S&P Cuts ABN AMRO to Sell

Plus: Analyst opinions on Nortel Networks, Take-Two Interactive, and more


Downgrades ADRs to 2 STARS (sell) from 3 STARS (hold)

Analyst: Erik Oja

Barclays (BCS) said this morning that it will have a comment to make tomorrow, following a weekend of unconfirmed reports (Sunday Times of March 18, and Financial Times of March 19) that it had made a tentative merger approach to ABN. Our initial reaction is that Barclays is not ideally placed to acquire ABN. The company, with a relatively weak profitability in its domestic retail business, has also struggled to find appropriate scale in the global wholesale business, and suffers comparatively weak margins. We are keeping our 12-month target price at $31, and await comment from Barclays.

Nortel Networks (NT)

Reiterates 2 STARS (sell)

Analyst: Ari Bensinger

Before special items, Nortel posts fourth-quarter EPS of 17 cents, vs. a loss of $5.26 per share one year earlier, in line with our estimate. Revenue rose 14%, aided by revenue recognition timing related to the LG Electronics joint venture. Nortel sees 2007 revenue flat-to-down, worse than our forecast of a 3% increase, in line with our thesis that heightening industry competition will hamper near-term sales growth. We think it will take time for Nortel to capture enterprise sales growth opportunites to offset its maturing carrier portfolio. We are lowering our 2007 EPS estimate to 42 cents from 67 cents, but keeping our target price at $24.

Take-Two Interactive (TTWO)

Reiterates 3 STARS (hold)

Analyst: Clyde Montevirgen

Shares are trading almost 6% higher this morning following Take-Two's announcement that it will postpone its annual shareholder meeting, scheduled for Mar. 23, to Mar. 29. In light of the intentions of a shareholder group that wants a new board of directors and CEO, the company notes that its board may offer alternative courses of action to shareholders, such as the selling of the company. We view its possible acquisition as potentially favorable, but we think the news is already built into the current share price.

Todco (THE)

Cuts to 3 STARS (hold) from 4 STARS (buy)

Analyst: Stewart Glickman

Shares are over 17% higher this morning after Todco agrees to be acquired by Hercules Offshore (HERO), subject to shareholder and regulatory approvals, in a transaction valued at about $2.3 billion. Under terms of the deal, each Todco share may be exchanged for $16 cash and 0.979 Hercules Offshore shares; $42, based on Friday's closing prices, which is a 28% premium to Todco's closing price. We are keeping our $40 12-month target price. With the shares approaching our target price, we would not add to positions.

Quanta Services (PWR)

Reiterates 3 STARS (hold)

Analyst: Christopher Lippincott

Quanta Services agrees to acquire InfraSource Services (IFS) in an all stock transaction. Subject to necessary approvals, Quanta Services will issue 1.223 shares per InfraSource Services share, valuing InfraSource Services at nearly $1.27 billion. We calculate the transaction should add approximately $1.18 billion to Quanta Services's '08 revenue, over $90 million to EBITDA and be $0.02 accretive. Our pre-closing 2007 and 2008 estimates remain $0.71 and $0.91. We reiterate our 12-month target price of $27, which assumes a 4% growth rate and a 12.6% weighted average cost of capital.

Bayer (BAY)

Maintains 5 STARS (strong buy)

Analyst: Sho Matsubara

Bayer posts 2006 earnings from continuing operations per ordinary share (one per ADS) of EUR 2.00 vs. 1.88, close to our EUR 2.04 estimate. Sales rose 17%, boosted by June purchase of Schering AG. The ongoing health care and chemical materials segments showed growth, but crop protection sales fell almost 5%. We see sales rising 17% in 2007 on a full year contribution from Schering and further materials volume growth. We now see 2007 earnings per ADS at $9.55, including gains from planned disposals, trimmed from our previous $9.75; we are keeping our 12-month target price at $69.

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