Unstructured Finance

Spot soybeans push above $10 a bushel — Wheat next?

In a history-making race this autumn between wheat and soybeans to reach $10 a bushel, the traders who bet on beans won in the week ended September 28. But by Friday’s close, wheat was getting a second wind.
The spot, or front-month, Chicago Board of Trade November soybeans rose as high as $10.17-3/4, the highest price for a spot futures contract in three years, before ending the week at $9.91-1/4 on profit-taking on Friday after USDA data.
Soybeans bounced on the strength in all commodities, including wheat. Worries about grain supplies, strong export demand for all U.S. grains amid the record lows in the dollar and China easing grain import rules, and rising domestic prices sent all CBOT grain commodities flying.
Meanwhile, CBOT spot wheat — the grains leader most of the summer — resumed its march toward $10 with a series of all-time highs, peaking on Friday when it reached $9.61-3/4. It closed at $9.39, up 6 cents on the day.
Before this summer, the CBOT record wheat price in more than a century of trading was $7.50 a bushel.
Wheat was firm all week but got a finishing boost on Friday from the the U.S. Agriculture Department.
In its annual report on small grains production issued early on Friday morning, USDA shaved another 47 million bushels from its U.S. 2007 wheat production estimate, putting it at 2.067 billion bushels.
At the same time, wheat stocks are shrinking. USDA said in its quarterly grain stocks report that U.S. wheat stocks fell 806 million bushels since June 1, more than 25 percent faster usage than in the same period a year earlier.
Wheat eked out a gain but corn and beans weren’t so lucky in the face of active end-week and end-quarter profit-taking by hedge funds and other hot money. USDA stocks data for corn and soy was also bigger than expected, triggering the selling.
But next week volatility should continue with wheat the focus and once again the expected market leader, traders said.
The biggest factor wheat traders will be watching is Australian crop weather. Australia — usually number 2 behind the U.S. in wheat exports — has seen its crop once more shrink with drought and little rain in sight. CBOT traders are now talking a 10-12 million tonne crop, down from the Australian government’s last number of 15.5 million tonnes of Sept. 18 — and from the 22.5 million tonnes once predicted.
In the soybean pit, the area of concern is Mato Grosso, Brazil, the top soy state in that huge producer.
Hot, dry conditions have been delaying early soybean planting with no significant rainfall expected until Oct. 7.
Any fresh export demand will likely spur additional buying in the Chicago markets. Supply worries, and the weak dollar, have fed voracious foreign buying of U.S. grain stocks.
There does not yet appear to be any sign of rationing as the world’s biggest importers of food and feed continue to book huge amounts of corn and wheat even at historically high prices. Week after week export sales have been at well over 1.0 million tonnes in both.
The U.S. corn harvest is advancing rapidly with the Midwest weekend expected to be active given clear, warm conditions. Truck dumps will be open at hundreds of elevators.
That added to some commercial prehedging on Friday. But the hot fund speculative money in corn and soybeans was a ready absorber of such selling pressure most of the week.
Traders have also been especially interested in hearing the latest on soybean yields. Early yields were disappointing and later reports have been mixed.
Soybeans are usually harvested before corn to prevent crop losses and allow corn to bring moisture levels down “on the husk.” Stronger stalks allow wind-drying in fields, saving farmers money on drying or on paying penalties to merchandisers for delivering corn above 15.5 percent moisture.
But this year the push has been to harvest corn first, especially in the drought-plagued South and mid-South.
A last weather factor will be the interest in U.S. winter wheat planting progress. Concern is already there because seeding lags on dryness in the central Plains — Kansas is the top wheat state. But concerns were also cited about the southern Midwest and northern Delta where soils are parched.
The assumption has been that farmers will chase $10 wheat prices and create an orgy of wheat planting that could cost both corn and soybeans acreage next spring, notably in regions where winter wheat cannot be harvested by June, preventing any “double-cropping” of soybeans.
USDA will issue its next crop progress update on Monday afternoon after 1600 ET/2000 GMT.

rtr chi cds

Check Out Line: Kohl’s to meet analysts

vera.jpgCheck out Kohl’s upcoming analyst/investor meeting.
Management at the mid-priced department store chain is expected to focus on the long-term at the meeting Tuesday, with an updated five-year plan, analysts said.
But after same-store sales declined unexpectedly in August and missed analysts expectations, Wall Street is also looking for an update on third-quarter expectations, JP Morgan analyst Charles Grom said in a research note.
“It’s our understanding that in order for KSS to hit the low-end of its 3Q07 $0.67-$0.71 EPS range, it needs to deliver a flat comp in September and a ‘mid-to-high’ single digit comp in October,” he said.
Adds Stifel Nicolaus analyst Richard Jaffe, “given the trends evident quarter to date, we anticipate that management will provide a guarded outlook for 2H07.”
Kohl’s said last week that the impact of the housing meltdown in some states and promotions from competitors like Macy’s and J.C. Penney have been reasons for its disappointing sales in recent months.
One plus in recent weeks is the strong sales of the new Vera Wang (pictured) line of apparel, accessories and home goods, analysts said. 
Also in basket:  

U.S. August consumer spending up

Citi sends unrequested credit cards to Macy’s customers (USA Today)

Yao gives Reebok an assist in China (WSJ.)

(Photo: Reuters)

Daily Briefing: Whatever It Takes

abn-amro.jpg** In another sign dealmakers are getting anxious about completing deals, leading bidders in the world’s biggest bank deal said they could drop the minimum acceptance level to 50 percent from 80 percent. The consortium of banks, led by Royal Bank of Scotland, is set to win the long-running takeover battle for ABN AMRO with their offer of about 70 billion euros ($99 billion). But still, it’s reserving the right to lower the minimum acceptance threshold for its offer to a majority of the issued shares. The consortium’s offer is currently worth about 37.85 euros per ABN share, 20 percent higher than the value of a rival offer from Britain’s Barclays.  

** Telecommunications equipment company 3Com plans to announce it is being acquired by Bain Capital and Huawei Technologies for more than $2 billion, according to The Wall Street Journal. The deal values 3Com at more than $5 per share, the Journal said. Huawei is China’s largest communications equipment maker. 3Com agreed last year to buy Huawei Technologies’ 49 percent stake in H3C, a joint venture between the companies, for $882 million. That deal gave 3Com full ownership of H3C. 
** Citigroup and Merrill Lynch have bought 5 percent stakes in India’s top commodities exchange, the Multi Commodity Exchange, valuing it at up to $1.1 billion. That’s more than the Bombay Stock Exchange, which sold stakes earlier this year. Total proceeds from the deals would be $150 million to $165 million. A spokesman for the exchange  said Indian authorities had approved the stake sale, which is a big first, as foreigners were previously not allowed to hold stakes in commodity exchanges.
** Also in India, top U.S. phone company AT&T is eyeing a wireless acquisition, the Wall Street Journal reported. The report, citing people familiar with the situation, said AT&T was also looking to significantly expand its Internet and phone services to businesses in India. AT&T Chief Executive Randall Stephenson was quoted as saying he saw the country as a “multibillion-dollar revenue opportunity.” Stephenson also said he is seeking partnerships in Dubai and plans to bid on wireless spectrum in an upcoming auction in Qatar.
** Anglo-Swedish drug company AstraZeneca has appointed a deal-making outsider as its chief financial officer. Simon Lowth, a former finance chief at Scottish Power and executive at McKinsey & Co, replaces Jon Symonds, who quit this summer to join investment bank Goldman Sachs. “The CEO (David Brennan) is a pharma man, so I don’t think it is necessary for the finance director to be one,” Paul Diggle of Nomura Code Securities commented.
** Mark Mobius, the executive chairman of Templeton Asset Management Ltd, is backing a takeover bid by Austrian oil and gas group OMV for Hungarian peer MOL, the Wall Street Journal reported on its Web site. The emerging-market guru said OMV’s informal $20 billion bid “makes a lot of sense”. Mobius declined to disclose the size of his stakes in the companies, but his support could encourage other investment funds to follow his lead, the report said. OMV told MOL shareholders on Tuesday it would offer $20 billion if MOL’s board agreed to negotiate. Templeton spokespeople could not immediately be reached for comment.
** As U.S. leveraged buyouts and multibillion dollar mergers fell off in the third quarter amid a major credit crunch, mid-market deals of up to $1 billion held up remarkably well.  Data provider Dealogic said mid-market U.S. deals valued at between $100 million and $1 billion totaled almost $82 billion in the third quarter, down only slightly from $83 billion for the same period in 2006. 
** Shares in British reinsurance broker Benfield jumped 10 percent after a newspaper report it received a 700 million pound ($1.42 billion) approach from Goldman Sachs. The Daily Telegraph reported Benfield directors and the private equity arm of Goldman Sachs were in talks for weeks but talks broke down at the start of last week. A Benfield spokesman said the group did not comment on market rumor and speculation but pointed out it had been buying back shares on the market at 269.7 pence — below the level of the reported Goldman approach. 

Nasdaq to LSE: “I’ll get you in the end”

greif1.jpgIt seems Nasdaq is still pursuing the London Stock Exchange, which twice thwarted its takeover attempts. But now that the New York exchange operator has a Middle East sugar daddy, might the LSE’s bachelorette days be numbered?

According to The Observer, Nasdaq’s three-way deal with Borse Dubai, in which the two groups swap stakes in each other and buy Nordic markets operator OMX, may be its latest effort to get its hands on the LSE — especially since the buyer of most of Nasdaq’s LSE stake is none other than Dubai.

The paper said Nasdaq and Dubai are hatching a plan to launch a hostile takeover bid for LSE in February when Nasdaq is allowed to bid for a third time under U.K. rules. This would entice LSE into a pan-continental alliance with the goal of taking on transatlantic exchanges behemoth NYSE Euronext. London would have a dominant position in the new company, according to the plan.

Merrill Links: Golf Gone Wild?

golf-photo.jpgBear Stearns Chairman Jimmy Cayne isn’t the only Wall Street honcho who plays a lot of golf while his company endures hard times.

Let us tee up Mr. Stanley O’Neal, chairman and chief executive of Merrill Lynch & Co. Inc.

While the value of Merrill Lynch’s leveraged loans and mortgage investments are expected to fall like a birdie putt, O’Neal has found his stroke in recent months playing just as much, or more, golf than Cayne. (A Goldman Sachs analyst predicts Merrill will report some $4 billion in write downs when the brokerage and investment bank reports third quarter results next month.)

Check Out Line: More cheap drugs

drugs.jpgCheck out prescription drugs: Wal-Mart is making more of them available at $4 a prescription, while Rite-Aid is barely seeing any increase in the number of prescriptions sold at stores open at least a year.

Wal-Mart on Thursday said it is now offering $4 prescriptions on drugs to treat glaucoma, fungal infection and acne, among other conditions. The move expands the world’s largest retailer’s $4 prescription program, which was launched with great fanfare last year.
That program had raised concerns that traditional drugstores would lose business. But that hasn’t not really been a big issue, Mitchell Corwin, analyst at Morningstar, said.
“I think there’s some impact on the margin, but I don’t think it is a significant factor,” he said.
Meanwhile, Rite Aid on Thursday reported a $69.9 million loss in the second quarter and cut its full-year sales outlook.

The bulk of the loss was due to costs related to its acquisition of the U.S. Brooks and Eckerd drugstore chains. But Rite Aid also filled only 0.4 percent more prescriptions at stores open at last a year.
Wal-Mart isn’t as much of a competitor with Rite Aid as it is with other drugstores, due to the location of Rite Aid’s stores. Corwin said that Rite Aid’s prescription growth trails competitors like Walgreen and CVS Caremark in part due to its older store base. It is easier for newer stores to show growth as they ramp up than it is for older, more establishes stores, he said.
Also in the basket:
Finlay to buy Bailey Banks & Biddle
McCormick profit rises along with costs

New bidders for Wendy’s join line for next round (WSJ, subscription required.)
Retailers and vendors hit by weakened dollar (Women’s Wear Daily)

Lehman’s double trouble in Archstone

default1.jpgSometimes you’d rather not have your cake and eat it to. 
Archstone-Smith looked like a win-win for Lehman Brothers: the bank, with developer Tishman Speyer, stood to own the luxury apartment REIT as well as handle financing for the $22 billion buyout — while investing just $250 million of its own cash in the deal.  
Now it’s looking more like it could be a lose-lose. With potential investors underwhelmed by the deal’s aggressive terms, it’s possible that billions of debt related to the buyout won’t get sold as planned. That means either the sponsors will have to adjust terms, as Apax did in its Thomson Learning acquisition, or that the banks will be stuck with it — either leaving it on their books or selling at a discount.     
Either way Lehman takes a hit: as a principal, renegotiating on any terms could hurt potential profits. But by also banking the deal, Lehman otherwise risks having the debt clog its balance sheet or sold at a loss.  
The phenomenon of banks acting as principals in deals they also underwrote is not new — Goldman, for example, is part of the group buying TXU in addition to arranging financing. If things get dicey, at least the principals won’t have to go far to negotiate with their bankers — they may be on line with them at the cafeteria.

(Photo. Reuters file)

Daily Briefing: A Chinese Bear?

china-bear-2.jpg** You can’t be a global player without having heard that the Chinese expression for crisis consists of two characters, one meaning danger and the other opportunity. Might a couple of top Chinese banks smell a bit of both in Bear Stearns? A report that investors — including investment guru/granddaddy Warren Buffett – could buy a stake in Bear Stearns sent the troubled investment bank’s stock rocketing 7 percent. Bank of America and Wachovia are also mentioned as possible buyers, but most interesting could be possible bids from China CITIC Bank and China Construction Bank. Chinese banks are flush with dollars thanks to the booming U.S. trade deficit and years of record-setting foreign direct investment. If nothing else, they have plenty of experience with sub-prime loans. 
The New York Times report, citing unnamed people briefed on the discussions, said Bear could sell up to 20 percent of itself. “When you have a sophisticated investor and the second wealthiest person in the universe interested in Bear Stearns, then this may be signaling that the company may be about to turn the corner,” said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, referring to Buffett. 
** Hitachi is considering selling a stake in its hard disk drive arm to a strategic investor to help it turn the loss-making business around, according to sources close to the matter. The news sent shares of Hitachi, Japan’s biggest electronics conglomerate, up 7 percent to a one-month high in its biggest one-day percentage gain in four years. Hitachi has not posted a profit in its hard disk drive business since buying it from IBM for $2 billion in 2002 due to crumbling prices of disk drives. The Carlyle Group, Kohlberg Kravis Roberts, Bain Capital, and Silver Lake are among funds cited as possible investors, the sources said.
** Investors looking at a $25 billion takeover of Sallie Mae are threatening to walk away from the deal, blaming legislation that cut subsidies to student lenders and rocky conditions in the credit market. But consortium leader J.C. Flowers has suggested the buyer group could renegotiate at a lower price, so Sallie Mae may just be headed for another round of negotiations rather than have the deal relegated to the LBO slag heap. The WSJ’s Deal Journal says the Sallie Mae fight could be the “the granddaddy of them all” in terms of battles between troubled companies and their LBO-backed buyers.
** Speaking of LBO financing woes, skeptical eyes are being cast at the $22 billion deal for landlord Archstone-Smith Trust. The buyers are now arranging financing and some investors say they are pricing the deal as if the last six months never happened. Number-four U.S. brokerage Lehman Brothers Holdings and property developer Tishman Speyer are trying to entice investors to buy $3.15 billion of loans linked to the buyout. And don’t forget First Data. Banks financing KKR’s acquisition of First Data plan to sell two more pieces of its $13 billion term loan, after small demand for an initial $5 billion portion.
** UK-based Insurer Pearl could make a long-anticipated cash offer for Resolution early next month, according to a source close to the matter who said the offer is unlikely to be above a regulatory minimum of 4.5 billion pounds. Resolution announced plans to merge with Friends Provident in July, but Pearl threatened to muscle in on the tie-up, announcing it had built a key stake in Resolution and opposed the deal. If it were to make a bid, Pearl would have to offer at least 660 pence — the highest it paid for Resolution shares, valuing the group at 4.5 billion pounds ($9.06 billion) — but below the current share price.
** Top Nordic bank Nordea’s shares shot higher after a newspaper report said rival SEB was poised to buy a 19.9 percent government-held stake in it. Swedish daily Dagens Industri cited two unnamed sources in the report. Sweden’s center-right government said it had no comment on the report, calling it speculation. It does plan to sell some 150 billion crowns ($22.97 billion) in state assets, including its large stake in Nordea, but has yet to announce when or how the sale would be conducted. 

First Data banks catch break from HSBC

The banks trying to sell down the First Data leveraged buyout debt appear to have caught a break with HSBC deciding to hold on for the ride. Sources tell Reuters Loan Pricing Corp. that HSBC will not sell its underwriting exposure on the deal, which is around 20 percent of the overall loan.

That lessens the amount of bank debt they now have to distribute to loan investors.

That’s just one piece of good news for the closely-watched deal.

The other is that strong demand has led First Data to more than double its current term loan sale to $13 billion from $5 billion, sources tell Reuters LPC.

Xinhua shares soar before Yucaipa deal

burkle.jpgNot only did the Xinhua Finance deal add a spark to the moribund private equity scene, it rekindled the old “did somebody know about this deal ahead of time?” issue.

Last Wednesday, shares were trading around $5.25 (that’s down from the $13 IPO in March, by the way). The next day shares jumped to more than $6. The only announcement that week was a press release on Sept. 17 saying “Xinhua Finance Deems S&P Downgrade Unmerited.”

Yesterday, the stock closed at $7.88 and by the time the sun was up and shining this morning, alas, Xinhua Financial said Yucaipa was buying up a chunk of the company (shares are up 14 percent to $9 today). Barron’s blog pointed out the strange surge in shares earlier today.