Thursday, May 31, 2007

China and India in ‘race to the moon’


By Jo Johnson in New Delhi and Mure Dickie in Beijing (Financial Times)

China and India are both planning to launch moon shots within a year in the latest sign of the two Asian powerhouses’ intensifying rivalry and growing technological prowess.

Although both countries deny they are engaged in a 21st century re-run of the 1960s race to the moon between the cold war superpowers, their haste to launch suggests more than casual interest in the other’s progress.

China said this month that it expected to launch its first unmanned lunar orbiter, the Chang’e-1 (named after China’s mythological “lady in the moon”) before the end of this year, while India this week announced that it could send up a similar space probe as early as April 2008.

The two lunar programmes should be scientifically complementary, with Chinese scientists stressing Chang’e’s goal of improving understanding of the geochemistry of the moon’s surface and India focusing on three-dimensional mapping.

Chinese lunar programme scientist Ouyang Ziyuan told the Financial Times in 2005 that he was excited about the possibility that the moon might be a rich source of helium-3, a potential fuel for nuclear fusion reactors that is scarce on earth.

S. Krishnamurthy, a spokesman for the Indian Space Research Organisation, said on Wednesday that the spin-offs for India’s nuclear programme from potential lunar sources of helium-3 could be “considerable”.

Non-governmental groups have put the Indian space agency on the defensive about the programme, arguing it is hard for a country that is home to a quarter of the world’s poor to justify costly space missions.

Manmohan Singh, India’s prime minister, has defended it, saying the country must deal with the fundamental problems of development and at the same time aspire to operate on the frontiers of science.

“In the increasingly globalised world we live in, a base of scientific and technical knowledge has emerged as a critical determinant of the wealth and status of nations and it is that which drives us to programmes of this type,” he said last year.

Mr Krishnamurthy said the Chandrayaan-1 probe, which will map the moon’s surface for chemicals using a spectrometer and terrain-mapping cameras during a two-year mission, would cost Rs3.9bn ($96.3m), a 10th of ISRO’s annual budget.

Under Beijing’s three-stage plan, the Chang’e orbiter will be followed by a lunar landing and then by a mission to bring back rock and soil samples. India is building a two-legged robot for a possible follow-up mission to the moon’s surface in 2011.

However, the Chang’e programme will have to compete for resources with the high-profile manned space programme and Beijing’s push to develop its military space assets.

Madhavan Nair, chairman of ISRO, said this week that his organisation would submit a report to the Indian government in a year’s time on whether a manned space mission, likely to cost about Rs100bn ($2.4bn), would be needed.

Nasa will provide two scientific instruments for Chandrayaan-1, illustrating the Bush administration’s drive to build a strategic partnership with India, the centrepiece of which is a deal on nuclear co-operation.

Chandrayaan-1, equipped with a US-made water-detecting radar and a moon mineralogy mapper, will be propelled into space by a satellite launcher from the Satish Dhawan Space Centre at Sriharikota, 100km north of Chennai.

Yahoo!'s Top Tech Exec Retires (Forbes)


Staci D. Kramer

Another major departure at Yahoo! and another gap. CTO Farzad Nazem is parting ways with the company effective immediately, according to an SEC filing this afternoon. The filing includes a copy of Nazem’s separation agreement, which spells out that his involvement in the company actually ends today even though his termination date is June 8.

Nazem joined the company in 1996 and became CTO in 1998. As part of the Yahoo! reorganization that led to the departure of COO Dan Rosensweig, Nazem was appointed to head technology, one of the three core units. Sue Decker, then CFO, was put in charge of the advertiser & publisher group while the job at the top of the third group, audience, has yet to be filled. Nazem recently reorganized the technology group; we posted his memo explaining the moves.

Just last week, Nazem exercised options for 84,500 shares of stock at $24.75 and then sold them for $29.75 to $29.79 that day. Some of his remaining options will vest fully June 8 but the right to exercise his options following departure relies on his compliance, including an agreement not to engage in "certain competitive activities" for three years--i.e., no work in any way with Google (nasdaq: GOOG - news - people ) or Microsoft (nasdaq: MSFT - news - people )--and his agreement not to solicit any Yahoo! employees or contractors. (If he's with a company acquired by Google or Microsoft or is consulting in an area that didn't exist at Yahoo! as of June, 8, different story.) He'll get the remainder of his 2007 base pay in lieu of other severance.

--He also agrees not to disparage Yahoo! for five years, and Yahoo! agrees that top execs, including his successor and the directors, will not disparage him.

Update: Nazem says he’s retiring. From his post on Yahoo!'s blog, Yodel Anecdotal: "After spending the last 26 years in this fast-paced technology industry, I've finally decided it's time to slow down. I'll be retiring in early June. ... As I began contemplating retirement, there were a few milestones that I (along with the executive leadership team) wanted to accomplish prior to my departure. We wanted to realign the company and, subsequently, the Technology Group, successfully launch our new search monetization system (a.k.a. Panama) and build a solid technology leadership team to help take this company to the next level. It was very important to me to drive all the way to my last day here at Yahoo! without distractions of an announcement like this. So we chose to make the announcement and my end date as close as possible."

--Jerry Yang will be the "interim executive sponsor of the Technology Group" until a permanent replacement is identified.

S&P 500 Record Close (San Francisco Cronicle)

Kathleen Pender

After more than seven years, the Standard & Poor's 500 index finally pushed through to a new high Wednesday. The stock benchmark, which treaded water most of the day, surged in the last few hours of trading after the Federal Reserve released minutes of its latest rate-setting committee meeting. The minutes raised hopes that the Fed's next interestrate move will be a cut. For the day, the S&P 500 rose 12.12 points, or 0.8 percent, to close at 1530.23, topping its record close of 1527.46 on March 24, 2000. For long-suffering investors, the news was good, but largely symbolic. Unless you invested in the S&P 500 and spent all of your dividends, your results -- as they say in the weight-loss ads -- may differ.

Other indexes hit new highs months or years ago and some are still shadows of their former selves. It all depends on what's in the index and how it's weighted. The S&P 500 tracks 500 large U.S. companies. The index is capitalization-weighted, which means companies with the biggest market values have the greatest influence. Large-cap stocks, which tore up the charts in the late 1990s, have lagged small- and mid-cap stocks during the recovery.

The Dow Jones industrial average tracks 30 of the biggest big-cap stocks, yet it surpassed its 2000 high in October. That's mainly because it's weighted by each company's share price. "If the Dow were market-weighted, it would be nowhere near its high," says S&P index analyst Howard Silverblatt. The Russell 2000, which tracks small-cap stocks, surpassed its 2000 high in 2004 and has been on a tear ever since. The Dow Jones Wilshire 5000, which includes almost every U.S. stock and is also cap-weighted, eclipsed its previous record on Feb. 20 this year.

"Congrats S&P, but we hit a new high (on Wednesday), too. It was the 13th this year," quipped Kim Shepard, a spokeswoman for Wilshire Associates.

On the other hand, the Nasdaq composite index, weighed down by its heavy concentration in tech stocks, is roughly half where it was in March 2000. The nominal returns from these indexes ignore dividends, an important source of returns for larger companies. Including dividends, the S&P 500 actually hit a high last October. If you had invested $10,000 in the Vanguard 500 Index fund on March 24, 2000, and reinvested your dividends and capital gains distributions, you would have roughly $11,200 today, says Dan Wiener, who publishes an independent newsletter for Vanguard investors.

Small caps doing better

If you had invested $10,000 on the same date in the Vanguard Small-Cap Index fund, you would have $16,890. If you had put your 10 grand in the Vanguard Mid-Cap Index fund, you'd be sitting on $20,975. And if you'd had the foresight or good fortune to choose the Vanguard Small-Cap Value Index fund, you would have an astonishing $26,425, Wiener says. Although the S&P 500 is back where it was roughly seven years ago, things today are very different than they were then. In the late 1990s, the market was driven largely by the idea that technology and the Internet would create productivity improvements that would justify permanently higher stock valuations. Most stock price gains were concentrated in the tech and telecommunication sectors.

Although tech and telecom have transformed the economy, those expectations turned out to be a tad rosy. Since March 2000, technology and telecommunications are the only S&P 500 sectors that are still underwater, down 61 percent and 44 percent, respectively. Sectors that were neglected in the late 1990s have done the best since 2000. Energy is up 146 percent, followed by materials (such as copper, aluminum and steel), which are up 82 percent.

Many key factors

What is driving the market today? A combination of things. Although the economy has slowed from its torrid pace, it seems to be growing fast enough to avoid a recession, but not fast enough to ignite inflation. Many foreign economies are growing faster than the United States. That's helping U.S. companies, which are becoming increasingly global. The weak dollar is also making U.S. exports more competitive overseas and leading to currency gains when companies repatriate their overseas profits.

Although corporate earnings growth has fallen from double to single digits, it is still strong by historical standards. Despite the increase in stock prices, earnings growth has been sufficient to prevent stocks from becoming significantly overvalued. The price-earnings ratio for the S&P 500 is about 18 today, compared with 30-plus in March 2000.

One of the biggest factors moving the market of late is simple economics. While the demand for stocks remains strong, the supply of shares is shrinking. Companies are buying back their shares in record numbers and companies are being taken over in private-equity deals that remove their shares from the public markets. "S&P 500 companies have repurchased 7.7 percent of their own shares since the end of 2004 and we have 13 companies in the S&P 500 that have private buyout deals pending," Silverblatt says.

Risks still prevalent

As always, there are plenty of risks facing the market. A collapse in the China stock market could send shock waves worldwide (as it did, briefly, in February). U.S. consumers, burdened with debt and unable to extract more equity from their homes, could go on a savings binge. But many analysts say the pros today outweigh the cons. "People make the mistake of looking at price and saying it's high, but you have to say relative to what," says Stewart Pillette, president of Pillette Investment Management. "There may be hiccups from time to time. But as far as our work is concerned, there is no excessive exuberance," he says.

U.S. Economy Expanded at a 0.6% Annual Rate in First Quarter (Bloomberg)

By Shobhana Chandra

May 31 (Bloomberg) -- The U.S. economy grew last quarter at a 0.6 percent annual rate, the weakest in more than four years, as housing slumped, the trade deficit widened and businesses reduced inventories.

The gain in gross domestic product is the weakest since the last three months of 2002 and compares with a 1.3 percent pace initially estimated last month, according to revised figures from the Commerce Department today in Washington. Last quarter may prove to be the low point for the economy as recent reports showed business spending improved and leaner stockpiles prompted factories to boost production, economists said. Such an outcome would bear out forecasts by Federal Reserve policy makers, who this month reiterated that growth will pickup for the rest of this year and into next.

``We're looking for a gradual firming in growth,'' Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said before the report. ``The inventory situation is a lot more favorable, and the drag from housing will be reduced.'' Today's report is the second of three estimates released by the government for the quarter. The figures will be revised again next month. Economists forecast a 0.8 percent gain for GDP last quarter, according to the median of 78 estimates in a Bloomberg News survey. Forecasts ranged from 0.1 percent to 1.8 percent. The world's largest economy grew at a 2.5 percent annual pace in the fourth quarter.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, the same as previously estimated.

Comfort Zone

Fed Chairman Ben S. Bernanke is among policy makers that have said a 1 percent to 2 percent range is preferable. In minutes of the central bank's May 9 meeting released yesterday, Fed officials continued to view inflation as the biggest risk to the economy. Today's revisions reflected a bigger trade deficit and fewer inventories than the government estimated last month. The trade deficit widened to an annual pace of $611.8 billion, subtracting 1 percentage point from GDP, twice as much as previously estimated. Companies reduced stockpiles at a $4.5 billion rate last quarter compared with initial estimates of a $14.8 billion gain at an annual rate. The figures subtracted another percentage point from growth. A jump in consumer spending last quarter was one of the few things that kept the expansion alive. The increase in spending, which accounts for about 70 percent of the economy, was revised up to an annual rate of 4.4 percent, the biggest gain in a year, from an initial estimate of 3.8 percent.

Recipe For Growth

``Stronger growth in domestic final demand combined with a bigger inventory correction is a recipe for faster growth in the second quarter,'' Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. Spending gains may slow as record gasoline prices and falling home values pinch consumers, economists said.

A rebound in business investment is contributing to a more optimistic outlook for the second quarter even as consumer spending moderates, economists said. Orders for durable goods recorded a third straight gain last month, the longest streak in almost two years. ``Second-quarter economic activity is firming up after the soggy debut for the year,'' Lynn Reaser, chief economist of the Investment Strategies Group at Bank of America in Boston, said before the report. ``The industrial sector is again on the mend.'' Housing was less of a drag last quarter than previously projected, subtracting 0.9 percentage point from growth, compared with the initial estimate of 1 percentage point. Home construction fell at an annual rate of 15.4 percent last quarter, after contracting by 19.8 percent in the previous three months.

Builders Pessimistic

``The homebuilding environment remains difficult,'' Richard Dugas, chief executive officer of Pulte Homes Inc., said in a statement this week. Pulte, the third-largest U.S. homebuilder, plans to fire 16 percent of its staff after it reported a first- quarter loss. Rising foreclosures and mortgage defaults by borrowers with poor or limited credit history are adding to concerns the housing recovery may take longer, economists said. In minutes of their May 9 meeting, Fed officials acknowledged they underestimated the length of the housing recession. Still, they said the risks from the fallout of the subprime lending crisis and the previous slump in business investment ``were judged to have diminished slightly.'' Growth will accelerate to an annual pace of 2.2 percent this quarter, based on the median estimate of economists surveyed earlier this month by Bloomberg News.

Growth Forecasts

Some have boosted their forecasts since then. Economists at Morgan Stanley project the economy will expand at a 3.1 percent pace, up from their previous estimate of 2.4 percent. UBS Securities LLC boosted their growth estimate to 2.3 percent from 1.8 percent. Today's GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.2 percent to an annual rate of $1.67 trillion. For all of last year, profits were up 21 percent. The government also issued updated income figures for the previous two quarters. Personal income was revised up by $31 billion for the fourth quarter of 2006, boosting the gain over the previous quarter to an annual rate of 5.9 percent from 4.7 percent. The increase suggests either payrolls have been undercounted or employees were paid more than previously estimated, economists said.

Wachovia to Buy A.G. Edwards for $6.8B (Reuters)

NEW YORK — Wachovia Corp. (WB), the fourth-largest U.S. bank, Thursday said it will buy A.G. Edwards Inc. for $6.8 billion in cash and stock, creating the second-largest U.S. retail brokerage.

Charlotte, North Carolina-based Wachovia expects to fold A.G. Edwards into its Wachovia Securities brokerage, pushing deeper into metropolitan areas. The combined brokerage would have about 14,784 brokers, ranking behind Merrill Lynch & Co. ; and $1.15 trillion of client assets, ranking third behind Merrill and Citigroup Inc., Wachovia said. It would employ more than 31,000 people, and command a 14 percent market share.

"Long-term growth opportunities of the brokerage industry are extremely compelling to Wachovia," Wachovia Chief Executive Ken Thompson said in a statement. "This combination ... will further enhance our scale and relevance."

A.G. Edwards shareholders will receive 0.9844 of a Wachovia share and $35.80 in cash for each of their shares. The terms value A.G. Edwards at $89.50 per share, a 16 percent premium over their Wednesday closing price. A.G. Edwards shares had already risen 22 percent this year. The transaction comes nearly eight months after Wachovia completed the $24.2 billion purchase of U.S. savings and loan Golden West Financial Corp.

"(We) see significant cost savings as well as opportunities for Wachovia to overlay its broader product set," wrote Lehman Brothers Inc. analyst Jason Goldberg. "The purchase also reduces its mortgage contribution (to overall results)." Wachovia has 8,166 brokers and $773 billion of client assets. A.G. Edwards, founded in 1887, has 6,618 brokers and $374 billion of client assets. The combined brokerage would keep its name and be based in St. Louis, home of A.G. Edwards. Prudential Financial Inc. has a 38 percent stake in Wachovia Securities, and said it supports the merger.

Wachovia Securities Chief Executive Daniel Ludeman will retain his title, while A.G. Edwards Chairman and Chief Executive Robert Bagby will be chairman. Bagby, reached at his St. Louis office, said he could not comment. Wachovia expects $395 million of cost savings, or 10 percent of combined expenses, and to incur $860 million of merger charges over 18 months. It expects the transaction to boost earnings per share excluding items in the first year, and generate a 24 percent internal rate of return. The transaction is expected to close in the fourth quarter, pending shareholder and regulatory approvals. Credit Suisse, Wachovia Securities and the law firm Simpson Thacher & Bartlett LLP represented Wachovia on the transaction, while Goldman Sachs & Co. and the law firm Wachtell, Lipton, Rosen & Katz represented A.G. Edwards. Wachovia shares closed Wednesday at $54.55 on the New York Stock Exchange.

US weekly jobless claims fall 4,000 to 310,000 vs 315,000 expected

WASHINGTON (Thomson Financial) - The number of people filing new claims for unemployment insurance fell by 4,000 last week, continuing a series of reports missing expectations.

The Labor Department said US first-time claims fell to a seasonally adjusted 310,000 in the week ending May 26. Analysts were forecasting 315,000 new claims.

The four-week moving average of first-time claims was up 1,000 to 304,500. Four-week averaging smoothes out fluctuations in the volatile weekly figures.

Continuing claims for the May 19 week were down 52,000 to 2.47 mln, in line with the expected 2.50 mln. The 4-week average for continuing claims was 2.50 mln, its lowest level since February.

Ahead of the Bell: Motorola Edges Up (AP)

NEW YORK — Wall Street responded positively to Motorola's plans to cut another 4,000 jobs, but most analysts see the company's future depending on new products.

The Schaumburg, Ill.-based Motorola late Wednesday announced the job cuts as part of its two-year restructuring program aimed at improving disappointing results stemming from the one-hot Razr phone's loss of popularity. The world's No. 2 cell phone maker posted its first quarterly loss since 2004 this spring in the face of declining prices and increased competition from other companies' models.

The new cuts come on top of the previously announced elimination of 3,500 jobs, and are expected to result in an additional $600 million savings in 2008. Analysts approved of the payroll trimming, and some adjusted their earnings estimates to reflect it, but most said the real proof of a turnaround for Motorola will be new products that capture consumers' attention.

"While the cost control measures initiated by Motorola are steps in the right direction, the company's long-term competitiveness and profitability continues to depend on its ability to roll-out innovative mobile devices," said Brian Modoff of Deutsche Bank. "While the company's recently announced new phones are solid products, they are not game changers and the company may continue to lose share in 2007," wrote Modoff, who kept a "Hold" rating on the stock, but increased his price target to $17 from $15.

Banc of America Securities analyst Tim Long, who has a "Buy" rating and $22 price target on Motorola, likewise said, "We are encouraged by the cost reduction efforts, but look for traction with new handsets to drive higher earnings per share and cash flow." Ehud A. Gelblum of JPMorgan agreed, "Certainly the most attractive way for Motorola to reach its previous benchmark would be through new desirable models sold at higher average sale prices."

The announcement "does not meaningfully improve our expectations for better product," Gelblum said, adding, "we certainly believe Motorola is poised to leverage sales if and when new hit models reach the market." Gelblum has an "Overweight," or "Buy" rating on the shares. In premarket electronic trading, Motorola shares added 9 cents, to $18.37, from their close Wednesday at $18.28.

Wednesday, May 30, 2007

Motorola says to cut 4,000 more jobs (Reuters)

NEW YORK (Reuters) - Motorola Inc. (MOT.N), the world's second-biggest mobile phone maker, said it expects to cut an additional 4,000 jobs, bringing the total to 7,500 this year, as it works to reduce costs to return to profit.

Motorola, which posted a first-quarter loss on weak phone sales, said it expects restructuring charges of about $300 million, or about 8 cents per share, over the rest of 2007 as a result of the additional job cuts.

The latest cuts, which will be made by the end of the year, bring the total reductions to more than 11 percent of Motorola's work force of 66,000 at the end of 2006.

The company, which expects to complete its previously announced 3,500 job cuts by June 30, forecast $600 million in annual cost savings in 2008 as a result of the additional job cuts, other spending controls and site rationalization.

Motorola said it was on target to save $400 million from the lay-offs announced in January.

It said there would be no adverse effect on customer service or product quality as a result of the cuts.

Motorola, which has been losing market share to rivals such as market leader Nokia (NOK1V.HE) due to a lack of advanced phones and tough price competition, said in April that it would announce additional cost-cutting plans by June.

The company has said in recent months it was shifting its priorities to improving profitability from gaining market share at all costs.

Motorola stock rose to $18.46 in after-hours trade following the news, up 1 percent from its close of $18.28 on the New York Stock Exchange.

Euro slightly lower against U.S. dollar (AP)

FRANKFURT, Germany: The euro was down slightly against the U.S. dollar Wednesday following an unexpected rise in U.S. consumer confidence.

The 13-nation euro bought US$1.3434 in morning European trading, down from US$1.3453 in New York late Tuesday.

The slip came after the New York-based Conference Board said Tuesday that its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Analysts had expected the reading to fall to 104.5.

"Without doubt ... the better than expected U.S. consumer confidence figures are helping," said David Jones, chief market analyst at CMC Markets in London.

U.S. economic data are being watched closely for pointers to the Federal Reserve's future interest rate course. The Fed has left its rates unchanged over recent months, even as the ECB has raised the cost of borrowing.

Higher interest rates, a weapon against inflation, can bolster a currency by making investments denominated in it more attractive.

In other trading, the British pound slipped to US$1.9783 from US$1.9800, while the dollar edged up to 121.59 Japanese yen from 121.55 yen.

Williams-Sonoma Posts 21% Fall (WSJ)

By KEVIN KINGSBURY

Williams-Sonoma Inc.'s fiscal first-quarter net income fell 21% and the retailer trimmed its second-quarter earnings forecast due to potential markdowns by competitors to clear growing inventories.

The San Francisco owner of home-products chains such as Pottery Barn reported net income of $18.2 million, or 16 cents a share, for the period ended April 29, compared with $23.1 million, or 20 cents a share, a year earlier. The latest quarter's results included a one-cent impact from adopting new income-tax accounting.

Revenue climbed 2.7% to $816.1 million from $794.3 million, as comparable-store sales dropped 0.8%. The revenue increase would have been 5.2% excluding sales from the since-shuttered Hold Everything chain.

Two months ago, Williams-Sonoma projected net income of 11 cents to 15 cents a share on revenue of $812 million to $830 million. The firm forecasted comparable-store sales excluding the small West Elm and Williams-Sonoma Home chains to be down 1% to 3.5%.

Gross margin fell to 37% from 38.5%, below the company's March forecast of 37.4% to 37.7%, amid increased markdowns at Pottery Barn and Pottery Barn Kids, and increased liquidations at the firm's outlet stores.

Chairman and Chief Executive Howard Lester said that despite the home-furnishing sector's macro-environment continuing to be "very challenging, we aggressively managed the rapid changes in our business and delivered better than expected earnings for the quarter. What we were particularly pleased with during the quarter was the performance of our emerging brands and our progress to date on our strategic initiatives."

Pottery Barn, which with Pottery Barn Kids has slightly more stores than the Williams-Sonoma brand, has had a tough time recently due to fewer home sales, which has reduced the number of homeowners making large purchases, and a home-furnishing field crowded with competitors. Revitalizing the brand has been Williams-Sonoma's most-important effort, Mr. Lester said.

He went on to say that executives are "remaining cautious in our guidance -- particularly in the short-term. We continue to see higher inventory levels among our competition, and are concerned about the ongoing pressure of industry-wide markdowns and rising raw material costs." Both could cut profit margins.

As such, the company lowered its earnings second-quarter forecast by two cents a share to 14 cents to 18 cents. But Williams-Sonoma reiterated its fiscal-year target of $1.76 to $1.84 a share due to the first-quarter results. The firm also backed its second-quarter revenue forecast of $855 million to $873 million and still sees comparable-store sales being flat to down 2%. Williams-Sonoma cut its gross margin forecast to 36.2% to 36.5% from 36.9% to 37.2%.

U.S. Home Prices Drop for the First Time in 16 Years (Bloomberg)

By Shobhana Chandra

May 29 - Home prices in the U.S. dropped last quarter for the first time in almost 16 years, as 13 out of 20 cities reported declines in March. The value of a house dropped 1.4 percent in the first three months of the year from the same period in 2006, according to a report today by S&P/Case-Shiller. Prices last fell during the third quarter of 1991. The retreat may deter owners from tapping into home equity for extra cash, economists said. Combined with record gasoline prices, lower home prices raise concern consumer spending, which accounts for more than two-thirds of the economy, will slow. ``We don't see a big rebound in economic growth,'' said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. The housing slump has yet to shake sentiment. An index of consumer confidence rose to 108 this month from a revised 106.3 in April, a five-month low, the New York-based Conference Board reported today. The private research group's index averaged 105.9 last year. The decline in prices may not be large enough to concern the majority of home owners, economists said. The drop in prices in the 12 months ended March pales in comparison to the 157 percent gain over the previous 15 years. Sellers are reducing prices to lure buyers as the supply of properties on the real-estate market grows. Rising foreclosures as subprime borrowers default on loans may add to the glut of unsold homes, delaying a recovery from the housing slump, economists said.

`Too Many Homes'

``The bottom line is, there are just too many homes on the market,'' said Christopher Low, chief economist at FTN Financial in New York. ``The pressure on prices is not going to ease any time soon.'' Declines in home prices in 20 U.S. metropolitan areas accelerated in the 12 months ended in March, the report also showed. Home values dropped 1.4 percent in March from the same month in 2006, after declining 0.8 percent in the year ended February. This ``is a reaffirmation of the pullback in the U.S. residential real estate market,'' Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, said in a statement. Shiller and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s. Shiller's 2000 book ``Irrational Exuberance'' predicted the stock market would slump and a second edition, published in 2005, said housing was in the midst of the biggest speculative boom in U.S. history.

Home-Price Futures

Chicago Mercantile Exchange last year began offering futures contracts based on the S&P/Case-Shiller index covering 10 metropolitan areas. The March index covering transactions in 20 metropolitan areas, showed home prices dropped 0.3 percent from a month earlier, following a 0.4 percent decline in February. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month to month. Thirteen cities showed a year-over-year decrease in prices for the month, led by a 8.4 percent drop in Detroit home values and a 6 percent drop in San Diego. Home values rose 10 percent in Seattle and 7.4 percent in Charlotte. The group started keeping year-over-year records for the index in 2001.

10-City Index

S&P/Case-Shiller's 10-city composite index, which has a longer history, decreased 1.9 percent in March from a year earlier. The National Association of Realtors said last week that the median price of an existing home fell 0.8 percent in April from a year earlier to $220,900. Prices for new homes are also under pressure. Commerce Department figures on May 24 showed the median price of a new home dropped 11 percent last month from April 2006, the biggest decline since 1970, to $229,100.

The S&P/Case-Shiller index and another by the Office of Federal Housing Enterprise Oversight track the same home over time and more accurately reflect price trends, economists said. The gauges from Commerce and the Realtors group can be influenced by changes in the types of homes sold. Higher sales of cheaper homes relative to more-expensive properties will bias the figures down.

Subprime

A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories. ``These data are probably only just beginning to reflect the impact of problems in the subprime mortgage market,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, in a report to clients. ``Further declines seem likely.'' Builders are struggling. Toll Brothers Inc., the largest U.S. luxury home builder, last week reported a 79 percent plunge in profit in the quarter ended April 30 as customers canceled orders and the company wrote down property values. Earlier in the month, Chief Executive Robert Toll said that while fewer than 2 percent of the company's buyers use subprime loans, stricter lending standards are making houses at all price levels less affordable. ``This, in turn, can impact the entire housing food chain, including some of our potential customers' ability to sell their existing homes,'' he said.

Swift jumps into a global merger (Salt Lake Tribune)

Brazilian company buys out the raids-plagued meatpacker to consolidate into world's beef giant

Tribune Staff and Wire Services

Meatpacker Swift & Co., the target of huge immigration raids at plants in Utah and elsewhere last year, is being sold to a Brazilian company in a $1.4 billion deal that will create the world's largest beef processor.
J&F Participagues S.A., owner of 77 percent of Brazil's JBS S.A., Latin America's largest beef processor, will acquire Swift for $225 million in cash. J&F will assume approximately $1.2 billion in Swift's debt plus all transaction-related expenses.
Swift, the country's third-largest processor of beef and pork, is owned by private equity firm HM Capital - formerly Hicks, Muse, Tate & Furst - and ski resort mogul George Gillett's Booth Creek Management. It has reported only one profitable quarter since November 2004, when U.S. beef exports to Asia fell after cases of mad-cow disease were found in some American cattle.
There is little overlap in the operations of the Brazilian company and Swift - the latter will retain its identity and employees - so officials don't expect the buyout to affect Swift's plants in Hyrum or five other states.
"Swift is still owned by HM Capital and the deal won't be completed until late July. But based on what we know today, there is no reason to believe there will be significant operational changes at Swift," Swift spokesman Sean McHugh said from company headquarters in Greeley, Colo., north of Denver. "These are assets that don't come around very often."
Those assets are not as valuable as they once were, however.
In December, federal immigration authorities rounded up nearly 1,300 workers at Swift plants in Colorado, Minnesota, Iowa, Nebraska, Texas and Utah. The six plants represented all of Swift's domestic beef processing capacity and 77 percent of its pork processing capacity.
Swift initially estimated the financial effect of the raids at $30 million but has raised that estimate to as much as $50 million because it took longer than expected to return the beef plants to full production, which caused higher costs and led to lost business opportunities.
Although the company said last month that it has refilled positions left vacant as a result of the raids, the Hyrum plant has struggled to replace the 150 undocumented workers arrested in December. McHugh said the Utah operation employs 1,000 workers, compared with 1,100 before the raids. McHugh said the company's "desired" staffing level is 1,050.
"Our Hyrum operation is well on its way to recovery. But we still are hiring," McHugh said, adding that Swift has the baseline staffing necessary to carry out day-by-day operations.
The sale of the E.A. Miller meatpacking plant, as Swift's operation is known in Hyrum, was met with shrugs by some employees Tuesday afternoon, who had been hearing rumors of a possible sale for at least a year.
"As long as they don't cut my paycheck, it doesn't matter," said one employee, who declined to be identified because a company memo advised workers not to talk with the media.
Employees in Hyrum said they were told to expect no substantial changes.
Industry analysts note that with Japan and South Korea having eased some of the restrictions against U.S. beef, and the U.S. government pushing to eliminate remaining barriers, the global merger between the two meat-processing giants comes at an opportune time.
Swift spokesman McHugh said, ''Exports are down, but you have a buyer in JBS that is a very strategic player and has taken a long-term view of the global industry.''
The acquisition will give JBS access to the United States, the world's top consumer of beef, and open Asian markets, which ban imports from Brazil. The combined company will have annual revenues of about $12 billion.
The announcement comes about four months after Swift said it had hired banker JPMorgan to help consider a potential sale.
Many of the workers swept up in the December raids - 1,282 in all - had phony identification. Swift said it complied with the law and checked identification before hiring employees.
The raids had nothing to do with the sale, said Edward Herring, a partner in Dallas-based HM Capital.
''We had been approached by a number of strategic parties about a year ago and engaged in dialogue last summer and fall,'' Herring said. ''We viewed the immigration issues as a temporary blip, nothing structurally that the company and the industry can't get over.''
Herring wouldn't discuss other bidders for the company, but Cargill Inc., Smithfield Foods Inc., National Beef Packing Co. and Seaboard Corp. had all reportedly been interested.
The deal is better for American livestock producers than a sale to a U.S. company, which would have reduced competition for pork and beef, said Steve Kay, editor of Cattle Buyers Weekly. ''This is the best possible news for livestock producers because, far from any consolidation of ownership in the U.S. industry, we have added a brand new owner.''

Amsterdam - Some 19,000 jobs would disappear if banking consortium Royal Bank of Scotland (RBS), Fortis and Santander take over Dutch ABN Amro bank

Amsterdam (Deutsche Presse)- Some 19,000 jobs would disappear if banking consortium Royal Bank of Scotland (RBS), Fortis and Santander take over Dutch ABN Amro bank.

In the Netherlands alone, 7,500 jobs would be lost, the consortium told Dutch unions during a meeting Tuesday evening.

On Tuesday, the banking trio made a 71.1-billion-euro (95.6- billion-dollar) bid for ABN AMRO. Royal Bank of Scotland, Belgian- Dutch Fortis NV and Spanish Santander want to split up the company.

Led by RBS, the consortium trumped a rival 63-billion-euro offer launched by Britain's Barclay's Bank plc.

The consortium had said earlier Tuesday that its offer would lead to fewer employees losing their jobs than under the Barclays proposal, which envisaged a cut of about 11,000 jobs if a merger should go ahead.

Microsoft Surface Confirmed: Touch-Sensitive, $10k, Minority Report Table (Gizmodo)

Project Milan is in fact a touch-sensitive table as you guys speculated and we reported earlier. Dubbed "Surface" and five years in the making, it's set to establish a paradigm of what Microsoft calls "surface computers" which use touch as the sole method of input.

Painting with surface sounds particularly intuitive (and fun): you can use a paint brush or simply dip your fingers into virtual paint cups. Photo resizing and stacking works much like the iPhone's zoom gestures. Also cool is the capacity for multiple users.

Such sweet tech comes at a price, naturally, with the units running $10,000 a pop. But, Microsoft expects prices to plummet over the next three to five years to the point they'll be in your homes. In the meantime you'll be able to play with them at T-Mobile stores, Harrah's and Sheraton hotels. Got more questions? Hit the jump for a FAQ and (naturally) a boatload of pictures. Update: And a video!

Tuesday, May 29, 2007

Construction Boosts Demand for Cranes


DALLAS (AP) — It's daybreak when Michael Machovsky climbs nearly 200 feet to the cab of his tower crane for a 10-hour day of hoisting equipment and supplies across a downtown construction site.

As morning joggers shuffle by and commuter traffic backs up, Machovsky methodically swings the crane's jib and drops the hook for the morning's first lift. The same morning ritual is repeated across the Dallas skyline as the construction day rumbles to a start.

You never want your hook to sit still unless it's a break, and that's very seldom" says Tony Townley, a senior superintendent with Dallas-based Beck Group.

Booming commercial construction, an aging work force and tighter certification requirements are pushing demand for cranes and their operators nationwide.



"Every marketplace that we're in right now is saturated," said Sam Latona, preconstruction manager with Turner Construction, a Dallas-based company with offices across the country. "All the contractors are basically at 100 percent capacity and exceeding it."

Commercial building is hot in Texas, Florida, California, New York and other parts of the West Coast, Midwest and Northeast, industry officials say. Spending on nonresidential construction was up nearly 14 percent during the first three months of 2007 from last year, according to the U.S. Census Bureau.

Ken Simonson, chief economist with The Associated General Contractors of America, said much of that spending involves crane projects, such as multistory hotels and offices.

A strong economy, including favorable consumer spending and employment rates, is helping to fuel the projects, despite a slowdown in home construction. Projected power and transportation needs could also result in construction activity such as power plants, wind farms, transmission towers and highways.

"All of those will require lots of high or heavy lifting," Simonson said.

Machovsky, 46, quit his iron worker job eight years ago and started operating cranes, attracted by the pay and less strenuous labor. He started on small cranes and worked his way up, literally.

"If they see you have the ability, they'll attempt to move you up — until you get about 200 feet in the air, and that's as high as you can go," he said.

Attrition is thinning the ranks of crane operators, said Ronnie Bentley, business manager of the International Union of Operating Engineers Local 178, which covers most of North Texas. He said demand is the highest it's been during his 36 years in the industry.

"Nobody's son is getting into it anymore," Bentley said. "The average conventional operator in our area is probably in his late 50s."

The Association of Equipment Manufacturers has taken to providing high school students with information and scholarships in construction. The Milwaukee-based group estimates the construction industry will need to add a total of 1 million jobs by 2012.

The operating engineers union offers an apprenticeship program with classroom and on-the-job training, Bentley said. Payment for union members working in North Texas is about $21 an hour plus benefits, about a dollar more than a union ironworker or bricklayer, he said.

To meet the current demand for equipment, Morrow Equipment Company, of Salem, Ore., has been adding to its fleet of about 500 large-scale cranes that it leases to contractors nationwide.

"It seems right now the demand is outstripping the ability to produce these cranes on the manufacturing level, and I think that's the case with most of our competitors as well," said Gary Vosper, Morrow's advertising director.

China's building boom is pulling on the same resources needed to build cranes, he said.

"We've been told by the factory that the availability of high grade steel is becoming an issue and affecting their level of production," Vosper said. "Sometimes we'll order a crane and we may not get it for 12 months."

For now, construction firms are lining up cranes and crane operators early in the process to ensure their projects aren't delayed.

"We're already targeting them even before designers get through with their design drawings," Latona said.

TREASURIES-Bonds hold loss after two-year auction (Reuters)

NEW YORK, May 29 (Reuters) - U.S. government bond prices were steady at lower levels on Tuesday after a mixed reception to an $18 billion auction of new two-year notes.

The auction fetched a bid-to-cover ratio, a gauge of overall demand, of 2.53, below the 2.93 at April's auction but above the 2006 average of 2.41.

The indirect bids which encompass demand from foreign central banks accounted for roughly 21.7 percent of overall bids versus 42.2 percent at last month's auction and below their 2006 average of 32.8 percent.

Two-year Treasury notes were down 2/32 in price to yield 4.91 percent against 4.90 percent shortly before the auction results and 4.87 percent late Friday.

Benchmark 10-year Treasury debt was down 5/32 in price for a 4.89 yield, steady from the level right before the announcement of the auction results and 4.87 percent late Friday.

The U.S. bond market was closed on Monday for the U.S. Memorial Day holiday.

Google's DoubleClick buy faces probe

The US Federal Trade Commission is launching an inquiry into the Californian search group's $3.1 billion acquisition
Joe Bolger and agencies

Google faces a competition inquiry into its planned $3.1 billion (£1.6 billion) purchase of DoubleClick, after the US Federal Trade Commission (FTC) confirmed it would launch a review.

The Californian search group won control of DoubleClick, which places advertisements online and helps customers monitor their impact, after a fierce bidding battle against rival Microsoft.

Wall Street analysts were widely anticipating that the FTC would step in to review the deal.

The acquisition of DoubleClick would boost Google's presence in the online advertising market, which it already dominates. Microsoft had raised objection's to Google's acquisition as has Sir Martin Sorrell, chief executive of the world's biggest advertising agency WPP. Sir Martin said Google may face conflicting interests if it acts as both a seller and buyer of online advertising space.

Don Harrison, Google's senior corporate counsel, said: "Numerous independent analysts and academics have determined after looking at this acquisition that the online advertising industry is a dynamic and evolving space... and that rich competition in the industry will bring more relevant ads to consumers and more choices for advertisers and website publishers."

He said he expects the acquisition to be approved.

Electronic Privacy Information Center, a Washington-based privacy group, has previously called on the FTC to investigate the privacy implications of the deal.

Eric Schmidt, Google's chairman and chief executive, predicted earlier this month that the deal would clear all regulatory hurdles.

Google announced the agreement to buy DoubleClick last month. Rival groups have since agreed a string of deals to buy online advertising specialists. Yahoo is paying $680 million to buy Right Media, WPP has signed a $649 million agreement to buy 24/7 Real Media and Microsoft is buying aQuantive for $6 billion.

Consumer Confidence Rebounds in May (AP)

By ANNE D'INNOCENZIO AP Business Writer

NEW YORK — Consumer confidence bounced back unexpectedly in May, helped by optimism about the job market even as shoppers' concerns about gasoline price-driven inflation increased.

The New York-based Conference Board said Tuesday its Consumer Confidence Index rose to 108.0 in May, up from a revised 106.3 in April. Analysts had expected the reading to fall to 104.5. The May reading was the highest since March when the index was at 108.2.

"The short-term outlook remains cautious and rising gasoline prices are having a negative impact on consumers' inflation expectations," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement

Franco added, "All in all, confidence levels continue to suggest growth, albeit at a slow pace."

The Present Situation Index, which measures how shoppers feel now about economic conditions, rose to 136.1 from 133.5 in April. The Expectations Index, which measures consumers' outlook for the next six months, edged up to 89.2 from 88.2.

Economists closely monitor consumer confidence since consumer spending accounts for two-thirds of all U.S. economic activity.

The upbeat data helped push stocks higher. The Dow Jones industrial average rose 33.16, or 0.25 percent, to 13,540.44

Gary Thayer, chief economist at AG Edwards & Sons Inc., called the Conference Board report "encouraging," noting that a still healthy job picture is offsetting shoppers' worries about higher gasoline prices.

"Although people may not be happy with high gasoline prices, they are happy with the job situation," said Thayer."...People are unhappy about things but they are not changing their buying habits significantly."

The report from the Conference Board was good news for the nation's retailers, which struggled through the worst same-store sales performance on record in April. Same-store sales are sales at stores opened at least a year and are considered a key indicator of a retailer's health.

The weak performance has fueled concerns that gasoline prices and the slumping housing market are eating away at spending. For now, the cutbacks in spending seem to be contained, according to Thayer.

And while data released Tuesday gave no clear signs of an end to the housing slump, Thayer noted that he feels confident that consumers can "work through continued weakness in housing" as long as the employment situation remains healthy. Standard & Poor's housing index on Tuesday showed that U.S. home prices fell 1.4 percent in the first quarter compared to a year ago, the first time since 1991 that prices have shown a quarterly decline.

On Thursday, the Commerce Department reported that sales of new homes surged in April by the biggest amount in 14 years, but the median price of a new home fell by the largest amount on record. On Friday, The National Association of Realtors reported that sales of existing homes fell by a larger-than-expected amount in April, while the median price of a home sold fell for a ninth straight month.

Thayer and other analysts will be closely watching the Labor Department's report on employment, to be released Friday. Economists are expecting 140,000 jobs to be added in May and the unemployment rate to remain at 4.5 percent.

That follows a disappointing report, released in early May, that showed that payrolls grew by just 88,000, marking the weakest job gain in two and a half years. The jobless rate edged up to 4.5 percent.

Friday, May 25, 2007

Hamptons, ocean view: Sold, $103M

Cost of new home not included in record buy
By Noelle Knox
USA TODAY

Ron Baron, founder of the Baron Funds investment company, has paid a record $103 million for a residential property in East Hampton, N.Y. And get this: That price doesn't even include the cost of the house he wants to build.

The price — equal to what Texas plans to spend on border security this year — tops a record set in 2004, when Revlon Chairman Ronald Perelman sold his estate in Palm Beach, Fla., for $70 million to Dwight Schar of builder NVR.

But Baron's bragging rights might not last long. Three homes — well, estates — for sale are asking even dizzier prices.

In December, real estate baron (with a small b) Tim Blixseth boasted that he'd start building the world's most expensive house. His $155 million asking price tops the high of $149 million for Updown Court in Windlesham, England, still on the market.

"It's amazing how much growth there is in the very high end of the market in terms of wealth," says Rick Goodwin, publisher of Ultimate Homes magazine.

Overall in the USA, home sales slid 8.4% last year, in part because prices in many areas had climbed out of reach for the middle class. But for residences priced at $5 million or more, sales soared 18% for 2006 and 31% in the first quarter of this year — both record highs, according to DataQuick.

"Properties over $10 million are becoming very commonplace," says Jonathan Miller of Miller Samuel, a Manhattan appraiser. "When you compare it to the national median, which is hovering around $215,000, there's a lot of disparity."

Blixseth envisions his project, called The Pinnacle at Yellowstone Club, in Big Sky, Mont., as a 32,000-square-foot home on 160 acres. He says it will include an 8,000-bottle wine cellar, a 26-seat cinema, a hair and nail salon, a private gondola to ski lifts, a fleet of Suburban SUVs for the underground garage, and a helipad with pilot's quarters.

As for Baron, his 40 acres of oceanfront property are vacant. He bought the land from Adelaide de Menil, heiress to the Schlumberger oil fortune, and her husband, Ted Carpenter.

Four antique houses had stood on the property. But the sellers donated them to the town, which moved the buildings and plans to use them as a new town hall.

Baron declined to comment on the deal, which was hush-hush and sold without a broker, says Judi Desiderio of Town & Country Real Estate in East Hampton, who confirmed the sale and price.

Profit slides as Gap reinvents itself (San Francisco Cronicle)

S.F. retail chain sees same-store sales decline, reveals new strategies for two largest brands

Pia Sarkar, Chronicle Staff Writer

Gap Inc.'s profit slid 26 percent in its fiscal first quarter as the company struggled to define itself to customers who have lost interest in its products.

The San Francisco retailer reported a profit of $178 million in the first quarter (22 cents per share), down from $242 million (28 cents) in the same period last year. The numbers include a $45 million loss from the planned closure of Forth & Towne, a brand created for women 35 and older that flopped after just 18 months.

Excluding Forth & Towne costs, Gap would have earned 25 cents per share -- a penny above the average estimate among analysts surveyed by Thomson Financial.

Revenue grew to $3.56 billion in the first quarter, a 3 percent increase from $3.44 billion last year. But same-store sales -- sales at stores open at least a year, considered an accurate barometer of a company's health -- fell by 4 percent, after a 9 percent decrease in the same period a year ago.

Same-store sales at the namesake Gap brand dropped by 4 percent, after an 8 percent decline last year. Same-store sales at Old Navy dropped by 5 percent, compared with an 11 percent decline last year. And same-store sales at Banana Republic, which up until recently had been posting gains, fell by 2 percent, after a 5 percent decline last year.

Online sales continued to be the bright spot for the company, growing to $195 million in the first quarter, compared with $159 million the year before.

Bob Fisher, interim chief executive officer for the company founded by his parents, said Gap is sticking to plans set out earlier this year calling for a simplified hierarchy among management as well as a focus on lowering expenses. It is in the middle of a search for a permanent CEO.

"There's more work to be done, but I feel good about the progress we're making," Fisher said during a conference call on Thursday.

As he has in the past, Fisher acknowledged that the Gap brand -- the company's oldest and second-largest division behind Old Navy -- has had a hard time defining itself to customers. It has been aiming at a broad range of people 18 to 34 years old. On Thursday, Fisher said the brand will stop chasing 18-to-23 year olds, a demographic that is aggressively courted by competitors. Instead, Gap will focus on 24-to-34 year olds, reducing its merchandise selection by 30 percent.

Old Navy president Dawn Robertson, who has held the position for six months, outlined for the first time strategies for the brand, which include getting merchandise into stores much faster than in the past. She also said Old Navy will try to strike more of a balance between value and fashion with its offerings.

Both Old Navy and Gap stores at key locations will be extensively remodeled throughout the year -- something the company has fallen behind on, according to Gap's chief financial officer, Byron Pollitt.

Richard Jaffe, an analyst for Stifel Nicolaus, said that while Old Navy can benefit from a more-efficient sourcing structure to keep it competitive, its bigger problem is the merchandise, which also ails Gap.

"Fixing the product is more important," he said.

As for plans to narrow the Gap brand's audience, Jaffe questioned the logic. "It's not clear to me how fewer choices will make a difference," he said. "It's about better choices."

Gap stock closed at $18.20 at the end of trading Thursday, off 8 cents for the day, with 6,258,603 shares traded.

Best Buy sued over Web price quotes

Connecticut goes to court; retailer denies misleading customers at in-store kiosks
BY GITA SITARAMIAH (Pioneer Press)

Electronics giant Best Buy Co. is being sued by the Connecticut attorney general after consumers complained they'd been quoted higher prices in stores for merchandise advertised at lower prices online.

The lawsuit alleges that since 2005, the company's stores have pledged to match any lower online price, including from its own Internet site. But customers tapping into in-store kiosks to check prices were misled by salespeople into believing they were tapping into the retailer's online Web site Bestbuy.com when they were actually connected to an internal company site, the suit contends.

When the kiosks displayed a higher price, the salespeople allegedly suggested that consumers had previously misread the lower online price or that the online price had expired.

"We intend to vigorously defend ourselves," Best Buy spokeswoman Susan Busch said in a statement. "The future of our company depends on our ability to build trusted relationships with our customers."

However, the Richfield-based company acknowledged that a small percentage of customers didn't receive the best price when they should have. It said once the issue was brought to the company's attention, it provided employee training to ensure that customers receive the best price and more changes are being made to eliminate further confusion.

The lawsuit filed in Connecticut Superior Court seeks civil penalties and restitution for "customers who purchased products at a higher price because they were deceived by Best Buy's misrepresentations."
George Rosenbaum, chairman of Chicago-based consumer research firm Leo J. Shapiro Associates, said he believes Best Buy made an operational error and isn't intentionally pricing the same products differently online versus in stores.

The company is probably moving fast to fix the problem because a good online presence is critical for drawing customers into stores with high-ticket items, Rosenbaum said.

"They're highly dependent on their Web site for traffic generation," Rosenbaum said. "This kind of an error, and I call it an error instead of a deliberate strategy, can badly hurt their customer relations if it isn't corrected."

Rosenbaum also believes the company still can do crisis control to avert damage to its image.

Best Buy has maintained its dominant position as the largest electronics retailer in the country while others have faltered recently. Chief rival Circuit City has closed stores, cut 3,400 workers and hired replacements at cheaper pay. Another rival, Comp USA, also is closing many stores nationally, including all of its Twin Cities locations.

Meanwhile, Best Buy posted a 22 percent increase in profit in its most recent quarter and saw the biggest improvement among retailers in the latest University of Michigan American Customer Satisfaction Index.

Connecticut Attorney General Richard Blumenthal said his office received at least 20 complaints after the Hartford Courant newspaper in February reported the experience of one frustrated Connecticut shopper.

The man found a laptop computer advertised for $729.99 on BestBuy.com, then went to a Best Buy store where an employee who seemed to check the same Web site told him the price was actually $879.99. (The shopper eventually did purchase the laptop at the discount after bringing in a copy of the online sale price to another store that had them in stock.)

Within days of the newspaper report, Blumenthal announced the investigation. On March 8, an open letter was posted at the retailer's Web site by Best Buy Chief Operating Officer Brian Dunn to "clear the air" regarding the investigation. Dunn wrote that the kiosks weren't to be used by employees to check Web prices, but that this process had not been followed consistently. He offered a toll-free number so the company could address customer concerns.

In a separate case, the Florida attorney general has done a three-year investigation into Best Buy for allegations including sale of used merchandise as new and restocking fees assessed on the price of merchandise returned including the taxes charged. Best Buy didn't offer comment Thursday on those allegations.

Best Buy operates more than 820 stores in 49 states, as well as stores in Canada and China. On Wall Street, Best Buy stock closed at $46.67, down 86 cents.

Bausch & Lomb doesn't see layoffs from going-private deal

By Yogita Patel (Market Watch)

Bausch & Lomb Inc. (BOL : Bausch & Lomb Incorporated) said Thursday that it doesn't anticipate layoffs from its $4.5 billion acquisition by private-equity firm Warburg Pincus LLC.
In a communication to employees that was disclosed in a Securities and Exchange Commission filing, the Rochester, N.Y., eye-care company said it doesn't expect the transaction to affect its day-to-day operations, including its business sites worldwide.
Warburg Pinus, of New York, agreed earlier this month to buy Bausch & Lomb for $65 a share in cash.
Shares of Bausch & Lomb closed Thursday at $70.21.

EU probes Google grip on data

By Maija Palmer in London (Financial Times)

European data protection officials have raised concerns that Google could be contravening European privacy laws by keeping data on internet searches for too long.

The Article 29 working party, a group of national officials that advises the European Union on privacy policy, sent a letter to Google last week asking the company to justify its policy of keeping information on individuals’ internet searches for up to two years.

The letter questioned whether Google had “fulfilled all the necessary requirements” on data protection.

The data kept by Google includes the search term typed in, the address of the internet server and occasionally more personal information contained on “cookies”, or identifier programs, on an individual’s computer.

This is separate to the personal information Google has begun collecting over the past two years from people who give the group explicit permission to do so.

Standard search information is kept about everyone who uses the search engine, and privacy groups are concerned that even this ostensibly non-personal data can be used to identify individuals and create profiles of their political opinions, religious beliefs and sexual preferences.

Google previously kept such data indefinitely, but in March announced it would limit the storage time to two years, in an attempt to assuage concerns.

But many members of the working party feel that even two years is too long to keep data, and the group has asked Google to justify its policy.

Separately, the Norwegian Data Inspectorate began an investigation into Google and other search engine companies last October and has stated that the 18- to 24-month period proposed by Google was too long.

“After the service is finished we cannot see reasons why the company should keep the addresses for a longer period. Of course there can be reasons like security, but 18 to 24 months is to our point of view far to long,” the inspectorate said.

Peter Fleischer, European privacy counsel for Google, said the company needed to keep search information for some time for security purposes – to help guard against hacking and people trying to misuse Google’s advertising system.

Mr Fleischer is set to respond to the working party before their next meeting in June.

He said other companies such as Yahoo and Microsoft had not yet declared a limit to the information they keep.

Thursday, May 24, 2007

House OKs bill to curb gas gouging (Washington Times)



By Patrice Hill

The House yesterday passed a bill that would make price gouging by gas stations and oil companies a federal crime as prices at the pump surpassed a 1981 record reached at the height of the Iranian oil crisis. The White House, which has threatened to veto the bill, warned the legislation amounts to price controls and would lead to gas shortages and lines like in the 1970s.
The cross over the threshold of $3.23 a gallon reported by GasBuddy.com equals the inflation-adjusted record high for gas prices and heralds a new era of high energy prices and scarcity of fuel as growing demand in China, India and the U.S. collides with scarce new sources of oil and sluggish increases in gasoline production worldwide. Economists say the House bill will not help to ease those shortages or bring down high prices.
Business groups said the bill would be difficult to enforce and would set a dangerous precedent by opening the floodgates to frivolous lawsuits, further driving away any hopes of increased energy production that would take the pressure off prices.
"This is a first step in addressing the outrageous prices we are seeing at the gas pump," said bill sponsor Rep. Bart Stupak, Michigan Democrat. Prices in recent years have peaked at about the Memorial Day start of the summer driving season, but they could climb higher this year if hurricanes or conflicts in the Middle East or Nigeria disrupt supplies.
"This bill is all bark and no bite, and will do nothing to lower gas prices," said House Minority Leader John A. Boehner, Ohio Republican. "No American likes paying high prices at the pump. ... This bill could make the pain felt by consumers at the pump considerably worse."
The supply pressures that have driven up gas prices this year eased somewhat yesterday as the Energy Information Administration reported an increase in output at U.S. refineries and a 1.5 million-barrel increase in gasoline stocks, which are about 7 percent below average for this time of year. That helped to reduce wholesale gas prices, though demand for gas remained strong, growing at a 1.2 percent pace.
In coming years, Americans face sharply higher prices for energy as they compete with burgeoning demand for gasoline to power cars in emerging giants such as China, India and Russia. A separate report from the energy agency Monday said energy demand worldwide will soar 57 percent by 2030. To keep pace with that demand, production of oil would have to grow more than 40 percent to 118 million barrels a day.
But because of dwindling reserves and production of petroleum, the report projects that other liquid fuels such as biodiesel and liquefied coal will meet about one-quarter of the increased demand. Economists say oil and gasoline prices will have to rise significantly higher for that to happen, since expensive technologies are needed to tap into the alternative fuel sources and make mass production possible.
The sobering outlook for energy resources was not discussed much yesterday as the House entertained a perennial favorite among lawmakers and the public: legislation enabling the Federal Trade Commission and Justice Department to impose on oil companies, traders and retail operators jail sentences and fines of up to $150 million a day for charging "unconscionably excessive" prices or taking "unfair advantage" of consumers.
The bill's enforcement provisions would be triggered if the president declared an energy emergency such as might occur if hurricanes disabled Gulf Coast oil fields and refineries as they did in 2005 after Hurricanes Katrina and Rita. The bill could be enforced by state attorneys general and class-action lawsuits.
The White House warned lawmakers that the bill would create a "vague and arbitrary regulatory regime," which would spur lawsuits and maybe even "bring back long gas lines reminiscent of the 1970s." The Federal Trade Commission has testified against the legislation, having found little evidence of price gouging in its many studies of the gasoline market.
"Price-gouging legislation is a solution in search of a problem and totally contradicts the advice given by the Federal Trade Commission," said National Petrochemical & Refiners Association official Charles Drevna. "We'd strongly encourage the Senate to consider the unintended consequences should it debate this or a similar bill."
"The bill represents an open invitation to ambitious state attorneys general to try their hand at suits against Big Oil," says Iain Murray, senior fellow at the Competitive Enterprise Institute, saying the bill's legal mechanisms would distort the market mechanisms that set gas prices in response to supply and demand.
"This is sheer populism and displays an outrageous ignorance of basic economics."

Dell to sell 2 desktop PC models in 3000 Wal-Marts

BOSTON (Reuters) - Computer marker Dell Inc. plans to start selling personal computers at 3,000 Wal-Mart stores in the United States and Canada as of June 10, launching a major drive to sell its PCs through retailers, a company spokesman said on Thursday.

The move represents Dell's first attempt to sell its PCs through traditional retailers, in an effort to recover its position as the world's No. 1 maker of PCs, which it lost to Hewlett-Packard Co . It currently relies on a direct sales model via the Internet, mail or phone orders.

"While we can't get into specifics, in the coming quarters there will be additional activity in support of this move into global retail," company spokesman Bob Pearson said. "Today's announcement with Wal-Mart represents our first step. Stay tuned."

Tuesday, May 22, 2007

EU approves merger of Universal, BMG's music rights businesses (AFP)


EU regulators approved on Tuesday Universal Music's plans to take over the music publishing rights business of rival BMG after the two groups agreed to sell some choice assets.
The European Commission said it had "concluded that the proposed operation would not significantly impede effective competition" after the groups promised to sell rights catalogues, including stars like Britney Spears and Bryan Adams.

"Digital music has the potential to change the face of the music industry in Europe," Competition Commissioner Neelie Kroes said.

"I am satisfied that the significant remedies will keep these markets competitive and ensure that consumers will not be harmed by the merger," she added.

In early September, French media group Vivendi, which owns Universal, announced plans to acquire BMG Music Public Publishing, a unit of Bertelsmann of Germany, for 1.63 billion euros (2.19 billion dollars).

EU regulators have been keeping a close eye on the music sector recently with a consolidation wave in the industry increasingly concentrating market share in the hands of fewer companies.

The IMPALA association of independent recording and publishing firms welcomed the Commission's decision as a "clear message" that further consolidation would face tough scrutiny from regulators.

"We welcome the fact that this decision sends a clear message to all the majors that the 'halcyon' days of music mergers being simply waved through are well and truly over," IMPALA board member Michel Lambrot said.

In the Universal-BMG deal's original form, the Commission raised "serious doubts" about the impact on competition, forcing the companies to consider selling some assets so as to avoid a crushing market share.

EU regulators' blessing for the deal clears the way for the two companies to finalize their merger after already receiving backing from US and Australian authorities.

Universal president Zach Horowitz said the deal "will create a publishing business that is even better suited to serve our songwriters, composers and business partners in this challenging marketplace."

"We now look forward to closing the deal as quickly as possible so that we can focus on the successful integration of both companies," he added.

Music publishers manage the songwriters' rights, and not necessarily record companies or performers.

Google’s goal to organise your daily life (Financial Times)


By Caroline Daniel and Maija Palmer

Google’s ambition to maximise the personal information it holds on users is so great that the search engine envisages a day when it can tell people what jobs to take and how they might spend their days off.

Eric Schmidt, Google’s chief executive, said gathering more personal data was a key way for Google to expand and the company believes that is the logical extension of its stated mission to organise the world’s information.

Asked how Google might look in five years’ time, Mr Schmidt said: “We are very early in the total information we have within Google. The algorithms will get better and we will get better at personalisation.

“The goal is to enable Google users to be able to ask the question such as ‘What shall I do tomorrow?’ and ‘What job shall I take?’ ”

The race to accumulate the most comprehensive database of individual information has become the new battleground for search engines as it will allow the industry to offer far more personalised advertisements. These are the holy grail for the search industry, as such advertising would command higher rates.

Mr Schmidt told journalists in London: “We cannot even answer the most basic questions because we don’t know enough about you. That is the most important aspect of Google’s expansion.”

He said Google’s newly relaunched iGoogle service, which allows users to personalise their own Google search page and publish their own content, would be a key feature.

Another service, Google personalised search, launched two years ago, allows users to give Google permission to store their web-surfing history, what they have searched and clicked on, and use this to create more personalised search results for them. Another service under development is Google Recommendations – where the search suggests products and services the user might like, based on their already established preferences. Google does not sell advertising against these services yet, but could in time use them to display more targeted ads to people.

Yahoo unveiled a new search technology this year dubbed Project Panama – which monitors what internet users do on its portal, and use that information to build a profile of their interests. The profiles are then used to display ads to the people most likely to be interested in them.

Autonomy, the UK-based search company is also developing technology for “transaction hijacking”, which monitors when internet surfers are about to make a purchase online, and can suggest cheaper alternatives. Although such monitoring could raise privacy issues, Google stresses that the iGoogle and personalisation services are optional.

The Information Commissioner’s Office in the UK said it was not concerned about the personalisation developments.

Earlier this year, however, Google bowed to concerns from privacy activists in the US and Europe, by agreeing to limit the amount of time it keeps information about the internet searches made by its users to two years.

Google has also faced concerns that its proposed $3.1bn acquisition of DoubleClick will lead to an erosion of online privacy.

Fears have been stoked by the potential for Google to build up a detailed picture of someone’s behaviour by combining its records of web searches with the information from DoubleClick’s “cookies”, the software it places on users’ machines to track which sites they visit.

Mr Schmidt said this year that the company was working on technology to reduce concerns.

The New 401(k): A Guide for Users (Forbes)

By David Armstrong

Six changes that could be coming to your retirement savings account. Get ready.

Even if you've had the same 401(k) plan for years and are content with your current investment choices, pay attention: You may well have new decisions to make about how you pilot your tax-deferred, employer-sponsored retirement account. In response to Congress' rewrite of federal pension law last summer and other new federal edicts, employers are revamping their plans, adding new choices and eliminating others.

And while you're reviewing your plan, scrutinize the fees you're being charged. Complain if they seem out of line. With both politicians and class action lawyers attacking high (and hidden) 401(k) fees, you're more likely to get results than in the past.

The Roth Option
After Congress made permanent the Roth 401(k)--first allowed in January 2006 on a temporary basis--employers started getting on board. A Profit Sharing/401(k) Council of America survey early this year found 22% of companies (up from 7% in early 2006) offering a Roth K and another 48% planning to or considering it.

A Roth K works much like a Roth individual retirement account: You put already taxed money in and (after five years) all withdrawals in retirement are tax free. By contrast, in a traditional deductible 401(k) or IRA, pretax money goes in and all withdrawals are taxed as ordinary income. Whether the money is going into a traditional 401(k) or a nondeductible Roth or a blend, the most you can put in this year is $15,500 ($20,500 if you were born before 1958).

Two types of employees are likely to benefit from using the nondeductible option: young workers who expect their income tax rates to rise and high-income workers who have so much loose cash that they can shrug off the loss of the tax deduction. If you can afford one, a Roth beats a deductible account.

Suppose you are now and always will be in a 40% tax bracket (state and federal). And suppose you can double your money between now and when it's time to spend it. Put $20,000 into a Roth now and it becomes $40,000 of spending money at retirement. Alternatively, you could put the $20,000 into a deductible account and generate $8,000 in tax savings for investment outside the account. Come retirement, this strategy gets you $24,000 of aftertax money from the 401(k) and something less than $16,000 from the side account. Less, because this side account is not protected from taxes along the way. So the deductible strategy leaves you with something less than $40,000 of spending money during retirement.

Another Roth K advantage for the well heeled: When you leave your job, you can roll the money into a Roth IRA, which isn't subject to the same minimum withdrawal requirements, beginning at age 70 1/ 2, as a regular IRA. That allows you and your heirs to stretch out tax-free growth, potentially for decades.

If your tax rate is likely to fall in retirement (say, because your income will drop or you're moving from highly taxed New York City to Florida, which has no state income tax), stick with a deductible 401(k). Unsure of the future? Hedge your bets by splitting your contributions between a Roth K and a traditional account. (Note: your employer's contributions can't go in the Roth anyway.)

Autopilot 1: The Escalator
To promote savings, the new pension law encourages firms to automatically enroll new employees in 401(k) plans, forcing them to make the effort to opt out if they don't want to contribute. A Hewitt Associates survey found 58% of large companies plan to use automatic enrollment by the end of 2007, up from 24% at the end of 2005. At some, there will be escalators that jack up contributions over time unless you voice objections. Unless you're really strapped, put up with all this paternalism. Saving money is good for you.

Autopilot 2: Life-Cycle Funds
The government is involving itself not just in workers' spending decisions but in their asset allocation, too. Under proposed Department of Labor rules, employers will be encouraged to make something other than money-market accounts the default investment option for savers who are too lazy to specify a choice. The favored alternatives: balanced funds (more or less fixed-percentage blends of stocks and bonds), life-cycle funds (which shift from stocks into bonds as the saver ages) and managed accounts (custom blends created by computers).

Yes, there's a lot of inertia in investment allocations. A recent Wharton School Pension Research Council study of 1.2 million participants in 1,500 plans found that over two years 80% made no trades and another 11% just a single trade. So even if they started with a well-thought-out asset allocation, they allowed the market to skew it. The result: Account holders who "passively" rebalanced their accounts by investing in either balanced or life-cycle funds earned 0.84 percentage points more a year on their investments (on a risk-adjusted basis) than their inert brethren.

If you want to stay 60% in stocks and 40% in fixed-income investments, the right balanced fund can keep you there. If you want to shift into more bonds as you age, consider a life-cycle fund. The latter is getting very popular, but watch out for the fees, says Joseph Nagengast of Turnstone Advisory Group.

Another problem: Life-cycle funds treat everyone of the same age the same. But a 55-year-old midlevel worker five years from retirement should probably invest more conservatively than a 55-year-old executive planning on working 15 more years. If you're 55 and plan to toil until 70, pick a fund designed for 45-year-olds. (Make sure your plan doesn't automatically move you into the "proper" retirement age fund.)

Autopilot 3: Managed Accounts
While many more companies are making life-cycle funds their default, managed accounts are also a fast-growing--and intriguing--option. As of the end of April Financial Engines, the leading provider of this service, had signed up 174 employers with $170 billion in assets. Your company could be one of them; only half of those signed up had rolled the service out yet.

Cofounded by modern portfolio theory guru William Sharpe, Financial Engines charges 0.15% to 0.6% of assets a year, on top of normal mutual fund expenses, which vary, depending on what's offered in your plan. For its cut, Financial Engines picks your funds and rebalances your holdings quarterly, if needed.

While the allocation is heavily influenced by your age, there's more customization than in a life-cycle fund. The service will diversify your portfolio away from the industry you work in, particularly if you hold company stock, and will take into account how much you save, your holdings outside the plan and even your spouse's holdings. "Not all 50-year-olds should be treated the same," says Chief Investment Officer Christopher Jones.

Some other managed accounts services reallocate your portfolio more aggressively, based on changing market conditions. You'll be charged more for this market-timing approach--upward of 1.5% of assets--on top of fund fees. A bad idea.

Shrinking Choices
As of June General Motors is reducing from 73 to 39 the number of funds offered in its salaried workers' 401(k)--a move that should cut both company and participants' costs. Watson Wyatt pension consultant Robyn Credico reports that six of her largest corporate clients are reducing their offerings. GM and other sponsors are reacting to research showing that more fund choice doesn't lead to better asset allocation by average participants and may even paralyze them. Bounty is wasted on the ignorant.

What about those who know what they're doing or use professional advisers? Then a smaller smorgasbord is not a good development, argues financial planner David Kudla of Mainstay Capital in Grand Blanc, Mich., who has GM clients.

It you don't like your 401(k)'s new, pared-down menu, lobby for a brokerage window. For a fee of $80 or so a year (plus transaction costs), this service will allow you to buy any stock or fund you like. Some mutual funds even waive their loads if you invest through a window. Currently only about 8% of plans offer this escape hatch, says Hewitt Director of Retirement Research Pamela Hess. The companies say they don't see a demand; just 1% of workers offered a window use it.

Find Those Fees
Most employees (and some employers, particularly smaller ones) have no idea how much fees, both obvious and hidden, are eating into their retirement savings. Expenses are, on average, lower at big companies.

According to a study by HR Investment Consultants, fees consume an average of 1.59% of assets per year in plans with 25 participants and 1.07% of assets in plans with 5,000 participants. But costs vary widely. When HR examined plans with 100 participants and $5 million in assets, it found annual investment fees for fixed-income funds ranged from 0.2% of assets to 2.24%, for large-cap U.S. equity from 0.37% to 2.48%, for international equity from 0.48% to 2.95%. Overall costs can run even higher, if extra administrative fees are imposed.

Here's how to evaluate your plan. First look at the administrative charges, which should be modest. Are you charged for an annual account maintenance fee? For purchases? For fund sales? Many employers absorb all administrative costs--or think they do. One trick is for a plan administrator to woo sponsors with lower administrative fees, then charge slightly higher expenses for the funds, says David Campbell of financial planning firm Bingham, Osborn & Scarborough. "There's a migration away from companies picking up as much as they can toward putting it on the participants."

Then, assuming your plan offers individual mutual funds, examine the expense ratio found in the funds' prospectuses. Even if some offerings are pricey, you should have at least a few low-cost index fund choices--say, an S&P 500 or other broad stock market index fund costing around 0.2% of assets and a bond index fund at 0.4%.

Interested in more exotic or managed funds? Compare the fees charged by comparable publicly sold funds. Large 401(k) plans often use institutional funds that should, if anything, cost less than a retail fund. If a mutual fund fee is higher than the comparable retail product, that could be a tip-off that administrative and other costs are being shifted to you and hidden in the fund fee.

Also, check the fund's turnover, or how often the manager buys and sells stocks, in the fund's prospectus. Rule of thumb: A 100% turnover can nick your annual return by as much as 0.75% in commission costs and spreads, says Campbell.

Should expenses look high, talk to your company. Class actions against companies and plan administrators, as well as new federal rules in the works, are making employers more sensitive to their legal duty to try to get a good deal for workers.

If you can't make headway, consider cutting your 401(k) contributions to the minimum level needed (usually anywhere from 3% to 6% of salary) to snag your employer's full match. Then put your money in an IRA if you're poor enough to be eligible or a taxable account if you're not. Saving taxes isn't worth it when your savings get eaten up by fees.

BP Shuts 100,000 Barrels of Alaska Oil (AP)

By Alan Zibel

BP Shuts 100,000 Barrels of Output in Prudhoe Bay for a 'Few Days' Due to Water Pipeline Leak

WASHINGTON (AP) -- BP said Tuesday it will shut down 100,000 barrels, or one quarter, of its Alaskan oil production for a "few days" after discovering a water pipeline leak. Analysts said the temporary loss of output at Prudhoe Bay should not have a dramatic impact on world oil markets, but with supplies already tight and crude futures trading near $66 a barrel, any snag in the industry tends to make energy traders jittery. Light sweet crude for June delivery fell 32 cents to $65.95 a barrel in electronic trading on the New York Mercantile Exchange. London-based BP said the leak was discovered Monday in a 12-inch pipe that collects water separated from the oil and gas it produces. "We're putting together inspection and repair plans to return the facility to normal operations," BP spokesman Neil Chapman in Houston said. Alaron Trading Corp. analyst Phil Flynn downplayed the significance of the event for U.S. energy consumers. "It's not that (this lost production) can't be made up elsewhere in the world," he said, "but we would like to get production here rather than elsewhere."

U.S. refiners convert more than 15 million barrels a day of crude oil into gasoline, diesel and other liquid fuels -- and about two-thirds of that oil comes from abroad. The country imports an additional 2.6 million barrels a day of refined products, according to recent Energy Department statistics. BP's Prudhoe Bay shutdown was disclosed late Monday by Rep. Bart Stupak, D-Mich., who has been critical of the company's maintenance practices in Alaska, where two separate leaks occurred last year. BP confirmed the shutdown Tuesday morning. Internal company documents released at a hearing chaired by Stupak last week suggested that budget cuts by BP had put pressure on managers to ignore corrosion prevention at the oil company's North Slope pipelines. Corrosion, much of it hidden by development of high amounts of sludge, caused a leak and spill on a feeder line in March 2006, followed by another leak in August at a second line. After the second incident, the company shut down the affected lines, resulting in Prudhoe Bay production being cut in half. The company now is spending $250 million to replace 16 miles of questionable pipes.

Robert Malone, chairman of BP America Inc., BP Plc's U.S. subsidiary, acknowledged at the hearing that there were "extreme budget pressures at Prudhoe Bay" because of a sharp decline in production from the North Slope. But Malone disputed that the budget cuts were to blame for the pipeline breaks. Shares of BP dropped 52 cents to $68.92 in morning trading.

Goldman bets US$25B on wireless - Stunning Alltel deal

Peter Morton, Financial Post

WASHINGTON - The private equity parade of buyouts of publicly traded companies is showing no signs of slowing with the latest deal coming yesterday with a US$24.7-billion leveraged buyout of U.S. mobile communications giant Alltel Corp.

Goldman Sachs ' private equity arm, Goldman Sachs' Group Inc., is joining forces with TPG Inc., formerly Texas Pacific Group, to offer US$71.50 a share for the Little Rock, Ark.- based mobile telephone and network company.

The stunning offer, about 10% higher than Alltel's recent closing price and the largest potential leveraged buyout of a telecommunications company, helped boost U.S. markets yesterday and pushed the Standard and Poor's 500 index to its highest level since 2000.

Even BCE Inc., which is also being wooed by private equity companies with as many as three competing bids said to be in the works, saw its shares jump about 2.3% to US$36.46.

Canadian stock markets were closed yesterday because of the holiday.

"It's a very positive outcome for investors,'' said John Hodulik, an analyst at UBS AG in New York. "It's generous. It just shows you how difficult it is for private-equity firms to find attractive investments.''

The Alltel bid followed on the news that the Chinese government plans to buy 10% or US$3- billion of the non-voting shares of Blackstone Group LP in its upcoming initial public offering.

Also, the Daily Telegraph reported on the weekend that generic soft drink maker Cott Corp. is looking to join a private equity bid for the U.S drinks unit of Cadbury Schweppes PLC, pegged to be worth about US$15.8-billion.

The bidding for Alltel, the fifth-largest wireless company in the United States, may not even be over yet. Major private equity players such as Blackstone, Providence Equity Partners, and Carlyle Group together with Kohlberg Kravis Roberts, are still said to be interested.

Alltel put itself up for grabs in February and analysts had expected its shares to fetch around US$70. It is considered attractive since it has low debts and high cash flow. Last year it generated US$2.1-billion in cash flow from operations.

More low-profile than competitors Verizon and AT&T Inc., Alltel operates mainly in rural areas and carries calls on its network for both wireless giants as well as operating its own wireless system.

Alltel, under the leadership of Scott Ford, was transformed into a wireless provider through the takeover of Western Wireless Corp. in 2005 for US$4.5-billion and then the 2006 purchase of Midwest Wireless Holdings LLC for $1.08-billion.

There appears to be no slowdown yet in private equity takeovers. So far this year, some US$392-billion of takeovers have been announced, including US$13.9-billion in the telecommunications industry.

Private equity firms try to spot underperforming publicly traded companies, buy them, clean them up and then attempt to sell them again. Among some of the more high-profile takeovers have been companies like Burger King Corp. and Continental Airlines Inc.

New York-based Goldman Sachs said last month it raised US$20-billion for its sixth leveraged- buyout fund, the industry's largest. Its investments include Aramark Corp., which runs food concession stands at baseball stadiums, and Kinder Morgan Inc., the operator of more than 60,000 kilometres of oil and natural gas pipelines.

S&P may cut MGM deeper into junk on Tracinda talks (Reuters)

NEW YORK, May 22 (Reuters) - Standard & Poor's on Tuesday said it may cut its ratings on MGM Mirage Inc. (MGM.N: Quote, Profile , Research) after billionaire Kirk Kerkorian's Tracinda Corp. said it will enter talks to buy MGM's Bellagio and its $7.4 billion CityCenter development on the Las Vegas Strip.

Tracinda also said on Monday it is exploring options for its 56 percent stake in MGM. Tracinda said its move could result in a financial restructuring of the remainder of the casino company, which controls roughly a third of the famed Strip with properties such as Luxor, Mandalay Bay and Circus Circus.

S&P said it may cut MGM's corporate credit rating from "BB," two levels below investment grade.


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"In resolving the CreditWatch listing, we will monitor future developments pertaining to these announcements, and respond when we are able to better assess any implications to MGM Mirage's credit profile," S&P said in a statement.

MGM's 7.5 percent bonds due 2016 fell 0.13 cents to 99.375 cents on the dollar, according to MarketAxess.