MOST NOTEWORTHY: American Capital, Realty Income and KKR Financial were today's noteworthy downgrades:
Jefferies downgraded American Capital (NASDAQ: ACAS) to Underperform from Hold as they see a disproportionate risk profile in the company's current portfolio when compared to most peers.
Banc of America cut Realty Income (NYSE: O) to Sell from Neutral as they believe the current valuation is not sustainable.
Bear lowered KKR Financial (NYSE: KFN) to Peer Perform from Outperform following the company's announcement that it intends to sell 20M shares in a public offering.
OTHER DOWNGRADES:
Goldman cut PepsiCo (NYSE: PEP) to Neutral from Buy.
RBC Capital downgraded Avocent (NASDAQ: AVCT) to Sector Perform from Outperform.
JP Morgan removed NICE Systems (NASDAQ: NICE) from its Focus List.
The Wall Street Journal reported that KKR Financial Holdings LLC (NYSE: KFN), a unit of Kohlberg Kravis Roberts, revived concerns of a credit crunch after it asked for a restructuring of billions of dollars in short-term debt.
The Associated Press reported that the pilots' unions of Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) are unable to agree on how seniority for the companies' pilots would work under a combined carrier. The impasse puts the deal in "serious jeopardy," inside sources reported.
U.S. stock futures were significantly lower this morning, indicating U.S. stocks could have a rough start as investors await data on inflation and housing. Despite solid results from Hewlett-Packard after the closing bell Tuesday, renewed concerns about the credit market, oil climbing above $100 a barrel and the uncertainty about the upcoming data pulled futures lower.
Like seemed what was going to be a healthy gains day Tuesday, ended on a down note after oil futures reached the $100 a barrel. The Dow industrials fell nearly 11 points, or 0.09%, the S&P 500 lost over 1 point, or 0.09%, and the Nasdaq Composite dropped 15 points, or 0.67%.
Several economic readings are due for release today:
At 8:30 a.m., consumer price index for January will be reported. Economists predict inflation may have grown 0.3% during January, or 0.2% excluding fuel and energy prices.
At the same time, January housing starts and building permits also will be released. Economists expect the data to remain near the lowest level since 1991 in January, as the deepest real-estate recession in a quarter-century will weigh on the economy for a third year.
At 2 p.m., the Fed will release minutes from the last interest-rate policy committee in which it slashed rates by a half-point.
Meanwhile, around 10:30 a.m., weekly crude inventories will be reported. Oil closed for the first time above $100 a barrel Tuesday, but prices retreated somewhat Wednesday to around $99 a barrel. Concerns over a refinery explosion and the possibility that OPEC may cut its output caused oil prices to spike with several other factors remaining in the background.
When KKR filed its IPO, the firm mentioned that it was exploring activities beyond its core private equity business.
Well, it's getting started. As pointed out in a recent piece in the Wall Street Journal [a paid service], KKR is edging into the IPO game. That is, the firm is the joint book-running manager on an equity offering for Rockwood Holdings (NYSE: ROC), which is a major specialty chemicals manufacturer. The company plans to issue 10 million shares.
Basically, KKR will help to drum up investors for the offering. No doubt, it's a lucrative business (where commissions have held steady over the years). In fact, KKR is a major shareholder in Rockwood (always nice to double dip, huh?)
Despite the fact KKR is getting competitive with Wall Street investment banks, that's not having much impact on this deal. After all, Goldman (NYSE: GS) and UBS (NYSE: UBS) are participating.
And, with private equity cooling off, it seems KKR has no choice but to expand its business -- turning itself more into a full-fledged financial services firm.
This post is part of our Money Face-Offs feature. Let us know who you think comes out ahead in this head-to-head match-up, and check out our other Money Face-Off posts.
Stephen A. Schwarzman, co-founder of the Blackstone Group vs. Henry Kravis, co-founder of KKR. A showdown so delicious, it's already been immortalized on Page Six -- Schwarzman calls Kravis a "one-trick pony," Kravis calls Schwarzman "the poster boy for greed." Who is more arrogant? More eccentric? Richer? Only the planners of their lavish parties can tell ...
The two have been in a high-stakes tennis match of sorts for years in every financially-oriented aspect of their lives, starting with the companies they target, continuing through their more personal acquisitions and not even ending in their contributions to charity.
Nope. In the world of private equity, KKR had always been the hugest, the most storied, the most secret and powerful. KKR was responsible for the 1988 leveraged buyout of RJR Nabisco, inspiration for thousands of MBAs, as well as a book and a movie. Not many financial deals have inspired so much as a little sonnet, but this, this was the stuff of legend.
MOST NOTEWORTHY: Commercial Metals (CMC), KKR Financial (KFN), Career Education (CECO), Ann Taylor (ANN) and Intel (INTC) were today's noteworthy upgrades:
CIBC upgraded Commercial Metals (NYSE: CMC) to Sector Outperformer from Sector Performer based on valuation.
KKR Financial (NYSE: KFN) was raised to Outperform from Market Perform at Friedman Billings, following managements detailed conference call and managements prudent and rapid actions to address the sale of its Rambus (RMBS) portfolio.
Bear Stearns upgraded Career Education (NASDAQ: CECO) to Outperform from Peer Perform based on valuation.
Ann Taylor (NYSE: ANN) was upgraded to Outperform from Market Perform at Piper Jaffray due to the upside at the company's LOFT division and the firm's belief that there is upside to their 2008/2009 estimates for Ann Taylor.
Credit Suisse upgraded shares of Intel (NASDAQ: INTC) to Outperform from Underperform based on expected margin expansion, a more benign competitive environment in the MPU sector, better positioning vs. AMD (AMD) at the high-end, and strong demand trends...
MOST NOTEWORTHY: PepsiCo (PEP), Countrywide Financial (CFC), KKR Financial (KFN), Home Depot (HD) and Visteon (VC) were today's notable downgrades:
PepsiCo (NYSE: PEP) was cut to Neutral from Buy at Goldman based on valuation.
Merrill downgraded Countrywide Financial (NYSE: CFC) to Sell from Buy, citing liquidity concerns in the mortgage sector as accelerated margin calls and forced asset sales could lead to further problems and selling pressure.
KKR Financial Holdings (NYSE: KFN) was downgraded to Market Perform from Outperform at Friedman Billings based on the liquidity crisis and impact on equity. Lehman cut shares to Equal Weight from Overweight based on capital market funding concerns.
Home Depot (NYSE: HD) was downgraded to Hold from Buy at Gabelli due to near-term uncertainty.
Goldman downgraded Visteon (NYSE: VC) to Sell from Neutral...
OTHER DOWNGRADES:
Credit Suisse downgraded UBS (NYSE: UBS) to Neutral from Outperform.
Since the story of private equity firm The Blackstone Group's potential initial public offering has been out only a couple hours, it is still very much developing. With so few details out, the implications are as yet unknown. Here is Tom Taulli's earlier piece on the subject.
From CNBC's Faber (you can watch the video here, partial transcript's here) we know that the Goldman Sachs Group Inc. (NYSE:GS) and Blackstone attorneys are preparing a prospectus. Preparing is one thing and filing is another, and yet Faber is quite adamant in his belief Blackstone will file within two weeks or by the end of March. Also, the decision to go public rests on Chairman and Chief Executive Stephen Schwarzman. Once again, an adamant Faber says "the decision has been all but made."
While Faber said that Blackstone's market value could be easily in excess of $20 billion according to bankers, MarketWatch points out that it isn't clear yet what kind of an IPO this would be. The shares could represent
the Blackstone Group itself, or they could represent a fund that's managed by Blackstone Group, much like Kohlberg Kravis Roberts & Co. KKR Financial Corp. (NYSE:KFN) real-estate investment trust and Apollo Management's Apollo Investment Corp. (NASDAQ:AINV).
Regardless, and especially if the Fortress Investment Group (NYSE:FIG) is any indication, there would be strong interest in the IPO. Considering all the noise and after the year private equity had had, I, for one, think that this IPO is going to be the real thing.
With a name like "private equity," it does make sense that the industry has been without a trade association. But as private equity deals get bigger and bigger, it is important to become much more politically savvy.
So, finally, the industry has its own trade group. The name is: The Private Equity Council. The leader is Douglas Lowenstein. His prior gig was the leader of the Entertainment Software Association (this is the trade group for video gaming).
According to the press release, the Council will do things such as: "launch research, public affairs and government outreach initiatives to explain the multiple contributions private equity makes..." Although the real purpose is likely to get buy-in on Capitol Hill. Also, as private equity moves offshore, expect the Council to take a global perspective.
And, with backers like the Blackstone Group, Carlyle, KKR (NYSE:KFN), and Texas Pacific Group, there should be no shortage of resources.
Tom Taulli is the author of various books, including the Complete M&A Handbook and operates DealProfiles.com.
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MOST NOTEWORTHY: American Capital, Realty Income and KKR Financial were today's noteworthy downgrades:.gif){kind=logo}
U.S. stock futures were significantly lower this morning, indicating U.S. stocks could have a rough start as investors await data on inflation and housing. Despite solid results from Hewlett-Packard after the closing bell Tuesday, renewed concerns about the credit market, oil climbing above $100 a barrel and the uncertainty about the upcoming data pulled futures lower.
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