March 29, 2023

Reports on Jobs and Consumer Confidence Lift Stock Market

The stock market moved solidly higher on Thursday, with the Standard Poor’s 500-stock index scoring its best day in seven weeks, as bullish reports on consumer confidence and private sector jobs encouraged investors.

Data from the payrolls processor A.D.P. showed that American companies added 158,000 workers in October, the fastest pace in eight months. In another encouraging sign, consumer confidence jumped in October to its highest level in more than four years, the Conference Board said.

The numbers showed a slightly more positive picture of the American economy a day before Friday’s employment report from the Labor Department, the most widely watched United States economic indicator.

“In all, it bodes well for the bull side, and finally gave some investors a catalyst to buy,” said Alan Lancz, president of Alan B. Lancz Associates, an investment advisory firm in Toledo, Ohio. “Tomorrow will be more of a trump card and can take it all away.”

Employers are expected to have added 125,000 jobs to nonfarm payrolls in October, up from 114,000 in September, according to a Reuters survey of economists. The unemployment rate is forecast to have inched up to 7.9 percent after a sharp drop to 7.8 percent in September.

The Dow Jones industrial average gained 136.16 points, or 1.04 percent, to close at 13,232.62 The S. P. 500 shot up 15.43 points, or 1.09 percent, to finish at 1,427.59, its biggest daily percentage gain since Sept. 13, when the Federal Reserve unveiled its plan for a third round of economic stimulus. The Nasdaq composite index jumped 42.83 points, or 1.44 percent, to 3,020.06.

Pfizer fell 32 cents, or 1.3 percent, to $24.55 after it reported revenue that fell far short of expectations.

Exxon Mobil, the world’s largest publicly traded oil company, which like Pfizer is a Dow component, gained 43 cents, or 0.5 percent, to $91.60. The company reported a quarterly profit that slipped from a year earlier, although it still topped expectations. Exxon’s oil and gas output, however, declined more than expected.

In after-hours trading, Starbucks rose $3.54, or 7.6 percent, to $50.16 after it reported a higher quarterly profit and raised its full-year forecast. The stock closed regular trading at $46.62.

During the regular session, official and private sector factory surveys in China that showed the world’s second-biggest economy regaining some traction added to support for stocks.

The JDA Software Group, a maker of supply-chain management software, soared $6.61, or 17.3 percent, to $44.76. The company agreed to a cash buyout by a privately held rival, RedPrairie, with a value of about $1.9 billion.

In the bond market, interest rates moved higher. The price of the Treasury’s 10-year note fell 13/32, to 99 2/32, while its yield rose to 1.73 percent, from 1.69 percent late Wednesday.

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Media Decoder Blog: U.S.C. Media Program Trains Afghan Film Students

Samiullah Nabizada, who attended the University of Southern California cinema school in 2011, has returned to Afghanistan.Erick Yates GreenSamiullah Nabizada, who attended the University of Southern California cinema school in 2011, has returned to Afghanistan.

LOS ANGELES — Before he became famous in the media world as the chief executive of MTV, and then its parent, Viacom, Tom Freston had a less glorious career as the proprietor of a clothing company based in Afghanistan.

Things ended badly, by Mr. Freston’s account, when he had to leave the country in 1978 on the heels of a coup. “There was too much shooting in the streets,” he recalled.

But his love affair with Afghanistan continued. And Mr. Freston, fired from his Viacom position by Sumner Redstone in 2006, has been quietly stealing time from his current career as a consultant and entrepreneur to connect the dots of his far-flung experiences — from untamed Afghanistan to the unruly media future — via a little-noticed program at the University of Southern California’s School of Cinematic Arts.

Kept under wraps until now because of security concerns, the program, entering its second year, enrolls two Afghan students annually for a crash course in the cinema school’s summer program.

The students are sponsored by Mr. Freston in collaboration with Saad Mohseni of the Moby Group, a media conglomerate in Afghanistan (on whose board Mr. Freston serves). For about seven weeks, the students get a day-and-night education in writing, editing, cinematography and whatever else it takes to make programming for screens, large and small.

“Four years is too late,” Mr. Freston said of his reasons for backing students for short stints, rather than a full four-year education. (His own son is a graduate of the cinema school, its spokeswoman said.)

By Mr. Freston’s account, the trained talent pool in Afghanistan’s media world roughly matches what he found decades ago in the cable television world — many are willing, but few are trained. With that in mind, two trainees will arrive at U.S.C. next month to begin studying under the program’s overseer, David Weitzner.

The trainees from last summer have returned to Afghanistan, and are working in a rough-and-tumble business that still fears a Taliban resurgence but in the meantime has millions of viewers for programs as far-flung as a Persian-language version of a Spanish-language telenovela.

Before leaving Afghanistan in 1978, Mr. Freston said, he briefly considered just sticking around until things settled down. “I’d still be waiting,” he said.

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DealBook: For Wall Street Deal Makers, Sometimes It Pays to Be Bad

Deal ProfessorHarry Campbell

Instead of awarding F’s for the worst deals and deal-making of the year, I am going to focus on two of the year’s biggest buyouts. The first: J.Crew’s $3 billion buyout by its chief executive, Millard S. Drexler, and the private equity firms TPG Capital and Leonard Green Partners. The second: Del Monte Foods’ $5.3 billion acquisition by Kohlberg Kravis Roberts Company, Vestar Capital Partners and Centerview Capital.

Both acquisitions showed that sometimes being bad pays very well.

In the J.Crew deal, Mr. Drexler spent seven weeks planning a management buyout of the retailer with TPG and Leonard Green before he informed the J.Crew board of his intentions. At the last minute the buyout group lowered the price it was offering, making a “take it or leave it” offer that appeared to cow the J.Crew board into a lower-price deal. The Delaware judge overseeing the litigation that was later brought over the matter observed that the conduct of Mr. Drexler and his friends was “icky.”

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In the case of Del Monte, the investment bank Barclays Capital, which was representing Del Monte, was accused of bringing together Del Monte’s eventual private equity buyers, K.K.R., Vestar Capital Partners and Centerview, turning possible competing bidders into allies. Barclays subsequently moved from representing Del Monte to providing financing for the buyers. Another Delaware judge wrote a scathing opinion in which he questioned the conduct of both Barclays and the Del Monte board for allowing Barclays to arrange and finance this bidding consortium.

In both deals, litigation was brought before the takeovers could be completed. As a remedy, both deals were reopened and new bidders invited to ensure that there was full and open bidding for the companies.

No new bidder emerged for either company.

This was no surprise.

In J.Crew’s case, Mr. Drexler is the creative force behind the preppy clothing company. But Mr. Drexler repeatedly expressed his desire to work only with TPG and Leonard Green while sometimes saying halfheartedly that he might work with others. Without his cooperation, no other bidder was likely to appear.

Del Monte lacked a “secret sauce” executive, but there were few natural bidders for the company, leaving only private equity firms. Unfortunately, there was slight chance of a private equity firm bidding against K.K.R. and its partners. One reason is financing. It is quite difficult to put together a multibillion-dollar financing package for a bidding war. The financing banks just don’t want to write a blank check.

Reopening the bidding was thus a hollow penalty.

There were also monetary penalties, to be sure. In the J.Crew case, there was a $16 million litigation settlement for shareholders. The settlement in Del Monte was higher, at $89.4 million. About half of the Del Monte settlement money came from Barclays.

But it was also small change. Even the bigger Del Monte settlement was only about 1.7 percent of the transaction value. J.Crew was about 0.5 percent. And much of the money will be paid by insurance.

Being bad has largely paid off for these buyers.

This is not to say there were no repercussions. Both cases have changed Wall Street practice. Boards of target companies facing management buyouts have strived to run cleaner sale processes to prevent another J.Crew-like situation. Boards have also become more wary of their investment bankers. In the wake of the Del Monte case, boards are less willing to allow “staple financing,” where the target’s bankers offer a financing package to potential buyers.

As for the buyers of J.Crew, at the judicial hearing to approve the litigation settlement, Martin Vogel, an objecting former shareholder, complained that this settlement was “nominal.” It would not make a future executive think twice before engaging in the same conduct. Mr. Vogel is right.

But the problem is what to do about the penalty. Depriving shareholders of a buyout, even at a bad price, would punish them.

Perhaps the answer is to establish meaningful penalties paid out of the pockets of the bad actors. In the case of Del Monte, this appeared to have happened. Barclays was deprived of its fee, and that is why bankers on Wall Street have all had to slog through classes on the Del Monte case. The worst nightmare of a banker is to lose a $45 million fee. With real money at stake, the bankers have an incentive to change their conduct.

Nothing of the sort happened in J.Crew. The small settlement was apparently structured to be paid by insurers, and even then a quarter of it went to lawyers’ fees. Mr. Drexler and his buying consortium are getting off almost scot-free.

The difference between the two cases reflects in part a quirk in the law.

In the Del Monte case, Barclays was party to the litigation while not being one of the principals in the deal. But in J.Crew, the lawsuit was aimed squarely at the J.Crew board and its chief executive. Without delving into the intricacies of Delaware law, establishing a case against the J.Crew board and Mr. Drexler would have been difficult. In the case of Del Monte, the same rules applied to the Del Monte board, but the law on Barclays’ liability was different and uncertain.

But the law should not depend upon such distinctions. Delaware wants to protect directors and officers from liability to ensure that they operate the business without undue fear of personal liability. There are good reasons for these rules, at least in some measure. It is only when you examine the differences between J.Crew and Del Monte that you realize that sometimes these laws act to protect conduct that is, to say the least, “icky.”

The J.Crew case rewards a chief executive for his poor conduct, letting him keep the company without real penalties except reputational damage. But reputation is fleeting on Wall Street, and Mr. Drexler, TPG and Leonard Green do not seem too bothered by the controversy. Why should they? They now own J.Crew.

Perhaps in the new year, it will be time to get serious about penalizing, rather than rewarding, deal makers for their bad conduct.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

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Bucks Blog: Call With Your Money Questions

August 10

Wednesday Reading: A Test For Fetal Gender at 7 Weeks

A blood test can show fetal sex at seven weeks, market closes up 430 points after a volatile day, do-it-yourself senior living and other consumer-focused news from The New York Times.

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Many Japanese Factories Recover After Quake

The ceiling is still not fixed. But employees are back at their posts, working under temporary lighting and wearing hard hats to protect themselves in case debris falls.

The factory may be a case study for the can-do recovery of Japan’s manufacturing industry. Only seven weeks after the huge earthquake in northeastern Japan collapsed the ceiling, toppled a huge water tank and upended assembly line equipment, the Ricoh factory here is nearly back to full production. And so, for the most part, is all of Ricoh, a nearly $25 billion company that makes copiers and other office equipment.

“The influence of this disaster is not as large as the world thinks,” Shiro Kondo, Ricoh’s president, said in an interview at the company headquarters in Tokyo.

At varying speeds, Ricoh’s story is being played out all over the quake-affected parts of Japan. The pattern suggests that whatever the long-term effect of the natural and nuclear disasters on this country, manufacturing — the most important cog in Japan’s export-oriented economy — might largely rebound within a few months.

Without doubt, things are not back to normal yet. And some sectors, particularly automobile manufacturing, are suffering more than others. Still, almost every day companies are reporting progress on some of the hundreds of factories knocked out of commission by the quake or ensuing tsunami. The government estimates that 7 percent of Japanese factories were in the region heavily affected by the earthquake.

A survey of 70 damaged factories released last week by Japan’s Ministry of Economy, Trade and Industry found that nearly two-thirds of them had recovered while most of the rest in the survey group expected to do so by summer.

Shin-Etsu Chemical, a leading producer of silicon wafers used to make computer chips, said last week that it expected to return to pre-earthquake production levels by July. Sony has resumed operations at nine of its 10 halted factories, with the 10th expected to come online in phases from May to July.

Masatomo Onishi of Kansai University, who studied the recovery after the 1995 Kobe earthquake, said that when a disaster strikes, Japanese companies tend to cooperate with one another and workers rally to the cause.

That seems to be the case at the Ricoh factory here. Even many of the Ricoh workers who lost family members to the tsunami came to work. Some whose homes were destroyed or flooded slept on blankets on the floor of a factory conference room. With gasoline scarce, many rode bicycles. And with bathrooms not working because of blocked sewer lines, employees improvised with plastic bags.

Still, the disaster exposed vulnerabilities that simply restoring any one factory’s assembly line cannot fully resolve.

The biggest susceptibility for Ricoh and many other companies has proven to be parts shortages. Although Japanese manufacturers have spread their factories around the world — Ricoh makes 70 percent of its products outside of Japan — many of those overseas plants often still depend on parts made in Japan.

For example, Tohoku Ricoh, as this plant is known, is the company’s only factory making a particular motor used in copiers. When the factory here went down, a giant Ricoh plant in Shenzhen, China — which supplies most of the Ricoh copiers sold in the United States — had to stop production for a full week. (Mr. Kondo said he did not think Ricoh’s sales in the United States would be affected much.)

Ricoh is also dependent on parts from various suppliers in Japan, some of which suffered their own damage from the earthquake.

That is forcing Ricoh to live off its inventory of certain computer chips and connectors. If production of those parts does not resume in the next couple of months, Ricoh might have to slow or halt production.

Another weakness was in emergency planning.

David Jolly contributed reporting from Tokyo.

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