Oil Goes Through the Roof
Remember back in January, when $100 a barrel for oil seemed shocking? We didn't know how good we had it. Crude shot up $4.19, to $133.17, on the New York Merc on May 21 after Washington reported an unexpected drop in U.S. inventories. Late last week, President George W. Bush wrangled only a token boost in output during a visit to Saudi Arabia. Other bad news for the markets on May 21: The Fed signaled that it's done cutting rates for now. The minutes of its April conclave show that most of those voting felt even the quarter-point cut at that meeting was a "close call." Stocks fell sharply for a second day, with the Dow giving up 427 points over two sessions. There was one bit of good news on May 20: April producer prices rose a modest 0.2%.
Microsoft Tries Again
Like squabbling lovers who can't stay away from one another, Microsoft (MSFT) and Yahoo! (YHOO) resumed talks to team up in some way just two weeks after the software giant pulled the plug on its $47.5 billion bid to acquire the Web pioneer. Microsoft said on May 18 that it "raised with Yahoo an alternative" to an acquisition. The catalyst for the reunion: billionaire Carl Icahn, who launched a proxy fight on May 16 to replace Yahoo's board.
The Deal Economy…
With radio giant Clear Channel's (CCU) $25 billion buyout finally in the clear after months of fist-pounding, lawsuits, and uncertainty, it looks as if M&A is slogging along despite the credit crunch. But the landscape has changed since the heady days of the boom. Deals are going to get tougher, with steeper breakup fees and stricter terms. Who'll win out? Strategic buyers that can pony up cold hard cash.
…And a Deal in Dutch
Once again, leery banks may put the kibosh on a private-equity play—and this one was supposed to be the biggest ever. The New York Times reported on May 19 that the $52 billion takeover of Bell Canada appears to be shaky as the banks, led by Citigroup (C), Deutsche Bank (DB), and Royal Bank of Scotland, maneuver to renegotiate the lending terms. But both Bell Canada and the Ontario Teachers' Pension Fund, which is leading the buyout, say they intend to hold the banks to their word.
Status Quo on Munis
Breathe easy, muni-bond issuers. The U.S. Supreme Court allayed anxieties in the $2.5trillion market on May 19 when it preserved a key incentive for investors, many of whom were standing by before buying. The 7-2 ruling allows 42 states that tax interest on out-of-state bonds to continue exempting interest on those issued in-state. David Souter, writing for the majority, reversed a lower-court ruling that alarmed the industry. He reasoned that muni-funded projects are a boon to the public.
AIG Ups the Ante
The big insurer's credibility gap—and penchant for infuriating shareholders—grew on May 20 after CEO Martin Sullivan said that its equity/debt offering is now expected to pull in $20 billion, much more than the $12.5 billion announced last week, and far more dilutive. Meanwhile former chief Maurice "Hank" Greenberg heard from the SEC that he may face civil charges over his role in transactions between AIG (AIG) and Berkshire Hathaway's (BRK) General Re unit allegedly aimed at inflating AIG's reserves, The Wall Street Journal reported on May 21.
American Cuts Back
With oil prices rocketing, American Airlines (AMR) signaled on May 21 that the industry's plans to shrink capacity may need to speed up. American will cut 40 to 45 older jets from its mainline fleet, plus 35 to 40 regional jets as it trims capacity by 11% to 12%. Shares of parent AMR nosedived more than 24% on the news.
See "American's Desperate Move to Shrink"
The AOL Eight
It's the case that won't end. Capping an investigation that began in 2002, the SEC on May 20 filed civil lawsuits against eight former America Online (TWX) executives, accusing them of illegally inflating the online division's revenues by more than $1 billion by improperly booking marketing arrangements with potential advertisers. Four agreed to settle charges without admitting or denying the allegations. The four others, including former CFOs John Kelly and Joseph Ripp, denied they were involved in wrongdoing. In 2005 parent AOL Time Warner (TWX) settled the charges against it, paying $300 million. Meanwhile, Time Warner on May21 unveiled details of its upcoming cable spin-off, which will net the parent a $9.5 billion dividend.
In the midst of a housing slump, spending on the house isn't the first thing on everyone's mind. So Home Depot (HD) and archrival Lowe's (LOW) continue to struggle, with first-quarter profits down 64% and 18%, respectively. Asked in a May 20 conference call when the housing market would hit bottom, Home Depot CEO Frank Blake jokingly replied: "August 8." Asked what year, he quickly moved on to the next question.
Tax authorities in the U.S. and abroad are hunting big game: wealthy evaders, as well as the asset managers and banks helping them conceal cash. IRS investigators and their comrades overseas, armed with new investigative tools and stiffer penalties, are cooperating as never before—apparently with results. Globalization has long given an edge to tax cheats, but now it may be swinging to governments, eager for their piece of possibly $6 trillion secreted around the world.
It Still Ain't Over
Say this about Senator Hillary Clinton: She doesn't give up, not even after the numbers officially turned against her on May 20. While Clinton notched a primary victory in Kentucky, Senator Barack Obama's win in Oregon gave him a majority of pledged Democratic delegates and appeared to solidify his hold on the Democratic nomination. Clinton, $20 million in debt with three primaries to go, vowed to "finish what I started."
Dog Days in Detroit
The golden age of the American automobile wasn't the 1950s but the late 1990s. Vehicle sales in the U.S. climbed to an all-time high of 17.4 million in 2000, fueled by low gas prices, easy money, and generous rebates. Predictions that sales would hit 20 million annually have proven way off the mark, though. This year they're expected to sag to just over 15 million. That's a painful miscalculation, considering that the industry contributes almost 4% of U.S. economic output and employs 2.5 million people directly and indirectly. (The Wall Street Journal)
A Bimmer-Benz Hookup?
BMW and Mercedes cars may soon have more in common than that they're both German and pricey. BMW confirmed a report in The Wall Street Journal on May19 that it's talking with Daimler's (DAI) Mercedes-Benz about joint development of motors and other components. The carmakers, already cooperating to create hybrid drive trains, are sweating to cut costs as the weak dollar makes their rides more expensive in the critical U.S. market.
Carlyle's Defense Move
Companies seem to be concluding that the best offense is a good defense-industry deal. On May 16, Carlyle Group paid $2.54 billion for a majority stake in the U.S. government consulting business of Booz Allen Hamilton, much of it involving military and security work. It's the latest in an $8 billion-plus defense M&A flurry this month.
Grande Latte for Peltz
Nelson Peltz likes food, and it seems he has a taste for coffee, too. The activist investor, whose Trian Fund Management is gobbling Wendy's (WEN) to merge it with Arby's (TRY), has bought a stake in coffeemaker Starbucks (SBUX). The stake is tiny, just a tenth of a percent, but when the news broke on May 16 it sent Starbucks shares up 6%. Starbucks and Peltz kept mum on the investment, but it made some Wall Streeters wonder whether he'll soon seek a shakeup, as he did at Wendy's and Arby's.
In late 2002, when Barack Obama was a little-known legislator in Illinois, a group of African American business leaders in Chicago decided over bacon and eggs to get behind his candidacy for the U.S. Senate, reports the June issue of BW Chicago. Now the influential and moneyed bunch is helping the Democrat make his way to the White House. Their sway extends far beyond politics, however. They're lending a hand to inner-city school kids, civic efforts, and black entrepreneurs trying to get a start in businesses dominated by whites.