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JUNE 25, 2007
Edited by Harry Maurer Bonds Get Whacked Bond prices cratered and yields soared as investors finally concluded that the Federal Reserve was telling the truth about not wanting to cut short-term interest rates. On the market's worst day, June 12, the yield on the Treasury's benchmark 10-year note rose to 5.3%, a five-year peak. Stocks didn't take the higher rates well, with the recently surging Standard & Poor's 500-stock index dropping 3% in just over a week. Markets partially recovered on June 13. The 10-year yield, after touching 5.33%, receded to 5.2%, which helped the S&P to erase half its losses. Still, it's clear that Fed Chairman Ben Bernanke isn't about to cut rates with the U.S. economy perking up from its abysmal 0.6% annual rate of growth in the first quarter. The Commerce Dept. said retail sales in May rose 1.4%, double the gain analysts had predicted. See "Stocks: Where to Ride Out the Rate Spike" Immigration Reform Stalls Even a personal plea from President George W. Bush failed to do the trick. At a rare closed-door meeting between the President and GOP senators on June 12, Bush pushed them to back the immigration reform bill that hit a roadblock on June 7. But he couldn't persuade conservative opponents to budge on an issue that business has been lobbying heavily to solve.   The Justices Speak On June 11 the Supreme Court issued a flurry of decisions important to business. The justices sent a secondhand-smoke lawsuit back to Arkansas state court, foiling Philip Morris (MO ) bid to keep the case in federal court, often seen as friendlier to corporate defendants. The company faces claims in a potential class action that it misleadingly advertised the amount of tar and nicotine smokers are exposed to from its "light" cigarettes. In other rulings, the court said home health-care workers aren't entitled to overtime pay under federal law, and that a company that voluntarily cleans up a Superfund site can pursue other parties to help cover the costs. Hey, Want To Buy Jaguar? The rumors have been swirling for months, and now they're confirmed: Ford (F ) on June 12 said it's shopping its Jaguar and Land Rover brands. Jag has cost Ford more than $10 billion in the 20 years it has owned the carmaker. Land Rover, acquired in 2000, has also lost money but is now profitable, Ford says. See "Detroit's Worst-Kept Secret" Executive Shuffle Richard Notebaert, the man who revived telecom Qwest (Q ) after a financial scandal, surprised analysts and dismayed investors by saying on June 11 that he'll step down as soon as a successor can be found. Across the Atlantic at Airbus parent EADS, COO Jean-Paul Gut quit after a dispute over management structure. See "A Telecom Con-Qwest for Private Equity?" This Bid Wins A Gold The players who have been chasing orthopedic-products maker Biomet proved as flexible as the company's spokeswoman, champion Olympic gymnast Mary Lou Retton. A consortium including Blackstone Group and Kohlberg Kravis Roberts first bid $10.9 billion for the maker of replacement knees, hips, and other body parts. After Biomet demurred, the bidders jumped to $11.4 billion, and on June 7 the board said O.K. Trade Tremors European Union Trade Commissioner Peter Mandelson told reporters on June 12 that "impatience and anger is going to rise" if China doesn't remove barriers to imports. The day before, China said its May trade surplus came to a little over $22 billion—up 73% from a year earlier. On June 8 the U.S. reported a modest narrowing in its global trade deficit from March to April, signaling that rising exports may help fuel growth this year. Hear This, Mr. Semel If you're making so much, why aren't we? That's the message Yahoo! (YHOO ) shareholders sent to CEO Terry Semel. At the company's annual meeting on June 12, a third of stockholders, far more than usual, withheld votes from at least one of the company's directors. Semel has been criticized for his $71.7 million pay package last year, when Yahoo stock fell 38%. See "Yahoo's Semel Faces the Music" Big Banks Indicted Italian prosecutors are out to expose the mechanisms of global finance that went awry in the 2003 bankruptcy of Parmalat, one of the greatest financial frauds in history. On June 13 a Milan judge indicted Citigroup (C ), UBS (UBS ), Deutsche Bank (DB ), and Morgan Stanley (MS ) for failing to have procedures in place that would have detected the fraud. The banks, which advised Parmalat and issued bonds, deny wrongdoing. Their trial starts in January. Browser Battle Royal? A red-hot Apple (AAPL ) is feeling mighty feisty. On June 11, CEO Steve Jobs said Apple will take on Microsoft's (MSFT ) Internet Explorer with a Windows-compatible version of its Safari browser. Jobs also announced a plan to let developers write software for the upcoming iPhone. Could Apple become the king of smartphone software, a market Microsoft has targeted for years? See "Apple Reignites the Browser Wars" Block Those Phones! Cell-phone chipmaker Qualcomm (QCOM ) got a few more angry calls this week. The San Diego company is locked in a patent feud with rival Broadcom (BRCM ). On June 7, the U.S. International Trade Commission took Broadcom's side and banned the import of phones using the latest generation of Qualcomm chips, which could pose problems for companies like Motorola (MOT ). Qualcomm, which denies wrongdoing, appealed to a federal court. See "Banned: New phones with Qualcomm Chips" Embarrassment Of Riches Week Who'll be the big winners after the initial public offering for Blackstone Group? In a deal scheduled to hit the market the week of June 25, Stephen Schwarzman and Peter Peterson will earn the kind of mega-payout they could only have dreamed of when they co-founded the private equity firm some two decades ago with a $400,000 investment. Schwarzman, 60, will walk away with about $677 million and an equity stake of at least $7.5 billion. Peterson, 81, gets nearly $2 billion in cash and will own about $1.6 billion worth. Of course, none of this means investors will necessarily get rich buying into Blackstone. At $30 a share—the midpoint of the projected pricing range—the firm will have a market value of $32.4 billion. Shares will probably begin trading at a higher multiple than those of Goldman Sachs (GS ). That's a heady valuation for an outfit whose fortunes rest on the buyout boom going on and on.
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