Thursday, July 05, 2007

Paperstand (MAR, HOT, BSX, LIZ)

The WSJ out questioning, whether Marriott (MAR) and Starwood (HOT) might be next acquisitioning targets, in light of Blackstone (BX) agreement to acquire Hilton Hotels (HLT). Blackstone already controls more than 100K hotel rooms in the US and Europe through its ownership of LaQuinta Inns and Suites and LXR Luxury. In the last 3 years, Blackstone has acquired $15bn in hotel assets. By adding Hilton, Blackstone takes on a major, long-term business commitment. Blackstone will pay $47.50 a share, a 40% premium to Monday's closing price, and assume $6bn in debt.

The WSJ reports that Wall St. bond underwriters called off a $1.15bn sale of junk bonds on Tue that would pay for a LBO of ServiceMaster (SVM). Instead, ServiceMaster received its financing from a bridge loan directly from the underwriters, which they hope to replace in the coming months.

The WSJ reports that Coca-Cola (KO) has approached several private-equity firms involved in bidding for Cadbury Schweppes' (CSG) US drinks business about buying Cadbury's Snapple and Mott's brands. If successful, the purchase would mark Coke's latest effort to expand its portfolio beyond nonsoda brands as it moves aggressively to build a larger presence in the faster-growing mkts for juices, teas and waters. Speaking in Geneva yesterday, Coke Chmn and CEO E. Neville Isdell told Reuters that the co was evaluating a bid for Snapple. "That is a valuation that we undertake, whether [Snapple] is of interest to us or whether we can do it on our own."

"Heard on the Street" column highlights Boston Scientific (BSX), a co where little has gone right since its takeover of Guidant. Guidant's growth has been slower than anticipated, the stent business has deteriorated and the firm is still being restricted by the FDA from launching new products. To raise cash, Boston Scientific recently said it would consider selling part of its endosurgery unit. Moody's decided to review the co's debt for a possible downgrade. By itself, a drop to below investment grade wouldn't necessarily do harm to the co's share price. But bears who think the shares have further to fall say the co's sluggish cash flow and added debt load are the reasons it is pondering asset sales and sharp cost cuts. The co borrowed $9bn to buy Guidant, projecting that it would have $2.4bn in operating cash flow this year. But over the past year, defibrillator and pacemaker sales have declined 4%, and sales of the co's flagship Taxus stent have seen a 26% drop. Analysts generally expect $1bn in operating cash flow this year, less than half the premerger prediction. One drain on cash flow is interest payments, scheduled at $521m this year and $497m next year. A $650m principal payment is due on the Guidant debt in April. The co also has to make an annual payment in Jan to former shareholders of Advanced Bionics, which it expects will be about $200m. About $475m in capital expenditures are expected this year. Meanwhile, "probable" costs are rising from lawsuits that accuse Guidant of hiding flaws in its cardiac devices. After acquiring Guidant, Boston Scientific first predicted it would have to pay at least $381m in legal fees and settlements or damages in the first 477 cases. By March 31, that est had risen to $732m in 1,350 lawsuits. Assuming the cases were settled by the end of '08, and adding that to other likely expenditures, the co is looking at $3.5bn in cash outflows in the next 18mo's. With $1.3bn in cash on hand, it would run out of money in less than 3 years at that rate. Matthew Dodds, of Citigroup, who has a Sell recommendation on the stock, says that "in the world of medical technology, this is the most precarious I have seen a large-cap co in terms of their debt load and ability to pay it down."

Barron's Online discusses Liz Clairborne (LIZ), sayiong that the co is tailoring a turnaround that could get its profits and stock climbing like teenage hemlines. Fueled by unexpected bad news of falling sales and earnings, its shares fell 28% from their record reached in Feb to a 52w low in May. But at an investors meeting slated for next week, mgmt may unveil sweeping and profitable changes at Liz, including cost cuts, and big divestitures. Before the confab, insiders and big shareholders are buying the stock in anticipation of profits getting back on a growth track again next year. In May, Aim Trimark Investments and Lazard Asset Mgmt, two of Liz's biggest shareholders, added significantly to their holdings. And on May 3, director Paul Tierney made the biggest insider purchase of Liz stock in 4 years -- 30K shares for $1.1m. Liz will transform from an M&A-driven co to an organic-growth story," says Omar Saad, of Credit Suisse.

"Inside Scoop" section reports that Crown Castle's (CCI) largest shareholder, SPO Partners, spent $301.3m to purchase 8.41m shares during Crown's June 28 secondary offering. The hedge fund boosted its Crown stake to 42.4m shares, or a 14.9% stake. Michael Painchaud, of Market Profile Theorems, says that SPO's purchases are "supportive of the fundamentals of the co." Even so, this particular buying "doesn't do a heck of a lot in terms of timing and entry point" for investors b/c of the stock other institutions put up for sale in the secondary offering.

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