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NOVEMBER 20, 2006
Edited by Harry Maurer The Voters Speak Less than 12 hours after Republicans lost control of the House--and perhaps the Senate--in a stinging midterm defeat, President George W. Bush on Nov. 8 announced the resignation of Defense Secretary Donald Rumsfeld, chief architect of the war in Iraq. Bush said his choice to replace Rumsfeld, former CIA Director and current Texas A&M University President Robert Gates, would bring "fresh eyes" to management of the war. Voters cited Iraq as the main reason for turning the GOP out. For business, the election offers hope for bipartisan deals on such top priorities as immigration reform, R&D tax credits, higher spending for education, and measures to shore up company pensions. But aggressive Democratic oversight hearings could take aim at Republican-leaning industries such as pharmaceuticals, energy, insurance, and defense. A Democratic Hill also is unlikely to O.K. further curbs on lawsuits or make Bush's tax cuts permanent. See "What the Election Means for Business" FedEx Changes Planes On-time delivery is the soul of FedEx' (FDX ) business, and apparently it wants the same treatment. Saying it couldn't wait an extra two years for Airbus' delay-plagued A380 megajet, the package titan on Nov. 7 grounded its 10-plane order and agreed to buy $3.5 billion worth of Boeing (BA ) 777 freighters instead. Some industry watchers say the decision could spur other cancellations. On Nov. 8, Airbus parent European Aeronautic Defence & Space posted a $305 million third-quarter operating loss because of the production snafus.   A Deluxe Hotel Bid Maybe they have fond memories of perfect pillows. On Nov. 6 a group including Saudi Prince Alwaleed bin Talal and Bill Gates offered $3.7 billion to take Four Seasons Hotels (FS ) private. The group also features founder Isadore "Izzy" Sharp, who controls most of the voting shares and said no other bid would be considered. The Toronto luxury chain manages more than 70 inns worldwide. But why pay a 28% premium for a company that takes little equity in its properties? Brand power, of course, and a bet that the hotel industry's upswing has a long way to go. See "Barring the Door at the Four Seasons" VW's New Driver In May they extended his contract through 2012. On Nov. 7 they booted him out. Well, boards can change their minds, and Volkswagen's sure did, ousting CEO Bernd Pischetsrieder, 58, who will step down at yearend. The move, seen as orchestrated by mercurial and prickly Chairman Ferdinand Piëch, took investors and employees by surprise. VW is in the midst of a difficult restructuring to lower labor costs, expand its lineup, and tune up quality. Pischetsrieder will be replaced by Martin Winterkorn, 59, head of VW's Audi unit. Meantime, as widely expected, Jean-Martin Folz, longtime CEO of PSA Peugeot Citroën, said he would give way to Christian Streiff, 52, former co-head of Airbus. See "Pischetsrieder Crashes at VW" Happy Holidays On The Street Surprise: Wall Street pay envelopes are getting even fatter. Compensation consultant Johnson Associates reported on Nov. 7 that yearend cash bonuses and equity awards would jump 10% to 15% over last year. Investment bankers will pocket 20% more. That means the average managing director at a big investment bank will take home $1.7 million during the holidays, and superstar traders will collect as much as $40 million. Web Watch As video continued to wheedle its way into new media, Google (GOOG ) pushed hard into an old one. On Nov. 7, Microsoft (MSFT ) announced plans to offer pay-per-view movies and TV to its 4 million Xbox Live subscribers. Verizon (VZ ) is negotiating with YouTube to bring its user-submitted videos to Verizon's cell phone and TV service subscribers, according to The Wall Street Journal. And Google, which recently agreed to buy YouTube, launched its most ambitious print-ad program to date. After moving into radio and magazines in the past year, Google is now letting advertisers place bids for space in more than 50 U.S. newspapers. See "Google's New Frontier: Print Ads," "Showtime for the Xbox 360," and "Verizon May Show YouTube Videos" Merrill Gets A Letter Newly added to the list of buyout firms under federal scrutiny: Merrill Lynch Global Private Equity (MER ). A Merrill spokesman had no comment, but the company isn't alone. The Justice Dept., which is thought to be poking into possible anticompetitive behavior in the high-flying world of private equity, has also sent letters to Carlyle Group; Clayton, Dubilier & Rice; Kohlberg Kravis Roberts; and Silver Lake Partners. A source familiar with the letters says Justice hasn't signaled whether it's examining any particular deal. Toyota Terrific The earnings gap between Detroit's Big Three and Toyota (TM ) has become a chasm. On Nov. 7 the Japanese carmaker posted quarterly net income of $3.5 billion, a rise of 33.6% on a year earlier, for the three months ended Sept. 30. The key factors: a revved-up North American biz and a weaker yen. For the same period, GM (GM ), Ford (F ), and DaimlerChrysler (DCX ) unit Chrysler posted combined losses of $7.4 billion. Toyota also raised its full-year operating profit outlook by $2 billion, to $13.2 billion, which would set a record for a Japanese company. See "Toyota: Still Accelerating" Tolling For Toll Brothers In the latest sign that the housing slump is far from over, luxury homebuilder Toll Brothers (TOL ) said on Nov. 7 that orders for new homes fell 56% in its Oct. 31 fiscal quarter from a year earlier. And things could get worse. CEO Robert Toll commented: "We continue to look for signs that a recovery is imminent but can't yet say that one is in sight." See "How Deep Housing's Decline?" Vivendi Flirts With KKR You can't fault the private equity crowd for lack of ambition. On Nov. 4, French entertainment and telecom group Vivendi (V ) confirmed it had pondered a $50 billion takeover by Kohlberg Kravis Roberts, in what would have been the biggest leveraged buyout in history. Vivendi said its talks with KKR went nowhere, but the disclosure raised the question of whether it's in play. Dire Prediction Of The Week We all know China is environmentally challenged, but this makes it clear just how challenged. The International Energy Agency on Nov. 7 issued a report that forecasts China will overtake the U.S. as the biggest emitter of the main greenhouse gas, carbon dioxide, by 2009, because of heavy reliance on high-sulfur coal. Already, Chinese cities rank among the worst in terms of air pollution, and acid rain is a scourge across much of the country. Some 20% of the population lives in severely polluted areas, and 70% of Chinese rivers and lakes are in grim shape, environmental regulators concede. Yet China's developing-nation status leaves it untouched by the Kyoto Protocol's emissions targets, and Beijing points the finger at wealthy countries as the main global-warming perpetrators. Talks begin on Nov. 13 to figure out the next step after Kyoto.
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