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Filed under: Deals, Microsoft (MSFT), Yahoo! (YHOO), Technology

News over the weekend of two Detroit pension funds suing Yahoo (NASDAQ:YHOO) for rejecting Microsoft’s (NASDAQ:MSFT) $41.2 billion offer, is the first bit of sanity that has come out of this whole story.

The proposed class action, filed by veteran shareholder litigation firm Bernstein Litowitz Berger & Grossman, takes Yahoo directors to task for spurning the Feb. 1 offer and “pursuing all manner of value-destructive third-party deals.”

These pension funds are the only celebration who have the investor interests at heart. Regarding both Yahoo and Microsoft, it’s hard to understand what they are thinking. Why would Microsoft pay a 60% premium for the much troubled search engine company? I understand that Microsoft basically wants to replace its own troubled MSN with Yahoo, but why overpay? I am sure that if it invested a fraction of this amount of money to generate more MSN traffic, things would improve.

As for Yahoo, hello? You are being offered such a big premium, and just because you despise the suitor you reject the deal without presenting it to shareholders. “Yahoo stated at the time the bid substantially undervalues the company, failing to consider its 500 million users worldwide, investments in its advertising platform and lucrative overseas holdings.” Well, no offense but if your 500 million users are so lucrative why has your stock fallen by more than 45% pre-offer? Why are you cutting 7% of your workforce because you “forecast a tough 2008?”

Thank you pension funds for finally trying to actually represent your investors. At least someone cares about the investor.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer’s fund has no positions in any stock mentioned as of 2/25/08.

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Filed under: Deals, Microsoft (MSFT), Yahoo! (YHOO), Electronic Arts (ERTS), Activision Inc (ATVI)

I decided to sell my position in Take-Two Interactive (NASDAQ: TTWO) today. I obviously wanted to take advantage of the nice jump in the share price following the buzz over the all-cash offer from Electronic Arts (NASDAQ: ERTS). As I write this, Take-Two’s stock is up 52% from its previous closing value, and up somewhere around 29% from the price I paid near the end of 2007 for the stubs that I just dumped.

My reasoning is easy. I purchased Take-Two ahead of the expected stock appreciation that would occur in the months preceding the Grand Theft Auto IV release in April. Also, I felt that the company was improving and moving beyond the problems it experienced with corporate governance issues in the current past. Well, with the significant move in the value of my shares in a relatively short period of time, and with the uncertainty regarding this deal, I decided to take the money and see if the funds might be superior invested elsewhere. I don’t necessarily want to be in the middle of a takeover battle; I’m sure shareholders of Microsoft (NASDAQ: MSFT) and Yahoo! (NASDAQ: YHOO) aren’t the most content investors on earth right now.

Do I think Take-Two might be able to negotiate a better offer? Yes, I do. But I own Activision (NASDAQ: ATVI), and I’m satisfied with playing the videogame sector via its shares for now. And I can always look at Take-Two after things settle. I believe selling Take-Two was the right decision for my portfolio.

Disclosure: I sold my entire position of Take-Two shortly before writing this, and I own shares in Activision.

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Filed under: Deals, Law, Clear Channel Commun (CCU), Wachovia Corp (WB)

Clear Channel (NYSE: CCU) has settled its problems with selling its TV operations to Providence Equity. Now one of the banks backing the deal, Wachovia (NYSE: WB), wants out.

According to The Wall Street Journal, “Wachovia has argued that although the sale price is lower and the new agreement contains a larger equity component, it is a separate transaction from the one it originally concurred to fund.” If banks keep walking away from their private equity clients, they won’t have any left.

Wachovia was going to put $500 million into the deal. Without the cash, the deal may fail. It is possible that Wachovia would have to pay a break-up fee but the bank would argue that, because the deal had changed, it does not even owe that.

Banks are willing to risk the one-time payout of a break-up instead of taking LBO debt onto their balance sheets and then having to write it off if they cannot resell it.

The new banking practice of backing out on contracts with customers who have paid large fees in the past is not prone to endear them to the buyout industry in the future.

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

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Filed under: Deals, Electronic Arts (ERTS)

Take-Two Interactive Inc. (NASDAQ: TTWO) rejected a $2 billion unsolicited offer from Electronic Arts (NASDAQ: ERTS), setting the stage for a confrontation between the two companies that would rival any video game. Electronic Arts, the world’s largest video game publisher, said it plans to take its $26 per share offer directly to shareholders. Shares of the developer of the “Grand Theft Auto” franchise soared in premarket trading.

Take-Two had previously rejected a $25 per share offer from EA, leading the company to raise the offer by $1 and make it public, hoping that shareholders would be more receptive than the company’s board/management. The offer is 64% higher than the Feb. 15 closing price of Take-Two’s stock, the last day of trading before it was made.

In a letter, Electronic Arts CEO John Riccitiello stated that “There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering this day.” Take-Two’s response was strange. Chairman Strauss Zelnick told Bloomberg News that although the offer undervalues Take-Two, he’s willing to talk to Electronic Arts after releasing the next “Grand Theft Auto” at the end of April.

This deal is interesting for a number of reasons, not the least of which is that, in spite of its hugely popular franchises like Grand Theft Auto, Take-Two has developed a reputation as something of an accounting/corporate governance outhouse: frequent management shake-ups, SEC investigations, options backdating, hidden pornography in a game, and poor returns for shareholders. Many have alleged that Take-Two’s stock price has been depressed by naked short selling.

Conspiracy theorists take note: if a company’s stock price really is driven to absurdly low levels by abusive market manipulators, the company may become a buyout target.

I would argue that Take-Two’s depressed share price is more a result of bad management, but I would ask Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne to take a look at the Take-Two situation and answer this: If naked short sellers really have driven your stock down to an artificially low valuation, where are the takeover proposals?

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Filed under: Deals, China, Middle East, Citigroup Inc. (C), Merrill Lynch (MER), Politics

News that the European Commission is planning to adopt proposals next week that’ll ask sovereign wealth funds to accept a code of conduct to govern their investment activities, raises the question if the U.S. government should take a look at the impact these funds may have on U.S. security.

Peter Mandelson, the European trade commissioner, said the code will outline standards of governance and transparency for such funds.

“The emphasis in their investments should be on commercial motivations, not national or strategic considerations. I think such a code is possible to draw up and would get acceptance from the wealth funds,” the report quoted Mandelson as saying.

German companies, for example, are worried that China will steal their intellectual property or that Russian President Vladimir Putin wants to use such investments “as a political instrument,” according to European Member of Parliament Wolf Klinz.

With the huge inflows that the U.S. banking system are getting from some funds of allied countries (some more than others), where is the cry from the public to at least investigate the impact on national security? Citigroup (NYSE: C) raised $7.5 billion from Abu Dhabi and Merrill Lynch (NYSE: MER) raised more than $5 billion from Korea and Kuwait. After all, one of the important tools used in the war on terror is actually tracking money flows in and out of banks. This is much more easily done if the banks are owned by U.S. citizens. But if the banks transfer over control to foreign governments, that could potentially have a major impact.

It wasn’t too long ago that the proposal that the United Arab Emirates’ government-owned ports company would have control over the operations of major ports in the United States was met with such fierce opposition that the proposal was beaten back. Where is the same national debate over these sovereign wealth funds buying huge stakes in the U.S. banking system?

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no position in any stock mentioned as of 2/23/08.

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Filed under: Deals, Law, Politics

The European Union has decided to get serious about having sovereign funds from Asia and the Middle East pledge that their investment in the region are “financial” and not “strategic.”

According to the Financial Times, “Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds.”

Sovereign funds have made big investment in banks and brokerage houses in Europe and the United Says and the regulatory authorities don’t want these dollars to become a way for the funds to push their nation interests.

The request is a bit two-faced. Funds and corporation from the West have been putting money into Asia and the Middle East for years. Big U.S. companies are not required to sign documents disclosing their intentions when they make investments overseas. Plans by Congress and the EU to push legislation to regulate capital from abroad might back-fire. When U.S. and Europe banks need more cash, sovereign funds might simply elect to invest elsewhere.

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

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Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

A memo by a senior Microsoft (NASDAQ: MSFT) executive sets out some of the reasons for the company’s bid for Yahoo! (NASDAQ: YHOO). According to The Wall Street Journal (subscription required), “Kevin Johnson, president of Microsoft’s Platforms and Services Division, reiterated the Redmond, Wash., software maker’s reasons behind its unsolicited offer, writing that a combination would provide a compelling alternative in search and online advertising.” The note goes further to indicate that Microsoft values both the Yahoo! brands and the technical skills of its engineers.

Yahoo! should not take the memo seriously. It would be hard to name a company that Microsoft has purchased that still maintains its own brands and independent operations. Bill Gates has stated that the software company will put its full engineering skill behind an effort to build superior search technology than Google (NASDAQ: GOOG) has. It might be an audacious and arrogant approach to catching the industry leader, but Microsoft has never looked for outside help to solve its most important problems.

All Yahoo! shareholders can look for in the generous Microsoft buy-out offer is a good payday. The world’s largest software company looks at Yahoo! as a step in advancing its own agenda and nothing more.

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

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Filed under: Deals, Launches, NASDAQ

“Blank check” companies are created as shells with capital but no operating business. Their purpose it to shop for firms that they have the ability to purchase and operate. These corporations are also known as SPAC for special acquisition companies.

According to The Wall Street Journal [subscription required], “Last year, SPACs accounted for nearly a quarter of all IPOs in the U.S., according to Dealogic, and the Amex was the go-to listing location for almost all of them.” Now Nasdaq (NASDAQ: NDAQ) wants a shot at allowing SPAC listings as well.

SPACs has been put together by several LBO and investment firms to be used to make buyouts down the road. That would allow the operating companies to be publicly traded right away. But, trading them on stock markets before they purchase real businesses is a bad idea even if it gives the SPAC owners an edge on getting to the public market.

Trading in SPACs is trading in a phantom. Investors have no way to know what the SPAC will buy or even if it will ever purchase a real business, forcing it to return money to investors. It is a form of gambling being encouraged by the exchanges.

Hopefully, the Feds won’t let the Nasdaq get into the business. It will just create one more risky and poorly understood financial instrument

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

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Filed under: Deals, Bad news, Motorola (MOT)

A funny thing happened on Motorola (NYSE: MOT)’s way to selling its handset business. No one offered to buy it [subscription required]. The logical candidates are firms like LG and Sony-Ericsson that are already in the business. Credit markets are probably keeping private equity interests away.

Etta Kidron, an analyst at Oppenheimer & Co, told The Wall Street Journal, “I think going public with its intentions hasn’t made it easier to find a solution and has raised doubts about Motorola’s commitment to the business.”

The lack of buyers might leave Motorola management in the odd position of having to turn around an operation that it does not want. The company’s market share in handsets has dropped from nearly 22% worldwide to 12%. The market is taking Motorola’s stock down further because it is concerned that fixing the unit could take years. This is, of course, if it can be fixed at all.

Motorola’s shares, which traded around $16 in December, are just over $11 now. If management wants the stock to recover, it will have to go to Wall Street with a plan for fixing the handset operation. The plan might face long odds and may mean more quarters of losses, but investors would at least like to know that the largest part of Motorola is not adrift.

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

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