Frontrunning: February 19

  • Here comes the replay of 2011 as China starts the counter-reflation moves: China Central Bank Reverses Cash Pump (WSJ)
  • Security group suspects Chinese military is behind hacking attacks (Reuters)
  • Iceland Foreshadows Death of Currencies Lost in Crisis (BBG)
  • China Allows More Firms to Sell Mutual Funds to Bolster Market (BBG)
  • Uncertainty looms for Italians (FT)
  • Forget the big comeback; Detroit focuses on what can be saved (Reuters)
  • SAC’s Cohen May Face SEC Suit as Deposition Hurts Case (BBG)
  • Hollande wrestles with austerity demands (FT)
  • Obama Golf With Woods in Florida Risks Muddling Messsage (BBG)
  • Simpson and Bowles to Offer Up Deficit (WSJ)
  • Aso Says Japanese Government Not Planning Foreign Bond Buys (BBG) - ... until it changes its tune once more
  • Abe to Decide on Bank of Japan Governor Nomination Next Week (BBG)


Overnight Media Digest


* BP already has agreed to pay more than $30 billion in fines, settlements and cleanup costs for the 2010 Deepwater Horizon explosion and oil spill. Now it is placing a big bet that by going to trial next week, it can hold down the cost of one of its last major potential liabilities for the disaster.

* OfficeMax Inc and Office Depot Inc are in advanced talks to merge, people familiar with the matter said, as the retailers of pens, paper and desks try to fight off tougher competition from rivals like Staples Inc and Inc

* Reader's Digest Association and six affiliates filed for Chapter 11 protection late Sunday night, the publisher's second bankruptcy filing in three-and-a-half years and another example of the pressures on media companies still relying on their print publications.

* Google Inc has been developing plans to launch retail stores in the U.S., said people familiar with the matter, in another sign the company is studying Apple Inc playbook for building a consumer-electronics brand. The stores would likely sell Google-branded hardware, these people said. But it isn't clear when or where any stores would open, and one of the people said the Internet giant might not move forward with the plan this year.

* The heads of Macy's Inc and J.C. Penney Co Inc are set to clash this week in a New York state court in a rare public donnybrook between the department-store chains as they jockey over their partnerships with Martha Stewart Living Omnimedia Inc

* Inc said it had cut ties with a German security firm amid claims that its guards intimidated and harassed temporary immigrant workers that the guards were assigned to oversee for the Internet retailer.

* Arms sales by the world's largest weapons makers fell in 2011, representing the first decline since the mid-1990s as austerity measures and a reduced U.S. presence in Iraq and Afghanistan hit military spending.

* Protesters clashed with police at Madrid's international airport as ground staff and cabin crews for Spain's Iberia Lineas Aereas de Espana SA began 15 days of strikes to protest plans to lay off 3,800 staff.



Rosan Roselani's move to sell his stake in Bumi Plc has thrown Nat Rothschild's careful calculations into disarray and sharply reduced his chances of winning the battle for control of Bumi.

Private banking group Edmond de Rothschild is establishing a merchant banking business in London which is set to begin operations this spring.

Security guards at a mine operated by Anglo American Platinum fired rubber bullets to end a confrontation between union members during which 12 people were wounded. Inc fired a security firm in Germany that a television documentary linked to the country's far-right, in a move to curtail a growing public relations disaster over alleged mistreatment of foreign temporary workers.

Carlsberg gave out cautious guidance for this year and dropped its medium-term regional profit targets after sales growth in its key Russian market stalled.

APN News and Media's chief executive and chairman have stepped down after the company's two largest shareholders balked at plans for a deeply discounted rights issue to pay down debt.

Google could be sanctioned by European regulators before this summer unless it radically changes its controversial privacy policies.

Ireland could end up facing a raft of lawsuits and a possible constitutional challenge as a result of its decision to liquidate one of its failed banks under a deal to restructure 28 billion euros in bank debts.

Heathrow Airport's chief executive is open to shifting the airport westward to add runways without significantly increasing noise pollution.

David Cameron urged India to dismantle trade barriers in banking and insurance in return for Britain making it easier for Indian business leaders and students to come to the UK.

Investors calling for an independent inquiry into Vestas Wind Systems are accusing the company of using an accounting change to boost 2010 revenue and so avoiding the need for a profit warning.



* Criticized for letting Wall Street off the hook after the financial crisis, the U.S. Justice Department is building a new model for prosecuting big banks. In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.

* Office Depot Inc and OfficeMax Inc are in talks to combine in an all-stock deal that may be announced as soon as this week, a person briefed on the matter said. While talks are at an advanced stage, they may still fall apart, this person cautioned.

* Citing a Europe-wide recession, France's Socialist government is moving away from its promise to bring its budget deficit down to 3 percent of gross domestic product this year, arguing that the recession creates an exceptional circumstance requiring less austerity.

* Reader's Digest filed for bankruptcy in another effort to cut down the debt that has plagued the pocket-size publication for years. The company is hoping to convert about $465 million of its debt into equity held by its creditors.

* Drug maker Novartis AG plans to pay departing chairman Daniel Vasella $78 million to prevent him from sharing knowledge with competitors, adding fuel to an already heated debate about executive pay.

* Striking ground workers and flight attendants for Iberia, the money-losing Spanish airline, clashed with riot police officers at Madrid-Barajas Airport to protest a plan to eliminate more than 3,800 jobs.

* Pharmaceutical companies Roche Holding AG and GlaxoSmithKline are helping to develop tests for illicit use in order to keep their offerings from being abused by athletes.

* A growing body of digital evidence leaves little doubt that an overwhelming percentage of the attacks on American companies and government agencies start in a 12-story office building on the edge of Shanghai, China.




* The British Columbia Liberal government hired economist Tim O'Neill to spend a week reviewing the economic assumptions and revenue forecasts to help counter the eroded fiscal credibility. O'Neill's final report, which showed revenue assumptions were too optimistic, was released publicly on Monday.

* New Brunswick Premier David Alward travelled to Montreal Monday to try to convince Quebec Premier Pauline Marois that moving Alberta oil to the East Coast through Quebec would benefit all provinces. But Quebec Premier did not say if she was swayed by his arguments.

Reports in the business section:

* PMI Gold Corp and Keegan Resources Inc issued a joint statement saying they had mutually decided to abandon the plans to form a larger gold development company in Africa because it was unlikely that PMI's shareholders would approve the proposed transaction.


* After a winter of scandals, audits and unanswered questions, a new poll suggests that the vast majority of Canadians say they want to see the Senate either abolished completely or reformed - with momentum building up the most toward scrapping it.

Only 22 percent of Canadians say they are content with the Senate's status quo, while 78 per cent would rather see it reformed or abolished, according to an exclusive poll of 1,009 Canadians conducted by Ipsos Reid for Postmedia News and Global Television.

* Thousands of people on the East Coast lost power and school was cancelled in Nova Scotia and parts of New Brunswick after blasts of winter wind and wet snow swept through the region. Nova Scotia Power reported about 12,000 outages by 8 a.m. local time.


* Quebec's fledgling oil and gas sector will name an Alberta business executive to steer its lobby group - swapping the political connections of its former president for the plain-talking style of an outsider.

Sources say Questerre Energy Corp chief executive Michael Binnion has put his name forward to lead the Quebec Oil and Gas Association. He is expected to be named interim president of the group Tuesday for a yet-undetermined period of time.

* Bombardier's electric transit technology will be tested next winter on buses in Montreal, followed in early 2014 on an urban route used by passengers in the German city of Mannheim.

Quebec Premier Pauline Marois said such a move would reduce greenhouse gases and allow for the replacement of $30-million of crude oil that is imported daily, mostly for transportation.


Fly on the Wall 7:00 AM Market Snapshot



Atmel (ATML) upgraded to Buy from Hold at Needham
Best Buy (BBY) upgraded to Overweight from Equal Weight at Barclays
Charles River Labs (CRL) upgraded to Buy from Hold at Jefferies
Comstock Resources (CRK) upgraded to Outperform from Market Perform at BMO Capital
Cypress Semiconductor (CY) upgraded to Buy from Hold at Needham
Forum Energy (FET) upgraded to Outperform from Market Perform at FBR Capital
GNC Holdings (GNC) upgraded to Buy from Neutral at Goldman
Lufkin (LUFK) upgraded to Outperform from Market Perform at Wells Fargo
MGM Resorts (MGM) upgraded to Outperform from Sector Perform at RBC Capital
Realty Income (O) upgraded to Buy from Neutral at BofA/Merrill
PNM Resources (PNM) upgraded to Buy from Hold at Jefferies
Power-One (PWER) upgraded to Strong Buy from Outperform at Raymond James
The Fresh Market (TFM) upgraded to Buy from Neutral at Goldman
Xilinx (XLNX) upgraded to Buy from Neutral at BofA/Merrill


Cree (CREE) downgraded to Perform from Outperform at Oppenheimer
Gold Fields (GFI) downgraded to Sell from Neutral at Citigroup
Key Energy (KEG) downgraded to Market Perform from Outperform at Wells Fargo
LifePoint Hospitals (LPNT) downgraded to Hold from Buy at WallachBeth
Newpark Resources (NR) downgraded to Neutral from Buy at SunTrust
PPL Corp. (PPL) downgraded to Sector Perform from Outperform at RBC Capital
Trulia (TRLA) downgraded to Hold from Buy at Deutsche Bank
UBS (UBS) downgraded to Neutral from Outperform at Credit Suisse


Interpublic Group (IPG) coverage assumed with a Neutral at Piper Jaffray
LipoScience (LPDX) initiated with an Overweight at Barclays
LipoScience (LPDX) initiated with an Overweight at Piper Jaffray
MDC Partners (MDCA) coverage assumed with an Overweight at Piper Jaffray
Millennial Media (MM) coverage assumed with a Neutral at Piper Jaffray
Tile Shop (TTS) initiated with a Buy at Citigroup


Facebook (FB) said systems targeted in attack, no evidence of compromised user data
Siemens (SI) made EUR1.3B binding bid for Finmeccanica unit, Dow Jones reports
SEC sued unidentified traders over suspicious trading in Heinz (HNZ), Bloomberg reports.
SEC froze assets in Swiss account related to trading ahead of Heinz deal
General Mills (GIS) reaffirmed guidance for FY13
FY14 plans call for returning more cash to shareholders
VimpelCom (VIP), Microsoft (MSFT) and Nokia (NOK) in Windows phone deal
Orbitz Worldwide (OWW) exploring strategic alternatives for some/all of assets in Away Network
Allstate (ALL), United Airlines (UAL) announced agreement for MileagePlus awards
ALPA reached tentative agreement with US Airways (LCC) subsidiary
Cinemark (CNK) to sell Mexico subsidiaries to Cinemex
Atlas Pipeline Partners (APL) sees FY13 dividend distributions of $2.50-$2.60
Vodafone (VOD), BAE Systems (BAESY) formed security and mobile partnership
Novartis (NVS) announced FDA approval of Zortress
Danone (DANOY) confirmed plan to cut 900 jobs across 26 European countries


Companies that beat consensus earnings expectations last night and today include:
Bruker (BRKR), Cimarex Energy (XEC), Westlake Chemical (WLK), HealthSouth (HLS), Chemed (CHE), Express Scripts (ESRX)

Companies that missed consensus earnings expectations include:
Windstream (WIN), Fresh Del Monte (FDP), BioCryst (BCRX), CUI Global (CUI), Atlas Pipeline Partners (APL), America's Car-Mart (CRMT)


Boeing (BA) engineers are expected to finish voting today amid contract talks that are adding uncertainty for the company as it struggles with the grounding of its flagship 787 jetliner. A strike authorization wouldn't result in an immediate work stoppage, the Wall Street Journal reports
BP (BP) agreed to pay over $30B in fines, settlements and cleanup costs for the 2010 Deepwater Horizon explosion and oil spill. Now it is betting that by going to trial next week, it can hold down the cost of one of its last major potential liabilities for the disaster with Gulf Coast states, businesses, individuals and the federal government for environmental-related claims, the Wall Street Journal reports
Japan's government delayed nominating a Bank of Japan governor by a week, raising talk of friction between Prime Minister Shinzo Abe and the finance minister over who should run a central bank charged with taking bold action to reignite the economy, Reuters reports
Swiss authorities said today they haven’t been asked to help a U.S. investigation into alleged insider trading in call options of H.J. Heinz (HNZ) the day before the company announced it would be sold, even though a Zurich account is at the center of the matter, Reuters reports
Treasury 10-year yields stayed above 2% amid speculation minutes of the Fed’s latest policy meeting that are due tomorrow will provide more detail on the timing of a withdrawal of stimulus, Bloomberg reports
EU auto sales declined to the lowest level for a January, with Ford (F) and Peugeot (PEUGY) reporting the biggest drops, as economic contractions in the southern part of the region spread to Germany and France, Bloomberg reports


Buffett's (BRK.A) 9% preferred stock dividend leaves Heinz (HNZ) low on cash
LINN Energy (LINE) could be overvalued and risky
American Eagle (AEO) shares could rise 50% or more
Equinix (EQIX), Rackspace (RAX) look overpriced


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