Private Equity Rides to the Rescue
Opportunistic investors are slowly surfacing in the market for shaky lenders and mortgage debt. On Apr. 8 a group led by private equity heavyweight David Bonderman of TPG threw a $7 billion lifeline to Washington Mutual (WM). The Seattle thrift lost $1.1 billion in the first quarter. Then, on Apr. 9, Citigroup (C) said it may offload $12 billion in leveraged loans to a private equity house. Still, the markets can't breathe easy: Goldman Sachs (GS) and Morgan Stanley (MS) reported a jump in hard-to-value mortgage-related securities and loans on their balance sheets.
The March jobs report sealed the case for recession. The government said on Apr. 4 that the U.S. economy lost 80,000 jobs in March, while the unemployment rate climbed to 5.1% from 4.8%. That's the biggest job loss since March, 2003.
Is the stock market ready to zoom, as it has in some previous recessions, or plunge? Predicting is a fool's game, but there's a good chance consumer stocks could whack the Street. Many of these stocks, such as Wal-Mart (WMT), Colgate-Palmolive (CL), and Avon (AVP), have done well since last summer. However, a close look at statistics shows a broad decline in real spending for many household items such as food, clothing, furniture, and motor vehicles. Combined with job losses and the credit crunch, these numbers don't bode well for equities.
Novartis Targets Alcon
It would be the biggest takeover in Swiss history. That may not sound like a big deal, but it is: Pharma giant Novartis (NVS) said on Apr. 7 it will buy 25% of eye- care company Alcon (ACL) from Nestlé (NSRGY) for $11 billion, with an exclusive option to grab Nestle's remaining 52% stake for an additional $28 billion. Novartis wants access to a fast-growing health-care market at a time when pharmaceutical sales are losing vim and vigor.
See "Behind Novartis' Eye-Popping Buyout"
Cyber Spy Alert
The U.S. Defense Dept. invented the Internet. Now it's coming back to haunt the Pentagon. A BusinessWeek investigation reveals that systematic cyber attacks on the U.S. government, military, and defense contractors in recent years have put "petabytes" of data at risk and spawned a new lingo for e-threats. We follow the trail of one attack back to a Web address in China—and show how Washington is fighting back with classified operations and a plan to spend billions making the Web safe again.
Peace at Motorola
In the end, Carl Icahn and Motorola (MOT) agreed to bury the handset. The company said in late March that it would separate its handset business from its other operations, something its peskiest investor has been advocating for a year. Then on Apr. 7, Motorola said it would also back two Icahn nominees for the board: William Hambrecht, CEO of WR Hambrecht, and Keith Meister, a managing director of Icahn's investment funds. As part of the peace pact, all litigation will be dropped.
See "Motorola Caves to Icahn"
The skies sure don't seem too friendly these days. On Apr. 5 discount carrier Skybus filed for Chapter 11 bankruptcy protection and ended service, becoming the third airline in less than three weeks to flop, after Aloha Airgroup and ATA. On Apr. 9, Boeing (BA) pushed back delivery of its 787 Dreamliner yet again, this time by at least four months, until late 2009. The fuel-sipping jet is now 14 to 16 months behind schedule. On Apr. 8 and 9, American Airlines' (AMR) canceled more than 1,500 flights of its MD-80 planes to comply with FAA inspection directives. And Delta (DAL) and Northwest (NWA) have resumed merger talks.
Will Apollo Fly?
Another private equity firm is just dying to go public. On Apr. 8, Leon Black's Apollo Global Management filed for an IPO aiming to raise about $418 million. If successful in a tough market, that would value Black's firm at $4.7 billion—and Apollo would join the ranks of other buyout shops now traded publicly like Blackstone Group (BX), whose stock has sagged 40% from last summer's $31 offering price.
Think Before You Fire
For companies, layoffs are a quick, albeit unpleasant, way to trim costs, right? Not necessarily. A recent study of 200 enterprises found that even a modest downsizing can unleash an exodus of valuable employees. For instance, companies that laid off 0.5% of their staff experienced, on average, a turnover rate of 13%—compared with an average turnover rate of 10.4% at companies that didn't do layoffs. (Academy of Management Journal)
Policing Staff Spending
Forget the fancy bubbly at your next business dinner. As companies scramble to trim their travel and expense budgets in the downturn, MasterCard (MA) is launching the "inControl" customized corporate credit card with Royal Bank of Scotland. It lets managers determine which restaurants, bars, and hotels employees can patronize on the company card, when they can frequent them, and how much they can shell out.
A Blow to Delphi
As if General Motors (GM) needed any more depressing news, on Apr. 4 an investment team led by Appaloosa Management backed out of a $2.55 billion equity investment in bankrupt parts maker Delphi (DPHIQ.PK), a former GM unit. Analysts say that means GM may have to assume more of Delphi's retiree liabilities. The auto giant has already taken $7.5 billion in charges over the past couple of years and has loaned Delphi $2 billion.
Communications genius, huh? On Apr. 7 the Hillary Clinton campaign demoted longtime adviser, superpollster, and chief strategist Mark Penn. The problem: Penn, in his role as CEO of public relations firm Burson-Marsteller, took a meeting with Colombian officials who had hired his firm to help secure a bilateral trade agreement that Clinton opposes. Colombia, insulted by Penn's apologizing in the press for attending, promptly fired Burson.
Loaded for Bear
Bear Stearns (BSC) may be fading into history, but legal wrangling over the collapse of the firm's two big hedge funds last June goes on and on. The latest in a snarl of lawsuits: On Apr. 7 the liquidators for the two funds sued Bear, seeking $1 billion in damages. The civil suit alleges the firm "concealed the fact that these funds were never designed to withstand even a slight downtick in the housing market." Also named as a defendant is Deloitte & Touche, the auditor for the funds. Bear declines to comment; Deloitte says it "believes the suit to be totally without merit and will defend it vigorously."
AMD: The Chips Are Down
Advanced Micro Devices (AMD), once the little engine that could against Intel (INTC), startled investors on Apr. 7 when it warned that first-quarter sales were sputtering across its lineup, including server, PC, and graphics chips. The company signaled hard times ahead by saying it plans to chop 10% of its workforce, about 1,600 people. AMD has run into a string of product delays, steep costs from its purchase of graphics chipmaker ATI Technologies, and the soaring price of building fabrication plants.
See "AMD Warns of Low Sales and Job Cuts"
Birth of a Pipeline?
America needs natural gas, and BP (BP) and ConocoPhillips (COP) have a scheme to supply lots of it. The two said on Apr. 8 that they would lay out $600 million to study the feasibility of building a $30 billion gas pipeline from the North Slope in Alaska to Alberta and then, possibly, on to the Lower 48. The line could deliver 6% to 8% of U.S. gas needs and would be the largest private-sector construction project ever in North America.
Tech Titans Tangle
The seemingly endless war of nerves between Microsoft (MSFT) and Yahoo! (YHOO) is escalating. On Apr. 5, Microsoft sent a letter demanding that Yahoo's board seriously negotiate the software giant's $45 billion buyout offer, or Microsoft would launch a proxy fight in three weeks. Yahoo fired a letter back saying it's open to a deal but only if Microsoft ponies up more money. On Apr. 9, Yahoo prodded Microsoft further by announcing a test to run ads from Microsoft archrival Google (GOOG) alongside Yahoo search queries. Most analysts continue to think a takeover will get done at a slightly higher price.
See "Is Yahoo Right to Resist Microsoft?"
A Quandary for Buffett
Warren Buffett may find himself in a difficult position: under pressure to let a valued executive go. The Wall Street Journal said on Apr. 7 that as part of discussions to end their investigation of Berkshire Hathaway's (BRK) General Re, federal prosecutors are seeking the ouster of CEO Joseph Brandon. The unit has operated under a cloud since the SEC started looking into a deal with insurer AIG (AIG) that the feds claim added $500 million to AIG earnings in 2000 and 2001. In February four former General Re officers were convicted of fraud, and prosecutors listed Brandon as an unindicted co-conspirator.
Chinese construction companies gained valuable experience building Beijing's gleaming new national stadium, aquatics center, and other venues for this summer's Olympic Games. Now they are rapidly expanding overseas, reports BusinessWeek China in its April issue. Chinese outfits won international contracts worth $78 billion last year, up 18% from 2006. One standout project: Europe's tallest building, the 93-story Federation Tower in Moscow.