfolios, namely U.S. Bancorp (USB), SunTrust Banks (STI) and BB&T (BBT). If TARP was meant to stimulate lending, 'it has failed,' says finance professor Campbell Harvey. "Basically we have dropped a huge amount of money... and we have nothing to show for what we actually wanted to happen."
  • French banks create mega fund firm. French banks Societe Generale (SCGLY.PK) and Credit Agricole will announce plans today to combine major sections of their asset-management operations to cut costs. The joint venture will have around €700B ($909B) in assets under management, with a 70% interest going to Credit Agricole and the rest to Societe Generale. The JV would rank among the world's ten biggest asset-management companies.
  • Business climate reaches new lows. The U.S. business climate is the worst in almost three decades. The National Association of Business Economics' [NABE] quarterly industry survey "depicts the worst business conditions since the survey began in 1982," with the majority of respondents expecting GDP to contract at a faster pace in 2009. 47% of respondents reported a fall in demand for goods and services, an all-time high. Job losses are expected to continue in the first half of 2009, notably so in sectors such as good-producing, finance, real estate, transport, utilities and communications.

Earnings: Monday Before Open

  • Covidien Ltd. (COV): FQ1 EPS of $0.76 beats by $0.06. Revenue of $2.46B (+6.1%) vs. $2.43B. (PR)
  • Danaher (DHR): Q4 EPS of $1.11 beats by $0.07. Revenue of $3.18B (+1.1%) vs. $3.08B. (PR)
  • Eaton (ETN): Q4 EPS of $0.98 misses by $0.06. Revenue of $3.49B (+3.3%) vs. $3.72B. (PR)
  • Halliburton (HAL): Q4 EPS of $0.87 beats by $0.14. Revenue of $4.91B (+17.5%) vs. $4.82B. (PR)
  • Pfizer (PFE): Q4 EPS of $0.65 beats by $0.06. Revenue of $12.35B (-4.1%) vs. $12.54B. (PR)
  • Quest Diagnostics (DGX): Q4 EPS of $0.87 beats by $0.07. Revenue of $1.80B vs. $1.82B. (PR)
  • Weatherford International (WFT): Q4 EPS of $0.53 beats by $0.01. Revenue of $2.63B (+20.2%) vs. $2.61B. (PR)
  • Wyeth (WYE): Q4 EPS of $0.78 misses by $0.01. Revenue of $5.35B (-7.2%) vs. $5.79B. (PR)

Today's Markets

  • Several Asia markets were closed today for local holidays. The Nikkei dipped down slightly (-0.8%) to 7,682.
  • In Europe at midday, London +1.2%. Paris +1.3%. Frankfurt +1.2%.
  • U.S. futures: Dow +0.6%. S&P +0.5%. Nasdaq +0.5%. Crude -0.1% to $46.43. Gold +1.4% to $908.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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