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Nobel Winner Sharpe’s Firm Becomes First 2010 U.S. IPO Priced Above Range

by on March 16, 2010

By Michael Tsang and Craig Trudell March 16 (Bloomberg) — Financial Engines Inc. raised $127 million in an initial public offering, making the investment adviser co-founded by Nobel laureate William Sharpe the first U.S. company to sell shares above its forecast range this year. The provider of portfolio-management services to individuals with employer-sponsored retirement plans priced 10.6 million shares at $12 each yesterday, a filing with the Securities and Exchange Commission and Bloomberg data show. The IPO will give Financial Engines, which offered a 27 percent stake for $9 to $11 a share, a market value of $474 million when it starts trading today on the Nasdaq Stock Market. Financial Engines commanded a higher price for the offering than its underwriters estimated after the Standard & Poor’s 500 Index rallied to its highest level this year. While the previous 14 sales of 2010 were cut an average of 25 percent, the IPO by Financial Engines showed buyers were willing to pay up for a company that increased revenue by 19 percent last year as the earnings and sales of its biggest competitors fell. “It’s a great sign,” said Darren Fabric , managing director at Chicago-based IPOX Capital Management LLC, which started the Direxion Long/Short Global IPO Fund this month. “It’s definitely encouraging. There’s appetite for companies with growth prospects.” Sharpe, 75, established Palo Alto, California-based Financial Engines in 1996, six years after winning the Nobel Prize for Economics with Harry Markowitz and Merton Miller for their work in the theory of financial economics. Now a director emeritus, he also developed the Sharpe ratio, a formula to analyze if investments return enough to offset their risks. The Dealmakers Goldman Sachs Group Inc. of New York led the initial sale, while Financial Engines turned to Pillsbury Winthrop Shaw Pittman LLP in Palo Alto for legal counsel. At the original midpoint price of $10, Financial Engines was valued at 6.21 times tangible net assets, a discount to its largest rivals. Morningstar Inc. and T. Rowe Price Group Inc., which Financial Engines listed among its competitors for investment advice and retirement savings, trade at 6.82 times and 6.23 times the value of their shareholders’ equity, excluding assets that can’t be sold in liquidation, Bloomberg data show. Financial Engines , which has about $26 billion in assets under management, generated 62 percent of its revenue last year from overseeing accounts for individuals. Sales from that part of the business rose by 35 percent, according to its filing. T. Rowe, BlackRock The company runs simulations for each investor to choose blends of stocks, bonds and mutual funds tailored to their tolerance for risk and other financial goals. The analysis is based on the work of Sharpe , now a professor emeritus of finance at Stanford University’s Graduate School of Business. Financial Engines competes with target-date funds offered by T. Rowe Price of Baltimore, which oversees $391.3 billion, and BlackRock Inc. , the New York-based manager that oversees $3.35 trillion. Target-date funds move from riskier investments such as stocks to more conservative alternatives like bonds as an investor approaches retirement. T. Rowe’s revenue slid 10 percent last year, while BlackRock posted an 8.1 percent drop. Sales at Chicago-based Morningstar , which Financial Engines cites as a direct competitor for investment-advisory services, fell 4.7 percent. Relative Value The IPO’s midpoint price valued Financial Engines at about 4.65 times its 2009 sales of $84.98 million, its filing and data compiled by Bloomberg show. That’s lower than Morningstar’s 4.92 price-sales ratio, a 37 percent discount to T. Rowe and 25 percent less than BlackRock, according to data compiled by Bloomberg. Financial Engines was also cheaper than Morningstar and T. Rowe on a free cash flow basis, data compiled by Bloomberg show. “It’s a reasonably established business model that’s shown good growth, and the valuation was reasonable relative to its competitors,” said Sean Kraus , who oversees $2 billion as chief investment officer at Citizens Business Bank in Pasadena, California. “It’s definitely something in the IPO market that you haven’t seen much of.” The sale came after Baltic Trading Ltd. and Sensata Technologies Holding NV priced at the low end of the range set by underwriters last week. The two companies had joined Bellevue, Washington-based Symetra Financial Corp. , the insurer backed by Warren Buffett’s Berkshire Hathaway Inc. that raised $420 million in January, as the only IPOs to sell within the forecast range this year, data compiled by Bloomberg show. Baltic Trading, Sensata Baltic Trading, the New York-based company that will operate dry-bulk vessels, raised $228 million. Sensata , the Almelo, Netherlands-based maker of sensors for Ford Motor Co. of Dearborn, Michigan, sold $569 million in the biggest U.S. offering this year. Film Department Holdings Inc. , the independent film producer making “The Beautiful and the Damned” starring Keira Knightley , has pushed back its IPO from yesterday until at least next week, according to Bloomberg data. The West Hollywood, California-based company is seeking $64.6 million after cutting the size of its deal twice since its December filing. To contact the reporter on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Craig Trudell in New York at ctrudell1@bloomberg.net .

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U.S. Stocks Advance on Anniversary of S&P 500 Index’s 2009 Bear-Market Low

by on March 9, 2010

By Rita Nazareth and Elizabeth Stanton March 9 (Bloomberg) — U.S. stocks rose on the anniversary of the 2009 bear-market low for the Standard & Poor’s 500 Index amid speculation the economy will continue to recover from the worst contraction since the Great Depression. American International Group Inc. surged 13 percent on speculation the insurer will sell more assets. United Technologies Corp., General Electric Co. and AT&T Inc. led gains in the Dow Jones Industrial Average . Boeing Co. advanced after Northrop Grumman Co. withdrew as a bidder for a U.S. Air Force contract. Benchmark indexes briefly erased gains in the final hour as the S&P 500 climbed within 0.5 percent of its 2010 high. The S&P 500 rose 0.2 percent to 1,140.45 at 4:10 p.m. in New York. The Dow Jones Industrial Average advanced 11.86 points, or 0.1 percent, to 10,564.38. Six stocks advanced for every five that fell on the New York Stock Exchange and Nasdaq Stock Market. “It’s happy anniversary day,” said Philip Orlando , New York-based chief equity market strategist at Federated Investors Inc., which oversees $400 billion. “The economy is out of recession, the improvement is sustainable and stocks will continue grinding higher. Investors are waiting for the next catalyst.” The S&P 500 is up 69 percent since hitting a 12-year low of 676.53 one year ago today, the biggest rally for the index since the 1930s. The main benchmark for U.S. stocks has recovered losses after sliding as much as 8.1 percent from this year’s high amid concern that some European countries’ will fail to pay back debt and speculation the Federal Reserve will need to rein in emergency stimulus measures as the economy improves. ‘Still Cheap’ Improving profits have reduced the S&P 500’s valuation to 18.3 times its companies reported operating earnings, compared with a multiple of 22.9 in December. “Stocks are still cheap,” said billionaire Kenneth Fisher , who oversees $37 billion as chairman of Fisher Investments Inc. in Woodside, California. “The nature of the beginning of the second year of a bull market is one where people are still climbing the wall of worry and they have ‘acrophobia,’” he said, referring to the fear of heights. The S&P 500 climbed as high as 1,145.37 today, near the 15- month closing high of 1,150.23 reached on Jan. 19. The rally that day extended the index’s advance from March 9, 2009, to 70 percent. “I believe we’ll play around that 1,150 level until we decide to go one way or the other,” said James Paulsen , who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “We might break through this, but we need catalysts.” AIG Rallies AIG led gains by financial companies bailed out by the U.S. government on speculation the insurer will sell more assets after raising $51 billion through deals. “We’re hearing some rumors AIG might sell more assets,” said Michael Nasto , the senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. “Their ability to raise capital is a positive thing. Back on the days when they were having all those problems, there was talk of whether or not the company could even be salvaged. Not only they are still around, the companies under their umbrella have value.” AIG jumped 13 percent to $32.77 for the biggest gain in the S&P 500. Citigroup Inc. advanced 7.3 percent to $3.82 for the second-biggest gain in the index as Fox Business Network said the U.S. may sell its stake in the bank within three months, without saying where it got the information. Fannie Mae climbed 5.9 percent to $1.07, and Freddie Mac increased 7.6 percent to $1.28. Risk Assets “We’re poised for risk assets to do well for a few quarters,” said David Darst , the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has $1.6 trillion in client assets. “The interest rate is low, inflation is low and liquidity is enormous. The final positive is global growth.” United Technologies had the biggest gain in the Dow average, rising 1.4 percent to $71.78. The maker of Pratt & Whitney jet engines and Otis elevators was raised to “outperform” from “neutral” at Cowen & Co. UAL Corp. rose 3.7 percent to $18.16. The parent of United Airlines said February revenue for each passenger flown a mile increased by between 17 percent and 19 percent. Boeing, Sprint Boeing gained 0.8 percent to $67.79. The world’s second- largest commercial-plane maker is the only bidder for the U.S. Air Force’s $35 billion tanker program after Northrop Grumman withdrew because the government refused to alter some of its requirements. Sprint Nextel Corp. had the third-biggest gain in the S&P 500, jumping 6.5 percent to $3.62. The third-largest U.S. wireless company advanced for a second day after saying it expects revenue growth in the next several quarters and saying it will pay down debt and control expenses. Sprint, the third-largest U.S. wireless carriers, led a 1.2 percent rally in telephone companies, the biggest advance among 10 groups. Industrial shares climbed 0.8 percent as a group, the second biggest gain of the 10. Yum! Brands Inc. climbed 3.4 percent to $36.60. UBS AG upgraded the shares to “buy” from “neutral” and raised its price estimate on the shares by 16 percent to $44, saying the stock has underperformed its global consumer peers. Comerica Inc. retreated 1.6 percent to $35.70. The bank, with a market value of about $5.5 billion, is raising about $800 million by selling shares. BMO Capital Markets cut its rating on the shares to “market perform” from “outperform.” First Solar Inc. fell 2.2 percent to $106.22. The world’s largest maker of thin-film solar modules was downgraded to “underweight” from “neutral” at JPMorgan. Energy Conversion Devices Inc. , also lowered to “underweight” from “neutral” at JPMorgan, fell 8.1 percent to $7.87. To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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U.S. Stocks Advance on Anniversary of S&P 500 Index’s 2009 Bear-Market Low

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Stocks in U.S. Advance on Anniversary of 2009 Bear-Market Low for S&P 500

March 9, 2010

By Rita Nazareth and Elizabeth Stanton March 9 (Bloomberg) — U.S. stocks rose on the anniversary of the 2009 bear-market low for the Standard & Poor’s 500 Index amid speculation the economy will continue to recover from the worst contraction since the Great Depression. United Technologies Corp., Microsoft Corp. and General Electric Co. led gains in the Dow Jones Industrial Average . Boeing Co. advanced after Northrop Grumman Co. withdrew as a bidder for a U.S. Air Force contract. UAL Corp. rallied 8.5 percent after reporting an increase in a measure of revenue. The S&P 500 rose 0.6 percent to 1,144.82 at 1:20 p.m. in New York. The benchmark gauge for U.S. equities ended a six-day rally and closed little changed yesterday. The Dow Jones Industrial Average advanced 53.81 points, or 0.5 percent, to 10,606.33. “It’s happy anniversary day,” said Philip Orlando , New York-based chief equity market strategist at Federated Investors Inc., which oversees $400 billion. “The economy is out of recession, the improvement is sustainable and stocks will continue grinding higher. Investors are waiting for the next catalyst.” The S&P 500 is up 69 percent since hitting a 12-year low of 676.53 one year ago today, the biggest rally for the index since the Great Depression. The main benchmark for American equities is still down more than 1 percent from this year’s high amid concern about some European countries’ ability to pay back debt and as investors speculated the Federal Reserve will need to rein in emergency stimulus measures as the economy improves. ‘Acrophobia’ “Stocks are still cheap,” said billionaire Kenneth Fisher , who oversees $37 billion as chairman of Fisher Investments Inc. in Woodside, California. “The nature of the beginning of the second year of a bull market is one where people are still climbing the wall of worry and they have ‘acrophobia’ because they didn’t expect we’d go up so much and that gives them fear of heights. We’ll see the year nicely higher.” “We’re poised for risk assets to do well for a few quarters,” said David Darst , the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has $1.6 trillion in client assets. “The interest rate is low, inflation is low and liquidity is enormous. The final positive is global growth. At the end of this year, we’ll be looking at 2011 earnings, when the market can earn $85. If you put a 14 times multiple on that, it gives you a 1,233 price for the S&P 500.” United Technologies United Technologies increased 1.9 percent to $72.09. The maker of Pratt & Whitney jet engines and Otis elevators was raised to “outperform” from “neutral” at Cowen & Co. UAL rose 8.5 percent to $19. The parent of United Airlines said February revenue for each passenger flown a mile increased by between 17 percent and 19 percent. Boeing gained 1.1 percent to $68. The world’s second- largest commercial-plane maker is the only bidder for the U.S. Air Force’s $35 billion tanker program after Northrop Grumman withdrew because the government refused to alter some of its requirements. Sprint Nextel Corp. rose the most in the S&P 500, jumping 7.4 percent to $3.65. The third-largest U.S. wireless company advanced for a second day after saying it expects revenue growth in the next several quarters and saying it will pay down debt and control expenses. Sprint Rallies Sprint, the third-largest U.S. wireless carriers, led a 1.6 percent rally in telephone companies, the biggest advance among 10 groups. Industrial shares climbed 1 percent as a group, the second biggest gain of the 10. Yum! Brands Inc. climbed 3.7 percent to $36.72. UBS AG upgraded the shares to “buy” from “neutral” and raised its price estimate on the shares 16 percent to $44, saying the stock has underperformed its global consumer peers. Comerica Inc. retreated 1.6 percent to $35.72. The bank, with a market value of about $5.5 billion, is raising about $800 million by selling shares. BMO Capital Markets cut its rating on the shares to “market perform” from “outperform.” First Solar Inc. fell 1.7 percent to $106.75. The world’s largest maker of thin-film solar modules was downgraded to “underweight” from “neutral” at JPMorgan. Energy Conversion Devices Inc. , also lowered to “underweight” from “neutral” at JPMorgan, fell 2.9 percent to $8.31. To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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Supreme Court Signals Divide on Skilling’s Bid for New Trial in Enron Case

March 1, 2010

By Greg Stohr March 1 (Bloomberg) — U.S. Supreme Court justices signaled they are divided on Jeffrey Skilling’s appeal of his conviction for leading the accounting fraud that drove Enron Corp. into bankruptcy. Hearing arguments today in Washington, the justices spent most of the one-hour session debating whether the trial should have been moved from Houston, where thousands of Enron employees lost their jobs. A favorable ruling on that issue would mean a new trial for Skilling, Enron’s former chief executive officer. Justice Sonia Sotomayor suggested she will vote for Skilling on that issue, faulting the trial judge for conducting a “truncated” session in questioning prospective jurors. Chief Justice John Roberts countered that the trial judge had more than 15 years of experience and made the “reasonable” decision to question the jurors himself rather than turn the task over to the lawyers. Skilling’s appeal says the atmosphere in Houston when the trial began in January 2006 was one of hostility toward him, fed by unrelenting, negative media coverage. The federal government contends that the trial judge, after questioning the jurors, was satisfied that each could assess the evidence impartially. Skilling’s appeal also contends that a federal law banning so-called honest services fraud is unconstitutionally vague. A victory on that issue would overturn at least one count of his 19-count conviction. Convicted With Lay Skilling was convicted in May 2006 alongside Kenneth Lay , the former Enron chairman who died less than two months later. Skilling, 56, was sentenced to more than 24 years in prison, a term he is serving in a federal prison in Colorado. A federal appeals court upheld the conviction. Enron was the world’s biggest energy-trading company, with a market value of as much as $68 billion, before it collapsed, wiping out more than 5,000 jobs and $1 billion in employee retirement funds. The bankruptcy spawned criminal charges against 34 defendants, including Arthur Andersen LLP, the now-defunct accounting firm whose conviction the Supreme Court overturned in 2005. The case is Skilling v. United States, 08-1394. To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net .

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Prudential Plc Said in Talks to Buy AIG Asian Life Unit for $30 Billion

February 28, 2010

By Kevin Crowley and Howard Mustoe Feb. 28 (Bloomberg) — Prudential Plc , the U.K.’s largest insurer, is in negotiations to buy American International Group Inc. ’s Hong Kong-based life unit for more than $30 billion, according to a person familiar with the situation. Prudential would not be forced to sell any of its existing businesses to fund a purchase of American International Assurance Co., said the person, who declined to be identified because the talks are private. Chief Executive Tidjane Thiam has spoken with AIG’s board in recent days, the person said. Thiam wants to raise the proportion of sales the company gets from Asia to 80 percent by 2015 from 50 percent now, he said in a Feb. 17 interview. Prudential operates in 13 Asian nations and is seeking to offset slower growth in the U.K. market. A sale of AIA would be a change of course for AIG, which has been planning an initial public offering for the unit to help repay its $182.3 billion bailout by the U.S. government “If they buy AIA, Prudential will become an absolute dominant force in those big, big markets,” said Eamonn Flanagan , a Liverpool-based analyst at Shore Capital Group Plc who has a “buy” rating on the stock. “The strategic sense is terrific.” London-based Prudential has a market value of 15.3 billion pounds ($23.3 billion). The stock has more than doubled in the past year. The shares rose 2.3 percent to 602.5 pence in London trading on Feb. 26. Fully Underwritten A 15 billion-pound share sale to fund the purchase would be fully underwritten by a group of banks led by Credit Suisse Group AG, HSBC Holdings Plc and JPMorgan Chase & Co., Sky News reporter Mark Kleinman wrote on his blog today. Sky News first reported on the negotiations yesterday. Credit Suisse, HSBC, JPMorgan and Lazard Ltd. are advising Prudential on the acquisition, Sky said. Prudential would pay mainly in cash with a small amount of stock, though the terms of the deal are still being worked out, the Wall Street Journal said today, citing one person familiar with the transaction. Prudential spokesman Ed Brewster declined to comment as did AIG spokesman Mark Herr . Credit Suisse, Lazard and JP Morgan also declined to comment. A spokesman for HSBC didn’t respond to an e-mail seeking comment, and a spokeswoman for AIA in Hong Kong didn’t respond to a voicemail left on her mobile phone outside regular office hours. Prudential’s offer may tempt other insurers to bid for the AIG unit, Flanagan said, especially if AIG were prepared to lower its asking price. Prudential may be best placed to make a higher offer because of cost savings it could make, he said. AIA IPO “In the various territories in the Far East and Asia, AIG and the Pru have been number one and two,” he said. “They can justify a higher price through synergy gains.” Earlier this month, AIG, which is selling assets to repay the U.S. government, hired about seven additional banks to help manage an initial public offering for AIA in Hong Kong, according to five people familiar with the decision. Credit Suisse, CCB International, Goldman Sachs Group Inc. and UBS AG were among banks due to work with the original sale managers, Deutsche Bank AG and Morgan Stanley, said the people, who declined to be identified before a public announcement. One year ago, the New York-based AIG, once the world’s largest insurer, was forced to shelve talks with potential corporate buyers of AIA because bids were too low, people familiar with the matter said at the time. AIA had attracted interest from Manulife Financial Corp., Prudential and Temasek Holdings Pte, with all seeking to buy a stake, according to people familiar with the matter, speaking in May 2009. The unit had an embedded value of about $20 billion, a person familiar with the valuation said one year ago. Embedded value estimates a company’s net worth excluding new business. If AIG proceeds with an IPO of AIA, it hopes to value the unit at $30 billion to $40 billion and get proceeds of about $15 billion, the WSJ reported today. To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net Howard Mustoe in London at hmustoe@bloomberg.net

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Lloyds Has Wider-Than-Estimated Loss as HBOS Takeover Increases Bad Loans

February 26, 2010

By Andrew MacAskill and Jon Menon Feb. 26 (Bloomberg) — Lloyds Banking Group Plc , Britain’s biggest mortgage lender, posted a wider-than-expected full-year loss as loan losses rose “significantly” in 2009 on the bank’s takeover of HBOS Plc . Lloyds’s pretax loss narrowed to 6.3 billion pounds ($9.6 billion) from 6.7 billion pounds in 2008, the London-based bank said in a statement today. That missed the 6.1 billion-pound median loss estimated by 22 analysts surveyed by Bloomberg. Lloyds fell in London trading. Bad loan losses were “significantly higher” at 24 billion pounds, the lender said today. They declined 21 percent in the second half compared with the first six months. “The HBOS legacy still weighs heavily on Lloyds, although these numbers do show some signs of encouragement,” Richard Hunter , Head of UK Equities at Hargreaves Lansdown Stockbrokers, said in a note to clients. “Lloyds remains as something of a U.K. recovery play and therefore hostage to the fortunes of the broader economic picture.” Lloyds completed the U.K.’s biggest rights offering last year to raise 13.5 billion pounds, enabling it to shun a government program capping losses on toxic assets. The bank, which is 41 percent owned by the taxpayer, has taken about 20.5 billion pounds in taxpayer-funded support since buying HBOS in January 2009, a deal that left the bank saddled with bad loans. “We are seeing commercial property impairments and mortgage coming down quite nicely,” Chief Executive Officer Eric Daniels , 58, said in an interview. “Margin, costs and impairments are all heading in the right direction and that gives a strong trajectory.” Loan Impairments Lloyds lost 2.7 percent to 53.40 pence at 9:32 a.m. in London trading for a market value of 35.8 billion pounds. The FTSE 350 Index of U.K. banks gained 1.1 percent. Banking net interest margin improved to 1.83 per cent in the second half of the year, compared to 1.72 per cent in the first half. The bank said it saw “further significant reductions” in impairments in 2010 and beyond, “assuming current economic expectations.” Economic growth in the U.K. will be slow and below trend, the bank said. Lloyds said it had focused on the loan portfolio from HBOS Plc , which it took over in January 2009, with “the greatest attention paid to the over-concentration in real estate related lending and those portfolios that fall outside the Lloyds TSB risk appetite.” That led the bank to “prudent and material impairment charges especially in the first half of the year.” Falling Mortgage Share Lloyds is losing market share of new U.K. mortgages after reducing loans. Gross new mortgage lending in 2009 dropped to 35 billion pounds from 78 billion pounds in 2008. That reduced Lloyds’s share of gross new lending to 24 per cent compared with 31 percent in 2008. Overall, mortgage balances outstanding at 31 December 2009 totaled 345.9 billion pounds, a drop of 3.7 billion pounds in the year. Banco Santander SA , Spain’s biggest bank, increased its gross U.K. market share to 18.6 percent in 2009 from 13.9 per cent a year earlier, the lender said when it announced full-year results this month. Royal Bank of Scotland Group Plc , Britain’s biggest government-owned lender, yesterday reported a narrower-than- expected full-year net loss buoyed by profit at its investment bank and slowing impairments. Barclays Plc, the U.K.’s second biggest bank, more than doubled profit to 7.5 billion pounds the bank said last week. HSBC Holdings Plc reports results March 1. Government Funding At the end of last year, Lloyds said it had gained 157 billion pounds of funding support from the government and central bank. A reduction in the bank’s balance sheet “will avoid the necessity to refinance much of this funding,” Lloyds said. The bank announced about 15,000 job cuts during the year, it said. Daniels is forgoing his 2.3 million pound bonus for 2009 following the lead of executives at Barclays and RBS who are waiving their right to a bonus. The government has pressed banks to cut or defer bonuses amid taxpayer anger over payouts. “I took a very personal decision to forgo bonuses because I thought it was really clouding the view of what Lloyds is accomplishing,” Daniels said. “So I thought I would remove that from the table.” Pretax profit at the bank’s retail unit fell by 1.57 billion pounds to 975 million, reflecting lower income and higher impairments, the bank said. Group net interest income decreased by 15 percent to 12.7 billion. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net ; Jon Menon in London at jmenon1@bloomberg.net

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Coca-Cola Agrees to Buy Coca-Cola Enterprises’ North America Bottling Unit

February 25, 2010

By Andrew Dunn Feb. 25 (Bloomberg) — Coca-Cola Co. , the world’s biggest soda maker, agreed to buy the North American operations of bottler Coca-Cola Enterprises Inc. , more than six months after PepsiCo Inc. moved to bring its bottlers in-house to cut costs. The bottler’s investors will get $10 and one share in a new bottling company for each share they hold, Atlanta-based Coca- Cola said today in a statement. Coca-Cola will also assume $8.88 billion of the bottler’s debt . Coca-Cola Enterprises agreed to buy Coca-Cola’s bottling operations in Norway and Sweden and will have the right to buy Coca-Cola’s stake in its German bottling operations. Coca-Cola said the takeover may save $350 million over four years. As soft-drink volume sales in the U.S. market have declined since 2005, Coca-Cola Chief Executive Officer Muhtar Kent has introduced new packaging and pricing for Coca-Cola in North America to draw customers in addition to cutting supply- chain costs. “Coca-Cola will streamline the North American operations, but eventually will look to sell,” Kaumil Gajrawala , an analyst at UBS Securities LLC in New York, wrote in a note yesterday after reports that a transaction was being discussed. Coca-Cola Enterprises, based in Atlanta, rose $5.82 to $25 at 8:22 a.m. New York time, before the start of regular U.S. trading. As of yesterday’s close on the New York Stock Exchange, the company had a market value of $9.4 billion. Coca-Cola rose 33 cents to $55.16 in New York yesterday. The stock rose 26 percent last year, while PepsiCo advanced 11 percent. Capital-Intensive Coca-Cola and PepsiCo sell beverage concentrate and syrup to licensed bottlers, which add water and other ingredients, put the mixture in bottles and cans, and sell it. In 1999, PepsiCo followed Coca-Cola’s lead by spinning off its capital-intensive bottling operations to create Pepsi Bottling Group Inc. Coca-Cola currently owns about 34 percent of Coca-Cola Enterprises, a stake it values at $3.4 billion. The transaction should close in the fourth quarter of 2010, according to the statement. Coca-Cola said the takeover will give it direct control over about 90 percent of North American volume. PepsiCo, the second-largest soft-drink maker, agreed in August to take control of its two biggest bottlers for about $7.8 billion. Those purchases may allow PepsiCo to garner about $400 million annually from cost savings and improved revenue opportunities, the company said this month. North American volume at Coca-Cola Enterprises declined 5 percent last year, while net pricing per case increased 6.5 percent, the company said in a Feb. 10 earnings report. To contact the reporter on this story: Andrew Dunn in New York at adunn8@bloomberg.net

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Coca-Cola Said to Be Near Purchase of Bottler Stake for Up to $15 Billion

February 24, 2010

By Zachary R. Mider and Duane D. Stanford Feb. 24 (Bloomberg) — Coca-Cola Co. , the world’s biggest soda maker, is in talks to buy the North American operations of bottler Coca-Cola Enterprises Inc. for almost $15 billion including debt, according to two people with knowledge of the discussions. The sides may reach an agreement within days or the talks may fall apart, said the people, who declined to be identified because the negotiations are private. In the transaction under discussion, Coca-Cola would sell bottling operations in Scandinavia and Germany to Coca-Cola Enterprises, its largest bottler, the people said. A purchase would follow a similar move by PepsiCo Inc. to bring its bottling operations in-house as both companies try to turn around the U.S. market, where soft-drink volume sales have declined since 2005. “We expect that Coca-Cola Enterprises will not grow revenue significantly,” Sachin Shah , a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York, said today in a telephone interview. Buying the bottler “extracts synergies and cost savings,” he said. Ben Deutsch , a Coca-Cola spokesman, didn’t immediately return a call seeking comment. John Downs , a spokesman for Coca- Cola Enterprises, declined to comment. The Wall Street Journal reported the talks earlier today. Coca-Cola Enterprises soared 27 percent in extended trading. The shares climbed $5.17 to $24.35 at 7:36 p.m. New York time. As of today’s close, the company had a market value of $9.4 billion. Coca-Cola, based in Atlanta, rose 33 cents to $55.16 in New York Stock Exchange composite trading . The stock rose 26 percent last year, while PepsiCo advanced 11 percent. Beverage Concentrate Coca-Cola and PepsiCo sell beverage concentrate and syrup to licensed bottlers, which add water and other ingredients, put the mixture in bottles and cans, and sell it. In 1999, PepsiCo followed Coca-Cola’s lead by spinning off its capital-intensive bottling operations to create Pepsi Bottling. Coca-Cola currently owns about 34 percent of Coca-Cola Enterprises. PepsiCo’s takeovers of its bottlers will give it control of about 80 percent of its North American beverage market. The acquisitions are expected to be completed by the end of the first quarter, PepsiCo, based in Purchase, New York, said in a regulatory filing Jan. 11. Volume Growth North American volume at Coca-Cola Enterprises declined 5 percent last year, while net pricing per case increased 6.5 percent, the company said in a Feb. 10 earnings report. Coca-Cola Enterprises is committed to a return to volume growth in North America, Chief Executive Officer John F. Brock said in a Feb. 17 presentation at the Consumer Analyst Group of New York conference in Boca Raton, Florida. Results improved in the fourth quarter of last year compared with the third quarter, he said. “Overall, we must continue to manage our North American business in a way that does deliver improving results and provides the resources we need to invest in the business,” he said at the time. To contact the reporter on this story: Zachary R. Mider in New York at mider1@bloomberg.net ; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

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RBS Chief Executive Officer Stephen Hester Is Said to Waive Any 2009 Bonus

February 22, 2010

By Simon Packard Feb. 22 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. Company spokeswoman Linda Harper declined to comment. The Sunday Times said yesterday that while RBS may report a loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so — but not now,” Mandelson said yesterday in an interview with BBC Television . Hester’s decision follows Barclays Plc Chief Executive Officer John Varley and President Bob Diamond , who refused bonuses the second year in a row. Lloyds CEO The decision by the heads of Barclays and RBS to waive their bonuses increases the pressure on Lloyds Banking Group Plc CEO Eric Daniels to make a similar decision, according to Chris Roebuck , a visiting professor at Cass Business School in London. “If he is fully aware of the anger that it would cause to take a bonus among the general public and the politicians – whether that be right or wrong – he needs to play a diplomatic game” and consider refusing it, Roebuck said. “No decisions have been taken by our independent remuneration about potential bonus awards,” Shane O’Riordain, a Lloyds spokesman, said today. Daniels, who is paid a base salary of 1.04 million pounds, will be entitled to a bonus of around 225 percent of his base salary, which will be paid in stock over three years and subject to clawbacks, O’Riordain said. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock climbed 80 percent in the past 12 months, compared with the 89 percent increase of the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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RBS Chief Hester Is Said to Forgo 2009 Bonus After Bailout From Government

February 21, 2010

By Simon Packard Feb. 21 (Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester has decided to forgo any bonus awarded to him for 2009, according to a person familiar with the situation, who declined to be identified before a formal announcement. RBS spokeswoman Linda Harper declined to comment. Hester, 49, is scheduled to release 2009 results for the bank on Feb. 25, the first full-year since he took over as head of the 84 percent state-owned bank in November 2008. Hester joined Edinburgh-based RBS on a package entitling him to as much as 9.74 million pounds ($15 million) if he doubles the bank’s share price. The Sunday Times said today that while RBS will likely report a narrower loss for last year, Hester would be entitled to collect 1.6 million pounds in bonuses. That led U.K. Business Secretary Peter Mandelson to say in a television interview today that such a payment would be premature. “If further down the line, in years to come, he has done well and turned around RBS, he deserves something back for it — and I would be the first to say so, — but not now,” Mandelson said in an interview with BBC Television . Hester’s decision follows that of Barclays Plc Chief Executive John Varley and President Bob Diamond to refuse bonuses for 2009, the second year in a row. In return for a government bailout, RBS accepted that the U.K. Treasury gain oversight of its bonus pool, doubling the number of “high achievers” quitting the company, Hester said in December. Hester has an annual salary of 1.2 million pounds. RBS shares must rise to 70 pence each and outperform peers for Hester to receive the full amount of shares and options in his pay deal with the company, RBS said last June. RBS rose 2.3 percent to 34.5 pence on Feb. 19 in London trading. The stock has climbed 80 percent in the last 12 months, compared with the 89 percent increase in the Bloomberg Europe Banks and Financial Services Index . The bank has a market value of 19.5 billion pounds. To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

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Facebook Said to Offer More Ways to Pay for Tractors, Fish Food in Games

February 19, 2010

By Ari Levy, Brian Womack and Joseph Galante Feb. 19 (Bloomberg) — Facebook Inc. is expanding a service called Facebook Credits that gives it a 30 percent cut of sales from tractors, fish food and guns in online games, according to four people who have held discussions with the company. Facebook is already testing the payment option in at least 17 games, including “Happy Aquarium” and “Restaurant City.” The company will make the service available in more games ahead of its annual developers conference in April, said the people, who declined to be named because the plans aren’t public. After relying on advertising for almost all of its revenue, Facebook is moving to take a bigger piece of the market for virtual items bought in games, which may quadruple to $3.6 billion in the U.S. by 2012, according to ThinkEquity LLC. Today, almost all of those sales go to the game developers, such as Zynga Inc., creator of “FarmVille,” and Electronic Arts Inc.’s Playfish unit. “It will likely be a significant revenue stream,” said Jeremy Liew , a managing director at Menlo Park, California-based Lightspeed Venture Partners who invests in social games. “They’ll keep working on it until it makes economic sense for developers.” Facebook, the most popular social-networking site, allows outside developers to offer games to its 400 million users. The games are free, and players can pay for items that advance their progress, such as a $3.33 tractor in “FarmVille,” a $5.95 helicopter in “Mafia Wars” or a $4.89 box of fish food for “Happy Aquarium.” Facebook Cut The Palo Alto, California-based company is seeking to take advantage of the popularity of online games, a market that has already blossomed in Asia. Shares of Tencent Holdings Ltd. , a game company in Shenzhen, China, tripled in the past year, giving it a market value of $35 billion. Facebook is also taking a page from Apple Inc., which gets a 30 percent cut of sales from iPhone apps. Today, gamers on Facebook can either buy Facebook Credits to obtain items in games, or pay for them through third-party services. Of the $3.6 billion in U.S. virtual goods sales in 2012, about $2.2 billion will be on social networks, with 80 percent on Facebook, said Atul Bagga , a ThinkEquity analyst in San Francisco. If all payments on the site use Facebook Credits, that would mean $530 million in revenue for the company, he said. ‘Trust Factor’ “It’s the trust factor,” Bagga said. “You trust Facebook more than you would trust any other payment company.” EBay Inc.’s PayPal unit said yesterday that it will become a payment option for Facebook Credits, allowing PayPal customers to buy the site’s virtual currency. Players can also use credit cards or their mobile phone to buy credits. Payments and virtual currencies will likely be a focus of Facebook’s developers conference, which is scheduled to start April 21 in San Francisco, said three people who have had discussions with the company. “We are continuing to look at ways to extend our virtual currency — Facebook Credits — via a small alpha test with a handful of developers,” Facebook said in an e-mailed statement. “The test started in May and is exploring ways for people to use their Facebook Credits with third-party applications.” Allowing Facebook’s users to buy a single virtual currency that can be spent on all games will probably increase sales for developers, said Vish Makhijani , chief operating officer of San Francisco-based Zynga, the largest creator of games on the site. ‘Additional Liquidity’ “Facebook Credits will drive more people to become buyers,” Makhijani said. “That additional liquidity or ability to spend in more places clearly would be more attractive to a consumer than something you can only spend in one place.” In rolling out Facebook Credits, the company may still allow players to buy goods using other payment services. Developers would prefer to have Facebook Credits as an option — rather than being the exclusive payments provider — because purchases made with Facebook cost them more, said Vikas Gupta, chief executive officer of Jambool Inc. , also known as Social Gold, which offers an in-game payment system. “Facebook Credits comes at a pretty high tax,” said Gupta, whose San Francisco-based company charges developers 7 percent to 10 percent per purchase. Still, he said Facebook Credits “will help grow the overall ecosystem so you’ll see more people pay for goods.” To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net ; Brian Womack in San Francisco at Bwomack1@bloomberg.net ; Joseph Galante in San Francisco at jgalante3@bloomberg.net

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Axa Records Second-Half Profit as Market Rally Boosts Life-Insurance Unit

February 18, 2010

By Fabio Benedetti-Valentini Feb. 18 (Bloomberg) — Axa SA , Europe’s second-biggest insurer, posted a second-half profit after a rally in financial markets boosted demand for policies linked to stock performance. Net income reached 2.28 billion euros ($3.1 billion) from a 1.24 billion-euro loss a year earlier, according to figures on the Paris-based company’s Web site today. That beat the 1.62 billion-euro estimate of analysts surveyed by Bloomberg. “Axa should benefit from favorable market trends in the insurance and asset-management markets” in spite of macroeconomic “uncertainties,” Chief Executive Officer Henri de Castries said in the statement. Axa, like MetLife Inc., the U.S.’s biggest insurer, and Toronto-based Manulife Financial Corp., returned to profit after equity markets rebounded following the worst financial crisis since the Great Depression. To capture future growth, de Castries, 55, plans to more than triple the portion of earnings coming from emerging markets within three to five years. Axa has gained 43 percent in Paris trading in the last 12 months, giving the insurer a market value of 35.6 billion euros. The 29-member Bloomberg Europe 500 Insurance Index has climbed 38 percent in the period. Operating earnings in the second half, excluding capital gains, one-time charges and asset-valuation swings, rose 36 percent to 1.74 billion euros. Earnings at the company’s life and savings unit, Axa’s biggest by revenue, rose to 1.1 billion euros from 112 million euros, more than analysts’ median estimate of 928 million euros. Property and casualty profit fell 46 percent to 685 million euros. Axa’s solvency ratio, a measure of an insurer’s capacity to absorb losses, reached 171 percent at the end of December. That’s up from 133 percent at the end of June. The insurer plans to increase the 2009 dividend by 38 percent to 55 euro cents a share. Axa doesn’t break down second-half earnings. Bloomberg calculated profit in the period by subtracting first-half earnings from full-year profit. To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net .

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Four Bargains Emerge Amid Knocked-Down Stocks: John Dorfman

February 16, 2010

Commentary by John Dorfman Feb. 16 (Bloomberg) — Most stock-market declines are not the end of the world — just a confirmation of J. Pierpont Morgan ’s famous dictum that stocks “will fluctuate.” So far, the retreat that began on Jan. 19 looks like a garden-variety contraction to me. Investors who buy on such dips should achieve better returns than those who jump in on upswings. So what opportunities is the current sell-off serving up? I believe these four stocks knocked down by the slump are worth buying now. DynCorp International Inc. , a contractor that provides security services and trains police officers worldwide, has fallen about 21 percent since Jan. 19. The Falls Church, Virginia, company has helped train personnel in trouble spots such as Iraq and Afghanistan. It also provides guard services, removes land mines, maintains aircraft, and performs other related services. Dyncorp had $3.1 billion in revenue in its last fiscal year, which ended in April. While some private-security companies have been dogged by accusations of using excessive force, I believe DynCorp has had fewer such issues than some of its competitors. Three Risks DynCorp’s name goes back to 1987 although the company’s origins reach back to 1946. It went public in 2006 and has increased its earnings each year since. Per share earnings were $1.22 in 2009, and analysts look for about $1.44 a share in 2010. After its tumble in the recent correction, DynCorp shares seem to me attractively cheap. They trade for a little more than $10, down from about $20 last summer. The price is now only seven times earnings and a bit more than book value (corporate net worth per share). Why is DynCorp stock inexpensive? There are at least three risks to consider. First, the world could become more peaceful, but regrettably that seems unlikely. Second, the U.S. military could bring more functions under its direct purview, rather than using consultants. Third and most likely, Congress might grow weary of widening deficits and dwindling revenue and slice defense spending. In my opinion, DynCorp is currently cheap enough to compensate investors for taking such risks. Brutally Competitive Multi-Fineline Electronix Inc. , located in Anaheim, California, has fallen about 13 percent since Jan. 19. It assembles flexible circuit boards used in laptops, smart phones, and other mobile devices. It also makes other electronic components. Most of the drop came after Multi-Fineline said sales in the second quarter of fiscal 2010 will probably be $160 million to $180 million, instead of $193 million as analysts expected. I’d be the first to admit that making circuit boards is a brutally competitive business. Yet the company has some strengths that attract me. Since its initial public offering in 2004, Multi-Fineline has reported a profit every year. Last year was its best, with earnings of $1.81 a share. (For this year, analysts foresee only $1.50.) I also like Multi-Fineline’s balance sheet , with debt less than 3 percent of equity. The stock sells for 12 times earnings and 1.4 times book value, cheap for a technology stock. Switching to the financial industry, Employers Holdings Inc. , a workers’ compensation insurance company based in Reno, Nevada, looks interesting. It is down about 11 percent in recent weeks. Holding Up Well Employers Holdings has a market value of more than $500 million and is covered by six analysts , who are evenly split between “buy” and “hold” ratings. At first glance, you might think Employers Holdings is stuck in reverse. The company went public in 2007 and reported earnings of $2.32 a share that year. The following year earnings fell to $2.07. In the fiscal year just ended, analysts estimate the figure was $1.92. Yet in my view, earnings held up pretty well considering the recession. Workers’ compensation is affected by the economy, partly because workers are more likely to file a claim during bad times. At $12 to $13, the stock is modestly valued at six times earnings and a little more than book value. If Employers Holdings can get back to earning $2 a share, and if the stock were to sell for 10 times earnings — hardly a towering multiple — this would be a $20 stock. Pounding the Table Finally, consider Rock-Tenn Co. of Norcross, Georgia, a maker of folding cartons and corrugated packaging. It is down 25 percent. Packaging companies are famous for being sensitive to the movements of the economy. In recent columns I have pounded the table regarding my belief that the U.S. economy is getting better. If I’m right, Rock-Tenn , now selling for eight times earnings and 0.5 times revenue, is a logical beneficiary. Rock- Tenn’s debt is high, at 150 percent of equity, but the company seems to be gradually bringing it down. Disclosure note: I have no long or short positions in the stocks discussed in this week’s column. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Bharti $10.7 Billion Bid for Zain Africa Assets Shows Emerging Market Push

February 14, 2010

By Fiona MacDonald Feb. 14 (Bloomberg) — Zain’s board accepted an offer from Bharti Airtel Ltd. , India’s largest wireless operator, to purchase most of its African assets, according to two people familiar with the matter. The bid marks the Indian company’s third attempt to enter the continent. Bharti offered $10.7 billion for the units, one of the people said, declining to be identified because the transaction hasn’t formally been announced. Zain, Kuwait’s biggest phone company, said in a statement to the country’s bourse early today that its board would meet to discuss an offer for its African business assets, excluding Sudan and Morocco. Bharti’s billionaire chairman and biggest shareholder Sunil Mittal is seeking to enter Africa, one of the world’s fastest- growing telecommunications markets, as competition intensifies on his home turf. His New Delhi-based company failed last year to buy MTN Group Ltd. for about $23 billion, its second attempt to take over the South African company. “The Indian market is moving towards saturation and it’s important for mobile phone companies to look at emerging markets such as Africa for growth,” said R.K. Gupta, portfolio manager and managing director at Taurus Asset Management in New Delhi. “My only worry is that there is this dangerous trend of Indian companies trying to buy overseas assets at any cost. If you get a company at cheap valuation or fair cost it’s O.K., but if you pay aggressively it’s going to affect profitability for years.” 40 Million Subscribers For Zain’s main shareholders, led by the Kharafi Group, the transaction would end almost a year-long effort to sell the company as a whole or in parts. Zain bought Celtel International for $3.4 billion in 2005 to expand into 13 African countries, including Kenya and Nigeria, the continent’s most populous nation. The company has more than 40 million subscribers in Africa, about 62 percent of its client base. More than half of its $7.4 billion of annual sales in 2008 came from Africa, according to Bloomberg data. Zain shares have soared 23 percent in the last week, giving the company a market value of 4.64 billion Kuwaiti dinars ($16 billion). The stock was suspended from trading today. In the past year, Luxembourg-based Millicom International Cellular SA has said it would be interested in some of Zain’s assets. Also France’s Vivendi SA , the owner of the world’s largest music company, entered talks to buy the African assets last year, walking away in July, saying that the purchase didn’t fit “its usual criteria of profitability and financial discipline” for a potential investment. MTN In August, MTN said it might consider buying the African units of Zain if talks to merge with Bharti failed. The company would only contemplate the purchase if there are no “regulatory problems,” MTN Chief Executive Officer Phuthuma Nhleko said at a presentation in Johannesburg. Bharti and MTN called off merger talks on Sept. 30, scrapping a transaction that would have been the world’s biggest cross-border deal last year. Abandoning talks for the second time in two years, Bharti said the structure of the deal failed to get approval from the South African government. Bharti faces mounting competition in its home market in India. The company has slashed call rates to as little as 0.01 rupee a second to keep customers after overseas carriers including Japan’s NTT DoCoMo Inc. and Norway’s Telenor ASA entered the Indian market with cut-price plans. Stock Performance Bharti has stock fallen 3.3 percent in the last year, compared with the 70 percent increase in India’s Sensex Index. The company has a market value of 1.2 trillion rupees ($26 billion). The shares fell 0.3 percent on Feb. 11 to 314.5 rupees each. Zain’s previous attempts to sell the entire group or some of its assets have failed. This month, Saad al-Barrak resigned as Zain’s chief executive officer after delays in the proposed sale of the company by the Kharafi Group, Zain’s second-largest shareholder. Kharafi announced in September it signed a preliminary agreement to sell a 46 percent stake in Zain, valued at $13.7 billion, to a group led by India’s Vavasi Group and Malaysian billionaire Syed Mokhtar Al-Bukhary . At the time, the sellers and buyers pledged to complete the deal in four months. To contact the reporter on this story: Fiona Macdonald in Kuwait on fmacdonald4@bloomberg.net

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Tepper’s Appaloosa Raises Citigroup Stake, and Buys Stock in Four Airlines

February 13, 2010

By Miles Weiss Feb. 13 (Bloomberg) — David Tepper , the money manager with one of last year’s top-performing hedge funds, bought four U.S. airline stocks and raised his Citigroup Inc. stake by 73 percent in the fourth quarter, a regulatory filing shows. His Appaloosa Management LP’s holdings in Citigroup rose to 138.1 million common shares at yearend from 79.7 million shares at Sept. 30, according to a Form 13F filed yesterday with the U.S. Securities and Exchange Commission. The shares of New York- based Citigroup had a market value of $457.2 million, making it the second-biggest position with about 13 percent of the holdings reported in the filing. Tepper invested in bank stocks as they declined during the market rout of early 2009, then pocketed gains when the financial industry recovered in April and May. That helped his flagship fund, Appaloosa Investment LP, deliver a 117.3 percent return for the nine months ended Sept. 30, the best showing among hedge funds with assets exceeding $1 billion, according to Bloomberg data. Appaloosa also acquired 11 million common shares of Wells Fargo & Co. in the quarter, supplementing its holdings of the bank’s preferred stock. According to Bloomberg data, financial stocks comprised 86 percent of the $3.4 billion in holdings listed in the Form 13F as of Dec. 31. The SEC requires money managers who oversee more than $100 million in U.S. equities to report their holdings on a Form 13F within 45 days of the end of each quarter. The filing must include all holdings in stocks that trade on U.S. exchanges, as well as options and convertible debt. Airlines Appaloosa’s hedge funds invested in four U.S. airline companies during the quarter: AMR Corp., Delta Air Lines Inc., UAL Corp. and US Airways Group Inc. The firm’s shares in the airlines had a combined market value of about $133 million at yearend. AMR, based in Fort Worth, Texas, is the parent of American Airlines, while Chicago-based UAL owns United Airlines. Delta is based in Atlanta and US Airways is in Tempe, Arizona. Tepper, whose firm is based in Short Hills, New Jersey, didn’t immediately return a telephone call for comment. To contact the reporter responsible for this story: Miles Weiss in Washington at mweiss@bloomberg.net

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Tepper’s Appaloosa Raises Citigroup Stake, and Buys Stock in Four Airlines

February 13, 2010

By Miles Weiss Feb. 13 (Bloomberg) — David Tepper , the money manager with one of last year’s top-performing hedge funds, bought four U.S. airline stocks and raised his Citigroup Inc. stake by 73 percent in the fourth quarter, a regulatory filing shows. His Appaloosa Management LP’s holdings in Citigroup rose to 138.1 million common shares at yearend from 79.7 million shares at Sept. 30, according to a Form 13F filed yesterday with the U.S. Securities and Exchange Commission. The shares of New York- based Citigroup had a market value of $457.2 million, making it the second-biggest position with about 13 percent of the holdings reported in the filing. Tepper invested in bank stocks as they declined during the market rout of early 2009, then pocketed gains when the financial industry recovered in April and May. That helped his flagship fund, Appaloosa Investment LP, deliver a 117.3 percent return for the nine months ended Sept. 30, the best showing among hedge funds with assets exceeding $1 billion, according to Bloomberg data. Appaloosa also acquired 11 million common shares of Wells Fargo & Co. in the quarter, supplementing its holdings of the bank’s preferred stock. According to Bloomberg data, financial stocks comprised 86 percent of the $3.4 billion in holdings listed in the Form 13F as of Dec. 31. The SEC requires money managers who oversee more than $100 million in U.S. equities to report their holdings on a Form 13F within 45 days of the end of each quarter. The filing must include all holdings in stocks that trade on U.S. exchanges, as well as options and convertible debt. Airlines Appaloosa’s hedge funds invested in four U.S. airline companies during the quarter: AMR Corp., Delta Air Lines Inc., UAL Corp. and US Airways Group Inc. The firm’s shares in the airlines had a combined market value of about $133 million at yearend. AMR, based in Fort Worth, Texas, is the parent of American Airlines, while Chicago-based UAL owns United Airlines. Delta is based in Atlanta and US Airways is in Tempe, Arizona. Tepper, whose firm is based in Short Hills, New Jersey, didn’t immediately return a telephone call for comment. To contact the reporter responsible for this story: Miles Weiss in Washington at mweiss@bloomberg.net

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SAP Management Upheaval Pits Plattner Against Ellison in Market Share Spat

February 8, 2010

By Ragnhild Kjetland Feb. 9 (Bloomberg) — SAP AG Co-Founder Hasso Plattner may have a bigger challenge as he picks up his rivalry with Oracle Corp. — again. The 66-year-old supervisory board chairman, who’s also the company’s biggest shareholder, is assuming a greater management role at the world’s largest business-management software maker, helming what he said yesterday was an effort to “re-establish trust inside and outside” the company. The Walldorf, Germany-based company’s chief executive officer, Leo Apotheker , unexpectedly resigned on Feb. 7 after SAP’s board decided not to renew his contract that was set to expire at the end of the year. He was replaced by two co-CEOs. The board asked Plattner to advice the new managers on technology and product development, giving him a hands-on role seven years after he stepped down as co-CEO to take on fellow- billionaire Larry Ellison’s Oracle, which says it’s taking business away from SAP. “SAP is still a major actor but it has lost its positive contact to customers,” said Frank Niemann , a SAP software consultant at Pierre Audoin Consultants in Munich. “Hasso is a software guru, a little like the Bill Gates of Europe. He’ll work more on developing technology. He has a very clear understanding of what’s going on in the market. But he can’t force the company in a new direction. That’ll be a challenge.” Apotheker, 56, resigned amid customer and employee discontent, and a failure to boost revenue. He was replaced by board members Bill McDermott and Jim Hagemann Snabe . Both Snabe and McDermott have decades of industry experience, “but neither has been a CEO before and the relationship between them will be interesting and challenging,” said Ross MacMillan , an analyst with Jefferies & Co. in New York. ‘Happy Company’ That may mean a more significant role for Plattner, who in 1972 joined Dietmar Hopp to create SAP with three former colleagues from International Business Machines Corp. “For a public company, profit is everything, but in order to be profitable it must be a happy company, and I will do everything in my power to make us a happy company again,” Plattner said yesterday on a conference call with analysts and journalists, his first in seven years. The management change means SAP is acknowledging the “depths” of its current issues, said JMP Securities analyst Patrick Walravens in San Francisco. “These issues include a convoluted product strategy, loss of market share to Oracle,” as well as trouble adapting to selling software as an online-service, Walravens said. He has an underperform rating on SAP. Product Innovation SAP shares , which reached an all-time high of 71.58 euros in March 2000 — on Plattner’s watch — have since halved. They traded yesterday at 32.56, giving the company a market value of about 40 billion euros ($54.7 billion). Redwood City, California-based Oracle , the world’s second-biggest software maker, has a market value more than double that at $116 billion. Plattner and his two new co-CEOs need to increase software license sales, which dropped 28 percent in 2009 after rising for years. They will also have to improve relationships with clients, which were hurt by an attempt to elbow in an increase in the price of maintenance contracts, said Saverio Papagno , an analyst at AZ Fund Management SA in Luxembourg. “SAP should bring its focus back on product innovation, to avoid losing market share to competitors, rather than cost cuts,” he said. SAP, whose customers include McDonald’s Corp., General Motors Co. and Wal-Mart Stores Inc., slashed more than 3,000 jobs last year, its first such major cut since its creation, helping it beat its own forecast for operating margin. ‘Trim Exposure’ In the near term, the management changes may create turmoil and may backfire, some analysts said. It may slow things down, rather than speed things up as Plattner wants, they said. “These organizational changes tend to freeze activity inside the company, as everyone tries to grab and defend turf,” said Thomas Otter , a Gartner Inc analyst in Ladenburg, Germany. Otter said SAP, whose strategy has been “murky” recently, needs to have a “more compelling technological vision.” “Can this board deliver that? I just don’t know.” On the call yesterday, Plattner said there will be a change in management style, to a “flat” structure; that management will strive to implement “radical changes” when opportunities present themselves; and that changes will be communicated better externally and internally. Michael Nemeroff , an analyst at Wedbush Securities Inc. in New York is not convinced. He said investors should “trim exposure” to SAP until it becomes clear that the potential problems don’t run deeper. ‘Fresh Air’ “Major changes to SAP’s senior leadership could create significant near-term operational risk,” Nemeroff said. To be sure, some analysts called the management shakeup a welcome change. Snabe, currently head of product development, has been credited with improving the productivity in development. McDermott was the head of one of the “stronger sales forces in the software industry,” said Credit Suisse analyst Philip Winslow , in New York. Robert Jakobsen , a Silkeborg, Denmark-based analyst at Jyske Bank A/S said the two new co-CEOs could turn out to be a breath of “fresh air.” He said they will need to build a momentum for SAP inside and outside the organization, through better customer satisfaction and a clearer vision. The company also needs to win market share from Oracle, Jakobsen, said. Battling Billionaires Plattner, who according to Forbes Magazine was the 110th richest person in 2009 with a net worth of $4.5 billion, will be taking on Oracle, whose CEO, Ellison, was ranked fourth-richest by Forbes with a net worth of $22.5 billion. Berlin-born Plattner started at IBM in Mannheim, Germany, after graduating from Karlsruhe University and left four years later with his colleagues. The SAP founders first worked in their homes and on the IBM computer of customer Imperial Chemical Industries Plc to make software to tie together business functions. “There’s lots of debate as to whether Hasso is the right person to bring the company back,” said Ray Wang , a partner at Altimeter Group in San Mateo, California said. “For the next three to six months he brings the vision and direction. To improve the treatment of employees and customers, Hasso is the right person. If there is no turnaround in the next 12-18 months, SAP will be in real trouble,” he said. To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net

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EU Needs `Decisive Action’ After Latest Cases of CO2 Fraud, Barclays Says

February 5, 2010

By Mathew Carr Feb. 5 (Bloomberg) — European regulators need to take “decisive action” after a new round of fraud tainted the world’s biggest emissions market, according to the head of carbon trading at Barclays Capital. Germany’s Federal Environment Agency said Feb. 3 that about 250,000 CO2 allowances with a market value of 3.2 million euros ($4.4 million) were improperly transferred after cyber attacks. The so-called “phishing” incident comes after Europe lost a total of 5 billion euros in revenue for the 18 months ending in December 2009 because of value-added tax fraud in the CO2 market, according to Europol, the law enforcement agency. “Without consistent and decisive action by the European Union, the world’s flagship carbon market will become mired in fraudulent activity,” Louis Redshaw , managing director at the investment-bank unit of Barclays Plc, said in a phone interview. The European Commission plans to prepare revised internet- security guidelines following the cyber attacks last week on carbon account holders in the continent’s registries , according to an e-mailed statement yesterday. The statement didn’t say when the guidelines would be prepared. Carbon trading volumes on the BlueNext spot exchange in Paris dropped to 424,000 metric tons on Feb. 2 following revelation of the latest fraud. That’s the lowest since Dec. 28. “The integrity of the market is of utmost importance to us,” said Keiron Allen, BlueNext spokesman. “All effort should be made to prevent this from happening again.” Account holders at national CO2 registries, which keep track of who owns EU allowances, should have to disclose as much information as required for a bank account “as a bare minimum,” Redshaw said. “Why wouldn’t registries do know-your- customer security checks for an account that can hold millions of euros worth of allowances?” $110 Fee The cost to set up a registry account in Denmark, for instance, is 600 krone ($110), and there also is an annual fee of the same amount, according to the Web site of the Danish Energy Agency. People applying for an account need to supply “up-to-date and usable addresses, telephone numbers and e-mail addresses of the primary and secondary account holders as well as of the company,” it says. Regulators should also consider requiring that account holders come from certain industries or abide by existing regulatory structures, such as Financial Services Authority in the U.K., he said. “The problem of money laundering, the problem of fraud and the problem of theft is the result of lax security,” Redshaw said. Revised Guidelines Germany reopened its carbon-dioxide registry yesterday after closing it Jan. 29 in response to the attacks, the country’s DEHSt emissions office said. The Czech Republic will reopen its carbon-dioxide registry after it finishes an assessment of damages from the multi-nation attack, the Environment Ministry said. “We have certainly detected damage, but we are not yet sure how big it is,” said Petra Roubickova, a spokeswoman for the ministry, in an e-mailed statement yesterday. To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

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Ironwood Raises $188 Million in IPO After Selling Shares at 30% Discount

February 2, 2010

By Michael Tsang Feb. 2 (Bloomberg) — Ironwood Pharmaceuticals Inc., which is developing a drug to treat constipation, raised $188 million in its initial public offering today after selling shares at a discount of as much as 30 percent to the price sought. The company, backed by Morgan Stanley, New York-based Ridgeback Capital Management LLC and Polaris Venture Partners of Waltham, Massachusetts, priced 16.7 million Class A shares at $11.25 each, according to Bloomberg data. Ironwood sought $14 to $16 a share, according to its Jan. 20 filing with the Securities and Exchange Commission. The IPO gives the drugmaker a market value of about $1.1 billion, and the company will start trading tomorrow on the Nasdaq Stock Market under the ticker IRWD. Ironwood’s IPO comes after two of the first three offerings of 2010 fell more than the Standard & Poor’s 500 Index, which dropped in January by the most in a year. The Cambridge, Massachusetts-based drugmaker’s price reflects a discount of 20 percent to 30 percent from what the company and its underwriters originally asked buyers to pay. JPMorgan Chase & Co. and Morgan Stanley of New York and Zurich-based Credit Suisse Group AG led the sale, while Ironwood used Ropes & Gray LLP in Boston for legal counsel. To contact the reporter on this story: Michael Tsang in New York at mtsang1@bloomberg.net .

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Earnings Growth Drives Me to These Five Stocks: John Dorfman

January 19, 2010

Commentary by John Dorfman Jan. 19 (Bloomberg) — Lots of companies are showing improved profits these days, but only a few can boast that their profits doubled in the latest quarter from the previous year. For this column, I screened about 1,700 U.S. stocks with a market value of $1 billion or more, and found about 100 that can make that claim. By no means would I buy all of these stocks. Some are too indebted. Others sell for a high multiple of earnings or have business strategies that leave me skeptical. Yet several seem to me to have investment merit. My favorite in the group is Merck & Co. The Whitehouse Station, New Jersey, pharmaceutical company earned $3.4 billion in the quarter ended Sept. 30, compared with $1.1 billion in the same quarter of 2008. Merck’s appeal starts with its gargantuan pretax profit margin of more than 41 percent. From there I move on to its 4 percent dividend yield, which is amply covered by earnings. Yes, the company hasn’t increased its quarterly dividend of 38 cents since 2004, but unlike many others, Merck didn’t need to reduce or eliminate it during the recession. Then there’s growth, the very quality that detractors say drug stocks don’t have. As with many of its peers, Merck saw earnings decline from 2003 through 2007. However, earnings more than doubled in 2008 from 2007’s depressed level. Estimated earnings for 2009, at $3.29 a share, seem to me to justify a share price around $49, or $10 above recent quotes. Merck’s Strengths Another criticism often leveled at pharmaceutical companies is that they have many important drugs going off patent (this part is true) and that they will be unable to come up with new blockbuster drugs to replace them (false, in my opinion). Merck has about 47 drugs in the latter phases of development, including ones it inherited through its acquisition of Schering- Plough Corp. in November, according to its Web site. Merck shares are up about 90 percent since I recommended them on March 9, coincidentally the day the U.S. stock market bottomed. The shares are not cheap by every measure, but they sell for 12 times earnings, a valuation I find attractive. Lancaster Colony Corp. stands out in this group because it is completely debt-free. The Columbus, Ohio, company makes specialty food products, glassware and candles — the sort of items that make a nice gift for your aunt and uncle at Christmas time. Lancaster Colony earned $28 million in the September quarter, up from $11 million in the same quarter a year ago. Chief Executive Officer John B. Gerlach Jr . owns more than 900,000 shares of the stock, or about 3 percent of the company, a situation I like to see. Few Followers Only four analysts cover Lancaster Colony. They split evenly between “buy” and “hold” ratings. That, too, is a situation I like to see, since some academic research suggests that under-followed stocks perform better than heavily researched ones. The company just increased its quarterly payout to 30 cents a share, from 28 cents. In my opinion, Lancaster could afford to boost the dividend even higher — and should. Chubb Corp. , a property and casualty insurance company out of Warren, New Jersey, is next up. It notched profits of $596 million in the September quarter, compared with $264 million a year earlier. Chubb shares are up about 25 percent since I recommended them in May. Yet they are hardly pricey, trading at eight times earnings and only a little over book value (corporate net worth per share). Profits Climb Chubb made close to a 12 percent profit on underwriting last year. That is, the premiums it collects exceeded claims (58 percent of premiums) and company expenses (30 percent). By contrast, many insurance companies break even or worse on underwriting and try to make up for it with investment income. I also like Unum Group . This Chattanooga, Tennessee, company specializes in group and individual disability insurance. Unum’s profits rose to $221 million in the September quarter from $108 million a year earlier. Frankly, this surprised me, because traditionally, disability insurers face rising claims during times of recession and high unemployment. I give Unum credit for navigating a difficult environment. Also, I like its low valuations — eight times earnings and less than book value. However, profits, while improved, still are not robust: Return on stockholders’ equity was only 9.3 percent last quarter. Arch Capital At the risk of being top-heavy in insurance, my final choice is Arch Capital Group Ltd. , a reinsurer with headquarters in Bermuda. Reinsurance is a tricky, but often profitable, business. Arch and its brethren take on the excess risks that regular insurance companies wish to lay off. In the September quarter, Arch earned $280 million, up from $33 million a year earlier. Several other measures of profitability are perking up, too. The stock sells for eight times earnings and just over book value. Disclosure note: I own Merck and Arch Capital shares personally and for clients. I have no long or short positions in the other stocks discussed in this week’s column. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Lihir Gold’s Hood Quits After Four Years at Helm of Australian Mining Firm

January 17, 2010

By Jesse Riseborough Jan. 18 (Bloomberg) — Lihir Gold Ltd. , the second-largest gold mining company on the Australian Stock Exchange, said Chief Executive Officer Arthur Hood resigned. Chief Financial Officer Phil Baker will act as CEO while the company makes a “global search” for a replacement, Port Moresby, Papua New Guinea-based Lihir said today in a statement. Hood, who was CEO for four years after joining from Placer Dome Inc., had time on his contract to run, the company said. Since Hood took over in 2005, Lihir’s shares more than doubled and profit climbed 11-fold as gold surged to a record. Hood was forced to cut the value of the Ballarat gold mine in Australia by as much as $350 million last year after it failed to meet output targets. He led the A$350 million ($323 million) takeover of the company that owned the mine in 2006. “The new CEO will be looking to try and grow the business into West Africa and diversify away from Papua New Guinea,” Lyndon Fagan , an analyst at RBS Equities Australia Ltd., said today by phone from Sydney. Lihir rose 0.6 percent to A$3.31 at 10:25 a.m. in Sydney. The company has a market value of A$7.8 billion. “Lihir is now one of the world’s leading gold producers and is consistently performing very well, with excellent growth options,” Hood said. “It is therefore the right time for me to step aside to enable an orderly transition to a new CEO.” Hood’s termination package includes A$3.6 million ($3.3 million) in cash, including A$1.3 million in lieu of share rights he would have been entitled to this year had his contract run its full term, and the right to 3.5 million shares, Lihir said in the statement. Company spokesman Joe Dowling couldn’t immediately be reached for further comment. Mine Sale Lihir said in July it’s seeking to sell its Ballarat mine where it has cut production and 200 workers last April. In 2008 Lihir agreed to buy rival producer Equigold NL for A$1 billion to expand output to Africa. Hood also led the $860 million expansion of the plant at its Lihir Island mine in Papua New Guinea with construction work currently progressing. The expansion will add production of 240,000 ounces a year, the company has said. Output from the company’s mines in Papua New Guinea, Australia and Ivory Coast in 2009 was a record 1.12 million ounces, Lihir said today. The company had forecast full-year output of between 1 million and 1.2 million ounces. It will announce quarterly production figures on Jan. 22, it said. To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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Peugeot Said to Discuss Controlling Stake in Mitsubishi to Deepen Alliance

January 15, 2010

By Jacqueline Simmons and Laurence Frost Jan. 15 (Bloomberg) — PSA Peugeot Citroen and Mitsubishi Motors Corp. ’s managers met this week in Tokyo to negotiate a deal that would give the French carmaker a controlling stake in the Japanese company, two people familiar with the matter said. A transaction would involve a share swap, said the people, who asked not to be identified because the talks are confidential. At least four scenarios are being discussed, one of the people said. One proposal has centered around Peugeot taking 51 percent of Mitsubishi in exchange for $1.8 billion in cash and 18 percent of Peugeot, although that plan didn’t win support, the people said. Peugeot and Mitsubishi said on Dec. 3 that they were in talks on the French company’s possible purchase of a holding in addition to developing more technology together. A stake acquisition would reverse Peugeot’s strategy of restricting tie- ups to manufacturing alliances. Its partnerships with Tokyo- based Mitsubishi include a Russian joint venture and pooled production of four-wheel-drive and electric vehicles. The French carmaker is seeking a closer partnership abroad as rivals increase their presence in Asia. Volkswagen AG , Europe’s biggest carmaker, completed the purchase of 19.9 percent of Suzuki Motor Corp. French rival Renault SA has been integrating more tightly with Nissan Motor Co. , its 44 percent- owned affiliate. Hugues Dufour , a Peugeot spokesman, said a management delegation met Mitsubishi representatives in Tokyo this week as part of the two companies’ regular exchanges on existing cooperation agreements. He declined to say whether there were also further tie-up discussions during the visit. Net Debt Kazuhiro Yamana , a Mitsubishi spokesman, said he couldn’t confirm the meeting and called a share swap transaction between the carmakers “speculation.” The companies may give an update in the second week of February when Paris-based Peugeot is scheduled to release earnings, the people said. Acquiring a stake may stretch finances at Peugeot , Europe’s second-largest automaker, which had 2 billion euros ($2.9 billion) in net industrial debt as of June 30 and bonds rated below investment grade by Standard & Poor’s. Peugeot has a market value of $9 billion, compared with $8.8 billion for Mitsubishi. Still, the French carmaker sells three times as many vehicles and generates four times as much revenue. Renault and Yokohama, Japan-based Nissan are investing jointly in an auto factory in India, where the company is forecasting the car market, Asia’s fourth-biggest, will triple in 10 years. Volkswagen’s stake in Hamamatsu, Japan-based Suzuki gives it a tie to the partner’s Maruti Suzuki India Ltd. division, which accounts for about half the cars sold in India. To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net ; Laurence Frost in Paris at lfrost4@bloomberg.net

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Bradd Morrice, Patti Dodge And David Kenneally, Ex-New Century Execs, Charged With Misleading Investors By SEC

December 7, 2009

WASHINGTON — Federal regulators on Monday accused three former top executives of collapsed mortgage lender New Century Financial Corp. of fraud, saying they misled investors as the company’s subprime loan business was failing in 2006. In a case stemming from the mortgage market meltdown, the Securities and Exchange Commission filed a lawsuit seeking injunctions, and unspecified civil fines and restitution against New Century’s former CEO and co-founder Brad Morrice, former chief financial officer Patti Dodge and former controller David Kenneally. The SEC also wants the three barred from serving as officers or directors of any public company and reimbursement of their bonuses or stock option awards. Attorneys representing Morrice, Dodge and Kenneally didn’t immediately respond to calls seeking comment Monday afternoon. Irvine, Calif.-based New Century had been the No. 2 U.S. maker of subprime mortgage loans, extended to borrowers with inferior credit records and the spark that ignited the home-loan bust. The company filed for bankruptcy protection in April 2007 after disclosing accounting errors. Once a Wall Street darling, New Century had a market value of more than $1 billion at its zenith. It collapsed after a spike in defaults on subprime mortgages prompted its lenders to pull funding and demand that it buy back bad loans. In its suit filed in federal court in Los Angeles, the SEC alleged that New Century’s disclosures to investors falsely sought to assure them that its business wasn’t at risk and was performing better than competitors – omitting significant negative information such as a dramatic spike in defaults on home loans. The three executives were aware of the negative information from numerous internal reports they received, including weekly reports that Morrice dubbed “Storm Watch,” according to the SEC. The SEC said the executives’ misconduct inflicted major losses on New Century investors. Its stock traded at $30 to $50 from early 2006 through early 2007, but after the restatement of accounts was announced in February 2007, the shares plunged to around $19, the agency said. The stock was below $1 a share at the time of the bankruptcy filing two months later. “New Century shareholders took a double hit,” SEC Enforcement Director Robert Khuzami said in a statement. “The company’s mortgage assets and business performance became increasingly impaired, and management manipulated its numbers and concealed its deteriorating performance.” In a March 2008 report, a court examiner in California found that New Century used improper accounting practices while making risky loans, creating “a ticking time bomb” that led to its rapid demise.

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Siemens Hearing-Aid Division Said to Draw Interest From KKR, BC Partners

November 26, 2009

By Aaron Kirchfeld Nov. 27 (Bloomberg) — Siemens AG’s hearing aid business, valued at as much as 3 billion euros ($4.5 billion), is drawing interest from private-equity firms including KKR & Co. L.P. and BC Partners Ltd., two people familiar with the matter said. Several financial investors have contacted the Munich-based company about buying the unit, said the people, who requested anonymity because the process isn’t public. Siemens has been in contact with investment banks about options, and hasn’t decided whether to sell the unit or conduct an initial public offering, though an exit from the business is likely, the people said. Siemens claims the No. 1 position in the global hearing aid market by units manufactured. It trails Sonova Holding AG of Switzerland and William Demant Holding A/S of Denmark by market share, according to Sonova. Siemens, Europe’s largest engineering company, is weighing a retreat from the industry to sharpen its focus on energy, transport and infrastructure, as well as on medical diagnostics tools, the people said. In addition to private-equity firms, makers of medical equipment may also be interested, the people said. Antitrust hurdles would bar Sonova and William Demant from a takeover, the people said. Siemens spokesman Constantin Birnstiel declined to comment, as did spokespeople for KKR and BC Partners in Germany. High Margins “Siemens hearing aids is attractive because the sector has relatively high margins and the business could be further improved by a new owner,” said Daniel Jelovcan , a Zurich-based health-care products analyst at Helvea AG. He estimates the unit could be valued at 2.5 billion euros to 3 billion euros, based on estimated sales of 680 million euros and peer valuation. Siemens, which also makes high-speed trains, power grids and medical scanners, doesn’t disclose sales for its hearing aids. The company has been making the products for more than 100 years , and the business is based in Erlangen in southern Germany, home to some of Siemens’s largest production sites. The unit may fetch 2 billion euros to 3 billion euros in a sale, the people said. The engineering company will likely pursue a so-called dual-track process of seeking a buyer while simultaneously preparing an IPO for 2010, the people said. The company followed a similar strategy with its VDO automotive division, which it sold to Continental AG for 11.4 billion euros in 2007 after simultaneously holding sales talks and preparing an IPO. Past Deals KKR has done deals with Siemens in the past. The private- equity firm run by Henry Kravis and George Roberts bought Wincor Nixdorf AG, a maker of bank machines, in 1999 from Siemens, as well as seven engineering units for 1.69 billion euros, including Demag Cranes AG, in 2002. Sonova Chief Executive Officer Valentin Chapero said on Nov. 14 it “wouldn’t be surprising” if Siemens sold its hearing-aid unit because it’s not “well adapted” to the rest of the German company’s business. The Swiss company has gained 87 percent so far this year, valuing Sonova at 7.77 billion Swiss francs ($7.74 billion). William Demant has a market value of 21.3 billion Danish kroner ($4.3 billion) after doubling in value in the last year. Other competitors include closely held Kind Hoergeraete, based in Hanover, Germany, and Fielmann AG , the German eyeframe manufacturer, which is branching out into hearing aids as an ageing population and ear damage caused by loud music increase the number of people with hearing disabilities. Hermann Requardt , the chief executive officer of Siemens’s health-care division, said on Sept. 29 at a meeting with analysts and investors that the hearing aids are “a very solid business and a strong contributor.” To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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Ahold to Cut $521 Million of Expenses After Profit Beats Analyst Estimates

November 18, 2009

By Jeroen Molenaar Nov. 18 (Bloomberg) — Royal Ahold NV , the owner of the U.S. Stop & Shop grocery chain, will cut 350 million euros ($521 million) in expenses and pursue expansion opportunities after reporting third-quarter profit that beat analysts’ estimates. Ahold plans the reduction by the end of 2012, the Amsterdam-based company said in a statement today. Third-quarter net income rose to 238 million euros from 195 million euros in the year-earlier period, according to the statement. That compared with an average estimate of 179 million euros in a Bloomberg survey of eight analysts. Ahold will “pursue opportunities to grow within existing and new markets,” following a management reshuffle this month, Chief Executive Officer John Rishton said in the statement. The company should use its excess cash of about 2 billion euros to make acquisitions or buy back stock to avoid becoming a bid target, analysts including Petercam’s Fernand de Boer have said. Rishton, who is completing a plan to cut 500 million euros in expenses, boosted profitability at Stop & Shop by reducing prices to spur volume growth. Operating profit at Albert Heijn, the biggest Dutch grocery chain, rose 5 percent and Ahold sold more goods in all markets, it said today. “These are robust numbers, given market conditions,” said SNS Securities analyst Richard Withagen today. “Especially profit at Albert Heijn exceeded expectations.” Withagen rates Ahold stock “accumulate.” Albert Heijn Operating profit at the Dutch chain was 147 million euros, boosted by store disposals. Withagen had estimated profit on that basis to drop 2.9 percent to 136 million euros. Same-store sales at the chain fell for the first time in almost six years on increased discounting. Ahold yesterday gained 0.5 percent to 9.15 euros in Amsterdam trading, giving the company a market value of 10.8 billion euros. The stock has risen 4 percent this year. Belgian rival Delhaize Group, owner of the U.S. Food Lion stores, would be a likely industry buyer of Ahold while U.K. market leader Tesco Plc should consider buying the Dutch company, ING analysts have said. To contact the reporter on this story: Jeroen Molenaar in Amsterdam jmolenaar1@bloomberg.net

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Three Tempting Stocks for a Hot Takeover Market: John Dorfman

November 16, 2009

Commentary by John Dorfman Nov. 16 (Bloomberg) — Warren Buffett’s takeover of Burlington Northern Santa Fe Corp. illustrates an emerging trend: Takeovers are back. That’s good news for investors. When companies are eager to make acquisitions, it’s an encouraging sign to the market. And, of course, it’s lovely if you happen to hold a stock that becomes a target. Buffett’s Berkshire Hathaway Inc. offered $100 a share for Burlington Northern when it was trading around $76. That’s typical: Takeovers are often done at 30 percent or more than the market price. In October, U.S. companies announced 770 deals, the highest monthly total since September 2008, according to data compiled byu Bloomberg. Wall Street executives are optimistic about the outlook for more deals next year. Google Inc. , owner of the world’s top search engine, last week agreed to pay $750 million to acquire closely held Admob Inc., a mobile-phone advertising company. Meanwhile Kraft Foods Inc. of Northfield, Illinois, reiterated its offer of about $16 billion to acquire Cadbury PLC, a British candy maker. So far Cadbury has rejected the offer. Some Cadbury holders are hoping that Switzerland-based Nestle SA will jump in with a higher bid. Hewlett-Packard Co. , the world’s largest personal-computer maker, said it will spend $2.7 billion to buy 3Com Corp., which makes computer networking equipment and gets almost half its revenue from China. Who’s Next Naturally, investors want to know who will be the next takeover target. One way to speculate on this activity is to seek out companies with characteristics likely to make them attractive to potential acquirers. Often, these same qualities make for a good investment even if no suitor shows up. Last week I screened about 2,600 U.S. companies looking for ones with alluring valuations, low debt, and at least $100 million of cash in the till. All of these qualities, I believe, make a target company attractive to a potential acquirer. Cash is important because sometimes a buyer can use the target’s own money to defray part of the acquisition cost. Several managed-care organizations met the criteria. They are cheap now because investors are uncertain how the rules for health-care companies will change, assuming Congress enacts a legislative overhaul this year or next. Aetna’s Appeal Aetna Inc., I think, is a tempting target. With a market value of about $13 billion, it is small enough for a potential acquirer to swallow. Rivals such as UnitedHealth Group Inc., at $34 billion, and Travelers Cos., at $29 billion, would be more difficult to digest. Aetna is cheap enough to be attractive, selling for about nine times earnings. And it had $1.8 billion of cash and near- cash as of Sept. 30. Investors figure the federal government will pay a bigger share of the nation’s health-care bill in the future. Under pressure from huge federal deficits, the government may be stingy with payments under Medicare, Medicaid and whatever programs are created under new legislation. What the pessimists overlook, however, is that any new health-care laws will mandate some form of compulsory insurance coverage, which will expand insurers’ pool of customers. Ensco Modernizes Another potential takeover target is Ensco International Inc. , an offshore oil drilling company based in Dallas. When I first became a securities analyst 12 years ago, Ensco had a reputation as a driller with a hodge-podge of relatively old equipment, exploring primarily in the Gulf of Mexico. The company has changed since then. It has more modern equipment today than many competitors, and it drills all over the world, especially in Asia and the U.K. Ensco stock sells for only seven times earnings. And the company has about $1 billion of cash and equivalents. All this might be enough to make a potential acquirer salivate. Some of Ensco’s rivals, Diamond Offshore Drilling Inc. and Noble Corp., also look like takeover bait to me. However, at $14 billion and $11 billion market value, respectively, they might be harder to acquire than Ensco at $6.5 billion. Allstate’s Value A third possible takeover candidate is a company I never expected to consider in that vein — Allstate Corp. , the largest publicly traded U.S. home and auto insurer. The stock market has banged up Allstate up so badly that it now has a market value of less than $16 billion. Burlington Northern, by contrast, is valued at more than $33 billion, or twice as much. Is Burlington Northern really worth twice as much as Allstate? I can make a good case that it’s not. Last year Burlington Northern had revenue of about $18 billion while Allstate’s revenue was $29 billion. To be sure, Allstate had a loss last year while Burlington Northern had a profit. Yet Allstate had its best year in 2006, earning about $5 billion and the following year it earned $4.6 billion. Burlington Northern, by contrast, has never earned more than last year’s total of $2.1 billion. I say this not to argue that Warren Buffett overpaid for Burlington Northern, but to point out that Allstate is very probably undervalued. Disclosure note: For clients and personally, I own shares of Nestle SA. One client of my firm holds Allstate. I have no long or short positions in any of the other stocks mentioned in this week’s column. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Haitong Securities Suspended After Report It May Buy Hong Kong’s Taifook

November 15, 2009

By Bloomberg News Nov. 16 (Bloomberg) — Haitong Securities Co. , the second- biggest Chinese brokerage by market value, halted trading in its stock after the Oriental Post reported it may bid for Hong Kong- based Taifook Securities Group Ltd. The Shanghai-based brokerage said it suspended its stock pending an announcement, without providing further details. Taifook , Hong Kong’s second-biggest publicly traded brokerage, and parent NWS Holdings Ltd. suspended their shares in local trading, according to separate statements. A stake in Taifook would give Haitong Securities a foothold in the world’s fifth-biggest stock market. Haitong Securities last month reported third-quarter profit jumped 74 percent because of increased trading in mainland China. Taifook shares soared 36 percent last week, bringing gains this year to 298 percent and giving the company a market value of HK$3.4 billion ($439 million). NWS, controlled by the family of billionaire Cheng Yu-tung , said Nov. 11 it may sell its 62 percent stake in the company. To contact the reporter on this story: Yidi Zhao in Beijing at yzhao7@bloomberg.net

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Playboy Said to Be in Talks on Sale to Candie’s Owner Iconix; Shares Climb

November 12, 2009

By Serena Saitto and Lauren Coleman-Lochner Nov. 12 (Bloomberg) — Playboy Enterprises Inc. , the men’s magazine publisher, is in talks to sell itself to Iconix Brand Group Inc. , according to two people close to the situation. Playboy’s stock jumped as much as 66 percent. Iconix, the owner of the Candie’s and London Fog clothing brands, has looked at Chicago-based Playboy’s finances, said one of the people, who declined to be identified because the talks aren’t public. The discussions may not lead to a transaction, the person said. Playboy’s market value had dropped to about $100 million before today as circulation plunged at the namesake magazine Hugh Hefner started in December 1953 with photos of Marilyn Monroe . Iconix Chairman and Chief Executive Officer Neil Cole is looking for acquisitions to add more brands that the New York- based company can license to retailers and manufacturers. “Neil Cole has done a phenomenal job of taking some of these lost brands and developing them into something,” said Gilbert Harrison , chairman and CEO of Financo Inc., a New York- based adviser and investment bank specializing in retail. “Certainly Playboy would fit that mold.” Playboy’s management has been looking for a buyer since Scott Flanders was appointed as CEO in June, one person close to the situation said. Flanders, the former CEO of Freedom Communications Inc., replaced Christie Hefner, who had run Playboy since 1988 and is the daughter of Hugh Hefner . Stock Jump Playboy rose 25 percent to $3.58 at 1:37 p.m. in New York Stock Exchange composite trading after touching $4.75. Iconix declined 47 cents to $11.68 on the Nasdaq Stock Market, giving the company a market value of about $834 million. Spokespeople for Iconix and Playboy declined to comment. Hugh Hefner, 83, has a controlling stake in Playboy, with about 70 percent of Class A voting shares and 28 percent of the Class B shares. The company had $103 million in long-term financing obligations at the end of September. Iconix’s Cole said in October that the company has $200 million to $300 million available for acquisitions. Iconix, which also owns Danskin and Mossimo, bought a controlling stake in Ecko brands this month and made an unsuccessful bid for outdoor-clothing chain Eddie Bauer Holdings Inc. this year. Cole founded Iconix in 1992. Revenue has more than doubled in the past two years, from $80.7 million in 2006 to $216.8 million last year. In addition to its magazine, Playboy licenses products bearing its bunny logo, and creates videos for its Web site and cable-television networks. Licensing revenue in the first nine months of the year declined 14 percent to $28.1 million. Playboy Readers Playboy magazine garnered a following for its fiction, including selections by Margaret Atwood and Vladimir Nabokov , and American football coverage, as well as its photos of nude women. The company ran a chain of branded clubs, staffed by women dressed in bunny outfits, as well as a premium cable channel and branded videos and DVDs. The magazine’s circulation dropped 9.2 percent to 2.45 million in the six months through June, compared with a year earlier, according to the Audit Bureau of Circulations . Industrywide, consumer magazine circulation fell 1.2 percent in the period. Advertising revenue at Playboy magazine fell 33 percent to $34 million during the first nine months of the year, Publishers Information Bureau data show. That outpaced a 20 percent drop in industry ad revenue. The unprofitable publisher said in May that it was considering raising the price of the magazine, reducing the frequency of publication or cutting circulation. In the third quarter, Playboy’s net loss narrowed to $1.1 million, or 3 cents a share, from $6.2 million, or 19 cents, a year earlier, according to a Nov. 5 statement. Revenue fell 20 percent to $56 million. To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net ; Lauren Coleman-Lochner in New York at llochner@bloomberg.net

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Tishman Blackrock Move $3 Billion Stuyvesant Town Loan to Special Servicer

November 7, 2009

By Alan Mirabella Nov. 7 (Bloomberg) — The $3 billion loan backed by Stuyvesant Town-Peter Cooper Village in Manhattan was transferred to a special servicer at the request of Tishman Speyer Properties Inc. and Blackrock Realty , Fitch Ratings said. CW Capital will work on a possible loan modification, Fitch said in an e-mail yesterday. Servicers are used when a loan is in or near default and needs to be reviewed. The loan was transferred after sponsors Tishman Speyer and Blackrock requested “relief,” Fitch said, without providing details. “Fitch expected the transfer of the loan to special servicing as cash flow generated by the property remains insufficient to service the debt,” the ratings company said in the statement. “Debt service reserves are expected to be depleted by the end of December.” Tishman Speyer and its partners are moving toward a default on the debt on Manhattan’s largest apartment complex, which they purchased for $5.4 billion three years ago. Fitch downgraded its ratings on the loan last month and a New York court ruled the owners illegally raised rents on thousands of tenants. Bud Perrone , a Tishman spokesman, didn’t immediately respond to a phone message left for comment yesterday after business hours. A $3 billion loan to finance the acquisition was bundled with commercial mortgages and sold as bonds. The property now has a market value of about $1.89 billion, down 65 percent from the appraised value at the time the loan was securitized in November 2006, according to data from Deutsche Bank. MetLife Sold The group bought the 80-acre, 11,200-unit developments from insurer MetLife Inc. in 2006, near the top of the U.S. property market, with plans to remodel and raise the cost of rent- regulated units to market rates. Soon after, the global credit crisis and the recession hit, constraining the group’s ability to raise rents. Expenses to convert units were also higher than anticipated, Standard & Poor’s said in a report in October 2008. The New York Court of Appeals in Albany said last month that the rent increases on about 4,350 apartments at the Stuyvesant Town-Peter Cooper Village complex violated the law because the development was built with city assistance and the owners received tax breaks. “Fitch believes there will be many factors involved in the workout and ultimate recovery of the loan, including a possible modification, potential legislative changes to rent stabilization laws, commitment of the loan sponsors, the remaining seven-year term of the loan, and the low loan per unit ($267,213),” the ratings company said in its statement. To contact the reporter on this story: Alan Mirabella in New York at amirabella@bloomberg.net .

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JPMorgan’s $2.85 Billion Denbury Financing Tops Morgan Stanley Loan to CF

November 4, 2009

By Emre Peker Nov. 4 (Bloomberg) — JPMorgan Chase & Co. agreed to provide as much as $2.85 billion to finance Denbury Resources Inc. ’s purchase of Encore Acquisition Co. in the biggest leveraged-loan commitment by a single bank this year. The transaction consists of a $1.6 billion revolving credit line and a $1.25 billion bridge loan, Fort Worth, Texas-based Encore said yesterday in a regulatory filing. Denbury’s size will double with the biggest U.S. oil and natural-gas acquisition of 2009. JPMorgan’s loans surpass the $2.5 billion credit facility Morgan Stanley said it will arrange to back CF Industries Holdings Inc. ’s hostile bid for Terra Industries Inc. , indicating that banks are beginning to use their balance sheets again to finance acquisitions. The loan package is second only to the $3.2 billion arranged by six banks including JPMorgan and Morgan Stanley to back Warner Chilcott Plc. ’s acquisition of Procter & Gamble Co. ’s prescription-drug unit, according to data compiled by Bloomberg and Standard & Poor’s Leveraged Commentary and Data. Leveraged lending markets collapsed in 2007, leaving banks including JPMorgan stuck with billions of dollars of loans to speculative-grade companies, restricting their appetite to back new takeovers. Leveraged buyouts of more than $2 billion all but disappeared as lending to high-yield, high-risk borrowers, rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P, dropped 88 percent to $99.2 billion in 2009 from a record two years ago. Legacy Loans JPMorgan, the second-biggest lender to junk-rated companies this year behind Bank of America Corp. , decided in the second quarter of 2008 to separate loans made in 2007 from corporate lending in following years. After completing its acquisition of Bear Stearns Cos. in April 2008, JPMorgan’s so-called legacy loans had climbed to a peak of $44 billion, Chief Financial Officer Michael Cavanagh said April 16 on a call with analysts to report first-quarter results. Leveraged-loan holdings dropped to a market value of $2.2 billion, about 40 percent of face value, he said on an Oct. 14 conference call to discuss the New York-based bank’s third- quarter results. Denbury, based in Plano, Texas, said it will buy Encore for about $4.5 billion to add fields in the Rocky Mountains and Gulf of Mexico. Encore stockholders will get $50 a share, consisting of $15 in cash and $35 in Denbury common stock, the companies said Nov. 1 in a joint statement. The four-year revolver and one-year bridge facility will be used to pay for the cash portion of the takeover, retire and replace Encore’s $825 million of subordinated notes with a change of control put option of 101 cents on the dollar, and retire the company’s $180 million of outstanding bank debt, according to yesterday’s filing. Encore said the bridge facility will be available if Denbury doesn’t secure other funding. Any amount owed under the facility after the first year will convert to a loan maturing seven years after the merger closes, the company said. To contact the reporter on this story: Emre Peker in New York at epeker2@bloomberg.net .

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Saudi Basic Industries Quarterly Net Declines 50%; Beats Analyst Estimates

October 18, 2009

By Glen Carey Oct. 18 (Bloomberg) — Saudi Basic Industries Corp. , the world’s largest petrochemicals maker, said third-quarter profit dropped 50 percent as the global recession hurt prices and weakened demand for plastics and fertilizers. Net income declined to 3.6 billion riyals ($960 million) from 7.24 billion riyals a year earlier, Riyadh-based Sabic said today in a statement on the Saudi bourse Web site. The average estimate of five analysts surveyed by Bloomberg was for a 2.31 billion-riyal profit. “The improvement in third-quarter prices wasn’t as strong as it was in the second quarter,” Laurent-Patrick Gally, vice president of research at Shuaa Capital PSC, said in a phone interview from Dubai before the results were released. “Beyond the pricing, any growth in revenue would have had to come from increased volumes.” Sabic, 70 percent owned by the Saudi government, cut jobs and reduced production as the worst global recession since World War II decreased sales of plastics used for everything from packaging to car bumpers. The company reported a first-quarter loss of 974 million riyals, its first since 2001, after booking 1.18 billion riyals in goodwill writedowns attributed to Sabic Innovative Plastics in the U.S. Sabic shares fell 0.3 percent to 79 riyals in Riyadh before the earnings were released. The stock has advanced 53 percent this year, giving the company a market value of 237 billion riyals. BASF SE , the world’s largest chemical provider, has gained 43 percent this year. Falling Exports BASF, Dow Chemical Co. and other chemical makers have closed plants and revamped units to cope with falling orders brought on by the global credit crisis. Dow Chemical said on Sept. 10 that it will close styrene monomer and ethylbenzene production units in Freeport, Texas, by the end of the year. Other Saudi petrochemical companies have reported a drop in quarterly earnings as demand fell for products made by companies in the Arab world’s largest economy. Saudi non-oil exports in the second quarter fell 24 percent from a year earlier to 24.05 billion riyals, the state-run Saudi Press Agency said on its Web site, citing the kingdom’s statistics office. Saudi Arabian Fertilizer Co. , Sabic’s agriculture unit, posted a 75 percent profit decline in the third quarter to 464 million riyals. Urea and ammonia prices plunged as much as 70 percent in the period, Shuaa’s Gally said on Oct. 10. Advanced Polypropylene Co. , a Saudi petrochemicals maker, posted a 90 percent decline in profit. New Production, Demand Sabic plans to boost petrochemical production by 12 million tons in the next two years by expanding foreign ventures and domestic plants as the global economy improves. Chairman Prince Saud Bin Thunayan Al-Saud said in July that the increase will mainly come from a joint venture with China Petroleum & Chemical Corp., or Sinopec, and from units in Saudi Arabia. “We expect a strengthening of the global economic recovery to continue in the fourth quarter and in 2010,” Gally said. “This will translate to better a volume environment and sustained pricing. We also expect to see a contribution from new projects.” Sabic and Mitsubishi Rayon Co. agreed in August to set up a $1 billion joint venture making materials used for cars in a bid to compete with U.S. and European rivals including BASF. The company’s access to discounted feedstock gives it a competitive advantage over rivals that are also suffering from slumps in the automotive, construction and consumer industries. Eastern Petrochemical Co., the Sabic affiliate known as Sharq, will start an ethylene cracker by the end of the year, Anas Kentab, Sabic’s general manager of operations, said Oct. 7. Sabic’s affiliate Yanbu National Petrochemical Co. , or Yansab, announced the first shipment of ethylene glycol from its plant in Yanbu Industrial City in September. To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net .

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Lihir Studies Paying First Dividend Since 2003 as Prices, Output Increase

October 13, 2009

By Liza Lin and Jesse Riseborough Oct. 14 (Bloomberg) — Lihir Gold Ltd. , the second-largest gold mining company on the Australian Stock Exchange, is considering paying its first dividend since 2003 after output and prices rose. “We are closer now than ever to start paying out regular dividends,” Chief Executive Officer Arthur Hood said today in a phone interview, citing gains in the gold price and better performance at its operations. “Now is the time you should be rewarding shareholders with potentially a combination of dividends or capital returns or both.” Gold for immediate delivery rose to a record yesterday as investors bought the precious metal to hedge against a lower dollar and a pickup in inflation. Port Moresby-based Lihir, which owns mines in Australia, Papua New Guinea and Ivory Coast, has forecast record production this year. The company may return to paying a dividend “in the not too distant future,” Hood said, without specifying a more precise timeframe. The company last paid a dividend of 2 cents per share in 2003. Lihir jumped 2.8 percent to A$3.29 at 12:45 p.m. Sydney time on the Australian stock exchange. The stock has risen 9.3 percent this year and has a market value of A$7.8 billion ($7.1 billion). The S&P/ASX 200 Index has climbed 30 percent this year. “We’ve been driving down our cost of operation over the last few years so we’ve got very high margins,” Hood said in a separate interview on Bloomberg television. Lihir produced a record 612,022 ounces of gold in the half- year to June 30 and has forecast output of between 1 million and 1.2 million ounces for the full year. Gold for immediate delivery traded at $1,066.43 an ounce at 12:46 p.m. in Sydney. It touched a record of $1,068.63 yesterday. To contact the reporters on this story: Liza Lin in Singapore at llin15@bloomberg.net ; Jesse Riseborough in Canberra at jriseborough@bloomberg.net

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Vivendi Said to Be Ready to Sell NBC Stake, May Hold Out for Higher Price

October 6, 2009

By Matthew Campbell Oct. 6 (Bloomberg) — Vivendi SA , the owner of the world’s largest music company, would like to sell its stake in NBC Universal, just not at any price, a person familiar with the discussions said. The Paris-based company is concerned it may not get the price it wants for the stake under a joint venture between Comcast Corp. and General Electric Co ., said the person, declining to be named because the talks aren’t public. Vivendi owns 20 percent of NBC Universal, with the rest held by GE. For Vivendi, “the alternative is to wait, turn it down, and force an IPO next year, which they don’t want to do,” said Conor O’Shea , an analyst at Kepler Capital Markets in Paris. “GE doing the negotiating for them is definitely an attractive proposition.” Comcast, the largest U.S. cable-television company, and GE are in talks to form a joint venture that would own NBC Universal, people with knowledge of the talks said Oct. 1. Comcast would own more than 50 percent of the film, broadcast and cable-television business, said two people, who sought anonymity because discussions are private. Philadelphia-based Comcast would contribute $4 billion to $6 billion plus cable channels including E! Entertainment, said one of the people. GE would contribute its 80 percent stake in NBC Universal and transfer $12 billion in debt, one person said. Vivendi spokesman Antoine Lefort , GE spokeswoman Anne Eisele , Allison Gollust , an NBC spokeswoman, and D’Arcy Rudnay , a Comcast spokeswoman, declined to comment. Vivendi Decision Vivendi may decide at an Oct. 14 board meeting to sell its stake in NBC Universal, a person with knowledge of the situation said Sept. 22. The French company has an option in November and December every year to either sell its stake to majority owner GE, or proceed with an initial public offering. The option extends to 2016. The stake is valued on Vivendi’s 2008 balance sheet at about 4.3 billion euros ($6.3 billion). On that basis, its current value may be about $7.6 billion, analysts at New York- based CreditSights Inc. wrote in an Oct. 4 report. Based on its “sum-of-the-parts” evaluation of NBC Universal, CreditSights sees the stake’s value at closer to $4.9 billion. Vivendi shares closed 0.2 percent lower to 20.96 euros in Paris, giving the company a market value of 25.8 billion euros. The Comcast-GE plan hinges on Vivendi deciding to sell its stake in NBC Universal, operator of the broadcast network, a film studio, theme parks, and cable channels including USA, CNBC, MSNBC and Bravo, according to two people. The venture would pay Vivendi over time, using cash generated from operations, one of the people said. Comcast values NBC Universal in the high $20 billion range, and could do the deal without jeopardizing its dividend or share repurchases, said the person. To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net .

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Berkshire Deals May Make Less Profit After Buffett, Stifel’s Shields Says

October 2, 2009

By Andrew Frye Oct. 2 (Bloomberg) — Warren Buffett’s eventual successor at Berkshire Hathaway Inc. won’t be able to strike deals as profitable as those arranged by the billionaire investor, said Meyer Shields , an analyst at Stifel Nicolaus & Co. “We expect the ‘Buffett Premium’ to wane as the inevitable transition approaches,” Shields said in a note today. “Buffett’s knowledge and skills are replaceable, but since his iconic status isn’t, the economic attractiveness of Berkshire’s future investment opportunities will likely decline.” Buffett, 79, built Berkshire into a $150 billion company over four decades by investing in out-of-favor firms. The companies he finances often tout his investment as seals of approval. After the Lehman Brothers Holdings Inc. failure locked credit markets last year, Buffett made private deals to inject $8 billion in Goldman Sachs Group Inc. and General Electric Co. Berkshire gets a 10 percent yield on the investments. “When Berkshire bought preferred shares from Goldman Sachs and GE, it’s very likely that the imprimatur of the world’s most famous investor conveyed a level of confidence that itself contributed to the deals’ very generous terms,” Shields said. “Thanks to its solid cash position, Berkshire should always be a competitive acquirer, but the economic impact of Buffett’s ‘halo’ will probably fade.” Stock Slide Berkshire slipped $1,450, or 1.5 percent, to $98,400 at 10:28 a.m. in New York Stock Exchange composite trading . The stock, which has bettered the Standard & Poor’s 500 Index in 14 of the last 20 years, has dropped 34 percent from a high of $149,200 on Dec. 10, 2007. Buffett is monitoring candidates to succeed him as CEO and has said that picking one is the most important job for Omaha, Nebraska-based Berkshire’s board. The potential successors all work for Berkshire, which owns businesses ranging from insurance to energy and candymaking, and had $24.5 billion of cash at the end of June. Buffett is also the chairman of the firm’s board. Last month, Berkshire, in partnership with Leucadia National Corp., committed to spend as much as $490 million on real estate-related assets from Capmark Financial Group Inc. “We expect continued acquisition activity in all of Berkshire’s business areas ,” Shields said. “Its current strong cash position and the returns on recent investments” may spur further deals for depressed assets, said Shields, who initiated coverage of the stock with a “hold” rating. Stable Base Equity analysts have given less attention to Berkshire than companies with similar market valuation, in part because of the relatively stable base of shareholders led by Buffett, who owns about a third of the stock. Three analysts tracked by Bloomberg recommend buying Berkshire stock, while Shields is the third to issue a hold rating. Berkshire employs more than 200,000 people and has a market value almost as high as GE’s. More than 14 analysts cover GE. Berkshire often makes a quarter to half its profit on insurance operations that include car coverage specialist Geico Corp. and reinsurer General Re Corp. Buffett uses the “float,” or accumulated premium, that his insurance businesses generate to invest before paying claims. Shrinking reinsurance premium and increasing auto insurance claims are limiting profits at the underwriting units, while low yields curb investment income, Shields said. In other businesses, lower consumer spending “should suppress” revenue and profits into 2010, said Shields. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .

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Sanofi’s CEO Viehbacher to Keep Shopping for Biotechs, Vaccines, New Drugs

September 30, 2009

By Michael Waldholz and Albertina Torsoli Sept. 30 (Bloomberg) — Sanofi-Aventis SA will continue “shopping” for acquisitions to build its vaccine, biotechnology, and nonprescription medicine businesses, as well as expand in emerging markets, Chief Executive Officer Chris Viehbacher said in an interview. Sanofi has already spent 6.2 billion euros ($9 billion) this year to buy health-care companies and products as part of a strategy to bolster “five growth platforms,” Viehbacher, 49, said yesterday at the company’s New York offices. Viehbacher said Paris-based Sanofi is especially interested in expanding its vaccine operations, noting Johnson & Johnson’s purchase this week of 18 percent of Dutch vaccine company Crucell NV. Viehbacher, who joined Sanofi from London-based GlaxoSmithKline Plc 10 months ago, is under pressure to expand as rivals merge and drugs accounting for about 20 percent of its sales face generic competition by 2013. Abbott Laboratories announced this week it will purchase of Solvay SA’s pharmaceutical unit for 4.8 billion euros. Pfizer Inc. agreed to buy Wyeth, and Merck & Co. said it will acquire Schering-Plough Corp. this year. “There will be more shopping on the horizon,” Viehbacher said, declining to identify targets. Purchases must add to the company’s growth, Viehbacher said. He has said in the past that he is interested in acquisitions costing as much as 15 billion euros. Vaccines are attractive because the market will double during the next five years, because the products aren’t readily reproduced by competitors and because of the investment required to build vaccine plants, Viehbacher said. Sanofi in July announced it would purchase Shantha Biotechnics, the Hyderabad, India-based maker of an experimental typhoid vaccine, and will keep looking for such acquisitions, he said. ‘Bolt-on Acquisitions’ Johnson & Johnson said it will work with Crucell to develop a universal flu vaccine. Sanofi considered buying Crucell, Viehbacher told employees on Jan. 30. The executive continues to look for “bolt-on acquisitions” and isn’t seeking to merge with a pharmaceutical company of a size similar to Sanofi, he said. “People thought we had to do a large-sized acquisition,” Viehbacher said during the interview. “I am not saying we wouldn’t, but it is highly unlikely.” The company also will continue the hunt for “innovative” medicines such as the experimental breast cancer drug it acquired when it agreed to pay as much as $500 million in April for BiPar Sciences Inc., an 18-employee biotech company based in Brisbane, California, near San Francisco. The drug, called BSI- 201, attacks cancer cells in a novel way. At a science meeting in June, researchers said the medicine, when added to chemotherapy, prolonged survival in women with aggressive breast cancer by 3.5 to 9 months. Clinical Trials Viehbacher said the drug is being developed quickly, moving from the second of three phases of clinical trials to the third within “just eight weeks.” “That kind of speed is just not possible within a large drugmaker,” Viehbacher said. “One of my goals is to replicate that kind of innovation and productivity in our R&D operation.” Sanofi shares have gained 11 percent this year, giving the company a market value of 66.3 billion euros. That’s better than the 3.9 percent increase recorded in the period by the 17-stock Bloomberg Europe Pharmaceutical Index . GlaxoSmithKline has slipped 3.2 percent this year. Sanofi’s fifth growth platform, along with vaccines, biotech, over-the-counter drugs and emerging markets, is diabetes treatments, Viehbacher said. He reiterated he expects Sanofi’s earnings and sales in 2013 to equal their 2008 levels, excluding acquisitions. The company in July raised its forecast for 2009 growth in earnings per share to about 10 percent, assuming constant exchange rates, from the at least 7 percent previously forecast. “Investors are beginning to look beyond 2012,” Viehbacher said. “Investors see we are one of the companies that is getting beyond its patent cliff.” To contact the reporter on this story: Michael Waldholz in New York at mwaldholz@bloomberg.net Albertina Torsoli in Paris at atorsoli@bloomberg.net

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Abbott’s $7.1 Billion Solvay Drug-Unit Purchase Cuts Dependence on Humira

September 28, 2009

By Meg Tirrell, Albertina Torsoli and Jacqueline Simmons Sept. 28 (Bloomberg) — Abbott Laboratories’ purchase of Solvay SA’s pharmaceutical unit, for about 4.8 billion euros ($7.1 billion), will give it full control of the TriCor cholesterol drug and a bigger presence in emerging markets. Abbott will pay 4.5 billion euros in cash, with as much as 300 million euros in contingent payments between 2011 and 2013. The milestone payments relate to whether products perform well. The agreement also includes the assumption about 400 million euros of pension liabilities, Solvay said in a statement today. The purchase will lower Abbott’s dependence on the arthritis drug Humira, said Larry Biegelsen , a Wells Fargo Securities LLC analyst, in a Sept. 25 report. The company’s biggest product with $4.5 billion in 2008 revenue, Humira risks losing sales as consumers cut spending. Solvay, which also makes chemicals and plastics, wasn’t big enough to compete in pharmaceuticals, Chief Executive Officer Christian Jourquin said. “If the deal is completed, it would reduce Humira’s share of Abbott’s total sales to 15 percent from the current level of 18 percent,” Biegelsen wrote. Based in New York, he recommends holding Abbott shares. The deal also suggests Abbott is comfortable with the landscape for TriCor and TriLipix, cholesterol drugs it co- promotes with Solvay. Both use the active ingredient fenofibrate, and account for about 20 percent of Brussels-based Solvay’s pharmaceutical sales, Biegelsen wrote. Generic Competition TriCor faces generic competition by 2011, and Abbott is seeking regulatory approval to market TriLipix in combination with AstraZeneca Plc’s Crestor. TriCor generated $1.34 billion in revenue last year for Abbott , of Abbott Park, Illinois, and 511 million euros for Brussels-based Solvay. Solvay fell 2.23 euros, or 3 percent, to 72.50 euros at 10:35 a.m. in Brussels, giving the company a market value of 6.1 billion euros. Before today, the stock had risen 42 percent since the company said April 1 that it was weighing options for the drug business. Abbott rose 39 cents to $47.33 in New York Stock Exchange composite trading on Sept. 25. Buying Solvay’s drug business represents a change of course for Chief Executive Officer Miles White , who has been acquiring medical devices and eye products to reduce Abbott’s reliance on medicines as the company battles generic competition to its anti-seizure treatment Depakote. Solvay’s pharmaceutical unit brought in 2.7 billion euros in revenue last year, 24 percent of the company’s total sales . It focuses on therapeutic areas such as cardiometabolics, which includes its best-seller, TriCor, and neuroscience, including the Duodopa treatment for Parkinson’s disease. Cholesterol Treatment TriCor is used to reduce triglycerides and adjust cholesterol levels. Solvay’s other top-selling products are Androgel, a testosterone gel, and Creon, a pancreatic enzyme to treat cystic fibrosis. Barclays Capital advised Abbott while Solvay’s advisers included Rothschild & Cie., Morgan Stanley and Citigroup Inc. The purchase may add to Abbott’s earnings immediately, UBS analyst Bruce Nudell wrote in a Sept. 25 research note. He cited a 5 percent to 7 percent increase to cash earnings-per-share in the first three years. Solvay’s sales come primarily from outside the U.S., which will help expand Abbott’s international presence in emerging markets such as Eastern Europe and Asia. Forty-nine percent of Abbott’s $29.5 billion in 2008 sales came from the U.S. Solvay will look to use the proceeds to invest in a growing business that helps it diversify away from chemicals and plastics, Jourquin, the CEO, said on a conference call today. He declined to elaborate. Cash Proceeds “What is important is that we have the cash in house,” Jourquin said. “I wouldn’t make any speculation before closing of the deal.” Nycomed A/S of Switzerland and Takeda Pharmaceutical Co. of Japan also contended to buy Solvay’s drug unit, people with knowledge of the situation said. They declined to comment publicly because the talks were private. Solvay, which introduced one of the first modern antidepressants in 1983, ranks as the world’s biggest producer of soda ash, used to make glass and modify the acidity of shampoos. Solvay gets much of its annual revenue from the automotive and construction industries, among the hardest hit by the recession. Nycomed, whose owners include Nordic Capital and a buyout unit of Credit Suisse Group AG, offered 4 billion euros to 4.5 billion euros for the Solvay unit, people familiar with the situation said on Sept. 25. Nycomed wanted to buy the business in preparation for an initial public offering in 2011, a person with knowledge of the matter said on Sept. 11. To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net ; Albertina Torsoli in Paris at atorsoli@bloomberg.net ; Jacqueline Simmons in Paris at jackiem@bloomberg.net .

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Infigen Energy Plans to Sell Its U.S. Wind Power Business for $2.2 Billion

September 27, 2009

By Rebecca Keenan Sept. 27 (Bloomberg) — Infigen Energy , the Australian wind power producer formerly known as Babcock & Brown Wind Partners, said it wants to sell its U.S. business for about $2.2 billion to focus on Australian assets. “We’re selling out of America for the primary reason that we think there is a fantastic opportunity here in Australia,” Managing Director Miles George said in an interview with Australian Broadcasting Corp.’s Inside Business program. Based on the replacement value of the U.S. unit, the “ballpark” sale figure could be $2.2 billion, he said. Australia, the world’s biggest exporter of coal, must derive 20 percent of its power from renewable energy, such as wind turbines, by 2020, under a law passed by the senate on Aug. 20. The legislation will help spur A$28 billion ($24 billion) of investment and the creation of 23,000 jobs in industries such as wind and solar power, according to the Clean Energy Council. “Over the longer term, the regulatory environment and the willingness of governments to encourage alternative energies is clearly a tailwind for anyone in the sector,” said Tim Schroeders , who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. Selling the U.S. units would “go a long way to making Infigen’s debt not as much of a burden and I think equity holders will get a better deal, albeit on a smaller asset base.” Wind Energy Infigen shares have risen 55 percent this year compared with a 27 percent gain in the benchmark index. The Bloomberg Wind Energy index, comprised of 64 leading wind power stocks in the world, has gained 32 percent since the start of the year. Infigen has six buy ratings, two hold ratings and two sell ratings according to Bloomberg data. The company has a market value of A$1.1 billion. Pengana’s Schroeders reviewed the company as a possible investment and decided not to buy shares because the rate of return was lower than traditional energy companies. “We would like to redeploy capital from that U.S. business into the growth of our Australia business,” Infigen’s George said. The legislation means “the opportunity for our business, we believe, is extremely strong.” Infigen reported an increase in profit in the last financial year with net income of A$189.5 million, compared with A$17.9 million a year ago after it sold assets in Spain and Portugal. It had net debt of A$1.24 billion at June 30. Infigen has five wind farms in Australia’s Western Australia, South Australia and New South Wales states. It is the nation’s biggest wind energy generator and the company’s second biggest earner in the past financial year according to company regulatory filings. It also has 12 wind farms in Germany and six wind farms in France that it is also selling. The U.S. unit is the largest independent wind energy business in the country, George said. It has interest in 18 individual wind farms and the unit was its biggest contributor to sales in the last financial year. It has appointed Marathon Capital and UBS AG to manage the sale of the U.S. assets, it said on Aug. 17. To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

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Glaxo’s `Desperate’ Rivals Slow Witty’s Hunt for Drug Pipeline Candidates

September 25, 2009

By Trista Kelley Sept. 25 (Bloomberg) — GlaxoSmithKline Plc’s search outside its own laboratories for new drugs is getting more difficult because of increased competition from rivals “desperate” for novel treatments, according to the company’s head of research and development. Glaxo has done about a dozen acquisitions or development partnerships since Chief Executive Officer Andrew Witty took over in May 2008 in an effort to replace revenue that will be lost to rival generic treatments. The London-based company would do more of these deals except that prices have been driven up, said Moncef Slaoui , Glaxo’s head of research. “Some of our competitors are desperate because they pay just an incredible price for some medicines,” Slaoui said in a telephone interview. “And if it’s a matter of life or death for them, then maybe it makes sense for them, but not to us. So sometimes we may lose some partnerships for financial reasons, which is frustrating.” Slaoui did say that Glaxo will announce next month a move into drugs for rare diseases. He declined to name diseases that the company will target. So-called orphan medicines currently exist to treat illnesses including the genetic disorder Gaucher disease . His comments about acquiring new treatments and building an orphan-drug business underscore the pressure facing drugmakers , which aren’t developing products fast enough to offset the revenue they’re losing to lower-priced copies. Drugs generating $187 billion in sales are threatened by generics between 2011 and 2014 as patents expire, according to EvaluatePharma, a London-based consulting firm. Approval Target Glaxo shares have fallen 6.1 percent this year, giving the company a market value of 62.6 billion pounds ($92 billion). The Bloomberg Europe Pharmaceutical Index is up 2 percent. The drugmaker aims to double the number of treatments approved by regulators between 2006 and 2015 by looking outside the company. About half of the medicines in Glaxo’s labs came from partnerships and acquisitions, Slaoui said. He declined to name therapeutic areas the company is targeting in its search for licensing and partnership deals. Witty has overhauled internal research to try to make it more efficient, shedding unfruitful projects that once made up 25 percent of Glaxo’s pipeline. He’s also trying to fuel innovation by forcing the company’s scientists to compete with one another for funding as if they worked at start-up companies. Waiting for Results “They definitely are shaking up R&D and streamlining it, but I don’t think they’ve done any particularly amazing deals in the R&D area,” said Simon Mather , a London-based analyst for WestLB AG who has an “add” rating on the stock. “Witty is reorganizing the whole of R&D; now we’re just waiting for the fruits of that. It does take time.” About 80 percent of projects that Glaxo has licensed since 2003 are “progressing,” compared with 40 percent of those that the company decided against pursuing, said the executive, who declined to elaborate on which competitors were desperate. Besides licensing drugs from other companies, Witty has made some acquisitions. Glaxo paid $57 million this year for Genelabs Technologies Inc., which had no products on the market, to gain experimental treatments for hepatitis C. Witty is pushing the company to pursue drugs that it wouldn’t have in the past, said Slaoui. “Early next month we will be announcing us entering into orphan or even super-orphan medicines,” he said. Regulators award the orphan designation to treatments aimed at rare diseases, giving the medicines a speedier review and up to seven years of market exclusivity in the U.S. HIV, Red Wine Shire Plc , based in Basingstoke, England, is one of Europe’s biggest makers of orphan drugs, but Slaoui ruled out an acquisition without elaborating. “We are not going to buy Shire,” he said. A review of early Glaxo projects in May identified especially promising drugs in HIV, inflammation and sirtuins, enzymes found in red wine that are thought to slow the effects of aging, Slaoui said. Glaxo last year paid $720 million for Sirtris Pharmaceuticals Inc., which is developing sirtuin-based drugs in mid-stage clinical tests for cancer, diabetes and other diseases. “We expect late 2010 or early 2011 is going to be quite an interesting time” for sirtuins in “several indications,” he said. Not everything makes the cut. Under Witty, Glaxo scrapped development of a diabetes drug that was in a family of medicines called SGLT2-inhibitors that Slaoui said proved “very successful” in mid-stage trials. AstraZeneca Plc and partner Bristol-Myers Squibb Co. developed the first SGLT2 drug, called dapagliflozin, which is in late-stage tests that will be reported next week at a European diabetes conference. Halting a Project “We were No. 3 or No. 4, two to three years behind the leading companies,” said Slaoui, who halted the project in June. “Normally, we would have continued to progress that molecule. It would have had no differentiation and some disadvantages over the leading molecule. So we dropped it.” Witty is also forging new types of deals in the industry, such as announcing in April that Glaxo and U.S. rival Pfizer Inc. will combine their HIV-drug units into a new company. The deal combined Pfizer’s marketed HIV drugs with Glaxo’s early stage assets. “There will be other deals of that type, either when our discovery is too rich and too risky to ask all the questions in the clinic, or when our commercial pipeline is reasonably dry,” Slaoui said. “We will look for partners to help us bridge that gap.” To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net

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British Land Loss Narrows as Real Estate Slump Eases, Some Values Increase

August 18, 2009

By Chris Bourke Aug. 19 (Bloomberg) — British Land Co. , the U.K.’s second- largest real estate investment trust, reported a first-quarter loss of 273 million pounds ($447 million) as the value of some of its properties stabilized. The net loss for the three months ended June 30 narrowed from 565 million pounds a year earlier, the London-based company said in a statement today. British Land, owner of the Broadgate office complex in London’s main financial district, said net asset value fell 9 percent to 361 pence a share. British Land is talking to potential buyers of Broadgate, the company’s biggest asset, after raising more than 1 billion pounds this year to bolster its balance sheet. Broadgate’s value dropped 3.9 percent during the quarter, British Land said today. “The pace of decline in our portfolio valuation has slowed markedly compared with the previous quarter,” said Chief Executive Officer Chris Grigg . “In fact we have seen over 3 billion pounds of our assets either remain steady or increase in the quarter.” British Land climbed 41 percent in the six months through yesterday, while the FTSE 350 Index of the 16 biggest U.K. property companies rose 45 percent. The company has a market value of 4.3 billion pounds while Land Securities Group Plc , the biggest U.K. REIT, is worth 4.6 billion pounds. Average prices of U.K. commercial properties have slumped 44 percent since their mid-2007 peak, according to London-based Investment Property Databank Ltd. Values of stores, offices and warehouses fell 0.9 percent in July from the previous month, the slowest monthly pace since the market’s slump started, Databank said last week. More than half of British Land’s properties are retail warehouses and shopping malls, and the rest are office buildings. “British Land’s portfolio of longer-leased properties is likely to perform better than the average over the next 12 months,” said Carl Gough , a real estate analyst at JPMorgan Cazenove, in an Aug. 13 note. “Recent transactions in all sectors are suggesting that values for good quality well let properties are beginning to rise.” Broadgate’s 16 office buildings, stores, restaurants and ice-skating rink, which are located behind Liverpool Street station, account for about a third of British Land’s rental income. The company is seeking 150 million pounds in cash from the sale of a 50 percent stake in Broadgate, the Daily Telegraph reported Aug. 15. U.S. private-equity firm Blackstone Group LP is British Land’s preferred partner, the newspaper said. About 2 billion pounds of the estate’s value is in securitized debt. To contact the reporter on this story: Chris Bourke in London at cbourke4@bloomberg.net .

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China Deal With Fortescue Seeks to Break BHP, Rio, Vale Ore `Stranglehold’

August 17, 2009

By Jesse Riseborough Aug. 18 (Bloomberg) — China, planning to bankroll a $6 billion iron ore expansion of Fortescue Metals Group Ltd. in Australia , is poised to make further investments to help break the “stranglehold” of the world’s three-largest exporters. “The Chinese steel mills are trying to dilute the concentration of iron ore supply,” said Mark Pervan , senior commodity strategist at Australia & New Zealand Banking Group Ltd. “They will be looking for more deals like this.” China, the world’s biggest buyer of the ore, has invested in $56 billion of projects globally to try to reduce dependence on Vale SA, Rio Tinto Group and BHP Billiton Ltd. , which control two-thirds of seaborne supply. The nation yesterday scaled back contract price demands together with the Fortescue deal after seven months of stalled talks. The Chinese “are very keen to see supply away from BHP, Rio and Vale grow,” said Tim Schroeders , who helps manage A$1.1 billion ($904 million) in stocks at Pengana Capital Ltd. in Melbourne, including the three biggest producers. They would want to “lessen the stranglehold, or perceived stranglehold, that the big three have,” he said. Fortescue , Australia’s third-largest iron ore exporter, fell 3.7 percent to A$4.41 at 10:03 a.m. Sydney time on the Australian stock exchange, giving it a market value of A$13.6 billion. The stock has more than doubled this year as a rebound in demand in China boosted ore cash prices by about 46 percent. Expand Production Chinese lenders will arrange between $5.5 billion to $6 billion of financing for Fortescue, in which China’s Hunan Valin Iron & Steel Group has a stake, as part of a sales price accord, the Perth-based company said yesterday. Most of the money will be used to expand production, Fortescue Chief Executive Officer Andrew Forrest said yesterday on a conference call. “Fortescue and China are hoping the miner has the potential to break the duopoly of BHP and Rio” for Australian iron ore, said Zhou Xizeng , a Beijing-based analyst with Citic Securities Co. BHP and Rio are the two biggest producers in Australia, itself the biggest exporter of the ore. Fortescue, which had delayed expanding its iron mine amid a cash squeeze and a slump in demand, plans to increase capacity to 95 million metric tons by 2012, Chief Financial Officer Michael Minosora said last week, from current capacity of about 45 million tons. It had cash of $654 million and debt of $2.8 billion at June 30, according to company filings. ‘Great Case’ “The Chinese aren’t there for next year, they’re not there for the year after, they’re there for the next 10 to 20 years,” said James Wilson , a resources analyst at DJ Carmichael & Co. in Perth. “ Fortescue has its own infrastructure, its own port facilities, it’s ramping up production. There’s a great case for investment there.” China bought record volumes of ore in July as the government’s 4 trillion yuan ($585 billion) stimulus package spurs demand for steel in construction, automobiles and washing machines. China may spend more than $500 billion on foreign resource investments over the next eight years, according to Deloitte Touche Tohmatsu. China’s drive to secure ore production was set back in June when Rio , the world’s second-largest exporter, rejected a planned $19.5 billion investment by Aluminum Corp. of China , or Chinalco, that would’ve included stakes in Rio’s Australian iron ore operations. The deal was scrapped in favor of an iron ore venture with rival BHP , a venture which “hints heavily of monopoly,” the China Iron & Steel Association has said. ‘Worst Nightmare’ “The BHP-Rio joint venture is China Inc.’s worst nightmare,” Charlie Aitken , Southern Cross Equities Ltd. executive director, said today in a note. “China Inc. has attempted to make Rio appear a ‘dishonorable company’ ever since Rio left Chinalco at the altar and ran into BHP’s arms.” Hunan Valin Iron & Steel, Fortescue’s second-largest shareholder with a 17.3 percent stake, said in May it would help Fortescue produce 100 million tons of iron ore a year. It started output from it’s A$2.8 billion mine in May last year. Chinese financing of as much as $6 billion could fund an expansion to 155 million tons a year and potentially pay some debt, Southern Cross said in a report yesterday. “Fortescue’s cash flow would be squeezed unless it paid down existing debt or it quickly and significantly increased sales volumes,” Morgan Stanley said today in a note. Rio’s share of ore output in the 12 months to June 30, 2009, was 151 million tons, while BHP reported output of 114.4 million tons in the 12 months ended June 30. BHP has approved spending of $4.8 billion to increase capacity to 205 million tons a year from 2011 and is studying a further lift to 350 million tons a year. Rio is studying an expansion to 320 million tons. “China’s strategic aim to encourage as much as iron ore production as possible has the ability to undermine the historical high returns that iron ore has generated,” Citigroup Inc.’s Clarke Wilkins said yesterday in a report. To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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Commerzbank Posts $1.1 Billion Loss on Higher Loan Provisions, Writedowns

August 6, 2009

By Jann Bettinga and Aaron Kirchfeld Aug. 6 (Bloomberg) — Commerzbank AG , Germany’s second- biggest bank, posted a fourth consecutive quarterly loss after setting aside more money for bad loans and debt-related writedowns. The second-quarter net loss was 746 million euros ($1.07 billion), compared with a profit of 817 million euros a year earlier, the Frankfurt-based company said in a statement today. The median estimate of 12 analysts surveyed by Bloomberg was for a loss of 648 million euros. Chief Executive Officer Martin Blessing had to seek 18.2 billion euros in capital from the German government to carry the bank through the financial crisis and the country’s worst recession since World War II. The January takeover of Dresdner Bank saddled the company with billions of euros in toxic assets. “The recession is hitting Commerzbank very hard,” said Konrad Becker , an analyst at Merck Finck & Co. in Munich who recommends selling the stock. “If there’s someone who’s suffering because of loan-loss provisions, then it’s Commerzbank,” he said before today’s announcement. Commerzbank fell 11 percent since the start of 2009 in Frankfurt electronic trading, making the stock the fourth-worst performer in the 63-member Bloomberg Europe Banks and Financial Services Index during the period. Risky Assets “2009 will remain a challenging year, but we are heading in the right direction,” Blessing said in a statement. “Our total lending to Germany-based companies stands at a record level of 134 billion euros. Due to the general economic environment we expect the demand for loans to decline in the second half of the year.” Commerzbank set aside 993 million euros for doubtful loans in the second quarter, up from 414 million euros a year earlier. Analysts had estimated provisions of 960 million euros. Corporate bankruptcies in Germany rose 7.1 percent in April from a year before, the country’s Federal Statistics Office said last month. Frankfurt-based Deutsche Bank, Germany’s biggest bank, reported on July 28 a seven-fold increase in provisions for bad loans in the second quarter, more than analysts estimated. CEO Josef Ackermann said two days later that rising delinquencies among consumer and corporate borrowers will be the “next wave” of the financial crisis. Forecast Not Possible Commerzbank said it’s still not possible to make a forecast for 2009 “due to the ongoing difficult markets.” The lender stuck to a target to start paying back state aid as early as 2011, provided the “market develops positively.” Commerzbank said in May it would place 38 billion euros of risky assets such as mortgage-backed securities and collateralized debt obligations into a so-called portfolio restructuring unit to prepare for their sale. Dresdner Bank, which posted a record loss of 6.3 billion euros for 2008, had toxic assets with a market value of almost 40 billion euros at the end of last year, according to Commerzbank’s 2008 annual report . The world’s largest financial-services companies have racked up more than $1.5 trillion of losses and writedowns on credit-related assets in the global financial crisis, according to data compiled by Bloomberg. Commerzbank is scaling back Dresdner Bank’s investment- banking operations. It also sold the bank’s wealth-management business in Switzerland and private lender Reuschel & Co. as part of a plan to shrink the balance sheet. The European Union in May ordered Commerzbank to sell commercial-property lender Eurohypo in return for approving state aid. To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net .

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Axa’s First-Half Profit Drops Less Than Analysts Estimated; Shares Rally

August 5, 2009

By Fabio Benedetti-Valentini Aug. 5 (Bloomberg) — Axa SA , Europe’s second-biggest insurer, said first-half profit dropped 39 percent, less than analysts estimated, on lower fees from asset management and as the financial crisis curbed demand for life-insurance policies. Net income fell to 1.32 billion euros ($1.9 billion) from 2.16 billion euros a year earlier, the Paris-based company said in a statement today. That beat the 801 million-euro median estimate of 11 analysts surveyed by Bloomberg

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Continental Chief Executive Set to Leave After Pushing Through Share Sale

July 31, 2009

By Cornelius Rahn and Hellmuth Tromm July 31 (Bloomberg) — Continental AG Chief Executive Officer Karl-Thomas Neumann is set to step down after pushing through a share sale of as much as 1.5 billion euros ($2.1 billion) against majority owner Schaeffler Group.

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Sinochem Makes Takeover Approach for Australian Chemicals Supplier Nufarm

July 23, 2009

By Rebecca Keenan July 24 (Bloomberg) — Nufarm Ltd. , Australia’s biggest supplier of farm chemicals, said it was approached by China’s Sinochem Corp

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Australia’s Woolworths, Facing Costco Challenge, Takes Tips From Wal-Mart

July 23, 2009

By Robert Fenner July 24 (Bloomberg) — Australia’s Woolworths Ltd. , facing a challenge from U.S. retailer Costco Wholesale Corp. , is taking a page from Wal-Mart Stores Inc

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