Stock Market Predictions

BATS exchange withdraws IPO after stumbles

Stock Market Predictions

The problems caused the shares of exchange operator BATS to plunge from their $16 offering price and briefly trade for less than a penny on Friday morning, creating havoc in the marketplace and again calling into question the stability of high-speed trading.

The glitches, which also prompted a halt in trading of Apple Inc shares, were so severe and so visible, involving BATS' own listing, that some observers said they threatened confidence in the nation's third-largest exchange.

This was the first IPO on the BATS exchange.

"I think some companies might say ‘If they can't handle the IPO of their own stock, how can they handle the IPO of our stock?'," said Dennis Dick, a Detroit-based market structure consultant and trading member at Bright Trading LLC. "There is going to be a confidence issue of listing on BATS."

BATS, an acronym for "Better Alternative Trading System," suspended trading in BATS shares and alerted investors to "system issues" around mid-morning in New York. The exchange, a rival to the New York Stock Exchange and Nasdaq that is based in Kansas City, Mo., later said the problems had been resolved and BATS shares would resume trading at noon.

Late in the day, BATS said trading would not resume, and later said it had decided to unwind its share offering.

Eight hours after the problem started the company blamed a "software bug" for setting off the series of glitches.

"In the wake of today's technical issues, which affected the trading of certain stocks, including that of BATS, we believe withdrawing the IPO is the appropriate action to take for our company and our shareholders," said Joe Ratterman, chief executive officer of BATS Global Markets.

The debacle raised questions for regulators, investors and the underwriters, including Citigroup Inc, Morgan Stanley and Credit Suisse Group, which were listed before the IPO as major shareholders.

Several former or current Credit Suisse bankers serve on BATS' board, according to a BATS regulatory filing. Big shareholders that planned to exit were Getco LLC, a high-frequency trading firm based in Chicago, and Lehman Brothers Holdings Inc.

Unwinding the IPO would mean that the banks and other owners would have to return to investors about $100 million that they gained by selling their stakes in BATS.

Also in play are millions of dollars in fees the banks would have received in fees for doing the underwriting. The episode also could open the door to lawsuits and put BATS' expansion plans on hold.

BATS made a big leap into the European market in December when it completed the $300 million takeover of rival Chi-X Europe. The two exchanges had about a quarter of European share trading on their systems at the time. BATS also was said to be looking for an acquisition in Brazil, as well as planning to create new platforms for other asset classes.

The one positive note about the trading problems was that BATS quickly caught the mistake and halted the problematic trading.

"The public should take comfort that circuit breakers are working as they should after the flash crash," said Holly Stark managing member of Efficient Frontiers, a market structure consulting firm in New York.

Since the May 2010 "flash crash" in which nearly $1 trillion in market value disappeared in minutes, the Securities and Exchange Commission under Chairman Mary Schapiro has pledged to crack down on problems in the high-speed electronic marketplace, which regulators worry has grown unstable and perhaps unfair as high-frequency trading has grown in prominence.

The BATS breakdown could trip up, once again, the march over the last decade toward increasingly automated markets in the United States, Europe and elsewhere.

It is expected to draw even more scrutiny from regulators looking into the soundness of the exchange's servers, trade-matching engines and computer codes, and it could land BATS in legal trouble for withdrawing its IPO after trades were executed in the public marketplace, according to experts.

The SEC regularly visits exchanges and has in the past few months requested detailed information on how orders are routed and executed, according to sources with direct knowledge of the matter.

"As is our practice, SEC staff has been and will continue to be in discussions with BATS to determine the cause and extent of the incident and steps BATS is taking to remedy the situation," said John Nester, and SEC spokesman.

The software bug rendered opening orders for BATS stock inaccessible, the exchange said in a "post-mortem" late on Friday. Once it decided Friday afternoon to withdraw the IPO, the original trade in BATS stock was "torn down." BATS then broke other trades and let all affected parties know about the decision, BATS said.

There is precedent for canceling trades. After the 2010 flash crash, regulators and exchanges agreed to cancel the 20,000 trades that were executed more than 60 percent away from the pre-crash prices of those stocks. The trades were deemed "clearly erroneous," canceling out some big losses - and big profits - for many traders that day.

But BATS' explanation of how it handled the situation came late for those who had agreed to buy shares in the IPO. As BATS officials worked to fix the system breakdown, no one from the exchange publicly explained what had gone wrong. This left institutional investors nervous about their agreement to buy shares, according to people close to the situation.

Increased discomfort among those buyers could have played a role in the decision to cancel the IPO, the sources said.

Founded in 2005, the BATS exchange has captured about 11 percent of U.S. equity market volume and 3 percent of equity options volume and is now the third-largest platform in the U.S., after the NYSE Euronext and Nasdaq OMX .

BATS, headed by 45-year-old Ratterman, was formed by major banks and trading firms looking to break the stranglehold that the NYSE and Nasdaq had on U.S. stock trading, forcing the traditional venues to modernize their technology.

It was started with 13 employees by David Cummings, a computer and electrical engineering graduate of Purdue University. Cummings is the chairman of Tradebot Systems, an electronic trading firm that he founded in a spare bedroom with a $10,000 investment. The growth of Tradebot and BATS had established the Kansas City area as a hotbed for trading technology companies. In 2006, Mr. Cummings told a local Kansas City business newspaper, "Make no mistake, our long-term plan is to be one of the three largest equity markets in the United States."

Friday's market debut would have marked a major next step in the company's evolution.

But the day began badly, when the Wall Street Journal led its front page with a story saying BATS was part of a probe by the SEC into high-frequency trading. Although the investigation had been known for months, the story did little to allay concerns about the BATS exchange.

Then the spectacular trading glitch sparked fears and set tongues wagging on Wall Street.

"The one thing they should have guarded against is the integrity of their platform on the day they went public," said Francis Gaskins, president of IPO research site IPOdesktop.com, in Los Angeles.

As trading began on Friday, BATS stock dipped to $15.25. Then extreme turbulence hit. A slew of bad trades at less than a penny sent the stock plunging. Though the trades were later voided, the plunge unnerved investors.

Around the same time, three Apple trades also went through on the BATS exchange, triggering a circuit breaker that temporarily halted trading of Apple. Those trades ultimately were canceled.

BATS said its installation of software for its IPO triggered a bug just after 10:45 a.m. eastern time that affected all stocks whose ticker symbols began with letters A to BFZZZâ€"including BATS' own stock. It tried to remove all quotes in the affected stocks but three trades for Apple were executed. By 12:34 pm, the Apple trades were canceled.

By noon, the exchange notified its members that all symbols would be available for trading except for its own shares.

The omission of its own shares was probably the most embarrassing and costly problem for BATS, and ultimately led to its pulling of the IPO, said Larry Tabb, founder of Tabb Group, a markets consulting firm.

"They pulled the IPO because their own symbol was affected," Tabb said. "They couldn't get it to work and it just degraded confidence in their marketplace."

A spokeswoman for the company said she had no immediate explanation for the decision to pull the IPO.

Spokespersons for the IPO underwriters either declined to comment or were not available for comment.

Market participants lost little time criticizing the exchange, and the event lit up the Twittersphere.

"It's just another black eye for the fragmented equity structure," said Joe Saluzzi, co-head of equity trading at Themis Trading in Chatham, New Jersey, and a frequent critic of U.S. equities market structure. "Every day we see things like flash crashes and now IPOs that can't get off the ground." On StockTwits.com, a stock-related Twitter site, commentators took aim at the company. "Man are those investors who participated in the IPO breathing a sigh of relief right now," wrote one.

The glitch on the first day did little to encourage investors. "The last thing you want to do as a listing exchange is mess up your introduction to the public investment world - the IPO," said Jason Weisberg, managing director at Seaport Securities Corp.

(Reporting by Olivia Oran, Carrick Mollenkamp, Charles Mikolajczak, Jed Horowitz, Jonathan Spicer, Jessica Toonkel and John McCrank.; Editing by Alwyn Scott, David Gaffen, Dan Grebler, Leslie Adler and Carol Bishopric)

HP hikes dividend by 10 percent

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HP has said it intended to increase its regular dividend annually, and that the increase would to be in the double digits. It has about 1.98 billion shares of common stock outstanding.

The current increase in the dividend will be effective as of May 2012. HP's previously announced dividend, payable on April 4, remains at 12 cents per share.

The company also amended its bylaws to reflect that it now has only 11 directors, down from 14 previously, HP said in a regulatory filing.

The slate of 11 directors were elected by shareholders at a meeting on Wednesday.

(Reporting By Poornima Gupta; Editing by Bernard Orr)

Ericsson share dip after management set modest targets

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The targets, related to the executive bonus plan, are for compound annual growth in revenue of between 2 and 8 percent in 2011 through 2014, down from growth of 4 to 10 percent in the 2010 to 2013 period, set for management last year.

"Essentially it doesn't look very challenging," said Alexander Peterc, analyst at Exane BNP Paribas.

"People generally expect ambitious targets from managers, perhaps above market expectations, and that is not the case here, so the stock market's take on it might have a negative slant."

Shares in the company, which had risen to a two-month high last week, were down 2.1 percent at 1132 GMT, underperforming a 0.7 percent fall in European technology stocks .SX8P.

Ericsson does not publish market forecasts, so analysts and investors see the bonus targets as a guide to the company's views about the coming three years.

Some analysts said the change in targets reflected a strong performance in 2011 when the company gained market share and saw net sales growth of 12 percent.

"I wouldn't consider it (the new target) as a change (from last year)," said Hakan Wranne, analyst at Swedbank.

Ericsson kept its target for compound annual growth in operating income unchanged at 5 to 15 percent.

Peterc said Ericsson could reach this target just by turning around or dumping loss-making chip-making joint venture ST-Ericsson (STM.PA).

"Assuming that will be resolved by 2014 ... they will hit the target of their CAGR requirement, just by eliminating ST losses," he said.

ST-Ericsson made an operating loss of $867 million in 2011.

The group cash conversion target remains at 70 percent or above annually.

Ericsson showed strong growth last year as telecom operators spent heavily to improve networks to cope with the boom in data traffic from smartphones and tablets.

However, a shift to lower-margin business and growing caution among operators about the economy led to profit halving in the fourth quarter, souring investor views on the stock.

This year is also likely to be tough as the effects persist of Europe's debt crisis and a margin squeeze from a business mix heavy in low-margin hardware.

Ericsson shares are down around 5.5 percent year-to-date, underperforming a 14.5 percent rise European tech stocks as a whole.

(Reporting by Simon Johnson)

Nike posts higher profit, sees strong demand

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The Beaverton, Oregon-based company earned $560 million, or $1.20 a share for the third quarter ended February 29, compared with $523 million, or $1.08 a share last year.

Revenue rose 15 percent to $5.8 billion.

Worldwide futures orders for the Nike brand, a closely-watched measure of demand in coming months, were up 15 percent to total $9.4 billion.

Shares of the company closed at $110.99 Thursday on the New York Stock Exchange.

(Nivedita Bhattacharjee in Chicago; Editing by Bernard Orr)

"Hunger Games" midnight madness lures $19.7 million

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The movie pulled in $19.7 million in showings just after midnight early Friday in the United States and Canada, Lions Gate said. That ranks seventh among all-time midnight screenings, just behind 2009's "Harry Potter and the Half-Blood Prince," the studio said.

Hollywood placed lofty expectations on "Hunger Games," the film based on a best-selling book by Suzanne Collins about children forced to fight to the death. Sales forecasts for the opening weekend range as high as $125 million-plus, with some box-office watchers comparing its drawing power to the popular "Twilight" vampire romance series.

Last November's Twilight film, "Breaking Dawn - Part 1" grossed $30.3 million in midnight showings. "Harry Potter and the Deathly Hallows - Part 2," last summer's finale of the blockbuster series about a boy wizard, set the record with $43.5 million from midnight shows, according to Hollywood.com.

"Hunger Games" is expected to become Lion's Gate's biggest film opening ever. The company's shares have gained 32 percent in the past six weeks in anticipation.

On Friday, Lions Gate shares fell 2.3 percent to $14.22 in early afternoon trading on the New York Stock Exchange. Evercore Partners analyst Alan Gould, who rates the stock "equal-weight" with a $15 price target, said investors likely were capitalizing on the stock's recent gains by "selling on the good news."

(Reporting By Lisa Richwine; Editing by Ronald Grover and Tim Dobbyn)

China's Vipshop makes weak NYSE debut

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Guangzhou-based Vipshop, the first Chinese company to go public in the United States since last August, priced its offering at $6.50 per share, below its indicated range of between $8.50 and $10.50 per share.

Earlier this week, the company told the U.S. Securities and Exchange Commission that some of its existing shareholders, including entities affiliated with venture fund Sequoia Capital, had agreed to buy $20 million of ADSs in the offering -- normally a positive sign -- but investors remained cautious.

Though it operates in the booming Chinese consumer space, Vipshop hasn't posted a profit since 2009. Its losses for 2011 widened despite a jump in revenue.

Vipshop's corporate structure is also a cause of concern. Known as a variable interest entity, or VIE, the structure lets Chinese companies bend certain rules forbidding foreign investment.

Last year, Global Markets reported that the China Securities Regulatory Commission authored a request to the State Council, the government's equivalent of a cabinet, asking it to take action against the VIE structure.

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IPO VIEW-Waters still murky for U.S.-listed Chinese IPOs

GRAPHIC on VIE structure: link.reuters.com/byk83s

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Vipshop's IPO was seen as an indicator for other Chinese issuers hoping to tap U.S. markets. Four other Chinese companies have filed to go public in recent weeks, including AdChina, China Auto Rental, Cloudary Corp and Newsummit Biopharma Holdings.

Vipshop, which raised $71.5 million through the IPO, offers over 1,900 branded products to consumers in China through flash sales on its vipshop.com website.

Flash sales represent a new online retail format, combining the advantages of e-commerce and discount sales through selling a limited quantity of discounted products or services, for a fixed period of time.

Goldman Sachs and Deutsche Bank Securities were the joint book-running managers for the offering.

Units of Whiting USA Trust II (WHZ.N) rose more than 23 percent on their first day of trading on the New York Stock Exchange, a day after the company's IPO was priced at the midpoint of the expected price range.

The trust was formed in December by Whiting Petroleum Corp (WLL.N) to own a non-operating stake in certain producing properties in the Rocky Mountains, Permian Basin, Gulf Coast and Mid-Continent regions of the United States.

Vipshop's ADSs closed at $5.50 on the New York Stock Exchange, down 15 percent from their IPO price. (Reporting by Jochelle Mendonca and Ashutosh Pandey in Bangalore; Editing by Sreejiraj Eluvangal and Gopakumar Warrier)

KIT Digital: 4 directors quit; shares slide

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KIT Digital said the there were repeated requests from shareholders to reduce the number of inside directors.

The company also appointed Chief Administrative Officer Barak Bar-Cohen interim chief executive, replacing Kaleil Isaza Tuzman who will continue as the chariman of the board.

"From the stock perspective, it's not the CEO stepping down or the company's hunt for a new CEO or resignation of three members of the board. It is to do with Politi's departure and, more so, with the timing of it," JMP Securities analyst Mark Harding said.

He said Politi -- one of the top ten shareholders of KIT Digital with a nearly 2 percent stake -- quit KIT Digital over differences of opinion with the management over the company's possible buyout.

However, the company denied that. "There have been no differences of opinion with Politi over the company buyout as we are not up for sale. We respect his opinion," Tuzman told Global Markets.

The company, however, said it had appointed a special committee to evaluate unsolicited interests from a couple of suitors.

Tuzman also said he was looking to have a new CEO in place in the next three to six months.

The company, which has delayed its annual report, could go private or be bought out by a larger company," said analyst Harding.

KIT Digital's stock -- one of the top losers on the Nasdaq on Friday -- closed at $6.33 on Friday on Nasdaq. It fell to $5.99 earlier in the session.

(Reporting by Monika Shinghal in Bangalore; Editing by Don Sebastian)

KB Home net orders fall, shares drop

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KB shares slid 8.5 percent to close at $10.29, their lowest level in nearly two months.

Until Friday homebuilder stocks had been on a tear, rallying since October as if the housing recovery was firmly in place. Some shares had tripled on expectations that historically low interest rates and low home prices would finally push consumers to buy.

But this has been anything but a normal housing recovery.

"Don't expect this to be a broad-based, rocket-ship recovery," KB Homes Chief Executive Jeff Mezger said on a conference call following its earnings report on Friday. "The overall housing market is better, but this is definitely a localized recovery ... and in some cases, it's a zip-code-by-zip-code recovery."

In cities like Miami and New York, luxury highrises are the subject of ferocious bidding wars. But in the foreclosure-ravaged areas of inland California and Cleveland, signs of a recovery seem to be missing.

KB's disappointing results on Friday mirrored the surprise loss reported last month by homebuilder Toll Brothers, which also saw buyers cancel orders. Toll's results stunned investors.

Mezger blamed the spike in buyer cancellations in part on the sudden announcement in January that KB's preferred mortgage partner, MetLife Home Loans, was shutting down its retail mortgage operations.

Mezger also said the punishing standards used by mortgage providers were creating a troubling trend. Customers show up at KB communities brandishing preapproval letters, but more of them are failing to close on purchases than before.

SOME UPSIDE

It wasn't all bad news for KB. The company is getting massive play on Facebook from its appearance on "The Ellen DeGeneres Show" as it builds a custom home for single mom Lisa Jarmon, who gets to select everything from faucets to flooring in KB Home Studio stores.

All the publicity is giving KB a way to showcase the stores, which are coming online in KB's communities.

KB Home has long been a trailblazer in marketing schemes, including an alliance in 2004 with the ABC Television reality show, "Extreme Makeover: Home Edition."

But the cost of establishing the KB Home Studio division, as well as building Martha Stewart-branded homes and energy efficient houses, is also pressuring margins, some analysts said.

And despite signs of a possible housing recovery, the market remains mired in its worst slump since the Great Depression.

Nearly half of homeowners with mortgages are either in foreclosure, delinquent, owe more on their loan than their house is worth, or have less than 20 percent equity in their home.

That's not to mention the millions of homes - the so-called shadow inventory - that the banks are holding back from overwhelming the market and further depressing prices.

KB's first-quarter net loss was $45.8 million, or 59 cents per share, down from $114.5 million, or $1.49 per share, a year ago. Revenue rose 29 percent to $254.6 million.

Analysts were expecting a loss of 24 cents per share on revenue of $337.7 million, according to Thomson Global Markets I/B/E/S.

(Reporting by Megha Mandavia in Bangalore and Michelle Conlin in New York; Editing by Sriraj Kalluvila, Ted Kerr, Patty Krantz and Richard Chang)

BT agrees new deal on 4 billion stg pension fund deficit

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Shares in the former state telecoms monopoly leapt to a four-year high after it said it has agreed with the BT Pension Scheme's trustee that it would start clearing the deficit immediately with a top-up payment of 2 billion pounds by the end of this month.

The group, which had previously relied on cost cuts and improved efficiency to drive cash generation, said it would then be able to make lower annual contributions for the next nine years of 325 million pounds, compared with its previous goal of clearing the deficit over 17 years.

Analysts said the new deficit estimate was also less than expected.

"This is a very rational thing to do and helps to materially de-risk the company and give more dividend flexibility in the future," Macquarie analyst Guy Peddy told Global Markets.

BT, which has been dogged in recent years by the pension deficit and the restrictions it placed on its dividend, said a new triennial valuation at the end of June put the deficit at less than half the size of the 9 billion pound shortfall when the scheme was evaluated in 2008.

"This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength," Chief Executive Ian Livingston said.

"BT's long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focused on improving BT's financial strength, investing in our future and enhancing shareholder returns."

LUMP SUM

The new deficit settlement compared with a previous payment plan which ran over 17 years and started off with an annual payment of 525 million pounds which would then rise to 856 million pounds in 2025.

"Our sum-of-parts valuation for BT had assumed a net-of-tax pension deficit of around 5.1 billion pounds," Oriel Securities said. "This will now have to fall. The difference is around a 25 pence per share boost to our estimate of BT's fair value."

Analysts also noted a condition that BT would have to pay more money into the scheme if its shareholder returns between March 2012 and June 2015 exceeded the pension deficit payments.

With shareholder returns for that period forecast at around 2.5 billion pounds, and the deficit payments planned at 2.98 billion pounds, analysts noted that there was plenty of headroom for BT to raise the dividend.

BT shares were up 5.8 percent at 233 pence by 1245 GMT, having earlier scaled to a four-year high of 235.3 pence, the day's biggest rise by a European blue-chip stock .FTEU3.

"With regard to dividends, the company remains circumspect with regard to a potential raise but acknowledged that resolution of a new top-up plan was a pre-condition to addressing potentially increased shareholder remuneration," Deutsche Bank said.

($1 = 0.6326 British pounds)

(Editing by Mark Potter and Greg Mahlich)

Darden sees need for "affordability" at Olive Garden

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Much of the improvement at Olive Garden came from factors beyond its control, like mild winter weather. An earlier Lenten season also helped give a give a boost to sales at Darden's Red Lobster seafood chain.

Chief Executive Clarence Otis told analysts on a call that "the need for affordability continues" at Olive Garden.

Concerns about gas prices and the job market are among the factors that are still weighing on customers' minds, he and other Darden executives said on the call.

Darden shares were down 3.1 percent to $50.24 in morning trading.

Sales at Darden's next two largest chains, Red Lobster and LongHorn Steakhouse, also rose, and the company benefited from what Otis said was a "moderating" rise in the cost of food as well as an increase in the number of diners coming through the doors of its major chains.

Sales at Olive Garden's U.S. restaurants open at least 16 months were up 2 percent during the third quarter, with the biggest rise coming in February, which was unusually mild across much of the country.

Darden had not reported a quarterly rise in Olive Garden same-store sales since the period ended November 28, 2010.

At Darden's main three chains, U.S. same-restaurant sales were up a combined 4.1 percent. At Red Lobster, which generates a third of overall sales, they rose 6 percent.

The Christian season of Lent landed in Darden's third quarter this year but was in its fourth quarter a year earlier. Red Lobster schedules its LobsterFest specials during the Lenten season, when some Christians avoid meat.

The company, which has reworked menus and increased promotions at the Italian-themed Olive Garden chain, affirmed its forecast for growth in its full-year earnings per shares from continuing operations of 4 percent to 7 percent. Darden sees U.S. same-restaurant sales at its main three chains to be up 2.5 percent to 3 percent this year.

Darden's smaller chains include The Capital Grille and Bahama Breeze.

Earnings at the Orlando, Florida-based company were $164.1 million, or $1.25 per share from continuing operations, for the third quarter ended February 26, up from $151.2 million, or $1.08 a share, a year earlier. That beat Wall Street forecasts by a penny, according to Thomson Global Markets I/B/E/S.

Overall sales rose 9.3 percent to $2.16 billion, above the $2.14 billion Wall Street was expecting.

(Reporting By Phil Wahba in New York and Lisa Baertlein in Los Angeles; Editing by Gerald E. McCormick and Mark Porter)