Stock Market Predictions

Murdoch and sons survive News Corp annual meeting

Stock Market Predictions

The 80-year-old media baron survived what was effectively a no-confidence vote and also managed to get his sons James and Lachlan reelected as directors.

The octogenarian began the meeting with perfunctory comments about being personally determined to right News Corp's wrongs, saying it must be an ethical company and that it had been subject to fair criticism and unfair attack. But that was as conciliatory as he got.

Unlike his sons Lachlan and James, who sat quietly during the 75-minute meeting, Murdoch stood defiant in the face of tough questioning about News Corp's corporate governance, a proposal to strip him of the long-held chairman role that goes along with his CEO title, and fresh allegations of computer hacking that piggyback off the phone hacking charges responsible for putting Murdoch in his precarious position.

In addition to the roughly 150 people inside the Zanuck Theater on the Fox Studios lot in Hollywood, about 100 others stood outside, voicing opposition to the company and carrying signs that read, "Murdoch isn't above the law" and "Big Media, Big Money, Get Out."

Murdoch was feistier than he had been during questioning by a special committee of Parliament in July.

British member of parliament Tom Watson, Australian pension fund representative Stephen Mayne and Julie Tanner of the Christian Brothers Investment Service were among those who sparred with Murdoch. Mayne, a longtime News Corp antagonist, and Murdoch, who employed his familiar tactic of pounding the table to stress a point, circled each other like familiar opponents.

"It is time to get on the governance high road. You've been treating us like mushrooms," said Mayne, who has attended more than a decade's worth of these meetings.

Later, in response to Mayne's comment that he was not sure how he planned to vote his shares, Murdoch shot back, "I hate to call you a liar, but I don't believe you. I know how you're going to vote."

FIREWORKS

The real fireworks were supplied by Watson, who flew to Los Angeles to attend the meeting as the representative of 1,669 shares of nonvoting stock held by labor group AFL-CIO. At his first opportunity to speak, Watson noted the "deep irony" of News Corp using images of Prince William and Kate Middleton during its presentation since both were alleged phone hacking victims.

He said News Corp could face new investigations in the UK by the country's Serious Organised Crime Agency, stemming from the actions of at least three private investigators employed by News International, News Corp's UK newspaper publishing unit. Murdoch has failed to warn shareholders of the possibility of new civil lawsuits, Watson said.

"I promise you absolutely that we will stop at nothing to get to the bottom of this," Murdoch said in response to Watson.

Despite the animosity between the two, Murdoch jokingly defended News Corp's democratic voting process by pointing out that its Fox Business channel had featured Watson earlier in the day.

"We're fair and balanced," he said, referencing to the company's familiar slogan.

After the meeting, Watson told reporters that he was pleased to have had the opportunity to bring the issues to the attention of investors, even if board members "didn't choose to acknowledge the points I made."

"I made my serious points ... the board can choose to ignore me if they like," he said.

Watson said he was sure the issues brought up during the meeting would be put to James Murdoch when he returns to Parliament for more questioning next month.

CROWD SUPPORT

Murdoch had some supporters in the crowd, among them Haim Saban, the billionaire creator of the "Teenage Mutant Ninja Turtles" franchise. Saban said he was shocked at investors' focus on corporate governance and said they should instead be looking at News Corp's strong operating performance. He also asked Murdoch if he had plans to revisit the abandoned $12 billion BSkyB deal.

In the wake of the phone hacking scandal, a group called Avaaz campaigned against News Corp's bid to take full control of UK satellite operator BSkyB.

Murdoch said the company does not have plans to put the deal back on the table, but added "never say never, though."

Another independent investor thanked Murdoch for creating "thousands of jobs across the world."

Since Murdoch controls 40 percent of News Corp's voting B shares and is supported by the next largest holder, Saudi Prince Alwaleed bin Talal, there was little chance that Murdoch, his sons James and Lachlan or any other long-time serving director would have been voted off the board.

Shareholders reelected the media conglomerate's board of directors on Friday and failed to approve a proposal to oust Murdoch from his chairman post.

News Corp did not disclose the specific results, including how many investors withheld their shares from voting or how many voted against the directors, saying in a press statement that the company would file the numbers with the U.S. Securities and Exchange Commission early next week.

News Corp board chairman Viet Dinh took pains to defend the company's dual class stock structure by pointing out that Comcast, Warren Buffett's Berkshire Hathaway and others feature the same structure. He also noted that shareholders voted to approve the structure as recently as 2007. Dave Devoe, News Corp's chief financial officer, pointed out that the company has not bought a single Class B share with the $1.6 billion it has spent on stock buybacks.

News Corp shares closed up 2 percent to $17.20 on the Nasdaq on Friday.

"The News Corp recovery in line with the market at the close would indicate that the Street approves of this status quo," said Collins Stewart analyst Thomas Eagan.

Separately on Friday, News International, the News Corp division that housed the News of the World newspaper at the center of the phone hacking scandal, said it would pay the family of murdered British schoolgirl Milly Dowler 2 million pounds (US$3.17 million). Murdoch will personally donate another million pounds to charities chosen by the Dowler family.

Dowler was abducted in 2002 and found murdered six months later. News this year that the tabloid had hacked into her phone after she disappeared caused widespread revulsion in Britain and elevated the hacking to a national scandal.

Among the many concerns for Murdoch aides is the possibility of further reputation damage and embarrassment.

Former News Corp executive Les Hinton, who resigned this summer, is due to reappear before Parliament for additional questioning on Monday.

(Reporting by Lisa Richwine in Los Angeles and Yinka Adegoke in New York. Writing by Peter Lauria. Editing by Robert MacMillan)

When it comes to banks, investors lean on ETFs

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The banks have been a prime trading ground for investors reacting to shifting sentiment in Europe and the United States. More and more, they're coming through macro bets, using big exchange-traded funds that have dominated the action of late.

While specific companies are often the favored trading vehicle -- Bank of America is almost always the most active name among U.S. listed issues -- exchange-traded funds are increasingly the choice for investors playing the group.

The Financial Select Sector SPDR is frequently the second-most traded ETF, behind only the SPDR S&P 500, which holds all the components of the S&P 500.

Average daily volume over the past 50 days for the XLF is about 39.3 million, higher than such issues as BofA (36.7 million) General Electric Co (14.4 million) or Citigroup Inc (10.3 million).

The sector is especially sensitive to any news coming from the euro zone, given uncertainties about the region's balance sheets and how weakness on the continent could impact domestic profits. The concerns have pushed share prices down, creating a tug-of-war with bulls who feel the sector has become oversold.

October volume in the XLF is 44 percent greater than the same time a year ago, even with six more trading sessions remaining.

"Volume is surging because investors have vastly different opinions on the sector," said Paul Justice, director of North American ETF research at Morningstar in Chicago.

"With banks, investors are constantly dealing with large issues that could go either way, so they're casting votes of different magnitudes in different directions. There's high volume because there's high volatility, and a great deal of short interest as well."

Those bets of different magnitude are frequently concentrated in leveraged ETFs. The Direxion Daily Financial Bull 3X Shares, a triple-leveraged fund that tracks the Russell 1000 Financial Services index, is regularly one of the top 10 in terms of activity among U.S. issues.

The fund's 50-day moving average of 11.3 million shares is higher than Citigroup's and only slightly less than JPMorgan's 11.6 million average.

Volume in the FAS fund has followed a similar path as the XLF's, surging since the start of August. On October 4, 20.09 million shares traded, the heaviest day of trading since May 21, 2010.

Direxion's bear equivalent, an inverse triple-leveraged financial fund, is less traded, with a 50-day average of about 3.9 million, though it has also grown more active in recent weeks.

Recent results from the banks have been mixed. Because of that, investors have been using sector plays to avoid company-specific issues.

"ETFs are a way for people who have a view of a sector rather than specific companies to play the trade," said Michael Iachini, managing director of ETF Research at Schwab in Denver.

AMR shares down as analyst sees more distress

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Analyst Basili Alukos said based on information disclosed this week during AMR's earnings conference call, the company's cash burn may increase to the point that it may run out of cash over the next five years.

The disclosures Alukos cited include AMR saying it has no unencumbered assets left on its balance sheet and that it expects to release about $800 million of assets next year to use for secured transactions.

He also said AMR's conference call revealed that the company had a $250 million drop in cash because of frequent-flyer mile redemption. He added the company likely has further liability tied to those miles.

"Unless AMR receives a substantial cash infusion or earns loan forbearance, we believe the company will eventually succumb to financial distress," Alukos said in a client note on Friday.

Speculation that AMR, which faces higher labor costs than its major U.S. peers that have restructured, could be a bankruptcy candidate boiled over earlier this month. The company's shares plunged 41 percent on October 3 on growing fears it could be headed for bankruptcy.

AMR, the third-biggest U.S. carrier after United Continental Holdings (UAL.N) and Delta Air Lines (DAL.N), reported a wider-than-expected quarterly loss this week, blaming higher fuel costs and a spike in the dollar's value that eroded overseas sales.

Wolfe Trahan analyst Hunter Keay said in a published note on Thursday that while AMR will likely post "deep losses" in 2012 and 2013 unless there is a significant change to existing labor contracts, he added, "we do not believe AMR to be in near to medium term risk of insolvency."

Shares of AMR were down 5.2 percent to $2.73 at mid-afternoon after falling more than 7 percent earlier. Other major airline stocks also eased as oil prices rose on Friday [ID:nL5E7LL2CX]. The Arca Airline index .XAL was down 0.3 percent.

(Reporting by Karen Jacobs; Editing by Richard Chang)

Icahn reveals active stake in WebMD

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The billionaire hedge-fund manager, who decided not to manage outside investors' money earlier this year, said he may seek to talk to the company management to discuss business and strategies from time to time.

WebMD Health Corp manages websites which provide healthcare info and help employees make healthcare decisions. The company's stock has lost about 38 percent of its value this year.

Icahn's investment in a company usually precedes a demand to either bring a change in the company's management or a proposal to consider strategic alternatives, including a sale or merger of the company.

WebMD shares rose 7 percent in extended trading. They closed at $32.39 Friday on Nasdaq.

(Reporting by Vidya L Nathan in Bangalore; Editing by Don Sebastian)

Debt buyback a bullish bet for LyondellBasell

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The company, which exited Chapter 11 bankruptcy protection last year, said late on Thursday it would launch a tender offer for $1.47 billion of 8 percent notes due in 2017 and $1.32 billion of 11 percent notes due in 2018.

News of the buyback and dividend were widely applauded on Wall Street, where shares of LyondellBasell were up 10 percent at $30.13 in midday Friday trading.

Paying off the debt years ahead of schedule -- and not keeping cash around for a rainy day -- could be seen as a risky move, especially given the potential for another recession in the United States or Europe, the company's two largest markets.

But given low interest rates, it just makes sense to slash the debt now, said Ed Mally, a chemical industry analyst with Imperial Capital.

"Taking out this very expensive debt is not only a positive sign on their view about their prospects, but also a positive sign on their earnings and cash flow," Mally said.

The company, which is technically based in the Netherlands but is run out of Houston, has been generating oodles of cash in the past year, with roughly $4.69 billion in the bank.

Revenue jumped 34 percent in the second quarter from the same period last year.

The buyback will push the company's long-term debt down to roughly $2.8 billion. It should also cut LyondellBasell's annual interest costs by 32 cents a share, a big boost for the company's earnings, Jefferies analyst Laurence Alexander said.

There isn't a comparable earnings per share figure for 2010 -- the company had just exited bankruptcy -- but in the second quarter LyondellBasell earned $1.49 per share, excluding one-time items.

LyondellBasell also said it will issue a $2.6 billion special dividend -- roughly $4.50 per share -- soon, depending on market conditions, using cash and new debt. The company already pays a 20-cent quarterly dividend.

"As we are facing these uncertain economic times, the fact that a company comes out and announces a $2.6 billion special dividend just tells you how confident it is in its cash flow generating abilities," said Hassan Ahmed, a chemical industry analyst with Alembic Global Advisors.

BULLISH FORECAST

Prices for ethylene, one of LyondellBasell's main products and a key building block for more complex chemicals, have softened in the past three months partly due to economic fears.

Ethylene and other commodity chemicals are closely tied to economic health.

In good times, people buy more clothes, toys, cars and other goods made with the chemicals.

But in bad times, even the largest companies can be brought to their knees. Dow Chemical (DOW.N), for instance, was burned by a drop in commodity chemical demand three years ago and has quickly been moving into specialty chemicals.

Indeed, in early 2009 LyondellBasell entered bankruptcy precisely because demand evaporated as the financial crisis collapse roiled the globe.

Chief Executive Jim Gallogly, who joined the company just after the bankruptcy filing, wants to stay in -- and dominate -- the commodity chemical business, which tends to ebb and flow every five or six years.

The cycle hit a bottom in 2009, and many in the chemical industry expect it to peak in 2014 or 2015.

Part of Gallogly's exuberance has to do with expanded production from North American shale formations, which has made the price of natural gas much cheaper then elsewhere in the world. That has given LyondellBasell a cost advantage over global rivals and strong cash flow.

Europe has not developed its natural gas shale formations, partly because of regulatory and environmental resistance, effectively handing U.S. chemical producers a global advantage.

Most of Europe's chemical producers use crude oil-derived naphtha to make the building blocks for common plastics.

Chemical prices are set globally by naphtha-based producers. That lets LyondellBasell and its peers charge the higher industry price and bank the margins from using cheap natural gas.

But Dow, Shell (RDSa.L) and other rivals are building new chemical plants, known as crackers, in the United States to process more shale gas.

It remains to be seen what effect, if any, they will have on LyondellBasell when they come online later this decade.

"There's a lot of drilling, a lot of gas processing plants, and we think ultimately that's all good for the U.S. chemical business," Gallogly told Global Markets earlier this year. "That's one of the reasons I decided to come to LyondellBasell."

The company is set to report quarterly earnings on Friday, October 28.

(Reporting by Ernest Scheyder, editing by Dave Zimmerman)

McDonald's growth defies volatile economy

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The world's biggest restaurant company and its franchisees have been investing in the business at a time when diners are reacting to economic volatility by carefully managing their spending. The strategy has helped McDonald's win market share from rivals that are smaller and have less financial heft.

By adding Dollar Menu items and introducing high-margin beverages such as coffee and fruit smoothies, McDonald's has broadened its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

The company, which also has accelerated its global expansion, has been making its restaurants in Europe and the United States more modern and inviting. That effort is boosting sales and making service faster and more efficient.

(For a graphic on McDonald's results, click link.reuters.com/xad64s)

Sales at established restaurants rose 6.6 percent in September. That was nearly twice the gain analysts expected and landed amid debt woes in Europe, stubbornly high unemployment in the United States and worries about slower growth in China.

U.S. same-restaurant sales rose 5 percent, while Europe was up 6.9 percent and Asia/Pacific, Middle East and Africa had a 6.8 percent increase.

The company forecast a 4 to 5 percent increase in sales at established restaurants in October.

McDonald's said sales at established restaurants in China were up 11.3 percent for the third quarter. KFC parent Yum Brands Inc (YUM.N), which is the No. 1 U.S. restaurant brand in the world's fastest-growing major economy, recently reported a 19 percent gain in same-restaurant sales.

Strong September results from Europe, especially Germany, helped allay fears that austerity measures would pummel demand in the region, said Lazard Capital Markets analyst Matthew DiFrisco.

McDonald's "continues to evolve into more of a staple than a discretionary brand," said DiFrisco, adding that the company also turned in solid results from the United States.

The company nudged up its forecast for food and other costs, but DiFrisco said this was no cause for concern.

"They are managing their costs and margins in an environment where commodity costs are still heady," he said.

BALANCING ACT

"Consumers everywhere continue to be cautious and hesitant to spend," Chief Executive Jim Skinner said on a conference call with analysts.

Restaurant operators of all stripes are grappling with higher costs for beef and other ingredients. McDonald's has raised menu prices to take some of the sting out of that hit, but said it would weigh future increases carefully.

"We are very judicious about price increases because maintaining everyday affordability, particularly in the environment that we are in today, is paramount," Chief Financial Officer Peter Bensen said on the conference call.

"They seem to be listening to their customers," said Michael Yoshikami, founder and CEO of YCMNET Advisors.

McDonald's customers wanted things like healthier kids' meals, good coffee that was cheaper than at Starbucks Corp (SBUX.O) and premium hamburgers. The company delivered on those demands and now is reaping the benefits, Yoshikami said.

Third-quarter net income rose to $1.51 billion, or $1.45 per share, from $1.39 billion, or $1.29 per share, a year ago.

Analysts on average had forecast $1.43 a share, according to Thomson Global Markets I/B/E/S.

Earnings per share rose more than 12 percent but were up only about 6 percent excluding foreign currency benefits.

Revenue rose 13.8 percent to $7.17 billion. Sales at established restaurants were up 5 percent globally in the quarter, with increases of 4.4 percent in the United States, 4.9 percent in Europe and 3.4 percent in the Asia/Pacific, Middle East and Africa region.

McDonald's shares were up 2.9 percent at $91.57 in afternoon trading on the New York Stock exchange.

(Additional reporting by Brad Dorfman in Chicago; editing by Gerald E. McCormick, John Wallace and Matthew Lewis)

Olympus capitulates to investor pressure, launches M&A probe

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This marks an end to a dramatic week for the maker of endoscopes and cameras, which unexpectedly fired its British chief executive citing management incompetence, only to have him turn whistleblower. Olympus shares have lost half their value since the shock dismissal on October 14.

Michael Woodford, the ousted CEO who is now in the UK, has sent dossiers to British fraud investigators about the Japanese firm's $687 million payments to two advisory firms over its $2.2 billion acquisition of British medical equipment maker Gyrus, which he says he did not receive explanations about.

Olympus has confirmed the payments, but has up to now not provided any detail on why such a large fee was required. Criticism from investors has been mounting, with even normally pliant Japanese stakeholders -- such as Nippon Life Insurance Co, its biggest shareholder -- calling for prompt action to address concerns.

Woodford has also written to Japan's Securities and Exchange Surveillance Commission (SESC) asking it to look into the matter.

Japanese Financial Services Minister Shozaburo Jimi said on Friday that the financial watchdog would do its duty but declined to comment on individual cases.

"We are preparing to set up a third-party panel, including lawyers and accountants, to look into past acquisitions by the company," Olympus said in a short statement, adding that shareholders had been asking for information.

"It looks like a step in the right direction," said Kiyoshi Noda, chief fund manager at the MU Investments Co. "Investors want full disclosure of what has really happened, because statements from the ex-CEO and the board differ. So if independent investigators take a close look at past deals and compile a report on that, that should be helpful," Noda said.

"But at this stage it is too soon to speculate whether it would lead to any substantial changes to the firm's board or management," he added.

At the heart of the controversy is the advisory fee paid to two companies, New York-based AXES America LLC and Axam Investments in the Cayman Islands. The amount is equal to a third of the acquisition price, compared with an industry standard of 1 percent to 2 percent of a deal's value.

A large portion of the fee was paid in preferred shares, which ballooned in value, ultimately raising fees from an originally agreed $100 million, according to a PricewaterhouseCoopers report commissioned by Woodford.

Financial adviser AXES had demanded payment in preferred shares in part to delay tax payments on the fees, Olympus President Hisashi Mori was quoted as saying in an email exchange, forwarded to Global Markets by Woodford.

A former Wall Street banker of Japanese descent has emerged as a key figure in both of the recipient advisers, according to documents provided by the firm's ex-CEO.

The veteran banker, Hajime 'Jim' Sagawa, owned AXES, which was hired by the endoscope-maker five years ago to provide what later turned out to be stunningly expensive advice, the documents show.

"Sagawa represented AXES in relation to the Gyrus transaction who we understand has resided in the United States from 1980 to the present, including a period stationed in New York for Nomura Securities," the PWC report said.

It said Sagawa, who also worked for Drexel Burnham and PaineWebber before setting up AXES, was AXES president and "held himself out" to be a director of affiliated firm AXAM which ultimately received the bulk of the fee.

Global Markets went to Sagawa's Florida home on Thursday, but the ex-banker was not in. Instead, his wife Ellen said he was traveling and that he had done nothing wrong.

"My husband was on Wall Street for many years and was well-respected," she said, after answering the door of their waterside two-story home in Boca Raton, north of Miami.

"My husband is clean as a whistle, I assure you," she said when asked about Sagawa's connection with the scandal.

Mori told analysts in a teleconference on Monday that Olympus had close dealings with AXAM, described in Gyrus's financial statements as the portfolio manager for AXES, but that he had no contact with AXAM recently.

The PWC report said that AXAM had been struck off the Cayman Islands registry in the last year. Mori told investors he was not aware of this fact.

Woodford, who was dismissed just two weeks after taking over as CEO and six months after becoming president, took his case to British fraud investigators earlier this week since most of the Gyrus deal was paid for through an Olympus subsidiary in the UK.

Woodford said he was fired because he requested an explanation of the payment and demanded that the Chairman Hisashi Kikukawa and Mori resign when he didn't receive a satisfactory answer.

In his interview with Global Markets on Thursday, he called Olympus "a fiefdom, a kingdom," and added that "Kikukawa is the emperor."

Asked to comment on this description of Kikukawa, Olympus spokesman Yoshiaki Yamada said: "Chairman Kikukawa's management of the firm is being conducted appropriately and decently."

(Additional reporting by Reiji Murai and Antoni Slodkowski; Editing by Abi Sekimitsu and Chris Gallagher)

S&P boosts Ford closer to investment grade

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S&P said the outlook for Ford is "stable."

This follows an upgrade of one notch by Fitch Ratings on Thursday. Fitch also rates Ford at BB+, the highest level of "speculative" or "junk" status, one notch below the lowest "investment grade" rating.

Moody's Investors Service has Ford rated two notches below its lowest level of investment grade. Moody's rates Ford at Ba2 on its credit risk ladder.

Ford was last at investment grade in 2005, the year before it borrowed heavily to finance its restructuring.

On Wednesday, Ford unionized workers voted nearly 2-to-1 to ratify a new four-year labor deal between the automaker and the Untied Auto Workers.

Ford said on Thursday the new labor deal would increase costs less than 1 percent annually, and higher bonuses would be offset by savings in more flexible manufacturing processes and work schedules.

S&P said of the new four-year labor contract, "We believe the contract will allow for continued profitability and cash generation in North America. Ford has a two-year track record of profits and cash flow generation in its global automotive operations, supported by strong performance in North America."

S&P analyst Robert Schulz said Ford's automotive operating cash flow in 2011 will be "at least" $5 billion.

S&P also said the company has "good prospects for generating at least $2 billion in automotive cash flow in 2012."

Fitch said a further upgrade to BBB-, investment grade, or higher is likely if Ford stays on a course for lowering its debt to $10 billion by 2015 as the automaker plans. Ford's debt at the end of the second quarter was $14 billion.

S&P on Friday also raised the rating for Ford unit Ford Motor Credit Co LLC to BB+ from BB-.

Ford Chief Financial Officer Lewis Booth said on Thursday that the company may reinstate a dividend before the ratings agencies certify it as investment grade, but did not offer an estimate on the timing of the dividend.

J.P. Morgan in a research note said on Friday, "We think a dividend is likely in the next six months, but we expect Ford to start at a fairly small or modest yield initially with the aim of announcing progressive dividend increases in the future."

Ford shares were up 3.2 percent at $12.07 on Friday afternoon on the New York Stock Exchange.

Ford shares are up 29 percent since the automaker's negotiators reached a tentative labor contract with the UAW on October 4. In that same stretch of time, the S&P 500 is up 12 percent.

(Reporting by Bernie Woodall in Detroit, editing by Matthew Lewis)

Eastman Kodak seeking rescue financing: reports

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Kodak shares rose more than 6 percent to close at $1.32 on the New York Stock Exchange.

The Debtwire report cited sources saying Kodak met with firms, including Cerberus Capital Management and Silverpoint.

The talks are intended to give Kodak a four or six-month "bridge period to facilitate the sale of its digital imaging portfolio," the article said.

A group of Kodak bondholders have hired the law firm Akin Gump Strauss Hauer & Feld, the Wall Street Journal reported on Friday, citing unnamed sources.

Debtwire also said bondholders, including Avenue Capital, Solus Alternative Asset Management, DE Shaw and P. Schoenfeld Asset Management were fielding legal pitches from law firms on Friday.

The company also hired FTI Consulting Global, the Journal said. FTI has experience in restructuring matters.

Kodak, once synonymous with photography, has been exploring a sale of its digital imaging patents, worth an estimated $2 billion, and hired investment bank Lazard in July to explore its options.

Speculation Kodak was on the verge of filing for bankruptcy flared at the end of September after reports the company hired law firm and restructuring specialist Jones Day. Kodak has denied it is filing for bankruptcy.

"We don't comment on rumors," Kodak spokesman Chris Veronda said on Friday. "In general, we're committed to optimizing our cash generation and we are always assessing the financing strategies available to us."

The company sued a major supplier, Collins Ink Corp, earlier this week, the Journal said, after Collins terminated an agreement to provide Kodak with ink for commercial printers.

The Journal quoted a Collins executive saying Kodak owed his company $2 million. In its lawsuit, Kodak maintained it was up-to-date on its bills, according to the Journal.

The company borrowed $160 million against its credit line in September. On June 30, the company had $957 million in cash and it will report its third-quarter results on November 3rd.

(Reporting by Liana B. Baker, Carlyn Kolker and Andre Grenon)

Groupon's scaled back IPO to raise up to $540 million

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The company aims to sell 30 million shares, or less than 5 percent of the company, at between $16 and $18 each, according to a regulatory filing on Friday.

The midpoint would value Groupon $10.8 billion, far less than the $20 billion initially expected but still above the $6 billion that Google Inc offered to pay for the business last year.

Despite the lowered valuation, some analysts say Groupon's shares could still struggle when they come to market in November. They point to questions over the long-term viability of a company that faces fierce competition in a business that has low barriers to entry.

The fact that Groupon has changed its accounting twice under pressure from regulators, and lost two chief operating officers this year, also has not instilled confidence.

"This offer strikes me as very, very unattractive," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster. "I think it's over-valued."

He said the scaling back of the IPO and the small float suggested more shares could be offloaded later. Depending on demand, the IPO will raise between $480 million and $540 million, compared with a previous target of up to $750 million.

The online daily deal industry has exploded into a multibillion-dollar business since Groupon was launched in late 2008. That growth has attracted hundreds of rivals, including giants like Google and Amazon.com Inc.

Brad Gastwirth, co-founder of ABR Investment Strategy, an independent research firm that focuses on technology and healthcare, said the lowered valuation will help the IPO, but he cited concerns about whether Groupon can diversify revenue sources and shift to higher margin products.

"There was very little investor interest in the deal at the $20 billion-plus valuation," said Gastwirth. "While on the surface the price-to-sales multiple is getting more reasonable, there are still many questions that need to be answered before we and investors feel comfortable with this IPO."

SMALLER LOSSES

Groupon is one of the most closely watched IPOs this year, as turmoil in the financial markets disrupted many share offering plans and cut the value of the few that did get done. If Groupon succeeds, it will bode well for other companies also considering going public, including social gaming company Zynga and social network Facebook.

"The market is slowly but surely reopening," said Nasdaq head of listings Bob McCooey. "Companies including Groupon have been in wait-and-see mode for quite a while and now they are seeing an opportunity to get out and get priced, and they are taking advantage of that."

The shares are expected to trade on the Nasdaq under the symbol "GRPN."

Groupon is set to launch a roadshow next week with Chief Executive Andrew Mason, Chief Financial Officer Jason Child and product head Jeff Holden to attract potential investors.

One of the main question marks over Groupon has been whether the company can become profitable soon. Friday's IPO filing disclosed third-quarter results and some progress toward profitability.

On a pro forma operating basis, which excludes stock-based compensation, Groupon's loss narrowed to $2 million in the third quarter from $62 million in the second quarter, in part because it kept a lid on marketing spending. Earlier this year, it hired Richard Williams from Amazon to head marketing.

The company said it had 30 million customers at the end of September, up from 23 million three months earlier. Customers

ARE SUBSCRIBERS WHO HAVE BOUGHT ONE OF GROUPON'S COUPONS.

Repeat customers climbed to 16 million in the third quarter from 12 million at the end of the second quarter, the company also said in its filing.

The average number of coupons sold per customer was 4.2, up about 5 percent from the previous three-month period.

Morgan Stanley, Goldman Sachs & Co and Credit Suisse are leading the underwriters on the offering.

(Reporting by Alistair Barr in San Francisco and Clare Baldwin in New York; editing by Bernard Orr, Lisa Von Ahn, Steve Orlofsky and Andre Grenon)