When the Swedish government put Vin & Spirit, parent company of Absolut Vodka, up for sale more than a year ago, industry experts estimated it would fetch over $4 billion.
Now, Pernod Ricard, a French liquor company, is buying the brand for $8.89 billion. Absolut is the third largest spirit brand in the world, and the sale attracted the interest of many of the industry's top players: Fortune Brands (NYSE: FO), Diageo and Bacardi.
What makes the high valuation afforded to Absolut so interesting is that Pernod Ricard is paying nearly $9 billion for a brand that only really came to prominence in its current form in the 1980s.
With its racy and provocative ads (like the one on this post), Absolut was one of the first mainstream brands to aggressively target the gay community. Back when the sale effort was first announced, I opined that targeting gay media outlets was a decision that paid off, as this large, and often affluent population group, now counts Absolut as its vodka of choice. Perhaps a company like Budweiser, which has been widely criticized for spending money on ads (such as the Super Bowl) that have done little for the brand, could learn something from Absolut's edgy marketing.
The M&A field is in a rough patch right now, struggling from a tough debt market and general economic malaise. But apparently, strategic buyers are still able to pay up for strong brands.
TheStreet.com's Jim Cramer says the bad news is relentless, and people are discouraged.
Each day seems to be filled with so much disappointment. The American Axle (NYSE: AXL) (Cramer's Take) strike, for example, has now pretty much shut down General Motors (NYSE: GM) (Cramer's Take), and I see no signs that AXL can defeat the union. Given how heavily dependent the Midwest region is on GM for steady income, this one can only exacerbate the terrible real estate market and hence the terrible mortgage delinquencies that pockmark Indiana, Michigan and Ohio.
Or the loss of the Absolut brand for Fortune Brands (NYSE: FO) (Cramer's Take). Fortune needed to win this one because its home improvement business is falling off a cliff. This was a vain attempt to diversify a division that has always helped the company in tough times.
Or the Vytorin studies, nothing new, as we knew that parts of the medical community doesn't approve of the drug, but the analysts had held out hope and we have and are going to see repeated downgrades of the stock. I am telling subscribers of Action Alerts PLUS that Schering (NYSE: SGP) (Cramer's Take) stock, at $16 -- where it is surely headed -- has now lost more than half its value, which reflects the pulling of the drug. As 50% of the company's earnings are reportedly from the drug, perhaps that's a fitting decline. I think SGP is worth a lot more because of the purchase of Oraganon. I have been very wrong. My solace: So many others have been, too.
TheStreet.com's Jim Cramer says these are the stocks that you should watch.
Some stocks have just been totally given up on, as if nothing good can ever happen to them. Check out Masco (NYSE: MAS) (Cramer's Take) , for example. Masco's a great company, always has been -- a dominant supplier to the housing industry, both remodel and original. This company, which MAKES money, is selling at almost a 5% yield and no one cares.
Or how about Fortune Brands (NYSE: FO) (Cramer's Take)? It has a terrific housing component -- dominant player -- and one of the best spirits businesses. We found out from Diageo (NYSE: DEO) recently that they have a great business in spirits, and the company may be on the verge of getting Absolut, a fantastic brand. The stock trades at an amazingly low multiple. Or consider Black & Decker (NYSE: BDK) (Cramer's Take) , one the great innovators with a classically pro-shareholder bias.
These companies are making good money in the worst environment imaginable. They have decent balance sheets. When this period ends, they will be dominant players, taking share from everyone.
Mining giant BHP Billiton (NYSE: BHP)'s $110 billion offer for Rio Tinto (NYSE: RTP) has been rejected by the latter, with Rio indicating that the all-share offer was too low.
Further, talk on Wall Street Thursday tended to side with BHP making a better offer for Rio, amid chatter that Rio may seek an alternate offer from Brazilian rival, Vale.
BHP's shares fell $2.70 to $77.65 Thursday morning, while Rio's surged $94.70 to $452.20.
Analysts had projected that a BHP/Rio deal could have become the largest acquisition in history. Thursday's offer, however, was not high enough for Rio's directors apparently.
Getting and keeping brand recognition is a critical part of any business endeavor. There is an outfit in Atlanta that ranks among the best in achieving those goals. The company's product list is one of the best recognized anywhere.
Newell Rubbermaid (NYSE: NWL) manufactures and distributes a wide variety of consumer and commercial products. Offerings include a long list of well-known home and office brands, including Levolor blinds, Lenox hand tools, Sharpie pens, Rolodex record holders, Amerock cabinet hardware, DYMO label makers, Graco children's products and Rubbermaid items. Competitors include Avery Dennison (NYSE: AVY) and Fortune Brands (NYSE: FO).
The firm pleased investors earlier in the week, when it raised Q3 guidance. Management now sees EPS of 48-50 cents (45 cent consensus) and revenue growth near the high end of the previously estimated 5-7% range. Strength in the Home & Family and Tools & Hardware segments were cited in support of the adjustment. The company also boosted Y07 EPS guidance to $1.74-1.78 ($1.76 consensus).
MOST NOTEWORTHY: Sun Microsystems (JAVA), FMC Technologies (FTI), TorreyPines (TPTX), and Exelixis (EXEL) were today's noteworthy initiations:
Sun Microsystems Inc (NASDAQ: JAVA) was initiated with a Market Perform at BMO Capital, which views the shares' risk/reward as favorable around $5.
FMC Technologies Inc (NYSE: FTI) was initiated with a Buy by Jefferies, which believes strong subsea fundamentals will drive strong earnings by the company.
TorreyPines Therapeutics Inc (NASDAQ: TPTX) was initiated with a Strong Buy at JMP Securities, which said PhIIb data in Q4 on the company's tezampanel drug could increase investor conviction on the first in-class drug.
Exelixis Inc (NASDAQ: EXEL) was initiated with a Buy by Lazard, which believes Exelixis has a promising pipeline.
OTHER INITIATIONS:
Fortune Brands Inc (NYSE: FO) was assumed with a Neutral rating by JMP Securities.
If your Final Jeopardy question read "What U.S. state is home to the biggest wine producer in the world?", would you answer California? You'd be wrong. It's New York! In fact, the Fairport, N.Y. firm in question sells more than 250 brands of flavored ethanol.
Constellation Brands (NYSE: STZ) produces and markets wine, spirits and beer. The Wines division is responsible for such brands as Robert Mondavi, Inniskillin, Simi, Arbor Mist and Blackthorn (cider). The Spirits division distills such brands as Black Velvet, Chi-Chi's, Fleischmann's, Canadian LTD and Mr. Boston. The Imports division has the right to import, market, and sell Corona Extra, Corona Light, Modelo Especial, Pacifico and St. Pauli Girl. The firm distributes its products through wholesalers, government beverage control agencies and various retailers in some 150 countries. Diageo (NYSE: DEO) and Fortune Brands (NYSE: FO) are major competitors.
The company pleased investors late last month, when it reported solid Q1 results and guided FY08 EPS in-line with the average Street estimate. The CEO announced an acquisition strategy focused on European expansion, premium spirits and niche wines. Banc of America Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $27. The news kept STZ shares cycling through a positive 10-week trading channel. The price is currently moving near the base of that channel, where oversold CCI, Stochastic and Momentum technical parameters suggest the potential for a rise back toward the top.
Altogether, brokers recommend the issue with two "strong buys," one "buy," eleven "holds" and one "sell." Analysts see a 22% growth rate through the next year. The STZ P/E ratio (20.60), Price to Sales ratio (1.02), Price to Book ratio (1.73) and Price to Cash Flow ratio (11.93) compare favorably with industry, sector and S&P 500 averages. Institutions own about 84% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $18.83 and $29.17. A stop-loss of $20.50 looks good here.
MOST NOTEWORTHY: HouseValues, Inc (SOLD), Fortune Brands (FO), D.R. Horton (DHI), Dicks Sporting Goods (DKS) and USG Corp (USG) were some of today's noteworthy initiations:
Cantor believes HouseValues (NASDAQ: SOLD) may be a lagging indicator of the broader real estate market. As such, it may see its customer and revenue bases contract further in the face of still-sluggish housing data and started shares with a Hold rating.
Pali Research initiated Fortune Brands (NYSE: FO) with a Neutral rating based on valuation.
The firm also believes D.R. Horton's (NYSE: DHI) risk to book value and profitability is higher than some of the competition since the company has taken significantly less land charges. Shares were initiated with a Hold rating.
Dick's Sporting Goods (NYSE: DKS) was initiated with an Outperform at Baird and is positive on Dick's store expansion, market leadership, margin opportunities and fundamentals.
USG (NYSE: USG) was initiated with a Sell rating at Banc of America, believing wallboard price and profit declines will be worse than expected due to lower housing starts and less spending on remodeling. Their analysis suggests another leg down for housing...
OTHER INITIATIONS:
Morgan Joseph started Jamba, Inc (NASDAQ: JMBA) with a Buy rating.
William Ackman's Pershing Square Capital Management, whose firms holds about 15% of Ceridian Corporation (NYSE: CEN), doesn't like the proposed $5.3B sale of the company to Thomas H. Lee Partners and Fidelity National Financial Inc (NYSE: FNF), and says he's going to find higher bidders, according to the Wall Street Journal.
The Financial Times reported that British bank Barclays PLC (NYSE: BCS) has drawn up plans to sweeten its $86B all-share offer for Dutch bank ABN Amro Holdings (NYSE: ABN), by substituting cash for some of the shares it is currently offering for ABN.
Beginning today, Apple Inc (NASDAQ: AAPL) is embedding its iTunes internet music download service in the British and Irish social networking site Bebo, reported the Financial Times.
OTHER PAPERS:
The New York Post has learned that a private-equity firm owned by the Dubai government is close to buying Barneys New York from the Jones Apparel Group (NYSE: JNY).
The New York Times reported that the Wall Street Journal is set to "shake up its newsroom" by reassigning and replacing several top editors.
Warren Buffett, Chairman and CEO of Berkshire Hathaway (NYSE:BRK.A) has been doing some big time cogitating about the future. He plans to donate the lion's share of his wealth to the Gates Foundation. Recently, he said he was looking for an understudy with the right investing temperament and wisdom to lead Berkshire. There are reports that his office has been swamped with resumes. Some are reaching to the bottom of the barrel in suggesting that I seek an audience. Perhaps they were stimulated by another Serious Money: Freight Railroads - BNI, CSX, UNP & more story which I posted the day before Berkshire Hathaway announced it had become BNI's largest shareholder.
So with this and other prescient commentary I recently posted, I was asked to present some ideas on what acquisitions Berkshire might consider given Buffett's eagerness to find a good deal. It is likely that Buffett will bring several people on board to play the role of Chief Investment Officer for different segments of the company. Nobody in their right mind believes that Buffett is replaceable.
In any event here are some of my ideas on the subject. All of my ideas follow a pattern favored by Buffett including low P/E, P/S, P/B, and P/CF's, as well as a high return on equity and low debt.
On today's STOP TRADING! on CNBC, Cramer said that American Standard Companies, Inc. (NYSE: ASD) is a stealth housing play where it is splitting itself up at the bottom. Cramer thinks this one is good, but he wants to avoid the other housing stocks and other homebuilders. This is one that will benefit from remodeling as it is big into bathrooms. Cramer thinks American Standard sells very well at Lowe's Companies. Inc. (NYSE: LOW) and LOW hasn't gone back to recent stock lows. He thinks this home weakness is still weighing on Fortune Brands, Inc. (NYSE: FO).
If the weak dollar persists, Cramer said the best play for this is The Coca-Cola Company (NYSE: KO). He thinks the numbers ahead will drive the stock up to $55 or even potentially $60.
Cramer also noted that MasterCard Inc. (NYSE: MA) is signaling that its problems are behind it. He thinks it is cheap and it is one of his favorite names right now.
MOST NOTEWORTHY: Fortune Brands (FO) and Altria Group (MO) were today's more notable downgrades:
JP Morgan downgraded Fortune Brands (NYSE: FO) to Neutral from Overweight on valuation and the weak outlook for home and hardware sales.
Altria Group (NYSE: MO) was downgraded by Deutsche Bank to Hold from Buy with a $95 target, citing its valuation, ex-Kraft, is more in line with its tobacco peers.
OTHER DOWNGRADES:
CheckPoint Software Tech (NASDAQ: CHKP) was downgraded to Underperform from Market Perform with a $19 target at Freedman Billings, with expectations that 2007 will be a difficult transition year.
Matrix USA downgraded shares of Boyd Gaming (NYSE: BYD) to Hold from Buy on valuation.
Goldman Sachs downgraded TRW Automotive Hldg (NYSE: TRW) to Sell from Neutral and was added to the America's Sell List; they believe rising costs, a less favorable product mix and commercial steering business headwinds will weigh on revenue growth and margins in 2007.
On today's STOP TRADING segment on CNBC, Jim Cramer reviewed a couple of ideas to make money.
On Graco Inc. (NYSE:GGG), Cramer thinks the CEO is great. He said if it wasn't for The Home Depot, Inc. (NYSE:HD) the stock would be up. The CEO reportedly said the worst drop in housing was behind. Cramer said the Home Depot is its own problem and its own worst enemy. Cramer said he thinks Lowe's Companies, Inc. (NYSE:LOW) will be able to climb from here.
Cramer said Target Corporation (NYSE:TGT) can go higher as well.
He said American Standard Companies Inc. (NYSE:ASD) and Fortune Brands, Inc. (NYSE:FO) have bottomed.
Cramer also said the Big 3 even after meeting with Bush are just a trying situation and Toyota Motor Corporation (ADR) (NYSE:TM) is the play there.
Cramer said to take the profit on Express Scripts, Inc. (NASDAQ:ESRX), so ring the register according to him.
Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers.
U.S. stocks rallied today as traders and investors reacted to positive earnings and outlooks from Exxon Mobil (XOM), Aetna (AET), Sprint Nextel (S) and Comcast (CMCSK). The S&P 500 was up .50%, NASDAQ 100 rallied .96%, The Dow was up .24% and the 10 year bond rate declined to 4.72%. The CBOE VIX sold off .10 to 10.56.
Clear Channel Communications(CCU) rallied $3.13 to $35.48 after announcing the hiring of Goldman Sachs as its investment bank to help it evaluate strategic alternatives. CCU will report EPS on 10/30. CCU call option volume of 29,144 contracts compared to put volume of 4,156 contracts. CCU option implied volatility of 24 is below yesterday's level of 33 suggesting decreasing price fluctuations.
Red Hat (RHAT), a leading open source and Linux operating system provider, declined 24% to $14.83 after ORCL announced support for Red Hat Linux. RHAT call option volume of 73,780 contracts compared to put volume of 60,451 contracts. RHAT November option implied volatility rose to 55, above its 26-week average of 47, suggesting larger price risks.
Fortune Brands (FO) is expected to report EPS of $1.33 on 10/27. FO November 80 calls have traded 337 times on transaction volume of 9,770 contracts, above its open interest of 654 contracts, suggesting increased hedging.
Microsoft Corporation (NASDAQ: MSFT) 1st quarter earnings rose 11% to $3.48 billion, r .35 cents a share. MSFT options were active on call volume of 210,869 contracts and 118,018 puts. MSFT November option implied volatility of 21 is near its 26-week average, suggesting non-directional price risks.
Options Update is provided by Paul Foster and TheFlyOnTheWall.com (subscription required).
MOST NOTEWORTHY: Fortune Brands (FO) and Advanced Micro Devices (AMD) top today's small list of initiations.
Fortune Brands, Inc. (NYSE:FO) was initiated with a Neutral rating and $86 target. The firm expects the weak housing market to put pressure on the shares.
Morgan Stanley resumed coverage on Advanced Micro Devices, Inc. (NYSE:AMD) with a Equal Weight, citing risk to the ATI Technologies (ATYT) acquisition.
OTHER INITIATIONS:
Morgan Stanley initiated Toll Brothers, Inc. (NYSE:TOL) with an Overweight rating and $23 target. The firm expects the high-end single-family market to outperform the group.
Benihana, Inc. (NASDAQ:BNHNA) was initiated with an Outperform at Ryan Beck. The firm is positive on Benihana's accelerated remodeling program and potential growth from the company's RA Sushi concept.
When the Swedish government put Vin & Spirit, parent company of Absolut Vodka, up for sale more than a year ago, industry experts estimated it would fetch over $4 billion.
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average Street estimate. The CEO announced an acquisition strategy focused on European expansion, premium spirits and niche wines. Banc of America Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $27. The news kept STZ shares cycling through a positive 10-week trading channel. The price is currently moving near the base of that channel, where oversold CCI, Stochastic and Momentum technical parameters suggest the potential for a rise back toward the top.
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