Business News: Philippine Call Centers Overtake India

Business News: Philippine Call Centers Overtake India

Philippine Call Centers Overtake India

Posted: 02 Dec 2010 02:00 PM PST

Obama Accepts a Raft of Tax Cuts

Posted: 07 Dec 2010 04:48 AM PST

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By Ryan J. Donmoyer and Mike Dorning

(Updates with global markets in paragraphs six and seven; adds explanation of payroll-tax savings to workers, in 26th paragraph.)

Dec. 7 (Bloomberg) -- President Barack Obama said he would agree to sustain Bush-era tax cuts for high-income taxpayers in exchange for extending federal unemployment insurance and cutting the payroll tax by $120 billion for one year.

Obama said he would accept lower rates on high earners’ income, dividends, capital gains and multimillion-dollar estates for the next two years to break a stalemate over extending the Bush administration’s tax cuts for middle-class taxpayers before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to increase Dec. 31.

Without the compromise, middle-income families would become “collateral damage for political warfare here in Washington,” Obama said in televised remarks yesterday. He said he still believes that the nation can’t afford to permanently extend the reduced top tax rates.

“This compromise is an essential step on the road to recovery,” said Obama, who criticized Republicans for insisting on permanent tax cuts for the wealthiest Americans “regardless of the cost of impact on the deficit.”

Obama spoke in Washington after a White House meeting with Democratic congressional leaders. They and the Republican leadership still have to sell the plan to their caucuses. Obama called it a “framework” for a deal.

In addition to preserving the status quo on Bush policies, the proposal creates more than $300 billion in new tax cuts for wage-earners, wealthy families, and corporations.

Markets Rise

Stocks rose, copper and gold climbed to all-time highs and Treasuries fell after Obama agreed to extend the tax cuts, offsetting concern that Europe’s debt crisis will spread further.

The Stoxx Europe 600 Index climbed 1.3 percent at 7:25 a.m. in London, while Standard & Poor’s 500 Index futures added 0.9 percent. The yield on the 10-year Treasury advanced seven basis points to 2.99 percent. The Dollar Index fell 0.3 percent. Copper rallied as much as 2.8 percent, gold jumped 1 percent to $1,428.55 an ounce and oil rose to a 26-month high.

An administration official said the president was happy with the agreement because it would give the economy a boost.

Obama won his biggest prize: a 13-month extension of unemployment insurance, the official said, speaking on condition of anonymity. The White House also counted as a win an agreement from Republicans to renew a refundable child-care tax credit, the earned income tax credit, tuition tax credits and a 2 percent reduction in payroll taxes, among other items, the official said.

Camp Comment

The compromise amounts to a couple hundred billion in tax cuts that no one thought possible just days ago, the official said, adding that the deal will play better across the country than in Washington, D.C.

Representative Dave Camp of Michigan, who will become chairman of the tax-writing House Ways and Means Committee when Republicans take control of the chamber in January, welcomed Obama’s announcement.

“This framework will allow us to extend all current tax rates, and give economic recovery and job creation a chance,” Camp said in a statement.

Some Concessions

Lawrence Mishel, president of the Economic Policy Institute, a Washington group funded in part by labor unions, said Obama extracted some concessions from Republicans that may help the deal advance in Congress.

“Economically, if you were going to do a deal, I think this is better than expected and will provide some help to the economy, but we need a lot more help,” he said. “I think people generally wanted to have a fight to show who was for the rich people and who was for the rest of us. That fight now will take place in the 2012 election.”

Some lawmakers said they would take a stand now.

“This is a very bad agreement,” Vermont Senator Bernie Sanders, an independent who caucuses with the Democrats, told MSNBC television. Sanders vowed to “do what I can” to block Senate passage.

In a letter to House Speaker Nancy Pelosi of California circulated yesterday, Representative Peter Welch of Vermont and at least five other Democrats urged her not to agree to the administration’s deal.

“We support extending tax cuts in full to 98 percent of American taxpayers, as the president initially proposed,” Welch wrote. “He should not back down. Nor should we.”

‘Cautiously Optimistic’

Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada, was noncommittal.

“Now that the president has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow,” Manley said. Vice President Joe Biden is scheduled to attend the Senate Democratic Caucus lunch.

Mitch McConnell of Kentucky, the Senate Republican leader, said in a statement that he was “cautiously optimistic” that congressional Democrats “will have the same openness to preventing tax hikes that the administration has already shown.”

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.

Payroll Tax

In addition, the plan outlined by Obama would extend aid for the long-term unemployed for an additional 13 months. To help spur hiring, the payroll tax -- which funds Social Security and Medicare -- would be cut by 2 percentage points during 2011.

The payroll tax cut would apply to all wage-earners, an administration official told reporters on a conference call. That would be an $800 savings for individuals with an income of $40,000. Those who earn salaries of more than $106,800 would save a maximum of $2,136. The proposal would cost the government $120 billion, another administration official said.

The 2 percent cut represents a savings of about a third on the 6.2 percent share of the tax workers normally pay. Their employers get no benefit.

The unemployment rate rose to a seven-month high of 9.8 percent in November as payroll growth slowed to 39,000 from 172,000, according to the Labor Department.

Estate Tax

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

Lee Farris, who tracks estate tax policy for the liberal advocacy group United for a Fair Economy in Boston, called Obama’s acceptance of the 35 percent rate “inconceivable.”

“A weaker estate tax, coupled with the extension of the Bush tax cuts for the wealthy, is only going to end in the richest 1 percent owning even more of our country’s wealth,” she said.

Obama also endorsed allowing a full deduction for equipment purchases that currently must be deducted over time. The proposal would accelerate $200 billion in tax savings for companies in the first year and benefit 1.5 million companies and several million individuals who run businesses, according to White House estimates.

Total revenue lost from the so-called expensing proposal over 10 years would be $30 billion; companies taking the immediate deductions wouldn’t be able to write off their expenses through depreciation in years to come.

Negotiations

The administration officials said some elements of the plan still have to be negotiated by Treasury Secretary Timothy Geithner, Budget Director Jack Lew, Camp and three other lawmakers. They include whether to renew dozens of expired or expiring tax provisions. Among them: The Build America Bond program, the fastest-growing segment of the $2.8 trillion municipal debt market.

The subsidy, which expires Dec. 31, was created by President Barack Obama’s 2009 economic-stimulus plan. More than $173.5 billion of the taxable securities have been sold, according to data compiled by Bloomberg. The U.S. pays 35 percent of the interest costs on the debt. A Senate bill would cut that rate to 32 percent. Republicans may oppose the measure.

--With assistance from Peter Cook, James Rowley, and Richard Rubin and Roger Runningen in Washington. Editors: Robin Meszoly, Brigitte Greenberg.

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

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

Build Americas Left Out of Tax Cut Deal

Posted: 06 Dec 2010 09:18 PM PST

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By Ryan Donmoyer and William Selway

Dec. 7 (Bloomberg) -- An extension of the U.S. Build America Bond program was left out of a compromise that President Barack Obama struck with congressional leaders to prolong tax cuts enacted in 2001 and 2003, White House officials said.

The president said last night that he agreed to extend all expiring income-tax cuts for two years, as Republicans wanted, in return for advancing jobless benefits and cutting payroll taxes. The Build America program, which subsidizes state and local borrowing costs, was omitted, according to two officials briefed on the plan who spoke on condition of anonymity because the details haven’t been released.

The omission sets back efforts aimed at keeping the program, which is set to expire at year-end, in place. More than $173.6 billion of the taxable securities have been sold since April 2009, making it the fastest-growing segment of the $2.8 trillion municipal market, according to data compiled by Bloomberg. The U.S. pays 35 percent of the interest on the debt.

The subsidy was created by Obama’s 2009 economic-stimulus plan. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, included an extension in a bill to keep middle-income tax cuts passed under President George W. Bush. That bill was defeated Dec. 4 in the Senate because it would have let rates increase next month for top earners.

The fate of the Build America program, which Obama has sought to extend, may be determined by a six-member panel headed by Treasury Secretary Timothy Geithner, the White House officials said. Panel members were appointed by Obama and congressional leaders to negotiate tax issues.

Broader Market

Because they carry taxable rates comparable to similar corporate debt, state and local issuers have marketed Build America securities to pension funds, offshore investors and others who don’t typically buy municipal securities. That has curbed the supply of tax-exempt bonds and buoyed prices since Build Americas were introduced.

Concern that the program would lapse has weighed on the tax-exempt bond market since an end to Build America issuance may boost the amount of money state and local governments borrow with tax-exempt debt. Issuers have also rushed to sell Build America securities before year-end.

With Republicans poised to take control of the House in January, local governments, banks and other advocates of the subsidy program are pressing to have it extended in the current, so-called lame-duck session. Under the Baucus bill, the program would have been extended for a year while the subsidy was to be cut to 32 percent of interest costs.

Spending Critics

Republicans -- including U.S. Representative David Camp of Michigan, who is in line to become chairman of the tax-writing Ways & Means Committee -- have been critical of spending under Obama’s $814 billion stimulus package. Democrats, who now control the House, have passed measures to prolong the Build America program, only to see the bills stall in the Senate.

Obama spoke about the compromise in Washington after a White House meeting with Democratic congressional leaders. They and the Republican leadership still have to sell the plan to their caucuses. Obama called it a “framework” for a deal.

--With assistance from Richard Rubin and Michael Dorning in Washington. Editors: Ted Bunker, Leslie Hoffecker.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

The Fall of Niagara Falls

Posted: 02 Dec 2010 02:00 PM PST

Flextronics, Siemens Lead 'Big Shift' to Cloud Computing

Posted: 07 Dec 2010 05:20 AM PST

Your Life in the Cloud

Posted: 06 Dec 2010 08:19 AM PST

Citigroup Stake Sold by Government for $10.5 Billion

Posted: 07 Dec 2010 04:57 AM PST

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By Bradley Keoun and Donal Griffin

(Updates shares in fifth paragraph.)

Dec. 7 (Bloomberg) -- The U.S. Treasury Department sold its remaining stock in Citigroup Inc. for $10.5 billion, bringing the country’s third-biggest bank a step closer to independence from the government following a $45 billion bailout in 2008.

The Treasury said it disposed of 2.4 billion shares at $4.35 each, compared with yesterday’s closing price of $4.45 on the New York Stock Exchange. The sale raises the profit for taxpayers on the rescue to about $12 billion, including the share gain, dividends and proceeds from other securities.

The sale helps Citigroup exit the 2008 bailout, which was provided to keep the New York-based bank from collapsing as its stock sank below $5 and some depositors started withdrawing their money. Citigroup also had to get $301 billion of government guarantees on its riskiest assets, making the bailout the biggest among U.S. banks.

“We’re seeing a form of governmental handcuffs being released,” Bill Bradway, founder of banking consultant Bradway Research LLC in Framingham, Massachusetts, said before the announcement. “Citi will be basically disentangling itself from direct ownership from the government, and the government is cashing out.”

Citigroup shares advanced 5 cents to $4.50 in early trading at 7:49 a.m. in New York. They rallied 34 percent this year through yesterday, though remain down about 92 percent from their December 2006 high of $56.41. Bank of America Corp., the biggest U.S. bank by assets, has declined 23 percent this year while JPMorgan Chase & Co., the second-biggest, fell about 4 percent.

‘Substantial Profits’

“We had an opportunity to lock in substantial profits for the taxpayer and avoid future risk,” Tim Massad, acting assistant secretary for financial stability, said in the government statement.

The Treasury said its average price for selling 7.7 billion Citigroup shares was $4.14. The government acquired the shares at a conversion price of $3.25. The share increase produced a gain of about $6.85 billion.

The U.S. has been winding down bank-bailout and emergency- lending programs while trying to recoup the money it provided to bolster private companies including General Motors Co. and American International Group Inc.

The Treasury received $13.6 billion from last month’s initial public stock offering by Detroit-based General Motors, and still holds about 33 percent of the automaker. The government said in September it plans to convert $49.1 billion of AIG preferred shares into common stock that would eventually be sold in the open market.

Government’s Stake

The government stake in Citigroup came from converting $25 billion of bailout money last year into common stock at $3.25 a share. The 7.7 billion shares equated to a 27 percent stake.

“Citi is pleased that the U.S. Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock,” Jon Diat, a spokesman for the New York-based bank, said in an e-mailed statement. “We are very appreciative of the support provided by the UST during the financial crisis.”

The Treasury still owns warrants on 465.1 million Citigroup shares, and the Federal Deposit Insurance Corp. holds $800 million of the bank’s trust-preferred securities on behalf of the Treasury, according to a regulatory filing.

In October, the Treasury sold another $2.2 billion of the trust preferreds, which Citigroup had delivered to the government as compensation for the asset guarantees. The bank also paid about $3 billion of dividends to the government on its preferred shares.

Shares Outstanding

Because of the new stock Citigroup issued to raise capital and satisfy the government, the number of shares outstanding ballooned to about 29 billion from about 5.5 billion, diluting shareholders by more than 80 percent.

This week’s offering may help lure back investors who were worried that the stock might be pressured by the Treasury’s sales or leery of investing alongside the government, said Gary Townsend, president of the investment firm Hill-Townsend Capital LLC in Chevy Chase, Maryland.

“This now puts the shares into hands that are not obviously committed to selling them, so this removes an overhang,” Townsend said. “And of course, no one really wants the U.S. Treasury as one of its principal partners.”

The offering is a milestone for Chief Executive Officer Vikram Pandit, who told Congress in February 2009 that taxpayers were right to expect a return on their investment. He pledged to take a $1 salary until Citi returned to profit.

Profit Expected

Citigroup may post an $11.7 billion profit this year, according to the average estimate of 16 analysts surveyed by Bloomberg, following two straight years of losses totaling $29 billion.

Citigroup isn’t likely to see an immediate reprieve from regulatory oversight that followed the bailouts, said Nancy Bush, an independent bank analyst based in Annandale, New Jersey.

“These companies are going to get a level of scrutiny from the government that will continue to be extraordinary,” Bush said. “Treasury and the Federal Reserve and everybody else, they’re not going to go through this again.”

--With assistance from Rebecca Christie in Washington and Lee Spears in New York. Editors: Dan Reichl, Frank Connelly

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Seattle Genetics ‘Guided Missile’ Drug Blasts Rare Lymphoma

Posted: 07 Dec 2010 04:47 AM PST

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By Rob Waters

Dec. 7 (Bloomberg) -- A drug from Seattle Genetics Inc. and Takeda Pharmaceutical Co. used a double-barreled approach to wipe out malignancy in patients with a deadly form of lymphoma, a study found.

The experimental product, SGN-35, combines a cancer-seeking antibody with a tumor-killing chemical. The medicine cleared cancer to undetectable levels in 53 percent of those with anaplastic large cell lymphoma, and cut tumor size by at least half in an additional 33 percent, said Andrei Shustov, leader of the company-funded study. Seattle Genetics, of Bothell, Washington, plans to apply in the 2011 first half for U.S. approval of the drug, which would be its first on the market.

SGN-35 may be cleared late next year for this type of lymphoma and the more common Hodgkin’s form, and by 2015 may bring in $420 million in annual revenue, said Jason Kantor, an analyst with RBC Capital Markets in San Francisco. The drug uses an antibody to find and bind with a protein found on the surface of lymphoma cells, and blasts them with auristatin, a chemical that kills cancer by blocking cell division.

“I call these drugs guided missiles,” Shustov, a blood cancer specialist at the University of Washington in Seattle, said in a telephone interview on Dec. 1. “You have the warhead that is delivered by a smart carrier which is the antibody. It gets the drug to the target at very high concentrations.”

SGN-35’s antibody and drug are held together by a linker, which releases the chemical only when it reaches and docks with the cancer cells. As a result, auristatin shouldn’t enter the bloodstream or reach healthy tissues, and should avoid the side effects of standard chemotherapy, Shustov said.

Rare Cancer

Anaplastic large cell lymphoma is a rare type of T-cell lymphoma diagnosed in 600 to 700 U.S. patients a year, Shustov said. Lymphomas are cancers that damage the lymphatic system, part of the body’s disease-fighting defenses.

T-cell lymphomas, which attack immune cells known as T- cells, are aggressive and hard to treat, with a cure rate of less than 20 percent, Shustov said. Twelve to 24 months after being diagnosed, half of patients are dead, he said.

“This is a very bad cancer,” Shustov said. Part of the reason prognosis is poor in T-cell lymphoma is that previous treatments haven’t targeted the right cells, he said.

In the trial Shustov led, 58 patients with anaplastic lymphoma were treated and studied for a median of six months. The patients ranged in age from 14 to 76 years, with a median age of 52, and had received one to six previous treatments with other therapies, he said.

Complete Remissions

Altogether, 86 percent of the patients in the study had their cancer cut in half or cleared to undetectable levels, 5 percent got worse, 3 percent had stable disease that didn’t improve and 5 percent weren’t available to be evaluated, Shustov said. Those numbers are comparable to what happens with newly diagnosed patients who are given multiple drugs at once.

“We’ve never before seen this rate of complete remissions in relapsed or refractory T-cell lymphomas treated with a single agent,” Shustov said. “We finally have a drug that will provide benefit for a majority of patients who had little hope of clearing the disease.”

Another company-funded study presented yesterday at the hematology meeting found that SGN-35 cleared cancer to undetectable levels in one third of patients with hard-to-treat Hodgkin’s lymphoma, and shrank tumors by half in an additional 40 percent.

Seattle Genetics fell 64 cents, or 4 percent, to $15.23 at 4 p.m. New York time yesterday in Nasdaq Stock Market composite trading. The shares gained 61.7 percent in the 12 months before today. The company currently has no products approved for commercial sale, and had an accumulated deficit of $427.4 million as of Sept. 30. SGN-35, or brentuximab vedotin, is the company’s lead product candidate.

Seattle Genetics has exclusive North American marketing rights to SGN-35. Takeda, based in Osaka, Japan, can sell the drug elsewhere. The companies share development costs equally, except in Japan where Takeda is solely responsible.

--Editors: Donna Alvarado, Jeffrey Tannenbaum

To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net.

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

Onyx Drug Reduced Cancer in a Third of Patients With Myeloma

Posted: 07 Dec 2010 04:46 AM PST

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By Rob Waters

Dec. 7 (Bloomberg) -- Onyx Pharmaceuticals Inc.’s experimental drug carfilzomib shrank the tumors of one-third of people with multiple myeloma, a deadly blood cancer, according to a study.

Among 257 patients who had failed to improve on previous treatments, 24 percent had their cancer reduced by half while 10 percent had malignancy reduced by one-quarter, Onyx said in a statement. The reduction in tumor size was maintained for a median of eight months.

Emeryville, California-based Onyx will use the results to seek accelerated approval from U.S. regulators by the middle of next year, Chief Medical Officer Michael Kauffman said in a Dec. 1 interview. The results were good for a cancer that is uniformly fatal, said David Siegel, division chief for myeloma at John Theurer Cancer Center at Hackensack University Medical Center in New Jersey.

“It hits three home runs,” Siegel said in a Dec. 3 telephone interview. “You get response, the response lasts and the drug is extremely well tolerated. That’s what we’re asking for in a drug like this.”

Onyx may have worldwide revenue from carfilzomib of $391 million in 2015, Phil Nadeau, a New York-based analyst for Cowen & Co., said in a Nov. 4 note to investors.

The study, presented today at the American Society of Hematology meeting in Orlando, Florida, followed 266 patients who had relapsed or failed to improve after being treated with medications including Celgene Corp.’s Revlimid and Thalomid and Johnson & Johnson’s Velcade. Of those, 257 were evaluated for their response.

Competing Drugs

If approved, carfilzomib would compete with Summit, New Jersey-based Celgene Corp.’s Revlimid and Thalomid, which had combined sales of $2.14 billion in 2009. Another drug, Velcade, brought combined revenue of $1.43 billion to New Brunswick, New Jersey-based Johnson & Johnson and Osaka, Japan-based Takeda Pharmaceutical Co.

Multiple myeloma, the second most common blood cancer, causes tumors to form in bone marrow and inhibits the immune system. In the U.S., 20,000 new cases are diagnosed each year and about 10,650 people are expected to die this year from the disease, according to the National Cancer Institute.

Onyx may get accelerated approval on a conditional basis from the U.S. Food and Drug Administration based on the current studies if the agency concludes that carfilzomib reduces tumors to the degree that it’s likely to extend patients’ lives. The company would then have to conduct larger, confirmatory studies.

Entering the Market

Early approval may allow carfilzomib to enter the market in 2012 based on current studies, said Howard Liang, an analyst for Leerink Swann & Co. in Boston. If the agency declines to grant accelerated approval and requires Onyx to complete a 700-patient study now under way, the soonest it may bring the drug to market would be 2014, he said.

The earlier date would maximize sales of carfilzomib before the drug faces competition from a cheaper, generic version of Velcade, which may come in 2017, Liang said.

Carfilzomib, like Velcade, belongs to a class of medicines known as proteasome inhibitors that cause cancer cells to die by interrupting their ability to chew up proteins. If the proteins aren’t digested, they overwhelm the cell and kill it, said Kauffman, of Onyx.

Onyx acquired carfilzomib with its November 2009 purchase of South San Francisco-based Proteolix Inc. for $276 million. Onyx’s only current product is Nexavar, a liver cancer drug marketed with Bayer AG of Leverkusen, Germany. The treatment generated 2009 net sales of $843.5 million, Onyx spokeswoman Lori Melancon said in an e-mail.

Nerve Pain

One advantage of carfilzomib is that it causes less of a type of nerve pain known as peripheral neuropathy than Velcade and Thalomid, said Siegel, who led the study. When Onyx researchers analyzed those patients who already had neuropathy when they started taking carfilzomib, they found that less than 1 percent of the patients had their neuropathy worsen. That analysis was released Dec. 5 at the hematology meeting.

“Other drugs cause a lot of neuropathy; this drug causes almost none,” Siegel said. As a result, “most patients are capable of continuing on the therapy.”

Onyx also is testing carfilzomib in combination with Revlimid for patients who have just been diagnosed and haven’t been treated with other medications. In preliminary results involving 31 patients, two-thirds showed little or no signs of cancer after eight rounds of treatment, the University of Michigan said in a statement. After a median of six months, all the patients were still alive, the university said in its statement.

The Michigan study was led by Andrzej Jakubowiak, director of the multiple myeloma program at the university’s Comprehensive Cancer Center. The results were presented yesterday at the hematology meeting.

--Editors: Donna Alvarado, Andrew Pollack

To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net.

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

ECB Said to Buy Irish, Portuguese, Greek Government Bonds Today

Posted: 07 Dec 2010 04:45 AM PST

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By Paul Dobson

Dec. 7 (Bloomberg) -- The European Central Bank bought Irish and Portuguese government bonds today, according to at least two people with knowledge of the transactions.

Central banks were also buying Greek debt, said one of the people, who asked not to be identified because the deals are confidential. A spokesman for the ECB in Frankfurt declined to comment.

Irish 10-year bonds rose, sending the yield down nine basis points to 8.28 percent as of 12:27 p.m. in London.

Similar-maturity Portuguese debt yields rose 12 basis points to 6.21 percent. Greek 10-year bond yields were 12 basis points higher at 11.78 percent.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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

AGL to Buy Nicor for $2.4 Billion, Doubling Its Size

Posted: 07 Dec 2010 04:44 AM PST

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By Jim Polson and Mark Chediak

(Updates with comment from analyst in fourth paragraph.)

Dec. 7 (Bloomberg) -- AGL Resources Inc., the owner of Atlanta’s natural-gas utility, agreed to buy Nicor Inc. for $2.4 billion in cash and stock, almost doubling the number of gas customers it serves.

Nicor holders will receive $21.20 in cash and 0.8382 shares of AGL, valuing the target company at $53 a share, Atlanta-based AGL said today in a statement. That represents a 13 percent premium to yesterday’s share price and is 22 percent more than Nicor’s stock value on Dec. 1, before news of the company’s potential sale was first reported.

The transaction is the biggest for AGL and the largest in the U.S. gas utilities sector this year, according to data compiled by Bloomberg. Nicor, based in Naperville, Illinois, hired JPMorgan Chase & Co. a few months ago to auction itself, people with direct knowledge of the matter said last week.

The price is 2.24 times Nicor’s book value and “looks like an expensive acquisition,” Gordon Howald, a Happauge, New York- based analyst for East Shore Partners Inc., said today in an interview. “That’s usually a harbinger of challenges.”

Howald rates AGL shares at “buy,” and owns none. Under an existing agreement with Georgia utility regulators, AGL can claim half of any savings from combining the two companies, Howald said. The rest would go to customers. Any rate adjustment is subject to state regulatory approval, he said.

The announcement was made before the start of regular trading on U.S. markets. Nicor rose $5.19, or 11 percent, to $51.95 at 7:03 a.m. in New York. AGL fell 28 cents to $36.85 at 6:32 a.m.

Biggest Purchase

The combined company will have an enterprise value of $8.6 billion, according to the release.

AGL owns Atlanta Gas Light and five other gas utilities with about 2.3 million customers in six U.S. states, according to the company’s website. AGL’s biggest acquisition before today’s announcement was in 2004 when it purchased Bedminster, New Jersey-based NUI Corp., a gas distributor, for $684.6 million including net debt.

Nicor’s natural-gas distribution unit has more than 2 million customers in northern Illinois and the Chicago suburbs. One of its predecessor companies provided gas for the lamps to light one of the debates between future U.S. President Abraham Lincoln and Stephen Douglas in 1858, according to the company’s website.

The takeover is expected to be completed in the second half of 2011 and won’t affect AGL’s per-share earnings in the first full year following the close, the company said. It requires approval from Illinois regulators and the Federal Communications Commission.

Goldman Sachs Group Inc. will finance the $1 billion cash payment to Nicor shareholders and advised AGL on the transaction, the companies said. Long-term bonds will be sold before the deal closes, AGL said. JPMorgan Chase advised Nicor.

Law firms Dewey & LeBoeuf LLP advised AGL, Latham & Watkins LLP advised Nicor and Sidney Austin LLP advised Nicor’s board.

(The companies will hold a conference call to discuss the purchase at 8:30 a.m. New York time, accessible on {LIVE <GO>}).

--With assistance from Stephen Cunningham in London, Zachary R. Mider and Jeffrey McCracken in New York. Editors: Charles Siler, Tina Davis, Alex Devine

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

Stocks Climb on Tax Plan as Bonds Fall; Copper, Gold at Record

Posted: 07 Dec 2010 04:42 AM PST

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By Stephen Kirkland

Dec. 7 (Bloomberg) -- Stocks rose, copper and gold climbed to all-time highs and Treasuries fell after President Barack Obama agreed to extend tax cuts, offsetting concern that Europe’s debt crisis will spread further.

The Stoxx Europe 600 Index climbed 1.3 percent at 7:35 a.m. in London, while Standard & Poor’s 500 Index futures added 0.9 percent. The yield on the 10-year Treasury advanced seven basis points to 2.99 percent. The Dollar Index fell 0.3 percent. Copper rallied as much as 2.8 percent, gold jumped 1 percent to $1,428.55 an ounce and oil rose to a 26-month high. U.K. power prices increased after electricity consumption swelled yesterday to the highest level this year.

Obama said he’ll agree to a two-year extension on all Bush- era tax cuts in a compromise he called “an essential step on the road to recovery.” The European Union is set to approve Ireland’s rescue package, while the region’s finance ministers ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro ($1 trillion) debt crisis fund.

The U.S. tax cut extension “places less of an onus on monetary policy to actually stimulate the economy,” David Forrester, a currency economist at Barclays Capital, said in a Bloomberg Television interview from Singapore. In Europe, there’s “lots of disagreement among policy makers, which is creating more uncertainty,” he said.

Europe, Asia

More than five companies rose for every one that fell on the Stoxx 600, as all 19 industry groups advanced, while the MSCI Asia Pacific Index gained 0.4 percent. BHP Billiton Ltd. led mining stocks higher, rising 3.7 percent. Unilever climbed 4.2 percent after Morgan Stanley recommended shares of the world’s second-largest consumer-goods maker. BP Plc climbed 2.2 percent as the company was said to consider selling some North Sea assets. Tesco Plc advanced 2.1 percent after the U.K.’s largest supermarket chain posted increased sales. Porsche SE jumped 5.9 percent as Barclays Plc lifted its recommendation on the carmaker to “overweight.”

The futures contract on the S&P 500 expiring this month rose to its highest level this year. Citigroup Inc. slipped 0.7 percent in pre-market trading as the U.S. sold its remaining stock in the bank for $10.5 billion, bringing the country’s third-biggest bank a step closer to independence from the government following a $45 billion bailout in 2008.

The MSCI Emerging Markets Index climbed for a fifth day, rising 0.6 percent to the highest level in three weeks. Russia’s Micex Index advanced 1.1 percent to a 2 1/2 year high as OAO Polyus Gold shares surged 4.6 percent. The country’s largest producer of the metal may merge with a global competitor as early as next year to form a “Top 3” gold miner, billionaire owner Mikhail Prokhorov said in an interview with Bloomberg Television yesterday in Moscow.

Tax Cuts

The three-year Treasury note yield rose three basis points to 0.72 percent before the government sells $32 billion of the securities, the first of three auctions this week totaling $66 billion. Obama said he would accept lower rates on high earners’ income, dividends, capital gains and multimillion-dollar estates for the next two years to break a stalemate over extending the Bush administration’s tax cuts for middle-class taxpayers before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to increase Dec. 31.

The German 10-year bund yield rose four basis points to 2.89 percent, and reached 2.91 percent, the highest since May 14. The extra yield, or spread, investors demand to hold Irish 10-year bonds instead of bunds fell 16 basis points to 519, or 5.19 percentage points, according to data compiled by Bloomberg.

Irish Parliament

Irish Finance Minister Brian Lenihan will lay out the 2011 budget in parliament in Dublin at 3:45 p.m., adding to measures of about 14 billion euros over the last two years. The EU has given Ireland until 2015 to reduce its budget deficit to 3 percent of gross domestic product from about 12 percent of GDP this year.

The spread between Portuguese 10-year bonds and equivalent- maturity German debt rose two basis points to 313 basis points, with Spanish spreads eight basis points higher at 237, and Italian spreads little changed.

Credit-default swaps insuring junk-rated European corporate bonds fell to the lowest in three weeks, signaling an improvement in investor perceptions of credit quality, with the Markit iTraxx Crossover Index declining 8 basis points to 458, according to Markit Group Ltd.

The dollar weakened against all 16 of its most-traded counterparts, depreciating 0.6 percent to $1.3370 per euro and also 0.6 percent against the pound, to $1.5790.

Commodities, Energy

Copper jumped to an all-time high of $9,014 a metric ton, extending this year’s advance to 22 percent on demand from China. Cocoa futures in New York climbed 1.6 percent on speculation supplies of the beans in Ivory Coast, the world’s largest producer, is being disrupted after elections and curfews. Wheat rose to a four-month high as Australia cut its export estimate after rainfall delayed harvesting and reduced grain quality.

Gold climbed to records in New York and London on investor demand for an alternative investment to currencies. Silver advanced as much as 2.8 percent to a 30-year high of $30.5475.

Oil rose as much as 1.2 percent to $90.46 a barrel in New York before a report forecast to show that U.S. crude stockpiles fell for the first time in three weeks.

U.K. baseload power for tomorrow rose as much as 11 percent to 83.50 pounds a megawatt-hour today amid freezing weather, the highest price for a next-day contract since January 2009, according to broker data compiled by Bloomberg.

--With assistance from Claudia Carpenter, David Merritt, Abigail Moses, Michael Patterson, Raj Rajendran and Dan Tilles in London. Editors: Stephen Kirkland, Mark Gilbert

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

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

Prokhorov Plans 2011 Merger to Create Top 3 Gold Miner

Posted: 07 Dec 2010 04:31 AM PST

add to Business Exchange

By Ryan Chilcote, Henry Meyer and Ilya Khrennikov

(Updates with share prices from fourth paragraph.)

Dec. 7 (Bloomberg) -- OAO Polyus Gold, Russia’s largest producer of the metal, plans to merge with a global rival as early as 2011 to become one of the world’s three-biggest miners of the commodity, billionaire owner Mikhail Prokhorov said.

“We’ll need to be in the world’s top three,” he said in an interview yesterday in Moscow. Polyus will “make a merger with one of the leading gold companies in the world” after it completes plans to gain a primary listing in London, he said, declining to name acquisition candidates.

Russian producers are seeking to extend their reach after gold prices rose 30 percent this year. OAO Polymetal aims to change its domicile to Jersey, U.K., to expand its investors and OAO Severstal’s Nord Gold unit plans a London initial public offering. Polyus has sought a primary listing in London by combining with its Jersey-based unit KazakhGold Group Ltd.

Polymetal, a Russian producer of gold and silver, surged as much as 20 percent in Moscow trading, the most in two years, after Prokhorov’s comments. The company, which also operates in Kazakhstan and plans to expand in countries including Ukraine, advanced 3.1 percent to 641.92 rubles as of 3:04 p.m. in Moscow.

Polyus rose 4 percent to 1,873.5 rubles, the highest since May 2008, valuing the company at 358 billion rubles ($11.5 billion).

Polyus’s market worth will jump 20 percent after it gains a U.K. listing, Prokhorov, 45, told Bloomberg Television.

“We don’t need acquisition cash,” he said. “As soon as we have a London listing, we can merge with any international company because it’s the same as money.”

Merger Blocked

Polyus canceled a planned merger with KazakhGold after failing to resolve a shareholder dispute over the so-called reverse takeover before an Oct. 29 approval deadline. The company said in October it still aimed to complete a deal allowing KazakhGold, listed in London, to take over Polyus, increasing the parent’s access to global investors.

Barrick Gold Corp., Newmont Mining Corp. and AngloGold Ashanti Ltd. were the largest gold miners last year, according to London-based researcher GFMS. They are followed by South Africa’s Gold Fields Ltd., U.S.-based Freeport-McMoRan Copper & Gold Inc., Goldcorp Inc. and Kinross Gold Corp. of Canada.

Gold Fields rose 0.1 percent to 124.87 rand in Johannesburg trading, while AngloGold declined 0.2 percent to 344.20 rand.

Gold Reserves

Polyus spent almost a decade amassing the world’s fifth- largest gold reserves. Prokhorov, who controls the Moscow-based company with fellow billionaire Suleiman Kerimov, plans to keep a minority stake. Prokhorov and Kerimov each own 37 percent, according to Polyus.

Gold Fields, the world’s fourth-largest gold producer, is “the most likely candidate” for a merger with Polyus, Mikhail Stiskin, an analyst at Troika Dialog, said in Moscow.

Polyus previously abandoned a proposal to combine with Gold Fields in 2004. The Russian company was then a unit of OAO GMK Norilsk Nickel, which bought a 20 percent stake in Gold Fields to expand abroad before selling the holding in 2006.

Sven Lunsche, a spokesman for Johannesburg-based Gold Fields, said he wasn’t aware of any approach.

An international merger “would be complementary as Polyus has a large amount of gold reserves but less international experience and transparency,” said Alexander Pukhaev, an analyst at VTB Capital in Moscow.

Polyus also studied a merger with Kinross “several years ago,” Chief Executive Officer Evgeny Ivanov said in February.

AngloGold, seeking to add 3 million ounces of new projects in the next decade, expects industry consolidation, Chief Executive Officer Mark Cutifani said on Nov. 30. Alan Fine, a spokesman in Johannesburg for AngloGold, declined to comment.

Forbes magazine this year ranked Prokhorov as Russia’s second-richest man with a $13.4 billion fortune.

--With assistance from Ron Derby in Johannesburg. Editors: Tony Barrett, Amanda Jordan

To contact the reporters on this story: Ryan Chilcote in Moscow at rchilcote@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net; Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net.

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