Trader Talk

Is Buffett's Big Move Big Enough?

While the Burlington Northern deal is getting a lot of attention, it has not brought pre-open trading in the S&P futures into positive territory yet.

Risk aversion has become a more prominent theme since last Wednesday, when the S&P 500 dropped below its 50-day moving average for the first time since July.

European markets trading down about 2 percent. European banks are down across the board, especially after Swiss giant UBS posted disappointing results; it's trading down about 6 percent.

Swiss banks are likely to continue to see outflows as Americans and Europeans continue to withdraw money on concerns that the tax row with the U.S. will spread to disputes with other European countries.

More bailout money from the UK government for RBS and Lloyds. RBS will get an additional 25.5 billion pounds, on top of of the 20 billion pounds it already has received. RBS is now close to being completely controlled by the UK government, as it now owns about 84 percent of the company.

Lloyds is launching a $22 billion rights offering, which the government will partly fund.


1) Warren Buffett's Berkshire Hathaway will buy the 70 percent of Burlington Northern it does not already own for $100 a share, a 31 percent premium, in a $34 billion deal in cash (60 percent) and stocks (40 percent). Berkshire's Class B shares will split 50-1.

Railroads trading up in mid-single digits include Union Pacific, CSX, Norfolk Southern, and Canadian Pacific.

2) the other buyout deal is being overshadowed by Buffett. After the close, Stanley Works announced they would acquire Black and Decker in a stock-swap deal. Black and Decker shareholders will get 1.275 shares of Stanley Works for each Black and Decker share ($57.27) a roughly 22 percent premium.

This combines two leading brands in hand and power tools, which should give them significantly leverage with customers. Despite similar businesses, there is less overlap than may appear: SWK is big in hand tools, while BDK is big in power tools and security hardware. Bottom line: greater scale and more efficient operations through reduction in corporate overhead.

3) Healthcare giant Johnson & Johnson announced it would cut about 6 percent to 7 percent of its workforce. The Dow component said it would lay off around 7,000 to 8,000 employees which would achieve $1.4 billion to $1.7 billion in cost savings in 2011.

2009 earnings guidance was reaffirmed, inline with current Street estimates ($4.54-$4.59 vs. $4.58 est.).

4) MasterCard is up 1 percent after its Q3 earnings beat expectations ($3.48 vs. $2.94 est.) as continued cost cuts helped. Overall transaction volumes remained strong, growing 7.6 percent, thanks to strength out of Asia/Pacific/Middle East/Africa and Latin America regions. Global dollar volumes remained fairly flat however.

5) Archer Daniels Midland reported better-than-expected earnings ($0.77 vs. $0.57 est.) but saw revenues fall drastically short of expectations ($14.9 billion vs. $17.9 billion est.) amid price declines for its seeds. While the firm continued to see weak demand and lower volumes across many of its segments, CEO Patricia Woertz noted she began to see demand "improving in some key markets."

6) The U.S. semiconductor sector was downgraded to "cautious" by Morgan Stanley on fears that inventories may be "creeping up." Dow component Intel and Micron Technology were also cut to "equal-weight" from "overweight."



Questions?  Comments?