Opening Bell: 7.31.06

Author:
Publish date:

Hollywood Agents (Oligopoly Watch)
If you caught last night's episode of Entourage, then you already know the lesson here. The world of Hollywood agencies is a tight oligopoly, with little inclination to see a new competitor. It's actually, what's dubbed an "ologonomy", since the firms are both an oligopoly (they sell talent to the studios) and oligopsonies (they control who becomes a talent, who gets in their doors). And it's only consolidating as ICM, one of the big five, has bought slightly smaller rival Broder Webb Chervin Silbermann Agency. The other big ones, including Endeavor, William Morris, Creative Artists Agency, and United Talent Agency may also look to pursue M&A. So with such a tightly controlled business, and what you can assume are some pretty fat profit margins, you can understand how disturbed they'd be at the emergence of an Ari Gold talent agency, or, as it were, a Miller/Gold agency. And, reminder, we already referenced Entourage at the top and that's a picture of actor Jeremy Piven, so we're not falling into any Joe Kernan trap here.
Official Union Set Up in China at Wal-Mart (NYT)
First it was Maryland, then Chicago, then perhaps Boston, now China is the latest place to regulate to seek labor concessions from Wal-Mart. The country demands that the All-China Federation of Trade Unions be allowed to set up branches within Wal-Mart, representing employees. And unlike Maryland, there's probably no court that Wal-Mart can turn to to get the order over ruled on the grounds of constitutionality. That being said, the All-China Federation of Trade Unions might not be very hostile to the company; it has a reputation for siding with management on issues, particularly since the state-backed union is eager to attract foreign capital. For its part, Wal-Mart hopes to have a "cordial and productive relationship" with it.
A Revitalized US Airways Is Creating a Merger Buzz (NYT)
The overall market remains on shaky ground, but some of the big winners this year are companies we might have left for dead in 2005. GM's the biggest, but US Airways is another company exhibiting a surprising reversal of fortune. The company's shares have surged since it merged with America West and it earned a substantial, genuine profit in its most recent earnings report, which came out last week. The company is now the second most profitable airline, after Southwest. This of course will only fuel the calls for consolidation in the space, though these calls have been around for a while. Still, despite the seductiveness of this idea, it's hard to pull off airline M&A. See, airlines don't mix well for a number of reasons. For one thing, at the labor level, pilot seniority means everything. Where you stand on the list determines your flights, pay, vacations, etc. When you mix two lists of pilots, things get icky. Then there's the fleets, which if they're much different can create new waves of headaches. And of course, you'd like to find an airline with complementary locations, so not every potential partner is really viable. So despite the calls and demands from Wall St., which would love to advise on some of these deals, we'll remain leery that much will happen.

Stocks headed for early pullback (CNNMoney)

It's hard to wake up on a Monday morning, but the day holds its own allure for followers of financial markets, as we eagerly scan the headlines to see what big deals were closed over the weekend. Lately, we've seen several 'Merger Mondays', but this morning seems awfully quiet on this front, which is disappointing. Most people will wonder why they didn't hit snooze one more time. In turn, there's probably not going to be a merger-driven rally today. There may be a rally, but not one fueled by an otherwise suspect deal. And if you believe the crystal ball readers, there won't be any rally today, due to tensions in the Mid-East, which despite the fact that they were escalated all of last week, somehow couldn't permeate US markets. And there's a lot of economic data on tap for this week too, which may only confirm that we're headed to, er, a soft landing.


SanDisk to buy Israel's M-Systems for around 1.6 bln usd in shares (AFX)
There is one deal to report today, but it came out late last night, so it was hardly exciting to read about this morning. SanDisk, which dominated the removable flash storage market, due to its extensive portfolio of related patents is buying out rival M-Systems for$1.6 billion in SanDisk shares. It seems like a strange move at first blush. Because of its intellectual property, SanDisk collects some nice royalties every time its rivals sell a flash card for your camera. And because this is basically free money, it feeds right down to the bottom line, contributing to some relatively fat margins for a company involved in selling storage, which is generally a zero-to-negative margin business. So how does this change if M-Systems is now part of the SanDisk family? We'll have to wait for the conference call.
Blair Calls for `Final Effort' to Restart Trade Talks in Weeks (Bloomberg)
Just maybe, the cold, dying hand of the latest trade talks can squeeze out an icy grip once more, before it's officially laid to rest. Tony Blair claims that he and Bush want to give it one more go, to see if they can't hammer out a deal. He says the two leaders have spoken since the collapse and agree that more effort is needed to pursue something. It sounds like they have company in South Africa's Thabo Mbeki, who says that talks must be revitalized. He insisted that last week's collapse was not the "final word on the matter". We're not optimistic yet, but we'll pull our punches about who's to blame, at least for a day.
Lesbians' pay (Stumbling & Mumbling)
If you're about to make a new hire, and you greedily think to yourself "we should hire a woman so we can pay her $0.75 on the dollar", just be sure she's straight. A new study indicates that lesbians make, on average, 11% more than their hetero counterparts. It seems pretty obvious that this must be due to anti-straight bias amonge employers, something that should be met with a swift response by various rights groups.
The Economy's Pop-Tart Problem (BusinessWeek)
Have you ever looked at the exact basket of items found in the CPI? It's a pretty quaint list of items -- sweet rolls, if we recall, is one of them. No word on what's been happening in the sweet roll market, but if the price of Pop-Tarts is any indication, their price is probably up on the order off 3% this year. Kellogg recently had to raise its prices on a number of breakfast foods as high gas prices conspired with high commodity prices to dramatically push their costs. And it's those little things, like Pop-Tarts that worry economists, out of fears that higher prices on consumer goods will drive a wedge between the wealthy and lower classes. Sentiment, in recent polls, remains generally positive, but it's been deteriorating at the lower end, as consumers are getting squeezed on prices. So maybe, finally, we'll see the vaunted consumer slowdown that we've been hearing about for years. What is it they say about broken clocks twice a day?
Gabelli, with fraud charges settled, approved to bid in FCC wireless auction (AP)
America is really into its second chances. "Super" Mario Gabelli, the man from Rye, NY and one-time favorite of the CNBC set has been cleared to bid in an FCC wireless auction. This comes on the heels of a settlement over fraudulent bidding in a.... FCC wireless auction. Good times. Gabelli's settlement was, apparently, structure specifically to allow future participation by him, as he hopes to grab a slice of spectrum that is currently used by the government, but which is being transferred to private hands for commercial use.

Related