Thursday, June 21, 2007

Paperstand (MO, RCI, KKD)

The WSJs ”Ahead of the Tape” column out saying that it’s going to take more than a little tax legislation to scare investors away from Blackstone Group's IPO. Blackstone aims to set a price for its IPO tonight. At about $4bn, it would be the largest US offering since Travelers Property (TRV) went public. Proposed legislation in the US Senate would nix the favorable tax treatment the private-equity firm was counting on. But that doesn't seem to be killing appetite for the offering. "Every institution that's out there is going to take a position in this stock," said David Menlow, of The draw? The "amazing returns" on Blackstone's funds, which have turned the firm into a colossus with $88bn in assets, he says. Blackstone moved up the pricing date from next week. Some investors took that as a sign that the firm's underwriters already had ginned up all the demand they needed. Mr. Menlow predicts the stock will jump tomorrow, when it starts trading.

According to the WSJ, the Altria Group (MO) Philip Morris unit is preparing for a tectonic change - regulation of tobacco by the FDA. With Democrats in charge of Congress, the long-debated step appears more likely than ever. A Senate bill is expected to clear a key committee next month, and companion legislation has been introduced in the House. Both bills would give the FDA broad sway over tobacco products, including the power to set product standards, which could include limiting certain ingredients in cigarettes. Tobacco makers would have to turn over to the agency extensive information about their products. The bills also dangle a potentially lucrative opportunity. They say that if a new kind of cigarette can be scientifically proven to "significantly reduce harm" to smokers, and its availability would also benefit the health of "the population as a whole," the cigarette's marketing claims may win approval from the FDA. Philip Morris, which is working on a slew of new products it hopes might qualify for FDA-approved health claims, acknowledges it must transform itself into a credible player in the expected scientific debates at the FDA. So the co is trying to emulate an industry already under the agency's purview, the drug co’s. The co has a number of highly engineered products in the works, all of which are designed to possibly reduce tobacco's dangers.

Barron’s Online discuses Rogers Comm. (RCI), whose stock is up 45% this year. Rogers is more expensive than Comcast now, but with good reason: It's two co’s in one. It's not just the biggest cable outfit, it's also the largest wireless operator. Rogers' 7m wireless customers are bringing the co rising ARPU in a mkt where only about 60% of likely cellphone customers have a phone. For Rogers, that means operating profit margins in wireless approaching 50%, higher than either wireless or cable operators down here. While there is 15% or so upside to the stock from a recent price of $44, there could be more upside as ests continue to rise for the co's growth in EBITDA. "Rogers is not cheap anymore, but the growth prospects are higher than they've been and margins are widening," says Stephen Gauthier, of Gauthier & Cie.

“Inside Scoop” section reports that Krispy Kreme Doughnuts’ (KKD) largest shareholder has taken another bite out of the doughnut maker, raising its stake by 20% or 1.25m shares. Mohamed Abdulmohsin Al Kharafi & Sons, a Kuwaiti-based firm led by the Al Kharafi family, now owns 7.37m shares, or 11.4% of Krispy Kreme. Jonathan Moreland, of, says the latest transactions could be the beginning of a positive insider profile for KKD. "What's missing here are the insiders themselves," Moreland notes, referring to the co's officers and directors.

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