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Reuters - Yahoo Inc's
second-biggest shareholder urged Microsoft Corp to
raise its $42 billion bid for the Web pioneer and warned Yahoo
it has few options other than to accept, raising pressure for
them to seal a deal.
Reuters - The Dow Jones industrials and S&P 500
rose on Tuesday after Warren Buffett offered to reinsure $800
billion in municipal debt risk from the top three bond
insurers, soothing worries about further fallout from the
credit crisis.
Reuters - Six top mortgage companies on
Tuesday launched a program aimed at staving off foreclosure for
seriously delinquent borrowers in the hopes that new, more
affordable loan terms can be worked out.
Reuters - General Motors Corp said on
Tuesday it would offer a new round of buyouts to all of its
U.S. factory workers as it posted a quarterly loss that
underscored the pressure the top U.S. automaker faces in its
slumping home market.
Reuters - Billionaire investor Warren Buffett
said on Tuesday that he had made an offer to three of the top
bond insurers to reinsure $800 billion in municipal debt, but
one of the struggling companies has rebuffed the plan while the
other two have not yet responded.
Google has exhibited considerable anxiety over Microsoft's effort to buy Yahoo, bad-mouthing the deal from its Silicon Valley headquarters and unleashing its lobbyists in Washington.
A growing number of analysts and others on Wall Street, however, are starting to ask, Why bother? They believe that a Microsoft-Yahoo merger could be a very good thing for Google—especially if it's preceded by a bitter takeover battle, as now seems likely.
"Whatever happens, it's going to be a win-win for Google," said Jim Friedland, an analyst at Cowen and Co. "We think the integration process for Microsoft and Yahoo is going to be absolutely brutal. There's going to be a turf war."
As tech blogger and former Microsoft evangelist Robert Scoble said, "If you put two turkeys together, you don't get an eagle."
Even if the merger wins regulatory approval, it could be years before Microsoft successfully integrates Yahoo and begins to realize the anticipated cost savings and economies of scale the deal promises. With both companies distracted by the tie-up, Google could seize the opportunity to woo disaffected engineers, increase its dominance in search and text advertising, and build a lead in display ads.
"Google is going to try to take advantage of the integration issues," commented UBS analyst Ben Schachter. In particular, he said, Google could shore up its display ads: Unlike text-based advertising, display advertising—larger spots that incorporate photos, video, or sound—is one of the few areas where Google does not dominate.
"Neither Microsoft or Yahoo has been executing well," Schachter added, "and there is certainly no guarantee that they are going to be able to execute as a combined company any better than they did as separate companies. In fact, there is a real possibility they could execute worse."
Cantor Fitzgerald analyst Derek Brown echoed that view, warning that a combined Microsoft-Yahoo runs the risk of falling even further behind Google, thanks to the sheer size, length, and complexity of the deal.
"We think the combined company could actually lose market share to Google and others over time," Brown said, "as product, infrastructure, and cultural integration challenges divert attention and resources from the critical areas of innovation and customer service."
Brown added that the "red tape, size, and bureaucracy" associated with the merger could "increase time-to-market for new products and services," and that he holds "little hope that a merged Microsoft-Yahoo entity would radically alter the current competitive landscape."
William Blair analyst Troy Mastin agreed that Google might secretly welcome the merger, or at least a protracted takeover battle, followed by a long regulatory review and an even lengthier integration process.
"It's a sound theory," Mastin said, adding that Google will be looking to cherry-pick discontented top Microsoft and Yahoo engineers, "who might be uncertain about what the merger will mean for them."
Even before the Microsoft offer, many Yahoo employees had been preparing their résumés after the company announced its intention to lay off about 1,000 people in job cuts that began today.
Publicly, Google has responded to Microsoft's offer by trying to delay the process, raising antitrust concerns and seeking to distract both Microsoft and Yahoo by floating Yahoo exit strategies. One idea: a potential search partnership with Google.
One day after Microsoft announced its offer, Google senior vice president David Drummond warned that Micosoft seeks "to establish proprietary monopolies" and urged regulators to "thoroughly" scrutinize the deal.
But Drummond's broadside struck many people as hypocritical. For one thing, Google itself dominates the Web search landscape, with nearly 70 percent of the market. For another, Google C.E.O. Eric Schmidt has floated the idea that Yahoo, its closest rival, could outsource its search business to . . . Google.
"Google's argument is somewhat facetious, given their market position," said Roger Kaye, president of research firm Endpoint Technologies. "It's kind of like the pot calling the kettle black."
Antitrust lawyer Glenn Manishin of Duane Morris, a veteran of Microsoft's competition battle with the Department of Justice, said links between Google and Yahoo would be "much more problematic" than a Microsoft-Yahoo merger.
Indeed, Google's near monopoly on Web searches is one reason the company should secretly favor a Microsoft-Yahoo merger, experts said. That deal would deflect regulatory attention away from its own market dominance.
While the U.S. Federal Trade Commission has approved Google's proposed $3.1 billion acquisition of digital advertising giant DoubleClick, European regulators have not.
If Microsoft's move on Yahoo is so good for Google, why is it pursuing a deal? Because, Cowen and Co.'s Friedland said, a merger is the "least bad alternative" for Microsoft C.E.O. Steve Ballmer.
UBS' Schachter summed it up. "This merger is fraught with risk for both Microsoft and Yahoo," he said. "But what other choice do they have?"
Six big lenders, representing half the nation's mortgage market, have agreed to offer a 30-day freeze on foreclosure proceedings while services try to determine if new terms can be worked out.
As outlined by Treasury Secretary Henry Paulson, the plan, Project Lifeline, is an extension of the Hope Now Alliance program announced in November. It calls for lenders to send letters to homeowners more than 90 days delinquent on payments. The homeowner has 10 days to respond, and in some cases they will get a pause in the foreclosure process so that new terms can be worked out.
The new effort is not just for subprime home loans, but for all mortgages. It reflects the reality of the deep and seemingly intractable slump in the housing market, as many homeowners find their home debt is greater than the value of their house.
Mark Zandi, an economist with Moody's, has estimated that three million loans will default this year and next. Some two million of those will end in foreclosure and sale.
But equally significant has been a shift in homeowners' attitudes toward their homes. Many believe that refinancing will not help and are willing to walk away from their homes.
Bankers have been struggling to deal with that new reality. As Ken Lewis, the chief executive of Bank of America, told the Wall Street Journal in December, "There's been a change in social attitudes toward default."
Paulson today acknowledged that "of course there will be homeowners who still take no action, and some will simply walk away from their mortgage."
"No program can bring every struggling borrower into the counseling and evaluation process, and we cannot help those who choose not to honor their obligations," he said. "But Project Lifeline has the potential to offer new solutions to responsible, able homeowners who want to keep their homes."
The Calculated Risk blog is skeptical, to say the least, saying that the only difference between Project lifeline "and the way the loss mitigation process has always worked is . . . the letter part."
"What is implied here is that servicers are, in fact, staffed up to do these time- and labor-intensive modifications that include real examination of the borrower's circumstances, real counseling, and loan changes that are much harder to process than just a teaser freeze," the blog entry continues. "They're just waiting by the phone for borrowers to call. Why am I skeptical about that?"
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New York Times Co. chairman Arthur Sulzberger has provided a not-so-subtle response to the hedge funds prepping for a proxy fight: He nominated two members to its board of directors one day after the hedge funds nominated four.
The company announced that two board members, Brenda Barnes and James Kilts, will not stand for reelection when the company's shareholders meet on April 22. To replace them, Sulzberger nominated Dawn Lepore, an eBay board member and the chief executive of Drugstore.com, and Robert Denham, a Wall Street lawyer and the former chief executive of the bank formerly known as Salomon.
It's clear that Sulzberger is sending a message to shareholders of the embattled media company: If you want more digital expertise and financial prowess around our board table, vote for my nominees.
"The skills, expertise and leadership qualities of these two nominees will greatly benefit our company during this time of tremendous change in the media world," Sulzberger said in a statement.
The hedge funds Harbinger Capital and Firebrand Partners, who announced yesterday they've taken a 10 percent stake in the company, nominated four members to the New York Times board. They want the company to focus on its core assets and build its digital businesses. But they've said they won't attempt to disrupt the shareholder structure, which gives the Sulzberger family more control, including the decision over who occupies nine of the 13 board seats.
Their nominees also include a mix of digital and financial experience: Gregory Shove, a former head of AOL's electronic commerce business; James Kohlberg, co-founder of the private equity firm Kohlberg & Co.; Allen Morgan of the Mayfield Fund; and Scott Galloway, the founder of RedEnvelope.com and Firebrand Partners (profiled here).
According to a letter filed by the hedge fund group yesterday, they met with the New York Times management on Friday. The details of the meeting were not disclosed, but the funds are trying to affect change through a kinder, gentler means of activist investing.
It's an admirable effort, but a daunting one. Sulzberger has so far been resistant to such efforts, and today's nominations are a sign that he's not about to give in now.
The nominating and governance committees of the board must now decide whether to recommend the funds' four nominees. The full slate of directors to be voted on will be announced later this month.
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AFP - Swiss banking giant Credit Suisse sought to reassure investors on Tuesday that it has weathered the storms of the US subprime home loan crisis after ending 2007 in the black.
He may not be willing to bail out the bond insurers and their ticking C.D.O.'s, but Warren Buffett is willing to do business to help them out.
Buffett told CNBC this morning that he had offered the troubled bond insurers to reinsure as much as $800 billion in municipal bonds. He made the offer to MBIA, Ambac Financial, and Financial Guaranty Insurance Corp. One turned him down and he is waiting to hear from the other two, he told CNBC
The offer, which has a 30-day window, is only for munis. The bond insurers would keep their portfolios of collateralized debt obligations and credit default swaps.
Stocks surged after Buffett's comments, although the chances of a deal actually happening are slim to none. But the news about the troubled bond insurers, and the potential aftershocks for banks, has been so dire of late that any positive sign will apparently be seized by investors. As one blog's thinly veiled sarcasm headlined the news: "Warren Buffett Has a Plan to Save the World."
What bond insurers need is some way to offload liability on their insurance on toxic credit derivatives. They don't need help on their muni portfolio. The muni business, as long as they can somehow keep their triple-A ratings, is the only thing that will turn them around in the long run.
As Jon Ogg says on the 24/7 Wall St. blog, the bond insurers would "be giving away their top operations to feed their leeches."
For the municipal-bond insurance has long been a very lucrative business. By extending the umbrella of their triple-A credit rating, the bond insurers provided a guarantee to states and municipalities that issue bonds, allowing them to pay a lower interest rate.
But as Jesse Eisinger describes in the March issue of Condé Nast Portfolio, the bond insurers "made a terrible mistake," getting involved in credit derivatives and structured-finance products in the pursuit of greater profits.
So now the bond insurers are in trouble, and their triple-A rating is at risk. And Buffett is stepping in. At the invitation of Eric Dinallo, New York State's top insurance regulator, Buffett has set up his own bond-insurance business in New York. His first deal was insuring $10 million of New York City bonds in the secondary market last month, according to the Bond Buyer.
But the question is whether municipal-bond insurance is even necessary.
"The reason that the business can be so rewarding is that government bonds are intrinsically safe," Eisinger says. Municipalities almost never default, for one. "The entire business of muni-bond insurance is a giant taxpayer rip-off."
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