Wall Street Breakfast: Must-Know News

• M&M talks M&A. Sources say privately-held Mars Inc. and Berkshire Hathaway (BRK.A) are in late-stage talks to acquire Wrigley (WWY) for more than $22 billion. Wrigley's stock market value as of Friday's close was $17.3B. For funding the deal, Buffett's Berkshire will become a stakeholder in the new combo. A merger could force Hershey (HSY) and Cadbury (CSG), who have already talked, to merge too. Buffett, the WSJ says, has long admired Mars, which may explain his uncharacteristic willingness to do a partnership deal. (Let your mind wander -- the deal elicits a veritable candy shop of metaphors. Give us your best in the comments.)
• Continental abandons merger talks. Continental (CAL) dropped out of the airline industry game of musical chairs, saying Sunday it has abandoned merger talks with United (UAUA) and would remain independent. United, which had hoped to reach a deal as early as this week, was stunned by the abrupt about-face. Continental was put off by United's wide earnings miss last week, which sent its shares down 29% on the week. Executives feared a merger could jeopardize the company. United parent UAL is now likely to pursue a merger with US Airways (LCC). Continental is expected to pursue a three-way non-merging alliance with American Airlines (AMR) and British Airways (BAIRY.PK).
• Wall Street treads carefully ahead. A surge in investor appetite for corporate bonds and a recent drop in "flight-to-safety" Treasurys over the past two weeks may be early signs the worst of the credit crisis is behind us. Spreads between the two are down, making it easier for firms to raise capital. "The fear of an economic meltdown has at least subsided," Pimco's Mark Kiesel says. Other analysts are less enthusiastic. Jason DeSena Trennert of Strategas Research thinks the current bounce is a mirage: "I think this is a head-fake." It could still take another couple years to unwind the credit market mess, he says.
• $200 oil. OPEC President Chakib Khelil says $200/barrel oil is possible, not due to a lack of supply but rather a weak U.S. dollar. "Stocks are high, demand is easing, supply is satisfactory," he said. "The prices are high due to the fact of the recession in the United States and the economic crisis which has touched several countries." Khelil told journalists a 10% appreciation in the dollar could drop oil prices by 40%.
• Diller forges ahead with breakup. IAC/InterActive (IACI) CEO Barry Diller will convene his board this week to restart the process of spinning off four companies from IACI -- HSN home-shopping network, Ticketmaster, Interval International, and LendingTree. IAC will keep Ask.com and Match.com and other assets. The move follows Diller's court victory over Liberty Media (LINTA) CEO John Malone, whose 62% voting stake in IACI will be halved as a result of the spinoff. Sources say Diller and Malone are trying to put the high-profile trial behind them and reach some kind of a deal. Liberty has an eye on HSN to combine with its QVC.
• Matsushita rises on strong earnings, merger rumor. Quarterly profits at Matsushita Electric Industrial (MC) more than doubled to ¥61.6B ($589M). Sales dipped 4% to ¥2.2T ($21.04B) due to an accounting adjustment. On the year, profit rose 30%. Shares of Matsushita and smaller rival Sanyo were up after a local newspaper said MC may invest in, and eventually buy Sanyo. The companies denied the rumor.
• Job cuts as RBS digests ABN. Royal Bank of Scotland (RBS) could cut up to 7,000 jobs -- 1/4 of its combined work force of 28,000 -- as it begins the integration of ABN's investment bank into its global markets division. RBS said last week it would raise £12B in a share sale to shore up its books amid heavy subprime losses.
• Bear UK unit may go its own way. Numis Securities is in advanced talks to buy the UK equities unit of Bear Stearns (BSC) from JPMorgan & Chase (JPM). JPMorgan and Bear Stearns have a high level of overlap in European equity brokerage.

Earnings

• Carolina Group (CG): Q1 EPS of $0.98 misses consensus of $1.16 (may not be comparable). Revenue of $921M (+0.9%) vs. consensus of $885M.
• CNOOC (CEO): Q1 revenue jumped 62% to 24.03B yuan ($3.4B) on higher oil prices and increased production. Oil prices were up 69.2% vs. last year.
• Cott (COT): Q1 EPS of -$0.32 miss consensus of +$0.03. Revenue of $390M (-2.6%) vs. consensus of $400M. "Despite our pricing efforts, earnings did not meet expectations, and the turnaround process in the U.S. is taking longer than expected," Cott said.
• Humana (HUM): Q1 EPS of $0.47 beat consensus of $0.45. Revenue of $6.96B was in line. For 2008, Humana sees EPS of $4.10-4.35, vs. consensus of $4.19.
• Loews (LTR): Q1 EPS of $0.90 miss consensus of $1.15.
• RadioShack (RSH): Q1 EPS of $0.30 was in line. Revenue of $949M was better than consensus of $937M.
• Sohu.com (SOHU): Q1 EPS of $0.64 beats consensus of $0.37. Revenue of $85M vs. consensus of $69M. Sees Q2 EPS of $0.72-0.75 and revenue of $93-96M, better than consensus of $0.44 on revenue of $77M.
• Tyson Foods (TSN): FQ2 adjusted EPS of $0.06 beat consensus of $0.01. Revenue of $6.61B vs. consensus of $6.69B.
• Verizon Communications (VZ): Q1 EPS of $0.61 just miss consensus of $0.62. Revenue of $23.8B was in-line.
• Xcel Energy (XEL): Sees 2008 EPS of $1.45-1.55 vs. consensus of $1.51.

Today's Markets

• Japan's Nikkei gained 0.2% Monday to close at a two-month high of 13,894. Hang Seng +0.59% to 25,666. Shanghai -2.33% to 3,475. BSE Sensex -0.64% to 17,016.
• In Europe markets are strongly higher at midday. FTSE +0.64% to 6,130. CAC +0.97% to 5,026. DAX +0.99% to 6,965.
• U.S. futures are higher at 2:15 AM. Dow +0.33% to 12,917. S&P +0.45% to 1,403.25. Nasdaq +0.42% to 1,929.
• Gold is up 0.47% to $893.8. Oil is up 0.29% to $118.85.

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Comments

[nukldrager]

Correct me if I'm wrong but if oil goes to $200 it would send gas prices to $5.90 at the pump. If the dollar is allowed to gain 10% today, oil would go to $70 or $2.07 at the pump. Sounds like a thumbs up or down call on a humungus number of Americans.

[deaverb]

Would like Eli's input on why the Mars merger would work. A la Smucker's deal? Combining like products, but not the same ones?

[Northvic]

Good thing Buffet's wallet is big enough to satisfy his sweet tooth- letting him add Mars to his already well-stocked pantry of Coke, Dairy Queen and See's Candies.

[billddrummer]

Candy and coffee are staples. No matter how bad the economy gets, a little boost from a candy bar gives a bit of a boost to a stress-filled life.

[whidbey]

But can Buffet (himself an inigma wrapped in a riddle) manage a partnership with secretative Mars to own and operate a chewing gum giant - successfully? Why would we believe that? Both owners have been solo acts for so long. I suspect we are seeing stage one of a larger game. I own BRK-B and I am not pleased to be in the middle of something that does not immediately make sense. But if the stock comes up in value I will feel better.