Advanced Micro Buys ATI, Graphics Maker, for $5.4 Billion (Bloomberg)
This had been a rumor last week, but now it's on as chipmaker AMD will buy graphics-chip maker ATI in a deal worth $5.4 billion. The price represents a 24% premium over ATI's closing price, as much of the deal will be based on cash. AMD has been rapidly gobbling up share from Intel for the last year, but of late Intel has been throwing its muscle around, drastically cutting prices. Given the company's size it can afford to inflict pain on itself for longer than AMD can take. So while the markets are sure to give the deal a thumbs down, from a long-term perspective, to diversify their holdings and gain some size, the deal may be smart. The move also should give concern to nVidia, ATI's main rival, which now finds it self up against a much larger opponent.
Fewer Treasuries but More Stocks on Foreigners’ U.S. Shopping Lists (NYT)
There's a certain individual who always stalks us at parties demanding to talk about things like gold, silver, commodities, fiat currency, and the trade deficit as soon as we walk through the door. By the time we arrive, everyone else is too inebriated for his tastes. He's convinced that we're on the verge of a dollar collapse, though he's probably felt this way since Nixon took off the gold standard. Nevertheless, the Times has an interesting piece for him about the shifting composition of the trade deficit. While recently it was central banks blindly buying treasuries to keep down their own currencies, it is increasingly made up, now, of private investors buying stocks and corporate bonds. And while central banks have ulterior motives (that don't have anything to do with profit!), private investors generally don't. So the fact that so much buying of US assets is by private investors, investing in non-government securities would seem like a positive vote for the dollar. Certainly some good stuff in here to add to the mix, next time you find yourself in the same discussion.
Rate Peak in Sight, Finally (Barron's)
It's become something of a joke. We've been hearing about rate peaks for so long, it's hard to believe it when it may be close at hand. It's been like waiting at a restaurant, with slow service, and getting up to go to the bathroom every 10 minutes, hoping that when you get back the food will have arrived. And yet it never does. But maybe that's what the waiter's holding now. The markets seemed to believe it last week, as we saw a few days of powerful gains. This was in response to new Bernanke testimony before congress, in which he warned about the cost of borrowing. It may finally be close at hand. The Fed Futures are anticipating no rate hike at the August meeting. And in fact, as many have predicted, the Fed may be forced to start a cutting cycle before too long, perhaps sometime in 2007. Awesome.
Ross, Buyer of Assets, Is Selling Own Firm (NYT)
Businessmen at the top of their game -- particularly when it's the buyout game -- tend to have names like Wilbur Ross. Ross, known as a king of buying distressed companies, gutting them, and turning them in to profitable enterprises is selling his firm. W.L. Ross & Co. has agreed to be bought out by London's Amvescap, though Ross himself will stay active at the firm. In fact, the move seems strategic for the company, as opposed to a sign that they're giving up. The high levels of distressed debt, combined with rising interest rates, creates an exciting times for the company. The buyout will infuse the company with cash at just the right time. The payout will go almost entirely to Ross, though other managers at the company will be remunerated with restricted Amvescap stock.
Bain, Merrill, KKR to Offer $21 Billion for HCA, People Say (Bloomberg)
A group of private equity firms are gearing up to make a bid for hospital operator HCA. This has been floating around for sometime, though last week it was reported that the deal was off. If the numbers go through as expected ($21 billion for the equity, $10 billion in assumed debt), it would be close to the largest every private equity buyout. The $31.3 billion paid for Nabisco in 1989 still remains the largest. Given the increasing audacity and appetite by private equity buyers, it's a surprise this record remains intact. But private equity's gotten smarter too. The battle for Nabisco represented a fierce bidding war, that drove the price much higher than any partner had intended. With HCA, several companies including Bain, Merrill Lynch and Kohlberg, Kravis Roberts & Co. are teaming up, meaning they can work together instead of having to continually hit the bid button on eBay.
Merck profit rises, boosts year view (Marketwatch)
Well, look there. That's Merck busting up through a fresh 52-week high on quarterly numbers that came in higher than expectations. The company solidly beat top and bottom-line numbers, and guided higher than expected going forward. Add to this the company's recent victory in a Vioxx trial, the company's solid dividend, and you have all the makings of a new darling -- so soon after being so unpopular. It's like one of those teen movies where all the new (arty) girl had to do was take off her glasses, and ditch the pig-tails and she gets to date the star football player. Will Merck win homecoming queen?
More Flexibility By Europe's Labor Stokes a Recovery (WSJ)
If even old Europe can start to turn things around, it gives hope to us all. The German labor force is starting to realize that it needs to compete too. In the face of increased offshoring and high unemployment, employees and their unions are negotiating reasonable compromises to employment plans such as slightly smaller wage increases, increased shifts (yes, Saturday shifts) and other compromises. Meanwhile, German industry is starting to open up new plants in the country for the first time. Those who argue that it's simply a matter of cheaper wages, that workers in developed countries can't compete with, are wrong. It's the overall environment, including the flexibility of the labor force that determines where investment is made.
Too Good for Lowe's and Home Depot? (WSJ)
The big-box retailers are among the most powerful forces in commerce. It's not that they have power over consumers -- if they did, they wouldn't have to focus so much on low prices -- it's their power over suppliers. Because being on the shelves at a Wal-Mart or a Home Depot is seen as vital to the business of so many small companies, these suppliers have little choice but to cave into these retailers' demands. But what if things switched. What if suppliers, particularly the ones with strong brands, refused to play ball. The chainsaw maker, Stihl, whose products play prominently in ESPN's outdoor games is running ads bragging about the fact that their products can not be found at the big-box home supply stores. Instead you have to go to one of 8,000 independent shops that peddle Stihl wares. Could this work? Could Stihl take advantage of Home Depot's pedestrian image to appeal to the true lumberjack that doesn't shop with the masses. It seems possible, and it wouldn't be a surprise to see more fed-up sellers try this tactic.
Do-a-deal Monday looms (CNNMoney)
Somehow "Do-a-deal Monday" doesn't have the same ring to it as "Merger Monday" so we're not expecting this one to stick. Yes, as you've read above, there are a number of deals that are happening, or close to happening this weekend. And what never ceases to confound -- perhaps a reader can explain -- is why days like this are always assumed to be a positive for the market. Take the AMD deal; yes ATI is up, but AMD will almost certainly be down today. For the most part, the market won't like the deal from AMD's perspective, at least not initially. If nothing else, it's going to take AMD a long time to prove that the expense is worth it, and until then the market will be skeptical. So why would investors bid up the market on the whole on the news, when the deal itself is viewed with caution. Furthermore, why would these isolated deals have any bearing on other companies at all?