Magazine

Executive Summary


Massachusetts Shocker

It wasn't even close. Scott Brown, a Republican state senator, surged to victory on Jan. 19 with 52% of the vote to Martha Coakley's 47% in the race to fill the Senate seat of the late Ted Kennedy. Brown's win deprives the Democrats of the 60 votes necessary to quash a filibuster, thus placing the health-care reform bill and other pieces of key legislation, such as the financial regulatory overhaul and carbon emissions cap-and-trade, in jeopardy. The upset reverberated with other worrisome messages for the Democrats. President Obama, who campaigned for Coakley in the final weekend, appears to have lost some of his electoral magic, and independent voters seem disillusioned with the Administration's performance thus far, presaging possible big gains for Republicans in this year's midterm elections.

A Businessman for Chile

Like Italian Prime Minister Silvio Berlusconi, Sebastián Piñera, the President-elect of Chile, is a billionaire TV magnate who must unload major business interests before taking office on Mar. 11. Piñera, 60, a former Citibank (C) executive who built his fortune by introducing MasterCard (MA) and Visa (V) to Chile in the 1980s, was elected on Jan. 17. Three days later he started selling his 26% stake in LAN (LFL), Latin America's largest airline, worth around $1.5 billion. The President-elect will hold on to other investments, including a Chilean TV network and stakes in the country's top soccer team and an upscale hospital, which are in blind trusts. The conservative Piñera spent at least $13.6 million to win the vote, unseating a center-left coalition that had ruled Chile for two decades.

JAL's Bumpy Landing

Japan Airlines, Asia's top carrier and onetime proud emblem of Japan's postwar expansion, filed for bankruptcy on Jan. 19 with liabilities of $25 billion. That makes the filing Japan's fourth-biggest ever. Under the terms, JAL will keep flying but will emerge much smaller. As part of the $10 billion turnaround plan, which includes $3.3 billion in funding from state-backed Enterprise Turnaround Initiative Corp., it will lay off 15,700 employees—about 30% of the workforce—ground 53 planes, and cut 31 domestic and international routes. Despite its woes, Delta Air Lines (DAL) and American Airlines (AMR) have made rival offers to invest in JAL.

Pay Up, Says the Times

For the past year, top management at The New York Times has debated print media's key conundrum: how to generate more revenue from online content without losing the volume of readers that makes the Web attractive to advertisers. On Jan. 20, Publisher Arthur Sulzberger Jr. announced that, in 2011, the Times will restrict the number of articles that Web surfers can view for free. The paper didn't release any details on pricing or what the threshhold would be before a purchase request appears, saying only that the new model would "provide the necessary flexibility to keep an appropriate ratio between free and paid content and stay connected to a search-driven Web." The Gray Lady's previous attempt to charge for online content, called Times Select, was abandoned in 2007.

Conan: To Be Continued

The late-night snarl at NBC is gradually sorting itself out, with a newly magnanimous Jay Leno calling Tonight Show host Conan O'Brien "a good guy"—while O'Brien compared NBC to a toilet bowl. O'Brien, who along with his staff will collect an estimated $40 million in severance while relinquishing the show and 11:35 time slot to Leno, isn't expected to be off the air for long; Fox programming executives covet the 46-year-old comedian for his appeal with younger viewers. Leno, meanwhile, could return to his former gig as early as Jan. 22, two weeks sooner than NBC had originally proposed. The good news for Conan: Rallies around the country have helped boost his ratings. The question is whether Leno—whose swoon at 10 p.m. angered local affiliates, which in turn pressured NBC to make a move—can recapture his ratings glow when he takes his seat after the 11 o'clock news.

A Big Rock Candy Deal

Cadbury (CBY) isn't exactly sweet on Kraft (KFT), but after four months of resistance, the British chocolatier finally succumbed. Kraft had to boost its initial cash-and-stock bid by 9%, to $19.4 billion, and pledge to pay a onetime dividend once the offer is approved. But Cadbury proved unable to lure a competing bid from other possible suitors such as Hershey's (HSY) or Nestlé (NSRGY). The purchase will continue the consolidation of Big Candy, turning Kraft into the world's largest confectioner, with $50 billion in sales and operations across Europe, Asia, and the Americas.

Google, Yahoo!, and China

Following Google's (GOOG) announcement that it will no longer censor its search results in China, the company sent another signal of impatience to Beijing by delaying indefinitely the China launch of two phones using its Android operating system. Yahoo (YHOO), one of the few technology giants to support Google's stance on China, was meanwhile attacked as "reckless" by its Chinese e-commerce partner, Alibaba. Yahoo owns 39% of Alibaba but doesn't control the company.

See "In China, Google Fallout Damages Yahoo!"

Banks: Still Bruised

Fleeing the embrace of TARP cost banks dearly in the fourth quarter, turning profits into losses for two of the biggest firms. Bank of America (BAC), the leading U.S. lender, posted a $2.2 billion loss, its first red ink for a full year since 1987, because of an accounting charge incurred to repay the government's emergency investment. Citigroup (C) lost $1.6 billion for the year, dragged down by an $8 billion charge to exit TARP. Wells Fargo (WFC) managed to eke out a small fourth-quarter profit despite its TARP payback. Leading the earnings pack was JPMorgan Chase (JPM), which announced a handsome (for these times) profit of $11.7 billion on the year.

A Big Week for High Yield

Investors are hungry for junk. Companies sold $11.7 billion in high-yield bonds in the week ended Jan. 15, the largest amount on record, The Wall Street Journal noted. The risky deals eerily evoke the boom, suggesting that investors have already stifled their memories of 2009, when 11% of high-yield issuers fell into default. Private-equity backed companies are using junk-bond proceeds to pay a dividend to their owners. And plungers in search of high returns don't seem to mind giving up protection; some of the new junk bonds lack covenants that require companies to maintain certain liquidity levels and meet operational targets.

Did J&J Go Astray?

Whistleblowers strike again: The Justice Dept. filed a civil complaint on Jan. 15 against Johnson & Johnson (JNJ) and two subsidiaries, alleging that they paid kickbacks to Omnicare (OCR) from 1999 to 2004 to push prescriptions for J&J drugs, especially the antipsychotic Risperdal. The feds joined lawsuits brought by two former Omnicare staffers under the federal False Claims Act. In November, Omnicare, the largest U.S. pharmacy for nursing home patients, agreed to pay $98 million to settle civil allegations that it took such kickbacks from J&J. Omnicare didn't admit any wrongdoing. In response to the Justice Dept. suit, a company spokesman said J&J's conduct was "lawful and appropriate."

The Optimism Meter: A Sunnier Outlook

The Meter topped 59, a two-month high, on Jan. 19, as economists raised their 2010 gross domestic product growth forecast to an average of 2.7%. Developed by Bloomberg BusinessWeek using data from pollster YouGov, the Meter is a proprietary measure of sentiment and expectations, economic statistics, and market forecasts. It evaluates shifts in outlook among individuals, professional investors, and economists in the areas of U.S. economic growth, jobs, equity markets, and real estate. (0=lowest and 100=highest)


Toyota's Hydrogen Man
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