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DealBook: Keeping an Eye on the Ball

May 31, 2011 by Leave a Comment

Chris Trotman/Getty ImagesDavid Einhorn of Greenlight Capital attended the Mets vs. Phillies game at Citi Field on Saturday.

Lots of questions have been asked about David Einhorn’s purchase of a minority stake in the Mets: Will his investment shore up the Mets’ finances? (Maybe.) Does the deal allow him to take majority control of the Mets? (Yes.) And will he eventually take over the team? (Probably.)

But on Wall Street, a very different question is quietly being asked: Will Mr. Einhorn, one of the great value investors of his generation and an obsessive stock picker, take his eye off the ball? (Pun intended.) It is a question that invariably is raised whenever a wealthy financier seeks to live out his childhood fantasy by acquiring a professional sports team, a race horse or even a yacht.

“An obsessive focus on work is part of what makes hedge fund managers succeed,” said Sebastian Mallaby, the author of “More Money Than God: Hedge Funds and the Making of a New Elite.”

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He noted that “David Swensen, the great hedge fund talent scout who runs the Yale endowment, says that he looks for this not-quite-normal single-mindedness when he decides where to commit Yale’s money. So it clearly is a red flag when a hedge fund manager starts to take too much pleasure in his hobbies.”

Wall Street players have long collected sports teams, some successfully, some less so. In 2002, Stephen Pagliuca, the managing partner of Bain Capital, helped lead a group of friends to buy the Celtics, who then went on to win the championship in 2008. Bain continued to thrive, but not to the same extent of rivals like the Blackstone Group and others.

Meanwhile, Thomas Hicks, a leveraged buyout baron who founded Hicks, Muse, Tate Furst, bought the Texas Rangers in 1998. His firm nearly went under after a series of bad telecom investments he made in 1999; he left the firm in 2004. And just three years ago, Stanley Druckenmiller, the famed hedge fund manager, sought to buy the Pittsburgh Steelers. He eventually withdrew his bid, but perhaps it was a signal that he had already shifted his interests away from the markets. Last year, he announced he would shut his firm.

In an apparent effort to pre-empt any red flags and to demonstrate his commitment to money management, Mr. Einhorn’s firm, Greenlight Capital, sent a private letter to its investors last week within minutes of the announcement that he was personally in negotiations for the Mets stake: “David will continue to have the vast majority of his net worth invested in Greenlight products: the hedge funds, Greenlight Masters and Greenlight Re. His role as president and portfolio manager of Greenlight Capital will not change in any way.”

So far, Mr. Einhorn’s investors, at least publicly, have only praise for him. Several privately questioned whether he could remain focused on his investment funds at the same time that he thrust himself into the public eye as the potential future owner of the Mets.

Some pointed out that Mr. Einhorn has proved he can multitask. He has written a best-selling book about one of his investments, competed in the World Series of Poker, finishing 18th, and is an active director of several charities.

And he’s never exactly shied away from the press. He took to the airwaves in spring 2008, presciently questioning the numbers at Lehman Brothers. Just last week, he called for the firing of Steven Ballmer, Microsoft’s chief executive.

None of that compares with being the owner of a sports team in New York City, the media capital of the world. On Saturday night, when Mr. Einhorn attended the Mets vs. Phillies game at Citi Field, the virtually unknown financier — to most sports fans, at least — was bombarded by cameras and questions. Pictures of him drinking a beer in a luxury box appeared on television and in newspapers. He was wearing a Mets cap — and, in perhaps a nod to his investors, a polo shirt embroidered with the Greenlight logo. (Hedge funds rarely get that kind of marketing exposure.)

He can expect more flash bulbs over the next two years. According to people involved in the negotiations, he will have the right to acquire a 60 percent stake in the Mets from the Wilpon family. The only way the Wilpons would be able to block him would be to repay the $200 million investment he made for 30 percent of the baseball team. Mr. Einhorn would get to keep his stake for free.

Much of the outcome hinges on whether the Wilpons have to turn over their fortune to the trustee of the Madoff Ponzi scheme. All of this is a roundabout way of saying that’s likely to be grist for the sports media — and business media — as speculation runs rampant about whether the Wilpons will lose their team to Mr. Einhorn. The danger, of course, is that it becomes a distraction.

So far this year, Mr. Einhorn’s $7.9 billion fund is underperforming the market. His fund was down 2.6 percent at the end of last month, while the S. P. 500 was up 8.43 percent during the same period.

Mr. Einhorn, however, is a long-term investor. He has long told investors, successfully, to disregard short-term performance, a mantra he has said should be applied to the Mets.

“If I were invested in Einhorn’s fund, I would not pull my money out,” Mr. Mallaby said. “But it is natural for investors to be asking questions.”

Article source: http://feeds.nytimes.com/click.phdo?i=5cdf84f66d3db7f2e3edad0bcd8a74ec

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DealBook: PAI Partners to Sell Engineering Firm for $3 Billion

May 31, 2011 by Leave a Comment

PAI Partners, the French buyout firm, said on Tuesday that it had entered into a period of exclusivity with an investment group led by Clayton, Dubilier Rice and AXA Private Equity to sell its stake in the engineering company SPIE.

SPIE was put in play about two months ago, almost five years after PAI bought it for just over a billion euros.  The investment group, which is offering 2.1 billion euros ($3 billion), has emerged with the best bid, but the deal is contingent on talks with SPIE’s labor representatives.

Clayton, Dubilier Rice will own two-thirds of the majority stake in SPIE, with the remaining third split between AXA and the Canadian pension fund, Caisse de dépôt et placement du Québec, a person with direct knowledge of the situation said.

The private equity firms CVC, Bain and Carlyle all expressed interest in SPIE, but the winning investment group engaged in an accelerated process that took its rivals by surprise, the person said, without elaborating.

Olivier de Vregille, a PAI partner, said that under PAI’s ownership, SPIE “has grown dramatically –- it has acquired more than 50 companies across Europe and its workforce has increased from 23,000 to almost 29,000 -– its operational profit has doubled.”

Annual revenue at the company has grown to 3.8 billion euros last year from 2.8 billion euros in 2006.

The deal is the latest exit for PAI, which has sold its 50 percent stake in Yoplait to General Mills for about 810 million euros this year, and its controlling stake in the Italian clothing retailer Gruppo Coin to BC Partners for 644 million euros.

A group of about 23 percent of SPIE’s employees own 12.75 percent of the company, which specializes in electrical and mechanical engineering, building heating, cooling, energy and communication systems.

Roberto Quarta, a partner at Clayton, Dubilier Rice, said his firm’s previous investment in Rexel, an electronic goods distributor, had exposed it to SPIE’s markets.

“We are highly confident in the resilience of SPIE’s business model and its outstanding growth prospects,” Mr. Quarta  said.

Morgan Stanley and HSBC advised the investment group, the person with knowledge of the matter said.

Article source: http://feeds.nytimes.com/click.phdo?i=c0913e64429edd67385130b38d65d180

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Bucks: Tuesday Reading: New Ways to Answer Hospital Patients’ Calls

May 31, 2011 by Leave a Comment

May 31

Tuesday Reading: New Ways to Answer Hospital Patients’ Calls

New systems for answering hospital patients’ calls, hotels try to get in-room movies right, sleeping under the stars in Manhattan and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=feb21d52f0f34d4c11419a8a0a6911c2

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Australia’s Mining Boom Is Pied Piper for Workers

May 31, 2011 by Leave a Comment

SYDNEY — Having grown up in a working-class suburb of Sydney, 20-year-old Brian Felice said, he never planned to follow in his father’s footsteps as a construction worker. Perhaps, he thought, he would join one of his three older brothers in the gleaming Sydney office towers from which they navigated the high-flying worlds of finance and banking.

But in Australia these days, finance just is not where the money is. A mining boom has lured thousands of workers into resource-related fields, leaving tourism, manufacturing and many other sectors short of skilled labor.

Mr. Felice set out for the state of Western Australia, home to a boom in resource production unrivaled since the great gold rushes of the 19th century. After two years building homes for miners in the sprawling camps dotting the western desert, he made enough money to buy a home of his own in Sydney’s notoriously expensive real estate market, with enough left over to put himself through college.

And just what is he studying? Construction, of course.

“I was getting, like, 27 dollars an hour in Western Australia, rather than maybe 15 dollars an hour in Sydney,” he said in a telephone interview. The wages are the equivalent of $29 and $16.

“I just couldn’t believe how much money it was. I’m an 18-year-old kid at the time,” he said, adding, “I just could not believe how hard it can be in Sydney for an 18-year-old.”

Australia’s economy is booming, thanks largely to soaring demand for its abundant deposits of coal and iron ore — not to mention natural gas and gold — which India and China have been gobbling up to fuel their own surging economic growth. Even during the global financial crisis, Australia, unlike many Western economies, registered modest growth, a trend that has since accelerated, as commodity prices have regained their footing.

But both Prime Minister Julia Gillard’s government and private sector economists have been increasingly vocal about what they fear is the dark side of that growth. Resource sectors, and related sectors like construction, are to a rising extent taking precedence over other industries, like tourism and manufacturing. The effect is a distorted economy, as the resource boom sucks up the already thin pool of skilled laborers and drives labor costs up across the board.

Australia is now facing a problem many Western countries would be happy to have: There simply is not enough skilled labor to fill all of the jobs being created by the hot economy, said Paul Bloxham, a former Australian Reserve Bank economist who is now HSBC’s chief economist for Australia and New Zealand.

“I think we’re moving to a world where the mining industry and all the associated jobs — in construction and in professional services — are going to be the main thing where there are skill shortages,” he said in an interview. “And that’s going to put upward pressure on those wages, and people will transfer across to those jobs from other industries.

“I suspect that’s the next problem we’re going to face: not enough labor on the supply side to meet the demand out there in terms of jobs that are being created in the mining industry.”

A report on the skill shortage issued recently by a government task force agrees, saying Australia will need to add 2.4 million skilled workers by 2015 to meet businesses’ growing needs. That is after allowing for the replacement of retiring baby boomers, as well as a drooping birth rate, problems that led Ms. Gillard to warn recently of a “yawning demographic deficit.”

Ms. Gillard began sounding the alarm in February in a speech to business leaders in Melbourne, calling the skill shortage “the biggest challenge arising from the boom.” The mining industry, with its high salaries promising even unskilled laborers the opportunity to get rich quick, was like “a magnet dragging iron filings towards it.”

Article source: http://feeds.nytimes.com/click.phdo?i=c95308bf633e714bcb8e5a2dbe6202e9

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Britain Investigates Bribery Charges Against EADS Unit in Saudi Deal

May 31, 2011 by Leave a Comment

LONDON — Britain’s Serious Fraud Office is looking into allegations that a unit of European Aeronautic Defense Space bribed Saudi Arabian officials to win a multi-billion dollar contract, a person with direct knowledge of the investigation said on Tuesday.

The fraud office, which investigates complex instances of corruption, is seeking more information about allegations that the EADS unit handed out cars, jewelry and cash to win a £2 billion, or $3.3 billion, contract for upgrading the satellite systems of the Saudi National Guard, said the person, who declined to be identified because the investigation is at an early stage.

The allegations were made by Lieutenant Colonel Ian Foxley, a former employee of GPT Special Project Management, which won the contract, the Daily Telegraph newspaper reported. GPT, based in Riyadh, is owned by a British company, Paradigm Services, which in turn is owned by EADS, one of Europe’s largest defense contractors and the parent company of Airbus as well.

“Certain allegations have been made and these are being properly investigated,” Alexander Reinhardt, an EADS spokesman, said.

Sam Jaffa, a spokesman for the fraud office, declined to comment. Mr. Foxley could not be reached for comment. There was no answer at the press office at the Saudi Embassy in London.

The allegations come more than a year after BAE Systems, Europe’s largest military contractor and an EADS rival, agreed to pay almost $450 million in penalties in the United States and Britain to settle investigations into possible bribes to win contracts. The investigations, which had dragged on for years, focused on arms deals in Saudi Arabia, the Czech Republic and Hungary. Before pleading guilty as part of the settlement, BAE Systems had repeatedly denied any wrongdoing.

The initial investigation by the Serious Fraud Office into the dealings of BAE Systems had caused diplomatic problems between Saudi Arabia and Britain. The British government, then led by Prime Minister Tony Blair, pressured the fraud office into halting the investigation in 2006, arguing that it would damage Britain’s intelligence cooperation with Saudi Arabia in the struggle against Al Qaeda.

The halting of the investigation was challenged in court by two activist groups. The High Court in Britain ruled in 2008 that dropping the inquiry was unlawful.

Britain is currently working on a review of its bribery bill that is expected to go into effect this summer. The small changes were supposed to clarify what companies are and are not allowed to do to win business. But some lawyers argued the rules are too unclear on which foreign companies would be subject to the laws.

Nicola Clark contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=9ae3f31bd65b2f67cf5b68ffd934864a

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Economix: Are Taxes in the U.S. High or Low?

May 31, 2011 by Leave a Comment

Today's Economist

Bruce Bartlett has served as an economic adviser in the White House, the Treasury Department and Congress.

Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

One would not know from the Republican document that corporate taxes are expected to raise just 1.3 percent of G.D.P. in revenue this year, about a third of what it was in the 1950s.

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

Revenue Statistics of O.E.C.D. Member Countries, 2010

If taxes are low historically and in comparison with our global competitors, how are Republicans able to maintain that taxes are excessively high? They do so by ignoring the effective tax rate and concentrating solely on the statutory tax rate, which is often manipulated to make it appear that rates are much higher than they really are.

For example, Stephen Moore of The Wall Street Journal recently asserted that Democrats were trying to raise the top income tax rate to 62 percent from 35 percent. But most of the difference between these two rates is the payroll tax and state taxes that are already in existence. The rest consists largely of assuming tax increases that no one has formally proposed and that would be politically impossible to enact at the present time.

Ryan Chittum, in Columbia Journalism Review, responded with a commentary that called the Moore analysis “deeply disingenuous.”

Nevertheless, one routinely hears variations of the Moore argument from conservative commentators. By contrast, one almost never hears that total revenues are at their lowest level in two or three generations as a share of G.D.P. or that corporate tax revenues as a share of G.D.P. are the lowest among all major countries. One hears only that the statutory corporate tax rate in the United States is high compared with other countries, which is true but not necessarily relevant.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Article source: http://feeds.nytimes.com/click.phdo?i=a3928c0dcd4572674a185ab8305e3008

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You’re the Boss: This Week in Small Business: Oprah, Banks and Credit Cards

May 31, 2011 by Leave a Comment

Dashboard

What’s affecting me, my clients and other small-business owners this week.

STORMS HIT HARD A devastating tornado hits Joplin, Mo., and a small-business owner copes with the aftermath. The Louisiana Small Business Development Center is preparing to assist businesses affected by the Mississippi flood waters. The Small Business Administration opens a recovery center in Decatur, Ill., to help businesses hit by the storms.

GOODBYE TO OPRAH, BANKS AND CREDIT CARDS Oprah Winfrey says bye-bye and her swansong leaves a void for small businesses. Seventy-seven banks also say bye-bye. Google’s commerce chief tells TechCrunch that it’s making a “huge bet” on near field communications technology and also plans to kill the credit card. Due to classic videos like this, YouTube celebrates its sixth birthday and gets three billion (yes, billion) views a day. A puppy celebrates its first birthday.

THE BUDGET GOES DOWN Anne All, a tech writer, wonders if the United States is becoming the new center of low cost manufacturing. The Center on Budget and Policy Priorities says wars and the Bush tax cuts are driving our debt. President Obama’s February budget is defeated 0-97 in the Senate. An academic is defeated by his cat. The G.O.P. plans a vote on the debt ceiling. Are Democrats eyeing a 62-percent top tax rate? Susan Solovic, a blogger, says small businesses didn’t have much to celebrate during National Small Business Week.

CONSUMERS ARE HURTING Jobless claims unexpectedly rose last week and consumer spending cooled in the first quarter. The Fed’s Elizabeth Duke paints a gloomy picture for consumers. A new study by the National Bureau of Economic Research shows 50 percent of Americans would struggle to come up with $2,000 in a pinch. Many warn that a commercial real estate “day of reckoning” is coming. With costs rising 7.5 percent, Medicare breaks the inflation curve. At least honeymooners aren’t cutting back.

A SLOW ECONOMY, A FAST KID Russell Investments releases its update on the economy. Durable goods orders decline. The Richmond Fed reports a contraction in manufacturing. April business borrowing and credit quality improves. A three-year-old takes on an otter. Copper falls on slower China manufacturing. Japan falls into a recession. Gas prices decline. New home sales rise. Realtor.com lists the 10 markets where real estate prices are growing the fastest. Revised gross domestic product stays unrevised at an anemic 1.8 percent.

BRILLIANT IDEA OF THE WEEK Guitar picks from credit cards. Duh!

POMP AND UNFORTUNATE CIRCUMSTANCE We spend a lot more per capita on education, but do we get results? You might want to check out the returns. (Big surprise: artsy people earn less). I’m pretty sure these 20 kids won’t have much to worry about. Houghton Mifflin is giving away $250,000 to entrepreneurs who can offer ideas to fix our education system. The good news: three quarters of employers plan to hire recent college grads. Anna Lindow explains how to use social media for recruiting, like “you might consider creating a short video, as corporations like Facebook have done, to present your material in a more engaging manner.” Or you can just work more hours. Unfortunately, women still have a long way to go to be equal in the workplace. Guys, try not to be too happy.

ONE MORE THING TO BLAME ON MICROSOFT A survey says that 71 percent of small businesses are unaware of cloud computing. Intel debuts a “hybrid” cloud service for small business. Dropbox users save a million files every five minutes. Christopher Mims says mobile apps will soon be dead: “The seeds of destruction for both iOS and Android app stores have already been sown — by none other than Google.” Megan Conniff explains how the Five Guys burger chain implemented online ordering. Twitter buys TweetDeck. Signs show desktop virtualization is coming of age for small business. God allegedly blames Microsoft Outlook for missing the rapture. The L.A. Times’ Cyndia Zwahlen reports that hackers don’t care whether businesses are big or small. Coming soon: a climbing robot.

THE BEST BAD START-UP PITCH EVER David Lee and Ron Conway bust a few entrepreneurial myths on stage at Disrupt. Worcester Business Journal’s Matt Pilon writes about key slip-ups every start-up should avoid. Willis Wee logs some ideas from Startup Weekend Tokyo. A new venture that helps enable the transfer of health records over the Internet receives $5 million in funding. The executive director of the National Association for the Self-Employed lists five big myths about American small businesses. John Baldoni shares three traits of successful entrepreneurs. Paul Kedrosky thinks this is the best bad start-up pitch ever. Nokia wants your ideas. James Altucher explains how he self-published a book, and how you can, too: “There’s no financial benefit for going with a publisher if advances are going to zero and royalties are a few percentage points.”

IN DEFENSE OF BANKS? Mike Shedlock wants answers to a few important questions before the banks are attacked. Example: “I do not know how big the “strung along” category is, but the only ones in this category who were genuinely harmed to any significant degree are those who continued to make mortgage payments, strung along on a promise, when instead they could have and should have walked away. How many is that? You tell me.” Bank profits are the highest since 2007. Bank of America hires 75 small-business bankers in the mid-Atlantic area. Banks plan to offer cash transfers via cell numbers and e-mail addresses.

DON DRAPER TEACHES US MARKETING A study says that American small businesses will spend $36 billion on marketing activities in 2012. A matching service tries to pair small businesses with big business opportunities. Groupon figures out a great way to get unsubscribers to re-subscribe. Gail Goodman, Constant Contact’s chief executive, gives us six quick-hit marketing ideas for social media. Example: “Share a casual video message from yourself or one of your employees, or a customer testimonial video.” A graphic unravels the mysteries of affiliate marketing. Pitney Bowes announces a customer communications makeover contest for small-business owners. Sean Platt reveals what Don Draper knows about persuasion and success: “Even the most adventurous among us crave the sublime comfort of the familiar. Many writers and marketers understand this human need, but Don tumbles the thought by reminding us that true nostalgia isn’t a deep longing for the past so much as an affectionate feeling for a future that feels like a friend.”

BROTHELS WANT TO PAY TAXES Thousands of companies and nonprofits that received funds from the Obama administration’s economic stimulus program owe hundreds of millions of dollars in unpaid taxes. But Chrysler coughs it up to Uncle Sam. Some House committee members are trying to repeal the 3 percent withholding tax provision. The Nevada brothel industry wants to pay more taxes.

THE WEEK AHEAD The Consumer confidence index appears Tuesday. Look for Friday’s unemployment rate to still be high. Look for big crowds at Dunkin’ Donuts on Friday.

THIS WEEK’S AWARDS

STUPID INDEX Try to figure out your quality of life with the Organization for Economic Co-operation and Development’s new Better Life Index. Ummm, is there anything here you wouldn’t rate highly?

ADVICE FOR GETTING CASH The Kauffman Foundation’s Brian O’Connell explains how to land health care (or other) seed money. Example: “Get to know your favorite V.C.s. You wouldn’t pick a business partner without getting to know every facial tic. So why wouldn’t you do the same for a venture capital firm, which is a close business partner by any definition? When you start to look for investors, make sure you know how they think, and what they want to see and hear from the companies they invest in. Go see them speak, attend the same seminars, read their books and white papers, study their Web sites, Google them, and yes, follow them on Facebook and Twitter, if that access is available. That way, when you do get a chance to present, you’ll know what clicks the pilot light on for that venture investor – and you can target your presentation accordingly.”

WISDOM BEYOND HIS YEARS Feross Aboukhadijeh, a Stanford student, says  none of us knows what we’re doing. Example: “Don’t listen to successful entrepreneurs. The folks who succeed have no way to know if their success was due to talent, skill, and planning, or merely dumb luck. If you ask them though, they’ll confidently spout reason after reason why they — and no one else – could possibly own 90 percent of the desktop PC market, or whatever they achieved. In their minds, it couldn’t have turned out any other way. Most of this is just after-the-fact rationalization, though. The truth is, they succeeded and have no idea why. They’re just explaining it in the best way they can.”

THIS WEEK’S QUESTION Do you feel confident that you know what you’re doing?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter, and you can read his read his new book.

Article source: http://feeds.nytimes.com/click.phdo?i=486e354c256c8cb60aa0f979e7e83d30

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DealBook: Ashland to Buy Chemical Company for $3.2 Billion

May 31, 2011 by Leave a Comment

James J. O'Brien, chairman and chief executive of Ashland.James J. O’Brien, chairman and chief executive of Ashland.

Ashland, the chemicals company, said on Tuesday that it had agreed to buy the privately held International Specialty Products for $3.2 billion in cash.

International Specialty is the chemical company that was spun off from GAF in 1991 by the deal maker Samuel J. Heyman. Mr. Heyman took International Specialty private in 2003 in a $134 million deal and then sought unsuccessfully to take over a rival, Hercules. He died in November 2009.

International Specialty, based in Wayne, N.J., produces specialty chemicals and performance enhancing products for consumer and industrial markets. It had $1.6 billion in revenue for the year ended March 31, and $360 million in earnings before interest, depreciation, taxes and amortization. But it also has debt of $926 million, according to Capital IQ data.

The deal will help Ashland “significantly expand our market positions in higher margin, higher growth and less cyclical global markets like personal care and pharmaceuticals,” Ashland’s chief executive, James J. O’Brien, said in a statement. “It broadens Ashland’s presence within attractive growth areas like skin, hair and oral care, which are large and fast-growing segments of the $5-billion-plus personal care specialty ingredients market.”

Ashland, based in Covington, Ky., is also a maker of specialty chemicals, including Valvoline motor oil. The deal is the company’s largest since it bought Hercules for $3.3 billion in 2008.

The company is paying for International Specialty with its own cash and with financing from Citigroup, Bank of Nova Scotia, Bank of America Merrill Lynch and U.S. Bancorp.

Under the terms of the deal, if the financing is not available, Ashland would have to pay International Specialty a termination fee of $413 million. The deal is pending regulatory approval, and is expected to close this autumn.

Bank of America Merrill Lynch and the law firm Cravath, Swaine Moore advised Ashland.

Moelis Company and the law firm Sullivan Cromwell advised International Specialty.

Article source: http://dealbook.nytimes.com/2011/05/31/ashland-to-buy-chemical-company-for-3-2-billion/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Stock Surge in Early Trade on Optimism Over Greece

May 31, 2011 by Leave a Comment

Europe stepped up efforts to draft a second bailout package for Greece, with private sector participation still an option to help relieve the country of its huge debt burden.

Rising expectations of a second aid package for Greece sent crude oil 2.3 percent to $102.88 a barrel in the United States. Exxon Mobil added 1 percent to $83.49, and Chevron gained 1.7 percent to $104.95.

The firming of the euro supported metals prices, with copper rising to a four-week high. The mining company Freeport-McMoRan Copper Gold rose as much as 1.7 percent to $52.63.

“The news out of Europe is propelling the market higher in pretrading, following the rest of the global markets. News regarding a Greece bailout is basically fueling the optimism,” said Peter Cardillo, chief market economist at Avalon Partners in New York.

“It is causing the dollar to go back down, strengthening the euro, so that is inviting risk back into the marketplace.”

In midmorning trading, the Dow Jones industrial average rose 81.36, or 0.7 percent, to 12,522.94. The Standard Poor’s 500-stock index was up 7.2 points, or 0.5 percent, at 1,338.30, and the Nasdaq composite index was up 13.97 points, or 0.5 percent, at 2,810.83.

On the economic front, the S.P. Case-Shiller Home Price Index for 20 large cities, not seasonably adjusted, fell 0.8 percent in March from the month before, as expected. It was the eighth decline in a row and left prices down 33.1 percent from the July 2006 peak.

The Institute of Supply Management Chicago said its index of Midwest business activity fell in May to 56.6 from 67.6 in April. Economists had forecast a reading of 62.6.

In another report, consumer confidence slid in May as consumers turned more pessimistic on the outlook for the labor market and inflation worries rose, according to the Conference Board. The report said that its index of consumer attitudes fell to 60.8 from a revised 66.0 in April. The reading was below economists’ forecasts for 66.5.

The chemicals maker Ashland said it would buy the privately held International Specialty Products for about $3.2 billion in cash to expand in high-growth markets such as personal care, pharmaceutical and energy. Ashland’s stock rose 10 percent.

European shares rose 1 percent on optimism over a possible Greece deal, with banks among the biggest gainers.

Asian stocks were mostly higher Tuesday, with the Nikkei lifted 2 percent by an upbeat outlook from Japan’s manufacturers and a weaker yen, while regional solar stocks gained after Germany said it would phase out nuclear power by 2022.

Article source: http://www.nytimes.com/2011/06/01/business/01markets.html?partner=rss&emc=rss

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House Prices Fall to New Post-Bubble Low as More Rent

May 31, 2011 by Leave a Comment

The Standard Poor’s Case-Shiller Home Price Index for 20 large cities fell 0.8 percent from February, the eighth drop in a row. Prices are now down 33.1 percent from the July 2006 peak.

“Home prices continue on their downward spiral with no relief in sight,” said David M. Blitzer, chairman of the S. P. index committee.

Housing is in persistent trouble, industry analysts say, not only because so many people are blocked from the market — being unemployed, in foreclosure or trapped in homes that are worth less than the mortgage — but because even those who are solvent are opting out.

The desire to own your own home, long a bedrock of the American Dream, is fast becoming a casualty of the worst housing downturn since the Great Depression.

Even as the economy began to fitfully recover in the last year, the percentage of homeowners dropped sharply, to 66.4 percent, from a peak of 69.2 percent in 2004. The ownership rate is now back to the level of 1998, and some housing experts say it could decline to the level of the 1980s or even earlier.

“The emotional scars left by the collapse are changing the American psyche,” said Pete Flint, chief executive of the housing Web site Trulia. “There was a time when owning a home was a symbol you had made it. Now it’s O.K. not to own.”

Trulia, a real estate search engine for buyers and renters that is based here, is a hive of renters, including Mr. Flint. “I’m in no rush at all to buy,” he said. He expects homeownership to decline further to about 63 percent, a level the country first achieved in the mid-1960s.

The new Case-Shiller data did not offer much room for short-term optimism. The national housing index, which is reported quarterly, fell 4.2 percent in the first quarter after a drop of 3.6 percent in the fourth quarter of 2010. This, too, is a new recession low.

Twelve of the 20 cities in the index hit a new recession low in March. Washington was the only city where prices rose both in March and over the last year.

Years of declines are teaching potential buyers to expect more of the same. Tim Hebb, a Los Angeles systems engineer, expertly called the real estate bubble. He sold his bungalow in August 2006, then leased it back for a year. Since then, the 61-year-old single father has rented a succession of apartments.

“I have flirted with buying again many times over the past few years,” said Mr. Hebb. “Let’s face it, people are not rational creatures.”

But he always resists, figuring housing is still overpriced and even when it stops declining it will stumble along the bottom for years and years. He says there is plenty of time to get back in if he should ever want to.

Housing prices are now back to where they were in mid-2002. Such a decline was literally unimaginable to the boosters and many of the analysts in the middle of the boom, who were fond of saying that house prices never fell on a national basis.

But as credit dried up and the easy refinances disappeared, the foreclosures began. Prices fell sharply in late 2006, 2007 and 2008.

The market turned around in 2009, prompting hopes that the worst was over. A government tax credit proved wildly popular but after it expired a year ago the declines resumed.

When demand will naturally reignite to stabilize the market is a matter of debate. Most economists have been saying that they think the price declines will level off in the second half of this year, although a few think they will continue until 2012. What no one seems to anticipate is any sort of a brisk recovery. Instead they see a muddling along until the foreclosure crisis diminishes and the excess housing supply is soaked up.

The financial blog Calculated Risk estimated the excess housing supply this week using 2010 Census data, which it compared to 1990 and 2000. The blog concluded that the excess supply in April 2010 was about 1.8 million units but probably several hundred thousand fewer now.

Article source: http://www.nytimes.com/2011/06/01/business/01housing.html?partner=rss&emc=rss

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