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A New Reason for Bulls to Run


When Wall Street is in a buying mood, any excuse for a rally will do. On Oct. 9 it was the release of Fed minutes that sent the Dow and the S&P 500 to new highs. The Dow leaped 121 points, to nearly 14,165, an advance of better than 10% from the low touched during the mid-August credit crunch. Investors had to squint hard to find anything bullish in the minutes of the Federal Open Market Committee's Sept. 18 meeting, at which it cut its key rate half a percentage point, to 4.75%. Stock traders may have liked the Fed's saying it stood ready to cut again if necessary. But bond mavens saw the minutes more negatively, and pared back the odds on another rate cut.

See "Stocks Rally on Fed Minutes"

Another big fish just arrived at the software feeding frenzy. SAP (SAP) agreed to buy French data-mining software maker Business Objects on Oct. 7 for $6.8 billion to fatten its revenues and bite back at archrival Oracle (ORCL), which acquired similar technology in March. Investors felt SAP overpaid, and shares of the German giant slipped. But CEO Henning Kagermann said the deal "accelerates significantly our growth potential," a departure from SAP's organic-growth mantra. Now, with other business-intelligence software makers like Cognos ( COGN) and MicroStrategy (MSTR) on the block, the question is how quickly acquisition-hungry outfits like IBM (IBM), Hewlett-Packard (HP), and Microsoft (MSFT) will move in.

See "The Next Software Acquisitions"

The two bankrupt Bear Stearns (BSC) hedge funds were doomed to fail once the market for subprime mortgages cracked, a BusinessWeek analysis of confidential financial reports reveals. The funds depended on loans that could be called quickly, and they carried too little cash and too many oddball securities to have any staying power. One used an unusual arrangement with Barclays (BCS) to boost its leverage, a side deal that may well have put the other fund in jeopardy. Auditors red-flagged the fact that the reported values of more than 60% of net assets were just estimates by Bear managers. The funds were marketed as "high grade" but failed their market test.

It's a technological marvel, and that's part of the problem. Boeing (BA) said on Oct. 10 that delivery of its 787 Dreamliner would be delayed by six months, marking the end of a long string of on-schedule deliveries. About half the plane is made of composite fiber, which makes it lighter and more fuel-efficient—and thus central to the company's future—but integrating revolutionary software systems is proving a slog.

See "

On-Time 787 Delivery? Dream On" and "

Boeing: Airbus Subsidies Don't Fly"

This must have been one of the shortest strikes on record. The UAW struck Chrysler (DCX) for just six hours on Oct. 10 before a deal was reached that offloads the carmaker's future employee and retiree health-care liability onto the union. Details of the new contract weren't known at press time, but private equity firm Cerberus Capital Management, which bought Chrysler in August, was bent on minimizing commitments to U.S. factory jobs as it restructures the money-losing company.

See "Why Chrysler,UAW Settled So Fast"

Breaking up is hard to do, especially if you're courting Sallie Mae (SLM). The student lender filed suit on Oct. 8 to force a J.C. Flowers-led investment group either to fork over a $900 million "breakup fee" or follow through on its $25 billion commitment to buy the company. Flowers still wants Sallie—just not at that price. The buyout firm said in a statement that the dispute "should be resolved in the boardroom, not the courtroom."

Sprint Nextel (S) CEO Gary Forsee stepped down on Oct. 8 when the company warned Wall Street that it continues to lose its most valued customers and will miss its third-quarter financial targets. The board is expected to replace him within 30 days. Meanwhile, in a deal that helps clear away distractions for the new chief, Net phone carrier Vonage agreed to pay Sprint $80 million to settle a patent dispute.

See "Sprint's Speedy Search for a New CEO"

Worried about all that plastic piling up in landfills, some city governments are banning bottled water from their offices and encouraging residents to drink eau de tap. Consumers may be taking heed: Retail sales of water are up just 9% this year, vs.16% growth in 2006. That's bad news for Nestlé (NSRGY), Coke (KO), and PepsiCo (PEP), which rule the $16 billion industry. (AdAge.com)

On Oct. 8 the search king's stock blew past 600 to hit a record 609.62. One reason was a plan Google (GOOG) announced that day to distribute videos along with text ads from its YouTube unit to other Web sites. Investors also appeared to like an Oct. 4 report from the Interactive Advertising Bureau and PricewaterhouseCoopers that said Google-dominated search advertising revenues grew 29% in the year's first half.

The electronics behemoth (SI) has begun to extricate itself from a corruption scandal in Germany, but the ordeal grinds on in the U.S. A German court fined it a modest $281 million on Oct. 4 for paying some $630 million in bribes to win business for its telecom unit. An additional sting: $251 million in taxes on the bribes. Investigations by the U.S. Justice Dept., the FBI, and the SEC continue, and U.S. penalties could top $1 billion, experts say. New CEO Peter Löscher unveiled on Oct. 5 a plan to centralize power in Munich, making it tough for local fiefdoms to conceal bribes from top brass.

Your teacher probably never told you that sharing can be expensive. But it's a lesson the music industry would like taught, and on Oct. 5 a Minnesota jury complied. It ordered Jammie Thomas, a 30-year-old single mom, to pay $9,250 for each of 24 songs that she allegedly uploaded to the Kazaa file-sharing service. The $220,000 verdict came in the first case to go to trial out of more than 26,000 such lawsuits by record labels. Thomas says she intends to appeal.

Drink up! SABMiller and Molson Coors (TAP) said on Oct. 9 they'll combine their U.S. brands, creating a full-bodied rival to Anheuser-Busch (BUD). The venture, called MillerCoors, will have nearly a third of U.S. beer sales, vs. close to half for Anheuser. Both partners are the result of mergers, which have become the only way to gain sales or share in the flat U.S. market.

Universal Music Group CEO Doug Morris is trying to slow down Steve Jobs' iPod train. Along with Sony BMG, he's making headway toward an industry-backed music subscription service, Total Music. Industry leaders hope to energize digital sales by offering a download service that would be paid for by bundling its cost in the price of devices like Microsoft's Zune and Sony's (SNE) PlayStation. The other aim: to help those gizmos chip away at iPod sales. The industry worries that the iTunes-iPod axis gives Jobs too much power over how music is marketed.

The dwindling list of "Made in USA" goods just got a dubious addition: fakes. A federal crackdown on counterfeit imports appears to be driving more of the business stateside. U.S. seizures were up 67% last year in value terms. To evade authorities, makers of knockoffs have come up with a new division of labor: They're importing unbranded apparel and other gear from Chinese factories and sewing on the logos in small U.S. sweatshops. (WWD.com)

At last, it's really over. When BCS (BCS) declared defeat on Oct. 5, the Royal Bank of Scotland-led consortium won the seemingly endless fight for Dutch giant ABN Amro (ABN). It'll pay a steep $98 billion, mostly in cash. The deal is the largest financial services takeover ever and the first big hostile crossborder banking deal in Europe.

In an era of stock market tie-ups, it should come as no surprise that authorities in Beijing and Hong Kong are looking for ways to link up their bourses. In what may be a first step, the Hong Kong government in early September upped its stake in the company that runs the local exchange. That could set the stage for an eventual equity swap between Hong Kong and a mainland bourse—a prospect that worries legislators eager to protect Hong Kong's higher standards of transparency.

Brokerage titan Merrill Lynch (MER) and mortgage lending leader Washington Mutual (WM) are the latest admitted victims of the subprime lending disaster. On Oct. 5, Merrill said it would write off $5.5 billion in bad loans, leaving a net loss for the third quarter, and WaMu said it would set aside almost $1 billion for anticipated losses, causing a 75% plunge in third-quarter profit.

Toys from China aren't the only scary product out there these days. Cargill said on Oct. 5 that it's recalling nearly 850,000 pounds of frozen hamburger patties because they may have been contaminated with E. coli bacteria. The recall came a day after Topps Meat shut down, overwhelmed by the costs of taking back almost 22 million pounds of ground beef. The Cargill products had been sold in Sam's Club under the American Chef's Selection brand.

The tussle to replace Jean-Pierre Garnier as chief of GlaxoSmithKline (GSK) ended on Oct. 8 when the world's second-biggest drugmaker said Andrew Witty beat out two other senior officers. Now the 43-year-old Brit, who runs Glaxo's European pharma operation, faces the delicate task of launching new medicines while mending the company's good name after safety worries about Avandia, its blockbuster diabetes treatment, arose in May.

Your investment is safe with us. That was the message from President Nursultan Nazarbayev to Italian energy concern ENI (E) on Oct. 8. Nazarbayev told a visiting Italian delegation that there were no plans to revise the contract for the vast Kashagan energy project in the Caspian Sea. The Kazakhs are ticked off at cost overruns and delays but may be retreating from threats that seemed to mimic Russian tactics for clawing back control over energy ventures. Still, many expect ENI will have to cough up extra dough.

Skies and rivers will become a tad cleaner in the Eastern U.S. after the biggest environmental settlement ever, announced on Oct. 9. Giant Midwestern utility American Electric Power (AEP) agreed to end a lawsuit by spending $4.6 billion to cut pollution from 16 power plants. The money includes $15 million in civil penalties and $60 million to restore watersheds and forests hurt by past emissions. AEP admits no wrongdoing and says many of the upgrades either have been done or were planned.

It proved a squeaker, but the Bush Administration's trade policy just got a welcome boost. Costa Ricans in an Oct. 7 referendum approved the Central America Free Trade Agreement by 51.6% to 48.3%. Costa Rica constitutes the last hurdle for the pact, already ratified by the U.S. Congress and five other Central American and Caribbean nations. If a recount upholds the "yes" vote, Costa Rica's congress—sharply split because the pact will require opening state telephone and insurance monopolies to competition—has until Mar. 1 to approve.

The credit crunch hasn't been sweet to the world's No. 1 candy maker. After the imploding money markets derailed plans to sell its U.S. drinks business to private equity, Cadbury Schweppes (CSG) said on Oct. 10 it would instead spin them off into a separate company listed on the Big Board. Estimated to be worth $15 billion before the credit squeeze, the drinks business, which includes Dr Pepper, 7Up, and Snapple, has lost half its value over recent months.

Calling all geeks: Intel (INTC) on Oct. 8 unveiled CoolSW, a Web site that allows visitors to nominate and vote on promising software startups. The site, modeled on news aggregator Digg, represents an admission by the chipmaker that even with 90,000 employees scattered across the globe, it can't keep tabs on all the emerging technologies out there. No word yet on how Intel—or its venture capital arm—plan to capitalize on the info garnered. (Wired.com)

After years of honing their marketing strategies on the mainland's 1.3 billion consumers, a host of Chinese brands such as Lenovo and Tsingtao are getting recognition abroad. In its October issue, BusinessWeek China teamed up with Interbrand to identify five brands that are "already serious players" internationally and seven more "contenders" poised for success. But even emerging champions may have to contend with quality concerns. Interbrand found that 69% of respondents to its survey said the label "Made in China" is a liability.


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