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Wall Street Breakfast: Must-Know News

Nov 04, 2009 - 7:19 AM EST

GM makes U-turn on Opel. German officials were outraged by GM's surprise decision to keep Opel, its European arm, abandoning a long-expected sale to a Magna- (MGA) led group that the German government had agreed to back with €4.5B of state aid. GM said improving business conditions and the strategic importance of Opel had prompted the move, which came after the EU forced GM's board to revisit the deal over concerns Germany had influenced its decision. GM expects restructuring Opel to cost about €3B; it's unclear whether the German government will help it restructure.
Buffett joins Goldman in bid for tax credits. Sources say Berkshire Hathaway (BRK.A) has joined Goldman Sachs (GS) in a bid to buy $3B in tax credits from Fannie Mae (FNM), adding a twist to a politically sensitive deal. The credits are virtually worthless to Fannie Mae, and require it to take losses each quarter as their value declines, while profitable companies could use them to offset taxes. The government, which controls Fannie, is thought to be reluctant to approve a deal that would allow Goldman to save on taxes, given the firm's already tenuous standing with lawmakers and on Main Street; taking widely-respected Buffett as a partner could reduce the tension.
Berkshire bets big. Warren Buffett says his $100/share bid for Burlington Northern Santa Fe (BNI) was his first and only offer, stressing that the deal is "not a bet on next month or next year. We're going to own it forever." Berkshire (BRK.A) will pay about 60% cash and 40% stock for the railroad, taking on $8B in debt and depleting its cash store to about $20B, leaving it almost fully-invested according to its standards, which analysts say could result in strategic divestments in the future. Berkshire will split its so-called Baby Berkshire shares (BRK.B) by 50 to enable small Burlington stakeholders to participate in the share swap, which will help bring its famously pricey stock within the means of retail investors.
Obese healthcare premiums. A Senate probe found U.S. health insurers (AET, CI, CVH, HUM, UNH, WLP) are spending considerably less of their premiums on medical care than official industry estimates - an average of $0.70/dollar instead of the $0.87 cited by industry group AHIP. The report also singled out Cigna for mis-categorizing $5B worth of clients. "The American people and I are asking a serious question and one that deserves a straight answer – why are health insurance costs going up each year?" Sen. Jay Rockefeller said. "While health-care costs are spiraling upwards, consumers are paying more and getting less, and the health insurance industry doesn't want anyone to know what they are up to."
China backs Shanghai Disney. Beijing gave Disney (DIS) the go-ahead to build a $4B theme park in Shanghai, allowing the media giant to establish a presence in a massive market that has presented substantial hurdles to foreign entertainment companies. The park has been discussed for close to a decade. Disney already operates a theme park in Hong Kong.
Oracle awaits EU veto. Oracle (ORCL) is expecting a formal objection to its planned $7.4B acquisition of Sun Microsystems (JAVA) from the EU Commission within days, sources say. Despite concerns over the deal's impact on the database market, Oracle has refused to make any concessions to European regulators.
Bain in exclusive talks to buy Citi's Bellsystem. Private-equity group Bain Capital is reportedly in exclusive negotiations with Citigroup (C) to buy its Japanese telemarketer Bellsystem24 in a deal that could be worth more than $1B. A team of CVC Capital and Blackstone (BX) also made an offer in the final round of bidding, which closed last Friday. Citigroup put Bellsystem24 up for sale as part of its efforts to raise cash; it has already sold its retail broker Nikko Cordial Securities and asset management firm Nikko Asset Management in Japan.
Car sales show spark. U.S. vehicle sales declined less than 1% in October, the first signs of a recovery without the aid of government incentives. The drop made October the year's strongest month aside from August, which received a lift from the cash-for-clunkers program. The seasonally adjusted annual sales rate was 11.2M. "Thinking of where we've come from, it's certainly a positive signal," J.D. Power's Jeff Schuster said. GM's sales rose 5% - the first gain since Jan. 2008. Ford's (F) grew 3%.
Second IPO nixed. Aviv REIT Inc. (AVI) became the second U.S. company in less than a week to pull its IPO after pricing and demand failed to meet investors' expectations, dealers said. September and October's 18 IPOs have collectively beaten the S&P 500 by just 0.3% during their first month of trading - the worst showing on record.
Mortgage apps rise. Mortgage applications increased 8.2% from a week ago, MBA said, led by a 14.5% jump in refinancing. The average rate for 30-year fixed mortgages declined to 4.97% from 5.04%.

Earnings: Wed. Before Open

Aqua America (WTR): Q3 EPS of $0.25 in-line. Revenue of $181M (+2.1%) vs. $189M. Increases quarterly dividend by $0.01 (7.4%) to $0.145. Says results were negatively impacted by eighth wettest summer in 137 years. (PR)
Baker Hughes (BHI): Q3 EPS of $0.26 misses by $0.10. Revenue of $2.23B (-26%) in-line. Says international results were negatively impacted by price discounting. Expects to complete acquisition of BJ Services (BJS) in Q1 2010. (PR)
Becton Dickinson (BDX): FQ4 EPS of $1.25 beats by $0.01. Revenue of $1.9B (+5%) in-line. (PR)
Comcast (CMCSA): Q3 EPS of $0.33 beats by $0.08. Revenue of $8.8B (+3%) in-line. Declares quarterly dividend of $0.0675. (PR I, II)
Diedrich Coffee (DDRX): FQ1 EPS of $0.07 beats by $0.02. Revenue of $15.8M (+52%) vs. $13.2M. Diedrich is being acquired by Peet's Coffee & Tea (PEET). (PR)
Foster Wheeler (FWLT): Q3 EPS of $0.71 beats by $0.08. Revenue of $1.22B (-29.2%) vs. $1.29B. (PR)
Garmin (GRMN): Q3 EPS of $1.02 beats by $0.03. Revenue of $781M (-10.2%) vs. $704M. Gross margin 52%. Operating margin 30% from 25% last year. (PR)
Huntsman (HUN): Q3 EPS of -$0.24 misses by $0.16. Revenue of $2.11B (+13%) vs. $1.95B. Says expansion of Asian ops "has allowed us to take advantage of markets less affected by the ongoing global recession." Anticipates economic recovery will continue. (PR)
Marsh & McLennan (MMC): Q3 EPS of $0.48 beats by $0.22. Revenue of $2.52B (-10.5%) vs. $2.6B. (PR)
Pulte Homes (PHM): Q3 EPS of -$1.15 misses by $0.46. Revenue of $1.09B (-30%) vs. $1.23B. Says results "reflect a homebuilding industry that continues its transition toward more stable market conditions as lower prices and historically low mortgage rates are helping to support homebuyer demand. Challenges remain, however, as economic weakness, foreclosures, rising unemployment and recent uncertainty over the expiration of the federal tax credit continue to influence buyer behavior." (PR)
R.R. Donnelley & Sons (RRD): Q3 EPS of $0.54 beats by $0.09. Revenue of $2.5B vs. $2.4B. (PR)
Time Warner (TWX): Q3 EPS of $0.61 beats by $0.08. Revenue of $7.13B (-5.9%) in-line.(PR I, II)
Tyco Electronics (TEL): Q3 EPS of $0.30 beats by $0.03. Revenue of $2.7B (-24.6%) vs. $2.6B. (PR)
XTO Energy (XTO): Q3 EPS of $0.86 beats by $0.02. Revenue of $2.29B (+7.7%) in-line. (PR)

Earnings: Tue. After Close

Anworth Mortgage Asset (ANH): Q3 EPS of $0.27 misses by $0.04. Interest income of $63M (-14%). Shares +2% AH. (PR)
CBL & Associates Properties (CBL): Q3 FFO of $0.50 beats by $0.03. Revenue of $263M (-8%) vs. $255M. Shares -0.8% AH. (PR)
Con-Way (CNW): Q3 EPS of $0.39 misses by $0.20. Revenue of $1.1B (-18%) in-line. Shares +0.1% AH. (PR)
Crown Castle International (CCI): Q3 EPS of -$0.13 misses by $0.09. Revenue of $429M (+12%) vs. $419M. Sees full-year EPS of -$0.58 to -$0.49 vs. -$0.45, on revenue of $1.54B vs. $1.66B. Shares -6.3% AH. (PR)
Digital River (DRIV): Q3 EPS of $0.42 beats by $0.01. Revenue of $99.4M (+3%) vs. $98.3M. Sees Q4 EPS of $0.30-0.34 vs. $0.42. Shares -1.3% AH. (PR)
Discovery (DISCA): Q3 EPS of $0.22 misses by $0.05. Revenue of $854M (+1%) vs. $850M. Shares -0.1% AH. (PR)
Excel Maritime (EXM): Q3 EPS of $0.81 beats by $0.68. Revenue of $174M (-25%) vs. $101M. Shares +6% AH. (PR)
Exco Resources (XCO): Q3 EPS of $0.20 misses by $0.02. Revenue of $131M (-70%) vs. $229M. Shares -0.5% AH. (PR)
Hartford Financial (HIG): Q3 core EPS of $1.56 beats by $0.45. Results exclude highly variable realized gains/losses. Raises full-year EPS guidance to $0.85-1.05 from $0.00-0.20, vs. $0.50. Shares +4.8% AH. (PR)
Kraft (KFT): Q3 EPS of $0.55 beats by $0.07. Revenue of $9.8B (-6%) vs. $10.3B. "Our volume/mix, profit margin and cash flow trends are strengthening as we successfully execute our growth plan." Shares -2.9% AH. (PR)
Onyx Pharmaceuticals (ONXX): Q3 EPS of $0.35 beats by $0.13. Revenue of $69M (+36%) vs. $65M. Shares -0.7% AH. (PR)
Pioneer Natural Resources Company (PXD): Q3 EPS of -$0.06 misses by $0.13. Revenue of $410M (-32%) vs. $400M. Shares -0.2% AH. (PR)
STEC (STEC): Q3 EPS of $0.50 beats by $0.03. Revenue of $98M (+54%) vs. $97M. Shares -31.9% AH. (PR)
Unum Group (UNM): Q3 EPS of $0.64 in-line. Revenue of $2.52B (+3%) vs. $2.56B. (PR)
Vivus (VVUS): Q3 EPS of -$0.30 beats by $0.01. Revenue of $4.3M (-2%) vs. $5.3M. Shares -3.7% AH. (PR
Yamana Gold (AUY): Q3 EPS of $0.12 misses by $0.01. Revenue of $333M (+50%) vs. $358M. Shares -2% AH. (PR)

Today's Markets

Overseas markets posted solid gains Wednesday after U.S. markets rebounded from early weakness to finish off Tuesday flat. Futures are higher in moderate overnight trading.

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Source: Seeking Alpha (Nov 04, 2009 - 7:19 AM EST)