Monday, June 4, 2007

U.S. Stocks Rise, Led by Oil Producers; Wal-Mart, XTO Advance

By Michael Patterson

June 4 (Bloomberg) -- America's equity benchmarks climbed to records again on analyst upgrades of Wal-Mart Stores Inc. and a rise in oil prices that buoyed energy shares.

Wal-Mart, the world's largest retailer, led the Standard & Poor's 500 Index to its fourth consecutive peak and the Dow Jones Industrial Average to its 27th this year after four brokerages recommended the company because of its planned $15 billion share-buyback plan. Oil and gas companies climbed to a high after the price of crude surged above $66 a barrel on concern supplies from Nigeria may be disrupted.

Shares overcame early declines sparked by the biggest-ever point slide in China's equity market. The agreement by Loews Corp. and XTO Energy Inc. to buy most of Dominion Resources Inc.'s onshore oil and gas properties for $6.5 billion gave investors another reason to buy stocks.

``We've got a good combination of bullish factors still in place,'' said Frederic Dickson, chief market strategist at D.A. Davidson & Co., which manages $17 billion in Great Falls, Montana. ``We still go higher from here.''

The S&P 500 added 2.84, or 0.2 percent, to 1539.18. The Dow average increased 8.21, or 0.1 percent, to 13,676.32. The Nasdaq Composite Index climbed 4.37, or 0.2 percent, to 2618.29.

Wal-Mart climbed $1.74, or 3.5 percent, to $51.21 and contributed the most to the S&P 500's advance. The shares were upgraded by brokerages including JPMorgan following Wal-Mart's decision to buy back shares and reduce the number of stores it plans to open this year.

Oil Rally

Crude oil for July delivery rose 1.7 percent to $66.21 a barrel in New York after union officials in Nigeria's oil and gas industry said they plan to support a general strike.

Energy shares in the S&P 500 climbed 1.2 percent as a group for the best gain among 10 industries.

Anadarko Petroleum Corp. added $2.30 to $51.95. Chesapeake Energy Corp. increased $1.19 to $36.23.

XTO Energy climbed $3.24, or 5.6 percent, to $61.61 for the No. 3 gain in the S&P 500. The oil and natural gas producer and Loews, the holding company owned by New York's Tisch family, agreed to buy most of Dominion's onshore oil and gas exploration business in separate transactions. Loews gained $1.33 to $52.35. Dominion added 23 cents to $87.87.

China Plunge

China's CSI 300 Index dropped 292.52, or 7.7 percent, to 3511.43 after the government's main business newspaper said the speed at which stock prices soared was ``extremely unusual.'' It was the benchmark's biggest point slide on record and the second time in a week it has fallen by more than 6 percent.

Chinese shares slid last week after the government tripled the stamp tax on securities trades to 0.3 percent. The measure, which doubled in the past six months, has tumbled 16 percent from its May 29 peak.

About four stocks rose for every three that fell on the New York Stock Exchange. Some 1.35 billion shares changed hands, 14 percent less than the three-month average.

Among other deals in the U.S. today, Solectron Corp. climbed 51 cents, or 15 percent, to $3.88 for the best gain in the S&P 500. Flextronics International Ltd. agreed to acquire the electronics manufacturer for about $3.6 billion in cash and stock. Flextronics slipped 16 cents to $11.54.

Sanmina-SCI Corp., the second-largest manufacturer of electronics for other companies after Flextronics, gained 20 cents to $3.75.

Accredited Home Lenders Holding Co. jumped $1.36 to $15.12 after the subprime lender that raised doubts about its survival agreed to sell itself to private-equity firm Lone Star Funds for about $400 million in cash, or $15.10 a share.

Palm Stake

Palm Inc. surged $1.48 to $17.57. The maker of the Treo mobile phone and e-mail device agreed to sell a 25 percent stake to private-equity firm Elevation Partners for $325 million and announced an overhaul of its board.

``There's a lot of global liquidity out there to fuel this M&A activity,'' said Tim Hartzell, who helps manage about $2 billion at Kanaly Trust Co. in Houston. ``There's still some room to go to the upside.''

Is Dow Jones’s Union Pursuing an ESOP?

New York Times

Even as the Bancroft family finally sat down with Rupert Murdoch on Monday, it appeared other players in the Dow Jones saga were trying to take matters into their own hands — possibly literally.

Also on Monday, the Independent Association of Publishers’ Employees, the union that represents Dow Jones employees, said in a statement that it had retained advisers to seek out potential white knights for the company, which is considering a $5 billion bid from Mr. Murdoch’s News Corporation. But the union’s choice of adviser was perhaps the most interesting aspect of the announcement.

From the union’s statement:

IAPE believes that the best safeguard to the independence and integrity of Dow Jones would be the continued stewardship of the Bancroft Family, but if the Family is persuaded that a sale of Dow Jones is necessary, IAPE believes that there are alternatives to Mr. Murdoch. We are hopeful that the Bancroft Family, with its long-standing commitment to the integrity of Dow Jones, will consider these alternatives.

Union president Steve Yount said that the group was working with Ownership Associates, a Cambridge, Mass. firm that specializes in employee stock ownership plans. That’s the same method by which Tribune agreed to go private earlier this year, in a deal led by the billionaire real estate investor Samuel Zell.

Ownership Associates is no stranger to advising newspapers. The firm says that it partnered with the investment bank Duff & Phelps to help several Knight Ridder newspaper staffs explore the possibility of ESOP buyouts. (That may be of little comfort to Dow Jones employees, as this Editor & Publisher story notes.)

Laureate Education OK's Raised $3.8B Bid (AP)

Laureate Education Inc. said Monday that it has agreed to go private for $3.82 billion in cash from a group led by the higher education company's Chairman and Chief Executive Douglas Becker.

The sweetened offer of $62 per share tops the investor group's earlier bid of $60.50 per share, a deal that some of Laureate's major investors said was too low. A tender offer for Laureate's shares is scheduled to begin on Friday.

Baltimore-based Laureate, formerly known as Sylvan Learning Systems Inc., is a for-profit higher education company with 24 accredited institutions, and 240,000 students in 15 countries. It includes online schools such as Walden University and universities in places such as Chile, Switzerland and China.

Laureate's board unanimously accepted the latest offer, which represents a 26 percent premium over the company's closing stock price on Jan. 4, the day before a special committee of independent directors of Laureate's board authorized advisers to start negotiations on a definitive acquisition.

Shares of Laureate Education rose $1.38, or 2.3 percent, to $61.49 in midday trading.

The investor group includes Kohlberg Kravis Roberts & Co., Citi Private Equity, S.A.C. Capital Management LLC, SPG Partners, Bregal Investments, Caisse de depot et placement du Quebec, Sterling Capital, Makena Capital, Torreal SA and Brenthurst Funds.

Becker and director R. Christopher Hoehn-Saric, along with certain other affiliates of Sterling Capital, have agreed to accept the original per share offer price in connection with the rollover of their shares in the transaction.

The deal, however, could face problems from some of Laureate's larger shareholders. Three investors - T. Rowe Price, Select Equity Group Inc. and BlackRock Inc. - all expressed doubts about the earlier $60.50 per share offer.

Laureate has forecast earnings of $5.00 per share by 2010, which T. Rowe Price said could lead to a doubling of Laureate's share price to $110 over the next three years.

The three investors also said they were concerned about potential conflicts of interest, saying it put Becker in the position of trying to seek the lowest price as a buyer while ostensibly trying to maximize value for shareholders.

Becker has been CEO and chairman since 2000.

Loews in $4 billion deal for Dominion gas assets


NEW YORK (Reuters) - Loews Corp. , a conglomerate, said on Monday it will buy gas exploration and production assets in three states from Dominion Resources Inc. for $4.025 billion in cash, betting on rising natural gas prices as it diversifies its revenue stream.

The main properties being acquired are located in the Permian Basin in Texas, the Black Warrior Basin in Alabama and the Antrim Shale in Michigan, with estimated reserves of about 2.5 trillion cubic feet of gas. The price equates to about $1.61 per thousand cubic feet, Loews said.

New York-based Loews, the majority owner of natural gas pipeline operator Boardwalk Pipeline Partners LP , plans to set up a new company for the acquired assets. It said it will also retain existing management, led by Timothy Parker, a Dominion senior vice president of exploration and production.

Natural gas "will be a fuel of choice for years to come (as) we move into a world that is worried about global warming and greenhouse gases," Loews Chief Executive James Tisch said on a conference call.

"We're seeing a reserve base in the United States that is, at best, staying flat, and we're seeing reduced importing of natural gas from Canada," he added. "If prices just stay where they are, we'll do very well with this investment."

Richmond, Virginia-based Dominion is also selling other U.S. gas and oil operations to XTO Energy Inc. for $2.5 billion as it focuses on its power business.

Tisch, whose billionaire family runs Loews, has been looking for ways to spend about $5.5 billion.

In an April 30 conference call, he had set a goal to "continue diversifying (the) very significant cash flow that is coming up to the parent."

Loews expects a third-quarter closing. It said it may obtain bank loans, though not sell public debt, at the subsidiary level to help fund the acquisition.

Loews' businesses include financial, tobacco, energy, hotel and watch-making companies. It said it owns 75 percent of Boardwalk, 51 percent of Diamond Offshore Drilling Inc. , 89 percent of insurer CNA Financial Corp. , and all of tobacco company Lorillard Inc., Loews Hotels and watchmaker Bulova Corp. CNA generates more than half of overall revenue.

Loews shares were up 79 cents, or 1.6 percent, to $51.81 in noon trading on the New York Stock Exchange. They began the year at $41.47.

(Additional reporting by Caroline Humer and Lisa Lee)

Accredited Agrees to $400 Million Buyout by Lone Star

By Bradley Keoun (Bloomberg)

June 4 (Bloomberg) -- Accredited Home Lenders Holding Co., the subprime mortgage lender that raised doubts about its survival, will be sold to private-equity firm Lone Star Funds for about $400 million in cash.

Lone Star Fund V LP agreed to pay $15.10 a share for Accredited, the companies said in a statement. The offer for San Diego-based Accredited is 9.7 percent more than the stock's closing price last week. Lone Star, which oversees $13.3 billion, often targets distressed real estate and finance companies.

The stock tumbled as low as $3.77 in March as defaults on subprime mortgages, made to borrowers with poor payment histories, saddled Accredited with losses and led its bankers to curtail credit for new home loans. Private-equity firms and hedge funds are buying subprime lenders including ResMae Mortgage Corp. at beaten-down prices and plan to sell when the market recovers.

``Of all the subprime lenders that were growing pretty quickly over the last few years, Accredited probably had the best reputation,'' said Bose George, an analyst at KBW Inc. in New York. ``Given that this industry is going to continue in a much smaller form, these guys are probably a good management team to go with.''

The shares rose $1.54, or 11 percent, to $15.30 at 11:36 a.m. New York time in Nasdaq Stock Market trading on speculation a higher bid may emerge.

``This agreement is the best alternative available to protect shareholder value,'' Chief Executive James Konrath said in the statement. ``In Lone Star, we have found a partner who has a record of helping companies like ours successfully address financial and operational challenges.''

Riding the Cycle

Lone Star, founded in 1995 and run by John Grayken, has bought entire companies as well as non-performing loans and real estate, according to its Web site. The Dallas-based fund tries to take advantage of ``the tendency of the banking system to cyclically over-finance and then under-finance the property and other sectors.''

Lone Star has agreed to buy stakes in banks and lenders in South Korea, Japan and Germany, including a $429 million purchase of Japan's Korakuen Finance Co. announced in September. It also agreed last August to pay about $620 million for Lone Star Steakhouse & Saloon Inc., a 260-restaurant chain based in Wichita, Kansas, with no previous tie to the investment company.

Accredited operates nationwide and ranked 14th last year among U.S. subprime lenders with $15.8 billion in loans and a 2.6 percent market share, according to Inside Mortgage Finance, an industry publication.

Back From the Brink

The lender had a market value of more than $1 billion a year ago before the subprime mortgage industry began its swoon. The stock had lost half its value since the start of this year, and in March, the company said its auditing firm, Grant Thornton LLP, wasn't sure Accredited would survive.

The company still hasn't filed its annual report with regulators and last month announced that its first-quarter filing also will be delayed. Grant Thornton quit in April.

Accredited said May 11 it will report a ``significant loss'' in the first quarter because it issued about half as many mortgage loans compared with a year earlier. The company originated $1.9 billion in loans in the quarter, down 47 percent from the same period last year.

The workforce was cut 31 percent to 2,900 in a bid to reduce costs, the company said last month. Accredited employed 3,164 people as of September, according to data compiled by Bloomberg.

Bad Credit

Subprime loans are made to borrowers with the worst credit records and typically have the highest default rates.

The subprime mortgage industry faltered as late payments soared to record levels. Overdue residential mortgage loans reached 1.13 percent of the total during the first quarter, the highest level in the 17 years insured lenders have reported such data, said a May 31 report by the Federal Deposit Insurance Corp.

The sale to Lone Star means Accredited will avoid the fate of rivals such as New Century Financial Corp., the biggest independent U.S. subprime home lender last year, which went bankrupt in April and now is being liquidated. At least 50 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006.

Hedge funds have been among the buyers, with Citadel Investment Group planning to seek approval from a bankruptcy judge tomorrow for its $180 million acquisition of ResMae.

In March, trying to stave off a cash shortfall, Accredited took out a $200 million loan from the hedge fund Farallon Capital Management LLC. The loan was secured by Accredited's assets at 13 percent interest and guaranteed the hedge fund a 7 percent premium, or $14 million, if the loan was repaid within the first year.

Bear, Stearns & Co., Friedman, Billings, Ramsey Group Inc. and Houlihan Lokey Howard & Zukin advised Accredited, today's statement said. Piper Jaffray & Co. represented Lone Star.

Why the Wall Street Journal Deserves Murdoch


Today's meeting between the larger-than-life news mogul Rupert Murdoch and the Bancroft family, coupon-clipping owners of Dow Jones, has gripped the little world of journalists. "The rotten old bastard intends to charm them all with his lies," warned Slate media critic Jack Shafer. The idea that Murdoch might get his mitts on the Wall Street Journal has folks scandalized, as though Larry Flynt were buying the New York City Ballet.

What's missing from this picture is the true villain.

If Murdoch wins Dow Jones, it won't be because he's evil. It will be the result of decades of mismanagement of one of the world's great sources of news and analysis. All the Journal's Pulitzer Prizes can't mask the fact that, while demand for high-quality financial and political news exploded, the value of America's leading business newspaper first sank, then stagnated.

Wall Street's judgment on Dow Jones ownership is pitiless. Investors in Murdoch's News Corporation hardly batted an eye when the old man bid $60 a share for a company that has been south of $40 a share for years. That enormous premium is the financial community's rough measure of the value of new management.

The litany of Dow Jones stumbles and fumbles is well-known. As the hands-off Bancrofts watched from a distance, the company failed to move nimbly into the digital age. A single able entrepreneur, Michael Bloomberg, captured the desktop financial analysis business as Dow Jones dawdled. Meanwhile, a newspaper with huge circulation (over two million) and a relatively small staff (half the size of the Los Angeles Times) for some reason lagged the industry in profitability.

We journalists have a way of making heroes out of poor managers, as long as they lavishly publish our peerless prose. I've been guilty of it myself. I owe my early career to the largesse of Otis Chandler's Times-Mirror Co. and Alvah Chapman's Knight-Ridder. Believe me, those were swell times. And I watched some great journalism being done—but upstairs those companies were failing to defend their market positions and misunderstanding the future.

Neither of those companies exists any longer, and that great journalism is threatened because of it.

In the weeks since Murdoch made his bid for Dow Jones, a number of writers have asserted that the Journal lags precisely because it is so good—that excellence is expensive and high-quality journalism cannot turn a good profit in a competitive era. There are at least two problems with this argument.

First, it's dangerous. If journalists don't have faith in the value of our product, why should anyone else? The craft of Franklin, Pulitzer and Graham is too vital to be reduced to a charity case.

Second, it's wrong. Operations as diverse as the New Yorker magazine, the newspaper USA Today and Bloomberg's news service have all managed (through various ups and downs in a turbulent business) to strengthen their journalism while improving their financial performance.

It isn't easy. The way forward may not be entirely clear. But discipline and vision are what good management is all about, and in the long run we'd be better off to embrace these qualities than to pin our futures on amiable incompetence.