Wall Street Breakfast: Must-Know News
- Roche seals Genentech deal. Roche Holding (RHHBY.PK) has reached a deal to acquire the 44% of Genentech (DNA) it doesn't already own for $46.8B. The bid comes out to $95 per share, slightly higher than the increased $93/share offer Roche put on the table last week. The acquisition gives Roche control of all revenues from blockbuster cancer drugs Avastin and Herceptin and provides an attractive portfolio of new medicines. This marks the third major pharma deal this year, following Pfizer's (PFE) agreement to buy Wyeth (WYE) and Merck's (MRK) deal to buy Schering-Plough (SGP). DNA +2.0% premarket (7:00 ET).
- Freddie loses big, taps more aid, no exit strategy. Freddie Mac (FRE) posted a record Q4 net loss of $23.9B, or $7.37 per share, and will draw another $30.8B in federal aid. The move to tap more federal aid will raise Freddie's annual dividend payment to the Treasury to $4.6B, a figure the mortgage giant said may be beyond its means. Bluntly questioning its ability to become profitable again, Freddie said in a regulatory filing that "this dividend obligation exceeds our annual historical earnings in most periods, and will contribute to increasingly negative cash flows in future periods." An inability to meet dividend payments could force the Treasury to raise interest rates, write off the debt or take full control of Freddie.
- U.S. calls for bigger stimulus, more IMF funds. As expected, the U.S. has challenged other countries to increase their stimulus spending and has proposed raising its commitment of money to the IMF. Explaining the policy push, Geithner said "if we don't get the world moving with us, then we face some prospect of a deeper, longer lasting recession in the United States." Geithner also responded to European calls for regulatory overhaul, saying the U.S. will push to redraw oversight of financial markets. The proposed U.S. increases for the IMF, which would require contributions from other countries as well, could push the IMF's lending war chest to $1T, significantly more than IMF officials requested. (Read Geithner's prepared statement)
- Insurers ask for bailout. Life insurance companies have been hard-hit by crumbling financial markets, and are turning to the government for help. A dozen life insurers have pending applications for TARP aid, while the industry as a whole is expecting a bank-style bailout in the coming weeks. In the meantime, ratings agencies and investors are growing increasingly concerned about how long the industry can avoid dealing with the distressed assets on its books. Government officials haven't yet said whether insurers will be eligible for TARP funds. Among the hardest-hit companies have been Hartford Financial (HIG), Met Life (MET) and Prudential Financial (PRU).
- MBIA comes under fire. Sources say representatives from around 15 financial institutions will meet with New York State Insurance Superintendent Eric Dinallo to complain about MBIA's (MBI) decision to split its bond-insurance unit into two companies. MBIA moved last month to separate its municipal-bond insurance business from its commitments to insure mortgage-backed bonds and other structured securities, a move that is coming under increasing fire from banks, investment funds and other policyholders. Yesterday, a group of hedge funds sought class-action status for a lawsuit against MBIA, alleging the restructuring "was nothing short of a looting" of MBIA Insurance Corp., the firm's main operating unit. The funds are asking the court to reverse MBIA's plan.
- NY AG says Merrill misled Congress. New York Attorney General Andrew Cuomo has accused Merrill Lynch of misleading Congress about its plan to grant early bonuses in December. In a court filing yesterday, Cuomo said Merrill's compensation committee had decided on Nov. 11 to accelerate the payments but told Congress on Nov. 24 that bonus payments were planned for the end of the year. In court papers, Cuomo also alleges that Merrill employees may have "marked down their portfolios only after their 2008 bonuses were set," contributing to Merrill's larger-than-expected Q4 losses.
- Madoff trial kicks off. Bernie Madoff goes to court today and is expected to plead guilty to 11 criminal charges that could put him in jail for the rest of his life. Victims of Madoff's Ponzi scheme have been invited to speak in court; anticipating a highly-charged environment, the presiding judge warned participants that "emotions are high but we have to remember to conduct ourselves in the manner that is appropriate to a courtroom proceeding." New information continues to come to light about Madoff's scam, including allegations that he used his London operations to launder client money. Yesterday, Rep. Gary Ackerman introduced legislation that would provide some tax relief for investors who lost money with Madoff.
- Google targets online behavior, phone management. Two new moves from Google (GOOG) this week. The first is an effort to target online ads based on an individual's web browsing history, raising concerns among privacy advocates. The new system is being rolled out on a trial basis across Google's network of partner websites and on its video-sharing site YouTube, and is similar to a program unveiled a few weeks ago by rival Yahoo (YHOO). The other new product is Google Voice, which is actually an expanded version of a service previously known as GrandCentral. The service is meant to simplify the way people handle phone calls, voice mail and text messages, allowing users to route all their calls through a single number that can ring their home, work and cell phones simultaneously. It also transcribes voice mail, and lets users make calls over the internet for free in the U.S. and for a small fee internationally, providing competition for internet phone companies like Skype (EBAY).
- eBay retrenches. eBay (EBAY) plans to shift focus to its online marketplace for used and overstocked goods rather than the retail market for new goods where it faces stiff competition from firms like Amazon (AMZN). Shifting away from a strategy developed just a few years ago to sell new goods, CEO John Donahoe explains "we aren't a retailer. We're going to focus where we can win." The company is trying to pitch itself as more than just an online auction site, and told analysts its greatest hopes for growth rest in PayPal, an online payment company that can benefit from overall growth in e-commerce.
- Hershey expands in Asia. Hershey (HSY) agreed to buy Barry Callebaut AG's Van Houten consumer chocolate business in Asia, providing Hershey a chance to expand its presence abroad. Diversification into foreign markets is critical for Hershey as most of its growth comes from North America as opposed to rival Cadbury (CSG) which has been a more global player. Terms of the deal were not disclosed, though the overall size appears to be small.
- Foreclosures jump. Completed foreclosures surged to a new crisis high of 122K, up from 73K in January, according to Foreclosure.com. Pre-foreclosure filings also struck new highs of 208K, from 167K in January. "Many homeowners are in trouble and rising unemployment continues to threaten to intensify the problem."
Earnings: Thursday Before Open
Earnings: Wednesday After Close
Today's Markets
- Asia markets were mixed Thursday, with Japan surrendering more than half of Wednesday's 4.5% gain. Nikkei -2.41% to 7,198. Hang Seng +0.59% to 12,002. Shanghai -0.24% to 2,134. BSE +2.25% to 8,344.
- Europe stocks are down. Concern over the global economy was renewed after World Bank president Robert Zoellick said the world is on track for its worst recession since the 1930s. At midday, London -1.5%. Paris -2.5%. Frankfurt -2.3%.
- Stock futures are under pressure, mirroring overseas losses. Dow -1% to 6845. S&P -1.1% to 712.50. Nasdaq -1.1%. Crude +1.7% to $43.05. Gold +0.3% to $913.70. 30-year Tsy bond +0.55% to 126-16.
Thursday's Economic Calendar
- 8:30 Retail Sales
8:30 Jobless Claims
10:00 Business Inventories
10:30 EIA Natural Gas
4:30PM EIA Natural Gas - Notable earnings before Thursday's open: SFD, SOL
- Notable earnings after Thursday's close: ARNA, ARO, PSUN
Seeking Alpha editor Eli Hoffmann contributed to this post.
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