General Mills (NYSE: GIS) is eating its competition for breakfast by getting into the complex world of commodity derivatives. The cereal-maker announced a 61% increase in net earnings that can be largely attributed to a successful bet on the fall of commodity prices. Meanwhile, the company also saw continued strength in customer demand and would have beat earnings by a healthy margin even without the one-time gain from commodity hedges.

General Mills saw its sales jump 12% amid product price increases and stronger shipments while its commodity hedge resulted in a one-time gain of 27 cents per share. The cereal-maker also raised its financial forecast for fiscal 2008 to reflect the one-time hedging and tax gains booked this quarter; the lack of a greater forecast suggests that the company will continue to pour more money into marketing its products.

Many companies prefer to hedge their bets against commodities that they use in order to offset price increases and it is not uncommon for these actions to turn a profit in volatile environments like the current one. Some companies like Goldman Sachs (NYSE: GS) even managed to turn a profit by betting against the very products they were offering investors! However, the big question is whether or not the hedges will last long enough.

Hedges that these companies use are often derivative securities like options or swap contracts. These securities are essentially contracts that let companies purchase products at a certain price and date in the future. For example, back in 2006, General Mills may have purchased grain for a dollar to be delivered in 2007 when prices are now two dollars on the open market. The process lets companies plan ahead for raw material costs and keep costs low during tough environments.

In the end, General Mills continues to be a strong company that is trading very close to its 52-week low. The commodity hedge proved to be a boost to its bottom line while its existing product sales still managed to outperform. How long this will last remains to be seen as food costs continue to rise, but this is definitely a stock worth watching in the meantime!

Related Companies
Ralcorp Holdings, Inc. (RAH)
Kellogg Company (K)
ConAgra Foods, Inc. (CAG)
Kraft Foods, Inc. (KFT)
The Hain Celestial Group, Inc. (HAIN)

NYSE Euronext (NYSE: NYX) recently unveiled two new initiatives aimed at increasing shareholder value. The exchange announced a 20% increase in its dividend rate along with a new $1 billion share buyback program. The moves are designed to help shareholders realize value in their investment that has declined more than 30 percent from its 52-week highs. However, the aggressive financial policies have some ratings agencies concerned.

The S&P ratings agency cut its outlook on the NYSE to negative from stable after the announcement of these new initiatives. Although the firm expects the exchange's cash flow generation to support the new capital distribution policy, the share buyback will widen the gap in the company's tangible equity, which is already negative, given the substantial goodwill on the balance sheet from the 2007 merger with Euronext.

In English, S&P is concerned that the NYSE may be taking on more than it can handle with a dividend. The NYSE also has a negative tangible asset value on its books due to the amount of goodwill (intangible assets) that it incurred when it acquired Euronext in 2007. The share buyback program will only further widen this gap since the company will be repurchasing its own equity and lessening that portion on the balance sheet while the goodwill remains the same. Finally, shareholders are also likely to demand more buybacks in the future given the exchange's strong cash flow generation.

However, there are also many positive sides to the announcement. Share buybacks tend to increase shareholder value by decreasing the number of outstanding shares. Since earnings remain constant, this results in an increased earnings-per-share number. The move demonstrates confidence in the company by management and the board of directors. Buybacks are designed to help shareholders assign a fair multiple to the target stock when it is trading below peer or intrinsic valuation.

Meanwhile, the effect of dividends on shareholder value continues to be a hotly debated topic. Nobel prize winners in the 1960's suggested that dividends were irrelevant and investors shouldn't care either way. However, dividends give investors the only true return on their capital. Recent research has also shown that companies issuing dividends tend to be more disciplined users of capital and give investors a higher return with less risk over the long term.

In the end, this news is both good and bad for the NYSE. The initiatives will likely increase value for shareholders but may come at cost of maintaining strong balance sheet. However, given the strong cash flows at the company this may be worth the effort since the firm won't find itself in any real risk in the future.

Related Companies
GFI Group Inc. (GFIG)
NASDAQ OMX Group (NDAQ)
The Bear Stearns Companies (BSC)
Investment Technology Group (ITG)

Datascope Corporation (NDAQ: DSCP) is no stranger to activist pressure after a large hedge fund won representation on its board last year. The board seat is now paying off as the medical devices company recently took action to sell off one of its key divisions and return the proceeds to shareholders. The move should help boost the firm's share price, which has been trading within a narrow range before breaking out late last week on the news.

Earlier this month, Datascope agreed to sell its patient-monitoring business to China's Mindraw Medical for $240 million in cash. The company also announced its intent to return the proceeds to shareholders in the form of a share buyback, special dividend, or combination to be determined when the transaction closes. These actions are designed to unlock value by encouraging investors to assign a fair multiple to the company's stock.

The move drew widespread support from shareholders, including 6.7% owner Ramius Capital. The activist hedge fund noted in a Schedule 13D filing with the SEC that the deal "provides for significant value for the patient monitoring business" and represents "the best interest of all shareholders". The activist also "expects that management and the board of directors will continue to explore opportunities to maximize value for all shareholders".

The last statement is of particular interest given Ramius' board presence. Shareholders can expect the activist hedge fund to continue working to unlock value in the company. The regulatory filing also revealed that the hedge fund and its partners remain net buyers of the stock, so investors can be sure that their interests are aligned. In the end, these factors make DSCP a stock worth watching!

Related Companies
Mindray Medical International Limited (MR)
St. Jude Medical, Inc. (STJ)
Medtronics, Inc. (MDT)
Masimo Corporation (MASI)
Abiomed, Inc. (ABMD)
Criticare Systems, Inc. (CMD)

As previously reported here at SECInvestor, a significant chunk of Yahoo's (NASDAQ: YHOO)value in a sale is its minority stake in Chinese search engine Alibaba. We also noted back in February that:

"Yahoo’s stake in Alibaba, which stands at around 39 percent, paid huge dividends after being acquired for $1.7 billion in August of 2005. Since then, the company has IPO’d and dramatically grew in market value while also continuing to grow its revenues at a break-neck pace. Interestingly, Alibaba is also concerned about the Microsoft acquisition, saying that it has a “reputation of using monopolistic tactics”. Foreign control of large companies is also a politically sensitive issue for Beijing, which has forced many prospective buyers to cut their stakes or sipmly delay the application process indefinitely."

Well, it looks like Alibaba is now going to try to take action as Microsoft Corporation's (NASDAQ: MSFT) purchase of Yahoo looks more likely.
Jack Ma, the English teacher that founded the company, plans on advancing a plan to repurchase the 39% of the company that Yahoo owns. Ma and others in the company are supposedly concerned about Microsoft's heavy handed management style as well as scrutiny from Asian users about a titan of American business owning such a large stake.

The WSJ is reporting that Alibaba has already hired a bank and financial adviser to work on the possible purchase details and financing. Though such a repurchase is anything but certain at this point, Alibaba's concern with the deal certainly makes a Microsoft advance more difficult to complete and much less attractive. This is probably the worst development from Microsoft's point of view since the announcement of its takeover bid, so be sure to watch the story as it develops.

Related Companies
Google Inc. (GOOG)
Time Warner Inc. (TWX)
R.H. Donnelley Corporation (RHD)

Visa Inc. (NYSE: V) is set to go public tomorrow in what promises to be the largest initial public offering in U.S. history. Shares are expected to price at $44 per share in a $10.2 billion IPO that is second only to Commercial Bank of China's $22 billion IPo in 2006. Many investors are bullish on the offering after MasterCard (NYSE: MA) shares more than tripled since its offering in 2006 while both companies have been posting spectacular growth numbers.

The first concern that many investors cite with Visa is the poor economy, but this is a relatively insignificant issue for several reasons. It is important to realize that companies like Visa and MasterCard have been able to thrive during the credit crisis because they do not extend credit to cardholders. Instead, it is the issuing banks that take on the credit risks and are now facing defaults. Visa makes the majority of its income by charging vendors a small transaction fee each time a card is used.

The second major concern is that consumer spending is in decline and will hurt earnings. It is true that consumer spending is down, but credit card usage isn't slowing down at all. In fact, industry reports show that usage is on the rise. More than 55% of all U.S. transactions by 2011 will take place with credit cards compared to just 40% in 2005. Spending on luxury goods may be slowing, but consumers are starting to use credit cards for even their staple purchases like food and gas.

The third major concern is that the IPO will be too expensive to buy directly. The Visa IPO has been anticipated for quite some time, so it is likely that shares will soar on their first day of trading. As a result, many investors pushed their funds into rivals like MasterCard in order to benefit from the so-called "peer upside" that often affects related companies. Other investors put their money in companies that stand to directly benefit from the IPO. These companies include JP Morgan Chase (NYSE: JPM), which will cash in $1.3 billion, and others like Bank of America (NYSE: BAC).

In the end, the Visa IPO is one of the most anticipated one on Wall Street this year and will set the mood for a long time to come. The company itself is safe from many of the credit concerns facing the economy and will likely maintain its impressive growth rate. However, the popularity will likely push shares up and force many investors to take positions in other companies that may benefit from the rise. Combined, these factors make V a stock worth watching!

Related Companies
Ameriprise Financial, Inc. (AMP)
Global Payments Inc. (GPN)
Gartner, Inc. (IT)
Heartland Payment Systems, Inc. (HPY)
UnionBanCal Corporation (UB)
American Express Company (AXP)

Conseco Inc. (NYSE: CNO) plans to stick to its guns after being pressured to give up two board seats to Steel Partners. The activist hedge fund demanded two board seats in order to effect a review of strategic alternatives for the troubled insurance company. However, Conseco revealed today that it has been reviewing such alternatives for several months and has engaged Morgan Stanley as its strategic advisor through the process.

Conseco CEO Jim Prieur said, "We share with Steel Partners, as well as our other shareholders, a common interest in taking actions that will increase the value of the company for shareholders. In that regard, we have been working with a major investment bank for several months regarding strategic alternatives and plans to maximize shareholder value for Conseco. We believe, and hope Steel Partners would concur, that we already are exploring courses of action suggested by them."

Conseco also revealed fourth quarter numbers yesterday that many viewed as highly disappointing. The insurance company posted a net loss of $72.2 million, or 39 cents per share, including a $23 million net realized investment loss and a $68 million valuation allowance for deferred tax assets. Conseco faces a considerable amount of work ahead as it stabilizes its fundamentals while working with the SEC to correct any past errors.

In the end, shares are up today after yesterday's drop because Conseco appears to be dedicated to conducting a review of its strategic alternatives. Typically, this means that managmenet would be open to a sale that could unlock substantial value for shareholders. Since the stock is artificially depressed for non-material reasons, the likelihood of a strategic or financial buyer is significantly enhanced. This makes CNO a stock worth watching!

Related Companies
Genworth Financial, Inc. (GNW)
Torchmark Corporation (TMK)
StanCorp Financial Group, Inc. (SFG)
American National Insurance Company (ANAT)
FBL Financial Group (FFG)
Lincoln National Corporation (LNC)
Presidential Life Corp. (PLFE)

The airline industry may be ripe for mergers financially, but pilots are finding themselves unwilling to negotiate. Delta Air Lines (NYSE: DAL) announced an overhaul of its operations today after talks with Northwest Airlines (NYSE: NWA) have reportedly hit a stalemate. The move should help the airline reduce its costs while it continues to work towards finding a potential suitor that would give it financial economies of scale.

A letter from Lee Moak, head of the Delta pilots union, said that the carriers haven't been able to negotiate a benefits and seniority agreement that satisfies both ends. It also refers to the discussions in the past tense, which suggests that further talks are not likely for the time being. This didn't come as a surprise to many investors as reports in the past indicated that negotiations were moving slowly on the negotiation of a key agreement.

Meanwhile, Delta announced that it will offer voluntary severance payouts to roughly 30,000 employees and cut domestic capacity by an extra 5 percent this year as part of its plan to deal with soaring fuel costs. A memo to employees noted that the airline's goal is to cut 2,000 frontline, administrative and management jobs through the voluntary program and other initiatives. The move will eliminate more than half of its 55,044 person workforce.

Fuel costs are beginning to become a serious problem for airlines, especially after OPEC announced that it would not raise production levels for the year. Delta's actions followed other initiatives like fare hikes and reduced routes by Northwest and Continental as airlines struggle to remain profitable. So far, Southwest Airlines (NYSE: LUV) remains as one of the only truly profitable airline despite recent grounded planes.

In the end, airlines are still facing many problems with high costs that need to be solved. A merger may have solved some of these problems by enabling the airlines to obtain an economies of scale whereby costs could be lowered through bulk purchasing of fuel and different routes could be combined to increase efficiency. Unfortunately, while the deal may have worked out financially, pilots shot it down once again. However, this is still a situation worth watching in case talks resume.

Related Companies
JetBlue Airways Corporation (JBLU)
US Airways Group, Inc. (LCC)
Frontier Airlines Holdings, Inc. (FRNT)
AirTran Holdings, Inc. (AAI)
UAL Corporation (UAUA)
Continental Airlines, Inc. (CAL)

The financial sector rebounded today on higher-than-expected earnings by two large investment banks while there are still many liquidity concerns floating around the marketplace for other firms with large exposure to subprime securities and illiquid fixed investments. Meanwhile, many analysts are expecting a wave a consolidation to hit the sector under government-funded bailouts for the remainder of those in trouble. Here are a few of the highlights:

Goldman Sachs Group (NYSE: GS) had successfully avoided the subprime crisis when its own traders made a big bet on a decline, but the tough credit markets are finally catching up to the world's biggest securities firm. The company announced a $1 billion loss on residential mortgage loans along with another billion dollar loss on credit products and investment losses. However, shares rose over 8 percent as the damage was far less severe than many predicted.

Lehman Brothers (NYSE: LEH) is another firm that was able to avoid the subprime crisis, but is now finally succumbing to the rough economic climate. The firm reported a 57 percent drop in its net income on weakness in its fixed income division. Its fixed income revenues declined 88 percent amid very poor liquidity in the credit markets forcing the company to write-down the value of many of its securities. However, the damage is less than what many were expecting.

Bear Stearns' (NYSE: BSC) second largest shareholder, Joseph Lewis, called JP Morgan's (NYSE: JPM) offer "derisory" and plans to vote against the buyout. Shares are being repriced for such a vote as many are now speculating that the deal will not be immediately approved. If the market continues to improve, the company may be able to negotiate for a higher price or other bidders could end up coming to the table. This speculation has shares currently trading at more than double the proposed buyout price.

Merrill Lynch (NYSE: MER) shares are up over 4 percent today despite a report by Wachovia citing it as the next riskiest brokerage after Bear Stearns. The firm still has some $30.4 billion in subprime exposure and the worst liquidity ratio at only 52 percent. However, many do not feel that the investment bank is in any real danger as the problems as Bear Stearns were seen as more of a management issue than a liquidity issue in the first place.

There is also some speculator that Lehman Brothers or Citigroup (NYSE: C) may be the next two banks to be acquired in a widely-expected wave of acquisitions to hit the financials following these large declines. The Federal Reserve can't buyout firms itself, so it tends to sponsor larger companies in acquiring weaker ones. We already saw this with the Bear Stearns-JP Morgan deal and may see it with these two companies if they end up showing increased exposure.

In the end, the financial sector is extremely volatile these days and promises to remain that way for some time. It will be interesting to see whether the Federal Reserve ends up sponsoring more buyouts while strong companies like Goldman Sachs and Lehman Brothers continue to impress the street.

Yahoo! Inc. (NASDAQ: YHOO) the internet search and media company that continues to tango with Microsoft Corporation (NASDAQ: MSFT) continues its attempt to prove its worth and strength with a press release today reaffirming its forecasts for the coming year.

The release claims cash flow may almost double to $3.7 billion in the next three years. Yahoo also predicted earlier this year that first-quarter sales for 2008 would be up to $1.38 billion with annual sales as high as $5.95 billion.

"Yahoo! is positioned for accelerated financial growth - we have a powerful consumer brand, a huge global audience and a highly profitable operating model," CEO Jerry Yang is quoted as saying in the press release. "With industry-leading tools, technology, people and platforms, Yahoo! is poised to capture growth in display advertising where we believe growth will be greatest. Combined with our recent progress in search monetization, Yahoo! is well positioned to provide the broadest range of products to our advertisers while delivering the most compelling experiences to users."

The obviously self-serving announcement is only the most recent in a long list of statements made since Yahoo rejected Microsoft's $44.6 billion unsolicited offer in February on the grounds that the price "substantially" undervalued the company - specifically, its stake in the number two Asian search engine.

Microsoft, the world's largest software maker, continues to pursue Yahoo while Google Inc. (NASDAQ: GOOG) also feels the need to get involved. Despite Google's recent acquisition of DoubleClick which raised concerns combined with a privacy policy that concerns watchdog groups, Google CEO Eric Schmidt predictably said, "We would be concerned by any kind of acquisition of Yahoo by Microsoft. We would hope that anything they did would be consistent with the openness of the Internet, but I doubt it would be." Translation: a Microsoft-Yahoo combination would be a competitive threat to our market domination and we at Google will say anything to stop it. Google is not an inept competitor, so such obvious concern about the deal bodes well for the logic of the acquisition and the advantages gained for Microsoft.

Related Companies
Time Warner Inc. (TWX)
QuickLogic Corporation (QUIK)
R.H. Donnelley Corporation (RHD)

BMC Software Inc. (NYSE: BMC) announced today that it would buy BladeLogic (NASDAQ: BLOG) for $800 million cash, valuing BladeLogic at $28 per share.

The $28 per share purchase price is almost a 20% premium to BladeLogic's closing price Friday, before the deal was announced. With this acquisition, BMC seeks to increase its portfolio of programs that automate customers' data centers. BMC has existing software suites that manage computer systems, but the BladeLogic acquisition is seen as adding strength to an area rife with competitors such as Hewlett-Packard Co. (NASDAQ: HPQ).

BladeLogic programs help simultaneously update programs and make changes over vast computer networks. For instance, if a new security patch becomes available, the program can automatically update individual PCs operating systems without necessitating a support person to go physically to every single network computer. BladeLogic's offerings also allow servers and PCs to be managed together.

"We coveted this business for a long time. Getting them to sell was not an easy process. It took time," BMC CEO Bob Beauchamp said in a conference call about the purchase. "Organizations around the world will spend more than $140 billion dollars this year running data centers. Automation is the only way IT can bring this spending under control and still meet the reliability and time-to-market requirements of their businesses.  BMC’s acquisition of BladeLogic will create the new IT Service Automation leader, unique in its ability to provide these critical capabilities.  It is a natural and very significant next step in our vision of Business Service Management.”

BladeLogic CEO Dev Ittycheria said on the conference call that his company's board shopped around for other offers after getting a proposal from BMC, though he didn't give details of the process. It was widely speculated that BladeLogic, given its relatively small size and attractive business, would be acquired.

BMC has said the deal will reduce its operating earnings next year but add to its profits by 2010. Though BladeLogic shareholders still have to vote on the deal, it has been unanimously recommended by the board and is expected to easily pass.

BMC shares are are down 6% on the news.

Related Companies
Microsoft Corporation (MSFT)
International Business Machines Corp. (IBM)
Symantec Corporation (SYMC)
Oracle Corporation (ORCL)