Wednesday, June 20, 2007

Paperstand (MGM, BBY, GYI, ADSK, GES)

The WSJ reports that Kirk Kerkorian's plans to take over two of the prized assets of MGM Mirage (MGM) were on the verge of being withdrawn last night. MGM was thrown into uncertainty after Mr. Kerkorian made a surprise announcement that he was interested in purchasing the Bellagio Hotel&Casino and the $7.4bn Project CityCenter out of the wider co. His intentions appeared to put the whole casino co in play, with the co's convening a special committee to advise it on how to proceed. MGM Mirage's stock soared and yesterday traded 37% higher than its preannouncement levels. But Mr. Kerkorian appears to have backed down from his original plan, in part b/c of the valuation implied by MGM's new JV plans with Kerzner Intl. (KZL). The co is expected to disband the special committee.

According to the WSJ, 2 big hedge funds at Bear Stearns (BSC) were close to being shut down last night as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall St. and investors. Merrill Lynch (MER), one of the hedge funds' lenders, said it would move to seize collateral, much of it mortgage-backed debt, from the 2 funds and sell it. At the same time, the funds' managers worked with a handful of other key lenders, including Goldman Sachs (GS) and BofA (BAC), to pay off the funds' $9bn in loans. As of a few weeks ago, the 2 Bear Stearns hedge funds held more than $20bn of investments, mostly in complex securities made up of bonds backed by subprime mortgages. In recent weeks, however, the firm's High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund have been besieged by investors and lenders trying to recover their money as the value of the funds' underlying bonds fell sharply.

Responding to complaints by Google (GOOG) to state and federal antitrust enforcers, Microsoft (MSFT) agreed to change its Vista in advance of a court hearing next week that will review its compliance with a ‘02 antitrust settlement. The DoJ and state attorneys general said that Microsoft has agreed to make changes later this year that will make it easier for competitors to run their desktop search programs with Vista.

“Heard on the Street” column discusses Best Buy (BBY), whose shares tumbled yesterday, following its earnings miss and reduced forecast. While bulls think the stock can hold its ground for the next qtr or two amid an industry shakeout, bears counter that Best Buy's strategy of rapidly gaining share in a cutthroat electronics-retailing industry might not be worth the cost. So far, Best Buy, widely regarded as the best consumer-electronics retailer, has resisted that pressure. Investors have cause to be spooked by the electronics-retailing industry. Circuit City has shuffled its mgmt ranks and laid off workers. Tweeter Home filed for Ch11 this month. CompUSA closed more than half of its stores this year. "Our concerns have been around the competitive dynamics of the consumer-electronics industry," said Loomis Sayles analyst Eric Meyers. "The greatest growth of the TV cycle is behind us. The attempt to differentiate yourself with services, which is partially what Best Buy is doing, is challenging. We have reservations about the ultimate earnings power of the co going forward."

The WSJ reports that Getty Images (GYI) plans to announce today that it is acquiring Pump Audio for $42m. For Getty, buying Pump represents the latest step to expand beyond its core business.

“Inside Track” section reports that after months of being prohibited from selling shares, 13 insiders at Autodesk (ADSK) sold $45m of the co's stock in a span of 14 days this month. Autodesk instructed insiders not to buy or sell shares while the co completed an internal review of stock-option accounting. The results of that review, which included charges of $34.8m, were released June 4, and the insider stock sales began the next day.

Barron’s Online out saying that though not cheap, shares of Merck (MRK), Amylin Pharma (AMLN) and perhaps industry laggard Nektar (NKTR) could gain 20% or more over the next year if physicians pen the right prescriptions. "It's an enormous mkt, and a safe and effective drug will reap big benefits," says David Kliff, of Diabetic Investor newsletter. "This is a dangerous time for investors to play whose pipeline has the next wonder drug. So the safest play over the next 12 mo’s is co’s with existing therapies gaining mkt share." Suffered by almost 21m Americans, diabetes could strike as many as 30m adults and children in the next qrtr century.

“Inside Scoop” section reports that selling must be in the genes, as the brotherly duo atop Guess (GES) sold nearly $60m worth of stock in the co last week. Since last Tue, Chmn Maurice Marciano has sold 716K shares for $35.3m; and Vice Chmn and CEO Paul Marciano sold 500K shares last week for $24.6m. When it comes to insider transactions Guess ranks low. Thomson Financial currently rates the co at 1 on its 1-10 Insider scale (with 1 being the most bearish). The avg insider rating for the apparel industry is 4.27 compared with 3.7 for the S&P's 500 at large.

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