Tag Archives: Company coverage

GM

More troubles for GM

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General Motors Co. is increasing its response to safety issues, recalling more vehicles and vowing to do better. The coverage focused on various aspects of the crisis, but the long-term impact on the company could be the bigger issue.

Here are some of the details from the Wall Street Journal story by Jeff Bennett:

General Motors Co. Chief Executive Mary Barra stepped up her response to the company’s vehicle-defect problem, announcing three new safety recalls and vowing to change the way the auto maker handles recalls.

In a video posted on a GM website, Ms. Barra sounded a personal note as she tried to reassure customers, regulators, lawmakers and investors that the company is confronting not just the threats from defective vehicles but the corporate processes that failed to respond to them sooner.

GM last month recalled 1.6 million vehicles world-wide to fix faulty ignition switches that have been linked to a dozen deaths. It took the company nearly a decade to order the recalls after employees identified the problems ahead of the launch of the 2005 Chevrolet Cobalt compact car.

GM recalled some 1.7 million vans, sport-utility vehicles and Cadillac luxury cars to fix a variety of problems, chief among them a wiring defect that could result in seat air bags failing to deploy.

In all, GM has recalled 3.3 million vehicles world-wide since mid-February, with the majority of those sold in the U.S.

The top of the New York Times story by Bill Vlasic and Christopher Jensen focused on the comments by CEO Mary T. Barra and her plans for changing the way GM handles recalls:

Ms. Barra also made her most forceful comments yet on G.M.’s need to reform its safety efforts.

“Something went very wrong in our processes in this instance, and terrible things happened,” she said in an internal video broadcast to employees.

G.M. has come under intense pressure from government officials to explain why it took years to address faulty ignition switches that could cut off engine power and disable air bags in Cobalts and other small cars.

Ms. Barra’s comments to employees — including a letter on March 4 — represent the latest effort by the company to limit the damage that the recalls have inflicted on its reputation and consumer confidence.

“Mary Barra understands the value of taking full responsibility for G.M.’s latest, high-profile challenges, especially if she wants to send the message that this is a new G.M.,” said Karl Brauer, an analyst with the auto-research firm Kelley Blue Book.

Forbes contributor Micheline Maynard compared the issue to Toyota’s troubles in 2009:

GM’s predicament is the same kind of uproar that surround Toyota five years ago. In 2009 and 2010, the Japanese’ carmaker’s sterling reputation was battered by millions of recalls involving sudden acceleration in a variety of its vehicles. Like GM, Toyota was in the spotlight for months, as investigators and trial lawyers delved into its production methods and corporate culture. While the crisis ended after about half a year, Toyota is still mopping up the damage.

The 2009-10 experience was a historic turning point for Toyota, coming not long after it passed GM to become the world’s biggest carmaker. Used to maneuvering with an aura of opaqueness, Toyota had little preparation for the kind of scrutiny that came its way.

It was especially trying for Toyoda’s new chief executive, Akio Toyoda, the grandson of the carmaker’s founder. Toyota initially resisted efforts to have Toyoda testify before Congress, saying that the matter could be handled by its North American operations. But as it emerged that the decision making process for handling the recalls rested in Japan, Toyoda flew to Washington in February 2010 to appear before the House Committee On Oversight and Government Reform, one of three panels that opened investigations in the Toyota recalls.

Ben Klayman reported for Reuters that GM was working with suppliers to fix the costly problem:

The Detroit automaker said on Monday it would take a $300 million charge in the first quarter, primarily to cover the costs related to the ignition-switch recall and the three new recalls.

Barra previously apologized for GM’s failure to catch the faulty ignition switches sooner. In Monday’s video, she said GM is “conducting an intense review of our internal processes and will have more developments to announce as we move forward.”

The decade-long process that led to last month’s ignition-switch recall of such older GM models as the 2005-2007 Chevrolet Cobalt and 2003-2007 Saturn Ion has led to government criminal and civil investigations, congressional hearings and class-action lawsuits in the United States and Canada. All ask why GM took so long to address a problem it has said first came to its attention in 2001.

Barra said on Monday that the company was working with the supplier of the ignition switches, Delphi Automotive, to add a second production line for replacement parts and that customers would receive a detailed notice by mail during the second week of April.

While GM works to contain the problem, shareholder didn’t seem to mind the latest news. The stock was up slightly on Monday. The true test will be if consumers shun the automaker, which will be told in quarterly results.

China Business Knowledge

Covering China business news from New York

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Janet Stites is the editor and publisher of ChinaBusinessKnowledge.com, which covers China-based companies whose shares are trading in the United States.

With the news that China-based Alibaba plans to trade in the States, her site is likely to become more popular in the coming months.

Stites has a 25-year history as a business, technology and science journalist. She has been a business columnist for The New York Times, was founding publisher and editor of PHONE+ Magazine in the late 1980s, co-founder and CEO of AlleyCat News magazine, the first editorial director of Jupiter Communications in the mid-1990s and a freelance writer.

She has been a feature writer for OMNI Magazine and written for other various national publications such as Fortune Small Business, Self Magazine, and Portfolio magazine. As well, for 15 years,  she was a contributing writer for the The Bulletin of the Santa Fe Institute, interviewing world-renowned scientists, such as John Holland, Murray Gell-Mann, Tom Ray,  Stephen Langton and Beniot Mandelbrot.

She graduated from Syracuse University’s Newhouse School of Communications with a degree in magazine journalism and received her M.F.A. in fiction writing from UNC-Greensboro. She lives in New York City with her son, Sam.

Stites spoke about her website with Talking Biz News by email. What follows is an edited conversation.

TBN: How did you get the idea for China Business Knowledge?

JS: After I had to fold my magazine, AlleyCat News, in the fall of 2001, the journalism market was at a standstill. I started doing some marketing and consulting work. I also launched an online journal to track executives working in start-ups on the East Coast called Talent Pool News [East]. The goal was to eventually use the site as a marketing tool to provide recruiting services to venture funds seeking execs for the companies they funded (as, unlike, the west coast,  it is not so easy to find executive talent for start-ups on the east coast).

When I announced the recruiting initiative, an industry friend brought me into a consulting gig to help a Chinese financial services firm.  The firm had a dozen Chinese companies trading on the U.S. markets (at that point, on the OTC). They wanted us to find financial exes to “shadow” their CFOs, as well as to recruit western executives to sit on the boards of the companies. They saw my media background and also asked me to do some public relations.

We had a good run for four months. Then Lehman went bankrupt. The firm went belly-up.

Journalism was still dead, even worse, as was everything else. So after a year of walking around in a fog and doing too much volunteering, I decided to tap what I had learned about the sector of China-based/U.S. listed companies and launched CBK in August 2009. Essentially, I put up the first version of my site over a weekend.

TBN: What business stories do you cover?

Janet StitesJS: The bulk of what I cover can fall under the header of “Market Moves,” including uplistings, IPOs, buyouts/Going private mergers. But I also cover executive and director resignations and appointments and SEC news, such as insider trading investigations or outright fraud.

I use my “Publisher’s Notes” column for each edition to editorialize or talk about broader issues going on in the sector, the global economy or China. It is sent by email, with “headlines” and a link to the latest news on the site.

My site also has sources of information for investors, such as a list of most of the China companies trading on the U.S. markets, organized by exchange.  I include a link to each company’s website and QuoteMedia data. For another example, I am currently compiling a list of companies which have gone private or are in the process and a list of “dark” stocks (mostly on the OTC Pink or Grey markets). All this is behind the pay wall.

I also write “Special Reports” on pivotal topics. I would like to do more, but the news rains down on my every day and it is hard to find time to do longer pieces. In fact, one thing I cannot do is report quarterly numbers or numbers from annual reports. It is not possible for me to do a thorough job, so I don’t do it at all.

Right now I am only covering about 60 percent of what I would like to do with CBK. It is somewhat crippling, like a football player only being able to run the up to the five-yard line and then someone yells STOP!

TBN: How do you get your story ideas?

JS: Since public companies must disclose information which can “move” their stocks, the news is easy to gather through press releases. I keep it simple, but add context. For instance, if a company’s announces the resignation of its CFO, I will include other pertinent info they may have left out, like that the company has lost three CFOs in 18 months (a big red flag for investors), or something of that ilk.

For larger stories, I stick with topics which are current to the market. I had hoped to do more company profiles, but it is difficult to find the time bandwidth.

TBN: Who are your reader?

JS: CBK is geared for investors, whether individual or institutional. But, of course, just like any trade magazines many executives from professional services firms read it — lawyers, accountants — China-centric associations and institutions, and analysts. Also, just people interested in the China market, even if they are not going to invest in China-based/U.S. listed companies.

(more…)

Alibaba

China’s Alibaba Plans U.S. IPO

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The market for initial public offerings is heating up. To prove it, China’s e-commerce site Alibaba is planning to list its shares in the U.S. in a long-awaited share sale.

Reuters has these details in a story by Elzio Barreto and Denny Thomas.

Chinese e-commerce giant Alibaba Group Holding Ltd has decided to hold its long-awaited IPO in the United States and is in discussions with six banks to underwrite the deal, in what is set to the most high-profile public offering since Facebook Inc’s listing nearly two years ago.

Alibaba said in a statement on Sunday it had decided to begin the U.S. IPO process, ending months of speculation about where it would go public.

Separately, sources told Reuters that Alibaba is in discussions with Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs Group, J.P. Morgan, and Morgan Stanley for lead underwriting roles.

Most of the six banks are to set to win the coveted role of joint global coordinator, added the sources, who were not authorized to discuss the matter publicly.

Analysts estimate the Hangzhou, China-based company has a value of at least $140 billion, and the IPO proceeds could exceed $15 billion, Reuters previously reported. The deal would be a huge coup for the six banks, as it would yield an estimated $260 million in underwriting fees, assuming 1.75 percent commission, and catapult them in league table rankings.

The Bloomberg story by Lulu Yilun Chen added this background on the reasons for listing in the U.S. versus an Asian market:

“The U.S. has obvious advantages in terms of the depth of the pool of capital and sophistication of the investor base,” said Duncan Clark, Beijing-based chairman of BDA China Ltd., which advises technology companies. “In terms of the control issue, Jack and the management, it seems that the Hong Kong stock exchange wasn’t able to accommodate.”

Alibaba has decided to start the process for an IPO in the U.S., and a future listing in China may be considered “should circumstances permit,” the Hangzhou-based company said yesterday in a statement. Alibaba proposed that its partners nominate a majority of the board of directors, a system that isn’t allowed under Hong Kong rules.

The IPO may be the biggest since Facebook Inc. (FB) in 2012 and is a blow to Hong Kong, which hasn’t hosted an initial share sale of more than $4 billion since October 2010. Alibaba hasn’t decided when to file for the listing, which U.S. exchange to list on, how much to raise or how large a stake to sell, the person familiar said.

Alibaba bought back a 20 percent stake from Yahoo! Inc. in 2012 in a deal that valued the Chinese company at $35 billion. The Sunnyvale, California-based Web portal still owns 24 percent of Alibaba while Japan’s SoftBank Corp. (9984) owns about 37 percent stake, the companies have said.

Gregory Wallace wrote for CNN Money that Alibaba has been negotiating for months with Hong Kong regulators about where to list:

Alibaba’s long-awaited decision was revealed Sunday after months of negotiations with Hong Kong stock authorities. The company had said a major sticking point was its proposed governance structure.

Alibaba’s announcement included a reference to that issue: “We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.”

But the decision for a U.S.-based IPO “will make us a more global company and enhance the company’s transparency, as well as allow the company to continue to pursue our long-term vision and ideals.

But Wall Street is watching who will win the coveted roles of working on the offering. While there is plenty of money to go around, the Wall Street Journal story by Telis Demos and Juro Osawa said Alibaba planned to pay them all the same:

Credit Suisse Group AG CSGN.VX -2.89% , Deutsche Bank AG DBK.XE -1.52% ,Goldman Sachs Group Inc., GS -0.81% J.P. Morgan Chase JPM -1.08% & Co. andMorgan Stanley MS -1.08% are expected to get equal billing for their jobs as co-lead underwriters of the IPO, according to people familiar with matter.

The Chinese e-commerce company also is considering paying the banks about the same fee, though a final decision hasn’t been made and plans may shift, the people said.

With that arrangement, Alibaba would be making a break from recent large Internet IPOs, including those of Facebook Inc. FB -1.61% and Twitter Inc., TWTR -3.08% which each paid one bank far more than the others that were named to senior roles.

In the Facebook and Twitter deals, respective lead banks Morgan Stanley and Goldman Sachs received nearly twice the fees of the next tier of underwriters, according to company filings.

Alibaba, whose websites conduct more business than Amazon.com Inc. AMZN +0.60%‘s, said in a statement over the weekend that it has started its long-awaited march to an IPO in the U.S. after initially weighing a deal in Hong Kong.

The company picked the banks as co-leads of the planned share sale, The Wall Street Journal reported over the weekend. Citigroup Inc. also has a role in the deal, according to people familiar with the matter; details of the role weren’t clear Sunday night.

The IPO, which could come as soon as this summer, may raise more than $15 billion, making it one of the largest ever in the U.S., people familiar with the matter said.

That could translate into hundreds of millions of dollars in fees and other business to banks and exchanges in the U.S.

And that’s really what IPOs are all about. Individual investors rarely get to buy into the first sale meaning that institutional investors get the biggest first day gains. The real winners are likely to be those who get to list the shares.

BP

BP allowed to drill again

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BP is back. After nearly four years of suspension after a disastrous Gulf of Mexico oil spill in 2010, the company is now able to sign new drilling leases.

Here’s the story from Politico by Darren Goode:

BP will be allowed to sign new leases to drill for oil and gas in the Gulf of Mexico under a deal announced Thursday with the U.S. government that resolves outstanding issues tied to the British giant’s role in the 2010 Deepwater Horizon disaster.

The agreement settles “all suspension and debarment actions against BP” that prevented the company from doing business with the federal government, the EPA announced. The suspension stemmed from the April 2010 accident that killed 11 workers and gushed nearly 5 million barrels of oil, fouling miles of Gulf bottom, beaches and coastal marsh.

The announcement came just six days before the Interior Department is scheduled to hold a lease sale for 40 million acres in the Gulf. BP will now be eligible to participate, Senate Energy and Natural Resources Chairwoman Mary Landrieu (D-La.) said in a statement welcoming the agreement.

The Wall Street Journal added these details of BP’s new deal in a story by Tom Fowler:

Under the terms of the deal announced Thursday, BP has agreed to heightened safety, operations, ethics and corporate governance requirements, the company said.

BP must pay an independent auditor for the next five years to conduct annual reviews and report back to the government on compliance with the agreement, according to the EPA. The agency also said it can take corrective action if it believes BP breaches the agreement.

Thursday’s agreement means BP will be eligible to bid in the next auction of Gulf of Mexico oil and gas leases, which will be held on Wednesday.

The EPA blocked BP from obtaining new government contracts beginning in November 2012, shortly after the company and the U.S. Justice Department entered into a $4.5 billion settlement of all criminal and some civil charges related to the oil spill.

At the time, BP said it expected the suspension would be brief. But in August 2013, BP sued the agency for refusing to lift the ban even after the criminal case against the company had been closed.

In court filings, EPA officials said BP’s extended contract ban was because of the company’s conduct during the criminal investigation of the oil spill, as well as past safety pledges that were broken in the wake of a deadly refinery explosion in Texas and oil pipeline leaks in Alaska.

Clifford Krauss wrote in the New York Times that environmental groups were not happy about the new arrangement:

BP had sued to have the suspension lifted, and now the agreement will mean hundreds of millions of dollars of new business for the company. But even more important, oil analysts said, it signifies an important step in the company’s recovery from the accident, which has been costly to its finances and reputation.

“After a lengthy negotiation, BP is pleased to have reached this resolution, which we believe to be fair and reasonable,” said John Mingé, chairman and president of BP America. “Today’s agreement will allow America’s largest energy investor to compete again for federal contracts and leases.”

That prospect elicited sharp criticism from environmental groups. “It’s kind of outrageous to allow BP to expand their drilling presence here in the gulf,” said Raleigh Hoke, a spokesman for the Gulf Restoration Network, based in New Orleans.

The Washington Post story by Steven Mufson pointed out that BP pleaded guilty to criminal charges in 2012:

The EPA first suspended BP from new federal contracts on Nov. 28, 2012, citing its “lack of business integrity.” After BP pleaded guilty to criminal charges in a $4.5 billion settlement with the Justice Department, the EPA extended its ban. On Nov. 26, the agency again extended its ban on BP and 25 of its subsidiaries.

The five-year agreement announced Thursday requires BP to retain an independent auditor approved by that EPA who will conduct an annual review of BP’s compliance with a set of safety, ethics and corporate governance guidelines. The EPA said the agreement gives it the authority to “take appropriate corrective action in the event the agreement is breached.”

The suspension did not affect BP’s existing agreements with the government, and BP said it has invested $50 billion throughout the United States over the past five years.

But the agreement Thursday allows BP to add to its extensive lease holdings. In addition, BP can now bid on military fuel-supply contracts; previously the company was one of the U.S. military’s leading suppliers of fuel.

It looks like BP is out of the penalty box. The ability to bid on new business should help stop the earnings decline the company has experienced. On Feb. 4, BP reported a 25 percent drop in fourth-quarter profit. While shareholders are likely to cheer the new revenue potential, let’s hope BP is able to execute without damaging the environment.

Herbalife

FTC looks into Herbalife

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It looks like William Ackman is winning in the war with Herbalife. The supplement company said the Federal Trade Commission is now investigating its practices.

Here are some of the details from the New York Times story by Alexandra Stevenson:

The nutritional supplement company Herbalife said on Wednesday that it had received a civil investigative demand from the Federal Trade Commission.

The company has been the focus of a 15-month crusade by the hedge fund billionaire William A. Ackman, who has accused the company of being a pyramid scheme and has wagered $1 billion on its collapse.

Mr. Ackman’s campaign, which began with a public presentation in December 2012 during which he disclosed his huge short position against Herbalife, has turned into an acrimonious battle between a number of hedge fund titans who have taken different positions on the viability of the company.

Mr. Ackman has lobbied members of Congress to press state and federal regulators, specifically the F.T.C., to investigate Herbalife. He has also hired consultants to help organize news conferences, protests and letter-writing campaigns in four states to drum up support for regulators to step in.

While investigators at the Securities and Exchange Commission moved quickly, opening an inquiry into Herbalife just a month after Mr. Ackman’s public presentation, the F.T.C. remained quiet until Wednesday. The commission confirmed the investigation only after Herbalife said it had received a letter.

Bloomberg’s Duane D. Stanford and David McLaughlin reported that shares fell on the news, making money for Ackman, who is short the stock:

Herbalife fell 7.4 percent to $60.57 at the close in New York. The shares have gained 43 percent since Ackman first made his accusations.

The probe marks an achievement for Ackman, who in 2012 made a $1 billion bet against Herbalife’s shares and started working to persuade regulators to shut the company down, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. Herbalife has repeatedly denied Ackman’s allegations while winning over allies including billionaire Carl Icahn and Post Holdings Inc. (POST) Chairman William Stiritz.

The New York Times reported this week that Ackman had donated $10,000 to the advocacy group and hired a former aide to Markey as part of his anti-Herbalife campaign.

The civil investigative demand disclosed today isn’t an indication of wrongdoing and is essentially a subpoena requesting information, Michael Swartz, an analyst at SunTrust Banks Inc. in Atlanta, said today in a note. Swartz, who recommends buying Herbalife shares, said the probe may take six to 12 months to be completed and doesn’t change his views on the company.

Gary Strauss wrote in USA Today that Ackman isn’t backing down from his claims, despite Herbalife’s rising sales:

In a Tuesday webcast, Ackman repeatedly called Herbalife’s multilevel marketing and sales practice a pyramid scheme and charged that the company was violating Chinese labor laws. Herbalife denied Ackman’s accusations in a statement Tuesday.

Ackman’s efforts to bash Herbalife have drawn criticism and protracted exchanges from activist investor Carl Icahn, who aligned himself with management and amassed a 13% stake in the company last year. Icahn has said Herbalife is undervalued.

Herbalife had 2013 sales of $4.8 billion, up from about $4.1 billion in 2012. It markets energy and fitness snacks, drinks, vitamin supplements and skin-care products through 3 million distributors in more than 90 countries.

Among other personal care marketers with similar sales and distribution channels, USANA Health Sciences lost $3.10 (4.3%) to $69.82, while NuSkin Enterprises gained $4.78 (6.5%) to $77.89.

The Wall Street Journal story by Sara Germano and Brent Kendall added this background on the saga, which has been going on for nearly two years:

Herbalife had 3.7 million distributors worldwide at the end of December. The company has repeatedly defended its operations and has won the support of a number of Mr. Ackman’s hedge fund rivals, including Carl Icahn, who have bet the company’s stock would rise. So far it has. Herbalife’s shares are up more than 40% since the days before Mr. Ackman made his presentation, though they have lost nearly a quarter of their value this year, amid increasing scrutiny of its operations.

In January, Massachusetts Senator Edward Markey sent letters to the FTC and Securities and Exchange Commission, as well as Herbalife Chief Executive Michael Johnson, calling for an investigation of the company. The FTC has previously made public batches of complaints against Herbalife through Freedom of Information Act releases.

The FTC has the authority to bring civil cases against companies engaged in unfair or deceptive trade practices. It can ask a court to halt an alleged pyramid scheme, order consumer refunds, and force a company to forfeit ill-gotten profits.

The commission brought such a case last year against a Kentucky-based marketing outfit called Fortune Hi-Tech Marketing Inc. The case is pending in court, and the parties are engaged in settlement negotiations, according to court documents. In 2012, the FTC won a court order against an alleged pyramid called BurnLounge that ordered the company, which marketed online music downloads, to pay more than $16 million in consumer refunds.

BurnLounge is no longer in business but continues to fight the case on appeal. A lawyer for the company, Larry Steinberg of law firm Buchalter Nemer, said BurnLounge wasn’t a pyramid because it only paid commissions on the sales of products to consumers, not for recruiting new members.

Ackman’s nearly two-year campaign is paying off. While he personally is winning, investors in his fund may be the biggest winners. As Herbalife’s stock drops, their returns climb. It will be interesting to see exactly what the investigation reveals and if Herbalife will survive.

Jos. A Bank

The drama ends between Jos. A. Bank and Men’s Wearhouse

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Jos A. Bank has finally consented to being bought by Men’s Wearhouse after months of back and forth over valuation and management.

Here’s the story in the New York Times by David Gelles and Michael J. de la Merced:

Men’s Wearhouse agreed on Tuesday to buy its rival Jos. A. Bank Clothiers for $65 a share in cash, ending months of hostilities between the two retailers.

The companies and their advisers worked through the weekend and finally agreed on a deal that values Jos. A. Bank at $1.8 billion, and will bring together the two leaders in affordable menswear.

Among the terms of the deal, Jos. A. Bank will terminate its agreement to acquire Eddie Bauer.

Despite months of public bickering between the two companies, Douglas S. Ewert, the Men’s Wearhouse chief executive, welcomed his new colleagues in a statement. “All of us at Men’s Wearhouse have great respect for the Jos. A. Bank management team and are eager to work with Jos. A. Bank’s talented employees,” he said.

Robert N. Wildrick, the chairman of Jos. A. Bank’s board who had led deal talks for the company, said that after months of negotiations, he had obtained the best possible deal for shareholders.

The Wall Street Journal story outlined the background of the often contentious negotiations between the two retailers in a story by Dana Mattioli and Dana Cimilluca:

Together, Men’s Wearhouse and Jos. A. Bank will have more than 1,700 stores in the U.S., with about 23,000 employees and annual sales of $3.5 billion on an adjusted basis. The Jos. A. Bank stores won’t be rebranded or remodeled under the deal.

Should shareholders approve the plan, it would put an end to a takeover saga that began roughly six months ago when Jos. A. Bank launched a bid to buy its larger rival. That approach was rebuffed and ultimately led to a counteroffer by Men’s Wearhouse, which now is set to succeed – but only after Men’s Wearhouse was forced to increase its bid multiple times and Jos. A. Bank shares shot up roughly 50% in the period.

Men’s Wearhouse’s initial offer in November was worth $55 a share, or about $1.5 billion.

The two companies have been working feverishly to complete a deal over the past few days, said a person familiar with the matter.

The deal which isn’t contingent on financing, is expected to close in the third quarter and add to Men’s Wearhouse’s earnings in the first full year after it closes. The combined company’s management will consist of the “most qualified” individuals from both organizations.

Reuters reported that the deal has been a good one for shareholders as stock prices have climbed, according to a story by Siddharth Cavale and Olivia Oran:

The increased offer price of $65 per share announced on Tuesday is a premium of 5.1 percent to Jos. A. Bank’s Monday closing price. But it is 56 percent more than the stock’s price in October before the merger battle began.

Men’s Wearhouse, which had previously offered $63.50 per share, said the deal would create the fourth-largest men’s apparel retailer in the United States with annual sales of about $3.5 billion.

Men’s Wearhouse shares were up 6 percent in midday trading at $58.53. Jos. A. Bank shares were up 3.75 percent at $64.15.

“It’s a second Christmas for Jos. A. Bank shareholders,” Jerry Reisman, an M&A expert at law firm Reisman Peirez Reisman and Capobianco LLP, told Reuters.

Men’s Wearhouse will be able to close stores duplicated in the same mall, reducing costs in the long term, he said.

Men’s Wearhouse did not mention any plans to close stores in its statement.

In a piece for MarketWatch, Andrea Cheng reported that the deal would be remembered for its maneuvering and as one that maximized shareholder value:

Jos. A. Bank’s maneuvering is being called a brilliant move. Let’s recap: the company launched its initial bid in October, which Men’s Wearhouse rejected and then countered with its own offers. Each party launched its own poison pill, and Jos. A. Bank JOSB  agreed to buy Eddie Bauer to up the game — an “amazing” piece of boardroom maneuvering, analysts said.

Men’s Wearhouse’s final $65 per-share offer marked a 56% premium over Jos. A. Bank’s closing price on Oct. 8, a day before it first made a move on its larger rival.

“This has been, assuming everything stays on track, a master class example of how to maximize value for your shareholders,” Customer Growth Partners President Craig Johnson told MarketWatch, adding the premium was far richer than the 30% premium Saks got in its sales to Hudson’s Bay Co. in a high profile recent acquisition. “I can’t think, within retail, of a similarly well-choreographed value-creation waltz like we’ve seen here.”

In his over 40 years as a mergers and acquisition lawyer, Jerry Reisman, a partner at Garden City, New York-based law firm Reisman, Peirez, Reisman and Capobianco, said the deal marked an unusual example of a successful ‘Pac Man’ defense engineered by Men’s Wearhouse.

“Each one was strategically moving to take steps to block the other,” he said in an interview. “A Pac Man defense is unusual. Ultimately Men’s Wearhouse succeeded. Jos. A. Bank (also) got a fantastic offer. I’d give them a 10 for what they accomplished. They did well for Jos. A. Bank shareholders. They might have reached this price long term on their own, but not in the short term. Men’s Wearhouse paid a top price.”

It’s been a wild ride for both companies and the outcome should make those on both sides of the deal happy. Now, the true test will be if they can create enough cost savings and keep men coming to their retail locations to make the deal worth it in the long term.

GM

General Motors faces questions

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In the wake of revelations that General Motors Co. had waited 10 years to recall 1.6 million vehicles with faulty ignition switches, new CEO Mary Barra is feeling he heat

Jeff Bennett had this story in the Wall Street Journal:

General Motors Co. moved Monday to confront mounting questions over why it took nearly a decade to recall 1.6 million vehicles for faulty ignitions linked to 13 deaths, hiring a high-profile lawyer to lead its internal investigation and stepping up warnings to customers.

GM is bringing in Anton Valukas, the Chicago lawyer who led the court-ordered investigation of the Lehman Brothers collapse in 2008, as it tries to persuade consumers, regulators and lawmakers that it is responding rapidly. GM wants to avoid the kind of costly, damaging scandal that engulfed Toyota Motor Corp. in 2010 after the Japanese auto maker recalled millions of vehicles for problems related to unintended acceleration.

GM initiated a recall on Feb. 13, saying a faulty ignition switch could partially turn off certain vehicles while they were being driven, disabling their air bags. Drivers have since claimed the cars could become difficult to steer when the switch malfunctioned, resulting in accidents.

On Monday, GM launched a website to provide customers with information about the recall, warning owners of the affected vehicles to remove extra weight off their car ignition keys. The National Highway Traffic Safety Administration has given the auto maker until April 3 to answer 107 questions about its handling of the problem.

GM employees knew about the defect as early as 2004. The company has released a chronology sketching out in broad terms how the faulty switch was discovered and how the issue bounced around within its engineering division. The company’s disclosures to date don’t reveal who was responsible for the timing of the recall.

Meanwhile, the NHTSA hasn’t said why it didn’t take action after one of its own officials pointed out the potential problem during a March 2007 meeting. NHTSA officials have declined to comment on the meeting or provide any documentation about it.

The issues prompted a House committee to begin an investigation into what General Motors knew and when. Matthew L. Wald and Bill Vlasic had this story in the New York Times:

A House committee has started an investigation into the response by General Motors and federal safety regulators to complaints about faulty ignition switches that have been linked to 13 deaths, officials said on Monday.

An Energy and Commerce Committee subcommittee will hold hearings that will include the automaker and the National Highway Traffic Safety Administration, although the date has not been set, said Charlotte Baker, a committee spokeswoman.

The congressional investigation is not the first time the committee’s chairman, Fred Upton, has looked into the issue of consumer complaints going unheeded over defective cars.

In 2000, Mr. Upton, Republican of Michigan, led a subcommittee that investigated the rollovers of Ford Explorers with Firestone tires, a problem that followed years of complaints and was eventually linked to 271 deaths.

In response, Congress passed the Tread Act, a law that required automakers to report complaints of defects to the National Highway Traffic Safety Administration, to make it easier to spot trends.

Mr. Upton is particularly interested in how an automaker and safety regulators, despite the added oversight, again had trouble recognizing defect trends.

General Motors has said that it was first alerted to the problem in 2004, and despite twice considering fixes, declined to do so. The safety agency has received more than 260 complaints over the last 11 years about cars shutting off while being driven, according to a New York Times analysis, but never started a broader investigation. The agency repeatedly said that there was insufficient evidence to warrant one.

Writing for Reuters, Ben Klayman said the recall marked the first big test for Barra and how she handles it would set the tone for her tenure:

In her first big test as General Motors Co’s chief executive, Mary Barra has taken a hands-on approach behind the scenes in directing the automaker’s response to ignition-switch problems that have been linked to 13 deaths.

On Monday, GM said the team conducting an internal probe ordered up by Barra of the recall of more than 1.6 million vehicles is being led by the lawyer who investigated Lehman Brothers after the financial services firm collapsed in 2008.

Barra has been heavily focused on the recall since she learned of the issue in late January, about two weeks after she took over as the industry’s first female CEO.

The No. 1 U.S. automaker has said the recall to correct a condition that may allow the engine and other components, including front airbags, to be unintentionally turned off will begin next month when it has the replacement parts. Most of the affected vehicles are in North America.

Barra apologized for the recall and sent a letter last week to employees promising an “unvarnished” look at the recall that is occurring 10 years after the issue first came to light. She has not granted any interviews on the matter.

“Mary believes that her time is best spent on making the recall work as smoothly as possible for our customers,” GM chief spokesman Selim Bingol said in an email. “Meanwhile, GM is keeping our customers informed about the recall while working to provide timely responses to questions from regulators.”

While recalls are not unusual, the number of fatalities involved and the way GM handled this one stretching over the past decade has the potential to cost the company hundreds of millions of dollars in fines and possible legal damages, in addition to tarnishing its reputation.

The public relations nightmare of ignoring a problem for 10 years isn’t Barra’s making, but it’s her problem to fix. She’ll have to contend with employees, the government and consumers. It’s a big task and the future of the company is riding on her.

Monty Hagler

Talking crisis strategy when dealing with business journalists

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Monty Hagler is president and chief executive officer of RLF Communications in Greensboro, N.C. Hagler has worked on both the agency and the corporate side of communications for Trone, Capstrat and First Union, now Wells Fargo.

In an email interview with Talking Biz News, Hagler discusses forming a strategy for dealing with a crisis as well as long-term communications planning. What follows is an edited transcript.

Talking Biz News: What are some of the factors you consider when advising a client on how to respond to a crisis? 

Monty Hagler: The first objective is to determine the nature of the issue and the audiences that it impacts. Crises come in many forms, including reputational, organizational, natural disaster or external, which is beyond an organization’s control. We advise clients to assemble a cross-functional team of senior executives, quickly review and discuss the information that is available, determine what additional information needs to be gleaned and prioritize the audiences that need to be brought up to speed. The key is to move quickly and communicate proactively when possible, without creating more problems or areas for question.

TBN: What is the most important consideration when putting together a strategic plan? 

MH: A strategic plan must always work backwards from the desired end result. We frequently ask clients to define what success looks like in a year, in three years, in five years. If clients can articulate a clear vision for what success in any given arena will look like (and we frequently participate in this exercise to help get everyone on the same page), then a strategic communications plan will flow from the vision. It’s also an important exercise for determining the resources that should go into accomplishing objectives.

TBN: What’s the first step in releasing or responding to bad news? 

MH: The first step is to make sure you truly understand what the bad news is and what caused it. Organizations frequently respond to bad news when they only have part of the story, and that makes the situation more complicated. It’s also important to understand exactly how the news is going to impact the organization and where communication efforts need to take top priority.

TBN: Are there times when not telling your side of the story is advantageous?

MH: Absolutely. We frequently see situations where clients will not be able to influence or mitigate the first wave of negative stories on an issue. This can be for a variety of reasons, but generally because the news media has formulated a point of view and is focused on telling the story from that perspective.

Our advice is to provide a brief statement addressing the issue, let the story come out and then assess if the story will continue to gain traction if we do not provide more fuel for the media fire. In many cases, the issue dies after one news cycle. In that case, the organization can then focus on communicating directly with key audiences that need to know the full picture, but without generating additional negative stories.

TBN: What’s your advice for those interested in working in crisis communications?

MH: Read, read, read. Get a subscription to The Wall Street Journal (I have a digital subscription but still prefer to read the print edition that’s waiting for me every morning in the office) and follow how companies are handling a vast array of issues. Read the article to identify all of the different stakeholders that are involved and visualize how you would handle communications if you were in charge. The key is to follow that crisis and its impact on the company through to the end — not just when it is a front-page story.

The-Street-Scher-Pentagram-Logo

TheStreet.com reports fourth-quarter profit

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TheStreet.com, which operates a series of financial news sites, reported a fourth-quarter profit of nearly $213,000 compared to a loss of $2.2 million in the same quarter of 2012.

Revenue in the fourth quarter of 2013 was $14.8 million, an increase of 7.1 percent from $13.8 million in the prior year period. Subscription services revenue in the fourth quarter was $11.4 million, an increase of 9.7 percent compared to the prior year period.

The increase in subscription services revenue was primarily due to organic growth in subscription newsletters and The Deal, as well as revenues from the DealFlow acquisition. Media revenue in the fourth quarter was $3.4 million, a decrease of 0.9 percent compared to the prior year period.

The New York-based financial news company brought in new management in 2012 in an attempt to reverse its fortunes. CEO Elisabeth DeMarse and editor in chief William Inman have overhauled the company.

Operating expenses in the fourth quarter were $14.6 million, a decrease of 8.9 percent compared to the prior year period. Excluding restructuring and other charges and gain on disposition of assets, operating expenses decreased 5.9 percent compared to the prior year period.

For the year, TheStreet reported revenue of $54.5 million, a 7.4 percent increase. The net loss for the year was $3.8 million compared to a net loss of $12.7 million in the prior year.

The number of paid subscriptions for the company at the end of the year was 78,400, an increase of 20.9 percent from the prior year and 5.3 percent sequentially.

Read the earnings release here.

Ocwen

New York regulator looks at mortgage servicer

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Benjamin Lawsky, head of New York’s Department of Financial Services, is looking into the nation’s fourth-largest mortgage servicing company for conflicts of interest. It’s another blow to the image of the industry.

Michael Corkery had this story in the New York Times:

New York State’s top banking regulator said he had new concerns about Ocwen Financial, one of the nation’s largest mortgage servicing companies, creating another regulatory headache for the company.

In a letter to Ocwen released on Wednesday, Benjamin M. Lawsky, supervisor of the state’s Department of Financial Services, said his office had found a “number of potential conflicts of interest” between Ocwen and other public companies with which it has relationships.

Ocwen, which is based in Atlanta, is the brainchild of William C. Erbey and has grown in recent years into a major player in the mortgage industry. Inside Mortgage Finance said Ocwen services 2.3 million home loans.

Mr. Lawsky said he was concerned that potential conflicts between Ocwen and four other publicly traded companies of which Mr. Erbey is chairman could “harm borrowers and push homeowners unduly in foreclosure.” For example, Mr. Lawsky said Ocwen’s chief risk officer also was the chief risk officer of another of the companies, called Altisource Portfolio Solutions, “and reported directly to Mr. Erbey in both capacities.”

Mr. Lawsky said the chief risk officer, who has since been removed from his duties at Altisource Portfolio, “seemed not to appreciate the potential conflicts of interest posed by this dual role, which is particularly alarming given his role.”

The Financial Times reported that Ocwen disclosed the relationships in regulatory filings, which it feels is sufficient:

DFS said his interest in such businesses “raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result”.

Ocwen said, “These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis. We look forward to addressing the matters raised by NY DFS and will fully co-operate.”

Ocwen has expanded rapidly in recent years as it snapped up billions of dollars worth of assets that give the company the right to collect payments on thousands of American home loans. In 2009, it spun off Altisource, which in addition to providing mortgage servicing, also stands to profit by selling and renting homes that have been foreclosed on.

The servicing firm’s practices have been under growing regulatory scrutiny. This month, DFS halted indefinitely Ocwen’s purchase of servicing rights from Wells Fargo, citing concerns about its ability to handle the increased servicing.

In December, Ocwen agreed to provide $2bn in loan modifications to homeowners to settle with the Consumer Financial Protection Bureau, which said it found years of “significant and systemic misconduct that occurred at every stage of the mortgage servicing process” including foreclosures.

Housing Wire’s Trey Garrison added the background that Lawsky (whose name he spells wrong below) is concerned about the company’s ability to service mortgages, which prompted Lawsky to halt a $2.7 billion servicing deal with Wells Fargo:

In addition to information on Ocwen’s officers, directors and employees, Lawskey’s office wants all documents sufficient to show the nature and extent of services provided to Ocwen by each of the affiliated companies, including all agreements for such services, and copies of all agreements between Ocwen and the affiliated companies concerning procurement of third party services. Ocwen is also being probed about its agreements concerning the outsourcing of information management to the affiliated companies.

Regarding the Ocwen/Wells Fargo deal, the DFS says it is concerned about Ocwen’s ability to handle Wells Fargo’s portfolio of mortgage servicing rights, a deal that was announced last month and which would have given Ocwen the right to service some $39 billion in mortgages.

Wells Fargo’s portfolio of residential mortgage servicing rights holds roughly 184,000 loans linked to the transaction. The portfolio represents approximately 2% of the banks total residential servicing portfolio.

While this story might seem small, it’s yet another black mark on the mortgage industry, which has suffered since the crisis. Investors have turned to servicers in the anticipation that housing will post gains and this is an area that will help show some type of returns. But it seems that they may have to look for those, especially if litigation becomes a bigger risk or regulators are putting a stop to deals.