Opinion

The Great Debate

from Breakingviews:

Rob Cox: The worry now is a brewing M&A bubble

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

Stop worrying about the tech bubble – there may be an even bigger one inflating beyond the confines of Silicon Valley. The corporate urge to merge has gone into global hyper-drive this year. Deal activity has surged as investors egg companies on and bid up the shares of acquirers well beyond mathematical explication, or prudence. As new metrics from interested parties are trotted out to justify the irrational, it’s time to exercise caution.

So far this year companies have announced some $1.3 trillion worth of transactions around the world, according to Thomson Reuters data. That’s nearly double the level of activity a year ago. European corporations have fueled even greater increases. Much of this is pent-up demand and a delayed response to the past year’s remarkable runup in stock market values.

But after years of relatively restrained M&A movement, giddy shareholders appear to be over-titillating the animal spirits of executives and directors into taking on ever riskier transactions.

Consider the huge regulatory hurdles that Pfizer is attempting to jump in its efforts to seal a $100 billion-plus merger with AstraZeneca and shift its tax domicile to the UK, or the French political sensitivities that General Electric is taking on with its $13.5 billion bid for Alstom’s power assets. Equally, Comcast’s $45 billion takeover of Time Warner Cable raises severe antitrust questions. These may be overcome by divesting assets. The fear that Comcast may succeed, though, is compelling rival AT&T to mull a stab at DirecTV despite having been recently thwarted in trying to acquire T-Mobile US.

from Breakingviews:

Rob Cox: Coke takes fizz out of shareholder spring

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

America’s shareholder spring hit a cold patch. Just when it seemed investors were finally breaking through entrenched boards’ barricades, the owners of Coca-Cola turned to jelly, led shockingly by Warren Buffett. The failure to challenge a transfer of vast shareholder treasure to the top 5 percent of Coke’s soda jerks shows the agency problem is still alive and well in American capitalism.

Not that investors will retreat from behaving more like owners. Greater shareholder democracy is still on the march. Last month, for instance, activists made nearly 100 U.S. Securities and Exchange Commission filings, exceeding the February number by a third, according to Activist Insight.

from Breakingviews:

Rob Cox: GE should put itself up for sale

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

General Electric should sell itself. If that sounds like an April Fools’ Day joke, think again. It’s a real proposal on the ballot at the industrial group’s annual meeting. Setting aside the absence of any obvious buyer for the $260 billion company, the proposition illustrates the kind of shareholder democracy gone wild that many boards, and even some regulators, would like to squelch. They have half a point.

The proposal is one of about six that investors put forward and will be up for a vote at GE’s April 23 annual meeting in Chicago. Not all are quite so extreme. One calls for senior executives to hold options for life. Another would end stock awards and bonuses. Naturally, management is opposed to each of them.

Fixing ‘too-big-to-fail’

The United States is plagued by large corporations with outsized political power. They are “too big to fail.” So if they are about to fail, they get rescued. Many are so big that they can block the laws needed to stop them from destroying the economy or the environment.

We need to replace them with smaller companies, but U.S. antitrust law is inadequate. It exists, but has been weakened over the past decades. Consider the proposed “Volcker Rule,” which would make many banks split into two companies, one for risky investments and one for loans based on savings, as the old Glass-Steagall law required.  This would address some problems, but would not make banks small enough.  Eliminating “too big to fail” banks means making sure that each is small enough that regulators, prosecutors and elected officials won’t hesitate to let it suffer the consequences of its own decisions.

Using anti-trust law now to split up a company requires a lawsuit, and many large companies can make that costly – as Microsoft did each time it was convicted. Corporations can also use their political influence to avoid being split, as Microsoft did when last convicted.

Shared sacrifice – except for CEOs

The hypocrisy over deficits and calls for shared sacrifice can be illustrated with one simple statistic. According to the Institute for Policy Studies, 25 of the most-well-paid chief executives got higher compensation than their companies paid in federal taxes.  There’s a class war on, as Warren Buffett has noted, and his class is winning it.

The drive for austerity, with its attendant manufactured crises, carries with it a host of mini-outrages making this point. Americans learned after the fiscal cliff negotiations ended that the final agreement, ostensibly to pass “tax hikes for the wealthy,” extended huge corporate handouts. These included special breaks for NASCAR, help for Hollywood movie studios, $3 billion a year for General Electric, support for mining and railroad companies, and even a push for electric scooters.

Outrage over this story flamed everywhere, from the floor of the House of Representatives to cable news networks, including ESPN. The anger at these corporate subsidies was justified because breaks like these are a symbol of a budget process designed to shift money and power to people who already have too much of it.

The frugal revolution

General Electric’s healthcare laboratory in Bangalore contains some of the company’s most sophisticated products—from giant body scanners that can accommodate the bulkiest American football players to state-of-the-art intensive-care units that can nurse the tiniest premature babies. But the device that has captured the heart of the center’s boss, Ashish Shah, is much less fancy: a handheld electrocardiogram called the Mac 400.

The device is a masterpiece of simplification. The multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by one of those tiny gadgets used in portable ticket machines. The whole thing is small enough to fit into a small backpack and can run on batteries as well as on the mains. This miracle of compression sells for $800, instead of $2,000 for a conventional ECG, and has reduced the cost of an electrocardiogram to just $1 per patient.

In Chennai, 202 miles farther east, Ananth Krishnan, chief technology officer of Tata Consultancy Services (TCS), is equally excited about an even lower-tech device: a water filter. It uses rice husks (which are among the country’s most common waste products) to purify water. The device is not only robust and portable but also relatively inexpensive, giving a large family an abundant supply of bacteria-free water for an initial investment of about $24 and a recurring expense of about $4 for a new filter every few months. Tata Chemicals, which is making the devices, hopes for an eventual market of 100 million.

from Newsmaker:

Wait, now the right hates General Electric?

By James Ledbetter
The opinions expressed are his own.

For many years, the River Café, an elegant restaurant that sits just below the Brooklyn Bridge, had a plaque on its wall declaring, in effect, “If you work for General Electric, go eat somewhere else.”

This unusual exclusion policy had a simple explanation: for three decades, two GE plants in upstate New York dumped as much as 1.3 million pounds of polychlorinated biphenyls (PCBs) into the Hudson River, poisoning the fish supply that River Café depends on. The effect that this contamination had on wildlife—and on anyone who ate too much fish caught in the Hudson—was severe enough to create one of the largest Superfund projects in the history of the Environmental Protection Agency.

The Hudson pollution was not unique; the bend of the Housatonic River in Connecticut where I grew up was frequently unswimmable, because of PCBs floating down from a GE plant in Pittsfield, Massachusetts. Another aqueous assault, another massive taxpayer-funded cleanup. (Update: A GE spokesman tells me that the company paid for the cleanup of both rivers. Of course, there were also costs to taxpayers, but this is an important distinction.)

China Inc. takes stock after overseas buying spree

wei_gu_debate– Wei Gu is a Reuters columnist. The opinions expressed are her own –

Abundant liquidity, government support and a strong yuan fueled Chinese companies’ overseas buying spree.

But since they went out at the peak of the market and did not have a clear strategy for acquisitions, it should come as no surprise that most of those deals have turned sour. Once bitten, twice shy.

Cleantech stock implosion yields gems

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Cleantech, with its intoxicating mix of high-tech promise and save-the-world bloody-mindedness, has fallen harder and faster in the destruction that has visited growth stocks in 2008.solar

Underscoring the sector’s risks, German solar cell maker Q-Cells cut its 2009 outlook on Tuesday, saying slack demand could linger until the middle of next year amid a growing industry price war. The stock lost nearly a fifth of its value in trading and the news sent down shares of rival companies.

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