Magazine

Carriers On The Prowl


The airline industry is testing a new propellant: the merger. Just 11 months after exiting bankruptcy, United (UAUA) is in early-stage talks with Continental (CAL) about forming what would be the nation's biggest carrier. Meantime, management at bankrupt Delta (DALR) is fending off an unsolicited bid from US Airways (LCC). Northwest (NWAC), also in Chapter 11, has hired advisers to put together a deal, and discounter AirTran (AAI) on Dec. 13 offered $290 million for Midwest Air (MEH).

So far, though, all this talk of consolidation is just so much exhaust. And while airlines are nervously watching each other's maneuvers, it may never amount to more than that. United CEO Glenn Tilton, for example, has coveted Continental for years, but discussions have never advanced because neither Tilton nor Continental CEO Lawrence Kellner wants to give up his job to the other. Northwest also has a partnership with Continental that allows it to block a takeover.

See "Airlines Surge On Talk of Deals"

Federal Reserve rate-setters keep playing tough. On Dec. 12 they voted to keep the federal funds rate at 5.25%. And although they noted the "substantial cooling" of the housing market, they didn't even entertain the notion of lowering borrowing costs. The only issue they raised is "the extent and timing of any additional firming."

See "The Fed Hedges, Citing Housing Woes"

Just days after Beijing celebrated China's entry into the World Trade Organization, an unprecedented group of U.S. Cabinet officials led by Treasury Secretary Henry Paulson, along with Fed Chairman Ben Bernanke, headed for China for meetings on Dec. 14-15. At issue were the usual suspects: a U.S. trade deficit with China expected to top last year's $202 billion, poor intellectual-property rights protection, and concerns over market access. While Washington will continue to argue that the yuan is undervalued, Beijing probably won't budge.

See "U.S.-China Talks: Don't Expect the World"

Four-fifths of the way toward completion of the $20 billion Sakhalin 2 oil and gas megaproject on an island off eastern Russia, Royal Dutch Shell (RD) has offered to give up control to energy giant Gazprom, reported Reuters on Dec. 11. Moscow has been nagging Shell about cost overruns and environmental disputes. Shell says nothing has been agreed on, but it's clear Gazprom will end up with a big share. Compensation could come in cash and a share of Gazprom gas reserves in Siberia.

Does Coke (KO) have its next CEO in the can? That's the betting after the soda king on Dec. 7 named Muhtar Kent as president and chief operating officer, a post that had been unfilled for more than two years. The move was widely anticipated given that Kent, who most recently headed up Coke's vast international operations, had worked closely over the decades with CEO Neville Isdell.

Robert Greifeld, NASDAQ's tenacious boss, has all but given up on the leaders of the London Stock Exchange and on Dec. 12 unveiled a formal hostile offer of $5.3 billion. The stock has soared ever since NASDAQ started buying it up a few months ago. But the LSE continues to display a stiff upper lip, saying the offer "substantially undervalues" the bourse and telling investors to sit tight. As of Dec. 13 the stock was about 6% higher than NASDAQ's offer, so traders seem to be banking on a richer price.

See "NASDAQ Gets Hostile in London"

For months, Wall Street has been hammering Citigroup (C) CEO Charles Prince and the company's stock for boosting expenses faster than revenues. So on Dec. 18, Prince announced that he's promoting long-time loyalist and investment banking chief Robert Druskin to the position of chief operating officer. Filling a position vacated about a year ago by Robert Willumstad, Druskin will put expenses under a microscope. Where's the master of cost control, Sandy Weill, when you need him?

Just when you thought it couldn't get worse, another cranny in the options backdating scandal is coming under increased scrutiny. The Wall Street Journal on Dec. 13 reported on an SEC study that says some executives appear to have changed the dates they exercised their options to days when the stock price was low. That would have the effect of lowering their tax bills.

Corporate fraud investigators will be reined in a tad by the Justice Dept. Deputy Attorney General Paul McNulty said on Dec. 12 that prosecutors will have to get a thumbs-up from him before asking companies to turn over confidential communications with their attorneys. In recent years, corporations that refused such requests increased their risk of indictment, a practice now scrapped. Nor will the Feds hold it against companies that pay legal fees of employees charged with a crime. These post-Enron hardball tactics had evoked howls of outrage from business advocates and defense attorneys. Some say the changes still don't go far enough.

See "Justice Softens Investigation Guidelines"

Closing one chapter of its boardroom-leak scandal, Hewlett-Packard (HPQ) agreed on Dec. 7 to pay $14.5 million to end a suit brought by California's attorney general. The suit accused the company of unfair business practices when it hunted for the source of media leaks. The settlement didn't include any admission of liability, but HP isn't out of the legal woods; five former HP executives and outside gumshoes still face criminal charges. And on Dec. 13 it was revealed that two Democratic members of Congress have sent HP CEO Mark Hurd a letter inquiring about stock options he cashed in for $1.37 million just before the pretexting scandal hit headlines.

If Goldman Sachs (GS) simply printed 10,000 $20 bills an hour, 24 hours a day, 365 days a year, in the basement of its 85 Broad St. headquarters, it would take nearly six years for the firm to turn out as much money as it did through trading and dealmaking in the last fiscal year. The tony bank said on Dec. 12 that it earned $9.54 billion, a 70% rise over fiscal 2005 and a record for an investment bank, on revenues of $37.67 billion, up 49%. Trading was the big engine: Goldman logged $25.56 billion of its revenues, up 52%, from buying and selling equities, bonds, derivatives and other products. Dealmaking accounted for $5.63 billion, up 53%. In the firm's typically reserved fashion, CEO Lloyd Blankfein said partners were "very pleased." Even more so, no doubt, when they opened their bonus envelopes starting on Dec. 13.

See "All That Glitters Is Goldman"


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