S&P LOWERS RECOMMENDATION ON ALCON SHARES TO HOLD FROM BUY (ACL; 152.22):
Nestle (NSRGY) agrees to sell 74 million ACL shares to Novartis (NVS) for $143.18 per share. Upon closing, pending regulatory okays, NVS would own 25% of ACL shares. The deal also gives NVS the option to buy Nestle's remaining 52% ACL stake at $181 between January 2010 and July 2011. We think ACL would benefit from a potential tie with NVS's eyecare unit, but do not see that occurring unless NVS buys the remaining stake. We are keeping our 12-month target price of $169, since we assume ACL will trade for some time at a discount to contemplated price for a 2010/2011 transaction. -P. Seligman
S&P REITERATES HOLD OPINION ON SHARES OF WASHINGTON MUTUAL (WM; 10.17):
Shares are up in premarket trading after an unconfirmed report in the WSJ that U.S. private equity firm TPG and other investors were near a deal to invest $5 billion in WM. The investment would be structured as both a common- and preferred-stock offering. Despite the dilutive effect, we view a potential capital injection as a positive for WM, given its below-peers 8.30% fourth quarter Tier-1 capital ratio. But with WM's loss allowance at only 42% of nonperforming loans, we see additions to loss provisions in coming quarters as significant. We keep our $14 target price, 0.6 times current book value. -K. Cole-CFA
S&P REITERATES STRONG BUY RECOMMENDATION ON SHARES OF MICROSOFT (MSFT; 29.39):
Microsoft says in a letter to Yahoo's (YHOO) board that unless merger agreement is reached within next three weeks, MSFT will initiate a proxy fight to elect an alternative slate of directors and possibly lower its takeover bid of $31/share. We believe YHOO shareholders would vote in favor of new directors, given that no strategic alternative to the acquisition has emerged. We think MSFT will be successful in acquiring YHOO at a price near the current bid, and we view the latest step as expediting the negotiations, which we think have been a drag on MSFT stock. -J. Yin
S&P REITERATES HOLD OPINION ON SHARES OF YAHOO (YHOO; 27.79):
On Apr. 5, Microsoft sent a letter from CEO Steve Ballmer to YHOO's board stating "by any fair measure, the large premium we offered. . . is even more significant today," it was "unfortunate" that "meaningful" negotiations had not occurred, and if an agreement was not struck within the next 3 weeks, MSFT would take its case to YHOO shareholders. YHOO's board responded this morning, indicating they are not opposed to a transaction, but still believe MSFT's bid does not fully value YHOO. We still do not expect an offer materially above the initial $31. -S. Kessler
S&P REITERATES HOLD RECOMMENDATION ON SHARES OF BORDERS GROUP (BGP; 6.42):
Borders Group has renegotiated its financing agreement with Pershing Square Capital Management, a private equity firm with a large stake in the company. We think the new terms of the agreement are much more favorable for BGP, including a lower interest rate loan and an increased backstop offer on its international subsidiaries should BGP not receive a better sale offer for them. We expect continued challenging business conditions to limit BGP's near-term earnings and cash flow, but think improved terms ease debt burden somewhat. We are raising our DCF-based target price by $1 to $7. -M. Souers