May 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Markets went a tumble again yesterday, and it took very little to spark the sell off. All the good work from last week, which saw a gradual recovery in key indexes was cancelled out, as the FTSE 100, for example, fell by 139 points and the Dow Jones Industrial average plummeted by 184 points.

Perhaps, what is most worrying about the falls, is how so very little was required to trigger the sell off. Oil rose, passing $72 at one time, but actually ended the day less than a dollar up on the day before. And news came in to say the US consumer is cutting back, but the news really wasn’t that bad.

The US consumer Confidence Index, published by the Conference Board, saw a big drop, falling from 109.8, to 103.2. But, then again, markets had expected worse, and as the score from the previous month was a four year high.

In the UK, one of the FTSE 100’s largest companies announced its biggest ever loss, and you could be forgiven for concluding Vodafone woes were behind the FTSE 100 fall, but in fact the company’s share price barely flickered.

It all goes to show how sensitive the markets are at present. Panic setting in at the slightest piece of bad news.

May 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Hope was there, lurking in amongst all the woes revealed by Vodafone yesterday. Competition is forcing prices down, and whichever way you look at things, it’s difficult to envisage the company making the kind of margins it is used to. Except, that is if you look in one direction: because there, gleaming with optimism, is a tiny little nugget of information. This ray of hope was not presented by Vodafone, rather from a much less likely source, and it’s fragile, could easily wither and die, but yesterday, Vodafone too revealed it was aware of this glimmer. But will it be enough?

The Vodafone share price does things differently. Earlier this year, when markets were soaring, the Vodafone stock went into near freefall. More recently, however, when turmoil hit the markets, the Vodafone share price started something of a mini comeback. And yesterday we saw another bad day at stock exchanges throughout the world, and yet, despite Vodafone announcing the biggest ever loss by a European company, shares in the mobile company were relatively stable. Visit this site to see Vodafone versus the FTSE 100 this year Yahoo.

Now Vodafone is changing strategy. Gone is the “purely mobile” dictum that dominated strategy for years. Gone are the empire building ambitions seen under the previous management regime. Instead Vodafone is a company that is embracing converging technologies: computers and mobile phones, broadband and fixed line telephony. And yet, in a world that is seeing ever fiercer price competition where are the margins to come from?

The big loss lay in past mistakes. Back in the heady days of the beginning of this millennium, realism seemed to go out the window, as all the big players paid over the odds for 3G licenses, and Vodafone forked out £112bn for German company Mannesmann.

Yesterday, this asset was re-valued, downgraded by around £23bn. And this was behind the massive losses, (£14.9bn in all) posted by the world’s largest wireless provider yesterday.

In fact operating profit was actually not half bad: £8.8bn. The company put on another 21 million new users too, and investors were pleased to note that the company is embracing new opportunities. It’s to offer broadband, it will go head to head against the BT Fusion phone which offers both mobile and fixed line calls. It will also offer more PC related services, and plans to go down the VoIP route.

And shareholders were allowed room for celebration, as it announced a £3bn dividend payout, on top of the £6bn already allocated. Earlier this year, the company sold its Japanese subsidiary, Softbank, a sign of a company becoming more focused on its core markets. Yet some were disappointed yesterday, when the company said it was keeping its 45% stake in Verizon, the US market leader.

There is a snag with all this. It’s all very well offering broadband and VoIP, but price competition in these areas is ferocious. Carphone Warehouse and Wanadoo are now both offering free broadband, Skype is free between members, while fixed line telephony just does not make money like it used to; that’s why BT has been looking for extra strings to its bow.

But then yesterday Vodafone also talked about advertising. Thomas Geitner, who is in charge of developing new services, said: “The emergence of online advertising is to us clear evidence that consumers have accepted advertising as a way for services to be funded and it has proved a genuine revenue opportunity.”

And that brings us to the nugget of good news. Because while Vodafone was busy trying to tell us why a record loss was in a way a good thing, advertising buying company, GroupM revealed that it believed advertising on mobile phones was about to mirror the growth seen on the net over the last few years. It expects mobile phone advertising to double this year, and then again next.

But, there’s a long way to go. Right now, the market for mobile phone advertising is small. And even after this rapid growth, GroupM is saying that it will only be worth £120mn next year. And that’s why we say the hope we saw lurking in the Pandoras box of Vodafone woes is still a fragile thing

Further Reading

Vodafone’s £9bn investor sweetener
Scotsman

Record £14.9bn loss at Vodafone

May 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Ottakar’s has accepted a £62.8mn bid from HMV, owners of Waterstones. Since the Competition Commission has already okayed a merger of the companies, it seems inevitable that Ottakar’s and Waterstones, the two top book stores in the UK, will come under the same management.

Last year, the HMV bid was worth 440p a share, but today, after an awful year for both book retailers, the bid will be worth just 285p.

Rumours have suggested that WH Smiths was interested in buying Ottakar’s.

May 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Foreign money has been pouring into London this year and, as a result, areas such as Chelsea have seen house prices jump by 20% since the beginning of January. Apparently, that’s the equivalent of £4,500 per week for the average property in the area.

According to Knight Frank, the estate agency, Central London has seen prices rise by 16% so far this year; that’s the biggest jump since 2000. But recently there has been a move towards cheaper homes. Apparently, it’s the houses worth a mere one to two million pounds, which are in demand now, with four million plus homes not quite so popular. According to Liam Bailey, head of residential research at Knight Frank, the move down the price ladder could mean the “beginning of the end” of the London property boom.

Much of the strength in the London property market can be put down to the collapse of Enron. The loss in confidence in US corporate reporting, during the first few years of this decade, led to the creation of the Sarbanes-Oxley regulations. But now the US has gone from one extreme to the other, and many companies looking to escape the draconian US regulations are looking to London to IPO.

May 31, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

According to the worlds’ number one buyer of advertising, Group M, Internet advertsing is expected to take up 13.3% of the UK advertisng cake this year, outperforming national newspapers.

Group M reckons that net advertsing will be worth £1.615bn, taking the Internet into third place behind, regional advertising (£2.38bn) and TV advertising worth £3.48bn. Search sponsorship is expected to remain as the Internet star performer.

The company says that in total TV advertsing is likely to be worth around £100mn less than last year, with ITV1 suffering nearly all the loss. The money which is being cut from TV ad budgets is being spent on supermarket trade promotions and other similar promotions, say Group M.

May 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Here’s a move that will send a chill up electronic retailers across the land. Tesco is upping its involvement in the PC business, selling cheap computers - permanently.
You might ask, what’s new here? PC’s are already available in Tesco- yes that’s true - sometimes.
Up to now the retailer that has got clothing stores, book shops, and sellers of DVDs and CDs running scared - has only sold PCs as when it’s got a good deal to offer.
But, from now on, 50 branches of Tesco Extra stores will sell Desktop and Lap top PCs permanently.
Reports suggest shoppers will see desktop PCs selling for less than £300, Laptops selling for less than £400, and even state of the art ‘bees knees’ PCs selling for a price tag south of £800

May 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Look at the headlines of the last few weeks, and you could be forgiven for thinking it’s all doom and gloom. It would appear the world can no longer rely on the US consumer bailing us all out. What we need is for the likes of Japan and Germany to start spending. And as that’s not very likely, some have started to panic - and maybe that’s fundamentally what’s behind the recent market slides.
But then yesterday, the nigh on impossible seemed to happen. Evidence suggested that Germany is about to boom. According to research company GfK, German consumer sentiment is now at its highest level since June 2001.
And if you are in the business of supplying more expensive items to the German market, here’s some more good news The GfK indicator for this sector rose to a record high.
But before you open the champagne to celebrate, think twice, and perhaps settle for something cheaper- Liebfraumilch, perhaps.
The spending season could be short lived. First of all much of the expense is simply down to an impending change in VAT. Germans consumers are spending now before prices go up. And then, of course, there’s the World Cup. Once this is over, then the fear is things will go back to normal.
A football inspired feel good factor could lift the German economy, say some. But England only have to repeat the 5 to 1 victory they achieved the last time they played in Germany, and the feel good factor could be replaced by the feel rotten factor.
Sources
Consumer climate: propensity to buy reaches new highGfK

May 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Back in April, when private equity group Blackstone Group bought itself a 4.5% stake in Deutshe Telekom, markets were puzzled. It wasn’t Blackstone’s style- it normally went for controlling stakes. Some speculated it had ideas for introducing greater cost controls, but all in all, markets were perplexed.
This weekend, for a while at least, the reason suddenly appeared to become clear. For the German telecom company, said the rumours, was preparing a takeover offer for British Telecom.
The German company, with its valuation of £36.2bn, has almost twice the market capitalisation of BT, valued at £19bn. But the synergies are obvious and a merger would create big cost cutting opportunities. These days, of course, BT doesn’t have a mobile phone network to call its own - unlike the German company, which owns T Mobile. But BT does have its global services division, which sells telecom and IT services to corporates. This accounts for 44% of the BT empire, and it’s an asset Deutshe Telekom would love to get its hands on.
Talking of Hans, German investors have been selling shares in Deutshe Telekom of late. Seventeen months ago, or so, shares in the German company were almost 40% up the current price, whereas BT has been hovering around a four year high. Click here to see the BT versus Deutsche Telekom share price chart
And It’s the relatively low value of the larger company’s shares that made the purchase troublesome. And perhaps, that is why the Blackstone’s involvement is so important.
But then, on Sunday, The Telegraph appeared to put an end to the rumours, when it revealed that “members of the German company’s supervisory board would be ‘horrified’ at the idea of an acquisition attempt.”

May 29, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

Earlier this year, a director at Mittal Steel accused Guy Dollé, the boss of the world’s second largest steel company of acting like a spoilt child. The accusation went like this: Monsieur Dollé was saying of the company he ran: ” ‘It’s my playpen and I don’t want anyone else to play with my toys - go away’.” Now, just a few months on, and its Mittal’s turn to say: “it’s not fair#33;” The question is this, of the three protagonists in the drama which has hit the global steel market, that’s Dollé, India’s richest man Lakshmi Mittal, and the Russian economist turned billionaire, Alexei Mordashov, who are the men of steel, and who is the Lex Luther of the saga?

We all know that from a business perspective, it’s much harder to get people to do something rather than nothing. And this fundamental law of human nature forms the basis of one of Mittal’s gripes. For his offer for the Luxembourg/Belgium/French based steel company Arcelor to go ahead, 50% of the shareholders in his intended have to say “oui.” And if more than half sit on their hands and do nothing, the deal is off. But for Arcelor’s bid for Russian steel company Severstal to go through, then 50% of those same shareholders, would have to get off their hands and say “non.”

“Don’t talk to me about democracy”, says “Dollé,” whose fellow countrymen believe they invented the concept - (democracy comes from the Greek words meaning people and rule- and was first used in ancient Athens). One of the big questions over the Mittal offer for his company was the power exercised by its boss and the Mittal family, whose shares carry additional voting rights.

Besides, says Dollé, his deal is superior.The Arcelor Severstal merger would leave current shareholders in the European steel maker holding 68% of the merged company, and value Arcelor at 44 euros a share; that works out at 36.6% more than the Mittal offer. It’s a “no brainer then” says Dollé.

Not so fast, retort others. The value Dollé puts on the deal is rather dependent on how you value the Russian company. And here is the problem. It’s 89% owned by Alexei Mordashov and the valuation of Severstal seems to be, how can we put this, a bit of a finger in the air job. Supposedly, the valuation was in fact calculated by Deutsche Bank, but many are not convinced. The Telegraph for example, headlined: “Show us adviser’s figures on Severstal”, while the Observer put it more strongly: “Arcelor’s Russian deal reeks of double standards”. The Business paper said: ” Outraged shareholders of European steel giant Arcelor will this week launch two separate attacks to block its defensive merger with Russian steel company Severstal.”

Certainly, the arguments put forward by Arcelor against the Mittal bid, but for the merger with Severstal don’t entirely stack up. For one thing, Arcelor said that Mittal was just a grubby maker of commodities, whereas it produced premium steel. And yet, says press comment, the Russian company too is at the commodity end of the market.

Then there are the individuals involved. The latest offer from Mittal would have entailed seeing the Mittal family stake and voting rights in the new company reduced to around 45%. And yet still Dollé rattled the corporate governance arguments, and suggested that it was too risky to leave European jobs at the mercy of the Indian rich man.

The new deal, the one Dollé believes in so strongly, also confers a lot of power to the Russian rich man, Mordashov. Initially he will have 32%, but he will then not partake in a share buy back, and after that has gone though, will be left with 40% of the business.

Sure, Dollé will be happy. He will stay in control - for the time being, while Mordashov will take a back seat. But whose to say it will always be like that? Mr Mordashov might bide his time on the planet Krypton for a while - but few doubt that eventually he will be the man in control.

And who is Alexei Mordashov? We don’t know much about him, other than this. He is 40, he appears to have the support of Vladimir Putin, and came to prominence under curious circumstances- but then again the same could be said of just about all of the Russian oligarchs.

An economist by background, he has recently come to prominence on the global scene, lobbying hard on behalf of mother Russia to be allowed into the World Trade Organisation. His peers in the community of economists consider him softly spoken and thoughtful. But he rose to power, or so it is said, by buying the state owned Severstal steel plant cheaply and selling it on the market. He then used the resulting cash to buy workers’ shares.

A key difference perhaps between Lakshmi Mittal and Alexei Mordashov is this. The Indian entrepreneur is all about profit, he is known as a ruthless cost cutter- and that’s why the Europeans fear him, and the resulting job losses they think will follow. It’s different if you are Russian. You have to keep the Kremlin on side, and that means a slightly different attitude to your work force.

But in the modern steel industry size matters. A Mittal Arcelor company would be bigger than an Arcelor Severstal firm. It would exploit more economies of scale. And in the new world, ultimately only companies who stick to the profit motive will survive

Some say Dollé is trying to fast track his deal. Even the timing - the spring public holiday in the UK and US means less shareholders are contactable, has aroused suspicions.

One way or another, Dollé wanted to say ‘no’ to Mittal. And it does seem just a little like he was prepared to go a long way to get his way. Even if that means indirectly jumping into bed with the Kremlin.

Sources

Kremlin-Backed Russian Steps In to Disrupt Mittal Hostile Bid for Arcelor Mosnews.com

Outraged Arcelor shareholders aim to derail Russian merger Business

‘Show us adviser’s figures on Severstal’ Telegraph

May 26, 2006 | posted by Michael Baxter in Uncategorized | comments (0) |

One way or another, it appeared Arcelor was
determined not to do the deal with Mittal Steel. And this morning, maybe it pulled out
the ace by announcing plans to merge with Russian steel company Severstal to create
the world’s biggest steel company. This leaves Mittal Steel jilted at the altar and
relegated to the position of the world’s number two in the sector.

When news of the potential buy-up of Arcelor by Mittal steel first broke, the boss
of the smaller company, Guy Dollé, said that Mittal’s offer was “prejudicial,
threatening and unbalanced.” But Mital Director Wilbur Ross retorted: “Dollé was in
effect saying of the steel company he managed, ‘It’s my playpen and I don’t want
anyone else to play with my toys - go away’.”

Later on in the saga, the Mittal plan was hit, when Arcelor announced a poisoned
pill. It appointed an independent three-person board for Dofasco, its Canadian steel
offshoot. Once the deal had gone through, Mittal had planned to sell the Dofasco
subsidiary off to partially fund the cash component of its bid. But by appointing an
independent board, Arcelor had effectively ring fenced the company, protecting it
from Mittal’s plans.

Now the company, which is determined to stay free of Mittal control - and, for
some reason, seems unwilling to let shareholders decide what’s in their best interests -
has announced the merger with Severstal. Existing Arcelor shareholders will have
66% of the new company, which will trade under the Arcelor name. Guy Dollé will
still be chief executive.