Wall Street Breakfast: Must-Know News

• Airline mergers take off. Delta (DAL) announced a much-awaited $3.63B acquisition of Northwest (NWA), a merger that will create the world's biggest airline with $35B revenue, 800 planes and 75,000 employees. The combo anticipates $1B/year cost-efficiency savings. The deal, which causes Northwest to relinquish its veto right on any Continental deal, opens the door for an anticipated merger of Continental (CAL) and UAL (UAUA). The deal is likely to undergo intense regulatory scrutiny, and the airlines have not yet figured out what to do with unhappy pilots unions. Working in favor of the deal's approval are the industry's woes: Jet fuel prices shot up 55% in January and February from a year ago, and 20% in March vs. that.
• AstraZeneca puts lawsuit to rest. AstraZeneca (AZN) jumped more than 11% in London after it came to terms with India's Ranbaxy to end patent litigation on its ulcer drug Nexium, AZN's number-one seller ($5.22B sales in 2007). "In effect it has put a cork in the bottle stopping the remaining generic challenges to Nexium coming from Teva (TEVA) and Dr. Reddy's (RDY)," analyst James Millet said. The terms: For dropping its lawsuit, Ranbaxy receives rights to be Nexium's exclusive generic distributor for its six months ex-patent in 2014, and begins manufacturing Nexium's active ingredient for AZN in the U.S. in 2009. Ranbaxy also gets U.S. distribution rights on two AstraZeneca off-patent drugs, Prilosec and Plendil.
• BlockCity? CircuitBuster? Shares of Blockbuster (BBI) fell 10.2% yesterday after it revealed its unsolicited $1-1.35B offer for Circuit City (CC). Circuit City shares gained 27.5% to $4.97, more than $1 below Blockbuster's minimum offer of $6. Circuit City rebuffed the offer in a letter to Blockbuster, questioning its ability to foot the bill. Carl Icahn, a major owner of Blockbuster shares, and who has seen his investment in the company lose some 80%, was vocally supportive of the deal, and insured there were sufficient funds to make it happen.
• Petrobras gushing. Shares of Brazilian oil major Petrobras (PBR) climbed 5.2% after reports surfaced of a major oil discovery in Brazil's ultradeep pre-salt oil area, more than four times bigger than the nearby Tupi field, which Petrobras says could contain up to 8B barrels of oil equivalent. "If this were to be confirmed, it would be the biggest discovery ever made in the world," Haroldo Lima, the head of Brazil's National Petroleum Agency, said.
• S&P to U.S. gov't: Beware Fannie, Freddy. A forced rescue of GSEs (government sponsored entities) Fannie Mae (FNM) and Freddie Mac (FRE) could cause the U.S. to lose its AAA credit rating, a new S&P report says. It categorizes credit damage as "unlikely," but says GSEs present a far greater risk to U.S. stability than do broker-dealers. Were a protracted recession to cause the firms to buckle, the cost to the government could be as high as 10% of GDP, it said. The Fed's recent Bear Stearns (BSC) bailout cost a paltry 1%. "These potential risks are not a prediction, but a risk worth monitoring."
• Car co-op. Chrysler and Nissan (NSANY) unveiled a broad partnership to produce full-size pickups in the U.S., and small cars for North America and Europe. Nissan begins making a small car for Chrysler in Japan in 2010; a year later Chrysler returns the favor with a large pickup in Mexico. The partnership, which involves only manufacturing ties, will likely rekindle speculation of a Chrysler/Nissan/Renault tie-up down the road.
• Stately quarter. State Street (STT) reported Q1 adjusted EPS of $1.39, beating analyst estimates of $1.30. Revenues were up 4% to $2.58B, vs. a $2.4B consensus. "Given the continued unsettled economic environment, for now we continue to expect to achieve in the middle of the ranges we established for this year," the company said, reflecting an increase in operating EPS of 10-15%; a revenue increase of 14-17%; and operating return on equity of 14-17%.
• Infosys beats, strong outlook. India's Infosys Technologies (INFY) said its FQ4 net profit rose 9.2% to 12.49 billion rupees ($314M), beating estimates from Citigroup and Macquarie. Outsourcing revenue climbed 20.4%. INFY sees EPS growth of at least 16.3% for the current financial year started April 1, and revenue growth of at least 19.2%. Shares jumped 6.2% in Bombay.
• Defense association to push for arms spending. The government needs to overcome budgetary issues and find the money to modernize the military, or risk forfeiting its technological edge, the defense industry's trade association [AIA] will tell Congress today. The AIA will say the focus must move from Iraq to reinforcing a military from its wartime losses, and suggest at least 4% of GDP, plus continuing supplemental-spending packages, be set aside. It advocates cost-cutting in operations and maintenance in order to provide more funds for arms purchases (big surprise). (BA, LMT, NOC, etc.)
• Light sweet crude touches fresh high of $112.78 a barrel

Today's Markets

• Markets inched up in Asia Tuesday. Nikkei +0.57% to 12,991. Hang Seng +0.38% to 23,901. Shanghai +1.57% to 3,348. BSE Sensex +2.19% to 16,154.
• In Europe, markets are mixed at midday. FTSE +0.67% to 5,870. CAC -0.22% to 4,756. DAX -0.32% to 6,534.
• U.S. futures are flat at 7:20 AM.
• Gold is up 0.74% to $935.60. Oil is up another 0.9% to $112.78.

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