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Shocker on the Street


Practically everyone assumed Larry Fink was in like Flynn. News reports had circulated saying Merrill Lynch (MER) had picked the BlackRock (BLK) chief to succeed Stanley O'Neal, who was forced out on Oct. 30 in the wake of stupendous subprime losses. The announcement was expected any moment, and then it came on Nov. 14—only the job went to John Thain, head of NYSE Euronext (NYX). Sources say Fink got the word the way most of us did, over the wires. As for Thain, who was expected to take over Citigroup (C) in the wake of Charles Prince's fall, the former Goldman Sachs (GS) technocrat apparently preferred to tackle the cleanup at Merrill rather than at sprawling Citi.

Ben Bernanke is pulling up the shades at the Fed. The chairman announced on Nov. 14 a series of measures toward his long-sought goal of central bank openness. The Federal Open Market Committee will double the frequency of its economic forecasts to four times a year and extend its horizon to three years from two. The committee also will use its crystal ball on overall inflation, not just the "core" rate that excludes food and energy. As Bernanke noted, the overall price level is what people care about in the long run.

Just when it looked like another bout of subprime fever would sink stocks, the market staged a huge rally on Nov. 13 after Goldman Sachs (GS) CEO Lloyd Blankfein said the investment firm did not plan any big subprime mortgage-related writedown. The heady talk from Goldman more than overshadowed Bank of America's (BAC) statement that it would take a $3 billion subprime hit in the quarter. Just one day prior to the sunny Goldman forecast, the stock price of E*Trade Financial (ETFC) was cut in half after the beleaguered online brokerage and bank said its $3 billion mortgage-backed securities holdings had plunged in value, raising fears of an old-fashioned run on the firm. E*Trade rebounded nicely on Nov. 13 after investors began to speculate that it could become a takeover candidate. On Nov. 14, HSBC (HSBC) and Bear Stearns (BSC) sang their versions of the writedown blues: $3.4 billion and $1.2 billion, respectively.

See "An E*Trade Rescue Plan?"

For the past 25 years, American families have been able to keep spending, through good times and bad, by taking on more and more debt. Well, the binge may finally be over. Tighter credit standards, combined with falling home prices and higher energy costs, are going to bring a painful 2008, with families yanking back on spending. The sort-of-good news: Because of globalization, the consumer crunch may not drag down the rest of the economy.

They may make chocolate kisses, but hey, business is business. The nonprofit Hershey's Trust, which controls the candymaker, on Nov. 11 pushed out 6 of the company's 10-person board of directors, prompting 2 more to quit. The trust has said that it's unhappy with Hershey's (HSY) less than delicious performance. It installed a new slate including former Pennsylvania Governor Tom Ridge. This comes about a month after CEO Richard Lenny stepped down, to be replaced by David West.

The urge to merge is still rampant in software. On Nov. 12, IBM (IBM) said it will acquire Canada's Cognos (COGN), a maker of business intelligence programs, for about $5 billion, its priciest acquisition ever. IBM's move follows similar buys in the BI space earlier this year by giants SAP (SAP) and Oracle (ORCL). BI software helps companies analyze the data they collect on customers or operations in order to spot changes fast and make better decisions.

See "IBM, Cognos, and the End of Best-in-Breed"

$85 billion in orders—not too shabby for one air show. Of course, this one was in Dubai, testimony to the growing clout of Mideast carriers in the global aerospace market. In one of the most closely watched deals, Emirates airline rebuffed Boeing's (BA) 787 Dreamliner, opting for 70 of Airbus' A350 widebodies, worth $20 billion at list prices. Airbus also confirmed that Saudi Prince Alwaleed bin Talal has ordered one of its A380s, becoming the first private buyer for the double-decker megajet. Corruption has always haunted South Korea. But now the country's most respected corporate icon and President Roh Moo Hyun are engulfed in scandal. On Nov. 14, three liberal parties jointly proposed a bill in Parliament requiring an independent prosecutor to probe allegations of bribery by Samsung Group. The move follows accusations by Samsung's former chief attorney, Kim Yong Chul, that Korea's newly appointed chief prosecutor and the top corruption fighter were among many senior government officials regularly bribed. Samsung and the officials deny the charges.

See "Samsung Bribery Charges Rock Korea Poll"

Merck (MRK) found an antidote to the pain of Vioxx, its recalled arthritis drug that sparked 27,000 liability lawsuits. On Nov. 9, the pharma giant reversed its former pledge to fight each case aggressively and announced it would pay $4.85 billion to settle the suits. Industry experts say the accord could provide a template for future liability cases. Patients wishing to claim some of the cash face a high burden of proof that Vioxx caused their injuries. The deal limits Merck's exposure to future suits and virtually erases the $600 million it was laying out per year on litigation.

See "What Merck Gains by Settling"

Chinese companies big and small are playing their country's stock markets with abandon, using corporate funds to invest in each other's IPOs and masking weakness in their core businesses. The eye-popping growth in listed company profits—75% in the first half—doesn't look so good when you strip out portfolio gains, which account for as much as 100% of profits in some cases. It's a replay of what happened in Japan—and when that bubble burst, portfolio losses were huge. That's part of why Beijing is desperate to keep the market from tanking.

Precisely what a blue-chip Silicon Valley venture capital firm needs to add some political chops: a Nobel Peace Prize winner. Kleiner Perkins Caufield & Byers said on Nov. 12 that former Vice-President Al Gore is joining as a partner. His connections could help energy technologies such as solar and biofuels that may require government policy changes or subsidies. Kleiner, which has put money into 25 green-tech companies, also will work with Generation Investment Management, the later-stage investment firm founded by Gore and former Goldman Sachs executive David Blood.

A week after members of Congress called CEO Jerry Yang and another executive moral "pygmies," Yahoo (YHOO) on Nov. 14 tried to mend fences. It settled a lawsuit filed by the families of a Chinese journalist and a political dissident who were jailed after the company's Beijing office turned over e-mails to the government. Yahoo paid all legal costs and will start a fund to "provide support to other political dissidents and their families," but financial terms weren't disclosed.

See "Yahoo! Agrees to Pay Prisoners' Families"

Hourly workers in auto plants often don't show up. Absenteeism runs an astonishing 10% a year, three times higher than in other industries, according to one study. And the problem is much worse at U.S.-owned carmakers than at foreign-owned ones. Now, General Motors (GM) plans to use its new labor contract to put a dent in absenteeism. A year of perfect attendance could win you a car, while sick days and no-shows will be examined much more closely. (Detroit News)

For a moment it seemed the mining sector's rich vein of mega-takeovers had petered out, but BHP Billiton (BHP) on Nov. 8 confirmed it had written to rival Rio Tinto (RIO) about a $152 billion deal. Rio's board spurned the offer, which would create a $350 billion behemoth, though BHP could still make it richer through a multibillion-dollar payout to investors. The London-listed company also hasn't ruled out a hostile bid.

The watchdogs sure were busy in Europe this week. The European Parliament voted on Nov. 13 to cap carbon emissions on flights. The plan calls for a carbon credit trading system for airlines similar to the one Europe uses to meet emissions targets under the Kyoto Protocol, but the U.S. is squawking and says Europe risks a trade row. On the same day, the European Commission postponed approval of Google's (GOOG) $3.1 billion takeover of online ad company DoubleClick. The deal will likely get the go-ahead next April, pending concessions from Google. The EC also proposed rules that would let national regulators break up formerly state-owned telecom giants like BT (BT) and Deutsche Telekom (DTLSF) in the interests of spurring competition.

See "The EU Delay's Google's Ad Buy"

Nelson Peltz put his money where his mouth is—up to a point. The activist billionaire announced that his Triarc (TRY) company, which owns Arby's, submitted a bid on Nov. 12 for Wendy's International (WEN). Peltz, who's been hounding food companies lately, estimated last July he might pay $37 to $41 a share for the hamburger chain. In disclosing his offer, he said he would offer less but isn't saying how much.

Cell phones are quickly morphing into handheld computers. As they do, spam is beginning to bombard the phone. Wireless users in the U.S. will receive about 1.1 million spam text messages this year. Carriers such as Verizon Wireless (VZ) and AT&T (T) work hard to filter out this digital flotsam. But newfangled, open operating systems such as Google's (GOOG) recently announced mobile software could open the door for more.

To the delight of TV broadcasters who have long lobbied for such a move, FCC Chairman Kevin Martin said on Nov. 13 that he wants to allow them to own newspapers in the 20 largest media markets. The proposal, which he called "modest," would largely reverse the current ban on so-called dual ownership. That could boost prospects of companies that own print and TV assets. Newspaper owners grumbled that it doesn't go far enough, while the nonprofit Media Access Project, which opposes concentration, denounced it.

Nasdaq (NDAQ) may be cornering a big part of the $162 billion-a-year private-placement market. The exchange on Nov. 12 said that a dozen Wall Street firms that had launched platforms for trading so-called 144a securities, unregistered offerings that appeal to big institutional buyers, have now joined hands to cooperate on a single platform run by Nasdaq. The Portal Alliance, as it will be called, is expected to begin operating in early 2008. Nasdaq is betting that the portal will feed its main stock market over time.

If you're wondering how China is thinking about foreign investment these days, check out its latest set of rules, which was issued on Nov. 7 and will go into effect on Dec. 1. The prior set dates back to 2004. Among the pointers: Beijing is eager for investment in various green sectors, such as recycling and clean production. But exploiting "important and nonrenewable" mineral resources is a no-no. (chinaview.cn)

Two oil spills sparked new calls for such reforms as mandatory double hulls (already required on tankers in U.S. waters). On Nov. 7, in San Francisco Bay, a South Korean freighter sideswiped one of the Bay Bridge's piers. The resulting gash spilled some 58,000 gallons of sticky bunker fuel. And on the night of Nov. 11, a violent storm sank at least 11 ships in a strait leading to the Black Sea, including a Russian river tanker (not designed for rough water) that broke up and let flow 560,000 gallons of heavy oil. The spill killed tens of thousands of birds and fouled beaches and the seabed.

Five years ago, only 7 of the top 25 U.S. commercial banking companies had a "chief risk officer" in the executive suite. By the end of last year, 19 did. Then came the subprime meltdown and gigantic writedowns. So are CROs falling down on the job? Not necessarily. Their job is to point out possible threats; it's up to other executives to act on the information. (American Banker)

Low prices are working their magic again. Wal-Mart (WMT) on Nov. 13 surprised the Street by ringing up shiny third-quarter profits. Net rose 8%, to $2.86 billion, on an 8.8% increase in sales—though same-store sales rose only 1%. CEO Lee Scott said the black-ink boost reflected a return to a rock-bottom-price approach after a feint upscale failed last year. Wal-Mart also raised earnings guidance, but other retailing stocks sank on Nov. 14 after Macy's (M) slashed its sales forecast.

See "Wal-Mart Beats the Street"

SEC Chairman Christopher Cox faced a Senate grilling on Nov. 14 over whether investors should have the right to nominate directors to boards via the corporate proxy. The five-member commission has a Democratic vacancy, and the one sitting Democrat, Annette Nazareth, will step down soon. Senators questioned Cox's desire to put a temporary rule in place without a full board. The Washington Post said on Nov. 14 that two Democratic nominees have been proposed to the White House: ex-securities regulator Elisse Walter and Luis Aguilar, an Atlanta lawyer.

The global gaggle of scientists and experts known as the Intergovernmental Panel on Climate Change has already shared the Nobel Peace Prize (with Al Gore). The panel is meeting in Valencia, Spain, from Nov. 12-17 to boil down its three massive scientific reports into a pithy prescription for policy. When released on Nov. 17, this synthesis is expected to say there's an urgent need for countries to cut their emissions of carbon dioxide and other gases heating up the planet.

On Nov. 13, News Corp. (NWS) Chairman Rupert Murdoch made explicit what had long been suspected: He intends to take down the subscription wall around The Wall Street Journal's Web site and make it free. Murdoch said that heavier traffic will bring in "large numbers" of top advertisers. WSJ.com, which charges $99 for nonsubscribers to the print Journal, has been cited as a rare success in getting users to pay for online content, but some at News Corp. figure a free site with more ads could bring in bigger bucks than the 1 million subscribers cough up.

Thailand's animators are racking up some big-screen credits, according to the cover story of the November issue of BusinessWeek Thailand. Kompin Kemgumnird, who cut his teeth at Walt Disney (DIS) and other U.S. animation studios, has scored his own hit, Kankluai, about an elephant who belonged to a Thai king. The 3D feature has garnered awards at film festivals from Madrid to Toronto. Juck Somsaman, a Thai animator who had a hand in the 1995 Oscar winner Babe, is now also running his own Bangkok animation shop, Monk Studio. But the future of Thailand's $380 million animation industry is in doubt. The government is not lending local studios much support, and the competition for talent is becoming more intense. Plus other countries in Asia are looking to muscle their way into the business.


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