November 2007 Archive
According to the New York Times, it is — and has been for a while. Reynolds American — which makes Camel, Winston, and Pall Mall cigarettes — says it won’t run cigarette ads in consumer magazines and newspapers during 2008. The announcement comes amidst a dispute between Reynolds and a consumer group called Campaign for Tobacco-Free Kids, which complains that a recent Camel ad in Rolling Stone harkens back to the Joe Camel cartoon character (an image now banned because of its appeal to kids).
The decision represents only one step in Big Tobacco’s ongoing retreat from print advertising. Philip Morris, for example, hasn’t used magazine ads for its cigarettes for three years; and expenditures on print ads have made up a miniscule part of Reynolds advertising budget in recent times, with direct marketing and promotions in stores, bars, and online accounting for most marketing expenses.
That might explain why Campaign for Tobacco-Free Kids isn’t exactly doing cartwheels over Reynolds’ announcement. The group says the decision is a cynical attempt to avoid controversy and doesn’t go far enough: Instead, the company should make its decision to forgo print advertising a permanent one and also curtail its other promotional activities.
But in the meantime, maybe Reynolds’ New Year’s resolution to stop hawking its products in magazines will be a boon to readers who’ll make their own 2008 resolutions to stop lighting them up.
They may not immediately sound like matchmaker’s dream pair: everyman’s retailer Sears Holding Corp. (which also owns discounter Kmart) and swanky-whimsical home goods retailer Restoration Hardware. But, as sometimes happens with the most unlikely matches, these two are giving each other the once over. And, of course, as in any love story worth its salt, there’s a possible jilted suitor in the wings.
The courtship is moving at a brisk pace. Let’s review:
- Sears starts wooing Restoration Hardware in June, with takeover talks.
- But then strikes out with its first offer of $4 a share.
- In November, Restoration Hardware agreed to be acquired for $6.70 a share (about $267 million) by a group of investors lead by Catterton Partners and including RH’s CEO Gary Friedman. Under the agreement, Restoration Hardware can seek other bids until December 13th.
- Last week, Sears acquired a $13.7% stake in the upscale chain.
- This week, Sears announces it’s willing to pony up $6.75 a share in cash for the company, if it can have access to certain confidential company information.
- Restoration Hardware agrees on Tuesday to release the information, if Sears agrees to certain confidentiality terms and not pursue a hostile takevoer.
Restoration Hardware, which sells retro-themed home furnishings at its 100-plus stores in the US and Canada, has seen the weak housing market take a toll on its sales.
Ray Hemming, chairman of Restoration Hardware’s committee of independent directors, has been quoted saying Sears’ interest in the company is flattering. “Sears is an American icon,” he told Furniture Today, owned by Reed Business Information.
What’s in it for Sears, which has also been struggling? Some analysts say not much, but others say Sears could benefit from a high-end brand name that brings in a new level of affluent shopper looking for trendier items. Especially with its Martha Stewart Everyday license expiring in 2009.
Who will walk away with Restoration Hardware’s premium collection of hand-crafted furniture, cocktail shakers, and tournament backgammon games? With insiders bidding on the company, it can be hard to tell. Bring your sweetest offers, suitors.
As the year winds down it seems Tata Motors has taken the inside track on Ford’s widely publicized sale of its problem children, Jaguar and Land Rover.
Representatives of Unite, England’s largest manufacturing labor union, are reported to have approved Tata Motors’ bid to acquire the two storied British brands after Tata and two other main bidders (reported to be Jacques Nasser’s JPMorgan Chase-affiliated One Equity Partners and fellow Indian motor company Mahindra & Mahindra and its partner, Apollo Management) rolled out their respective schemes to union representatives last week. The union wants two things: security for the 40,000 some-odd UK jobs at stake, and Ford to take an equity stake in certain suppliers that outfit Jaguar and Land Rover plants in the UK — which amounts to job guarantees for workers at those plants.
The deal attempts to meld two seemingly at-odds agendas: globalization and protectionism. Tata gets to expand its geographic reach with two well-known brands (against the better judgment of another Bizmology blogger) while UK workers get to keep a few, increasingly rare, Western manufacturing jobs. Problem is, these were the same opposed but complementary forces that brought the two British brands under Ford’s control in the first place — and we all know how well that went.
The good news for Tata is, it seems, that the company will get a great deal on the two brands. Ford paid $2.5 billion for Jag back in 1989; it paid $2.57 billion for Land Rover two years later. Merrill Lynch has estimated Jaguar and Land Rover to fetch a Red Tag Sale price of $1.3 to $1.5 billion. Does that include the TruCoat?
PETROBRAS just announced an offshore oil find that could boost Brazil’s oil reserves by 40%. Vast oil reserves remain largely untapped under Iraq. High oil prices are encouraging oil companies to activate old oil fields and develop expensive unconventional oil and gas plays (sands, shales, coalbed methane, etc.).
Does this mean that Peak Oil (the point in time at which maximum global oil and gas production is reached) can be delayed a few more years? It depends who you ask.
What is Peak Oil?
In a nutshell, Peak Oil or Hubbert’s Peak is a prediction model about the future size of finite oil reserves and when they might start into irreversible decline. In 1956 Shell Oil geologist M. King Hubbert predicted that oil production in the Continental US would peak in the early 1970s and decline forever after. This prediction, delivered at an oil and gas conference in San Antonio, became known as the Peak Oil model, or Hubbert’s Peak.
While the general thrust of the model (the eventual decline of available fossil fuels) is almost universially affirmed, advocates can be found that support three conflicting positions about this prediction: 1) Hubbert was right and Peak Oil has already happened, beginning in the 1970s; 2) Peak Oil is happening right now; and 3) Peak Oil can be delayed to the 2020s, 2030s, or beyond.
In the first camp are some Peak Oil doomsday scenarios played out on sites such as Kerala, India-based Countercurrents.org whose contributors see oil depletion accelerating over the next 40 years while population and energy demand surges, resulting in massive societal disruptions, the collapse of industrial civil society, and mass famines. “Peak Oil and Famine: Four Billion Deaths” screams a Hobbesian headline from Peter Goodchild that predicts a wretched life in a post-oil world as seemingly solitary, poor, nasty, brutish, and short. Blimey!
In the second camp — it’s happening now — are some writers at The Oil Drum. The recent run up of oil prices to almost $100 a barrel is not just about refining bottlenecks and geo-political tensions in oil-producing areas, but is also about tight supply and the belief that OPEC may be fibbing about the true nature of its oil reserves. Analyst Mathew Simmons asks, “How much oil is there, really, under the sands of Arabia?” Good question. His answer, a lot less than the Saudis say they have. Not good.
But all is not lost. In the third camp are the folks at Cambridge Energy Research Associates (CERA), led by Pulitzer Prize-winning author of The Prize: The Epic Quest for Oil, Money and Power, Daniel Yergin . CERA believes the Peak Oil doomsayers have based their analysis on faulty data and the world has 3.74 trillion barrels available, three times the level estimated by the prophets of Peak Oil. To drive this analysis home it points out that Hubbert’s model, while elegant, simple, and persuasive (following a Bell curve logic) is flawed in how it has actually played out over time. In 2005 oil production in the Lower 48 states was 66% higher than Hubbert had projected. Whew, that’s a relief!
I’m going with Yergin. In the immortal and possibly apocryphal words of Willie Nelson, “Who are you going to believe, me (Yergin’s right) or your lying eyes (ConocoPhillips and TOTAL predicting tight oil supply from here on, almost $100 a barrel oil, and close to $4 a gallon gasoline)?”
Willie doesn’t lie.
It’s more “On the Road Again” (albeit in a smaller and more gas-efficient vehicle) than “Turn Out The Lights, The Party’s Over.”
Movie trailer guy voiceover:
“In a business world fraught with peril, only one company can save capitalism.”
So I haven’t written about my favorite company in the whole wide world, Tata Group, in a long time. No bursting into song, no groupie-like adulation (okay, I guess there’s still a smidge of groupie-like adulation). I don’t know about you, but I’ve been suffering withdrawal. So I had to see why Tata wasn’t making news, aside from its bid for Jaguar and Rover.
Let’s see: Have they been exposed to the US subprime mortgage meltdown that shook the foundations of investment banking to its very core? Oh, yikes! They were — turns out that Tata Steel’s acquisition of Corus was jeopardized by the subprime crisis, which reduced the availability of credit. Tata had to reorganize the financing as a result.
Okay, well, what about the ABN AMRO takeover? Did Tata have anything to do with that? Nope, looks like Tata had nothing to do with that story, which was the the soap opera of the summer, what with the Barclays bid, the Royal Bank of Scotland consortium counteroffer, and the Bank of America acquisition of LaSalle. Fireworks aplenty, that one, but not for Tata.
China, Inc. has been in the news lately, what with reports of recalls of unsafe toys and other products. Tata and China have a history, one that stretches back more than a hundred years to the Opium Wars. Seems that Tata might have supplied the opium the British forced on the Chinese. (Finding out that Tata was on the wrong side in this unjust war almost made me reconsider my deep and abiding love for the company. Almost.) Did Tata get burned by this news?
Nope, looks like Tata is clear. China, you can’t blame this one on Tata!
Aside from the Jaguar bid, it looks like there’s a good reason that I haven’t written about Tata lately. They have just been doing what they do best, going about their business. That doesn’t get the headlines, good or bad. I’m sure it suits Tata just fine too.
And you know what? If it’s good enough for Tata, it’s good enough for me.