Friday, December 01, 2006

Intuit Merger Bad News Vigil

Intuit Inc. (Nasdaq:INTU) and Digital Insight Corp. (Nasdaq:DGIN) are getting married and the hope is Intuit becomes bigger and better. Combinations of this nature usually become problematic with cultural integration and the never ending quest for true synergy. The press release indicates “The acquisition will combine Intuit's culture of customer-driven innovation and leading brands with Digital Insight's best-in-class distribution and application service provider model.” This a very high level marketing perspective is almost simplistic. One wonders how deep the thinking is about the integration process.

The press release also indicates that Digital’s operations in California and Georgia will remain unchanged. Management was suspiciously quiet about any plans for work force reductions and any termination costs that may occur. Just what are the troops being told?

Digital had a Q3 loss due to a huge non recurring problem (read impairment charge on goodwill). 06 earnings will probably be a loss. 05 earnings were approximately $26.5 million. Intuit Management believes “The transaction is expected to be dilutive to Intuit by two to three cents per share on a non GAAP basis in its current fiscal year and slightly accretive on a non GAAP basis in fiscal 2008.”

Digital still has approximately $100 million in good will. Intuit clocks in with approximately $500 million of good will. Intuits press release quotes Steven Bennett president and CEO as saying “The combination of two industry leaders will put Intuit in an excellent position to bring a new generation of online banking solutions to market in a way that will redefine the way small businesses and consumers manage their financial lives," The acquisition will be financed by borrowing $1.35 Billion. Are they still standing behind the dilutive/accretive calculation? The new products and improvements will be financed by hmm cash flow I guess.

I am not connecting the dots on this one. Get ready some more write downs are coming and negative news has to come out of this one.

Thursday, November 30, 2006

Tiffany Exec's Missing in Action

Tiffany (NYSE:TIF) reported improved numbers but is showing some signs for concern in Japan. The conference call was unique as it did not include any analyst questions. (Surely some of them were listening) The press release did quote Michael J. Kowalski, chairman and chief executive officer as being pleased with the results. But he also was not present. The call concluded by informing listeners that questions may be directed to Mark Aaron VP for Investor Relations. This probably complicates compliance as how do we know everyone has the same flavour, shading, nuance, perception, insight and intuitive guesswork that is so critical to the craft of securities analysis.

In the meantime this is what I am skeptical about. The two officers on the call are financial types (CFO and Investor Relations). When covering issues relating to Japan Mark Aaron the VP Investor Relations indicated “ focus on a more proactive customer engaging sales approach,…” This sounds very Western and pushy. Much like being sprayed by perfumes when walking through the cosmetics counters. Will the Japanese respond to this culturally? Does Tiffany understand consumer psyche’s in the Japanese market? What ever happened to the Japanese subtleness? When selling high end I do not believe the hard sell approach will work. There is a lack of integrity to it all.

Some financial concerns. Net sales are up 10% but receivables are up 16%. Net inventories are up 19%. Any first year business student can flag these points. The metrics are fundamental issues which need to be addressed and commented on.

Wednesday, November 29, 2006

Bank of Montreal Selects Downe as New CEO! Why?

Bank of Montreal (NYSE:BMO) as expected named Chief Operating Officer Bill Downe as president and chief executive, replacing outgoing Chief Executive Tony Comper, who will retire at the bank's annual meeting March 1.

Downe was appointed chief operating officer in February, following four years as deputy chair at BMO Financial Group and chief executive with BMO Nesbitt Burns, when he managed the investment banking group, private client group and BMO's U.S. operations.

Tony Comper will also step down from the board but will serve as an adviser until his April 24 retirement date, when he will be 62.

The change of dancing partners has more than meets the eye. Tony Comper will not stay on the board despite huge experience and longevity. Usually these credentials make an individual ideal board material.

Downe’s career DNA seems to be from the investment banking side. Given the lingering reverberations from Wall Street Scandals many banks have not given the nod to the deal makers. The question now becomes where will Downe take BMO.

Bank Stocks such as BMO are mainly prized for their long term dividend paying ability. Solid steady as she goes performance is mission critical. Banks usually find it very difficult to execute mergers and acquisitions. Integrating everything from systems to corporate cultures always proves more challenging than initially expected.

If investors are to believe in this man they will need to become comfortable with the vision of the future. Nothing is being presented to the public. The board must have considered the future. So why this guy?

Tuesday, November 28, 2006

Palm Slaps Investors Insiders Selling Out

Palm (Nasdaq:PALM) slapped investors in the face by announcing large Q2 07 guidance which according to the press release “The revenue shortfall is due primarily to a delay in completing the certification process for a product that the company had previously expected to ship within the quarter.”

The mystery continues for several more paragraphs until Ed Colligan, Palm president and chief executive officer is quoted saying. "However, our Q2 FY07 revenue will be constrained by a delay in certification of a key product. We now expect to start shipping the Treo 750 for the U.S. market early in Q3 FY07”.

There is only one week left in Q2 and they finally came clean. How long have they been sitting on this one? Does early Q3 mean sometime in Dec? Or when exactly? What do you mean by certification process. You could drive a truck through that one and the market probably will when trading resumes on Tuesday.

Full results will be reported Dec 19. Watch for a few more tidbits of marginally material disclosure items all wrapped up in a very disappointing 10-q. Investors need to know when the product will be shipped? The market does not want to die a death by a thousand cuts.

The stock has been trading near its 52 week low. This should drive it down for tax loss selling. But executive options may be priced more advantageously making 2007 a great year. Insider trading has been a net selling proposition for the past six months. As a matter of fact we do not believe any insiders have purchased. The President has even been exercising options at $0.29 and selling directly in the open market, moving approximately 120,000 shares since early June. Several transactions occurred in Nov when problem reports should have been covering his desk. Yet the selling continued. Is this inappropriate?

Usually you think maybe the company will be a take-over target. But with the officers unloading maybe the conversations that are not supposed to be happening are really not happening.

Monday, November 27, 2006

Second Look at Google/Yahoo Challenge of Stock Exchange Data Fees

Google (GOOG), Yahoo (YHOO), CNET (CNET) and IAC/Interactive (IACI) have mounted a challenge to Archipelago’s streaming data fee increase. They are not happy with Nasdaq as well. Stock exchanges have long relied on data sales as an additional source of income to supplement trading activity fees. The trading activity fee traditionally was marked up and embedded into the brokerage fee. Brokerage fees have experienced competitive pressures and dropped dramatically (reference the latest online broker offering dirt cheap fees) Brokerage fees have long been considered friction costs which made for inefficient markets. Stock Exchanges naturally want to expand their revenue sources by selling data.

The conflict dynamic will manifest as a battle between information and transaction. The online brokers are offshoots of old school brokerages who depended on exchange membership, access to pricing data and settlement mechanism’s for their business model. They controlled the gates to supposed wealth.

Google, Yahoo, CNET and IAC/Interactive have developed large investment oriented communities who rely on information first and then worry about low value added execution mechanics last.

If you believe in price elasticity the exchanges should decrease information pricing and charge more for execution.

If you believe in consolidation Google will buy both Nasdaq and NYSE and destroy Yahoo Financial and the rest.

If you believe in white knuckle regulators trying to preserve the status quo (their jobs) the data stream pricing will be adjusted downwards marginally forcing the Google’s et al to stay true to the advertising models. (Most likely pick for the present)

If you are a stock exchange maybe you should buy Google or someone from that camp recognizing the information trumps execution.

Stock exchanges need to decide if they are in the execution business which has become a commodity or in the information business which has value added.