HP and EDS: Less Than Meets the Eye?
When Hewlett-Packard (HPQ) announced its $13.9 billion takeover of tech-services giant Electronic Data Systems (EDS) on May 13, some pundits hailed a master stroke by HP CEO Mark Hurd. It seemed he had put HP on a more equal footing with market leader IBM (IBM) in the savagely competitive $750 billion services business. But a closer look may be in order. EDS, unlike IBM or Accenture (ACN), doesn't possess a tightly integrated global operation. The Indian company in which it holds a controlling interest, MphasiS, operates largely on its own. So there's reason to question whether this deal is a game-changer for HP.
No Rest for Yahoo
As if Microsoft weren't a fearsome enough suitor for Yahoo! (YHOO), now the ultimate bogeyman looms: Carl Icahn. Just 10 days after Microsoft ended its three-month-long $47.5 billion pursuit of Yahoo, Reuters on May 14 said that the billionaire financier will launch a proxy fight to replace Yahoo's board after accumulating about 3.5% of the company's shares in recent weeks. Icahn may aim to get Microsoft's latest, $33-a-share offer back on track, which would amount to a 22% premium to Yahoo's closing price of 27.14 on May 14.
See "Carl Icahn Keeps Yahoo in Play"
More Banks Take Hits
The worst of the credit crunch may be over, but subprime-connected writedowns keep rolling on, with the total so far approaching $350 billion. In the past week alone, the list of financial institutions booking losses on ailing debt includes bond insurer MBIA (MBI) ($3.6 billion in writedowns), BNP Paribas ($844 million), Royal Bank of Canada ($854 million) and Société Générale (SCGLY) ($1.9 billion). Firms raising new capital include Crédit Agricole ($9.2 billion), Freddie Mac (FRE) ($5.5 billion), and AIG (AIG). But investors don't seem to mind. The major stock indexes have been on a tear the past few weeks.
Insurer, Heal Thyself
For an insurance company—let alone the world's biggest—AIG hasn't inspired much confidence lately that its managers have a handle on risk. On May 8, AIG reported a staggering net loss of $7.8 billion for the first quarter and said it will raise $12.5 billion in capital. Then The Wall Street Journal reported on May 12 that one of its most profitable units, International Lease Finance, is considering breaking away, but the aim may be to pressure CEO Martin Sullivan for changes.
See "Behind AIG's Nasty Surprise"
Forecasters are at loggerheads over oil prices, with predictions for the next four or five years ranging from $70 a barrel to $500. One reason they disagree about the future is that they can't even agree about the present. Data on global production, consumption, and inventories of oil are notoriously unreliable. And the problem is getting worse because demand growth is strongest in some of the countries that have the most unreliable data, including China and India.
Has the U.S. economy dodged the bullet? A growing number of economists think the country has narrowly escaped a recession. They point to the upswing in stock and credit markets since early March and a series of economic reports—from GDP to retail sales—that have been more benign than anticipated. The optimists are also counting on the Fed's rate cuts, which have a delayed effect, plus government stimulus checks, to keep slow growth from turning into shrinkage. (The Wall Street Journal)
Toyota Slows Down
The weak U.S. economy is proving to be a bear even for the Japanese juggernaut. On May 12, Toyota (TM) said it would push back the opening of its planned $1.3 billion plant near Tupelo, Miss., by five months because of a stalled U.S. car market. The factory will make a revamped version of the Toyota Highlander SUV when it gears up in mid-2010. The announcement follows a May9 projection from Toyota that the U.S. slowdown would dent operating profits this year. But global carmakers are still gambling on the U.S.: VW (VLKAY) CEO Martin Winterkorn told newspaper Handelsblatt in an interview on May 13 that the company plans to open a U.S. factory by 2010 in either Alabama, Michigan, or Tennessee. It will turn out VWs, Audis, and Porsches.
GM: Green Motors?
For too long, General Motors (GM) has let rivals like Toyota (TM) and Honda (HMC) take the lead in advanced technology. But now, CEO Richard Wagoner is scrambling to put GM in front. Backed by his board, Wagoner has goosed his R&D budget, approved spending for a slew of hybrids, and is making a play with the super-high-tech Chevrolet Volt electric car. Still, GM faces a slog: It's not easy to sprint technologically when you're limping financially.
The Dolan family, owners of Cablevision (CVC), which in turn owns Madison Square Garden and its resident Knicks and Rangers, has now bought itself a newspaper as well. The Dolans paid $650 million for 97% of Tribune Co.'s (TXA) Long Island (N.Y.) newspaper Newsday, outbidding Mort Zuckerman, owner of the New York Daily News, and Rupert Murdoch, whose News Corp. (NWS) owns the New York Post and The Wall Street Journal. The Dolans, with 3 million cable customers on Long Island, evidently bank on synergies involving advertisers and subscribers to justify paying top dollar for a paper whose circulation and revenues are shrinking. Newsday now has its fourth owner since 2000.
Many Americans may be surprised to learn that Italy has a big-time defense industry, much less one with the clout to invade the U.S. market. But on May 13, Rome helicopter and military-electronics maker Finmeccanica said it agreed to buy New Jersey-based DRS Technologies for $5.2 billion in cash. The deal, which will leave DRS management in place, fortifies Finmeccanica's presence in the U.S., where DRS supplies military matériel ranging from thermal-imaging sensors to trailers. Finmeccanica may also help DRS sell to armies abroad.
It's not just the failure to nab Yahoo that's bugging Microsoft. Now its key Windows business seems glitch-ridden. The Vista operating system, five years in the making, has left some corporate customers unhappy because of the pricey hardware it requires and its paucity of new features. Meanwhile, consumers complain that Vista complicates computing. Windows sales slid 2% during the March quarter, a slip Microsoft can ill afford as it uses desktop software profits to subsidize money-losers—such as the Internet group that may now face Google (GOOG) alone.
White Goods on Sale
It looks like appliances are one good thing General Electric (GE) won't be bringing to life anymore. The Wall Street Journal on May 14 said that GE has hired Goldman Sachs (GS) to run an auction for its white-goods unit, which might fetch $5 billion to $8 billion. CEO Jeffrey Immelt faces fierce pressure to beef up results, and appliances aren't exactly electric sellers in the midst of an economic downturn partly set off by the housing slump. A sale would also boost Immelt's strategy of dumping old-line industry for higher tech.
Apple Can't Refuse
Leave it to mob boss Tony Soprano to get Steve Jobs to see things his way. In a break from its normal download pricing for TV shows, Apple said on May 13 that its iTunes will sell some shows from HBO, including The Sopranos, for $2.99 an episode, a dollar more than for other programs. This is the first time that HBO, which has been leery of allowing its programming to be seen online, will offer its shows as downloads. Episodes of Sex and the City, The Wire, Flight of the Conchords, Deadwood, and Rome will also go on iTunes.
Clear Channel: On Again
The prospect of facing a Texas jury against a homegrown favorite seemed unappetizing, so a group of banks led by Citigroup cut a deal instead, and San Antonio-based Clear Channel Communications (CCU) will go private after all. The country's largest radio broadcaster and its private equity partners sued the banks after they tried to renege on financing the original $22 billion buyout. When bids by the banks to dismiss the suit and delay the trial came to naught, they offered to fund the deal for $18 billion. Clear Channel said O.K. on May 13.
It's turning into a Web site catfight. Classifieds site craigslist sued minority shareholder eBay (EBAY) on May 13, a response to a suit eBay filed last month claiming craigslist diluted its stake. Craigslist charged eBay with unfair and unlawful competition, breach of fiduciary duty, and false advertising, among other allegations. In a statement, an eBay spokeswoman wrote: "We regret that craigslist felt compelled to resort to unfounded and unsubstantiated claims in order to divert attention from actions by craigslist's board that unfairly diluted our minority interest."
Disaster in China
It's been a rough year in the Middle Kingdom. So far in 2008, China has suffered freak snowstorms, riots in Tibet, and, on May 12, a devastating earthquake in the mountains of Sichuan province. The official tally of dead already has surpassed 14,000 as homes, office buildings, and schools collapsed. Wary of the international scorn that neighboring Myanmar has reaped for refusing foreign help after the cyclone there, Premier Wen Jiabao was on the scene within two hours, and other officials appealed for aid. The overall economic impact is expected to be modest.
See "China Quake Won't Shake Economy"
Young and Ambitious
Go-getting students at liberal arts colleges are starting up scores of exclusive business clubs to give them the edge over rivals at undergrad B-schools in snagging plum jobs at investment banks, hedge funds, and consultancies. And the slumping economy is only increasing the arms race for credentials. Many students are joining the groups and plotting their career trajectories as early as freshman year. Meanwhile, financial firms are eagerly responding, creating internships for these eager beavers and backing the clubs with cash.
"Adam Smith is probably dead. Maybe it's time to revisit Karl Marx." Those words were uttered not by some hidebound communist but by one of Turkey's most prominent capitalists, Ishak Alaton. The chairman of Alarko Holding, an $800 million conglomerate, is profiled in the May 4 issue of BusinessWeek Turkey. Alaton believes companies worldwide must do more to bridge the growing chasm between the haves and have-nots—and good works are not enough. To maximize their profits, businesses need to maximize the well-being of their own workers and consumers as a whole. Call it Alaton's spin on Das Kapital.