Business News: Buyout Firms: Ready to Sell

Business News: Buyout Firms: Ready to Sell

Buyout Firms: Ready to Sell

Posted: 06 Jan 2011 02:00 PM PST

Duke, DuPont Signal Big M&A Appetite

Posted: 10 Jan 2011 07:54 AM PST

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By Jacqueline Simmons and Jeffrey McCracken

Jan. 10 (Bloomberg) -- More than $20 billion in announced takeovers today may signal multibillion dollar deals are making a comeback after a dearth of large transactions in 2010.

Duke Energy Corp. plans to buy Progress Energy Inc. for $13.7 billion, and DuPont Co. agreed to acquire Danisco A/S for $5.8 billion. There were fewer than 20 deals valued at more than $10 billion last year compared with nearly 40 during the height of the M&A boom in 2007, according to data compiled by Bloomberg that includes debt.

Many of 2010’s biggest deals fell through, including BHP Billiton Ltd.’s $40 billion bid to buy Potash Corp. of Saskatchewan Inc. and Prudential Plc’s failed attempt to acquire American International Group Inc.’s Asian business for $35.5 billion. This year may be different because companies have available funding and are more willing to seize takeover opportunities, according to Jacques Buhart, head of M&A and restructuring at Herbert Smith LLP in Paris.

“There is going to be more pressure for companies to use the cash they have,” Buhart said. “Strategic companies have the capacity to borrow and there are a lot of assets that are available and that are cheap.”

The 1,000 biggest companies worldwide, excluding financial- services industries, have amassed more than $3 trillion in cash and equivalents based on their latest filings, according to data compiled by Bloomberg.

In Talks

JBS SA, the Brazilian meat processor, is considering making a revised offer to buy Sara Lee Corp. after a bid of about $11 billion was rejected as too low, according to two people with knowledge of the matter. Sanofi-Aventis SA’s talks to buy Genzyme Corp. for about $18.5 billion now involve executives from both companies, with the two sides discussing extra payments tied to an experimental multiple sclerosis drug.

Duke, based in Charlotte, North Carolina, will assume about $12.2 billion in Progress Energy’s debt, bringing the value of the deal to about $25.5 billion. The combination will make Duke the largest U.S. utility, adding units that operate near Duke’s service territories in North Carolina and South Carolina, as well as an electricity-distribution unit in Florida.

In 2010, only two takeovers topped $25 billion, compared with four announced in 2009, according to Bloomberg data. At the same time, the number of deals ranging from $1 billion to $5 billion in size jumped 53 percent to 372 in the same period, the data show.

Recovery Continues

In one of the biggest utilities deals last year, GDF Suez SA, operator of Europe’s largest natural-gas network, took control of International Power Plc, creating an electricity producer worth $30 billion with plants from Australia to Brazil.

“The 2010 upturn is, assuming a similar environment, likely to continue to develop in 2011,” said Thierry d’Argent, global head of mergers and acquisitions at Societe Generale SA in Paris.

DuPont is paying about 23 times Danisco’s earnings per share in the year through April, according the average profit estimates of analysts surveyed by Bloomberg. Competitor Kerry Group Plc, based in Tralee, Ireland, trades at about 14 times estimated earnings; Associated British Foods Plc, in London, trades at 15 times; and Christian Hansen Holding A/S, based in Hoersholm, Denmark, is valued at 21 times.

2010 Deals

Those who succeeded in making the biggest bets last year were commodities, utilities and telecommunications companies. Carlos Slim orchestrated one of the year’s biggest takeovers when his America Movil SAB, Latin America’s largest wireless carrier, announced plans to take over two other Slim-controlled phone companies in a deal valued at more than $20 billion.

Among 2010 deals that collapsed were buyout firms abandoning plans to take private Fidelity National Information Services Inc. and disk-drive maker Seagate Technology Plc.

Private-equity firms may gather more money from investors this year after fundraising dropped to the lowest in six years in 2010, research firm Preqin Ltd. said last week. Firms will raise more than $300 billion this year compared with $225 billion in 2010, the London-based company said in a Jan. 6 statement.

Leveraged-loan issuance in the U.S. more than doubled in 2009, led by financing for the purchases of the U.K.’s Tomkins Plc and Burger King Holdings Inc., according to Bloomberg data.

“In Europe, we have seen the reopening of the secondary LBO market and also the return of large industrial, cross-border transactions,” said d’Argent. “It reflects a confident, voluntary response to the new environment we’re going into.”

--With assistance from Zachary R. Mider in New York. Editors: Jeff St.Onge, Jennifer Sondag.

To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editors responsible for this story: Jeff St.Onge at jstonge@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

2011 Outlook for Stocks

Posted: 10 Jan 2011 12:35 PM PST

Facebook Fights for Winklevoss Settlement

Posted: 10 Jan 2011 09:08 PM PST

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By Joel Rosenblatt

Jan. 11 (Bloomberg) -- Facebook Inc. will ask a court today to enforce a settlement which resolved claims that its founder Mark Zuckerberg stole the idea for the social-networking company from classmates at Harvard University.

A legal battle dramatized in the 2010 film “The Social Network” has reached a federal appeals court in San Francisco, where the classmates, twins Cameron and Tyler Winklevoss, seek to undo the agreement they reached in 2008. They claim the closely held company didn’t disclose an accurate valuation of its shares before agreeing to pay them $65 million in stock and cash. A lower court ruled that the accord was binding.

A lawyer for the twins said that while the settlement is now worth $168.5 million, they will take their chances reviving their litigation against Palo Alto, California-based Facebook because they feel cheated.

“It is a money thing, but it’s also a morality drama,” Jerome Falk, a partner at Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco, said in an interview last week. “If the settlement is undone as we’re asking, they will not have a settlement. They will have a lawsuit that they’ll have to win in order to get anything, and they are willing to take that risk.”

The settlement was intended to resolve four years of litigation between the Winklevosses and Zuckerberg, who the twins hired to help build dating website ConnectU Inc. while they were students at Cambridge, Massachusetts-based Harvard in 2003. The Winklevosses and a partner, Divya Narendra, accused Zuckerberg in a lawsuit of stealing their idea and delaying the ConnectU project while secretly building Facebook.

Facebook Countersuit

In a separate suit, Facebook sued the Winklevosses, claiming ConnectU hacked into the Facebook website to “spam” millions of users in an attempt to lure them to the rival ConnectU site. The Winklevosses faced potential liability of $900 million in that case, according to a Facebook filing in the appeals court.

Facebook says the settlement should be enforced and the appeal thrown out because the Winklevosses suffer from a “bout of settlers’ remorse,” and are now asking the court “to relieve them of the deal they struck to plunge back into scorched-earth litigation,” according to a company court filing. Andrew Noyes, a Facebook spokesman, said the company declined to comment.

In February 2008, the two sides arrived at a settlement through mediation that would pay ConnectU’s founders $20 million in cash and $45 million in stock, or 1.25 million shares based on a stock price of $35.90, Falk said.

The share price seemed fair and familiar, Falk said, based on Facebook’s announcement five months earlier that Microsoft Corp.’s $240 million investment in the company set its value at $15 billion.

$8.88 a Share

Within a couple of months of signing the deal, ConnectU’s lawyers learned that Facebook had accepted an expert’s finding that the strike price for employee stock options was $8.88 a share, Falk said. Based on that stock price, the Winklevosses should have received four times as many shares as they got, according to Falk.

Falk said the appeal is a “simple case” of proving that Facebook violated securities laws by not disclosing the $8.88 stock price to his clients. Public and private companies alike are required to make full disclosures about “all material facts” related to any securities they issue, Falk said.

Facebook argues in court documents that the Winklevosses had “ample conflicting valuations” of the company’s shares before the mediation started. If the Winklevosses and Narendra truly believed that the company was withholding the most accurate valuation of its private stock, they could have found out through mediation or discovery, a court-supervised exchange of information, the company said.

ConnectU Founders

The ConnectU founders were represented during the settlement talks by seven lawyers and the twins’ father, Howard Winklevoss, a professor of actuarial science at the University of Pennsylvania’s Wharton School of business and “an expert in the valuation of corporations,” Facebook said in court papers.

Instead, they “insist that their sworn enemy had some special duty to open its books and volunteer any information that bears on the value of this closely held company,” according to Facebook.

In June 2008, U.S. District Judge James Ware in San Jose, California, ruled the settlement was binding and enforceable. ConnectU “failed to establish that plaintiffs made a misrepresentation during the negotiation,” Ware said in the ruling. Ware also rejected the Winklevosses’ arguments on grounds that statements made during mediation are confidential and inadmissible in their challenge of the settlement.

Goldman Sachs Investment

Falk said the 2008 settlement is now worth $100 million more than its original amount after Goldman Sachs Group Inc. invested $450 million in the social networking site, boosting the company’s valuation to $50 billion. The Goldman Sachs investment was first reported this month. Asked whether his clients would settle for four times the number of shares they got in the settlement -- resulting in a total payout of more than $600 million -- he said he didn’t know.

“I would say, ‘Gee, that’s a lot of money,’” he said. “They do feel very wronged by what occurred, and I can understand that. Whether they would accept that now, given all that has happened, I don’t know. We would be happy to have that problem. It hasn’t occurred.”

The case is The Facebook Inc. and Mark Zuckerberg v. ConnectU Inc., 08-16745, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

--Editors: Peter Blumberg, John Pickering

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

Verizon iPhone Sales Will Cost Google

Posted: 10 Jan 2011 09:33 PM PST

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By Adam Satariano and Peter Burrows

Jan. 11 (Bloomberg) -- Google Inc. may lose business as Verizon Wireless starts selling Apple Inc.’s iPhone, giving the carrier’s customers a new alternative to smartphones running the Android operating system.

Verizon is set to announce plans in New York today to bring the iPhone to its network, according to a person familiar with the matter. A Verizon iPhone may cannibalize about 2 million Android phone shipments a year, said Dan Hays, partner at management consultant firm PRTM. Gartner Inc. says 20.5 million Android devices were sold in the third quarter.

“A lot of people who bought Android phones were buying it in lieu of an iPhone because they couldn’t get one on the Verizon network,” said Charlie Wolf, a Needham & Co. analyst in New York.

At AT&T Inc. -- now the exclusive U.S. iPhone carrier -- the device accounted for 80 percent of smartphone purchases in the third quarter, said Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis. If that’s any indication, many Verizon Wireless customers will pick the iPhone over Android- based devices. Even Verizon’s existing Android users may switch, he said, estimating that as many as half may opt for the iPhone.

Apple would ship about 9 million iPhones this year through a partnership with Verizon, Munster predicted. That’s in addition to 11 million units through AT&T. He estimated that AT&T shipped 15.6 million of the devices last year.

While Apple manufactures and maintains strict control over the handsets that run its software, Google supplies Android to a range of phone makers, such as Motorola Mobility Holdings Inc. and Samsung Electronics Co.

First-Quarter Sales

Android has become a top-seller in the U.S., according to ComScore Inc., accounting for 26 percent of the smartphone market in November, compared with 25 percent for the iPhone. BlackBerry maker Research In Motion Ltd. was first with more than 33 percent.

Tero Kuittinen, an analyst with MKM Partners LP, said sales of Android phones at Verizon in the first quarter may be cut in half as a result of a Verizon iPhone introduction. Still, he doesn’t expect the impact to last because the carrier will likely begin promoting its faster long-term evolution network in the second quarter.

Several Android-based LTE-compatible phones are set for release in the first half. An iPhone on the LTE network may not be available until later, said analysts including Kuittinen.

For now, “most of the LTE marketing spend will go to Android,” Kuittinen said.

Trading Up

Apple may do a better job than Google in helping get more Verizon users to switch to a smartphone for the first time, said Carl Howe, an analyst at the Yankee Group, a consulting firm in Boston. About 38 percent of AT&T customers use a smartphone, compared with about 30 percent of Verizon’s, he said. IPhone users’ bills are about $120 a month, compared with about $40 to $80 for users of a regular feature phone, according to Howe.

“If they can get people who are currently on feature phones to upgrade, that would be huge because smartphone users pay a lot more,” Howe said.

Google representatives didn’t immediately respond to requests for comment outside regular business hours.

Google would benefit if AT&T starts to more heavily promote Android devices after losing its exclusivity with the iPhone, Kuittinen said. This quarter, Motorola will roll out through AT&T its Android-based smartphone that sports a so-called dual- core processor, capable of handling more tasks simultaneously. The new handset is likely to be heavily promoted, he said.

AT&T’s Response

“Now that AT&T has an incentive to promote Android more than it’s done until now, Android there will grow,” Kuittinen said. “It’s going to compensate for much of the decline at Verizon.”

AT&T has been cutting prices for the iPhone and upgrading its network to keep customers from switching to Verizon. The company reduced the price of the iPhone 3GS, a generation behind the current version, to $49 last week. The company suffered from customer complaints about dropped calls and slow speeds as traffic from the device overwhelmed parts of its network.

Even if iPhone software gains ground in the U.S., it may lose share globally as consumers abroad snap up Android-based phones, said Will Stofega, program director at research firm IDC in Framingham, Massachusetts.

--With assistance from Olga Kharif in Portland, Douglas MacMillan in San Francisco and Amy Thomson in New York. Editors: Lisa Wolfson, Tom Giles.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

For Stocks, Hate Is the New Love

Posted: 09 Jan 2011 06:04 PM PST

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By John Dorfman

Jan. 10 (Bloomberg) -- Once again, the unthinkable has happened. In 2010, the stocks that carried the worst ratings from Wall Street analysts when the year began outperformed the stocks that enjoyed the highest ratings.

It wasn’t even close: The despised stocks rose 30 percent while the adored stocks rose only 7 percent.

For comparison, the Standard & Poor’s 500 Stock Index gained 15 percent. All figures are total returns including dividends.

The stock with the lowest analyst rating, Motors Liquidation Co., which was charged with selling off certain assets of bankrupt General Motors Corp., did badly, just as analysts expected. It was down 81 percent.

However, two other scorned stocks, Post Properties Inc. and Gabriel Resources Ltd., returned 91 percent and 82 percent respectively. The former is a real estate investment trust in Atlanta, the latter a mining company based in Toronto.

Eastman Kodak Co. of Rochester, New York, the photography company that was rated a “sell” by four of six analysts, advanced 27 percent.

Meanwhile, three of the four most-favored stocks rose, but none by more than 24 percent. And Fuel Systems Solutions Inc. pulled down the adored stocks’ average with a 29 percent loss. The New York-based company designs systems to help internal combustion engines run on fuels such as propane or natural gas.

Strange Anomaly

The seemingly anomalous result, which casts doubt on how helpful analysts’ expertise is in stock picking, isn’t an isolated finding. I have made a similar comparison annually since 1998 (with the exception of 2008, when I was temporarily retired as a columnist).

In the 12 years for which I have data, the most-hated stocks have beaten their more-popular brethren six times. The most-loved stocks have outperformed the most-hated issues five times. One year, 1998, was a tie.

What’s more, the average gain for the four most-despised stocks was almost 8 percent, while the average gain for the most-loved stocks was less than 1 percent.

The field of stocks eligible for inclusion in the study included all stocks covered by four or more analysts, except in 2007 when I restricted it to stocks in the Dow Jones Industrial Average.

Anyone who has spent much time talking with analysts knows that they are smart, well-educated, hardworking people. They can discourse knowledgeably on companies’ managements, strategies, cash flows, profit margins and earnings.

Little Avail

Yet all this knowledge is to little avail when it comes to picking winners in the stock market, my study suggests.

Perhaps this is because the stock market is analogous to a horse race in which the faster horses must wear the heaviest saddles. The stock-market equivalent of a heavy saddle is a high price-earnings ratio -- that is, a stock price that is high relative to the company’s per-share earnings. Struggling companies sell for low P/Es, giving them more chance to rise.

In addition, there is the strange but true consideration that foretelling the future is impossible, even for genuine experts. The world is too complicated and unpredictable.

Try, Try Again

Of course, analysts get to try again every day. As 2011 began, there were three stocks that enjoyed unanimous buy recommendations from 10 analysts, with no dissenting votes. In order of market value, they were Affiliated Managers Group Inc., Ancestry.com Inc., and LogMeIn Inc.

Affiliated Managers, based in Prides Crossing, Massachusetts, takes ownership stakes in money-management firms and helps them achieve efficiencies in areas such as trading, compliance and risk controls. As a money manager myself, I have heard some good things about the company. The stock doesn’t especially appeal to me, though. It sells for 22 times earnings, not cheap in my estimation. And debt is greater than equity.

Ancestry.com is an online genealogy and history site, with headquarters in Provo, Utah. I think it’s a useful service, but the stock seems overvalued to me at five times revenue and 65 times earnings.

LogMeIn of Woburn, Massachusetts, makes software that lets people control their personal computers from a remote location. I love the product, and use it almost every day. But with a P/E ratio of 84, I wouldn’t touch the stock.

In fourth place among analysts’ darlings was Orbital Sciences Corp., which enjoyed the unanimous approbation of nine analysts. The company, based in Dulles, Virginia, does private satellite launches and delivers cargo to the International Space Station for NASA.

Most Despised

As for the most-despised stocks, they began with Alon USA Energy Inc. of Dallas, a refiner and pipeline operator that also runs convenience stores. Six analysts unanimously scorned it. It has posted six quarterly losses in a row and has debt exceeding equity.

Five analysts covered Pzena Investment Management Inc., a New York-based money manager. Three rated it a “sell” and two a “hold.” No one called it a buy.

Barnes & Noble Inc., the bookstore chain based in New York, was the next-most-despised, with no “buys,” four “holds,” and three “sells.” Yet it may be a takeover candidate. Borders Group Inc., a smaller chain, wants to take it over and might be able to get financing to do so.

And then there was Sears Holdings Corp., with “sell” ratings from four of the eight analysts who followed it and “buy” recommendations from none, and recommended by none. The Hoffman Estates, Illinois-based retailer sells for less than book value (assets minus liabilities per share).

Disclosure note: I have no long or short positions in any of the stocks discussed in this week’s column.

(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)

--Editors: James Greiff, Laurence Arnold.

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com.

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

Nasdaq's Secret Agent Derivatives Campaign

Posted: 06 Jan 2011 02:00 PM PST

Image Consultants Get a Makeover

Posted: 06 Jan 2011 02:00 PM PST

Cameron Said to Switch U.K. Bank Focus From Bonuses

Posted: 11 Jan 2011 04:39 AM PST

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By Robert Hutton and Gavin Finch

(Updates to add Diamond comment in third paragraph.)

Jan. 11 (Bloomberg) -- David Cameron’s government has switched its focus in talks with U.K. banks to boosting business lending from cutting pay, officials familiar with the situation said, marking a retreat from public statements last year.

The two government officials, who declined to be identified because the talks are private, said yesterday ministers recognized that, however much banks cut bonuses, voters are still likely to view bankers’ pay as too high. They said increases in lending might lead to faster economic growth, boosting the government’s popularity.

“We like to lend, it’s what we do,” Barclays Plc Chief Executive Officer Bob Diamond told lawmakers on Parliament’s Treasury Committee today in London. “There’s a lot of debate in the area of bonuses, there is a lot of sensitivity. Bonuses are not taken lightly.”

Cameron’s coalition faces the same problem as the previous Labour administration after its 2008 rescue of the banks. The government needs lenders it has taken stakes in -- such as Royal Bank of Scotland Group Plc -- to succeed, which means paying competitive salaries, while it can’t control the compensation paid by other banks -- such as Barclays. Diamond said neither Cameron nor Chancellor of the Exchequer George Osborne had ever personally asked him to show restraint on his own bonus.

“Cameron has realized that in order for the taxpayer to recoup its investment you can’t choke the banks,” said Jason Kennedy, CEO of Kennedy Group, a London-based executive-search firm. “It doesn’t make sense to kill the golden goose.”

Forcing Disclosure

The officials said the government is looking at whether forcing more disclosure of pay could encourage shareholders to call for restraint. Osborne is trying to persuade European Union countries to join the U.K. in such a move.

Morgan Stanley senior adviser David Walker said in a 2009 report commissioned by the Labour government that banks should disclose the number of individuals who earn more than 1 million pounds. Osborne opted to seek international agreement.

Britain’s bankers learn the size of their bonuses this month, and they’re generally paid in late February. The payments may total as much as 7 billion pounds ($11 billion), according to the Centre for Economics & Business Research Ltd.

The headlines on bonuses will come as taxpayers, who two years ago provided about 1 trillion pounds in bailouts and guarantees to shore up the financial system, begin what Cameron warned Jan. 9 will be a “difficult” year, with tax rises and public-sector pay freezes and job cuts.

Bob Crow, general secretary of the Rail, Maritime and Transport union, said the retreat showed the Conservative-led government’s priorities.

Union’s Advice

“So much for sharing the pain,” he said in an e-mailed statement. “My advice to any worker told they should take a pay freeze or a pay cut this year is to point to the bankers, stand firm and demand a fair deal. That is exactly what RMT will be doing.”

Diamond got a 21.1 million-pound pay package in 2007 and then pocketed 26.8 million pounds from the $15.2 billion sale of Barclays Global Investors in 2009.

Even though he shunned a bonus for 2008 and 2009, Diamond has remained a focus of banker-bashing. Just weeks before the May 6 U.K. general election, then Business Secretary Peter Mandelson called Diamond the “unacceptable face of banking.”

Cameron said in a Jan. 9 BBC interview that he wanted this year’s bonus pool to be less than last year’s, estimated at 7.3 billion pounds by CEBR. He also said Edinburgh-based RBS “should not be leading the way on bonuses -- they should be a back marker.”

‘Successful Market Economy’

Cameron went on to offer banks a “settlement where we recognize that a successful banking sector is part of a successful market economy.”

“Do we still need the banks to do more to demonstrate their social responsibility? Yes, we do,” Cameron said. “We want these banks to be lending to businesses large and small.”

Ministers have scaled back their rhetoric since the start of the year. In September, Business Secretary Vince Cable warned of a “train crash” if bonuses were too high. Deputy Prime Minister Nick Clegg said in December the government wouldn’t “stand idly by” on pay. He restricted his comments on the subject yesterday to state-owned banks, telling BBC Radio 4 they should be “sensitive to what British taxpayers want.”

Pay Rules

On the issue of pay at other banks, Clegg pointed to new Financial Services Authority rules agreed on by EU regulators restricting guaranteed bonuses and up-front cash payments for banks’ proprietary traders and broker dealers. The rules allow bankers to receive about 25 percent of their bonuses in immediate cash payouts and require the rest to be deferred or held in shares for a minimum of three years.

Since the credit crunch began in 2007, banks have been under pressure from business lobby groups and politicians to expand lending. Britain’s six largest banks said in October they will start a 1.5 billion-pound fund to help smaller companies get financing.

Banks said that the availability of credit to companies was “broadly unchanged” in the fourth quarter and expect it to remain at a similar level in the first three months of this year, according to a Bank of England survey.

A pledge by British banks to boost business lending may be monitored by the Bank of England, the Financial Times reported today.

A net 3.2 percent of respondents to the credit conditions survey said availability increased in the three months through December, down from 7.8 percent in the third quarter, the report showed. That’s the smallest increase since 2008.

--Editors: Eddie Buckle, James Hertling

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Edward Evans at eevans3@bloomberg.net

Stocks, Euro Rise as Japan Backs Bailout; Bank Debt Risk Falls

Posted: 11 Jan 2011 04:38 AM PST

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By Stephen Kirkland

Jan. 11 (Bloomberg) -- Stocks in Europe and U.S. futures advanced and the euro strengthened against the yen after Japan pledged to ease the debt crisis that drove Greece and Ireland to seek bailouts. Australia’s dollar tumbled as floods worsened.

The Stoxx Europe 600 Index added 1 percent at 7:30 a.m. in New York, led by banks as a measure of their credit risk improved for the first time in five days. Standard & Poor’s 500 Index futures gained 0.5 percent. The euro appreciated 0.4 percent against the yen. The extra yield on Belgian 10-year bonds relative to German bunds increased to a record. The Australian dollar slid against its 16 major peers. Sugar climbed 2 percent and copper advanced for the first time in six days.

Japan will buy bonds issued by Europe’s financial-aid funds, Finance Minister Yoshihiko Noda said in Tokyo today, joining China in signaling support for the region as Portugal, Spain and Italy prepare to sell debt this week. China’s foreign- exchange reserves jumped by a record last quarter to $2.85 trillion, the central bank said today.

“Supportive comments from Japan, and earlier China, may offer the peripheral risk market some support,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note. “2011 could be a very bad year for risk if the authorities don’t continue to bail out in the numerous areas they are needed.”

More than five stocks climbed for every one that declined on Europe’s Stoxx 600. HSBC Holdings Plc gained 2.6 percent and Barclays Plc rallied 5.1 percent as Societe Generale SA lifted its recommendation on European banks to “overweight,” saying that “a bout of bank outperformance is around the corner.”

Default Risk

The cost of insuring European bank and insurance-company debt fell for the first time in five days, with the Markit iTraxx Financial Index of credit-default swaps declining 3 basis points to 206, according to CMA.

ARM Holdings Plc jumped 6 percent after CNBC “Mad Money” host Jim Cramer named the designer of semiconductors that power Apple Inc.’s iPhone as a technology takeover target.

The Australian dollar depreciated 1.2 percent against the U.S. currency, its sixth decline in seven days, and weakened 0.7 percent versus the yen.

Brisbane faces its worst floods in more than three decades as swollen rivers threaten Australia’s third-largest city. Flash floods overnight left nine people dead and 66 unaccounted for in Queensland, Anna Bligh, the state’s premier, told reporters.

Belgium Deadlock

The difference in yield, or spread, between 10-year Belgian bonds and bunds, the region’s benchmark government securities, increased to as much as 144 basis points, the widest since at least 1993 when Bloomberg began collecting the data. Belgium’s king told caretaker Prime Minister Yves Leterme to draw up a 2011 budget with additional deficit cuts after postponing a meeting with the mediator charged with ending the nation’s 212- day post-election deadlock.

Greek and Italian borrowing costs rose at debt sales today. Greece sold 1.95 billion euros ($2.5 billion) of six-month bills at a yield of 4.90 percent, compared with 4.82 percent at a previous auction on Nov. 9. Italy sold 7 billion euros of 12- month securities to yield 2.067 percent, up from 2.014 percent at a Dec. 10 auction.

Bonds gained among Europe’s most-indebted countries as the European Central Bank bought Portuguese, Irish and Greek debt, according to traders with knowledge of the transactions who asked not to be identified because the deals are confidential. A spokesman for the central bank in Frankfurt declined to comment.

The Greek 10-year bond yield fell 35 basis points to 12.18 percent. The yield on Ireland’s 10-year bond sank 27 basis points to 8.88 percent, while Portugal’s 10-year note yield retreated 18 basis points to 7.02 percent. The Italian 10-year yield slipped three basis points to 4.82 percent, while Spain’s 10-year bond yield slid two basis points to 5.55 percent.

Alcoa Sales

The increase in S&P 500 futures indicated the benchmark gauge for U.S. equities may snap a three-day decline. Alcoa Inc., the largest U.S. aluminum producer, slipped 0.6 percent in pre-market trading after sales missed analyst estimates. A report today may show inventories at U.S. wholesalers rose. A private survey indicated confidence among U.S. small businesses dropped in December for the first time in five months, signaling a sustained rebound will take time to develop.

The MSCI Emerging Markets Index climbed for the first time in five days, rising 0.6 percent. The Hang Seng China Enterprises Index gained 0.9 percent, while Russia’s Micex Index increased 0.8 percent to the highest level on a closing basis since July 2008. The ruble strengthened as much as 2.9 percent, the biggest intraday advance since March 2009, as trading began in Moscow for the first day of 2011. The euro weakened 3.6 percent versus the dollar last week on concern Europe’s debt crisis will deepen.

The MSCI Asia Pacific Index slipped 0.1 percent. Japan’s Nikkei-225 Stock Average sank 0.3 percent as trading resumed following a holiday.

Ivory Coast

Ivory Coast’s 2.5 percent dollar-denominated bonds rebounded from a record low, advancing 11 percent after the nation’s finance ministry said in a statement to bondholders that it’s “taking all necessary measures” to avoid defaulting on $2.3 billion of debt.

Refined sugar futures gained for a third day. Copper climbed 1.6 percent after falling 2.9 percent the previous five sessions. Oil erased earlier declines, advancing 0.4 percent to $89.57 a barrel.

Treasuries were little changed, with 10-year yields at 3.29 percent, before the government sells $32 billion of three-year notes, the first of three auctions this week totaling $66 billion.

--With assistance from Paul Armstrong, Mark Gilbert, Michael Patterson, Andrew Rummer and Daniel Tilles in London. Editors: Stephen Kirkland, Justin Carrigan

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.

Prospect of Ivory Coast Military Intervention Fades

Posted: 11 Jan 2011 04:33 AM PST

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By Jason McLure and Olivier Monnier

(Updates with UN statement on refugees in fifth paragraph, search of houses in 16th.)

Jan. 11 (Bloomberg) -- The hopes of Ivory Coast’s President-elect Alassane Ouattara for a foreign military intervention to oust rival Laurent Gbagbo dimmed as regional leaders stepped up efforts to seek a negotiated end to the West African nation’s political standoff.

Kenyan Prime Minister Raila Odinga, the African Union’s envoy, will return to Ivory Coast this week in a second effort to find a resolution to the conflict, according to an e-mail sent from his office in Nairobi yesterday. Odinga’s trip follows the efforts of former Nigerian President Olusegun Obasanjo, who made an unannounced visit to the country on Jan. 8.

The U.S., the United Nations, the AU and the Economic Community of West African States, or Ecowas, recognize Ouattara, 69, as the winner of the Nov. 28 election. Incumbent Gbagbo, 65, refuses to cede power, alleging vote fraud in some northern regions. Ecowas hasn’t taken any military action since saying on Dec. 24 it may use “legitimate force” to oust Gbagbo.

The bloc “is losing any semblance of credibility,” said Kissy Agyeman-Togobo, West Africa analyst for Songhai Advisory, based in London. “As time has worn on and as the level of support for Gbagbo hasn’t dwindled domestically, perhaps Ecowas is seeing going in could result in carnage.”

The UN estimates as many as 210 people have been killed in violence following the vote. About 25,000 people have fled to neighboring Liberia since the crisis began, and are arriving at a rate of 600 people per day, the UN’s refugee agency said today. Internally, about 16,000 people have fled villages in the west of the country where the political crisis has exacerbated ethnic tensions, according to the Humanitarian Country Team, a group of non-governmental and UN organizations.

Eurobonds

Ivory Coast’s $2.3 billion in Eurobonds recorded their biggest jump on record today after the Finance Ministry told bondholders it is “taking all necessary measures” to pay a $29 million coupon payment that it missed on Dec. 31. The bonds rose 10.6 percent to 41.875 cents on the dollar at 12:22 p.m. in Abidjan, according to data compiled by Bloomberg. The government has a 30-day grace period to make the payment.

Ivory Coast, the world’s top cocoa producer, “does not have any other option than taking into consideration the commitments taken in the past,” Ahoua Don Mello, a Gbagbo spokesman said by phone from Abidjan.

The government may pay the money within days, according to DaMina Advisors LLP, a New York-based frontier-market risk advisor.

Not an Option

Ouattara refused to enter talks with Gbagbo last week, telling the British Broadcasting Corp. an Ecowas-led military intervention would come “sooner than you think.” The regional group’s unity was punctured on Jan. 7 when Ivorian neighbor Ghana said it wouldn’t contribute troops to a mission in the country.

“I do not think this military option is going to bring peace in Cote d’Ivoire,” Ghanaian President John Atta Mills told reporters in the capital, Accra. “I don’t want to be saddled with problems we cannot solve.”

Ivory Coast’s envoy to the United Nations, Youssoufou Bamba, yesterday told the BBC’s Hardtalk program that Ouattara would consider a unity government if Gbagbo steps down.

“In politics life goes on, you have to at some point because you are condemned to live together,” he said. “Gbagbo is not alone, he has followers, he has competent people in his party, with those people we are prepared to work in the framework of a wide composite cabinet.”

‘Declaration of War’

The army, which supports Gbagbo, has blockaded streets around the Golf Hotel in Abidjan, the commercial capital, where Ouattara has established his administration.

Any attempt to use military force to remove Gbagbo from office would be a “declaration of war,” Ahoua Don Mello, a spokesman for the leader, said in a phone interview from Abidjan on Jan. 7.

“Neither the Ivorian people nor the army will accept” military intervention, he said. “We will defend the country.”

Pro-Gbagbo security forces searched houses early today in Abobo, a suburb of Abidjan that supports Ouattara, said Yves Doumbia, a spokesman for the area’s mayor. Gunfire was heard though there were no injuries reported, he said by phone.

Odinga will attempt to “set up proper structures to deal with the political impasse,” according to yesterday’s statement. “The messy situation and loss of faith in the transfer of power through the ballot could lead to the return of military coups in Africa,” he said. With several elections scheduled in Africa this year, the Ivorian standoff could “set a trend” of incumbents trying to “cling to power,” he said.

Cocoa for March delivery slid 5 pounds ($7.77), or 0.3 percent, to 1,935 pounds a metric ton as of 11:15 a.m. in London today

--With assistance from Pauline Bax in Abidjan, Chris Kay in London, Sarah McGregor in Nairobi and Nicky Smith and Franz Wild in Johannesburg. Editors: Emily Bowers, Philip Sanders, Antony Sguazzin, Heather Langan.

To contact the reporter on this story: Jason McLure in Accra on jmclure@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.

Tunisia Stocks Fall to Lowest Since May on Riots, School Closure

Posted: 11 Jan 2011 04:24 AM PST

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By Alaa Shahine and Ahmed Namatalla

Jan. 11 (Bloomberg) -- Tunisia’s benchmark stock index headed for the lowest close in eight months after the government closed schools and universities to quell the worst violence the country has seen since unemployment protests began last month.

The Tunindex lost 3.7 percent to 4,889.68 at 12:20 p.m. in the capital Tunis, heading for its lowest close since May 3. That brought the two-day drop to 6.3 percent. The measure has gained 8.6 percent in the past 12 months. Banque de Tunisie, the North African country’s biggest bank by market value, slid 6 percent.

“Events like these are bound to make you worry,” said Slim Feriani, London-based chief executive officer of Advance Emerging Capital LTD, which manages $800 million. “We have to look at the benefit-risk trade-off in any frontier market, and political risk is part of it, which is why we took a step back in Tunisia.”

Tunisian President Zine El Abidine Ben Ali is facing protests against unemployment that killed at least 14 people in two days. Yesterday he pledged to create 300,000 jobs in two years and cut taxes on companies that employ young people. The protests, which are rare in Tunisia, erupted last month in the province of Sidi Bouzid after a 26-year-old man set himself on fire. Ben Ali said yesterday that the demonstrations were orchestrated by "outside powers and masked gangs."

Banque de Tunisie, the heaviest component of the Tunisian benchmark, plunged to 10.9 Tunisian dinars, the lowest intraday level since Aug. 12. Banque Internationale Arabe de Tunisie fell 4.7 percent, poised for its biggest daily loss since October 2008, to 71.5 dinars.

--Editors: Claudia Maedler, Peter Branton.

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net.

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net.

Marks & Spencer Sees Tougher Times After Sales Gain

Posted: 11 Jan 2011 04:12 AM PST

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By Clementine Fletcher

(Updates with CEO, CFO quotes throughout.)

Jan. 11 (Bloomberg) -- Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, said mounting pressure on consumer finances will make business more difficult this year after reporting sales growth in the holiday period.

An increase in value-added tax and the impact of government austerity measures are likely to constrain shopper spending, while rising commodity prices will also present a test, London- based Marks & Spencer said today in a statement.

The retailer said it remains “cautious” about the outlook as it reported a 2.8 percent gain in sales at U.K. stores open at least a year in the 13 weeks ended Jan. 1. Lost sales caused by snowy weather were offset by the inclusion in the figures of the first five days of the post-holiday clearance sale.

“The comments about future prospects might put a dampener on short-term growth expectations,” Matthew McEachran, an analyst at Singer Capital Markets Ltd., said in a note.

Marks & Spencer fell as much as 2.1 percent in London trading and was down 3.7 pence, or 1 percent, at 380.3 pence as of 11:40 a.m. The stock gained 5.3 percent last week as investors anticipated the retailer reporting strong sales.

Same-store sales of general merchandise, which includes clothing and home furnishings, increased 3.8 percent in the third quarter, the company said. Growth in food, which accounts for about half of sales, was 1.8 percent. The median estimate of 17 analysts surveyed by Bloomberg was for a 1.9 percent rise in same-store food sales and 3.2 percent for general merchandise.

Snow Impact

December’s heavy snow in the U.K. cut reported food sales by about 1 percent, and general merchandise sales by 3 percent, Marks & Spencer said. That was offset by a “positive impact” of about 3 percent from the inclusion of post-Christmas sales.

The snow probably cost about 45 million pounds in lost sales, according to Singer’s McEachran. Marks didn’t comment on the overall sales impact. Competitor Next Plc said Jan. 5 that adverse weather cut revenue by 22 million pounds ($34 million).

Marks & Spencer’s total revenue in the quarter increased 4 percent, helped by a 25 percent increase in Web-based sales at its Direct unit, as more customers ordered goods online.

The results “are still well ahead of rivals like Next,” Nick Bubb, an analyst at Arden Partners, wrote in a note today. “Full-year profit forecasts will not move on this.”

Inflationary Pressure

Marks & Spencer said it experienced food price inflation of between 1 percent and 2 percent in the last quarter of 2010.

“External estimates are that it’s running at slightly higher than that at the moment,” Chief Financial Officer Alan Stewart said on a conference call.

Retailers are facing pressure from rising costs in 2011. William Morrison Supermarkets Plc said yesterday that it expects “some uptick” in food-price inflation as wheat, sugar and cocoa prices rise. Next predicted prices will rise 8 percent in the first and second quarters as the cost of cotton soars.

Marks & Spencer will aim to keep prices on some products “at the same level as last year” and expand its range.

The retailer will seek “better supply chain opportunities with suppliers” to offset inflation, Chief Executive Officer Marc Bolland said on the call.

--Editors: Paul Jarvis, Celeste Perri.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

Euro Gains as Japan Signals It May Buy Euro Bonds; Aussie Falls

Posted: 11 Jan 2011 04:11 AM PST

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By Lukanyo Mnyanda and Ron Harui

Jan. 11 (Bloomberg) -- The euro rose from almost a three- month low against the yen after Japan’s Finance Minister Yoshihiko Noda said it’s appropriate for his nation to buy euro-area government bonds to support Ireland.

The dollar advanced for the first time in three days versus the yen before a U.S. report this week forecast to show retail sales climbed for a sixth month in December. The Aussie fell against all of its major counterparts as flooding worsened. The 17-nation currency also gained versus the New Zealand dollar and the South African rand on speculation Japan’s bond purchases may help ease Europe’s debt crisis.

“The paper is going to be AAA, so of course it’s going to be oversubscribed, with the euro rallying,” Kenneth Broux, a senior market economist at Lloyds TSB Corporate Markets in London, said of the planned European debt. “But the fact that Asian investors are going to buy these bonds isn’t going to resolve the crisis in some of the countries. The euro remains a sell on rallies.”

The euro climbed 0.4 percent to 107.58 yen at 7:03 a.m. in New York, from 107.12 yen yesterday, when it reached 106.83, the lowest level since Sept. 14. The euro was little changed at $1.2957, compared with $1.2951. The dollar rose 0.4 percent to 83.02 yen, from 82.71 yen.

Australia’s dollar fell to a one-month low versus the greenback as rising floodwaters rushed toward the coastal city of Brisbane, where evacuations were under way.

‘Tragic Situation’

“The tragic situation with floods in Queensland may potentially weigh on growth,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp., Australia’s second-largest lender. “Until things settle down on that, we are not going to know the impact, but certainly it’s not positive on the local currency.”

The Aussie also dropped after a report today from the Bureau of Statistics showed the trade surplus narrowed in November more than economists forecast.

Australia’s currency fell 0.9 percent to 98.65 U.S. cents after sliding to 98.21 cents, the lowest level since Dec. 9. The currency slipped 0.6 percent to 81.89 yen.

The greenback rose versus the yen before a report expected to show the world’s largest economy is recovering.

U.S. retail sales climbed 0.8 percent last month, the same amount as in November, according to the median forecast of 80 economists in a Bloomberg News survey. The report from the Commerce Department is due Jan. 14.

Dollar Index

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro and yen, was little changed at 80.911, compared with 80.881 yesterday.

Europe’s financial aid funds for distressed governments will sell bonds to raise as much as 34.1 billion euros ($44.2 billion) for Ireland in 2011 and 14.9 billion euros in 2012, the European Commission said last month.

“It’s appropriate for Japan to make a contribution as a leading nation to increase trust in the deal,” Noda said of that bond sale at a news conference in Tokyo. “We want to buy more than 20 percent.”

The yuan advanced as a report showed China’s foreign- exchange reserves climbed by a record last quarter and lending exceeded the government’s annual target, increasing pressure on the central bank to tighten policy to rein in inflation.

China’s currency appreciated 0.3 percent to 6.6180 per dollar in the biggest gain since Dec. 30, according to the China Foreign Exchange Trade System. Twelve-month non-deliverable forwards earlier rose 0.3 percent to 6.4440, reflecting bets the currency will strengthen 2.7 percent in a year.

--With assistance from Monami Yui, Yoshiaki Nohara and Toru Fujioka in Tokyo and Patricia Lui in Singapore. Editors: Dennis Fitzgerald, Keith Campbell

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Fiat Eyes MAN, Scania as VW Repeats Alfa Interest

Posted: 11 Jan 2011 04:03 AM PST

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By Tim Higgins and Andreas Cremer

(Updates with value of VW stakes in third paragraph. For more Detroit auto show coverage, see SHOW <GO>.)

Jan. 11 (Bloomberg) -- Fiat Industrial SpA, the truck and tractor maker spun off from Fiat this month, expressed interest in acquiring Volkswagen AG’s stakes in MAN SE and Scania AB after VW said it wanted to buy Alfa Romeo from Fiat.

“We’re not a seller of assets but at Fiat we are potentially acquirers, if Volkswagen wants to divest its truck assets,” Fiat Industrial Chairman Sergio Marchionne said at the Detroit auto show yesterday. Spokesmen for VW, MAN and Scania all declined to comment.

Volkswagen’s MAN and Scania stakes would cost $13.4 billion at the current market price, with VW’s 29.9 percent MAN holding valued at 3.9 billion euros ($5.1 billion) and its 45.7 percent of Scania’s capital worth 56.9 billion kronor ($8.3 billion).

VW, Europe’s largest carmaker, has been eyeing Alfa Romeo, with Fiat repeatedly saying the brand isn’t for sale. VW CEO Martin Winterkorn told reporters at the Detroit auto show yesterday Alfa Romeo is a “nice and interesting” company. Fiat Industrial, based in Turin, Italy, makes Iveco trucks and CNH Global NV tractors.

“It’s a kind of game between the two - after VW insisting it’s interested in Alfa, Fiat is using the opportunity to get back at them,” said Thierry Huon, an Exane BNP Paribas analyst in Paris. “On paper you could justify such a group with Scania on top, MAN in the middle and Iveco on the bottom, but if you look at MAN and Scania alone, you can see how long it can take.”

‘Remarkable Move’

Volkswagen is seeking to combine the truckmakers to cut costs. MAN and Scania have been exploring ways to cooperate and possibly merge with a goal of cutting development and purchasing costs.

“It would be a remarkable move for Fiat Industrial,” said Edoardo Liuni, an analyst at IlNuovoMercato.it in Rome. “Fiat Industrial won’t have difficulties in finding the funding necessary for a possible acquisition as Marchionne has created such a good reputation for Fiat.”

MAN, based in Munich, rose as much as 2.39 euros, or 2.7 percent, to 90.59 euros and traded at 89.98 euros as of 12:58 p.m. in Frankfurt. Scania, based in Sodertalje, Sweden, added 2.80 kronor, or 1.8 percent, to 157.400 kronor in Stockholm.

The preferred shares of Volkswagen, based in Wolfsburg, Germany, added 2.8 percent to 130.40 euros. Fiat Industrial gained 3.2 percent to 9.95 euros in Milan trading.

VW Chairman Ferdinand Piech said in September the German company was “monitoring” Fiat’s plans for Alfa Romeo.

Clear Ambition

“They’ve been clear about their ambition in the car industry,” Fiat Chairman John Elkann said. “If they want to concentrate, focusing on that, then we’re interested in helping them” by buying MAN and Scania, he said.

“With all the hints they’re dropping, they’re confusing the market,” said Jose Asumendi, an analyst at Royal Bank of Scotland Plc in London. “While it would be great for Fiat to get, I’d be extremely surprised if Volkswagen sells a truck business that’s a tremendous earnings generator and which probably has one of the best exposures to China.”

Marchionne said he hasn’t talked with VW about Fiat’s interest in MAN and Scania.

“We do talk to them from time-to-time,” he said. “I’m sure it will come over a coffee at some point in time in the next 12 months.”

--With assistance from Cornelius Rahn in Frankfurt, Tommaso Ebhardt in Milan and Ola Kinnander in Stockholm. Editors: Chad Thomas, Kenneth Wong

To contact the reporter on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Andreas Cremer in Detroit via acremer@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net.

Notes From the Detroit Auto Show

Posted: 10 Jan 2011 05:26 PM PST