It's been a turbulent and fast-paced business week. Most notably, the Arab world's most populous country is in a political upheaval that has markets reeling. Closer to home, a mainstay U.S. retailer announced significant restructuring plans. There were several large initial public offerings (IPOs) for investors to consider, a shocking lawsuit involving mystery-meat allegations and the NYSE issued an illegal-gambling reprimand.
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Protesters Seek to Unseat Egyptian President
Protesters in Egypt have organized a strong effort to unseat current Egyptian President, Hosni Mubarak. Protesters have numerous grievances and allegations, including human rights violations and rigged elections. Internet and social media have been cutoff at times during the conflict and a 6pm to 7am curfew has been implemented in a few major cities. With the Egyptian market closed since the protest began, investors are looking to pullback from the conflict in other areas. The Dubai Financial Market's benchmark index fell 4.3% to open trading this week, and Emaar Properties, the Dubai real estate developer who built the world's tallest building, saw its shares fall 8.3 percent. With Egypt being in the heart of Middle-East oil production and transportation, many oil companies took losses, including Emirati natural gas producer Dana Gas (down 9.9%). The price at the pumps hasn't risen yet, but analysts suspect that a long-term conflict will mean a big boost in gas prices. (For more, see How Does Crude Oil Affect Gas Prices?)
JCPenney Trims Operations and Adds Ackman
Have you ever eaten so much that the weight gain scared you into starting a diet and joining a gym? That may resemble the case for JCPenney. In 2009, the retailer announced it was bucking the recession and opening 17 new stores, only to realize in 2011 that it had gotten too big to be attractive to investors. This realization resulted in JCPenney closing six unprofitable stores, phasing out catalog and outlet businesses and trimming the call center operations and decorating business. The retailer also played the poison pill to block investors from purchasing more than 10% of the remaining stock. In the same announcement, JCPenney named investor Bill Ackman to its board. Ackman, who owns 16.5% of JCPenney stock through his Pershing Square Capital Management Fund, is known for his winning record in shaking up companies, and he seems to have investors on board.
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Private Equity IPOs
Lately, Wall Street has had an influx of IPOs from companies backed by private equity. PE IPOs have a history of creating high returns, so these latest public offerings are worth watching:
Neilson Holdings NV – The company famous for tracking the ratings for what we watch and buy opened on the market at $24.75 per share, up 7.6% from its IPO price of $23. Neilson generates $4 to $5 billion in revenue per year, but its growth is near-stagnate. Longstanding relationships with Coca-Cola (NYSE:KO), Nestle and Proctor and Gamble (NYSE:PG), combined with 70% of annual revenue coming from committed contracts, give Neilson, and investors, some stability.
Demand Media Inc. – This popular how-to content company, which generates most of its revenue from online advertising and domain registration sales, opened on the NYSE at $23.50 per share – up 38% from its $17 IPO price. The huge price gain comes as a surprise, given that Google (Nasdaq:GOOG) just announced measures to reduce the effectiveness of sites that are designed to get hits from key-word searches, such as Demand's eHow.com.
LinkedIn – This business-social media company (AKA Facebook for professionals) is joining the growing list of tech companies that are going public. Although all the figures haven't been disclosed, LinkedIn's IPO is expected to value the company at $2 billion dollars. Patience will be a must for prospecting investors, though, as the company revealed it doesn't expect to be profitable next year by U.S. GAAP standards.
Taco Bell Gets Rung For Selling "Barely Beef"
Yum Brands Inc.'s (NYSE:YUM) Taco Bell had the integrity of its meat put into question last week, as a false-advertising lawsuit alleged the fast-food chain's filling doesn't contain enough beef to be classified as such. The suit was filed by a California woman, Amanda Obney. Obney wants to see Taco Bell start a "corrective advertising campaign," cease referring to its product as ground beef and pay for any legal costs from the suit. Taco Bell is fighting back, taking out full-page ads in major U.S. papers, saying "Thank you for suing us. Here's the truth about our seasoned beef." Taco Bell promises to file a counter-suit against the plaintiffs. It seems much of this story is being overblown, as the substances in the filling that were identified as "not meat" are mostly binding agents and flavorings, such as oats and spices.
NYSE Crackdown on Illegal Gambling
It's too early for April Fools', so we'll assume the NYSE wasn't kidding when it sent a notice to remind its members that gambling is prohibited on the trading floor and is "a criminal offense in New York." I'm not suggesting that the exchange should tolerate brokers taking over/unders on the nature of Steve Job's illness, but in a world where the economy is predicted by men's underwear sales and stocks prices are often tied to unproven rumors, even the Pinball Wizard could find the irony in this memo. (For more, check out Going All-In: Comparing Investing & Gambling.)
The Bottom Line
Last week's major stories are only starting to unfold. The outcome of the protests in Egypt will affect the entire world, as smooth (i.e. less costly) production and transfer of oil from the Middle East is tied to peace in the region. And while JCPenney and the newest IPOs are being well received by investors, time will tell whether these companies can thrive under their new business structures. Sadly, time may never tell if Taco Bell's filling contains enough beef to carry the official meat moniker, but it may be wise to heed the NYSE's warning and not bet on it.