March 2007 Archive
When is a hedge also a lever? When it’s the compelling force behind what could ultimately be the largest bank merger in European history.
Christopher Hohn and The Children’s Investment Fund (better known as TCI) have leveraged the hedge fund’s 1% stake in ABN AMRO into a big honking (presumed) deal that’s making headlines all over the business world: Barclays‘ planned acquisition of the Netherlands-based international banking concern.
TCI takes its name from the fact that a portion of its proceeds each year go to the TCI Fund Foundation, a major UK charity. But TCI’s philanthropic side is matched with an activist bent. The hedge fund — dissatisfied with ABN AMRO’s poor shareholder returns — invoked a company rule allowing it to demand that the bank’s April general meeting include motions to break up or sell ABN AMRO. TCI is said to have received backing from several institutional ABN AMRO shareholders, as well.
The demands prompted ABN AMRO to come forward with news that it was in exclusive acquisition talks with Barclays (earlier discussions with Dutch rival ING apparently having failed).
At this point, it’s anyone’s guess how the planned cross-border acquisition will fly, but there are several things that most analysts agree on:
- Activist hedge funds are gaining power in the world of Euro business. TCI’s demands of ABN AMRO are just one of several hedge-fueled situations simmering in the UK or on the continent. This is certainly not TCI’s first time in the activist driver’s seat, either; the hedge fund was instrumental in ousting Werner Seifert as CEO of the Deutsche Börse after it twice failed to buy the London Stock Exchange.
- ABN AMRO will be sold, it’s just a matter of when, to whom, and whether in whole or in part. There may be bigger, richer, and more attractive suitors waiting in the wings once Barclays’ exclusivity period ends, and TCI is determined to push for the highest return to shareholders.
- A failed attempt to acquire ABN AMRO will likely leave Barclays itself as a prime acquisition target.
Stay tuned.
The race is on to determine who will be first to build an offshore wind plant in the US. Several companies are working toward this goal, with initial development underway at locations in Massachusetts, New York, Delaware, and Texas.
The Galveston, Texas, facility being developed by Wind Energy Systems Technologies, has faced little opposition and plans to have its first turbine installed by September. The Long Island facility (LIPA and FPL Energy) is also supported by many in the community.
On the other hand, the Cape Cod facility being built by Energy Management Inc. has faced severe community opposition, primarily due to worries that the turbines will ruin million-dollar views and harm wildlife. The Delaware plant (Bluewater Wind), although supported by much of the community, must overcome political and coal industry blockers.
Wind farms make up the largest growing segment of renewable energy sources; the US topped the list in 2006 for new capacity installed, although Germany and Spain produce higher totals of wind-powered energy. Big time developers and turbine manufacturers are eager to enter the US market — including EDP, which is acquiring Horizon Wind for $2 billion, and Vestas, which is building a new plant in the states.
The US has fallen far behind in the offshore market however, as countries such as Denmark and the UK have had offshore projects in operation for years.
In addition to the benefits of all wind turbines (including a lack of fuel requirements and emissions), offshore wind projects have the added benefit of stronger winds, especially during warm afternoon when energy demands peak and onshore turbines slow down.
Offshore construction and maintenance costs can be higher, but typically these developments use larger turbines in greater numbers to offset the costs. Studies on existing facilities have shown that negative effects on migrating birds and marine life are minimal, and many proponents agree that wind is economically viable and environmentally friendly, especially when compared to the possible environmental impact of burning fossil fuels. Opinions on whether the turbines ruin or enhance views will never come to a consensus — beauty is in the eye of the beholder, after all.
Hopefully those opposing the developments will conclude that the benefits of offshore wind outweigh the negatives. Then all of these projects will make it to the finish line.
There’s a war raging in the home electronics industry: the battle between Sony and Toshiba to determine whose technology will be the standard in next generation DVDs. It’s a conflict likely to be decided by the likes of Walt Disney, the sales figures of the PlayStation 3, and the porn industry.
Much like the struggle between VHS and Betamax in the early ’80s, nexgen DVDs will be in either Blu-ray (produced by a group led by Sony) or HD DVD (led by Toshiba) format. The new discs offer high definition picture quality, and contain far more storage capacity than traditional DVDs.
Consumers won’t buy two DVD players in order to play both types of discs, and it would be too costly for studios to produce both formats. So eventually one technology will win out over the other, and watching them jockey for position has been enjoyable.
Right now, chicken or the egg irony is playing a big part in why neither format has broken out. Until they have televisions and DVD players capable of delivering the hi-def benefits, consumers won’t buy the discs. And at the moment, those devices are enormously expensive. A good HDTV can run anywhere from $2,500 to $5,000, and most nexgen DVD players start at $500. This leaves consumers in a conundrum: It’s tough to afford a home theater upgrade at those prices, and, even if you do shell out big bucks, you don’t want to pick one or the other and have your chosen format lose the war. Thus, the consumer is left completely out in the cold.
Each side is aggressively courting the movie studios, and in that scenario, HD DVD might have the upper hand. HD DVDs can be replicated using existing equipment, while Blu-ray requires expensive new stamping machines. But then, Sony gave Blu-ray an advantage when it released the PlayStation 3, which is capable of playing Blu-ray discs. Of course, the inclusion caused massive shipping delays and pushed the price for the console to almost $600, another major hurdle for the consumer.
But the biggest determining factor might be the adult entertainment industry. Sony didn’t allow porn makers to use Betamax back in the day, and many attribute that decision as a deciding factor in eventual VHS supremacy. And now, just like before, Sony won’t allow affiliated replicators to press porn discs. In addition, rival studio Walt Disney won’t do business with any DVD replicator that produces adult discs after past manufacturing errors landed porn snippets in copies of its children’s films. (The Little Mermaid, indeed.)
Buckle up and don’t get too attached to your DVD player. It’ll be obsolete soon.
Tesco PLC, the UK’s #1 retailer, is invading the US starting with Phoenix, Los Angeles, and Las Vegas. The British chain, which operates 2,800 stores in a dozen countries in Europe and Asia, claims to have carefully tailored its new store concept — called Fresh & Easy Neighborhood Market — to match American tastes. (I gather that means no Cornish pasties or crisps drenched with vinegar.)
Tesco has cherry picked some of the fastest-growing counties – Maricopa County, which includes Phoenix, and Clark County, home to Las Vegas – to launch its US venture.
Tesco’s plan, details of which have until recently been a closely guarded secret to avoid alerting competitors such as Wal-Mart, calls for stores to measure roughly 10,000 sq ft (about three times the size of a 7-Eleven but smaller than a typical supermarket) and stock plenty of fresh and organic produce and upscale ready-to-eat foods. Sound familiar, Trader Joe’s? The smaller size is designed to make shopping easier and avoid zoning hassles.
Reportedly, Tesco’s first trial store in a warehouse in LA was passed off as a film set. The launch date is also a secret but is expected to come in the second half of this year, with the first 20 Fresh & Easy markets slated to open in Phoenix before rolling out across the West Coast.
To date, foreign retailers have met with mixed results in the US. While both Marks & Spencer (Brooks Brothers and Kings Super Markets) and J Sainsbury (Shaw’s Supermarkets) have made unsuccessful forays into the American market, two of the leading convenience store operators in the US are foreign owned. Seven-Eleven Japan owns the ubiquitous 7-Eleven chain here, and Canada’s Alimentation Couche-Tard (that’s French for “food for those who go to bed late”) owns the Circle K chain of c-stores.
The Fresh & Easy concept is modeled on the successful Tesco Express format, which boasts more than 1,000 stores in seven countries.
Patriots opposed to Tesco’s arrival on American shores include, not surprisingly, retailers — Wal-Mart has reportedly hired a former Tesco exec to scuttle the launch — and union members opposed to Tesco’s non-union business model. UFCW efforts to thwart Tesco include legal opposition to its new grocery distribution center in Riverside, California and a door-to-door smear campaign in Arizona, citing incidents in which Tesco stores in the UK have sold alcohol to minors, urging Arizona residents to oppose Tesco’s applications to sell liquor at its stores.
Despite some pretty high hurdles Tesco is investing about $490 million in America this year — that’s almost twice what footballer David Beckham got to emigrate. Whether the two, who are slated to make their US debut at about the same time, ultimately succeed here remains to be seen. But it will be interesting to watch.
I have blogged in this space more than once about DaimlerChrysler possibly selling off its troubled Chrysler Group unit — and to be perfectly honest, I hope this will be the last time.
It seems like a sale is all but inevitable. The vultures are circling. Interested buzzards include a major carmaker (GM — a dark horse candidate, I think), a giant parts supplier (Magna International), and private equity concerns (Cerberus Capital Management, and a team of Blackstone Group and Centerbridge Partners).
It’s interesting to look at the two groups who’d feel the most impact and examine what they think about a possible deal.
Investors: DaimlerChrysler’s investors want Chrysler gone. They don’t seem very particular about who buys it as long as someone does. A small group of investors has gone so far as to suggest that Chrysler is such a drag on operations, reference to Chrysler should be dropped from the corporate name, preferably by March 31st 2008 or when the company is sold — whichever comes first. These investors want DaimlerChrysler to be called Daimler-Benz AG as soon as possible, as they allege damaging nicknames like Daimler-Crisis and Crime-ler are dragging down the whole operation.
Labor: The depth of labor’s resistance to a deal depends on who the deal is with. Labor would prefer another major carmaker to take over Chrysler, largely because unions are adept at putting the squeeze on major carmakers. Labor is against a private equity-led deal as it is wholly unfamiliar with exacting concessions from private equity.
Assuming it’s not uncommon for labor to take one in the teeth to the eventual benefit of investors, here is what will happen to Chrysler:
Chrysler will be sold to a consortium consisting of private equity and a manufacturing concern of some kind. The manufacturing company will manage Chrysler and take a minority stake. Daimler will also retain a minority stake. Labor will be semi-satisfied with this compromise until former DaimlerChrysler and Volkswagen wunderkind/hatchetman Wolfgang Bernhard shows up to replace Tom LaSorda as Chrysler CEO. Bernhard will make tough decisions. Workers will be outraged. The private equity concern(s) will be delighted.
As for me? I will use my new-found powers of divination to drive the Bellagio Casino in Las Vegas into bankruptcy.