Magazine

Gazprom's Big Squeeze


Happy New Year. And oh, by the way, we're shutting off your natural gas. So said Russia's gargantuan Gazprom to Ukraine on Jan. 1, sending midwinter shivers across Europe and the global energy business. Gazprom wanted to nearly quintuple the price Ukraine pays for gas, bringing it closer to market levels. But the partial cutoff also immediately hit Western Europe, which buys 25% of its gas from Russia, much of it delivered via pipelines that cross Ukraine.

It may not have been the Kremlin's smartest hour. Gazprom's move seemed designed to punish Ukraine for the Orange Revolution of 2004-05 and a turn toward the West under President Viktor Yushchenko. This use of state-owned Gazprom as a blunt instrument of policy alarmed its customers and could speed their search for more trustworthy suppliers. That's probably why the bear backed off growling after a day, turned most of the gas on, and struck a deal on Jan. 4 that looked sweet for Ukraine.

See "This Gas Dispute Could Burn Russia"

Jack Abramoff, the lobbyist with the golden touch, pleaded guilty to federal charges of conspiracy, mail fraud, and tax evasion on Jan. 3 and agreed to cooperate with prosecutors studying his links with members of Congress. The fast-spreading scandal and likely reforms will make K Street a lot less like Easy Street for Big Business' hired hands.

Management of Iselin (N.J.)-based Engelhard (EC) showed little enthusiasm for a $4.9 billion unsolicited takeover offer from German chemical giant BASF (BF), but shareholders have plenty of reason to pop open any bubbly left over from New Year's Eve. Shares in Engelhard, best known for its automotive catalytic converters, shot up $7.85, to $38, following the offer. Given that the stock has been stuck around $30 for two years, it will be tough for Engelhard to argue that it's worth a lot more than the $37 BASF has put on the table.

See "Germany Flexes Some New Muscle"

We're not sure. That uncertain message from the Federal Reserve stoked Wall Street on Jan. 3, sending the Dow up 1.2%. The minutes from the Fed's Dec. 13 meeting said that the number of rate hikes needed to complete the current round of tightening "probably would not be large." But more important, the minutes revealed, future hikes would depend increasingly on economic data. Traders read those tea leaves to mean the overnight funds rate, now at 4.25%, isn't fated to rise to 5%. Instead the Fed may go to 4.5% and stop there if the economy isn't overly frisky.

Way back in 1964, when Hilton Hotels (HLT) spun off its international inns, it agreed not to open any doors outside North America. Forty-one years later it said goodbye to all that, buying back the hotel unit of Britain's Hilton Group on Dec. 29 for $5.7 billion. That will allow Hilton to follow rivals into fast-growth realms overseas. Bond markets put out the not-welcome mat for the deal, which will lift Hilton's debt from $2.5 billion to $8 billion.

The Middle Kingdom's economy keeps growing -- and growing faster -- as if by magic. In December, Beijing's statistics agency released a survey that ferreted out billions of dollars in unreported output, mostly from small, private, service outfits such as restaurants and travel agencies. Then, on Jan. 1, Xinhua News Agency said the economy clocked 9.8% growth in 2005 -- up from estimates of 9.4%. The reason was the same: hitherto overlooked services. Pass the hidden dumplings, please.

See "A New Window on China's Growth"

John Rowe will turn over the corner office to operations czar Ronald Williams in February. The two have transformed the insurer from a train wreck into a sleek machine since 2001.

Muammar Qaddafi agreed to a $2.7 billion settlement over the 1989 bombing of Pan Am Flight 103 because he wanted trade and investment. Now the American oil companies that made up Oasis Group are coming back. Amerada Hess (AHC), ConocoPhillips (COP), and Marathon (MRO) will fork over $1.3 billion to regain their concession, plus $530 million for investments made since their 1986 exit. They're expected to boost output, which has fallen from about 1 million barrels per day to 350,000.

The airline industry is finally getting serious about dropping excess baggage. After more than three years in Chapter 11, United (UAL) won creditors' O.K. to emerge next month as a trimmer and maybe even profitable company. Another bankrupt carrier, Delta (DALR), saw its pilots approve an 18% wage cut as it tries to copy United. The No. 2 and 3 airlines should also catch a break with the Jan. 5 shutdown of upstart Independence, which had tried to take them on from Washington Dulles International Airport.

Citigroup (C) came late to China but may be making up for lost time. On Dec. 30, Reuters reported that a group Citi leads will win the right to negotiate with Guangdong Development Bank for an 85% stake. The deal would mark the first foreign takeover of a state-owned bank. At $3 billion, Citi would be paying a fancy premium for a woeful bank but would jump ahead of foreign rivals.

Companies that were hoping for a pass from Christopher Cox's SEC got a jolt on Jan. 4. The Republican chairman issued new standards for corporate civil penalties, rejecting the line taken by many conservatives that such fines only harm shareholders. The securities cops will come down hard when fraud directly benefits a company, and when the chance to repay ex-shareholders hurt by fraud outweighs the harm done to current owners.

One major media guessing game concluded on Jan. 3 when Dow Jones (D) said that CEO Peter Kann would be replaced on Feb. 1 by COO Richard Zannino. (Kann will remain chairman until 2007's annual meeting.) Also leaving, after an unspecified transition period: Karen Elliott House, Wall Street Journal publisher and Kann's wife. Thus ends the long and loud grousing -- both external and internal -- over Kann's and House's management, as well as endless angst over the succession. Zannino, who has been in the media business only since 2001, will move fast to blend print and online at the Journal and centralize them under one boss. Lead dog in that hunt is Gordon Crovitz, head of electronic publishing. On Jan. 3, Dow Jones announced a brighter earnings outlook, so it's unclear how much of the stock's 10% jump that day was due to the Street's applause over the changes. Look now for the who-will-buy-Dow-Jones chatter to die down -- if only for a while -- as Zannino gets his shot.


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