S&P REITERATES HOLD RECOMMENDATION ON SHARES OF YAHOO (YHOO; 22.66):
Its shares are down 13% today as YHOO announces that talks about a possible transaction with Microsoft (MSFT; 28.02) have concluded without a deal. In an unconfirmed, and we think related story, WSJ.com indicates that YHOO is close to sealing and announcing a search agreement with Google (GOOG ; 547.18). We are surprised, because MSFT has apparently pursued YHOO for the better part of two years and Carl Icahn was pushing the companies together. Our sense is that MSFT wanted better value than YHOO was willing to offer, and was wary of potential morale and retention issues. -S. Kessler
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF LEHMAN BROTHERS (LEH; 21.25):
LEH announces that it is removing its CFO and COO, effective immediately. Internal candidates will fill both roles. We believe the moves result from the the company's preliminary results, which included the first quarterly loss since going public, and its planned $6 billion capital raise, which has garnered investor criticism. While we believe headline risk will weigh on the stock, we think the firm has acted aggressively to reshape its balance sheet and financial viable. We are reducing our target price by 8 to 27, a discount to LEH's book value. -M. Albrecht
S&P MAINTAINS HOLD OPINION ON SHARES OF ANHEUSER-BUSCH COMPANIES (BUD; 58.35):
InBev (INBVF) submits a formal offer to acquire BUD for about $46 billion, or $65 per share cash, which we view as a fair price. We believe BUD will be hard pressed to accelerate organic growth and improve shareholder value beyond that price, given the low growth rate of U.S. market, likely rise in competition from pending Miller/Coor's joint venture, higher commodity costs, and a secular trend away from beer to wine and spirits. We do not see a rival bid, as few others likely have sufficient resources. On what we see as reasonable likelihood of completion, we raise our target price by 8 to 65. -E. Kwon-CFA
S&P KEEPS SELL RECOMMENDATION ON SHARES OF MERRILL LYNCH (MER; 36.62):
CEO John Thain said yesterday that the firm would consider selling its valuable stakes in Bloomberg or BlackRock (BLK; 203.00). We think this method of capital raising would be preferable to a further dilution of shareholder equity. We believe a Bloomberg sale would make the most sense, since the BLK stake plays a larger strategic role for MER. We anticipate continued write-downs in MER's second quarter, which could provide the impetus for a sale. We are lowering our target price $8 to $32, about 1.2 times its yearend projected book value, a discount to peers. -M. Albrecht
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF CITIGROUP (C; 19.67):
Citi is closing its Old Lane hedge fund, which was founded by CEO Vikram Pandit. With most investors opting to cash out of the fund, Citi was faced with the choice of adding more capital to the fund or shutting it down. We favor Citi's choice of the latter, since we do not think funding would be a prudent use of company capital given its stressed balance sheet. We expect a further writedown of the hedge fund in the second quarter. Separately, we are lowering our target price by 3 to 23, which at 1.1 times book value, is below historical levels to reflect the impact of further stress on the U.S. consumer. -S. Plesser
S&P MAINTAINS HOLD OPINION ON QUALCOMM SHARES (QCOM; 47.97):
QCOM says June-quarter results will be above its prior guidance and our forecast, based on stronger royalty revenues than expected from high-end handsets. We are a bit surprised by the resiliency of QCOM's operations given global economic challenges. We are raising our fiscal year 2008 (September) EPS estimate by $0.03 to $1.81, and our fiscal year 2009 estimate by $0.09 to $2.06 (inclusive of $0.34 in stock option and investment costs). We are also boosting our 12-month target price by 7 to 48, rolling forward our valuation to reflect 2009 and using a premium-to-peers p-e of 23.5. -T. Rosenbluth