Thursday, May 15, 2008

Texas Instrument’s Telling Acquisition of Commergy Technology

Texas Instruments (TXN) just announced the acquisition of Commergy Technology. Terms and conditions were not disclosed and at this point it is entirely uncertain if the transaction will have a financial impact that would be noticeable to investors.

What is telling is that the folks at Texas Instrument felt compelled to make the acquisition. Disguised as a corporate acquisition they most likely have acquired intellectual property. There was no disclosure about key people staying with the company and if so for what length of time.

There is also no disclosure about any royalty arrangements back to the owners and or patent holders. So was it cash, shares, royalties or combinations thereof. Hard to assess the meaning of this one but TXN feels you should know about it.

Wednesday, May 14, 2008

American Water Works Springs a Leak!

American Water Works Company, Inc (AWK) reported for the quarter, which includes a nonrecurring, noncash impairment charge, a net loss of $732.5 million, or $4.58 per share. That’s quite the initial first quarter for a company that went public and started trading on the NYSE on April 23. The impairment charge was some $750 million to kick things off.

The press release included this paragraph on the impairment charge:

“As a result of the company’s initial public offering (IPO) and subsequent trading in the stock price, the company recorded an event-driven impairment charge to goodwill related to its Regulated Businesses in the amount of $750.0 million. The impairment charge was due to the market price of the company’s common stock (both as of the IPO date as well as the market price during subsequent trading) being less than what was anticipated at the completion of the 2007 annual test.On May 13, 2008, RWE transferred $245.0 million to the company to ensure that the regulatory requirements were met.”

I suppose if you have been following the stock closely you would know who RWE is. If not, it’s the ultimate parent; based in Europe and publicly traded over there. For a supposed water utility this sure is complicated. Most investors are thinking the consumer turns on the kitchen faucet and the company makes some money. This impairment charge comingv after about a months worth of public trading is on the scary side. We are talking hundreds of millions of dollars that needed to be moved around in the last few days.

Complicated affairs and difficult to understand circumstances should give rise to extraordinary investor caution. Whose interests are being served AWK or RWE which trades in Europe under a different governance regime?

Tuesday, May 13, 2008

HP Swallows EDS! Will It Taste Good?

Hewlett Packard (HPQ) is buying Electronic Data Systems Corp. (EDS) for $13.2 billion in a deal that many feel will create the second largest technology services provider behind IBM (IBM). The deal is huge and is HP’s largest acquisition since it swallowed up Compaq.

HP feels the deal will be accretive very shortly (what else were they going to say). Both boards of directors have signed off on the deal. HP also came out with some preliminary adjustments to its guidance pre EDS considerations and informed the world that they would be generating more revenues.

The one thing that is missing is the financial spreadsheets. The boards would have been provided with some very detailed analysis of what the new company would look like post merger, what needs to be cut off and what the earnings would look like. Integration issues have not been spoken too. All that we know is that a considerable amount of employees will probably lose their jobs. So what, that always happens with a merger of this size.

The media is filled with stories about creating a giant and the strategic implications thereof. Generally this is all speculation, wishful thinking and or delusional. HP has become a black box and we do not really have a good view on the future.

Monday, May 12, 2008

Sprint Can It Still Disappoint?

Sprint (S) released its numbers this Monday morning. They lost just over 1 million customers. The ones that stayed are spending less money. The results looked bleak and surprised the street. The street was actually expecting better numbers which from sprint is an amazing assumption.

Management was almost clinical about the results. The press release dealt with the various metrics in a perfunctory manner. Qualitative comments were almost non existent. They want you to believe that they are laying the groundwork for the future and are addressing the various negatives and baggage that they are dragging about.

The one area where they almost made comments of substance was in capital spending. Read this quote:

”Capital investments in the quarter were primarily targeted at increasing capacity and enhancing capabilities. In the quarter, dropped and blocked calls declined at an annual double-digit rate on both the CDMA and iDEN networks.”

They left out any substantive numbers; just want you think that it’s getting better.
Management is in a quandary. They need to report numbers. The numbers are bad. They have clammed up.

Why the cone of silence if one can ask?