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A Fracas Over Immigration


Seemingly overnight, the immigration debate has grabbed the center of the political stage, spotlighting a rift in the GOP that could prove perilous come November. Senate Majority Leader Bill Frist (R-Tenn.) hopes to win approval by Apr. 7 of legislation that would make it a felony to hire undocumented aliens. But the Senate Judiciary Committee on Mar. 27 endorsed a business-backed approach that would beef up border enforcement and create a guest-worker program while letting illegals already in the U.S. pay a fine and earn eventual citizenship.

Pulling against each other are two pillars of the governing coalition: Socially conservative blue-collar workers, the GOP's most dependable source of votes, and Big Business. Some strategists fear that the surprisingly large demonstrations across the country herald an anti-Republican backlash among Hispanic voters.

Home-sale numbers have real estate mavens scratching their heads. On Mar. 23 the National Association of Realtors said sales of pre-owned homes jumped 5.2% in February over the previous month, with the median price up 10.6% over the year before. Not too shabby. Well, on Mar. 24 the Commerce Dept. said new-home sales collapsed by 10.5%, with inventories higher than they've been in 10 years. At least one economist, BusinessWeek's own Michael Mandel, has joined those expecting a painful bust.

Ben Bernanke discovered new-found power when he drove the Dow down nearly 100 points on Mar. 28 -- through no fault of his own. Fed watchers were braced for the central bank's decision to raise its benchmark rate by a quarter-point, to 4.75%. But investors took it hard when Bernanke & Co. failed to signal more strongly that hikes had come to an end. The Fed left the impression that another boost in May is a sure thing.

See "Interest Rates: What the Markets Missed" The GM (GM)-Delphi (DPHIQ.PK)-UAW drama approached a showdown. Union reps turned up their noses at the latest offer from the bankrupt auto-parts maker, which could void its labor contracts on Mar. 31, possibly setting off a strike in the next month or two that would clobber GM. On Mar. 28 the carmaker laid off several hundred white-collar staffers and filed its annual report with the SEC, stating that accounting errors would force it to rejigger results for its financing arm, GMAC. It also said other complications might prevent it from selling GMAC for much-needed billions.

France's center-right government is scrambling for a compromise after weeks of sometimes violent protest against a labor law that would make it easier to hire and fire young people. One option: President Jacques Chirac could delay the reforms, which would spare Prime Minister Dominique de Villepin loss of face.

For a company with a long history in the music biz, Bertelsmann's timing sure seems off. On Mar. 26, the Financial Times reported that the company wants to offload its music business, a 50% stake in Sony BMG Music Entertainment. That would mean selling at the bottom of the market -- and just when digital music is starting to play a lucrative tune. A spokesman calls news of a sale "speculation," but privately held Bertelsmann may need the estimated $2 billion in proceeds to help buy out its largest outside investor and fend off an unwanted IPO of its stake.

Lucent (LU) excels in wireless gear. France's Alcatel (ALA) shines in broadband and fiber optics. Sounds like a good match -- at least they think so. Alcatel's board was slated to discuss on Mar. 30 a $33 billion merger that would create the world's No. 2 telecom-equipment maker and give Alcatel more clout in the U.S. One little problem: Lucent's Bell Labs does some secret military work. The unit could be spun off or placed behind a Chinese wall.

See "Lucent-Alcatel: A Marriage of Equals?" Finally, a hint of spring after Google's (GOOG) bleak winter. Between Jan. 11 and Mar. 22, the search behemoth's stock sagged 28%. But the next day, Standard & Poor's said it would add Google to its influential S&P 500-stock index as of Mar. 31. (S&P is owned by BusinessWeek publisher The McGraw-Hill Companies (MHP).) By market close on Mar. 29, shares had jumped 16%, to $395.

Germany's Bayer (BAY) thinks it has a cure for the migraine caused by bitter competition and the disastrous recall of its cholesterol-busting Baycol in 2001. On Mar. 24 the pharma and chemicals conglomerate offered $19.6 billion for Berlin-based Schering, trumping a hostile bid from German compatriot Merck. Schering, which makes drugs for birth control, cancer, and multiple sclerosis, will give Bayer's pharmaceutical biz more heft.

See "A Pick-Me-Up for German Pharma" Patent trolls get little sympathy -- except from the Supreme Court. On Mar. 29 the justices lent what seemed to be a friendly ear to MercExchange, owner of rights to technology behind eBay's (EBAY) popular "buy it now" button. The case gets to the heart of debate over so-called trolls -- companies that obtain patents only to license them. Justice Antonin Scalia pointed out to eBay that no one is allowed to take property from someone who doesn't want to part with it -- even for a price.

See "eBay Takes on the Patent Trolls" After months of delay, Whirlpool (WHR) won permission on Mar. 29 from the Justice Dept. to take over Maytag (MYG), its smaller, money-losing rival in white goods. Legal beagles had speculated that the $1.7 billion merger could be nixed since it would cement Whirlpool's No. 1 spot. But Washington said Whirlpool is facing new competition from Asian outfits.

It's a shakeup of sorts: With his poll numbers at record lows, President George W. Bush began to shuffle the White House deck on Mar. 28 by replacing Chief of Staff Andrew Card with Joshua Bolten, head of the White House Office of Management & Budget. The move won't placate Republicans baying for new blood at the top, since Bolten, 51, is a longtime Bush adviser. Before joining the Bush team, he was Goldman Sachs' (GS) executive director for legal and government affairs in London. Card, 58, is the second longest-serving Chief of Staff in history, but his management skills came into question after the botched response to Hurricane Katrina, the ill-advised Supreme Court nomination of Harriet Miers, and the snake-bit Dubai Ports deal. While Bush denies rumors of a staff purge, senior Administration officials say Bolten will make any further changes he deems necessary. His OMB deputy, Joel Kaplan, appears to be the front-runner to become budget boss.


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