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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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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Judging an M&A By Its Cover

By Taryn Cooper, at 5:07 pm on February 17th, 2010

I have to admit I have a bit of a “soft spot” in my heart regarding mergers and acquisitions, since my background was in M&A.  Today an interesting deal occurred where Walgreen Co acquired Duane Reade stores for $1.75 billion (cash and assumed liabilities).

Usually M&A activity this early in the year is a hopeful sign of what’s to come in the turning of the economy.  Generally, we’ll see large consolidations in certain industries that may provide a sign to where the economy is going to go.  Unfortunately, I can’t say I am hopeful about this deal per se and have to wonder about the ulterior motives behind it.

Living in the New York metro-area, Duane Reades are everywhere.  Everywhere.  The old radio jingle was “Everywhere you go…Duane Reade!”  So yes, it is literally translated.

Walgreen stores, to me, seemed to be a bit more regional.  They were more common in the United States, but here on Manhattan as an example, there are only nine stores (actually, that is about seven more than I remember).  I can certainly find their stores more say in Florida than I could Duane Reade.  But less than $2 billion for total consideration in the deal?  That comes out to around $7 million for each store.  That sounds like a lot but when New Yorkers have these as the most convenient drug store, I feel like that is a bit low.  We all know how New York City real estate is overpriced anyway…

Duane Reade has over 250 store fronts (according to their website).  They’d also recently gone through a transformation in becoming more swanky, customer-focused and modernized (called “Look Boutiques” as stated in the Marketwatch column) .  Needless to say, I am shocked to see that the Duane Reade that is synonymous with New York City especially will  now be operating as Walgreens.  I can get over that personally I am sure.  However, back to those ulterior motives, was Oak Hill (owner of Duane Reade) losing money on these stores?

On a side note about M&A transactions, the tech sector is seen to have a bit of a bump in 2010.  Although total closed deals in 2009 fell below 50% year-over-year, 85% of the total value of closed technology transactions in 2009 happened in the final six months.   Evolution of technology companies, especially those that were upstarts prior to the economic downturn could be seeing some interest this year with larger companies looking to bulk up their product lines and be streamlined.  Stay tuned!

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