American Express Co. (NYSE: AXP) announced today that it has agreed to purchase GE Money's Corporate Payment Services (CPS) from parent General Electric Co. (NYSE: GE) for $1.1 billion. CPS provides purchasing services and cards to large corporations.

American Express said in a press release that “today’s agreement is part of an ongoing strategy to focus on the payments sector” and that the acquisition is lucrative given that “Corporate Payment Services generated over $14 billion in 2007 global purchase volume and maintained $1.1 billion in receivables at year end 2007. Its billed business has grown at a compounded rate of 18% over the last five years.”
 
Interestingly, GE is CPS’s largest client, so the terms of the deal require GE to remain a client of American Express after the sale for a set number of years.

President of American Express’s Global Commercial Card & Services Anré Williams said in the press release that, “Corporate Payment Services is a terrific business with strong leadership and talented employees who have been generating impressive growth through a combination of excellent customer service and cutting edge technological innovation. Expanding our corporate purchasing and expense management services is a top priority for American Express. Acquiring Corporate Payment Services adds to our purchasing card capabilities and gives us the opportunity to accelerate our growth. In addition, Corporate Payment Services also has excellent credit metrics and a premium client base.”

When referring to credit metrics, CPS has an advantage compared to other forms of credit because accounts are usually paid-in-full at the close of each month because charges are typically travel expenses for employees of large companies. The deal also includes GE’s vPayment technology, a fraud detector technology.

American Express, not surprisingly, expects an immediate boost to revenue from the purchase – but earnings per share growth from the deal will not be seen for a few years. Overall, the deal makes sense for American Express but it is not something to get overly excited over. American Express shares are up slightly on the news while GE shares are down slightly.

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Citi Trends, Inc. (NDAQ: CTRN) hasn't had much of a trend the last few years as it has swung widely from profits to losses and back. However, the company is hoping to change that in 2008 with a series of changes designed to stabilize its earnings and unlock value for shareholders.

Citi announced a decrease in its earnings for 2007 as its earnings came in at $0.59 in the fourth quarter compared to $0.73 during the same time last year. The decline came as a result of negative same-store sales and a related need to increase clearance markdowns along with the inclusion of an extra week in 2006. Net income also took a hit as the company's profits dropped from $21.4 million in Q4 2006 to only $14.2 million in Q4 2007.

Sales increased 6.2% from $126.8 million to $134.6 million, but this can likely be attributed to the increase in clearance markdowns. Citi effectively sold more products at a discount, which boosted its sales at the expense of its net income and profit margin. Meanwhile, the 1% growth in same-stores sales suggests that the majority of any growth that did occur was at new stores - an unsustainable paradigm.

The sunny side of the story - and cause for today's celebration - was Citi's positive outlook. The company estimated 2008 earnings in the range of $1.10 to $1.15 per share, which crushed analyst estimates of only $1.00 per share. The strong guidance is based on estimated same-store sales growth of 2% to 3% due to a planned 15% increase in selling square footage. Same-store sales are an important measure for retailers since it measures revenue at existing stores rather than newly opened ones.

Some analysts are skeptical that Citi can pull off the gains, saying that the company has a history of unpredictable swings. As a result, many retained their ratings on the stock until the company could "prove" that it was able to make meaningful changes. Investors seem to be a different story, however, as the stock swung up some 25% on the news of a possible turnaround in 2008. Which side is right remains to be seen...

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ConAgra Foods, Inc. (NYSE: CAG) gave shareholders something to chew on today after announcing spectacular earnings along with a sale of its cash cow trading unit.

The company announced much higher-than-expected quarterly profits thanks to strong performance in its food and ingredients segment along with its extremely profitable trading unit that made a ton of money predicting the rise in food and energy prices. These helped to offset falling profit at the company's larger consumer foods unit, which has been hurt by soaring commodity costs.

The trading units at companies like ConAgra have been performing extremely well in today's economy. The lower U.S. dollar combined with higher demand abroad has sparked a long-lived rally in the commodity markets. The profits made on these hedges were so large that ConAgra's own trading unit was able to make 38% more money than its food and ingredients division by booking only half the revenues!

However, ConAgra recently agreed to sell its trading unit to Ospraie Management for an estimated $2.3 billion, including $1.6 billion in cash, $525 million in debt securities, and a portion of the unit's earnings for the remainder of the calendar year. The company wanted to exit the business to focus more on its core strategic food platforms and felt the time was right given the boom in commodities.

The divesture will also mean lower and more predictable working capital requirements in the future, since commodities trading can be a somewhat volatile game. The commodity markets can change rapidly and directly affect the cost of raw materials for the company. The divesture of this business will result in more consistent operating cash flows over time and much easier sleep for shareholders.

ConAgra announced that it would use the proceeds of this sale to fund share repurchases, which should help boost the company's stock price. Share buybacks reduce the number of outstanding shares while earnings remain the same, which causes the earnings per share number to increase. This higher earnings per share number means that the share price must go up if the price-earnings multiple is to remain the same.

ConAgra also sees good times ahead. The company boosted its fiscal year forecast for earnings from continued operates to $1.80 to $1.85 a share from $1.55 with fiscal 2009 earnings still slated at a minimum of $1.55 a share. This compares to analyst estimates of $1.60 and $1.61 a shares, respectively. Executives also said that they expect future annual earnings growth of 8% to 10% on 4% sales growth.

In the end, this is all good news for shareholders who stand to exit the commodities boom at just the right time and see the money spent on a program to unlock value. Meanwhile, the company is continuing to back a strong forecast despite some increased competition from private label brands. What more could an investor ask for?

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Oracle Corporation (NDAQ: ORCL) is seen by many as a barometer for the technology sector and its most recent earnings suggests that a slowdown may be on the horizon. The tech giant reported a 30% jump in profits and a 21% jump in revenues, but sparked concern among investors that its many acquisitions hadn't insulated it from the larger economic crisis facing the United States.

Oracle's revenue projections in particular is what failed to impress the street and ignited concerns about a technology spending cuts. The revenue slowdown can be traced back to a reduction in the number of new licenses for software, which grew only 16% when its projected range was 15% to 25%. This is a closely watched indicator since it shows how much companies are spending to buy new software rather than simply just pay to maintain old software.

Narrowing it down even further, Oracle's weakest spot was the 7% growth in sales of new license for business applications. These are programs used by accounting and human resources divisions when companies embark on new projects or expand their businesses. The slowdown in this particular area told many investors that companies were being a lot more conservative with their money and may cut technology spending.

Many investors had hoped that Oracle's string of acquisitions would insulate the company from any major slowdown, since they brought in many new customers. The moves also diversified the firm to such an extent that just 13% of its revenues came from the troubled financial sector. However, the fact that these acquisitions still did nothing to curb the slowdown is what caused the major reaction in Oracle's stock today.

Oracle also caused ripples across the larger technology sector. The move also comes after networking company Cisco Systems (NDAQ: CSCO) posted its results that suggested a potentially weaker year for corporate technology spending. And with companies like Intel Corporation (NDAQ: INTC) and IBM (NYSE: IBM) reporting earnings within the next week, the sector is on edge with concerns of a slowdown.

In the end, Oracle is the latest in a series of bearish announcements in the tech sector suggesting that spending will begin to slowdown. Investors are slowly realizing that even technology may not be immune to the problems in the financial sector despite a lack of direct exposure. Bad news all around.

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Motorola, Inc. (NYSE: MOT) announced today that after an extensive analysis of its businesses that it will split into two distinct companies by spinning off its mobile phone unit.
 
Motorola, best known by consumers for its Razr phone, has been under significant pressure from activist Carl Icahn who has been pressuring the company to take action on its unprofitable cellular phone division. Motorola’s cell phone production had nearly $19 billion in sales in 2007 – which was a significant fall from 2006 but still made it the largest division in the company. Motorola’s communication equipment and “set-top box” unit are the actual profit drivers of the company.
 
The company plans to achieve the split by next year through “a tax-free distribution to [its] shareholders.”
 
In a press release, Motorola CEO Greg Brown said:
 
"Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and Board of Directors, together with independent advisors. Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus - as well as more targeted investment opportunities for our shareholders."
 
The real question is whether Motorola’s cell phone business is an “industry-leading” company. Despite the success of the Razr, cell phones have become a cut-throat business with razor-thin margins – no pun intended.
 
Regardless of how things play-out, it appears like Carl Icahn has scored another victory. Last year, Icahn basically forced then CEO Edward Zander from the company. Now, it appears as if Motorola, through the split, will become more aggressive about making its cell phone division profitable.
 
This saga probably isn’t near complete yet as Icahn will almost certainly be vocal about the exact manner of the split and the management choices for each new entity which definitely makes Motorola a stock worth watching.
 
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WiMax has been the talk of the technology sector for a long time as the promise of a nationwide high-speed wireless network has many druling at the mouth. The companies behind the project are just as excited as the new network would provide them with licensing opportunities that could make them billions of dollars in the future. The only thing standing in the way is a $3 billion bill that needs to be paid to roll out the initiative. Luckily, cable companies are beginning to step in as the new backers.

The WiMax initiative began as a cooperation between Sprint Nextel Corporation (NYSE: S) and Clearwire Corporation (NDAQ: CLWR) to create a nationwide wireless network using WiMax technology. The network is designed to provide high-speed web access from laptops, cellphones and other mobile devices as well as high-quality mobile video. The two were forced to explore other financing options after Sprint shareholders were unwilling to fully fund the venture, calling it excessively risky and expensive.

Cable companies have now stepped in to fill the void by taking partial ownership in the new venture. Comcast Corporation (NDAQ: CMCSA), the nation's largest cable operator, agreed to contribute as much as $1 billion into the venture alongside rival Time Warner Cable (NYSE: TWC) who would add $500 million. Bright House Networks, the sixth largest cable operator, would also contribute between $100 million and $200 million, according to the WSJ.

Other potential investors include Intel Corporation (NDAQ: INTC) - who could contribute up to a billion dollars - and Google Inc. (NDAQ: GOOG) who may provide hundreds of millions of dollars. However, it is still possible that the entire deal could fall through if all these parties do not agree and the partnership is unable to raise the $3 billion that it needs to make the project happen.

The deal also has widespread implications for shareholders of all the companies. Sprint's shareholders have been the most vocal against the deal after the company told Wall Street that it expects the venture to cost $5 billion by 2010. This prompted many to propose that the initiative be spun off and funded by someone else entirely. Meanwhile, a move by cable companies into the fray would escalate the rivalries by throwing them into a whole new arena.

In the end, the WiMax initiative looks very promising for consumers and like a great future investment for the companies involved, but it comes at a great cost in the near term. This is a cost that many Sprint shareholders believe is too high while many other companies may not be willing to put forth as much capital as the partnership would like to see. Regardless, this is definitely a situation worth watching closely.

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Clear Channel Communications (NYSE: CCU) shareholders are hearing a little static on the rumor airwaves and fleeing towards the nearest exit. Shares plummeted today after private equity firms and banks backing the $19 billion privatization of the nation's largest radio broadcaster failed to resolve their differences over final financing terms. Shareholders now have almost no confidence in the deal, which was slated to take place at $39.20. Instead, many analysts are now predicting shares to fall into the $20s.

The banks financing the deal were unable to create a credit agreement that satisfied all sides of the transaction. In particular, banks are concerned that if they lend the $22 billion needed to fund the deal, they would need to immediately write down the value of the loans as soon as the deal closes and book the losses. Since such debt has been typically marked down by 15%, this would equate to a $2.7 billion loss the moment the deal closes.  

Those involved insisted that there was still a chance that the deal could be salvaged, but the consensus remains that the deal looks unlikely to consummate. The bright side is that Clear Channel could then sue the private equity firms for breach of contract if the deal falls apart since it was not contingent on securing financing. This would help recoup some money, but do very little in the long run.

Clear Channel's business has also significantly deteriorated since the deal was first struck in November 2006. Bad news has been steadily rolling in since the buyout price was raised in the first quarter of 2007. Growth in its radio operations began to slow and then shrink as the firm's downward spiral became clear. Unfortunately for the buyers, the deal was already approved by shareholders so nothing could be done. Now, this burden may be shifted back to the shareholders.

In the end, a failed Clear Channel buyout would be the latest casualty in a series of high-profile busts since the credit market began to deteriorate. The banks and private equity firms at this point are likely still in the negotiations only to protect themselves from litigation by saying they put forth a noble effort. However, the potential losses from being sued for breach of contract still give shareholders some hope that a deal could take place. If not, shareholders could easily see their stock back in the $20s.

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Take-Two Interactive Software's (NDAQ: TTWO) board rejected Electronic Art's (NDAQ: ERTS) most recent buyout offer, saying that it was not in the best interest of shareholders. Instead, the company also confirmed that it would explore strategic alternatives to maximize shareholder value in other ways that could deliver a higher value than the current EA offer. So, what is the best move for shareholders at this point?

Electronic Arts, the world's largest video-game publisher, offered to purchase Take-Two for $2 billion in a hostile bid after management refused to negotiate before the released of its "Grand Theft Auto IV" on April 29th. EA wants to purchase the company now in order to obtain upside from the holiday sales of the game, but Take-Two management sees the buyout is opportunistically timed to capture the value of the upcoming game at the expense of shareholders.

Take-Two's board also insists that it has received indications of interest from third parties interested in purchasing the company since EA's bid, but that no substantive discussions have yet taken place. The company is intent on waiting until after the game is released to being discussions, but it did begin to assemble the materials necessary for interested parties to conduct due diligence. Any auction process would likely unlock additional value for shareholders above and beyond $26 per share.

Finally, Electronic Art's tender offer itself may no longer be viable. Take-Two adopted a Stockholders Rights Agreement (ie. poison pill) that would dilute the stock if EA acquired more than 20% of it. This would make such a hostile acquisition extremely expensive and unlikely to occur. Now, EA would be forced to launch a proxy contest to replace directors and remove the poison pill if it wanted to continue its pursuit.

In the end, Take-Two has rejected EA's offer because it has many other offers on the table that it would like to explore after the April 29th launch of its latest installment in the Grand Theft Auto series. It will be interesting to see EA's next move after the board installed a poison pill that put a fork in their plans. Regardless, this is all good news for shareholders that may now see more than $26 per share.

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Farming may not seem like the hottest industry on Wall Street, but Monsanto Company (NYSE: MON) shareholders would disagree. The global provider of agricultural products raised its outlook for the third time in three months on stronger demand for seeds. The company's stock has more than double during the past year as a result while it is now looking for ways to spend its extra cash.

Farmers are paying top dollar these days for genetically modified corn, soybeans and cotton seeds as a result of a bullish commodities market boosted by a rapidly declining U.S. dollar and stronger ethanol demand. In fact, business is so good that Monsanto announced that it would reach its long-term margin target of 52 to 54 percent this year- a full two years ahead of schedule.

These events prompted Monsanto to also raise its EPS guidance for the fiscal year to $3.15-$3.25 from $2.70-$2.80. The company is due to report its fiscal second quarter results on April 2nd, which are expected to be seasonally strong as farmers in the Northern hemisphere begin planting. Free cash flow also reached a new record of $1.4 billion, which means shareholders are likely to begin the common "use it or lose it" campaign.

Monsanto foresaw this rhetoric, however, and said it will look for ways to invest in acquisitions that further growth, projects that support the current business's growth and dividend, and share repurchase programs that return value to shareholders. Many believe that these future acquisitions may take place in quickly growing markets in India and China as an increasing acceptance of genetically modified seeds would mean more demand.

In the end, the demand for seeds will likely continue as long as the demand for corn and soybeans remains strong. Given the weakness in the U.S. dollar combined with continued demand for ethanol, this is a definite possibility and shares of MON should continue to see upside. The real question is then: Will the company use the excess cash to the benefit of shareholders or squander it on poor acquisitions?

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Market research firm Gartner Inc. reduced its 2008 forecast for personal computer shipments and warned that the estimate could drop further if the economy takes another turn for the worst. The firm now sees growth of 10.9%, or 293 million shipments, versus its forecast late last year of an 11.6% increase. Moreover, the firm warned that those numbers could drop to the single digits. This is bad news for pure-play PC manufacturers along with their component providers.

Gartner sees a healthy PC market right now, but several challenges in the near future. A deepening U.S. recession, the rising possibility of a slowdown in China's economy following the Beijing Olympics and higher oil prices could all put a damper on PC shipments this year. However, the firm also noted that PC sales should be boosted late this year through 2010 thanks to a desktop replacement cycle. Garnter predicted that strength in the emerging markets - which accounted for 60% of global growth in the fourth quarter - would also play a critical role.

This is bad news for pure-play PC-makers like Dell Inc. (NDAQ: DELL) that have already been having a bad year. The PC manufacturer has seen its domestic sales drop off a cliff and has been reliant on strong international growth and cost-cutting to drive revenues and improve its profitability. A slower domestic situation will only require additional international growth while cost-cutting can only be a temporary solution to a long-term problem. The reality is that PC sales are declining while the real money-maker - laptops - are quickly falling in price.

Struggling chip-makers like Advanced Micro Devices (NDAQ: AMD) may also find themselves in trouble. The company relied heavily on new product shipments to break-even last quarter and any slowdown could quickly send them back into the red despite plans to return to profitability by the end of 2008. Luckily they still have a chance at it if the replacement cycle begins as strongly as expected at the end of the year, as they are one of only two major chip manufacturers for PCs and laptops.

The reduced forecast could also affect many other companies to a lesser extent. PC manufacturers like Hewlett-Packard (NYSE: HPQ), Apple Inc. (NDAQ: AAPL), and International Business Machines (NYSE: IBM) may also feel some heat, but their diversified product lines should bar any major losses sustained. In the end, the PC business was thought to be relatively recession-proof, but these new predictions could change the story.

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