# Tuesday, February 19, 2008

YHOO Logo

Yahoo Inc. (NDAQ: YHOO) elaborated on their discussions with various parties regarding a possible merger in its Form 425 filed with the SEC today. The Q&A for shareholders elaborates on the News Corp (NYSE: NWS) bid for the company as well as several other valid questions that have been raised during the past few weeks as the company looks towards a possible acquisition. It provides valuable insight for shareholders and arbitreurs looking at a possible deal.

Here’s a complete transcript of the Q&A direct from the filing:

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Tuesday, February 19, 2008 10:01:29 PM UTC  #     |  Trackback
VZ Logo

Verizon Communications Inc. (NYSE: VZ)
and AT&T Inc. (NYSE: T) shares moved sharply lower after the two telecom providers announced new flat-rate plans. The move marks a shift from high margin services to lower margin staples that could put pressure on margins and may spark further reduction in prices aimed at increasing users. The commoditization of the wireless voice service industry is a move that many investors expected but dreaded as it could end up curbing growth rates and reducing valuations for many telecom providers. So, what does all of this mean for shareholders of VZ and T?

Currently, both plans are priced at $99 per month, which means that it will only affect so-called power-users that would like their services consolidated into one predictable price. Moreover, the moves are also designed to increase customer loyalty by locking them down for longer contracts. The two companies are hoping to attract a number of new users from other service providers that offer more expensive services. Indeed, this could help boost revenues over the short-term as an increased number of users sign up but may put pressure on margins as the average revenue per user would likely decline while expenses would remain consistent or higher (in the event of a new marketing spend).

The downside is that this is a familiar path for the telecom providers that initially had contracts for their original services before being forced to take them down thanks to increased competition. The unlimited services are expected to meet the same fate eventually as prices continue to be lowered and contracts eliminated. Once these wireless services have switched to more of a staples service, they will likely meet the fate of phone companies now that operate on razor-thin margins and are forced to come up with new features in order to compete.

Investors may be better off looking at handset makers if they wish to benefit from this industry. Unlike services, handsets must be replaced every few years while rapid growth in emerging markets is maintaining and accelerating growth in many companies. Additionally, companies like Motorola are being targeted by activist investors bent on unlocking value for shareholders and converting them to more pure-plays in order to benefit directly. In the end, the industry as a whole is commoditizing and that means slower growth, smaller margins, and increased competition… it may be time for some investors to move on…

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Tuesday, February 19, 2008 9:04:49 PM UTC  #     |  Trackback

Herz Logo

Herzfeld Caribbean Basin Fund, Inc. (NDAQ: CUBA) shares are up sharply today on news that Fidel Castro has stepped down from Cuba’s top post. The fund is a non-diversified closed-end management investment company with a focus on investing in issuers located in Caribbean Basin countries, including Cuba. Obviously, any normalization of U.S.-Cuba relations would be a massive boost to the troubled Cuban economy which could be flowing in U.S. vacation dollars. In the past, the normalization of these relations seemed like nothing but a distant dream, but many are now speculating that this change in power could put a timeframe on the event. So, is Herzfeld worth watching?

The first thing to remember is that Fidel Castro’s step down from power does not necessarily mean that U.S. relations are imminent. After all, Fidel’s own brother Raul is the one that will be in power and there is no guarantee that he will do anything to mend relations with the country’s powerful neighbor. The good news is that many believe that the younger Castro brother will consolidate power and free him up to pursue soem kind of slow overhauls aimed at opening up the country’s closed economy and perhaps even its closed society. Indeed, Wall Street expectations proved to be very high today of an economic overhaul in the country at some point over the next few years.

There is also talk among U.S. politicians that changes be implemented back at home to encourage foreign travel and trade with the communist country. “We have had a bad policy for nearly 50 years for bad reasons that have nothing to do with Cuba,” said Democratic Representative Charles Rangel. Similar sentiment is shared by others who support lifting the travel ban on the country along with the trade embargo at some point in the future. After all, the U.S. trades freely with other communist countries like China with little regard for politics - why should Cuba be any different?

The second thing to remember is that this stock is extremely volatile as the company recently had a float of just 1.7 million shares and a market cap of $12.5 million before a rights offering doubled the number of shares. Additionally, the thin daily trading volume can also make swings much larger than they should be. Unfortunately, there aren’t many better options out there that are better exposed to Cuba in particular, which means that investors may have to stick with this stock for the time being. However, it may be wise to hold off on investing in this particular fund until shares return to normal levels.

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Tuesday, February 19, 2008 8:17:46 PM UTC  #     |  Trackback