Filed under: Earnings reports, Forecasts, Deals, Boston Scientific (BSX)

Boston Scientific (NYSE:BSX) is in a lot of trouble. It took on too much debt when it purchased medical device marker Guidant, and its huge stent business has been hurt by studies showing that the product can cause blood clots.

The firm’s stock was $45 in mid-2004. It now trades at $12. The FDA is tightening coated-stent requirements. Boston Scientific does not seem to have a bright future.

Yesterday, the company sold off two of its units for $425 million. The New York Times says that the company “had concurred to sell its fluid management and venous access businesses” to a private equity firm, Avista Capital.

But, that’ll hardly be enough. The company has $7.9 billion in debt, and its operating income in the last quarter was less than $300 million with special items backed out.

Watch for Boston Scientific to sell several of its other large businesses, even most of Guidant. It probably needs to raise another $2 billion to $3 billion, and that means that company is going to get much smaller.

Douglas A. McIntyre is an editor at 247wallst.com.

Share This

Share This

Filed under: Other issues, Deals, JetBlue Airways (JBLU)

Germany-based Lufthansa’s announcement late Thursday that it would buy a 19% stake in JetBlue (NASDAQ: JBLU) could lead to other airline deals, as industry players seek both economies of scale and greater international reach, according to one analyst familiar with the sector. The Lufthansa-JetBlue deal requires the approval of U.S. federal regulators.

“This could be the deal that gets the airs [airlines] in merger-mode again,” analyst C. Leonard Bauer told BloggingStocks on Thursday.

Under U.S. law, no foreign airline can own more than 25% of a U.S. airline, and there are other restrictions that limit the foreign company’s influence.

Lufthansa announced Thursday it would pay $7.27 per share for 42 million new JBLU shares, or about $300 million. That amounts to a 19% stake at Thursday’s closing price, the airlines stated in a joint statement Thursday. Lufthansa will also receive a seat on JetBlue’s board.

Improved sector conditions

Bauer said three factors had reduced merger and acquisition talk among the airlines for several years: sub-par sector cash flow, superior merger/acquisition and partnership opportunities in other sectors, and regulation.

“For the longest time, U.S. airlines weren’t that attractive, particularly the weaker ones, but now cash flow has improved, the sector’s growth prospects are sufficient and the new ‘open skies’ rule will mean more competition across the Atlantic, so airlines have to be ready,” Bauer stated. “An airline could suddenly find itself vulnerable in a previously light-competition market, so they need to be ready to partner, or to merge or buy an airline for access to new markets.”

Under the “open skies” agreement, a slow deregulation of flight routes and markets between the United States and the European Union will begin in April 2008.

“The last thing a major carrier in the United Says or Europe wants, for that matter, is to wake up one day and find that your market has been penetrated, and you don’t have comparable positions in some of those open skies markets,” Bauer said.

For the first nine months of 2007, Lufthansa reported earnings of $2.33 billion, or 1.60 billion euros, and revenue of $23.9 billion, or 16.4 billion euros.

Share This

Share This

Filed under: Deals, Competitive strategy

Penthouse Media Group has agreed to acquire the parent company of AdultFriendFinder, a website devoted helping adults find love — or at least sex. The site is different from more mainstream (although AdultFriendFinder’s traffic would seem to indicate its more mainstream that we care to think) sites like eHarmony in that the emphasis is on “hooking up” and there is little in the way of bragging about couples who met on the site.

According to the USA This day, Penthouse, which was acquired by Marc Bell and Daniel Stanton out of bankruptcy in 2004, plans to aggressively pursue acquisitions and possibly take itself public in the next few years.

Here’s what’s interesting: this is a company that owns social networking websites and was founded in 1996. It just sold for $500 million.
Playboy (NYSE: PLA), the most famous brand in sex with an iconic magazine, websites, pay per view content, shows on E! and a mansion that’s the envy of each bachelor in America … currently sports an enterprise value of under $400 million.

The reason? Penthouse thinks it can make a lot of money with AdultFriendFinder and the other social networking sites that come with the deal. For all its history, Playboy has been providing investors with an anemic return on equity for years.

As Marc Bell, CEO of Penthouse Media Group said, social networking is “where the money is.” Playboy is also trying its luck with social networking, but so far the results haven’t been too promising. PlayboyU.com has an Alexa ranking of 292,431. AdultFriendFinder.com? 70.

But I’ve to wonder: If Penthouse is willing to spend hundreds of millions on acquisitions as a prelude to a possible IPO, don’t they at least have to take a look at Playboy? If they do, that could turn into one of the more entertaining M&A stories in years — I love the idea of watching the FTC lawyers trying to protect the interests of consumers by blocking a consolidation of the porn industry.

Share This

Share This

Filed under: Deals, PepsiCo (PEP), General Motors (GM), Procter and Gamble (PG), NIKE, Inc’B’ (NKE), Business of sports

Tiger Woods has been a staple on money lists for over a decade now, so I doubt anyone is unaware of the magnitude of his income. This past year, though, has been a great one even by his standards.

He had an outstanding year on the golf course, with seven tour victories, including a PGA championship and the overall Tour Championship. Along the way, he led the tour with winnings of over $10 million.

This was only the beginning of his cash flow, though. Endorsement money well exceeded his on-course winnings. In addition to his standing affiliations with Nike (NYSE: NKE), General Motors (NYSE: GM) and others, Procter & Gamble’s (NYSE: PG) Gillette signed him to a new deal for $10-20 million as part of its “Gillette Champions” campaign. In the fall, PepsiCo’s (NYSE: PEP) Gatorade agreed to pay him up to $100 million to license a Tiger Woods brand of sports drink, due out next spring. He also moved forward on his newest venture, golf course design, announcing plans for his first U.S. design, The Cliffs at High Carolina.

Tiger continues to dominate his sport and keep his image positive. Young, vastly talented, and a shrewd businessman, in 2007 he not only drove the green, he raked it in, too.

Be sure to check out more Money Winners of 2007.

Share This

Share This

Filed under: Citigroup Inc. (C), Deals

Citigroup (NYSE: C) did what it probably had to do by bringing $49 billion in SIV assets onto its balance sheet. The “Super Fund” set up to help the structured vehicles was not getting much interest from potential investors. Several other huge banks like HSBC (NYSE: HBC) had moved their SIVs in-house.

Whether the move contributed to it or not, Moody’s downgraded Citi’s debt one notch to Aa3. “The bank will probably “take sizable writedowns” for securities backed by home mortgages and collateralized debt obligations,” Moody’s Senior Vice President Sean Jones stated in a statement picked up by Bloomberg. Moody’s is concerned that the bank’s weak capital ratios might keep it from getting out of harm’s way anytime soon.

That leaves the markets to ponder what will happen to Citi over the next year or two. The bank is probably still too big to be bought by another massive money center bank, unless its stock falls further. It has already lost almost half of its value this year and now trades around $30 on a good day.

Citi is almost certainly faced with more write-downs, leaving it with very few options. It could go to a sovereign fund again. Those in the Middle East and Singapore have shown a taste for risk. Or, the Fed might have to step in with special loans, if things get bad enough.

The conventional wisdom is that Citi is “too big to fail.” But wisdom can’t see the future.

Douglas A. McIntyre is an editor at 247wallst.com

Share This

Share This

Filed under: Deals, Rants and raves, Competitive strategy, Entrepreneurs, Media World

Madonna has been a trend setter for three decades and has built, not just a music empire, but a financial one. She is brash and savvy. The “Material Girl” who popularized wearing undergarments as formal wear and accent pieces has made another splash this year, not with her music or wardrobe, but with her new record contract.

She has abandoned the major record labels to sign on with a concert promotion machine for $120 million. Goodbye long-time record label, hello Live Nation (NYSE: LYV). In October, the iconic and very wealthy 49-year-old Madonna signed her biggest contract to date, and one Warner Music Group (NYSE: WMG) would not match.

Live Nation, the concert promoters, have acquired her touring and recording rights. Her first album was released in 1983, 26 24 years ago, and she has been going strong ever since. According to published reports: “The rights to Madonna’s tours, which continue to be highly profitable, will now be owned exclusively by Live Nation. Last year’s Confessions tour featured eight sell-out performances at Wembley Arena, which is managed by Live Nation. The tour grossed $260m.”

Specifics include an $18 million signing bonus and an additional advance of $17 million in cash and shares for each of the three albums in the ten-year deal. If Madonna goes on tour, she will get up to 90 percent of the profits, with only 10 percent reaching Live Nation.

This landmark contract is bound to modify the playing field in the music industry that has been combating internet and CD piracy once again. Madonna, though, won’t be following behind but leading the charge as she’ll be under contract well into her fourth decade.

Madonna the music machine is a well-established money machine. It might turn out that the on-stage nationally televised kiss between Britney Spears and Madonna that got everybody’s shorts all bunched up wasn’t a passing of the baton. It might turn out to have been a large kiss-off! For since that time Britney has appeared in more court room battles, mugshots, and scandals then she has music accomplishments, and Madonna, not Britney, is the new Madonna – still out front — still making waves, setting trends — and collecting royalties.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Be sure to check out more Money Winners of 2007.

Share This

Share This

Filed under: Deals, Products and services, Consumer experience, Dell (DELL), Technology

One of the main concerns with EqualLogic customers when Dell (NASDAQ: DELL) announced it was acquiring the company was a question of customer and reseller support continuing at the level where it had been. As many of us know, an acquisition can disrupt normal operations as smaller companies are folded into the huge bureaucracies of newer parent companies. The delicate balance of not ticking off existing customers in the process is a big concern.

Nothing reassures customers of a small but important company like a celebrity CEO directly addressing issues before issues even come up. Dell CEO Michael Dell is making his case directly to existing EqualLogic customers and retail channel partners by stating that the acquisition will be a smooth process and EqualLogic customer support will remain at the high levels where it has always been.

One area that gets lost in personal industry-related acquisitions is the customer-support angle. You either retain existing employees from the acquired company or train parent company employees on new products. That second option takes time and resources, and that means costs. Dell said in its latest quarterly results announcement that costs were higher than normal in the most recently finished quarter, so how can it pare down customer support-related costs while making a bunch of acquisitions to beef up sales and bring immediate revenue relief? That’s a question for any Dell shareholder concerned about Dell’s loose grip on cost controls.

Share This

Share This

Filed under: Deals, Law, XM Satellite Radio (XMSR), Sirius Satellite Radio (SIRI), Politics

Once again shares of Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) are on the move. On Wednesday, shares of the two satellite radio companies got squashed due to concern over the merger review. XM shares tumbled 9.9%, or $1.45, to $13.21, while Sirius dropped 6.0%, or 21 cents, to $3.29.

Interestingly, lawmakers, who sometimes hold hearings about huge mergers but have no direct say, voiced their view on the merger, with the U.S. Home of Representatives antitrust task force expressing concern about the Justice Department review of Sirius’s proposed purchase of rival XM.

Reuters has obtained a copy of a letter that Democrat John Conyers, chairman of the task force, and Republican Steve Chabot, wrote to Attorney General Michael Mukasey, dated Dec. 11, in which they’re conveying their dismay over reports the Justice Department might be trying to rush through the merger and that “Assistant Attorney General for Antitrust Thomas O. Barnett may intend to grant the merger over the objections of department staff.”

Despite analysts yesterday saying the decision ultimately rests with Justice Department officials, stocks of the two companies plummeted as it was unclear what this development means, and investors’ confidence in the merger was shaken. Even if representatives hold no sway over the decision, the letter and objections voiced may slow the process.

Today, however, both satellite companies’ stocks are rebounding. Sirius shares are up 3.95%, or $0.13, to $3.42 and XM shares are up 7.12% or $0.94, to $14.15 in early morning trading.

What’s different this day? Perhaps the market has finally realized what analysts had been saying yesterday, that the proposed $5 billion purchase should not be affected by congressional representatives. Stifel, Nicolaus & Co. analyst Blair Levin added his voice to Frederick Moran of Stanford Group and David Bank of RBC Capital Markets, saying he believes the DOJ will “give its blessing,” clearing the way to the Federal Communications Commission. Like many other analysts, Levin also favors Sirius over XM.

Any investor who can stomach these two stocks’ roller coaster of a ride deserves to be rewarded should the merger finally be approved. For now, Sirius and XM are not for the faint of heart, not even close.

Share This

Share This

Filed under: International markets, Deals, Products and services, Competitive strategy, Corning Inc (GLW), Dow Chemical (DOW), Stocks to Buy

The Associated Press is reporting that Dow Chemical Company (NYSE: DOW) will sell a 50% interest in five of its global businesses to a Kuwaiti company, Petrochemical Industries Co, for about $9.5 billion to form a new petrochemicals joint venture.

The joint venture will be based in the U.S. and will employ more than 5,000 people worldwide, mostly current Dow employees and will be 50% owned by Dow and PIC.

This will put cash in play that can be used for a wide range of activities. Dow may choose to slash long-term debt, which this tidy sum would eliminate almost entirely. It also might select to expand other ventures that have a promise of higher returns or diversify into businesses that are less dependent on oil as feedstock and thereby increase potential growth while reducing volatility.

I thought 2007 was going to be the breakout year for Dow. It has done well this year, but not spectacularly. I was already considering it for 2008, but this new development adds some intrigue. It meets my criteria for consideration based on common metrics. In partnership with Corning (NYSE: GLW), Dow is developing materials for the solar energy industry. Dow has been mentioned in merger and acquisition rumors all year and now it’s happened. It has historically been an innovator willing to spend on R&D. If oil goes down in price, the primary ingredient in many of Dow’s products will create improved margins. A P/E of 10 and a 4% yield, need I say more?

Well there’s a little more. I would like to see Dow use its expertise to develop new “green technologies” and focus on businesses related to environmental clean-up. That’s going to continue to be huge business everywhere.

So far, it seems that Wall Street, too, seems to like this development and shares of DOW are up 7.78%, or $3.25 to $45.00, in the first hour of trading.

To verify my track record, including bad calls, read Chasing Value and Serious Money.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Share This

Share This

Filed under: Deals

Tuesday I wrote about Sherwood Investments’ 13-D filing (the first in the firm’s history) indicating a 5.48% stake in Trans World Entertainment (NASDAQ: TWMC), the owner of mall-based music and entertainment stores including f.y.e., Suncoast, and Sam Goody.

Obviously this lends a good deal of credibility to Sherwood’s offer, but there are still a few things that investors need to wonder about.

The first, and most important question, is how many contingencies does the offer contain. If the offer is loaded with hedges and outs for Sherwood, it’s a lot easier to dismiss it as blustering. If Sherwood’s offer is contingent on the ability to secure financing and the Kansas City Royals winning the World Series, it’s pretty simple to dismiss. How many contingencies does the offer have? It’s hard to say because in the the 13-D filing, Sherwood actually contradicts itself:

On November 29, 2007, Sherwood sent a letter to the Issuer and the Special Committee, in which it made a preliminary proposal to acquire all of the Issuer’s Common Stock not owned by Sherwood for $7.00 per share, subject to a due diligence review and complete and fair evaluation of the Issuer’s business. A copy of that letter is attached hereto as Exhibit C.

That’s all perfectly normal. But when you actually go and read exhibit C, there’s absolutely nothing about the offering being “subject to a due diligence review and complete and fair evaluation of the Issuer’s business”. Instead we get this:

Sherwood Investments Overseas Limited is pleased to offer $7 per share for all of the shares of Trans World Entertainment Corporation not currently owned by Sherwood, subject to the availability of satisfactory financing and the execution of a mutually acceptable buy agreement. This offer may be increased as a result of the information obtained from the due diligence process.

So is the offer contingent upon a due diligence review, or is it merely possible that Trans World will increase the offer based on information they find? It’s all very confusing but the 13-D filing seems to back down from the offer quite a bit — adding a contingency that doesn’t appear to have been mentioned in the past.

And another question: If Trans World’s $7 per share offer was contingent on a due diligence review, it essentially has no meaning. The company can back out based on anything it might find after it signs the confidentiality agreement. So why bother with a press release making an offer? Why not just go to special committee, sign a confidentiality agreement, and then make an offer based on due diligence?

It just doesn’t make any sense — if Sherwood is serious about its offer, why is it spending so much time on press releases, rather than simply interacting with the special committee?

Share This

Share This