Filed under: Home Depot (HD), Merrill Lynch (MER), Goldman Sachs Group (GS)

The New York Times is reporting that if Merrill Lynch & Co. (NYSE: MER) CEO Stanley O’Neal left he would be entitled to $159 million in retirement benefits ($30 million) and stock and option holdings ($129 million). This does not include any severance payment the board might award him. Add that to the $160 million Merrill paid him since he took over almost five years ago and you get a $319 million investment in its CEO by Merrill’s shareholders.

If these numbers turn out to be right, I think Merrill is getting a better deal than did Home Depot’s shareholders. For instance, at Home Depot (NYSE: HD), former CEO Bob Nardelli got $450 million — a $210 million going away package plus $240 million in salary and other compensation — and its stock was down 8% during his six-year tenure. By contrast, Merrill’s stock is up 59% since O’Neal took over on December 2, 2002 — creating $20.9 billion in additional shareholder value.

This sounds good in an absolute sense but it’s not so great when viewed relative to other investments. Merrill’s return under O’Neal is 9% less than that of the S&P 500 during the period and 217% below the return of competitor Goldman Sachs Group (NYSE: GS) since December 2002. If we credit O’Neal for the 59% return, then his $319 million pay generated a 65.5x return on investment — including the additional $4.4 billion in shareholder value created by Friday’s announcement that O’Neal was probably leaving — which caused Merrill’s stock to rise 8.5%.

Continue reading What was Merrill Lynch’s return on its $319 million investment in Stanley O’Neal?

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Filed under: Major movement, Deals, International Business Machines (IBM), Oracle Corp (ORCL)

The BEA Systems (NASDAQ: BEAS) board may think that their company is worth $21 a share. After consulting with their bankers at Goldman Sachs, that is the price they put on the company in a public letter to Oracle (NASDAQ: ORCL). The larger company has made an offer to buy BEAS for $17.

Oracle, as might have been predicted, says that $21 is absurdly high and has threatened to withdraw its offer.

Yesterday, Carl Icahn, who owned 15% of BEAS, told the company that it should take the highest best offer and be done with it. Reuters writes that he demanded in a letter to the BEA board that it let shareholders vote on the best bid that emerges from an auction. “It’s completely insane to lose a stalking horse,” Icahn said in an interview with the news service, referring to Oracle. He said he is prepared for a proxy fight to make his point.

Icahn is often right in these matters, but in this case he is especially right. BEAS is a fairly ordinary company.The company has not traded above $17 since early 2002. And, no other bidder has emerged at $17, although there was some speculation that IBM (NYSE: IBM) might step in. It would appear that other companies think that Oracle’s current price point is rich and generous.

The BEAS board is wrong. If Oracle leaves the field, the stock will probably drop back to $12, where it traded in August. There will be no winners then, only losers.

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

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Filed under: Competitive strategy, Google (GOOG), Interviews, India, Entrepreneurs, Smartphones, Small business

Back in the 1990s, Google Inc.’s (NASDAQ: GOOG) cofounders — Larry Page and Sergey Brin — played to their own drummer. Instead of taking gobs of venture capital, the dynamic duo did it on the cheap by themselves. For example, they built a sophisticated server platform using old PCs and free Linux software. And, when cash was low, they used their trusty credit cards.

You could say that Google built a business using old-fashioned bootstrapping.

And if Larry and Sergey can make it work, why not you?

Looking for some insight, tips and hints on just this, I spoke to a variety of entrepreneurs on the topic.

Anders Heie, cofounder of KaDonk:

“We found a law firm that was willing to help us out on a line of credit, to be paid back once we became profitable or raised more than $1 million. This allowed us to get incorporated, and work out several legal kinks in the startup process.

“We also hired a sales representative in India. Not only are wages more favorable there, but all the major companies around the world are represented in India. Again, pooling our own money, we opened up a position in India, and in September of 2007 we hired a great guy. We have the luxury of having many Indian contacts, so the process was relatively simple.

Chase Norlin, founder and CEO Pixsy:

1) Find a developer and get started. Too many entrepreneurs put together plans and strategies for raising funding but never do the actual work. Find someone to build your product and get going. If you can’t pay them, pay them in equity.

2) Work on your product for a while, get users, get customers, and get traction, before you go out to raise money. Ultimately, all that matters is progress and traction, so go make some!

3) Once you’re up and running and have a business running, don’t get carried away with your optimism. Specifically, don’t spend like there’s always going to be a money source. Instead, spend like it’s your last dollar and over time you’ll be rewarded.

Greg Gianforte, founder and CEO, RightNow Technologies (NASDAQ: RNOW). He started the business from his desk in Bozeman, Montana and did not raise external funding until he snagged 400 customers.

“When you’re bootstrapping, you’re forced to deal with customers and to fulfill their needs from Day One. If you have a lot of external funding, on the other hand, you can be fooled into thinking you’ve already created an actual business just because you’re paying salaries and rent. But you haven’t. You only have a business when you have paying customers. Bootstrappers know this instinctively, and never lose that customer focus.

“Bootstrappers also initiate the critical sales learning process sooner, not later. Selling is the hardest job of all. You have to learn how to be absolutely great at selling your product or service, and then teach others how to be absolutely great at selling it too.

“Finally, bootstrappers are forced into unconventional thinking. Necessity truly is the mother of invention. Without a big cushion of cash, bootstrappers are constantly forced to solve problems creatively. This results in innovative, outside-the-box approaches to everything from product design and manufacturing to marketing and sales.”

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 DealProfiles.com.

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Filed under: Major movement, Analyst reports, Forecasts, Blogs, Apple Inc (AAPL), Cisco Systems (CSCO), Market matters, International Business Machines (IBM), AT and T (T), iPhone, Stocks to Buy

Back on May 23rd of this year I wrote a post for AOL’s Bloggingstocks, that Apple (NASDAQ: AAPL) would become bigger than IBM (NYSE: IBM). At the time of that article, Apple’s market capitalization was just under $100 billion and IBM’s was at $158 billion. Apple had a long way to go to capture the title away from Big Blue and frankly, I conservatively wrote it would happen within 2 years. I was wrong: it has happened in 5 months. Today, Apple’s market cap is a sterling $161 billion while IBM’s has remained stagnant at $157 billion. The power of growth investing. Explain please!

IBM is an excellent company, well managed and has the respect of the technology world. There is no question that Big Blue is a mainstay and that millions of enterprises and governments rely on IBM’s products every day. The problem with IBM is its growth is slow and there has been no visible acceleration. Apple on the other hand, has become the go-to, consumer electronics/technology giant. Apple has a line up of exciting, gotta-have products and the expanding margins to boot.

Apple has built a relationship with the consumer and that franchise is virtually impenetrable. The iPod and iPhone have defined their respective spaces. iPod has sold over 110 million units globally, and is still in a massive growth phase. The attendant iTunes store is the gift that keeps on giving. More than 2.5 billion — that’s billion — tunes have been sold via iTunes. Talk about a franchise.

The iPhone is just in the beginnings of its cycle. The iPhone was met with high anticipation and a ton of hype, and has lived up to it. Apple has put forth a modest goal of 10 million units by year end 2008. I estimate that 10 millionth iPhone will be sold by April/May 2008. It also has the gift that keeps on giving: monthly royalties from the telecom carriers that will provide service. In the United States, it is AT&T (NYSE: T). 10 million units represent about 1% of the globally sold 1 billion cell phones per annum. Seems conservative for a “revolutionary” product. It is!

The Leopard operating system was released today at a retail price of $119 for installs to existing Mac Computers and, of course, it comes installed in new Macs. The Mac has blown away all estimates as it sold 2.6 milllion units this past quarter. That number is 400,000 ahead of the June quarter’s outstanding numbers.

The add-on software and accessories sales for Apple gear is also part of the gravy. Coupled with 180+ retail stores that are user-friendly, Apple can control the entire transaction from soup to nuts and also builds customer loyalty along the way.

To put Apple’s market capitalization gain these past 5 months into perspective: Apple’s grew its value the size of Dell Computer (NASDAQ: DELL) in the 5 months! By the way, Apple will surpass its next target in the market cap game within the next 12 months. That target is Cisco Systems (NASDAQ: CSCO), another very well run technology giant. Cisco currently has a market cap of $200 billion….

Georges Yared is the CIO of Yared Investment Research and the author of Baby Boomer Investing…Where do we go from here?”

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Filed under: Products and services, Consumer experience, Apple Inc (AAPL), Marketing and advertising

English band Pink Floyd is set to release a 16-disc box set in December that features the band’s entire studio catalog as CD reproductions of the original vinyl records, Billboard reported yesterday. Unfortunately, the set is limited to 10,000 copies and will be available in the United States only as an import. It is unknown whether the box set will be reproduced in digital stores or not and Apple Inc. (NASDAQ: AAPL)’s iTunes Store has created complete digital box set’s for catalogs in the past.

This news is not very descriptive about availability for the new album, but it has me wondering how many physical box sets are to be produced as the music industry moves closer and closer to fully embracing digital outlets. With the releases of s new Bob Dylan retrospective set and the coming Led Zeppelin catalog set, both available on iTunes and as physical CDs, what is the market for the CD versions? The Pink Floyd physical-only set (as far as is known at this point) takes this further with a price tag of $250.

A cursory glance at iTunes will tell you that the catalog is already available from iTunes Plus as DRM-free (Digital Rights Management) tracks, including the previously released 40th anniversary edition of Pink Floyd’s debut album. With that knowledge, this box set seems marketable only to serious collectors and importers. The price tag and difficulty of availability make it hardly an item that the casual listener and even devout fan can seriously consider checking out. One has to wonder if EMI has a similar plan in store for The Beatles when that remastered catalog is available.

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Filed under: Wal-Mart (WMT), Columns

Welcome to the 34th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions and just a bit of everything else when it comes down to a very hot topic these days: Wal-Mart.

As I hinted on earlier today, Wal-Mart’s moves to gain further footage into the arena of online grocery shopping are becoming more evident. Although the world’s largest retailer dabbles in online grocery shopping inside the non-perishable food category already — just like online-only competitor Amazon.com (NASDAQ: AMZN) — the difference is that Wal-Mart has over 3,000 physical customer locations in the U.S. alone.

And, therein lies a possible powder-keg opportunity. Could Wal-Mart expand beyond the online grocery delivery business that it currently offers from its Sam’s Club division and market this time-saving service to the general customer population for all items located in the grocery sections of its Supercenters? Would this work logistically and become the first nationwide online grocery ordering success story?

Continue reading The Wal-Mart Weekly: Online grocery shopping growth possibilities

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Filed under: Microsoft (MSFT), Yahoo! (YHOO), Options

Yahoo! Inc (NASDAQ: YHOO) recently up $2.40 to $33.74:

www.Alibaba.com, a Chinese internet company, is expected to be IPO’d on the Hong Kong bourse on November 6th. YHOO made a $1.4 billion investment in 39% of Alibaba in 2005. YHOO Chairman of the Board Terry Semel sold 850,000 shares of YHOO at $30.47 October 23-24, according to Dow Jones. YHOO call option volume of 503,701 contracts compares to put volume of 52,600 contracts. YHOO November option implied volatility of 50 is above its 26-week average of 37 according to Track Data, suggesting larger price risk.

Microsoft Corporation (NASDAQ: MSFT) recently up $2.91 to $34.90:

Pacific Growth Equities says ” Blowout F1Q results; conservative guidance leave room for additional upside if the sales momentum continues.” MSFT call option volume of 353,588 contracts compares to put volume of 114,142 contracts. MSFT November option implied volatility of 25 is below a pre-EPS level of 32 according to Track Data, suggesting decreasing risk.

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

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Filed under: Russia, Options

Potash (NYSE:POT), the world’s largest fertilizer enterprise, by capacity, is recently up $2.55 to $117.13. POT announced on its 10/25 EPS conference call it suspended all new potash sales to North American customers on the news that Silvenit, a major global producer in Russia, is concerned a sinkhole is threatening a major rail line which ships out potash. POT over all option implied volatility of 48 is above its 26-week average of 43 according to Track Data, suggesting larger price risks.

US Steel (NYSE: X) is recently up $1.88 to $106.84 on renewed and unconfirmed takeover speculation. X is expected to report EPS on 10/30. X November option implied volatility of 48 is above its 26-week average of 39 according to Track Data, suggesting larger risk.

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

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Filed under: International markets, PepsiCo (PEP), Stocks to Buy

Given today’s choppy, consolidating markets, if your portfolio does not contain a consumer products defensive stock, consider adding PepsiCo (NYSE: PEP).

Pepsi has all the ingredients for a reasonably safe consumer play: a leading primary brand, product diversification, established market positions, a wide geographical footprint, marketing savvy, and cost discipline.

Pepsi has a large snack operation, but the major business model here is, of course, beverages, led by Pepsi Cola, which vies with Coke (NYSE: KO) for global cola supremacy. Operating in about 200 countries, look for PEP international market share to increase in 2007-2009. The company is also well-positioned in the juice and non-carbonated drink segments, which are also expected to perform well, moving forward. Rising commodity costs may pressure margins, but PEP does have modest pricing power as a response. Superior marketing adds to an impressive corporate operation: Pepsi frequently responds to rival Coke’s new marketing efforts with something more trendy and cool, particularly as interpreted by teens and younger adults.

Technically, PEP’s chart looks good. Aside from the August 2007 market sell-off, PEP’s stock has danced with its 50-day moving average on three occasions in 2007, but the chart otherwise displays a healthy advance, minor correction pattern. PEP’s chart has also cleared resistance at $70. Equally important, PEP has been above its 200-day moving average — the toughest average to break — for about three years. The P/E of 19 is not cheap, but it’s reasonable given the company’s growth prospects.

Stock Analysis: PEP is a low-risk stock. If you don’t already own a consumer products stock as a defensive, consider adding PEP to your portfolio. Investors with an investment horizon longer than 1 year should be rewarded from PEP’s shares. Sell / Stop Loss: $53.

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Filed under: Bad news, Newspapers

It seems as though no one can resist the temptation of the Britney Spears-bashing bandwagon: not even the most-revered financial newspaper in the world. Attacks from the tabloids and the likes of Perez Hilton have been relentless for years, but The Wall Street Journal’s review (subscription required) of her new album is fairly scathing. Here are some of the high (low?) points:

A phalanx of producers and backing vocalists exert more of an influence on a disc that’s not quite a mess but only occasionally rises above a muddle… as a vocalist, Ms. Spears sounds weary, snide and at times disconnected. On some songs, her voice seems grafted to the material as if an afterthought… At the bottom register, her voice is a throaty bleat… With “Blackout,” Ms. Spears fails to deliver a recording that will re-establish her as a dominant pop star rather than a 25-year-old woman who seems bent on self-destruction…

The Journal doesn’t seem to have anything positive to say about Spears, and the good things it does say about the album refer mainly to the production and background vocalists.

But all of this raises an interesting question: why is The Wall Street Journal reviewing a Britney Spears album anyway? Is that really her demographic? With the exception of Alan Greenspan, how man Journal readers will even consider buying her new album?

But then again, the financial press has a well-deserved reputation for calling stock sells precisely at their bottoms. So perhaps Britney’s career is ready to rebound.

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