Wall Street Breakfast: Must-Know News

Mon, 02/22/2010 - 08:15 EDT - Seeking Alpha

Schlumberger buys Smith. Schlumberger (SLB) agreed to buy Smith International (SII) for $11.34B in stock yesterday, creating an oil services giant and continuing the industry's consolidation trend. Based on the closing prices for both companies on Thursday, before rumors of the deal surfaced, the deal values Smith at $45.84 per share, a 37.5% premium. The deal is subject to shareholder and regulatory approval, but the companies expect antitrust approval without having to sell any major assets. Premarket: SLB -3.1%, SII +7.4% (7:00 ET).
Toyota memo trumps savings over safety. In an internal document from 2009, Toyota (TM) employees celebrated saving the company over $100M by convincing regulators to end a 2007 investigation into sudden acceleration complaints with a relatively cheap floormat recall for just 55,000 cars. The memo will put further pressure on Toyota President Akio Toyoda when he testifies before Congress this week.
Glaxo kept silent on drug's risks. GlaxoSmithKline (GSK) knew its Avandia diabetes drug could cause heart damage several years before a study documented the risk but played down the information, according to a report issued by lawmakers this weekend. Concluding a two-year investigation, lawmakers also said Glaxo tried to silence doctors who raised concerns. The report went further and placed blame on the Food and Drug Administration as well, noting that FDA reviewers wanted the drug off the market in 2008 but the FDA chose to allow drug sales to continue. Shares -2.5% premarket (7:00 ET).
Obama tries to rein in healthcare hikes. In a new healthcare overhaul plan to be unveiled today, Obama is expected to propose giving federal authorities the ability to limit rate hikes by health insurance companies. A White House official said regulators will be able to deny unfair premium increases, roll back increases already in effect, or demand a rebate for consumers. The move could spell bad news for insurers including WellPoint (WLP), UnitedHealth (UNH) and Humana (HUM).
Eurozone plays hide and seek with debt. Greece isn't the only nation to have used off-market swaps to hide the size of its debt. Apparently, multiple European nations have turned to complex financial products, sometimes in secret, to disguise the level of their debts and deficits. Investors chose to ignore these maneuvers which countries like Portugal and France tried to use to stay inside the eurozone's fiscal ceilings.
Greece not looking for a bailout. Greek Prime Minister George Papandreou said his country isn't looking for a bailout, and its borrowing needs are covered through mid-March. Instead, Greece needs political support from the EU and "help so we can borrow at the same rate as other countries, not at the high rates that undermine the possibility for making the changes [to Greece's deficit]." (Read the interview transcript.)
Relying on a higher Lyondell bid. Reliance Industries reportedly sweetened its offer for a controlling stake in bankrupt LyondellBasell, revising its bid to around $14.5B and allowing creditors to choose cash or equity. Buying Lyondell would create a company with over $80B in revenue and would give Mumbai-based Reliance access to chemical plants and refineries in the U.S. and Europe. Lyondell rejected an earlier bid by Reliance that valued it at $13.5B.
T-Mobile, Orange tie-up on track. Deutsche Telekom (DT) and France Telecom (FTE) are expected to get merger approval from European regulators as soon as this week for their U.K. units. A tie-up between T-Mobile U.K. and Orange would create the largest mobile operator in the U.K. with 30M customers and a 38% marketshare.
Governors glum on growth. In a meeting of the National Governors Association this weekend, state governors were generally downbeat about the economic outlook, warning "the worst probably is yet to come." Governors disagreed on the benefits of the $787B stimulus package, but facing a $134B budget shortfall over the next three years, most view job creation as the key to recovery and many pushed Congress to bear this in mind when voting on a slimmed-down jobs bill today.
New credit card rules kick in. New credit card legislation goes into effect today, restricting certain fee practices and requiring greater transparency. The law was hailed as the most sweeping piece of consumer legislation in decades, but the new rules have prompted credit card companies to raise rates and close accounts, moves which make it more difficult for millions of Americans to get access to credit.
China tightens bank lending laws. On Saturday, Chinese banking regulators tightened their lending rules, ordering banks to increase risk management on personal and business loans, and restricting the issuance of personal loans if borrowers fail to specify what the money is for. This is China's most recent tightening move as it tries to curb excessive lending without harming economic recovery.
China FDI lifted by services sector. Foreign direct investment in China rose to $8.13B in January, up around 7.8% from the year before as investment picked up strongly in the services sector. The total came in below December's $12.1B.
Tracking the hacking. U.S. investigators following up on the cyber-attack against Google (GOOG) and as many as 33 other companies are reportedly getting closer to identifying the perpetrators. Evidence suggests the attacks were carried out by an Asian hacking group that is likely Chinese, with some sources pointing to two educational institutions in China.
Friday's failures. Four more banks were closed on Friday, bringing this year's total to 20 failures. The failure of banks in Florida, Texas, Illinois and California will cost the FDIC an estimated $924M.

Earnings: Monday Before Open

Cabot Oil & Gas (COG): Q4 EPS of $0.52 beats by $0.07. Revenue of $233M (+0.4%) vs. $226M. (PR)
Campbell Soup (CPB): FQ2 EPS of $0.74 in-line. Revenue of $2.1B (+1.5%) vs. $2.2B. (PR)
Constellation Energy Group (CEG): Q4 EPS of $0.30 beats by $0.05. Revenue of $3.4B (-29.8%) vs. $4.3B. (PR)
Lowe's (LOW): Q4 EPS of $0.14 beats by $0.02. Revenue of $10.1B (+1.7%) vs. $10B. (PR)
Quanta Services (PWR): Q4 EPS of $0.21 beats by $0.04. Revenue of $985M (+6.9%) vs. $926M. (PR)

Today's Markets

In Asia, Nikkei +2.7% to 10400. Hang Seng +2.4% to 20377. Shanghai -0.5% to 3003. BSE +0.3% to 16237.
In Europe at midday, London flat at 5360. Paris -0.1% to 3767. Frankfurt -0.3% to 5708.
Futures: Dow +0.27% to 10406. S&P +0.28% to 1109. Nasdaq +0.44%. Crude flat at to $81.75. Gold -0.26% to $1170.90.

Monday's Economic Calendar