Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

• Dow Chemical and Rohm reach last-minute deal. After weeks of bitter legal fighting, Dow Chemical (DOW) has agreed to buy Rohm & Haas (ROH) at the original $78/share price that the companies agreed on last July. Including penalties Dow must pay for delaying the deal, the merger will cost Dow $16.3B and will close April 1. Rohm & Haas' two major shareholders agreed to invest up to $3B in the new company. Dow will draw down up to $10B from a $12.5B short-term bank loan, use $3B in funding from Berkshire Hathaway (BRK.A) and use $1B from the Kuwait Investment Authority to cover the costs of the deal. Dow will also raise $4B by selling assets and cutting another 3,500 jobs in addition to the 5,000 already announced.
• More to shore up Citi? Barely a week after Citigroup's (C) third rescue, sources say U.S. officials are considering what additional steps may be necessary if the bank's problems continue to grow. The early-stage discussions are being described as 'contingency planning' in case Citigroup's health takes an unexpected and sudden turn for the worse. Citi execs insist the company has a strong liquidity position and say there have been no signs of corporate clients or trading partners withdrawing their business. Regulators stress a new rescue is not imminent, but Yves Smith wonders why officials aren't considering back-up plans for other big banks if this really is just contingency planning for the unexpected.
• Pandit boasts on Citi progress. As the government considers contingency measures in case Citigroup's (C) health worsens, CEO Vikram Pandit says the bank is experiencing its best quarter since 2007, when it last posted a profit. According to an internal memo, Citigroup was profitable in the first two months of 2009 and is confident about its capital strength. Revenues excluding externally disclosed marks were $19B in January and February. Pandit expressed disappointment with Citi's stock price and "broad-based misperceptions about our company and its financial position." Shares +18.1% premarket (7:00 ET). (Read Pandit's memo)
• Barclays buys Bear Wagner. JPMorgan Chase (JPM) will sell its specialist business, Bear Wagner, to Barclays Capital (BCS), leaving the New York Stock Exchange with just five remaining designated market makers. Barclays plans to merge Bear Wagner with its own specialist business which it acquired when it bought part of Lehman Brothers in September. Pending regulatory approval, the deal will close in April and create the largest designated market maker on the Big Board. Terms of the deal were not disclosed. Premarket: BCS +16.2%, JPM +5.4% (7:00 ET).
• Moody's Bottom Rung. Moody's Investors Service is trying to get ahead of corporate bankruptcies after much criticism for missing credit problems in the country's mortgage markets. The credit-ratings firm will publish a list today called the Bottom Rung, detailing companies Moody's believes are most likely to default on their debts. Covering 283 firms, the list spans nearly every sector of the economy and represents around 15% of the riskiest companies Moody's tracks. Moody's, which estimates around 45% of Bottom Rung companies will default on debt in the next year, will update the list monthly. Among the stocks on this month's list are Eastman Kodak (EK), General Motors (GM), Chrysler, Ford (F), Unisys (UIS) and MGM Mirage (MGM).
• GE to sell more FDIC-backed bonds. The finance arm of General Electric (GE) plans to sell additional FDIC-backed bonds as part of the government's Temporary Liquidity Guarantee Program. GE Capital has already sold $20.4B of FDIC-backed bonds since first tapping the market Dec. 4. The $8B sale will include maturities of two and three years, and proceeds will be used to meet 2009 debt maturities. News of the planned sale helped push credit-default swaps on GE's debt down 2.5 percentage points to 12 upfront - down from last week's peak of 20. Shares +4.7% premarket (7:00 ET).
• Roche nears a deal. Genentech's (DNA) board is close to approving a deal to sell the company to majority owner Roche Holding (RHHBY.PK). The deal would see Roche acquire the 44% of Genentech it doesn't already own for $95/share, 6% higher than Roche's opening bid of $89.50 in July but still short of Genentech's December asking price of $112. If the two companies reach an agreement, Roche will become the world's largest biotech company by revenue. An announcement could come this week.
• Ford navigates UAW concessions. Ford (F) became the first U.S. automaker to win a new round of concessions from the United Auto Workers union, helping the automaker avoid federal aid. The UAW agreed to the elimination of annual bonuses and cost-of-living increases, as well as reductions in layoff benefits and in Ford's contributions to a retiree healthcare trust. To help persuade workers to take the deal, Executive Chairman Bill Ford and CEO Alan Mulally agreed to take 30% pay cuts. The concessions put Ford on par with foreign automakers, and could take some of the air out of the bankruptcy argument if General Motors (GM) and Chrysler can secure similar agreements with the UAW. Shares +5.7% premarket (7:00 ET).
• Obama lifts stem cell ban, stocks. As speculated, Obama overturned a ban on federal funding for embryonic stem-cell research, but promised the door would never be opened to human cloning. Companies engaged in stem-cell-related technologies rose sharply on the news in Monday trading: StemCells (STEM) +43.5%, Geron (GERN) +16.5%, Cytori Therapeutics (CYTX) +12.1%, Aastrom Biosciences (ASTM) +33.3%.
• EU looks to bolster IMF. EU finance ministers will ask countries with large financial reserves to help double IMF resources to $500B, and will seek a stronger IMF role in the global crisis. A draft document which the EU will present to finance ministers and central bankers from the G-20 this weekend doesn't name the countries to contribute. China and Saudi Arabia appear to be likely candidates, and Japan has already offered $100B. The document seems to put the EU at odds with a planned U.S. push for bigger economic stimulus packages rather than increased international regulation.
• Shrinking hedge funds. Executive-search firm Options Group says hedge funds may fire 20,000 employees this year, a record 14% of the jobs in the industry, as funds get hit by investment losses and client withdrawals. The cuts would come in addition to the 10,000 jobs eliminated in 2008. Morgan Stanley analyst Huw van Steenis estimates hedge fund assets could fall an additional $250B this year, or 21%.
• The Great Recession. Not to be outdone by dismal World Bank forecasts, the IMF says the global economy is likely to shrink to 'below zero' this year in the face of the 'Great Recession.' "Continued de-leveraging by world financial institutions, combined with a collapse in consumer and business confidence is depressing domestic demand across the globe," said IMF Chief Dominique Strauss-Kahn, "while world trade is falling at an alarming rate and commodity prices have tumbled."

Earnings: Tuesday Before Open

Today's Markets

• Asia markets closed mixed in a session highlighted by the IMF's warning of a 'Great Recession', while China and Japan sparred over the need for drastic measures, or lack thereof. Nikkei -0.44% to 7,055. Hang Seng +3.08% to 11,694. Shanghai +1.88% to 2,159. BSE -1.99% to 8,160.
• Europe stocks are broadly higher at midday. London +0.7%. Paris +1%. Frankfurt +1.7%.
• Stock futures forged higher in the overnight session. Traders focused on an internal memo in which CEO Vikram Pandit said Citigroup (C) was profitable in both January and February. Dow +1.8% at 6647. S&P +2.1% to 90. Nasdaq +1.7%. Crude +0.4% to $47.24. Gold -0.5% at $912.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:30 Bernanke speaks to the Council on Foreign Relations
  8:55 Redbook
  10:00 Wholesale Inventories
• 5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: DKS, JASO, KR
• Notable earnings after Tuesday's close: HOV, JCG, PSS, TTWO

Seeking Alpha editor Eli Hoffmann contributed to this post.

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