Thursday, September 3, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Dainippon buys U.S. drugmaker. Dainippon Sumitomo Pharma has agreed to buy U.S. drugmaker Sepracor (SEPR) for $2.6B in an all-cash deal marking a 28% premium to Sepracor's closing price on Tuesday. The acquisition will help Dainippon promote its experimental schizophrenia drug, which has performed well in late-stage trials, and will give the company access to Sepracor's insomnia, asthma and epilepsy drugs. The purchase is the latest in a trend of Japanese pharmaceutical firms buying U.S. rivals.
  • Berkshire, Leucadia bet on real estate. Berkshire Hathaway (BRK.A) and Leucadia National (LUK) are jointly buying Capmark Financial Group's loan-servicing and mortgage business, paying up to $490M in a bet on the U.S. real estate market. In a separate statement, Capmark, which is one of the largest U.S. commercial real estate finance companies, said it may file for bankruptcy after its Q2 loss of about $1.6B. Private equity firm KKR has already written down its Capmark investment to zero. (Read Capmark's quarterly report (.pdf), including comments on the Berkshire deal and possible bankruptcy)
  • Boeing expected to win WTO case. The World Trade Organization is reportedly set to rule in favor of the U.S. and Boeing (BA) in a case about $15B in European government loans to Airbus that Boeing argues are illegal subsidies. The ruling, expected tomorrow, concerns loans provided by the U.K., Spain, Germany and France over four decades, and is a preliminary ruling in a five-year dispute between Boeing and Airbus.
  • JBS close to deal with Pilgrim's Pride. Brazilian beef giant JBS is reportedly in final stage negotiations to buy bankrupt poultry producer Pilgrim's Pride (PGPDQ.PK) for around $2.5B. The deal would shake up the global meat industry and create a new rival for Tyson Foods (TSN), the largest U.S. meat company producing beef, chicken and pork. A deal would be subject to scrutiny from U.S. antitrust regulators who have previously said they want to take a closer look at competition in the agricultural industry. In a bonus for banks and bondholders, however, Pilgrim's creditors would likely be paid in full.
  • Ratings firms lose free speech case. A judge refused to dismiss a class-action lawsuit brought against Moody's Investors Service (MCO), Standard & Poor's (MHP) and Morgan Stanley (MS). The two ratings agencies had argued that investors couldn't sue over deceptive ratings of private-placement notes because those opinions are protected by free-speech rights. However, the judge said First Amendment rights don't apply in this case because the firm's comments were distributed to a select group of investors and not to the general public. The ruling could affect Fitch Group and other rating agencies that have made similar claims.
  • Cisco, EMC mull tech services JV. Cisco Systems (CSCO) and EMC Corp. (EMC) are reportedly in discussions to create a joint venture, code-named Alpine, that would provide technology services for large businesses. The move is part of an effort by the companies to branch out in the increasingly competitive technology sector.
  • Pfizer pays record pfine. Pfizer (PFE) agreed to pay a record $2.3B fine to settle civil and criminal charges over its marketing of Bextra and other drugs. Pfizer, which was deemed a repeat offender in marketing drugs for unapproved uses, will plead guilty to one felony for misbranding Bextra, which was removed from the market in 2005 over safety concerns. The settlement is the result of a four-year investigation prompted by six whistleblowers. (Read the complaint against Pfizer (.pdf))
  • SEC blasted over Madoff failure. A scathing report from a federal watchdog faults the SEC for not catching Bernie Madoff's Ponzi scheme earlier. According to the report, the SEC fumbled five initial probes without ever conducting a 'thorough and competent' review; caught Madoff in lies and misrepresentations but didn't follow up; was 'confused' about some aspects of his operations; and failed to notice his statements included only average daily prices, not transaction prices. The SEC was also tipped off in March 2008 that Madoff was keeping two sets of records but chose not to investigate. SEC's Mary Schapiro said the agency is being overhauled and the handling of Madoff's case "is a failure that we continue to regret." (Read the executive summary of the report (.pdf))
  • G-20 finance ministers prepare to meet. Ahead of a meeting of G-20 finance ministers this weekend, Geithner warned it's 'too early' for nations to begin exiting from stimulus programs, although it's not too early to discuss it. Geithner said the U.S. wants to build a new 'international capital accord' to limit the amount of leverage firms can take on. Other countries, including Germany, are in favor of unwinding stimulus measures sooner rather than later amid ballooning fiscal deficits and the possibility of inflation, while U.K. regulators are pushing for systemically important banks to draw up 'living wills,' or plans to wind themselves down in the event they fail.
  • Cerberus bars fund withdrawals. After a wave of redemption requests, Cerberus is barring investors in two new funds from withdrawing money for three years. The multi-year lock-up is rare among hedge funds, but other companies may follow suit after the industry experienced over $500B of redemptions in the past year.
  • FOMC is cautiously hopeful. In the recently released FOMC minutes, policy makers noted many of the risks to the U.S. economy had eased 'considerably' and expressed confidence that the country's downturn is ending. Members remained concerned that future growth will remain weak and could be vulnerable to shocks. Inflation is expected to remain subdued, and the minutes suggest the Federal Reserve is unlikely to raise interest rates anytime soon. (Read the FOMC minutes)
  • YouTube in talks to stream movies. YouTube (GOOG) is said to be in preliminary discussions with Sony Pictures Entertainment (SNE), Lions Gate Entertainment (LGF) and Warner Bros. (TWX) to create an online rental service for streaming new movies. If plans move forward, YouTube's new service will compete with online movie rentals offered by Amazon (AMZN), Apple (AAPL) and Netflix (NFLX).
  • SEC, CFTC meet for the first time ever. The SEC and the Commodity Futures Trading Commission enter their second day of joint meetings as the two try to work towards streamlining their regulatory oversight. This marks the first time the agencies have ever held a joint meeting. Though the steps toward harmonization have thus far been timid, any progress at all is welcome as industry insiders say turf wars between the SEC and CFTC are hampering innovation. (Read Schapiro's comments and Gensler's comments (.pdf), or watch the live broadcast at 9:00 ET)
  • Jobs reports. The Challenger Job-Cut Report showed firing announcements were down 21% in August to 76,456, reversing last month's increase. Seasonal downsizing is expected for the next four months, but "if monthly job-cut levels remain near 100,000 or lower, it will be a strong indication that the economy and job market are improving." According to the ADP Jobs Report (.pdf), employment was down 298,000 in August vs. consensus of -250,000, the smallest decline since September 2008. July's losses were revised to -360,000. Employment "is still likely to decline for at least several more months, albeit at a diminishing rate."
  • Productivity increases. Nonfarm Productivity increased 6.6% in the second quarter, an upward revision from preliminary estimates of +6.4% and the largest productivity increase since Q3 2003. Unit labor costs were down 5.9% vs. prior estimates of -5.8%. Manufacturing sector productivity rose 4.9% vs. prior estimates of +5.3%.
  • Factory orders rise. Factory Orders rose 1.3% ($4.6B) in July to $355.5B vs. consensus of +2.2%. June's orders were revised to +0.9% from +0.4%. Shipments fell $0.2B. Inventories fell for the seventh straight month, dropping 0.9% to $313.7B.

Earnings: Wednesday After Close

  • ABM Industries (ABM): FQ3 EPS of $0.24 misses by $0.11. Revenue of $871M (-6%) vs. $896M. (PR)
  • Collective Brands (PSS): Q2 EPS of $0.29 misses by $0.04. Revenue of $836M (-8%) vs. $843M. (PR)
  • Greif Inc. (GEF): FQ3 EPS of $0.88 beats by $0.02. Revenue of $718M (-31%) vs. $769M. (PR)
  • Hovnanian (HOV): FQ3 EPS of -$2.16 misses by $0.64. Revenue of $387M (-46%) vs. $392M. (PR)
  • SAIC (SAI): Q2 EPS of $0.31 beats by $0.01. Revenue of $2.8B (+8%) vs. $2.7B. (PR)

Today's Markets

Asian markets were mixed, European markets are range-bound, and U.S. futures are seeing mild gains.

  • In Asia, Nikkei -0.6% to 10,215. Hang Seng +1.2% to 19,762. Shanghai +4.8% to 2,845. BSE -0.45% to 15,398.
  • In Europe at midday, London +0.1%. Paris flat. Frankfurt +0.15%.
  • Futures: Dow +0.4%. S&P +0.45%. Nasdaq +0.3%. Crude +1.5% to $69.09. Gold +0.7% to $985.30.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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