Deals wrap: Nokia Siemens focuses on North America
Nokia Siemens Networks is buying Motorola’s telecom network equipment business, boosting its position in North America and taking the number two spot in the cut-throat mobile gear market. * View article * View factbox
Business Insider looks back at Nokia passing on a Palm deal and calls it possibly “one of the dumbest moves in handset history.” * View article
Labored over for a year, the Wall Street reform bill may not allow President Barack Obama to reap political rewards – at least not in the near term. Some see the overhaul of the financial regulatory system as too complex to resonate with voters. * View article
With President Barack Obama set to sign Wall Street reforms into law on Wednesday, Roger Altman gives some pointers on how government and business can get along in a NYT Op/Ed article. The New Yorker takes a look at White House special adviser Paul Volcker. VentureBeat asks what effect will the financial reform bill have on angel investing?
Could Google/China bust up be bad for Disney’s bus stop?
Walt Disney is leading a group effort to buy into China’s largest bus-based digital media and advertising company, Bus Online. The investment would be peanuts for Disney, but the headache could wind up being jumbo sized because one of their investors in the bus deal, sources tell us, is Google.
Google threatened to quit China only a few weeks ago and the internet search giant is finalizing a deal that will let the U.S. National Security Agency (NSA) help it investigate the corporate espionage attack it thinks originated in the People’s Republic. China has warned the U.S. not to make politics out of the Google issue, but it may be too far into the saber-jangling season for that, with Barack Obama having announced fresh U.S. weapons sales to Taiwan in his State of the Union address.
Though Google’s stake in the Bus Online deal is said to be small, even smaller than the tiny investment this will be for media giant Disney, it could just be big enough to cause headaches for Mickey and Co.
Bus Online is leading China’s media and advertising charge into this busy area of mass transit. It had revenue of only about 314.5 million yuan ($46.07 million) in 2009, but is the exclusive partner of state broadcaster CCTV and the official Xinhua news agency media content in advertising on buses. Sources tell us that senior Disney executives are set to fly to Beijing to meet media regulators to discuss Mickey’s long-term development plan in China, including the Bus Online deal.
The consortium planned to buy a stake of between 30 and 40 percent in Bus Online for more than $100 million via a purchase of old and new shares to be issued by the company in private placements. In November, Disney made a breakthrough deal to build one of its signature theme parks in Shanghai, marking a major advance for Western media and entertainment companies seeking to crack the tough Chinese market. With Google aboard, though, will the wheels of that bus come to a political stop?
Obama’s bank plan — good for M&A?
President Barack Obama’s plan to limit financial risk-taking could drive eager bankers, who had seen the juiciest business at the prop desks, to return to Mergers and Acquisitions — the former darling desk of Wall Street.
Picking a fight with the financial titans (that just last week sent their top executives to offer platitudes to Congress about the financial disaster they created), the administration unveiled a plan that would stop banks from playing with their own money to take risky positions – the so-called proprietary trading operations.
Way back when, these were small, cloistered parts of the business, shying away from attention and very much in the shadow of the mighty M&A side of the investment banking world.
Megan Davies reports that the move could force banks to shed parts of their private equity operations. Might that also provide another crop of bonus-hungry bankers for M&A?
‘New GM’ Gets a Visit from a Shareholder
“Think about it. If you are a member of the union right now, you’re spending all your time negotiating about health care. You need to be spending some time negotiating about wages, but you can’t do it,” he said.
In fact, the UAW locked itself into a contract limiting wages and changes to health care, without the ability to negotiate with a threat of strike, until 2015. These stands were agreed to by the union at the prodding of the Obama administration, which demanded that union autoworkers accept lower wages — as a condition to the bailout that saved Lordstown — to match non-union workers at Toyota plants in Kentucky and Honda plants in Ohio.
Even so, Lordstown is something of a success story for both the UAW and GM, and Obama’s remarks were punctuated with enthusiastic applause. After winning deep concessions from the UAW in 2007, GM agreed to invest $500 million to retool the plant to make a new fuel-efficient small sedan, the Chevy Cruze.
S&P: No subtext in industrial exodus from benchmark
Manitowoc Co is set to be the third U.S. manufacturer dropped from the Standard & Poor’s 500 index this year — but the brains behind the benchmark said the shift does not reflect a desire to soft-pedal the sector.
“Our general concern about sectors is the proportions of sectors in the market and the index should be close to one another, and close is around a percentage point or so,” said David Blitzer, an S&P managing director who chairs the index committee. “Given that the 500 is 75 to 80 percent of the total market cap of the U.S. market, we’re never going to be too far off.”
S&P said late on Monday that it would remove Manitowoc, a maker of cranes and ships, from the benchmark S&P 500 after the close of trading on Aug. 31, noting that its market capitalization ranked it last in the group.
Manitowoc will be replaced by Cardinal Health Inc spin-off, CareFusion Corp, a medical products company.
In March, Tyco International Ltd was dropped from the index, followed by Ingersoll-Rand Co in June. They were replaced by New England’s largest utility Northeast Utilities and utilities contractor Quanta Services Inc.
But Tyco and Ingersoll had something in common besides their sector — they both reincorporated from Bermuda to Europe, making them ineligible for inclusion on this list.
“Two of the three industrials that left did it themselves,” Blitzer said.
The Value of Experience
(Corrected – Bank of America did not purchase Countrywide early this decade)
Now that the nation’s top public servant is wielding The Donald-like powers over chief executives of bailed-out companies, expectations are high that more heads will roll, and Bank of America CEO Kenneth Lewis is looking like the next contestant on a new economic prime-time drama: The Executive.
Rick Wagoner, ousted as General Motors CEO, had spent more than three decades in the company and had been in the driver’s seat for most of the last one. He also presided over the era of the energy-unfriendly Sport Utility Vehicle and is criticized for sticking with trucks far longer than he should have.
Lewis has been Bank of America CEO for about eight years. He bought CountryWide, the biggest lender after the market went crazy for real estate and was ultimately forced to buy Merrill Lynch as the salad days of Wall Street wilted.
By contrast, Citigroup’s Vikram Pandit has been running things for just about long enough to endure the worst of the crisis, and AIG’s Edward Liddy was installed by the government. Perhaps it’s the longevity of characters like Wagoner and Lewis that make them seem so deserving of a presidential pink slip.
Should investors brace for a wave of executive firings? Certainly any chief with enough stripes to remember the good times and who had his hand out for government aid is looking vulnerable.
It is interesting to recall the argument behind AIG’s odious retention bonuses: these are the guys who got their companies into those messes; they should be the best positioned to get them out. If Lewis does get a presidential veto, that argument will be pretty much lost.
Stan, I stand corrected, and have corrected the item. I don’t believe this changes the tenor of the argument.
Office of Executive Compensation, it’s a Public-Private Affair
It’s hard to imagine a less free-market initiative than having Washington approve executive compensation packages. But by the same token, the astronomical fees charged by many company chiefs would seem to defy laws of gravity, though not necessarily nature. Top athletes know the score: executive compensation has a relational value that outweighs its nominal one. That is to say, it’s not how much you get paid that’s important; it’s whether your paycheck is bigger than your competitor’s. That’s how Goldman Sachs CEO Lloyd Blankfein can walk away with a $65 million pay check in 2006. This is a nonsensical amount of money – more than could be spent by the family Blankfein over several generations. But for Goldman Sachs shareholders, it represents a trophy.
The Senate is doubtless trying to take a deep breath after the House passed legislation aimed at taxing bonuses of AIG and other recipients of government aid. Over at the White House, details of a plan to go Dutch with private investors on the bill for the years-long rave that ended with Wall Street’s crash last year are due later today. And speaking of Dutch, the Finance Ministry in The Hague said it would tackle bonuses at companies receiving government support. And big Dutch bank ING said it was asking some staff to give back their bonus payments for 2008.
The Netherlands and the United States are in similar ways two of the biggest boosters of commercial capitalism in the history of Western civilization. Clearly, they should be taking the lead in rewriting the theory of financial Darwinism.
Deals of the Day:
* Suncor Energy, Canada’ No.2 oil company, agreed to buy rival Petro-Canada for about C$18.43 billion ($14.86 billion) to expand its oil sand reserves and create the country’s biggest energy group.
* Britain’s BG Group has acquired 70 percent of Australian coal seam gas producer Pure Energy and has extended the offer period in its agreed A$1.03 billion takeover bid for Pure.
* India-focused mining group Vedanta Resources plans to pay $34 million to boost its stake in Madras Aluminium Company Limited to 93 percent from 80 after an offer to minorities shareholders.
Pushing Drugs
The drums of consolidation in Big Pharma were beating loudly after Pfizer bid for Wyeth in January. And as Merck and Schering-Plough were already teamed up on key drugs, the deal they announced this morning was hardly a shock. Though analysts said the pact has lots of logic to sell it — the companies are practically neighbors in New Jersey — the market is playing defense, so any excitement about Monday merger mania was quickly quashed as the economic Thorazine kicked in.
Long the preferred defensive play in a downturn, Big Pharma has been suffering along with the rest of the market as investors unwind the bull-market era and dump stocks for treasuries in the face of the biggest surge of new government debt issuance in living memory. Plus, consider that just last week the Obama administration was marshaling the president’s executive might to make good on a campaign pledge to tackle soaring health-care costs. Considering the environment, the strength of logic might not be enough to cast the Merck/Schering-Plough deal as anything other than a defensive necessity.
Shareholders are acting defensively as well. Merck shares were retreating in premarket trade, indicating a lack of confidence that the synergies of the merger will overcome what ails Wall Street. Deals of the Day:
* Iceland’s financial watchdog said it had taken over investment bank Straumur Burdaras <STRB.IC>, the last major Icelandic bank left standing after the country’s financial collapse in October.
* Four global spirits makers, including Diageo, have shown interest in acquiring stake in India’s United Spirits, the world’s third-largest spirits maker, the Times of India said on Monday, quoting agencies.
* Swiss logistics group Kuehne & Nagel has agreed to buy J. Martens Holding AS, a Norwegian service provider to the oil and gas industry, it said.
* India’s Satyam Computer Services said it was commencing a competitive bidding process to select an investor to acquire 51 percent stake in the fraud-tainted outsourcer.
Princely Sums
(fixes typo in third paragraph)
Talk about the end of the salad days. The White House is pledging action against “irresponsible” bonuses for executives at bailed-out Wall Street companies and Senator Claire McCaskill has proposed a law to cap their compensation to $400,000 a year.
Masters of Wall Street should not make more money than the president of the United States, she argues, at least not until they wean themselves from government aid. So what’s a Wall Street executive to do on only $400,000 a year? Here are some ideas – precluding paying rent, buying food, putting gas in the car or getting the poodle a trim:
REAL ESTATE: Thank goodness the property market crash has opened some affordability gaps for the newly upper-middle-class executive. The prospective banking executive could pick up a one bedroom, one bathroom co-op condo on West 45th street, or see if she could get a mortgage on Bernard Madoff’s Montauk $3.3 million East Hampton estate. In this market? Unlikely. Plus, agents will tell you the market price is actually much higher. Pity.
OFFICE OR HOME DECORATION: He could spend a year’s salary on four painted portraits of billionaire investor Warren Buffet. In May, performance artist Michael Israel painted a portrait of the head of Berkshire Hathaway in 10 minutes flat. Six months later, a Minneapolis executive bought it for $100,000 in an eBay auction, with the proceeds going to the non-profit Girls Inc program.
PARTY PARTY PARTY: The future titan of Wall Street may not be able to afford Rod Stewart, who played at Steve Schwarzman’s big birthday bash in 2007 for $1 million, but he could gorge on 10,000 or so of the Blackstone chief’s favorite crab claws, which were going for $40 per claw back in the heyday of high finance.
SUPERBOWL: StubHub had a Super Bowl luxury suite going for $83,340, so a bank exec could still easily play the part of overpaid sports junky and still have more than $300,000 to lose on the outcome of the game. If he wants to be a bit more frugal, club premium seats are going for $10,511 a pop. If ego demanded, he could afford 4 seconds of TV advertising.
Bonuses are completely discretionary—conditioned upon the performance of the firm as a whole.
Bonuses are not warranted at all for any firm getting government aid.
How many jobs would the $18 billion have saved?
Stocks climb, bonds fall on Obama victory
Global stocks rose on Tuesday night as Barack Obama‘s history-making victory became apparent.
“People are hoping that we are seeing a path here to a resolution of one key uncertainty on the investment scene; who will be the leader of the free world,” said David Dietze, chief investment strategist at Point View Financial Services, Summit, New Jersey.
U.S. Treasury prices fell as the safe haven bid waned with global stocks rising. The 2-year note’s price traded down 3/32 for a yield of 1.44 percent.
“Money is coming out of the very shortest end (of Treasuries) and going into stocks and spread product.” Dietze said. “People are just more willing to invest in anything as opposed to being on the sidelines,” he said.
New Yorker business writer James Surowiecki has more:
It’s been interesting to watch the after-hours trading in the S. & P. futures, particularly around 9:30 P.M., when CNN and Fox both called Ohio for Obama, effectively (I think) clinching his victory. The announcement made essentially no impact on the futures market, which I think suggests that investors were already collectively expecting an Obama victory. So does the fact that in the last half hour the futures, which had been down earlier in the session, kept rising, so that they’re now actually up from today’s close. In other words, there’s no sign that investors are panicked at the thought of an Obama Presidency.
Of course, the market also knows at this point that it’s unlikely that the Democrats will get sixty seats in the Senate, which it’s fair to say many people on Wall Street were really concerned about. So that may have something to do with investors’ relative sanguinity. As for world markets, they’re still rallying, with Australia up almost two per cent and Hong Kong up 5.5 per cent. The Japanese? They’re still on their lunch break, but the Nikkei was up almost three per cent this morning. So at the moment, the global rally continues.
Home prices should start to rise under Obama also. Here’s a good site to follow the trend:
