Breakingviews

Pricey exploration means dear oil is here to stay

By Christopher Swann and Kevin Allison

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Gas guzzlers may wait in vain for a return to cheap oil. Big producing nations like Saudi Arabia, which handed out cash to restive citizens during last year’s Arab Spring, need higher oil prices to balance their books. Meanwhile, a three-fold increase in the costs associated with extracting crude over the past decade has made expensive oil more a necessity than a luxury for energy firms, according to a Morningstar study. Put the two trends together and it looks like dear oil is here to stay.

Monopolies thrive when politicians go short-term

By Rob Cox
The author is a Reuters Breakingviews columnist and a Northeast Utilities customer. The opinions expressed are his own.

If there ever was a deal that elected officials should hate it’s the $17.5 billion proposal to create an electricity monopoly in New England. Last year Northeast Utilities, which wants to buy NSTAR of Massachusetts, proved to be a uniquely incompetent serial abuser of its dominant position. And yet authorities are now poised to give the merger the green light. The lesson: short-term political thinking benefits monopolies.

Hurricane Irene last August and a freak October snowstorm each left millions of Northeast’s captive customers in Connecticut without power for days while nearby rivals performed far better. An independent report painted Northeast as a hapless, unaccountable monopoly. But the power of money today speaks more loudly to politicians than the promise of greater competency tomorrow. Connecticut and Massachusetts have extracted pounds of flesh that offer significant political benefits to the two states’ governors in the short term. But they do little to ensure the new behemoth is held to higher standards of service or accountability.

Wall Street can relate to Hollywood underdog tale

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The dystopian kill-or-be-killed world of “The Hunger Games” isn’t the film’s only apt metaphor for Wall Street. This weekend’s smash box-office debut of the teen lit sensation makes Lions Gate the studio equivalent of a boutique investment bank landing the year’s biggest deal. And Walt Disney’s coinciding flop “John Carter” raises questions about Hollywood’s bulge bracket. Independents from both industries are fighting to stay in the spotlight.
 
Lions Gate is deservedly the talk of the town. In the first few days of its release, “The Hunger Games” delivered $155 million of U.S. and Canadian ticket sales. That makes it the biggest non-sequel opener ever, and leaves it third behind only later chapters in the “Harry Potter” and “Batman” series. It’s a coup for a relative tiddler, especially when a goliath rival announces a $200 million loss on an epic fail even by Tinseltown’s larger-than-life standards, as Disney just did for its own fantastical book adaptation.
 
What’s more, in a banker’s terms, “The Hunger Games” is like having an acquisition-hungry client with an abundance of capital available. Lions Gate plans to release three sequels based on the Suzanne Collins trilogy of bestsellers, so it’s a gift that should keep on giving.
 
But competing against rivals owned by deep-pocketed conglomerates is as hard on the West Coast as it is on the East. Even with the lucre raked in so far from “The Hunger Games,” Lions Gate won’t crack the top five in the studio league tables, according to Box Office Mojo figures. Legendary moguls Harvey and Bob Weinstein have struggled similarly, producing a steady slate of critical successes via their eponymous indie house – including this year’s Oscar winner “The Artist” – that often fail to achieve blockbuster status financially.
 
Smaller shops on Wall Street have capitalized on the misfortunes of their larger peers. Greenhill, for example, is valued at over 16 times expected 2013 earnings, according to Thomson Reuters data. And despite losing money over the last few years, Lions Gate trades at a forward multiple of 15.
 
After spurning the advances of activist Carl Icahn last year at about half the current share price, Lions Gate spent over $400 million to buy “Twilight” producer Summit. That gives it the ability to release more films, on a par with the likes of Paramount. That’s important in a business that feeds on big hits. Just as banking supermarkets can no longer ignore the boutiques nipping at their heels, “The Hunger Games” means Hollywood must pay heed to the Lions Gate mouse that roared.

Botched BATS IPO at least good test of markets

By Antoy Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The botched BATS initial public offering could be disastrous for the upstart electronic exchange. It scrapped its market debut on Friday after shares crashed from their $16 opening to just 2 cents after a “serious technical failure.” It’s a potential killer for the company, which is already the focus of investigations into high-frequency trading. The good news is that the stumble didn’t catalyze a broader market meltdown.

That at least offers some reassurance that the infrastructure of U.S. equity markets is far more robust than it was at the time of the so-called Flash Crash of May 2010. Markets tanked 9 percent in seconds then, after a few random trades kicked off a tailspin across the many electronic trading platforms and exchanges handling U.S stocks.

BT gets better side of deal with its pension fund

By Chris Hughes

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

BT is finally regaining the initiative in the battle over its gargantuan pension deficit. The UK telecoms group has reported a sharply reduced shortfall in the scheme’s funding position, and cut a favourable deal with members to close the remaining gap. It’s not hard to see why BT shares gained 6 percent, adding 1 billion pounds to the group’s market value. But it would be wrong to assume that the pension deficit is now a dead issue.

Jaguar far from becoming China’s next top model

By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Jaguar Land Rover wants to be China’s luxury brand of choice, but it is taking a circuitous route. The high-class car maker, owned by India’s Tata Motor, has announced a joint venture with China’s Chery Auto, a state-owned producer known for being cheap and cheerful. As a strategy for snagging a bigger share of China’s giant auto market, this is risky.

What’s Facebook really worth?

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Facebook’s 31 underwriting banks are mobilizing for the company’s initial public offering. In such a hyped IPO, any kind of valuation is possible. But a comparison with the history of the social network’s closest thing to a rival, Google, suggests that even $75 billion – at the low end of the talk to date – would be a stretch. A new Breakingviews calculator shows why, and allows bulls and bears alike to tweak the inputs.

EU eases insurers’ worst capital fears – for now

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

For the first time in a month, UK insurers’ pulses are slowing down. On March 21 the European Parliament signed amendments to the EU’s new Solvency II legislation, which in February looked set to deal them a nasty blow. But insurers – and pension providers – can’t yet afford to breathe easily.

Crowdfunding for the masses may spoil its promise

By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Allowing firms to raise capital online or by using social media is basically a good idea. But bringing in novice investors demands stronger rules when it comes to startups. U.S. lawmakers don’t seem to appreciate that. Without safeguards like audited financials, wider crowdfunding is destined to be a disaster.

Judges’ words can speak as loudly as actions

By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Judges may not need a big stick. Delaware Chancellor Leo Strine and U.S. District Judge Jed Rakoff have become known for tough and snarky rulings, including recent ones that thumped Goldman Sachs and Citigroup. They weren’t just venting, though. When ordinary legal constraints fall short, jurists can use the bully pulpit to right some wrongs.

Strine’s recent conflicts of interest opinion has become an instant classic. It railed against Goldman and others involved in the $21 billion sale of El Paso to Kinder Morgan. Though his decision went viral on Wall Street, the judge also took some heat for not actually blocking the deal after being so critical of the conduct.