Filed under: Deals, Industry, AMR Corp (AMR), Contl Airlines’B’ (CAL), Delta Air Lines (DAL)

What works for two airlines should work for two others. At least that is the thought process behind a possible merger of United (NASDAQ:UAUA) and Continental (NYSE:CAL). They believe that if there are financial and marketing advantages to the Delta (NYSE:DAL) merger with Northwest (NYSE:NWA) that they should go next.

According to Reuters the two carriers “have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready “pretty quickly” if Delta Air Lines and Northwest Airlines announce a tie-up.” Now that the Delta/Northwest deal is done, they’re likely to speed up that process.

While the value of airline mergers is dubious, two huge mergers could cause regulators to turn down both. The marriages are based on the idea that airlines can cut costs in personnel, marketing, and route consolidation. If the is true, it means lay-offs and service to fewer cities. It also could help an airline to raise ticket prices as it becomes the sole providers to air travel out of some cities.

Two large airline mergers have to make the US government looks at whether it is good to have only three massive airlines in the US, including AMR (NYSE:AMR) instead of five.

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

Share This

Share This

Filed under: Deals, Good news, Options, Technical Analysis

Ryder System (NYSE: R) shares are trading higher after the company announced it would acquire the assets of Miami-based truck leasing company Gator Leasing Inc. Ryder will get Gator Leasing’s truck fleet of about 2,300 trucks and about 300 contract customers. If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on R.

After hitting a one-year high of $65.69 in April, the stock hit a one-year low of $38.95 in November. R opened this morning at $61.04. So far this day the stock has hit a low of $60.43 and a high of $62.58. As of 3:15, R is trading at $62.14, up 1.53 (2.5%). The chart for R is bullish but slightly deteriorating while S&P gives R a positive 4 STARS (out of 5) buy rating.

For a bullish hedged play on this stock, if one were to invest in it, I would think about a May bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the buy and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverages nice returns. For this particular trade, we’ll make a 4.2% return in just five weeks as long as R is above $55 at Might expiration. Ryder would have to fall by more than 15% before we would start to lose money. Learn more about this type of trade here.
R hasn’t been below $55 since February has shown support around $62 recently. This trade could be risky if the company’s earnings (due out on 4/23) disappoint, but even if that happens, that position could be protected by support the stock might find just above $45, where it bounced in March.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in R.

Share This

Share This

Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Time Warner (TWX), Marketing and advertising, Verizon Communications (VZ)

It is the kind of deal most people would have thought would go to Microsoft (NASDAQ: MSFT) or Google (NADSAQ: GOOG). Verizon (NYSE: VZ) will out-source the advertising sales for all of its internet operations.

In an arrangement that bypassed the usual subjects, AOL, a division of Time Warner (NYSE: TWX) will handle selling Verizon’s on the web inventory through the internet portal’s advertising network and marketing operation called Platform A. According to Reuters, “The Verizon ad deal, whose price wasn’t disclosed, will give Platform A the right to represent all of Verizon’s advertising space on the Internet, including premium space.”

In the last year, Google, Microsoft, and Time Warner have all made purchases of businesses that’ll help them sort, target, and sell on the internet ads. Huge web operations like Facebook and MySpace have already cut deals for having one of the huge portals or search companies to sell their inventory, but AOL has not been in that mix.

It looks like the incumbents for on the internet advertising representation have a new competitor.

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

Share This

Share This

Filed under: Deals, Blockbuster Inc ‘A’ (BBI), Circuit City Stores (CC)

As Doug McIntyre reported earlier, Blockbuster (NYSE: BBI) has extended a preliminary offer to acquire Circuit City (NYSE: CC) “with an all cash offer in the range of $6.00 to $8.00 per share, subject to due diligence.”

In a press release, Blockbuster said that Circuit City has not yet provided it with information necessary to conduct due diligence, and that it “believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company.”

The pre-market trading tells the story on this one. Share of Circuit City are up more than 55% to $6.14, at the lowest end of the range Blockbuster’s press release contemplates. This indicates investor skepticism about the prospects of a deal getting done. In a press release responding to the offer, Circuit City noted that “to date Blockbuster has been unable to satisfy Circuit City and its advisors that Blockbuster’s proposal could be financed.” Meanwhile shares of Blockbuster are down about 11%, a sign that investors aren’t too excited about the prospect of a Blockbuster-Circuit City combination.

It’s easy to understand why. This deal would be the absolute epitome of “two drunken sailors trying to hold each other up.” Both of these companies have experienced precipitous declines in current years, reporting losses as industry changes and more nimble competitors take their market share.

This merger makes about as much sense as a typewriter maker and a VHS manufacturer teaming up to make typewriters that can play video tapes.

Very few people want to shop at Circuit City or Blockbuster, and combining them won’t make them any more attractive.

Blockbuster added that “The transaction would allow both companies to benefit from the revenue growth generated by their complementary products, while the resulting synergies would substantially improve consolidated financial performance, thereby increasing shareholder value.”

But a look at the 5-year chart for Blockbuster should give investors tiny faith in the company’s knowledge of what generates shareholder value.

Share This

Share This

Filed under: Deals, Industry, Google (GOOG), Microsoft (MSFT), Merrill Lynch (MER), salesforce.com inc (CRM)

Under a new arrangement, Salesforce.com (NYSE:CRM) will begin to market Google’s (NASDAQ:GOOG) Apps software. According to The Wall Street Journal “The Internet search company and Salesforce.com, a provider of online services for salespeople and marketers, plan to announce that they’ve built technology into their products to make it easier for customers to share information between Salesforce.com and Google Apps.”

Saleforce.com has tens of thousands of small business customers who use its products to manage their sales operations. The Google product competes with Microsoft’s (NADDAQ:MSFT) word processing, spreadsheet, and presentation products. Google’s software runs off of its servers while Microsoft’s uses the memory and processing power of the customer’s Computer or handheld.

With the Micorosft Windows product running on well over 90% of the world’s computers, the new partnership might not matter. Google’s financial reports do not indicate that its Apps business is bringing in any significant revenue. As it reports numbers for the last quarter, if their is no evidence that its software operations are kicking in sales, it maybe an indication that Microsoft does not need to worry and that the Salesforce.com deal is a waste of good PR.

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

Share This

Share This

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

Northwest Airlines (NYSE:NWA) and Delta (NYSE:DAL) may actually announce a merger this week. They have been having at it for months. The deal would put Northwest’s value at $3 billion. As The Wall Street Journal points out “That would be well below Northwest’s market value of more than $4.6 billion as of Feb. 1, reflecting the industry’s worsening prospects in recent weeks.”

Since the pilots haven’t approved the deal, they could threaten a strike, but even they must know that the industry is in for its worst year in half a decade.

The marriage might not do a thing to save the carriers from a difficult fate. With fuel prices rising and a recession apt to injured airline travel, putting the two companies together solves neither of those problems. While the companies can eliminate some duplicate routes, unions will press for better pay to support the transaction. Merging reservations systems and IT operations often takes a year or more. In the meantime, customers have to deal with the fall-out of integrations and the reservations booking problems which they have the ability to bring.

If the cost of oil keeps moving up, the merger won’t matter much.

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

Share This

Share This

Filed under: Before the bell, Earnings reports, Deals, General Electric (GE), Blockbuster Inc ‘A’ (BBI), Circuit City Stores (CC), Wachovia Corp (WB), Delta Air Lines (DAL)

Stock futures were down this morning as Wachovia Corp (NYSE: WB) posted its first quarterly loss since 2001 and cut its dividend. One of the biggest banks in the country, Wachovia reported a loss of $393 million, or 20 cents a share, compared with earnings of $2.3 billion, or $1.20 a year ago. The Wall Street Journal reported that Wachovia is to receive a capital infusion of about $7 billion.

Stocks tumbled on Friday after disappointing Q1 earnings from General Electric (NYSE: GE) and a 26-year low in U.S. consumer sentiment, among other economic bad news. The Dow Jones Industrial Average fell 256.56 points, or 2.04%, the S&P 500 lost 27.72 points, or 2.04%, and the Nasdaq Composite lost 61.46 points, or 2.6%. The Group of 7, who began meetings on Friday, “downgraded their outlook” for the global economy, saying that it might continue to slow.

In the news today, Blockbuster (NYSE: BBI) made an unsolicited bid of $6 to $8 a share in cash for Circuit City Stores (NYSE: CC). The bid represents a premium of as much as 54% over the struggling electronic retailer’s closing price Friday, and is worth up to $1.35 billion. The Delta and Northwest merger, which would create the world’s largest airline, appears apt to be finalized as soon as Tuesday, according to the Wall Street Journal.

In Europe and Asia, stocks tumbled today on GE’s earnings surprise and pessimistic G-7 pronouncements. Royal Philips Electronics, Europe’s largest consumer electronics maker, also reported a bigger decline in Q1 profit than analysts had expected.

Economic figures due out today include retail sales for March, which will be released at 8:30 a.m. EST. Sales are expected to rise slightly by 0.1%. Excluding autos, they’re estimated to rise by 0.2%. According to Bloomberg, any good news in retail sales would be a surprise, and if the news is all bad, “a recession in the first quarter will be certain.” February business inventories data are due at 10:00 a.m. EST.

This is a large earnings week with quarterly reports due from JPMorgan Chase, Intel Corp., Johnson & Johnson, Merrill Lynch, Citigroup, and Pfizer, among others. These reports will, no doubt, set the tone for the week.

Share This

Share This

Filed under: Deals, Wal-Mart (WMT), Blockbuster Inc ‘A’ (BBI), Best Purchase (BBY), Circuit City Stores (CC)

Some mergers make less sense than others. The Blockbuster (NYSE:BBI) effort to buy Circuit City (NYSE:CC) makes no sense at all. It is based on the hope that putting together two zombies will create one live person.

According to Reuters “Blockbuster Inc. said on Monday that it has offered to purchase electronics retailer Circuit City Stores.” The price for the offer was in a range of $6 to $8 pending due diligence.

Why putting a consumer electronics business together with a movie rental company makes sense is anyone’s guess. Each company is having remarkable trouble staying in business.

Blockbuster’s current share price is just above $3, down from a 52-week high of $6.67. The company is being ruined by competition from online DVD sales and VOD products delivered over the web or by cable companies. In its last fiscal year, Blockbuster made only $39 million on revenue of over $5.5 billion.

Circuit City is even worse off. It made a tiny profit in its most recently reported quarter, but has been losing customers to bigger operators like Best Purchase (NYSE:BBI) and Wal-Mart (NYSE:WMT). Circuit City shares are down from a 52-week high of $19.12 to $3.44

It is hard to see how a merger would grant for either cost cuts or revenue enhancements.

1+1=0

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

Share This

Share This

Filed under: Deals, Goldman Sachs Group (GS), Morgan Stanley (MS)

When it comes to mergers and acquisitions (M&A), there has been little doubt that New York City is the center of the action. However, with the credit squeeze — as well as the emergence of developing countries, such as India and China — things are changing.

Take Deutsche Bank AG. This week, the firm announced the co-heads for its M&A group, Henrik Aslaksen and Brett Olsher. And they will operate out of London, according to a report from the Wall Street Journal [a paid publication].

Think about something else: the heads of M&A at Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) are also based in London.

There’s definitely logic to this. After all, corporate clients want a global perspective and ability. And, for the most part, London has had a storied history in finance — with strong ties to the rest Europe, the Middle East, and Asia.

As for Olsher and Aslaksen, they both have extensive global experience — working on such high-profile deals as Tata Steel’s purchase of Corus Group.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar On the internet Guide to Decoding Financial Statements. He also operates MergerBook.com.

Share This

Share This

Filed under: Deals, General Electric (GE), Citigroup Inc. (C)

Citigroup (NYSE: C) has a set of loans to music firm EMI. It had hoped to sell them as part of a $12 billion package of debt that it is unloading to several private equity firms including using Apollo and TPG. But, things at EMI have gotten so bad that buyers want the debt held out of the mix.

According to The Wall Street Journal (subscription required), “The fact that EMI’s debt was pulled from the proposed sale recommends it would have attracted prices well below the upper-80s range the other loans command.” The total value of the loan to EMI, made by Citi and several other banks, was $4.9 billion.

For Citi, the news has no silver lining. It will probably have to write-down a huge portion of its piece of the debt in its first quarter. One of the lessons form the General Electric (NYSE: GE) earnings catastrophe is that March was a terrible month in the credit markets and many financial companies didn’t see it coming. Earnings for Citi and other banks and brokerages could be worse that expected, as they were at GE’s financial groups.

No one should be surprised of Cit has to raise more money.

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

Share This

Share This