Archive for March 24th, 2008
Posted by: in Latest News
Filed under: Deals, XM Satellite Radio (XMSR), Sirius Satellite Radio (SIRI)
The Justice Department has approved Sirius Satellite Radio Inc. (NASDAQ: SIRI)’s $5 million buyout of XM Satellite Radio Holdings Inc. (NASDAQ: XMSR), on the grounds that the deal isn’t prone to hurt consumers or competition.
In a press release, the Justice Department stated that “The likely evolution of technology played an important role in the Division’s assessment of competitive effects in the longer term because, for example, consumers are prone to have access to new alternatives, including mobile broadband World wide web devices, by the time the current long-term contracts between the celebrations and vehicle manufacturers expire.”
And that’s exactly why I wouldn’t touch either of these companies. The Justice Department is essentially saying that emerging technology will make satellite radio a small enough part of the industry that consumers won’t be harmed by the 2 biggest players merging. Do you really want to own a money-losing entity that will be facing increased competition over the next few years because of new alternatives for consumers?
The Justice Department’s approval of the merger is a strong indicator that the merger won’t be enough of a game changer to effect competition — which means it also probably isn’t a massive win for the companies either.
The Department added that “It wasn’t possible to estimate the magnitude of the efficiencies with precision due to the lack of evidentiary support provided by XM and Sirius…”
In other words, the Department found that many of the claims of synergy and efficiency the companies used to pitch the merger to Wall Street were lacking in “evidentiary support.” It sounds to me like this could be just another non value-creating merger to add to the pantheon of deals that have over-promised and under-delivered.
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Posted by: in Latest News
Filed under: Deals, Rants and raves, JPMorgan Chase (JPM), Bear Stearns Cos (BSC), Federal Reserve
 How sad that Wall Street proves once again to be full of hot air, and the Federal Reserve too. Last week I wrote that Bear Stearns (NYSE: BSC) was being sold way too cheap and I wasn’t alone in my thinking. Now, all of a sudden, JPMorgan Chase (NYSE: JPM) increases its offer for the Bear 500% — from $2.00 to $10.00 per share.
There are several aspects to this story that rub me the wrong way! If JPM can swallow this deal at an increase of 500% without even blinking (maybe sheepishly smiling) then it shows that it drove a hard bargain with the Federal Reserve negotiators and probably was even in shock itself realizing what a steal it walked away with. And stealing is what it was. At least from a shareholder perspective.
The Federal Reserve now has egg on its collective face and the public confidence became weaker in the government’s capability to come to grips with the problem of Wall Street.
Bear Stearns got in trouble last week for a lack of liquidity, not a lack of assets. BSC lost its liquidity because there was a modern day “run on the bank.” The new offer from Chase basically ups the ante to approximately the value of Bear Stearns’ headquarters building, which last I read was worth $1.1 billion.
This story is far from over. Think about this: The most questionable loans on the Bear balance sheet are to be guaranteed by the federal government, and if I understand the deal so far, that is for an amount of $30 billion. Those financial instruments might be the derivatives from hell, but no matter, because even if 50% were in default (unheard of), there would still be $15 billion of value. This does not even take into account other debt that’s not in the scary category.
From everything that has been explained so far, it seems that JP Morgan Chase wants to swap JPM shares for BSC shares only to the degree that it will pay something for the headquarters and nothing else. Then, the Fed will guarantee potential losses (so there won’t be any), and all Chase will have to do is manage the portfolio until the debt obligations are paid off to whatever degree, to then collect the billions of dollars that Bear Stearns would have recouped if it didn’t have a run on its bank.
 If I don’t have this picture drawn correctly, I hope one of my many astute readers will correct me, but I’m afraid that the Fed is giving away the farm. I guess that’s something it is used to. We can’t actually blame Chase, it is its function to maximize JPM shareholders returns. But the Bear Stearns folks and the Fed’s do not have the same calling. Why are they trying to maximize the returns of Chase shareholders at the expense of the Bear Stearns shareholders (including me) and the American taxpayer?
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 am a shareholder in BSC.
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Posted by: in Latest News
Filed under: Deals, Launches
Four hundred financial blogs. Who knew there were so many? Perhaps they’ve come of age now, at least as commercial entities. According to The Wall Street Journal, “Forbes Inc., was set to announce Monday that it will start selling ads this spring for about 400 financial blogs.”
It is an open question as to whether Forbes can make money. Some of the more massive blogs in the network are still tiny. Take Xconomy, one of the blogs Forbes is pitching. According to measurement service Compete, only a tiny over 18,000 people visited the site last month. Another site in the network, Talking Biz News, is too small to be measured by Compete or Alexa, another audience measurement firm.
If Forbes can pull together 400 sites with 5,000 visitors a month, however, it can have a network with two million visitors. And that’s a lot.
Douglas A. McIntyre is an editor at 247wallst.com.
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Posted by: in Latest News
Filed under: Deals, Launches, Industry, Countrywide Financial (CFC), Housing
If you can make money lending money to people who can’t afford mortgages, why not make money buying them back. Several former Countrywide (NYSE: CFC) managers have linked up with Blackrock (NYSE: BLK) to set up a firm, Private National Mortgage Acceptance Company, to buy troubled mortgages. According to The Wall Street Journal the new operation “seeks to raise more than $2 billion to buy distressed mortgages on the cheap, work with borrowers to restructure them, and then resell them as performing mortgages at a profit.”
The new venture stinks a bit. The people running the venture learned the business at Countrywide, the source of so much of the pain in the current mortgage crisis and the project makes Blackrock appear to be a firm ready to profit from the misfortune of others. Beyond that, the new company seems like a real money-maker.
The Blackrock-supported mortgage-buying operation will have to be careful when it enters the market. If it purchases large packages of home loans and the market keeps falling, the start-up could lose a lot of money. Let’s hope so.
Douglas A. McIntyre is an editor at 247wallst.com.
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Posted by: in Latest News
Filed under: Deals, JPMorgan Chase (JPM), Bear Stearns Cos (BSC), Federal Reserve
 Last weekend JPMorgan Chase & Co. (NYSE: JPM) struck a deal to acquire — or steal — The Bear Stearns Companies (NYSE: BSC) for $2 a share (or $236 million) with the help of $30 billion in Fed financing. For the first time in my life, I was amazed to read in the New York Times that JPMorgan is now negotiating to raise its bid to $10 a share — or $1.2 billion.
Why is this happening? Because some big shareholders plan to fight the deal. A third of Bear Stearns is owned by employees and British billionaire financier Joe Lewis, the firm’s largest shareholder, who had invested $1.26 billion in Bear over the last year at an average price of about $104. JPMorgan needs 51% shareholder approval for the deal to go through. Last night, Bear’s board was negotiating to sell JPMorgan 39.5% of the firm — leaving it in a position to need only 10.5% of shareholder support to finish the transaction.
However, even that 39.5% deal may not go through as the Federal Reserve, which guaranteed $30 billion of Bear’s most illiquid assets, is sensitive to criticism that it bailed out Bear. It’s worried that allowing that deal will subject it to even more criticism. On Sunday JPMorgan was negotiating with the Fed to take some of the heat off the Fed by assuming at least the first $1 billion in losses on Bear assets before the $30 billion kicks in.
Meanwhile, JPMorgan’s merger contract contained at least one glaring legal mistake — a sentence that requires JPMorgan to guarantee Bear’s trades even if shareholders voted down the deal. That could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee.
JPMorgan CEO Jamie Dimon, is apoplectic about that one and he is calling the CEOs of other investment banks asking them not to poach Bear’s talent. Dimon is hoping to head off all these problems by paying five times more for Bear so he has the ability to close the deal.
Dimon may now be regretting that he let himself get mauled by Bear.
Update. The New York Times reports that JPMorgan upped its bid to $10 a share. JPMorgan will purchase the 39.5% stake and Bear’s directors will vote their shares, 5%, in favor of the deal. Thus JPMorgan needs just 5% more support for approval. Bear shares are trading at $11.53 — above the deal price — suggesting something more may be in the works.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Posted by: in Latest News
Filed under: Before the bell, International markets, Analyst reports, Deals, Market matters, JPMorgan Chase (JPM), Bank of America (BAC), Economic data, Commodities, Oil, Bear Stearns Cos (BSC)
 U.S. stock futures were higher this morning as investors returned from a long weekend to news that JPMorgan might quintuple its bid for Bear Stearns. With the dollar edging higher, commodity prices lower along with Federal Reserve action, some might see Bear Stearns as the turning point to the credit crisis and anticipate it to turn around going forward.
Last week was a turbulent one on Wall Street. Wild swings shook the market, deepening the trend of the past two weeks. But at the end of it, stock markets ended higher with Thursday contributing to the positive finish. The Dow Jones Industrial Average rallied 261 points on Thursday to finish a weekly gain of 3.5%, the S&P 500 index rose 31 points Thursday for a total weekly gain of 3.3%, and the tech-heavy Nasdaq Composite gained 48 points, bringing the weekly increase to 2.1%.
Not much economic data is due out today, despite the week later being busy with economic releases. Today we start with a reading on February existing home sales, due out at 10 a.m. EDT. Since the housing crisis began, housing data is scrutinized more carefully with investors hoping to see the bottom at some point. The market expects yet another decline in existing home sales.
Overseas, Asian markets were mixed Monday, with Taiwanese shares soaring 4% following the weekend election. Japanese shares finished tiny changed on the day, but Shanghai saw its stocks sink again.
In Europe, markets are closed this day.
Meanwhile, the dollar rose against the yen and the euro on speculation the Federal Reserve’s interest-rate cuts and efforts to spur lending will help revive economic growth. Still, at the same time, oil prices fell for a third day to just over $100 a barrel on concern the slowing U.S. economy will curb demand. Also, as the dollar strengthened, demand for commodities as a hedge against inflation, may be reduced. Traders expect crude to drop to $90 a barrel this spring due to the economic slowdown.
The major corporate news this morning comes from JPMorgan Chase (NYSE: JPM) and Bear Stearns (NYSE: BSC). The New York Times reports that the former might quintuple its bid for the latter to $10 a share. BSC shares are up over 53% in premarket trading to about $9.15.
Staying with banks, Bank of America Corp. (NYSE: BAC) might write down $6.5 billion in the first quarter to cover potential losses in its home equity and mortgage portfolios, according to Punk Ziegel.
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Posted by: in Latest News
Filed under: Deals, JPMorgan Chase (JPM), Bear Stearns Cos (BSC)
The New York Times is reporting that JPMorgan Chase & Co. (NYSE: JPM) is in speaks with Bear Stearns Companies Inc. (NYSE: BSC) to quintuple its offer for the company — a move that would raise the deal from $2 per share to $10 per share, providing a very nice return to anyone who purchased stock recently — it closed on Thursday at $5.96.
The new deal that’s being discussed is designed to assuage the concerns of Bear Stearns shareholders who have vowed to vote against the deal.
The Times adds that “The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people, who were granted anonymity because of their confidentiality agreements.”
If JPMorgan quintuples its offer to appease disgruntled shareholders in a company that can’t survive on its own, it will be an outrage. The Fed has agreed to take on $30 billion worth of Bear Stearns’ worst assets. If the company needs to be bailed out by the taxpayers, stockholders who put their money at risk buying shares should not receive anything. Two dollars per share was generous. The sum of $10 per share wouldn’t just be a bailout of Bear Stearns — it would be a handout to people who lost money in the stock market.
If Bear Stearns shareholders think the company can do superior in bankruptcy, they should go for it. Vote against the deal and see how that works out. But no taxpayer-subsidized bailout should include over $1 billion in cash for shareholders of a mismanaged company.
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