Wall Street Wrap

Wall Street Wrap – March 2, 2010

By Taryn Cooper, at 5:03 pm on March 2nd, 2010

Stocks finished slightly higher on Tuesday, March 2, with the Dow closing at 10,406 (+2.2, 0.0%), Nasdaq at 2,281 (+7.2, 0.3%) and the S&P at 1,118 (+2.6, 0.2%).

Technology stocks were boosted by bellwether Qualcomm, announcing a $3 billion stock buyback plan as well as a dividend raise of 12%.

Merger Monday continued into Tie-Up Tuesday as CF Industries raised its hostile bid for Terra Industries (the target having agreed to terms with Yara) and Dow Chemical has agreed to sell its Styron plastics unit to Bain Capital in a deal valued at $1.6 billion.

After hours, the activity did not stop as Elliott Associates offered to acquire Novell in a deal with an implied value of $1 billion shortly after market close.  As a result, Novell’s stock shot up 29% in the after-market.

In commodities, gold and crude oil prices rose, and the dollar fell.  Investors appear to be waiting for economic data results before making a move.

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Eliminating the “Man”: Launch of Series Seed Documents

By Taryn Cooper, at 2:03 pm on March 2nd, 2010

The rejoicing you may be hearing today are entrepreneurs and potential start-up financiers cheering the launch of Series Seed Documents, a service to help new companies raise funds without tons of legal fees and documentation involved.

Spearheaded by VC stalwarts Andreessen Horowitz, First Round Capital, Charles River Ventures, and True Ventures, the idea is that being that it now costs less to build a tech product, first round funding is usually more prohibitive with legal fees going up but funding rounds not being as high (going from $5 mm to $20 mm for first rounds to as little as $500K to $1 mm to generate).  According to Mark Andreessen, these documents are necessary for several reasons, as he explains below:

“What hasn’t changed is the process by which funding rounds get done. So what’s been happening is entrepreneurs have been finding that if they raise money from angels, that’s fine, but VCs will often try to use their full standard processes, even for small rounds. That can mean a lot of legal negotiations and legal fees, because [standard term sheets] are really complicated. Historically, that’s worked to VCs’ advantage, but it’s not good for entrepreneurs.”

First round funding can still be negotiated even using this documentation, however removal of the “middle man” (meaning: lawyers who are generally the few who profit from these negotiations) can be beneficial for the next Sergey Brin or Biz Stone who is looking to start their next big venture.

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Wall Street Wrap

March Comes in Like a Bull – Tech Leads the Way

By Robert Perrego, at 5:07 pm on March 1st, 2010

Technology stocks, and especially semiconductor stocks, were strong as Wall Street started March with a bullish day.  Intel Corp. (NSDQ: INTC) paced the Dow Jones Industrial Average, finishing first with a 1.65% gain (+$0.34, $20.87) and Hewlett Packard Co. (NYSE: HPQ) in second up 1.47% (+$0.75, $51.54).  The PowerShares Dynamic Semiconductor ETF (NYSE: PSI) jumped 2.76% (+$0.36, $13.38) as Entropic Communications Inc. (NSDQ: ENTR) led the broad line semiconductor sector up 7.18% (+$0.26, $3.88) after being up as much as 14.4% earlier in the day.

The Nasdaq 100 turned in the best performance for the month of February among the three major indexes, gaining 4.47% to the second place S&P 500’s 2.86%.  Everyone must have read the summary numbers for February over the weekend and then came in as buyers today as the Nasdaq 100 continued on its winning streak up 1.52% (+27.72, 1,846.40).  The S&P 500 closed up a solid 1.01% (+11.22, 1,115.71) and the Dow Jones Industrial Average gained 0.76% (+78.53, 10,403.79) on the day.

Merger Monday was in full gear as four deals were announced last night and this morning and TrackedInsights Taryn Cooper covered them all earlier today.  Rumors of the biggest deal on the planet, Germany bailing Greece out with loans, prompted the Greek 10-year bond to drop 9 basis points (6.34% to 6.25%, +0.64) and stabilized equity markets around the world.  The Chilean IPSA Index fell 1.7% to 3,761 in reaction to the 8.8 magnitude earthquake Saturday morning, which was the fifth largest recorded since 1900.

When an earthquake hits Chile, what do you buy?  The answer is not peppers, it is copper.  Chile produces 35% of the world’s copper and if any of those mines collapsed this will slow the production and supply of the base metal, sending prices higher.  The iPath Dow Jones-UBS Copper ETN (NYSE: JJC) jumped 2.73% in the first five minutes of trading this morning but faded back, closing up 1.76% (+$0.79, $45.49).

Economists expected Personal Income and Consumer Spending to increase by 0.4% month-over-month, but we got income going up 0.1% and spending up 0.5%.  This means the consumer must have been taking on debt over the last month.  In general, the market likes it when the consumer spends more, even though signs point to them taking on more debt.  If the consumer is out there spending, that means the stocks they trade are doing more business.  Damn the torpedoes!  Who is paying their debts back these days anyways?  There is a problem here though, as Personal Income increased only 0.1% (0.4% expected) with the prior M-o-M increase being 0.4% and before that 0.5%.  The growth trend we have experienced over the past few months is slowing down as workers are receiving less income, which can be attributed to less people working.

The ISM manufacturing Index was reported at 10 a.m. and missed expectations (56.5 vs. 57.4, prior 58.4).  A reading over 50 indicates manufacturing is expanding but the number below that of last month shows it is expanding less quickly.  Construction Spending was also released at the same time and was down 9.3% Year-over-Year and down 0.6% Month-over-Month.  The MoM expectation was -0.8%, so the number was beat, but it is still declining.  While a decline in construction spending means less construction workers on the job, this is probably good in the long run as a contraction in housing supply (or a slower expansion), will mean a lower relative supply of homes in the future and a firming of home prices.

Gold had an uneventful day, gaining marginally, as all the metals action seemed to be in copper today.  The fact that gold did not drop is a story on its own as the dollar traded its highest level since last July, before fading back to gain just 0.38%.  Even the news of Germany buying Greek debt did not hold the euro up as the pound dropped sharply against the dollar with the summer election for Prime Minister in the U.K. is too close to call.  The U.K. has deficit problems of their own, and it seems once you throw in the weak economies of Spain, Portugal and Ireland, the chances of another bailout being needed seems almost certain.  Italy’s budget is always an adventure and it is starting to look like the only decent economy left in Europe is Germany.

Nymex crude dropped 78 cents as the $80 a barrel level is proving to be a difficult fence to jump.  The barrel was trading at $78.88 (-0.98%) at 4:48 p.m.

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Face-Off: Microsoft vs. Google

By Taryn Cooper, at 1:12 pm on March 1st, 2010

In the spirit of yesterday’s closing ceremonies at the Olympics, I would say that — much like Team Canada vs. Team USA — a turf-war has erupted between two American-as-Apple-Pie tech companies.  Perhaps you’ve  heard of them.  We have “Microsoft” on one side, and another named “Google” in the defensive zone.

Microsoft has been incredibly vocal with its accusatory stance against Google, suggesting their business is anti-competitive.  Microsoft is no stranger with being accused of monopolistic practices, back in the late-90s going through that themselves.

The thing that stands out to me is whether Microsoft should care or not.  Let’s be fair, these two companies are like Goliath vs. Goliath.  While there is healthy competition in the technology space, each is successful and has their niche in their own right.   While they have similar products, typically Microsoft and Google target different populations but are potentially each other’s biggest competition.

I can’t say whether Microsoft is simply picking on Google because they can, but it seems interesting to me that several outlets today have picked up the idea that Microsoft is encouraging victims of Google to file complaints with regulators on their anti-competitive practices (an idea, that by the way, Microsoft is denying).

It appears as though Google is getting their licks in the media — you know, the whole saying of building something up just to tear it down, etc etc.   And with it’s trouble in China, along with its Google Books drama in the U.S., Microsoft’s deputy general counsel Dave Heiner also wrote in a blog post today that “Google’s way of working with advertisers and publishers makes it hard for Microsoft’s competing Bing search engine to win search volume.”

I wonder how long it will be before Google starts taking its public licks, much like Microsoft did in the late-1990s, for being the monolith it was but it’s still standing and of course, won’t be going away anytime soon.  The same could be said for Google, as it’s going through it’s growing pains of falling out of favor.  We’ve seen evidence of this recently with public fall-out from it’s Buzz launch, which had many more “ifs” involved in its release than answers.  To me though, I think that Google will walk away from this unscathed, as they have a team of lawyers working for them to ensure that whatever may happen quickly goes away.

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Another Manic Monday…of Mergers, That Is

By Taryn Cooper, at 12:13 pm on March 1st, 2010

I have to admit, after working for years on an investment banking floor, I still get riled up on Monday mornings when deals are announced.  Oh boy, were they announced today!

Out of four high-ish profile announcements, AIG selling its Asian unit to Prudential plc, Merck KGaA buying life-science company Millipore, Astellas Pharma submitted an unsolicited bid for OSI Pharmaceuticals, and MSCI agreed to acquire proxy advisory firm RiskMetrics.  Those four deals along provided about $50 billion in transaction value to the league tables this morning.

The AIG deal was valued $35.5 billion.  I’m not certain what kind of sign this is for AIG — garbage in, garbage out?  Whatever the case, $35.5 billion is not something to shake a stick, whether or not this is perceived to  be a strong subsidiary that they could get some value from.

What interests me are the pharmaceutical and healthcare consolidations, usually signifying a “healthier” economy (not “healthy” just “healthier” by  most standards).   When you see consolidations in this industry, “they” will come (meaning: investors, driving up the markets!). In fact, as we speak, drug stocks are reported to be “stoked” by this merger activity.

An unsolicited bid, which is just a nice way of saying “hostile” (though technically, a hostile bid is when the target formally rejects the acquirer’s offer), leads me the acquisition of proxy advisory firm RiskMetrics.  RiskMetrics is a great tool to view how strong companies are, regarding their board and internal structure, who may be vulnerable to unsolicited or hostile targeted bids.  MSCI is an interesting acquirer of this set as they are index focused and potentially looking to  build out their index portfolio with a purchase of Russell Investments after a failed bid for the famed Dow Jones indexes.

All in all, a healthy Merger Monday is a good sign of things to come.  That and sun after a particularly blustery weekend!

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