A Drumbeat of Deals
The masters of the M&A universe have been mostly twiddling their thumbs for the past year—if they've been lucky enough to have jobs at all. Now they may be feeling that fever in the blood again. After a flurry of announcements in recent weeks, two more biggish deals broke on Sept. 28. First, Abbott Laboratories (ABT) made its fourth and largest acquisition this year, paying $6.6 billion in cash for the drugs business of Belgian conglomerate Solvay. The move gives Abbott entrée into vaccines, the hottest pharma sector these days, just in time for flu season. Abbott also gains a greater foothold in faster-growing markets in Eastern Europe and Asia and full control of two cholesterol drugs that the two companies already sell together. Next, Ursula Burns, named CEO of Xerox (XRX) in May, wasted little time before making a bold move: The company announced a $6.4 billion deal to buy business process outsourcer Affiliated Computer Services (ACS). Shareholders rebelled over concerns that tech service is unknown territory for a copier and printer company, and Xerox's stock price fell 15%, but it recovered slightly the next day. And investors, thrilled at the prospect of even mild deal mania, pushed up the Dow by 124 points on Sept. 28, near its high-water mark for the year.
See "Xerox Bets Big on Services"
Quitting the Chamber
Another disgruntled giant is leaving the U.S. Chamber of Commerce. In mid-September two big utilities, Pacific Gas & Electric (PCG) and PNM Resources (PNM), quit the Chamber to protest its opposition to legislation capping greenhouse-gas emissions, and on Sept. 28, Exelon (EXC), one of the nation's biggest utilities, joined them. "Inaction on climate is not an option," said Exelon CEO John Rowe, a staunch Republican, adding that a law putting a price on carbon output is essential. Of course, Exelon operates many nuclear plants, which pump out few greenhouse gases, but other strong backers of the legislation include major burners of coal, such as Duke Energy (DUK). Those utilities won relatively favorable treatment in the bill the House passed in June.
Ken Lewis Bows Out
Reason No. 53 why Ken Lewis wishes he hadn't bought Merrill Lynch (MER): With Congressional outcry giving way to regulatory inquiries over whether Bank of America (BAC) executives hid news of mounting losses and bonus payouts at Merrill, BofA announced on Sept. 30 that the embattled Lewis would retire as CEO at the end of the year. While the 62-year-old had signaled his intent to step down once BofA had repaid its bailout money and integrated Merrill and mortgage giant Countrywide, analysts believe Lewis' willingness to leave before those goals were met may have been influenced by the growing number of probes into the BofA-Merrill deal. BofA didn't name Lewis' successor, but most analysts are betting on Brian Moynihan, a former Fleet Financial executive.
See "Bank of America's Lewis Stepping Down"
JP Morgan's Shakeup
Has Jamie Dimon picked a successor? In a rare executive-suite shuffle at JPMorgan Chase (JPM), CEO Dimon replaced long-time investment bank co-chief Bill Winters with Jes Staley, formerly head of asset management, and analysts promptly hailed him as the heir apparent. Staley brokered the bank's largely successful takeover of hedge-fund shop Highbridge Capital Management in July. Dimon, 53, is expected to stay at the bank for five more years. Winters' exit raised some eyebrows, since he was in part credited for deft management of the bank's large derivatives portfolio during the credit crisis.
Merkel Wins Again
As one German tabloid put it: "Angie hat ne neue!" (Angie has someone new!) German Chancellor Angela Merkel, leader of the Christian Democratic Union, will govern with the pro-business Free Democrats, led by Guido Westerwelle, after voters gave the two center-right parties a majority in Parliament. The Sept. 27 vote brings an end to Merkel's awkward, four-year forced marriage with the center-left Social Democrats. But Merkel probably won't be able to keep a promise to cut taxes until she deflates the deficit, now bloated by bank bailouts and stimulus spending. And even with a more compatible partner, analysts doubt Merkel has the grit to push through unpopular reforms, such as easing rules that make it tough to lay off workers.
See "German Vote Sets Stage for Pro-Business Coalition"
The Super Yen Is Back
Japan's new Finance Minister, Hirohisa Fujii, will likely weigh his words more carefully in the future. After just two weeks on the job, Fujii told reporters that the government "basically" favors a strong yen and would not try to halt a sudden surge. Traders reacted by grabbing the yen and dumping the greenback, sending the Japanese currency to an eight-month high of 88.23 to the dollar on Sept. 28. Fujii later backpedaled, but his initial comments likely didn't sit well with Japan Inc. As the yen rises, it erodes the overseas earnings of major exporters such as Toyota (TM) and Sony (SNE). Analysts say it's possible that Fujii was signaling a shift in direction under new Prime Minister Yukio Hatoyama. The Democratic Party-led government has indicated that it wants to reform Japan's economy so that demand at home, not exports, becomes the main driver of growth.
The G-20 Speaks
While it's true that news of a secret Iranian nuclear facility stole what modest thunder the Group of 20 meeting produced, heads of state from 20 major economies did make some headway on Sept. 24-5. They annointed the G-20 as the "premier" group for economic coordination, supplanting the G-8. They called for rules on executive pay that would tie it more closely to performance but stop short of an actual bonus cap. And they again proposed tighter bank capital requirements, though they left it to a panel to hash out the details in coming months. Critics carped that a plan to "rebalance" global consumption, boosting U.S. saving and Chinese domestic demand, was vague and dependent on voluntary compliance, which has failed in the past.
See "World Leaders Commit to Rein in Financial Bonuses"
How Facebook Could Cash in on Its Upscale Fans
Facebook is the king of social networking. But the site is stuck with an old business model that may prevent it from turning the increasing affluence of its users into profits. Simply put: Facebook should charge, says BusinessWeek blogger Douglas MacMillan.
A recent study by Nielsen Claritas that divides 200,000-plus participants into three segments based on affluence showed that 25% of the top tier were more likely to use Facebook than the bottom tier. In the lowest segment, 37% were more likely to use MySpace (NWS).
Not only has Facebook won over many younger users of MySpace but it has introduced social networking to people in their 20s, 30s, 40s, and older. As the Nielsen Claritas study hints, these users have jobs and bank accounts, and might be willing to shell out a few bucks a month for an increasingly valuable tool. Facebook has shot down the idea of charging all of its members. But the site may have plans to put a price tag on services, such as offering to print the millions of photos people upload to the site. It could also charge a nominal fee, like $1 per month, to let members avoid ads.
The company reports positive cash flow and talks up bold advertising initiatives. But is it building a business that taps the deep pockets of its users?
See "Facebook Users Can Afford to Pay"
Public Option, R.I.P.?
A vital element of President Barack Obama's original health-care reform proposal may have taken a fatal blow on Sept. 29. Two amendments proposing a publicly funded insurer went down to defeat in the Senate Finance Committee. However, a second Senate committee and the House are both expected to issue bills containing a public plan. And since Americans support such a plan by wide margins, saying it would provide much-needed competition for private insurers, there remains a slim chance some sort of federal insurer will make it to a final bill.
FDIC to Banks: Pay Up
True, the Federal Deposit Insurance Corp. is about to run its main insurance fund into the red—but it's not really a problem, said the FDIC on Sept. 29. The continuing flood of bank failures means the fund balance will soon be negative from an accounting perspective, but the FDIC expects premiums paid by banks to close the gap over time—like a family with strong income but a negative net worth due to mortgage debt. To avoid a cash crunch early next year, however, the agency proposed collecting three years' worth of premiums from banks, about $45 billion, up front on Dec. 30. The beauty part: That wouldn't dent bank earnings or force them to raise more capital to meet reserve requirements. A decision is likely after a 30-day comment period.
BNP's Big Payback
U.S. banks aren't the only ones pushing to get out from under the government. France's BNP Paribas said on Sept. 29 that it would sell $6.3 billion in stock and use the proceeds, along with other funds, to buy back a $7.5 billion stake that the French state bought to shore up the bank earlier this year. Others in Europe are likely to follow BNP's example as stronger equity markets make it easier to raise money. A few hours after BNP's announcement, Italian bank UniCredit, in a bid to boost capital reserves, said it would sell $5.8 billion in shares rather than buy government-sponsored bonds.