Filed under: Competitive strategy, AMR Corp (AMR), Contl Airlines’B’ (CAL), UAL Corp (UAUA), Delta Air Lines (DAL)

Look for the stalled Delta Air Lines (NYSE: DAL) / Northwest Airline (NYSE: NWA) deal speaks to regain momentum and the merger to be announced in the week ahead, an analyst confidently told BloggingStocks Thursday.

Independent stock analyst C. Leonard Bauer, formerly of Prudential, stated the Delta / Northwest speaks might be stalled by the inability of the companies’ pilots unions to reach an agreement on seniority lists, but that traditional, formidable hurdle will not stop this deal from coming to fruition due to its “strong marriage fundamentals.”

Attractive fundamentals

Bauer stated three fundamentals will drive the deal: absence of overlapping city pairs, economies of scale and passenger demand.

“First, there’s the overall flight route fit. Delta and Northwest have only 10 or 12 cities pairs that overlap, so from a destination coverage standpoint, the deal is very attractive,” Bauer said. “Second, the new company will have huge economies of scale and will be a force in the new global market. This will be a profitable airline.”

“Third, unlike typical deals which usually involve mega lay-offs, this one won’t because of solid passenger demand and prospects for international travel growth,” Bauer stated. “There will be some cutting of managers and shifting of employees here and there, but anyone expecting a 20,000 employee lay-off is mistaken. In fact, after a consolidation period, the new Delta/Northwest is likely to add employees as passenger traffic grows.”

Both Delta and Northwest traded lower Thursday afternoon amid a broader market sell-off. Delta (NYSE: DAL) declined 68 cents to $14.32, while Northwest (NYSE: NWA) fell 75 cents to $14.36. Bauer added that he does not have a rating on, nor own shares in either company.

Arbitrage: no; invest: si

However, despite the likelihood that the talks will produce a union, Bauer does not advocate that typical investors try to profit from the deal short-term via a speculative trade. “Unless you’re well-versed in the complexities and multitude of risks inherent in deal arbitrage, with appropriate hedges, it’s best to avoid dabbling in it,” Bauer stated.

A better investment strategy, Bauer stated, would involve waiting for the possible merged company to finish its initial consolidation period of about 2-3 months, then purchase a position in stages (dollar-cost-average) over a six-week or two-month period. Bauer likes the inherent value in a potential Delta / Northwest entity, and believes it will be followed by another attractive airline merger, possibly involving Continental (NYSE: CAL) with United Air Lines (NASDAQ: UAUA).

A global market

Bauer puts the probability of Delta / Northwest deal “at 70-80%.” The airline sector, in his interpretation, is at the beginning of its second major transformation, which will he believes will involve 2 or 3 U.S. airline mergers to create carriers with the resources and planes to serve “the new mass market of this decade, the global mass market.”

A Delta / Northwest merger would create the world’s biggest airline in terms of traffic: Delta served about 74 million passengers in 2007 and Northwest, about 56 million — ahead of American Airlines (NYSE: AMR) 129 million passengers.

Any potential U.S. airline merger would be subject to federal anti-trust and national security reviews, Bauer added.

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Filed under: From the boards, Products and services, Competitive strategy, Ford Motor (F)

Ford Motor (NYSE: F) announced this day that it plans to produce fewer vehicles during the first quarter this year than it did last year.

The company announced yesterday that it now anticipates to build 685,000 vehicles in North America during the quarter, a drop of 55,000 from the same period last year. That works out to a 7.4% decline.

Ford plans to improve its North American sales results in 2008, but still plans on seeing losses again this year. The company is in the middle of a turn-around plan that it thinks will take it back into profitability next year.

It has definitely been a tough run for the struggling automaker, and it is now predicting that it will have a 14 to 15% market share in the U.S. with its Ford, Lincoln and Mercury brands during the year.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor’s Observer.

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Filed under: Industry, Competitive strategy, Apple Inc (AAPL), Motorola (MOT), Nokia Corp. (NOK), Research in Motion (RIMM)

Nearly everyone would expect that Nokia (NYSE: NOK) would have the top spot among handset companies in the last quarter of 2007. Indeed, the huge European company took over 40% of the market, up from about 36% the year before, according to research firm Gartner.

It also isn’t surprising that Motorola (NYSE: MOT) did poorly; still, the magnitude of the drop was shocking. From that last quarter of 2006 to the last quarter of 2007, Motorola’s global share fell from 21.5% to 11.9%. This allowed Samsung to move into the second spot with an 11.3% share.

The most remarkable numbers in the Gartner survey show the rise of pricey smartphones. Apple (NASDAQ: AAPL)’s iPhone took a 0.6% share of handsets sold, even though the product is not even a year old and is one of the most costly products in the market. RIM’s (NASDAQ: RIMM) BlackBerry moved onto the top-10 list with a share of 1.2%.

If the trend away from less costly phones and toward handset with more features continues, it wouldn’t be surprising to see RIM and Apple hitting market shares of closer to 5% at the end of this year. And that would be in a slowing market. According to the FT, “Global handset sales rose 16 percent in 2007, to 1.2bn devices, but Gartner estimates the market will grow by 10 percent in 2008.”

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Competitive strategy, General Electric (GE), Marketing and advertising, China

General Electric (NYSE: GE) is still trying to convince investors that it can offset slow growth and some weak divisional results by doing well in emerging markets. So far, the stock market has not purchased in.

The market has actually been hostile to the message. GE shares are just above $34, which is not far from their 52-week low and down considerably from their high of $42.15. Over time, earnings from regions like India and China may help the stock, but the company is going to have to push harder to mark its case. It will use the Olympics in Beijing as a spring-board.

“We want to humanize G.E. even as we show worldwide investors that G.E. is a major player in the world,” stated Don Schneider, executive creative director at BBDO New York, the Omnicom (NYSE: OMC) unit that is G.E.’s longtime advertising agency, told the The New York Times

GE is a major player in the world but the politics in countries such as China might not make growth there as simple as investors would hope. A global recession could also slow infrastructure building in Asia and the India sub-continent.

To some extent, the large marketing budget for this Olympics is a waste of money. Wall Street wants to know that GE is willing to deal with its slow-growing medical and industrial units either by selling them or slicing costs. Tickets to the Olympics won’t help.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Rumors, Management, Rants and raves, Competitive strategy, JPMorgan Chase (JPM), Washington Mutual (WM), Wells Fargo (WFC)

Yesterday, wearing my investor hat, developer hat, architect’s hat, business owner’s hat and strategic thinking cap, I wrote about the various scenarios that might make sense for either J. P. Morgan Chase & Co. (NYSE: JPM) or Wells Fargo & Company (NYSE: WFC) to acquire Washington Mutual, Inc. (NYSE: WM).

Giving this further thought and drawing on some of how this could play out from yesterday’s post I am wondering why this possible deal isn’t turning to frenzy. Perhaps all the parties are just playing hard to get. Maybe JPM and WFC have proved to be superior navigators than most other massive financial companies and that they fear being shipwrecked on the rocks of a Washington Mutual.

If I’m Chase management, this deal makes too much sense to let pass. Adding WaMu’s west coast footprint advances Chase goals in a fraction of the time it would take to build out a comparable branch network and at great savings. Add in the customers base and service operations minus all the overlapping departments and this is a winner. All that needs to be done is get to the bottom line and do the deal. Bankers should understand the time value of money and get on with it.

The opportunity for Chase is very clear. Wells on the other hand might feel that more organic growth and more methodical steps is the prudent path to continued success. That’s perfectly understandable, but might be overly cautious in a very competitive environment. You either move forward or backward, you can’t stay in the same place.

Wells Fargo would benefit greatly from the increased scale and WaMu would benefit tremendously from better management, something that seems to have been degraded at WaMu over time. I think the institutional culture is a much better fit than JPM/WM would be so the transition would be smoother.

While JPM would benefit from not having the costs of new construction (mostly signage initially) WFC would actually be able to sell off some valuable real estate and recoup much of its up front costs. In many cases the WaMu branches might be superior situated than the WFC, so that the WFC branch might be the one to sell off.

I also think if Wells Fargo fails to act, they’ll have taken a major action just the same. Joining forces with WaMu would make a very formidable competitor for Chase or anyone else. Chase ($148 billion cap) is currently bigger than Wells ($107 billion cap), but adding WaMu’s $15 billion scales them up nicely. I think the Wells-WaMu combination is much better and offers greater rewards and opportunity.

Washington Mutual is probably worth much more then the current Wall Street appraisal but as long as it is floundering it won’t be appreciated. Washington Mutual should be stoking the M&A fire at full blast.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WM.

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Filed under: International markets, Management, Competitive strategy

Luxury automobile maker BMW AG revealed today its plans to slash another 5,600 jobs by the end of 2008 as part of a restructuring effort aimed at boosting company’s profits. Its decision is expected to bring annual savings of 500 million euros ($752 million) starting in 2009.

According to a BMW spokesman, part-time workers would take the hardest hit, with 5,000 fewer posts. Half of them had already been eliminated last year and the rest are set to be cut by the end of 2008. The restructuring plan also involves more than 3,000 full-time jobs, including 2,500 in Germany, and 600 other positions in other regions. Thus, the restructuring plan comes with a total number of 8,100 jobs cuts. This is 7.5% of BMW’s work force, which totals almost 108,000 workers.

Ernst Baumann, the company’s head of personnel, stated BMW may make more cuts if the dollar continues to decline. Baumann did not specify the total costs that the restructuring plan would bring, but he believes expenses will result in the “three-digit million” euro range.

BMW made an announcement at the end of December about a plan to slash its workforce as a part of an effort to lift its profits. However, the company had not confirmed so far the number of jobs cut, referring only to the inability to reduce expenses in some regions.

Norbert Reithofer, BMW’s new Chief Executive, also stated back in September of last year that the company plans to increase its productivity by at least 5% per year and to “focus the entire organization on the return on capital.”

Eliza Popescu is a financial writer for the online investment advisory service Investor’s Observer.

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Filed under: Competitive strategy, China, Best Purchase (BBY)

Ideal Buy, Inc. (NYSE: BBY) continues to remain dominant in the U.S. when it comes to massive consumer electronics stores, but that doesn’t mean that’s ignoring other potentially lucrative markets. Six to eight new locations in the Shanghai area this year will help make China become its second largest market after the U.S., according to Best Purchase International chief Robert A. Willett.

China’s move up that important ladder will occur within three to five years. Ideal Buy already has a store in Shanghai and plans on a second in a “short period.” In fact, Best Purchase recently hired an exec dedicated just for picking retail location sites in Shanghai. Now, that means business!

Best Buy has been in China since 2003 but didn’t launch its first store until almost 18 months ago after much careful consideration about location. Best Buy’s business in China can’t match sales from its U.S. locations, but it is faster growing. Its Shanghai location has consistently ranked in the top 50 globally for sale revenue growth as well.

But it probably won’t be simple for Ideal Buy to create the massive market it expects in China. Existing retailer GOME has recently focused on acquisitions at the same time Best Purchase is delicately balancing relationships with Chinese vendors. Growing while keeping the balance happy will take time and considerable effort, but it’ll pay off for Best Purchase handsomely in the near future.

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Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), China, Japan

Yahoo! (NASDAQ: YHOO) may have a superior foothold in Asia than any other large world wide web company. This is driven by its holdings in Yahoo! Japan and Chinese e-commerce company Alibaba. According to The Wall Street Journal, “Depending on how their value is calculated, the stakes account for $9 billion to $14 billion of Yahoo’s value.”

The valuations are old news. What is not so old is that it is dawning on Microsoft (NASDAQ: MSFT) that having Asian allies may help the company fight off Google (NASDAQ: GOOG) in the fast-growing markets of the Far East. It is something that the world’s largest software company does not have now.

The Yahoo! board has a unique opportunity to talk up the strategic value of these holdings with shareholders in public and with Microsoft in private. The prevailing wisdom is that Yahoo! has no substitute other than to sell to Redmond, and that the price is the issue. Yahoo! management should be saying that the Microsoft bid does not take into account the value of having powerful partners in Japan and China and that these are worth several more dollars a share.

It is an argument that has the benefit of being true.

Douglas A. McIntyre is an editor at 27wallst.com.

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Filed under: Products and services, Competitive strategy, Apple Inc (AAPL), Wal-Mart (WMT), Target Corp. (TGT), Best Purchase (BBY)

Wal-Mart Stores, Inc. (NYSE: WMT) is the world’s largest retailer, and the largest U.S. retailer of music. The retailer sells more CDs than anyone, but that dominance is being threatened in a paradigm shift that’s been coming for years now: the digital download.

Apple, Inc. (NASDAQ: AAPL)’s iTunes on the internet music, video and motion picture store will likely surpass Wal-Mart as the largest music seller in the U.S. without a single physical product being sold some time this year. Research group NPD estimates that iTunes has moved past discount retailer Target Corp. (NYSE: TGT) and consumer electronics retailer Ideal Purchase, Inc. (NYSE: BBY)

“Digital sales were up close to 50% and CD sales were down 20 % last year … even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year,” according to NPD. As has been predicted for quite a long time, the CD, while still popular, is slowly fading away, although the transition to an all-digital music future in the U.S. is far from complete.

But, it’s happening — and with teens leading the way (but not owning credit cards in most cases), online music retailers need to make it easier for core customer groups to buy on the web. If each 15 year-old can go online and purchase music without a credit card in the future, the transition will only see more speed.

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Filed under: Products and services, Industry, Consumer experience, Rants and raves, Competitive strategy, Marketing and advertising

I read another blog recently that ranted and raved about the request record industry companies recently made to World wide web Service Providers to enforce anti-piracy on their servers and networks. The blog was not in favor of that move and I wholly concur that it is not the responsibility of another industry to make up for the problems facing the record industry. True, it would likely be prudent for ISPs to check for anti-piracy issues on their networks, but in the long run it has to be about keeping your own customers and not alienating others with threats against their privacy.

The British government seems poised to deal with the dynamic of this problem directly, after music industry trade groups there asked the government to take action. According to Billboard, the move to fight illegal file-sharing is “intended to ensure the prosperity of the country’s creative industries” by taking legislative action as early as 2009 if the music industry and ISPs don’t find a common ground. Legislators have also vowed to protect privacy in the face of these challenges. Unfortunately, the challenges of ISPs providing anti-piracy clean-up for the music industry does fly in the face of privacy issues, even if that means protecting the act of illegal file-sharing.

The Australian government has also taken a similar stance, but is keen to implement a “three-strike proposal” where illegal file sharers would be issued warnings before a suspension of access and eventual cancellation. Still, the plan would require ISPs to monitor user traffic and infringe on privacy issues, reports Billboard. World wide web industry trade groups in Australia have also defended the position of not adopting these types of policies or “taking responsibility of illegal operations on their networks” because “present legislation already covers copyright infringement, and these should be used against illegal downloaders.”

Whatever your thoughts on the position of the ISPs may be with regard to anti-piracy, this should not be read as advocating that activity. Simply put, it is nearly pathetic for the record industry to expect another industry to sacrifice its business practices because music is being illegally traded and shared. As others have pointed out, some responsibility should be taken by ISPs about regulating users who do break copyright law but “ratting” out users to the music industry isn’t the proper action either.

It is the duty of the record industry to figure out ways to make consumers want to pay for music. Obviously that is the real crux of these issues, the fact that consumers don’t find value in the music. At least that’s the idealistic hope on the part of this writer as to why consumers would illegally trade and share the products. It is obvious that no matter how much freedom the record industry gives digital stores to sell tracks without anti-piracy technology, the tactic is just not working. It’s been a bad year for anti-piracy technology, but that just means a good year for digital stores. While it is hard to see any return from how far things have gone, there’s a solution out there and illegal file sharing is not the answer.

In the end, the solution is also not going to be found by looking to blame other industry’s or even the consumer for not regulating illegal file sharing. ISPs are not responsible for the record industry’s problems. If anything, that industry has providing new markets and avenues of advertising for music, so to be bitten at might not be taken too lightly by ISPs. Consumers should not be illegally sharing, but they shouldn’t distrust their Internet service providers either.

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