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Bittersweet Memories At Hershey


"This is Wall Street voting with [its] feet about how rapidly the mortgage market is coming back. They're saying it is not coming back quickly." --Brad Hintz, analyst at Sanford C. Bernstein, on Morgan Stanley's job cuts and $940 million third-quarter write-down, as reported by USA Today

Concerned with college students' growing addiction to plastic, California lawmakers in mid-September voted to ban credit-card companies from using T-shirts and other freebies as marketing gimmicks at public universities. If the governor signs the bill, the state will join 15 others and dozens of schools that restrict credit-card marketers, some kicking them off campus altogether.

In response, credit-card companies are getting more creative, seeking out partnerships with third-party marketers to sign up students. College kids are a potential gold mine--one of the few growing customer segments in the saturated credit-card market. And they're loyal, eventually taking three additional loans, on average, with the bank that gives them their first card. Says David Robertson, publisher of the Nilson Report, an industry newsletter: "It's hard to walk away from a market that's actually generating new customers."

So it is that JPMorgan Chase (JPM) has teamed up with an outfit called BicyTaxi to reach students at the University of Michigan and nine other colleges that ban credit-card companies. It offers students free off-campus pedicab rides accompanied by recorded messages about Chase +1, a card geared toward students. "We think this is a very positive campaign for students," says Chase spokesperson Tanya Madison, who says the bank used the program last year, too. "It's not necessarily anything new in response to the most recent regulations."

The credit-card marketers' latest tactic is to co-sponsor campus seminars on financial literacy. (Card applications are usually handed out afterward.) Even schools that ban traditional marketing make an exception for the events, figuring they benefit students. The United College Marketing Service, which runs such programs, says credit-card companies are sponsoring 70% of its more than 1,100 seminars this fall--and that there's a yearlong waiting list for banks wanting to sign up. "The more you ban [the marketers], the more demand for seminars will soar," says Larry Chiang, the company's founder.

Meanwhile, marketers still clash with authorities. Ohio Attorney General Marc Dann filed a lawsuit last week against Citibank (C) for a recent campaign at Ohio State University, which permits only Bank of America (BAC) to market directly on campus. The suit alleges that bank representatives plastered the campus with flyers advertising free food at off-campus haunts. Getting fed, the suit also claims, required filling out a credit-card application. Dann says that violated Ohio's consumer-protection laws, since the flyers didn't mention the requirement. Samuel Wang, a spokesman for Citibank, says the advertising described in the suit "was not prepared or distributed" by a Citibank employee and that the bank is investigating the matter. "Vendors who market Citibank credit cards are required to comply with all applicable laws," he says. Dann is demanding clearer marketing. "Citibank is banking on the fact that these kids won't read the fine print," he says.

Hershey CEO Richard Lenny's Oct. 1 announcement that he'll step down at year's end is likely to reignite a debate about the candy maker's future. So will a forthcoming Columbia Law Review article about the company's history.

Five years ago, the charitable trust controlling the brand put Hershey up for sale, only to back down after a challenge by then-Pennsylvania Attorney General D. Michael Fisher. The AG argued a sale would harm the Willy Wonka-like headquarters town of Hershey, Pa., since a new owner would likely move jobs out of state. Big mistake, write law professors Jonathan Klick (Harvard) and Robert Sitkoff (Florida State). They say that by nixing the sale, the AG destroyed $2.7 billion in shareholder value and left the company in the hands of "a suboptimal ownership structure."

Fisher, now a federal appeals court judge, defends his action as "beneficial at the time." A spokesman for the trust said it had no comment; Hershey did not return a call seeking a response.

Cadbury Schweppes has shown merger interest in Hershey, which distributes the British company's candies in the U.S.

Corrections and Clarifications

"Bittersweet memories at Hershey" (UpFront, Oct. 15) misidentified the affiliations of two law professors writing about the company's structure. Jonathan Klick is at Florida State University College of Law. Robert Sitkoff is at Harvard Law School.

If a dollar were a prizefighter, its corner man might be thinking of throwing in the towel. The greenback has been losing not just against the euro and the pound. In the past year, it has been getting pummeled by the Hungarian forint and the Brazilian real. Why? Here's a take on today's best performing currencies by Scott Grimberg, senior portfolio manager at Pareto New York, an investment arm of the Bank of New York Mellon. Dream of running a TV network? Television Without Pity, a Web site all about the small screen, is sponsoring a kind of fantasy football league for TV junkies--giving visitors the chance to create an ideal programming lineup from shows in the current broadcast season.

Players in its TV Big Shot game get a theoretical $300 million to buy shows. (A juggernaut like American Idol can cost up to $170 million in the fake currency.) Participants can sell their shows as well as buy them, as values fluctuate weekly in response to Nielsen ratings.

There's real money for the winner at the end of the season in June: a prize of $100,000 for the player whose program lineup is judged best based on points assigned for ratings, buzz, and awards. So far, the contest, launched on Sept. 17, has about 16,000 entrants--among them Danny Fleishman, a 20-year-old Northwestern University student, who's banking on NBC's Chuck as one of his long shots.

TVBigshot.com, meanwhile, is betting on attracting advertisers with the game. The majority of players are drawn from the Television Without Pity site (recently acquired by the Bravo cable network), and most are in the coveted 18-to-49 age range. CBS and AT&T have already staked out a big chunk of TVBigshot's ad space.

Would more of us pedal to work or a local event if we could stash our bikes safely when we got there?

Bikestation, a Long Beach (Calif.) not-for-profit, is teaming up with 30 U.S. cities to create parking garages for bikes. The municipalities build the space (with advice from the group), and Bikestation sometimes manages the facility. The cost for bikers? At Bikestation-run garages, designed to be accessible 24/7 with a smart card key, it's about $1 a day, $12 a month, or $96 a year.

For cities, the price tag varies. An add-on to a car parking garage, like the one in Santa Barbara, costs about $150,000. That buys room for 70 bikes, showers, and a parts-dispensing vending machine. Bikestation is also helping to plan a $2 million bike-only garage to open next year near Washington's Union Station. It will have 160 slots and a rental shop.

Investing in such secure parking sites "shows a city's level of commitment to bicycling," says Andr?a White, executive director of Bikestation, whose goal is to have a bike garage within a half-mile of 90% of urban commuters by 2015. Will that cut down on auto congestion? The group says an average 30% of those using its six completed garages (most in California) used to drive cars--aloneto their destinations.

Like footnoted.org, Proxyland sifts through corporate SEC filings to report on telling trends--the latest outrageous CEO perk or employment contract, for instance, or the impact of the SEC's Plain English rule on the disclosure of executive compensation. (Why are other sections of 10-Ks still written in Proxytongue, the blog wonders.) In her weekly or so posts, former Wall Street lawyer Wendy Fried also comments usefully on judicial matters. A recent subject: a Delaware Chancery Court opinion focusing on "demand futility" in a case where shareholders alleged malfeasance by company directors. "It refers to the fact that [shareholders] must persuade a judge it would be futile to demand that the directors sue themselves," she writes, in a description of the case that's as edifying as it is entertaining.

Without much fanfare, government statistics took a leap into the 21st century on Sept. 28. The Bureau of Economic Analysis, with the National Science Foundation, has put out a greatly improved estimate for U.S. gross domestic product: It takes full account of research and development spending--including, for the first time, flows into and out of the country.

The traditional way of measuring the economy ignores or minimizes R&D's contribution in today's knowledge-intensive world. But the new (still experimental) numbers treat R&D as an investment. They show that soaring spending on science talent, engineers, and research supplies helped drive growth in the second half of the 1990s--those New Economy years. They reveal that weakening business R&D spending made the 2001-2002 slowdown more abrupt. And they dramatically change BEA estimates of industry size. A big winner: the research-intensive pharma sector, which now shows up as a bigger share of economic output from 1995 to 2004 than the computer, aerospace, or software industries.

The red-hot Shanghai stock exchange will begin trading shares of its biggest initial public offering yet this year on Oct. 9. The IPO isn't coming from a sleek, fast-growing tech company but from one of the oldest, dirtiest industries: coal.

China's biggest coal producer, China Shenhua Energy, already traded in Hong Kong, has fetched about $8.9 billion for its offer of 1.8 billion shares. That tops September's $7.7 billion IPO of China Construction Bank, until now the year's largest IPO on the mainland.

The record-setting market interest in Shenhua comes despite Beijing's ambitious pronouncements about getting pollution under control with cleaner energy as the 2008 summer Olympic Games approach. That's because coal is still crucial to China's soaring energy needs. It makes up about 70% of the fuel source mix, compared with 50% in the U.S. And the $15 billion Shenhua, a fully integrated producer with a network of mines, railways, ports, and power plants, is a coal giant: No. 2 among global coal companies measured by market value and coal reserves. (Peabody Energy (BTU) in St. Louis is first.)

BNP Paribas analyst Lance He says the offering's proceeds will fund more production. He expects Shenhua's output to rise 37% by 2009, from 136.6 million tons in 2006 to 186.6 million. He also expects the IPO loot to underwrite acquisitions. Shenhua did not respond to requests for comment.

Shenhua's state-owned parent, which controls 81% of the company, is building a huge liquefaction plant in Inner Mongolia to turn coal into synthetic petroleum. Scheduled to open in 2008, it will, if successful, allow Shenhua to profit even more from China's energy needs.

Meanwhile, the heavy reliance on coal spurring the Shenua IPO continues to plague China's landscape. The liquefaction plant, for instance, uses lots of water, which is becoming a scarce resource in the northern Coal Belt. And while Shenhua's midyear financial report says mine fatalities were "nil" in 2007's first half, thousands of Chinese coal miners die in accidents every year--mostly in small, illegal mines. Then there is the air pollution that blankets many coal-producing and urban areas in China. The world's fastest-growing economy is set to pass the U.S. as the world's largest emitter of CO2 in a year or two. "Renewable energy is expensive," says Donovan Huang, an analyst at Nomura Securities in Hong Kong. For China, "affordability is a very important consideration."

"Extreme cherry pickers" grocery shoppers who buy only items on sale--aren't as numerous, or as profit-draining, as the supermarket industry fears, according to researchers at Yale and the University at Buffalo, State University of New York.

Their study, to be published in the Journal of Marketing Research, found that such dedicated bargain hunters make up only 1.2% of shoppers, not 10% or 15%, as the industry has long assumed--and that the cherry pickers reduce profits by less than 1% on average.

The findings could be "great for the consumer," says Debabrata Talukdar, associate professor of marketing at Buffalo and one of the study's authors. Once retailers realize that specials and sales don't bring hordes of profit-killing discount-only buyers, he figures, there may be more price competition "to attract new shoppers and retain existing ones."


Steve Ballmer, Power Forward
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