LAX's Blog

Google convinced the European Commission that its planned merger would not give it a dominant position that would harm consumers. But some analysts believe the merger also could blunt Google's own antitrust arguments against rival Microsoft Corp.'s (MSFT) stalled plan to merge with Yahoo Inc. (YHOO).

"The Google-DoubleClick deal makes the regulatory part of the Microsoft-Yahoo deal easier," analyst Roger Kay of Endpoint Technologies Associates said. " Google will have a hard time arguing that the Microsoft-Yahoo deal is anticompetitive, given how much of the online ad market Google will be able to corner with the now-approved acquisition of DoubleClick."

However, Gary Reback, an antitrust expert based in Silicon Valley, said it would be a mistake to jump to such a conclusion, saying the proposed Microsoft- Yahoo merger is simply "a more complicated deal" involving multiple markets.

Google's $3.1 billion purchase of DoubleClick, which closed Tuesday, gives the Internet giant a powerful tool that allows advertisers to more effectively consumers with banner ads.

Opponents of the merger, which included Microsoft, argued that it would eliminate a potential competitor to Google and give the Internet giant a more dominant position in the online advertising market.

After the DoubleClick proposal was announced in April last year, Microsoft's General Counsel Brad Smith criticized the deal, saying it "raises serious competition and privacy concerns in that it gives the Google-DoubleClick combination unprecedented control in the delivery of online advertising, and access to a huge amount of consumer information."

However, the European Commission, in approving the deal, said in a statement that its "in-depth market investigation found that Google and DoubleClick were not exerting major competitive constraints on each other's activities."

The commission also said the merger would not marginalize Google's competitors "because of the presence of credible ad serving alternatives to which customers can switch, in particular vertically integrated companies such as Microsoft, Yahoo! and AOL."

Analyst Blair Levin of Stifel Nicolaus & Co. said the European Commission's approval of the deal "could provide some mild comfort to a possible Microsoft- Yahoo merger."

But Levin also noted that Microsoft-Yahoo "would face a very different assessment of horizontal concentration."

Crawford Del Prete of International Data Corp. also said the DoubleClick merger "certainly strengthens Google's position in the market, in my opinion making regulatory concerns about Microsoft-Yahoo less likely."

After Microsoft unveiled its bid in February, Google's Chief Legal Officer David Drummond in an official blog raised the question of whether the proposed merger would "allow Microsoft... to extend unfair practices from browsers and operating systems to the Internet."

Reback, the Silicon Valley attorney, also said it would be hard to compare the DoubleClick deal to the proposed Microsoft-Yahoo merger which, he said, covers more markets, each with complex dynamics.

The Google-DoubleClick transaction, he said, "lent itself more discretely" to market analysis.

"It's easier for us to discuss it," he said. "We know what business DoubleClick is in. We know what Google is in."

But with Microsoft and Yahoo, he added, "There are more markets involved. You have the straightforward things like search. Then you have the next layer like online e-mail. There are just a lot of ways to slice that one. You're going to multiply that problem through many markets. It becomes a more complicated analysis."

Google spokesman Adam Kovacevich also argued that, "There are no similarities between the two deals."

"Long before Microsoft announced its plans to acquire Yahoo, the major companies in this space were all moving forward to give advertisers and publishers new combinations of tools in the online advertising space," he said.

Microsoft and Yahoo declined to comment.

The proposed merger, which was initially valued at $44.6 billion, is in limbo after the Yahoo board of directors rejected the proposal. Analysts expect Microsoft to raise its offer or mount a proxy battle to take over Yahoo's board.

U.S. Stocks Advance Most in 5 Years on Fed's Liquidity Plan

March 11 (Bloomberg) -- U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.

Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor's 500 Financials Index to its biggest gain in eight years on expectations the Fed's move will spur lending. Washington Mutual Inc. climbed the most since 2000 on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.

The S&P 500 added 47.28 points, or 3.7 percent, to 1,320.65, climbing the most since October 2002 and trimming its decline for the year to 10 percent. The Dow Jones Industrial Average surged 416.66, or 3.6 percent, to 12,156.81. The Nasdaq Composite Index increased 86.42, or 4 percent, to 2,255.76. Almost 11 stocks gained for every one that fell on the New York Stock Exchange.

``It's like they're putting jumper cables onto a battery to kick-start the credit market,'' said Nick Raich, who helps manage $34 billion at National City Private Client Group in Cleveland. ``They're doing their best to try to restore confidence.''

The S&P 500 rebounded from the lowest level since August 2006 as 479 of its members advanced. Yields on two-year Treasury notes gained the most since March 1996, as the Fed's move to relieve the credit crisis prompted investors to dump holdings of government debt. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.

Citigroup Rises

Citigroup, the largest U.S. bank, rallied $1.80 to $21.49. Bank of America, the second-biggest, climbed $2.41 to $37.72.

Financial shares in the S&P 500 gained 7.4 percent as a group and rebounded from the lowest level since May 2003.

Fannie Mae, the biggest provider of financing for U.S. mortgages, added $2.19 to $22. Freddie Mac, the second-largest, rose $2.77 to $20.16. Countrywide Financial Corp., the biggest U.S. mortgage lender, climbed 75 cents to $5.11.

Washington Mutual added $1.84, or 18 percent, to $11.88.

``A potential capital infusion by Warren Buffett and Goldman Sachs is the rumor,'' said Mike Capitani, head of equity trading at Caris & Co. in New York. ``Buffett's always looking for a bottom on things, and he's flush with cash.''

Michael DuVally, a Goldman Sachs Group Inc. spokesman in New York, declined to comment. Jackie Wilson, a spokeswoman for Buffett's Berkshire Hathaway Inc., also wouldn't comment. A call and e-mail to Washington Mutual spokesman Derek Aney weren't returned.

Fed's Plan

The Fed said it plans to lend Treasuries in exchange for mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments. Banks around the world have posted $188 billion in writedowns and credit losses stemming from the collapse of the subprime-mortgage market. The S&P 500 Financials Index had lost 20 percent this year through yesterday.

By lending Treasuries in exchange for mortgage-backed securities, the Fed will allow banks to switch debt that is less liquid for bonds that are easily tradable. Fed officials anticipate the so-called primary dealers that trade directly with the central bank, including Goldman, Bear Stearns Cos. and Merrill Lynch & Co., will lend the Treasuries on to other firms in return for cash, helping the dealers shore up their balance sheets.

Fed officials told reporters on condition of anonymity that the program may be increased as needed. The move may also allow the central bank to cut interest rates less drastically than previously expected, leading to lower inflation.

Rate Bets

Traders reduced bets on a 0.75 percentage point cut in the Fed's benchmark rate by March 18, according to Fed funds futures. They priced in 62 percent odds of a reduction of that size, down from 86 percent odds yesterday. The rest of the bets are for a half-point cut in the rate, which is currently 3 percent.

Previous easing by the Fed failed to boost stocks. Since the Fed first addressed credit losses by cutting its discount rate by half a percentage point on Aug. 17, the S&P 500 has fallen 6.4 percent.

The central bank subsequently lowered the federal funds rate at which banks led to each other from a five-year high of 5.25 percent to 3 percent in five steps, including its first rate cut between scheduled meetings since 2001 on Jan. 22. The discount rate at which banks can borrow from the Fed declined to 3.5 percent from 6.25 percent.

`Something Else'

``The Fed needed to do something else, because the rate declines and expectations of future rate declines really weren't having any positive impact at all,'' James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $220 billion, said in an interview with Bloomberg Television. ``You have to applaud them for coming up creatively with a way that gets more at the center of this crisis.''

Bear Stearns rose 67 cents to $62.97 after a person close to investor Joseph Lewis, the company's second-largest shareholder, said he may add to his holdings. Bear Stearns, the second-biggest underwriter of U.S. mortgage-backed securities, erased an earlier decline of as much as 11 percent that was spurred by speculation the company lacks sufficient access to capital.

Bear Stearns said there is ``absolutely no truth to the rumors of liquidity problems,'' and Chief Executive Officer Alan Schwartz said company finances ``remain strong.'' The firm will probably have $1.9 billion more writedowns in the first half, Deutsche Bank AG estimated in a report.

Most Since 2002

Exxon Mobil Corp. rallied $4.22, or 5.1 percent, to $86.68 for its biggest gain since October 2002. Energy shares in the S&P 500 rose 4.6 percent as a group. Gasoline pump prices in the U.S. climbed to an all-time high of $3.227 a gallon and may reach $4 before summer because of record crude-oil prices, AAA said.

Nucor Corp. surged $4.12, or 6.5 percent, to $67.42. That sent raw-materials producers in the S&P 500 to a 6 percent advance, the most since July 2002. Nucor said it may ``significantly'' boost exports this year as overseas demand rises and a weaker dollar increases the attractiveness of U.S. supplies.

Weyerhaeuser Co., the largest U.S. lumber producer, climbed $2.81 to $61.80 after UBS AG raised its recommendation on the stock to ``buy'' from ``neutral,'' saying risk from the housing slump is ``starting to be priced in as market expectations have become more realistic.''

Trade Deficit

Stocks also rose after the Commerce Department reported the January U.S. trade deficit was smaller than forecast. The gap grew 0.6 percent to $58.2 billion, the Commerce Department said. Exports increased 1.6 percent to the highest level ever.

Texas Instruments Inc. lost 89 cents to $28.76. The second- biggest maker of chips that run mobile phones cut its sales and profit forecasts because of slowing handset demand.

Health-care companies in the S&P 500 lost 0.2 percent as a group. WellPoint fell the most ever, dropping $18.66, or 28 percent, to $47.26 after cutting its 2008 profit forecast and saying weakness in the U.S. economy has limited enrollment gains.

Six analysts downgraded WellPoint. Bear Stearns and Goldman Sachs cut share-price estimates for rivals and lowered the industry's rating.

Aetna Inc., the third-largest U.S. health insurer, declined $3.86 to $42.65. Humana Inc., the fourth-biggest, lost $15.32 to $47.38.

The S&P 500 Managed Health Care Index of six companies dropped the most since Aug. 6, 1998, when a $900 million charge by UnitedHealth Group Inc. derailed its plans to buy Humana.

Economic Survey

The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey. The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.

The Russell 2000 Index, a benchmark for companies with a median market value 96 percent less than the S&P 500's, climbed 4.6 percent for the biggest rally since July 2002. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 3.6 percent to 13,286.61. Based on its advance, the value of stocks increased by $580.1 billion.