Does Carl Icahn have eyes for Yahoo?

By Charley Blaine and Elizabeth Strott

Shares of Yahoo (YHOO, news, msgs) jumped 5.2% to $26.56 today and were rising in after-hours trading on reports that billionaire investor Carl Icahn has amassed a huge stake in the company and may wage a proxy fight for control.

The Wall Street Journal said Icahn now owns more than 50 million Yahoo shares, probably enough to make him one of the company's top 10 shareholders.

The stock's initial move today came after CNBC's David Faber reported Icahn's involvement in the stock. The stock was up 0.8% to $26.76 in after-hours trading. Meanwhile the major stock market averages ended flat and crude oil briefly surged to nearly $127 a barrel.

The Dow Jones industrials finished down 44 points to 12,832 and the Standard & Poor's 500 Index was off 1 point to 1,403. The Nasdaq Composite Index, thanks to the Yahoo report, was up 7 points to 2,495.

Nobody thought things would just quiet down for Yahoo after Microsoft (MSFT, news, msgs) walked away from a $47.5 billion offer on May 3. (Microsoft is the publisher of MSN Money.)

The Journal said Icahn was weighing a proxy fight, although he has to move quickly. Yahoo has a Thursday deadline for declaring intention and filing a slate of directors for its July 3 annual meeting. Icahn's intention could be to force Yahoo back to the negotiating table with Microsoft, though the Journal said that Microsoft hasn't given Icahn any assurance that it would reconsider a Yahoo purchase.

Icahn is famed for buying a large position in a company and agitating for management or financial moves to boost the stock price. His pressure on Motorola (MOT, news, msgs), for example, resulted in the company's decision to split itself into two pieces.

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In the early 1980s, he followed T. Boone Pickens in a takeover fight for Phillips Petroleum and ultimately won a recapitalization of the company that returned millions to shareholders.

Phillips later merged with Conoco to form ConocoPhillips (COP, news, msgs).

"It would be in the interests of all shareholders if an aggressive, proactive shareholder-rights activist would get Yahoo sold to Microsoft," Laura Martin, an analyst at Soleil Securities in New York, told Bloomberg News. She has a sell rating on Yahoo shares.

Icahn "has a chance,'' Martin added. "He's got the organizational skills. He's got the capital. He would be doing a good deed for shareholders and Yahoo employees."

The major averages mask a lot of turbulence

The major stock market averages ended the day little changed, but don't think that nothing happened.

First, there was the speculation over Yahoo.

Then, you had crude oil nearly hitting $127 a barrel before falling back to $125.80. You had Hewlett-Packard (HPQ, news, msgs) announcing a deal to buy Electronic Data Systems (EDS, news, msgs) -- and getting punished for possibly paying too much. The stock was the worst performer of the 30 Dow stocks, falling 5.5% to $44.27. The decline subtracted about 21 points from the Dow.

Financial stocks were beaten down after Oppenheimer analyst Meredith Whitney lowered her estimates for several big investment banks, including no less than Goldman Sachs (GS, news, msgs).

Wal-Mart Stores (WMT, news, msgs) beat Wall Street estimates for first-quarter profits, but the stock fell 2.4% to $56.65 after offering a subdued outlook for the second quarter.

Separately, Clear Channel Communications (CCU, news, msgs) has reached a settlement against the banks it sued, CNBC reported. The financiers will now fund Clear Channel's transition to a private company at $36 per share. Clear Channel was up 4.4% to $34.30 today.

The Dow fell because of Hewlett-Packard; 16 of the Dow stocks were higher today. The S&P 500 was evenly split, and 43 Nasdaq-100($NDX.X) stocks were up.

Wednesday's markets will be influenced by the consumer price index report from the Labor Department, due before the market opens. The consensus estimate is for a 0.3% gain in consumer inflation.

At the same time, there will be earnings from department store operator Macy's (M, news, msgs), tractor maker Deere (DE, news, msgs) and mortgage money provider Freddie Mac (FRE, news, msgs).

In addition, the Energy Department issues its weekly report on crude oil and refined oil inventories. The report comes out at 10:30 a.m.

Whole Foods says merger proves costly

Shares of organic grocer Whole Foods Market (WFMI, news, msgs) tumbled 7.6% to $31.07 in after-hours trading after the company said that integrating its Wild Oats acquisition caused its fiscal-second quarter profit to drop.

The organic- and natural-food retailer says net income in the quarter ended April 13 fell 13 percent to $40 million, or 29 cents per share, from $46 million, or 32 cents per share last year. Whole Foods says the acquisition of smaller rival Wild Oats cost it 6 cents per share.

Revenue rose 28% to $1.87 billion from $1.4 billion last year. Analysts had expected a profit of 30 cents per share on revenue of $1.89 billion. The stock had closed at $33.64 in regular trading but is down nearly more than 55% since the end of 2005.

Crude's frightening move

Crude shot up to a new intraday high of $126.88 after Iran said it was studying an idea to cut its production.

The fright didn't last long but did sour the stock market's mood this afternoon.

Crude shot up after Iran's Fars News Agency reported that President Mahmoud Ahmadinejad said his government was considering a proposal to cut production.

Analysts doubted Iran would actually trim output, but the report briefly sent jitters through oil trading floors. And the Senate's vote to tell the Bush administration to stop filling the Strategic Petroleum Reserve helped push crude down to $125.44 a barrel. That was up 1% from Tuesday but still under Friday's record close of $125.96.

"That sounds like it would get people excited," said analyst Peter Beutel of Cameron Hanover. "We're in a market where anything bullish is going to be able to push the price higher."

Still, the Iran news unnerved a jittery market. The Dow fell nearly 100 points before trimming its losses. The oil news gave energy stocks some oomph. The Amex Oil Index ($XOI.X) was up 0.5% to 1,540. The Amex Natural Gas Index ($XNG.X, news, msgs) was up 1.4% to 714.

Oil's move higher today was a surprise because it came as the dollar headed higher against the euro, British pound and the yen.

Commodity prices have generally fallen when the dollar moves up, and that actually happened today with gold (down $15.30 an ounce to $869.60), copper (down 1.8 cents a pound to $3.732) and silver (down nearly 40 cents an ounce to $16.828.)

Energy prices -- New York close

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$125.80	$124.23	$1.57	10.88%	31.07%
Heating oil (per gallon)	$3.6989	$3.5598	$0.1391	16.43%	39.61%
Natural gas (per million BTU)	$11.4220	$11.3010	$0.1210	5.34%	52.64%
Unleaded gasoline (per gallon)	$3.2000	$3.1642	$0.0358	9.17%	28.47%

H-P offers $13.9 billion for EDS

Hewlett-Packard shares fell after announcing it will pay $25 a share, or $13.9 billion, for EDS in an all-cash deal.

The Wall Street Journal first reported that the companies were in talks on Monday afternoon; H-P confirmed talks later Monday.

While H-P shares were lower, EDS shares rose 1.1% to $24.34. EDS had jumped $5.27, or 27.9%, in trading on Monday.

A purchase of EDS could help H-P better compete with IBM Corp. (IBM, news, msgs) by boosting its technology consulting and services business, a business H-P has been trying to expand in recent years. That business was the second-weakest revenue generator in H-P's portfolio in 2007, following its software business. H-P this morning said the deal would more than double the revenue from its services business.

IBM shares rose 1.1% to $126.58 and was the third-best Dow performer today.

Some analysts liked the deal.

H-P CEO Mark Hurd "has gotten through the transitional stages, and growth is on forefront of his mind," Mark Mowrey, an analyst with Al Frank Asset Management, told Bloomberg News. "They've trimmed a lot of the fat out of the company, and they can see growth through acquisition."

But MarketWatch.com reported that Credit Suisse analyst Steven Soranno cut his rating on H-P's stock to hold from buy because he thought such a large acquisition is full of risks.

Cowen & Co. analyst Louis Miscioscia left his outperform rating on H-P's stock intact but questioned whether H-P was "fighting the old fight" with the deal. In a note Tuesday afternoon, Miscioscia recommended buying H-P's shares on this sell-off but admitted that "there is a long list of what not to like about EDS."

A deal would be H-P's biggest since it bought Compaq for $19 billion in 2002.

Economic stress is helping Wal-Mart

The economic slowdown is helping Wal-Mart -- for now.

The retail giant reported first-quarter earnings of $3.02 billion, or 76 cents per share, up from $2.83 billion, or 68 cents per share, in the same period last year. The results were a penny above analysts' expectations and were on the high end of a forecast made last month.

Revenue rose more than 10% to $94.1 billion, topping Wall Street's estimate of $93.5 billion.

But shares of the Dow component fell because of a guarded outlook for the current quarter.

Wal-Mart believes that higher food and energy prices have prompted many consumers to turn to discount retailers for cheaper goods.

"Our business is even more relevant to our customers today, given the current economic pressures," said CEO Lee Scott.

Many analysts agreed. "Consumers are paying more attention to value, and that's absolutely Wal-Mart's sweet spot," said Lauri Brunner, a Thrivent Asset Management analyst, in an interview with Bloomberg News. "They are taking market share from Target (TGT, news, msgs)."

Though its low prices may offer some protection against a consumer slump, Wal-Mart officials remain concerned about the direction of the U.S. economy. That was clear when Wal-Mart officials discussed sales last week.

"The economy continues to get tougher and the 'paycheck cycle' is more pronounced for customers than in past months," said Eduardo Castro-Wright, Wal-Mart's U.S. president. "As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past."

The company cautioned that second-quarter results would be 78 cents to 81 cents a share. The consensus estimate was for 81 cents per share. Wal-Mart also said that U.S. same-store sales growth would be flat to up 2% in the current quarter.

A mixed picture for retail sales

Retail sales fell 0.2% in April, the Commerce Department reported this morning, but things weren't quite as bad as they seemed.

Excluding auto sales, retail sales last month rose 0.5%, adding to hopes that consumers are still spending. Retail sales are a good gauge of consumer spending, which makes up about 70% of the U.S. economy.

"Don't count the consumer out yet," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, told Bloomberg News. "Jobs are harder to get, gasoline prices set new records almost daily, and yet the consumer continues to spend on life's necessities."

Retail sales rose 0.2% in March.

May could be a better month for retailers, according to the International Council of Shopping Centers.

"Despite all the current gloom and doom, the consumer tide may be changing a bit in the near term with nearly $30 billion of tax rebate money already in the hands of consumers," said Michael Niemira, the ICSC's chief economist, in a press release. "Although we do not expect the lion's share to be spent, a significant share of it will be in the coming weeks. We also expect that this should modestly lift May store sales, and, most likely, lift the pace of sales even more so in the coming months."

Oppenheimer lowers outlook in financials

Oppenheimer analyst Whitney has more worries about Wall Street.

Whitney this morning lowered her outlook for financial-services companies, writing in a note to clients that their short-term future is "far more bleak than that reflected in the market."

Whitney lowered earnings estimates for Goldman Sachs, Merrill Lynch (MER, news, msgs), Lehman Bros. (LEH, news, msgs) and Morgan Stanley (MS, news, msgs). "We expect that most of the gains booked in the first quarter will be reversed in the second quarter," Whitney wrote.

Whitney has become well known for her criticisms of financial-services companies. She made waves last year by correctly forecasting that Citigroup (C, news, msgs) would have to lower its quarterly dividend because of the credit crunch and mortgage-market meltdown.

Merrill Lynch was of 1.8% to $48.26 today. Goldman Sachs slipped 0.9% to $190.33, and Morgan Stanley fell 2.4% to $46.52. Lehman Bros. fell 3.6% to $42.95.

Bank of America forecasts more losses

Another financial-services company gave a gloomy forecast today for home-equity-loan losses.

Bank of America (BAC, news, msgs) this morning said it expects loan losses to be more than 2.5% of its $118 billion portfolio.

Strapped consumers pose a bigger risk to the bank in general, as more consumers shift to charging necessities on their credit cards, said Liam McGee, president of BofA's consumer and small-business division, at a conference in New York this morning.

Bank of America shares fell 2.2% to $36.61 this afternoon.

McGee said Florida and California together represented 52% of the bank's delinquencies in the first quarter.

The bank's $4 billion deal to buy troubled mortgage lender Countrywide Financial (CFC, news, msgs) is still on track, but the path to sealing the deal could be rocky, McGee said.

Short hits from the markets -- 4 p.m.

	Tues.	Mon.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.785%	1.750%	0.035	33.21%	-43.15%
5-year Treasury note yield	3.169%	2.980%	0.189	4.48%	-8.28%
10-year Treasury note yield	3.909%	3.775%	0.134	3.99%	-3.12%
30-year Treasury bond yield	4.619%	4.522%	0.097	2.71%	3.59%
Currencies
U.S. Dollar Index	73.435	73.120	0.315	0.98%	-4.25%
British pound in dollars	$1.9463	$1.9573	-0.0110	-2.10%	-2.16%
Dollar in British pounds	£0.5138	£0.5109	0.0029	2.15%	2.21%
Euro in dollars	$1.5482	$1.5552	-0.0070	-0.88%	5.93%
Dollar in euros	€ 0.6459	€ 0.6430	0.0029	0.89%	-5.60%
Dollar in yen	¥104.71	¥103.82	0.89	0.75%	-6.38%
Canadian dollar in U.S. dollars	$0.997	$0.995	$0.0026	0.35%	0.45%
U.S. dollar in Canadian dollars	$1.003	$1.005	-$0.0018	-0.27%	-0.43%
Commodities
Gold	$869.60	$882.10	-$15.30	0.52%	3.77%
Copper	$3.7315	$3.7495	-$0.02	-4.43%	22.71%
Silver	$16.8280	$17.2250	-$0.40	1.42%	12.79%
Corn	$6.0725	$6.1475	-$0.08	1.17%	33.32%
Crude oil (NYMEX) (per barrel)	$125.80	$124.23	$1.57	10.88%	31.07%