Stock Market Predictions

EXCO ends strategic review without deal

Stock Market Predictions

The committee's review included a proposal from EXCO Chief Executive Officer Douglas Miller and Texas oilman T. Boone Pickens to take the company private. Miller initially valued EXCO at $20.50 per share in a proposal made in November, but lowered the bid earlier this week.

"We conducted a thorough review of strategic alternatives available to the company," a committee statement said. "As that process did not result in a transaction the Special Committee determined is in the best interests of the company and all of its shareholders, the special committee has decided to terminate the process."

A representative of the Dallas company could not immediately be reached for comment on the committee's decision.

The bulk of EXCO's output is natural gas, a fuel with a price burdened by massive supply. Quarterly natural gas prices at benchmark Henry Hub have not averaged above $6 per thousand cubic feet in over 2 years.

EXCO has oil and natural gas assets in the Haynesville shale in East Texas and North Louisiana, and the Marcellus and Huron shales in Appalachia and the Permian Basin.

Miller's latest proposal -- restructured because he was having difficulty raising financing -- involved a mix of cash and equity.

Barclays Capital Inc and Evercore Partners served as financial advisers to the special committee.

Shares of EXCO were down 4.0 percent at $15.98 in afternoon New York Stock Exchange trading.

(Reporting by Anna Driver; Editing by Lisa Von Ahn and Gerald E. McCormick)

Jefferies eyes big deals in ambitious growth drive

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The bank is hiring aggressively and has ordered its bankers to focus on bigger, more profitable deals to move up the Wall Street pecking order.

Founded almost 50 years ago as a firm that facilitated trading of large blocks of stock by institutional investors off traditional exchanges, Jefferies employs some 3,200 people -- 40 percent more than just four years ago.

While Jefferies is boosting staff levels, the bank is also telling its bankers to focus on bigger deals and clients.

The change has accelerated since Jefferies hired healthcare banker Benjamin Lorello from UBS AG (UBSN.VX) in 2009 and named him head of investment banking and capital markets businesses.

Under Lorello, Jefferies has imposed a minimum fee requirement of $2 million for a banker to be allowed to advise a company on a merger deal, sources familiar with the matter said. That's nearly double the minimum previously in place, and the new rule is more strictly imposed now, one source said.

Its bankers can ask for exceptions, such as when there is an expectation of more business from the client or the deal would help build relationships, the sources said.

"It is more of a message that we are moving upmarket, and we want all of our bankers to focus on moving upmarket and focus on larger transactions," one source said.

Jefferies declined to comment.

MOVING UP -- AT A PRICE

In another sign of this change, the firm in recent months disbanded the Putnam Lovell team that focused on asset management deals that tend to be smaller, the sources said.

It has been hiring from larger rivals instead. They include Michael Tedesco, a former Citigroup Inc (C.N) banker who became global head of technology M&A and U.S. head of M&A, and Frank Cicero, who came from Barclays Capital (BARC.L) to become global head of financial institutions investment banking.

The hiring has come at a cost. In its second fiscal quarter, Jefferies paid 59 percent of its revenue as compensation, well above the industry standard of about 50 percent and higher than its own pre-financial crisis level of about 54 percent.

By comparison, Goldman Sachs, which pays some of the best salaries on Wall Street, spent 44 percent of its revenue on pay and benefits during the first quarter.

Jefferies says new hires will bring in more deals and its pay ratio will fall as revenues rise. Analysts wonder though whether it can grow fast enough to recoup the investment.

"When you make one of these bets on growth, you better hope the growth continues," said Brad Hintz, a former Lehman Brothers CFO who is now an analyst at Sanford Bernstein.

The churn is not unusual for Jefferies. The firm hired aggressively, for example, in the downturn after the tech bubble burst at the turn of the century, boosting headcount by 15 percent in 2000 and 18 percent in 2001.

"Better people cost more money," said Richard Lipstein, a recruiter at Boyden Global Executive Search. "You don't always hire people who then generate money immediately. So there are times when the compensation ratios will go up before the revenue starts to kick in."

In the fiscal quarter to the end of May, Jefferies reported a 9 percent rise in net revenue. But higher costs like banker pay drowned those gains and profit fell 3.8 percent.

Jefferies shares are down 21 percent so far this year, lagging the Thomson Global Markets U.S. Investment Banking & Brokerage Services Index .TRXFLDUSPINBK, which is off 17 percent.

MOVING UP THE RANKS

While Jefferies has already come a long way from its roots as a trading house, it still has a long way to go to fulfill

its ambition of playing in the top league.

Jefferies came in at No. 24 in the worldwide rankings of M&A advisers in the first half, up one notch from the same period last year, according to Thomson Global Markets data.

Hiring appears to be paying off in some areas. In U.S. healthcare M&A deals -- a Lorello forte -- Jefferies moved up to No. 12 in the first half, compared with No. 47 in the same period in 2008 and No. 16 in 2007.

In league tables for equity capital markets, Jefferies went up one notch to No. 11, the data shows.

The average size of M&A deals Jefferies advised on increased to $368 million in the first half, compared with $235 million in 2008 and $214 million in 2007, before Lorello took over. Goldman Sachs' (GS.N) average deal size in comparison was $1.8 billion in the first half of this year.

Jefferies' minimum for fees for merger advisory is lower than the $3 million that is typical for the biggest banks. Banker fees are set as a percentage of the deal size. In a $1 billion deal, for instance, fees would typically be 0.75 percent to 1 percent.

The M&A transactions on Jefferies' list are still mostly below $1 billion, but there are some multibillion-dollar deals, such as bankrupt Nortel Networks Corp's (NRTLQ.PK) $4.5 billion sale of patents to a group of tech giants on July 1.

It can take several years for the transformation to take place, Hintz said.

"We don't know whether that wager is going to work out," Hintz said. "But it's certainly a management team that's not being shy about its aspirations."

(Reporting by Paritosh Bansal and Nadia Damouni; additional reporting by Dan Wilchins and Lauren Tara LaCapra. Editing by Knut Engelmann and Robert MacMillan)

Mitsubishi Estate to invest up to $2.47 billion in Tokyo

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The developer plans to build skyscrapers on a plot adjacent to the Bank of Japan headquarters. It currently owns four of the five buildings that stand on the approximately 33,000 sq. meter plot, the newspaper said.

Mitsubishi Estate is likely to buy the remaining building and start work on the plot, which houses the headquarters of JX Holdings Inc (5020.T), in 2018, Nikkei reported.

The project will be central to the company's goal of expanding its area of office space for rent by 40 percent to about 2.15 million sq. meters by 2020, the paper said.

($1 = 80.930 Japanese Yen)

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Joyjeet Das)

BSkyB shares slump as doubts grow over Murdoch deal

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Shares in BSkyB dropped suddenly on Friday, by almost 6 percent, when the government said it would take into consideration the closure of the tabloid at the heart of the hacking scandal and the impact this would have on media plurality, or "media voices."

"One thing that investors don't like is uncertainty," a senior competition lawyer involved in the deal told Global Markets.

"It's all very unpredictable and we're outside the realm now of legal process. Clearly the law is still the law and everyone should remember that but it's hard to predict what will happen now because the situation is changing on an hourly basis."

Shares in the U.S.-listed News Corp were down 4.4 percent in early trading as investors there weighed the changing landscape for the deal.

Buffeted by a series of accusations over the conduct of his journalists, Murdoch is now under even more pressure as he fights to secure his $14 billion bid to buy out the 61 percent of the successful pay-TV group he does not already own.

Analysts and competition lawyers say the government has little room to maneuver over the deal as News Corp has already agreed to a string of undertakings to protect media plurality -- the grounds on which the government can examine it.

However it is likely to push its final decision back by some months in a bid to let the crisis die down. It could also ask for even more undertakings.

After the sudden closure of Britain's biggest-selling Sunday newspaper, the government warned that its final decision could "take some time" as it assesses the change in the market.

It has also received over 160,000 submissions to a final consultation on the deal which will need to be processed, while the deputy leader of Britain's Liberal Democrat ruling coalition party said he would challenge the fitness of News Corp to hold a broadcasting license.

"The Secretary of State ... will consider all relevant factors including whether the announcement regarding the News of the World's closure has any impact on the question of media plurality," the media department said in a statement.

Peel Hunt analyst Patrick Yau said he still believed the deal would go through but that uncertainty was growing.

"I don't think this deal is dead," he told Global Markets.

"We've seen the share price come off as people are nervous but if you think about where the stock price came from before the bid, at 570 pence, there's a long way between where we are now and that level."

FREE FALL

Shares in BSkyB have lost 10 percent this week, slumping to a more than four month low to below 770 pence from around 850 pence on Monday. Trading volumes on Friday were at more than seven times the 90-day daily average.

Two special situations analysts attributed the fall in the BSkyB share price to forced selling by hedge funds.

"The stock has fallen to a level where people have to get out, it's a technical and not a fundamental thing," said one of the analysts. "I personally don't think that Murdoch will walk away from the deal," he said, adding that the cash flow BSkyB has is too important for News Corp.

The British government has always said the phone hacking scandal and BSkyB takeover are not linked from a legal standpoint but it will be loath to approve the deal at a time when politicians from all sides are taking to the parliament floor to denounce Murdoch and his company.

"My reading is that the government is trying to find a way to pull back from making a decision," the competition lawyer said. "It's under so much pressure. But they're exposed by the process, they can't change the scope of the review."

Panmure Gordon analyst Alex DeGroote warned that the speed at which events were unfolding meant investors were "into totally uncharted territory."

He cut his price target on BSkyB shares to 730 pence from 750 pence on what he judged to be a higher risk that the proposed deal would collapse.

Prime Minister David Cameron, himself under fire for being too close to News Corp executives, again stressed that the government would follow proper legal procedures.

Competition lawyer Simon Holmes from SJ Berwin said the government was being very careful to argue the two cases were not linked.

"I think the decision will be pushed back but I wouldn't say forever," he told Global Markets. "The government will want to move on. I think we will get a decision on BSkyB in a couple of months.

"If it was left to fester then the reason for the delay could be challenged."

(Additional reporting by Paul Sandle and Georgina Prodhan; editing by Sophie Walker and Chris Wickham)

Local.com shares leap on Google deal

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Loss-making Local.com, which throws up search results for local businesses, products and services, was under pressure after its largest client Yahoo Inc (YHOO.O) moved to Microsoft Corp's (MSFT.O) Bing search engine in January.

Yahoo contributed about 37 percent to Local.com's first-quarter revenue, down from 49 percent last year. Google currently contributes less than 10 percent to its revenue.

"The shares are moving because Local.com made a prudent move by switching to Google from Yahoo and the deal is expected to significantly improve its revenue per click (RPC)," David Kestenbaum, analyst at Morgan Joseph TriArtisan, said.

Bing was charging advertisers less for Local.com's search traffic, which resulted in less RPC than what Yahoo had paid prior to the integration of its search engine with Microsoft, Local.com had earlier said.

Local.com's agreement with Google starts from August 1 and ends on July 31, 2013.

Shares of Irvine, California-based Local.com were up 19 percent at $4.00 in midday trading on Nasdaq after climbing as high as $4.18.

(Reporting by Rachana Khanzode in Bangalore; Editing by Maju Samuel)

Morgan Stanley cuts Google on margin worries

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"Given Google's aggressive hiring plans, rising compensation expense, and significant advertising spend on Chrome and other Google products, we expect EBITDA margin to decline in 2011 and 2012," Morgan Stanley analyst Scott Devitt said in a note.

Devitt also raised doubts over the ability of the company's newer businesses, such as DoubleClick, Android Market and YouTube, to add to its revenues.

"We see lots of promise from Google's display/mobile/apps businesses, but we believe the consensus incorrectly attributes upside to those businesses and therefore may be overestimating their contribution in future periods," said the analyst, who slashed his target price on the company's stock to $600 from $645.

Shares of the company were down 2.5 percent at $533.12 in morning trading on Nasdaq. They earlier touched a low of $531.24.

(Reporting by Himank Sharma in Bangalore; Editing by Viraj Nair)

Affymetrix shares fall on weak Q2 revenue view

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"Affymetrix described its academic business (nearly 70 percent of revenue) as weak across all geographies, particularly in North America. Some of this business is pushed into third-quarter, as we believe it restricted its salesforce's ability to offer end-of-quarter discounts to meet quota," Leerink Swann analysts said in a note to clients.

On Wednesday, the company said it expects revenue between $64-65 million. Analysts, on average, were expecting $74 million in revenue, according to Thomson Global Markets I/B/E/S.

"Our consumable revenue was down by about 10 percent from last year," said Chief Commercial Officer Andrew Last.

The company expects product revenue of about $58-$59 million. Consumable sales was projected at about $55 million.

Leerink Swann analysts said they were expecting consumable sales of $63 million for the second quarter.

Shares of the company were trading down 19 percent at $6.48 after hitting a low of $6.42 on Thursday on Nasdaq. (Reporting by Kavyanjali Kaushik in Bangalore; Editing by Sriraj Kalluvila)

Chains' deals won over shoppers in June

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The 25 chains tracked in the Thomson Global Markets sales tally reported a 6.5 percent gain in sales at stores open at least a year, beating the 4.9 percent rise that analysts expected.

"It's a good sign that the consumer is feeling good and prepared to spend appropriately," Macy's Inc (M.N) Chief Executive Terry Lundgren told Global Markets.

All but four of the chains reported increases, suggesting retailers by and large are savvier about offering discounts without the panicked price-slashing they resorted to in 2008. The level of discounting showed that retailers are seeking the right strategies as the back-to-school shopping season begins.

"They are very focused on making the right offer to the consumer, in contrast to the uneducated sales we saw during the crisis," said Janet Hoffman, global managing director for Accenture's Retail Practice. "The sales now are much more targeted."

J.C. Penney (JCP.N) was a notable exception, missing estimates and cutting its quarterly earnings forecast after it had to do too much discounting. Its shares fell 1.5 percent.

For a graphic with the sales results, see r.reuters.com/caq52s

BACK-TO-SCHOOL BARGAIN HUNTING

Shoppers have some economic momentum pushing them to open their wallets. Gasoline prices have retreated from recent highs and the job market appears to be improving.

U.S. private employers added far more jobs than expected in June, bouncing back from a surprise slump the month before, a report by a payrolls processor showed.

The International Council of Shopping Centers expects retailers to keep their momentum in July, forecasting a same-store sales jump of 4.5 percent to 5.5 percent.

But many analysts caution against reading too much into the strong numbers from June, since that is when retailers typically cut prices on spring and summer items to make room for back-to-school and fall merchandise.

Stores will probably have to keep offering discounts during back-to-school, which accounts for about one-sixth of total retail sales and is the most important shopping period after the holiday season.

"July is where consumers can pull back and think about where they can get bargains," said David Bassuk, a managing director at consulting firm AlixPartners.

Shoppers said early deals prompted them to spend.

Lizzie Widhelm, a 33-year-old mother of three from Pacific Palisades, California, already has bought uniforms and backpacks. "There were such good early sales," she said.

Only three of 24 chains that Wall Street tracks missed expectations.

The Standard & Poor's Retail Index .RLX rose as much as 2.8 percent to a new high, outpacing the S&P 500's .SPX 1 percent increase. Target Corp (TGT.N) shares rose 7 percent and Hot Topic (HOTT.O) jumped 13 percent, while Dillard's hit an all-time high. Shares of Macy's and Nordstrom reached peaks not seen since late 2007.

DEPARTMENT STORE BATTLE

Macy's Lundgren said the fight was still on for middle-class shoppers.

"All boats are rising in the luxury segment of the business, but I think the middle market is much more of a market share game," Lundgren said.

Macy's, continuing a streak of strong gains, said same-store sales rose 6.7 percent in June, and raised its quarterly sales forecast.

Penney conceded that it had to use more promotions to try to win over its shoppers, who have more modest incomes than patrons of Macy's and are more exposed to the economy's ups and downs.

Penney now expects quarterly same-store sales to rise about 1 to 2 percent, down from its prior forecast of 3 to 4 percent. It forecast quarterly earnings of 6 cents per share, including charges, down from May's outlook of 20 to 24 cents, including about 6 cents in charges.

Penney rivals Kohl's Corp (KSS.N) and Dillard's (DDS.N) fared much better. Kohl's, where same-store sales were up 7.5 percent, has benefited by having exclusive merchandise that accounts for half of its sales. Its shares were up nearly 7 percent.

Macy's got help from its upscale Bloomingdale's chain. High-end department store chains Saks Inc (SKS.N) and Nordstrom Inc (JWN.N) easily beat Wall Street forecasts.

Retailers are starting to raise clothing prices to reflect higher cotton costs. At least at Macy's, shoppers have not pushed back so far, Lundgren said.

(Additional reporting by Jessica Wohl and Eunju Lie in Chicago, Dhanya Skariachan and Martinne Geller in New York, Nivedita Bhattacharjee in Bangalore and Mary Slosson in Los Angeles; Editing by Lisa Von Ahn and Matthew Lewis)

Autoliv, TRW drop on downgrade, earnings warning

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The news prompted Buckingham Research Group to downgrade the stock to neutral, with analyst Joseph Amaturo citing too much "uncertainty" stemming from the investigation by the U.S. Department of Justice and European Commission.

"We are unable to accurately quantify the financial impact of this investigation, as there is limited knowledge regarding the scope of revenue and products involved," Amaturo wrote.

He added: "Consequently, we believe this issue, which is unquantifiable at this juncture, will limit the upside in the stock even with expected improved near-term fundamentals."

Autoliv shares were down 10.4 percent to $71.45 on the New York Stock Exchange. Autoliv shares were also down in Europe.

The European Commission said last month that it was investigating some auto parts suppliers for possible anti-competitive behavior, but did not name the companies.

At that time, Autoliv said European regulators visited two Autoliv facilities in Germany. The company added it was cooperating with European regulators.

Auto parts supplier TRW Automotive (TRW.N) also said in June that it received requests for information from both U.S. and European regulators.

About half of TRW's revenue last year was from Europe. Shares of TRW fell 6.6 percent to $55.58.

"(TRW) is probably down in sympathy with Autoliv due to the potential uncertainties regarding trade and collaboration among safety product manufacturers in the European market," Morningstar analyst Richard Hilgert said.

(Reporting by Deepa Seetharaman, editing by Bernard Orr)

Einhorn dumps Yahoo stake after Alipay dispute

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Greenlight told investors saying it was exiting the investment after it emerged that China's Alibaba -- of which Yahoo owns about 40 percent -- had transferred its highly valued online-payments business to a separate company controlled by Alibaba founder Jack Ma.

That move marked the latest blow to Yahoo, which CEO Carol Bartz is struggling to get back on a growth track. Its Asian assets, including its slice of Alibaba, are deemed the most valuable portion of the company.

Yahoo shares were down 1.5 percent at $15.57 in afternoon trading Friday.

"The partnership bought Yahoo earlier this year based on a sum of the parts analysis which included putting substantial value on its Chinese assets," Einhorn wrote in a July 7 letter to investors obtained by Global Markets on Friday.

"Shortly after the purchase, the value of the Chinese assets came into doubt as the CEO of the Chinese unit 'hived off' a valuable subsidiary into a corporation that he personally controls.

"From there the finger-pointing started going in every direction," the hedge fund manager wrote. "This wasn't what we signed up for. We exited with a modest loss."

FINGER-POINTING

Einhorn, head of the $7.8 billion hedge fund firm, told investors on April 29 that Greenlight had taken a "significant" long position in Yahoo stock at $16.93.

But on May 11, Yahoo said Alibaba Group had transferred ownership of its online payments business, Alipay, to a firm controlled by Jack Ma, Alibaba's chief executive. Yahoo shares tumbled more than 7 percent that day.

This year has been one of Einhorn's toughest, according to the investment results of Greenlight Capital Re Ltd, a reinsurer that invests its premiums with the hedge fund manager.

Einhorn was down 2.9 percent in June, leaving him 5.2 percent lower for the first half of 2011, Greenlight Capital Re disclosed recently on its website.

Last year, Einhorn generated 11 percent returns, Greenlight Capital Re data show.

Einhorn's sale of Yahoo stock was first reported by zerohedge.com.

(Reporting by Alistair Barr; Editing by Andre Grenon and Phil Berlowitz)