Filed under: Earnings reports, Deals, Management, Microsoft (MSFT), Yahoo! (YHOO), NASDAQ

Yahoo, Inc. (NASDAQ: YHOO) is out with numbers and it appears that while there is a bit of growth, it’s nothing to write home about. According to the Business Wire report: ” Revenues were $1,798 million for the second quarter of 2008, a 6 percent increase compared to $1,698 million for the same period of 2007. “

Keep in mind that with the huge shareholder meeting set for August 1st, don’t you think the company would have done all they could to deliver a super earnings report? If this is the ideal that they have the ability to do, 6% revenue growth, then something is very wrong with management, and Carl Icahn is going to have a much easier job of trying to replace CEO Jerry Yang. With shares trading at about $20, they are going to have to do some fancy talking to show why rejecting a $31 to $33 per share offer from Microsoft Corporation (NASDAQ: MSFT) was actually good for shareholders.

The company keeps speaking a good game and about future growth, but it comes down to just one principle for investors: Show us the money.

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 position in any stock mentioned, as of 7/22/08.

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Filed under: Deals, Private equity, Morgan Stanley (MS), Blackstone Group L.P (BX)

When UK mortgage lender HBOS Plc went to market to raise capital, the outcome was a bust. The company sold only about 8% of the securities. In the end, HBOS’s underwriters — Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. — were stuck with $7.6 billion in unwanted paper.

In light of this, it’s going to be tough for UK financial institutions to bolster their balance sheets. But there’s an alternative: private equity.

In fact, it looks like The Blackstone Group LP (NYSE: BX) is taking a look at Paragon, a UK mortgage lender. It appears that Paragon is opening up its books to engage in some initial due diligence.

Of course, this is still nascent, and deals can easily fall apart, especially in tough markets. However, investors are certainly excited. In London trading, Paragon’s shares spiked 23%.

Even so, the value of Paragon is still down 87% over the past year, so it should be no surprise that the private equity folks sense opportunity.

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.

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Filed under: Deals, Technology, NASDAQ

Minyanville Professor Sean Udall dares to share the kind of keen insight and actionable information you won’t find in any prospectus. For more original thought, visit www.minyanville.com.

The Brocade Communications (NASDAQ: BRCD) deal is interesting for a couple reasons. First of all — hey it’s a deal. So yes, deals can still get done, even in this market.

Second, and more importantly, BRCD is paying $3 billion or nearly exactly three times the cash and investments on Foundry Networks‘ (NASDAQ: FDRY) books. So in essence, 1/3 of the deal price is being funded by the liquidity of Foundry Networks balance sheet. Looking at the technology landscape, there are a whole bunch of companies that look like FDRY from a balance sheet perspective.

Also, this deal highlights the fact that even in a market full of angst, companies do look forward to see what business trends they want to exploit. My take is BRCD is seeing it wants a more massive part of the bandwidth pie going forward and the two companies might have complementary technology to help extend their current reach.

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Filed under: Deals, Cisco Systems (CSCO)

Foundry Networks, Inc. (NASDAQ: FDRY), which builds networking technologies, went public in 1999. With the Internet surge, the stock price went over $200.

Of course, that was a temporary thing. Since then, Foundry’s shareholders have suffered.

However, this week they got some cheery news. Foundry agreed to sell out to Brocade (NASDAQ: BRCD). The deal comes to about $2.91 billion in a combination of cash and stock.

Essentially, the deal blends some key technologies. While Brocade has a strong footprint in fiber channel systems, Foundry is a top player in switches and 10-gigabit Ethernet offerings.

If anything, it’s a necessary step to deal with the intensely competitive environment, especially against the mighty Cisco (NASDAQ: CSCO).

No doubt, Brocade has demonstrated success with M&A, such as with its acquisition of McData. However, networking deals can be tricky. After all, Brocade operates primarily on an OEM basis whereas Foundry has a big direct sales force.

There is some financial risk too as Brocade needs to borrow about $1.4 billion.

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.

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Filed under: Deals, Hewlett-Packard (HPQ), Electronic Data Systems (EDS)

Shareholders of EDS Corp. (NYSE: EDS) are starting to fidget in their collective seats now that the a shareholder meeting between the company and suitor Hewlett-Packard Corp. (NYSE: HPQ) is scheduled for July 31st. The delay is being brought on by a contingent of shareholders that believes the price H-P will be paying for EDS is, of course, too low.

The shareholders claim that the $25 per share price is too low in addition to a provision that doesn’t grant the EDS board to accept higher offers, should one be brought forth. Dallas-area law firm Baron & Budd stated “With increased revenues over the past 12 months and 2008 projections on track, the shareholders are questioning why EDS is accepting what many experts think about to be an undervalued share price.” Since EDS is headquartered in Plano, Texas — just outside Dallas — perhaps some heavy-handed Texas shareholders don’t want to sell out to a west coast firm? Who knows.

EDS continues to believe the acquisition by H-P is still in the best interests of the company. A combined HP-EDS would have more than 200,000 employees with operations in more than 80 countries. The combination would form a huge challenge to business services and consulting company IBM Corp. (NYSE: IBM) as H-P tries to conquer yet another giant after taking the Computer sales leadership crown from Dell, Inc. (NASDAQ: DELL) in 2007.

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Filed under: Deals, Merrill Lynch (MER)

So far, sovereign wealth funds have had bad luck with investments in U.S. financial institutions such as with Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).

Despite this, there still may be interest in dealmaking. Just take a look at the situation with Merrill Lynch. There was talk that the troubled firm would unload its 49.8% stake in BlackRock Inc (NYSE: BLK), and apparently there was interest from sovereign wealth funds, according to the Financial Times.

The potential suitors: Kuwait Investment Authority and Temasek (Singapore).

However, one issue was valuation. Why sell when the markets are in dire straights?

But there were some other key considerations. For example, BlackRock has been able to escape much of the turbulence from the credit crunch. More importantly, the firm has a lot of growth potential in global markets.

BlackRock must give consent for a sale — at least for the next 14 months. So, in the end, it has a lot of power in the situation.

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

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Filed under: Deals, Private equity, Morgan Stanley (MS)

HBOS Plc is the largest mortgage operator in the UK. And yes, it needs lots of money to shore up its balance sheet.

Unfortunately, raising capital has turned out to be an extremely tough task.

When HBOS engaged in a rights offering, only about 8% of outside investors subscribed. As a result, the company’s underwriters — Morgan Stanley (NYSE: MS) and Dresdner Kleinwort Ltd. — are now stuck with $7.6 billion in unwanted securities.

Since this was a firm commitment offering, HBOS was able to get its much-needed cash.

However, the problem is that this deal is likely to chill further investment in the UK banking sector. After all, who would want to take on the danger?

Thus, while there may be more capital infusions from private equity firms, which have big amounts of capital, no doubt their term sheets are prone to be quite onerous.

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

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Filed under: Deals, Genentech Inc (DNA), Options

Genentech (NYSE: DNA) is recently trading at $93, above its close on Friday of $81.82.

Roche Holding AG offered to buy the rest of DNA for $89 in cash. Roche, the world’s largest maker of cancer drugs, acquired a majority in DNA in 1990 and currently owns 55.9% of DNA. Goldman Sachs says: “We expect the independent directors to negotiate with Roche for a higher price.”

DNA August option implied volatility of 31 is near its 26-week average according to Track Data, suggesting non-directional price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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Filed under: Deals, Management, Citigroup Inc. (C)

A lot of investors think that the house Sandy Weill built has too many rooms. Citigroup (NYSE: C) operates financial divisions for everything from banking in South America to commodities trading in New York. Many shareholder think that some of these businesses would be better off on their own and that Citi could sell them for nice premiums.

Current management at the massive financial company obviously thinks keeping Citi together is a good idea. So far, there has been no move to spin out, or auction off, any of the firm’s really big divisions.

Management’s reluctance to change the face of Citi has not kept the American Federation of Say, County and Municipal Employees — a massive U.S. union — from starting a push to pull the financial company apart. According to the FT, “In a letter sent on Friday to Sir Win Bischoff, Citi chairman, Gerald McEntee, Afscme’s president, urged Citi’s board to “restore shareholder value that is currently trapped in the sprawling financial supermarket approach.””

The board and management at Citi will ignore the plea, and that is too bad. Even though Wall Street was glad that the company’s last set of earnings were not worse, they were certainly bad enough. Some analysts see Citi losing money for several more quarters as it continues to write down investments that have been damaged by the credit crisis.

It is hard to defend keeping assets like Smith Barney when they’re prone to fetch a massive enough sum to shore up Citi’s balance sheet. That logic has escaped the powers that run Weill’s creation, which is too bad for anyone who has watched the value of Citi drop by more than 50% in the last year.

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

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