Thursday October 30, 2008
Navivest

Delta Air Lines, Inc. (DAL) and Northwest Airlines, Inc. (NWA) completed their merger yesterday, after they got the go ahead from the justice department. The news that both companies were in merger talks first leaked on February 11, 2008.

Under the all-stock $2.6 billion dollar deal, Northwest Airlines (NWA) is now a wholly owned subsidiary of Delta. The merger creates the world’s largest airline.

Northwest Airlines (NWA) stockholders will receive 1.25 Delta (DAL) shares for each Northwest Airlines (NWA) share they own and based on Delta’s (DAL) closing stock price on Oct. 29, 2008, this exchange ratio works out to $9.99 for each Northwest Airlines (NWA) common share.

Tags: Northwest Airlines  Delta Airlines  Merger

Monday October 27, 2008
Navivest

Telecom services provider CenturyTel Inc. (CTL) announced today that it will acquire EMBARQ Corp. (EQ), in a $5.8 billion deal. If the deal goes through, the combined company would have about 8 million landlines in 33 states.

Under the terms of the agreement, EMBARQ (EQ) shareholders will receive 1.37 CenturyTel (CTL) shares for each share of EMBARQ (EQ) common stock that they own. CenturyTel (CTL) will also assume $5.8 billion of EMBARQ’s (EQ) debt.

With CenturyTel’s (CTL) stock price close of $29.50 on Friday October 24, 2008, this translates into $40.42 in CenturyTel (CTL) stock for each EMBARQ (EQ) share, a 36% premium to EMBARQ’s (EQ) closing price of $29.74 on Friday and 11% over EMBARQ’s (EQ) average closing price over the past thirty trading days.

It is expected that the deal will be accretive to CenturyTel’s (CTL) free cash flow per share in 2010, the first full year following the expected closing in the second quarter of 2009.

CenturyTel’s (CTL) stock price has lost 29% so far this year, while EMBARQ (EQ) shares are off 40%.

Although CenturyTel (CTL) is the acquirer in this deal, EMBARQ (EQ)shareholders will own 66% of the combined entity.

According to the companies, “The transaction is expected to generate synergies of approximately $400 million annually within the first three years of operation. Key drivers of these synergies include reduction of corporate overhead, elimination of duplicate functions, enhanced revenue opportunities and increased operational efficiencies through the adoption of best practices and capabilities from each company.”

CenturyTel (CTL) provides telecom services including high-speed internet, phone service and entertainment service via DISH Network, to rural and small city markets in 25 states.
EMBARQ (CQ) provides the same services in its 18 state markets and is also the main telephone company in Las Vegas. The company used to be the landline arm of Sprint Nextel Corp., which spun it out in 2006.

 Tags: CenturyTel  EMBARQ  Mergers

Wednesday October 22, 2008
Navivest

Samsung, which on August 9, 2008, made a $26 unsolicited offer to acquire Sandisk (SNDK) for $26 a share, retracted its offer yesterday, one day after Sandisk (SNDK) posted its third quarter 2008 earnings results.

Sandisk (SNDK) had on September 15, 2008, already rejected the offer in a letter to Samsung that reflected “the board’s unanimous conclusion that the proposal is inadequate in multiple respects and not in the best interests of SanDisk’s stockholders.”

According to Sandisk (SNDK), both companies had had several meetings before Samsung made public the offer, and on one such meeting on May 22, 2008, “Samsung had expressed a willingness to pay a significant cash premium over the then $28.75 price of SanDisk’s shares.”

Samsung withdrew the offer in a letter to Sandisk (SNDK), in which Samsung CEO Lee Yoon-woo wrote that “Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organisation all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung,”

The relationship with Toshiba that Samsung referenced is an October 20, 2008 announced agreement in which Sandisk (SNDK) will sell 30% of its stake in a manufacturing joint venture that it has with Toshiba, to Toshiba, while continuing to be equal partners in the remaining 70%.

According to Sandisk (SNDK), it expects to “receive cash and reduce equipment lease obligations by approximately $1 billion through this transaction.”

Despite the withdrawal of its buyout offer however, there is still a chance that Samsung could come back to the negotiating table, as one reason it probably wants to buy Sandisk (SNDK) is because it currently pays hundreds of millions of dollars in royalty payments annually to Sandisk (SNDK).

Analysts estimate that Samsung is responsible for 90% of SanDisk’s (SNDK) royalty income and forecasts for SanDisk’s (SNDK) 2008 royalty income are $405 million, which would mean this year alone, Samsung has to fork over $364 million.

So this could possibly be a ploy to put pressure on SanDisk’s (SNDK) stock, which might then cause shareholders to start pushing for a deal with Samsung.

SanDisk’s (SNDK) shares closed at $14.76 on Tuesday, October 21, 2008.

 
Tags: SanDisk  Samsung

Wachovia (WB) has ended merger talks with Citigroup (C) and Wells Fargo (WFC) has now made an offer for the company. Should the merger go through, Wachovia (WB) shareholders will receive .1991 shares of Wells Fargo (WFC) for each Wachovia (WB) share they own. Using Wells Fargo’s (WFC) closing price of $35.16 on Tursday 10/02/08, the offer is valued at $7 per share or $15.1 billion. Wachovia (WB) shares closed at $3.91.

Tags: Wachovia  Wells Fargo  Citigroup

In what is being termed a strategic alliance by Morgan Stanley (MS), Mitsubishi UFJ (MTU) on Monday 09/22/08, announced that it will purchase a 10-20% stake in Morgan Stanley (MS). Mitsubishi UFJ (MTU) will make the investment after completion of its due diligence and upon the closing, will elect a representative to sit on the Morgan Stanley board.

According  to Morgan Stanley, the investment “in addition to further strengthening the Firm’s capital position, this alliance would benefit Morgan Stanley and MUFG by providing each with a valuable strategic partner as it seeks to enhance its global footprint and capture financial services opportunities around the world.  Morgan Stanley was granted approval yesterday by the U.S. Federal Reserve Board of Governors to become a Federal Bank Holding Company.”

Morgan Stanley’s (MS) stock which closed on Friday 09/19/08 at $27.21, opened at $30.76 on Monday, reached a high of $31.65, but ended up closing at $27.09, down $0.12.

 
Tags: Morgan Stanley  Mitsubishi UFJ

According to the New York Times, Morgan Stanley (MS) is considering a merger with Wachovia Bank (WB). The paper is reporting that Wachovia (WB) approached Morgan Stanley’s (MS) CEO John Mack, and very preliminary talks are now underway.

Both companies are under tremendous pressure, as their stocks have been beaten down in the wake of the credit crisis, the Lehman (LEH) bankruptcy and the takeover of AIG (AIG) by the government.

Companies typically worry about their stock price as a general course of business, but this time there is an added sense of concern. The meltdown of Bear Stearns started with a rapid decline of that company’s stock. Then credit default swaps, which are used to insure against default of a company’s debt, for Bear Stearns debt rose dramatically in price and this is seen as a sign that a company is now very risky and has diminishing chances of paying off those debts. A company in that position is also seen as having little chance of survival. The same is now happening to other banks and Wall Street firms.

When this happens, it has a tendency to become a self-fulfilling prophecy. As concerns as to whether a company can pay of its debt grows, customers may start pulling money while trading partners stop doing business with the company so as not to take on undue risks. This then leads to failure. With Morgan Stanley (MS) and Wachovia (WB) now in that boat, they are looking for ways to stay alive and shore up investor confidence.

Morgan Stanley (MS) shares are down a further 8% in after hours trading on the news, while Wachovia (WB) is up 3%.

Tags: Morgan Stanley  Wachovia  Merger

Korea’s Samsung Electronics on Tuesday 09/16/08, made public a $26 a share offer for flash memory products company Sandisk (SNDK). The $26 per share offer translates into $5.85 billion. The news was released after the markets closed and Sandisk (SNDK) shares rallied 52% or $7.89 to $22.93. The offer comes after four months of discussions among the two companies.

Sandisk (SNDK) has rejected the offer, claiming that it undervalues the company and reiterating that Samsung had been looking to pay about $28.75 for the company.

Tags: Sandisk  Samsung  Acquisition

Walgreens (WAG) on Friday evening, offered $3 billion or $75 per share, including the assumption of roughly $200 million in debt, for all the shares of Longs Drugs Stores (LDG). This is an all cash offer.

The offer counters a $71.50 bid that CVS (CVS) made for Longs Drug Stores (LDG) on August 12th of this year.

That deal faced opposition from top Longs (LDG) shareholders, including Advisory Research Inc, which owns 9.2% of Longs and Pershing Square Capital Management, who’ve stated that the CVS (CVS) bid undervalues Longs (LDG) real estate holdings and claiming that they won’t tender their shares to CVS (CVS). Longs (LDG) owns more than 490 stores in California, Hawaii, and Nevada.

Walgreens’ (WAG) bid ups the ante and could possibly lead to an escalated bidding war for Long’s Drug Stores (LDG). The CEO of Walgreen, Jeffrey Rein in a letter to Longs Drug Stores’ (LDG) board of directors, said that the company would prefer to negotiate with the company directly, but was also ready to take the offer directly to the company’s shareholders. It also offered to pay a $115 million termination fee that Longs (LDG) would have to pay to CVS, if the agreement with CVS was terminated.

CVS had stated that it would not raise its offer, but we don’t see them sitting idly by while their major competitor acquires Longs (LDG), which would give the eventual acquirer a very strong presence on the West Coast. Walgreens (WAG) is also proposing to acquire Longs’ (LDG) RxAmerica which offers prescription benefits to 8 million subscribers. That can’t sit well with CVS (CVS), so patient traders and investors can probably assume a higher bid above $75 will probably be coming.

Longs (LDG) shares are rising $2.84 to $74.50 in after hours trading.

Tags: CVS  Walgreens  Longs Drug Stores

Lehman Brothers (LEH) which closed last Friday at $16.09, hit an intraday high of $17.53 today, although it has since pulled back for a gain of only $0.31 on confirmation that Korea Development Bank is interested in the company.

In an interview last week, the CEO of Korea Development Bank Min Euoo-sung, said that discussions were under way “to form a consortium with private banks as we believe it is more desirable to acquire Lehman Brothers jointly rather than alone.”

Lehman (LEH) is supposedly looking for Korea Development Bank to invest roughly $6 billion for a twenty five percent stake, which means that Lehman (LEH) has internal an valuation of $24 billion on the company although we don’t know if they are including Lehman’s (LEH) asset management division, which includes Neuberger Berman that Lehman (LEH) supposedly has been shopping around. It is expected that Neuberger Berman could fetch up to $10 billion in a sale. Lehman’s (LEH) current market capitalization is $11.54 billion.

Whether a purchase by Korea Development Bank in whole or in part of Lehman (LEH), will actually go through, is a major unknown right now, as they have had disagreements on price. Also, Korea Development Bank may not be able to line up other partners to form a consortium.

Korea Development Bank might have a strong bias towards investing in Lehman (LEH) as the CEO Min Euoo-sung, used to head up the Korean division of Lehman (LEH) however, other banks might be reticent to invent in such a troubled asset.

tags: Lehman Brothers

CVS Caremark (CVS) announced on Tuesday 08/12/08, that it will be acquiring Longs Drug Stores (LDG). Longs (LDG) has about 490 stores in the western United States and Hawaii. The deal is valued at $71.50 all cash per share, or $2.9 billion, including assumption of Long’s (LDG) debt. For the latest fiscal year, Longs Drug Stores (LDG) generated revenues of $5.2 billion and EBITDA of $276 million.

CVS Caremark (CVS) expects the deal to provide it with outstanding store network in the highly attractive Central and North California markets and Hawaiian markets, as well as expanding CVS’ (CVS) position as the number one provider of prescriptions in the United States.

Upon completion of the deal, CVS Caremark (CVS) also expects to achieve cost synergies of approximately $100 million in 2009 and roughly $140-$150 million in 2010. These will result from purchasing efficiencies and a reduction of corporate expenses.

Longs Drug Stores’ (LDG) shares are soaring in after hours. The stock closed at $54.04, down $1.07, but are trading up $16.16 or 29.9%, to $70.20.

 The deal is expected to close in the fourth quarter of 2008.

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