Monday, March 23, 2009

Another LCD cartel member fined Last December we reported the multi-million dollar fines given to a cartel of LCD makers, including South Korea's LG Displays, Taiwan-based Chunghwa Picture Tube, and Japan-based Sharp. These companies were convicted of meeting to set prices on desktop computer, laptop and television screens. Worldwide market for LCD panels was approximately $70 billion in 2006. Now another member of the cartel has been caught. Hitachi displays has pled guilty of overcharging Dell Computer and agreed to pay a $31 million fine. According to Bloomberg news story ("Hitachi Settles Price-Fixing Case for $31 Million", 3/30/09) Hitachi participated in meetings and communications in Japan, Korea and the U.S. to set display prices for Dell at predetermined levels, the government said. The suppliers agreed to issue price quotations on sales to Dell to enforce the agreements, prosecutors said. The US government is now seeking criminal convictions of seven corporate leaders involved in the cartel. One, the former Chunghwa CEO, has pled guilty and been sentenced already. Bravo to the US Justice Department's Antitrust Division. Again, one wonders how much price fixing goes on and never gets caught. 8:09:54 PM

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	Sunday, March 15, 2009

Evil Empire buys rival, quashes anticompetition suit News Corp, through its News America Marketing unit, recently bought out competitor Floorgraphics for an undisclosed sum. Both companies are in the businesses of selling coupon inserts and in-store advertising. The deal is to in itself remarkable or very big. But the interesting point is that Floorgraphics had sued NewsCorp for anticompetitive behavior and corporate spying. The lawsuit was about to go to trial when the deal was announced. According to a New York Times story ("News Corp. Unit Buys Rival After Settling a Suit With It", 3/13/09), the lawsuit had claimed that the NewsCorp division "illegally accessed plaintiff's computer system and obtained proprietary information from the computer system; disseminated false, misleading and malicious information about the plaintiff; and incorrect information about themselves to plaintiff's existing and prospective clients, in an effort to induce retailers and clients to avoid doing further business with plaintiff. News America Marketing has also been is also being sued by another rival, Valassis Inserts on similar charges. Well, it's one way to get rid of the very competition you are trying to drive out of business. Any follow-up from the Justice Department? Bonus detail : The same Times story reports that "An article in Forbes in 2005 reported that the head of the unit liked to motivate the sales staff by showing a clip from the film "The Untouchables," depicting Al Capone beating a man with a baseball bat." 6:29:07 PM

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	Thursday, March 12, 2009

Cargill and food prices We've written a lot about Cargill, the privately-held conglomerate that is key oligopoly worldwide food industry. It is constantly in the news. It has been recently declared Australia's leading whet exporter. It was the victim of partial takeover (of its rice operations) in Hugo Chavez's Venezuela, where it had been the largest food distributor, with over one fourth of Venezuela's food imports. Cargill more than any current American company (except for the shaky financial sector) is at the center of the world economy than any other US company. It is in every way in the middle of the current world food crisis. As one source notes The food giant employs or exploits over 160,000 employees at 1,100 locations in 67 countries. It is responsible for 25% of all United States grain exports. The company also supplies approximately 22% of the United States domestic meat market, exporting more meat product from Argentina than any other company and is one of the world's largest poultry producers. All of the eggs used in McDonald's restaurants in the United States pass through Cargill's plants. Another article notes that With $120 billion in annual revenues, Cargill is bigger than the economies of more than two-thirds of the world's countries, including Kuwait, Peru and Vietnam. Its sales exceed those of Disney, Kraft Foods and PepsiCo -- combined -- and it is nearly twice as large as its next closest competitor, Archer Daniels Midland. The same article sees the consequence of this size on the consumer The food system is so centralized that, when a food crisis hits like it did this year, we are less able to react," said Eric Holt Gimenez, executive director of Food First/Institute for Food and Development Policy. "We get these tremendous spikes in commodity prices. ... It also shows up at the cash register." It's one reason why prices of many staple food items, including beef, rice and flour, have remained high even though the prices of the underlying commodities have plunged since the spring, said Timothy Wise, deputy director of the Global Development and Environment Institute at Tufts University. "Once prices go up, they tend not to fall back to their previous levels for quite some time," he said. Closely held, Cargill can get through the ups and downs of the economy far better than public rivals. The company is also so widespread and so involved in all aspects of its indutry (supplying farmers, manufacturing food products, and distribution) that itis extramely resilient. And while people may stop buying houses, cars, or computers, they'll keep buying beef, wheat, and eggs even in teh worst of times. 8:39:07 PM

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	Monday, March 09, 2009

Merck-Schering-Plough The big news today is the acquisition of drugmaker Schering-Plough by Merck. While it's being called a merger in the press, it is clear that Merck comes out on top in terms of staffing and name. But curiously, it's being structured as a reverse takeover, where nominally Schering-Plough acquires Merck, according to the Financial Times because it allows the company to hold onto an immunological drug it co-developed with Johnson & Johnson (who had been interested in acquiring Schering-Plough itself.) The deal is for $41 billion in cash and Merck stock. $10 billion of the cash comes from Merck's coffers; $8.5 billion from JP Morgan Chase; and the rest in Merck stock. It's interesting that there is so relatively little financing from a bank, and also that JPMorgan is still healthy enough to participate in that market. In a miserable mergers and acquisitions market, the pharma deals are standouts. It's the second pharma megadeals in a few weeks. Pfizer has agreed to buy Wyeth for $62 billion, maintaining its position as the #1 drug company in the world. One sector that does have cash aplenty is Big Pharma. Schering-Plough was desirable because it actually has a promising pipeline of new drugs in late-stage testing, something Merck is desperate to get its hands on. The two companies had already worked together in selling cholesterol drugs Zetia and Vytorin. The new company will have sales over $42 million a year. The deal helps Merck diversify beyond prescription drugs, Schering-Plough also has holdings in biotechnology, in an animal medicine, and in consumer products (including allergy medicine Claritin, Dr. Scholls foot care products, Lotrimin and Tinactin athlete's foot remedies, and Coppertone tanning lotion), along with a serious presence in emerging markets like China and Brazil. That's part of a new strategy also seen in the Pfizer deal. According to an article in the Wall Street Journal ("Merck to Buy Rival for $41 Billion ", 3/9/09) Big pharmaceutical companies are moving away from the strategy they honed in the 1990s, when they concentrated on prescription drugs, then a booming business fueled by a slew of blockbusters in areas such as heart disease. The pace of drug discovery has since slowed amid tougher regulatory scrutiny, and revenue has declined as patents expire. The recession has only increased the urgency of adding new lines of business to offset the weak core drug business. As usual there are rumors of further deals. One that is very likely is Roche's completion of its purchase of biotech firm Genentech, after the Swiss company sweetened its bid. Also seen as vulnerable are Astra Zeneca and Bristol-Myers-Squibb. The remaining big players (Johnson & Johnson, Sanofi Aventis, Glaxo) may have their hands forced if they want to compete. 7:25:14 PM

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	Monday, March 02, 2009

The coming Kindle monopoly? For a long time, selling books has been an oligopoly. On the brick-and-mortar world, it is Wal-Mart, Borders, and Barnes & Noble. In the digital world, there's Amazon, which dwarfs any competitors. These four have driven all but a handful of small chains and independent booksellers out of the business. Wal-Mart sells only a very limited list of mostly best-sellers. Borders is weak financially, and there are rumors they may be taken over by Barnes & Noble or fail. When Borders came to my town, it was a straight up and excellent chain with knowledgeable sales assistants. Now it gives less space to books, has few helpful employees, and seems increasingly dependent on sales of coffee, gifts, and DVDs. That leaves Amazon as the fastest growing source of books. True, it has a 20% market share, and growing. Borders and Barnes & Noble combined have around 33%. But the Amazon share of the market is far more profitable, with out having to hire retail space or spend the enormous time unpacking and then packing (unsold books). Amazon maintains small, centralized inventories and charges many customers for shipping. It loses few sales because buyers can't find what they want. And if anyone profit from the Long Tail, it does. Now comes the Kindle 2, and some have real fear that Amazon may soon both transform and utterly dominate. The Kindle 2, while not yet perfect, is a big step over its predecessor and is likely to grow exponentially. Some see it as the iPod of digital readers. But there is a difference. While Apple restricted sales of digital music through its iStore and started with protective software, they always made it easy for buyers to load songs form their own CDs or from third-party sites. By contrast, Amazon is the sole supplier of books for its device. It's possible to convert other material to its formats, but not easy. Its only serious competitor is Sony, but Sony only offers a device; Amazons sells the device and has an enormous store of books that can only be read in its format. Those books are also copy-protected, so, at least for now, unshakeable, even when you no longer want the book. A stimulating article ""Is the Kindle a Disruptive Innovation? If You Ran a Large Publishing House What Would You Do?" on the Work Matters blog, author Bob Sutton (The No Asshole Rule) talks about Kindle's disruptive nature: The publishing industry might be facing a scenario straight out of Clay Christensen's Innovator's Dilemma -- the incumbents die or decline deeply because they can't break free from their routines and internal power structures, and the new entrants race in and win. ..And there is plenty of fear in the book business that their problems aren't just caused by the downturn, but also by disruptive innovations that will rival what we have seen happen to the music and newspaper industries. While Sutton is not sure that the Kindle will be the winner (I agree with him that Apple has to be considered a likely entrant), he sees that the leading book publishers are in big trouble: If I were a book publisher, I wouldn't just hunker down, cut costs, and do what I've always done until the downturn is over. I would work to bring in people from outside the industry who understand the web and let them try some experiments -- and if I was a venture capitalist, I would be looking for start-ups that can rush in and replace those giant but shrinking publishing houses in New York City. History and the evidence is not on their side. Book publishers have long complained about their dependence on Borders and Barnes & Noble, as well as Amazon. If Amazon builds the e-book business as rapidly as Apple built the online music business, they may be totally under the thumb of Amazon alone. A scary prospect to an industry that is already cutting staffs, cutting lists, and looking for nothing but blockbusters from Joe the Plumber, Rod Blagojevich, and Laura Bush. 8:00:47 PM

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	Sunday, February 22, 2009

Stacking oligopolies The proposed merger of Live Nation and TicketMaster is a clear case of two oligopolies stacking on one another to extend their near-monopoly control vertically. Live Nation either owns of has the right to book nearly every major pop music venue in the US (71 at lest count), plus a number of venues abroad. It also, through an earlier vertical expansion, provides "artist management services" - basically promotion and ticketing. In other words, the implicit threat is that musical acts that do not use their services, unless they are already established, might have a lower priority at getting booked in key venues nationwide. Even the biggest musical acts have to negotiate with Live Nation about tours, ticket costs, and schedules, with the implicit threat that there is no alternative should negotiations get bogged down. Touring is all the more critical for music groups, in that sales of recorded music are way down and much of that revenue stream goes to the big music companies in any case. Bands and singers typically make the real money on the road, not in the studio. TicketMaster is the largest ticket agency by far in the US (and in many other countries). As an agent, it takes commissions on each ticket sold, and it charges hefty fees as well, under such names as "Convenience fee", "Building Facility Charge", and "Order Processing Charge." It is estimated that the company charges 35% or more of the face value of the ticket, and often it is impossible to buy tickets at face value at the venue's box office. TicketMaster also now owns Tickets Now, an online service for reselling tickets, which adds even higher fees, and TicketMaster has been accused of steering customers to that service to reap even higher profits, up to 100% markups. In that way, some say, TicketMaster scalps its own tickets. The company sells tickets to athletic events, theatre shows, and other non-music events (where it does have some competition from Tickets.com), but chances are if you want to go to a rock concert, you go through TicketMaster. A merger of the two cements what is already a strong alliance. Most Live Nation venues sell tickets through TicketMaster already. As Jon Fine writes in BusinessWeek ("TicketMaster-Live Nation: An Obama Layup," 1/10/09): unlike much of the media world, these businesses still have pricing power. The music industry has been file-shared into oblivion. Live events can't be. There is great power in controlling the last bastions of scarcity, as anyone who has marveled at the 'convenience' fees tacked onto a simple ticket purchase on the Web knows. TicketMaster and Live Nation have built formidable franchises on these advantages. Live Nation's position in the venue ecosystem allowed it to offer nine-figure deals that include recording rights to the likes of Madonna and Jay-Z. Live Nation, which was spun off from hated radio oligopoly Clear Channel Entertainment in 2005, breaking up a vertical oligopoly. It has since acquired the chain House of Blues (12 venues), and sold off much of its Broadway ticket sales operation. TicketMaster itself was spun off from Barry Diller's IAC online conglomerate in 2006, and since then has acquired Getemein.com, a UK ticket reseller, and Paciolan, a developer of ticketing system applications. Many see this as a monstrous anti-competitive move. But since the companies are not direct competitors, it is unlikely that antitrust officials in the US will challenge the deal. As Fine notes "An individual familiar with the companies' calculus regarding regulatory concerns argues that the entities are 'overwhelmingly complementary'-as opposed to competitive-and few such mergers have been challenged. And that consumers and performers would still have other options." We'll see whether the Obama Justice Department might sing a different tune. 11:35:51 AM

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	Sunday, February 15, 2009

Erectile oligopoly accused of cartel Swiss antitrust officials have charged the three leading makers of erectile dysfunctional drugs of a price-fixing cartel. The three are Bayer (Levitra), Pfizer (Viagra), and Eli Lilly (Cialis). According to the Swiss officials, the three companies set and enforced similar "recommended prices" for their drug that resulted in no price competition, higher prices, and higher profits. The companies are denying it, and they have less than a month to answer the charges. Such subtle price-fixing is hard to pursue, because setting parallel prices is a relatively subtle act that is hard to detect and harder to prosecute. On the other hand, if it turns out to be true, in Switzerland, it will likely be pursue by the EU and the US. Erectile function drugs form a very hot growth area, Eli Lilly and Pfizer sales have been rising steadily with each having well over a billion dollars in sales annually, while Bayer's Levitra has been losing ground, with annual sales around the $300 billion mark. The three form a very tight oligopoly, with few alternatives that match the efficacy and ease-of-use of these pills. 7:26:52 PM

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	Tuesday, February 10, 2009

Stupidest deals: Fiat-Chrysler With few mergers and acquisitions taking place now, and a growing number falling apart, we will start looking at the deals over the last few years that have turned out to be disasters. Not for executives, consultants, private equity groups, and bankers - they've (mostly) managed to get their money out. But shareholders and stakeholders (employees primarily) have been the victims, and the disastrous Citigroup and Bank of America deals are threatening to bring down the economy as a whole. But let's just look at a recent deal that, while it was met with incredulity, got a reaction that was not full with enough puzzlement and outrage. When Fiat announced it would take on 35% of Chrysler from Cerberus Group, Adam Smith must have rolled over in his grave. Let's face it Chrysler is worth nothing, it is toxic. Its only value is the difficulty of the US government has inletting all those jobs just disappear all at once. Cerberus which got the hot potato from Daimler (and how the hell did Daimler buy Chrysler in the first place?), got paid to take it and have doubtless extracted what little blood was left. Now, as the details are revealed it turns out that no Fiat money would be changing hands if the deal goes through. In theory, Fiat will give Chrysler the small-car technology it lacks in return for the shares. But it would take years for Chrysler to adopt any of that technology, given its track record. This might have been a good idea a few years ago, but now? And Fiat itself is hardly financially stable; it is itself being kept in business by the Italian government, and it has its own plant closures coming up. Of course the deal was saluted by Chrysler CEO Robert Nardelli "This alliance has the potential to greatly benefit America, by preserving American jobs, stabilizing the economy including the important domestic auto industry and expanding the availability of small, fuel-efficient automobiles." Yeah, right. But saving GM, which at least has some brands with value, some technology it can build on, will be an expensive and messy affair for us taxpayers. GM is sick, almost on its deathbed, but Chrysler is already in the funeral parlor. Chrysler us now forcing its dealers, who themselves are going out of business at record rates, to take even more cars into their crowded-with-SUVs but empty-of-customers lots, just in order to cook its books for another quarter. And clearly Cerberus isn't interested in investing any more in the company. But as a Wall Street Journal article ("Fiat Races U.S. Deadline To Set Deal With Chrysler", 2/9/09) paraphrases one analyst's comments: "For Fiat, the alliance is a 'lottery ticket' that could be worth nothing if Chrysler doesn't recover." But even if Fait backs off, don't its executives have anything more important to do than play the lottery? 9:39:16 PM

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	Wednesday, January 28, 2009

Getting hosed   The EU competition commission recently fined a cartel of marine hose manufacturers for price fixing. Marine hose is a rubberized pipe used to transfer oil between storage facilities and oil tankers and offshore platforms. The main customers are oil companies. The companies involved had met secretly to set prices and bids and to allocate markets.   The fine totals $173 million, and is directed at six global companies. They include Bridgestone Tire and Rubber (Japan), Trelleborg SA(Sweden), Manuli Rubber Industries (Italy), Dunlop Oil and Marine (UK-based, but a part of Herman conglomerate Continental Tire Group), and Parker ITR (Us/Italy). Also involved in the cartel was Japan-based Yokohama Rubber, but that company revealed the cartel to EU authorities and so avoided the fine.   The US and UK are both said to be pursuing criminal cases on executives involved in the cartel. The UK is moving ever more aggressively on cartel busting, with higher fines, especially to companies that obstruct investigations. 10:45:29 PM

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	Monday, January 26, 2009

Pfizer to buy Wyeth Well, the deal came through and finally moved at lightning speed. Wyeth has agreed to be acquired by Pfizer, making the #1 drug company even large in scope. The cost was an amazing $68 billion in cash and stock, a very rich deal for this credit-starved time. The proportion of cash to stock will reportedly be two to one. The deal is the largest in the pharmaceutical market in almost ten years. (In 2000, Glaxo Wellcome bought SmithKline Beecham for $76 billion in 2000.) The new company will have 17 products that bring in over a billion in sales. The general opinion is that Pfizer, with the clock ticking on its flagship cholesterol drug Lipitor, which accounts for some 25% of its revenue and is the world's biggest-selling prescription drug. Pfizer especially wanted to grab some Wyeth drugs about to hit the market, in order to keep its pipeline full, something its own R & D efforts have failed to do. Wyeth in that regard is a little better off than Pfizer, but it faces the same problems a few more years out. Wyeth also has an over-the-counter division that sells such medications as Advil (pain-reliever, Dristan (colds and flu), Alavert (allergies), Robitussin (coughs), Preparation H (hemorrhoids) and Centrum (vitamins). In 2006, Pfizer sold its own consumer drug operation to Johnson & Johnson. The question is whether it will sell off the Wyeth products. Wyeth also has a position in the infant nutrition field, something Pfizer is likely to get rid of. This big deal will be the first test for the Obama antitrust team. It will be interesting to see how it is handles. As usual, rumors are rife that competitors like Glaxo, Johnson & Johnson, and Bristol Myers Squibb may be forced to start acquiring again. And while it may buy Pfizer some time (along with massive layoffs), it still doesn't really solve its R & D problem and the continued eating away of its profits by aggressive generic drug companies. Bigger, in drug companies, is not always better. 10:42:48 PM

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	Tuesday, January 20, 2009

Head-scratcher Big UK banks seem to be in just as bad shape as their American cousins. The government is about to start a second round of bailouts (Of up to $100 billion) and the targets are rumored to be the three biggest: Royal Bank of Scotland, HSBC, and Barclays. RBS is the worst off, with an immediate cash infusion needed, as much as $42 billion. The British goivernmnent will increase its stake in RBS from 58% to 70%. Barclays refused the first round of bailouts last October and points to recent profits, but its stock price has fallen on the expectation of further nationalization. Nevertheless, it has publicly stated that it will accept the bailout. On the same day, we read that distressed Swiss bank UBS is selling parts of its commodities business to --- Barclays. No .sum has been announced. The division in question handles banking services for base metals (nickel, zinc, and lead) along with oil and U.S. power and gas businesses. How, one wonders can Barclays be in financial danger and at the same time buying new assets? What’s the logic here? Of course Barclays already swallowed u much of Lehman Brothers this year. And in 2007 it bought US mortgage bank EquiFirst, and tried to buy Dutch bank ABN Amro. It is now the #3 commodities-oriented bank in the world. Is it just that the bankers know one trick-- getting bigger until you collapse? That's what Citigroup and Bank of America have done already. Incidentally, UBS has recently sold its global agriculture and Canadian-based commodities energy business to US bank JPMorgan Chase. JPMorgan Chase remains the seemingly unscathed survivor of the Big Three US banks, but is it overreaching as well? 3:07:36 PM

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	Sunday, January 18, 2009

The dark night of Citigroup and Bank of America How the might have fallen! Citigroup and BoA had pushed to dominate financial services by buying up rivals and expanding horizontally. Over the last few years, they have bought into areas from stock brokering, investment banking, wealth management, credit cards, and so on. In spite of an infusion of billions in cash from the US government, both banks are in danger of foundering. First, Citigroup, the world's largest bank. Its stock price hit a record low. It has decided to split realign into two new firms, Citicorp and Citi Holdings. Citicorp will continue traditional banking, while Citi Holdings will take on some of the less central and more risky dealings. It plans to sell the majority of its Smith-Barney brokerage division (so greedily acquired in 1998) to Morgan Stanley. It will also, according to the Wall Street Journal story sell off its consumer-finance operations, including Primerica Financial Services and CitiFinancial, its private-label credit cards, and its Japanese consumer banking businesses in Japan. The new Citigroup will reportedly concentrate on serving businesses with wholesale banking and to retail banking in limited locations globally. This move will essentially get Citigroup back to the status quo when it bought Traveler's Insurance in 1998. (The insurance business was sold already in 2004.) Salon's Andrew Leonard sums it all up as follows: Citigroup's woes blow a big hole in the theory that giant integrated superbanks combining commercial and investment banking activities are inherently more likely to survive in troubled economic times than entities which focus on providing more specialized services. Citigroup, the poster-child for banking merger mania, is now asking for a big do over. Will Bank of America be next? ("The Amazing Shrinking Citigroup", 1/13/09). It's pretty amazing to think that just last September Citigroup was trying to buy out Wachovia, until Wells Fargo outbid. Insanity, incompetence, or unvarnished chutzpah? Bank of America's woes also involve the first quarterly loss ever. Its biggest problems come from two recent acquisitions: the first was to buy damaged mortgage lender Countrywide for $2.5 billion; the second was, last year's impulse purchase of a sinking Merrill Lynch (brokering, wealth management) for $19.4 billion. Bank of America stocks have hit a 14-year low, with news that BoA had received a fresh $20 billion after the initial $25 billion form the US government. BoA is whining that Merrill's executive deceived them about the extent of the risk. A sharp story in Fortune ("For BofA, nothing fair about Merrill deal", 8/16/09) notes that BoA was ill served by its advisers, But CEO Ken Lewis' decision to buy Merrill isn't the only thing that looks questionable now. So does the advice he and the BofA board got on the hastily arranged Merrill deal from the bank's advisers, Fox-Pitt Kelton and J.C. Flowers & Co. The financial advisers offered opinions calling the deal fair to Bank of America shareholders. But that conclusion seems to be undermined by the plunge in Bank of America's shares in the months since the deal was announced, and the bank's apparent need for another capital infusion from the government Meanwhile the two advising companies walked away with $20 million for a single weekend's work. The article quotes one critic as saying "Considering that no one -- the government, the boards or the investors - had any possible use for these opinions, it certainly puts the focus on why anybody is willing to pay $20 million for them." Of course, the fact that the opinions were wrong doesn't help. The rue is that even the biggest mistakes make money for someone. Bank of America is not in as bad a situation as Citigroup, but thinks are looking dire, Could a sell off of some of its assets be coming as well? 8:05:08 PM

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	Tuesday, January 06, 2009

Broken China In December 2004 we reported Ireland-based Waterford Wedgwood the world's leader maker of fine china and crystal announced it will buy competitor Royal Doulton, based in the UK. These leaders in the luxury tableware market have both been suffering due to the shrinkage of the dollar, a major market for their products. Now news comes that Waterford Wedgwood has gone into receivership, a victim of the decline in purchasing luxury goods. The company has been losing money for five years, and clearly the Royal Doulton acquisition made their situation even worse. The company has been looking for a buyer, but with no luck so far. UK-based Wedgwood has origins that go back to 1759, while Irish-based Waterford has been making crystal since 1783. Waterford bought Wedgwood in 1986. The failure is attributed to the increasing competition from good dinnerware made in Asia.  An article in The Independent (1/6/09, "The rise and fall of Wedgwood") quotes on analysts as saying "There are a lot of lower-priced alternatives so Waterford Wedgwood's products became more and more niche. They have become more and more sidelined into gifts and Upmarket and they have been overtaken by the mass production market." In addition, the brands have become obsolete, targeted at a very old audience who trotted them out when company came. In retrospect, the Royal Doulton acquisition was one of many eager acquisitions that have turned out to be ineffectual and ill-advised. We'll see many more such deals exposed I suspect the brands will survive, but much diminished and the operations will all be moved away from the UK and Ireland. 8:45:01 PM

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	Wednesday, December 24, 2008

Panasonic buys Sanyo Mergers between Japanese consumer electronics giants have been few and far between, even though you would think hat these companies would want to reduce competition by buying out rivals. These wide-ranging companies (including Hirtachi, Canon, Konica Minolta, Epson, Sony, and many others) have long pursued parallel lines of business, only with reluctance leaving even the ones in which they are minor competitors. But now Panasonic (formerly Matsushita), the world's biggest consumer electronics firm, has announced it will buy Japanese rival Sanyo Electric in a $9 billion deal. Sanyo makes, among other products, televisions, home appliances, audio and video systems, biomedical equipment, food preparation equipment, digital cameras, solar panels, semiconductors, and batteries. The move, among other things, will make Panasonic the #1 company globally in rechargeable batteries, with a 38% market share. It will also make the company a player in solar technology, an area in which Sanyo has had some success. Both of these areas are likely to do well in the near future. Panasonic is suffering in terms of income, having cut its projected income for the year by 90%. Sanyo had even more problems looming, and had been bailed out by investment banks in 2006. The buy price was less than half of what it had been earlier this year. Every indication is that even more reluctant acquisition activity is in store in this sector 8:20:26 PM

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	Tuesday, December 09, 2008

LCD price fixers "sorry" Three giants of the LCD (liquid crystal display) industry will soon plead guilty to price fixing, Korean-based LG Display Co. will pay $400 million, Taiwan-based Chunghwa Picture Tubes $65 million, and Japan-based Sharp $120 million. A Bloomberg News article (LG Display, Sharp Shares Fall on Price-Fixing Fine, 11/13/08) quotes a US official as saying: "LG Display, Chunghwa and others met several times from 2001 to 2006 in so-called 'crystal meetings' to set prices on desktop computer, laptop and television screens." Other devices affected are iPods, calculators, and cell phones. The three all supply displays to Apple Computer, Sharp also sells to Motorola and Dell. The Bloomberg story notes the ironyof bad timing. "The fines will further undermine the LCD makers' earnings at a time when a glut in the $82 billion industry is driving down prices and forcing manufacturers to scale back production plans." Bravo to the US DOJ that has been less than great on antitrust issues. These are not easy cases to win. LG's fine is the second-largest criminal fine in US history (after Swiss vitamin maker Hoffmann La Roche). There is also a consumer lawsuit still ongoing. LCD screens are $8 billion industry worldwide. Japanese, EU, and South Korean government is still investigating price-fixing by these companies in its jurisdiction. 5:59:20 PM

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	Monday, December 08, 2008

More medical deals While the current crisis has put an end to deals in many areas, there are still some areas where the chance of bargains and a belief in the long range have allowed the pace of acquisitions I to keep on track. The health area is a key one. In recent weeks, there have been a number of reasonably significant deals. Johnson & Johnson has made two purchases. First, it agreed to buy US-based breast implant maker Mentor for about $1.1 billion. Mentor is the leading makers of breast implants. #2 in that area is Allergan, the maker of Botox, and of a variety of cosmetic surgery, eye care, and specialty drugs. (Mentor, by the way, has a drug in the pipeline which will compete with Botox.) J&J also agreed for over $500 million to buy Omrix Pharmaceuticals, which specializes in of hemostasis products, which control blood loss. That's a good fit with the company's wide variety of wound treatment products. US generic maker King Pharmaceuticals agreed to buy US-based Alpharma, which makes pain medicines. THE deal is for $1.6 billion. Swiss-based Roche agreed to buy US-based Memory Pharmaceuticals, which does Alzheimer's research, a $50 million deal. Roche is already working on possible Alzheimer's cures. Roche is still persisting in its offer to buy US biotech company Genentech. Over $43 billion is on the table. Meanwhile, the acquisition of Barr Pharmaceuticals by generic drugmaker Teva is being completed. The deal was for 7.5 billion. Teva is selling seventeen duplicate drugs to competitor Watson Pharmaceuticals, in an attempt to avoid antitrust actions. Other big deals that have finally closed are Eli Lilly's $6.5 billion takeover of ImClone and Daiichi Sankyo's $4.1 billion purchase of Ranbaxy. Key drug/healthcare companies are sitting on a lot of cash and are looking for bargains. It's likely that the buying will continue. 8:19:17 PM

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	Tuesday, December 02, 2008

Brands and the (incredible shrinking) Big Three "Just how serious are they about shrinking their vast lineups of different brands and models to match the current harsh reality of the market?" That’s the key question asked in the New York Times t "Big Three May Need to Trim Number of Brands," 12/1/08). The article points out that Ford, GM, and Chrysler together have 112 different car and truck models using 15 brands (makes) in the US. By contrast, the big three Japanese companies (Toyota, Honda, Nissan) have only 58 models. A confusing array of reports are out on whether Ford will sell off its Volvo division, Both Ford and GM are in talks with the Swedish government, but it is clear that EU competition rules would make it hard for Sweden to just step in and "rescue" the companies. Beside, the fall in Volvo sales is even more catastrophic than that of the other failing GM brands. Who in their right mind would pay anything for these brands? GM has been trying all year with no success to sell its Hummer brands. It also has been thinking about selling both the Saab and Saturn brands. Pontiac may also be on the chopping block. But who wants them? But dropping brands is not so easy, even if you despair of selling them. In 2000, GM dropped its Oldsmobile brands, but it took four years and two billion dollars to make good with employees and dealers. Over the last few years, Ford and GM have sold off whatever they could. On Nov 17, GM sold its remaining stake in Suzuki Motors for around $200 million. Ford sold in 2007 its Jaguar, Aston Martin, and Land Rover brands. It has also sold most of its stake in Japan’s Mazda for $540 million. In 2006, GM sold off its stake in Isuzu and in Fuji Heavy Industries (Subaru) as well as its main stake in Suzuki). All the properties that these companies greedily snapped up in the 1990’s were sold off in a rush. All that cash went to slow down the burn rate, but couldn’t make the companies profitable. But there are still too many brands. GM and Ford spend fortunes trying to convince users to buy slight variations on the same model. The strategy of pseudo variety worked well when the Big Three rules the world, but now the excess variety doesn't protect market share, while flagship brands like Toyota's Corolla and Honda's Accord point to safe, well-engineering, constantly improved products that make car buying a lot easier. 7:47:42 PM

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	Monday, December 01, 2008

Wherein my taxes fund Citigroup's new acquisition First was the knowledge that Citigroup was in a bad way thanks to bad loans and credit cards. Then Citigroup tried to buy rival Wachovia, but was beaten out by Wells Fargo. Then came a new bailout of Citigroup by the US government, in a somewhat murky deal that covered bad assets and gave operating capital. The bailout for Citi, which protects the company from $306 billion of high-risk assets and puts $20 billion of new capital in Citi’s hands, is the biggest bank bailout ever. (And the anger that resulted when it was realized that the company was still going to spend $400 million dollars to get naming rights for the New York Mets baseball club stadium.) Now the next shoe drops. A fund owned by Citigroup has reached an agreement to buy a company called Itinere Infraestrcuturas Sa from Spanish constitution company Sacyr Vallehermosa Sa in a $10 billion deal. Sacyr is the #5 construction company in Spain, also owning oil resources and hospitals. The Itinere Infraestrcuturas Sa division owns toll roads in Spain, Portugal, and South America. Citigroup plans to sell off over a billion in highway assets to Spain’s Abertis Infraestructuras SA and Italy’s Atlantia SpA. Observers see the buy as a bargain, thanks to Sacyr’s need for cash to cover $5 billion in debt. Citi was seen as interested in expanding the ownership of toll roads across the world, a strategy that may fit in with a US move to increase spending on infrastructure. So let’s get this straight. Not only are US taxpayers paying for the Citi’s name on the Mets’ stadium buy, but we are also helping it make bets on the market as it acquires new companies, rather than trying to get its own house in order.What is going on here? 8:34:07 PM

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	Friday, November 21, 2008

Brazilian bank deals The Brazilian banking business has seen two large acquisitions over the last few weeks.Banco do Brasil, a state-owned bank, announced a deal to buy majority share in Nossa Caixa. The deal is for around $2.25 billion. The new bank will be #2 in Brazil. Three weeks ago, an even much larger deal, worth $17.7 billion, was announced. Brazilian banks Banco Itaú, said it would merge with (actually acquire) rival Unibanco. The two banks are headquartered in Sao Paulo. The new bank will be the largest headquartered in the Southern Hemisphere. Unibanco was reportedly weak due to credit derivatives. The latest deal is seen as an effort for Banco do Brasil to regain its #1 position. n September, Banco do Brasil announced it would buy two smaller banks, Banco do Estado de Santa Caterina and Banco do Estado do Piau. Further deals are predicted in a not very consolidated banking market. A Bloomberg News article ("Brazil Bank Mergers May Pick Up, Raymond James Says", 11/21/08) quotes an analysts who notes that: "Business opportunities are huge and the consolidation level is relatively low… The five largest Brazilian banks account for 65 percent of the Brazilian banking system, compared with 86 percent in Peru, 79 percent in Mexico and 75 percent in Chile." The article posits that Brazil’s #3, Bradesco, is rumored to be on the lookout to make a buy. While cash is short as in other countries, the valuations of the midsize banks in particularly are spectacularly depressed. 5:33:49 PM

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	Wednesday, November 19, 2008

DHL expresses itself out of US market We've called it often before. In a three-company oligopoly (a triopoly?), the #3 company is always at risk. That's especially true when #1 and #2 keep the pressure on, and where there is no earth-shattering innovation that offers #3 a way to restructure the market. When in 2003, German shipping giant DHL (a division of Deutsche Post) bought US-based Airborne Express in an attempt to compete in the US with FedEx and UPS, the US-based package delivery leaders (they had 80% of the market) tried by both legal and market means to keep a powerful third party out of the business. We then quoted a New York Times article (6/1/2003) that pointed out, "The battle is unusual partly because FedEx, which is located in Memphis, and UPS, which is located in Atlanta, are such strange bedfellows. The Coke and Pepsi of the cargo world, they are archrivals. But they are working toward a common goal: to shut down, or a least slow down, DHL Worldwide Express in the United States." Well, the friendly rivals lost the first battle but they now have won the war. DHL just announced they would close most of their North American operations and lay off almost 15,000 employees. This was not such a big surprise. DHL had started outsourcing some of its operations to UPS in May, including domestic air carrying and many trucking operations. The operation had been losing money form the beginning. A Bloomberg news article ("Deutsche Post's DHL Cedes U.S. Market to UPS, FedEx", 11/10/08), quotes one analyst as saying: "The reality of the lack of scale, the productivity that they have, the market reach and the brand awareness make it impossible for us to make it economically viable." The operation was losing money even during the boom, so the bust was a good opportunity to get out. And while FedEx and UPS managed to keep service strong, DHL had problems in terms of missing ontime deliveries in spite of a new 2005 Ohio-based air exchange center. Total Deutsche Post losses will exceed $9 billion. Being #3, and by a large margin, there was no way DHL could catch up, especially with increasingly strong FedEx and UPS international operations. Even FedEx and UPS have valuations of around half of what they were a year ago, but they are well positioned for the long run. With no new competitor likely (the US Postal Service is the only other competitor), UPS and FedEx will become an even more powerful duopoly. Thanks to Mike Donnelly's CEO Economic Update for catching the story. 5:32:34 PM

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