Financial news in brief December 17 2008

Goldman Sachs is no longer rating AT&T’s stock as a ‘buy’, but has downgraded it to ‘neutral’ and cut the operator’s share price target from $33 to $3

Goldman Sachs is no longer rating AT&T’s stock as a ‘buy’, but has downgraded it to ‘neutral’ and cut the operator’s share price target from $33 to $30. The main reasons are negative pension impact and weak enterprise revenue. The company also lowered estimates for 2009 earnings for AT&T and Verizon Communications, and forecast that pension plans for both companies will be down 28% and 33%.

Georgia-based EMS Technologies is to acquire Formation for $40m, assisting in its entrance into the in-flight internet market. EMS, which already supplies hardware for in-flight connectivity services such as JetBlue’s LiveTV, said the acquisition is part of a series of buys to position the company in the mobile broadband and asset tracking markets. Formation makes rugged servers and cabin wireless access points. The US in-flight broadband space is beginning to heat up as Airgo’s air-to-ground service launches on airlines such as Virgin, Delta and American. Other airlines such as Southwest and Alaska are looking to provide satellite-based services.

Hard on the heels of a hostile bid for mobile security firm Certicom, RIM has put its hands in its pockets again, with plans to pay $18.9m for multimedia partner Chalk Media. The deal will involve RIM making a $1.87m loan to Chalk “to provide additional working capital to fund operations” until the completion of the deal, expected in February. Chalk, a member of the BlackBerry ISV Alliance Program, developed the Mobile Chalkboard software suite to allow organizations and enterprises to ‘pushcast’ specific audio or video presentations to employees’ BlackBerry devices.

Another UK start-up, fabless semiconductor company XMOS Semiconductor, is looking to raise $20m in 2009 in Series B financing to support its multicore programmable chips. The company raised $16m in a Series A round in September 2007, to help develop its software defined silicon multiprocessor architecture.

Texas Instruments expects its profit margin levels for analog chips to hold steady even as sales volumes decline, CEO Rich Templeton said. “The key difference is that you don’t have pricing moving down for analog chips compared with other chip segments,” he told investors in a webcast. TI has been defocusing on wireless basebands and concentrating on mobile apps processors, analog devices and other areas.

Verizon Wireless secured $17bn in loans to complete its acquisition of Alltel, which has passed regulatory hurdles, despite the credit crunch. When Verizon announced the deal in June, it pledged to take on $22.2bn of its projected net debt in addition to paying $5.9bn for Alltel’s equity. In March 2007 TPG Capital and the private equity arm of Goldman Sachs Group, GS Capital Partners, bought Alltel for $27.5bn.

India’s third largest mobile carrier, Reliance Communications (RCOM), is reportedly in talks to sell off as much as a 26% stake to a major foreign operator. According to India’s Economic Times, the talks concern a two-phased transaction, which would first see the investor picking up shares in the company from the secondary market, and then being issued fresh shares through the preferential allotment route. It is not known which telcos are involved in the reported talks, but France Telecom, Deutsche Telekom and Telecom Italia have all previously expressed interest in entering India, as has AT&T. An RCOM deal would mirror alliances with Indian operators by Telenor, UAE’s Etisalat and Japan’s NTT DoCoMo. RCOM is currently one of the few major operators in India without a foreign partner.

The proposed takeover of Canadian telecoms giant Bell Canada Enterprises has, as widely expected, collapsed 18 months after it was first agreed, having failed a solvency test. The would-be buyers, the Ontario Teachers’ Pension Plan and a group of US private equity firms, terminated the deal when accountant KPMG warned that the Canadian firm’s huge debt load would leave it insolvent after the transaction.

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