By JOSEPH KAHN
BEIJING, June 25 — Many big companies have sought to break into the Chinese market over the past two decades, but few of them have been as ardent and unrelenting as Rupert Murdoch’s News Corporation.
Mr. Murdoch has flattered Communist Party leaders and done business with their children. His Fox News network helped China’s leading state broadcaster develop a news Web site. He joined hands with the Communist Youth League, a power base in the ruling party, in a risky television venture, his China managers and advisers say.
Mr. Murdoch’s third wife, Wendi, is a mainland Chinese who once worked for his Hong Kong-based satellite broadcaster, Star TV. Her role in managing investments and honing elite connections in China has underscored uncertainties within the Murdoch family about how the family-controlled News Corporation will be run after Mr. Murdoch, 76, retires or dies.
Regulatory barriers and management missteps have thwarted Mr. Murdoch’s hopes of big profits in China. He has said his local business hit a “brick wall” after a bid to corral prime-time broadcasting rights fell apart in 2005, costing him tens of millions of dollars.
But as he seeks to buy Dow Jones, the parent company of The Wall Street Journal, his track record in China has attracted attention less because of profits and losses than for what it shows about his management style.
Mr. Murdoch cooperates closely with China’s censors and state broadcasters, several people who worked for him in China say. He cultivates political ties that he hopes will insulate his business ventures from regulatory interference, these people say.
In speeches and interviews, Mr. Murdoch often supports the policies of Chinese leaders and attacks their critics. A group of China-based reporters for The Journal accused him in a letter to Dow Jones shareholders of “sacrificing journalistic integrity to satisfy personal and political aims,” a charge the News Corporation denies.
His courtship has made him the Chinese leadership’s favorite foreign media baron. He has dined with former President Jiang Zemin in the Zhongnanhai leadership compound in Beijing and repeatedly met other members of the ruling Politburo in Beijing, New York and London. Television channels affiliated with Mr. Murdoch beam more programming into China than any other foreign media group.
“The reality is that the Chinese government is not going to let anything radical happen in media,” says Gary Davey, an Australian who once ran Star TV for Mr. Murdoch. “But we got a lot farther than anyone else did.”
News Corporation officials in Beijing and Hong Kong declined to comment for this article. After The New York Times began a two-part series on Monday about how Mr. Murdoch operates his company, the News Corporation issued a statement:
“News Corp. has consistently cooperated with The New York Times in its coverage of the company. However, the agenda for this unprecedented series is so blatantly designed to further the Times’s commercial self interests — by undermining a direct competitor poised to become an even more formidable competitor — that it would be reckless of us to participate in their malicious assault. Ironically, The Times, by using its news pages to advance its own corporate business agenda, is doing the precise thing they accuse us of doing without any evidence.”
China has never been a make-or-break proposition for the News Corporation, since its operations here represent a small part of the company, which is valued at $68 billion. But Mr. Murdoch pushed for nearly 15 years to create a satellite television network that would cover every major market in the world, including China.
He coveted the $50 billion in ad spending that flows mainly to China’s state-owned news media whose products, even after years of improvements, still reflect propaganda directives as well as consumer demand.
The News Corporation’s competitors in television and film, the Walt Disney Company, Viacom and Time Warner, also had to accommodate Chinese demands as the price of admission to the local market.
But Mr. Murdoch gave more, his associates said.
“The Chinese discovered that Rupert was a real emperor who controlled everything himself,” said H. S. Liu, who oversaw government relations for the News Corporation in China. “His rivals had big, cautious bureaucracies that could not always deliver.”
China has long meant more than business to the Murdoch clan. Mr. Murdoch’s father, Keith, wrote about China as a war correspondent in the 1930s. As a newspaper proprietor in Australia, he collected Ming dynasty porcelain.
When Rupert Murdoch visited Shanghai in 1997, Wendi Deng, then a junior News Corporation employee in Hong Kong, flew up to serve as his translator. Together they explored Shanghai, which was then emerging as a lively center of finance and commerce.
“He was knocked over by the place,” recalled Bruce Dover, a former China manager for Mr. Murdoch, “and by her.” Within two years, Mr. Murdoch had left his second wife, Anna Mann, and married Ms. Deng.
Clawing Back
Mr. Murdoch’s initial foray into China was disastrous. Shortly after he purchased the satellite broadcaster Star TV in Hong Kong for nearly $1 billion in 1993, he made a speech in London that enraged the Chinese leadership.
He said that modern communications technology had “proved an unambiguous threat to totalitarian regimes everywhere.” Star could beam programming to every corner of China, and Murdoch had paid a big premium for the broadcaster for that reason.
Prime Minister Li Peng promptly outlawed private ownership of satellite dishes, which had once proliferated on rooftops. Star TV faced a threat to its viability.
Chinese leaders rebuffed his attempts to apologize in person — a ban that lasted nearly four years. But he sought to placate them. One target was Deng Xiaoping, then retired but still China’s senior leader.
HarperCollins, Mr. Murdoch’s book unit, published a biography of Mr. Deng written by his daughter, Deng Rong. Although it mainly recycled propaganda about Mr. Deng, Mr. Murdoch threw an elaborate book party at Le Cirque in New York. The book sold poorly.
He also cultivated ties with Mr. Deng’s eldest son, Deng Pufang, who is disabled. Mr. Murdoch chartered a jet to ferry a troop of disabled acrobats that the younger Mr. Deng had promoted to perform abroad, according to a former News Corporation official.
Star TV overhauled its programming to suit Chinese tastes. In 1994 it dropped BBC News, which had frequently angered Chinese officials with its reports on mainland affairs.
Mr. Murdoch said the decision was made for business reasons, not political reasons. Mr. Davey, who then ran Star TV, agreed that cost was a primary consideration.
But he said he had pressed the British broadcaster to stop showing a video of a man facing down a tank outside Tiananmen Square — an indelible image from China’s crackdown on pro-democracy protesters in 1989 — during its on-air programming breaks. He said the BBC refused, calling the video a “journalistic presentation.”
“The BBC never got the sensitivities of the situation,” Mr. Davey said. “It was relentless and stupid. Neither party was too upset about ending the relationship.”
If Star was a potential threat to the one-party state, it was also a new opportunity. Chinese officials disliked Western news media coverage of China and wanted to present their own face to the world. Mr. Murdoch provided the access they wanted.
In 1996, he entered a joint venture with Liu Changle, a onetime radio host for the People’s Liberation Army who had connections with propaganda officials. Their joint news and entertainment channel, called Phoenix, beamed programs to the small number of urban households permitted to see foreign broadcasts in China. Mr. Murdoch transmitted the same programming around the world on his satellites.
Phoenix imitated the fast pace and on-the-scene reporting style popular in the West and shook up the mainland’s staid news media, which still featured well-coiffed narrators reading scripts about meetings between senior leaders held that day. But Phoenix also tended to steer clear of the most sensitive political topics and could be bombastically nationalistic.
Phoenix may have demonstrated that the Chinese news media could become more sophisticated and dynamic without threatening the party’s power. It also showed that Mr. Murdoch could be an asset.
“Officials realized he had a good intentions,” Mr. Liu said.
After Phoenix proved a hit, Ding Guangen, a hard-liner who exercised sweeping control over all Chinese news media as chief of the country’s Propaganda Department, granted Mr. Murdoch his first meeting. So did Zhu Rongji, then the prime minister.
Mr. Zhu noted that Mr. Murdoch had become an American citizen to comply with television ownership rules in the United States. He joked that if he wanted to broadcast more in China, he should consider becoming Chinese, a person who attended the meeting recalled.
Friendly Relations
The News Corporation’s outreach intensified. When Mr. Murdoch learned that China Central Television, known as CCTV, was struggling to develop a news Web site, he dispatched a team from Fox News to help design and operate one. Another News Corporation team brought People’s Daily, the mouthpiece of the Communist Party, online.
China also needed help encrypting satellite transmissions so it could develop a pay-TV service, a specialty of the News Corporation’s NDS subsidiary. NDS helped Beijing create a proprietary encryption system. It never realized sizable royalties, people who worked at the News Corporation said.
Similarly, the company brought delegations of Chinese officials to Britain, so they could study how Mr. Murdoch’s BSkyB unit had become a lucrative gateway for satellite television in Europe.
“Our thinking was that we would show off our technology and they would contract News Corporation to do the same for them,” said Mr. Dover, Mr. Murdoch’s former China manager. “Their thinking was, ‘We want this for ourselves.’ ”
“It ended being more of a giveaway,” Mr. Dover said.
In late 1998, President Jiang invited Mr. Murdoch to Zhongnanhai. The official Xinhua news agency, reporting on the session, made clear that the media baron had a new reputation.
“President Jiang expressed appreciation for the efforts made by world media mogul Rupert Murdoch in presenting China objectively and cooperating with the Chinese press over the last two years,” Xinhua said.
The Murdochs often echoed the Chinese government line. In a 1999 interview with Vanity Fair, Mr. Murdoch spoke disparagingly of the Dalai Lama, whom the Chinese condemn as a separatist. “I have heard cynics who say he is a very political old monk shuffling around in Gucci shoes,” he said.
James Murdoch, who ran Star TV from 2000 to 2003, said in a speech in Los Angeles in 2001 that Western reporters in China supported “destabilizing forces” that are “very, very dangerous for the Chinese government.” He lashed out at the Falun Gong spiritual sect, which had just endured brutal repression in China, calling it “dangerous and apocalyptic.”
The Journal won a Pulitzer Prize for its coverage of the suppression of the Falun Gong movement in 2001. Last month, seven China-based reporters for The Journal wrote a letter to Dow Jones’s current controlling shareholders arguing that the articles on Falun Gong “may never have seen the light of day” if The Journal had been owned by Mr. Murdoch.
News Corporation officials say such fears are baseless. While several reporters who worked in China for the company’s publications in the 1990s say Mr. Murdoch’s editors pressed them to tone down their coverage of delicate issues that could anger the Chinese leadership, reporters serving in such posts now say they have not come under similar pressures.
By the late 1990s, Mr. Murdoch was traveling several times a year to the country. He was often joined by Wendi Murdoch, who left her formal position in the company but continued to scout for investments in China and participate in strategy decisions there, several people who worked for the News Corporation said.
One of her roles: introducing her husband to Chinese entrepreneurs. Many of them had received business degrees in the United States, as she had at Yale.
The Murdochs invested about $150 million in half a dozen start-up Internet and telecom companies at the height of the Internet bubble between 1999 and 2001. Only one, Netcom, returned an appreciable investment profit, two former News Corporation executives said.
But one of the entrepreneurs the Murdochs befriended during the investment spree was Jiang Mianheng, the son of President Jiang. Ms. Murdoch and some other News Corporation employees argued internally that the younger Mr. Jiang could help Star distribute its broadcasts more widely, two former News Corporation executives said.
It is unclear what role, if any, Mr. Jiang played. But in 2002, the company became the first foreign broadcaster to receive “landing rights” to sell programs to cable systems in Guangdong Province, near Hong Kong.
The license came with a catch. The News Corporation again consented to transmit Chinese programs — this time, the English-language news, talk shows and cultural shows on CCTV’s Channel 9 — to the United States and Britain. Time Warner later agreed to similar terms. But the market appeared to be opening, with the News Corporation in the lead.
Prime Time
The News Corporation and its joint venture partners controlled 9 of the 31 foreign channels, including news, movies, music videos and sports, more than any other foreign media company. Officially, however, it could still reach only government and foreign compounds and luxury hotels, as well as homes in Guangdong. Mr. Murdoch wanted more.
Good news appeared to come in 2004. The authorities began allowing Chinese-foreign joint ventures to produce shows that could be broadcast locally without the restrictions that apply to overseas content.
Mr. Murdoch interpreted the order liberally. The News Corporation allied itself with a state-run broadcaster in the western province of Qinghai. The arrangement covered not only production but also distribution. Through middlemen, the News Corporation also purchased prime-time slots in 25 Chinese provinces. It had become a backdoor national broadcaster.
Aware that the venture pushed the limits of what regulators allowed, the News Corporation sought to arrange political cover, people involved in arranging the deal said. It recruited a media and stock market entrepreneur named Ding Yuchen to join the venture as a partner. Mr. Ding’s father, Ding Guangen, was the longtime propaganda chief. A second partner was the Central Committee of the Communist Youth League, considered the political power base of China’s new top leader, Hu Jintao.
In comments to News Corporation investors in early 2005, Mr. Murdoch boasted of a “new venture,” which he did not name, “where we’ll have nearly 50 percent of a prime-time channel, which will have access to well over 100 million homes.”
It did not endure. The News Corporation used Qinghai to broadcast branded shows it had produced for its own, more limited channel. When they began appearing nationally, competitors complained that Mr. Murdoch was getting special treatment.
The Propaganda Department forced the News Corporation to end its involvement with Qinghai shortly thereafter. The cost of the debacle: between $30 million and $60 million, people connected to the company at the time said.
News Corporation executives said they felt the political winds had shifted against them. President Jiang, who retired from his final post as military chief in 2004, had lost much of his day-to-day influence. President Hu’s propaganda team pulled in the reins. Mr. Murdoch said publicly that he had hit a “brick wall.”
Mr. Liu, Mr. Murdoch’s partner at Phoenix, said the Qinghai venture “is not something I would have tried” because it ran afoul of media regulations. But he said Mr. Murdoch had not lost the good will of senior officials. “They still recognize his contributions,” he said.
When Mr. Murdoch visited China late last year, he met Liu Yunshan, Mr. Ding’s successor as propaganda chief, and Liu Qi, the party secretary of Beijing and the top coordinator for the 2008 Olympics.
The News Corporation also entered an alliance with China Mobile, the state-owned company that is the world’s largest mobile communications operator. Mr. Liu of Phoenix said the move “could open a new, lucrative highway” to provide media content to China’s 480 million mobile-phone users.
Wendi Murdoch has stepped up her role in China. She plotted a strategy for the News Corporation’s social networking site, MySpace, to enter the Chinese market, people involved with the company said. The News Corporation decided to license the MySpace name to a local consortium of investors organized by Ms. Murdoch.
As a local venture, MySpace China, which began operations in the spring, abides by domestic censorship laws and the “self discipline” regime that governs proprietors of Chinese Web sites. Every page on the site has a link allowing users or monitors to “report inappropriate information” to the authorities. Microsoft, Google and Yahoo have made similar accommodations for their Web sites in China.
The Murdochs will soon be able to call Beijing home. Workers have nearly finished renovating their traditional courtyard-style house in Beijing’s exclusive Beichizi district, a block from the Forbidden City. Beneath the steep-pitched roofs and wooden eaves of freshly coated vermillion and gold, the courtyard has an underground swimming pool and billiard room, according to people who have seen the design.
Plainclothes security officers linger on the street outside. One neighbor is the retired prime minister, Mr. Zhu, who invited Mr. Murdoch to become Chinese.
Tuesday, June 26, 2007
Monday, June 25, 2007
Murdoch Reaches Out for Even More (NYTimes)
By JO BECKER
This article was reported by Jo Becker, Richard Siklos, Jane Perlez and Raymond Bonner, and written by Ms. Becker.
In the fall of 2003, a piece of Rupert Murdoch’s sprawling media empire was in jeopardy.
Congress was on the verge of limiting any company from owning local television stations that reached more than 35 percent of American homes. Mr. Murdoch’s Fox stations reached nearly 39 percent, meaning he would have to sell some.
A strike force of Mr. Murdoch’s lobbyists joined other media companies in working on the issue. The White House backed the industry, and in a late-night meeting just before Thanksgiving, Congressional leaders agreed to raise the limit — to 39 percent.
One leader of the Congressional movement to limit ownership was Senator Trent Lott, Republican of Mississippi. But in the end, he, too, agreed to the compromise. It turns out he had a business connection to Mr. Murdoch. Months before, HarperCollins, Mr. Murdoch’s publishing house, had signed a $250,000 book deal to publish Mr. Lott’s memoir, “Herding Cats,” records and interviews show.
An aide to Mr. Lott said the book deal had no bearing on the senator’s decision, and a spokesman for Mr. Murdoch chalked it up to coincidence. Still, the ownership fight showcases the confluence of business, political and media prowess that is central to the way Mr. Murdoch has built his global information conglomerate.
His vast media holdings give him a gamut of tools — not just campaign contributions, but also jobs for former government officials and media exposure that promotes allies while attacking adversaries, sometimes viciously — all of which he has used to further his financial interests and establish his legitimacy in the United States, interviews and government records show.
Mr. Murdoch may be best known in the this country as the man who created Fox News as a counterweight to what he saw as a liberal bias in the news media. But he has often set aside his conservative ideology in pursuit of his business interests. In recent years, he has spread campaign contributions across both sides of the political aisle and nurtured relationships with the likes of Bill and Hillary Clinton.
More than 30 years after the Australian-born Mr. Murdoch arrived on the American newspaper scene and turned The New York Post into a racy, right-leaning tabloid, his holding company, the News Corporation, has offered $5 billion to buy a pillar of the business news establishment — Dow Jones, parent company of The Wall Street Journal.
The sale would give Mr. Murdoch control of the pre-eminent journalistic authority on the world in which he is an active, aggressive participant. What worries his critics is that Mr. Murdoch will use The Journal, which has won many Pulitzer Prizes and has a sterling reputation for accuracy and fairness, as yet another tool to further his myriad financial and political agendas.
“It is hard to imagine Rupert Murdoch publishing The New York Post in Midtown Manhattan, with all of his personal and political biases and business interests reflected every day, while publishing The Wall Street Journal in Downtown Manhattan with no interference whatsoever,” James Ottaway Jr., a 5 percent shareholder and former director of Dow Jones, said recently.
Members of the Bancroft family, which controls Dow Jones, have sought elaborate assurances from Mr. Murdoch that he will preserve the independence of The Journal’s news coverage. Last night, advisers to both sides said they were close to reaching an agreement on editorial control, but it was unclear whether the Bancrofts would approve a deal. When he bought The Times of London in 1981 he gave similar assurances, but some former editors say he meddled with news operations anyway.
Mr. Murdoch declined a request for an interview, but has recently said he would preserve The Journal’s independence. Gary L. Ginsberg, a News Corporation executive, said it was “insulting” for anyone to suggest that Mr. Murdoch would compromise the integrity of “one of the world’s great newspapers” adding, “It’s not good business and it’s not good politics and it’s absurd on its face.”
From his beginnings as a proprietor of a single Australian newspaper, Mr. Murdoch now commands a news, entertainment and Internet enterprise whose $68 billion value slightly exceeds that of the Walt Disney Company.
The American newspaper industry has never seen a publisher quite like him. Mr. Murdoch has long been a pivotal figure in England and Australia, and in the dozen years since he has moved his base of operations to this country, he has insinuated himself into the political and financial fabric of the United States. His businesses have thrived in a highly regulated environment in part because of his remarkable ability to mold the rules to fit his needs.
This became clear in the regulatory fight over media ownership, a battle critical to Mr. Murdoch’s audacious creation of a fourth national television network, Fox. He has also turned his political clout on business rivals, as he did when he mounted a campaign recently against the Nielsen television rating agency.
“Rupert is sort of an 18th-century guy: the world is still forming, and he’s going to do what he can to hack out a place in the wilderness and defend it,” said Richard D. Parsons, the chairman of Time Warner, who both competes and socializes with Mr. Murdoch.
Political Relations
Shortly before Christmas in 1987, Senator Edward M. Kennedy taught Mr. Murdoch a tough lesson in the ways of Washington.
Two years earlier, Mr. Murdoch had paid $2 billion to buy seven television stations in major American markets with the intention of starting a national network. To comply with rules limiting foreign ownership, he became an American citizen. And to comply with rules banning the ownership of television stations and newspapers in the same market, he promised to sell some newspapers eventually. But almost immediately he began looking for ways around that rule.
Then Mr. Kennedy, Democrat of Massachusetts, stepped in. Mr. Kennedy’s liberal politics had made him a target of Murdoch-owned news media outlets, particularly The Boston Herald, which often referred to Mr. Kennedy as “Fat Boy.” He engineered a legislative maneuver that forced an infuriated Mr. Murdoch to sell his beloved New York Post.
Mr. Murdoch was able to buy back the tabloid five years later, but the sale represented a rare and, some say, transforming defeat.
“Teddy almost did him in,” said Philip R. Verveer, a cable television lobbyist. “I presume that over time, as his media ownership in this country has grown and grown, he’s realized that you can’t throw spit wads at leading figures in society with impunity.”
In fact, among the ranks of the lobbyists who have done Mr. Murdoch’s bidding in Washington in recent years is Anthony Podesta, Mr. Kennedy’s former counsel.
Over time, Mr. Murdoch has shown an ability to adapt to changing political winds. In Britain, his newspapers had a long history of being pro-Tory and anti-Labor, and he was personally close with former Prime Minister Margaret Thatcher. But in 1997, two of Mr. Murdoch’s papers endorsed Tony Blair for prime minister. Mr. Murdoch became a frequent guest at No. 10 Downing Street, “effectively a member of Blair’s cabinet,” said Lance Price, who was a Blair spokesman from 1998 to 2001.
Mr. Murdoch had reason to court Mr. Blair: ensuring that the new government would allow him to keep intact his British holdings, which by then included The Times of London, multiple tabloids and a stake in Sky News. Many in the Labor Party under Mr. Blair favored the enactment of media ownership limits, which could have forced Mr. Murdoch to divest some of his interests. But Mr. Blair “quietly dropped the policy,” Mr. Price said.
“Blair’s attitude was quite clear,” Andrew Neil, the editor of The Sunday Times under Mr. Murdoch in London from 1983 to 1994, said in an interview. “If the Murdoch press gave the Blair government a fair hearing, it would be left intact.”
Mr. Murdoch’s trajectory in the United States has been similar. His credentials as a purveyor of conservative journalism notwithstanding, he operates like many less visible corporate executives in not allowing his personal politics to get in the way of his bottom line.
An analysis of campaign finance records shows that since 1997, Republicans have received only a slight majority — 56 percent — of the $4.76 million in campaign donations from the Murdoch family and the News Corporation’s political action committees and employees. Since Democrats won control of Congress in the 2006 elections, the company and its employees have given more than twice as much to Democrats as to Republicans, the records show.
“We did seek more balance,” said Peggy Binzel, Mr. Murdoch’s former chief in-house lobbyist. “You need to be able to tell your story to both sides to be effective. And that’s what political giving is about.”
Mr. Murdoch has an army of outside lobbyists, who have reported being paid more than $11 million since 1998 to address issues as diverse as trade relations, programming decency and Internet regulation.
One firm focuses almost exclusively on parts of the tax code that affect the News Corporation. By taking advantage of a provision in the law that allows expanding companies like Mr. Murdoch’s to defer taxes to future years, the News Corporation paid no federal taxes in two of the last four years, and in the other two it paid only a fraction of what it otherwise would have owed. During that time, Securities and Exchange Commission records show, the News Corporation’s domestic pretax profits topped $9.4 billion.
The News Corporation’s outside lobbying team has been a veritable political Noah’s ark. It has included Republicans like Ed Gillespie, former Republican Party chairman; former Senator Alfonse M. D’Amato of New York; and the firm headed by former Mayor Rudolph W. Giuliani of New York. But it has also included former Democratic members of Congress, as well as several high-ranking Clinton administration officials, including Jack Quinn, former White House counsel.
Mr. Murdoch’s association with the Clintons is perhaps the best example of his ever-morphing relationships with the powerful, and theirs with him. For years, the former president was a favorite target of The New York Post, which seemed to delight in referring to him as “former horndog-in-chief.”
In October 2002, Mr. Clinton and Mr. Murdoch had a lunch meeting at Mr. Clinton’s office in Harlem. It was arranged by Mr. Ginsberg, who had worked in the White House counsel’s office in the Clinton administration and is now the News Corporation’s executive vice president for corporate affairs.
More recently, Mr. Murdoch donated $500,000 to the former president’s Global Initiative and was one of its featured panelists at a 2005 event in New York. In 2006, The Post issued a surprising endorsement of Mrs. Clinton in her Senate re-election bid. On June 5 and 6 of this year, Mr. Ginsberg and Peter A. Chernin, president and chief operating officer of the News Corporation, were hosts of back-to-back fund-raisers for Mrs. Clinton’s presidential campaign, one in New York and one in Los Angeles.
The Nielsen Battle
In early 2004, an alarm went off at the News Corporation headquarters.
Nielsen Media Research was preparing to switch to a more sophisticated technology to calculate ratings that television stations use to set advertising rates for local programming. Results of a trial run showed sharp drops in ratings for shows carried on stations owned by the News Corporation, particularly those aimed at minority viewers.
With millions of dollars at stake, Mr. Murdoch sprang into action. He hired the Glover Park Group, a consulting firm with deep ties to the Clinton administration, to run a grass-roots ground war. Charging that the system was faulty and that it undercounted minorities, the firm started an extensive advertising campaign intended to delay the rollout of the new technology and staged protests around the country that drew such unlikely allies as the Rev. Al Sharpton. Among the Democrats who wrote to Nielsen opposing the new system was Mrs. Clinton.
The New York Post pursued the story, running news headlines like “Nailing Nielsen” and routinely failing to mention its parent company’s interest in the outcome.
The resulting two-year campaign was unusually brazen, even by Beltway standards. Protesters massed outside Nielsen offices in New York. The atmosphere grew so charged that Nielsen’s chief, Susan Whiting, hired a personal bodyguard and the company strengthened security at its headquarters, according to Nielsen officials.
At one point, Ms. Whiting publicly accused Mr. Chernin and Mr. Murdoch’s son Lachlan of threatening to do “everything possible to discredit you and the company in Washington” if she did not back down. Mr. Chernin and Mr. Murdoch publicly denied making the threat.
But the News Corporation turned to Republican allies to put pressure on Nielsen. Senator Conrad Burns, a Montana Republican who was chairman of the Commerce Committee’s communications subcommittee, and Representative Vito J. Fossella, a New York Republican, introduced legislation that threatened Nielsen with government oversight.
One day after the bill was introduced, The New York Post ran an opinion article co-written by Mr. Fossella expressing outrage over plans for a museum at ground zero in Lower Manhattan. A news report in the paper that day raised the same concerns. Mr. Ginsberg said “the notion that Rupert had anything to do with that is laughable.”
Political contributions flowed to nearly all the legislation’s supporters. In 2005, the year the legislation was introduced, records show that the bill’s 29 sponsors and co-sponsors together received at least $144,650 in donations from the News Corporation’s political action committees and lobbyists.
Ultimately, the dispute was settled quietly. Mr. Murdoch succeeded in keeping the old rating system in place for several months in the three top markets, New York, Chicago and Los Angeles. Those months included the sweeps period, when advertising rates are set.
Mr. Ginsberg said the campaign was successful in highlighting concerns about tracking minority viewership and “educating certain groups as to how to use this new technology.”
But Dale Snape, who lobbied for Nielsen, said: “It was a classic example of him using all his resources to try to politically influence an outcome — he bought a Hill debate. It was scorched earth, and it was all about money. They created a public interest furor where there was none.”
Media Ownership Rules
For more than 70 years, the federal government has regulated media ownership to protect against any entity gaining too much power over the dissemination of information. And for much of the last two decades, Mr. Murdoch has chafed against those restrictions, winning exceptions and easing regulations.
Again and again, Mr. Murdoch won crucial skirmishes with the Federal Communications Commission. In this he was helped most by his Republican allies, including former Speaker Newt Gingrich and the Bush administration, which has promoted measures to allow more consolidation.
During the Clinton administration, Mr. Murdoch was able to draw upon Republican support when the F.C.C. chairman at the time, Reed E. Hundt, opened an investigation into whether the News Corporation had violated commission rules in acquiring television stations to form the Fox Network.
According to two former F.C.C. officials, Mr. Murdoch’s chief in-house lobbyist at the time, Preston Padden, confronted Mr. Hundt’s chief of staff at a meeting at a coffee shop near the agency’s headquarters. Mr. Hundt would not be able to “get a job as dog-catcher” if the F.C.C. took away a single News Corporation television license, Mr. Padden warned, they said.
The warning, one of the officials said, “was designed to send a harsh signal that if we continued, they would do everything in the world to make our life miserable.” As Mr. Hundt later recalled in a memoir, Mr. Murdoch assailed him in an op-ed article in The Wall Street Journal, and Congressional Republicans rose up against him.
In the end, the F.C.C. found that the deal had violated the rules. But Mr. Hundt declined to strip Mr. Murdoch of his licenses, reasoning that the fault lay with the Reagan-era F.C.C. for approving the acquisitions in the first place. Mr. Padden, who has left the News Corporation, refused requests for an interview.
It was the first of many victories for Mr. Murdoch in the new political climate that swept into Washington in 1994 when the Republicans won control of Congress. It was a fortunate time for Mr. Murdoch, whose business interests and political ideology were in ascendancy.
The new Congress overhauled telecommunications laws for the first time in decades, allowing media companies like Mr. Murdoch’s to expand by increasing the share of the national audience they could reach. So long as a company did not reach more than 35 percent of American households, it could buy as many stations as it wanted.
Mr. Murdoch’s lobbyists were also able to get a provision in the bill requiring the F.C.C. to review the cap periodically. It was just such a review that led the Bush administration to increase the cap again in 2003. By then, Mr. Murdoch had bought additional stations that put him over the 35 percent limit, as had another company, Viacom.
The F.C.C. chairman at that time, Michael K. Powell, proposed a broad loosening of media ownership rules, including raising the cap to 45 percent. (Two of Mr. Powell’s top advisers, Susan Eid and Paul Jackson, now work for Mr. Murdoch.)
Ultimately, a federal appeals court threw out the new rules. But by then, Congress and the White House had intervened, passing into law the 39 percent compromise.
Mr. Lott, an outspoken critic of media consolidation, agreed to the increase because it was still lower than what Mr. Powell had proposed, said his spokesman, Nick Simpson. Mr. Simpson added that Mr. Lott did not want to force companies to sell stations and that his book deal did not affect his view of Mr. Murdoch’s legislative agenda.
Many companies publish books by public officials. But because of Mr. Murdoch’s wide business interests, HarperCollins’s book deals have at times drawn scrutiny. Its decision to cancel a book critical of Chinese Communist leaders by Hong Kong’s last British governor was assailed as a move by Mr. Murdoch to protect his Chinese business interests, a charge he denied.
HarperCollins also provoked a firestorm when it gave Mr. Gingrich a $4.5 million book contract as Congress was preparing to redraw the media ownership rules.
Mr. Ginsberg pointed out that Mr. Murdoch later fired the Gingrich book’s editor for making what he regarded as an “uneconomical and unseemly” deal. He said that in general Mr. Murdoch did not involve himself in decisions about book contracts, and added, “If these books aren’t viable, they aren’t published.”
Mr. Lott’s book sold 12,000 copies, according to Nielsen Bookscan, which tracks about 70 percent of all domestic retail and Internet sales. Senator Arlen Specter, Republican of Pennsylvania, received $24,506 from HarperCollins for his modest-selling book “Passion for Truth,” according to financial disclosure forms. Senator Kay Bailey Hutchison, Republican of Texas, got $141,666 for her book “American Heroines,” which has sold better. All sit on either the Commerce or Judiciary Committees that most closely oversee the media business.
HarperCollins has also given book deals to Senator Chuck Hagel, Republican of Nebraska, and a $1 million advance to Justice Clarence Thomas of the Supreme Court, both of whose books are due out next year.
A former HarperCollins executive, granted anonymity to speak candidly about the company, said Mr. Murdoch was less hands-on than people assumed. “It’s not done in a direct way where he issues instructions,” the executive said. “It’s a bunch of people running around trying to please him.”
Ms. Binzel, the former chief government strategist for the News Corporation, said Mr. Murdoch got the breaks he did in the United States based on the merits, not his political connections. He took on the major networks and created more competition in the media marketplace, something regulators had long desired, she said.
“Rupert has always been a visionary, and when you bring in a visionary, they are frequently going up against the establishment,” she said. “So much of what Rupert has faced in Washington has been getting rid of rules that protect incumbents. The reason he convinced people to do that was that he was going to be providing something new.”
The Dow Jones Bid
Now, Mr. Murdoch is trying to convince the Bancroft family to sell him The Journal.
Dow Jones has proposed a committee to safeguard the paper’s editorial independence that includes a continuing role for some members of the Bancroft family and current Journal editors and executives.
Mr. Murdoch has said he prefers the model of committee used at The Times of London. His company bought The Times in 1981 and in order to win approval for the deal Mr. Murdoch agreed to an independent oversight committee and guidelines intended to prevent him from meddling in coverage.
According to interviews with former Times editors and affidavits filed in an unrelated 1995 libel suit, there were clashes over the publisher’s involvement in the paper from the very start.
Harry Evans, who was editor at the time of Mr. Murdoch’s acquisition and was forced out soon after, wrote a memoir vividly describing his constant fights with the new publisher. In his affidavit, Mr. Evans describes Mr. Murdoch’s ordering the publication of a cartoon that Times editors had deemed tasteless and his complaining that too many stories had a left-wing bent. Another former editor said Mr. Murdoch once pointed to the byline of a correspondent and asserted, “That man’s a Commie.”
Fred Emery, another former Times editor, said Mr. Murdoch once said to him: “I give instructions to my editors all around the world; why shouldn’t I in London?”
The turmoil of those first years subsided, in part, one former Times editor said, because Mr. Murdoch got rid of those who did not adhere to his politics. “He puts people in who will do his bidding,” said Mr. Neil, the former editor.
The current editor of The Times, Robert Thomson, paints a different picture: “I’ve had absolutely no interference and a lot of investment in a loss-making newspaper, for which Rupert Murdoch gets no credit.”
Under Mr. Thomson, the business pages of The Times expanded, and there are now 18 foreign reporters, compared with 8 when he came to the paper. The Times is the only British newspaper with a Baghdad bureau.
Mr. Thomson, who is expected to play an important role at The Journal if the News Corporation buys it, said Mr. Murdoch would invest in the paper and expand overseas coverage.
Over the years, as Mr. Murdoch built his empire, he has lusted after The Journal.
In the mid-1980s, he attended a black-tie press dinner in New York and found himself sitting next to Julie Salamon, then The Journal’s film critic and a former New York Times reporter. She vividly recalls his fascination with the inner workings of the newspaper and said he clearly expressed his desire to own it someday.
Ms. Salamon initially dismissed Mr. Murdoch. “The idea of this tabloid guy buying The Journal, which was then at the zenith of its success, seemed preposterous,” she said.
But by the end of the meal, impressed by Mr. Murdoch’s canny sense of the American media landscape, Ms. Salamon said, “I went home with a funny feeling in the pit of my stomach, like this guy might actually do it.”
Jo Becker and Richard Siklos reported from New York, Jane Perlez and Raymond Bonner from London. Griff Palmer contributed from New York.
This article was reported by Jo Becker, Richard Siklos, Jane Perlez and Raymond Bonner, and written by Ms. Becker.
In the fall of 2003, a piece of Rupert Murdoch’s sprawling media empire was in jeopardy.
Congress was on the verge of limiting any company from owning local television stations that reached more than 35 percent of American homes. Mr. Murdoch’s Fox stations reached nearly 39 percent, meaning he would have to sell some.
A strike force of Mr. Murdoch’s lobbyists joined other media companies in working on the issue. The White House backed the industry, and in a late-night meeting just before Thanksgiving, Congressional leaders agreed to raise the limit — to 39 percent.
One leader of the Congressional movement to limit ownership was Senator Trent Lott, Republican of Mississippi. But in the end, he, too, agreed to the compromise. It turns out he had a business connection to Mr. Murdoch. Months before, HarperCollins, Mr. Murdoch’s publishing house, had signed a $250,000 book deal to publish Mr. Lott’s memoir, “Herding Cats,” records and interviews show.
An aide to Mr. Lott said the book deal had no bearing on the senator’s decision, and a spokesman for Mr. Murdoch chalked it up to coincidence. Still, the ownership fight showcases the confluence of business, political and media prowess that is central to the way Mr. Murdoch has built his global information conglomerate.
His vast media holdings give him a gamut of tools — not just campaign contributions, but also jobs for former government officials and media exposure that promotes allies while attacking adversaries, sometimes viciously — all of which he has used to further his financial interests and establish his legitimacy in the United States, interviews and government records show.
Mr. Murdoch may be best known in the this country as the man who created Fox News as a counterweight to what he saw as a liberal bias in the news media. But he has often set aside his conservative ideology in pursuit of his business interests. In recent years, he has spread campaign contributions across both sides of the political aisle and nurtured relationships with the likes of Bill and Hillary Clinton.
More than 30 years after the Australian-born Mr. Murdoch arrived on the American newspaper scene and turned The New York Post into a racy, right-leaning tabloid, his holding company, the News Corporation, has offered $5 billion to buy a pillar of the business news establishment — Dow Jones, parent company of The Wall Street Journal.
The sale would give Mr. Murdoch control of the pre-eminent journalistic authority on the world in which he is an active, aggressive participant. What worries his critics is that Mr. Murdoch will use The Journal, which has won many Pulitzer Prizes and has a sterling reputation for accuracy and fairness, as yet another tool to further his myriad financial and political agendas.
“It is hard to imagine Rupert Murdoch publishing The New York Post in Midtown Manhattan, with all of his personal and political biases and business interests reflected every day, while publishing The Wall Street Journal in Downtown Manhattan with no interference whatsoever,” James Ottaway Jr., a 5 percent shareholder and former director of Dow Jones, said recently.
Members of the Bancroft family, which controls Dow Jones, have sought elaborate assurances from Mr. Murdoch that he will preserve the independence of The Journal’s news coverage. Last night, advisers to both sides said they were close to reaching an agreement on editorial control, but it was unclear whether the Bancrofts would approve a deal. When he bought The Times of London in 1981 he gave similar assurances, but some former editors say he meddled with news operations anyway.
Mr. Murdoch declined a request for an interview, but has recently said he would preserve The Journal’s independence. Gary L. Ginsberg, a News Corporation executive, said it was “insulting” for anyone to suggest that Mr. Murdoch would compromise the integrity of “one of the world’s great newspapers” adding, “It’s not good business and it’s not good politics and it’s absurd on its face.”
From his beginnings as a proprietor of a single Australian newspaper, Mr. Murdoch now commands a news, entertainment and Internet enterprise whose $68 billion value slightly exceeds that of the Walt Disney Company.
The American newspaper industry has never seen a publisher quite like him. Mr. Murdoch has long been a pivotal figure in England and Australia, and in the dozen years since he has moved his base of operations to this country, he has insinuated himself into the political and financial fabric of the United States. His businesses have thrived in a highly regulated environment in part because of his remarkable ability to mold the rules to fit his needs.
This became clear in the regulatory fight over media ownership, a battle critical to Mr. Murdoch’s audacious creation of a fourth national television network, Fox. He has also turned his political clout on business rivals, as he did when he mounted a campaign recently against the Nielsen television rating agency.
“Rupert is sort of an 18th-century guy: the world is still forming, and he’s going to do what he can to hack out a place in the wilderness and defend it,” said Richard D. Parsons, the chairman of Time Warner, who both competes and socializes with Mr. Murdoch.
Political Relations
Shortly before Christmas in 1987, Senator Edward M. Kennedy taught Mr. Murdoch a tough lesson in the ways of Washington.
Two years earlier, Mr. Murdoch had paid $2 billion to buy seven television stations in major American markets with the intention of starting a national network. To comply with rules limiting foreign ownership, he became an American citizen. And to comply with rules banning the ownership of television stations and newspapers in the same market, he promised to sell some newspapers eventually. But almost immediately he began looking for ways around that rule.
Then Mr. Kennedy, Democrat of Massachusetts, stepped in. Mr. Kennedy’s liberal politics had made him a target of Murdoch-owned news media outlets, particularly The Boston Herald, which often referred to Mr. Kennedy as “Fat Boy.” He engineered a legislative maneuver that forced an infuriated Mr. Murdoch to sell his beloved New York Post.
Mr. Murdoch was able to buy back the tabloid five years later, but the sale represented a rare and, some say, transforming defeat.
“Teddy almost did him in,” said Philip R. Verveer, a cable television lobbyist. “I presume that over time, as his media ownership in this country has grown and grown, he’s realized that you can’t throw spit wads at leading figures in society with impunity.”
In fact, among the ranks of the lobbyists who have done Mr. Murdoch’s bidding in Washington in recent years is Anthony Podesta, Mr. Kennedy’s former counsel.
Over time, Mr. Murdoch has shown an ability to adapt to changing political winds. In Britain, his newspapers had a long history of being pro-Tory and anti-Labor, and he was personally close with former Prime Minister Margaret Thatcher. But in 1997, two of Mr. Murdoch’s papers endorsed Tony Blair for prime minister. Mr. Murdoch became a frequent guest at No. 10 Downing Street, “effectively a member of Blair’s cabinet,” said Lance Price, who was a Blair spokesman from 1998 to 2001.
Mr. Murdoch had reason to court Mr. Blair: ensuring that the new government would allow him to keep intact his British holdings, which by then included The Times of London, multiple tabloids and a stake in Sky News. Many in the Labor Party under Mr. Blair favored the enactment of media ownership limits, which could have forced Mr. Murdoch to divest some of his interests. But Mr. Blair “quietly dropped the policy,” Mr. Price said.
“Blair’s attitude was quite clear,” Andrew Neil, the editor of The Sunday Times under Mr. Murdoch in London from 1983 to 1994, said in an interview. “If the Murdoch press gave the Blair government a fair hearing, it would be left intact.”
Mr. Murdoch’s trajectory in the United States has been similar. His credentials as a purveyor of conservative journalism notwithstanding, he operates like many less visible corporate executives in not allowing his personal politics to get in the way of his bottom line.
An analysis of campaign finance records shows that since 1997, Republicans have received only a slight majority — 56 percent — of the $4.76 million in campaign donations from the Murdoch family and the News Corporation’s political action committees and employees. Since Democrats won control of Congress in the 2006 elections, the company and its employees have given more than twice as much to Democrats as to Republicans, the records show.
“We did seek more balance,” said Peggy Binzel, Mr. Murdoch’s former chief in-house lobbyist. “You need to be able to tell your story to both sides to be effective. And that’s what political giving is about.”
Mr. Murdoch has an army of outside lobbyists, who have reported being paid more than $11 million since 1998 to address issues as diverse as trade relations, programming decency and Internet regulation.
One firm focuses almost exclusively on parts of the tax code that affect the News Corporation. By taking advantage of a provision in the law that allows expanding companies like Mr. Murdoch’s to defer taxes to future years, the News Corporation paid no federal taxes in two of the last four years, and in the other two it paid only a fraction of what it otherwise would have owed. During that time, Securities and Exchange Commission records show, the News Corporation’s domestic pretax profits topped $9.4 billion.
The News Corporation’s outside lobbying team has been a veritable political Noah’s ark. It has included Republicans like Ed Gillespie, former Republican Party chairman; former Senator Alfonse M. D’Amato of New York; and the firm headed by former Mayor Rudolph W. Giuliani of New York. But it has also included former Democratic members of Congress, as well as several high-ranking Clinton administration officials, including Jack Quinn, former White House counsel.
Mr. Murdoch’s association with the Clintons is perhaps the best example of his ever-morphing relationships with the powerful, and theirs with him. For years, the former president was a favorite target of The New York Post, which seemed to delight in referring to him as “former horndog-in-chief.”
In October 2002, Mr. Clinton and Mr. Murdoch had a lunch meeting at Mr. Clinton’s office in Harlem. It was arranged by Mr. Ginsberg, who had worked in the White House counsel’s office in the Clinton administration and is now the News Corporation’s executive vice president for corporate affairs.
More recently, Mr. Murdoch donated $500,000 to the former president’s Global Initiative and was one of its featured panelists at a 2005 event in New York. In 2006, The Post issued a surprising endorsement of Mrs. Clinton in her Senate re-election bid. On June 5 and 6 of this year, Mr. Ginsberg and Peter A. Chernin, president and chief operating officer of the News Corporation, were hosts of back-to-back fund-raisers for Mrs. Clinton’s presidential campaign, one in New York and one in Los Angeles.
The Nielsen Battle
In early 2004, an alarm went off at the News Corporation headquarters.
Nielsen Media Research was preparing to switch to a more sophisticated technology to calculate ratings that television stations use to set advertising rates for local programming. Results of a trial run showed sharp drops in ratings for shows carried on stations owned by the News Corporation, particularly those aimed at minority viewers.
With millions of dollars at stake, Mr. Murdoch sprang into action. He hired the Glover Park Group, a consulting firm with deep ties to the Clinton administration, to run a grass-roots ground war. Charging that the system was faulty and that it undercounted minorities, the firm started an extensive advertising campaign intended to delay the rollout of the new technology and staged protests around the country that drew such unlikely allies as the Rev. Al Sharpton. Among the Democrats who wrote to Nielsen opposing the new system was Mrs. Clinton.
The New York Post pursued the story, running news headlines like “Nailing Nielsen” and routinely failing to mention its parent company’s interest in the outcome.
The resulting two-year campaign was unusually brazen, even by Beltway standards. Protesters massed outside Nielsen offices in New York. The atmosphere grew so charged that Nielsen’s chief, Susan Whiting, hired a personal bodyguard and the company strengthened security at its headquarters, according to Nielsen officials.
At one point, Ms. Whiting publicly accused Mr. Chernin and Mr. Murdoch’s son Lachlan of threatening to do “everything possible to discredit you and the company in Washington” if she did not back down. Mr. Chernin and Mr. Murdoch publicly denied making the threat.
But the News Corporation turned to Republican allies to put pressure on Nielsen. Senator Conrad Burns, a Montana Republican who was chairman of the Commerce Committee’s communications subcommittee, and Representative Vito J. Fossella, a New York Republican, introduced legislation that threatened Nielsen with government oversight.
One day after the bill was introduced, The New York Post ran an opinion article co-written by Mr. Fossella expressing outrage over plans for a museum at ground zero in Lower Manhattan. A news report in the paper that day raised the same concerns. Mr. Ginsberg said “the notion that Rupert had anything to do with that is laughable.”
Political contributions flowed to nearly all the legislation’s supporters. In 2005, the year the legislation was introduced, records show that the bill’s 29 sponsors and co-sponsors together received at least $144,650 in donations from the News Corporation’s political action committees and lobbyists.
Ultimately, the dispute was settled quietly. Mr. Murdoch succeeded in keeping the old rating system in place for several months in the three top markets, New York, Chicago and Los Angeles. Those months included the sweeps period, when advertising rates are set.
Mr. Ginsberg said the campaign was successful in highlighting concerns about tracking minority viewership and “educating certain groups as to how to use this new technology.”
But Dale Snape, who lobbied for Nielsen, said: “It was a classic example of him using all his resources to try to politically influence an outcome — he bought a Hill debate. It was scorched earth, and it was all about money. They created a public interest furor where there was none.”
Media Ownership Rules
For more than 70 years, the federal government has regulated media ownership to protect against any entity gaining too much power over the dissemination of information. And for much of the last two decades, Mr. Murdoch has chafed against those restrictions, winning exceptions and easing regulations.
Again and again, Mr. Murdoch won crucial skirmishes with the Federal Communications Commission. In this he was helped most by his Republican allies, including former Speaker Newt Gingrich and the Bush administration, which has promoted measures to allow more consolidation.
During the Clinton administration, Mr. Murdoch was able to draw upon Republican support when the F.C.C. chairman at the time, Reed E. Hundt, opened an investigation into whether the News Corporation had violated commission rules in acquiring television stations to form the Fox Network.
According to two former F.C.C. officials, Mr. Murdoch’s chief in-house lobbyist at the time, Preston Padden, confronted Mr. Hundt’s chief of staff at a meeting at a coffee shop near the agency’s headquarters. Mr. Hundt would not be able to “get a job as dog-catcher” if the F.C.C. took away a single News Corporation television license, Mr. Padden warned, they said.
The warning, one of the officials said, “was designed to send a harsh signal that if we continued, they would do everything in the world to make our life miserable.” As Mr. Hundt later recalled in a memoir, Mr. Murdoch assailed him in an op-ed article in The Wall Street Journal, and Congressional Republicans rose up against him.
In the end, the F.C.C. found that the deal had violated the rules. But Mr. Hundt declined to strip Mr. Murdoch of his licenses, reasoning that the fault lay with the Reagan-era F.C.C. for approving the acquisitions in the first place. Mr. Padden, who has left the News Corporation, refused requests for an interview.
It was the first of many victories for Mr. Murdoch in the new political climate that swept into Washington in 1994 when the Republicans won control of Congress. It was a fortunate time for Mr. Murdoch, whose business interests and political ideology were in ascendancy.
The new Congress overhauled telecommunications laws for the first time in decades, allowing media companies like Mr. Murdoch’s to expand by increasing the share of the national audience they could reach. So long as a company did not reach more than 35 percent of American households, it could buy as many stations as it wanted.
Mr. Murdoch’s lobbyists were also able to get a provision in the bill requiring the F.C.C. to review the cap periodically. It was just such a review that led the Bush administration to increase the cap again in 2003. By then, Mr. Murdoch had bought additional stations that put him over the 35 percent limit, as had another company, Viacom.
The F.C.C. chairman at that time, Michael K. Powell, proposed a broad loosening of media ownership rules, including raising the cap to 45 percent. (Two of Mr. Powell’s top advisers, Susan Eid and Paul Jackson, now work for Mr. Murdoch.)
Ultimately, a federal appeals court threw out the new rules. But by then, Congress and the White House had intervened, passing into law the 39 percent compromise.
Mr. Lott, an outspoken critic of media consolidation, agreed to the increase because it was still lower than what Mr. Powell had proposed, said his spokesman, Nick Simpson. Mr. Simpson added that Mr. Lott did not want to force companies to sell stations and that his book deal did not affect his view of Mr. Murdoch’s legislative agenda.
Many companies publish books by public officials. But because of Mr. Murdoch’s wide business interests, HarperCollins’s book deals have at times drawn scrutiny. Its decision to cancel a book critical of Chinese Communist leaders by Hong Kong’s last British governor was assailed as a move by Mr. Murdoch to protect his Chinese business interests, a charge he denied.
HarperCollins also provoked a firestorm when it gave Mr. Gingrich a $4.5 million book contract as Congress was preparing to redraw the media ownership rules.
Mr. Ginsberg pointed out that Mr. Murdoch later fired the Gingrich book’s editor for making what he regarded as an “uneconomical and unseemly” deal. He said that in general Mr. Murdoch did not involve himself in decisions about book contracts, and added, “If these books aren’t viable, they aren’t published.”
Mr. Lott’s book sold 12,000 copies, according to Nielsen Bookscan, which tracks about 70 percent of all domestic retail and Internet sales. Senator Arlen Specter, Republican of Pennsylvania, received $24,506 from HarperCollins for his modest-selling book “Passion for Truth,” according to financial disclosure forms. Senator Kay Bailey Hutchison, Republican of Texas, got $141,666 for her book “American Heroines,” which has sold better. All sit on either the Commerce or Judiciary Committees that most closely oversee the media business.
HarperCollins has also given book deals to Senator Chuck Hagel, Republican of Nebraska, and a $1 million advance to Justice Clarence Thomas of the Supreme Court, both of whose books are due out next year.
A former HarperCollins executive, granted anonymity to speak candidly about the company, said Mr. Murdoch was less hands-on than people assumed. “It’s not done in a direct way where he issues instructions,” the executive said. “It’s a bunch of people running around trying to please him.”
Ms. Binzel, the former chief government strategist for the News Corporation, said Mr. Murdoch got the breaks he did in the United States based on the merits, not his political connections. He took on the major networks and created more competition in the media marketplace, something regulators had long desired, she said.
“Rupert has always been a visionary, and when you bring in a visionary, they are frequently going up against the establishment,” she said. “So much of what Rupert has faced in Washington has been getting rid of rules that protect incumbents. The reason he convinced people to do that was that he was going to be providing something new.”
The Dow Jones Bid
Now, Mr. Murdoch is trying to convince the Bancroft family to sell him The Journal.
Dow Jones has proposed a committee to safeguard the paper’s editorial independence that includes a continuing role for some members of the Bancroft family and current Journal editors and executives.
Mr. Murdoch has said he prefers the model of committee used at The Times of London. His company bought The Times in 1981 and in order to win approval for the deal Mr. Murdoch agreed to an independent oversight committee and guidelines intended to prevent him from meddling in coverage.
According to interviews with former Times editors and affidavits filed in an unrelated 1995 libel suit, there were clashes over the publisher’s involvement in the paper from the very start.
Harry Evans, who was editor at the time of Mr. Murdoch’s acquisition and was forced out soon after, wrote a memoir vividly describing his constant fights with the new publisher. In his affidavit, Mr. Evans describes Mr. Murdoch’s ordering the publication of a cartoon that Times editors had deemed tasteless and his complaining that too many stories had a left-wing bent. Another former editor said Mr. Murdoch once pointed to the byline of a correspondent and asserted, “That man’s a Commie.”
Fred Emery, another former Times editor, said Mr. Murdoch once said to him: “I give instructions to my editors all around the world; why shouldn’t I in London?”
The turmoil of those first years subsided, in part, one former Times editor said, because Mr. Murdoch got rid of those who did not adhere to his politics. “He puts people in who will do his bidding,” said Mr. Neil, the former editor.
The current editor of The Times, Robert Thomson, paints a different picture: “I’ve had absolutely no interference and a lot of investment in a loss-making newspaper, for which Rupert Murdoch gets no credit.”
Under Mr. Thomson, the business pages of The Times expanded, and there are now 18 foreign reporters, compared with 8 when he came to the paper. The Times is the only British newspaper with a Baghdad bureau.
Mr. Thomson, who is expected to play an important role at The Journal if the News Corporation buys it, said Mr. Murdoch would invest in the paper and expand overseas coverage.
Over the years, as Mr. Murdoch built his empire, he has lusted after The Journal.
In the mid-1980s, he attended a black-tie press dinner in New York and found himself sitting next to Julie Salamon, then The Journal’s film critic and a former New York Times reporter. She vividly recalls his fascination with the inner workings of the newspaper and said he clearly expressed his desire to own it someday.
Ms. Salamon initially dismissed Mr. Murdoch. “The idea of this tabloid guy buying The Journal, which was then at the zenith of its success, seemed preposterous,” she said.
But by the end of the meal, impressed by Mr. Murdoch’s canny sense of the American media landscape, Ms. Salamon said, “I went home with a funny feeling in the pit of my stomach, like this guy might actually do it.”
Jo Becker and Richard Siklos reported from New York, Jane Perlez and Raymond Bonner from London. Griff Palmer contributed from New York.
U.S. Economy: Existing Home Sales Approach Lowest in Four Years
By Shobhana Chandra
June 25 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in May to the lowest level in almost four years, reinforcing concerns about a protracted housing slump.
Purchases declined 0.3 percent to an annual rate of 5.99 million, from a revised 6.01 million the prior month, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to a record.
The housing recession, the worst since 1991, is the biggest threat to an economy that's otherwise showing signs of recovering from a yearlong slowdown. A growing number of homes on the market and higher interest rates may further discourage buyers, economists say.
``The slow bleed in housing continues,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The inventory adjustment is going to be slow and painful. This means we're in for more pressure on prices and more pressure on construction.''
Treasury notes remained higher after the report, with the yield on the benchmark 10-year note retreating about 4 basis points to 5.09 percent at 10:51 a.m. in New York. The dollar was little changed, while stocks advanced.
Resales were forecast to fall 0.3 percent to a 5.97 million annual rate from a previously reported 5.99 million in April, according to the median forecast of 61 economists in a Bloomberg News survey.
``We're expecting a continued drag on the economy from housing throughout this year,'' said Jonathan Basile, an economist at Credit Suisse Holdings in New York.
Closing
Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new-home sales are recorded when a contract is signed. Sales of existing homes account for about 85 percent of the U.S. housing market, and new-home sales make up the rest.
New-home sales will be released tomorrow and may show a decline for May after jumping in April by the most in 14 years, according to the median forecast in a Bloomberg survey.
Rising defaults among subprime mortgage borrowers, people with poor or scant credit histories, are hampering a recovery in housing. At the same time, mortgage rates near an 11-month high make borrowing more expensive, even for those with good credit.
The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, the Mortgage Bankers Association said this month. Subprime loans going into default rose to a five-year high, and prime loans entering foreclosure also surged to a record.
Unsold Homes
The supply of homes for sale increased 5 percent to 4.43 million, the most ever. At the current sales pace, that represented 8.9 months' worth, the highest since June 1992 and up from 8.4 months' worth at the end of the prior month.
The median price of an existing home fell 2.1 percent last month from a year ago to $223,700, the 10th consecutive month of year-over-year declines, the Realtors group said.
Resales of single-family homes fell 0.8 percent to an annual rate of 5.2 million. Sales of condos and co-ops rose 2.6 percent to a 790,000 rate.
Purchases fell 3.4 percent in the South and 0.8 percent in the West. They rose 5.8 percent in the Northeast and 0.7 percent in the Midwest.
The housing slowdown ``now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Fed Chairman Ben S. Bernanke said at a conference in Cape Town, South Africa, this month.
Bernanke's Outlook
Still, Bernanke projects a ``moderate'' pace of growth for the economy given the housing recession isn't spilling over much into other parts of the economy.
``The housing market is likely to find a bottom some time this year and no longer be a drag on top-line growth,'' Fed Bank of Richmond President Jeffrey Lacker said in a speech in Frederick, Maryland, on June 6.
Builders continue to struggle. Rising interest rates and surging delinquencies pushed down confidence among homebuilders this month to the lowest since February 1991, the National Association of Home Builders/Wells Fargo index showed last week.
Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said the spring home-selling season was marred by rising cancellations in April and slow sales that continued into May.
``The nationwide housing market is quite sluggish,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc. in Red Bank, New Jersey, said in an interview June 18. ``It's likely to stay a challenging environment for a little while.''
Builders broke ground on fewer new houses in May, while an increase in building permits pointed to a better outlook for future construction, the Commerce Department reported June 19.
Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.
June 25 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in May to the lowest level in almost four years, reinforcing concerns about a protracted housing slump.
Purchases declined 0.3 percent to an annual rate of 5.99 million, from a revised 6.01 million the prior month, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to a record.
The housing recession, the worst since 1991, is the biggest threat to an economy that's otherwise showing signs of recovering from a yearlong slowdown. A growing number of homes on the market and higher interest rates may further discourage buyers, economists say.
``The slow bleed in housing continues,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The inventory adjustment is going to be slow and painful. This means we're in for more pressure on prices and more pressure on construction.''
Treasury notes remained higher after the report, with the yield on the benchmark 10-year note retreating about 4 basis points to 5.09 percent at 10:51 a.m. in New York. The dollar was little changed, while stocks advanced.
Resales were forecast to fall 0.3 percent to a 5.97 million annual rate from a previously reported 5.99 million in April, according to the median forecast of 61 economists in a Bloomberg News survey.
``We're expecting a continued drag on the economy from housing throughout this year,'' said Jonathan Basile, an economist at Credit Suisse Holdings in New York.
Closing
Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new-home sales are recorded when a contract is signed. Sales of existing homes account for about 85 percent of the U.S. housing market, and new-home sales make up the rest.
New-home sales will be released tomorrow and may show a decline for May after jumping in April by the most in 14 years, according to the median forecast in a Bloomberg survey.
Rising defaults among subprime mortgage borrowers, people with poor or scant credit histories, are hampering a recovery in housing. At the same time, mortgage rates near an 11-month high make borrowing more expensive, even for those with good credit.
The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, the Mortgage Bankers Association said this month. Subprime loans going into default rose to a five-year high, and prime loans entering foreclosure also surged to a record.
Unsold Homes
The supply of homes for sale increased 5 percent to 4.43 million, the most ever. At the current sales pace, that represented 8.9 months' worth, the highest since June 1992 and up from 8.4 months' worth at the end of the prior month.
The median price of an existing home fell 2.1 percent last month from a year ago to $223,700, the 10th consecutive month of year-over-year declines, the Realtors group said.
Resales of single-family homes fell 0.8 percent to an annual rate of 5.2 million. Sales of condos and co-ops rose 2.6 percent to a 790,000 rate.
Purchases fell 3.4 percent in the South and 0.8 percent in the West. They rose 5.8 percent in the Northeast and 0.7 percent in the Midwest.
The housing slowdown ``now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Fed Chairman Ben S. Bernanke said at a conference in Cape Town, South Africa, this month.
Bernanke's Outlook
Still, Bernanke projects a ``moderate'' pace of growth for the economy given the housing recession isn't spilling over much into other parts of the economy.
``The housing market is likely to find a bottom some time this year and no longer be a drag on top-line growth,'' Fed Bank of Richmond President Jeffrey Lacker said in a speech in Frederick, Maryland, on June 6.
Builders continue to struggle. Rising interest rates and surging delinquencies pushed down confidence among homebuilders this month to the lowest since February 1991, the National Association of Home Builders/Wells Fargo index showed last week.
Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said the spring home-selling season was marred by rising cancellations in April and slow sales that continued into May.
``The nationwide housing market is quite sluggish,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc. in Red Bank, New Jersey, said in an interview June 18. ``It's likely to stay a challenging environment for a little while.''
Builders broke ground on fewer new houses in May, while an increase in building permits pointed to a better outlook for future construction, the Commerce Department reported June 19.
Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.
Friday, June 22, 2007
Brazil says global trade deal still possible, but 'G4' dead
AFX News Limited
GENEVA (Thomson Financial) - A global trade deal is still possible, despite the collapse of the talks in Potsdam yesterday between four key players over differences on agriculture, Brazil's foreign minister and top trade official said today. 'I don't think that the Doha Round is dead, even though it is agonising,' Brazilian Foreign Minister Celso Amorim told reporters in Geneva.
By contrast, the failure of the talks in Potsdam does spell the end of the so-called 'G4' group, he said, after Brazil and India walked out of the talks with the EU and the US. 'The G4 as such is dead,' Amorim said bluntly. Still, it is 'difficult but not impossible' for all 150 members of the WTO to arrive at a comprehensive global trade deal, he added.Amorim and Indian Commerce Minister Kamal Nath walked out of the G4 talks yesterday, after Western governments failed to meet their demands to cut agriculture subsidies, which developing countries say prevent their farmers from competing on world markets. Meanwhile, the EU and US representatives accused the two emerging nations of refusing to budge on reducing import tariffs on industrial goods.
GENEVA (Thomson Financial) - A global trade deal is still possible, despite the collapse of the talks in Potsdam yesterday between four key players over differences on agriculture, Brazil's foreign minister and top trade official said today. 'I don't think that the Doha Round is dead, even though it is agonising,' Brazilian Foreign Minister Celso Amorim told reporters in Geneva.
By contrast, the failure of the talks in Potsdam does spell the end of the so-called 'G4' group, he said, after Brazil and India walked out of the talks with the EU and the US. 'The G4 as such is dead,' Amorim said bluntly. Still, it is 'difficult but not impossible' for all 150 members of the WTO to arrive at a comprehensive global trade deal, he added.Amorim and Indian Commerce Minister Kamal Nath walked out of the G4 talks yesterday, after Western governments failed to meet their demands to cut agriculture subsidies, which developing countries say prevent their farmers from competing on world markets. Meanwhile, the EU and US representatives accused the two emerging nations of refusing to budge on reducing import tariffs on industrial goods.
Thursday, June 21, 2007
H&R Block, Hurt by Mortgages, Posts $86 Million Loss
By Yalman Onaran
June 21 (Bloomberg) -- H&R Block Inc., the largest U.S. tax preparer, posted a fiscal fourth-quarter loss after reducing the value of its unprofitable mortgage unit and forecasting that profit for 2008 will be less than some analysts estimated.
Net loss for the quarter ended April 30 was $85.6 million, or 26 cents a share, compared with a profit of $588 million, or $1.77, a year earlier, Kansas City, Missouri-based H&R Block said today in a statement. Profit excluding the mortgage unit was $591 million, or $1.81 a share, missing the $1.88 average estimate of seven analysts compiled by Bloomberg.
Chief Executive Officer Mark Ernst, who's been trying to stem the defection of customers to rival tax preparers, agreed in April to sell Option One Mortgage Corp. to hedge-fund manager Cerberus Capital Management LP. While Cerberus may pay as much as $800 million, the final price is tied to Option One's performance until the sale is completed, which may take until October. For now, the writedown has forced Ernst to postpone a stock buyback.
``The Option One story is the dominant issue at H&R Block until the deal is completed,'' said Scott Schneeberger, an analyst at CIBC World Markets Inc. in New York who has a ``sector perform'' rating on the stock.
Shares of H&R Block fell 74 cents, or 3.3 percent, to $22.04 at 4:21 p.m. in New York Stock Exchange composite trading. They've lost 4.3 percent this year.
Subprime Lending
The mortgage unit posted a net loss of $677 million in the fourth quarter, the company said. That included pretax losses of $389 million for bad loans and $517 million of impairment charges taken before the sale of the unit.
The unit's losses were worse than expected, strengthening the possibility of the sale price falling ``at low end of our $400-800 million target range,'' said UBS AG analyst Kelly Flynn in a note to investors. The good news, Flynn said, is that the sale to Cerberus ``is on track and should close by Oct. 31.''
Option One, based in Irvine, California, was the eighth- biggest purveyor in the U.S. last year of subprime mortgages, offered to people with the worst credit records. Such loans typically default about six times more often than conventional mortgages. H&R Block had already written down about $250 million linked to bad home loans before the sale to Cerberus was announced as U.S. defaults hit four-year highs.
Cerberus knew the mortgage market faced turmoil in the fiscal fourth quarter and understood the impact on Option One as the sale was being negotiated, Ernst said.
Sale Affirmed
``There's nothing in these numbers that would affect our ability to close'' the transaction, Ernst said in a conference call with analysts.
Revenue from continuing operations, which excludes Option One, rose 8 percent to $2.4 billion, the company said. Clients served at H&R Block offices nationwide increased 0.9 percent during the fiscal year, the company said today.
For the full year, H&R Block lost $433.7 million, or $1.33 a share, compared with a profit of $490.4 million, or $1.47 a share, in fiscal 2006. Revenue rose 12.5 percent to $4.02 billion.
The company said it aims to earn $1.25 to $1.45 a share in fiscal 2008 from continuing operations, compared with $1.47 in a Bloomberg survey of eight analysts. Discontinued operations will post ``modest losses'' in the first two quarters. ``We are intent on aggressively managing our operations for better performance,'' Ernst said in the statement.
H&R Block won't be able to buy back any shares until the fiscal fourth quarter of 2008 because charges tied to Option One depleted its capital, Chief Financial Officer Bill Trubeck said. The company had promised to use about $700 million from the sale to buy back shares.
The charges mean H&R Block's capital has fallen below regulatory requirements, Trubeck said. The firm is negotiating with the Treasury's Office of Thrift Supervision on capital requirements and expects the
Luxottica sees sales up to 5.7 bln euros with Oakley
By Marie-Louise Gumuchian
MILAN, June 21 (Reuters) - Italian luxury eyewear group Luxottica expects its acquisition of U.S. sunglasses maker Oakley to lift sales to 5.7 billion euros ($7.64 billion) this year, Luxottica said on Thursday.
The leading eyewear maker, whose brands include RayBan and Prada, is to buy the U.S. company in an all-cash deal worth about $2.1 billion.
The deal lets Luxottica expand into sports and activewear glasses. The combined company will have 6,000 stores across Asia, Europe and North America, according to a company presentation on the deal.
Luxottica had sales of 4.68 billion euros in 2006. The 2007 revenue projection includes a forecast for Luxottica net sales of 5 billion euros.
"We are combining two strengths, we are combining two leaders," Chief Executive Andrea Guerra told a conference call.
"We are not looking to have one pure Luxottica, but we are getting wider, we are getting more diversity, more power, more energy to the business."
News of the deal -- announced overnight -- sent shares of both companies up. Luxottica hit a record high of 28.48 euros.
The Italian firm is to buy all the outstanding shares of Oakley for $29.30 each.
OLYMPICS OPPORTUNITY
Luxottica, which has a presence in Asia, will provide Oakley with new business opportunities, such as the 2008 Olympic Games in Beijing, Oakley Chief Executive Scott Olivet said.
"We would have a difficult time, with no infrastructure and no resources, taking full advantage of that opportunity," he said.
Luxottica is aiming for a 2007 core profit, after the deal, of 1.2 billion euros, and targets a net debt-to-EBITDA ratio of 2.3 times. It expects net debt to be between 2.7 billion and 2.8 billion euros, depending on exchange rates.
It expects the deal -- which is seen closing in the second half of the year -- to lead to operating synergies of about 100 million euros over the next three years.
Guerra said he did not expect any regulatory hurdles.
Luxottica Chairman and founder Leonardo Del Vecchio owns almost 70 percent of the company.
Oakley, based in Foothill Ranch, California, has been scaling back its apparel and footwear lines while beefing up its optics portfolio. This year it bought Eyewear Safety Systems, a company that supplies protective eyewear to the military, law enforcement and firefighters.
Last year, it bought luxury brand Oliver Peoples and retail chain The Optical Shop of Aspen, while launching a women's optical line.
Olivet said Oakley would not pay out a dividend this year. (Additional reporting by Rachel Sanderson)
MILAN, June 21 (Reuters) - Italian luxury eyewear group Luxottica
The leading eyewear maker, whose brands include RayBan and Prada, is to buy the U.S. company in an all-cash deal worth about $2.1 billion.
The deal lets Luxottica expand into sports and activewear glasses. The combined company will have 6,000 stores across Asia, Europe and North America, according to a company presentation on the deal.
Luxottica had sales of 4.68 billion euros in 2006. The 2007 revenue projection includes a forecast for Luxottica net sales of 5 billion euros.
"We are combining two strengths, we are combining two leaders," Chief Executive Andrea Guerra told a conference call.
"We are not looking to have one pure Luxottica, but we are getting wider, we are getting more diversity, more power, more energy to the business."
News of the deal -- announced overnight -- sent shares of both companies up. Luxottica hit a record high of 28.48 euros.
The Italian firm is to buy all the outstanding shares of Oakley for $29.30 each.
OLYMPICS OPPORTUNITY
Luxottica, which has a presence in Asia, will provide Oakley with new business opportunities, such as the 2008 Olympic Games in Beijing, Oakley Chief Executive Scott Olivet said.
"We would have a difficult time, with no infrastructure and no resources, taking full advantage of that opportunity," he said.
Luxottica is aiming for a 2007 core profit, after the deal, of 1.2 billion euros, and targets a net debt-to-EBITDA ratio of 2.3 times. It expects net debt to be between 2.7 billion and 2.8 billion euros, depending on exchange rates.
It expects the deal -- which is seen closing in the second half of the year -- to lead to operating synergies of about 100 million euros over the next three years.
Guerra said he did not expect any regulatory hurdles.
Luxottica Chairman and founder Leonardo Del Vecchio owns almost 70 percent of the company.
Oakley, based in Foothill Ranch, California, has been scaling back its apparel and footwear lines while beefing up its optics portfolio. This year it bought Eyewear Safety Systems, a company that supplies protective eyewear to the military, law enforcement and firefighters.
Last year, it bought luxury brand Oliver Peoples and retail chain The Optical Shop of Aspen, while launching a women's optical line.
Olivet said Oakley would not pay out a dividend this year. (Additional reporting by Rachel Sanderson)
Wednesday, June 20, 2007
Nuveen Agrees to $5.7 Billion Sale to LBO Firm Madison Dearborn
By Jason Kelly and Sree Vidya Bhaktavatsalam (Bloomberg)
June 20 (Bloomberg) -- Nuveen Investments Inc., the largest U.S. closed-end fund company, agreed to be acquired by Madison Dearborn Partners LLC for $5.75 billion in the biggest leveraged buyout in the asset-management industry.
Madison Dearborn will pay $65 a share in cash for Nuveen, 20 percent more than the stock's closing price yesterday. The Chicago-based money management firm said its board hired Goldman Sachs Group Inc. to solicit higher bids for the next month.
Nuveen, which dates back to 1898, oversees $166 billion for clients, including $53 billion in funds with publicly traded shares. LBO firms bought Commerzbank AG's Jupiter fund unit and London-based Gartmore Investment Management Plc since the start of 2006 because the companies provide steady revenue to cover the debt used to finance the buyouts.
``What really attracts private-equity firms is that asset- management firms throw out so much cash,'' said Ben Phillips, managing director of New York-based investment bank Putnam Lovell NBF Securities. ``Nuveen has very high asset margins.''
TA Associates, a Boston-based buyout firm, agreed in March to acquire London-based Jupiter from Commerzbank for 740 million pounds ($1.48 billion). Last year, San Francisco-based Hellman & Friedman LLC purchased Gartmore.
Public-market investors prize fund managers, too, because they produce more consistent profits than brokerage and securities firms. Before today's buyout agreement, Nuveen shares traded at about 22 times earnings. That compared with less than 11 for New York-based Goldman, though it lagged behind the average of about 30 times for the five-member Standard and Poor's Midcap Asset Management & Custody Banks Index.
Offer Too Low?
James Ellman, whose investment firm Seacliff Capital owns Nuveen shares, said the offer from Madison Dearborn is too low.
``We think that the deal could have easily been worth 40 percent more,'' Ellman said in a telephone interview from his office in San Francisco.
The buyout would create ``an opportunity to accelerate our current strategic initiatives,'' said John Amboian, 46, who will become chief executive officer of Nuveen next month, on a conference call with analysts. Timothy Schwertfeger, 58, who has been CEO since 1996, will remain chairman of Nuveen's fund board.
Unlike typical mutual funds, closed-end funds raise a fixed amount of money in public offerings and are traded throughout the day on stock exchanges.
``Closed-end funds would be one of the pillars for a buyer,'' said Jeffrey Ptak, an analyst at Morningstar Inc. in Chicago. ``They are not subject to the gyrations of the market, and assets aren't going to run away at the first sign of trouble.''
Shares Gain
Nuveen reported April 30 that first-quarter net income rose 17 percent and sales gained 23 percent, as institutions doubled their deposits with the company. The company has expanded by offering mutual funds and separately managed accounts for wealthy individuals and institutions. Closed-end funds made up 32 percent of Nuveen's assets, down from 36 percent a year earlier.
Shares of Nuveen rose $9.04 to $63.20 at 12:50 p.m. in composite trading on the New York Stock Exchange. They had gained 4.4 percent so far this year, beating the 3 percent advance in the 61-member Standard and Poor's Midcap Financials Index.
Madison Dearborn's current $6.5 billion fund is the fifth it has raised since the Chicago-based firm was founded in 1992 by ex-First Chicago Corp. executives. Last month, Madison Dearborn offered to buy computer reseller CDW Corp. for about $7.3 billion, the biggest acquisition it has attempted on its own.
PeopleFirst, PayPal
The firm, which oversees more than $14 billion in private- equity funds, also participated in the $11.3 billion buyout of Univision Communications Inc. in March.
Madison Dearborn's current financial-services investments include Pax Holding Corp., a securities clearing firm based in Chicago. Previously, it owned PayPal Inc., the online payments network; CapitalSource Inc., a commercial-finance company that now trades on the New York Stock Exchange; and PeopleFirst Inc., an auto lender sold to Capital One Financial Corp. in 2001, according to the firm's Web site.
In the Nuveen deal, Madison Dearborn will assume $550 million of debt, bringing the total transaction value to $6.3 billion.
The special committee of Nuveen's board that considered the buyout was advised by Goldman and Katten Muchin Rosenman LLP. Goldman and Sandler O'Neill & Partners LP provided fairness opinions. Nuveen got legal advice from Cravath, Swaine & Moore LLP and Winston & Strawn LLP.
Madison Dearborn hired Merrill Lynch & Co. and Kirkland & Ellis LLP.
June 20 (Bloomberg) -- Nuveen Investments Inc., the largest U.S. closed-end fund company, agreed to be acquired by Madison Dearborn Partners LLC for $5.75 billion in the biggest leveraged buyout in the asset-management industry.
Madison Dearborn will pay $65 a share in cash for Nuveen, 20 percent more than the stock's closing price yesterday. The Chicago-based money management firm said its board hired Goldman Sachs Group Inc. to solicit higher bids for the next month.
Nuveen, which dates back to 1898, oversees $166 billion for clients, including $53 billion in funds with publicly traded shares. LBO firms bought Commerzbank AG's Jupiter fund unit and London-based Gartmore Investment Management Plc since the start of 2006 because the companies provide steady revenue to cover the debt used to finance the buyouts.
``What really attracts private-equity firms is that asset- management firms throw out so much cash,'' said Ben Phillips, managing director of New York-based investment bank Putnam Lovell NBF Securities. ``Nuveen has very high asset margins.''
TA Associates, a Boston-based buyout firm, agreed in March to acquire London-based Jupiter from Commerzbank for 740 million pounds ($1.48 billion). Last year, San Francisco-based Hellman & Friedman LLC purchased Gartmore.
Public-market investors prize fund managers, too, because they produce more consistent profits than brokerage and securities firms. Before today's buyout agreement, Nuveen shares traded at about 22 times earnings. That compared with less than 11 for New York-based Goldman, though it lagged behind the average of about 30 times for the five-member Standard and Poor's Midcap Asset Management & Custody Banks Index.
Offer Too Low?
James Ellman, whose investment firm Seacliff Capital owns Nuveen shares, said the offer from Madison Dearborn is too low.
``We think that the deal could have easily been worth 40 percent more,'' Ellman said in a telephone interview from his office in San Francisco.
The buyout would create ``an opportunity to accelerate our current strategic initiatives,'' said John Amboian, 46, who will become chief executive officer of Nuveen next month, on a conference call with analysts. Timothy Schwertfeger, 58, who has been CEO since 1996, will remain chairman of Nuveen's fund board.
Unlike typical mutual funds, closed-end funds raise a fixed amount of money in public offerings and are traded throughout the day on stock exchanges.
``Closed-end funds would be one of the pillars for a buyer,'' said Jeffrey Ptak, an analyst at Morningstar Inc. in Chicago. ``They are not subject to the gyrations of the market, and assets aren't going to run away at the first sign of trouble.''
Shares Gain
Nuveen reported April 30 that first-quarter net income rose 17 percent and sales gained 23 percent, as institutions doubled their deposits with the company. The company has expanded by offering mutual funds and separately managed accounts for wealthy individuals and institutions. Closed-end funds made up 32 percent of Nuveen's assets, down from 36 percent a year earlier.
Shares of Nuveen rose $9.04 to $63.20 at 12:50 p.m. in composite trading on the New York Stock Exchange. They had gained 4.4 percent so far this year, beating the 3 percent advance in the 61-member Standard and Poor's Midcap Financials Index.
Madison Dearborn's current $6.5 billion fund is the fifth it has raised since the Chicago-based firm was founded in 1992 by ex-First Chicago Corp. executives. Last month, Madison Dearborn offered to buy computer reseller CDW Corp. for about $7.3 billion, the biggest acquisition it has attempted on its own.
PeopleFirst, PayPal
The firm, which oversees more than $14 billion in private- equity funds, also participated in the $11.3 billion buyout of Univision Communications Inc. in March.
Madison Dearborn's current financial-services investments include Pax Holding Corp., a securities clearing firm based in Chicago. Previously, it owned PayPal Inc., the online payments network; CapitalSource Inc., a commercial-finance company that now trades on the New York Stock Exchange; and PeopleFirst Inc., an auto lender sold to Capital One Financial Corp. in 2001, according to the firm's Web site.
In the Nuveen deal, Madison Dearborn will assume $550 million of debt, bringing the total transaction value to $6.3 billion.
The special committee of Nuveen's board that considered the buyout was advised by Goldman and Katten Muchin Rosenman LLP. Goldman and Sandler O'Neill & Partners LP provided fairness opinions. Nuveen got legal advice from Cravath, Swaine & Moore LLP and Winston & Strawn LLP.
Madison Dearborn hired Merrill Lynch & Co. and Kirkland & Ellis LLP.
Murdoch Dangles MySpace in Yahoo's Face
By Keith Regan
E-Commerce Times
Part of the ECT News Network
Rupert Murdoch wants to exchange MySpace for a stake in Yahoo. The News Corp. head has been searching for ways to expand the company's online exposure; meanwhile, the search giant has been looking for an opportunity to become a player in the social networking universe. Murdoch purchased MySpace for $580 million in 2005.
News Corp. honcho Rupert Murdoch has offered to swap the wildly popular social networking site MySpace in exchange for a stake in portal-in-flux Yahoo. Murdoch reportedly approached Yahoo with the offer of giving the portal ownership of MySpace in exchange for a 30 percent ownership stake of the combined Yahoo-MySpace.
On the surface, the deal seems to address needs of both parties: Murdoch has been looking for ways to expand his media company's online exposure, which in turn will create more opportunities for extending the reach of his traditional media brands; meanwhile, Yahoo has been eager to find the right social networking play, kicking the tires at length on Facebook last year, but reportedly was unable to close a US$1 billion purchase of that site.
Growth in Value
Murdoch bought MySpace in 2005 for $580 million, but since then the value of the site has grown significantly, as it has racked up more users and as marketers have invested in finding ways to leverage social networking to gain exposure for their products.
In fact, the founder of MySpace has said the site was worth as much as 100 times the purchase price. At current stock prices, Yahoo is worth around $37 billion.
The Times of London first reported the proposed swap in its Wednesday editions. Although talks could falter, they are ongoing between the two media companies, the paper noted.
The Google Effect
The gambit comes as Murdoch is in the midst of another takeover drama of his own: His $5 billion bid for Wall Street Journal parent company Dow Jones is still being mulled by the family that controls the majority of the company's stock and other suitors are mulling offers.
Murdoch's News Corp. owns newspapers on three continents, including his native Australia, as well as the Fox channels, movie studios and cable interests.
Meanwhile, it's no secret that Murdoch has designs on being a major online player as well. In 2005, he bought the online gaming network IGN for $650 million and his MySpace buy was seen as a watershed move that underscored the importance of social networking.
Murdoch tried to buy YouTube before Google (Nasdaq: GOOG) purchased the online video site. Afterward, the mogul continued to roll up Internet companies, buying online photo sharing site Photobucket in May for a reported $250 million.
Impact of the Shakeup
It's not clear what impact the recent shakeup at Yahoo may have on the proposed deal.
Yahoo CEO Terry Semel resigned on Monday, with cofounder Jerry Yang taking the CEO role. On Wednesday, Yahoo announced partnerships with a number of Asia-based mobile carriers to offer the portal's mobile search tool, but Yang may need to be aggressive and innovative to satisfy shareholders restless about the company's No. 2 position in the search advertising market behind Google.
Yahoo shares were up 1.6 percent in late morning trading Wednesday to $28.08. News Corp. stock was up just under 1 percent to $23.90.
Dressing Up for a Sale?
The changes at Yahoo this week were aimed at both appeasing restless shareholders tired of seeing Google rack up market share, stock price gains and key acquisitions, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times. Some of those shareholders are likely interested in a more dramatic move, however, including a sale or the spinning off of some noncore assets.
In recent months, Yahoo has been linked to Microsoft (Nasdaq: MSFT) repeatedly, with the two sides said to have discussed everything from a partnership to an outright sale of Yahoo to Microsoft. Such a move would create a far more formidable competitor for Google, Enderle noted.
While the arrival of News Corp. on the scene may prompt Microsoft to take another run at the portal, the cultural fit between those two companies may make for rocky times, he added. "Microsoft has a very unique and specific culture that would make an integration as large as Yahoo difficult," Enderle said. "Yahoo's culture is unique as well, but more in the way of Internet companies, which have been acquired successfully in the past."
Constant Flux
Yahoo, meanwhile, would likely be tempted by the dangling of MySpace. Its efforts to acquire Facebook were widely seen as recognition that its own networking gambits -- such as photo-sharing site Flickr and Web site tagging tool Del.icio.us -- did not represent a large enough footprint in the social networking arena.
Murdoch, meanwhile, may have done as much to cement the idea that social networking had business applications -- and therefore could be profitable -- as anyone in the Internet space, said Outsell Vice President Chuck Richard.
"Murdoch doesn't buy companies because they're cool, he buys them to make money, so when he put a flag in the ground with the MySpace purchase, it really changed the tone of the conversation around these sites," Richard told the E-Commerce Times.
Still, the social networking space has been seen as one in constant flux, with Facebook and other rivals posing a risk and corporate ownership of MySpace seen threatening its status as a cool place to hang out online, he added.
E-Commerce Times
Part of the ECT News Network
Rupert Murdoch wants to exchange MySpace for a stake in Yahoo. The News Corp. head has been searching for ways to expand the company's online exposure; meanwhile, the search giant has been looking for an opportunity to become a player in the social networking universe. Murdoch purchased MySpace for $580 million in 2005.
News Corp. honcho Rupert Murdoch has offered to swap the wildly popular social networking site MySpace in exchange for a stake in portal-in-flux Yahoo. Murdoch reportedly approached Yahoo with the offer of giving the portal ownership of MySpace in exchange for a 30 percent ownership stake of the combined Yahoo-MySpace.
On the surface, the deal seems to address needs of both parties: Murdoch has been looking for ways to expand his media company's online exposure, which in turn will create more opportunities for extending the reach of his traditional media brands; meanwhile, Yahoo has been eager to find the right social networking play, kicking the tires at length on Facebook last year, but reportedly was unable to close a US$1 billion purchase of that site.
Growth in Value
Murdoch bought MySpace in 2005 for $580 million, but since then the value of the site has grown significantly, as it has racked up more users and as marketers have invested in finding ways to leverage social networking to gain exposure for their products.
In fact, the founder of MySpace has said the site was worth as much as 100 times the purchase price. At current stock prices, Yahoo is worth around $37 billion.
The Times of London first reported the proposed swap in its Wednesday editions. Although talks could falter, they are ongoing between the two media companies, the paper noted.
The Google Effect
The gambit comes as Murdoch is in the midst of another takeover drama of his own: His $5 billion bid for Wall Street Journal parent company Dow Jones is still being mulled by the family that controls the majority of the company's stock and other suitors are mulling offers.
Murdoch's News Corp. owns newspapers on three continents, including his native Australia, as well as the Fox channels, movie studios and cable interests.
Meanwhile, it's no secret that Murdoch has designs on being a major online player as well. In 2005, he bought the online gaming network IGN for $650 million and his MySpace buy was seen as a watershed move that underscored the importance of social networking.
Murdoch tried to buy YouTube before Google (Nasdaq: GOOG) purchased the online video site. Afterward, the mogul continued to roll up Internet companies, buying online photo sharing site Photobucket in May for a reported $250 million.
Impact of the Shakeup
It's not clear what impact the recent shakeup at Yahoo may have on the proposed deal.
Yahoo CEO Terry Semel resigned on Monday, with cofounder Jerry Yang taking the CEO role. On Wednesday, Yahoo announced partnerships with a number of Asia-based mobile carriers to offer the portal's mobile search tool, but Yang may need to be aggressive and innovative to satisfy shareholders restless about the company's No. 2 position in the search advertising market behind Google.
Yahoo shares were up 1.6 percent in late morning trading Wednesday to $28.08. News Corp. stock was up just under 1 percent to $23.90.
Dressing Up for a Sale?
The changes at Yahoo this week were aimed at both appeasing restless shareholders tired of seeing Google rack up market share, stock price gains and key acquisitions, Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times. Some of those shareholders are likely interested in a more dramatic move, however, including a sale or the spinning off of some noncore assets.
In recent months, Yahoo has been linked to Microsoft (Nasdaq: MSFT) repeatedly, with the two sides said to have discussed everything from a partnership to an outright sale of Yahoo to Microsoft. Such a move would create a far more formidable competitor for Google, Enderle noted.
While the arrival of News Corp. on the scene may prompt Microsoft to take another run at the portal, the cultural fit between those two companies may make for rocky times, he added. "Microsoft has a very unique and specific culture that would make an integration as large as Yahoo difficult," Enderle said. "Yahoo's culture is unique as well, but more in the way of Internet companies, which have been acquired successfully in the past."
Constant Flux
Yahoo, meanwhile, would likely be tempted by the dangling of MySpace. Its efforts to acquire Facebook were widely seen as recognition that its own networking gambits -- such as photo-sharing site Flickr and Web site tagging tool Del.icio.us -- did not represent a large enough footprint in the social networking arena.
Murdoch, meanwhile, may have done as much to cement the idea that social networking had business applications -- and therefore could be profitable -- as anyone in the Internet space, said Outsell Vice President Chuck Richard.
"Murdoch doesn't buy companies because they're cool, he buys them to make money, so when he put a flag in the ground with the MySpace purchase, it really changed the tone of the conversation around these sites," Richard told the E-Commerce Times.
Still, the social networking space has been seen as one in constant flux, with Facebook and other rivals posing a risk and corporate ownership of MySpace seen threatening its status as a cool place to hang out online, he added.
Tuesday, June 19, 2007
Blockbuster to favor Blu-ray over rival HD DVD format
By Associated Press LOS ANGELES - Blockbuster Inc. will rent high-definition DVDs only in the Blu-ray format in 1,450 stores when it expands its high-def offerings next month, dealing a major blow to the rival HD DVD format.
The move, being announced Monday, could be the first step in resolving a format war that has kept confused consumers from rushing to buy new DVD players until they can determine which format will dominate the market.
Blockbuster has been renting both Blu-ray and HD DVD titles in 250 stores since late last year and found that consumers were choosing Blu-ray titles more than 70 percent of the time.
"The consumers are sending us a message. I can't ignore what I'm seeing," Matthew Smith, senior vice president of merchandising at Blockbuster, told The Associated Press.
Blockbuster will continue to rent HD DVD titles in the original 250 locations and online, the Dallas-based company said.
The decision was helped in large part by the lopsided availability of titles in Blu-ray, Smith said. All major studios except one are releasing films in Blu-ray, with several, including The Walt Disney Co., releasing exclusively in Blu-ray. Only Universal Studios, which is owned by General Electric Co., exclusively supports HD DVD.
Warner Bros., a unit of Time Warner Inc., and Paramount Pictures, which is owned by Viacom Inc., release films in both formats.
"When you walk into a store and see all this product available in Blu-ray and there is less available on HD DVD, I think the consumer gets that," Smith said.
The rollout of Sony Corp.'s PlayStation 3 game console, which comes standard with a Blu-ray drive, also helped give the format momentum, Smith said.
Blockbuster's decision, while significant on it's own, could boost Blu-ray even more if other retailers follow suit.
"It will help shift the balance toward Blu-ray, clearly," said Richard Doherty, president of The Envisioneering Group, a research company.
The North American HD DVD Promotional Group said Blockbuster's decision was shortsighted and skewed by the success of films released by Blu-ray studios in the first three months of the year. The group said HD DVD has since gained momentum, selling more players and popular titles such as "The 40-Year Old Virgin" and "The Matrix" trilogy.
"I think trying to make a format decision using such a short time period is really not measuring what the consumer is saying," said Ken Graffeo, co-president of the group.
The two formats have been battling it out since they both hit the market last year. Studios hope the high-definition discs, with their sharper picture and more room for interactive special features and games, will replace standard definition DVDs.
The formats are incompatible and neither will play on standard DVD players, although standard DVDs can be viewed with either a Blu-ray or HD DVD player.
The Blu-ray camp has been helped by the release of such huge hits as "Casino Royale," "Pirates of the Caribbean" and "Spider-Man" coming out exclusively in its format.
As the battle has unfolded, the price of the high-definition players needed to show the movies has plummeted. Toshiba Corp., the major supporter of HD DVD, is selling its player for $299 with a rebate, down from $499 when it first went on sale.
Sony, which is pushing Blu-ray, recently slashed the price of its player by more than half to $499. The player retailed for $1,000 when it first was introduced.
Home Depot Agrees to Sell Supply Unit for $10 Billion
Three Private-Equity Firms to Take Equal Stakes
By ANN ZIMMERMAN and DENNIS BERMAN
A trio of investors agreed to buy Home Depot Inc.'s wholesale construction supply business for a tad more than $10 billion, according to people close to the deal.
The investors are Bain Capital LLC, Carlyle Group L.P. and Clayton, Dubilier & Rice Inc., which will each have a one-third stake in the business. A Home Depot spokesman declined to comment on the deal.
Home Depot, the country's largest home-improvement retailer by sales, wants to sell the division in an effort to put more money and effort into rejuvenating customer service, staff morale and sales at its chain of more than 2,100 retail stores.
Analysts also expect it would allow Home Depot to return the sale proceeds to shareholders in the form of a major share repurchase or dividends. Since the first of the year, Home Depot's stock has slid almost 8% as it struggled to jumpstart sales amid a sharp slowdown in the housing sector.
The price is about what analysts had expected in late spring as the housing market remained depressed. But earlier in the year, when CEO Frank Blake first announced the company was considering strategic alternatives for the business, estimates were as high as $13 billion.
Under controversial former CEO Bob Nardelli, Home Depot built the wholesale construction supply business through nearly 40 acquisitions valued at nearly $7 billion over the last few years. HD Supply sells infrastructure and maintenance products to builders, municipal systems and other businesses, generating about 13% of Home Depot's sales in fiscal 2006 but delivering 80% of sales growth.
Initially, Mr. Nardelli saw the supply business as a way to counter the dips in the cyclical housing market, but in fact the supply division sold to home builders as well. Shareholders began to see it as a distraction, siphoning off funds needed to improve staffing, renovations and computer systems at its stores. In recent years, Home Depot's sales at stores open at least a year trailed those at its smaller, but faster-growing competitor Lowe's Corp., although that gap has narrowed in recent months.
--Mary Ellen Lloyd contributed to this article.
Bristol And Sanofi Still Shouldn't Merge
Matthew Herper (Reuters)
Peter Dolan, the disgraced former chief executive of Bristol-Myers Squibb, should have stuck to his guns.
Dolan was ousted after he botched negotiations with generic drug firm Apotex over the blood thinner Plavix, the second-biggest drug in the world, with annual sales of $6 billion. Even though Bristol (nyse: BMY - news - people ) splits profits for the $4-a-day pill with Sanofi-Aventis (nyse: SNY - news - people ), the drug is still a major source of earnings. To hold on to it, Dolan cut a deal meant to keep Apotex at bay. Instead, Apotex took advantage of the fine print to launch its generic anyway--without the threat of substantial penalties.
Today a federal New York judge ruled that the patent on Plavix is still valid and said Sanofi (Plavix's inventor) was entitled to an injunction to keep Apotex from launching a copycat. In other words, Dolan could have just dug in and waited for the ruling.
Now that it is clear that Bristol and Sanofi are going to keep the rights to their big seller, expect a new round of speculation that the two companies should merge. After all, Sanofi could use some help: its much-touted obesity pill Zimulti, once hyped as potentially the biggest drug ever, was unanimously panned by a panel of doctors advising the U.S. Food and Drug Administration, paving the way for an eventual rejection.
But such a deal didn't make sense when rumors of negotiations surfaced in February (see "Why Bristol and Sanofi Shouldn't Merge"), and it doesn't make sense now.
A sale by Bristol would run the risk of derailing the company's pipeline.
Bristol-Myers recently launched medicines for rheumatoid arthritis and leukemia, and just today it was granted a fast FDA review for a new chemotherapy for breast cancer. Treatments for diabetes and breast cancer are in development.
Sanofi-Aventis, by contrast, seems to be chronically overestimating its medicines. The failure of Zimulti (formerly known as Acomplia) resulted partly from the company's decision to study the drug mainly in obesity trials where many patients dropped out, making it more difficult to judge the drug's risks. Worse, Sanofi insisted that the side effects of depression and anxiety were manageable. Looking at the same data, the FDA saw a risk of suicidal thoughts. The FDA also rejected another medicine, for heart rhythm problems.
If Sanofi was going to buy Bristol, the time to do it was before the Plavix ruling and before Zimulti was deep-sixed. Now, Bristol could look attractive to other pharmaceutical companies, like AstraZeneca (nyse: AZN - news - people ), GlaxoSmithKline (nyse: GSK - news - people ) or Pfizer (nyse: PFE - news - people ), leading to a bidding war. Moreover, the company, under new chief James Cornelius, seems to be on a pretty even keel. It doesn't have to sell to anyone.
A deal might be bad for Sanofi too. Big drug company mergers have a lousy track record for creating value. Pfizer's mega-mergers haven't generated a steady stream of new blockbusters. In fact, that drug giant went nearly a decade between blockbuster drugs (see "Pfizer's New Blockbuster Drug"). Glaxo and Astra have experienced similar droughts.
There does seem to be a treatment for drug industry malaise: crisis. For a while, Bristol was the poster child of big patent expirations, bad behavior and failed potential blockbusters (before the failures of Zimulti or Pfizer's good cholesterol drug, torcetrapib, there was Bristol's unapprovable heart pill Vanlev.)
But those troubles led to a more spare company, focused on smaller but more lucrative markets like cancer and rheumatoid arthritis. Similarly, Merck (nyse: MRK - news - people ) has done well since the Vioxx debacle, launching big drugs like Januvia for diabetes and Gardasil to prevent strains of the virus that causes cervical cancer.
Before they look to dilute their shares through a desperate deal, Sanofi executives should take a good look in the mirror and figure out how to do better with the large company they created through a gigantic merger just three years ago, when Sanofi-Synthelabo bought Aventis for $64 billion.
Peter Dolan, the disgraced former chief executive of Bristol-Myers Squibb, should have stuck to his guns.
Dolan was ousted after he botched negotiations with generic drug firm Apotex over the blood thinner Plavix, the second-biggest drug in the world, with annual sales of $6 billion. Even though Bristol (nyse: BMY - news - people ) splits profits for the $4-a-day pill with Sanofi-Aventis (nyse: SNY - news - people ), the drug is still a major source of earnings. To hold on to it, Dolan cut a deal meant to keep Apotex at bay. Instead, Apotex took advantage of the fine print to launch its generic anyway--without the threat of substantial penalties.
Today a federal New York judge ruled that the patent on Plavix is still valid and said Sanofi (Plavix's inventor) was entitled to an injunction to keep Apotex from launching a copycat. In other words, Dolan could have just dug in and waited for the ruling.
Now that it is clear that Bristol and Sanofi are going to keep the rights to their big seller, expect a new round of speculation that the two companies should merge. After all, Sanofi could use some help: its much-touted obesity pill Zimulti, once hyped as potentially the biggest drug ever, was unanimously panned by a panel of doctors advising the U.S. Food and Drug Administration, paving the way for an eventual rejection.
But such a deal didn't make sense when rumors of negotiations surfaced in February (see "Why Bristol and Sanofi Shouldn't Merge"), and it doesn't make sense now.
A sale by Bristol would run the risk of derailing the company's pipeline.
Bristol-Myers recently launched medicines for rheumatoid arthritis and leukemia, and just today it was granted a fast FDA review for a new chemotherapy for breast cancer. Treatments for diabetes and breast cancer are in development.
Sanofi-Aventis, by contrast, seems to be chronically overestimating its medicines. The failure of Zimulti (formerly known as Acomplia) resulted partly from the company's decision to study the drug mainly in obesity trials where many patients dropped out, making it more difficult to judge the drug's risks. Worse, Sanofi insisted that the side effects of depression and anxiety were manageable. Looking at the same data, the FDA saw a risk of suicidal thoughts. The FDA also rejected another medicine, for heart rhythm problems.
If Sanofi was going to buy Bristol, the time to do it was before the Plavix ruling and before Zimulti was deep-sixed. Now, Bristol could look attractive to other pharmaceutical companies, like AstraZeneca (nyse: AZN - news - people ), GlaxoSmithKline (nyse: GSK - news - people ) or Pfizer (nyse: PFE - news - people ), leading to a bidding war. Moreover, the company, under new chief James Cornelius, seems to be on a pretty even keel. It doesn't have to sell to anyone.
A deal might be bad for Sanofi too. Big drug company mergers have a lousy track record for creating value. Pfizer's mega-mergers haven't generated a steady stream of new blockbusters. In fact, that drug giant went nearly a decade between blockbuster drugs (see "Pfizer's New Blockbuster Drug"). Glaxo and Astra have experienced similar droughts.
There does seem to be a treatment for drug industry malaise: crisis. For a while, Bristol was the poster child of big patent expirations, bad behavior and failed potential blockbusters (before the failures of Zimulti or Pfizer's good cholesterol drug, torcetrapib, there was Bristol's unapprovable heart pill Vanlev.)
But those troubles led to a more spare company, focused on smaller but more lucrative markets like cancer and rheumatoid arthritis. Similarly, Merck (nyse: MRK - news - people ) has done well since the Vioxx debacle, launching big drugs like Januvia for diabetes and Gardasil to prevent strains of the virus that causes cervical cancer.
Before they look to dilute their shares through a desperate deal, Sanofi executives should take a good look in the mirror and figure out how to do better with the large company they created through a gigantic merger just three years ago, when Sanofi-Synthelabo bought Aventis for $64 billion.
New age town embraces dollar alternative
By Scott Malone (Reuters)
GREAT BARRINGTON, Massachusetts (Reuters) - A walk down Main Street in this New England town calls to mind the pictures of Norman Rockwell, who lived nearby and chronicled small-town American life in the mid-20th Century.
So it is fitting that the artist's face adorns the 50 BerkShares note, one of five denominations in a currency adopted by towns in western Massachusetts to support locally owned businesses over national chains.
"I just love the feel of using a local currency," said Trice Atchison, 43, a teacher who used BerkShares to buy a snack at a cafe in Great Barrington, a town of about 7,400 people. "It keeps the profit within the community."
There are about 844,000 BerkShares in circulation, worth $759,600 at the fixed exchange rate of 1 BerkShare to 90 U.S. cents, according to program organizers. The paper scrip is available in denominations of one, five, 10, 20 and 50.
In their 10 months of circulation, they've become a regular feature of the local economy. Businesses that accept BerkShares treat them interchangeably with dollars: a $1 cup of coffee sells for 1 BerkShare, a 10 percent discount for people paying in BerkShares.
Named for the local Berkshire Hills, BerkShares are accepted in about 280 cafes, coffee shops, grocery stores and other businesses in Great Barrington and neighboring towns, including Stockbridge, the town where Rockwell lived for a quarter century.
"BerkShares are cash, and so people have transferred their cash habits to BerkShares," said Susan Witt, executive director of the E.F. Schumacher Society, a nonprofit group that set up the program. "They might have 50 in their pocket, but not 150. They're buying their lunch, their coffee, a small birthday present."
Great Barrington attracts weekend residents and tourists from the New York area who help to support its wealth of organic farms, yoga studios, cafes and businesses like Allow Yourself to Be, which offers services ranging from massage to "chakra balancing" and Infinite Quest, which sells "past life regression therapy."
LOCAL PRIDE
The BerkShares program is one of about a dozen such efforts in the nation. Local groups in California, Kansas, Michigan, New York, Oregon, Pennsylvania, Vermont and Wisconsin run similar ones. One of the oldest is Ithaca Hours, which went into circulation in 1991 in Ithaca, New York.
About $120,000 of that currency circulates in the rural town. Unlike BerkShares, Ithaca Hours cannot officially be freely converted to dollars, though some businesses buy them.
Stephen Burkle, president of the Ithaca Hours program, said the notes are a badge of local pride.
"At the beginning it was very hard to get small businesses to get on board with it," said Burkle, who also owns a music store in Ithaca. "When Ithaca Hours first started, there wasn't a Home Depot in town, there wasn't a Borders, there wasn't a Starbucks. Now that there are, it's a mechanism for small businesses to compete with national chains."
U.S. law prevents states from issuing their own currency but allows private groups to print paper scrip, though not coins, said Lewis Solomon, a professor of law at George Washington University, who studies local currencies.
"As long as you don't turn out quarters and you don't turn out something that looks like the U.S. dollar, it's legal," Solomon said.
FULL CIRCLE
The BerkShares experiment comes as the dollar is losing some of its status on international markets, with governments shifting some reserves into euros, the pound and other investments as the U.S. currency has slid in value.
But the dollar is still the currency that businesses in Great Barrington need to pay most of their bills.
"The promise of this program is for it to be a completed circle," said Matt Rubiner, owner of Rubiner's cheese shop and Rubi's cafe. Some local farmers who supply him accept BerkShares, but he pays most of his bills in dollars.
"The circle isn't quite completed yet in most cases, and someone has to take the hit," Rubiner said, referring to the 10 percent discount. "The person who takes the hit is the merchant, it's me."
Meanwhile, Berkshire Hills Bancorp Inc., a western Massachusetts bank that exchanges BerkShares for dollars, is considering BerkShares-denominated checks and debit cards.
"Businesses aren't comfortable walking around with wads of BerkShares to pay for their supplies or their advertising," said Melissa Joyce, a branch officer with the bank, which has 25 branches, six of which exchange BerkShares. "I do hope that we're able to develop the checking account and debit card, because it will make it easier for everyone."
Monday, June 18, 2007
Pearson 'out to scupper threat from Murdoch'
By Josephine Moulds (UK Telegraph)
Pearson's scramble to join the race for Dow Jones is a desperate attempt to scupper the creation of a powerful international rival, say analysts.
It emerged late on Friday night that the owner of the Financial Times had been looking for partners in an attempt to trump News Corporation's $5bn (£2.5bn) bid for Dow Jones, owner of the Wall Street Journal.
Rupert Murdoch's News Corp has spent months wooing Dow Jones founders, the Bancroft family, who control 64pc of the American company's shares.
"There is some logic to a bid. Pearson wouldn't want the Wall Street Journal to be rejuvenated by Murdoch," said one commentator.
"Murdoch has deep pockets, if he's willing to run it at a loss and expand in Europe and Asia, the FT's position only becomes harder."
Instead, if Pearson managed to trump the News Corp offer it could become a formidable force in business journalism.
The commentator added: "Dow Jones has the newswires business, which is basically an information provider, so it gives the FT another arm.
"It also brings together The Economist [which is 50pc owned by Pearson], FT and the Journal, three of the most influential names in business.
"You put them all together and you become the provider of the world's business information."
But would a deal make sense?
A successful bid by Pearson would put considerable strain on its finances but offer little in terms of savings.
Paul Bates, analyst at Charles Stanley, said: "Cost synergies are limited because of the regional biases of the two. There will be some story sharing but otherwise it's limited."
But geographically the two would be a good fit.
"They complement each other quite well. The Journal isn't particularly strong in Europe and likewise the FT, despite pushing for years and trying to make a go of it in America, hasn't really succeeded.
"That said, Pearson has a massive presence in the US with the schools testing business and publishing division. It knows America well, it knows the market," said one City analyst.
Pearson is in talks with General Electric over a joint bid. GE is also keen to defend itself against the Murdoch empire as it owns the business channel CNBC, which is supplied by Dow Jones and faces competition from Mr Murdoch's planned Fox business channel.
Bankers for the Bancroft family have been searching for an alternative suitor to News Corporation as they are concerned that Mr Murdoch would challenge the group's editorial independence.
Any bid, however, would have to beat News Corp's $60-a-share offer, which represents a total of more than 40 times forecast earnings.
Mr Bates said: "There is an element of self-fulfilment [in a Pearson bid].
"If you pay a good price for the Wall Street Journal it looks like the FT is worth a lot."
Friday, June 15, 2007
Bear Doesn't Sweat Subprime
By Laurie Kulikowski (TheStreet.com Staff Reporter)
Wall Street firms can't agree on what will happen next in the subprime mortgage market. Of the three brokerage firms that reported second-quarter earnings this week, Lehman Bros. (LEH) and Bear Stearns (BSC) -- the two with the largest exposure to the mortgage market -- seem to be encouraged by signs of improvement in the sector. Bear even said it plans to keep growing its mortgage operation, which was hit hard in the latest quarter. The company cited signs that business picked up this past spring.
As credit standards tightened on loans, "the beginning of the quarter was quite difficult and as we got into the quarter, April was better than March and May was better than April," said Sam Molinaro Jr., Bear Stearns' CFO. "What we're seeing are transactions are getting done. New vintage collateral is being well received in the market, spreads are tightening -- business is slowly improving."
Goldman Sachs (GS) , on the other hand, wasn't as optimistic. David Viniar, Goldman Sachs' CFO, said the market for loans made to homebuyers with subpar credit histories is likely to get worse before it gets better, according to the Associated Press. "The subprime business continues to be weak," Viniar said during a conference call for reporters. "We have not seen the bottom in the market. There will be more pain felt by people as it works its way through system."
Much pain has been felt already. Dozens of mortgage lenders that catered to subprime and Alt-A borrowers failed as consumers fell behind on their loans. The spike in defaults and delinquencies caused investors to stop buying bonds that were backed by the subprime mortgages. The sudden shift drove New Century (NEWCQ) , once the nation's No. 2 subprime lender, into Chapter 11 bankruptcy protection April 2.
Bond businesses at the big brokerage firms have taken a hit since securitization volumes of these loans have fallen. Several firms, including Lehman and Bear Stearns, which have origination businesses, were also hurt from a decline in subprime and Alt-A loan originations. Revenue from Bears Stearns' bond business dropped 21% in the second quarter from a year earlier to $962 million, it said Thursday.
Goldman said the same day that quarterly net revenue from fixed income, currency and commodities was $3.37 billion, 24% lower than the second quarter of 2006. The decline primarily reflected lower net revenues in commodities and weak results in mortgages -- particularly because of weakness in the subprime sector. Earlier this week, Lehman said revenue in its fixed income business dropped 14% from a year ago to $1.9 billion as a result of the sour mortgage market.
But Lehman's CFO Chris O'Meara also spoke of recovery in the sector. "Although we believe that the U.S. subprime business will continue to face headwinds for the near term," O'Meara said during a company conference call on Tuesday, "we are seeing some positive signs, such as gradual improvement in pricing power for lenders and a pickup in secondary-market investor activity, including for noninvestment grade positions." Bear Stearns also stumbled on Thursday. The company sold $3.8 billion in mortgage loans after hedge funds managed by the firm made large bets on the subprime market.
During the call, one analyst questioned the impact of the move to Bear Stearns' future earnings. But for the most part, Molinaro shrugged it off. "Our level of capital investment and exposure to the fund," he said, "is very modest and shouldn't have any material impact on results going forward."
Last year, Bear Stearns Residential Mortgage purchased the subprime mortgage origination platform of the Encore Credit unit of ECC Capital (ECROE) , an Irvine, Calif.-based REIT, for $26 million in cash. Molinaro said Thursday that Bear is now ready to bust out of its brief slump. "What we're doing right now is trying to hire a lot more salespeople, expand our sales relations and increase the volume of business that we're capable of putting through the platform," Molinaro said. "If volumes don't pick up -- if that's not successful -- we'll have to address the operating costs. But I think at this point the strategy is clearly on trying to drive more volume through the existing platforms."
Acrobat, Creative Suite give Adobe a boost
By Reuters
Adobe Systems, the top maker of graphic and Web design software, reported that its quarterly net profit rose 24 percent year over year, aided by recent upgrades to its two big product lines.
Net income for the fiscal second quarter to June 1 rose to $152.5 million, or 25 cents per diluted share, from the year-earlier quarter's $123.1 million, or 20 cents per share. Excluding one-time items, Adobe reported on Thursday a profit of 37 cents, a penny above Wall Street's consensus. Revenue rose 17 percent year over year to $745.6 million, in the middle of the range of analysts' forecasts.
Wall Street was looking for a net profit of 27 cents per share, according to the average of Reuters Estimates. Excluding stock option expenses and one-time items such as acquisition costs, the consensus profit forecast was 36 cents a share. Analysts, on average, had expected second-quarter revenue of $730.1 million, according to Reuters Estimates. Forecasts ranged from $718 million to $768 million. In March, Adobe predicted quarterly revenue of $700 million to $740 million.
Last fall, Adobe upgraded its Acrobat document management software and the new product cycle is helping to drive revenue growth, analysts said. In April, Adobe released version three of Creative Suite, its collection of design tools that includes Photoshop. Acrobat and Creative Suite together account for the bulk of Adobe's revenue.
For the fiscal third quarter, Adobe sees revenue in a range of $760 million to $800 million, and net profit of 28 cents to 31 cents per share. Excluding one-time items, it is aiming for 39 cents to 41 cents a share. The net profit forecast is contained by the range of analyst estimates for the third quarter, which according to Reuters Estimates was 24 cents to 33 cents a share. But Adobe's profit outlook excluding one-time items exceeds the prior range of third-quarter forecasts of 34 cents to 38 cents a share, according to Reuters Estimates.
Adobe Systems, the top maker of graphic and Web design software, reported that its quarterly net profit rose 24 percent year over year, aided by recent upgrades to its two big product lines.
Net income for the fiscal second quarter to June 1 rose to $152.5 million, or 25 cents per diluted share, from the year-earlier quarter's $123.1 million, or 20 cents per share. Excluding one-time items, Adobe reported on Thursday a profit of 37 cents, a penny above Wall Street's consensus. Revenue rose 17 percent year over year to $745.6 million, in the middle of the range of analysts' forecasts.
Wall Street was looking for a net profit of 27 cents per share, according to the average of Reuters Estimates. Excluding stock option expenses and one-time items such as acquisition costs, the consensus profit forecast was 36 cents a share. Analysts, on average, had expected second-quarter revenue of $730.1 million, according to Reuters Estimates. Forecasts ranged from $718 million to $768 million. In March, Adobe predicted quarterly revenue of $700 million to $740 million.
Last fall, Adobe upgraded its Acrobat document management software and the new product cycle is helping to drive revenue growth, analysts said. In April, Adobe released version three of Creative Suite, its collection of design tools that includes Photoshop. Acrobat and Creative Suite together account for the bulk of Adobe's revenue.
For the fiscal third quarter, Adobe sees revenue in a range of $760 million to $800 million, and net profit of 28 cents to 31 cents per share. Excluding one-time items, it is aiming for 39 cents to 41 cents a share. The net profit forecast is contained by the range of analyst estimates for the third quarter, which according to Reuters Estimates was 24 cents to 33 cents a share. But Adobe's profit outlook excluding one-time items exceeds the prior range of third-quarter forecasts of 34 cents to 38 cents a share, according to Reuters Estimates.
Fresh Del Monte Confirms Customs Visit (AP)
CORAL GABLES, Fla. — Fresh Del Monte, a top pineapple seller and banana producer, on Wednesday confirmed agents from the U.S. Immigration and Customs Enforcement office visited its Portland, Ore., plant.
On Tuesday, more than 165 plant workers were detained to be processed for possible deportation, officials said, and three people were indicted on immigration, illegal documents and identity theft charges.
The raid occurred at American Staffing Resources Inc. offices at a Fresh Del Monte Produce fruit and vegetable processing plant, and was based on an investigation by Immigration and Customs Enforcement and the Social Security Administration that began in January, officials said. Separate American Staffing offices also were searched, along with a Fresh Del Monte office.
Fresh Del Monte said it was advised it is not a current target of the investigation and will cooperate with the probe. The company also said it retained American Staffing Resources to provide a contingent labor force at its Portland plant.
Fresh Del Monte shares fell 18 cents to $23.98 in morning trading.
On Tuesday, more than 165 plant workers were detained to be processed for possible deportation, officials said, and three people were indicted on immigration, illegal documents and identity theft charges.
The raid occurred at American Staffing Resources Inc. offices at a Fresh Del Monte Produce fruit and vegetable processing plant, and was based on an investigation by Immigration and Customs Enforcement and the Social Security Administration that began in January, officials said. Separate American Staffing offices also were searched, along with a Fresh Del Monte office.
Fresh Del Monte said it was advised it is not a current target of the investigation and will cooperate with the probe. The company also said it retained American Staffing Resources to provide a contingent labor force at its Portland plant.
Fresh Del Monte shares fell 18 cents to $23.98 in morning trading.
Penn National Agrees to Be Acquired for $6.1 Billion
By Oliver Staley and Chris Burritt
June 15 (Bloomberg) -- Penn National Gaming Inc., the owner of 18 casinos and horse racing tracks, agreed to be taken private by buyout firms Fortress Investment Group LLC and Centerbridge Partners LP for $6.1 billion.
Penn National shares have risen sixfold in the past four years as more states legalize gambling, adding slot machines and table games to boost their tax base. The company acquired in April the Zia Park Racetrack and Black Gold Casino in New Mexico and will open new facilities in Pennsylvania and Maine by 2008.
Investors will get $67 a share in cash, Penn National said today in a statement. That's 31 percent higher than yesterday's closing share price. The firms plan to repay $2.8 billion of the company's debt.
``We'll take it,'' said John Kornitzer, who oversees more than $6 billion, including 1.44 million Penn National shares at the end of March, at Kornitzer Capital Management in Shawnee Mission, Kansas.
Penn National, based in Wyomissing, Pennsylvania, is the latest casino company to be taken private by investment firms attracted to their real estate and ability to generate cash. Since the beginning of 2006, companies including Kerzner International Ltd., Aztar Corp., Station Casinos Inc. and Harrah's Entertainment Inc. have all agreed to takeovers.
``They're buying all of these out because of cash flow,'' Kornitzer said.
Shares of Penn National climbed $11.27, or 22 percent, to $62.41 at 11:53 a.m. in composite trading on the Nasdaq Stock Market in New York.
Higher Bids
The agreement allows the company to seek higher bids for the next 45 days. Chief Executive Officer Peter Carlino and other members of the management team will remain with the company, Penn National said.
``Due to the scarcity of quality regional assets, we can't rule out competing bids at this point,'' Joseph Greff, an analyst at Bear Stearns in New York, said today in a research note.
The price of $67 a share values Penn at about 10.3 times 2008 estimated earnings before interest, taxes, depreciation and amortization before taking into account construction in progress, Harry Curtis, an analyst at J.P. Morgan Securities Inc., wrote in another note.
That's less than Harrah's and Aztar deals, which he valued at between 11 and 12 times 2008 Ebitda. Using that valuation, Curtis estimated Penn could go for between $73 and $80 a share. Curtis, based in New York, rates shares ``overweight.''
Penn National operates slot machines and table games in 13 states and Canada including New Jersey, Colorado and Illinois.
Deal Completion
Penn said the deal is expected to be completed within the next 12 to 16 months, pending approval from state and federal regulators. The firms will pay an additional 1.49 cents a day per share for each day beyond June 15, 2008, the deal is not finished.
The Carlino family, including Peter Carlino, is Penn's largest shareholder, owning an 11 percent stake through a trust At $67 a share, they will receive about $639 million. Individual family members have additional holdings.
Other regional casino companies climbed as well as investors speculated they may be takeover targets. Boyd Gaming Corp. rose $2.24, or 4.5 percent, to $52.04, Pinnacle Entertainment Inc. gained $2.74, or 9.6 percent, to $31.22, and Ameristar Casinos Inc. increased $2.61, or 8.1 percent, to $35.02.
Harrah's Acquisition
Last year, Apollo Management LP and TPG Inc. agreed to buy Harrah's for $17.1 billion in what would be the largest casino acquisition. That deal is still awaiting regulatory approval.
Founded in 1998, Fortress has about $36 billion under management. The firm said in May it had received $2.84 billion in commitments for a new buyout fund.
Centerbridge is a $3.2 billion investment fund.
Lazard Ltd. served as financial adviser to Penn National. Wachtell, Lipton, Rosen & Katz provided legal advice. Deutsche Bank AG and Wachovia Corp. served as advisers to Fortress and Centerbridge, which received legal advice by Willkie Farr & Gallagher LLP.
U.S. Economy: Core Prices Ease, Letting Fed Hold Rate
By Bob Willis and Shobhana Chandra
June 15 (Bloomberg) -- A measure of U.S. consumer prices rose less than forecast in May, evidence that ebbing inflationary pressures may allow the Federal Reserve to keep interest rates unchanged this year.
The 0.1 percent increase in core consumer prices, which exclude food and energy costs, followed a 0.2 percent rise the prior month, the Labor Department said in Washington today. Separately, the University of Michigan reported that consumer confidence fell, and Fed figures gave conflicting signals on the strength of manufacturing.
Bond yields retreated and stocks gained as the inflation number reduced speculation that a rebound in the economy will be accompanied by a surge in prices.
``The inflation risk is relatively limited,'' said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York. ``We have an economy that is right in the middle ground. It just doesn't require much from the Fed.''
From a year ago, core prices rose 2.2 percent, the smallest 12-month gain since March 2006, compared with a 2.3 percent gain in April. Economists had projected a 0.2 percent increase from the prior month.
Overall prices climbed 0.7 percent, the biggest increase since September 2005, led by a jump in gasoline costs. They were up 2.7 percent from the same time last year.
``It's still possible that the Fed may adjust rates lower, though right now the Fed is very comfortable on hold,'' said Peter Kretzmer, senior economist at Bank of America Corp. in New York. ``Underlying demand remains moderate, and inflation pressures are generally receding.''
Empire State
The New York Fed's Empire State index jumped to 25.8 in June from 8 in May, while U.S. industrial production was unchanged last month after a 0.4 percent increase.
The Reuters/University of Michigan's preliminary index of sentiment declined more than forecast to 83.7 this month as home values dipped and gasoline held above $3 a gallon. The index reading was the lowest since August and compared with 88.3 in May.
``Consumers are in a sour mood, with gasoline prices above $3 a gallon,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The good news is that consumer spending seems to be holding up better than we would have anticipated.''
Yield Surge
Yields on 10-year Treasury notes surged to the highest in five years earlier this week as investors reassessed prospects for growth, inflation and interest rates. The 10-year U.S. note yield fell to 5.18 percent at 11:25 a.m. in New York. It reached 5.32 percent on June 13.
Economists had forecast consumer prices would rise 0.6 percent, according to the median of 79 projections in a Bloomberg News survey. Estimates ranged from increases of 0.3 percent to 1 percent.
The CPI is the government's broadest gauge of costs because it includes goods and services. A report yesterday showed wholesale prices rose 0.9 percent in May, matching the increase in the cost of U.S. imports reported a day earlier.
Today's report showed energy prices jumped 5.4 percent after rising 2.4 percent in April. Gasoline prices jumped 11 percent.
Regular gasoline at the pump rose to a record $3.23 a gallon on May 23, compared with an average $2.83 in April, according to the American Automobile Association.
Food prices, which account for about a fifth of the CPI, rose 0.3 percent after a 0.4 percent increase in April.
Housing Costs
Housing costs, which include some energy costs and account for one-third of the total consumer price index, rose 0.2 percent. Owner's equivalent rent, which makes up 30 percent of the core CPI, increased 0.1 percent after rising 0.2 percent. Medical-care costs rose 0.3 percent after rising 0.4 percent. Clothing prices dropped 0.3 percent for a second month.
Almost 60 percent of the CPI covers prices that consumers pay for services ranging from airline fares to movie tickets and laundry charges.
Auto prices fell 0.2 percent.
Increased use of ethanol to fuel cars is raising food costs as demand for corn rises, according to economists such as Richard Yamarone of Argus Research in New York.
Dallas-based Dean Foods Co., the biggest U.S. milk processor, said profit this year will be less than it previously forecast because of soaring raw-milk costs.
Direction
Core inflation has been moderating in recent months. The Fed's preferred gauge, known as the core personal consumption expenditures price index, rose 2 percent in April from a year earlier, government figures showed on June 1. That's the smallest year-over-year gain in 13 months.
The Fed, in its latest assessment of regional economic conditions released June 13, said ``reports generally did not indicate an increase in overall prices pressures.''
Policy makers, including Fed Chairman Ben S. Bernanke, have said they would prefer the rate to be in a 1 percent to 2 percent range. The gauge has been at or above 2 percent since April 2004.
Fed Bank of Cleveland President Sandra Pianalto this week reiterated concerns that inflation was too high. The Fed ``has described our core rate of inflation as being uncomfortably high and has stressed the importance of further moderation.''
Fed policy makers had been counting on weaker growth to cool prices. The economy grew 1.9 percent in the first quarter from a year earlier, the slowest since June 2003.
For all of 2007, the economy is projected to expand 2.1 percent, the least in five years, based on the estimates in a Bloomberg survey May 30 to June 7.
June 15 (Bloomberg) -- A measure of U.S. consumer prices rose less than forecast in May, evidence that ebbing inflationary pressures may allow the Federal Reserve to keep interest rates unchanged this year.
The 0.1 percent increase in core consumer prices, which exclude food and energy costs, followed a 0.2 percent rise the prior month, the Labor Department said in Washington today. Separately, the University of Michigan reported that consumer confidence fell, and Fed figures gave conflicting signals on the strength of manufacturing.
Bond yields retreated and stocks gained as the inflation number reduced speculation that a rebound in the economy will be accompanied by a surge in prices.
``The inflation risk is relatively limited,'' said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York. ``We have an economy that is right in the middle ground. It just doesn't require much from the Fed.''
From a year ago, core prices rose 2.2 percent, the smallest 12-month gain since March 2006, compared with a 2.3 percent gain in April. Economists had projected a 0.2 percent increase from the prior month.
Overall prices climbed 0.7 percent, the biggest increase since September 2005, led by a jump in gasoline costs. They were up 2.7 percent from the same time last year.
``It's still possible that the Fed may adjust rates lower, though right now the Fed is very comfortable on hold,'' said Peter Kretzmer, senior economist at Bank of America Corp. in New York. ``Underlying demand remains moderate, and inflation pressures are generally receding.''
Empire State
The New York Fed's Empire State index jumped to 25.8 in June from 8 in May, while U.S. industrial production was unchanged last month after a 0.4 percent increase.
The Reuters/University of Michigan's preliminary index of sentiment declined more than forecast to 83.7 this month as home values dipped and gasoline held above $3 a gallon. The index reading was the lowest since August and compared with 88.3 in May.
``Consumers are in a sour mood, with gasoline prices above $3 a gallon,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The good news is that consumer spending seems to be holding up better than we would have anticipated.''
Yield Surge
Yields on 10-year Treasury notes surged to the highest in five years earlier this week as investors reassessed prospects for growth, inflation and interest rates. The 10-year U.S. note yield fell to 5.18 percent at 11:25 a.m. in New York. It reached 5.32 percent on June 13.
Economists had forecast consumer prices would rise 0.6 percent, according to the median of 79 projections in a Bloomberg News survey. Estimates ranged from increases of 0.3 percent to 1 percent.
The CPI is the government's broadest gauge of costs because it includes goods and services. A report yesterday showed wholesale prices rose 0.9 percent in May, matching the increase in the cost of U.S. imports reported a day earlier.
Today's report showed energy prices jumped 5.4 percent after rising 2.4 percent in April. Gasoline prices jumped 11 percent.
Regular gasoline at the pump rose to a record $3.23 a gallon on May 23, compared with an average $2.83 in April, according to the American Automobile Association.
Food prices, which account for about a fifth of the CPI, rose 0.3 percent after a 0.4 percent increase in April.
Housing Costs
Housing costs, which include some energy costs and account for one-third of the total consumer price index, rose 0.2 percent. Owner's equivalent rent, which makes up 30 percent of the core CPI, increased 0.1 percent after rising 0.2 percent. Medical-care costs rose 0.3 percent after rising 0.4 percent. Clothing prices dropped 0.3 percent for a second month.
Almost 60 percent of the CPI covers prices that consumers pay for services ranging from airline fares to movie tickets and laundry charges.
Auto prices fell 0.2 percent.
Increased use of ethanol to fuel cars is raising food costs as demand for corn rises, according to economists such as Richard Yamarone of Argus Research in New York.
Dallas-based Dean Foods Co., the biggest U.S. milk processor, said profit this year will be less than it previously forecast because of soaring raw-milk costs.
Direction
Core inflation has been moderating in recent months. The Fed's preferred gauge, known as the core personal consumption expenditures price index, rose 2 percent in April from a year earlier, government figures showed on June 1. That's the smallest year-over-year gain in 13 months.
The Fed, in its latest assessment of regional economic conditions released June 13, said ``reports generally did not indicate an increase in overall prices pressures.''
Policy makers, including Fed Chairman Ben S. Bernanke, have said they would prefer the rate to be in a 1 percent to 2 percent range. The gauge has been at or above 2 percent since April 2004.
Fed Bank of Cleveland President Sandra Pianalto this week reiterated concerns that inflation was too high. The Fed ``has described our core rate of inflation as being uncomfortably high and has stressed the importance of further moderation.''
Fed policy makers had been counting on weaker growth to cool prices. The economy grew 1.9 percent in the first quarter from a year earlier, the slowest since June 2003.
For all of 2007, the economy is projected to expand 2.1 percent, the least in five years, based on the estimates in a Bloomberg survey May 30 to June 7.
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