Category Archives: Private Equity

The New York Times: As Hewlett-Packard and Compaq Show, Mergers and Acquisitions Cycle All About Buy, Divide and Conquer

In the fall of 2001, Hewlett-Packard announced a momentous $25 billion merger with Compaq, as commented by The New York Times.

“This is a decisive move that accelerates our strategy and positions us to win by offering even greater value to our customers and partners,” declared Carly Fiorina, HP’s chairwoman and chief executive at the time, describing how the deal would “create substantial share owner value.”

Thirteen years later, just this fall, Meg Whitman, HP’s current chairwoman and

Mergers and Acquisitions Conference 2015 New York City

Mergers and Acquisitions Conference 2015 New York City

chief executive, undid that deal, splitting the company in two. “It will provide each new company with the independence, focus, financial resources and flexibility they need to adapt quickly to market and customer dynamics.”

Eerily mirroring Ms. Fiorina’s words, she said the divorced companies “will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.”

So which was the right decision? The merger or the spinoff?

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Goldman Sachs’s David Kostin on Why 2015 Could be Better than We Think

According to CNBC, Goldman Sachs already appears to be having second thoughts on its tepid forecast for 2015.

The firm’s clients believe Goldman is overestimating how much interest rates will rise in the years ahead, strategist David Kostin said in his weekly report that summarized recent meetings with market pros.

Kostin has projected the Federal Reserve‘s target funds rate to hit 3.9 percent by the end of 2018. Fund managers, though, believe slow global growth and low inflation will keep the U.S. central bank in only modest hiking mode, translating to just a 2 percent funds rate in that span.

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GM Exodus Puts Australian Car Industry Step Closer to Extinction

According to Bloomberg,

Australia’s century-old automotive industry is stepping closer to extinction after General Motors Co. (GM) joined Ford Motor Co. (F) in deciding to stop making cars in the country.

Seven months after Ford announced it would pull out, GM said yesterday its Holden unit will cease production in 2017. That prompted the last holdout, Toyota Motor Corp. (7203), to say the  move will place “unprecedented pressure” on parts makers and  questioned the merits of remaining in the country. A stronger local currency and falling import tariffs have  driven down  sales of Australian-made cars by almost half since 2007.

The hollowing out of the nation’s auto industry has implications beyond the three companies as carmakers have about 150 suppliers that employ an estimated 42,000 people. The departure of Australia’s biggest carmaker also adds pressure on Prime Minister Tony Abbott, who’s facing rising unemployment and deteriorating consumer sentiment three months after winning an election by pledging to restore confidence in the economy.

“The Australian dollar has claimed an iconic brand of cars,” said Martin Whetton, an interest-rate strategist at Nomura Holdings Inc. in Sydney. “The announcement will be a major blow to confidence in the run-up to Christmas, as job losses will exacerbate an already heightened sense of insecurity.”

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Warren Hits Banks, Expands Base to Solidify Senate Power

According to Bloomberg,

Elizabeth Warren, in her first year as a U.S. senator, has captured headlines by pressuring such industry titans as Goldman Sachs Chairman Lloyd C. Blankfein for transparency, including a Dec. 4 call for Wall Street banks to disclose their contributions to policy groups that provide financial analysis to Congress.

With less fanfare, she’s forging alliances with Republican Senate colleagues, expanding her political network in Massachusetts, and tapping her backers to help Democrats running for re-election in other states.

It’s a strategy that sounds a lot like one adopted by another woman who entered the chamber with a national profile that made her a lightning-rod for praise and derision as she was dogged by questions about her presidential aspirations.

“I think she’s followed a path not unlike that of Hillary Clinton, which is learn how to be a senator,” said Ross Baker, a political science professor at Rutgers University in New Brunswick, New Jersey.

“Clearly, she has decided not to be a liberal Ted Cruz, to learn the ropes, particularly in the area that she cares most about, which is financial services,” Baker said, contrasting Warren with the Texas Republican freshman senator whose push to defund the 2010 health-care law helped lead to the partial government shutdown in October.

Future Contests

Warren, 64, is building relationships that could be helpful in future races, nationally or statewide. While she has said she won’t run for president in 2016 and signed a letter encouraging Clinton to do so, she’s also seizing on speculation about her future to advance her causes.

Asked by reporters on Dec. 4 if the presidential speculation hurts or helps her consumer-oriented legislative proposals, she said: “I’m glad to see any possible energy put behind those fights.”

Related: Elizabeth Warren Versus the Think Tanks

After rising to prominence as a critic of the housing and financial industries during the 2008 financial collapse, Warren became the architect for the Obama administration of the Consumer Financial Protection Bureau, created by the 2010 Wall Street Reform and Consumer Protection Act. After she failed to secure the top job at the bureau, Warren won her Senate seat by challenging Republican incumbent Scott Brown in 2012.

At her first appearance as a member of the Senate banking committee in February, she asserted that Wall Street firms had become “too big for trial” and, at a March hearing, she criticized regulators because no one went to jail after HSBC Holding Plc operations in the U.S. admitted to enabling Mexican and Caribbean drug cartels to launder billions of dollars.

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Obamacare Payment System to Insurers: Changed in Setback

According to Bloomberg,

Parts of the Obamacare enrollment system used to pay insurers are being pushed back from January in the latest technology delay for the president’s U.S. health-care overhaul.

The administration is setting up a temporary process to send companies the federal subsidies used to help millions of Americans buy coverage because the online system won’t be ready as planned, said Aaron Albright, a spokesman for the Centers for Medicare & Medicaid Services. Insurers will estimate what they are owed rather than have the government calculate the bill.

U.S. Health-Care (Bloomberg)

U.S. Health-Care (Bloomberg)

The rollout of the Patient Protection and Affordable Care Act has been marred by missed deadlines for small businesses, broken promises to consumers and sticker shock over coverage prices. Healthcare.gov, the main portal for consumers to shop for insurance plans, has been error-prone since its Oct. 1 debut and an administration official said this month that 30 percent to 40 percent of the online marketplace hasn’t been finished. Obama administration officials have said the troubled website will work for the vast majority of users by today.

“This temporary process, which is consistent with how payments have been made to issuers in the Medicare program, will ensure that issuers begin to get premium tax credits and cost-sharing subsidy payments on time, beginning in January,” Albright said yesterday in a telephone interview.

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Health Law’s Birth-Control Rule Gets Supreme Court Review

According to Bloomberg,

The U.S. Supreme Court will take up a challenge to part of President Barack Obama’s health-care law by companies claiming a religious exemption to the requirement that they provide birth-control coverage for employees.

The justices said today they will hear two cases involving family-run businesses whose owners say they view some forms of contraception as immoral.

Prayer at the U.S. Supreme Court (Bloomberg)

Prayer at the U.S. Supreme Court (Bloomberg)

The dispute threatens to carve a hole in the 2010 health-care law already beset by problems on multiple fronts as its major provisions take effect. The clash will be the court’s first look at Obama’s biggest legislative accomplishment, the Patient Protection and Affordable Care Act, since a majority upheld the core of the law in 2012. The court will rule by July.

Both sides urged the justices to resolve the religious-exemption question, which the administration said was of “exceptional importance.” The issue has divided lower courts and sparked dozens of lawsuits by for-profit companies.

“Few issues are more important than the extent to which the government must recognize and accommodate the religious exercise of those it regulates,” argued one of the companies, Hobby Lobby Stores Inc., a craft-store chain whose owners say they run the company in accordance with the Bible.

The second case involves Conestoga Wood Specialties Corp., a woodworking business owned by a Mennonite family.

The court will consider whether companies can assert the same religious-freedom rights as people. A variation of that question drove an ideological wedge through the court three years ago in the Citizens United case, which centered on corporate speech. The court cleared the way for corporations and unions to spend unlimited sums on political campaigns.

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U.S. Stocks Fluctuate Amid Confidence, Housing Reports

According to Bloomberg,

U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell from a record yesterday, as investors assessed reports showing higher home prices and an unexpected drop in consumer confidence.

Lennar Corp. and PulteGroup Inc. climbed at least 3.5 percent, leading a rally among homebuilders. Tiffany & Co. jumped 7.9 percent after profit topped analysts’ estimates and the jeweler boosted its forecast. Jos. A. Bank Clothiers Inc. surged 9.2 percent after Men’s Wearhouse Inc. offered to buy the apparel company for about $1.54 billion. Take-Two Interactive Software Inc. fell 3.5 percent as the gaming company said it bought back all 12 million shares held by Icahn Group.

The S&P 500 gained 0.1 percent to 1,804.59 at 11:29 a.m. in New York after falling as much as 0.1 percent earlier. The Dow Jones Industrial Average rose 22.99 points, or 0.1 percent, to 16,095.53. Trading in S&P 500 stocks was 18 percent below the 30-day average at this time of the day.

“We’re tending to move in a positive direction,” Kate Warne, a St. Louis-based investment strategist at Edward Jones & Co., said by phone. Her firm oversees $746 billion. “We’re getting data in a sweet spot. It’s positive but not so positive as to raise worries about the Fed moving sooner and yet it continues to show that the economy is gaining some traction.”

The S&P 500 fell 0.1 percent yesterday after closing Nov. 22 for the first time above 1,800 to cap seven straight weeks of gains.

Fed Stimulus

Home Prices See Highest Gains Since February 2006

Three rounds of Federal Reserve bond purchases have helped push the S&P 500 up 166 percent from a bear-market low in 2009. Four out of five investors expect the Fed to delay a decision to begin reducing the stimulus until March 2014 or later, according to a Bloomberg Global Poll on Nov. 19.

Policy makers have been scrutinizing data to determine whether the economy is strong enough to withstand a reduction in their $85 billion a month in bond purchases.

More applications for home construction were issued in October than at any time in the past five years, figures from the Commerce Department showed today. The agency postponed publishing housing-starts data, due today, to Dec. 18 because of a lapse in funding after a 16-day partial government shutdown last month.

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