Petroleo Brasileiro SA (NYSE: PBR), known as Petrobras, announced a discovery in the Gulf of Mexico today. The diversified oil and gas company confirmed the discovery of hydrocarbons in ultra-deep waters in the Central Gulf of Mexico. The Stones #3 well, located in Block WR 508, found oil in multiple sandy lower tertiary reservoirs and is 25% owned by Petrobras. Future drilling and assessment activities are planned to define size and viability.

These results confirm the potential of significant oil reserves in these reservoir in the Gulf of Mexico, where Petrobras operates the Cascade and Chinook fields which at the present are in the production development and facility construction phase. Petrobras will be the pioneer company, both in ultra-deep waters in Lower Tertiary reservoirs and in using an FPSO type platform in the region, the production of which is slated to go online in June 2010.

In this same area, Petrobras also holds 25% stakes in the Saint Malo field. This field is operated by Chevron and is in the assessment and extension exploratory drilling phase. Also, studies are being done to select the production development project for Saint Malo. These discoveries help the company diversify its holdings and enhances the value of its Exploration and Production project portfolio in deep waters in the Gulf of Mexico.

Petrobras also announced its first quarter results today, which came in ahead of expectations. Consolidated net income rose 68% year-on-year thanks to a decline in operating expenses and the reduced appreciation of the Brazilian Real currency. The increase in oil and gas production and the upturn in oil and oil product prices also contributed to the improved performance. EBITDA climbed 26% year-on-year as production edged up 2%.

Meanwhile, Petrobras also saw its market cap increase 69% year-on-year due to oil and gas discoveries in the pre-salt layer, the new exploratory frontier, and potential production growth. Ironically, one of its biggest problems was obtaining offshore support vessels from companies like Transocean Inc. (NYSE: RIG), which have been booked for years in advance following the rapid run-up in oil prices in recent months - a bullish sign for these companies.

Interestingly, Petrobras also saw a significant decline in its US volume as the economic crisis worsens. This caused a sharp drop of 14.96% in its international sales volume, but was also helped down by the sale of its Bolivian refineries. This means that domestic refiners in the US are likely to continue to see problems in the near future. Luckily, Petrobras was able to offset this with strong growth in domestic sales volume.

Lehman Brothers analyst, Paul Cheng, also raised his price target for Petrobras to $62 per share. He maintains his "equal weight" rating on the company, saying also that he expencts the first quarter to come in at $1.02 and full year 2008 to come in at $5.10.

Dell Inc. (NDAQ: DELL) shares surged higher today on stronger than expected earnings. The PC-maker announced sales of $16.1 billion, which exceeded analyst estimates of $15.7 billion. Revenues in Asia jumped 19% as overseas sales finally topped those in the U.S. for the first time. The only unit that didn't see an advance in sales was the desktop PC market, which continues to struggle.

Michael Dell has attributed the gain to a new turnaround fueled by a retail-driven sales strategy. The company has added 13,000 retail outlets in the world's 20 largest economies over the past year to help it expand beyond the United States. Dell abandoned its strategy of selling only over the phone and internet, which led to its recent recapture of market share from competitor Hewlett Packard.

Dell is also targeted developing countries with cheaper machines. The PC maker is aggressively entering these markets with lower-priced products, which is driving the company's average price down but increasing its overall revenues. The effect on the bottom-line may be somewhat negative, but it appears to be a trade off that many investors are willing to accept.

Finally, Dell has also taken many cost-cutting measures. The company cut 1,000 jobs in the first quarter and plans to trim its expenses by $3 billion annually over the next three years. This will be accomplished through a combination of workforce reductions and a move to lower-cost manufacturers.

"We still have much work to do to restore our competitive position," said Dell on a conference call. "I am encouraged by the acceleration in our growth - you will see much more."

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UAL Corporation (NYSE: UAUA) and US Airways Group (NYSE: LCC) have decided not to merge, according to the chief executives of both airlines. The executives noted that certain issues could significantly dilute the benefits of a merger transaction right now. They admitted that consolidation was necessary in the industry, but is unlikely to happen in 2008. The comments conclude months of merger talks in hopes of combating rising fuel costs.

Rising jet fuel prices have put substantial pressure on airlines, who were already in a fragile financial state. In fact, several airlines had just recently emerged from bankruptcy last year. Since then, several more have entered into bankruptcy. Mostly, these have been regional players like Frontier Airlines and Honolulu Airlines. However, rising fuel costs threaten to put the major carriers at risk if they cannot find a solution.

Mergers are considered healthy in these situations because a larger company is able to realize better economies of scale. That is, one entity purchasing more jet fuel at one time can get a better deal due to the greater quantity. Additionally, the transportation costs and other associated costs are also lowered for the same reason. Combined with rising fares, this could be enough to save many of the airlines now experiencing problems.

The problem is that the pilot unions are often unwilling to work together or accept steep pay cuts. The strong airline unions have been the culprit behind many of the failed talks, including those involving Northwest. UAL and US Airways did not cite these reasons, but media reports have said that opposition from labor unions and the costs of integration were the two key factors behind the decision not to merge.

Ultimately, the decision not to merger could cost both airlines a lot of money if jet fuel prices continue to rise at their current rates.

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Republic Airways Holdings Inc. (RJET)

To recap the last two-months in a few lines, Microsoft Corporation (NASDAQ: MSFT) was courting Yahoo! Inc. (NASDAQ: YHOO), but the reality is Microsoft doesn’t want Yahoo so much as it just wants to be able to compete online – which basically means competing with Google Inc. (NASDAQ: GOOG). Well, besides an imminent partnership with Yahoo, Microsoft has long been rumored to want to make a play for Facebook beyond the 1.6% it already bought for $240 million last October.

Bloomberg has released a tiny item saying “Facebook Inc. Chief Executive Officer Mark Zuckerberg has no plans to sell the social-networking site, even if Microsoft Corp. offered $15 billion.” This is based on Zuckerberg’s comments at All Things Digital that, “the goal of the company is to execute on the things we talked about before,'' meaning share information about themselves and their lives more easily.

Despite this, many people have said similar things before about selling – but money talks. News site IDG.NO speculates in “What if Microsoft Bought Facebook?”

“An interesting rumor has surfaced: Microsoft would buy Yahoo Search, then spend a further US$20 billion to buy Facebook. Despite what Mark Zuckerberg says about Facebook remaining independent, it would be difficult to forego that rich an exit.

Facebook is one of several social networks, second only to MySpace and growing rapidly. But while MySpace is still larger, it is the flow of information through Facebook, and the social engagement of its members that makes it important.

Purchasing Facebook would give Microsoft access to over 60 million captive, and very social users, who could potentially be used to drive the growth of Live Search -- as well as access to all of their information, and in some cases their entire social lives.

Robert Scoble suggests that this would allow Microsoft to lock Google out of a huge chunk of internet information.

Buying Facebook might give Microsoft a small temporary boost. On the other hand, more than 140 million copies of Windows Vista with an Internet Explorer search box directed right to Microsoft Live Search haven't helped much. And Microsoft hasn't really been able to capitalize on user volume of existing services such as Hotmail or MSN instant messaging.

But let's step back a little. Microsoft hasn't detailed its plans yet, and a talk of its plans relating to Facebook is mostly rumor and conjecture. Still, if I were Google, I wouldn't worry too much just yet.”

Microsoft Corp. (NASDAQ: MSFT) co-founder, former CEO, recent “Chief Software Architect,” and world’s richest person for 13 years Bill Gates is not known for his investing so much as his business leadership – he didn’t invest in Microsoft, he built it. Nonetheless, Bill Gates is a pretty savvy guy, and he presumably has very savvy guys managing his investments (with a best friend like Warren Buffett, one would hope at least).

Obviously Gates’ wealth comes from Microsoft, but he has made a significant effort over the years to diversify his holdings through his private fund Cascade Investment LLC. In a recent The Motley Fool piece, some of Cascade’s holdings were examined:

•    Berkshire Hathaway (NYSE: BRK.A)
•    Canadian National Railway (NYSE: CNI)
•    Otter Trail (NASDAQ: OTTR)
•    Republic Services (NYSE: RSG)
•    Six Flags (NYSE: SIX)

Berkshire Hathaway is not surprising, given Gates’ relationship with Buffett, and the good sense for anyone, regardless of whether you personally know the Oracle, of investing in the company.

Cascade also seems to have a penchant for unglamorous businesses like railroads, Canadian National Railway, and trash disposal, Republic Services – both of which have done well for Cascade over the last 12 months, returning 7% and 13% respectively.

To investigate Cascade yourself, look for its 13-F filing with the SEC.

Barron's recently ran an interesting story on an activist hedge fund we follow called The Chilren's Investment Fund. The article interviewed founder Christopher Hohn, who unveiled some very interesting points and gave unparalleled insight into one of the most profound activist hedge funds in today's markets.

Hohn acts very similar to Warren Buffett in that he purchases hard-asset companies that are well-positioned and enjoy a near-monopoly, where there is a high barrier to entry, and which are under-researched and undervalued. The difference is that this investor likes to look for situations where poor management is undervaluing the firm.

The Children's Fund is well known for pushing management to pursue shareholder-friendly activities like share buybacks and special dividends designed to unlock value. Indeed, he has also seen great success by saving companies like Deutsche Borse from bad takeover attempts that undervalue the company.

Another important question answered in the interview was how such an innocent name - The Children's Fund - was assigned to such an aggressive hedge fund. It turns out that Hohn's wife wanted a fund that could help the poor, so this fund donates a portion of its profits to a non-profit organization that helps children in developing nations.

The rest of the interview can be read here.

But the big question is then: What stocks does the Chilren's Investment Fund own now? A quick look at their recent Schedule 13F-HR filing with the SEC shows a portfolio of just nine stocks - some popular and some unknown. The hedge fund's largest holding - not surprisingly - is in Union Pacific Corp., while CSX Corporation comes in second place. However, there are also many unknown names like Martin Marietta Matls on the list.

Here is the complete list:
1. Transalta Corporation (TAC)
2. Sterlite Inds India Ltd (SLT)
3. CSX Corporation (CSX)
4. CME Group, Inc. (CME)
5. Martin Marietta Matls Inc. (MLM)
6. Mastercard Inc. (MA)
7. Nymex Holdings Inc. (NMX)
8. Union Pacific Corp. (UNP)
9. Vulcan Materials Co. (VMC)

Yahoo Inc. (NDAQ: YHOO) has bigger problems than Microsoft Corporation (NDAQ: MSFT) these days. The search giant is now trying to fend off activist investor Carl Icahn who has began his own campaign to force the Microsoft deal. So, what does Yahoo plan to do? Delay the inevitable of course! The company decided to put off its annual shareholders meeting until the end of July to give it more time to think.

Yahoo CEO Jerry Yang will now have to work to prove that he can win back investors after rejecting an offer from Microsoft. If not, Carl Icahn has promised a proxy battle to takeover the board and force an acquisition by Microsoft in order to unlock shareholder value. Currently, Yahoo shares are trading 17% below Microsoft's latest $33 per share takeover offer. However, Microsoft did say that it was pursuing a new transaction with Yahoo that didn't involve a takeover, but that it would reconsider a Yahoo bid at some point.

Icahn also has widespread support for his plans to force a Microsoft bid. He owns 10 million shares himself and has an option to purchase an additional 49 million. Furthermore, he has won support from investors including New York hedge fund Paulson & Co., BP Capital LLC Chairman T. Boone Pickens and Third Point LLC's Daniel Loeb. This represents a substantial amount of outstanding shares that would nearly guarantee a successful acquisition.

Meanwhile, Google is continuing is smear campaign against the merger. Larry Page came out saying that the combination would harm innovation by giving the combined company too much control over web communications. All of this complaining may pique the interest of anti-trust judges that are already on shaky grounds with Microsoft after their battle back in the late 90s and early new millennium.

In the end, the Microsoft buyout represents a huge premium for Yahoo shareholders that could take years to realize as an independent company. As a result, Carl Icahn and many others are pushing towards a sale. Whether or not Jerry Yang can successfully convince the rest that independence is the best route remains to be seen. But this stock is definitely one worth watching over the next few months!

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The soaring price of oil may be hitting the airline industry hard, but some airlines are starting to take actions that they may regret. American Airlines (NYSE: AMR) is one such airline that recently decided to start charging $15 for the FIRST check-in bag and eliminate about 12 percent of its flights by the end of the year. These moves put American at the forefront of a growing tide of resentment by customers.

Most U.S. carriers are already charging customers $25 for their second checked bag, breaking a longstanding policy of allowing two checked bags for free. Meanwhile, six airlines are raising the cost of checking a third bag to a whopping $100! These fees come at a time when airlines are still facing a growing number of lost baggage (note: there are no refunds of your fee for lost baggage either).

Southwest remains the only major U.S.carrier to allow travelers to continue to check two pieces of luggage without charge. Previously, these customers have been able to check three, but now the airline has begun to charge $25 for the third piece of luggage. Ironically, Southwest is also one of the few airlines that (at least for now) remains profitable.

In the end, soaring jet fuel prices in the United States have made it extremely expensive for airlines to operate. However, taking measures to alienate customers may not be the best way to recoup costs. Rather, simple increases in fare prices to those by other airlines may be the best option.

Shares of AMR Corporation jumped more than 10% on the news today as investors are hoping that the move will provide a short-term turnaround.

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In a slight break from news about Microsoft Corporation (NASDAQ: MSFT) and Yahoo! Inc. (NASDAQ: YHOO) possibly merging, Microsoft has announced it is going to try, at least for now, an angle to get at Google Inc.'s (NASDAQ: GOOG) search dominance other than simply trying to buy a company that can't compete with Google on its own (meaning Yahoo).

According to WSJ, Microsoft is preparing to launch “Live Search cash back” - a service where consumers would literally get cash for using Live.com's internet search. Though the information was leaked through an unnamed source with little detail, presumably the plan is to leverage Microsoft's pile o' cash to effectively bribe search users into choosing its (arguably but probably... or definitely if one believes the markets have spoken) inferior search engine... sign me up!

The mechanics of the offer would involve search users getting cash-back on purchases of items found via Live.com, a modified version of customers getting cash-back on credit card purchases. Some analysts seem happy with the idea only because it is a fresh angle to challenge Google's dominance – and anything seems better than nothing... or does it?

This may be a fresh angle on drawing search users, but hasn't this been Microsoft's strategy in various markets for years? Netscape is the dominant browser – release Internet Explorer for free because we have tons of operating system and office suite cash, who cares about making money! PlayStation is the dominant video game console - dump huge sums into Xbox development and sell the unit at a loss to muscle our way into the market, we have billions in cash! Search the internet... what a novel idea, let's start MSN.com and Live.com late in the game (and base them on inferior technology) and bleed money forever until we can compete (Microsoft's search divisions lost money last quarter, just imagine how much money it can lose now! Yeah!).

Throwing money at problems is a perfectly good strategy, so long as it is a long-term strategy and not a desperate move for attention and a few new users at uneconomical prices.

Time Warner Inc. (NYSE: TWX) announced that it would spin-off its majority stake in Time Warner Cable Inc. (NYSE: TWC) in a $9.25 billion deal. The widely anticipated transaction comes as Time Warner is attempting to lean down to improve its efficiency and focus on its core businesses. Meanwhile, a separate cable entity may very well attract potential investors or even suitors in the near future.

The deal will involve Time Warner exchanging its 12.4 percent interest in TW NY Cable Holdings Inc., a Time Warner Cable subsidiary, for 80 million newly issued shares of Time Warner Cable's Class A stock. This will increase its ownership to 85.2% from 84%. Time Warner Cable will then issue a $10.9 billion dividend to shareholders, of which Time Warner will receive $9.25 billion.

"After the transaction, each company will have greater strategic, financial and operational flexibility and will be better positioned to compete," says Jeff Bewkes, chief executive of Time Warner. "Separating the two companies will help their management teams focus on realizing the full potential of the respective businesses and will provide investors with greater choice in how they own this portfolio of assets."

The widely anticipated transaction is slated to close in the fourth quarter.

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From the desk of Thom Buschman:

Maybe I shouldn’t be saying this as a financial writer that needs business news as well as people caring about business news – but every time I see a Microsoft Corp. (NASDAQ: MSFT)/ Yahoo! Inc. (NASDAQ: YHOO) / Carl Icahn (if he had a ticker it would be PROXY) story I want to throw-up.

Yes, I know that Microsoft is an important company (after all, I am typing this article on a laptop running Windows, though in the interest of full disclosure my desktop runs Linux) – it has a market capitalization of $275 billion thanks to its stronghold on the desktop environment and office suites, while maintaining impressive footholds in the video game console market and internet search (speaking of internet search, yes Microsoft is getting clobbered by Google Inc. (NASDAQ: GOOG) and has long been an also ran at third place by market share – but third place is still third place, and we are talking about searching the bloody internet, not third place in home blender sales).

I also know the interesting synergies/hopes to actually compete effectively in the internet sector’ raised by Microsoft combining with Yahoo (which is also getting clobbered by Google, the difference is that Yahoo doesn’t have an operating system or other software to fall-back on).

What annoys me to no end in the coverage of this strange dance – which seemed dead until every Bloomberg/WSJ/MSN Money/CNNMoney/MarketWatch reporter’s wet dream came true and billionaire trouble-maker Carl Icahn got involved and injected new life into the story (I mean deal… well, actually I mean story) – is the endless repetitive coverage and analysis of events from every angle and non-angle.

A simple search of Google News (which, incidentally, shows how Microsoft and Yahoo are getting clobbered by Google in search) lists 2,524 recent news articles on the possibility of a deal – everything ranging from the shareholder pressure, the likelihood of the recent pact turning into a full-blown merger, to Icahn’s trackrecord, to Microsoft CEO Steve Ballmer’s trackrecord, to the always slightly annoying (even if true – and yes I recognize the irony of me calling this annoying even though I have done it repeatedly in this article) reminders that Google makes a Microsoft/Yahoo combination irrelevant, to Google’s glee at the lack of success/distraction so far.

Every reporter needs to take a breath and stop reporting on the ‘maybe merger’ until an actual merger occurs (which it probably will) – and then they can begin the endless process of analyzing the terms of the deal, the synergies, the challenges ahead, Google’s response/dominance, Icahn’s reaction, Ballmer’s negotiating style, Yahoo CEO Jerry Wang’s legacy, and the new interior decorating of Yahoo’s former headqauarters, to name just a few stories.

Pacific Ethanol Inc. (NDAQ: PEIX) shares more than doubled over the past two days after releasing an extremely bullish earnings report. Analysts had predicted that the company would lose about 9 cents per share, but after a 96 cent noncash charge it actually made 6 cents per share. Obviously, these results surprised shareholders and caused the sharp rise we've seen over the last two days.

Pacific Ethanol producers and sells ethanol and its co-products and provides transportation, storage, and delivery of ethanol through third party service providers in the western United States. Many of the company's customers are integrated oil companies and gasoline marketers who blend ethanol into gasoline. It also supplies ethanol to its customers through its own facilities or with ethanol produced in bulk form other producers.

The ethanol industry has exploded recently as the government continues to incentivize the usage of ethanol in gasoline. The idea is to eventually reduce dependence on foreign oil by using a greater amount of alternative biofuels. However, the move has also drawn sharp criticism as food prices have risen sharply with no slowdown in oil prices. The reality is that this move is a result of the dollar decline and not ethanol.

Among the highlights for the quarter was a 63% increase in net sales, a 58% increase in gallons sold, reduced SG&A as a percentage of net sales, 159% EBITDA growth, and the startup of its Burley, Idaho plant. The company also announced that it was able to partially offset the rise in corn prices through a $2.2 million gain in derivatives trading. However, its gross margin still declined to 9.7% from 15.4% during the same period last quarter.

In the end, the results handily beat shareholder expectations and sent shares far higher on the week.

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Lowe's Companies, Inc. (NYSE: LOW) shares moved sharply lower after the home improvement retailer announced lower profits on a dip in sales. The company said its first quarter profits fell 18% and it forecasts more declines amid a continued slump that has significantly slowed consumer spending.

The Home Depot (NYSE: HD) also fell sharply on the news as they also announced that they expect a fall in profits as the housing slump continues. However, improvements in international operations for the company, particularly in Mexico, may help absorb some of the impact.

The earnings numbers are bad news for the home building industry that many were hoping would begin to show signs of a recovery. Sales of previously-owned homes, which is about 85% of the housing market, dropped in march for the seventh time in eight months. These are homes that typically trigger home-improvement spending.

The housing market itself continues to suffer from the effects of foreclosures. Tighter consumer spending and lower valuations have led to a spike in foreclosures. Unfortunately, these foreclosures end up lowering the value of surrounding properties in a vicious cycle.

Government aid has been relatively ineffective to date as it tries to bailout homeowners by encouraging lenders to renegotiate mortgages. Many of these homeowners are paying mortgages that are far higher than the value of their home warrants. As a result, they are not necessarily adverse to having their home go into foreclosure.

In the end, it could be awhile before the housing crisis is sorted out and home building companies like Home Depot and Lowe's can return to sustained growth. Investors should keep a close eye on economic numbers for any hints of a turnaround...

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Abercrombie and Fitch Co. (NYSE: ANF) shares jumped in early trading before settling down to its opening levels after the company released missed estimates. The high-end clothing manufacturer may not have hit targets, but it did show improved top and bottom line performance during its first quarter. The conflicted data ended up evening out the stock today.

Abercrombie said it earned $62.1 million, or 69 cents per share, in the first quarter. This was on a three percent increase in same-store sales but a drop in receipts for all other company nameplates. The company said that it plans to trim its expansion plans domestically in order to cut costs during the down economy.

Currently, Abercrombie runs 353 flagship stores and 687 others under various nameplates. It expects to open up 104 new stores as a result of its planned expansion. Currently, its revenues stand at $3.75 billion with $475.7 million in profits. The company is hoping that European operations next year along with new stores in the UK will boost sales and increase profitability.

Shares of Abercrombie & Fitch Co. rose $0.06, or 0.08%, on the earnings news.

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CNET Networks, Inc. (NDAQ: CNET) owns perhaps the most valuable, but underutilized, domain portfolio in the world. CBS Corporation (NYSE: CBS) acquired it at a steep discount today, paying only $1.8 billion for the struggling technology company. The acquisition extend CBS's internet presence and gives it access to some of the most valuable entertainment and news domains in the world - including News.com and TV.com.

"When you can combine the entertainment assets, the news assets, the platforms that are available with technology, the cross advertising opportunities, it just gives us great scale," CBS Chief Executive Leslie Moonves said on a conference call.

The $1.8 billion deal, announced this morning, values CNET at $11.50 per share and represents a 45% premium over yesterday's close. The technology company posted $406 million in revenues for 2007, which means CBS paid about 4.4x revenues for the acquisition. However, the domain portfolio contains the majority of the value. Domains like Cool.com have attracted offers of upwards of $38 million, which means domains like News.com may be worth substantially more.

The acquisition would also help boost CBS's earnings and expects its combined internet unit to reach $1 billion in revenue by 2010 or 2011. Obviously, the cross-advertising between television and internet would be a huge driver of traffic to the newly acquired domains. The move may have surprised many, but it looks to many like a great play at just the right time!

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Wal-Mart Stores (NYSE: WMT) scared Wall Street Tuesday with its cautious predictions for the second quarter, but what is bad for everyone else just might be good for Wal-Mart. This certainly seems to have been true with first quarter results – Wal-Mart had strong sales as a tough economic environment drove consumers on a budget to the company's low-priced megastores.

Though there is justified debate about how far this logic can hold true: at a certain point, consumers are so strapped for cash that their spending on non-essential items will slow to a point that it outbalances the increased purchase of necessities at Wal-Mart. But, despite the doom and gloom on the evening news, it appears that Americans are nowhere near ready to curb their spending or their debt.

For instance, Wal-Mart actually had exceptionally strong consumer electronic sales for the first three months of the year. If anything has changed from then, it is the perception and price of gas. A gallon of gasoline has edged towards or passed $4.00 a gallon, and this symbolic shift may cause consumers to finally put their money where their mouth is by actually controlling spending habits.

If this happens, it will indeed be bad news for Wal-Mart. In the meantime, it seems as if the economy has not changed what people buy but just where they buy it... which is very good news for Wal-Mart.

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New York cable company Cablevision Systems Corp. (NYSE: CVC) beat an offer from Rupert Murdoch’s News Corp. (NYSE: NWS) to buy the newspaper Newsday from Tribune Co. – in a deal that has Cablevision almost certainly overpaying.

Tribune will get $612 million in exchange for Cablevision acquiring a 97% stake in Newsday plus an additional $18 million in prepaid rent. Tribune will keep a remaining 3% stake in Newsday worth $20 million. The deal values the newspaper at $632 million minus the value of the rent included in the deal.

Newsday had a circulation of 379,613 in the six months through March 31 – nearly 5% less than a year earlier, though the newspaper still had EBITDA of $80 million last year.

Cablevision hopes to use Newsday to increase its ability to advertise in the greater New York City area. Tribune is happy to sell because the company carries $13 billion in debt on the books.

The real question is if Murdoch walked away from the deal last week at $580 million because the economics no longer made sense, what makes Cablevision think they can make the deal work at a higher price tag - $50 million higher?

In the statement announcing the deal, Cablevision said it will generate substantial cash flow from the deal as they leverage Newsday for more local ads and subscriptions – Cablevision shareholders better hope such promises come true.

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Circuit City (NYSE: CC) is taking the first steps towards a potential $1 billion merger bid with Blockbuster (NYSE: BBI) by allowing the video rental chain to conduct due diligence. The electronics retailer also received a letter from activist investor Carl Icahn saying that he is prepared to buy the company if Blockbuster cannot secure its own financing on its own or get shareholder approval. The move sent shares more than 5% higher on the day.

This news is music to the ears of Circuit City shareholders. Blockbuster pledged to purchase the company for no less than $6 per share, subject to due diligence. The fact that a standby offer is now in place by Carl Icahn makes a $5+ bid nearly certain. Speculations are now waiting to hear the results of the due diligence. If no problems are found, shares could rally significantly higher to the $6 per share minimum offer.

Blockbuster's move to acquire Circuit City comes amid a continued turmoil in the movie rental business. Competitor Movie Gallery recently filed for Chapter 11 bankruptcy amid increasing competition from video-on-demand and mail-order services like NetFlix (NDAQ: NFLX). Meanwhile, movie piracy continues to rise at a shocking rate and further eat into margins. Blockbuster is hoping that this diversification into electronics would change things.

In the end, it appears that a deal is relatively certain now given the due diligence agreement and Carl Icahn's standby offer. The price of the deal remains at the top of the list of concerns for shareholders, but this won't be determined until due diligence is completed successfully. Combined, these factors make CC a stock worth watching closely!

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Citigroup Inc. (NYSE: C) CEO Vikram Pandit made the long overdue announcement that he wants to make the bank “fit” by trimming $400 billion in assets. Currently, Citi reigns as the world's largest bank by assets with more than $2.1 trillion on the books compared to Bank of America Corp.'s (NYSE: BAC) $1.74 trillion.

With Citi's shares losing more than half their value over the past year, it is about time that management starts paying attention to who's biggest by market capitalization – not assets on the books. With a market capitalization of about $123 billion, Citi is dwarfed by both Bank of America, at more than $164 billion, and J.P. Morgan Chase (NYSE: JPM), at nearly $158 billion.

In all fairness, current CEO Pandit isn't to blame for Citi's bloated state. When he took over this last December, he inherited the boneheaded legacies of CEOs Sanford Weill and Charles Prince. Pandit has already begun cutting the fat by getting rid of CitiCapital and its $13 billion in assets, selling office buildings, and unloading more than $12 billion of leveraged loans.

Despite these efforts, the total assets sold so far amount to not even $30 billion – to get to $400 billion, he has a long way to go.

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After pulling its offer to purchase Yahoo! Inc. (NASDAQ: YHOO), Microsoft Corporation (NASDAQ: MSFT) not only finds itself with about $40 billion in previously tied-up funds but also needs a new strategy to have a better online presence.

Well, according to the Wall Street Journal, that new strategy might just be purchasing an even hotter Internet property, Facebook. Though neither Facebook nor Microsoft have officially commented on the rumor, the WSJ reported that Microsoft bankers have sent subtle message to see if Facebook would be open to an outright acquisition.

Microsoft already has a small interest in Facebook, purchasing less than 2% of the company last October for a staggering $240 million. Using these multiples, Facebook would be worth at least $15 billion.

Facebook is considered one of the most valuable destinations on the Internet for not only its user growth rates but the time each user spends on the site. With social network, chat, photo sharing and games, Facebook's 70 million active users are incredibly loyal.

Facebook founder Mark Zuckerberg, already one of the youngest self-made billionaires in history according to Forbes, has proven himself a very savvy player – refusing to sell the company in the early stages in favor of building it organically first.

At all of 23 years-old, however, a multi-billion dollar payday might just persuade Zuckerberg to sell.

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Berkshire Hathaway, Inc.'s (NYSE: BRK.A) famous leader Warren Buffett and his second-in-command Charlie Munger spoke at length to reporters this last weekend at the the company's annual shareholder meeting, below are some of the highlights as reported by Money Magazine's Jason Zweig:

In response to a question from Barbara Kiviat of Time on how he and Munger control their emotions, Buffett replied: "[It] comes about from having an investment philosophy grounded in the idea that a stock is a piece of a business. If you look at it that way, there's no reason to get excited whether some analyst is recommending it or the company is splitting the shares two-for-one, or whatever. The only way to drive the extraneous thoughts out of your mind is to have a philosophy. And for us that philosophy comes from Benjamin Graham and The Intelligent Investor, especially chapters 8 and 20. It's not very complicated stuff."

"You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently...It doesn't make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business," he opined.

"You should be able to write down on a yellow sheet of paper, 'I'm buying General Motors at $22, and GM has [566] million shares for a total market value of $13 billion, and GM is worth a lot more than $13 billion because _______________." And if you can't finish that sentence, then you don't buy the stock. [Note: Buffett mentioned GM for illustrative purposes only.] All this requires some temperamental detachment from other people's behavior. Both Charlie and I have a natural instinct in that direction. We value our opinions more than others' -- perhaps to an extreme!"

Kiviat followed up by asking whether they mind being regarded as "a bastion of calm" by others. Buffett simply stated, "I think they're probably right," while Munger was more loquacious: "Not only are they right, but it's a huge advantage to us to get the reputation of being wiser and stronger than other places. Would any of you object to being considered wiser and stronger when you're trying to get anything in life? The key is not to be seduced by crazy ideas, but instead just stick to the fundamentals year after year. Academia doesn't get too interested in us -- we're too simple. What would the professors do? A great many of the formulas [they use to analyze securities and markets] are dead wrong. They exist purely to give the intellectual class something to do. We don't do anything just exercise our intellectual proclivity for mathematical formulas."

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After trying for months to complete a much publicized merger, Microsoft Corporation (NASDAQ: MSFT) officially dropped its bid for Yahoo! Inc. (NASDAQ: YHOO), for now at least. Microsoft released the full text of CEO Steve Ballmer's letter to Yahoo CEO Jerry Yang announcing its decision:

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089


Dear Jerry:


After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:    

First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.    

In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.    

This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

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For a few weeks, Ford Motor Co. (NYSE: F) seemed to be on a roll. First, it was announced that a study found new Ford vehicles in a statistical tie with Honda Motor Co. (NYSE: HMC) vehicles for best in initial quality.

Then, Ford announced a shocking first quarter profit of $100 million compared to a loss of $282 million for the same period last year. CEO Alan Mulally’s turnaround plan for the company - heavy cost reductions, such as cutting expensive North American jobs, combined with new vehicle models - was hailed as a success by many, including billionaire Kirk Kerkorian who announced he had amassed a 4.7% stake in the company.

The sum of these announcements led to a very good two weeks for Ford stock, but many investors seemed to be forgetting the harsh big picture: in a slowing economy with record-high fuel price, Ford continues to rely on expensive trucks and SUVs for its profits. Not only that, but the economical models it does have are still considered far inferior in long-term quality to Japanese automakers' Honda and Toyota Motor Corp. (NYSE: TM), which contributes to the continued erosion of Ford's U.S. market share.

Well, Thursday Ford share got a dose of reality when it was announced that light truck sales fell 18.1% in April compared to last year. Unfortunately for Ford, there is no reason to predict this trend ending any time soon.

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Morningstar, Inc. (NDAQ: MORN) shares surged higher after the company announced a sharp increase in first quarter profits. The investment research firm reported a 32 percent jump in profits, which beat analyst expectations by a wide margin. Net income increased to $23.1 million, or 47 cents per share, on revenues of $125.4 million. At least one analyst also raised its price target for the stock to $72 per share, which represents a 21% premium.

"We’re pleased with our results during the quarter,” said Joe Mansueto, chairman and chief executive officer of Morningstar. "We continued to generate healthy organic revenue growth, driven by strong gains in both Investment Consulting and Licensed Data. Assets under advisement for Investment Consulting grew 36% compared with the first quarter of 2007.

"We faced a headwind as the market declined, though, resulting in slightly lower asset levels in the first quarter of 2008 compared with the fourth quarter of 2007. We’ve also seen signs of belt-tightening among some of our clients, but it has not been widespread.

“Our operating margin increased by about 2 percentage points compared with the first quarter of 2007, and we continue to see opportunities across all segments of our business. We have a strong balance sheet and ended the quarter with more than $215 million in cash and investments and no debt, after paying annual bonuses and completing our acquisition of Hemscott’s data, media, and investor relations Web site businesses.

"With the addition of Hemscott, we’re creating a world-class global equity database and expanding our international operations. We’ve moved quickly to integrate Hemscott’s sizable data processing center in India into Morningstar, which is already benefiting our operations. The fund data business we acquired from S&P last year also contributed to revenue growth during the quarter. As a result of these acquisitions, as well as continued organic growth, our international operations now account for about one-fourth of our revenue."

Morningstar is a provider of independent investment research to investors worldwide. The company offers a line of Internet, software and print-based products for individual investors, financial advisors and institutional clients. It also provides asset management services for advisors, institutions and retirement plan participants.

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Exxon Mobile Corporation (NYSE: XOM) may have reported near-record earnings yet again, but huge numbers aren't good enough when expectations are high. The oil giant reported near-record profits of $10.89 billion on revenues of $116.8 billion, but shares dropped more than four percent before recovering slightly on the day. Many investors remain bullish on the energy markets, but this short-term blip has certainly sent a shockwave.

The big problem was with crude inventories that came in much higher than expected. This is bad news for oil producers like Exxon Mobile since a higher supplier typically means a lower price assuming that demand remains consistent. Meanwhile, a Nigerian strike that has kept oil prices at a high is coming closer to a resolution. This should help boost Exxon's oil output, but will likely lead to even higher crude supply.

The dollar also rallied today after bullish comments emerged from the Federal Reserve meeting that took place yesterday. Since oil is a dollar-priced commodity, the move had an adverse affect on crude prices. After all, an increase in purchasing power for the dollar means that more oil can be bought for the same dollar price. This means that the price of oil must drop in order to remain in equilibrium with the dollar's value.

In the end, these three factors combined with supply problems for Exxon Mobile led to a decline not only in this oil giant but also many other players in the sector. While this may only be a short-term blip, investors should be wary of an improving dollar and supply issues going forward. After all, the sharp rise in oil prices is only due to a small number of factors that could quickly change and slow down the dramatic growth!

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Amkor Technology, Inc. (NDAQ: AMKR) added more than 20% to its shares midday Thursday after releasing impressive first quarter results. The Arizona-based semiconductor assembly company had net income more than double to $72 million, or 36 cents per share, from $34.6 million, or 18 cents per share, a year earlier.

These results handily beat Wall Street earning expectations of 26 cents per share - though Amkor sales missed expectations by about $1 million, coming in at $699.5 million. The strong earnings were a result of increased wireless sales and favorably currency exchange rates.

“We exceeded our sales and profitability targets for the first quarter due to select customer demand in certain wireless communications and networking applications, which partially offset the overall seasonal slowing that we had expected. Our first quarter net income included an approximately $9.5 million foreign currency gain principally due to the depreciation of the Korean won and the resulting remeasurement of our Korean employee benefit plan liability," sand CEO and Chairman James Kim.

The company also made strides by repaying over $100 million of debt in the first quarter - though the company still carries more than $1.6 billion of debt, this and previous pay-downs lowered interest expenses by 21% from a year earlier. Amkor expects net income for the second quarter of the year to be 32 cents to 36 cents per share.

Even with Thursday's gains, Amkor shares are significantly lower than their 52 week high of over $16 per share. As of publication, shares were up 21.62% to $11.61 per share.

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