Friday, June 22, 2007

Paperstand (BP, ADM, POOL, PSS, JNY)

The WSJ reports that BP (BP), facing pressure from the Kremlin, is close to a deal that would cede its holdings in a $20bn Russian natural-gas project to state-controlled gas monopoly Gazprom. If sealed, the deal would mark the Kremlin's latest move to take control of Russia's energy resources, a process that often has come at the expense of Western co’s and investors. Under a deal taking shape, BP's Russian joint venture, TNK-BP, would sell its 62.7% stake in the Kovykta field to Gazprom for close to $1bn. BP and Gazprom would then launch negotiations on forming a $3bn global joint venture involving projects in Russia and elsewhere.

The WSJ reprots that Archer-Daniels-Midland (ADM) is preparing to enter the sugar-cane-ethanol business in Brazil. Such a move by the co would mark an endorsement of a gasoline substitute that competes directly with the corn-based approach used by US ethanol co’s. ADM is exploring a variety of strategies to enter Brazil's sugar-cane-ethanol mkt, ranging from building sugar-cane mills and ethanol plants from the ground up to acquiring sugar-cane co’s. ADM's senior VP of strategy, Steve Mills, said the co hasn't ruled out an outright purchase of Cosan, Brazil's largest ethanol producer, in which ADM owns a small stake.

Barron’s Online discusses Pool Corp. (POOL), saying that current challenges to future growth mean that shares of the co could start to sink. Even corporate insiders get the message, judging by the heavy selling that's been going on. The weakened housing mkt has hurt demand for new pools, while cooler weather has delayed new pool construction and the opening of existing pools that would require maintenance and supplies. Increased spending to open up new sale centers catering to local pool builders and the development of Pool's nascent irrigation and landscaping business to service pool owners and golf courses, for example, will be a drag on earnings in the near term. These initiatives are expected to help the co sustain a 20% earnings growth rate in the long run, but their benefits are not expected to start kicking in till ‘08. Pool shares look fully valued given tough conditions and the dearth of near-term catalysts to help the stock. Pool stock is trading 20.4x earnings ests, a 24% premium to the S&P's 500. Short sellers have commandeered 20% of the co's outstanding shares, which Michael Cox, of Piper Jaffray, says "is really predicated on a tie to the housing mkt."

“Inside Scoop” section reports that Diaco Investments disclosed ownership of an 8.8% stake, or 5.7m shares, in Payless Shoesource (PSS) on June 15, making it the co's 2nd-largest shareholder. Diaco is the investment vehicle of investor Simon Glick. Mr. Glick said that he started buying into Payless shares in Aug’06 and that he built up his stake b/c "I like the business and I have a high regard for its mgmt." Diaco's decision to step into Payless shares "is a good signal in terms of at least one institutional investor having confidence in the Stride Rite acquisition" and the co's decision to turn toward higher-end, branded footwear, says Ben Silverman, of Silverman cautions, however, that the limited information available on Diaco's investing style means that it is hard to gauge how Simon Glick may be planning to manage his Payless shares, or how long he plans to hold the stock.

The NY Times reports that the Jones Apparel (JNY) was near a deal late last night to sell Barneys NY (BNNY.OB), the high-fashion chain, for about $825m to the investment arm of the Dubai govt. The sale would end Jones Apparel’s 3-year ownership of Barneys, whose Madison Avenue emporium is considered one of fashion’s trophies but which never fit within Jones Apparel’s mass-mkt stable of brands like Anne Klein, Jones New York and Nine West. The investment arm of Dubai, Istithmar, has been on a buying spree in the last 3 years, purchasing $1.6bn of high-profile businesses and real estate.

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