Delta Airlines (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) may be moving away from deal talks that seemed almost certain just weeks ago. The two airlines received approval on January 11th to begin merger talks and rumors quickly surfaced that the negotiation was moving quickly as they hammered out the fine points. However, two stories today seem to contradict such rumors as the two airlines appear to be moving away from any possibility of a merger. Many shareholders still insist that the two airlines could combine as early as in the next two weeks amid pressure from institutional shareholders and investors looking for a change.

Comments by Delta officials to their hometown Atlanta Journal-Constitution newspaper that the airline had a strong standalone plan and was not afraid to take the lonely path caused the speculation that the deal was ill-fated. President Ed Bastian even told the paper that the company would not do a deal unless it filled holes in the airlines network; otherwise, it would simply be a drain on resources and not worth the effort. Meanwhile, TheStreet reported that Delta has recently been looking elsewhere towards targets like Continental Airlines Inc. (NYSE: CAL). However, nothing has been confirmed and we’ll have to wait and see the truth behind the story.

A wave of bankruptcies and rising oil prices has led to much speculation of consolidation in the airline industry. After all, it has become increasingly difficult for airlines to eek out a profit with costs soaring and competition rising. Many believe that the only viable option is to merge with competition in order to expand routes and increase economies of scale. Larger airlines can purchase more materials in bulk and realize significant cost savings while also working to eliminate many employees that have overlapping jobs. However, failed mergers can be much worse than never having done anything at all. Consequently, it is very important to practice due diligence.

In the end, it will be interesting to see where these airlines end up over the next few months. For now, it remains likely that Delta will continue to pursue Northwest while other targets may include Continental. Regardless, the airline industry remains full of stocks that are definitely worth watching over the next few months!

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Sun-Times Media Group, Inc. (NYSE: SVN) shares rose over 15 percent after the company announced that it has begun an evaluation of strategic alternatives to enhance shareholder value. Specifically, the troubled Chicago media company is seeking a joint venture or outright sale of the company. The news comes as no surprise to many as activist shareholders have been pushing the company towards a sale for some time. Shareholders are hoping that the move will help unlock value after more than an 80% decline in value.

“Sun-Times Media Group is very fortunate to have a solid portfolio of publications and websites that deliver the highest quality journalism to the communities we serve and great value to our advertisers. The steps that we’ve taken in the past year are designed to make sure that this is true today and will continue into the future. Our Board’s decision to explore strategic next steps now is the right thing to do to ensure the future of the Sun-Times Media Group publications and Web sites and to generate the highest value for our shareholders.” said Cyrus F. Freidheim, Jr., Sun-Times Media Group Chief Executive Officer.

Sun-Times Media was pushed towards a sale by many investors predominantly led by K Capital Management, which owns nearly 10% of the firm. The hedge fund believes that the company owns very attractive community newspapers but is too small to operate as an independent public company. That is, the costs of being a public company greatly outweighed the benefits in this case due to the firm’s small size. As a result, the assets have moe value to a buyer than they do as an independent company and a sale was the best option available.

Sun-Times began to cut costs two months ago in order to make itself more attractive to a buyer and succeeded in saving $50 million. The company’s strong portfolio of newspapers should make it attractive to an outside buyer, but many fear that the declining newspaper industry and tight credit market may preclude any super-favorable sale from taking place. After all, it would be difficult to find a financial buyer in today’s market that would buy a newspaper company. However, there are plenty of strategic buyers that may be interested and that’s what everyone is banking on.

In the end, it will be interesting to see if a transaction will take place. We should begin to at least see the level of interest over the next month as the company works to find and organize potential bidders. Combined, these factors make this company one that is definitely worth watching over the next few months!

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All eyes are on BHP Billiton Limited (NYSE: BHP) and Rio Tinto plc (NYSE: RTP) this week as a deadline for a mega-merger between the two quickly approaches. The UK Takeover Panel required that BHP submit a formal bid for Rio Tinto by February 6th or it will not be able to make any future bids for at least six months. The current offer is a 3-for-1 share deal that Rio Tinto rejected as bid that grossly undervalued their company. Many shareholders believe that the mega-merger may be stalled as the deadline quickly approaches.

BHP is a $190 billion company with mining interests all over the world. It specializes in petroleum, aluminum, base metals, stainless steel, iron ore, manganese, coal, and diamond and specialty products. Meanwhile, Rio Tinto is almost as large at $130 billion and it specializes in aluminum, copper, diamonds, energy products, gold, industrial minerals and iron ore. Combined, these two companies would corner 38% of the iron ore market, 6% of the copper market, and become the world’s largest coal supplier. As a result, many eyes are on this potential merger.

Interestingly, there may be others that are also interested in Rio Tinto. Alcoa and Aluminum Corporation of China announced the joint acquisition of 12% of the company just recently. The two described the acquisition as a “strategic stake” and reserved the right to make a bid for the company if a third party made a firm offer. Presumably, if BHP made an offer, then a bidding war may ensue for Rio Tinto, which is great news for its shareholders but potentially bad news for many others.

In the end, it will be interesting to see how this situation unfolds. BHP has its own earnings to deal with this week, but the February 6th deadline is quickly approaching and they may be forced to act if they want to make a serious attempt to buy Rio Tinto. Combined, these factors make this stock one that is definitely worth watching!

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J.C. Penney (NYSE: JCP) has caught the eye of billionaire activist Carl Icahn who reporedly bought up a substantial stake in the company. The Deal Journal reported that the retailer may be among Icahn’s top five holdings, meaning his stake could run into the hundreds of millions of dollars. The move follows that of other activists, like William Ackman, into retailers that have been beaten down by a slowdown in consumer spending. Shareholders seem to be mixed on the news as shares started the day higher only to drop more than five percent.

J.C. Penney shares are up over 25% off of their highs along with many other retailers that have been helped by rate cuts and a tax rebate that promises to at least temporarily boost spending. However, many still see J.C. Penney as a cheap stock at these levels. The stock has moved down 44% during the past year after same-store sales fell 7.5%, which dropped its price-to-earnings multiple to just 9.5x last-twelve-months earnings. This compares to an industry average of 14.7x, making J.C. Penney one of the cheapest in the industry.

Activist and value investors alike have been flocking to the retail sector recently amid cheap valuations. Icahn made his interest clear last month when he said that recent declines in industry shares had made them “very cheap”. Meanwhile, other activists like William Ackman have accumulated significant economic and reported stakes in Target Corporation (NYSE: TGT) and Sears Holding Corporation (NYSE: SHLD). Indeed, the multiples of these retailers continue to trail the overall market, while their real estate and credit card assets continue to draw interest.

In the end, it will be interesting to see how this story plays out. Retailers are definitely cheap, but many believe that it may be justified given the substantial problems facing the industry. Activists like Ackman have very specific reasoning behind their investments, but Icahn may face problems if he is simply purchasing because they are undervalued. The first lesson in high-return investing is to find a catalyst - otherwise, stocks can stay cheap for awhile. What this catalyst is remains to be seen, but this is definitely a stock worth watching!

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The Greenbrier Companies (NYSE: GBX) shares soared more than 20 percent today after Carl Icahn disclosed a substantial stake in the company and discussed the possibility of a combination with American Railcar (NDAQ: ARII). The news comes as shares of the railroad company sat near 52-week lows, beaten down by poor earnings and growth. Many shareholders are hoping that the billionaire activist will be able to unlock value in both companies through strategic alternatives.

Carl Icahn currently holds a 53.7% stake in American Railcar and aggressively purchased shares of Greenbrier through its subsidiary Longtrain. Longtrain purchased the full 1,530,000 share position between January 8th and January 25th and prices ranging from $17.60 to $19.54 per share. Many are speculating that the activist is moving quickly to acquire the company at bargain-basement prices after amassing a 9.45% stake in just a month. It will be interesting to see how ready shareholders will be to sell at these levels.

Greenbrier confirmed that it had received Carl Icahn’s Schedule 13D filing and is committed to acting in the best interests of Greenbrier shareholders and other constituencies. However, the board offered no additional comments at this time as they are reviewing the information carefully. It is worth noting that Carl Icahn is not opposed to taking hostile action when necessary to unlock value in his investments, so the board will likely pay attention to anything that he says in future communications.

In the end, the railroad industry has been recovering but still suffers from many fundamental issues. Carl Icahn’s investment in American Railcar alongside investments by many other value investors suggest that the industry may be undervalued. As a result, Carl Icahn’s (assumed) planned purchase of Greenbrier couldn’t come at a better time as shares sit near 52-week lows. It will be interesting to see how all parties respond when something becomes of this situation. Combined, these factors make Greenbrier a stock worth watching!

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RealNetworks, Inc. (NDAQ: RNWK) share rose sharply today after the digital media company announced a new partnership with Yahoo Inc. (NDAQ: YHOO) under which Yahoo! Music will now be handled by Rhapsody America. The move will increase Rhapsody’s user base by a substantial number - a move that RealNetworks hopes will boost its own service and drive revenues. Shareholders shared the optimism today as they hope that the move may be just was RealNetworks needs to boost its share price.

RealNetworks currently has around 2.7 million subscribers, but this new partnership should bring that number up to around 23 million subscribers. This substantial increase will definitely increase Rhapsody’s exposure, but the margins may end up suffering (as a large cut likely goes to Yahoo). Interestingly, Yahoo! Music was once considered to be the Rhapsody killer, but it now appears that Rhapsody is the one doing the killing. Yahoo! Music subscribers will be switched over to Rhapsody’s $12.99/month plan when their existing contracts expire.

The new partnership is welcome news for shareholders who have seen the value of their stock slip in recent times. Shares are down around 42% since their highs in the beginning of 2007 amid poor earnings and questionable acquisitions. Many are bullish on this partnership that could prove to give shares some upside. However, there is one big problem in the way - Microsoft. It will be interesting to see if this partnership stays in tact post-acquisition given RealNetwork’s poor relationship with Microsoft.

In the end, this deal is great news for both Yahoo and RealNetworks. Yahoo benefits by being able to shed a relatively non-profitable division while still being able to monetize it while RealNetworks has substantially increased the size and value of its network of users. There is some risk that this partnership may fall through with the Microsoft acquisition, but the situation is still one that is definitely worth watching!

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MBIA Inc. (NYSE: MBI) may now hold the record for the world’s longest conference call, which came in at something near four hours with more than 200 questions thrown at the troubled bond insurance company. Luckily, it paid big dividends as shares rose more than 30% from an opening level of $11.80 to $15.90. The marathon call came after activist investor William Ackman sent a long letter detailing problems facing bond insurers and MBIA and Ambac in general. Shareholders are now bullish on the stock once again, despite a negative credit watch from the S&P.

MBIA’s main point seemed to be that the credit-default swaps that they write don’t behave the same way that credit-default swaps that banks write. Notably, they cannot be accelerated, except by the firm, which means that any claims will trickle out rather than be all subjected to be paid at once. However, even if the have liquidity concerns under control, that doesn’t mean there won’t be problems with solvency. Many also saw the CFOs attempt to showing lots of excess capital unconvincing as he was forced to guess (like everyone else) at the level of capital that ratings agencies would require going forward. However, he did say (perhaps ironicaly), “It is virtually impossible to imagine a circumstance under which MBIA would become insolvent.”

Many continue to wonder how a company with a market cap of $2 billion that just announced that it lost $2.3 billion last quarter was able to have its share price soar as a result. Some are speculating that it could be a short squeeze while others. The CEO insisted that MBIA would not get taken over by New York State regulators because it would have to be insolvent and the company said it would show excess capital of billions above NYS’s capital requirements. However, the accuracy of these and other statements and the health of MBIA remain to be seen. Regardless, this is definitely a stock worth watching!

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Google Inc. (NDAQ: GOOG) shares fell today after the company announced disappointing fourth quarter earnings showing slower growth than analysts predicted. The search giant earned $4.43 per share on revenue of $3.39 billion compared to analyst expectations of $4.44 per share on revenues of $3.45 billion. The company continues to feel the heat from rising traffic acquisition costs and operating expenses that are putting pressure on its margins. Shareholders sold on the news sending shares down more than 9 percent in early trading.

Google’s traffic acquisition costs have been increasingly lately due to the rising guaranteed payments the company owes through advertising deals to MySpace, Ask.com and others and without operating leverage. There is also larger concern that online ad spending may be hurt by any recession in the United States and abroad. Since Google derives the vast majority of its revenues through Google AdWords, this could spell trouble for the company. And finally, there is also the rising concern over declining keyword costs that has affected the entire industry as it matures.

Google is taking some steps in the right direction, however. First, the search giant is finally starting to control its head count by hiring just 6% over the third quarter. This was a major problem last year that is one of the culprits behind its high operating expenses. Secondly, Google generated more than 50 percent of its traffic internationally and there has been substantial improvement in the international markets that should drive pay-per-click growth.

In the end, there are no short-term catalysts that will help Google so investors may want to shy away from the stock until things improve. It will also be interesting to see how a combined Microsoft-Yahoo will affect the search giant that currently commands a 58% market share. Combined, these are all factors that make Google a stock worth watching!

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Yahoo Inc. (NDAQ: YHOO) shares are up over 40 percent today after Microsoft Corporation (NDAQ: MSFT) revealed a $31 per share friendly takeover offer for the troubled web portal. The cash-or-stock proposal represents a 62% premium to the closing price of Yahoo shares yesterday - a compelling value by any financial measure. Microsoft believes that this combination would enable them to better capitalize on web and display advertising trends. Shareholders applauded the deal sending share substantially higher, but still left some room for opposition.

“Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers,” said Microsoft in their letter to Yahoo. “We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities.”

The offer comes at an opportune time as Yahoo shares have been beaten down and many have lost faith in the company. Shareholders have been looking for an exit strategy that has clearly presented itself in the form of a cash-rich buyer like Microsoft. Meanwhile, employees have been looking for new direction and job security, and Microsoft has already promised “significant retention packages” to “engineers, key leaders and employees across all disciplines”. The offer is also a great deal for Microsoft as Yahoo shares are available at bargin basement prices!

A combined Microsoft and Yahoo would have revenues of $65 billion per year with net profits of around $17.6 billion per year and about 90,000 employees. Perhaps most importantly, it would command a 32.7% marketshare in the U.S. search industry. This is still behind Google’s 58.4% by a wide margin, but it does represent a substantial step in the right direction. Microsoft’s more organized culture, cash in the bank, and talented engineers may be just what Yahoo’s technologies need to get off the ground and compete.

In the end, there is still a lot of question as to whether this deal will even go through as planned. Yahoo’s Terry Semel stepped down from the board yesterday, presumably because of this deal taking place. Whether it was in protest or because he felt it was a “sure thing” remains to be seen, but many shareholders are also likely to oppose an acquisition at such historically low levels. However, many others are simply looking for an exit and may take up Microsoft stock to benefit from future growth. Regardless, this is definitely a situation worth watching!

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Mastercard Inc. (NYSE: MA) rose rose over 10 percent in early trading after the credit card company announced better-than-expected fourth quarter results despite concerns about pressure on U.S. consumers. The jump was primarily attributed to international growth and the sale of its holdings in Brazilian credit card company Redecard. Mastercard did note a slowdown in domestic consumer spending, but is more insulated with about half of their business being generated outside of the United States. Shareholders are hoping that the U.S. can stay out of a recession and the rest of the world can stay on track.

Mastercard reported fourth quarter net income of $304.2 million, or $2.26 per share, versus $40.9 million, or 30 cents per share, a year earlier. Results did include $1.37 per share from the sale of its stake in Brazil’s Redecard that went public in July. The company is also facing less stress than others like Amex because it doesn’t issue cards itself; rather, it makes money from processing and transaction fees that it charges bank customers. Consequently, the company could see lower profits if there were a global slowdown, but right now worldwide gross dollar volume jumped 15% this year, processed transactions increased 17% and the number of cards in circulation rose 13%.

Mastercard offered some useful insight into the domestic economy as well. The firm noted that consumers were spending more money on staples than discretionary items. Consumers are moving away from items like jewelry, restaurants, and home furnishings to instead purchase things like gasoline, groceries, and personal health care items. The company also noted a slowdown in spending in the U.S.; however, spending still did manage to grow at 5.1%. However, countries in Asia, Middle East, and Africa saw their spending increase an astounding 42%. Meanwhile, our neighbors in Latin America saw spending increase 28%. So, while things may be bad in the U.S., they are certainly booming abroad.

In the end, this is another interesting stock that many investors grouped with consumer spending in the United States alone. It is important to research companies as anyone who did their homework would realize that much of Mastercard’s profits are derived abroad and the company is not responsible for any loans that are defaulted on as it does not issue the cards itself. Combined, these factors make MA a stock that is definitely worth watching!

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