Thursday, May 08, 2008

Bristol Myers Squibb sells off wound care division Drugmaker Bristol Myers Squibb (BMS) announced it has sold off its ConvaTec division to a private equity consortium for $4.1 billion. The buyers were Avista Capital Partners (US -based) and Nordic Capital (European). These two companies own Denmark-based pharmaceutical company Nycomed. The division specializes in therapy and surgical care, in such areas as wound care and colostomy equipment. The company had also recently cold its 525 million (€339.63 million) sale of the company's medical imaging unit to Avista for $525 million. The company also plans to cut 10% of its jobs and sell of part of its Mead Johnson Nutritionals unit. The reason? The company is intent on moving into the biopharmaceuticals area, and the cash will be used for further acquisitions. As an AP story ("Bristol-Myers Squibb sells ConvaTec business unit for $4.1 billion to Nordic Capital Fund", 5/2/07) notes "Bristol-Myers and many of its peers have been on a mission to reinvent themselves as blockbuster drugs lose patent protection and generic drug developers cut into their revenue drivers." Of course, that's a strategy other pharma companies are trying with mixed results - the days of the innovative and wide-selling drug breakthrough seems to be near an end. While the big companies need to buy out innovative biopharmaceutical companies to keep the pipeline running, there have been few big moneymakers comparable to patent drugs like Pravachol and Plavix, two current BMS drugs. One aspect of this story is that it's one f the few major private equity buys in the past few months, and it is a sign that credit markets are making at least some big loans. 10:22:52 PM

comment []

	Tuesday, May 06, 2008

More on Yahoo-Microsoft With the absurdly high Microsoft bid for Yahoo even more absurdly refused by Yahoo management, Microsoft shareholders should breathe a sigh of relief that their management's foolish move failed. Bidding far too much for too little is a commonplace in the Web 2.0 sphere, a trend that is nicely cataloged in a Slate.com article called "Yahoo-bris!" (5/5/08). The article recounts the foolish Yahoo acquisition of two companies: blog software GeoCities ($5 billion down the drain) and Web audio company Broadcast.com (another $5 billion). And that's just the most obvious example: Yahoo over the years has acquired a thicket of Web properties that it doesn't seem to know how to handle. Some of these-like photo service Flickr and social bookmarking site del.icio.us-are cool Web 2.0 tools that may yet find productive ways to integrate into Yahoo's broader business. Others are wooly legacies-like MusicMatch and auction sites in Asia-that no longer seem to fit with what Yahoo does. The real point is that Yahoo is three things: a search engine that people rarely use any more; a portal, something that once made sense, but that no one needs any more; and a collection of Web 2.0 properties that are not very well geared to making serious money. Worst of all, it's hard to imagine any of the three suddenly become more profitable (we're talking about upticks in the hundreds of millions of dollars), while it is easy to imagine them getting less so. They way I see it there are four kinds of value an acquired company can represent. 1. Companies with tangible assets like bauxite mines, soybean processing plants, or oil refineries. These will have r4esidual value whatever happens to the world economy. 2. Tried and true brands that have enormous residual power in slow moving industries, such as Kraft or Canon, Coca-Cola or Microsoft, and even GM. These can be vulnerable, but if they decline, they will do so gradually and reversibly. (GM isn't dead yet, though management is working hard at it.) 3. Unique expertise that can be replicated but not easily, such as IBM, FedEx, the big accounting firms. These too are vulnerable in a downturn, but setting up a rival will take a major and lucky campaign and a big stumble form the incumbents. 4. Companies that have no tangible products, that have brands that don't have long-term value (no one would miss them if they were gone tomorrow), and an expertise that others can (and have) replicated. Such companies can disappear very quickly. Yahoo, needless to say is in category 4. 10:53:30 PM

comment []

	Friday, May 02, 2008

Fertilizer shortage The current food shortage is being driven by another key shortage: one in fertilizer. The addition of inexpensive chemical fertilizer to developing countries' fields, as much as anything else, has driven a worldwide trend to more abundant crops and low-cost food. No longer, according to a recent New York Times article ("Shortages Threaten Farmers' Key Tool: Fertilizer", 4/40/08). According to the article, prices for some kinds of fertilizer have tripled over the last year. Even in the US, fertilizer is in limited supply so even farmers who can afford higher prices (thanks to high crop prices) can't always get as much as they need. The situation in places like Senegal and the Philippines is far worse. As the article notes, "The demand for fertilizer has been driven by a confluence of events, including population growth, shrinking world grain stocks and the appetite for corn and palm oil to make biofuel. But experts say the biggest factor has been the growing demand for food, especially meat, in the developing world." The demand for fertilizer is growing by 5% a year, far faster than the ability of the companies in the industry to supply it. Aside from traditional use of manure and other organic materials for fertilizer (far less efficient), fertilizer mainly consists of either mined materials (most notable phosphate and potash), and manufactured fertilizers (moistly nitrogen combinations like ammonia and urea). And, as with other areas of looming resource shortages, fertilizer is in increasingly in the hands of oligopolies of producers and suppliers (sometimes the same companies_. The big producers are: Yatra International, spun off by Norsk Hydro in 2005 Uralkali Fertilizer, the main Russian supplier Agrium, the Canadian company just making large acquisitions, a major supplier of nitrogen products, a major distributor in North America K+ S AG, a German company spun off from BASF Potash Corp. of Saskatchewan (PCS), which holds the world's 'largest potash reserves Mosaic, another Canadian company owned in part by Cargill with strong holdings in potash and phosphate mining Even more significant, a trading association called Canpotex Ltd., looks after the Asian interests of Agrium, PCS, and Mosaic. All of these companies have seen record profits in recent quarters, as prices of the commodity they sell have skyrocketed. More than with oil, but as with iron ore, copper, and agricultural seeds, this is a sector that is increasingly dominated by a few companies. The incentive has to be strong to prolong the fertilizer crisis as it is such a good money earner. While some new players may arrive in the nitrogen product section, it is estimated that the building of new plants for such processing will take several years, and the companies already with expertise and deep pockets are likely to be the developers. 9:31:09 PM

comment []

	Monday, April 28, 2008

Gum is from Mars Mars Inc., the privately-held maker of Mars bars, Snickers, M&Ms, Skittles, and Three Musketeers, announced it would purchase Wm. Wrigley Jr. Co., the world's #1 chewing gum company, in a $28 billion deal. Mars, which is already the #1 seller of chocolate bars, will become the #1 confectioner in the world, beating out rival Cadbury. These are two venerable companies. chcolate maker Mars is 98 years old, while Wrigley (the maker of Double Mint, Juicy Fruit, Orbit, and LifeSavers) is 117 years old. The gum business is growing faster than chocolates, and the margins are higher. (Incidentally, Mars is, pre-deal, even slightly bigger in pet food than in candy, Cadbury, which bought Adams Gum from Pfizer in 2003, is the second largest chewing gum maker, with such brands as Trident and Dentyne. The deal has stoked the rumor mill about even further consolidation in the industry, Cadbury, which is in the course of spinning off its Schweppes beverage division, is cash-rich, and some kind of a deal with Hershey may be in the works. As a story in The Telegraph ("Mars and Warren Buffett in Wrigley deal," 4/29/08) notes: "A deal between the pair would make sense, because Cadbury lacks any form of strong presence in the US, while Hershey does not have the global reach which Cadbury is known for." Involved in the deal is Warren Buffetf;s Berkshire Hathaway, which will put up $4 billion in return for a share in the Wrigley division. Chances are it's a great deal. It is generally considered to be a good move to be in the candy industry during a recession People may stop buying wine, furs, and cards, but they'll always splurge on candy. In addition, unlike an airline, a bank, or a Yahoo, these are concrete buys with long histories of profit and immense brand acceptance. And since both companies deliver to the same set fo resllers and sell products in the same price ranges, there are real chances of synergy in sales, distribution, and development. 10:09:22 PM

comment []

	Sunday, April 27, 2008

Oi That's the name of a new company to be formed as Brazilian telephone company Telemar acquires Brazilian landline telecom provider Brasil Telecom. The deal is for $3.5 billion. Oi will control almost two-thirds of the country's land lines and be the #4 mobile phone company. The purchase of Brasil Telecom will add 9 million land customers and 4.6 million mobile subscribers. It will also create local monopolies in some states. The top three cell phone companies are (#1) Vivo, a joint venture Telefonica and Portugal Telecom; (#2) TIM, owned by Telecom Italia; and (#3) Claro (formerly Embratel), owned by Mexico-based America Movil. Some the Oi deal is being supported by the Brazil government to enhance local ownership of telecommunications. The company also has plans to spread its operations abroad. As usual, there are already rumors of further consolidation, this time of the mobile phone operations of Vivo and TIM. 6:41:19 PM

comment []

	Friday, April 25, 2008

Swallowing up Wendy’s   Triac Companies, led by billionaire Nelson Peltz, announced it would acquire fast food chain Wendy’s for $2.4 billion. Wendy’s is the #3 US hamburger chain, after McDonald’s and Burger King. The purchase is a stock swap, nad is lower than might have been expected. Wendy’s had been seeking suitors, but most private equity firms are not now in a position to pay a premium. Wendy’s has over 6,500 retail outlets, in the US and in 20 other countries, with about 1,400 owned directly by the company, the rest franchises/   Triarc operates the Arby’s chain, fast food restaurants that specialize in roast beef sandwiches. There are about 3,700 stores in the chain, with over a thousand company-owned. Triac has some minority positions in other companies in the food industry as well.   Dave Thomas the founder of Wendy’s (in 1969) and the chief ad spokesperson for the chain, build a highly successful chain. Since 2002, when he died, the company has been slowly declining, as Burger King and McDonald’s have gotten ever more aggressive, in such areas a breakfasts and discount menus. Peltz had already become the largest shareholder in the company, and he exerted a lot of pressure on management to sell out.   The thought is that Triac will drop less profitable Wendy’s stores, and combine some with Arby’s, much as Yum Brands combines Taco Bell and KFC sites.   Obviously , there will be some synergies in terms of purchasing and administration, but these will be pretty scant. Neither Arby’s nor Wendy’s has a very sexy reputation right now, and many are afraid that Arby’s will drag down the image of Wendy’s, which had been somewhat superior to that of other burger chains.   Furthermoew, life is getting difficult for all restaurants now,a s food price skyrocket and disposable income is getting tighter. It’s never easy being #3.   10:33:27 PM

comment []

	Thursday, April 24, 2008

Shaking off the wires A few weeks ago, Verizon, the #2 US telephone company, took a dramatic step. It finalized the sell-off of its wired telephone lines and its high speed Internet service in northern New England (Maine, Vermont, and New Hampshire). The buyer was a company called FairPoint Communications, which bought the land lines for $2.3 billion. The deal is part of a process of Verizon shedding less profitable operations. The company also recently sold off its Hawaii landlines operation (Hawaiian Telecom) to private equity. It has also sold off its yellow pages operations. Two years ago, it sold its Latin American landline opetaions. The deal propels FairPoint, which now has rural telephone operations in some 20 states, the 8th largest phone company in the US, no great claim since most of the competition has been swallowed by the Verizon and AT&T juggernauts. But it does signify the way in which land lines are increasingly becoming a liability for high-flying firms like Verizon and AT&T that make much more money selling cell phone service, which requires far lower cost in terms of infrastructure maintenance. It also can sell at profit cable TV and Internet services where populations live close t together. A Bloomberg News story from earlier this year ("Verizon Sales Miss Estimates as Home-Phone Users Fall ", 1/28/08) documents the decline of land line telephone service: "Verizon lost 875,000 phone lines in the quarter [end of 2007], including 476,000 primary home-phone lines, as customers switched to cable voice plans or began using wireless service exclusively." Alltel and Sprint have sold and spun off their landline operations over the past few years. Can AT&T be next? 9:47:49 PM

comment []

	Tuesday, April 22, 2008

Ferilizer giant Canadian-based Agrium, the largest North American retailer for farmers and the #3 producer of potash- and nitrogen-based fertilizers, got the go-ahead from the US Federal Trade Commission to buy US-based United Agri Products (UAP), a farm store retail chain. The deal is for $2.5 billion, including debt, Agrium will have to sell off at least seven of UAP's 370 retail outlets, but will end up with a total of over 800 outlets in North America. Both companies sell such products as fertilizer, seeds, and agricultural chemicals to farmers across the US and Canada, while Agrium also has outlets in Latin America. The Agrium outlets go under such names as Crop Production Services and Western Farm Service. Agrium this month also bought control of Common Market Fertilizers, a major European fertilizer distributor, one of nine acquisitions that the company has made in the last 10 years. These buys include both Nu-Gro Technologies and Pursell Technologies in 2006, both of which specialized in controlled-release fertilizers. One of Agrium's areas of profit is in its control of potash resources in Canada, one of the few countries with natural deposits. Potash is following the course of other commodities like iron and copper. Demand from China is skyrocketing and supplies are limited geographically. Agrium, along with two other Canadian companies, Potash Corp. of Saskatchewan (#1) and Mosaic (#2), control most of the North American supply. (Mosaic's main stockholder is Cargill.) Agrium through its acquisitions is gaining global scope as well as vertical scope, in that it mines, processes and retails. Fertilizer, like chemicals and seeds, is becoming a global industry with a limited number of players. 9:36:57 PM

comment []

	Sunday, April 20, 2008

Fire sale at Citigroup Citigroup announced another big loss, this time for $5.1 billion and announced it would fire another 9,000 employees. And yet the stock market went up. Apparently, analysts thought the losses would be even greater. But Citigroup is low on cash, and it's not clear how much more mortgage-backed securities the company will have to write off in the upcoming year. How the mighty have fallen! According to a Bloomberg News article ("Citigroup's Market Value Drops Below Apple's Amid Credit Crisis", 4/12/09) At the end of 2006, Citigroup Inc. was the fourth-largest company in the Standard & Poor's 500 Index, with a market value of $274 billion, almost four times that of Apple Inc. Now investors say the maker of iPods is worth $7.7 billion more than the biggest financial services provider. To bolster its position, Citigroup has been selling off assets. It sold most of its North American commercial lending and leasing unit to General Electric's GE Capital Solutions in a $13.4 billion deal. It sold its Diners Club credit card operation to Discover for $165 million. The now little-used credit card was the first independent credit card company when it was founded in 1950. It will fetch just a rounding error, but every little bit helps. It sold off the retirement plan of Powell Duffryn Plc, a British engineering firm to pension insurer Paternoster for $788 million. It is also in negotiations to sell off $12 billion of junk-grade loans to private equity groups Apollo Management, the Blackstone Group, and TPG Inc. The general rumor is that the company may have to sell off its Smith Barney brokerage operation. The carefully built empire of Sandy Weill is sinking, and it's throwing excess cargo overboard in order to keep afloat. 9:54:47 PM

comment []

	Friday, April 18, 2008

Blockbuster's big joke Movie rental chain Blockbuster added some comedy to the business pages this week by making a $1.35 billion unsolicited bid for consumer electronics chain Circuit City. They are kidding, aren't they? The real difficulty is deciding which company is more likely to go belly up first. But, even forgetting that, there is not even a whiff of synergy between the two companies. There is some talk of setting up Blockbuster kiosks in Circuit Cities, but the problem is that 1) people are not going into Circuit City stores very much; 2) they certainly aren't likely to drop in every week to pick up a movie; and 3) while Blockbuster stores are in easy-in, easy-out strip malls, Circuit City stores are in large shopping centers with a long walk in and out of the store. The other thought is that maybe Blockbuster could sell electronics on the side. Wrong, the company tried that a decade ago and it failed miserably. In short, the businesses have almost nothing in common. A Bloomberg News story ("Blockbuster Bids Up to $1.35 Billion for Circuit City", 1/14/08) quotes an analyst who said "There are no historical examples of success of a company that does one thing trying to acquire infrastructure to do something different." Blockbuster has over half a billion dollars in long-term debt, and has had profits in only one of the last ten years. Anyone extending the company a billion dollars more credit at this point would be insane. The headline at the Grand Rapids Press website says it best: "Blockbuster and Circuit City: A match made in ... whaaaa?" 9:38:00 PM

comment []

	Wednesday, April 16, 2008

Delta to buy Northwest The big news is the agreed-upon acquisition of Northwest Airlines by Delta, a deal that will create the world's largest airline. Even though this is the big headline deal of the month, the curiosity is how little money, relatively, is involved. Delta will make a stock swap with Northwest stockholders worth $3.4 billion. (By contrast, Japan's Takeda Pharmaceutical will spend $8.8bn in cash to acquire Millennium Pharmaceuticals, a relatively unknown US drug firm specializing in oncology drugs.) The new company will keep Delta's name. The two airlines have very little overlap in their route systems. The new company would own would have over 800 airplanes and 75,000 employees. Already, talk of further consolidation is "in the air." Continental Airlines and United Airlines are talking, for example, the #2 and #4 US airlines. (US Airways bought America West in 2005). There is the usual talk of synergy, but the fact is that there are few opportunities for saving money. Airlines are already minimally staffed, so there is little opportunity for reducing aircrews or baggage handlers. There are few duplicate flights, and even then, most flights these days run a close to capacity. Fixed costs like fuel and maintenance are unlikely to be reduced. The real reason for the deal is pricing power, the power that an oligonomy can have in two directions. First, with fewer than the current eight major carriers, and with the recent demise of smaller low-cost competitors including now bankrupt Frontier, Skybus, Aloha, and ATA, companies will have much more opportunity to raise ticket prices and cut corners on passenger service. Second, with fewer places for pilots to be employed, airlines can continue to beat down pilot salaries and benefits, a major expenditure. Top US airlines   Rank Airline Passenger miles in 2007 (billions) 1 American 138 2 United 117 3 Delta 103 4 Continental 84 5 Northwest 73 6 Southwest 72 7 US Airways 61 8 JetBlue 28 9 Alaska 18 10 AirTran 17 Source: Bloomberg News 5:30:58 PM

comment []

	Monday, April 14, 2008

Cadbury spins off beverages After a year of effort, Cadbury Schweppes recently got stockholder approval to spin off its North American beverage division, creating anew company to be called Dr Pepper-Snapple Group (DPSG). Cadbury will become a chocolate only company, in a good example of hwy mixing businesses often does to work. The company's brands also include Mott juices, Seven-Up, A&W, Canada Dry, Schweppes, Sunkist, Nantucket Nectars, Hawaiian Punch, and Sunny Delight The move has been a year in the making and is generally considered a goodone. The two divisions functioned as separate companies, except that the US drinks group had too get an OK from the UK headquarters very time it made a move. The company got rid of its European drinks operation in 2006. But the new beverage company faces serious obstacles, as outlined in a BusinessWeek article ("New Future for Cadbury Schweppes". 4/11/08): In the fiercely competitive $106 billion U.S. beverages market, future expansion for DPSG is no sure bet. Market leaders Coca-Cola and Pepsi also have targeted fruit-based drinks-and enjoy larger distribution networks and deeper pockets. DPSG brands such as Nantucket Nectars and Hawaiian Punch already are feeling the squeeze, and analysts are skeptical that the business can hit its 3% to 5% annual sales growth targets. And some experts say that the remaining Cadbury company, now the #1 candy company in the world, may be involved in more mergers. Talk is that Cadbury may buy IS rival Hershey, but on the other hand, some analysts see the new candy-oriented company as ripe for a buyout from rivals Kraft or Nestle. 10:01:18 PM

comment []

	Sunday, April 13, 2008

Two well-known office brands bought These are not very big deals, but they are companies that have been around for a while in the tech market and it is interesting to see them go. Iomega First, Iomega, the originator of the Zip drive in the 1990s and (in the 1980s) the Bernoulli box, was bought out by data storage giant EMC, the leader in the data storage segment. The price is $213 million. EMC beat out a consortium of Chinese storage makers. The move is one into the consumer market by EMC, which has mostly been involved at the high end. EMC has made a number of strategic buys over the last few years, both in hardware and software (security and data management). The key market is for network-attached storage (NAS), an area where HP and Dell are now the significant players. The idea is that EMC can harness its excellent intelligent backup software with the position Iomega has in small businesses. A decade ago, Iomega had a gross income of $1.7 billion, as it was one of the few vendors of removable storage. But the ubiquity CDs, DVDs, flash memory, and the low cost of server storage have eroded the Zip and Jaz drives to nothing. The company nearly went bankrupt a few years ago. T^EH company managed to save itself by specializes in managed storage for small businesses and through its REV drive format, a removable hard disk that holds up to 120GB. Iomega's rise and fall is a function of the amazing changes in the storage industry over the past two decades. I remember when storage meant incredibly expensive Control Data disk packs or, on the computer, single-sided floppy disks and even cassette tapes. Now hard disk dives on home computers can hold over 100GB of data. Danka The other move this week is the purchase of copier dealer chain Danka Office Imaging by one of its suppliers, Konica Minolta. The US company is a division of UK-based Danka Business Systems PLC, which it is planning to dissolve. The deal was for $240 million. The story is similar to Iomega. Danka (which is 31 years old) was once a major power in the copier industry, with a wide network in North America and Europe. In 2006, it sold off its European operations to Ricoh, another major copier manufacturer, for $210 million. Last year it lost almost $30 million. For Konica Minolta, the deal was part of a campaign for it to move up into the first tier of copier companies, to join rivals Canon, Ricoh, and Xerox. The move was also a reaction to Xerox's buyout of copier retail chain Global Imaging last year, as more and more the copier manufacturers swallow up the most profitable part of dealer layer that stands between them and the customer. Part of this is to serve national and international clients, as only the big can serve the big. Konica Minolta was formed by the 2003 merger of Japanese electronics/copier companies Konica and Minolta. Over the last two years, the company has left the camera and film industries, so that it is more than ever a copier company. 4:15:33 PM

comment []

	Wednesday, April 09, 2008

Novartis eyes the future This week Swiss-based drug firm Novartis announced the purchase of Alcon, a US-based eye care company, from Swiss-based Nestlé. The deal is for $39 billion. Novartis has been making a series of moves in the last few years, away from its patent pharmaceuticals business and into other health-related area, including generic drugs and vaccines. The Alcon deal will make it the world's #1 vendor of eye care produces, with a 22% market share worldwide. Alcon makes optical drugs, devices for eye surgery, and solutions for contact lenses. Its brands include Opti-Free, Patanol, Systane, and Travatan Nestlé, the world's #1 food company, has seen its involvement in Alcon as strictly financial -- the closest Nestlé comes to health products is in the area of nutritional supplements, and clearly unloaded it when the price was right. Nestlé bought Alcon in 1977 for $275 million. This is interesting in several ways: It shows that big strategic deals are still doable in spite of the credit crunch. That's especially true if you are spending euros. It shows our recurring pattern of discards and pick-ups, with both sides happy, and Nestle divesting itself of a division far from its core business. It shows that Novartis is well aware that the days of big money from prescription drugs is waning and its drug pipeline is running dry, so diversification is essential. By the way, in 2006 Nestlé bought Novartis's medical-nutrition division ($2.5 billion), and, in 2007, it bought Novartis's Gerber baby-food business. The current thinking sis that Nestlé, flush with cash, may try to buy he Mead Johnson infant-nutrition business from Bristol-Myers Squibb, which is trying to unload it. It's an almost perfect circle, with money from a drug company will help Nestle buy a food division from a drug company. (Of course, it also rumored that Nestlé (A 28% owner) may buy the remainder of French cosmetic company L'Oreal, so maybe not sticking to its core business so much.) It indicates that Alcon, a company known to no one other than financial analysts in the health field or ophthalmologists, can have a value very close to what Microsoft is offering for Yahoo, a comnpany known to everyone. Yahpoo is a company that, after all, has a set of very intangible products and servcies that could become worth a whole lot less in a big hurry, Alson's products are well-etsablished and tangible, and aging baby boomers are going to need them more than ever in the upcoming years.   10:21:31 PM

comment []

	Tuesday, April 08, 2008

New problem for the steel industry: the coke oligopoly Battered with high iron ore prices, the non-very consolidated steel industry now faces an even bigger problem: a major rise in the price of the coke, the specialized coal that they use in the steelmaking process. And while iron price have risen by 65% since last year, coke prices are running around 400% higher, according to a Wall Street Journal article ("Higher Coke Prices Loom In New Hit to Steelmakers", 3/8/08). Just as with iron ore, early negotiations for coke are setting the price, in this case with South Korea's Pasco, the world's #4 steelmaker. And the prospects are alarming, as the article points out: Posco officials weren't available for comment on reports that it had agreed to pay about $300 a metric ton for coking coal compared with the current contract price of about $100 a metric ton. And the winners: the same set of mining giants that keep profiting from expanded world demand: namely, BHP Billiton, Rio Tinto and Xstrata. The first two of these companies are already rolling in cash thanks to higher iron ore prices, while Xstrata has big positions in other metals. In fact, all three companies have been the targeta of even bigger mining merger moves in the past few months. Aside from demand, the prices are higher because of flooding in Australian coal regions. But above all, the big mining companies are profiting from an ever growing demand and a static supply of raw materials. The consequence will trickle down the production chain, to construction, automobile and heavy equipment manufacturing, appliances, and the many other uses that have steel components. The big mining companies have now more economic power than many countries. 10:25:45 PM

comment []

	Sunday, April 06, 2008

Chocolate price fixing continues We've reported about price fixing by Big Chocolate both in the US and in Europe. Now some real action i slikely, thanks to teh retailers that sell chocolates to consumers. Now the big vendors (including Hershey, Mars, Nestlé, and Cadbury Schweppes, along with Canadian candy distributor Itwal) are being hit with price-fixing lawsuits by retailers. Among the plaintiffs are department store chain Meijer; super market chains Safeway, Kroger, Giant Eagle and Publix; floral chain Hy-Vee; and pharmacy chains Walgreen, CVS Pharmacy, and Rite-Aid, according to a Wall Street Journal story ("Retailers' Lawsuits Accuse Candy Makers of Fixing Prices", 4/1/08). The article cites on one of the 50 odd lawsuits: "The chocolate confectionery product market was ripe for collusion," the lawsuit says. "In addition to the collective market power exercised by the defendants...defendants' profits from these products have suffered in recent years because of increasing health concerns, and changing consumer preferences, with respect to chocolate consumption." In one case cited, Hershey, Nestlé and Mars all demanded 16% to 17% piece hikes in the same month. The vendors all claim that the price rises are totally coincidental with no overt agreements between companies. The article cites another lawsuit that describes chocolate as "the prize of youngsters and the secret craving of adults. But chocolate is big business. The business of manufacturing, pricing and marketing chocolate confectionery products is susceptible to the same kinds of sinister market forces that infect other businesses as well." Antitrust probes are happening at the government level, but clearly it is mostly big companies that can get antitrust relief versus other big company. While government antitrust is moribund, company-versus-company antitrust is still alive and kicking in the US.  This does not, of course, mean any lower prices for consumers. Whatever money changes hands will be most likely between big companies. At best, consumers are likely to get a free coupon for a couple of Three Musketeers or Butterfingers.   4:03:19 PM

comment []

	Saturday, April 05, 2008

Citi's big failure "Ten years ago this Sunday, on April 6, 1998, Sandford J. Weill rewrote the rules of Wall Street." That's the opening sentence of recent New York Times article "A Stormy Decade for Citi Since Travelers Merge". April 6 was the day Citigroup was formed, out of the acquisition of Travelers UInsurance by Weill's Citibank, making (as the article notes) "the biggest financial services company the world had ever seen." The thought was that the synergies between the largest US bank and one of the biggest insurance companies would change the map in finance, offering a one-stop shop for banking, insurance, brokerage, and other financial services. But a decade later, "is regarded by some as one of the worst mergers of all time." Citigroup is in real trouble in spite of its size and scope." Even with a workforce over 300,000 and a presence in over 100 countries, the company has gone from #1 in value in the banking industry to #3, behind Bank of America and JP Morgan Chase. A new CEO (Vikram Pandit) is trying to keep the ship afloat with the tenth reorganization in the last six years. The stock value is down, thee company has written off $200 billion in bad credit. And Citigroup spun offmost of its insurance assets in 2004) to merge with the St. Paul Companies. So now, the new strategy is getting rid of low-profit operations rather than adding new services. Expect more and ore spin offs and sell offs as Citigroup trades raw size for profitability. It's ever thus. Companies had from one extreme to the other. JP Morgan Chase and Banco Santander, as we have seen lately, is an expansionist mood. UBS, on the other hand, looks likely to split up. Think of the major banks (and many other companies) as accordions, they get squeezed in and pulled out in alternation. First growth of gross income, and when that shows no new profits, an attempt to deacquire in order to boost profit, at least until the easy improvements for added profits run dry, and it is time to go shopping again. 11:01:29 PM

comment []

	Wednesday, April 02, 2008

GE Financial discards two, picks up one General Electric's financial division (GE Money) recently made two moves that reshuffled its holdings, to build what it hopes will be a better hand. First, it sold its commercial card and corporate payments business to American Express. This unit, which specializes in issuing travel and purchase cards for companies' employees and keeping track of the spending, was sold for $1.2 billion. Clearly, GE saw this as a non-core asset and American Express, which is in the process of reinventing itself, saw it as a good fit with its other businesses, diluting its exposure to the now-risky US credit card business. In fact, the whole General Electric conglomerate is itself a major client of the services, and will continue in as an American Express client. The second deal involves an asset swap worth over $1.5 billion. GE Money and Commercial Finance gave Spain's Banco Santander its full range of businesses in Germany, Austria, and Finland. GE also handed over its credit card and auto financing business in the UK. In return, GE gets Interbanca, an Italian commercial bank, Banco Santander picked up the Italian bank as part of its deal (through a consortium) for Dutch bank ABN Amro. Interbanca was once the corporate banking arm of Banca Antonveneta of Italy, the rest of whose assets Banco Santander had already sold off to another Italian banking firm, Banca Monte dei Paschi di Siena. Clearly, GE sees better opportunities in the area of Italian banking than in its credit card and loan operations in Germany, Canadian sources report that GE is also trying to sell the Canadian assets of GE Money, Bloomberg quotes the GE Money CEO William Cary as saying it is dropping these units "to concentrate on higher-margin areas and developing markets," though that hardly describes Italy. Cary notes that the company's targets for expansion are in India and Poland. 8:54:03 PM

comment []

	Tuesday, April 01, 2008

Monsanto grabs more seeds Monsanto, already the #1 seed company in the, announced it would buy Dutch-based De Ruiter Seeds Group BV. De Ruiter specializes in vegetable seeds, and is especially dominant in the area of protected crops (greenhouse- grown) vegetables. The move makes Monsanto the #1 purveyor of vegetable seeds, in addition to being the leader in corn and soy seeds. He idea is that Monsanto will used its high-end genetics technology to develop new strains of tomatoes and cucumbers, adding gnees for pesticide resistance or longer shelf life. The deal will give Monsanto a 25% market share in the $3 billion worldwide fruit and vegetable seed market. Monsanto keeps growing its seed operations. In 2005, it bought US-based fruit and vegetable seed company Seminis. In 2006, it bought US- cotton seed company Delta  Pine and Land. It's all part of an ongoing consolidation in the world seed market - a phenomenon which makes the nightmares of monoculture and of rabid patent enforcement all the worse. 10:49:40 PM

comment []

	Monday, March 31, 2008

Pernod buys Absolut French company Pernod Ricard SA, the #2 seller of liquor in the world, announced it would buy Swedish company Vin & Sprit, the owner of the Absolut vodka brand. The deal was for $8.34 billion, not including debt that will push the cost up by almost half a billion dollars. According to a Bloomberg News story, Pernod beat out Diageo (#1 in spirits) and Fortune Brands as well as a [private buyer, in gaining the company. Vin & Spirit is a subsidiary of the Swedish government, and was sold to pay off debt and get out of the retail business. Curiously, Fortune Brands has set up a joint entity for distrusting Absolut in the US. That deal holds until 2012. Vodka is a key area for Pernod, as it is growing faster than any other spirit. Absolut is the #2 vodka brand in the US, after arch-rival Diageo's Smirnoff brand. Pernod will drop the Stolichnaya brand, which it has a license to sell outside of Russia. Pernod plans to sell off some of Vin & Spirit's other liquor brands, including Plymouth gin. Pernod brands include: The Glenlivet, Abderdour, Ballantine's,  and Passport (scotch); Jameson and Bushmills (Irish whisky); Wild Turkey  (bourbon); Canadian Club (rye); Havana Club (rum); Boodles, Beefeater's,  and Seagram's (gin); Seagram’s (vodka); Martell (brandy); plus various wines and liqueurs, including its own Pernod aperitif, Tia MAria, and Lahlua. This is part of the continuing consolidation of the liquor industry, as we have seen over the years. A Wall Street Journal article ("Pernod Ricard Wins Auction for Vin & Sprit", 3/31/06) notes the trend: "In the past several years, Grey Goose vodka was sold to Bacardi, LVMH Moët Hennessy Louis Vuitton SA bought Glenmorangie Scotch, and Pernod Ricard bought Allied Domecq and a chunk of the Seagram's drinks empire." 4:50:20 PM

comment []