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Xmas Gloom?


'Tis a season retailers might not find so jolly. Despite massive discounting and earlier-than-ever openings, the Thanksgiving weekend kickoff to the holiday spending spree proved soft. Wal-Mart (WMT) clouded Black Friday (so called because it's when retailers traditionally move into the black), announcing that it expected its worst November sales in over a decade. JPMorgan Chase (JPM) retail analyst Charles Grom says that while industry sales momentum started strong on Friday, "it seemed to lack follow-through." Indeed, sales for the week fell 0.4% from the previous week, reports the International Council of Shopping Centers.

There were bright spots: Low-priced chains Kohl's (KSS), Target (TGT), and J.C. Penney (JCP) did well, as did high-end retailer Coach (COH). And more holiday shoppers spent online: Sales on the Monday after T-day, dubbed Cyber Monday, rose 26%, according to comScore Networks. But discounts look like the big motivator. "In 20 years doing consumer research on Christmas sales, I've never seen such bargain-driven shoppers," says America's Research Group's Britt Beemer. That won't help retail profits.

See "O, Come All Ye Online Shoppers" Yes, the government raised its estimate of third-quarter growth on Nov. 29. No, that doesn't mean the economy is in the pink. The Commerce Dept. said output increased at an annual rate of 2.2% in the quarter, up from a previous estimate of 1.6%. Trouble is, a lot of the improvement came from inventory accumulation--meaning unsold goods piling up on shelves. On Nov. 28 economic softness pushed the dollar to a 20-month low against the euro. Nonetheless, Fed Chairman Ben Bernanke continued to fret in a Nov. 28 speech that the core inflation rate is "uncomfortably high."

Ford (F) is literally betting the house on its restructuring. The banged-up carmaker said on Nov. 27 that it wants to raise $18 billion in cash by borrowing against assets that include its headquarters building, plants, tooling, and even intellectual property. Ford needs the cash: It says some 38,000 employees, almost half the U.S. factory workforce, have accepted buyout offers. That will help drain $17 billion from 2007 through 2009, leaving a cushion of about $20 billion.

The casualty list grows longer still. On Nov. 26, Affiliated Computer Services (ACS) CEO Mark King stepped down, along with his CFO. And on Nov. 22, Monster Worldwide (MNST) fired its general counsel in the wake of a stock options probe that cost its founder and chairman, Andrew McKelvey, his job in October.

See "How to Clean Up a Scandal" Finally. On Nov. 28 the nation's largest securities regulators said they would team up, possibly as soon as mid-2007. Talk of a courtship between the New York Stock Exchange (NYX) and the National Association of Securities Dealers has been buzzing for years, but only in recent months did the stars align. Richard Ketchum, the NYSE's chief regulatory officer, and Mary Schapiro, chairman and CEO of the NASD, were able to seal the deal. Schapiro will lead the new organization, which will oversee member regulation, examinations, arbitration, and mediation. The news sparked huzzahs on Wall Street, which has griped about overlapping and sometimes conflicting oversight.

For years, Wal-Mart has been knocking at India's door. Now it may have found a way in. On Nov. 27 the world's biggest retailer announced a deal with India's top telecom company, Bharti Enterprises, that gets around government rules on foreign retail investment. Wal-Mart and Bharti will float a joint venture to set up supply-chain and warehousing facilities, while Bharti will run an as-yet-unnamed chain of hypermarkets, supermarkets, and neighborhood stores.

Bids for carriers are getting airborne all over. U.S. private-equity outfit Texas Pacific Group is teaming with Australia's Macquarie Bank in an offer for Qantas worth nearly $8 billion, while Air France (AFK) and KLM (AFK) are mulling an acquisition of sputtering Alitalia. News of both deals surfaced within days after US Airways (LCC) announced a bid for Delta (DALR) on Nov. 15. The overseas tieups face obstacles, though. Shares in recently merged Air France-KLM tumbled 12% on news of the possible Alitalia move. While a Qantas sale seems more likely to go through, the Australian government promises to block any deal allowing more than 49% of the carrier to fall into foreign hands.

See "Texas Pacific, Macquarie Queue up for Qantas" When Pfizer's (PFE) board tossed out CEO Henry "Hank" McKinnell Jr. in July, it was clear the world's largest drugmaker intended to clean house. On Nov. 28 new CEO Jeffrey Kindler took his first big swipe, stripping out 20% of Pfizer's sales force, some 2,200 reps. Pfizer has been struggling to release new drugs to replace aging hits such as cholesterol-lowering Lipitor and antidepressant Zoloft.

Also on the pharma front, Merck (MRK) won a big one in the legal tussle over Vioxx, its withdrawn painkiller. On Nov. 22 a federal judge in New Orleans refused to lump the 20,000-plus lawsuits filed against Merck by former Vioxx users into a class action. Merck has said all along it would try each case rather than agree to a group settlement that could run into the billions. The company has won 7 of the 11 Vioxx suits that have gone to trial, although a judge ordered one victory to be retried.

The Swiss food giant has long coveted the baby-food maker and now is looking to buy it from Swiss pharma Novartis (NVS), The Wall Street Journal reported on Nov. 29. Along with a medical nutrition unit, Gerber might fetch around $5 billion. Novartis is eager to get Gerber off its plate to concentrate on the drug biz. Nestl? (NSRGY) isn't commenting, but analysts say Gerber would make a nice addition. It dominates the U.S. baby-food market, and those mushy peas and carrots produce some mighty tasty margins.

Ann Fudge predicted it would take three to five years to turn around Young & Rubicam Brands when she took over as chairman and CEO in 2003. Now, with mixed results at the helm, she's moving on. Fudge, 55, said on Nov. 28 that she will retire at yearend to focus on nonprofit work through such groups as the Rockefeller Foundation and the Council on Foreign Relations. The former Kraft Foods (KFT) marketing star had to cope with an industry downturn and an often frosty working environment at the advertising conglomerate--fending off criticism about her lack of ad experience, as well as her decision to take two years off after quitting Kraft in 2001. She also seemed to focus more on internal initiatives than on fostering memorable creative work. Last year, amid client defections, she lost the job of heading the flagship Y&R agency. With the appointment of Hamish McLennan earlier this year to run it, Fudge's days were numbered.

See "Y&R's Fudge Heads for the Exit"


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