Business News: A Moscow Survivor

Business News: A Moscow Survivor

A Moscow Survivor

Posted: 29 Dec 2010 02:00 PM PST

India, Russia Agree on Jets, Nuclear Power

Posted: 03 Jan 2011 03:58 AM PST

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By Ilya Arkhipov and Andrew MacAskill

(Adds Sistema and ONGC in 13th paragraph.)

Dec. 21 (Bloomberg) -- Russia and India signed pacts to provide missiles for the Indian army, develop advanced stealth fighter jets and build more nuclear reactors as their leaders vowed to double trade over four years.

Russian President Dmitry Medvedev’s two-day visit to India comes after similar trips by President Barack Obama, Chinese Premier Wen Jiabao and French President Nicolas Sarkozy. Major nations are jostling for contracts as India builds its armed forces and plots a $100 billion expansion of its nuclear-power generating capacity.

“There is enormous unexploited potential for the development of our relations particularly in the area of trade and economic affairs,” Indian Prime Minister Manmohan Singh said today at a press conference with Medvedev in New Delhi.

Russia successfully tested a prototype of its fifth- generation PAK FA stealth fighter in January, one year behind schedule and 13 years after the first flight of its U.S. rival, Bethesda, Maryland-based Lockheed Martin’s F-22 Raptor. Today’s deal -- which covers design modifications for planes to be bought by India -- may be worth $295 million, RIA Novosti reported Dec. 16.

India, Russia’s top arms customer, has tripled its defense budget over the last decade as it looks beyond a traditional military rivalry with Pakistan to counter China’s rising power.

India’s BrahMos Aerospace Pvt. agreed with Russia’s NPO Mashinostroyenia to make missiles for India’s army. No details were immediately available.

‘Major Player’

“Russia has always been a major player in India, but now it faces increasing competition in areas it traditionally dominated such as the arms trade as India tries to diversify its suppliers further to get the best price and quality,” Konstantin Makiyenko, deputy head of the Center for the Analysis of Strategies and Technologies in Moscow, said in a Dec. 17 telephone interview.

“The fifth-generation fighter deal will be the most important issue,” and could be worth as much as $30 billion over the life of the agreement, because India may seek to deploy as many as 300 of the jets, Makiyenko said.

At first “Russia will be leading in terms of contribution, while the Indian participation will be increasing further on,” said Mikhail Pogosyan, chief executive officer of OAO Sukhoi Co., which will develop the jet in collaboration with the company’s Indian partner.

$20 Billion Target

Medvedev’s trip caps six months of visits by leaders and company executives from all five permanent members of the United Nations Security Council as they seek to boost exports to India’s $1.3 trillion economy, which may expand almost 9 percent this financial year.

Russia and India will attempt to increase bilateral trade to $20 billion by 2015 from the current level of $10 billion, they said in joint statement today.

Reliance Industries Ltd. and OAO Sibur Holding agreed a petrochemicals deal, Dr. Reddy’s Laboratories Ltd. and Russia’s R-Pharm announced a joint venture, and Tata Group said it will work on the Skolkovo technology park project outside Moscow in other pacts announced today.

AFK Sistema, Russian billionaire Vladimir Yevtushenkov’s holding company, may team up with India’s Oil & Natural Gas Corp. as the two companies seek to expand oil production with overseas projects. Sistema and ONGC agreed to study “a potential transaction” involving their Russian oil units, the Moscow-based company said today in an e-mailed statement. ONGC is seeking to expand in Russia, the world’s biggest oil and gas producer.

Nuclear Reactors

In agreements to provide the nuclear energy India wants to power its economy, Russia plans to build at least 18 reactors at three locations across the country, Sergei Kiriyenko, chief of Moscow-based Rosatom, said today.

As well as the reactors being built at Kudankulam in the southern state of Tamil Nadu, Russia will develop units at site near the eastern city of Kolkata and another undisclosed location, he said. Kiriyenko said each plant will have at least six reactors and the first at Kudankulam will be operating by the end of March.

India’s nuclear industry has attracted foreign interest following the 2005 agreement with the U.S. that attached International Atomic Energy Agency safeguards to the South Asian country’s civilian nuclear facilities. U.S. companies have so far lagged behind state-backed French and Russian companies over concerns new laws may make them liable for damages in the event of a nuclear accident.

‘Strong U.N. Candidate’

Medvedev said today India would be a “strong candidate” to become a permanent member of the United Nations Security Council if a decision is taken to expand it, joining endorsements by Obama and Sarkozy during their India visits.

China’s Wen stopped short of giving support last week, saying in a joint statement Singh that China “understands and supports India’s aspiration to play a greater role in the United Nations, including in the Security Council.”

Russia, the U.S., France, China and the U.K. are the council’s permanent members at present. They hold veto power over any measure.

India and Russia announced in a joint statement that they welcomed South Africa’s engagement in the BRIC group of emerging economies which also includes Brazil and China. South Africa, Africa’s biggest economy, asked to join the group, the country’s Trade Minister Rob Davies said last week.

--With assistance from Bibhudatta Pradhan and Unni Krishnan in New Delhi. Editors: Mark Williams, Sam Nagarajan

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

The Case That's Haunting Health Care

Posted: 29 Dec 2010 02:00 PM PST

Peter Coy: The Health-Care Act on Trial

Posted: 29 Dec 2010 02:00 PM PST

Cleveland Wants to Be a Health-Care Hub

Posted: 29 Dec 2010 02:00 PM PST

Obama Looks to Past as Way to Move Agenda

Posted: 03 Jan 2011 04:17 AM PST

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By Mike Dorning

Jan. 3 (Bloomberg) -- As Barack Obama prepares to confront a strengthened Republican opposition to his tax, spending and immigration priorities when Congress convenes this week, his advisers are comparing him to another president who faced similar circumstances: Ronald Reagan.

Like Reagan and Bill Clinton, Obama must spend the next two years of his presidency navigating a new balance of power after midterm election losses. Before leaving for a year-end vacation, Obama sought advice from Reagan chief of staff Ken Duberstein and David Gergen, an image adviser to both Reagan and Clinton, said an Obama aide. On his Hawaii trip, Obama brought along journalist Lou Cannon’s Reagan biography, “The Role of a Lifetime,” a selection his press secretary announced over Twitter.

Obama “has the bully pulpit and he’s demonstrated in the clutch that he knows how to use it,” said Patrick Griffin, who was Clinton’s legislative affairs director from 1994 to 1996. “He is going to be a formidable player in defining who did the right thing for the American people, whether the result is legislation or stalemate.”

Obama, 49, has maintained his personal popularity even when his job approval dropped, as did Reagan. While independent voters disapprove of how Obama is handling his job as president by 50 percent to 44 percent, they rate him favorably by 51 percent to 44 percent, according to a Bloomberg National Poll Dec. 4-7.

‘Likability Factor’

“Both Obama and Reagan have retained a strong likability,” said M.B. Oglesby, a congressional liaison and later deputy chief of staff for Reagan. “You have a president who people kind of want to see succeed, and that can help him with Congress,” said Oglesby, now chairman emeritus of Prime Policy Group, a Washington lobbying firm owned by Dublin-based WPP Plc.

During his 2008 Democratic primary campaign, Obama praised Reagan in an interview with a Nevada newspaper as a president who “changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not.”

Reagan began his term as the country was roiled by double- digit inflation and long-term interest rates. Obama entered office amid the worst financial crisis since the Great Depression. Both presidents’ parties retained control of the Senate in the midterm elections while the opposition expanded in the House, in Reagan’s case weakening a working coalition between minority Republicans and fiscal conservatives among the majority Democrats. Obama’s Democrats lost control of the House.

Reagan’s Alliances

Reagan forged an alliance with Democratic leaders to pass legislation in 1983 to shore up Social Security by raising taxes and increasing the retirement age. In 1986, also with control of Congress divided, Reagan got help from Democratic allies to win passage of tax legislation reducing rates and limiting deductions.

Obama’s agenda will include items that appeal across party lines, such as an education overhaul that expands teacher merit pay and encourages more charter schools, a rewrite of the tax code, and steps to reduce the long-term budget deficit, according to an aide who spoke on condition of anonymity. Obama has yet to offer a plan or say whether he’ll take up the Dec. 3 recommendations by members of his bipartisan deficit commission to reduce the cost of programs such as Social Security and Medicare.

Obama, in an interview with NPR and a statement before meeting with corporate chief executives, said he would like to pursue a tax overhaul that, like Reagan’s tax code revision, would reduce rates and simplify the system.

Corporate Taxes

Jeff Sessions of Alabama, who will become the Senate Budget Committee’s top-ranking Republican, said Obama could gain broad backing across party lines, including “a lot of support from Republicans,” for a plan that reduces the corporate tax burden.

“If he could come across with a compromise on simplifying and reducing tax rates in general, including the corporate side, that would be in the national interest,” Sessions said.

Obama set the stage for compromise during the December lame-duck session of the departing Congress, cutting a deal with Republican leaders to extend Bush-era income tax cuts, reduce Social Security taxes and extend unemployment benefits in return for a two-year continuation of tax cuts for the wealthy. He gained bipartisan support to overcome Republican opposition to ratification of a nuclear arms treaty with Russia and repeal of the ban against gays serving openly in the military.

Corporate Relations

Obama also moved to reset his relationship with corporate leaders after the midterms, during which the U.S. Chamber of Commerce committed more than $75 million to ads mainly directed against Democrats.

After business-friendly decisions including the tax-cut extensions and a free-trade accord with South Korea, he met Dec. 15 at Blair House with 20 corporate leaders, including General Electric Co. Chief Executive Officer Jeffrey Immelt, UBS AG Chairman for the Americas Robert Wolf and Honeywell International Inc. Chairman David Cote.

Verizon Communications Inc. CEO Ivan Seidenberg, who complained in June that Obama was creating “an increasingly hostile environment for investment and job creation,” praised him on Dec. 8 for “a willingness to learn.”

John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said he anticipates that passage of the South Korea Free Trade Agreement as well as trade deals under negotiation with Panama and Colombia would lead to “some significant economic progress.”

Obama’s Momentum

While many House Democrats criticized the tax deal, the legislative accomplishments restored Obama’s political momentum, said Griffin, now associate director of the Center for Congressional and Presidential Studies at American University in Washington.

“It’s been one of the fastest cycles of political recoveries I’ve ever witnessed,” Griffin said. “It now gives him the chance to set the rhetorical table going into the new Congress.”

In April 1995, by contrast, more than six months after Clinton’s midterm losses the center of debate had so shifted to the Republican congressional majority that he felt the need to tell a news conference, “The president is still relevant here.”

Clinton went on to win re-election, and in the aftermath of the 2010 midterms, Obama met with Clinton, as well as Clinton’s former chiefs of staff, Leon Panetta and John Podesta.

Economy’s Woes

Obama confronts stiffer economic challenges than Clinton or Reagan did. The recovery was already well-established for Clinton in 1994 and unemployment had been falling for more than two years. About the same time as Reagan’s midterm losses, the Federal Reserve began easing monetary policy and the economy was growing at more than 7 percent by the 1984 election.

When Obama faces re-election in 2012, the economy is projected to grow at 3.2 percent, and unemployment -- 9.8 percent in November -- is projected to be 8.7 percent, according to the median forecast of economists surveyed by Bloomberg News in December. The average jobless rate during their re-election years was 7.5 percent for Reagan in 1984 and 5.4 percent for Clinton in 1996.

“I can’t see the president or Congress will have a lot of interest in getting spending or the deficit under control in the next year or two,” said Wells Fargo’s Silvia. “I think they’ll put it off until after the 2012 election.”

Health Care

House Republicans, campaigning last year amid voter distress over the economy, criticized Obama for the level of government spending, including the $814 billion stimulus package, and many vowed to seek a repeal of Obama’s health-care law, which requires most Americans to buy insurance.

Even so, House Republican leaders say repealing Obama’s signature legislation isn’t likely in the next two years and will be a rallying cry in 2012.

House Republicans will be “appealing to the American public” to support repeal of the health-care law by holding hearings to spotlight “what will work and what isn’t working,” said California Representative Wally Herger, who will lead the House Ways and Means Committee’s health subcommittee.

Still, “we know it’s going to be tough sledding to go through the Senate and it’s certainly not going to be easy to get something signed by the president,” he said.

Spending Battles

Republicans have promised to seek cuts to reduce a budget deficit that the White House in July projected will reach $1.4 trillion in the current federal fiscal year. Obama already was laying down lines against spending cuts during his Dec. 22 year- end press conference before departing for Hawaii.

“It’s vital for us to make investments in education and research and development, all those things that create an innovative economy, while at the same time cutting those programs that just aren’t working,” Obama said.

Obama promised to renew his efforts to pass legislation to provide a path to citizenship for children brought to the U.S. at a young age by undocumented immigrant parents. Congress’s failure to pass the so-called DREAM Act was “maybe my biggest disappointment,” he told reporters.

And in praising bipartisan support for the Russia nuclear arms treaty, Obama evoked Reagan: “We will be able to trust, but verify.”

--With assistance from Laura Litvan and James Rowley. Editors: Robin Meszoly, Mark McQuillan.

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

The Stock Rally May Still Have Legs in 2011

Posted: 29 Dec 2010 02:00 PM PST

Equity Funds See Inflow

Posted: 30 Dec 2010 10:53 AM PST

Predicting Gold, Hiring for 2011

Posted: 29 Dec 2010 01:31 PM PST

Buyout Firms Unloading LBOs to Flood U.S. IPO Market

Posted: 03 Jan 2011 05:00 AM PST

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By Michael Tsang and Lee Spears

(Adds New York Times report on investment in Facebook in ‘Venture Capital’ section.)

Jan. 3 (Bloomberg) -- More than half of the U.S. initial public offerings planned for this year are from private equity firms as KKR & Co., Blackstone Group LP and Carlyle Group try to unload some of their biggest leveraged buyouts.

HCA Holdings Inc., Nielsen Holdings BV, Kinder Morgan Inc. and more than two dozen other companies owned by private equity firms have asked the Securities and Exchange Commission for permission to sell $14 billion of shares in IPOs, or 53 percent of the amount on file, according to data compiled by Bloomberg. The total is more than double the $6.6 billion raised in 2010, when their initial offerings accounted for 15 percent of sales.

Buyout firms are betting that a rebound in equity values will increase demand for some of the debt-fueled acquisitions completed as credit markets started to freeze four years ago. While the Standard & Poor’s 500 Index has recovered all its losses since the collapse of Lehman Brothers Holdings Inc. in 2008, the funds are now seeking buyers for companies with almost twice the net debt to operating cash flow as the average private equity-backed IPO last year, data compiled by Bloomberg show.

“Private equity is certainly going to continue to bring to market either to monetize or de-lever the companies they bought,” said Robert H. McCooey Jr., senior vice president of new listings and capital markets at Nasdaq OMX Group Inc. in New York. “That will be a big piece of the IPO market.”

Equity Market Rebound

Share sales accelerated last quarter as the S&P 500 climbed to the highest level in more than two years on speculation companies will become more profitable as the U.S. economy recovers from the worst recession in more than 70 years. Almost 40 percent of the IPOs last year were completed after the start of October, data compiled by Bloomberg show.

While private equity firms were behind 31 initial sales in the U.S. last year, shares of the companies left buyers with the smallest gains. They rose 3.8 percent on average in the first month of trading, less than half the 8.1 percent advance for all other IPOs, data compiled by Bloomberg show. Venture capital- backed offerings, which raised $3.2 billion, increased 7.8 percent on average.

More than 120 companies are seeking approval from the SEC to raise about $26 billion through IPOs, the data show. Barclays Plc of London estimates that U.S. companies will complete as much as $50 billion of sales this year, a 34 percent increase from 2010.

‘Big Window’

“The pipeline should be an indication of what’s coming over the next six to 12 months,” said Paul Bard, director of research at Renaissance Capital LLC, the Greenwich, Connecticut- based IPO research and investment firm. “We wouldn’t be surprised to see both the number and the proceeds increase, so you could potentially see the amount of money raised double.”

In LBOs, private equity firms borrow most of the money used to take controlling stakes in companies. They try to increase the value of those companies by cutting costs, eliminating workers and closing unprofitable businesses, with the aim of unloading their stakes at a higher price.

A record $1.6 trillion in LBOs were completed from 2005 to 2007, according to Preqin Ltd., a London-based research firm.

“We had a big private equity boom a few years ago with easy credit and lots of it, and then we had sort of a nasty recession where private equity investors couldn’t get an exit,” said Timothy Cunningham, a manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $70 billion. “This is the first big window where we can see an exit. Private equity funds will try to take advantage of that.”

HCA Borrowings

HCA, the hospital chain bought four years ago for $33 billion in what was the world’s biggest LBO, is planning a $4.6 billion IPO, according to its prospectus.

At the time, funds led by New York-based KKR and Bain Capital LLC of Boston put up about $5.3 billion and borrowed the rest. The Nashville, Tennessee-based company plans to use the proceeds from the IPO to pay debt, which exceeded its cash by $25.7 billion at the end of September.

HCA also borrowed about $1.53 billion in November to fund a cash payout to its private equity owners, meaning that KKR and Bain are selling stakes in a company that would need five years’ worth of the earnings before interest, taxes, depreciation and amortization it generated last year to pay off all the debt, according to data compiled by Bloomberg.

More than $14 billion of HCA’s borrowings are due within three years, according to the company’s SEC filing. In 2010, private equity-backed IPOs had average net debt of about 3.65 times annual Ebitda, the data show.

Debt Burden

“Leverage is always a concern,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees $29 billion of equities. “You’ll have to endure the burden that most free cash flow is going towards debt service and debt pay down.”

Nielsen, the New York-based television-audience rating company taken private by six firms including KKR, Blackstone and Carlyle in 2006, and Kinder Morgan, the Houston-based pipeline company acquired in a $22 billion LBO a year later, are more indebted than HCA.

Nielsen, which had a net debt-to-Ebitda ratio of 6.5, filed to raise as much as $1.73 billion in an initial offering to repay creditors, according to data compiled by Bloomberg.

Carlyle, Goldman Sachs

Kinder Morgan, owned by a group that includes Washington- based Carlyle and Goldman Sachs Group Inc. in New York, has 7.2 times more net borrowings than its Ebitda over a full year, about the average for private equity-backed companies that have IPOs pending SEC approval, the data show. The pipeline company’s owners plan to unload $1.5 billion of shares in the sale.

Kristi Huller, a spokeswoman for KKR, declined to comment, as did Blackstone’s Peter Rose and Christopher Ullman at Carlyle. Michael Duvally, a spokesman for Goldman Sachs, and Bain’s Alex Stanton also declined to comment.

HCA, Nielsen and Kinder Morgan were among the world’s 20 largest-ever leveraged buyouts, according to Preqin. The last LBO of that size to attempt an IPO was Las Vegas-based Harrah’s Entertainment Inc., which terminated a $531 million sale in November after failing to attract enough buyers.

Apollo Global Management LLC of New York and Fort Worth, Texas-based TPG Capital took Harrah’s private for $30.7 billion, including debt and transaction costs, in January 2008.

Venture Capital

Companies controlled by buyout firms face more pressure to go public to pay back the debt from their LBOs, while their owners want to cash out as soon as possible, said Tim Loughran, a finance professor at the University of Notre Dame’s Mendoza College of Business in Notre Dame, Indiana.

Venture capital-backed companies have filed to raise $2.86 billion in IPOs, a decrease from last year’s total and 79 percent less than private equity-owned companies.

While companies such as Facebook Inc. and Twitter Inc. have increased in value by 50 percent or more in private trading on speculation they will go public, venture-backed companies have shown they can raise equity capital without seeking an IPO. Facebook raised $500 million from Goldman Sachs and Russia’s Digital Sky Technologies, the New York Times reported yesterday, citing unidentified people involved in the transaction.

Groupon Inc., the daily-deal coupon site based in Chicago, raised $500 million in its latest round of financing, according to its SEC filing last week. The sale is more than half the $950 million that the company filed to raise on Dec. 17.

Founded in November 2008, Groupon walked away from a $6 billion takeover offer from Google Inc. last month. The new funding lessens the pressure to seek an IPO this year, said Greg Sterling, an analyst at Internet2Go, an advisory service that is part of Opus Research in San Francisco.

The company topped $500 million in sales in 2010, people familiar with the matter have said, reaching the milestone faster than Amazon.com Inc., EBay Inc. and Yahoo! Inc.

“Facebook and companies like that can already sell equity without doing an IPO,” said Loughran. “They can wait for a really good time to go public. The private equity firms have a lot of debt which forces their hand to move at a quicker pace.”

--With assistance from Nikolaj Gammeltoft and Krista Giovacco in New York. Editors: Chris Nagi, Daniel Hauck.

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net.

To contact the editor responsible for this story: Daniel Hauck at dhauck1@bloomberg.net.

Technology Takeovers May Pick Up as IBM, HP Push Into the Cloud

Posted: 03 Jan 2011 05:00 AM PST

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By Serena Saitto

Jan. 3 (Bloomberg) -- Technology companies that fueled more than $100 billion in acquisitions last year are likely to spend more in 2011 in a race to harness surging demand for cloud computing and security services.

Intel Corp., Hewlett-Packard Co. and International Business Machines Corp. led purchases of more than 2,700 companies and still spent only a fraction of the cash piles they accumulated during the recession. The dollar amount of announced tech deals gained 12 percent, lagging behind a 26 percent jump in worldwide mergers, according to data compiled by Bloomberg.

“I’m bullish” on 2011, said Larry Sonsini, chairman and co-founder of Wilson, Sonsini, Goodrich & Rosati, the Palo Alto, California-based law firm that worked with security-software maker McAfee Inc. on its $7.7 billion agreed sale to Intel. “When I look at enterprise clients, I see they are poised to invest in growth on a global basis.”

Buyers aim to capture the $3.4 trillion in information- technology spending projected by researcher Gartner Inc. for 2011, a 3.5 percent increase from 2010. Cisco Systems Inc. and Oracle Corp. are among IT providers driving the convergence of services, software and hardware as they compete to become the most relevant to chief technology officers. More companies are moving to cloud computing, allowing them to access information over the Internet from external data centers.

Sonsini’s firm worked on 62 technology acquisitions valued at a total of $16 billion in 2010, including the McAfee takeover -- the biggest deal in the industry last year. From his vantage point in Silicon Valley, Sonsini predicts an increase in many types of tech transactions this year.

Venture Capital

“Starting at the bottom of the enterprise ladder such as venture financing, we will see active investments in important areas such as cloud computing, clean technology, alternative energy, life sciences and Internet,” said Sonsini, whose firm helped take Google Inc. and Apple Inc. public.

Venture capitalists are also pushing for paydays after a dearth of initial public offerings during 2008 and 2009. Worldwide, 94 technology companies held IPOs in 2010, up from 54 in 2009, according to Bloomberg data.

Groupon Inc., the Internet-coupon service with more than 35 million users, may be among those going public in 2011. The Chicago-based company walked away from a $6 billion takeover bid from Google in December and will decide this year whether to sell shares in an IPO, a person close to the situation said last month. Groupon has also filed to raise as much as $950 million from the sale of preferred shares.

IPO Benefits

“The increase in global tech IPOs in 2010 bodes well for M&A in the industry” in 2011 and beyond, said Drew Guevara, head of West Coast technology investment banking for Morgan Stanley, which advised Groupon together with Allen & Co. “Going public both establishes a company’s market valuation and creates the potential to achieve higher value downstream through a sale.”

Morgan Stanley topped the 2010 league table of financial advisers in the sector with 40 deals worth about $28 billion, followed by Goldman Sachs Group Inc. and JPMorgan Chase & Co. New York-based Morgan Stanley advised McAfee in its sale to Intel, video-storage provider Isilon Systems Inc. in its takeover by EMC Corp., and ArcSight Inc. in its sale to HP.

Speculation about who will be next has already boosted the stocks of the fastest-growing companies. F5 Networks Inc., whose software helps companies manage Internet traffic, more than doubled in 2010. Riverbed Technology Inc., a provider of equipment to boost networks’ speed, more than tripled. Acme Packet Inc., a maker of devices that help networks transmit phone calls and video, quintupled as investors bet on continued revenue growth and a possible sale.

Managing Expectations

“In this environment, managing the market’s expectations is always a challenge,” said Ken Goldman, chief financial officer of Fortinet Inc., the Sunnyvale, California-based maker of network-security systems, whose market value increased by about 80 percent in 2010. “The risk of missing the targeted numbers even by a tad is always greater than overachieving.”

A buyout of Seagate Technology Plc failed to materialize last year after the disk-drive maker ended discussions with private-equity firms, saying the indicated deal value wasn’t in the best interest of the company or its shareholders. TPG Capital, which had taken Seagate private once before already, couldn’t find enough equity partners to finance a takeover after other leveraged buyout firms lost interest, one person with knowledge of the matter said at the time.

“LBOs will continue to be hard if not harder in 2011, as financing is getting more expensive” said Morgan Stanley’s Guevara. His firm and Wilson Sonsini worked for Seagate.

Storage Demand

Guevara, who is based in Menlo Park, California, said he anticipates deals in cloud computing will continue to be strong, followed by security technology. Most of the potential action in storage computing already has already taken place, he said.

HP, the world’s biggest personal-computer maker, bought data-storage company 3Par Inc. for $2.35 billion, after an 18- day bidding war with Dell Inc. more than tripled the company’s share price. In total, HP announced 9 purchases last year, including the $1.2 billion acquisition of once iconic handset maker Palm Inc. IBM, the world’s biggest computer-services provider, announced 16 purchases in 2010.

“In the last few years more data has been created and stored than in all of human history,” said Eric Mandl, global head of software banking at UBS AG in New York. His firm advised IBM on its $1.7 billion purchase of data-warehousing company Netezza Corp., and Dell on its $960 million purchase of data- storage company Compellent Technologies Inc. “Ultimately the companies that offer technologies to solve problems associated with the data explosion will be the winners.”

--Editors: Jennifer Sondag, Nick Turner.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.

Porsche Shares Surge After U.S. Judge Snubs Lawsuits

Posted: 03 Jan 2011 05:00 AM PST

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By Andreas Cremer

(Updates with scale of gain starting in first paragraph.)

Jan. 3 (Bloomberg) -- Porsche SE rose the most in 21 months in Frankfurt trading after a U.S. judge dismissed two lawsuits claiming the sports-car maker misled short-sellers in its acquisition of Volkswagen AG shares in 2008.

Porsche’s preferred stock climbed as much as 9.68 euros, or 16 percent, to 69.34 euros, the biggest intraday jump since April 2, 2009, and was up 12 percent as of 1:32 p.m., valuing the company at 11.7 billion euros ($15.6 billion).

U.S. District Judge Harold Baer in Manhattan dismissed on Dec. 30 the complaints filed by hedge funds Elliott Associates LP and Black Diamond Offshore and representing a total of 39 U.S. and foreign-based funds. The lawsuits claimed Porsche cost hedge funds more than $2 billion by secretly cornering the market in VW shares. Stuttgart, Germany-based Porsche is now merging with Volkswagen, Europe’s largest automaker.

“Porsche has cleared an important interim hurdle on its way toward merging with Volkswagen,” said Marc-Rene Tonn, an analyst with M.M. Warburg who recommends holding the stock. “The VW-Porsche combination has become more likely following the U.S. ruling.”

VW Chief Executive Officer Martin Winterkorn said on Nov. 30 that the merger may stall until tax disputes in Germany and lawsuits in the U.S. are resolved.

2008 Transactions

The short sellers claimed that Porsche misled investors by denying through much of 2008 that it intended to acquire VW and by using manipulative trades to hide its stock positions. The sports-car maker said on Oct. 26, 2008, that it controlled most of VW’s common stock, causing the shares to surge as short sellers raced to cover their positions.

“We have said all along that we consider the suits to be inappropriate and unfounded,” Albrecht Bamler, a Porsche spokesman, said today by phone.

Adam Hull, a WestLB AG analyst who recommends buying Porsche shares, increased his price estimate by 11 percent to 80 euros. Commerzbank AG analyst Daniel Schwarz improved his rating to “buy” from “hold,” boosting the price estimate by 5.7 percent to 74 euros.

Porsche agreed to combine with VW in August 2009 after a failed hostile attempt to gain control of the Wolfsburg, Germany-based carmaker that included the 2008 stock purchases. Porsche’s shareholders backed a 5 billion-euro stock sale on Nov. 30 as part of the merger.

--With assistance from Joel Rosenblatt in San Francisco. Editors: Kenneth Wong, Tom Lavell.

To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

Nunavut Increases Baffinland Offer to Beat Arcelor Bid

Posted: 03 Jan 2011 04:59 AM PST

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By Carli Lourens

(Updates with shares in last paragraph.)

Jan. 3 (Bloomberg) -- Nunavut Iron Ore Acquisition Inc. raised its bid for Canada’s Baffinland Iron Mines Co. to C$1.45 ($1.46) a share, beating ArcelorMittal’s increased cash offer of C$1.40 a share.

Bruce Walter, Nunavut’s chairman, said the company “is continuing to assess its options beyond the increase,” in a statement on CNW.  The offer, 81 percent higher than Nunavut’s original 80 cents offer, expires Jan. 10.

ArcelorMittal, the world’s largest steelmaker, last week boosted its offer for Baffinland by 27 percent, escalating a three-month takeover battle for the Mary River deposit in Canada. Prices of iron ore, a steelmaking ingredient, surged last year because of demand from China, the largest steel producer.

Baffinland said in November the Mary River deposit above the Arctic Circle could produce 18 million metric tons of iron ore annually from 2013 and supply steelmakers such as ThyssenKrupp AG and Voestalpine AG. The deposit contains an estimated 365 million metric tons of reserves, it said.

Baffinland rose 3.6 percent to C$1.43 in Toronto on Dec. 31, giving the company a value of C$ 490.6 million. The shares have more than doubled this year.

--Editors: Chris Peterson, Alan Purkiss

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net

North Korea Says Regional Tensions Should Be Defused

Posted: 03 Jan 2011 04:56 AM PST

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By Paul Tighe and Jungmin Hong

(Updates with comment from South Korean government in seventh paragraph.)

Jan. 1 (Bloomberg) -- North Korea, in a New Year message, said tensions with South Korea should be defused while calling for “intense combat training” for the North Korean army.

“The danger of war should be removed and peace safeguarded in the Korean Peninsula,” the state-run Korean Central News Agency reported, citing a New Year editorial carried by newspapers including Rodong Sinmun and Joson Inmingun. “If a war breaks out on this land, it will bring nothing but a nuclear holocaust.”

The editorial blamed South Korea and its allies for “reckless and wild behavior” such as mounting military exercises, saying the tense situation required the army to be prepared, KCNA reported today.

Tensions between North Korea and South Korea rose after the sinking in March last year of a South Korean warship, in which 46 sailors died. North Korea in November fired artillery shells at Yeonpyeong Island in the first such attack on South Korean territory since the 1950-53 Korean War.

North Korea rejected an international panel’s finding that the sinking of the Cheonan warship was caused by a North Korean torpedo and said its shelling in November was in response to military provocation by South Korea.

“Confrontation between north and south should be defused as early as possible,” KCNA cited today’s editorial as saying. “Dialogue and cooperation should be promoted proactively,” it said, including allowing free travel and exchanges between people from the countries.

Better Relationship

North Korea “appears to seek humanitarian aid and a better relationship with the South by calling for dialogue and cooperation with Seoul,” South Korea’s Unification Ministry said today in a statement in response to the New Year editorial. “The North also has an intention to stir up a rift among the South Korean people.”

North Korea yesterday accused South Korea of sabotaging relations between the countries after the government of President Lee Myung Bak said it would focus in 2011 on preparations for reunification.

South Korea’s Unification Ministry said on Dec. 29 the policy goals for 2011 would include preparations for unification, rather than the previous strategy of improving ties. The government aims to complete plans in the first half of this year on how South Korea could fund unity with North Korea and its 23 million people, Unification Minister Hyun In Taek said in an Oct. 20 interview.

The South Korean authorities should end their policy of confrontation, KCNA cited the editorial as saying.

‘Battle Ready’

South Korea’s Defense Ministry last week pledged to create a stronger military deterrent with “battle-ready” forces able to respond to attacks.

Lee replaced his defense minister and army head following the Nov. 23 artillery barrage of Yeonpyeong and vowed to strengthen the military and respond more harshly to any further North Korean attacks.

North Korea is “consistent in its stand and will to achieve peace in Northeast Asia and the denuclearization of the whole of the Korean Peninsula,” KCNA cited today’s editorial as saying. It will “strive to develop relations of friendship and cooperation with countries that are friendly toward us.”

Six-nation talks on dismantling North Korea’s nuclear program stalled in April 2009. The forum involves North Korea, South Korea, the U.S., Japan, China and Russia.

--Editors: Hugh Chow, Jim McDonald

To contact the reporters on this story: Paul Tighe in Sydney at ptighe@bloomberg.net; Jungmin Hong in Seoul at jhong47@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

Ma Urges Taiwan and China to Strive for Democracy, Human Rights

Posted: 03 Jan 2011 04:56 AM PST

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By Tim Culpan

Jan. 1 (Bloomberg) -- Taiwan and China should focus on striving for freedom, democracy and human rights, without fighting over unification or independence, Taiwan President Ma Ying-jeou said in his New Year address.

“We care about mainland China’s human rights development because it is a cherished core value that measures and closes the gap between the two sides,” Ma said in a speech posted on the presidential website today.

The Republic of China’s rule has been confined to Taiwan since Mao Zedong’s communists took over the mainland and established the People’s Republic of China in 1949, sparking decades of tension which began to ease when Ma took office in 2008 and made conciliatory overtures toward China.

Taiwan’s calendar counts years from when Sun Yat-sen ended the last Chinese imperial dynasty. Marking 100 years of the Republic of China, Taiwan’s official name, Ma called for a “Golden Decade” to kick-start the next century marked by education reform, environmental stewardship, justice and peace.

Taiwan will require 12 years of compulsory education, extended from nine-years previously, Ma said. Free pre-school classes will be broadened while not mandatory, and free senior high-school and vocational education will commence in 2014 with no entrance exams in most cases, he said.

“Over the next century, the R.O.C. will serve as a paragon of democracy for the Chinese-speaking world,” Ma said. “The R.O.C. is a nation with its own independent sovereignty that not only protects the safety and dignity of Taiwan, Penghu, Kinmen and Matsu, it’s also proof that Chinese peoples can tread a new path of freedom and democracy.”

--Editors: Hugh Chow, Jim McDonald

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net.

Vigilantes Sidelined as Swaps Show GDP Tops Deficit

Posted: 03 Jan 2011 04:55 AM PST

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By Daniel Kruger

Jan. 3 (Bloomberg) -- The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt.

While the average yield on Treasuries rose to 1.89 percent from 1.42 percent at the end of September, according to the Bank of America Merrill Lynch Treasury Master index, the price of credit-default swaps tied to U.S. debt declined to 41.5 basis points from 48.4 basis points at the end of September, according to Bloomberg data. The dollar rose 1.5 percent against an index of currencies of six major U.S. trading partners.

The drop in swap prices and the greenback’s strength shows bond vigilantes aren’t ready to punish the U.S. for its spending. Pacific Investment Management Co. and JPMorgan Chase & Co. raised their growth forecasts after President Barack Obama agreed to extend George W. Bush-era tax cuts as reports show gains in retail sales, manufacturing and consumer confidence.

“More than anything else, it’s a growth story,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “From the fiscal stimulus to the monetary stimulus to the tax extensions, it’s the belief that the U.S. government is all in.”

Obama Deficits

The Obama administration’s 2011 budget forecast a $1.267 trillion deficit for the fiscal year, which ends Sept. 30, after shortfalls of $1.294 trillion in fiscal 2010 and $1.416 trillion in the 2009 fiscal year.

Even as deficits remain at almost record highs, the bond market is giving the U.S. time to address structural budget imbalances. A Bloomberg News survey of the 18 bond dealers that serve as counterparties to the Federal Reserve in its open market transactions show they forecast the 10-year Treasury yield to rise to 3.65 percent from 3.30 percent on Dec. 31, below its average of 4.33 percent since 2000. Two-year yields will climb to 1.05 percent from 0.59 percent, holding below the average of 3.03 percent since the beginning of 2000.

Bond dealers and foreign and domestic investors bid about $494 billion for $165 billion of Treasury securities auctioned during December, government data show. That’s an almost 3-to-1 bid-to-cover ratio, matching the demand for Treasuries during 2010.

“If there were some new concern about the U.S. budget situation it would have shown up in the currency markets, which it hasn’t,” said Tony Crescenzi, a portfolio manager and strategist at Pimco in Newport Beach, California, which runs the world’s biggest bond fund.

Rising Dollar

The dollar strengthened 0.4 percent during the quarter, as measured by IntercontinentalExchange Inc.’s dollar index, and gained 1.5 percent for the year after a 4.2 percent decline in 2009.

Pimco’s forecast is for 3.5 percent economic growth in the fourth quarter of 2011 from the year-earlier period, up from 2.5 percent. JPMorgan, the second-biggest U.S. bank by assets, boosted its 2011 growth forecast half a percentage point to 3.1 percent.

Ten-year Treasury note yields rose 78 basis points to 3.29 percent during the fourth quarter, as prices tumbled. Treasuries handed investors a loss of 2.67 percent in the period, according to Bank of America Merrill Lynch data, the worst performance since the second quarter of 2009, following the start of the Fed’s first round of Treasury purchases, when investors saw a 3.08 percent loss.

‘Improved Outlook’

“The move up in yields is associated with an improved outlook, improved data,” Crescenzi said in a telephone interview. “Global investors have kicked their concerns about the budget situation down the road. There’s no urgency to moving on the deficit, so there’s no reason to be selling the dollar.”

Reports last week from the government and private groups show U.S. economic growth quickening, as jobless claims fell by 34,000 to 388,000, breaking the 400,000 level for the first time since July 2008, the Labor Department said Dec. 30. The Institute for Supply Management-Chicago Inc. said its business barometer rose to 68.6 in December, the highest level since 1988.

Sales at U.S. retailers advanced 5.5 percent during the holiday season, the best performance in five years, said MasterCard Advisors’ SpendingPulse.

Even as the economic outlook has improved, the pace of consumer price increases remained lower than monetary policy makers’ long-term preference, tempering the drop in bond prices. The Fed’s preferred price gauge, personal consumption excluding food and energy costs, rose at a record-low 0.5 percent annual pace in the third quarter, the Commerce Department said Dec. 22.

Inflation Watch

“There’s no risk currently of a resurgence of inflation,” said Christopher Sullivan, who oversees $1.7 billion as chief investment officer at United Nations Federal Credit Union in New York. “That should restrain the bond vigilantes desire to push yields up aggressively. Yields need to normalize as the economy gradually improves. We should see that in the coming quarters, but it should be fairly gradual.”

Economist Ed Yardeni coined the term “bond vigilantes” in 1983 for investors who protest inflationary monetary or fiscal policies by selling bonds and driving up government borrowing costs. Their greatest claim to victory was the 1993 decision by President Bill Clinton to abandon plans for an economic stimulus package on the advice of Robert Rubin, then an administration economic adviser, who said it would reduce demand for Treasuries, leading to increased borrowing costs.

Since the end of the Clinton Administration in January 2001, outstanding marketable Treasury debt has almost tripled to $8.75 trillion from $2.98 trillion. Most of the increase in borrowing has come since the start of the financial crisis in July 2007, when outstanding tradable U.S. government securities totaled $4.4 trillion.

Serious Situation

“The budget situation is serious,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York, one of the 18 primary dealers. “You’re seeing it in the steepening of the yield curve. You should be paid more to take each additional year of U.S. credit risk.”

The gap between two- and 10-year Treasury yields, known as the yield curve, has widened to 2.70 percentage points from 2.08 percentage points at the end of September, about the lowest since April 2009.

The tax-cut agreement between Obama and Republicans in Congress brings budget concern much closer to the point where it will become pressing, Misra said. “It seems there’s no political will to control the deficit,” she said.

Swap Costs

Credit default swaps on Treasuries show that the deficit isn’t an immediate concern for investors.

At 41.5 basis points, the cost of insuring against a default by the U.S. is at its average for 2010, and is down from a peak of 63.28 basis points in February after Moody’s Investors Service said that the country’s Aaa bond rating “could come under downward pressure.”

The current prices of the swaps means investors are paying $41,450 a year for five years to protect $10 million of debt.

Germany CDS prices have risen to 58.7 basis points, the highest since May, when the euro plunged on concerns the Greece financial crisis would spread through Europe, from 38.96 basis points at the end of September. The price to protect U.K. gilts from default also increased in the fourth quarter, to 73.94 basis points from 65 basis points at the end of September.

Growth stemming from the tax cuts and stimulus spending will help the deficit once it takes root in the economy, according to John Briggs, a U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, a primary dealer.

Stocks, Junk Bonds

“The deficit part is more gray, because if you have stronger growth you have better receipts, so you can’t just mechanically adjust up your forecast for issuance,” Briggs said.

At the same time Treasuries fell, the Standard & Poor’s 500 Stock Index surged 10.2 percent last quarter and high-yield, high-risk corporate bonds returned 3.07 percent, according to the Bank of America Merrill Lynch High Yield Master II index.

Gains in stocks and junk bonds reflect optimism that the Fed and Chairman Ben S. Bernanke will avoid deflation by purchasing $600 billion of Treasuries in a policy known as quantitative easing, or QE.

“The market is starting to believe the Fed will be successful in creating growth,” said Ray Humphrey, who manages inflation-indexed bond portfolios in Hartford, Connecticut for Hartford Investment Management Co., which has $161.7 billion in assets. “Nominal bonds are frankly reflecting those higher growth rates.”

--Editors: Paul Cox, Robert Burgess

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net;

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net