The Zacks Analyst Blog Highlights: Google Inc, Expedia, Microsoft, Orbitz Worldwide and Johnson & Johnson

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Apr 12, 2011, 09:30 ET

CHICAGO, April 12, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Google Inc (Nasdaq: GOOG), Expedia Inc. (Nasdaq: EXPE), Microsoft Corp (Nasdaq: MSFT), Orbitz Worldwide (NYSE: OWW) and Johnson & Johnson (NYSE: JNJ).

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Here are highlights from Monday's Analyst Blog:

Google's ITA Acquisition Cleared

Google Inc's (Nasdaq: GOOG) acquisition of ITA Software -- which has been pending for many months -- was finally cleared by the Department of Justice on April 8, 2011.

The acquisition received strong opposition from travel companies, such as Expedia Inc. (Nasdaq: EXPE), competitors such as Microsoft Corp (Nasdaq: MSFT) and airline ticket providers, such as Kayak. In fact, Expedia-owned TripAdvisor and Hotwire joined with the above parties among others to form what they called the FairSearch coalition in an effort to thwart Google's efforts in the online travel market.

However, Orbitz Worldwide (NYSE: OWW) another online travel company that uses QPX has made it a point to stay away from the coalition and has already extended its licensing agreement up to 2015.

For companies like Microsoft and Kayak, the chief concern has been ITA Software's QPX technology that is currently used by them to generate relevant searches for air travel fares, schedules and availability. Their argument is that Google's acquisition of ITA would enable it to sever ties with them, or control what they can do with search by not licensing out further development of the technology, or making the software so expensive that they would prefer not to use it.

News reports indicate that the two may combine to use separate technology developed internally by Kayak. Additionally, the Justice Department's ruling requires Google to allow licensing at a reasonable rate as a pre-condition to the acquisition. Google is also required to continue to develop and then offer ITA's InstaSearch technology (an enhancement to QPX) that is not yet commercially available.

The department has also made it mandatory for Google to take necessary precautions to prevent unauthorized access and use of commercially sensitive information that could affect competition between parties. It is also forbidden to enter into agreements with airline companies that have the effect of restricting their offer of information regarding seats or reservations to Google competitors.

So it seems that all the concerns of these parties have been addressed.

For Expedia, the deal is not favorable. Expedia's concern was not related to QPX, since the company uses its proprietary technology. Instead, for Expedia it is more a question of economics. Expedia's relationship with Google has been long and fruitful for both paries, with Expedia generating a lot of revenue for Google over the past few years.

Expedia's fear is that with Google entering the travel market directly, it's own sites would feature higher up on search listings and competing sites, such as Expedia would need to lay out more cash to ensure that this did not happen. This issue is hard to take care of (although the Justice Department has its eyes on it); consequently, we expect Expedia's fears to be realized over a period of time, notwithstanding the fact that Google makes good money from the relationship.

J&J Faces Embarrassment

Recently, Johnson & Johnson (NYSE: JNJ) faced a major embarrassment when it agreed to pay $70 million to settle bribery charges against itself. Johnson & Johnson is hopeful of a similar settlement with authorities in the UK shortly.

Johnson & Johnson reached a settlement with the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) after it was alleged that Johnson & Johnson had bribed physicians in Europe (Greece, Poland and Romania) to prescribe its products. Johnson & Johnson was also accused of paying kickbacks to the Iraqi government to get business.

We note that Johnson & Johnson had informed the authorities of suspected illegal activities by some of its ex-US subsidiaries in 2007. The resultant probe, in which Johnson & Johnson fully co-operated, revealed the misdeeds.

The agreement to pay a hefty sum to settle the charges is the latest setback to the company. Over the past few months, Johnson & Johnson has recalled a series of consumer products because of concerns over manufacturing quality.

The series of product recalls adversely affected sales of Johnson & Johnson's Consumer Healthcare segment. Consumer segment sales declined 7.7% in 2010 to $14.6 billion with over-the-counter (OTC)/nutritional sales declining 19.2%. We believe the company will not be in a position to resume normal supply of all the recalled products before late 2011.

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