Peace Breaks Out at Yahoo!—for Now
One thing about Carl Icahn: He seems to know when to hold 'em and when to fold 'em. Less than two weeks before Yahoo's (YHOO) Aug. 1 annual meeting, the activist investor on July 21 settled his months-long proxy battle. Probably sensing he didn't have winning cards, he accepted three board seats, including one for himself. But even with a small minority on the 11-member board, he's expected to keep agitating for a buyout or alternative deal with Microsoft (MSFT) . Yahoo CEO Jerry Yang remains in the hot seat following the July 22 report of a 19% decline in second-quarter profits.
See "Yahoo's Tenuous Case for Independence"
Banks: More Red Ink
It was quite a week for U.S. financial institutions, with many reporting awful second-quarter results. Five of the biggest racked up combined losses of $11 billion, three slashed their dividends, many are chopping staff dramatically, and CEOs such as JPMorgan Chase's (JPM) Jamie Dimon and Bank of America's (BAC) Ken Lewis warned that a turnaround won't arrive for more than a year. So what did Wall Street do? Bid up the financials, because it had been fearing far worse. Citigroup (C), for example, lost $2.5 billion, or 49 cents a share, but the Street had expected 66 cents. Wachovia's (WB) profits sank 41% from the year-ago quarter, to $1.28 a share, but analysts had forecast just 53 cents. And so on. Overall, the financials rose 30% from July 15 to July 23. Meanwhile, Citi rainmaker and investment banking chief Michael Klein, who had once been viewed as a candidate for the corner office, left on July 21 to "pursue other opportunities."
A Lifeline Takes Shape
Fannie Mae and Freddie Mac appeared to draw the Get Out of Jail Free card on July 23. The House of Representatives passed a bill giving the mortgage-finance giants a financial lifeline without the stringent conditions their critics had sought. It authorizes the Treasury Dept. to extend Fannie and Freddie an unlimited line of credit without requiring them to eliminate or even trim the dividends they pay shareholders. The Senate was expected to pass it within days. On July 23, Fannie and Freddie shares flew to more than double their levels of eight days earlier, when market fears peaked.
The Rule of Goldman
Treasury Secretary Henry Paulson has tapped another investment banker from his old firm, Goldman Sachs (GS), in his fight to bolster the financial system, said The Wall Street Journal on July 22. Ken Wilson, 61, will retire from Goldman for the five-month assignment. It all began, the Journal reports, when he got a call in an airport from President George W. Bush saying: "Kenny, your country needs you." His move comes barely two weeks after Paulson lost another Goldman vet, Robert Steel, 56. Steel exited Treasury to become the new CEO of battered bank Wachovia.
Billions for a Biotech
Drugmakers continue to gobble each other like pills. On July 21, Switzerland's Roche (RHHBB) offered a cool $43.7 billion to buy the 44% of Genentech (DNA) it doesn't already own. Since Roche took its stake in the San Francisco biotech 18 years ago, the partnership has proved dizzyingly lucrative, producing cancer blockbusters such as Herceptin and Avastin. But to close the deal, Roche will probably have to boost its offer and convince shareholders that it will preserve Genentech's entrepreneurial culture. Meanwhile, on July 18, Israeli generics giant Teva Pharmaceutical (TEVA) offered about $9 billion, including assumed debt, for U.S. rival Barr Pharmaceuticals (BRL).
Don't look now, but high finance is tucking in its silk tie and holding its nose to scrounge for investing opportunities in waste. Recycling is no longer a money-losing proposition done purely out of civic responsibility. Soaring energy and raw material prices have made much of the stuff we throw away more valuable than ever. So waste is money...assuming you can get the kind you need.
He mowed down the bad guys and captured the Joker, but Batman's box-office heroics aren't enough to lift Hollywood's blues. The Dark Knight set an opening-weekend record of $155.3 million, meaning Warner Bros. (TWX) sixth Batman installment should easily leap over a $300 million final domestic tally. Even so, overall 2008 movie box office so far has dropped by roughly 1%, to $5.4 billion, with admissions running 3.7% behind last year. And things are even worse for the Caped Crusader himself: Star Christian Bale, in London to promote the film, was arrested on July 22 for allegedly assaulting his mother and sister in a hotel room. Through his publicist, Bale denied the charges.
Drug History, Please
That medication you're taking could have a surprising side effect: no health insurance. The nation's biggest insurers are screening applicants for individual coverage based on prescription drugs they've taken—and using the reports to reject consumers, charge higher premiums, and exclude medical conditions from coverage. Privacy advocates worry about disclosure of medical information that most people assume is confidential, and other skeptics predict that the use of drug profiles will make it even harder for the uninsured to find coverage.
A Blockbuster in Pain
Still more on the pharma front: Vytorin has taken another hit. The onetime $2 billion blockbuster drug from Merck (MRK) and Schering-Plough (SGP) combines two cholesterol-lowering drugs in a single pill. But sales sank earlier this year after a study found the drug didn't slow the narrowing of arteries any more than standard cholesterol-lowering medications. Now a second trial, announced on July 21, shows that Vytorin doesn't help patients with heart-valve blockages—and more people on the drug got cancer than those taking a placebo. The companies downplayed the cancer findings, arguing they were the result of chance. Both companies' stocks swooned.
See "Vytorin: A Setback for Merck and Schering"
Fewer Ad Dollars
Get set for advertising's next wave of austerity. With the U.S. economy limping and turmoil shaking Wall Street, some of the biggest blue-chip companies aim to curb their marketing spending. Five that together account for more than $10 billion in U.S. ad outlays—Anheuser-Busch (BUD), Coca-Cola (KO), General Motors (GM), Nissan, (NSANY) and Procter & Gamble (PG)—have already announced plans to cut back or are looking to impose more financial discipline on their marketing strategies. (Advertising Age)
No Harm, No Foul
Remember that little "wardrobe malfunction" involving Janet Jackson and Justin Timberlake at the 2004 Super Bowl, when 90 million viewers got a glimpse of her breast during the halftime performance? Well, it won't cost CBS (CBS) a half-mil after all. On July 21 the U.S. Court of Appeals overturned a $555,000 fine imposed by the FCC, ruling that the agency had "arbitrarily and capriciously departed from its prior policy" on indecency that exempted fleeting broadcast material from its rules.
The British economy "is in danger of being crushed between the jaws of world credit and commodity markets." That's the grim assessment in a new report from an independent forecaster. Growth is expected to slow to 1.5% this year and to 1% in 2009—the weakest showing since the early 1990s. The catalog of ills mirrors those across the pond: Housing is collapsing, business confidence is shot, and inflation is on the rise. Yet British consumers seem to be in denial. Instead of trimming spending, they're relying more on credit cards. Sound familiar? (Ernst & Young)
Taking Aim at Smoking
Look out, Big Tobacco: Here come Michael Bloomberg and Bill Gates. The power billionaire duo announced on July 23 that they will spend a combined $500 million over the next five years to fight what public health officials have deemed a global smoking epidemic. Bloomberg will kick in $375 million, and Gates's foundation will donate $125 million. The money will go toward nudging developing nations to raise tobacco taxes, ban ads, and create smoke-free public spaces.
See "Bloomberg, Gates Team Up to Fight Smoking"
GE's Mideast Gambit
General Electric (GE) CEO Jeffrey Immelt is going where the money is. On July 22 he struck a deal with Mubadala Development, an investment arm of Abu Dhabi, which is probably sitting on the world's highest cash pile. The two will create an $8 billion joint venture to invest in financial services in the Middle East and Africa. Mubadala will gradually acquire GE stock to become one of the 10 largest shareholders.
See "GE Follows the Money to Abu Dhabi"
No one expected miracles as officials gathered in Geneva on July 21 to negotiate how to lower global trade barriers. But there was at least a chance that the world food crisis would inspire progress in the Doha Round talks, which have dragged on since 2001 and have repeatedly been declared on their deathbed. Europe offered to cut tariffs on agricultural goods by 60%, up from 54%, but Brazil's Foreign Minister, Celso Amorim, soured the atmosphere by comparing what he called the wealthy nations' deceptive tactics to those of Joseph Goebbels, Hitler's propaganda chief. And Europe so far isn't giving any ground on banana tariffs, a major sticking point.
Zapped in China
Now you see it, now you don't. A 129-page report written by the research arm of the Shenzhen Stock Exchange and posted on its Web site on July 16 slammed the overseers of China's securities markets, saying they "intervene too often and distort market operations." The paper promptly disappeared the same day it went up. It also charged that China's bourses are saddled with too many rules, which contribute to irrational market swings. But while regulations abound, enforcement remains lax, said the authors: That's one reason there are so few reported instances of insider trading. (Caijing)
Worried About Steve?
Is Steve Jobs sick? That question preoccupied Apple (AAPL) investors, at least for a time, after The New York Post reported on July 22 that hedge fund investors were alarmed by his frail appearance of late. Apple reported record results the same day but said it expected gross margins to fall for the next quarter and into 2009, which sent the stock reeling. But on July 23, BusinessWeek.com said Jobs had not suffered a return of the pancreatic cancer he was treated for in 2004, and shares rebounded handily.
Once known as Europe's granary, Romania is well on its way to becoming one of the Continent's leading producers of biofuel crops, reports the July 22 edition of BusinessWeek Romania. Cultivation of rapeseed, used to make biodiesel, is exploding, with 741,000 acres now devoted to the crop-more than triple the figure from seven years ago. Meanwhile, foreign and local investors are pouring millions of dollars into new processing facilities. This green revolution is being spurred in part by European Union subsidies—the EU has set a goal of boosting biofuels' share of all fuel to 10% by 2020. Yet already there are worries that Romanian consumers will get stuck with the tab in the form of higher food prices, as farmers turn away from traditional crops.