Opening Bell: 6.27.06

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Blizzard of Deals Heralds an Era Of Megamergers (WSJ)
2006 is putting 2005 to shame. The blockbusters keep coming rolling, in a range of industries like Spanish-language broadcasting, software, steel, and stock markets. Some expect the size of this year's merger market to hit (are you sitting down?) $3.5 trillion. Analysts are blaming the usual suspects, like cheap credit, global competitiveness and lowered anti-trust. Nobody seemed willing to offer other explanations like weak growth prospects, lack of vision among companies, or executive megalomania. This is all good news for Wall St. (though you, dear reader, have every right to dread the six-month news-cycle that bonus season has become), but even better news it that according to one observer, the cycle's just getting started.
Nickel merger is a mining disaster (The Star)
Sometimes the best way to get a feel for how silly some American pundits/writers sound is to replace the word 'America' with the word 'Canada' (or some other location) in a given piece. Fortunately, David Olive at Toronto's The Star does that for us in decrying Phelps Dodge's purchase of nickel miners Inco and Falconbridge: And by depriving Toronto of its two biggest locally headquartered mining firms, the planned deal would greatly diminish the city's stature as one of the world capitals of mining finance. Hmm, does David Olive think that Phelps is actually going to move the mines to the US? It also represents a further hollowing out of Corporate Canada... Ha, Corporate Canada, that's a good one. The new company, to be the largest mining firm on the continent, would be based in Phelps Dodge's hometown of Phoenix, and run by the CEO of the U.S. firm. Oh the horror that the headquarters change location. After the initial hysterics, it's actually a good piece on the details of the Phelps/Inco/Falconbridge merger. But really, Corporate Canada?
Is a Fed Surprise On Tap? (BusinessWeek)
Fed watching, as a profession, is truly the bastion of scoundrels. It's perhaps forgivable, since the Fed itself is such an impenetrable mystery, but the game of reading individuals' minds, and then basing economic forecasts on said clairvoyance is really quite a parlor trick. Some "noted Fed watchers" think its possible that Bernanke and co. will pull out the rare double-shot of espresso come Thursday, raising rates by 50 basis points, instead of the expected 25. The idea being that they'll be able to get it all over with in one fell swoop, while leaving no doubt that they're hawks. Of course, these "noted Fed watchers" aren't actually predicting this will happen. In fact, they'll probably admit that it's unlikely. Basically they're hedging, just like any other psychics do "did someone with a name in the second half of the alphabet die or get sick in your family?" You get the idea.
Arcelor's Chief Is Ousted From Mittal Partnership (NYT)
No surprise there; Arcelor's chief is gone. It's not an unusual for executives to get the ax after a merger (you didn't think Lakshmi Mittal would go for the co-ceos thing), but Guy Dolle never helped his case for a job. He called Mittal products cheap "eau du cologne" compared to Arcelor's Perfume. Oh such wit. He also called Lakshmi a Money Monkey, which some interpreted to be racist, or at a minimum a really immature. So yeah, his ouster was pretty much assured.


Guidant's new alert probably not last (Pioneer Press)
Yesterday, Boston Scientific announced product concerns out of their Guidant division, noting that some pacemakers and defibrillators could fail unexpectedly. What wasn't unexpected was Boston Scientifics admission that more warnings come out in the future. They now see deep problems with Guidant manufacturing (probably wish they had known about this before they got into their pissing war with J&J, eh?). If there's anything certain in this world, it's that the stent-makers and other cardio-device makers will have manufacturing issues. And it's really, really tough to do a real recall on products lodged in peoples' hearts. They're not going as far as asking doctors to take them out, but they do want doctors to schedule exams on peoples' pacemakers, just to make sure they're still ticking ok.
47,600 Take Offer of Buyouts at G.M. and Delphi (NYT)
Congratulations to General Motors for getting a third of its workforce to jump ship. So are we any closer to understanding what this means? Is GM Now a lean, employee-reducing, accounting-profits machine? Or are the 47,600 employees who took the money trying to tell us something, that they didn't expect their jobs to be around much longer anyway. Arguably, the numbers are misleading. 30,400 of those who took the deal were 26-year vets of the company, who will be eligible for full, early retirement packages, including salary and full benefits. So they're jettisoning the bodies, but not so much the costs. One analyst expected GM's annual earnings to rise by $1.25 for every 10,000 employees who left.
Vonage’s (VG) New Concept: Pre-Marketing EBITDA! (Barron's Tech Trader Daily)
If you're covering the tech industry at all, you're making a mistake by not reading Eric Savitz's Tech Trader Daily blog at Barron's Online. Savitz, the publications' West coast editor is a graceful natural on the blog, and adds insight to the myriad tech/finance stories he comes across each day. On that note, the surest way to improve your cash flow is to ignore all your expenses, just write them off. Increasingly, we've seen an increase in EBITDAM, basically wiping off marketing costs and seeing where you stand. There's a certain logic to this. Yes, technically, you could stop all marketing and customer acquisition today and see where you are, but not only would that never happen, it would be a bad idea. At least with good ol' plain vanilla EBITDA, you can perform the famous EV/EBITDA valuation, to determine the company's attractiveness to a suitor. Not so with EBITDAM. So for Vonage to already be talking about this is probably a bad sign.
Google Gets Ready to Test GBuy, A New Online-Payment Option (WSJ)
Probably starting tomorrow, Google will roll out its new GBuy system for processing online payments. Whether the company says so or not, people will see this as a direct competitor to the wildly popular PayPal, which is owned by eBay. So far it's not clear what will make GBuy a PayPal killer, other than the fact that Google will integrate it into its search engine. According to the Journal, a GBuy icon will appear next to some ads, indicating that the merchant accepts GBuy. Ok, so this gives GBuy some edge, because users know where it's accepted before they go to a site if they go to the site via Google ads, but is this it? It seems like the company will have to do something a little more revolutionary in order for GBuy to avoid the fate of most other Google launches.
Sirius' Karmazin - would like to buy XM Satellite (Reuters)
Here's a question that we've never got a good answer to: what are the regulatory issues pertaining to a monopoly over a brand new industry. At a conference yesterday, Sirius CEO Mel Karmazin indicated that if the price were right, and if they could get over regulatory issues, that one day Sirius might like to buy out its rival XM. Now, if such a merger ever did occur (probably unlikely) that would cause the Herfindahl index to skyrocket, as there would only be one major player in the satellite radio industry. This might raise the hackles of the FTC, but a few years ago there wasn't a satellite radio industry at all. Does that matter? Does it matter that these companies created their industry from scratch and should be able to do what they want with it, or is it assumed that the competitive duopoly is simply the natural state of play, and anything else is a scandalous deviation. Any ideas?

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