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Royal Dutch Seeking Crowning Merger With BP?


England's "Daily Mail" is moving stocks after reporting that integrated oil giant Royal Dutch Shell mulled a buyout of beleaguered BP during the depths of the Gulf of Mexico debacle last summer.

To judge from the current cover of England's Daily Mail -- which sees the tabloid squeezing world headlines somewhere into the short space remaining after it has first exhaustively updated its readers on babes in bikinis and the boy who killed his mother -- it may be hard to take the paper seriously. Don't doubt however that it can move markets. Only last week Anadarko Petroleum (APC) increased to a two-and-a-half-year high on the Daily Mail's report that Australian commodity concern BHP Billiton Ltd. (BHP) may make a bid. Today it's again moving energy stocks, after announcing integrated oil giant Royal Dutch Shell plc (RDS-A) mulled a buyout of beleaguered BP Plc (BP) during the depths of the Gulf of Mexico debacle last summer. BP has hit a six-month high as a result and even Royal Dutch, unusually for a would-be purchaser, ended up over 1%.

There is normally no smoke without fire -- especially where this ill-fated British company is concerned -- so a takeover cannot be entirely discounted. A mooted merger would combine Europe's two biggest petroleum companies by market cap, in the process creating a formidable oil and gas supermajor. All indications are also that BP's potential bill for damages resulting from last April's spill could come in at only half of earlier $20 billion nuclear winter projections, making it a less onerous takeover target.

Still, the odds that the company headquartered in Holland will make a move must be slim. The article is essentially a rehash of six-month-old news, and has been met with a deafening silence from both firms. While Shell is said to maintain a passing interest, the legal and regulatory hornets nest that awaits any suitor will likely remain a deal breaker.

BP, with wayward Tony Hayward quite literally banished to Siberia, has also risen some 65% from its June nadir so Royal Dutch would now have to pay a relative king's ransom. In the meantime, and absent any deal, the Netherlands company is continuing an impressive turnaround from its messy reserve write-down in 2004. Investors can count on a 4.30% dividend yield and burgeoning opportunities in liquefied natural gas with assets in Asia, Africa, and the Middle East. As its iconic ads in the '80s assured us, "you can be sure of Shell." A link up with BP? Much less certain.

Please see Skeletons in the Corporate Closet: Shell, What Shell, Exxon Results Say About Oil Prices, and BP Says Oil Has Stopped Leaking Into Gulf, Conference Call in Progress.

Staying with royalty, shares in the Royal Bank of Scotland (RBS) are up sharply to take their 12-month gain to more than 22% after an analyst upgrade. (As someone who grew up in its home city of Edinburgh, I can confirm such stock gains will make famously frugal Scots delirious with joy. The country may have ironically invented the fastest way of parting man from money, but the joke that when a tight-fisted Scotsman opens his wallet, a moth flies out, rings all too true.)

Brokerage Exane BNP Paribas boosted the still heavily state-owned entity to Outperform from Neutral with a 50 pence price target, which would represent some 28% upside from yesterday's closing price. The key positive catalyst cited was that the equity is now assuming overly draconian assumptions arising from fellow Celtic country Ireland's debt threat. Royal shares are currently reflecting over 20% losses on residential mortgages, which is seen by BNP as an unlikely worst-case scenario. Certainly, the way Britain is now addressing its financial crisis with harsh though ultimately sensible austerity measures contrasts favorably with our own Congress' can-kicking, mañana attitude of postponing pain and delaying hard choices.

Reduced trading losses and low single-digit growth are seen at the bank over the next two years, no great shakes but a big improvement from the fiasco it became under former CEO Sir Fred ("the Shred") Goodwin, who brought a proud institution founded in 1727 by a Royal Charter of King George I to its knees almost overnight while waking away with a $6 million golden parachute even as thousands lost their jobs.

However, with the Royal still essentially controlled by the British government after an October 2008 nationalization, and any restructuring remaining at the mercy of renewed European sovereign contagion, the company and its shares still have some seriously hard slogging ahead of it.

Also check out SOCIAL MOOD SHIFT. Faced 'Bank Runs, Riots' as RBS and HBOS Neared Collapse, Bailout Terms Violate EU and Irish Laws, and Five Things: Who Will Punish the Bankers?

I'm too sexy for my shirt, Right Said Fred once memorably said. Alas investors in Fred's Inc. (FRED) -- no relation to Fred the Shred -- are, if not exactly losing their shirt, then perhaps the victim of some naked short selling this afternoon. Stock in the Memphis-based general merchandiser founded in 1947 ended off slightly despite getting a broker boost earlier today.

Researchers at Wedbush Morgan raised their rating on the regional variety store chain to Neutral from Underperform and also took their 12-month price objective up by $1 to $14. Analysts cited the firm's progress achieved on executing a successful turnaround spearheaded by CEO Bruce Efird, which should lead to a solid foundation for renewed store growth over the next several years. The company, whose roughly 670 stores (including franchisees) cater to cost-conscious low- and middle-income customers and skews small town, is implementing a number of new initiatives to differentiate itself from competitors, including Dollar General (DG), Family Dollar (FDO), and Dollar Tree (DLTR). Fred's low prices have been a boon for shoppers in this soft economy, and helped to send the shares surging some 37% plus in a year.

Reasons for caution at these valuation levels include a sometimes spotty earnings track record and third-party reimbursement changes, which may have a negative impact on their pharmacy business.

The Dollar Stores That Deserve Your Bucks has related content.

They are finally getting around to getting rid of the garbage in Gotham but medical waste processor Stericycle (SRCL), the leader in its industry, was more trash than cash today. Shares in the Lake Forest firm, which regulates waste for hospitals and pharmaceutical firms among others, finished rougly 3% lower after analysts at Bank of America-Merrill Lynch downgraded it from Neutral to Underperform, Wall Street code for "Sell."

In assigning the only such bearish rating on the stock of all Wall Street equity research houses, Merrill said Stericycle is "priced for perfection." Certainly with the stock having increased a staggering 1,370% since the spring of 2000 few can argue with that assessment, especially as profit increases have been decidedly unspectacular of late.

This company came into being at the end of the '80s after the so-called "Syringe Tide" of that era blighted New Jersey beaches long before Snooki & Co. Against this backdrop the need to reduce the risk of improper disposal of needle sticks and the like suddenly became acute. Indeed, Billy Joel, with strong ties to Long Island, made unflattering mention of "hypodermics on the shores" in his decade-ending song We Didn't Start the Fire.

Stericycle is undeniably an innovative company and it has ample opportunities for international expansion but the current P/E stands at a lofty 30 times compared to historical levels of only 27 times. Merrill is also warning of margin compression and a trend toward hospitals consolidating their hazardous waste disposal services which, while still in its infancy, would represent a competitive threat.

Turn to Chicago Garbage Collectors Deputized to Search People's Garbage for Suspicious…Garbage for more.
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