UK GDP Shrinks 0.6%, TUI Bonds Offering

UK second quarter GDP was revised to a decrease of 0.6% from the first quarter or 5.5% annual rate decline. The previous estimate was 0.7% fall. TUI Travel on track and raises £440 million for loan refinancing. Mortgage loans issuance increased to 21-month high.

Deal Profile: Xerox to Buy ACS

A week after Dell paid a 68% premium for Perot Systems, Xerox has scooped up business-services provider Affliated Computer Services–and for just a 34% premium.

Xerox agreed to buy ACS in a deal initially valued at $6.4 billion, as the copier maker follows other technology giants in increasing its services revenue. The deal for ACS, of Dallas, is expected to nearly triple Xerox’s services revenue to an estimated $10 billion next year from 2008’s $3.5 billion.

Based on the Friday closing prices, Xerox’s deal values ACS shares at $63.11 each, just 55 cents below the stock’s record of February 2006. Holders would get $18.60 and 4.935 shares of Xerox for each ACS share. Xerox also will assume $2 billion of ACS debt and issue $300 million of convertible preferred stock.

Below is Dealogic’s profile of the deal.


Nokia maps a path to Dopplr’s door

Nokia has acquired Dopplr, an online community of frequent travellers, giving an early payday for the site’s large group of high-profile backers. The acquisition is part of Nokia’s plan to create a comprehensive set of services for its mobile devices, including maps, music and gaming. Dopplr – whose tagline is “where next?” – allows its members to [...]

Xerox copies Dell for a big M&A deal

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In the global tech industry, the services business has become a strategic asset. Last week, Dell (NASDAQ: DELL) agreed to shell out a whopping $3.9 billion for Perot Systems (NYSE: PER).

Now, there's another biggie deal: Xerox (NASDAQ: XRX) has agreed to pay $6.4 billion for Affiliated Computers Services (NASDAQ: ACS). Just like Dell, Xerox's core hardware business is undergoing lots of pressure. So why not expand into something else?

Continue reading Xerox copies Dell for a big M&A deal

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Look Beyond Big Numbers for Hints to Fed Policy

Members of the Federal Reserve like to think they act pre-emptively. But decision-making is harder when the economy is at a turning point. That’s not only because the economy is so fragile, but also because the data typically give conflicting views of strength. As a result, the Fed intends to look beyond the usual spate of economic reports to guide policy.

Just consider last week’s scrambled data on housing, factories and consumers.

In August, existing home sales unexpectedly fell 2.7%, but new home sales rose 0.7% for the fifth consecutive gain.

Despite the conflicting sales data, the Fed believes the worst is over. In the statement released after its Sept. 22-23 policy meeting, the Fed said, “activity in the housing sector has increased.”

Friday’s news from the durable goods sector was another source of conflict since it clashed with earlier reports that showed a growing factory sector.

Total durable goods orders unexpectedly fell 2.4% in August, and July orders were revised downward. Although much of the drop was in aircraft, the nondefense capital goods sector — seen as a proxy for business investment — showed weakness. New orders fell 0.4%, the second decline in a row, and shipments dropped 1.9%.

Thanks to the weakness in shipments and a continued drop in inventories, Macroeconomic Advisors cut their estimate of third-quarter gross domestic product growth to 2.8% from the 3.3% increase that had prevailed in recent weeks.

Offsetting the drag from the business sector, however, are better consumer attitudes. The final September reading of the consumer sentiment index jumped to 73.5 — the highest reading since January 2008.

Consumers might feel a little happier because regional manufacturing surveys along with the gradual drop in jobless claims suggest that layoffs are easing. But fewer job losses are not the same as job gains. The unemployment rate will keep rising into 2010, putting the pressure on the Fed — especially from politicians — to stay accommodative.

To be sure, given the importance that wage growth has in consumer spending and inflation expectations, the Fed will take into account the labor markets before it makes any monetary decisions. But the employment report — along with other monthly numbers — probably won’t be the main guides for coming shifts in policy.

NSM: Mixed Signals on Analyst Day

Analysts hoofing it over to National Semiconductor’s (NSM) annual analyst day and shareholder meeting in Santa Clara came away with more questions than answers about where growth will come from and whether the stock will continue to be supported by a rebound in global chip sales.

Jonathan Pitzer, Credit Suisse: The companies sales remain vulnerable to the onslaught by Texas Instruments (TXN) in the analog chip market. He notes the company is promising 100% EPS growth on just 27% revenue growth going forward, owing to operating expense cuts. However, a lot of that hinges on the company building its business selling chips for Light Emitting Diode (LED) systems to $100 million annually within 2-3 years. Pitzer maintains a “Neutral” rating on the shares and a $14 price target.

Christopher Danely, JP Morgan: The company’s gross profit margin of 61% of sales can eventually reach 70% on a better mix of chips sold and an increase in factory utilization rates. However, the “issue is growth” cautions Danely. Many other analog firms offer the same product strengths in power-management chips, and National has average a 3% drop in revenue, on average, the last three years. The company’s growth will be “challenged” unless it cuts prices. Nevertheless, Danely has an “Overweight” rating on the stock. His price target is $14.

Craig Ellis, Caris & Co.: Ellis walked away with greater clarity about sources of revenue growth, he writes, including the aforementioned sales of LED parts, parts for solar panel systems, and chips for automotive entertainment systems and safety systems. These three things could lead to an additional $65 million per quarter in revenue for the firm. However, he expects much of this is baked into investor expectations, and the bear attitude — “show me” — may dominate the stock. Ellis maintains an “Above Average” rating and a $20 price target.

Those are decidedly tepid views compared to Citigroup’s Terence Whalen, who last Thursday raised his rating on the stock to “Buy” from “Hold,” with greater conviction that the company will see gross margin leverage in coming quarters.

National shares today are up 24 cents, or 1.7%, at $14.83.

In India, Downturn Is Hardest On New Startups

Last year, U.S. seed-stage companies attracted more dollars than they had since 2000 and investments in U.S. early-stage companies were down by less than 10 percent.

In India, however, investments in early-stage startups plunged in 2008 by 90%, even though overall venture investment was down by *just* 63%, from $22 billion to $8.1 billion (according to the India Venture Capital & Private Equity Report 2009 by Thillai Rajan and Ashish Deshmukh at IIT in Madras).

Young companies in India have trouble getting money anyway — between 2004 and 2008, they attracted only 9% of deals — but in a recession, “venture capitalists play it safe and hardly venture in funding early stage startups,” according to Arun Prabhudesai, author of the Indian business blog

Instead, they go for the more mature companies –  they especially liked late stage deals (33%) and PIPEs (28%).

In the U.S. last year, though, investments in later stage deals and expansion stage deals were both down, by 13% and 9% respectively. (U.S. data comes from the MoneyTree report, put together by the NVCA, PricewaterhouseCoopers and Thomson Reuters).

DFJ’s Mohanjit Jolly told peHUB earlier this month that true seed stage funding doesn’t exist yet in India, and that venture capital can’t function well there until it does. In Silicon Valley, he said, angel investors invest at least as much in startups as VCs.


Danaher will be scanning the economy for profits

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There are trends you ignore and trends investors should not ignore. And one investors should not ignore is the bar code trend. Trend? It's becoming a world of bar codes.

And with the above in mind, I'm reiterating my Buy rating for Danaher Corp. (NYSE: DHR), first recommended on June 4, 2009, at a price of $62.95.

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The great Lehman derivatives muddle

Every now and then, a bit of news comes around that threatens to turn the world as we know it on its head.  The purported decision by a US bankruptcy court to overrule one of the fundamental tenets of the derivatives market - the ISDA Master Agreement - may turn out to be something of a game-changer....

La Fiber est Morte – We’ve Been Fooled Twice

At the end of my last post, I exclaimed "Vive la Fiber!"  In light of this morning's second major fiber failure, that comment is now extremely ironic.  The fiber connection did not "vive" (live long).  It did not "vive" much at all.

Compounding the problem, our cell phone alerts didn't go off for various reasons - thus we didn't discover the problem until after 9:00am Eastern (6:00am local time).

After spending 30 minutes ensuring that it was indeed a problem with the fiber connection, we had our ISP manually move our web traffic back onto our four older T3 circuits.  That process finished around 10:20am Eastern.

We are now working on four different issues to try and get back to the level of reliability that you expect from us.

1.) We are waiting for the cable operator - AboveNet - to find the problem and fix it.  We assume there was another break in the cable somewhere, but we are waiting for confirmation.

2.) We will never put all of our traffic on just one AboveNet fiber link again.  Despite the obvious benefits of increased speed and bandwidth, the reliability is not there and reliability trumps everything.  This is a case of "Fool me twice."   Once the problem is found and fixed, we will work with our ISP to configure things so that if the Fiber connection fails again, things will automatically switch over to the T3 circuits immediately.  The older T3 circuits are very expensive, but we are now going to keep them around to ensure reliability.

3.) We are expanding the number of people that get cell phone alerts whenever there's a problem with our website.  We will also be testing those cell phone alerts more frequently.

4.) We are making changes to ensure that our Status blog is always available even when the rest of the website is offline.  You should be able to visit at any time and see our site status.

As you can see from our Pingdom Monitoring report, we've been down 14 hours 38 minutes this month.  This is our worst month by far for outages.  Despite all evidence to the contrary, we are working hard regain your trust on these issues.  I will post additional information as it becomes available.

Monday M&A Quarterback: Citigroup and BarCap, King for a Day

Citigroup’s competitors like to say its wobbly state is causing the bank’s clients to flee. Today, at least, the evidence suggests otherwise.

The bank advised on the two biggest deals announced today–another Monday that gives hope that the M&A deep-freeze is thawing. Citigroup advised Solvay on the $7 billion sale of its drug division to Abbott Laboratories (along with Morgan Stanley and Rothschild). It also advised Affiliated Computer Services on its surprise $6.4 billion sale to Xerox. (J.P. Morgan Chase, Blackstone Group and Evercore Partners were also on the deal.) Citigroup advised the seller in both cases, meaning that in any deal scenario it stood to emerge a winner, and earn a hefty fee.

Also putting in a strong showing today was Barclays Capital, the former also-ran in investment banking that is seeking to become a global powerhouse following its purchase of Lehman Brothers’ U.S. platform. Barclays was sole adviser to Abbott, and it advised Crucell, the Dutch vaccine company, on its sale of a stake to Johnson & Johnson, also announced today.

The flip side of Citigroup’s and BarCap’s glory is Goldman Sachs Group’s uncharacteristic absence from the party today, with no advisory credit on any of the above.

While it is unclear what the back story on the ACS deal is, in the case of Solvay, the perennial merger champion backed the wrong horse.

Goldman advised Nycomed, the perceived front-runner until Abbott, the U.S. health-care giant, re-emerged with an all-cash, self-financed offer that far exceeded Nycomed’s final bid, according to a person familiar with the matter.

One day and two big deals hardly a trend makes, and its rivals will say Goldman still is their most fearsome M&A competitor.

Nevertheless, Goldman lags behind Morgan Stanley in Thomson Reuters’ league tables that rank investment banks by the dollar volume of deals advised on, followed by Citigroup, which is a distant third. (In Dealogic’s rankings, Goldman maintains the top spot.) Were Goldman to remain in that position at year end, it would be the first time in 13 years that the storied firm hasn’t finished in the No. 1 slot in the Thomson poll.

Stanford hospitalized following prison fight

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Accused Ponzi scheme perpetrator R. Allen Stanford was hospitalized Thursday following an altercation with another inmate. He was hospitalized in an undisclosed location, according to U.S. Marshals Service spokesman Alfredo Perez, and is expected to be released on Monday.

Stanford, who is 59 years old, sustained only superficial wounds, according to Perez. Given the limited physical damage, the reason for the extended hospitalization is unclear. Stanford's attorney, Kent Schaffer, says that a doctor was going to MRI Stanford but expected problems because of a metal stint. But, he has not linked the MRI to any specific condition.

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Call selling hits U.S. Natural Gas Fund as new share creation resumes

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The United States Natural Gas Fund LP (NYSE: UNG) resumed issuing new shares Monday, ending a long drought for the exchange-traded fund (ETF). UNG, which tracks price changes in natural gas, hasn't issued new creation baskets (blocks of 10,000 units) since June, thanks in part to newly enacted position limits on the federal and exchange level.

While it's back to business as usual, traders should still proceed with caution when it comes to this commodity-based fund. UNG warned late Friday that its units are still trading at a premium to its net asset value (NAV), which could spell trouble for investors.

Continue reading Call selling hits U.S. Natural Gas Fund as new share creation resumes

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Recrod Foreign Investments In India

International investors increased their net exposure to India stocks by $11 billion, surpassing the record increase last year. Tata Consultancy estimated 20% increase in sales. Pantaloon Retail rises on better than expected results. Abbott India and Solvay Pharma surge. Rupee edges lower.

Monday links: fundamental design flaws

Earnings revisions are at a two-year high.  (Bespoke)

Emerging market bond spreads have been halved YTD.  (EconomPic Data)

Everyone thinks interest rates are going higher.  (Clusterstock)

Checking in on some credit market indicators.  (Calculated Risk)

Taking a look at the longer term cycles for the VIX.  (VIX and More)

Research into the relationship between the dispersion in equity returns, the VIX and forward alphas.  (SSRN)

Research shows hedge fund replication did its job during the crisis.  (FT Alphaville also Clusterstock)

There still remain some skeptics in the hedge fund world on the sustainability of the rally.  (WSJ)

Xerox (XRX) overpays Affiliated Computer Services (ACS).  (24/7 Wall St.)

An aluminum-backed ETF is in the works.  (WSJ)

On the value of using a “true market portfolio as a basic framework for designing and managing portfolios through time.”  (Capital Spectator)

Who knew?  Apparently some firms are still issuing closed-end mutual funds?  (WSJ)

On the business model of the options seminar companies.  (Condor Options)

Did Canadian banks miss an opportunity to expand in the midst of the crisis?  (Breakingviews)

The financial system has “fundamental design flaws” that have little to do with “greed, overconfidence and outright stupidity.”  (New Yorker also Big Picture, FT Alphaville)

An interview with Adam Warner of the Daily Options Report.  (Options for Rookies)

A profile of psychologist and behavioral economics pioneer Daniel Kahneman.  (IMF via Freakonomics)

Will Morningstar (MORN) buy the Dow Jones index business? (Pensions & Investments)

A blog-filled profile of the fast-rising and plenty controversial Zero Hedge.  (New York also The Reformed Broker, Matt Taibbi)

NBC Universal is franchising local versions of CNBC all around the world.  (NYTimes)

Sportswriters for hire.  Professional teams are hiring former sportswriters for their websites.  (NYTimes)

Racehorse prices are in freefall.  (Infectious Greed)

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