This column by Doug Kass was originally published on Feb. 5 at 9 a.m. EST on Street Insight. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here .
Every few weeks, I recap 10 tidbits I've picked up from trading desks and other industry sources. These items have not been confirmed, but either have affected, or could affect, the stocks mentioned.
The first such column, in early January, proved prescient on several fronts. Here are this week's top 10.
Steve Jobs' problems regarding option grants run much deeper than is generally assumed. I am hearing that Jobs has personally hired a high-powered law firm in his own defense, and that the odds increasingly favor action by the
and the U.S. attorney's office.
As well, a recent regulatory filing by Apple filled with audacious statements ("The company intends to continue full cooperation ... the resolution of these matters will be time-consuming, expensive and will distract management from the conduct of the Company's business") has incensed the two aforementioned government bodies as well as certain members of Congress. I am also hearing that
CEO Eric Schmidt has already begun low-level discussions with several Apple board members regarding his role as a possible temporary replacement to Steve Jobs should the options-backdating issues intensify at legal levels.
Earlier this month, I heard (correctly) that the low-end cellular-phone market "has been jammed with inventory as demand erodes ... guidance will be lowered by the leading manufacturers as margins erode and average selling prices continue to fall."
have disappointed and guided down profit forecasts. Now I am hearing that the high-end market has weakened abruptly over the last three weeks, and more estimate revisions are in the offing.
In January, I also had heard that
would guide lower. Indeed, Dell missed, and Michael Dell has seized back operating control of the company from Kevin Rollins. I am now hearing that Dell -- in conjunction with
-- is working on a SideShow-enabled MP3 player that will sport media capabilities along with wireless connectivity and will offer almost unlimited types of data that the SideShow platform is capable of displaying.
I also am hearing that Microsoft is planning the introduction of a Zunephone by Christmas 2007. Designed to compete with the iPhone's midyear entry, the effort is being managed by J. Allard (one of the chief architects of the Xbox), who recently replaced Bryan Lee as the head of Zune's operations.
I continue to hear the subprime carnage is accelerating. Several of these firms are believed to be close to shutting their doors.
Deals I hear that are imminent include the combination of
XM Satellite Radio
(Update: XM and Sirius announced Feb. 19
an intent to merge
, subject to regulatory approval;
; and private-equity takeovers of the following:
While nary an analyst has mentioned this development, Nielsen/Net Ratings' reports for December 2006 reveal that Google's search business (+22.6% year over year) is growing more slowly than
For the full year, Google gained 560 million users (down from 1.06 billion the year before) and Yahoo! gained about 330 million users (down from 370 million users a year earlier). Although Google's search-share approaches 51% (compared with only 23.6% for Yahoo!), I am hearing this trend has not fallen on deaf ears as Google is planning some senior management changes in February, which will surprise investors and analysts.
Speaking of Google, both
and its parent company are now aggressively adopting strategies of paying for content (broadcasts, videos, etc.). I am hearing investors should look for alliances with consumer-created content companies (C4s) similar to the models of
, and watch for a progressive rise in Google's cost of goods -- both absolutely and as a percentage of revenue -- in coming quarters.
I am hearing that, at the urging of Prince Alwaleed bin Talal (
largest individual shareholder), former
Bank of America
CFO Al de Molina has already been contacted by members of Citigroup's board of directors regarding naming him as a possible replacement to Charles Prince. At the same time, I am hearing that
Jamie Dimon has informally approached Citigroup's Sallie Krawcheck for a senior position within his bank.
Finally, I am hearing that conversations regarding an alliance or merger between
, though dismissed publicly, have proceeded apace in 2007.
At time of publication, Kass and/or his funds were short the SPY, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."
Kass appreciates your feedback;
to send him an email.