Speaker key:
HW: Hal Weitzman
JO: Jim Owens
Part 1: On the US economy
HW: Mr Owens, thank you for joining us.
JO: My pleasure, Hal.
HW: Let’s start by talking about the US economy. Two years ago Caterpillar became one of the first big American companies to warn that the US was entering a serious economic downturn. Now, this year you’ve been more optimistic, but in the first three months of the year you actually recorded your first quarterly loss for 17 years, and last week you warned that you might make a loss in this current quarter. So are we seeing green shoots or are they withering?
JO: Well, let me be careful here. I’m not that caught up on the quarterly numbers at all. I think we warned about a slowing of the economy because the US economy peaked in 2006 and, as you recall, housing starts were about 2.2 million starts back then. It came off pretty sharply. We could see this bubble building and we felt the economy was going to come off so by late 2007- 2008. The housing market, for example, in the US was cascading down, which had a big impact on a lot of our product lines in the United States. We recorded all time record sales results, revenue and sales results in 2008, but we did that despite the fact that the US, Japan and Western Europe were in outright recession for the latter half of the year and, of course, the US was in it even earlier than that. And particular sectors that we serve, like housing, were down and very severely depressed. In fact, 2008 was the worst year we’ve had since World War II. So we were well into it. And the first quarter of this year, we came into this year – keep in mind the post Lehman Brother’s collapse, so the September 15th to November 15th period of time – the global economy literally flipped upside down and got a lot worse, particularly the global credit markets.
So we went from, well, let’s call it normal cyclical recessionary conditions in the US, Europe and Japan and good growth in the emerging markets, to a world that was upside down, in 90 days. And most people forget, how quickly we forget, a couple of factors. One, is that the best three years of growth since World War II were the 04 to 06 period. In that period we were scrambling and booming to add capacity worldwide. In this post Lehman period, the 90 day period, essentially every stock market in the world dropped between 35% and about 80%. Every major commodity from oil and gas to iron ore to copper, the big market segments we serve, dropped between about 35% and 60% in 90 days. And currencies, of course, moved dramatically in this period also. Credit markets became dysfunctional, literally a seizure in those. So only the very best companies were able to borrow at all. And we went from three year order backlogs for many of our product lines to mass order cancellations, which we allowed recognising the economic game had changed; and changed overnight almost.
In the first quarter, I guess, we lost money for the first time but we made money on an operating basis, the redundancies that we took. We did some right things for our people in that we offered early retirement programmes that cost us more than just firing people. We offered to maintain health insurance, for example, for our American employees where that’s a big issue, for one year into a layoff - it went that long. And we offered to do some supplemental compensation. We wanted our managers to rightsize the organisation to compete with radically lower volumes, and do it quickly. So all those costs we took in the first quarter.
In the second quarter the markets were pleasantly surprised because it was really a post management story. We were able to take out cost associated with about 34,000 people that showed up for work every day within a four month period. So we had, kind of, strategically positioned ourselves to be flexible, we exercised that flexibility and we see a significantly lower, going forward cost run rate by the second quarter, in place. So I think we demonstrated the elephant here could dance pretty well when forced to. A lot of unpleasant things we certainly ... it’s a lot more fun to grow and to hire people, but quite frankly, to be successful in the capital intensive goods business you need the flexibility that we’ve tried to build into our systems.
HW: But are you optimistic now? Do you think we’ve now reached the bottom in terms of demand for the heavy equipment that Caterpillar makes?
JO: The green shoots, and I think they are still green shoots at this time, there’s a couple of things. First of, global credit markets and particularly for companies that are good credit risk, such as ourselves, the credit markets have stabilised, largely normalised, we are able to go to market for medium terms notes in Europe and Canada. The US market is functioning well, commercial paper markets are functioning well. Our CapFinance company is now solidly profitable again, we can look at growing that portfolio. We’re confident about its ability to do good underwriting and manage lending to our customers, which will help them. Four or five months ago that business model was completely upside down because the banks that were guaranteed at very low interest rates and everyone else, regardless of quality, paid a huge premium. Those spreads have now narrowed, and in fact, in the last few months we’ve been able to borrow at rates lower than we were borrowing a year ago. So we’re encouraged on that front.
Secondly, our sales to users, retail sales if you will, which were in freefall from October of last year through to the first quarter, kind of bottomed out in that April/May timeframe, and we looked at sequential months we’re seeing stabilisation and maybe even a slight improvement in that.
Part 2: On the global economy and protectionism
HW: You spoke about raising money around the world and Caterpillar is a very global company, almost two thirds of your revenues come from markets outside North America. Where do you see the best recovery happening? What geographic area of the world?
JO: We were into a discussion about the emerging markets of the world being our growth opportunity in 2008 – in fact they were carrying the day. There’s not been a complete decoupling of the world certainly, and when the OECD world, all of it, is in severe recession and credit markets sees the emerging markets are also negatively impacted. But we still think that’s a fundamental court case for the macro economy for the next decade. That the emerging markets of the world, particularly emerging Asia – it’s China, India, South East Asia, the ASEAN group, it’s parts of the Middle East, the southern part of Africa, it’s Latin America almost in total and eventually CIS and Eastern Europe, which have been the most adversely impacted by this crisis.
But we see the growth rates in that large group of countries with vast populations, growing at two to three times the OECD world growth rate in the decade ahead. And we think they’re at the economic development stage where that’s going to drive demand for a fair bit of commodities, both energy and basic minerals, just because of the stage of economic development, the emerging middle class that’s present in those countries and we think that plays to our product line strengths.
HW: You’re an outspoken advocate of open markets and free trade.
JO: Absolutely.
HW: Are you concerned about the drops in global trade that we’ve seen and possibly the rise or the return of protectionism?
JO: I’m very concerned about that. I think that the greatest risk we have today in the world economy would be a reversion to nationalism, protectionism, call it what you will, that impedes the flow of goods and services around the world. I think the world benefited hugely by cross-border investments and rapid growth in exports and imports, standards of living in countries that were open improved much faster. The big change that facilitated the very impressive growth that we registered in the 04 to 06 period was the opening of markets, be it China or Russia and Eastern Europe, and bringing them into the global family of trading nations. I think specifically about the United States where it’s really encouraged us – we’ve kind of led trade liberalisation since World War II. Some in our country would argue that we could be a great country by building a big enough wall down the southern border and I think it’s nonsense.
HW: On that note, you criticise the buy America provision that was included in the US stimulus bill. Has that been as damaging as you had feared?
JO: I think it’s been damaging on a psychological front. It’s relatively small in terms of its real impact on the imports or exports, but the fact that we as a country put a buy America provision in our stimulus bill, says we don’t have confidence in American companies’ ability to compete for and win that business in open competition. I feel our construction equipment customers should, quite frankly, have the choice between JCB and Komatsu and Volvo and Caterpillar. And I’d like to think that we can provide products and services that will allow us to win that business. In the same context, I want to be able to compete for business in Europe and Japan and China and Brazil and other countries. I think by us, the United States, putting a buy America provision in our stimulus package; we encourage other countries to do the same – tit for tat here.
HW: You are a member of President Barack Obama’s economic recovery advisory board. Do you feel that the administration has listened to industry and the concerns of industry and lent its support during this downturn?
JO: I think it’s early days. President Obama came to office when the economy was pretty much in freefall, particularly following Lehman’s collapse. So his first order of business was, A), just restoring confidence that we have a sound government, that we’re going to aggressively address the issues in the early days, stabilising the banking system, which I think they’ve done a pretty good job of addressing and getting it stabilised. And now, maybe moving back from having to do that with better, more thoughtful regulation but without direct government intervention is going to be an important step. Getting a stimulus bill passed, it wasn’t a perfect stimulus bill even by the President’s measure and certainly not by industry’s measure, but it was a stimulus bill that helped us rebuild and restore confidence that we weren’t going to go over the falls into a deep global depression. I think most people in the business community, financial community, would say that we are now confident, we’re not going to go into a depression. It may be a prolonged period of slow growth and the question now before the House is going to be to get the macro-economic policies in place that will get real economic growth in the world going back at a level which begins to employ a lot of people again.
Part 3: On the US stimulus and American manufacturing
HW: But it’s interesting that you bring up jobs because President Obama came here to Peoria, to Caterpillar’s home town last year to promote the stimulus. And he said at the time that if this is passed companies like Caterpillar will be able to hire back some of the workers that they’ve let go in recent months. Now more recently we’ve heard the criticism that this stimulus has not lived up to its billing as a job creation package. What are your views?
JO: I think first off there’s always leads and lags here. It takes time for the stimulus money to get into the economy and to create jobs and that was one of my cautions coming in – we had a little miscommunication on the timing ...
HW: What was the miscommunication?
JO: Over how soon a stimulus bill would positively effect employment in the economy in general. I think, first off, unemployment is a lagging indicator, so it stays higher for a little longer and then when it starts going down there will be probably several quarters of positive GDP growth before we see employment beginning to pick up again. In the case of our own plants, yes, an effective stimulus bill which generates real growth in the United States eventually creates jobs at Caterpillar. But passing the stimulus bill doesn’t translate into jobs overnight and if there was any lack of clarity it was around… this was a sell the stimulus bill speech and the realities of how long it takes it to work through and create jobs in a Caterpillar plant ...
HW: So President Obama did not consult you before he said that there might be jobs created by Caterpillar?
JO: He consulted me on the idea of the stimulus bill and we certainly agreed that the country needed, I think at that time, a substitute stimulus bill. The press has tried to drive up a big wedge here between our views on the need for a stimulus bill; I was absolutely in agreement we needed a stimulus bill. Now, the stimulus bill that we passed in the United States, I think, was a little more geared to a lot of social programmes and some necessary support for people in transition and it was a little light on hard infrastructure investment. And the amount of spin there, over a two year period, is less than at 6% or 8% of say our construction spending in the country. And you have residential construction and non-residential construction and even state and federal budgets going down, so they more than offset the amount of money in the stimulus.
HW: Was that the difference between the US stimulus and the Chinese stimulus package.
JO: The Chinese went very heavily for hard infrastructure, for roads, bridges, railroads, airports, ports – so they’re building real capacity to facilitate economic growth in the future. And one of the things, I think, we need in this country is we’ve got a lot of infrastructure that’s in a state of ill repair, so a lot of repair and fixing of roads and bridges – in some cases expanded capacity, additional air transit capacity and rail quarter capacity. These are investments that I think are meritorious, because, first off, they create a lot of jobs, there’s a big multiplier associated with this, it’s not just the construction work, but it’s the rock and quarry work that has to go behind it. The steel, the cement and other materials, the construction equipment, the maintenance of all that that drives a lot of jobs. So the multiplier is, for instance for direct construction jobs, there is a three or four multiplier on it. Whereas a lot of the programmes in the initial stimulus bill don’t have much of a multiplier.
HW: Presumably, with infrastructure spending in mind, you’ve floated the idea that the US might need a second stimulus package. Is that still your view and if so is there the political will in Washington to spend more money?
JO: I think there’s going to be a need to have, probably, an additional stimulus. I think it could be focused in, for example the Highway Bill that’s coming up in the fall, and just accelerating some of that investment because in the construction related labour markets the unemployment rates are up in the 18% and 19% range. So there’s a lot of idle capacity, if you will, to build at this point in time and a lot of job creation that could come in that space. So I think, if we make good investments, and that’s a key word here, good investments in infrastructure and accelerate some of those, it would be a very wise use of government funds.
HW: How do you think US manufacturing, generally, has fared in the downturn?
JO: I think it’s been hit pretty severely and certainly, again, the magnitude of the drop and the speed has been pretty severe and the fact that is was global in nature. So we didn’t have exports to offset the domestic decline. We’ve got a lot of resilience in many respects and clearly we have problems in the auto sector but that’s a problem of global excess capacity and a cost structure problem for the Detroit-based auto companies that they needed to address anyway.
HW: Do you think US manufactures should be concerned about low cost competition from abroad?
JO: Absolutely. I think we should be concerned about it, I think we should be gearing ourselves to compete with it. I think, in many cases, that will lead to us needing to invest in other markets around the world to establish manufacturing presence. I still think it’s important for the United States to have a very strong manufacturing base within the country and that we need to focus on areas that we can be globally competitive and that we can both manufacture for the domestic market and export, that’s a nice balance. And one, I think quite frankly, as a country, we’ve given insufficient attention to it historically. We’ve tended to think in Washington about domestic economic policy and, in fact, we have to think about or economic policy in the global context, going forward, and how American based multi national companies and American manufacturers who export from here, can compete in the world market.
HW: Mr Owens, thank you very much for joining us today.
JO: It’s been my pleasure.
LONG/SHORT
HW: Okay, Mr Owens, now we’re going to play long short. Ready?
JO: Ready.
HW: US dollar?
JO: Short.
HW: US manufacturing?
JO: Short.
HW: North American construction?
JO: Short.
HW: The Midwest economy?
JO: Short.
HW: The US Stimulus?
JO: Short.
HW: The chance of a second Stimulus?
JO: Long.
HW: Oil prices?
JO: Long. Long meaning I expect that they will go up steadily over the next decade or two.
HW: The global economy to recover by next year?
JO: Long.
HW: Protectionism?
JO: Short – I’m concerned.
HW: Barack Obama?
JO: Personally, long.
HW: Mr Owens, thank you again.
Second Quarter 2009 Highlights
• Dow reported a loss of $0.47 per share. Excluding certain items and discontinued operations
in the quarter, the Company earned $0.05 per share, driven by favorable volume trends,
management’s accelerated cost interventions and the Company’s ability to maintain price
from the prior quarter.
• The Company is ahead of its commitments to reduce structural costs, with a decrease of more
than $375 million in costs in the quarter and more than $600 million year to date due to
ongoing cost reduction and restructuring efforts, as well as cost synergies achieved as a result
of the acquisition of Rohm and Haas. To date, the Company has achieved more than
70 percent of its 12-month cost synergy run rate goal, which began on April 1.
• Volume and price were each down 20 percent on a pro forma basis versus the year-ago
period. Sequentially, volume increased five percent with growth of at least 20 percent in
Electronic and Specialty Materials, Coatings and Infrastructure, and Performance Systems.
• Dow’s global operating rate improved seven percentage points to 75 percent versus the prior
quarter, driven by double-digit volume growth (compared with pro forma sales) in Asia
Pacific; India, Middle East and Africa (IMEA); and Latin America.
• At a company level, EBITDA excluding certain items improved sequentially by 64 percent
on a pro forma basis. This was driven by increases in the Advanced Materials and
Performance Products and Systems segments, which were up by $634 million; and Basic
Plastics, which improved by $284 million. Health and Agricultural Sciences decreased by
$238 million due to declines in agricultural chemicals.
Reports from the 12 Federal Reserve Districts suggest that economic activity continued to be weak going into the summer, but most Districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level. Five Districts used the words "slow", "subdued", or "weak" to describe activity levels; Chicago and St. Louis reported that the pace of decline appeared to be moderating; and New York, Cleveland, Kansas City, and San Francisco pointed to signs of stabilization. Minneapolis said the District economy had contracted since the last report.
Barnes & Noble (BKS) and AT&T (T) already went ahead and offered free WiFi to iPhone users (and everyone else, albeit inadvertently) last year, and it's now finally gone and given up on those pesky subscription fees altogether. As the pair of companies jointly announced today, that new and welcome change is now already in place at all Barnes & Noble stores in the US that offer WiFi, and the bookstore is not-at-all-coincidentally taking advantage of the opportunity to promote its recently launched eBookstore, to say nothing of its forthcoming e-book reader. Last we heard, they still have actual books and stuff there, too.
Customers Can Download Barnes & Noble Free Apps and Get Access to the World’s Largest eBookstore -- Exclusive Content, Customer Reviews, Information about In-Store Events, Locate a Store, and Much More..
12/29/2008 8:15:00 AM
OAKLAND, N.J.—Gift and juvenile product maker Russ Berrie and Company has sold its gift business, which includes its plush toy lines, to The Encore Group, a privately held giftware company.
Encore acquired the stock of all of Russ Berrie’s active worldwide gift segment subsidiaries, as well as certain other assets of the gift business. In exchange, Encore gave Russ a 19.9% stake in its newly consolidated gift business, plus a promissory note for $19 million that matures in December 2013 and earns interest at an annual rate of 6%. In addition, Encore has retired the company’s gift credit line with LaSalle Bank.
Russ will retain its “Russ” and “Applause” brands, which will be licensed exclusively to Encore for five years for a fixed annual royalty payment of approximately $1.2 million. Encore will have the right to purchase these brands upon expiration of the license term, and Russ will have the right to require Encore to purchase the brands at the end of the license term, for an aggregate purchase price of $5 million.
Juvenile products vendor Russ Berrie & Co. reported its first quarter 2009 adjusted net income as $1.9 million, or 9 cents per diluted share, with EBITDA from continuing operations totaling $6.3 million.
The results also showed Russ Berrie's first quarter net sales were $56.3 million, an increase of 35.2% over 2008 levels, primarily resulting from the company's acquisition of the LaJobi and CoCaLo brands in April 2008. Gross profits for 2009 Q1 were $16.9 million, up slightly from 2008 due to the acquisition of LaJobi and CoCaLo. Acquisition of the two brands pushed selling, administrative, and general expenses to $12.5 million, up from Q1's 2008's figure of $9 million. Other expenses more than doubled to $2.2 million from 2008 levels, again due to costs incurred in acquiring LaJobi and CoCaLo.
"We are pleased with our first quarter results, which were ahead of our expectations," said Bruce G. Crain, chief executive officer and president of Russ Berrie and Company, Inc. "Our team executed well as they continued to navigate a very challenging economic environment. We are also encouraged about several fresh product placement programs we secured for the balance of the year, even as retailers remained conservative about inventory replenishment during the first quarter."
The company noted that these first quarter results reflected its first full quarter as a streamlined infant and juvenile product business focus following the divestiture of its gift business in December 2008.
May 28 /PRNewswire-FirstCall/ -- Russ Berrie and Company, Inc. (NYSE: RUS) announced today that it has begun to explore a full spectrum of strategic alternatives to enhance shareholder value, a process it began as a result of several inquiries regarding potential transactions the Company received following the divestiture of its gift segment in December. While the Company's principal focus will continue to be the execution of various growth strategies for its infant and juvenile business, it will also evaluate a possible merger, acquisition, strategic partnership or sale of the Company.
Bruce Crain, President and Chief Executive Officer of the Company, commented, "The sale of our gift segment transformed our business and focused our efforts on the attractive infant and juvenile industry. Our objective now is to establish an even greater presence in the industry by building upon our market leadership. Based on the inquiries we have received, we have decided to examine a full range of alternatives that may enhance our long-term potential."
Mr. Crain continued, "In addition to considering our external strategic alternatives, we remain committed to our internal growth strategies to create shareholder value. Accordingly, we are focused on the following: first, to win market share by creating design-differentiated, branded products; second, to expand our product offerings into complementary categories; third, to grow and diversify our distribution channels; fourth, to drive sales and marketing collaboration across our businesses; and fifth, to capture operational synergies that yield cost savings throughout our organization."
Visit msnbc.com for Breaking News, World News, and News about the Economy
NEW YORK (Dow Jones)--A bankruptcy judge gave General Growth Properties Inc. (GGWPQ) a six-month extension to file its bankruptcy plan over opposition from a number of the mall owner's lenders.
Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan extended the deadline for filing the reorganization plan to Feb. 26, rejecting calls from creditors for a shorter extension.
The extension granted by Gropper gives General Growth exclusive control over the path of its bankruptcy case by preventing creditors from filing rival reorganization plans with the court.
Marcia Goldstein, General Growth's bankruptcy lawyer, said the Chicago-based mall owner will use the time to negotiate with lenders over a restructuring plan. General Growth filed for bankruptcy in April to lighten its $27 billion debt load.
"Six months is actually very ambitious. We hope to file the plan in this period" and negotiate an agreement with creditors, Goldstein told Gropper. "But that's going to require a lot of work on multiple fronts."
The six-month extension, she said, was reasonable for the largest real-estate bankruptcy case ever filed. She told Gropper there would be "chaos" if the court denied the extension because the company could face more than 100 rival plans from lenders to its malls.
Lenders and servicers - companies that handle defaulted loans to the malls on
behalf of lenders - objected to the six-month extension, saying it was too long. Most didn't oppose an extension, but urged Gropper to approve a three-month extension, which they said would push negotiations forward.
But Gropper said General Growth's bankruptcy case will be "in a better position" with the longer extension, and he noted that the company made a commitment to provide restructuring proposals to lenders soon.
"The goal should be to have a plan or plans proposed within the six-month period," he said.
Notice every metric they are now forecasting is worse than their expectations in January? This goes back to Bernanke saying in 2007 he thought the housing crisis would "be contained" and "would not effect overall economy". The Bernake Fed has been consistently overly optimistic in its forecasts only to then have to lower them.
Now, the reason for being optimistic is obvious, to instill confidence in a fear ridden environment. But, after a while that strategy begins to backfire as folks begin to discount everything the Fed says as they begin to expect actual results to come in worse than expected. Then it becomes a "how much worse" guessing game.
I get the whole transparency effort vs Greenspan's ramblings, but if we are going to do it this way, then the transparency has to be 100% honest and not an attempt to steer investor sentiment in a particular direction. In that case, the transparency is simply "transparent manipulation".
Now, I also understand that no estimates are perfect, BUT, when over the course of a few years they almost to a 100% rate err in the same direction, then it is either intentional, OR the methodology to make them is flawed. Either scenario from the Fed is bad.
Just give it to us straight Ben, we can handle it far better than you think we can...
With most of the world in recession, expensive habits are fading fast. But international tobacco companies are still making smokers pay up for a hit.
While many consumer-products companies have capped prices, the likes of Philip Morris International and London-listed British American Tobacco are raising them. With cigarette sales likely in permanent decline in some markets, producers have focused on price.
Heard on the Street columnist John Jannarone explains to Simon Constable how premium cigarette manufacturer Philip Morris is actually getting a boost from foreign governments. Plus how industry consolidation is giving profits an extra lift.
That has helped some tobacco companies smoke market expectations. PMI's shares have risen 8% since Thursday morning, when it said higher prices had boosted second-quarter profits. In the European Union prices rose about 5%, the fastest pace in over a year, according to Thilo Wrede of Credit Suisse.
And tax laws can actually work in favor of premium tobacco companies. Many countries tax cigarettes by the pack rather than as a proportion of the retail price.
That has caused low-end cigarette prices to rise more quickly than premium cigarettes. In France, for instance, premium cigarettes only cost 15% more than the cheapest option, according to Morgan Stanley's David Adelman.
The short term macroeconomic headlines may suggest otherwise, but the current retail real estate environment presents a unique opportunity for retailers to aggressively seek external growth at significantly lower costs. Over the course of the second quarter, out leasing team held many key meetings with retailers to understand revolving platforms, and as a result we leased a historic amount of GLA.
Specifically, we signed 147 new leases during the quarter representing over 900,000 square feet of GLA at an average rental rate spread of negative 16.6. Additionally, there were 259 renewal deals executed during the quarter representing over 2.1 million square feet of GLA at an average spread of positive 1%. On a blended basis, there were 406 deals executed during the second quarter representing nearly 3.1 million square feet of GLA at an average spread of negative 4.72%. Compared to the previous quarter, we executed 58 more leases and leased 1.2 million more square feet of GLA.
I'd like to point out that of the 900,000 plus square feet of new deals signed during the second quarter, 45% represent space that was recently vacated by bankrupt retailers. The spread on new deals signed to backfill space formerly occupied by bankrupt retailers was negative 24.2%, which is consistent with our expectations and past guidance, while the average rental rate spread on new deals, excluding those signed to backfill bankrupt retailers, was negative 9.8%.
Despite the challenges of backfilling space formerly occupied by bankrupt retailers, we have seen solid improvement in the rental rates from the first quarter to the second quarter. In the second quarter, we leased 466,000 square feet of space that was previously occupied by bankrupt retailers versus the 233,000 square feet leased in the first quarter. And the average rent per square foot increased 63% for that space from the first quarter to the second quarter, resulting in an overall positive impact on our average base rent per square foot portfolio wide.
The most active retailers include Bed, Bath and Beyond and its various concepts, Best Buy, hhgregg, Hobby Lobby, JoAnn stores, Nordstrom Rack, Dollar Tree, AC Moore and regional grocers, such as Sprouts. Also very active are Staples, Michaels, and the TJX companies, the parent company for T.J. Maxx, Marshalls, A.J. Wright and HomeGoods. We have multiple executed leases or inactive lease or LOI negotiations with each of the retailers that I just mentioned.
I would also like to highlight the fact that two of our largest tenants, Wal-Mart and TJX, recently announced significant long-term debt refinancing transactions. The low cost of capital of many of our largest tenants is likely to encourage and fund their future growth.
Jay Haberman – Goldman Sachs
And just switching gears for a moment, could you walk through I guess the bid as spreads on asset sales. I mean it seems, as cap rates seem to be moving above 9%, are you seeing a lot more interest on the part of buyers?
Scott Wolstein- Chairman and Chief Executive Officer
There's been a little bit of an increase in cap rates in terms of our pipeline. Most of it's been related to the quality of assets that we're selling. Obviously, the lower the quality, the higher the cap rate and we've been highly focused on selling the assets that we don't want to own.
But the assets have reasonably good quality that may not make the cut for our prime portfolio that are under contract and we're negotiating. We're still trading in the mid-eights to the low nine kind of cap rate range. So I think that there hasn't been a really significant change.
And I also think, obviously, there is a big print on the trade for McCrory Countrywide to CalFirst and First Washington. I think it's a little dangerous for people to extrapolate from a transaction of nearly $1 billion in size as to what it means for cap rates on individual asset sales.
In a transaction of that magnitude, as you can image, there's very limited competition and it's a much more difficult negotiation. On the one-off deals, it's a very, very different landscape in terms of leverage. And you shouldn't expect to see any significant difference in terms of future asset sales here on a cap rate basis from what we've been able to achieve earlier this year
Carol Kemple – Hilliard Lyons
Where do you all expect to see occupancy at December 31st?
Dan Hurwitz- President and Chief Operating Officer
We think that occupancy will go up, as I mentioned, nominally in the second quarter and again – I mean in the third quarter and again in the fourth quarter. So at the very high end, we think we can end the year at about 50 basis point plus in occupancy from where we are today, and on the low end somewhere in the 20 to 30 basis point movement.
Dow AgroSciences has signed a 15-year lease that will spur construction of an 80,000-square-foot research-and-development building, to be erected adjacent to its headquarters in northwest Indianapolis. As a result, the company plans to hire dozens of additional researchers.
Dow AgroSciences’ new two-story building will be developed and owned by Indianapolis-based Browning Investments Inc., which also will be general contractor on the project. It will be in Browning’s Northwest Technology Campus.
Terms of the deal were not disclosed. The Indiana Economic Development Corp. offered Dow AgroSciences up to $2.4 million in performance-based tax credits and $120,000 in training grants based on the company’s hiring plans.
The local office of Los Angeles-based CB Richard Ellis served as leasing agent. The building was designed by Indianapolis-based BSA Lifestructures and will house laboratories for about 100 researchers—a combination of existing employees and new hires.
Groundbreaking will occur next month. Dow AgroSciences anticipates occupying the building by mid-2010.
The deal strengthens Dow AgroSciences’ local roots. Its parent, Midland, Mich.-based Dow Chemical Co., this year has been evaluating whether to divest the agricultural chemicals and biotech business. Dow Chemical is expected to announce its intentions for the business this summer.
Dow AgroSciences CEO Jerome Peribere declined to comment directly about whether a sale is off the table, saying it’s not his decision. But he went on to note that Dow Chemical’s financial position has improved since the first quarter, when the company was “fairly stressed.”
“Dow AgroSciences is clearly a strategic asset for the Dow Chemical Co. And the divesture of Dow AgroSciences would be, as [Dow Chemical CEO] Andrew Liveris has said several times, counter-strategic,” Peribere said.
“Therefore, the fact that Dow Chemical has restructured its balance sheet and is continuing to proceed with nonstrategic divestures, I would only comment this is all very good news for Dow AgroSciences.”
“We love being here,” Peribere added.
Peribere noted that Dow AgroSciences has been regularly expanding. Its headcount was less than 1,000 three years ago, he said, and now stands over 1,200.
Heckmann Corporation (NYSE: HEK) is a holding company that was created to make investments in attractive businesses. The Company completed its first investment, the acquisition of China Water in October 2008, now operating as wholly-owned subsidiary, China Water & Drinks, Inc. On July 1, 2009, the Company completed its second investment, the purchase of a multi-modal water disposal, treatment, and pipeline transportation business in Texas, now operating as wholly-owned subsidiary, Heckmann Water Resources Corporation. The Company also makes strategic minority interest investments, such as its recent investment in Underground Solutions, Inc. (OTC: UGSI).
We have a strong balance sheet and seek additional acquisition opportunities as we build a worldwide enterprise. As of March 31, 2009, we had $300 million dollars in invested cash and cash equivalents. We intend to make additional investments and acquisitions as we find attractive long-term opportunities for our stockholders.
Palm Desert entrepreneur Richard Heckmann is diving back into the water business, with an aim to consolidate the bottled water industry in Asia, much like he did in the United States to the tune of billions in revenue.
The former chief executive of Palm Desert-based US Filter said early Tuesday that his acquisition firm would acquire China Water and Drinks Inc. for about $625 million. Heckmann said China's rampant groundwater pollution, coupled with its population of 1.3 billion people, provide for an ample market. About 250 companies produce and sell bottled water in China, a hefty number that Heckmann said he hopes to consolidate.
During the conference call, Heckmann said China Water ranks fifth in overall revenue among competitors in Asia, behind Coca-Cola China....
...Heckmann's blank-check company raised $450 million in an initial public offering in November. At that time, Heckmann was coy about what companies he would be interested in buying.
"We like water, but we like everything," he said last year.
The two Northwestern Debtors are essentially single asset real estate entities. The formulation of a plan for these two cases should not be complicated or overly time consuming. Presumably the Debtors will desire to extend the maturities of existing loans and/or work out a consensual rate of interest with respect to the loans following their current maturity. As long as the parties negotiate in good faith and do not “drag their feet” this process should take no longer than 45 to 60 days, assuming the parties can come to an agreement. While Northwestern is not committing to any agreement with the Northwestern Debtors, Northwestern stands ready and willing to enter into negotiations in order to move the process along.
The 2008 Facility Borrowers are, in the aggregate, cash flow positive by a significant amount after debt service and operating expenses (including agreed management fees payable to other Debtors and affiliates). On information and belief, the same is true of most of the SPE Debtors. In all of these cases, the mortgage loan will be renegotiated and the remaining creditors will be paid in full.
Prudential reaffirms that it is ready and willing to take concrete steps to reach understandings with Harbor Place, 1160/1180, and Rivertown Crossing with
respect to plan treatment and reiterates that the primary issues to be resolved – extension of maturities and establishment of new market interest rates
At the bottom of the cycle in 1933, the government introduced deposit insurance. It seemed to be a great thing for the country, a long-overdue reform, and, at last, the key to the stability of the financial system. But it was at this moment when it wasn't needed. The banking system had already been liquidated. There were no bad assets to purge because nobody was making any loans.
It was supposed to encourage risk-taking, but it didn't work. In an anti-capitalist environment, youre not going to be very successful in encouraging risk-taking by insuring deposits. That was the ironic timing of the reform. It would stand to reason that they'd take it off at the top of the cycle when the bad loans in the future were being made.
Notoriously, deposit insurance was increased from $40,000 to $100,000 in 1980. That was a fatal increase. That got the credit boom in the real estate industry rolling along. That got every two-bit S&L in the country involved in the commercial real estate business. That was the last big increase. Even the government now knows what it means to subsidize a moral hazard
A Boston hedge fund is taking part in the multibillion-dollar bailout of CIT Group.
The hedge fund, Baupost Group, has agreed to pitch in for the $2 billion bridge loan Barclays Capital put together for the commercial finance company. Century-old CIT Group is facing bankruptcy after the government rejected its request for a second bailout.
Baupost Group is a bondholder in CIT Group. In addition to the hedge fund, the $2 billion loan is comprised of private equity capital. Centerbridge, Oaktree Capital Management and Silver Point Capital Management are contributing a chunk of the financing.
Pacific Investment Management Co., headed by bond king Bill Gross, is the largest bondholder in CIT Group, followed by mutual fund company Capital Research & Management.
CIT Group is expecting to raise an additional billion. The New York company has lost $3 billion since 2008, and was granted a $2.4 billion rescue in December. CIT Group has a $75 billion asset base.
Baupost Group is run by value investor Seth Klarman, who joined the company at 25 after graduating from Harvard Business School. He has published a book on investing, and in May bought a piece of professional baseball franchise the Boston Red Sox.
Baupost Group has $16 billion in capital.
Warren Buffett once wrote that the concept of value investing is like an inoculation- — it either takes or it doesn’t — and when you explain to somebody what it is and how it works and why it works and show them the returns, either they get it or they don’t. Ultimately, it needs to fit your character. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that’s great, but you’re not a value investor and you shouldn’t be one. If you are predisposed to be patient and disciplined, and you psychologically like the idea of buying bargains, then you’re likely to be good at it.
Our strategy was to demystify the car buying experience through video. This video was created as a highlights clip to show what you can expect to see from car reviews to how to purchase the right vehicle. Stay tuned, we have more content being relased in the next few months.
U.S. and Canadian farmers are one step closer to realizing the greater whole farm corn yield advantages of a new corn seed trait combination that will provide the most comprehensive insect and weed control and allow farmers to significantly reduce their refuge. These benefits will be realized through SmartStax™, which is the outcome of a cross licensing agreement and research and development collaboration signed in 2007 between Monsanto Company (NYSE: MON) and Dow AgroSciences LLC, a wholly owned subsidiary of The Dow Chemical Company (NYSE: DOW).
SmartStax, the agriculture industry's most advanced, all-in-one corn trait platform, received registration from the U.S. Environmental Protection Agency (EPA) and regulatory authorization from the Canadian Food Inspection Agency (CFIA) and remains on track for a 2010 commercial launch. SmartStax combines each company's industry-leading corn traits to provide farmers the absolute broadest spectrum of above- and below-ground protection available against insects and weeds versus any product in the market today.
Using multiple modes of action for insect control is the state-of-the-art proven means to reduce structured refuge and maintain long-term durability of corn trait technologies. SmartStax uniquely features a combination of insect control traits that significantly reduces the risk of resistance for both above- and below-ground pests. As a result, the decisions by the EPA and CFIA will allow reduction of the typical structured farm refuge from 20 percent to 5 percent for SmartStax in the U.S. Corn Belt and Canada, and from 50 percent to 20 percent in the U.S. Cotton Belt.
As part of today's announcement, the companies noted that the new corn seed technology is expected to be offered to farmers on 3 million- to 4-million-plus acres in its first year of availability. The product's launch would represent the largest introduction of a corn biotech seed product in the history of agriculture.
"Farmers are the real winners with SmartStax," said Robb Fraley, Monsanto Chief Technology Officer and Executive Vice President. "The 5 percent refuge for SmartStax will give farmers a tremendous advantage to increase whole farm corn yield 5 to 10 percent. This is a key early step in our commitment to helping farmers sustainably double yields by 2030 to meet the increasing demands for grain for food, feed and fuel. This reduced refuge will be easier for farmers and will further reduce insecticide use while reducing grower risks and enhancing the long-term durability of the technology."
NEW YORK (Reuters) - Several large investment firms are creating new lending companies that plan to go public to raise billions of dollars to take advantage of the distress in the commercial real estate market, and more are on the horizon.
The planned IPOs, which include units of firms like Apollo Management APOLO.UL and Alliance Bernstein Holding LP, could be just the beginning of what some bankers expect to be a boom in Real Estate Investment Trusts (REITs) going public over the next few years.
The U.S. commercial real estate market has been reeling ever since a prime source of financing, the commercial mortgage-backed securities (CMBS) market, virtually closed and banks shut off their lending spigots in the past year.
"In the real estate world, the next few years will be defined by a lack of capital," said Michael Knott, a senior analyst with Green Street Advisors.
According to a recent Deutsche Bank report, as much as $40 billion will be needed to salvage about $420 billion of CMBS mortgages maturing over the next 10 years.
More recently, the sector has grappled with falling rents and rising vacancies driven by the recession.
The dislocation in the real estate and CMBS markets has prompted several top investment firms to create REITS that will aim to buy up, manage and originate commercial real estate loans.
"As assets start to come on the market and distress in commercial real estate increases, REITs will be the buyer of choice, and they will get bigger and bigger," said Brad Smith, managing director for equity capital markets at Bank of America Merrill Lynch.
With significant amounts of mortgages coming due in the next three years, there will be demand for loans that traditional players such as banks have been unable or unwilling to make.
In the past two months alone, eight REITs have filed for IPOs seeking to raise up to $3.9 billion, a larger pipeline than that of traditional IPOs, according to Thomson Reuters.
For instance, an affiliate of private equity firm Apollo Management last week filed for a $600 million IPO to take advantage of what it called a "void of several hundred-billion dollars" that must be filled by new mortgage lenders.
The newly formed companies were set up as REITs, a tax structure that exempts companies earning most of their revenue from either rent or mortgages from paying taxes on their taxable income if the company distributes 90 percent of that to shareholder
July 20 (Bloomberg) -- Goldman Sachs Group Inc. boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982.
The benchmark index for U.S. stocks will advance 15 percent from its June 30 level to 1,060 on Dec. 31, an increase from David Kostin’s prior projection of 940. The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings estimates for S&P 500 companies to $52 and $75 a share, which are 30 percent and 19 percent higher than prior estimates.
Profits that beat analysts’ forecasts at companies from New York-based JPMorgan Chase & Co. to Intel Corp. in Santa Clara, California, helped boost the S&P 500 by 7 percent last week, the biggest gain in four months. Since March 9, the gauge has rebounded 39 percent amid speculation the economy is recovering.
“Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009,” Kostin wrote in a report today.
Kostin is now tied with Frankfurt-based Deutsche Bank AG’s Binky Chadha for the second-highest S&P 500 forecast among 10 Wall Street strategists tracked by Bloomberg News. Only JPMorgan’s Thomas Lee, at 1,100, is more bullish. Barclays Plc’s Barry Knapp, who had been the most pessimistic U.S. strategist, boosted his projection a week ago following the 40 percent surge in the S&P 500 between March and June, the biggest gain since the 1930s.
Surprising Strength
Knapp raised his year-end target 23 percent to 930, saying he’d failed to foresee the size of the advance since the S&P 500 fell to a 12-year low of 676.53 on March 9. His increase left Kevin Gardiner of HSBC Holdings Plc and Jason Todd of Morgan Stanley tied for the lowest S&P 500 projection at 900
-Macquarie CountryWide Trust (MCW.AU) said Friday that it has agreed to sell its 75% stake in a portfolio of U.S. shopping malls for US$1.3 billion (A$1.61 billion) to help cut debt, sending its shares sharply higher.
The price for the portfolio of 86 properties, owned in partnership with shopping mall owner Regency Centers Corp. (REG), reflected a capitalization rate of 9.1% (emphasis mine), based on Sydney-based Macquarie CountryWide's estimated net operating income for calendar year 2009.
It valued the whole portfolio at US$1.73 billion, the Australian property trust said in a statement.
Macquarie CountryWide has been selling assets to refinance maturing debt and enhance its liquidity as the trust - which specializes in retail properties - refocuses on its Australia and New Zealand portfolio.
Regency Centers is a national developer, owner and operator of grocery-anchored and community shopping centers. We have spent more than 40 years, building a legacy of success evidenced by 440 centers, 21 regional offices and properties in nearly every major market. Our highly-focused commitment to quality and innovation has made Regency an industry leader and premier shopping center company.
Before 2002 and the run up of CMBS financing average cap rates on strip centers were around 9% vs. roughly 7% on class A malls. This is a very rough estimate as class A in suburbs of Cleveland will go for a higher cap rate than class A in the suburbs of New York. Also cap rates have historically moved with interest rates. Investors need a yield spread above their cost of debt in order for a deal to make economic sense.
The thing to note right now is that cap rates are basically unknown because the market is so illiquid. This is especially true for class A malls because there are only a few groups who operate in the space (Simon, Taubman, GGP, Macerich). These assets are simply too expensive to have a large pool of bidders. In the strip center space you have many more players therefore a relatively (though still not very liquid) more liquid market. Right now Publix anchored centers in Florida are trading at around a 9% cap rate in comparison to low 7's or high 6's two years ago. The bidders on these assets are local buyers who use local bank debt with recourse.
Remember this agreement from last year?AutoZone also announced that it has entered into an agreement with ESL Investments, Inc. (with its affiliates, "ESL") setting forth certain understandings and agreements concerning ESL's continued investment in AutoZone. ESL currently owns approximately 36.2% of the outstanding AutoZone common stock. Pursuant to the agreement with ESL, the Company has agreed to use its commercially reasonable efforts to achieve at least the new 2.5x adjusted debt / EBITDAR leverage metric by the end of the Company's second quarter fiscal 2009.
"We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated, by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements," said Bill Rhodes AutoZone's Chairman, President and Chief Executive Officer. "We appreciate ESL's belief in the Company and its management over the past eleven years and look forward to its continued involvement in helping us achieve our goals for the benefit of all stockholders."
The agreement with ESL provides, among other things, that, should ESL's percentage ownership of Company shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted. The initial threshold is 40%, which will reduce to 37.5% following the 2009 annual meeting of stockholders. The agreement also states the Company's intention to add three directors in the near future, two of whom will be identified by ESL for consideration by the Company's Nominating and Corporate Governance Committee, thereby increasing the Board's size to 12 members. Thereafter, the Company expects to reduce the Board's size to 10 members in conjunction with the 2008 annual meeting in December. The agreement also contains certain other protections for non-ESL affiliated shareholders as well as for ESL.
The agreement with ESL or certain of its provisions will terminate, except as the parties otherwise mutually agree, upon the earlier of the date upon which the shares (a) owned by ESL constitute less than 25% of the then outstanding shares or (b) owned by ESL constitute more than 50% of the then outstanding shares, provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.
Then his news from last week?AutoZone Inc (AZO.N), the leading U.S. auto parts retailer, said on Wednesday its board had authorized another $500 million to buy back common stock.
Shares in the Memphis-based company have gained almost 12 percent since the start of the year as the U.S. recession has prompted more consumers to drive cars longer and shop for better deals on replacement parts.
"AutoZone's strong financial health has allowed us to continue to repurchase our stock while operating within our targeted leverage metric," said AutoZone Chief Financial Officer Bill Giles said in a statement.
In late May, AutoZone posted a 9-percent gain in profit that topped analyst estimates.
Billionaire investor Edward Lampert and his ESL Investments owns about 43 percent of AutoZone (prior to recent sale). Lampert is also the largest shareholder in AutoNation (AN), the largest U.S. auto dealership chain.
So, Autozone is upping its leverage ratio and using it to repurchase shares. Lampert's recent sale lower his ownership to below the 37.5% threshold so he may vote his shares as he wishes and maintains board representation.
What happens now? As Autozone completes their repurchase (approx $600m left) they will have reduced the outstanding shares (at today's prices) by 7.5%. That sale also triggered a 6% drop in the stock price so that $600, will repurchase moire shares. In essence, Lamper sold shares for a nice profit and then Autozone will repurchase shares to increase his ownership once again back to the mid 40% range.
Why not hold them to get to the 50% threshold? The agreement above requires Lampert "to acquire" additional shares to the gain benefits from being at/above 50% in terms of voting. One can only assume he sees no "value" in shares at these prices (they aren't) and therefore does not want to buy more. Doing it this way he can free up capital and have the company maintain his ownership level for him.
Nice....
On another note, Autozone, in my opinion is nearing an earnings peak. With auto sales at decade lows they have benefited from the repair biz. If "cash for clunkers" does increase sales as predicted by AutoNation CEO Mike Jackson, that will directly negatively impact Autozone's biz. Perhaps another reason Lampert is not buying more???
As you suspected stocks get crushed in hyper inflation due to P/E compression (as you know discount rate increases dramatically killing all terminal values). I can only presume that if CPI is above 7% commodities/Gold and anything that resembles a natural resource would flying.
I've as included a handy chart from the book Unexpected Returns by Easterling that better illustrates my aforementioned point.
China's Iron Hand Comes Up Against Market
By CHUIN-WEI YAP
For China, there's just seven points between national pride and market savvy.
Some of the bluest of China's blue-chip steel mills have struck deals with major iron ore suppliers, accepting a provisional 33% cut to last year's price.
This is the beginning of the end of an annual closed-door ritual that sets sale terms for one of the world's most important industrial commodities.
This year, the negotiations have become particularly tortuous as China, the world's biggest iron ore consumer, squared off with heavyweight miners, in hopes of getting a discount of 40%.
The acceptance of the smaller cut signals a fissure between the country's steelmakers and the Chinese government, which together with the steel association heading the iron-ore price negotiations, has resisted any compromise.
The steelmakers say the latest deals are just temporary, and any difference will be refunded once China's terms are set.
But their message is clear: Those who negotiated on their behalf miscalculated.
Analysts say the Chinese should have a struck a deal in February when the domestic economy was weak enough to warrant steeper discounts from miners. Steel prices in China have been rising for more than two months.
Certainly, Beijing's decision to arrest four employees of the Anglo-Australian miner Rio Tinto hasn't helped the country's cause. The arrests are now widely accepted as linked to the iron ore price standoff.
As far as prices are concerned, Chinese officials are already softening their stance, saying they are willing to settle for a discount between 33% and 40%.
Now all the miners have to do is stand pat.
Craving certainty the Chinese market has spoken out -- it is willing to settle for 33%.
Free Market Continues to Take Control in China
This speaks volumes. The command economic tactic, i.e. dictated by political leaders, to negotiate iron ore discounts of 40% from suppliers has had to make way for the free market which dictated a 33% discount. Rather than following government guidelines the top steel makers seeing prices rise with world demand decided to take contract decisions back into their own sphere of influence and ignore the bureaucrats and the top down instruction.
This is what brings about democracy and free markets. That this happened in China speaks volumes as to the sea change which began in 1979 when Deng Xiaoping launched his economic reforms and continues. See the attached BusinessWeek article of September 27, 1999, “China’s New Capitalism”
BW 1999
Stories of single events such as this one which details the transfer of power from the political sphere to the free market have enormous impact to building free markets and democracy around the world for the long term.
For those who question the viability of the global economy, fear the future and the next bank failure, this report if read in the context of the BusinessWeek article should generate much enthusiasm for the future. When investing, I advise having both a “Top Down” and a “Bottom Up” methodology with the goal of grasping an understanding of as much of the global market as possible and with this the critical investment themes.
IRVINE, Calif. – July 16, 2009 – RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its Midyear 2009 U.S. Foreclosure Market Report, which shows a total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,528,364 U.S. properties in the first six months of 2009, a 9 percent increase in total properties from the previous six months and a nearly 15 percent increase in total properties from the first six months of 2008. The report also shows that 1.19 percent of all U.S. housing units (one in 84) received at least one foreclosure filing in the first half of the year.
Foreclosure filings were reported on 336,173 U.S. properties in June, the fourth straight monthly total exceeding 300,000 and helping to boost the second quarter total to the highest quarterly total since RealtyTrac began issuing its report in the first quarter of 2005. Foreclosure filings were reported on 889,829 U.S. properties in the second quarter, an increase of nearly 11 percent from the previous quarter and a 20 percent increase from the second quarter of 2008.
“In spite of the industry-wide moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk. Stemming the tide of foreclosures is a critical component to stabilizing the housing market, so it is imperative that the lending industry and the government work in tandem to find new approaches to address this issue.”
NEW YORK (Dow Jones)--Target Corp. (TGT) may join Wal-Mart Stores Inc. (WMT) in supporting the U.S. government's drive to require all large companies to provide health care benefits to their workers.
The nation's second-largest retail discounter behind Wal-Mart supports the program "in concept," but would have to see the final language of any legislation to formally back it, Target spokeswoman Kay Rubbelke said.
Target has met with a number of different groups throughout the Senate and House to discuss the employer mandate proposal, Rubbelke said.
Rubbelke's comments follow Wal-Mart's creating a firestorm at the beginning of July by breaking with most other retailers to support the congressional proposals, which are part of President Barack Obama's roughly $1 trillion effort to see that just about all Americans receive health-care coverage.
The so-called employer health care mandate is seen by the retail industry in particular as too onerous, given retailers' reliance on legions of low-payed employees and the industry's high turnover rate. Retailers say that meeting the mandate could force layoffs to pay the extra expense of coverage.
The National Retail Federation, the retail industry's main trade group, is strongly lobbying against mandated coverage and has already fired back at Wal-Mart, asking members to strongly oppose its support.
The NRF has also spoken with Wal-Mart about its move and would likely approach Target if the retailer went the same route, said Neil Trautwein, the NRF's chief health-care lobbyist.
Target, which like Wal-Mart, is not an NRF member, would be "embracing an ideal that is bad for the rest of retail and the rest of the general community," if it ends up supporting mandated coverage, Trautwein said.
Target currently offers a number of health care plans with different levels of coverage and the majority of its eligible employees participate, Rubbelke said.
Target, like Wal-Mart, also operates in-store health clinics and pharmacies that could benefit from greater healthcare coverage.
Wal-Mart also operates a prescription program for employees of Caterpillar (CAT) and wants to expand it to other companies.
The health care mandate the House of Representatives is looking at would require most employers to provide workers with basic benefits or pay 8% of their payroll toward helping the government get them coverage, with potentially a lesser percentage for smaller employers. Measures that two Senate committees are considering would penalize most employers that don't participate in the mandated coverage, Trautwein said.
Wal-Mart provides health care to it employees. Much of the competition does not. Should they then be required to, their cost basis for their business suddenly rises...considerably. Should that happen, in order to offset their new cost increases two things must happen. Either they offset it with pay freezes or reductions for new hires OR increase their prices to consumers.
Either scenario aids Wal-Mart immensely as it slows growth in their payroll and/or increases their competitive price advantage over the competition.
Sears Holding Corp., which runs both the Sears and Kmart department stores, is running a Christmas promotion a full five months before Saint Nick leaves the North Pole with his reindeer. On both the sears.com and kmart.com homepages, customers are invited to "Shop Christmas Lane," and are directed to deals on holiday ornaments, stocking stuffers and other winter-related merchandise. The Christmas goods will also be on display in 372 Sears stores throughout the country; the promotion runs through July 25.
With temperatures simmering and families spending summer days at the shore, most customers aren't exactly in the Christmas spirit. So what convinced Sears, which has seen nothing but annual same-store sales declines at both its namesake and Kmart stores over the past four years, that skeptical shoppers want to open up their wallets for Christmas gifts now? "After the last holiday season, customers told us that they wish they had seen some of our merchandise earlier," says Natalie Norris-Howser, a Sears spokeswoman. "People are buying earlier today. Also, customers have grown accustomed to the Christmas-in-July terminology, so we wanted to leverage that." Norris-Howser also pointed to the company's generous layaway offers for bigger-ticket items as an incentive for shoppers to do their holiday buying today.
In today's environment, any move that attracts attention might be worth it. "Overall, it seems to be a pretty smart strategy," says Pete Blackshaw, a brand strategist for Nielsen Online. "Doing it on the Web makes a world of sense. They are clearly getting some buzz, there's a novelty effect. At a time when everybody is going to be competing around November to get attention, this is a good opportunity to potentially get in front of the line." Blackshaw, who monitors how brands are perceived in the social-networking sphere, says the Christmas marketing has gotten positive feedback on Twitter.
Dow Agrosciences LLC said today it is acquiring the majority of assets of Illinois-based seed corn company Pfister Hybrids.
A sale price was not disclosed.
Under the terms of the agreement, Indianapolis-based Dow AgroSciences, a subsidiary of Dow Chemical Co. in Michigan, will acquire the Pfister brand and the sales and marketing areas, as well as the warehousing and administrative services. The Pfister brand will continue, and the company still will be headquartered in El Paso, Ill.
Pfister President Linda Brown will assume the title of general manager.
The addition of Pfister Hybrids will further expand Dow AgroSciences’ current seeds business in the United States as it anticipates introducing insect protection and weed control, and herbicide tolerance, technology within the next few years, the company said in a written statement.
“At Dow AgroSciences investing in innovation is the key to our future, and we look forward to building upon the Pfister tradition,” said Stan Howell, vice president, North America regional commercial unit for Dow AgroSciences.
Dow AgroSciences has global sales of $4.5 billion.
Pfister Hybrids was founded in 1936.
Today, MEALEY'S LITIGATION REPORT issued a special e-mail bulletin on the long-awaited Wisconsin Supreme Court ruling in "Ruben Baez Godoy v. E.I. duPont de Nemours and Co., (DD) et al."
MEALEY'S editor James Cordrey reports, "The Wisconsin Supreme Court today unanimously affirmed an appellate court ruling and held that lead pigment is not defectively designed, dismissing a lead-poisoned boy's claims for strict liability and negligence against the former manufacturers of white lead carbonate pigment." The appellate court had affirmed the circuit court's ruling.
As the defendants have kept declaring in this litigation, the Court agreed that "the Circuit Court correctly concluded that the complaint failed to state claims for defective design. A claim for defective design cannot be maintained here where the presence of lead is the alleged defect in design and its very presence is a characteristic of the product itself."
Cordrey points out that WI SC also said that even though the feasibility of an alternative design can be considered when evaluating a design defect claim, it isn't a requirement. He goes on to explain that when the ingredient can't be designed out of the product, the Court noted that the Restatement [Second] of Torts instructs that although other claims may be asserted, the proper claim is not design defect.
Cordrey will expand on this analysis in the July edition of MEALEY'S LITIGATION REPORT: LEAD. Meanwhile copies of this and all other litigation documents are available for a fee from MEALEY'S.
As the mortgage and banking industries debate whether the PPIP program will work and whether a similar effort over at the FDIC will ever see the light of day, Wells Fargo & Co. recently (and quietly) sold a $600 million portfolio of mostly non-performing subprime loans. Or so we're told.
Late last week a source close to the transaction identified Arch Bay Capital of Irvine, Calif., as the winning bidder on the portfolio whose loans were originally funded by two mid-sized subprime wholesalers: Accredited Home Loans, and NovaStar Financial.
Arch Bay co-founder Steven Davis declined to comment on the purported sale to his firm, referring calls to his partner Shawn Miller who serves as Arch Bay's CEO. Mr. Davis didn't deny that the sale took place but he wouldn't confirm it either. Mr. Miller could not be reached for comment.
Meanwhile, one question the sale raises is this: How exactly did the publicly traded Wells wind up with so many crummy non-prime loans from these once highflying firms? Answer: I don't know and Wells isn't talking. A company spokesman said the bank's corporate policy is to not discuss its loan auctions.
Perhaps one reason the PPIP (Public-Private Investment Program) and the Federal Deposit Insurance Corp.'s 'Legacy Loan' sale initiative (involving whole loans, presumably residential and commercial mortgages) hasn't caught fire is 'sunshine,' that is, the concept of disclosure. If bankers and investment bankers use these government programs that means all the messy details of their crappy investments might see the light of day, which could anger shareholders — and maybe even board members who might lean toward being "activists."
The nice thing about the private non-performing loan market is that none of these messy details have to see the light of day, including the price paid. One banker told me that the 35 cents on the dollar that Arch Bay reportedly paid was twice what some hedge fund bidders were offering.
No matter how you do the math, Wells is going to take a nice hit on the sale, if it hasn't done so already. Will the public ever get wind of the NPL sale price (outside this story)? That's hard to say. The Securities and Exchange Commission requires that publicly traded companies disclose "material events" in their 10-Qs and Ks but when you have a mega bank the likes of Wells a $600 million loan auction might garner a sentence in the next earnings report, at best.
New York, July 10, 2009 – Philip Morris International Inc. [NYSE/Euronext Paris: PM] (PMI) announced today that it has entered into an agreement to purchase 100% of the shares of privately owned Colombian cigarette manufacturer, Productora Tabacalera de Colombia, Protabaco Ltda. (Protabaco), for $452 million.
Protabaco is the second largest tobacco company in Colombia, with an estimated 2008 volume of 6.1 billion cigarettes and an approximate market share of 31.8%. The Company reported net revenues of approximately $107.6 million in 2008. Its leading brands include Mustang, Premier and President.
“We are extremely pleased to reach this agreement with Protabaco in order to continue to build our business in this important and strategic market,” said Miroslaw Zielinski, President of PMI’s Latin America and Canada Region. “This strategically compelling transaction will provide PMI with an excellent opportunity to further develop Protabaco’s strong brand portfolio and reflects the continuing confidence we have in the future of Colombia, its economy and the tobacco industry.”
In 2005, PMI acquired CompañÃa Colombiana de Tabaco S.A. (Coltabaco). Since then, PMI has continued to invest in Coltabaco, its employees and its infrastructure, as well as in social and economic programs in Colombia, including investments in the tobacco growing sector.
“This is an excellent development for Protabaco and our employees,” said Jaime Delgado, General Manager Protabaco. “PMI is well known as a successful manufacturer and marketer of quality tobacco products and we believe they are in an excellent position to continue to develop our strong brands and strong organization.”
The transaction, which is subject to competition authority approval and final confirmatory due diligence, is projected to be immediately marginally accretive to PMI’s earnings per share and is expected to close within the next six months.
CHICAGO--(BUSINESS WIRE)--GENERAL GROWTH PROPERTIES, INC. (GGWPQ) today announced the appointment of Glenn J. Rufrano to its Board of Directors.
Mr. Rufrano is currently the chief executive officer of Centro Properties Group, a retail investment organization specializing in the ownership, management, and development of retail shopping centers with an extensive portfolio of centers across Australia, New Zealand and the United States, which does not compete directly with GGP. Mr. Rufrano led Centro Properties Group through its successful restructuring during the current credit crisis. From 2000 until its acquisition by Centro Properties Group in April 2007, Mr. Rufrano was chief executive officer of New Plan Excel Realty Trust, Inc., as well as a member of that company’s board of directors. Mr. Rufrano spent 17 years as a partner at The O’Connor Group, a diversified real estate firm.
“Glenn’s CEO and restructuring experience combined with his regional shopping mall expertise will be invaluable to the Company as we continue to develop the plan to emerge from bankruptcy. We are delighted to be able to strengthen our Board with this latest addition and look forward to benefiting from his insights and experience,” said Adam Metz, chief executive officer of General Growth Properties.
I do some individual work for domestic portfolios. My basis is first to identify good management cultures, then I analyze to understand the business dynamics and lastly I establish a valuation basis. Exxon (XOM) is an issue that meets the management culture criteria and today’s price of ~$65shr speaks volumes. By itself XOM could be a good addition to any conservative portfolio at the current level. But, more than that XOM can also be used as proxy for the oil sector and today’s level helps me to make decisions to buy any energy based company that has pulled back in the current environment.
XOM is particularly helpful as there is not a specific energy stock index that goes back as far as XOM’s history.
In the few accounts I manage, I am buying selected energy stocks.
WASHINGTON (Dow Jones)--U.S. lawmakers rang alarm bells about the troubled commercial real estate industry, which has been walloped by the credit crunch and an implosion of property values.
"The commercial real estate time bomb is ticking," Joint Economic Committee Chairman Carolyn Maloney, D-N.Y., said in opening remarks to a hearing before her panel Thursday.
U.S. Sen. Sam Brownback of Kansas, the panel's top Republican, said he was distressed about the situation the industry is facing.
Banks have yanked back on lending to developers of shopping malls, apartment complexes, hotels and office parks. Meanwhile, the securitization market - a key source of funding for the commercial real estate industry - has been in a deep freeze since last year.
The situation is fueling concerns that property developers won't be able to refinance roughly $400 billion in commercial real estate debt coming due this year.
General Growth Properties Inc. (GGWPQ), one of the largest U.S. shopping mall owners, filed for bankruptcy protection along with 158 of its properties in April, citing lack of financing.
A wave of defaults of commercial real estate loans would deal a blow to the already weakened economy and banking sector. The U.S. commercial real estate market is roughly $6.7 trillion in size and is underpinned by about $3.5 trillion of debt.
A panel of witnesses painted a dire picture for lawmakers. Property values have plunged 35%-45% in many markets as transactions have slowed to a crawl, Deutsche Bank Securities Inc. (DB) mortgage analyst Richard Parkus told lawmakers.
The market won't begin to recover until 2012, or even later, he said. "We believe the bottom is several years away," he added.
Plunging property values are further hampering developers' ability to refinance their debt or loan extensions, the industry said.
The Federal Reserve has taken steps to get lending flowing to the industry. On June 16, it announced it would accept as collateral new issuance of commercial mortgage-backed securities as part of its emergency program to thaw the securitization market. As early as next week, the Fed is expected to extend that to existing, or "legacy," CMBS already held by investors.
The industry welcomes these moves, but worries that the Fed program is set to expire at the end of this year.
The program aims to spark investor appetite for a range of asset-backed securities, now including CMBS. To the extent that CMBS investors are able to buy and sell the securities again, spreads will tighten, the Fed and the industry argue. That will allow financial institutions that make loans backing the CMBS to free up their balance sheets and make new loans to the industry or refinance existing debt.
U.S. Rep. Kevin Brady, R-Texas, criticized banking regulators for leaning too hard on banks to reduce their commercial real estate exposure.
In testimony before the panel, the associate director of the Fed's Division of Banking Supervision and Regulation, Jon D. Greenlee, said the central bank was trying to strike the right balance between ensuring credit flows to the sector while maintaining the safety and soundness of the banking system.
"It is important that supervisors remain balanced and not place unreasonable or artificial constraints on lenders that could hamper credit availability," he said.
FOR IMMEDIATE RELEASE
www.saksincorporated.com
New York, New York (July 9, 2009)—Retailer Saks Incorporated (NYSE: SKS) (the “Company”) today announced that owned sales totaled $230.2 million for the five weeks ended July 4, 2009 compared to $239.3 million for the five weeks ended July 5, 2008, a 3.8% decrease. Comparable store sales decreased 4.4% for the month.
On a quarter-to-date basis, for the two months ended July 4, 2009, owned sales totaled $396.2 million compared to $463.2 million for the two months ended July 5, 2008, a 14.5% decrease. Comparable store sales decreased 15.2% for the two-month period.
On a year-to-date basis, for the five months ended July 4, 2009, owned sales totaled $1,011.3 million compared to $1,305.7 million for the five months ended July 5, 2008, a 22.5% decrease. Comparable store sales decreased 23.2% for the five-month period.
June sales performance was positively affected by the shift of a designer sale event into June this year from May last year. Management continues to estimate that comparable store sales will decline in the mid-teen range for the second fiscal quarter.
The Saks Fifth Avenue stores experienced continued weakness across all merchandise categories during the month. Saks Direct showed relative strength in June.
Prior year numbers have been adjusted to remove the sales of the Company’s discontinued Club Libby Lu operations.
Saks Incorporated operates 53 Saks Fifth Avenue stores, 54 Saks OFF 5TH stores, and saks.com.
Oil-market analysts question the idea that speculative investments have pushed up prices. They attribute the current volatility to uncertain prospects for economic recovery, and the long-term rise to an oil industry that has struggled to boost supply in response to the surge in demand from China, India and other developing economies.
"The spread of daily oil-price movements around the monthly average is because no one has a clear expectation of what the future price is going to be," said David Kirsch, an oil-market analyst at PFC Energy. "Putting limits on financial investment is only going to have a limited effect on overall volatility."
In Congress, though, there is growing consensus that investors could be distorting prices. A recent report from the Senate Permanent Subcommittee on Investigations blamed speculators for driving up wheat prices in recent years, and recommended the CFTC enforce position limits on index traders in the wheat market.
In a statement, CFTC Chairman Gary Gensler said the agency will hold a public hearing to gather views from consumers, businesses and market participants on proposals to impose limits on trading in energy future contracts. The CFTC's proposed rules would also require hedge funds and swap dealers to report holdings -- including those traded over-the-counter and at overseas exchanges -- in a separate and routine way.
Energy traders say they are concerned that the regulations could stunt trade, increase costs in the marketplace and potentially scare away some players. "Speculators play a crucial role in the futures market by providing liquidity to hedgers," such as oil producers and airlines, said Addison Armstrong, director of exchange-traded markets at TFS Energy Futures, a Stamford, Conn., broker. "Traders don't want rules that are going to change the game."
The interventionism represents a significant shift for both the CFTC and the U.K. government, both of which have previously taken a more free-market approach and stopped short of calling for action on speculators. "Where there has been unfair speculation or abuse of the market then we would be prepared to act," Mr. Brown said in a briefing with journalists.
Mr. Brown and his French counterpart called on the International Organization of Securities Regulators to look at improving transparency and the supervision of oil-futures markets. An umbrella organization for global securities regulators, IOSCO helps to set international standards and advises national bodies on regulation. In March, it set out guidelines on how regulators can beef up their supervision and enforcement of commodities.
The French and British leaders hope to get backing for their drive at the summit of the Group of Eight leading industrial countries that begins in Italy on Wednesday.
Politicians around the world are worried about the effect of rising oil prices on the recovery potential of their recession-hit economies. In recent weeks, companies in various industries have complained that the rise in oil prices has, or will, hurt their profits.
After just one week in the Apple App Store, the brand-new Barnes & Noble iPhone app has grabbed the number one slot on the "Top Free Apps" list in App Store's "Books" category--unseating two Amazon digital reader applications from the top spots.
With the new Barnes & Noble app, readers can shop, read reviews, and explore web-only extras via smartphone. While these rankings are constantly shifting, the new app has overtaken both the Amazon Kindle (AMZN) for iPhone (AAPL) and Amazon-owned Stanza e-reader in popularity--perhaps a good omen for Barnes & Noble's future in the smartphone market.
Here's the most geeky and interesting feature on the bookselling app, from the release: "Barnes & Noble has partnered with LinkMe Mobile from Evryx Technologies, Inc. and Spotlight Mobile, Inc. so that users can simply snap a photo to search millions of products. Using the iPhone or iPod touch camera, just snap a photo of the front cover and within seconds get product details, editorial reviews, and customer ratings--even find and reserve a copy in the store closest to you."
General Growth Properties Inc. (GGWPQ) needs until early next year to
complete its plan to exit bankruptcy, saying its operations are too large and
too complex to meet an upcoming August deadline.
General Growth, the second-largest mall owner in the country, is asking a
judge for a six-month extension to file its plan to exit bankruptcy and repay
c
