Saudi firm buys GE Plastics for $11.6B (AP)

By JOHN CHRISTOFFERSEN, AP Business Writer

NEW HAVEN, Conn. - General Electric Co. said Monday it will sell its plastics division for about $11.6 billion in the latest move to reshape one of the world's largest companies.

GE said it would use the proceeds from the sale to petrochemicals manufacturer Saudi Basic Industries Corp. primarily to increase its planned 2007 stock buyback program. It now expects to buy back $7 billion to $8 billion in stock, up from the previous plan of $6 billion.

The deal is expected to create a net gain, after taxes, of $1.5 billion for the Fairfield-based conglomerate.

GE Chairman and Chief Executive Jeff Immelt called the long-expected divestiture "another important step" in the company's strategy to sell slower growth businesses, such as insurance, so that it can invest in high-growth, high-technology businesses, like health care and water processing technology.

"We've exited businesses that are volatile, like plastics, and we've got a good run ahead of us," Immelt said Monday on cable channel MSNBC, which is operated by GE subsidiary NBC Universal.

GE's shares rose 14 cents to $37.10 Monday. The stock has traded between $32.06 and $38.49 over the past year.

Mark Demos, portfolio manager for Fifth Third Asset Management in Minneapolis, said the sale price came in at the upper end of expectations.

"I think it's a very good price for that asset," Demos said.

Robert Schenosky, an industrial analyst with Jefferies & Co. in New York, welcomed the sale and said he would like GE to consider more divestitures. By shrinking, GE can make meaningful acquisitions to grow the company faster, he said.

"I think Mr. Immelt fully understands what he needs to do to try to reaccelerate the growth of the portfolio," Schenosky said.

GE's plastics division dates to 1930, resulting directly from Thomas Edison's experiments with plastic filaments for light bulbs in the 1890s. It grew into a significant GE venture, where Immelt once worked.

Pittsfield, Mass.-based GE Plastics supplies plastic resins to the automotive, health care and consumer electronics industries. It employs 10,300 people and GE values the business at about $6.65 billion.

The division has struggled since 2004 due to rising costs of natural gas and raw materials. Profits for the division fell by 22 percent in 2006, to $674 million.

SABIC intends to grow the business globally and is not planning work force reductions, company officials said.

"This business is complementary to our existing business without any overlaps," said Mohamed Al-Mady, vice chairman and chief executive of SABIC.

The deal is expected to close in the third quarter. Afterward, Brian Gladden, who serves as vice president of GE Plastics' resin business, will become president and chief executive of the new business, which Saudi Basic Industries will rename.

Charlene Begley, the current president in chief executive of GE Plastics, will move to a corporate role focused on closing the deal and will report to Immelt.

Study: Pill raises risk of heart attacks (AP)

By MARILYNN MARCHIONE, AP Medical Writer

A widely used diabetes pill raises the risk of heart attacks and possibly death, according to a scientific analysis that reveals what some experts are calling another Vioxx-like example of the government failing to protect the public from an unsafe drug.

More than 6 million people worldwide have taken the drug, sold as Avandia and Avandamet, since it came on the market eight years ago to help control blood sugar in people with the most common form of diabetes. About 1 million Americans use it now.

Pooled results of dozens of studies on nearly 28,000 people revealed a 43 percent higher risk of heart attack for those taking Avandia compared to people taking other diabetes drugs or no diabetes medication, according to the analysis published online Monday. The study, published by the New England Journal of Medicine, also found a trend toward more heart-related deaths.

The findings are frightening because two-thirds of diabetics die of heart problems, so a drug that boosts this possibility is especially hazardous for them.

Still, the actual risks to any single patient appear small. Diabetics should talk to their doctors before stopping any medication, said a statement issued by the American Diabetes Association and two groups of heart doctors.

Avandia's maker, British-based GlaxoSmithKline PLC, disputed the results of the analysis but acknowledged that its own similar review found a 30 percent increased risk — information it gave last August and possibly even earlier to the U.S. Food and Drug Administration. But the company said that more rigorous studies did not confirm excess risk.

FDA officials issued a safety alert on Monday and said they likely would convene an advisory panel, but planned no immediate changes to the current side effect warnings on the drug's packaging.

Several members of Congress expressed alarm. Rep. Henry Waxman (news, bio, voting record), D-Calif., chairman of the House Committee on Oversight and Government Reform, announced a hearing for June 6 on FDA's role. On the Senate floor, Charles Grassley (news, bio, voting record), R-Iowa, criticized the agency for not acting more swiftly.

"Do we have another Vioxx on our hands with Avandia? I am not sure, but I intend to find out," he said, referring to the blockbuster arthritis drug withdrawn in 2004 because of safety problems. "Tens of millions of prescriptions have been written for Avandia, and Medicare and Medicaid have paid hundreds of millions of dollars for this drug."

Avandia is used to treat Type 2 diabetes, the most common form of the disease, which is linked to obesity and afflicts 18 million Americans and 200 million people worldwide. This form of diabetes occurs when the body does not make enough insulin or cannot effectively use what it manages to produce.

Avandia, or rosiglitazone, helps sensitize the body to insulin and was considered a breakthrough medication for blood-sugar control. It also is combined with metformin and sold as Avandamet. Only one other drug like it — pioglitazone, sold as Actos and Actoplus Met by Takeda Pharmaceuticals — is sold in the United States.

Avandia had total U.S. sales of $2.2 billion in 2006, slightly trailing $2.6 million for Actos, according to IMS Health, a healthcare information company. About 13 million Avandia prescriptions were filled in the U.S. last year. A one-month supply of Avandia sells for between $90 and $170.

GlaxoSmithKline also has been testing Avandia to try to prevent diabetes in those at high risk of it, and, in separate studies, to prevent Alzheimer's disease.

However, the new analysis casts a pall on its prospects for prevention as well as treatment, many specialists said. The study was led by Dr. Steven Nissen and statistician Kathy Wolski at the Cleveland Clinic. Nissen accepts no personal fees for consulting for any drug makers.

While the analysis doesn't spell out the actual the rate of heart attacks among Avandia users, the 43 percent excess risk is in line with what a similar analysis found for lower doses of Vioxx use, Nissen said. Another context for that number: Heart attack risks are lowered about 25 percent by cholesterol-reducing statin drugs — ample reason to prescribe them.

The Avandia studies Nissen analyzed were not designed to look for heart risks and many of them were so short — some only 24 weeks — that risks may only appear over the longer term, he said.

Dr. David Nathan, chief of diabetes care at Massachusetts General Hospital, agreed.

"This analysis is just scratching the surface of what may be there. It needs to be taken seriously," said Nathan, who reviewed the paper for the medical journal and has no financial ties to any diabetes drugmakers.

The situation "reflects very badly on the FDA and on Glaxo," Nathan said. "It's the FDA's responsibility to be monitoring this stuff."

The drug "represents a major failure of the drug-use and drug-approval processes in the United States," Drs. Bruce Psaty and Curt Furberg wrote in an editorial in the New England Journal. Psaty is with the University of Washington in Seattle and Furberg is with Wake Forest University.

When the drug was approved, evidence of its benefits were "at best mixed," wrote the two doctors. Both have been frequent critics of the FDA's failure to spot dangers in the drug approval process and its conduct involving Vioxx.

Avandia's label already warns about possible heart failure and other heart problems when taken with insulin. The drug also raises LDL or bad cholesterol, and can cause fluid retention and weight gain. Glaxo also has reported some patients suffered more bone fractures, swelling of the legs and feet, and rare reports of swelling in the eye that can cause vision problems.

However, in a conference call Monday, Dr. Lawson McCartney who leads Glaxo's diabetes drug development, said: "We remain very confident in the safety and of course in the efficacy of Avandia as an important diabetic medicine."

Dr. Robert J. Meyer of the FDA's Center for Drug Evaluation and Research, also defended the agency's actions, saying information about risks is not clear-cut.

"We've tried to weigh the risks of going forward with an uncertain message ... with the level of uncertainty about the safety signal before us,"

Glaxo's shares trading in the United States closed down $4.53, or 7.9 percent, at $53.18.

Nissen used publicly available information from an earlier $2.5 million Glaxo settlement with the state of New York to do his study. He also led earlier research that derailed a similar diabetes drug, Pargluva, that seemed headed for FDA approval until safety issues emerged. A fourth drug in the same class, Rezulin, was withdrawn in 2000 after it was linked to liver problems.

Rates rise at weekly Treasury auction (Yahoo!)

WASHINGTON - Interest rates on short-term Treasury bills rose in Monday's auction with the rate on three-month bills reaching its highest level in three weeks.

The Treasury Department auctioned $15 billion in three-month bills at a discount rate of 4.775 percent, up from 4.730 percent last week. Another $13 billion in six-month bills was auctioned at a discount rate of 4.810 percent, up from 4.735 percent last week.

The three-month rate was the highest since three-month bills averaged 4.785 percent on April 30. The six-month rate was the highest since 4.815 percent on May 7.

The discount rates reflect that the bills sell for less than face value. For a $10,000 bill, the three-month price was $9,879.30 while a six-month bill sold for $9,755.49.

Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, fell to 4.86 percent last week from 4.89 percent the previous week.

New fuel for 21st century -- aluminum pellets?

By Julie Steenhuysen

CHICAGO (Reuters) - Pellets made out of aluminum and gallium can produce pure hydrogen when water is poured on them, offering a possible alternative to gasoline-powered engines, U.S. scientists say.

Hydrogen is seen as the ultimate in clean fuels, especially for powering cars, because it emits only water when burned. U.S. President George W. Bush has proclaimed hydrogen to be the fuel of the future, but researchers have not yet found the most efficient way to produce and store hydrogen.

The metal compound pellets may offer a way, said Jerry Woodall, an engineering professor at Purdue University in Indiana who invented the system.

"The hydrogen is generated on demand, so you only produce as much as you need when you need it," Woodall said in a statement. He said the hydrogen would not have to be stored or transported, taking care of two stumbling blocks to generating hydrogen.

For now, the Purdue scientists think the system could be used for smaller engines like lawn mowers and chain saws. But they think it would work for cars and trucks as well, either as a replacement for gasoline or as a means of powering hydrogen fuel cells.

"It is one of the more feasible ideas out there," Jay Gore, an engineering professor and interim director of the Energy Center at Purdue's Discovery Park, said in a telephone interview on Thursday. "It's a very simple idea but had not been done before."

On its own, aluminum will not react with water because it forms a protective skin when exposed to oxygen. Adding gallium keeps the film from forming, allowing the aluminum to react with oxygen in the water.

This reaction splits the oxygen and hydrogen contained in water, releasing hydrogen in the process.

"I was cleaning a crucible containing liquid alloys of gallium and aluminum," Woodall said. "When I added water to this alloy -- talk about a discovery -- there was a violent poof."

What is left over is aluminum oxide and gallium. In the engine, the byproduct of burning hydrogen is water.

"No toxic fumes are produced," Woodall said.

"When and if fuel cells become economically viable, our method would compete with gasoline at $3 per gallon even if aluminum costs more than a dollar per pound."

Recycling the aluminum oxide byproduct and developing a lower grade of gallium could bring down costs, making the system more affordable, Woodall said.

The Purdue Research Foundation holds title to the primary patent, which has been filed with the U.S. Patent and Trademark Office. An Indiana startup company, AlGalCo LLC., has received a license for the exclusive right to commercialize the process.

100 Posts!

The World Financial Report just hit 100 posts!
Next celebration at 1000!

- L. Pedigree

Consumer mood improves unexpectedly early May (Reuters)

By Richard Leong

NEW YORK (Reuters) - Consumer sentiment took a surprise upturn in early May, as a favorable job outlook and a booming stock market muted the impact of record high gasoline prices, according to a poll published on Friday.


Moreover, rising gasoline prices did not intensify consumers' inflation fears, as some analysts had predicted.

The Reuters/University of Michigan Surveys of Consumers said its preliminary May consumer sentiment index rose to 88.7 from 87.1 at the end of April. The latest figure was above the median forecast of 86.5 among 65 analysts polled by Reuters.

"Following the repeated increases over the past few years, it is hardly surprising that $3 (per gallon gasoline) ... has lost its shock value," said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.

The survey's gauge of current consumer conditions was 103.8 in early May, down from a final April reading of 104.6 but its measure of consumer expectations rose to 79.0 from 75.9.

"The full impact of higher gas prices may have been masked by increases in stock prices as well as a stronger outlook for employment," Curtin cautioned in a statement.

The unexpected improvement in the index helped soothe worries about the economy and corporate profits, extending stocks' upswing, although bond prices stayed in negative territory.

The current stock rally, fueled by a surge in mergers and acquisitions and better-than-expected earnings, has cushioned household wealth, which had been crimped by a slowdown in the U.S. housing market.

While job growth has slowed this year, the labor market remains tight and income has been growing at a steady clip.

"High gasoline prices weighed on the current conditions index, but the job situation is still pretty good and people are feeling pretty good about that right now," said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis, Missouri. "The stock market doing better is also making people feel a little more positive about the economy."

The preliminary May figures showed consumers by and large were not rattled by the recent surge in gasoline prices, which broke above $3 a gallon in recent weeks, the survey said.

The survey's one-year inflation expectations index edged down to 3.2 percent in early May from a seven-month high of 3.3 percent set in late April. while its five- to 10-year inflation expectations index held steady at 3.1 percent.

The national price for regular unleaded gasoline averaged $3.10 a gallon, a record high, up 5 cents from last week and up 16 cents from a year earlier, the Energy Information Administration said on Monday.

The U.S. factory sector also showed modest growth in March. The Commerce Department said on Friday it did not adjust its March readings on factory orders, which grew 3.1 percent, as

part of its annual benchmark revisions.

A drop in jobless claims and booming stock prices resulted in a weekly gauge of future economic growth to a three-year high. For details see .

The Economic Cycle Research Institute's weekly leading index edged up to 142.7 in the week ended May 11, boosting its annualized growth rate to 6.1 percent. The rate reached its highest since the week ended May 21, 2004.

Russia not to allow state companies to default: Gref

KAZAN, Russia (Reuters) - Russia will not allow indebted state companies to default, Economy Minister German Gref told reporters on Saturday.

"We have all the possibilities not to allow defaults of state controlled companies," Gref told reporters.

Russian state controlled companies such as Gazprom (GAZP.MM) and Rosneft (ROSN.MM) have been borrowing heavily abroad to go on a spending spree to expand their businesses.

"In order to pay back this debt we will have to sell parts of these companies which will eventually lead to bureaucrats having less influence in the economy," he said.

Gref said Russia "had every chance" of meeting its 8 percent inflation target for 2007.

Fund will avoid touchy deals as it pursues big returns (TimesOnline)

Jane Macartney in Beijing

China’s $200 billion (£102 billion) state investment fund will avoid politically sensitive acquisitions in its search for higher returns on its vast foreign currency reserves.

The fledgeling state investment company revealed that it had agreed to pay $3 billion for a 9.9 per cent stake in Blackstone Group, the private equity fund, when it makes an initial public offering next month.

The deal brings together a communist government sitting atop the world’s largest stash of currency reserves – $1.2 trillion – and a New York-based fund that is synonymous with capitalism.

China is eager to avoid the political backlash that forced CNOOC, the state-owned oil exploration firm, to scrap a takeover bid for Unocal, a Californian rival, in 2005.

Jessie Wang, a senior government investment official who signed the agreement with Blackstone, said that the new company would steer clear of sensitive deals. He said: “My personal understanding is that the investments basically will be portfolio investments and will be purely financial investments, not a kind of M&A control-type of thing.”

Steve Schwarzman, a co-founder of Blackstone, said yesterday that he expected the Chinese fund to repeat its move into private equity. He said: “It should be, or will be, part of a trend. Blackstone is the first, but, over time, I would suspect there would be others.”

However, under the terms of the agreement with Blackstone, the Chinese fund is barred from giving money to any other private equity firm for one year. China, which parks most of its reserves in safe, low-yielding dollar bonds, is desperate to increase its returns. The Chinese have given up any rights to vote as part of the Blackstone deal and this could be a feature of future investments.

Another clue to the fund’s investment philosophy is that China has declared Temasek, the state-owned Singaporean asset manager, to be a role model. Temasek controls Singapore Airlines, but it also has a broad Asian portfolio that encompasses Chinese banks and Thai telecommunications companies.

The trick for China as it hunts for deals will be to be as stealthy and decisive as it was in hooking up with Blackstone. The consensus-based politics of Beijing is not a recipe for success as a fund manager, yet Mr Schwarzman said that he had been impressed. It was Beijing, not Blackstone, that had suggested taking an IPO stake and, after the initial proposal was made, a deal was clinched within three weeks.

Mr Schwarzman said: “I doubt that there is any government in the world that could have done it more efficiently or more professionally.”

Venezuela giving Danny Glover $18m to direct film on epic slave revolt (The Guardian)

Rory Carroll in Caracas

Venezuela is to give the American actor Danny Glover almost $18m (£9m) to make a film about a slave uprising in Haiti, with President Hugo Chávez hoping the historical epic will sprinkle Hollywood stardust on his effort to mobilise world public opinion against imperialism and western oppression.
The Venezuelan congress said it would use the proceeds from a recent bond sale with Argentina to finance Glover's biopic of Toussaint Louverture, an iconic figure in the Caribbean who led an 18th-century revolt in Haiti.

Crude Surge Hinders Rally (TheStreet)

By Robert Holmes
TheStreet.com Staff Reporter

The S&P 500 traded through its all-time closing high Monday, but a sharp increase in oil prices kept the big-cap index from holding on and making history.

At the end of trading, the S&P was up 2.35 points, or 0.15%, to 1525.10. Earlier, it pushed above its best-ever finish of 1527.46, set in March 2000.

The Dow Jones Industrial Average also moved deeper in to record territory, rising by as many as 30 points, before pulling back. The Dow ultimately lost 13.65 points, or 0.1%, at 13,542.88.

Meanwhile, the Nasdaq was the best performer of the bunch, better by 20.34 points, or 0.8%, at 2578.79.

For a time, the bulls appeared to be taking control of the session, but a steady advance in crude cut the rally short. June dated oil futures ended with a gain of $1.33 at $66.27 a barrel.

"The market was strong early, following last week's strength, but the shoot up in oil prices took the edge off," said Phillip Roth, chief technical market analyst with Miller Tabak. "I view this as an uptrend that is intact, but a lot of stocks are struggling. We'll continue to be choppy, and we probably will have a week without any progress."

About 3.31 billion shares changed hands on the New York Stock Exchange, where advancers beat decliners by a 5-to-3 margin. Volume on the Nasdaq reached 1.93 billion shares, as winners outpaced losers 2 to 1.

On the corporate side, the newest round of takeovers was making headlines, including a roughly $25 billion deal for Alltel (AT - Cramer's Take - Stockpickr - Rating). TPG, formerly Texas Pacific Group, will team up with the private-equity arm of Goldman Sachs (GS - Cramer's Take - Stockpickr - Rating) to acquire the wireless carrier, and Alltel rose $4.39, or 6.7%, to finish the day at $69.60.

Elsewhere, General Electric (GE - Cramer's Take - Stockpickr - Rating) confirmed that it will sell its plastics division for $11.6 billion to Saudi Basic Industries. GE, which said it expects the deal to close during the third quarter, was higher by 14 cents, or 0.4%, to $37.10.

Another transaction will see Hologic (HOLX - Cramer's Take - Stockpickr - Rating) purchase Cytyc (CYTC - Cramer's Take - Stockpickr - Rating) in a $6.2 billion combination that will unite two sellers of health care products for women. Cytyc surged $7.95, to 22.7%, to close at $43.

Lastly, Olin (OLN - Cramer's Take - Stockpickr - Rating) agreed to acquire fellow chlorine and caustic soda maker Pioneer (PONR - Cramer's Take - Stockpickr - Rating) for $35 a share, or $413 million. Shares of Pioneer jumped $4.81, or 16.4%, to $34.19.

"While just a bit fanciful, the markets are not interested in stopping or even slowing down for economic reports that conflict with the view that all is well in the world of investing," said Paul Nolte, director of investments with Hinsdale Associates. "While the current euphoria over stock investing will likely last for a while longer, we are surprised at the few actual declines in the markets over the past two months."

Spain: We'll Take Treasure if Spanish (AP)

By DANIEL WOOLLS Associated Press Writer
© 2007 The Associated Press

MADRID, Spain — Spain will claim a colonial-era treasure that an American treasure-hunting firm says it found in a shipwreck if it turns out to be Spanish or was removed from Spanish waters, the culture minister said Monday.

"We will exercise all of our jurisdiction and rights in the hypothetical event that the find is part of Spain's heritage," minister Carmen Calvo said in Seville.

But Odyssey Marine Exploration said Monday the ship that yielded an estimated $500 million worth of gold and silver coins was not in Spanish territorial waters and was not the HMS Sussex, a shipwreck that Odyssey recently got permission from the Spanish government to search for in the Strait of Gibraltar.

Odyssey announced Friday that it had discovered a shipwreck it has codenamed "Black Swan" and 500,000 gold and silver coins somewhere in the Atlantic Ocean.

The Florida-based company would not say exactly where the ship was or name it, citing security concerns, but said the site was outside any country's territorial waters.

In March of this year Spain granted the company permission to search its waters off the Strait of Gibraltar for the HMS Sussex, which sank in a 1694 storm off the Rock while leading a British fleet into the Mediterranean Sea for war against France. The strait is the strategic waterway that connects the Atlantic and the Mediterranean.

But that permit was only for exploration, not for removing anything from the Sussex if it were found.

Odyssey denied that the wreck it found was the Sussex.

"We can confirm that the 'Black Swan' is not HMS Sussex, and that the 'Black Swan' was not found in waters anywhere near the shipwreck believed to be HMS Sussex," the company said in a statement released Monday. "Beyond that, we cannot confirm the identity of the shipwreck because we are not certain ourselves."

Speculation about the origin of the treasure has also focused on a wreck site near the English Channel that Odyssey recently petitioned a U.S. federal court for permission to salvage.

In seeking exclusive rights to that site, an Odyssey attorney told a federal judge last fall that the company likely had found the remains of a 17th-century merchant vessel that sank with valuable cargo aboard, about 65 kilometers, or 40 miles, off the southwestern tip of England. A judge granted those rights last Wednesday, just two days before Odyssey announced the discovery.

Odyssey has refused to say if the loot was from that site.

A spokeswoman for the Spanish Culture Ministry, Susana Tello, said a worrisome scenario would be if the shipwreck Odyssey discovered turned out to be Spanish _ she said there are an estimated 400 shipwrecks in the Strait of Gibraltar _ in which case Spain would claim the booty.

"At the very least the origin of the treasure is dubious," Tello told The Associated Press.

The ministry, which has say over cases involving Spain's cultural heritage, has ordered the Civil Guard to investigate the Odyssey case and tighten surveillance in Spanish waters to keep anything from being removed illegally.

Tello said news reports in Gibraltar say a chartered Boeing aircraft landed and took off from there Thursday, a day before Odyssey announced its find. She argued that that raises suspicions the treasure could have come from waters in or near the strait.

Tracinda plans talks with MGM to buy Bellagio Hotel (Market Watch)

WASHINGTON (MarketWatch) -- Billionaire investor Kirk Kerkorian's Tracinda Corp. said Monday that it plans to enter into negotiations with MGM Mirage (MGM : MGM Mirage
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MGM62.95, +0.15, +0.2%) to purchase MGM's Bellagio Hotel and Casino and City Center properties.
In a filing with the Securities and Exchange Commission, Tracinda said it also wishes to pursue strategic alternatives with respect to its investment in the world's second-largest casino operator, which may include financial restructuring transactions involving all or a substantial portion of the remainder of the company.
Tracinda currently owns 158.8 million shares, or a 56% stake in the Las Vegas-based company, according to the SEC filing.
Tracinda said it has made no decision with respect to any such restructuring transactions and reserves the right not to engage in or approve any transaction.
Shares of the company closed Monday at $62.89 each.
-Denise Jia, Dow Jones Newswires; 202-862-1359; denise.jia@dowjones.com

UPDATE 1-Alltel stock jumps 7 pct on $25 billion buyout (Reuters UK)

By Ritsuko Ando and Jessica Hall

NEW YORK/PHILADELPHIA, May 21 (Reuters) - Shares in wireless carrier Alltel Corp. surged nearly 7 percent on Monday after it accepted a $25 billion takeover offer from TPG Capital and the buyout arm of Goldman Sachs, the largest private equity deal for the telecommunications industry.

The agreement ended months of speculation over a possible deal for Alltel, the top U.S. rural wireless provider, but questions were raised over the bid process.

Sources familiar with the situation said on Monday that Alltel accepted the takeover instead of completing an auction that had attracted at least two other teams of suitors.

First-round bids for Alltel, with around 12 million customers, were not due until June 6, sources said. As a result, Alltel accepted the offer without knowing whether its auction would draw even higher bids.

TPG Capital [TPG.UL], formerly Texas Pacific Group, and GS Capital Partners will acquire Alltel for $71.50 per share in cash, the company said late Sunday. Including the assumption of debt, the deal is worth around $27.5 billion.

Some governance experts said the company may have to provide answers on the way it reached the deal.

"Alltel clearly has to explain to investors why this was the best price, and why a better price wouldn't have been achieved through a full auction," said Charles Elson, chairman of the Center for Corporate Governance at the University of Delaware. "To not even complete one round of bidding raises questions."

CNBC, the cable news channel, reported Monday that Alltel proposed an earlier bid deadline due to concerns over potential financing problems, and two investor groups said they could not submit a bid in time.

Alltel spokesman Andrew Moreau declined to comment on details, but said the bidding process had been fair to all parties involved.

Reuters previously reported that Providence Equity Partners and The Blackstone Group had teamed up for a bid for Alltel. The Carlyle Group and Kohlberg Kravis Roberts & Co. [KKR.UL] were also exploring an offer, sources said Monday.

RESPECTABLE PREMIUM

Analysts said the Alltel deal represented a respectable premium and that higher bids for the company were unlikely.

The deal value was around nine times analysts' estimates for Alltel's 2007 earnings, and eight times estimates for 2008, compared with an industry average of seven times earnings.

"They've already shopped around to all prospective buyers, and this is the best price, which I think is a good price for shareholders," said Stanford Group analyst Michael Nelson.

Alltel shares rose $4.45 to $69.66 on the New York Stock Exchange and have gained about 20 percent since speculation over a potential buyout emerged in December.

Analysts had said Alltel could be sold for $25 billion to $30 billion, with other potential buyers including industry rivals such as Verizon Wireless, a venture of Verizon Communications Inc. and Vodafone Group Plc ; AT&T Inc. and Sprint Nextel Corp.

National carriers AT&T and Verizon Wireless each have over 60 million wireless subscribers.

Alltel provides services in parts of 35 states, and offers coverage across the country through roaming agreements with its competitors.

But no such strategic suitor emerged, sources said. Analysts said they do not expect a counterbid from another telecoms company, with AT&T and Verizon focused on their own wireless and video services, and Sprint struggling to improve its operations.

Alltel's private buyers would likely seek an exit after four or five years, Stanford Group's Nelson said. In addition to the option of taking it public again later, competitors like Verizon and Sprint may then be interested in buying the company, he said.

Alltel disclosed in an earnings conference call in February that it was reviewing strategic options. Media reports from as early as Dec. 28 had said private equity firms were eyeing the company for its relatively low debt and stable cash flow. (Additional reporting by Michael Flaherty)

S&P 500 just misses a record (MSN Money)

The broad-based market index nearly breaks its March 2000 high, but stocks end the day basically flat. Alltel will go private for $27.5 billion. Amazon jumps more than 7.5% on an upgrade. China buys into U.S. private-equity firm Blackstone.

For several hours this afternoon, the Standard & Poor's 500 Index was sitting above its all-time closing high this afternoon, a profound signal of the U.S. stock market's recovery from the effects of the dot-com bust and the effects of the Sept. 11, 2001, terror attacks.

The index moved past 1,527.46, a record that had stood since March 24, 2000, shortly after noon ET. It peaked at 1,529.87 just before At 3 p.m. and then slipped back to 1524.79, less than three points under the high.

The Dow Jones industrials, meanwhile, finished down nearly 14 points to 13,543. The Dow crossed its 2000 high last October.

The Nasdaq Composite Index was up more than 20 points, 0.9%, to nearly 2,579. It is still down 49% from its all-time closing high of 5,048.62, set on March 10, 2000. The index was helped by online retainer Amazon.com (AMZN, news, msgs), which jumped more than 7% to $68.30 on an analyst upgrade.

Today’s gains came as several big deals were announced, a continuation of a wave of mammoth acquisitions and leveraged buyouts.

The biggest deal today was Alltel's (AT, news, msgs) agreement to be bought by private-equity firm TPG, formerly Texas Pacific Group, and GS Capital Partners, a division of Goldman Sachs Group (GS, news, msgs), for $27.5 billion.

Also announced was General Electric's (GE, news, msgs) agreement to sell its plastics business to Saudi Arabia's largest industrial company, Saudi Basic Industries Corp., in a transaction valued at $11.6 billion. GE was up 0.4% to $37.10.

Why the S&P 500's breakthrough counts
It shouldn't be a surprise that the S&P 500 topped its old high and then slipped back. That's a frequent occurance because some investors have sold after an index passed a major threshold like the 2000 record for the S&P 500.

That should not diminish what has happened.

What makes the S&P 500’s breakthrough important is scope. The Dow, of course, is just 30 stocks. The S&P 500 is 500 stocks. And not just any 500 stocks. The index contains a big broad brush of American business. It includes all of the Dow 30 stocks, most of the stocks in the Dow Jones Transportation Index ($TRAN) and most of the stocks in the Dow Jones Utilities Index ($UTIL).

It represents 75% of U.S. market capitalization. And it's a diverse group, from oil companies ExxonMobil (XOM, news, msgs) and ConocoPhillips (COP, news, msgs), to retailers Federated Department Stores (FD, news, msgs), to medical equipment maker Stryker (SYK, news, msgs), and Clorox (CLX, news, msgs), which makes everything from cleaning supplies and bleaches to K.C. Masterpiece barbecue sauce.

Like the Dow, the S&P has recovered in part because the world is awash in cash, mergers and rumors of mergers.

So, why did the S&P 500 take so long to beat its 2000 record? The short answer is two of the index's 10 sectors: technology and telecommunications, The technology sector is still more than 60% below its level on March 24, 2000. The telecom sector is more than 44% below its March 2000 level.

But that's only part of the story. New stars have emerged in the past seven years, especially energy -- oil, oil services, natural gas and the like -- and materials, including copper, steel, aluminum and chemicals.

All were essentially written off at the height of the dot-com frenzy. They have led the S&P 500’s resurgence as investors grew to appreciate the enormous demand for commodities and energy from China, India and other emerging markets.

And, in the case of energy stocks, they got an additional boost from the Iraq war and civil unrest in places like Nigeria. The result has been a flood of speculative money into crude oil. That, in turn, set off enormous interest in companies that can find more oil and gas.

In March 2000, technology stocks represented 30% of the S&P. Today, it's closer to 15%. Microsoft (MSFT, news, msgs) is still down 48% from its peak in December 1999. Cisco Systems (CSCO, news, msgs) is down 65% from its peak in 2000. And Intel (INTC, news, msgs) is down nearly 70% from August 2000.

Telecom stocks were 7.5% of the index; today, they're worth about 4% -- even if AT&T (T, news, msgs), cobbled together from a number of the companies split up from the original AT&T in the early 1980s, now has the fifth-largest market cap of any stock.

Meanwhile, the energy sector is up 147% from March 2000 and 204% from the market bottom in October 2002. It represents 10% of the S&P 500, compared with 5% in 2000. The materials sector is up 82.5% and 142% from the market bottom.

XTO Energy (XTO, news, msgs) is up 2,400% since the March 2000 S&P top; Chesapeake Energy has risen more than 1,200% since March 2000. ExxonMobil (XOM, news, msgs) is up more than 110%. ConocoPhillips is up more than 220%.

Steel maker Nucor (NUE, news, msgs) is up 420% since March 2000. Allegheny Technologies (ATI, news, msgs) has soared more than 520%. U.S. Steel is up nearly 400%.

It is not fair, however, to say the S&P 500's rebound is all energy and commodities. Financial stocks are up 50% from the 2000 top and 103% from their bottom in October 2002. Industrials are 27% ahead of March 2000 and 106% ahead of the 2002 lows.

The most amazing sector may be utilities, which benefited from the Federal Reserve's strategy to jump-start a reeling economy in 2001 by cutting its key interest rate to 1%. Utility stocks are up 46% from 2000 and more than 180% from the 2002 bottom.

Lowe's profit slump weighs on retailers (Market Watch)

By William Spain
NEW YORK (MarketWatch) -- Retail stocks traded slightly lower Monday, weighed down at least in part by disappointing financial reports from home-improvement giant Lowe's Cos.
The S&P Retail Index ($RLX : s&p retail index-rlx
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$RLX520.69, -0.19, 0.0%) closed off fractionally at 520.69.
Shares of Lowe's (LOW : Lowe's Companies, Inc
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LOW31.88, -0.79, -2.4%) lost more than 2% to $31.88, retreating after the company reported that first-quarter profit declined 12% to 48 cents a share and that sales rose 2% to $12.17 billion, with comparable-store sales down 6%.
The company blamed a difficult housing market, tough comparisons due to hurricane rebuilding efforts and significant deflation in lumber and plywood prices. Analysts polled by Thomson Financial had expected earnings of 49 cents a share on revenue of $12.41 billion.
For the second quarter, Lowe's expects overall sales growth of 6% to 7%, a 1%-to-3% same-store sales decrease and earnings between 62 and 64 cents a share. For the full year, the company sees earnings between $1.99 and $2.03 a share on 7% sales growth and a 1%-to-2% decrease in same-store sales. Analysts expect annual earnings of $2.01 a share on revenue of $50.47 billion, on average.
Shares of blue chip Home Depot (HD : Home Depot, Inc
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HD38.63, -0.25, -0.6%) , the larger archrival of Lowe's, were off 25 cents to $38.63.
Meanwhile, Saks Inc. (SKS : saks inc com
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SKS21.33, -1.36, -6.0%) saw its shares slip nearly 6% to $21.33.
Charges helped drag down the upscale retailer's first quarter to a fraction of year-ago levels. Saks earned just $11 million, or 7 cents a share, down from $77.9 million, or 57 cents, a year ago. The most recent figures include 12 cents worth of various charges; last year's include 49 cents in one-time gains.
Quarterly revenue came in at $792.7 million, up 15.9%, on a same-store sales boost of 14.4%. The Thomson Financial-derived average estimates had been for Saks to earn 16 cents a share on revenue of $787 million.
Looking to the rest of 2007, the company said it expects same-store sales to grow at a percentage rate in the low double digits for the second quarter and at a rate in the mid-to-high single digits in the fall.
Elsewhere in the retail sector, Wal-Mart Stores (WMT : Wal-Mart Stores, Inc
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WMT46.62, -0.65, -1.4%) slipped 1.4% to $46.62, while Target (TGT : target corp com
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TGT58.14, -0.01, 0.0%) lost a penny to $58.14 and Federated Department Stores (FD : Federated Department Stores, Inc
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4:35pm 05/21/2007

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FD39.89, +0.19, +0.5%) picked up 19 cents to $39.89.

Pfizer Replaces Its Bench (Forbes)

Joshua Lipton

Pfizer announced a major overhaul earlier this year, complete with a string of plant closings in the United States and Germany and the dismissal of 10,000 workers, or 10% of its workforce. The top-to-bottom transformation of the company also apparently involves some big shifts in key personnel.

On Monday, Pfizer (nyse: PFE - news - people ) told the Street that the company's longtime research and development chief, John LaMattina, and its short-time chief financial officer, Alan Levin, will be packing up and leaving the New York-based drug maker.

LaMattina, 57, has been with the company since 1977. He said he will retire from Pfizer by the end of this year. LaMattina has agreed to remain with the company as it searches for a successor.

Levin, 45, had been with Pfizer for 20 years. He became chief of finance just two years ago. In a statement, Levin said that he believed it was the "appropriate time for me to explore career opportunities outside of the company."

AG Edwards analyst Joseph Tooley said he thought the recent job shifts are just part of the broader campaign by Chief Executive Officer Jeffrey Kindler to remake the drug company, as it struggles with increased competition and the loss of exclusivity rights.

"Kindler is looking to shake things up across the company," Tooley said. "And this applies to all the leadership positions as well. They haven't done a lot on terms of mergers and acquistions. The pipelines have had some setbacks."

In both cases, Tooley thought the decisions to replace LaMattina and Levin made strong sense.

In terms of research and development, Tooley noted LaMattina's contributions to the company but also argued that the division has become a problem for the drug company.

"Research and development seems to have been an Achilles' heel for Pfizer," Tooley said. "They have had high profile setbacks and a lack of productivity in recent years in terms of significant new drug approvals. Now they have a chance to make an improvement in that area."

A new head of R&D could jumpstart Pfizer's pipeline, Tooley argued. He pointed out Merck's (nyse: MRK - news - people ) decision a couple years ago to hire Peter Kim as its R&D head, a move that has proven successful for that company.

"He seems to have been very productive at this point and they have a lot going on in the pipeline," Tooley said.

Regarding Levin's departure, Tooley argued that the move might indicate that Pfizer wants a CFO who is less of a traditional accountant and more of an M&A hot shot.

"It might mean that Pfizer wants someone with more Wall Street experience," Tooley said. "Maybe what they want is someone with more transaction experience, more M&A experience, more or a dealmaker."

In March, Pfizer lost its exclusive rights to Norvasc, a money-making blood pressure drug. (See: "Solid Sales Keep Pfizer Afloat.") Also, Lipitor, the company's cholesterol treatment, loses patent protection in 2010. That loss is, in part, what drives Tooley's current "hold" rating on the stock.

"They need to offset that loss of revenue," he said. "We don't have visibility on when and how they will do that."

In morning trading, shares of Pfizer nudged up 0.1%, or 3 cents, to $27.47.

Google, Salesforce.com talk alliance (Mercury News)

PARTNERSHIP WOULD HELP FIRMS BETTER COMPETE WITH MICROSOFT
By Ryan Blitstein

Google and Salesforce.com are discussing a broad partnership that might help both companies in their ongoing battles with Microsoft, the Wall Street Journal has reported, citing "people familiar with the matter."
Both companies are the largest in their main business areas - online search and advertising for Google and online customer relationship management for Salesfoce - and have recently expanded into areas of business software now dominated by Redmond, Wash., software giant Microsoft.

Salesforce, based in San Francisco, offers online services that help businesses manage sales and client relationships. But through a program called AppExchange and alliances with other companies, its customers can run other business functions, such as marketing and finances, using Salesforce.

Mountain View-based Google pulls in the bulk of its revenue selling ads online through its search portal and on partner sites. During the past several months, though, the company has begun offering online word processing and spreadsheet services in the hopes of luring large business customers.

Together, the companies would be able to provide a wide range of online services, competing with much of Microsoft's business software portfolio, at a far lower price. These would include collaborative software such as instant messaging and e-mail, productivity software such as a PowerPoint-like presentation service, and business software to manage functions like human resources and data analysis.

Salesforce's first quarter revenue, announced last week, grew 55 percent to $162 million. Google earned $1 billion, 69 percent higher than the year before. But its sales to large corporations have thus far been a "non-event," according to Trip Chowdhry, managing director at Global Equities Research, based in Half Moon Bay.

Shares of Salesforce.com stock rose $2.58 to $48.38, and shares of Google were up $0.38 to $470.70 as of 9:53 a.m. Microsoft's stock climbed $0.31 to $31.14.

Google and Salesforce both declined to comment.

Terra Firma Agrees to Buy EMI for 2.4 Billion Pounds (Bloomberg)

By Aisha Phoenix

May 21 (Bloomberg) -- Guy Hands's Terra Firma Capital Partners Ltd. agreed to buy EMI Group Plc for 2.4 billion pounds ($4.7 billion), raising the prospect of a takeover battle for the record label of the Beatles and Coldplay.

Terra Firma offered 265 pence per share in cash, the London-based buyout firm said in a statement. Shares of London- based EMI rose to 271 pence, indicating some investors expect another bid for the world's third-largest music company.

``The company is totally in play,'' Claire Enders, founder of independent media research firm Enders Analysis, said today in an interview. ``They are hoping a bidding war erupts.''

Warner Music Group Corp., whose 2.1 billion-pound offer was rejected in March, may raise its bid for EMI and buyout firms including One Equity Partners LLC are also interested, the Sunday Times said yesterday. EMI, which ended talks with Permira Advisers LLP in December, today reported a 288.5 million-pound loss and a 13 percent revenue drop as music downloads failed to make up for piracy and falling CD sales.

Music companies saw U.S. album sales fall 17 percent in the first quarter. Retailers sold 117.1 million albums in the three months ended April 1, researcher Nielsen SoundScan said last month.

``EMI is suffering from what all the majors have suffered from, the decline in physical sales of CDs,'' said Theresa Wise, a media analyst at Accenture in London. ``They have invested in digital music sales, but those aren't climbing as fast as traditional sales are falling,'' she said.

Will Tanous, a spokesman for Warner Music, said the company had no comment on the EMI bid.

Terra Firma

Terra Firma plans to ``build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy,'' Hands said in a statement.

Hands, 47, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. His other investments have included the German rest-stop chain Autobahn Tank & Rast GmbH.

Last month, he lost out to New York-based Kohlberg Kravis Roberts & Co. in the 11.1 billion-pound takeover battle for Alliance Boots Plc, owner of the U.K.'s biggest drugstore chain.

Hands declined to comment when reached on his mobile phone today. His spokesman, Andrew Dowler, also declined to comment.

Music Publishing

In addition to EMI's recorded music business, Terra Firma would get the more profitable music publishing unit. The division's operating margin increased to 26.3 percent in the year ended in March from 25.1 percent a year earlier.

EMI said April 18 it planned to use revenue in the music- publishing unit as collateral for bonds by the end of fiscal 2008. Asset-backed securities typically carry lower interest rates than bonds that only have a company's promise to repay the debt.

Terra Firma's Hands has used asset-backed debt in the U.K. since 1995 as a strategy to help pay for acquisitions.

The bid is ``good news for EMI,'' said Alex DeGroote, an analyst at Panmure Gordon in London. ``It's an all-cash offer, so it's a way out for shareholders,'' he said.

Before today, shares of EMI had declined 6.4 percent this year to 248 pence.

Multiple Offers

``The EMI board received a number of proposals from several different parties,'' EMI Chairman John Gildersleeve said in the statement. ``Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company.''

EMI said May 4 that it had received several takeover approaches. Greenhill, Citigroup Inc. and Deutsche Bank AG are acting as joint financial advisers to EMI. Dresdner Kleinwort is acting as financial adviser and corporate broker to Terra Firma.

New York-based Warner Music offered 260 pence a share in March, a bid EMI said at the time was ``inadequate.'' The two companies abandoned $4.6 billion offers for each other in July on concern a combination would be blocked by European Union regulators. Warner had bid 320 pence a share for EMI in June.

The combined company would have a quarter of the global market, moving ahead of Sony BMG to rank second worldwide behind Vivendi SA's Universal Music Group.

Falling Sales

The company had a net loss for the year ended March 31 of 288.5 million pounds, compared with a profit of 86.1 million pounds a year earlier, EMI said today in a statement. Sales fell to 1.81 billion pounds from 2.08 billion pounds.

EMI cut its revenue and profit forecasts twice this year. The company, which released albums by Robbie Williams and Norah Jones in the second half, reported an ``unprecedented level of market decline'' and ``an exceptionally high level of product returns'' when it cut its forecasts in February.

Slumping revenue previously has driven EMI Chief Executive Officer Eric Nicoli to seek a combination with Warner Music as a way to reduce costs.

Warner and EMI dropped efforts to merge in 2000 after regulators opposed the plan. EMI's attempt to buy Bertelsmann AG's BMG unit in 2001 was also stymied by regulators. EMI again failed to combine with Warner in 2003, when a group led by Bronfman won the bidding for Time Warner Inc.'s music unit.

Last July, Warner and EMI withdrew bids for each other after the European Court of First Instance in Luxembourg threw out EU regulators' approval of the merger that created Sony BMG Music Entertainment in 2004. The Sony BMG combination is still subject to EU approval.

Blackstone Seeks Up to $7.75 Billion in Stock Sales (Bloomberg)

May 21 (Bloomberg) -- Blackstone Group LP plans to raise as much as $7.75 billion selling stock to the public and the Chinese government in the biggest offering of shares by a private-equity firm.

Blackstone, which manages $88.4 billion, will sell as many as 153.3 million shares for $29 to $31 each, bringing in as much as $4.75 billion, the New York-based firm said today in a regulatory filing. It increased the value of the initial public offering by almost 20 percent after agreeing yesterday to sell a $3 billion stake to China's state-owned investment company.

The sale of the minority stakes would value the firm, founded in 1985 by Stephen Schwarzman and Peter G. Peterson, at as much as $33.6 billion, about a third of Goldman Sachs Group Inc.'s market value. Blackstone's owners, which also include insurer American International Group Inc. and 57 senior managing directors, will get as much as $4.5 billion. Proceeds will be used to expand into new businesses and buy out partners as they leave.

``Blackstone is more appealing now because they have the Chinese connection,'' Andrew Metrick, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia, said today in an interview. ``That will really open a lot of doors for them.''

China's soon-to-be-formed State Investment Co. will buy a nonvoting stake of less than 10 percent, Blackstone said yesterday, giving the firm an ally as it expands into the country's private-equity market. The investment company will hold its Blackstone shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.

Following Fortress

China, the largest holder of U.S. government debt behind Japan, is creating the investment company to buy potentially more lucrative assets such as private equity. Swelled by export revenue, foreign exchange reserves rose by a record $136 billion in the first quarter to $1.2 trillion, the most in the world, according to China's central bank. Most of it is invested in sovereign debt.

Blackstone is going public as the lowest borrowing costs in a decade have allowed LBO firms to take companies private at a record pace. New York-based Fortress Investment Group LLC was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising $635 million in February. Apollo Management LP founder Leon Black is also considering whether to go public. Blackstone spokesman John Ford declined to comment.

``Fortress tested the waters and Blackstone is now following in what is undoubtedly going to be a huge success,'' Juan Manuel Mendoza, who helps oversee $96 billion at Clariden Leu AG in Zurich, said in an interview.

Shareholders

Blackstone's existing shareholders will keep a 76 percent stake in the company worth as much as $25.5 billion. Investors are being offered about 14 percent of the company in the IPO, with the Chinese government taking the remainder.

Blackstone's IPO has drawn scrutiny from unions and politicians about its limited partnership structure, which allows it to avoid corporate taxes of as much as 35 percent on most income. The firm also won't be regulated as an investment company under the U.S Investment Company Act of 1940. The AFL- CIO, the biggest labor union in the U.S., is urging the Securities and Exchange Commission to investigate the offering.

Valuation

The IPO values Blackstone at about 14.9 times 2006 net income, less than the 16.7 times earnings Fortress fetched, according to data compiled by Bloomberg. Fortress shares have gained 51 percent since the IPO, and now trade at 25 times estimated 2007 profit. Values for Blackstone's offering are based on the number of shares outstanding if underwriters exercise the so-called over-allotment option, or green shoe.

The IPO will be the sixth-largest of a U.S.-based company since 1999, according to Bloomberg data. The largest was the 2000 IPO of New Cingular Wireless Inc., now a part of AT&T Inc., which pulled in $10.6 billion. Blackstone's offering tops the $3.66 billion raised by Goldman Sachs in 1999.

Blackstone manages about $33 billion in buyout funds, $20 billion in real estate funds, and about $20 billion in hedge, mutual and distressed debt funds. The firm raised $15.6 billion in July for its latest buyout fund, second to the $20 billion gathered by Goldman Sachs. Schwarzman and Peterson have reaped annual net returns of 23 percent from their buyout funds.

Recent Deals

The firm's recent deals include the $39 billion purchase of Equity Office Properties Trust, the largest U.S. owner of office buildings, in February. Blackstone said May 17 it would buy Alliance Data Systems Inc., a credit-card processor and marketing contractor, for $6.8 billion.

Blackstone's net income rose to $1.1 billion in the first quarter, more than twice the $487 million it earned in the same period a year earlier, and almost half the $2.3 billion it earned in the whole of 2006. Each of the company's 770 employees produced an average of $2.95 million in net income, almost nine times the mean for Goldman, Wall Street's most profitable firm.

Morgan Stanley and Citigroup Inc. are managing the Blackstone IPO, according to the filing with the SEC. Merrill Lynch & Co., Credit Suisse Group, Lehman Brothers Holdings Inc. and Deutsche Bank AG are assisting.

The stock will be listed on the New York Stock Exchange under the ticker symbol BX. Blackstone didn't say when it expects the stock to begin trading.