Business News: Hybrids Still Need Training Wheels

Business News: Hybrids Still Need Training Wheels

Hybrids Still Need Training Wheels

Posted: 02 Dec 2010 02:00 PM PST

Automakers, UAW Discuss More Profit-Sharing

Posted: 07 Dec 2010 09:02 PM PST

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By Tim Higgins, Keith Naughton and David Welch

Dec. 8 (Bloomberg) -- General Motors Co., Ford Motor Co. and Chrysler Group LLC, in advance of next year’s labor contract negotiations, are exploring with the United Auto Workers changes that could give workers a bigger piece of growing profits.

“We want to find the best possible bang for all of the employees, across the board, not a program that would pay some and not the others,” said General Holiefield, head of the UAW’s Chrysler department under President Bob King.

While formal negotiations haven’t begun, union leaders and executives from the automakers have broached profit-sharing changes, said two people familiar with the efforts. High-level discussions began months ago because it was deemed a significant issue that would require more time, said one of the people, who asked not to be identified because the talks were private.

All of the companies have been “hinting” at profit- sharing changes, Holiefield said in an interview Dec. 6.

It was “not just within Chrysler but the Big Three,” he said. “Bob King has got to get his arms around it.”

The union made mid-contract concessions last year, such as giving up full pay for idled workers, before the bankruptcies of Chrysler LLC and General Motors Corp. The UAW’s four-year labor agreements with three automakers expire Sept. 14, 2011, the union has said. Formal negotiations typically begin several weeks before the contracts expire.

GM, Ford and Chrysler go into next year’s negotiations seeking a deal that keeps the companies’ competitive with foreign rivals, while the union aims to ensure workers share in the upswing after making sacrifices, labor experts said.

Worker Rewards

“The companies want to try and reward the hourly workforce without bringing back some of the cost items that made them non- competitive,” said Art Schwartz, a former GM negotiator now doing labor management consulting based in Ann Arbor, Michigan.

Chris Lee, a GM spokesman, and Shawn Morgan, a Chrysler spokeswoman, declined to comment yesterday.

“At this point, it’s premature to talk about 2011 negotiations seeing that they are several months away,” John Stoll, a Ford spokesman, said in an interview yesterday. “We believe all stakeholders should benefit from the company’s success.”

Ford, the world’s most profitable automaker, in October reported a third-quarter net income of $1.69 billion and GM, which went public again in November, reported a third-quarter net income of $2.16 billion.

While Chrysler reported a net loss of $453 million through three quarters, the Auburn Hills, Michigan-based automaker’s results have been improving and the company has said it will be profitable in 2011.

Pattern Bargaining

The UAW is probably having similar conversations with the three automakers, said Arthur Wheaton, a Cornell University labor expert.

“It’s been the historical trend,” said Wheaton, who is based in Buffalo, New York. “For basically the last 60 years it’s been pattern bargaining, so whatever one gets, the others follow along. There have been some minor exceptions.”

Companies like profit sharing because it’s a cost only if they’re making money, Wheaton said.

“The current profit-sharing formula has been pretty ineffective,” he said in a telephone interview.

Payments have been small and sporadic because the companies haven’t been consistently profitable. “Part of it’s also the formula and how they base it,” Wheaton said.

Payout History

The union reached profit-sharing agreements with the three automakers in the 1980s, the UAW said.

Ford, which earned $2.72 billion last year, paid UAW members an average of $450 in profit sharing this year, Stoll said. That was the first for the union since Chrysler paid workers an average of $650 in 2006, the Detroit Free Press has reported.

“Around 2000, they were bringing home profit-sharing checks like $7,000,” Wheaton said of Chrysler workers.

Both GM and the UAW want to change the profit-sharing plan to make it more consistent, said one person familiar with the discussions. GM’s plan has paid out very little over the past 10 years, so the union wants to lower the profit threshold that allows workers to get paid, the person said.

At the same time, there is no maximum payout, so management wants to limit how much the company will pay workers in good years, the person said. Management also wants to link the profit-sharing plans to hourly and salaried workers so that neither side feels unfairly compensated, the person said.

Fairness Issue

One of the hourly workers’ concerns with profit sharing is that they must bear the brunt of cost-cutting while not seeing a large return, said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts.

“The fear of profit sharing to the UAW has always been one of: You’re the junior partner in success and senior partner in failure,” he said

A comment made at a Ford factory last week underscores the desire of workers to avoid further givebacks.

“It is time to turn the page on concessions and get back the sacrifices of the past,” Grant Morton, a UAW official at Ford’s Chicago assembly plant, told a cheering crowd at a ceremony Dec. 1 to celebrate the start of Explorer production.

Union and company leaders talk to each other regularly, they have said.

“These are just exploratory discussions,” Chaison said.

‘Surface Talk’

Chrysler and the union are discussing a variety of issues beyond profit sharing, Holiefield said.

“There’s been nothing written in concrete, just surface talk,” he said. “Not just that,” he said of profit sharing. “We talk about improving everything. That’s just one element of our discussion.”

He didn’t specify those discussions or say how the profit- sharing formula might be changed to benefit all stakeholders.

“They’re always thinking about ways to improve the processes, about ways to improve the products and about what it would take to naturally keep the company afloat,” Holiefield said. “How the state of Michigan would benefit from that and how the employees would benefit from everything we do.”

--With assistance from John Lippert in Chicago. Editors: Kevin Orland, Jamie Butters.

To contact the reporters on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net; Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net. David Welch in Southfield, Michigan at dwelch12@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net;

Democrats Balk at Second-Lowest U.S. Estate Tax in 80 Years

Posted: 07 Dec 2010 09:20 PM PST

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By Ryan J. Donmoyer

Dec. 8 (Bloomberg) -- Senate Republicans won one of their top priorities in tax-cut negotiations with President Barack Obama by securing what would be the second-lowest U.S. estate tax in 80 years.

That victory has now become a focal point for House Democrats, who are venting over what they say is a poor deal that gives a disproportionate amount of benefits to the very rich while padding deficits. House Speaker Nancy Pelosi of California described the estate tax plan yesterday as “a bridge too far,” and one of her lieutenants, Maryland Representative Chris Van Hollen, called it a “huge bonanza.”

“The estate tax has really put people over the edge,” said Representative Allyson Schwartz, a Pennsylvania Democrat and a member of the tax-writing Ways and Means Committee. Democrats as diverse as Earl Pomeroy of North Dakota, a member of the fiscally conservative Blue Dog Coalition, and Earl Blumenauer of Oregon, who belongs to the Congressional Progressive Caucus, cited the estate tax as a factor in their decisions to oppose Obama’s proposal.

Republican negotiators pushed for a top estate tax rate of 35 percent during the talks, a senior administration official said. Obama agreed to that rate as part of his tax cut plan, which would also allow the first $5 million of an individual’s estate to be passed on to heirs tax-free. Couples would receive a $10 million allowance.

‘More Generous Treatment’

“Republicans have asked for more generous treatment of the estate tax than I think is wise or warranted,” Obama said Dec. 6 in announcing a compromise framework that would extend the soon-to-expire 2001 and 2003 tax cuts and reduce payroll taxes by 2 percentage points next year. He said he was compelled to accept the lower rate in order to secure an extension of the tax cuts for middle-income Americans.

Except for this year, during which the estate tax is temporarily eliminated, the 35 percent rate and $10 million exemption would be the lowest tax burden applied to large estates since 1931, when the top rate was 20 percent.

If enacted, the estate tax would be 20 percentage points less than the 55 percent rate set to prevail in 2011 under current law, and the exemption is $8 million larger per couple. Under the plan, the 35 percent rate would be in place for two years.

Victory for Kyl

The estate tax deal represents a victory for Senator Jon Kyl, an Arizona Republican who has spent three years lobbying for the policy. Kyl’s effort, co-sponsored by Senator Blanche Lincoln, an Arkansas Democrat, was joined in the last year by business groups such as the U.S. Chamber of Commerce and the National Federation of Independent Businesses. They supported the effort after concluding that repeal wasn’t possible.

“A $5 million exemption and 35 percent rate will provide much-needed estate tax relief until full repeal becomes possible,” the Family Business Estate Tax Coalition, an umbrella organization of trade groups, said in a statement yesterday.

Many details of the agreement still must be negotiated, including whether to apply the estate tax retroactively for 2010. In the absence of that tax this year, a complicated capital gains tax treatment for inherited estates took its place. Some might choose to file an estate tax return for 2010 under the new rules to obtain more preferable tax treatment.

Few Estates Affected

According to the Congressional Research Service, the Kyl- Lincoln approach would subject just 0.14 percent of U.S. estates to a tax and would generate $11.2 billion in revenue next year. By contrast, the 55 percent top rate, with a $1-million-per- person exclusion, would affect 1.76 percent of estates and would generate $34.4 billion in revenue, the CRS said.

Obama had previously backed, and House Democrats in 2009 passed, a 45 percent rate and a $3.5 million tax-free allowance. If applied for 2011, those parameters would subject 0.25 percent of U.S. estates to a tax and would generate $18.1 billion in revenue next year, the CRS said.

The new plan angered an advocacy group, the American Family Business Institute, which was formed to lobby for a permanent repeal of the levy. It was funded in part by families who would be subject to the tax.

“Hopefully Congress will have the courage to do the right thing and permanently repeal the death tax,” said Dick Patten, the group’s president.

Meanwhile, Chuck Marr, director of federal tax policy at the liberal-leaning Center on Budget and Policy Priorities, said the issue for Pelosi and other Democrats is whether policies they support -- such as an extension of unemployment benefits -- are enough to offset their disappointment over the estate tax.

“A new estate tax cut windfall for the wealthiest trust- fund kids is hard to fathom,” Marr said. “Still, this framework extends unemployment insurance, the child tax credit, and effectively expands the Obama working- and middle-class tax cut. That’s good news for these families and the economy.”

--Editors: Jodi Schneider, Leslie Hoffecker.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

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

Obama: Tax Accord Will Make 'Real Difference'

Posted: 07 Dec 2010 09:03 PM PST

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By Julianna Goldman and Mike Dorning

Dec. 8 (Bloomberg) -- President Barack Obama defended the tax-cut deal he reached with Republican leaders as a pragmatic compromise grounded in the realities of families who otherwise could have seen their taxes rise or jobless benefits halted.

Obama, confronting complaints from Democrats in Congress that he gave too much ground by keeping lower rates for the wealthiest Americans for two more years, made no apologies. He said he was unwilling to risk a broad tax increase on Jan. 1 that would have made middle-class families and the economic recovery “collateral damage” in “a political fight.”

“This isn’t an abstract debate,” Obama said at a news conference yesterday. “This is real money, for real people, that will make a real difference in the lives of the folks who sent us here.”

He said he’d fight to let the tax cuts for the highest- earning people expire in two years, as they would under the accord. Even as he justified yielding to Republican demands to extend the tax cuts enacted under President George W. Bush, he said his opponents shouldn’t read that as weakness.

“I will be happy to see the Republicans test whether or not I’m itching for a fight on a whole range of issues,” Obama said. “I suspect they will find I am.”

John Pitney, a government professor at Claremont McKenna College in Claremont, California, said Obama needs to convince his base he is still willing to stand up to the Republicans.

“He’s drawing lines in the sand after the sand has been kicked in his face,” Pitney said. “He’s trying to reassure his base this compromise is not necessarily a preview of the next two years.”

Echoes of Reagan

Pitney said Obama’s position bore “striking parallels” to a dilemma President Ronald Reagan faced when he agreed to tax increases in the early 1980s and also had to reassure core supporters.

Under the terms of the deal, which Obama discussed with Democratic congressional leaders last night, the president agreed on the two-year extension of all current tax rates in exchange for an additional 13 months of federal unemployment insurance for the long-term jobless and cutting the payroll tax by $120 billion for a year.

House Speaker Nancy Pelosi said the response from Democrats “has not been very good.” The addition of an estate tax provision is a “bridge too far,” she told reporters.

House Majority Leader Steny Hoyer, a Maryland Democrat, said a continued tax break for the wealthiest Americans “is not warranted.” House Democrats haven’t decided whether they will support the compromise, he said, and Pelosi and Hoyer stopped short of saying they would block the deal.

‘A Long Game’

Senate Majority Leader Harry Reid of Nevada said Democrats in that chamber have “wide-ranging” concerns about the plan.

Obama said Democrats should remember that the two-year extension allows for renewed debate over the issue during the 2012 presidential campaign and that the struggle to enact the party’s priorities is “a long game” and “not a short game.”

He portrayed his Republican opponents as obstructionist “hostage-takers” whose “Holy Grail” is “tax cuts for the wealthy.”

He declined to say how quickly he expected the economy to accelerate or how fast unemployment, which was at 9.8 percent in November, will come down.

“This package will help strengthen the recovery,” he said. “That I’m confident about.”

Payroll Tax

If Congress agrees, the deal would leave in place the 10, 15, 25, 28, 33 and 35 percent marginal tax rates created in 2001. It would also preserve for two years the 15 percent tax rate on most capital gains and dividends, and would temporarily index the alternative minimum tax for inflation.

The agreement would extend aid for the long-term unemployed. And to spur hiring, the payroll tax -- which funds Social Security and Medicare -- would be cut by 2 percentage points during 2011.

The plan would set the estate tax at a top rate of 35 percent, which applies after a $5 million tax-free allowance per individual. That rate would be the lowest since 1931 -- not counting 2010, when the rate was zero and replaced with a capital gains tax that applies when inherited assets are sold.

The proposed payroll tax cut equals a $115 billion increase in wage and salary income that could result in Americans spending $108 billion more than has been forecast, according to Deutsche Bank Securities economists Joseph LaVorgna, Carl Riccadonna and Brett Ryan.

Boosting GDP

That would boost gross domestic product by an additional 0.7 percentage points, bringing inflation-adjusted growth for the fourth quarter of next year to a 4 percent annual rate, they said in a note to clients.

“The payroll tax holiday could give the economy an added fillip next year in addition to any incremental benefit from improving financial conditions, the full extension of the Bush- era tax cuts and the expanded business investment tax credit,” LaVorgna, Riccadonna and Ryan wrote.

Stocks rose and Treasuries fell yesterday, as the deal offset concern that Europe’s debt crisis will spread.

The Standard & Poor’s 500 Index rose 0.1 percent to 1,223.78 at 4 p.m. after earlier climbing as much as 1 percent. The 10-year Treasury yield jumped 20 basis points to 3.13 percent.

Biden’s Message

Vice President Joe Biden went to a lunch yesterday with the Senate Democratic Caucus to give the senators a more detailed presentation of the deal.

Senator Dianne Feinstein said Biden’s message was that the compromise represented the best deal possible. The California Democrat said she is reviewing the details and wants to see an assessment of the cost and impact on the economy.

“If we do vote for it, how sure can we be that it will in fact spawn jobs and pump up the economy?” she said.

Treasury Department aide Gene Sperling said most Democrats will end up backing the package.

Democrats “are going to want to be on the side of supporting something this strong for working-class families,” Sperling said on Bloomberg Television. “There is no question this package is going to make unemployment lower than what it would have been.”

--With assistance from, Ryan J. Donmoyer, Catherine Dodge, Kate Andersen Brower, Lisa Lerer, Laura Litvan, Peter Cook, James Rowley, and Richard Rubin, Roger Runningen and Jeff Bliss in Washington. Editors: Joe Sobczyk, Mark McQuillan.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net Mike Dorning in Washington at mdorning@bloomberg.net

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

Apple Asked to Pay Up for Network Improvement

Posted: 07 Dec 2010 03:16 PM PST

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By Matthew Campbell and Jonathan Browning

Dec. 8 (Bloomberg) -- Google Inc., Apple Inc., and Facebook Inc. need to pitch in to help pay for the billions of dollars of network investments needed for their bandwidth-hogging services, European phone operators say.

As mobile and Web companies add videos, music and games, operators including France Telecom SA, Telecom Italia SpA and Vodafone Group Plc want a new deal that would require content providers like Apple and Google to pay fees linked to usage.

“Service providers are flooding networks with no incentive” to cut costs, France Telecom Chief Executive Officer Stephane Richard said last month. “It’s necessary to put in place a system of payments by service providers as a function of their use.”

Richard, who may address the issue at the “Le Web” conference in Paris today, has joined Telecom Italia CEO Franco Bernabe and Telefonica SA CEO Cesar Alierta in what could turn into a cold war with Web companies. As more consumers access the Internet on mobile devices, the cost of building bigger networks may outstrip revenue growth for wireless operators, slicing their return on investment.

The mismatch between investments and revenue “is set to compromise the economic sustainability of the current business model for telecom companies,” Bernabe said.

While the number of mobile data connections in western Europe will rise by an average of 15 percent a year to 270 million in 2014, overall end-user revenue will decline about 1 percent a year, Interactive Data Corp. estimates. In the same period, operators’ annual spending on network gear will surge 28 percent compared with last year to about $3.7 billion, according to research firm Canalys.

Economic Sustainability

Companies such as Google and Yahoo! Inc. “use Telefonica’s networks for free, which is good news for them and a tragedy for us,” Alierta said in February. “That can’t continue.”

To be sure, operators are benefitting from the surging popularity of mobile data use. Domestic data revenue at France Telecom, the biggest seller of Apple’s iPhones after AT&T Inc., surged 24 percent in the third quarter, rising to almost 32 percent of network revenues.

Still, faced with slowing overall revenue growth even as data usage soars, the operators are trying to pass on some of the costs to the service providers.

“There’s a clear competitive response by the carriers to try and make moves to ensure that the likes of Google and Apple don’t have it their own way,” said Paolo Pescatore, an analyst at CCS Insight in London.

‘Frenemy’

Last month, the tensions threatened to spill into public after a plan by Apple to introduce a so-called soft SIM in its next iPhone prompted threats from European operators to cut subsidies for the device, the Daily Telegraph reported.

A soft SIM would make it easier for consumers to switch network providers by eliminating the need for a new, physical SIM card issued by an operator to do so.

While Apple backed off for now, the technology will eventually be introduced, Sanford Bernstein analyst Robin Bienenstock said in a note to clients, calling the iPhone-maker a “frenemy” for operators.

Apple, Google, Facebook, and online-calling service Skype Technologies SA “increasingly look like integrated operators in the telecom network sector,” Telecom Italia’s Bernabe said.

Pay for Use

Service providers and phone operators have begun to experiment with new models. In the U.S., Google and Verizon Communications Inc., the biggest domestic mobile operator, urged regulators to exclude mobile Internet connections from potential net neutrality rules, which could bar operators from selectively slowing some traffic.

The exception, which wasn’t adopted by the Federal Communications Commission, would have allowed operators to charge consumers or content providers a premium for delivery of certain videos, games or other applications.

Rules encouraging payment for network use are more likely in Europe, where companies like France Telecom and Telefonica are some of the biggest employers, New York-based Sanford Bernstein analyst Craig Moffett and Bienenstock wrote in a note.

Operators are meanwhile looking for ways to win revenue from data-hogging customers. Vodafone, the world’s largest mobile provider by revenue, plans to shift to so-called tiered pricing based on data use, following a similar move away from unlimited plans by AT&T Inc. Unlimited data plans will become increasingly rare, said Rosalind Craven, an International Data Corp. analyst based in London.

No Sharing

Service providers say they already pay enough.

“Currently about 40 percent of our expenses go to networks anyway -- servers, peering, our content delivery network, and other resources,” said Giuseppe de Martino, the legal and regulatory director of Paris-based online-video provider Dailymotion SA. “If telecom operators want us to share in their expenses, perhaps we should talk about sharing subscription revenues as well.”

Bill Echikson, a spokesman for Google in Brussels, declined to comment did Cupertino, California-based Apple spokeswoman Trudy Muller.

Operators’ ability to win favorable terms may be enhanced by an increasing number of mobile operating systems, including Google’s Android, Apple’s iOS, Nokia Oyj’s Symbian and Research In Motion Ltd.’s BlackBerry.

“The outlook vis-a-vis two years ago is much better now,” Vodafone CEO Vittorio Colao said on a conference call last month. With “four solid competing operating systems, I think our customers have a choice and we have a choice as well.”

The operators’ emerging fight is ultimately about control over customers and their wallets, said CCS Insight’s Pescatore.

“They want a bigger piece not only of the pie but also ownership of the customer,” he said of web companies. “There’s clearly a big battle.”

--With assistance from Chiara Remondini in Milan, Brian Womack and Adam Satariano in San Francisco, and Paul Tobin in Madrid. Editors: Vidya Root, Simon Thiel.

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net. Jonathan Browning in London jbrowning9@bloomberg.net.

To contact the editor responsible for this story: Vidya Root in Paris at vroot@bloomberg.net;

Google's Chrome OS a Future Microsoft Rival

Posted: 07 Dec 2010 02:31 PM PST

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By Joseph Galante and Douglas MacMillan

(Updates with analysts’ comments in third, tenth paragraphs.)

Dec. 7 (Bloomberg) -- Google Inc. unveiled a laptop that runs its Chrome operating system, providing an alternative to computer software from Microsoft Corp. and Apple Inc.

The unbranded device boasts a 12.1-inch screen and includes mobile-Internet connection options from Verizon Wireless, Mountain View, California-based Google said during a conference and on a blog today. The Chrome computer is available for tests by some consumers and businesses, Google said.

By designing a browser-based operating system to power netbooks and laptops, Google may pose a challenge to Microsoft’s Windows, the market leader, and Apple’s software. Still, Google may not quickly erode the incumbents’ lead, said Colin Gillis, an analyst at BGC Partners in New York.

“While it’s exciting, it doesn’t mean PCs are going to melt away tomorrow,” said Gillis, who has a “hold” rating on Google and doesn’t own any shares. “It’s going to be 2013 before there’s any impact that is noticeable.”

Chrome notebooks will be available from Samsung Electronics Co. and Acer Inc. in the first half of 2011. Companies and agencies including Virgin America Inc. and the U.S. Defense Department will test the new laptops, Google said. Windows, Microsoft’s flagship product, runs about 90 percent of the world’s personal computers.

“With Chrome OS we have the development of a viable, third choice in real operating systems,” Chief Executive Officer Eric Schmidt said at the event.

Chrome Store

Schmidt said in July Google’s operating software will eventually be on millions of personal computers. The laptop has Wi-Fi and 3G Internet connectivity provided by Verizon Wireless, the mobile phone company owned by Verizon Communications Inc. and Vodafone Group Plc, Google said.

It takes 7 seconds to boot up Chrome OS and 3 seconds to log in, Google has said. Chrome OS will use the Chrome browser that Google made available last year. Google also said it improved browser speed, simplicity and security, and that its user base has grown this year to 120 million from 40 million.

The company also said today that there are 500 applications in its Chrome Web store, which opens today and was announced in May. Amazon.com Inc.’s Kindle books can be purchased and read within the browser’s store. National Public Radio also has an app in the store.

Google’s new online store for software will appeal to people accustomed to easily downloading and using mobile apps on Apple iPhones and other handsets, said Sarah Rotman Epps, an analyst at Forrester Research Inc. in Cambridge, Massachusetts.

“Consumers think differently about using software because of their experience using smartphones,” Epps said. “Software is now apps, but it’s also the browser, and with Chrome Web Store, Google is presenting content on both fronts.”

Google rose 1.5 percent to $587.14 as of 4 p.m. New York time on the Nasdaq Stock Market. The shares have fallen 5.3 percent this year.

--With assistance from Brian Womack in San Francisco. Editors: Elizabeth Wollman, Romaine Bostick.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

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

No Passage Out of India for Private Equity

Posted: 02 Dec 2010 02:00 PM PST

Bonds Drop, Dollar, Stocks Rise on Economy; Silver, Cotton Fall

Posted: 08 Dec 2010 05:07 AM PST

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By Daniel Tilles

Dec. 8 (Bloomberg) -- Bonds fell around the world, the dollar strengthened and European stocks rose on speculation President Barack Obama’s tax-cut accord will help spur economic growth. Commodities dropped on concern China may raise interest rates, while U.S. equity index futures fluctuated.

The yield on the German 10-year bund climbed five basis points at 7:35 a.m. in New York, reaching 3 percent for the first time since May. Treasury 10-year yields gained nine basis points, while Irish 10-year yields were little changed as the government won a budget vote in parliament. The Dollar Index rose 0.5 percent. The Stoxx Europe 600 Index added 0.4 percent, with futures on the Standard & Poor’s 500 Index 0.1 percent lower. Cotton dropped 2.6 percent as silver slid 3 percent.

Global bond markets extended a three-month decline after Obama agreed to extend Bush-era tax cuts. The compromise may add as much as half a percentage point to economic growth next year, according to JPMorgan Chase & Co. China said today it will release consumer price-index data on Dec. 11, two days earlier than planned, fanning speculation interest rates may be increased. Irish Finance Minister Brian Lenihan won parliamentary backing in the first votes on his 6 billion-euro ($8 billion) austerity budget.

“Extending tax cuts and allowing the deficit to remain extremely elevated could be an economic masterstroke, thus pushing up growth,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote today in a note to investors. “Or it could lead us a step closer towards fiscal ruin. It could be eventually be both.”

Irish Spread Narrows

Japanese five-year yields jumped as much as 10 basis points to 0.515 percent in Tokyo, the biggest increase since June 11, 2008, according to data compiled by Bloomberg. The extra yield investors demand to hold Irish 10-year bonds instead of benchmark German bunds narrowed eight basis points to 500 basis points. The cost of protecting against a European junk-bond default rose from a one-month low, with the Markit iTraxx Crossover Index of credit-default swaps on 50 companies climbing 1.5 basis points to 453.7, according to Markit Group Ltd.

The Dollar Index, which tracks the currencies of six U.S. trading partners, rose to 80.233, climbing for a third day. The euro weakened 0.4 percent to $1.3214, while the New Zealand dollar declined against all but one of its most-traded counterparts amid speculation the Reserve Bank of New Zealand will keep its main rate at 3 percent tomorrow, according to all 14 economists surveyed by Bloomberg.

European Stocks Rise

The Stoxx 600 advanced for a third day toward its highest close since September 2008. Smith & Nephew Plc, Europe’s largest maker of shoulder and knee implants, rose 4.6 percent after Goldman Sachs Group Inc. recommended buying the stock. Gains were limited as Porsche SE led automakers lower, dropping 3.4 percent to snap a six-day rally. Capital Shopping Centres Group Plc sank 4.2 percent after Simon Property Group Inc. said it may drop its interest in buying the U.K. company.

U.S. futures were little changed. The S&P 500 pared gains in the final hour of trading yesterday, pulling the benchmark gauge down from a two-year high, after Obama told a White House news conference he’ll push to let the tax cuts expire in two years.

The MSCI Asia Pacific Index fell 0.8 percent, the most in almost two weeks. Cnooc Ltd., China’s biggest offshore oil producer, declined 2.4 percent in Hong Kong. Sumco Corp., a Japanese maker of silicon wafers for semiconductors, slumped 9.6 percent in Tokyo after forecasting a wider full-year net loss.

Korean Tensions

The MSCI Emerging Markets Index fell 1.1 percent, on course for its biggest decline since Nov. 26. The measure climbed 5.1 percent in the previous five days. The Shanghai Composite Index dropped 1 percent. China’s statistics bureau is bringing forward the release of economic data including retail sales figures by two days as investors speculated the central bank is preparing to raise borrowing costs.

South Korea’s Kospi Index retreated 0.4 percent after North Korea fired artillery shells into its own waters near the disputed western border with South Korea today, according to a government official in Seoul. The won dropped 1.3 percent, the most since Nov. 26.

The S&P GSCI index of 24 commodities fell 0.7 percent, the biggest drop in a week. Copper declined 0.4 percent to $8,844.75 a metric ton after climbing to a record $9,044 yesterday. Gold fell 0.7 percent to $1,392.93 an ounce. It also traded at a record high yesterday.

--With assistance from Michael Shanahan, David Merritt, Claudia Carpenter, Abigail Moses, Jason Webb, Matthew Brown and Paul Armstrong in London. Editors: Paul Sillitoe, Justin Carrigan

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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

Norilsk Said to Sell 38% in U.S. Stillwater for $722 Million

Posted: 08 Dec 2010 05:01 AM PST

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By Ilya Khrennikov and Zijing Wu

Dec. 8 (Bloomberg) -- OAO GMK Norilsk Nickel, Russia’s largest mining company, sold 38 percent of its U.S. unit Stillwater Mining Co. for $722 million in a public offering, according to two people with knowledge of the matter.

Norilsk sold 37 million shares at $19.50 each, the people said. The price is 5 percent below yesterday’s close in New York, valuing the company at $1.9 billion, according to Bloomberg calculations. Credit Suisse Group AG, JPMorgan Chase & Co., UBS AG and VTB Capital were running the sale.

Norilsk may offer another 9.8 million shares in the form of an issue of so-called mandatory exchangeable notes by UBS, according to a regulatory filing on Nov. 29.

Including over-allotment stocks, Norilsk may offload its entire 49.8 million shares in Stillwater. The mining company decided this year to sell the stake because it doesn’t have operational control.

--Editors: Tony Barrett, Amanda Jordan

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net Zijing Wu in London at zwu17@bloomberg.net.

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

Apax Said to Be in Talks to Buy ISS for $8.5 Billion

Posted: 08 Dec 2010 04:59 AM PST

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By Anne-Sylvaine Chassany

(Adds comment from Goldman Sachs in fifth paragraph.)

Dec. 8 (Bloomberg) -- Apax Partners LLP is in exclusive discussions to buy Danish cleaning service provider ISS Holding A/S for about 6.4 billion euros ($8.5 billion), in what would be this year’s biggest leveraged buyout, said two people with knowledge of the talks.

The London-based private equity firm has been given about two months to arrange financing for its offer, said the people, who declined to be identified because the talks are private.

Goldman Sachs Capital Partners and EQT Partners AB, which acquired ISS, the world’s largest provider of cleaning services, for 21.9 billion kroner ($3.9 billion) in 2005, said in August they were considering a sale of the company and hired bankers to review their options. ISS Chief Executive Officer Jeff Gravenhorst said last month the two firms would prefer an initial public offering.

“The strategic ownership review continues, and as we have said, the outcome could be an IPO, but we don’t have anything new to report at this point,” Kaspar Bach Habersaat, a spokesman for Copenhagen-based ISS, said by telephone today.

ISS has an enterprise value of 39.4 billion kroner ($7 billion), according to an August estimate by Jyske Bank A/S. Officials at EQT, Goldman Sachs and Apax declined to comment. The talks were reported by the Daily Telegraph earlier today.

China Investment

Apax, which oversees an 11.2 billion-euro buyout pool it raised in 2007, is in talks with backers including sovereign wealth fund China Investment Corp. to provide additional equity to invest alongside the fund, the people said.

The purchase would surpass the $5.1 billion acquisition of Del Monte Foods Co. by a group of three private equity firms including KKR & Co. last month. Leveraged buyout firms are resuming spending after the financial crisis brought dealmaking to a near-halt for two years. The firms have led $227 billion of takeovers this year, more than double the amount in the same period last year, according to data compiled by Bloomberg.

Leveraged buyout firms like Apax pool money from investors to take over companies, financing the purchases mostly with debt, with the intention of selling them later for a profit. Apax’s investments include stakes in TDC A/S, Denmark’s biggest telephone company, and Hit Entertainment Ltd., a children’s entertainment company that owns Thomas the Tank Engine and Bob the Builder.

--With assistance from Ambereen Choudhury in London, Niklas Magnusson in Stockholm and Christian Wienberg in Copenhagen. Editors: Edward Evans, James Amott.

To contact the reporters on this story: Anne-Sylvaine Chassany in London at achassany@bloomberg.net;

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

Yahoo Chief Says Facebook Is Bigger Rival Than Google

Posted: 08 Dec 2010 04:54 AM PST

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By Brian Womack and Douglas MacMillan

(Updates with comment about sales in eighth paragraph.)

Dec. 8 (Bloomberg) -- Yahoo! Inc. Chief Executive Officer Carol Bartz said social networking leader Facebook Inc. has emerged as a bigger rival than Google Inc., owner of the biggest Web-search engine.

“Our greatest competitor probably is Facebook, more so than Google,” Bartz said at an event sponsored by Bloomberg Businessweek in New York yesterday. “They’re a hot site, but there’s room for more than one of anything.”

Bartz said her company once weighed buying closely held Facebook for about $1 billion and that her acquisition strategy is to focus on companies that bring users, content, engineers and advertising technology. Yahoo is adding features to keep from losing Web surfers to sites such as Facebook and Twitter Inc. that make it easier to interact with friends.

The second-year CEO has cut costs, pared extraneous products and focused Yahoo on news, sports and other content. She also struck a partnership that lets Microsoft Corp. handle the mechanics of Web search, while Yahoo oversees advertising sales. She’s been less successful reviving growth and keeping pace with newer, faster-growing Web companies.

As Facebook’s user base has surged past 500 million, its value has risen to more than $40 billion, according to private- share trading site SharesPost Inc. Yahoo, based in Sunnyvale, California, has a market capitalization of $22.1 billion.

Not Going Private

Asked for her thoughts on whether Yahoo should go private, Bartz said she has no plans to do so. She also said Yahoo will remain useful to users because of its ability to personalize and organize content from the Web’s 240 million sites.

“For the most part, people pretty much want this curated for them,” she said.

Bartz also said Yahoo’s sales will “start really taking off” in 2012. The company’s third-quarter revenue of $1.12 billion, excluding money passed on to partner sites, fell short of the $1.13 billion average of analysts’ estimates, according to data compiled by Bloomberg.

Yahoo rose 61 cents, or 3.7 percent, to $16.94 yesterday on the Nasdaq Stock Market. The shares are little changed this year before today.

--Editors: Tom Giles, Ville Heiskanen

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

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

Orexigen Diet Pill Victory Shows Being Last Pays Off

Posted: 08 Dec 2010 04:48 AM PST

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By Catherine Larkin

(Updates with shares jumping early in fifth paragraph.)

Dec. 8 (Bloomberg) -- Orexigen Therapeutics Inc.’s success in winning the first U.S. panel recommendation for a long-sought prescription diet pill shows the company benefitted from the earlier difficulties of its rivals. The shares more than doubled.

Outside advisers to the Food and Drug Administration said the weight-loss benefits of Orexigen’s product, Contrave, exceed the dangers of elevated pulse and blood pressure. They also recommended that a large study on cardiovascular risk can wait until after the drug is approved. The FDA delayed competing treatments from Arena Pharmaceuticals Inc. and Vivus Inc. in October after they failed to win the panel’s backing on safety.

While the FDA isn’t obliged to follow the recommendations of its advisers, their support eases concerns that had caused Orexigen shares to drop by more than a third this year. The La Jolla, California-based company gained from watching the FDA’s focus on safety and learning a commitment to minimize the drug’s risks and conduct additional studies would be needed to support approval, said Joshua Schimmer, an analyst at Leerink Swann.

“The fact that they were able to convince the panel not only that the cardiovascular study can wait, but that the drug can be approved, is exciting, particularly after we saw the other obesity drugs voted down,” Schimmer said yesterday in a telephone interview. “It’s hard to know to what extent their strategy was altered by the first two, but it sure as heck didn’t hurt.”

Two-Thirds Overweight

Shares of Orexigen gained $7.29, or 153 percent, to $12.05 in early trading on the Nasdaq Stock Market today after being halted yesterday during the meeting. Options traders placed record bets on Orexigen last week, saying a positive panel vote would double the company’s value. Vivus gained in early trading today, up 76 cents, or 9.7 percent, to $8.56, as the Orexigen recommendation bodes well for its drug’s heart risks.

About 68 percent of American adults are overweight, raising their risk of diabetes, heart disease, high blood pressure and cancer, according to the 2008 National Health and Nutrition Examination Survey. Almost 34 percent are obese, measured as a ratio between height and weight.

The three companies and their partners have been in a race to introduce the first prescription weight-loss pill in more than a decade. Basel, Switzerland-based Roche Holding AG’s Xenical, approved in 1999, is the only long-term medicine for weight loss since Abbott Park, Illinois-based Abbott Laboratories’ Meridia was pulled off the market in October because of heart risks.

January Decision

Orexigen and partner Takeda Pharmaceutical Co., of Osaka, Japan, are scheduled to receive a decision from the FDA by Jan. 31. Schimmer said approval may be delayed while the company and the agency work out details of the prescribing information and the new study. He expects diet pills from Orexigen and Mountain View, California-based Vivus ultimately to win approval with potential sales of each reaching $1 billion or more in the U.S.

San Diego-based Arena said Oct. 25 that it was seeking a meeting with the FDA about the agency’s questions on tumors seen in studies of rats taking the diet drug lorcaserin, which Arena is developing with Eisai Co. of Tokyo. Vivus said Oct. 29 that it plans to respond within six weeks to the FDA’s request for more information about heart risks and birth defects tied to the diet pill Qnexa. This would trigger a new two- to six-month review.

“We learned about the complex issues surrounding obesity therapeutics that are important to the FDA and the medical community, and we did our best to address those issues,” Orexigen Chief Executive Officer Michael Narachi said yesterday after the vote.

Drug Combination

Contrave, Orexigen’s first product, is a combination of two approved drugs that target different parts of the brain that influence appetite and cravings. The pill contains bupropion, an antidepressant also used to quit smoking, and naltrexone, a treatment for alcohol and painkiller addiction.

Two tablets of Contrave twice a day helped twice as many patients in studies lose at least 5 percent of their weight compared with a placebo after 56 weeks. The drug missed the FDA’s second standard of effectiveness in failing to show at least a 5 percent benefit over placebo. Patients on the drug also had higher pulse and blood pressure than patients on placebo, even after losing weight.

Dissident members of the advisory panel said Contrave shouldn’t be approved without a large study of heart risks because it counteracts some of the expected benefits of weight loss, a signal that it may have long-term complications.

“This drug resembles sibutramine,” said panel member Sanjay Kaul, using the chemical name for Meridia. “There is an opportunity for us to learn from history or else we’re going to repeat it. We need to make sure we get it right this time.”

Kaul is the director of fellowship training in cardiovascular diseases at Cedars-Sinai Medical Center in Los Angeles.

--Editors: Andrew Pollack, Steve Walsh

To contact the reporter on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

Israelis, Palestinians Trade Blame Over Halt in Peace Talks

Posted: 08 Dec 2010 04:28 AM PST

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By Jonathan Ferziger

Dec. 8 (Bloomberg) -- Israelis and Palestinians accused each other of undermining peace talks after a U.S. official said the Obama administration was abandoning attempts to press for an Israeli settlement freeze as a way of advancing negotiations.

Chief Palestinian negotiator Saeb Erakat said that Israeli Prime Minister Benjamin Netanyahu “succeeded in torpedoing the peace talks.” Israeli Cabinet Secretary Tzvi Hauser said on Israel Radio that “the Palestinians need to understand, as the Americans do, that it is unacceptable for either side to set pre-conditions.”

The talks, launched Sept. 1, stalled about four weeks later when a 10-month moratorium on settlement construction expired and Netanyahu refused to extend it. Abbas said Palestinians wouldn’t continue the dialogue unless building was halted. The U.S. will stop pressing Israel for another freeze and look at other ways to push the peace process forward, the U.S. official said in Washington yesterday.

Secretary of State Hillary Clinton may outline a new U.S. strategy on Middle East talks in a speech at the Brookings Institution in Washington on Dec. 10.

The U.S. had offered Israel 20 additional F-35 fighter jets and said it would oppose any attempt by international bodies to impose a peace deal if Israel agreed again to a partial freeze.

Netanyahu had said he would take the U.S. offer to a vote at his security cabinet once he had received it in writing.

‘Fish to Fry’

“Obama’s got bigger fish to fry and he doesn’t see movement on either side for now so he’s going to wait,” said Mark Heller, principal research associate at the Institute for National Security Studies at Tel Aviv University. “Ultimately his attention will be redirected to trying to resolve the Mideast conflict because that’s what always happens. Some kind of crisis is inevitable.”

Erakat called the U.S. decision a “major setback for stability in the region.”

“We had hoped the American administration would hold Israel accountable,” he said in a phone interview from the West Bank town of Jericho.

Netanyahu “remains determined to continue the efforts to achieve a historic peace agreement with the Palestinians,” spokesman Mark Regev said in a phone interview from Jerusalem. “We believe that it is indeed possible to see the Palestinians achieve sovereignty while protecting Israel’s most vital national and security interests.”

When he opened the talks in Washington three months ago, President Barack Obama told Netanyahu and Palestinian Authority President Mahmoud Abbas that they have “a moment of opportunity that must be seized” and called for the two to resolve their dispute within a year.

New Approach

A new U.S. approach could lead to a return to the shuttle diplomacy mediated by the U.S. Middle East special envoy, George Mitchell, said Robert Danin, a senior fellow at the Council on Foreign Relations in Washington.

“This is obviously not what the administration wanted,” he said in an interview. Still, indirect talks on borders and security issues may be able to “generate a face-saving measure and find some other way to get the parties back to the table,” he said.

Before talks broke down over settlements, the two sides had agreed to pursue a framework for a comprehensive peace accord within a year, addressing issues at the heart of the conflict including the borders of a Palestinian state, security arrangements for Israel, the status of Jerusalem and the right of return for Palestinian refugees.

Statehood

Palestinians may seek recognition of a state as the alternative to talks with Israel. Erakat said last month that the Palestinian Authority would pursue a bid for recognition at the United Nations Security Council if talks broke down.

Brazil and Argentina announced this month that they would recognize a Palestinian state with pre-1967 borders, and Uruguay pledged to do the same next year. State Department spokesman Philip J. Crowley described Brazil’s move as “counterproductive.”

The Jerusalem Post yesterday quoted an unidentified U.S. official who briefed reporters as saying that peace efforts were going back to the drawing board, and that Israeli and Palestinian officials would visit Washington in the coming days.

--With assistance from Peter S. Green in New York and Indira A. R. Lakshmanan in Washington. Editors: Louis Meixler, Ben Holland.

To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Dark-Pool Trading Faces Stricter EU Disclosure Rules

Posted: 08 Dec 2010 04:27 AM PST

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By Jim Brunsden

(Updates with Barnier comments in seventh paragraph.)

Dec. 8 (Bloomberg) -- The European Union plans to force investors that trade stock in dark pools, or private venues that don’t display prices in advance, to disclose more information about their activities.

The European Commission proposed placing transparency requirements on the so-called dark pools to reduce threats to financial stability. The EU measures are part of an overhaul of the Markets in Financial Instruments Directive, or Mifid.

“The world has changed,” Michel Barnier, the EU’s financial services chief, said in a statement today. The EU needs rules that lead “to greater market transparency and efficiency.”

Dark pools are being probed by regulators in both the EU and U.S. because of concerns that their lack of transparency increases price volatility. The U.S. Securities and Exchange Commission proposed last year that dark pools should have to publicly report some bids once they handle 0.25 percent of a stock’s average daily volume. Such trading has also been scrutinized by the Committee of European Securities Regulators.

“We want to have transparency in the dark pools,” Barnier told reporters at a briefing.

‘Organized Trading’

The commission may require “organized trading” to be subject to minimum requirements, including disclosure of the kinds of trades that can be executed, and who is allowed to participate. Waivers that allow investors not to disclose pre- trade information on regulated exchanges should be “subject to further clarification and in some cases restrictions,” the commission said.

Executives from NYSE Euronext and Nasdaq OMX Group Inc. have argued that unrestricted trading outside exchanges may hurt the ability of markets to gather enough buy and sell demand to produce fair prices. Brokers such as Goldman Sachs Group Inc. and ICAP Plc operate dark pools for their clients, as do European bourses NYSE Euronext and Deutsche Boerse AG.

The commission is seeking views on its plans until February 2011. Any final proposals would have to be approved by national governments and the European Parliament to become law.

“People have some clarity and will be able assess where to focus,” said Burcak Inel, deputy secretary general of the Federation of European Securities Exchanges in a telephone interview. “Everyone now needs to come back to the commission with facts to support their argument.”

‘Discrete’ Transparency

The EU should restrict dark-pool trading to increase market transparency, while allowing some sales to be made “in a discrete way” to avoid unsettling the markets, Jean-Pierre Jouyet, head of France’s financial market regulator, said in an interview with French newspaper Le Monde today.

The EU should follow U.S. authorities by allowing regulators to limit the positions that traders take in agricultural and other commodity derivatives, Barnier said. Action was necessitated by “scandalous” speculation that had pushed up food prices, Barnier said.

“I don’t think there is any reason why us Europeans should be less rigorous than the Americans,” he said. “I’m resolved something needs to be done.”

The revamped law should also set limits on the number of orders that high-frequency traders can place, and require such traders to tell regulators how their computer algorithms work, the EU said. The plans would shed light on the bond and derivatives markets, requiring the publication of post-trade data.

Financial Crime

The commission also announced a related initiative to increase penalties against financial crime. It said that consideration should be given to the setting of minimum jail terms and other criminal sanctions throughout the EU.

“If a financial institution does not abide by EU rules in the area of financial services, traders and executives must realize that they won’t get away with it,” Barnier said. “Now, too often, that is not the case.”

Administrative fines available to regulators can vary from less than 150,000 euros ($235,000) to millions of euros, Barnier said. He said the 17.5 million pound ($23.2 million) fine handed down by the U.K. Financial Services Authority in September to Goldman Sachs was an example of “tough” enforcement.

--With assistance from Nandini Sukumar in London and Heather Smith in Paris. Editors: Anthony Aarons, Peter Chapman

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

Tech Sector Adds 47,000 Jobs So Far in 2010

Posted: 07 Dec 2010 08:11 PM PST

Mideast Private Equity Has Room to Run

Posted: 06 Dec 2010 09:01 PM PST