Filed under: Deals, Management, Sprint Nextel Corp (S)

How often does a company walk away from a $5 billion investment without even meeting with the people who made the offer? Sprint’s (NYSE:S) board appears to have done that a week or so ago.

A team of Korean cell company SK Telecom and Providence Equity Partners suggested a $5 billion investment in a convertible security that would have set a price well above the current share value of just over $15. Not a bad deal. According to The Wall Street Journal, “the group said in a bid letter to the board that it was prepared to invest $5 billion or ‘potentially substantially more’ in the form of securities convertible into equity after some period of time at a stock price 20% higher than Sprint’s share price.”

But there was one catch. The group wanted former Sprint chairman Tim Donahue to run the company. Donahue was CEO of Nextel before it merged with Sprint.

The Sprint board did the right thing. There is no reason to believe that the company would not be able to raise capital elsewhere, although the terms may not be as good. It might even get a strategic investment from a large cable company that would want to market wireless products along with broadband and TV. But even if the investment is attractive, Donahue is an architect of one of the largest merger train wrecks of the last decade, a debacle that cost the Sprint CEO his job just two months ago.

Getting one of the villains to come back and play sheriff would send a very bad message to investors. They have already been hurt enough by poor earnings and a falling stock price.

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

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Filed under: Federal Natl Mtge (FNM), Economic data, Commodities, Oil, DJIA, Housing, Federal Reserve

On the heels of U.S. Federal Reserve Chairman Ben Bernanke’s comments on “renewed turbulence,” many traders and investors across sectors now expect the Fed to cut key short-term interest rates when it meets on December 11, according to one currency trader.

“I won’t give you all the technical indicators, but basically almost all of them are pointing to a rate cut by the Fed when it meets [on December 11],” Currency Trader Andrew Resnick told BloggingStocks Friday. “The issue now is whether the Fed continues to cut after the December meeting.”

Markets rally

Stock rallied early Friday on Bernanke’s comments, with the Dow gaining over 80 points to about 13,394 and the Nasdaq gaining about 4 points to 2,674. Meanwhile, the dollar gained slightly, improving to $1.4730 against the euro and rising to 111.07 yen against the Japanese yen.

“Typically, when the Fed indicates it’s likely to cut rates that causes the dollar to fall, but in this case, the market is saying ‘The Fed is going to help the [U.S.] economy grow faster,’ which is bullish for the dollar,” Resnick said. Resnick added that he was flat - - or had no currency positions - on Friday.

Continue reading Traders now sense Fed rate cut, subprime package

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Filed under: Microsoft (MSFT), eBay (EBAY), Amazon.com (AMZN)

Facebook brags about how it understands its vast community.

However, some members of the community have been perturbed lately, if not creeped out. Even MoveOn.org initiated an online protest.

The reason is Facebook’s attempts to monetize things through its Beacon advertising system. Basically, it shows your online friends where you are shopping, such as from places like eBay (NASDAQ: EBAY) and Amazon.com (NASDAQ: AMZN).

True, this may be useful in terms of getting helpful information (think of Beacon as a recommendation service) - but it also raises serious privacy issues.

Well, Facebook has blinked. Now, the company will provide an opt-in option to its users.

All in all, I think it’s a smart move and should help quell some of the protest. However, it’s likely to make it tougher for Facebook to crank out more money for its investors — such as Microsoft (NASDAQ: MSFT) — that have valued the company at frothy $15 billion. No doubt, the money-privacy balance will be a continuing struggle for the fast-growing website.

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: Good news, Management, Motorola (MOT), Options, Technical Analysis

Motorola Inc. (NYSE: MOT) shares are trading higher today after the company announced this morning that CEO Ed Zander will step down on January 1. He will be replaced by President and Chief Operating Officer Greg Brown on an interim basis until the company’s annual shareholders’ meeting in May. with this change being anticipated, it may create a floor for MOT’s stock price that could hold for a while. A situation like this is ripe for a credit spread trade, so if you think that the company 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 MOT.

After hitting a one-year high of $22.55 in December 2006, the stock hit a one-year low of $14.87 on Tuesday. MOT opened this morning at $16.30. So far today the stock has hit a low of $15.76 and a high of $16.29. As of 11:05, MOT is trading at $15.78, up 13 cents (0.8%). The chart for MOT looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $13 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 11.7% return in just 5 months as long as MOT is above $13 at Arpil expiration, which is before the new CEO will be officially chosen. MOT would have to fall by more than 17% before we would start to lose money.

MOT hasn’t been below $14.50 at all in the past year and has shown support around $15 recently. This trade could be risky if the economic slowdown materializes, but even if that happens, this stock could be protected by strong support it found just below $15 earlier this month.

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

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Filed under: Management, Microsoft (MSFT)

When Stuart Scott was forced out of Microsoft Corp. (NASDAQ: MSFT) just recently for ‘violations of company policy,’ many wondered if it would be hard for him to land another executive job with a blemish like that on his resume. Apparently, it did very little to hinder Scott, as he’s now at mortgage lender Taylor, Bean & Whitaker (based in Florida) as Chief Operating Officer. Alas, entering into the mortgage industry right now is, well, just plain odd.

What is Scott up to? As Chief Information Officer of the world’s largest software maker, he was in charge of global computer networks that kept the company connected every second of ever day — among many other things.

Scott came from General Electric Corp. (NYSE: GE) to Microsoft — and now has landed a position in the embattled mortgage industry with a little-known lender in Florida. Florida, as you may know, if one of the top states being hit by mortgage foreclosures at this time, and it’s expected to get worse in 2008. As they say, the plot thickens. Why this specific move by Scott? A lack of other choices perhaps?

According to Ed Highland with Standard & Poor, Taylor, Bean & Whitaker is “a good-sized company” that services about 300,000 prime loans. It’s not a subprime lender on the fence or anything near that. So, although this is probably a decent move for Scott, it’s an odd career twist from two global brands to a much smaller mortgage lender in a state with a bad mortgage reputation.

But still, while the world will never know why he was sacked from Microsoft (how big was the violation?), Scott’s appointment may have been one of the few positions he had pigeonholed himself into.

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Filed under: Deals, Bad news, Competitive strategy, China, Private equity, Goldman Sachs Group (GS)

This would not happen in the U.S., or most other places for that matter. But China is China, and the rules there are different. Goldman Sachs (NYSE: GS)’s “China partner, Fang Fenglei, is moving forward with plans to set up a private-equity fund that could complicate his relationship with Goldman as both hunt for investments in China,” according to The Wall Street Journal. Fang will probably get to keep his title as chairman of the investment banking joint venture, Goldman Sachs Gao Hua Securities.

But why? Feng is about to take dollars out of Goldman’s pockets. Feng’s new fund will be partners with an investment arm of the Chinese government. Who is going to get first look at the best deal, Goldman or a fund run by the locals? The Journal points out that insiders already have an advantage. “Foreign private-equity investors have found their ability to close deals hampered amid booming Chinese stock prices and mounting concern within China about foreigners buying into important industrial assets.”

Yes, the Chinese want to keep the best part of the steak for themselves. It is a closed system, so it can do that. But Goldman does not have to make it easier.

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

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Filed under: Major movement, Good news, Industry, Options, Technical Analysis, Bear Stearns Cos (BSC), Federal Reserve

Bear Stearns Companies, Inc. (NYSE: BSC) shares are trading higher today with the rest of Wall Street after Fed Chairman Ben Bernanke hinted that further interest rate cuts may come in December, fueling growing speculation among investors. Bernanke said yesterday in a speech that the Fed would be “exceptionally alert and flexible” if the housing slump and high energy prices continue to cause “headwinds” for consumers, echoing comments made by Fed Vice Chairman Donald Kohn earlier in the week. If you think that the company 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 BSC.

After hitting a one-year high of $172.61 in January, the stock hit a one-year low of $89.55 last week. BSC opened this morning at $103.01. So far today the stock has hit a low of $101.36 and a high of $104.50. As of 10:45, BSC is trading at $101.79, up $3.15 (3.2%). The chart for BSC looks bearish (heh) and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $85 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 3 weeks as long as BSC is above $85 at December expiration. Bear would have to fall by more than 15% before we would start to lose money.

BSC hasn’t been below $89 at all in the past year and has shown support around $92 recently. This trade could be risky if the credit crunch continues, but recent signs are pointing toward a potential end to the really bad news.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in BSC.

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Filed under: Earnings reports, AutoZone Inc (AZO)

AutoZone (NYSE: AZO) is scheduled to report earnings before the market opens on Tuesday, December 4, 2007 with analysts estimating it will report $1.91 per share. Last time AZO analysts estimated that AutoZone would report $3.25 and just missed analyst’s expectations with earnings of $3.23.

Beating estimates is not a given with AutoZone as it has missed five of the last 12 times is reported. But just because it misses does not mean those stock will go down; most of those misses were small and four of the last five times the stock missed it actually went up after earnings. In fact, the stock has rose 9 of the last 12 times it reported earnings.

Continue reading Will Autozone backfire on earnings?

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Filed under: Major movement, Good news, Industry, D.R.Horton (DHI), Options, Technical Analysis, Economic data, Housing

DR Horton Inc. (NYSE: DHI) shares are rising this morning on news that the Bush administration is working behind the scenes with the home-lending industry on a plan to extend lower, introductory interest rates on home loans. Treasury Secretary Henry Paulson with loan servicing companies and other industry executives yesterday to come up with a loan modification plan in the wake of the subprime crisis. No formal agreement was announced, but an agreement could be be revealed in the next week or two. Also helping the situation are comments from Fed Chairman Ben Bernanke, who hinted at further rate cuts in December. If you think that the company 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 DHI.

After hitting a one-year high of $31.13 in February, the stock hit a one-year low of $10.15 on Tuesday. DHI opened this morning at $10.78. So far today the stock has hit a low of $10.77 and a high of $11.99. As of 10:55, DHI is trading at $11.97, up $1.50 (14.3%). The chart for DHI looks neutral and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

Continue reading DR Horton (DHI) surges on government mortgage help

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Filed under: Launches, Competitive strategy, Circuit City Stores (CC)

Circuit City Stores, Inc. (NYSE: CC) has apparently been listening to all the media chatter this year centered around social networking and has decided to jump into the game. The second-largest consumer electronics chain in the U.S. has launched its new ‘CityCenter’ social networking website (within its regular website).

This new interactive website will let Circuit City customers compare experiences about certain products (and Circuit City itself, I’d imagine), find out pre-purchase information from real customers and seek out detailed advice on which products to buy.

In an age of pushing the highest-market electronics possible to the public, the open communication this will embody among Circuit City customers should prove helpful for those looking for the best products at the best prices. Kudos to Circuit City here. Yes, that’s something I haven’t stated all year. That is, until now.

Empowering consumers to trade real-world information outside of marketing fluff is a great way to build loyalty and give those consumers a feeling of being in charge — which is just what Circuit City needs at this point in its life.
Not only will text be allowed, but the CityCenter website will allow photos, blog entries, and videos to be posted by visitors. In addition, the website will play host to complete customer forums.

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