Thursday, April 30, 2009
Story from Yahoo! News
When the housing market began collapsing across the developed world, commercial real estate remained a bastion for builders. But now the global recession is dragging it down, too. Central business districts that only a year ago were crowded with construction projects are emptying out as office tenants cut staff and operations. Building values are sinking, while delinquencies on securitized loans have tripled in the past six months.
The abrupt downturn in commercial real estate is punishing cities as varied as Detroit, Dallas, and Hartford, where downtown office vacancy rates top 20%. Unoccupied space is piling up quickly in San Antonio, Las Vegas, Charlotte, and San Jose. Outside the U.S., high-profile towers have been halted everywhere from Dubai to Santiago, Chile.
New York, though, may be the epicenter of the bust. The world's biggest office market, with roughly 350 million square feet of floor space, New York added 2.9 million square feet of vacant property in 2009's first quarter alone -- more than the entire Empire State Building. In that same period, calculates commercial real estate brokerage CB Richard Ellis (NYSE:CBG - News), rents slid 14.6% to an average of $57.35 per square foot, the largest quarterly drop on record.
At 8.5%, New York's office vacancy rate is still well under the U.S. average of 14.7%. But with virtually no demand for new space, that percentage is likely to hit double digits within months, putting New York's recovery well behind that of cities such as London, where some analysts and investors think the worst may be over.
Steven J. Pozycki could add to the glut in New York next year. Pozycki, founder of SJP Properties in Parsippany, N.J., is plugging away at a 40-story tower in Midtown Manhattan with 1.1 million square feet of space. The $1 billion project, a joint venture with Prudential Real Estate Investors, was started in early 2007, when property values were still soaring and vacancy rates were at all-time lows. It is scheduled to open next spring but has yet to find a single tenant.
The developer had intended to anchor his building, known as 11 Times Square, with financial companies and law firms. After these would-be renters began teetering, several other developers canceled projects at earlier stages. Boston Properties (NYSE:BXP - News) called off plans for a nearby tower in March. A few weeks later, developer Larry Silverstein said he may delay construction at the World Trade Center site for decades. But Pozycki says that by last fall construction on his site had gone "past the point of no return."
The slide in the office sector mirrors trouble throughout the nonresidential real estate industry. On Apr. 16, General Growth Properties (GGP.), the nation's second-largest mall operator, with 200 shopping centers, filed for bankruptcy. MGM Mirage (NYSE:MGM - News), which is erecting an $8.6 billion complex of stores, offices, hotels, and a casino on the Las Vegas Strip, came close to default this spring. In New Orleans, a $400 million Trump International Hotel & Tower is now on hold until the credit market rebounds.
With homebuilding moribund -- the sector is at its weakest in 50 years -- it's no surprise the U.S. has been shedding more than 100,000 construction jobs a month since December. Meanwhile, new assignments for architecture firms have become all but nonexistent, forcing big names such as New York's Daniel Libeskind to trade down to designing doorknobs and light fixtures.
Putting Work on Hold
Office construction is skidding outside the U.S., as well. Work was halted in March on a Cesar Pelli-designed skyscraper in Santiago, Chile. Building has reportedly stopped on Norman Foster's Russia Tower in Moscow. And many Persian Gulf projects that were green-lighted when oil topped $100 a barrel have been shelved, including the kilometer-high Nakheel Tower in Dubai. "We've had several projects in Dubai that have basically been put on hold until further notice," says Daniel Kaplan, a senior partner at architecture firm FXFowle.
The financial impact will spread. The commercial real estate debt market in the U.S., valued at $3.4 trillion, is three times larger than it was in the early 1990s, creating the potential for huge losses as defaults and bankruptcies rise. Already, delinquencies on commercial mortgage-backed securities have jumped from $3.48 billion in February 2008 to $11.99 billion a year later, and a report from Deutsche Bank (NYSE:DB - News) forecasts they will swell to at least $24 billion before 2010. "It's like subprime," says Richard Parkus, head of CMBS research at Deutsche Bank. "Knowing what's in the delinquency pipeline, we can predict a dramatic rise in defaults."
The expected upsurge is due, in part, to timing. A huge share of commercial mortgages was taken out in the mid-2000s, when building prices were rising to record highs and the loan-to-value ratio was around 90%. Many must be refinanced this year. These days the maximum loan-to-value ratio has fallen to 65%, while property values are plunging. On Mar. 31, for example, the John Hancock Tower in Boston was auctioned off for $660 million -- half the amount a private equity firm shelled out for the property three years ago.
London, Harbinger of Hope
Of course, real estate is a cyclical business. Many of today's troubled office markets were hurt badly in the U.S. recessions in 1990 and 2001. But within a few years, as a halt in construction constrained supply, and businesses began to require more space, vacancy rates shrank, rents climbed, and developers started breaking ground on new towers and Philadelphia apartments.
Some real estate brokers are looking to London for signs of a turnaround. Prices there may be stabilizing after falling nearly 30% in 2008. As a result, equity buyers are emerging to snap up deals, encouraged by the weaker British pound. Hessam Nadji, director of research at real estate brokers Marcus & Millichap, thinks the U.S. may be less than 18 months from leveling off, too. "If there's moderate economic stabilization," he says, "we could see that translate into new demand for commercial office space in mid- or late 2010."
Should that happen, Pozycki's SJP might be positioned well. None of its properties has a loan coming due in the next year or two. Most of the Midtown office buildings that 11 Times Square is competing with date to the mid-20th century. And no other towers are expected to open nearby before 2014. He also has plenty of space.
Story from Yahoo! News
NEW YORK (Reuters) – Freddie Mac, the U.S. mortgage finance giant, on Thursday said it paid $1.3 million in retention bonuses to three executives in late 2008 and so far this year, including a full payout of the award promised to its acting before his shocking death, according to a Securities and Exchange Commission filing.
Freddie Mac paid CFO David Kellermann the first $170,000 installment of the $850,000 bonus in 2008, and honored the rest of the agreement following his apparent suicide on April 22, according to a spokeswoman.
Paul George, executive vice president of human resources and corporate services, and Robert Bostrom, executive vice president and general counsel, received the first installments of controversial retention bonuses approved by Freddie Mac's regulator of $260,000 and $180,000, respectively. Their full bonus payouts through 2010 would be $1.3 million and $900,000.
The retention bonuses came amid an exodus of top management at Freddie Mac after the government forced the company into conservatorship, fearing deep losses from the housing crisis would hurt its ability to support the U.S. housing market. The company is the second-largest provider of residential mortgage money to Raleigh realators, and now a top provider of many commercial properties, including Greensboro MLS listings.
Executives that left the firm took home millions of dollars in compensation in 2008.
Former Chief Executive Officer earned $4.1 million in total compensation last year, down from more than $18 million in 2007, according to the filing. Gary Kain, the senior vice president of investments and capital markets, quit in January after receiving $3.7 million in 2008.
Among others who no longer work at the McLean, Virginia-based company, Kellermann earned $1.2 million in 2008, and Anthony "Buddy" Piszel, his predecessor, earned $909,051. Patricia Cook, former chief business officer, took home nearly $2 million, and Kirk Die, former auditor, earned $2.2 million.
John Koskinen, who was non-executive chairman, replaced Moffett as interim CEO., who replaced Syron in September and resigned six months later, drew $283,269 of his $900,000 annual salary in 2008, plus $54,812 in other compensation.
Kellermann, 41, and a 16-year veteran of Freddie Mac, played a key role in navigating past accounting troubles and answering queries of regulators and investors as the company struggled to extricate itself from the grips of the housing downturn. Just before his death, he told company officials he felt overwhelmed and was granted time off just before he died.
Of current executives, Bostrom earned a total $1.9 million in 2008, and George's compensation totaled $2.3 million.
Executives' pay includes no cash bonuses or incentive awards for 2008, the company said.
Story from the Wall Street Journal
The red 2002 Ford Thunderbird convertible sits in the back of the Wiygul Automotive Clinic in Alexandria, Va., as Kevin Coppedge works under the hood. It needs $3,363.99 of repairs -- more than one-third of its trade-in value.
At Autobahn Motor Works, some clients who might once have bought new cars are getting old ones fixed.
In good times, owner Suzie Clayton probably would have sold the T-bird or traded it in for something new. "My husband talked about buying a new car," says Ms. Clayton, a co-owner of Dalton Brody Ltd., a high-end gift shop in Washington, D.C. "But I asked, did we really want the monthly payments for a new car? I own a business, and it's a little scary right now to spend a large amount of money on anything."
Economic fears are driving a resurgence for repairmen. When it comes to autos, computers and all kinds of appliances, consumers are more likely to repair what they have, rather than buying a new replacement, driving many to seek further education in the automotive repair fields. Current demand for repair and overhaul, and anticipated future demand for qualified green-technology automobiles are causing a spike in the need for certified auto mechanics and engineers of all types. Such University-level degrees as associates degree automotive, automotive service degree, and bachelors degree in heavy equipment, are increasingly popular.
At Daniel Hand's Computer Medics of Northern Virginia in Fredericksburg, work orders are stacked up on his desk. Two years ago, the repair estimates would have scared off his customers. "When people used to come around, if the cost was $300 to fix it and a new one was only $500 or $600, they'd typically get a new one," says Mr. Hand. Now, he says, "nine out of 10 times they come back and say, 'Fix it.' " His business's revenue is running about 30% higher now than a year ago.
Mr. Hand, who is president of the National Association of Computer Repair Business Owners, said the pattern he sees in his business is consistent across the industry.
Appliance-repair businesses, too, have seen an uptick in business in recent months, says Michael Donovan, president of National Appliance Service Association. Mr. Donovan has noticed a rise at his own business, Turnpike Appliance Service of Bay Shore, N.Y., in the past six months, even though the appliances he works on are not very expensive to buy new.
Repairs for Electric Razors
He and other business owners are surprised by the repair work people authorize these days. "Much to my amazement, people are spending $60 on repairing a vacuum that they bought for $100 new," he said, adding that limiting new purchases is "definitely a factor on everyone's mind." Mr. Donovan has even seen a rise in repairs of small home items, such as electric razors.
Cars, however, are the most visible signs of the new frugality, with new-vehicle sales down sharply. Opting to keep cars running, consumers are extending the lives of their vehicles to nearly 10 years on average from eight just two years ago, says the Automotive Services Association, a trade group for repair businesses.
At Autobahn Motor Works in Bethesda, Md., an affluent suburb of Washington, the mechanics who fix Audis, BMWs and Mercedes-Benzes say their customers fall into three groups: those who have always paid for repairs, those who would once have bought new cars but are now approving work, and those who are asking if work can be postponed.
An Imaginary Threshold
"I had a lot of customers who had an imaginary threshold. They'd say, 'I won't fix it, I'll unload it.' Those customers are rethinking that threshold and saying, 'Maybe I'd better take better care of my car,' " says service manager John McWilliams.
Zack Wiygul, who operates the shop where the Claytons brought their convertible, stayed on the phone with Ms. Clayton for 30 minutes explaining what it needed before she said, "Do the work. I'm not going to buy a new one."
"I'm having that conversation with somebody every day now," he says.
The situation is the same at Wiygul Automotive Clinic's three other shops in northern Virginia, says Bill Wiygul, Zack's father and a co-owner of the chain. "It's counter-cyclical," the elder Mr. Wiygul says. "If people aren't buying cars, they have to fix the ones they've got."
In the waiting room, customers come in throughout the day for everything from oil changes to major engine work. The work bays are full. Renee James, 42, is having her 2002 BMW prepared for a state safety inspection. Life is considerably different for her and her husband since she quit her six-figure job with a cosmetics company last fall.
'Not in the Budget'
"We've definitely changed our lives. In our 30s we were the folks who traded in cars regularly. We were compulsive traders," she says. "Now we baby our cars. I'm babying mine because it has to last. We cannot afford a car payment right now. It's not in the budget."
For Ms. James, the issue is preventive maintenance. While she once frowned at a $50 oil change, her new economic situation makes that oil change more palatable than risking bigger problems. "When you're young you balk at a $50 oil change, but you grow up and realize that a $50 oil change is cheaper than a $5,000 repair or $50,000" for a new car, she says.
John Kukar, 67, has a similar attitude. A retired insurance man and Air Force veteran, he has recently taken new interest in regular car checks for his 2003 Ford Taurus. "I can't afford to go out and buy a new car. I couldn't get one even if I wanted one," he says. "I don't have the credit for one."
Story from the Economist
“I AM very surprised. I have to think about it.” That was the initial reaction of Steve Ballmer, the boss of Microsoft, the world’s largest software firm. It was also the response of many in the computer industry to the news on April 20th that Oracle, another software giant, was paying $7.4 billion to buy Sun Microsystems, an embattled computer-maker and Oracle’s neighbour in Silicon Valley.
It was no secret that Sun, which never really recovered from the dotcom crash, had been searching for a buyer. But most industry observers had expected it to restart talks with IBM, another industry heavyweight, which had offered to buy Sun in March. Others thought Cisco, the biggest maker of networking gear, would make a bid, since it has recently started to move into computing hardware, too. Some even predicted that Hewlett-Packard (HP), the number one computer-maker, would finally get involved, after rebuffing Sun.
Why would Oracle, which makes most of its money from databases and business software, buy a hardware firm? A big part of the reason is the outsized appetite of Larry Ellison, Oracle’s flamboyant chief executive. His firm has spent around $30 billion buying 50 firms since 2005, among them software heavyweights such as PeopleSoft, Siebel and BEA. Buying Sun should help Mr Ellison achieve his goal of getting Oracle’s revenues above $30 billion by the end of this year.
There is more to the deal than that, though. For although Sun makes most of its money selling server computers and storage devices, it is not just a hardware-maker. It has always been a “systems” company, meaning that it sells tightly integrated bundles of hardware and software. And in recent years it has been beefing up its software business as companies have increasingly eschewed its pricey proprietary servers and bought cheap standardised machines instead.
Mr Ellison is keen on two bits of Sun’s software portfolio in particular. One is Java, a programming language that is the underlying technology both for many business applications and for software that runs on mobile phones. Sun never managed to make much money from it, in part because it wanted Java to be an open standard. But Mr Ellison may have different ideas. To him, it is “the single most important software asset we have ever acquired.” Sun’s other crown jewel is Solaris, its highly reliable operating system, which is often used as the platform for Oracle’s databases. More Oracle databases run on Solaris than on any other operating system, Mr Ellison notes. With control over both pieces of software, Oracle will be able to make them work together better.
This ability to integrate hitherto disparate pieces of technology, and thus make life easier for companies, provides further justification for the merger. For some time, Mr Ellison’s vision for Oracle has been to become the Apple of the enterprise, hiding complexity from customers, just as Apple does with its powerful but easy-to-use consumer products. Taking over Sun, he said this week, provides Oracle with all the pieces to put together systems that reach from “application to disk”. Oracle’s engineers are already brainstorming about how to build “industries in a box”—complete computer systems that come fine-tuned for, say, banking or retailing.
Yet there are other aspects of the takeover which Mr Ellison prefers not to mention. Top of the list is open-source software. In recent years Sun has put together a sizeable portfolio of these free programs written by communities of developers, hoping that firms using this software would then buy its expensive hardware. By buying Sun, Oracle becomes the world’s largest open-source company, prompting much debate among developers and users. There is particular concern about the fate of MySQL, a firm Sun bought for $1 billion in January 2008. It sells database software which is also available in a free, widely used, open-source version.
Next on the list is job losses. If Oracle’s previous acquisitions are any guide, Sun’s workforce, which has seen many waves of lay-offs in recent years, will be cut further, so that Oracle can meet its targets for the deal. Safra Catz, Oracle’s president, expects Sun to contribute more than $1.5 billion to Oracle’s bottom line in the first year and more than $2 billion in the second. Money, even more than the scope for tighter integration, also explains why Oracle is unlikely to ditch Sun’s hardware business soon, if at all. It provides a healthy stream of maintenance fees, about 40% of Sun’s sales.
Finally, the takeover is also a defensive move. Oracle did not want to let IBM get its hands on Java and Solaris, and felt it had to react to what looks more and more like a thorough restructuring of the computer industry. Since the early 1990s the industry has resembled a cake made of horizontal layers of technology, with each layer dominated by a few companies. Cisco, for instance, provided most of the networking gear. Sun and HP sold servers. Oracle was the leader in databases. IBM’s mainstay was services. SAP, a German giant, ruled in business software.
This structure is now collapsing as the industry’s heavyweights move into each other’s layers. HP bulked up its services division by buying EDS, for example, and has also moved more into networking. Cisco will soon start selling servers, and has formed an alliance with several smaller hardware and software firms to build, in effect, a data centre in a box. The industry is, in other words, going back to its past, when it was dominated by a few integrated companies that tried to do it all.
This is, in part, a consequence of the industry’s maturity: to keep growing, firms have to invade each other’s markets. In addition, customers increasingly prefer to buy integrated systems from one vendor, rather than doing the plumbing themselves. New technologies such as virtualisation and “cloud computing” are also blurring the boundaries between the industry’s layers. A server can now easily switch between being a computer, a storage device or a router (a box that directs network traffic). For computing to become a utility, which is the promise of the cloud, a data centre cannot be a hotch-potch of boxes cobbled together from different vendors, but must be tightly integrated.
Some analysts think the deal could accelerate this trend by triggering more acquisitions. IBM, for instance, may now be tempted to buy SAP, to pull even with Oracle and its big software portfolio. Cisco, which is sitting on $29.5 billion in cash, might take over some of its allies, such as EMC, a storage firm. Before Oracle’s competitors do anything rash, however, they should wait to see how well Mr Ellison’s firm can integrate Sun. So far Oracle has shown that it can make money by buying software firms, getting rid of overlapping products and unnecessary overheads, but otherwise leaving them much as they were. With the takeover of Sun, however, Oracle faces a more difficult integration. Will it enable Mr Ellison to help himself to a big slice of the industry’s cake?
Wednesday, April 29, 2009
Story from American Chronicle
Opening a new business requires a dose of bravery in any economy.
The challenges only mount during a downturn. For starters, customers and lenders get stingier with money. Still, this recession, as in past slumps, is sparking a surge in wannabe entrepreneurs striking off on their own.
"Smart and hard-working people lose their jobs, sometimes with severance packages, and no one is hiring," said Thomas Miller, head of N.C. State's Entrepreneurship Initiative, established in July to foster start-up activity. "It's the perfect opportunity to take a shot at that good idea you've always had in the back of your mind."
With the state's jobless rate rising to record levels -- employers cut 41,300 jobs in March, and unemployment shot up to 10.8 percent -- it figures that more workers are considering other options.
Local organizations that help fledgling business owners, including Wake Technical Community College, SCORE and the Council for Entrepreneurial Development, report big increases in demand for classes, seminars and other assistance.
Some are ventures that will always remain one- or two-person operations. Many will fail. But a few could blossom into successful employers that bolster this region's economy.
A year ago, Wake Tech offered one Planning the Entrepreneurial Venture course. Now there are four, with two more starting soon. The $65, 10-week class teaches students how to write a business plan, marketing basics and more.
"Does a business have legs, can you make money at it? That's one of the keys," said Fred Gebarowski, director of entrepreneurship at Wake Tech. "I'm providing a service by keeping some people from starting a business."
It's not just the newly out-of-work that turn out for classes. "Some people are still employed, but want to ramp up their side business, just in case," he said.
Audra George had a full-time job as a legal consultant in late 2007 when she started making speciality cakes, decorated cupcakes and other baked goods out of her North Raleigh home.
She was let go a few weeks ago. Now she's sinking all her time and energy into her business, Audra's Cakes and Creations.
"Of course it's scary," she said. "I always had the security of a job before this. Sometimes things do happen for a reason."
George, 37, makes four to five dozen cupcakes, as well as some rum and amaretto cakes, each week for A Southern Season, the gourmet food store in Chapel Hill. She's in talks with Whole Foods. And she sold her first wedding cake last month. The couple wanted a cheaper option than a traditional cake, so George made a small six-inch cake surrounded by 100 cupcakes.
As she started her venture, learning how to write a business plan was crucial. "I needed to figure out how many cupcakes I had to bake and sell to make a profit," George said.
And she's had to adjust her business model -- she resisted seeking wedding business at first. Now she's hoping word of mouth will attract more. And she's looking ahead to the fourth quarter and the typically busy holiday season. If she can build her client base by then, she expects her business will become profitable. Eventually, she'd like to open a shop.
"In order to move it to the next level, it's going to take a lot of discipline," she added. "Hopefully, things will get better."
Sometimes hard work and a good idea aren't enough, especially during down times. For every recession-era success story -- think Microsoft -- the landscape is littered with failures.
But in some cases, a recession can be a smart time to start a venture because owners learn to make it on a shoestring budget. And choosy customers quickly weed out weak ideas.
"You've got to understand that you're going to be living on the edge financially for some time," said Bob Pickens, recently named director of entrepreneurship at CED, a nonprofit in Research Triangle Park. "It's not for everyone in good times, and it's certainly not in bad times."
Running with an idea
Joe Philipose and Lesley Stracks-Mullem hatched plans for Taste Carolina Gourmet Food Tours last fall. The business partners are forging ahead despite the recession. In March, they started running tours of restaurants, wine bars and other foodie attractions in Durham, Carrboro and Chapel Hill. The Durham tour is gaining fans, with eight or more people each time. Chapel Hill has been a bit slower going.
Tours in Raleigh start Saturday.
"We're doing our best to make money, but we see how tough it is," Philipose said. "We know people don't have a lot of money to spend."
But the owners are passionate about local food, and they know others are, too. The tours ($37 for three hours) offer tastings, a chance to mingle with restaurant owners and chefs, and exposure to new eateries.
Philipose, 36, went to law school but had been doing corporate strategy for drug makers. Last year, he got laid off by Biogen Idec. That hastened his dream of starting a food tour business. He met Stracks-Mullem, 35, who had a similar idea, through a Durham restaurant owner.
"We're definitely taking a long-term view of this," she said. "We've been in business six weeks and we're really pleased with the progress."
They've started marketing the venture, are trying to attract corporate and alumni tours and are considering themed tours -- based on shows at the Progress Energy Center for the Performing Arts, for example.
"It's natural to be nervous," Philipose said. "Do people have less disposable income? Yes. But in times like these, people take time for little luxuries."
Their business is a relatively low-cost endeavor. There are marketing costs, but mostly just lots of hours that Philipose and Stracks-Mullem put in.
And Philipose does have a back-up plan: He recently took a job with Kerr Drug as vice president of strategic planning and business development.
Seed money for nappies
Securing money to start a business becomes a major hurdle in down times. This recession has lenders tightening loan requirements more than ever.
"Banks like a sure thing," said Jerry Lustig, a retired IBMer who is chairman of the Raleigh chapter of SCORE, which taps retirees to counsel small-business owners.
Karissa Binkley realized she needed a few thousand dollars to start a high-quality, eco-friendly diaper service. So she turned to a friendly face for a loan: her grandmother.
Binkley, 30, is a birth doula who helps about two women a month through childbirth. Her family is Dutch and very supportive of natural childbirth.
The Triangle Diaper Co.'s Web site is up and her service officially opens May 4. Binkley, who lives in Cary, sat down with her husband before starting to plan her business selling organic cloth diapers washed in green detergents. He agreed with her assessment that there was an underserved niche, even in a recession. Costs start at $50 a month for 25 diapers a week. A "welcome baby" 12-week package is $285.
Binkley has training in writing business plans, so she built three spreadsheets based on different sales projections.
"The first couple of months are really going to make or break me," she said.
Although she didn't have customers signed up last week, she has consultations scheduled with five mothers, and inquiries from more that are expecting in coming months. She is getting support from several OB-GYNs, the UNC-Midwives practice and others who are giving her information to prospective clients.
"Doors keep opening -- people have been looking for this," Binkley said. "As long as I'm not greedy, I think things will work out. I believe in karma, but you still have to have some business sense, too."
A warm fuzzy
Karen Diebolt didn't feel much pressure when she started her small business because she had a day job as a commercial loan officer. Then in July she was laid off.
"Running your own business is hard, but looking for a job in this economy is really tough," she said. So she turned her complete attention to Softedz, which sells soft, fuzzy creatures for corporation promotions and special events.
Its origins came from Thanksgiving with family in Savannah, Ga. After dinner, Diebolt would help organize crafts. Her sister suggested she take her skill and try making money at it.
She took a Wake Tech class and a series of online seminars. She learned about business plans and online selling. She found a manufacturer in China and secured a supplier.
Now she needs customers.
"It's hard for businesses to spend money on promotions when business is slow," said Diebolt, 54, of Wake Forest.
As she waits for corporate business to perk up, Diebolt is selling some Softedz with a friend's food products from a booth at Magnolia Marketplace in Raleigh. A store in Savannah will start selling them next week. And she's trying to sell them to kids' sports teams as an alternative to trophies.
She's not ready to give up.
"I believe this is a viable idea," Diebolt said. "The timing just turned out to be not as good as it could have been."
Fiat's Boss Believes He Can Raise Chrysler From The Dead
Story from The Economist
IT IS just as well that high-stakes industrial poker is a game familiar to Sergio Marchionne, the chief executive of Fiat Group. In 2005 he laid the foundations for Fiat’s spectacular recovery by extracting $2 billion from General Motors (GM) as the price for removing a put option that would have forced GM to buy the then-ailing Italian car firm. But even by his standards the next few days will be a daunting test of nerve and stamina from which only two outcomes are possible. Either Mr Marchionne will end up in control of Chrysler, the smallest of Detroit’s Big Three—or he will have quit the table, consigning the sickly carmaker to almost certain bankruptcy. Everything hinges on the negotiations taking place between Mr Marchionne, America’s Treasury, Chrysler’s current management, the unions and secured debt-holders.
Mr Marchionne is confident that a deal can be done that keeps Chrysler out of the bankruptcy courts, but he recognises that a lot can still go wrong. There are signs that the unions, particularly in Canada, where much of Chrysler’s manufacturing capacity is based, feel they have already conceded enough. The senior lenders, which include JPMorgan Chase and Citigroup, are going back and forth with the Treasury over how much of a “haircut” they will have to take on the $6.8 billion they are owed, and whether they will get a compensating equity stake. The Treasury itself will take some convincing to release the $6 billion it has promised in exchange for a credible recovery plan. Although Mr Marchionne has wowed the administration’s auto task-force with his forceful personality and blunt style, officials still fear that even with Fiat’s help, Chrysler may be too far gone to be turned around.
Why does Mr Marchionne believe he can salvage something from a firm that the rest of the industry sees as a basket-case—and which has defied the best efforts first of rich, successful Daimler and later of Cerberus Capital Partners, a sharp-elbowed private-equity group that acquired an 80% stake in Chrysler from the Germans two years ago? Quite simply, because he has done it before. When the Agnellis, Fiat’s dominant shareholder, turned to Mr Marchionne, a corporate troubleshooter who was running another company in which they had an interest, they knew that Fiat’s car business, representing half the group’s turnover, was dying. Poorly led, bleeding cash, heavily indebted and saddled with ancient factories, stroppy unions and outdated products, Fiat had become synonymous with failure at every level.
Italian-born but raised in Canada, where he qualified as both a lawyer and an accountant, Mr Marchionne conforms to none of the caricatures of either country. Instead of sharp suits and elegant circumlocutions, he favours shapeless sweaters and brutal (expletive-laden) frankness; instead of patient consensus-building, he bulldozes his way through, burying corporate politics and flattening dysfunctional hierarchies as he goes.
Mr Marchionne’s approach to Chrysler, if a deal can be done, is likely to be similar to what he did on arrival at Fiat in 2004. “The single most important thing was to dismantle the organisational structure of Fiat,” he recalls. “We tore it apart in 60 days, removing a large number of leaders who had been there a long time and who represented an operating style that lay outside any proper understanding of market dynamics.” In their place Mr Marchionne brought in a younger generation of executives who could respond to his demand for accountability, openness and rapid communication. Two key requirements that everyone had to understand were the need for speed and an end to the crippling political battles that resulted in scarce capital being wasted on little or no standardisation of parts and a ridiculous number of platforms (19 in 2006 will become six by 2012). The time taken to bring new cars from “design freeze” to production was reduced from 26 to 18 months, and a succession of handsome new models followed, capped by the launch in 2007 of the Fiat 500, the cool, retro-styled city car that embodied Fiat’s renaissance.
When a Fiat-Chrysler alliance was first mooted a few months ago, the idea was that in exchange for access to its small-car platforms and fuel-efficient powertrain technology, the Italians would receive a 35% stake in Chrysler. Now, although its initial stake will be scaled back to 20% and cannot reach more than 49% until Chrysler has repaid all the money lent to it by the taxpayer, Fiat will be much more firmly in the driving seat. If the deal is done next week, Mr Marchionne will be named chief executive and a new board of mainly independent directors will be recruited by Fiat and the Treasury.
The need for speed
The model chosen to run Chrysler will be like the one used by Carlos Ghosn when Renault formed its alliance with Nissan. Mr Marchionne will split his time between the two firms, while a hit squad of Fiat managers (some of whom are already crawling over Chrysler) will force through changes and develop synergies between the two organisations. The Italians have been shocked by how bloated Chrysler’s management still is—there are nearly ten times as many people in external communications as there are at Fiat—and the plodding, committee-bound decision-making process. “If this thing comes off”, says a Fiat senior executive, “they’re really in for a shock.”
Yet Mr Marchionne’s confidence that Chrysler can be saved using the same medicine that revived Fiat still does not fully explain why he is willing to risk trying to pull off an unlikely second miracle. Doesn’t he risk damaging his reputation and stretching Fiat’s thin management resources to breaking point? The answer is that he believes the car industry’s crisis will lead to consolidation and that Fiat, for all its recent success, is less than half the size it needs to be to survive in the future. And though he might not be ready to admit it, he has done pretty much all he can with Fiat in its present form—and there is a good deal more excitement and satisfaction in being the hunter rather than the hunted.
Story from Business Week
An agreement with big banks may keep Chrysler out of bankruptcy court, but several smaller debt holders remain to be wooed
Italian automaker Fiat (FIA.MI) moved much closer to a deal with Chrysler on Apr. 28 that will blend the two companies' operations and likely keep Chrysler out of bankruptcy court.
The breakthrough came when a committee representing bank and private equity lenders that hold 75% of Chrysler's $6.9 billion in debt agreed with the White House auto industry task force and Chrysler owner Cerberus Capital Partners to take just $2 billion of what it's owed, along with 5% of the company's equity.
The automaker is still not safe from Chapter 11, though. A group of smaller banks that collectively hold 25% of the debt also need to be brought into line. The White House is looking for at least 90% participation by the lending banks before providing more government financing that will keep the automaker out of bankruptcy. Unless the White House extends its deadline, the wooing process needs to conclude by Apr. 30.
One executive working with the debt holders says that smaller banks are complaining that the big banks, who were recipients of Troubled Asset Relief Program (TARP) bailout funds, succumbed to political pressure, striking a weaker deal than what they had been negotiating for.
Better Terms for the UAW?
On Mar. 30, President Obama said his task force concluded that Chrysler could not continue as an independent entity, and that the U.S. Treasury would not extend any more loans to Chrysler past that Apr. 30 deadline unless it struck a deal with another automaker, its unions, and lenders, and showed financial viability.
Debt holders have been complaining that the United Auto Workers were getting much better terms from the White House, and they have been holding out for a better deal. On Sunday, the UAW struck an agreement that gives the union's Voluntary Employee Benefit Assn. (VEBA) health-care trust fund $4.5 billion in Chrysler stock, or about 55% of the fund's total financial backing. A VEBA representative will also hold a seat on Chrysler's board of directors.
A Treasury official indicated that the ongoing negotiations definitely boosted the odds in favor of Chrysler steering clear of bankruptcy court. "The agreement from Chrysler's principal banks is an exceptional accomplishment in line with the President's firm commitment that all stakeholders sacrifice to make this deal succeed," the official said.
While Obama Administration officials have talked tough about forcing both Chrysler and General Motors (GM) into bankruptcy in the last month, there is also a desire to avoid it. "Actual Chapter 11 brings a lot of unknowns for how the consumer will react," says independent marketing consultant Dennis Keene. "Especially now, having hit what we think is the bottom of sales and consumer confidence, Chapter 11 would be a setback for everyone."
The UAW has agreed to cuts in wages, overtime pay opportunities, vacation days, and to the elimination of the so-called Jobs Bank, which continued to pay workers after they were terminated. Retirees will also lose their dental and vision insurance coverage. UAW President Ron Gettelfinger couldn't be reached for comment on Apr. 28. But in a letter to members he said, "We fought to maintain our wages, our health care, and our jobs. … In the face of adversity, we secured new product guarantees, and we negotiated new opportunities for UAW involvement in future business decisions."
Part of the agreements call for Fiat to build a small car in the U.S. with union workers. They also specify engines that will be made available to Chrysler and built in the U.S., assuring that some future Chrysler models will continue to be built domestically.
"The UAW is under a great deal of pressure, but the deal they struck was very necessary," said Canadian Auto Workers President Ken Lewenza. The CAW cut a deal with Chrysler last weekend. "The unions have done a great deal to make this deal happen."
Envisioning a New Chrysler
What Chrysler looks like after Fiat begins retooling the company remains to be seen. The Jeep brand is widely considered to be the most valuable asset. Part of the plan calls for Fiat to distribute Jeep models through its European and South American network, which could quickly enhance the company's sales.
The two companies also have been exploring whether they can take some existing Fiat vehicles and rapidly modify them to be sold as Dodges and Chryslers in the U.S.
Of course, all those plans depend on Chrysler, its banks, and the White House crossing the finish line.
Wednesday, April 22, 2009
Story from the Boston Globe
After six months free from the whir of a four-stroke engine, we'll soon hear that herald of spring, the lawnmower. With it comes thoughts of lawn-care programs, watering regimens, and glances over the fence to see if the grass really is greener.
These days, thanks to the growing demand and interest in all things organic, homeowners are rethinking their lawns. Eco-sensitive natural lawn care is, increasingly, in. Conventional chemicals are out. But it's not just that a natural lawn is better for the environment, kids, and pets. In the long run, it's also cheaper, according to Paul Tukey, a spokesman for SafeLawns.org, a nonprofit organization that promotes natural lawn care.
Turns out, a natural lawn maintenance program creates a lush lawn that is more drought resistant, meaning that owners save money by watering less, and mowing frequency also drops by about 50 percent, he added.
"Even if the organic fertilizer in the first transition year might cost you a little more, when you add up the mowing and water savings plus the gas and electricity to run the pumps and motors, you actually do begin to save money," Tukey said. But here's the real question: How does it look? The short answer is pretty good - if you're willing to wait a season or two.
"It's not a miracle, it's a transition," says Peter Mahoney of Mahoney's Garden Centers and the new Mahoney's Safe Lawns and Landscapes natural lawn maintenance company. The 50-year-old family-run garden center recently joined the Safe Lawns franchise system to provide organic lawn care services in Winchester, Woburn, and Tewksbury.
The goal is to develop a dense lawn and that will take some time to create, especially if the lawn has been treated by conventional means for many years.
"It's a gradual improvement," Mahoney said. "It's about developing a thick lawn, because in a thick lawn you're not going to have the weeds, pests, and diseases."
THE TURF BATTLE
The drive for the perfectly weed-free American lawn can be traced back to 1967, Tukey said, when the Masters Golf Tournament was first broadcast in color, and Augusta National Golf Club sparkled like an emerald on televisions nationwide. Before what has been termed "the Augusta Syndrome," American lawns were peppered with "weeds" and homeowners expected it to be that way.
Of course some of those so-called weeds weren't so bad. Clover actually benefits the grass it knocks elbows with, as it fixes nitrogen from the air and makes it available to the plants around it. And true weeds, Tukey added, are Mother Nature's messengers telling us about the soil.
"The only real way to get rid of those weeds," he said, "is to get rid of the soil conditions that make those weeds want to grow, and to modify the soil so that grass does want to grow."
Scientists are doing their part to help homeowners use organic lawn care without having to rely on conventional chemicals. Grass strains such as "low-grow" and "no-grow" mixes have been developed that are naturally shorter, thicker, and more drought resistant.
Michael Sullivan, former professor of turf grass science at the University of Rhode Island and the current director of that state's Department of Environmental Management, says these low-growing grasses get the job done, although they do recover less quickly from the damage doled out by an active family.
Sullivan adds that homeowners can find lots of "green" lawn seed options now. "You don't even have to turn to current science," he said. The first step is the right plant for your need. Sullivan promotes the concept of prescriptive vegetation, or planting based on the lawn's use. Grasses such as fine-leafed fescues naturally require less water and fewer nutrients, and have deeper root systems than perennial rye grass and bluegrass. Fine-leafed fescues, then, would be a good choice for homeowners looking to trim water and fertilizer use.
LAWN CARE BASICS
Before transitioning to a natural or organic lawn care regimen, homeowners need to know some basics. You'll also need patience. Depending on the initial condition of the lawn, the transition from a conventional to a proper organic lawn can take from one to three or more years. Lawns with a healthy soil profile and a solid base of loam of four- to seven-inches deep, can transition to an organic lawn with little change in its appearance in just one growing season.
1. To start with, the soil in an organic system has to be alive to work properly. Repeated applications of chemical fertilizers kill the microorganisms that live in the soil and break down organic matter into the nutrients grass plants require. A lawn's microbial population must be reestablished. Compost and compost tea, which naturally contain these microorganisms, can help replenish those population levels.
2. A soil test is necessary to determine your soil's pH and its subsequent nutrient requirements. Also, determine what type of soil you have (Loam? Hardpan clay?) and how much of it. If you have to improve your soil conditions, you can begin a full-scale renovation right away, or slowly transition your soil profile by raking in one-half inch of compost through the entire lawn twice the first year. This added compost will increase the soil's water holding capacity and add nutrients.
3. Water your lawn deeply (one inch of water) and infrequently (once per week). This encourages roots to grow deep into the ground.
4. Grass clippings are good for the lawn. An Ohio State University study showed that 50 percent of your lawn's fertilizer is returned to the soil when grass clippings are left to biodegrade back into the soil, Tukey said. If you haven't mowed your lawn in a while, it's fine to remove those unsightly clumps and place into a compost pile.
5. Maintain your lawn's height at 3 inches. This is slightly shaggier than today's conventional 2 to 2 1/2 inch lawn. The taller grass shades the soil beneath. In early spring, this shade prevents the seeds of crabgrass and other weeds from germinating. Also, a 3 inch or taller lawn in summer prevents the lawn from drying as quickly as a shorter lawn.
LESS IS MORE
Bruce Wenning, a horticulturist at the Country Club in Chestnut Hill, former Massachusetts Audubon grounds manager, and a board member of the Ecological Landscape Association, suggests homeowners keep their transition to an organic lawn as simple as possible.
"I've known people to put a lot of organic compounds on a lawn, mimicking what a chemical lawn services company would do," Wenning says. "You're not getting any better lawn [with the additional amendments] in my opinion, so beware being sold too many organic products the first year."
What if you're interested in going greener, but you're not quite ready to go all natural when it comes to your lawn? Wenning said you can ease into it.
"Some may want to take the organic approach, but just can't stand the weeds" already present in their lawn, he said. In that case, it's possible in early spring to apply a conventional pre-emergent weed killer to suppress new weed growth, and to proceed organically from that point.
"It's not really organic, but an integrated approach where you have the choice to use the chemical if you'd like," Wenning said. Think of it as a baby step toward a truly organic lawn.
Story from the Sun Sentinel
More than 90 percent of the clothing sold in the United States is imported, and the U.S. recession is sending ripples through the apparel industry worldwide.
In all his decades in the apparel business, South Florida customs broker Norm Gelber has never seen it so bad.
He's handling about half the shipments he did two years ago and just laid off 40 of his 100 employees in Miami.
More than 90 percent of the clothing sold in the United States is imported, and the U.S. recession is sending ripples through the apparel industry worldwide.
At the Material World trade show at the Miami Beach Convention Center, the pain was obvious Tuesday in fewer booths, fewer buyers and grim news of layoffs, including the 40 at Gelber's Customs & Trade Services.
Guatemala has been especially hard hit, with as many as 18,000 apparel jobs lost last year, leaving about 90,000, said Carlos Arias, president of Denimatrix, a jeans maker. In the first two months this year, U.S. apparel imports from Guatemala plunged 36 percent, U.S. trade data show.
In Dominican Republic, where 22,000 apparel jobs have vanished since 2005, the government is getting aggressive to keep factories open. It is lifting taxes on fuel for machinery and reducing rents to help producers cope with shrinking U.S. sales, said Luisa Fernandez, executive director of the country's National Free Zone Council.
South Florida has long has served as the gateway for the apparel industry in the Americas. It helps ship U.S. fabric and supplies to factories in lower-wage countries in the Caribbean, Central America and South America and then receives the finished clothes for distribution to U.S. stores from Abercrombie & Fitch to Wal-Mart.
But the Americas have been losing their shine in apparel since a 2005 change in world trade rules lifted quotas and unleashed Asia as the new powerhouse. Clothes producers in Central America, Peru and other U.S. neighbors have been trying to fight back, signing free trade pacts for better access to the U.S. market and touting faster delivery closer to home.
Yet China, India and other Asian nations keep gaining, partly because of stronger fabric industries.
At Tuesday's show, even importers of Asian fabrics were feeling down. Siggy Kolko, of Boca-Raton-based Dreamtex, said he supplies textiles to the hotel industry for bedding, sofas and other needs. He once bought mainly U.S. fabric from quiliting fabrics designers, but most U.S. mills have closed, forcing him to rely on China. Sales nowadays are woeful, as recession takes a toll on of tourism, and hotels cut back on fabrics for room upgrades.
"If you're in the water and you're up to your neck, it's OK. But if you're head is under the water, it's not good. And that's where we are right now," Kolko said, at a booth full of bright, colorful fabrics. "We're just surviving."
So much of the U.S. apparel business has shifted to Asia that the Material World trade show next year plans a Los Angeles version to be closer to that region. Some exhibitors who wonder if they can afford both may skip Florida.
Still, there are some bright spots for the Americas. Production is rising in Haiti, the hemisphere's poorest country, thanks to a recent U.S. law that allows generous entry for clothes made there of any designer fabrics. And chances are improving for Congress to pass a U.S.-Colombia free trade accord that should boost sales from that South American country.
Many at Tuesday's show were waiting most of all for the U.S. economy to heal and consumers to shop again.
"As we were early to feel the pain,"' said Guatemala's Arias, "we hope we're early to feel the gain."
Story from the Washington Post
Top recipients of federal bailout money spent more than $10 million on political lobbying in the first three months of this year, including aggressive efforts aimed at blocking executive pay limits and tougher financial regulations, according to newly filed disclosure records.
The biggest spenders among major firms in the group included General Motors, which spent nearly $1 million a month on lobbying, and Citigroup and J.P. Morgan Chase, which together spent more than $2.5 million in their efforts to sway lawmakers and Obama administration officials on a wide range of financial issues. In all, major bailout recipients have spent more than $22 million on lobbying in the six months since the government began doling out rescue funds, Senate disclosure records show.
The new lobbying totals come at a time of mounting anger in Congress and among the public over the actions of many bailed-out firms, which have bristled at attempts to cap excessive bonuses and have loudly complained about the restrictions placed on hundreds of billions of dollars in government loans. Administration officials said this week that top officials at Chrysler Financial turned away a $750 million government loan in favor of pricier private financing because executives didn't want to abide by new federal limits on pay.
The reports revived objections from advocacy groups and some lawmakers, who say firms should not be lobbying against stricter oversight at the same time they are receiving billions from the government through the Troubled Assets Relief Program, or TARP.
"Taxpayers are subsidizing a legislative agenda that is inimical to their interests and offensive to what the whole TARP program is about," said William Patterson, executive director of CtW Investment Group, which is affiliated with a coalition of labor unions. "It's business as usual with taxpayers picking up the bill."
But several company representatives said yesterday that none of the money borrowed from the government has been used to fund lobbying activities — though there is no mechanism to verify that. Financial firms have successfully quashed proposed legislation that would explicitly ban the use of TARP money for lobbying or campaign contributions.
'Very complicated policy debates'
GM spokesman Greg Martin said that maintaining a lobbying presence is vital to ensure that the automaker has a say when major policy decisions are made. "We are part of what is arguably one of the most regulated industries, and we provide a voice in very complicated policy debates," Martin said.
According to quarterly lobbying reports that were due Monday, more than a dozen financial firms and carmakers that have received TARP assistance spent money on lobbying during the first three months of this year. After Citigroup and J.P. Morgan Chase, top lobbyists included American Express, Wells Fargo Bank, Goldman Sachs and Morgan Stanley.
Most of the companies spent less on lobbying this year than they did during the first quarter of 2008. J.P. Morgan, for example, spent $1.43 million in early 2008, compared with $1.31 million this year. Others, however, showed increased spending, including Capital One Financial, which doubled its quarterly lobbying expenditures to more than $400,000.
The lobbying records do not yet include campaign contributions by corporate lobbyists. Bank of America, for example, which spent $660,000 on lobbying in the first quarter, also gave more than $218,000 in campaign contributions through its PAC, according to the Federal Election Commission.
The Citigroup lobbying report provides a glimpse of the troubled company's interests in Washington, including credit card rules, student loan policies, and patent and trademark issues. Citigroup chief executive Vikram S. Pandit and other company officials lobbied fiercely against a House bill approved in March that would have placed a 90 percent tax on bonuses for traders, executives and bankers earning more than $250,000 at firms that had been bailed out by taxpayers. The proposal stalled in the Senate.
Citigroup spokeswoman Molly Meiners said the company "specifically prohibits the use of TARP funds for lobbying-related activities" and said the funds "are subject to an oversight and approvals process."
Tuesday, April 21, 2009
Story from Bloomberg
Broadcom Corp., the maker of chips for wireless headsets and TVs, made an unsolicited $764 million offer for Emulex Corp. after an earlier approach was rejected by the provider of semiconductors for data centers.
Broadcom said today that it’s offering $9.25 a share in cash, 40 percent more than Emulex’s closing price yesterday. The purchase, which would add to earnings by 2010, will be funded with cash on hand, Broadcom said.
Emulex is an attractive target because its technology for transporting information from data centers to storage systems is fast, reliable and hard to replicate, said Harsh Kumar, an analyst at Morgan Keegan Inc. Emulex shares rose above the offer as investors bet Broadcom may have to raise its bid. Stocks of other data center component makers also advanced on speculation such a deal will fuel consolidation. This is big news for data and colocation centers throughout the country, such as:
Los Angeles Colocation
New York Colocation
“Broadcom has tried for years to get into this space,” said Kumar, who rates Emulex “outperform” and doesn’t own the shares. “Everyone wins.”
Emulex added $3.09, or 47 percent, to $9.70 at 4:01 p.m. in New York Stock Exchange composite trading. Broadcom, based in Irvine, California, fell $1.27, or 5.8 percent, to $20.52 on the Nasdaq Stock Market.
Emulex’s board is considering the offer, the company said today in a statement. It is being advised by Goldman Sachs Group Inc. and law firm Gibson, Dunn and Crutcher LLP.
The deal may make QLogic Corp., an Emulex rival, attractive to bidders as well, Kumar said. Cisco Systems Inc. and Juniper Networks Inc. may want to buy the Aliso Viejo, California-based company to enhance their own products for data centers, he said.
QLogic gained as much as 19 percent on the Nasdaq, while Mellanox Technologies Ltd., a maker of chip-based products that help servers and storage systems communicate, added as much as 14 percent.
Broadcom sued Emulex to bar the company from taking any action to defeat its bid. Broadcom said Emulex rejected an offer to hold talks in January and adopted a “poison pill” provision to thwart bids. Poison pills release a large number of shares in the event of an offer, increasing the price a buyer must pay.
“A lot of times, that’s a tactic to get a higher offer price, so it may be related to that rather than to prevent the takeover entirely,” Steve Smigie, an analyst at Raymond James & Associates, said in an interview on Bloomberg TV. Also, “Emulex can argue they are coming off a severe trough.”
Emulex shares lost almost half their value in the past year before today as the recession ate into sales, leading to three straight quarters of declines.
‘Always Other Options’
“There’s every opportunity for this to be a friendly transaction,” Broadcom Chief Executive Officer Scott McGregor said in an interview. “There are always other options. Our priority is to close with Emulex.”
Katherine Lane, an Emulex spokeswoman, said the company doesn’t comment beyond its statement. Sonal Dave, a spokeswoman for QLogic, said the company didn’t immediately have a comment.
Banc of America Securities is providing financial advice to Broadcom, while Skadden, Arps, Slate, Meagher & Flom LLP is the legal adviser.
Broadcom aims to expand its range of products to lure customers as the recession forces other clients to cancel or delay orders. Emulex’s products would make Broadcom’s offerings more complete, cutting the number of suppliers clients buy from.
Broadcom posted its second straight loss today after sales fell and it spent more trying to break into the mobile-phone market. The loss for the quarter ended March 31 was $91.9 million, or 19 cents a share, after profit of $74.3 million, or 14 cents, a year ago. Sales slid 17 percent to $853.4 million.
Analysts predicted a loss of 24 cents on sales of $848.3 million, according to a Bloomberg survey. The company said sales will continue to decline this quarter, falling to as much as $975 million from $1.2 billion a year earlier.
Demand for chips is tumbling as electronics makers cut orders to draw down stockpiles of unused parts. Chipmakers say that while companies have now stopped reducing inventory and order declines have slowed, the economy remains sluggish.
Emulex’s profit fell 40 percent to $10.5 million in the quarter ended Dec. 28, with the company citing the recession and a “deteriorated sales environment.” Revenue slid 17 percent to $108.7 million.
Story from the Wisconsin Law Journal
For years, studies of lecture audiences have found that most listeners respond less to what is being said in a speech and more to how it is presented.
It’s essential for trial lawyers – who typically spend weeks gathering evidence, creating witness lists and scripting opening and closing statements – to grasp the importance of how they present their case in the courtroom.
Lawyers USA spoke about this topic with David J. Dempsey, a former trial attorney and author of “Legally Speaking: 40 Powerful Presentation Principles Lawyers Need to Know.” According to Dempsey, the best public speakers generally make for the best trial lawyers.
“What used to scare me in the courtroom wasn’t the bluebloods from the huge firms,” said Dempsey. “What scared me was the lawyer … from the small firm who could lean into the jurors and say ‘Now let me tell you a story.’ Those are the lawyers that resonate with the jury.”
Here are Dempsey’s tips for more effective public speaking, whether you're an overtime lawyer, San Jose business lawyer, Nashville divorce lawyer, or any type of attorney:
Scale back your arguments.
Brevity is your best friend when speaking before an audience.
According to Dempsey, the fastest way to lose jurors is to bore them with needless details.
While speaking during a motion hearing, Dempsey recalled the judge’s response when he said he was about to list the eight reasons why the judge and jury should believe his argument.
“You could hear this giant sucking sound of all the oxygen leaving the room. The judge told me, ‘I bet there are eight reasons. How about you give me your best two?’”
One tip is to write out your main argument on the back of a business card. This will allow you to focus and weed out extraneous details.
Put yourself in someone else’s shoes.
Lawyers often get so caught up in their own argument that they forget to view it from the point of view of a layperson or another lawyer who might disagree with it.
The most important rule for public keynote speakers is to put themselves in the shoes of the audience – and the same should hold true for lawyers.
Dempsey suggests practicing pitching your arguments in front of lawyers and nonlawyers.
You will be facing both in a standard civil trial. Make sure what you say resonates for all.
Do a dress rehearsal.
Visit the courtroom a few days before the trial and run through your arguments, just like a rehearsal.
This will cut down on “surprises” and let you learn the angles, where your visuals will be placed, where the jurors sit, etc.
Don’t be afraid to move around.
Standing behind a lectern can be fatal for keeping the interest of your audience. Move around, but do so discreetly.
For example, if you have three points to make in a PowerPoint, Dempsey recommends moving to a different area of the courtroom for each point.
Master your body language.
A shrug of your shoulders. A momentary look of panic. Shaky hands.
Any of those (often involuntary) gestures can communicate a lack of confidence or preparedness.
So get to know what body tics you have.
Before trial, videotape yourself giving your arguments and various trial presentations. If possible, videotape yourself in a role-playing scenario with another lawyer acting as a hostile witness or opposing attorney.
Plan for the worst.
Consider any potential flaw that an opposing attorney could use against you, such as the competence of an expert or the legitimacy of a witness. How will you handle them?
Dempsey says this gives you a subconscious sense of self-confidence that will help you avoid a look of panic when these issues arise.
Monday, April 20, 2009
Story from Business Week
In a move that will reshape how many companies buy high-end hardware and the software running it, Oracle (ORCL) has agreed to buy Sun Microsystems (JAVA) for $9.50 per share, or approximately $7.4 billion. Software giant Oracle is paying slightly more than IBM (IBM) had offered for Sun before negotiations broke off two weeks ago.
The Apr. 20 deal halts a downward spiral for Sun, a tech pioneer badly buffeted by the economic downturn and a shift by corporations away from the company's high-priced computer servers. It also marks a continuation of Oracle's half-decade-long acquisition tear. But buying Sun also carries risks for a company that lacks computer hardware experience.
Still, the potential benefits are clear. Oracle would use the deal to better integrate its own software with Sun's servers and its Solaris operating system, which power data centers in government, the telecommunications industry, and on Wall Street, putting Oracle at the center of the world's most demanding computing applications. Sun also owns the popular Java software programming language and a large data storage business. Oracle's database software is often chosen by corporations to store data for those same applications. Oracle also sells off-the-shelf software packages for corporate accounting, human resources, and supply chain management.
During a conference call, Oracle Chief Executive Lawrence Ellison said that thanks to the merger, Oracle will be the only company that can build systems that weave together everything from applications to storage and ensure they work with hardware from the get-go. "The combination of Oracle and Solaris has been successful in the marketplace for a long time," Ellison said. "Completely integrated computing systems, running Oracle and Solaris, should be even more successful and extremely profitable." Sun Chairman and co-founder Scott McNealy called the merger "a truly momentous day for the industry."
In early trading, Sun shares surged 2.39, or 36%, to 9.08, while Oracle shares slid 1.17, or 6%, to 17.91. Analyst Maynard J. Um of UBS Investment Research said in a research note that Sun's competitors may gain market share during the integration, and in the longer term "the impact to high-end server market shares will be dependent on Oracle's commitment to the hardware business."
During the conference call, Oracle executives said they plan on keeping Sun's hardware and investing heavily in integrating Oracle software with the higher-end capabilities of the Solaris operating system and Sun's hardware technologies. Oracle President Charles Phillips said strategists from the two companies have already been exploring the possibilities. They may engineer ready-to-deploy servers preloaded with software for target industries, what he called "a complete industry in a box."
While Oracle had long relied on internal research and development for revenue growth, Ellison shifted in 2002 and turned the company into one of the most avaricious acquirers of other companies. Spending more than $30 billion, Oracle snapped up application software rivals including PeopleSoft and Siebel Systems, and core corporate technology providers such as BEA Systems. Reacting to news of the deal, Marc Benioff, a longtime Oracle executive who now runs Salesforce.com (CRM), said, "Oracle's innovation in the industry has become creative acquisitions," adding, "It's easier to write checks than write software."
In addition to Sun's hardware and Solaris, one of the most important elements of the deal is Java. Oracle has used Java as the foundation for its line of Fusion middleware products—which integrate software products from different companies and improve the performance of Web sites. But Oracle's control of Java could present problems for IBM, which has also based much of its software on the programming language. Will Oracle change the Java technology or the license terms in ways that IBM doesn't like? Indeed, IBM is the company most directly affected by the acquisition across the board. The deal creates in essence a smaller version of IBM, complete with hardware, software, storage, and services—though IBM is not in the corporate applications business. IBM spokespeople didn't respond immediately to requests for comment.
In its news release about the Sun deal, Oracle pointed out that when Sun's cash assets are taken into account, the deal is valued at $5.6 billion. The company expects the Sun deal to add at least 15¢to its income on a non-GAAP basis in the first full year after closing, and to contribute $1.5 billion to its non-GAAP operating profit.
From CNN Money
Citigroup's health is slowly improving, but the bank's owners are stuck paying for its costly rehabilitation.
The New York-based financial giant returned to the black Friday after five quarterly losses, saying it swung to a $1.6 billion profit. Citi cited stronger trading results and a 23% drop in operating costs, driven by 13,000 job cuts during the latest quarter.
That's because as accounting rules dictate, Citi calculated its profit before deducting the costs related to preferred shares. The bank has issued these in droves in recent years, to the government and private investors alike, in a bid to bolster its capital cushion against souring loans and trading bets gone bad.
Paying for the preferred shares has gotten expensive, as a look at Friday's earnings statement shows. In the first quarter alone, Citi paid out $1.2 billion in preferred stock dividends. It also took a $1.3 billion hit when the price on some convertible preferred shares it sold in January 2008 reset.
Those costs come out of common shareholders' pockets - which is why the bank ended up posting a loss of 18 cents a share in a quarter that was otherwise profitable.
The unusual split - a profit for the bank but a loss for the shareholders - highlights the cost of the blizzard of preferred stock Citi has issued since Pandit took over at the end of 2007.
In his first two months at the bank's helm, Citi issued $30 billion in preferred shares to private investors around the globe. Since last fall, the bank has issued an additional $45 billion of preferred stock to the government.
Despite the huge sums raised by Citi via the preferred share sales, investors have continued to fret about the health of the bank's balance sheet as real estate prices tumble and more consumers fall behind on their auto and credit card payments.
In hopes of quelling worries about the bank's capital and ending talk of nationalization, the government announced a plan in February to convert the bulk of Citi's preferred shares to common shares.
Citi said Friday that the conversion, which had been scheduled to take place this month, will be delayed until regulators complete their stress tests on the 19 biggest U.S. banks. Results are expected by early May.
As a result of the swap, private sector holders of existing preferred shares will end up owning 38% of Citi and taxpayers will own 36%.
The conversion will reduce Citi's preferred dividends. That should mean that when Citi posts a profit in future quarters, common shareholders will share in them.
But the downside for current shareholders is that the preferred-to-common conversion will result in the issuance of billions of new common shares - which will reduce their stake in the company by three-quarters.
Still, given how poorly Citi has done since the collapse of the credit boom nearly two years ago - it had rung up $28 billion in losses since its last profit back in the third quarter of 2007, and saw its shares dip below a dollar each earlier this year - investors and taxpayers will gladly take even modest progress.
And there were signs Friday that Citi is, like the other giant financial institutions that have posted their first-quarter numbers this month, enjoying the benefits of cheap government-backed funding and less competitive financial markets.
Thanks to federal programs that allow big financial companies to borrow at low, subsidized rates, Citi's net interest margin - the difference between the bank's lending rates and its borrowing costs - rose half a percentage point from a year ago, to 3.3%.
Like its rivals JPMorgan Chase and Goldman Sachs, Citi posted a strong quarter in its trading business. The bank's securities and banking unit posted a first-quarter profit of $2 billion, reversing the year-ago loss of $7 billion, which was driven by writedowns of Citi's exposure to subprime mortgage securities.
Citi said revenue at its fixed income markets business hit $4.7 billion, "as high volatility and wider spreads in many products created favorable trading opportunities."
But as with its peers, there are questions as to whether Citi will be able to replicate that trading performance in coming quarters.
More than half of the first quarter's fixed income revenue - $2.5 billion worth - came from a valuation adjustment on Citi's derivatives books, mostly due to a widening of the bank's credit default swap spreads.
Credit default swaps are insurance-like contracts. Widening spreads reflect a greater belief that a company may not be able to pay back its debt. So in a sense, Citi was profiting from increased bets that it and other banks were in danger of failing. Those fears may subside a bit following the release of the stress test results.
Perhaps more alarming for Citi -- as well as JPMorgan, Wells Fargo and Bank of America, which will report its first-quarter results Monday -- is just how high losses on consumer loans such as credit cards could go later this year.
Citi's North American cards business swung to a $209 million loss in the first quarter, reversing the year-earlier $537 million profit. Credit costs - reflecting loans gone bad and expenses tied to reserving against future losses - nearly doubled.
The surging losses reflect "rising unemployment, higher bankruptcy filings and the housing market downturn," Citi said - national trends that show few signs of slowing any time soon.
Altogether, credit losses on the global cards business rose to 9.49% in the first quarter from 5.39% a year ago.
But consumers also appear to be doing a better job of keeping their cards in their wallets. The company reported an 18% decline in North American credit card purchase sales during the quarter. This drop will add to the pressure on the company's card portfolio.
Those declines were mitigated somewhat, however, by a rise in interest and fee revenue, as already debt-laden consumers ran bigger balances on their cards and made smaller payments.So no matter how you look at the results, it seems that the taxpayer -- especially those who also happen to be Citi customers -- still have little reason to celebrate with the bank's return to profitability.
Sunday, April 19, 2009
Story from MSN Money
The B-word is in the headlines like never before. There were 7,843 commercial bankruptcy filings in March, according to AACER, a bankruptcy data management company. That's up 23% from the previous month and a staggering 65% from a year earlier. And the number of filings is accelerating.
"Bankruptcy typically has a lag behind what is going on in the marketplace," says Mike Bickford, the president of AACER, or Automated Access to Court Electronic Records. "So I think you are going to see increases in bankruptcy. . . at least over the next 12 to 18 months."
What company will be next to go? To find out, MSN Money took a look at credit default swaps. Swaps and other derivatives have been labeled "financial weapons of mass destruction" (by Warren Buffett himself), but they do serve legitimate purposes. Think of swaps, for instance, as a form of bankruptcy protection. Creditors that own swaps lower their risk of a debtor not paying back a loan, because a third-party insurer is on the hook for some of the unpaid debt.
Hedge fund managers, investment bankers and others can use credit default swaps to speculate on whether a company might be seen as a riskier borrower in the future. If that happened, the price of such default insurance would increase.
Sellers of credit default swaps for radio giant Clear Channel Communications, for example, currently want nearly 62 cents to insure a dollar's worth of that company's debt. That's known as the spread. And compared with how much sellers are charging to insure other companies' debts, that's a high premium.
MSN Money compiled a list of 30 companies the market judges to be the biggest bankruptcy risks, based on the credit-default-swap spreads on their five year bonds, the most widely-traded type.
Below are 10 big-name companies that made the unfortunate cut and why the market thinks they're in danger of failing. (You can see the full list here.) Blockbuster, surprisingly, was spared from the list because there are few buyers and sellers of protection on its debt. That's partly due to Blockbuster having just refinanced a $250 million revolving loan this month that severely threatened its ability to stay in business, and partly due to the fact that the new loan comes due in just 17 months., the owner of more than 20 U.S. theme parks, is scarier for investors than the Dare Devil Dive, a ride at the company's Great Adventure & Wild Safari park in New Jersey. The company has a ton of debt and seemingly not enough money coming in to pay it off by the due dates.
At the end of last year, the company had about $2.1 billion in debt, according to Standard & Poor's, which cut Six Flags' credit rating last month. The company lost about $37.8 million in 2008 and $70.6 million in 2007, according to filings with the Securities and Exchange Commission.
The company also has bills coming due. Six Flags must pay holders of certain preferred income shares, known as PIERS, $287.5 million, plus $31.3 million in accrued and unpaid dividends, by Aug. 15. If Six Flags can't pay and can't refinance its debt obligations, it will be considered in default, which will trigger provisions in other loans requiring that some creditors are paid early.
"What happened to Rite Aid happened to most retailers. But, unlike other retailers, we had just increased our size by more than 50% and embarked on a 16-month integration of more than 1,800 stores," Mary Sammons, Rite Aid's chairwoman, president and CEO, wrote in a March letter to shareholders.
The company posted a net loss of $1.1 billion for its fiscal 2008, which ended in March. Even worse, the company had debt of nearly $6 billion as of March 1.Clear Channel. The main business of CC Media, the parent company of Clear Channel Communications, is selling ads, and that's a tough one in this market. The company posted a $3 billion loss in the fourth quarter of last year.
As the largest radio company in the U.S., Clear Channel needs to put a lot of ads on the airwaves. So the steady decline in radio advertising -- the market is projected to shrink 11% this year -- has hammered the company. In the fourth quarter of 2008, its radio broadcasting unit's revenue was down 13% from a year ago.
Many media companies are facing similar problems. Worse for Clear Channel is that it recently borrowed the remaining $1.6 billion of the $2 billion in lines of credit it had available. That has some worried that CC Media, owned by private-equity firms Thomas H. Lee Partners and Bain Capital, is struggling to keep up with payments on the $17 billion-plus it has in outstanding debts.
In addition to suffering from the advertising slump hitting media companies, it also has large debts and is losing money. The company has about $10 billion in debts and posted a net loss of $5.1 billion for 2008, partly because it lowered the book value of several radio and TV properties.
Company executives insist Univision will be able to pay its debts. But investors are nervous. Even CEO Joe Uva acknowledged, in a March 30 statement, that its fourth-quarter results "reflect an operating environment that was among the most difficult we have seen across most industries."Homebuilder is a poster child for the housing market's woes. Though home sales rose 4.7% in February from the previous month, according to the U.S. Commerce Department, they were down about 40% compared with a year earlier. The homes that are selling are going because they're at unbeatable and, for homebuilders, unbearable prices. The average selling price is down about 18%.
Beazer has posted large losses for the past two years, and its revenue was down 53.5% in its fiscal first quarter, which ended Dec. 31. It has about $2.1 billion in liabilities, and its existing lines of credit have been exhausted.
And with its debt insurance selling at one of the highest premiums on MSN Money's list, Beazer is sure to have difficulty refinancing.
The owner of more than a dozen casinos across the U.S., including Caesars Palace, Bally's and Paris Las Vegas, is highly leveraged because of a private-equity buyout. The company had more than $24 billion in debts at the end of 2008. Interest alone cost nearly $2 billion last year.
Harrah's isn't posting the profits needed to pay down its debts. It reported a $5.1 billion loss for 2008, partly because of write-downs on the value of some gambling properties. In a note to investors,securities analyst Andrew Zarnett said Harrah's will need to restructure and could lose customers due to business cuts.
Last month, Bloomberg reported that the owners of Harrah's had purchased about $2 billion of the company's debt. The move was widely seen as a sign that the owners are preparing for a bankruptcy filing, because owning more debt insures they have a larger voice in the bankruptcy restructuring process.is facing the same debt problems as Harrah's, as well as a nasty lawsuit with its Saudi partner over a new Las Vegas development.
The owner of such celebrated Las Vegas Strip casinos as the Bellagio, Mandalay Bay and the Mirage has about $12.5 billion in long-term debt and posted a $1.1 billion loss in the fourth quarter of 2008, in part due to a drop in room reservations.
The bill for billions in MGM's debt was supposed to come due in March. But the company was able to persuade banks to extend the deadline until May 15. In its annual SEC filing, the company raised the possibility that it may not make the new deadline.
In addition to its debt position, MGM is fighting a lawsuit from Dubai World over the management of the $8.7 billion City Center project, a luxury condominium community on the Las Vegas Strip. The project is running over budget, and Dubai World appears to want out.
Of all the airlines, United is on particularly shaky ground. Its parent company,, said April 7 that traffic was down 13.6% last month compared with the previous March. Those results were slightly worse than many analysts and investors had expected. UAL also acknowledged this year that its attempt to create a low-cost airline, Ted, had failed. UAL shuttered the unit in January.
United also has a problem with how its ticket sales are structured. Credit card companies demand that the company set aside a reserve to pay them back for processing sales transactions. Such reserves are difficult to maintain when a company is operating at a loss, and UAL posted a $547 million loss for the last three months of 2008.
Some investors fear bankruptcy could be that medicine. Ford posted a $14.6 billion loss in 2008. That was the company's worst performance in its history, adjusting for inflation.
And that likely will keep the company from making a further dent in its $15.9 billion debt. Although the company has shown some progress in restructuring its debt -- shaving off $9.9 billion in April to get below $16 billion -- it still has a lot of work to do before assuaging bankruptcy concerns.What bankruptcy list would be complete without ? Even with the federal government giving GM $13.4 billion in loans and potentially doling out more aid, GM is at the top of the list for riskiest borrowers.
Last year was dismal for the company. It posted a $16.8 billion loss. That number jumped to $30.9 billion after the company included new estimates of the worth of Hummer, Saab and other brands.
This year doesn't look much better. In March, GM's sales were down nearly 45% from a year ago. Cadillac, Saturn, Saab and Hummer had the worst sales of all of GM's brands, and some of those are slated to disappear. The company is phasing out Hummer and Saturn, according to SEC filings. GM is also reportedly nearing a sale for Saab.
Without government aid, a GM failure is nearly certain. Although President Barack Obama’s auto task force rejected GM's restructuring plan Feb. 17, the government does seem committed to helping the company. It has suggested that GM file for bankruptcy protection in June if it is unable to get unions and bondholders to negotiate new agreements.
The 30 biggest bankruptcy risksThe following companies are listed from most endangered to least endangered, based on the credit-default-swap spreads on five-year corporate bonds on April 3. (Note: AbitibiBowater was at the top of the list on that date, but it filed for bankruptcy on April 16 and was removed.)
Financial Guaranty Insurance
Beazer Homes USA
Hellas Telecommunications II
American Axle & Manufacturing