Filed under: Deals, Industry, Consumer experience, Apple Inc (AAPL)

Apple (NASDAQ:AAPL) is considering a radical change in how it makes money on music downloads. Instead of charging for songs, it might give away all of the music on the iTunes service and make up for it by charging more for iPods and iPhones. Industry experts have long thought that the margins on the hardware are better than the money brought in by the download service.

Of course, the barrier to the ideal is whether the music industry will go along. According to the FT “Detailed market research has shown strong appetite among consumers for deals bundling music in with the cost of the device.”

The labels might resist the idea because they would like more money from Apple and not less. It is not clear yet how much the huge record companies will get from the increased charge for hardware if the music is free. Apple will probably try to do what it has done in the past. It will get one massive music publisher to agree to a deal and use that as leverage to get the others to go along.

The Apple plan does partially solve one problem. Most dgitial music is pirated or comes from ripped DVDs. There’s no point in stealing what’s already free. The record labels make nothing from content which is stolen. The new program might give them a tiny more of the pie if the price of Apple’s hardware goes up and they get a reasonable piece of the increase.

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

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Filed under: Before the bell, Major movement, International markets, Deals, Goldman Sachs Group (GS), Economic data, Lehman Br Holdings (LEH), Bear Stearns Cos (BSC), Federal Reserve

Stock futures are higher this morning as investors await the Federal Reserve decision on interest rates today and some data on housing and inflation. As of 7:50 Dow futures were up 130 and NASDAQ futures were up 18.

The Federal Open Market Committee is scheduled to announce its decision at 2:15 EST. Investors are expecting a cut of as much as a full percentage point — to 2%.

Housing starts and building permits, due out at 8:30, have likely dipped in February compared to January.

The Producer Price Index, inflation at the wholesale level, is expected to increase, but after the unexpected flat CPI from Friday, we may be in for a surprise.

Goldman Sachs (NYSE: GS) and Lehman Bros. (NYSE: LEH) are also scheduled to report results this day and investors will be anxiously looking to gauge the condition of the financial sector generally following the collapse of Bear Stearns. Lehman’s shares fell almost 20% Monday amid fears it will be the next casualty of turmoil in the credit markets.

Meanwhile, the Bush administration has been working on two new initiatives aimed at creating more funding for mortgages by relaxing constraints on Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and the Federal Housing Administration, according to the Wall Street Journal. The Office of Federal Housing Enterprise Oversight is reportedly close to reducing an excess-capital requirement for Fannie and Freddie, thereby giving them more latitude to purchase and securitize loans. There are also moves to allow more people to qualify for mortgages insured by the FHA.

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Filed under: Deals, Industry, Delta Air Lines (DAL)

Whether management and the board of Delta (NYSE:DAL) and Northwest (NYSE:NWA) think a merger of the two airlines is a good idea still does not seem to matter. The pilots at the two companies don’t want a deal.

Airlines might be one of the few industires where unions count. And, according to The Wall Street Journal “People familiar with the matter said the disagreement over seniority — which dictates which pilots fly which models of planes, how much money they earn and possibilities for career advancement — doesn’t necessarily mean the two airlines can’t go ahead with their merger plan.”

That would probably not be a risk worth taking. The value of the merger is still open to massive questions. The combination would not save on fuel costs. Labor unions could strike to keep their jobs, disrupting the new company’s flight schedules. Merging customer service operations is prone to cause glitches which will upset consumers, and, perhaps, send them to other airlines.

With margins running very low because of the high cost of jet fuel, Delta and Northwest can’t afford a pilot walk-out. They have the companies under their thumbs.

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

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Filed under: Deals, Bad news, Law, Economic data, Blackstone Group L.P (BX), Initial public offerings

Now that private equity is almost dead due to lack of capital, most of the disputes between firms which tried to take public companies private are over. But, as a reminder that the boom years left some wreckage, Alliance Data (NYSE:ADS) has notified Blackstone (NYSE:BX) that it is in breach of closing a buy-out deal.

According to The Wall Street Journal “ADS stated Blackstone is attempting to “run out the clock” on the deal, which has a drop-dead date of April 17.” The original buy-out offer was at $81.75. Problems with the deal have taken ADS shares down to $44.

ADS has a credit-card bank and Blackstone argues that the Office of the Comptroller of Currency would put tough financial restrictions on the buy-out. The two companies have gone back and forth on whether the regulations involved are meaningful.

Blackstone might not like the government’s terms for it to shut the deal. But, it is just as likely that the private equity firm simply wants out because the credit environment is so bad. Blackstone’s own shares have lost almost two-thirds of their value since the company’s own IPO.

A suit for damages is the last thing that Blackstone needs. It is apt to take the company’s shares down even further. But, Blackstone should not have started what it couldn’t finish. It should have seen the issues facing the deal when it did its due diligence. That’s why private equity people are supposed to be smarter than everyone else.

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

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Filed under: Deals, Management, Rants and raves, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC)

For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad, bet the farm on investments they did not fully understand. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share buy price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) wouldn’t have been enough to buy the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

I also don’t understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they did not have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?

It looks like the strong will become even stronger after the market shake-out —or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.

Although this might make JP Morgan Chase look like a good purchase right now, since the stock is down and there is so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we are taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in BSC.

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Filed under: Deals, Good news, Press releases, Industry, Competitive strategy

An International Paper (NYSE: IP) press release announced today that the company is intending to purchase the Containerboard, Packaging and Recycling (CBPR) businesses of Weyerhaeuser (NYSE:WY)for $6 billion in cash. The deal is expected to shut in Q3 2008, subject to regulatory approval and financing.

Due to the realization of tax benefits based upon International Papers purchase of Weyerhaeuser assets rather than stock, IP shall realize tax benefits in the amount of approximately $1.4 billion, making the actual purchase price closer to $4.6 billion.

International Paper Chairman and Chief Executive Officer John Faraci is quoted in the press release as stating: “This deal represents a compelling opportunity for International Paper and our share owners at a very attractive valuation… integrating Weyerhaeuser’s CBPR business into our North American packaging platform fits very well with our strategy to improve our earnings, cash flow and returns by strengthening existing businesses. We expect the combined packaging business will generate stronger cash flow and higher EBITDA margins than either standalone business.”

Even though International Paper sees considerable upside potential in this acquisition, as of this writing, shares of International Paper have lost nearly 8.5 percent on the day. This might signal a good near term chance to purchase into company shares when taking into account that the company indicates this deal holds income increase potential of as much as $400 million annually. The company sees this acquisition improving profitability over a three year period of assimilation, with approximately 40% of that improvement to be realized within the first 12 months of closing the deal.

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Filed under: Deals, JPMorgan Chase (JPM), Bear Stearns Cos (BSC)

Shares of Bear Stearns (NYSE: BSC) are currently trading at around $3.75, a premium of more than 85% to the recently announced deal for the firm to be acquired by JPMorgan Chase (NYSE: JPM) for $2 per share.

A few things come to mind. First, as recently as last week, CEO Alan Schwartz was essentially telling the market that there wasn’t no darn iceberg, that if there was, he would have steered the ship clear of it, and that if they had hit an iceberg, everything would have been fine: “Bear Stearns’ balance sheet, liquidity and capital remain strong,” he said in a statement.

How could things have deteriorated so quickly that a takeover offer at less than 5% of the market price at the time of that statement was compelling? It seems likely that Bear Stearns’s financial statement are completely unreliable at this point, leading me to this conclusion: Nobody knows nothing, and buying Bear Stearns here is mindless speculation based on nothing . And speculation that someone else will come along and pay 85% more than the Fed-backed bailout that the company’s board has already set up, is all that’s — speculation — and I wouldn’t bet on it.

That’s not a game I’d want to be playing — there’s just not enough information here for intelligent investing. I’d stay the hell away from Bear Stearns.

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

Google (NASDAQ: GOOG) is hardly prone to benefit from a Microsoft (NASDAQ: MSFT) buyout of Yahoo! (NASDAQ: YHOO). Having a more massive competitor with a larger piece of the search market hardly does it any good. The “merger” of the two companies also creates that largest display ad company in the world.

But, display advertising is not a fast-growing business. Google’s search operation is, and it will continue to have , more than 60% of the market in the US.

Perhaps because its share price is down so much, Google has begun kicking about the proposed marriage. According to Reuters, Google CEO Eric Schmidt stated, “We would hope that anything they did would be consistent with the openness of the World wide web, but I doubt it would be.” The search company is probably trying to hint that Microsoft would “use” the new company to promote its software agenda to the detriment of consumers who simply want to use the internet for information and entertainment.

It may be a reasonable argument to get regulators to look hard at the potential deal, but Microsoft is not that stupid. It is very apt to comprehend that pushing its products to users and hurting access to the normal experience of getting everything from sports scores to news about Madonna won’t fly.

Google can hardly speak. It pushes its Google Apps software, its e-mail and mapping products to people who come to the site to use its search features. None of the large internet sites is “pure”. They do have to make money.

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

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Filed under: Deals, Bad news, Citigroup Inc. (C), JPMorgan Chase (JPM), Sprint Nextel Corp (S), Merrill Lynch (MER), Technical Analysis, Bear Stearns Cos (BSC), Stocks to Purchase, Stocks to Sell, Recession

Lots of large important news out lately, but I’m not doing anything differently. Nor will I ever. Because I’ve matured enough over the past decade to sit, wait and strike only when I see all the variables aligned. And that time still isn’t upon us. By buying The Bear Stearns Companies Inc. (NYSE: BSC), JPMorgan Chase & Co. (NYSE: JPM) may or may not be getting a great deal, but I’m not smart, well-informed or interested enough to really care because there are still too many conflicting variables. I only care for best trading opportunities, of which there are none (for my style of trading).

Since January, I’ve been calling for a 10%+ market drop and warning about a potential disaster not because I’m psychic, but thanks to archaic industry regulations limiting transparency, for industry outsiders, there’s really no way how deeply troubled these financial firms are. Judging by Bear’s buyout price of $2, even well-informed industry insiders are scared to pay too much to take on such risk.

So, just as when I featured them last week, perfectly downtrending stocks like Sprint Nextel Corporation (NYSE: S), Citigroup Inc. (NYSE: C) and Merrill Lynch & Co. Inc. (NYSE: MER) will probably continue downtrending, only more steeply this week around.

And, the perfectly uptrending stocks like Quicksilver Resources Inc (NYSE: KWK), streetTRACKS Gold Trust (NYSE: GLD) and United States Oil Fund (AMEX: USO) will similarly continue uptrending, if more steeply.

No, this is not magic or voo doo, it’s just basic trend following. Maybe that’s why trend following hedge funds and traders are all raking it in right now. Maybe that’s why you need to take up chart reading, to which I have devoted my entire mind, body and soul.

I leave you with one radical thought: trust no one and no company and focus on your investments’ charts.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund

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Filed under: Before the bell, Deals, Bad news, JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Lehman Br Holdings (LEH), Bear Stearns Cos (BSC)

I’ve friends who work at Bear Stearns (NYSE: BSC) and one of them in a very senior capacity. Believe me, they are not laughing and this is actually quite a sad moment for them and their colleagues. Bear Stearns had an 85-year history having come through the Great Depression and several recessions. Bear was a proud trading home and took great pride in its trading prowess. Sure, the naysayers will argue that Bear bit off more than it could chew and that Bear was a greedy Wall Street firm. But there is more to the story and it should be told.

Bear Stearns was the second-largest packager of mortgage backed securities only surpassed by Lehman Brothers (NYSE: LEH). As we saw these past couple of years, the quality scale on mortgage-backed securities slid down to lousy, risky sub-prime mortgages. But keep in mind that the $400 billion worth of securities that Bear Stearns underwrote and managed weren’t all lousy credit risks. The biggest part, more than $300 billion worth were of the highest quality. Bear Stearns facilitated a market that needed facilitating!

In the old days, only major banks underwrote mortgages and they typically kept and serviced the loans. But as the American population and economy expanded these past 20 years, mortgage companies were formed and needed to “sell the loans off” as they did not possess the capital base of say a Bank of America (NYSE: BAC) or a Wells Fargo (NYSE: WFC). Firms like Bear Stearns became adept at packaging these loans and re-selling them to major pension funds and hedge funds globally.

The problem ensued when credit stipulations and quality went to lower levels — sub-prime. Borrowers were scrambling to get in on the real estate ladder as homeowners bought the song and dance that home values were poised to run up 25%+ per year. Don’t worry about the mortgage payment — in fact here’s a teaser rate to get you going.

Bear Stearns will provide the pundits with a lot of stories as we all start to question what happened? And what happened in just 2 short days. JP Morgan (NYSE: JPM) has picked off for an absolute song 85 years worth of expertise and relationships in many profitable investment banking businesses — except mortgage underwriting and packaging. To think JP Morgan is paying for Bear Stearns what Bear Stearns use to make in one month’s profit.

Georges Yared writes about great growth stocks this day in Game On Investing

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