Tag Archives: Coverage

Time Warner Cable

Using the biz media to negotiate a deal


Peter Lauria of BuzzFeed writes about how Time Warner Cable used the financial press last week to open the negotiations to sell the company.

Lauria writes, “While the WSJ story provided the floor, the Bloomberg story offers up the ceiling. The article is essentially an open invitation to negotiations disguised as an interview with Time Warner Cable’s incoming CEO Rob Marcus, who is due to replace longtime Chief Executive Glenn Britt at the start of the new year. It describes Marcus’ lengthy experience as a finance and mergers specialist and quotes him talking about his interest in creating value for shareholders even if it means he’d be out of a job. (Don’t feel too bad for Marcus, his contract calls for him to get a $50 million payout if the company is sold.)

“But here’s the key line in the story, and it comes not from Marcus, despite his being quoted at length in the piece — but from someone speaking off the record, with an attribution that does not identify, or rule out, Marcus as the speaker: ‘Time Warner Cable, the second-largest U.S. cable provider, would probably accept a bid of $150 to $160 a share, according to a person familiar with the matter, who asked not to be named because the deliberations are private.’

“Later on Friday, Reuters followed Bloomberg with its own exclusive story about how Comcast has hired JPMorgan to advise it on a potential bid. Sixteen paragraphs down in that piece, there’s this auspice line: ‘Any suitor would likely need to bid at least $150 per share to be considered seriously by Time Warner Cable’s board, one person familiar with the matter said.’

“The astute reader will note that both stories attributed to $150 price tag to a single source. Even if it isn’t the same source speaking to both outlets (though it probably is), the figure is more likely deliberate than coincidental. Put bluntly, the signal being sent to potential buyers is that if they offer $150 or more per share, Time Warner Cable is theirs.”

Read more here.

economic data

Covering the economic surprise


The U.S. gross domestic product grew more than expected in the third quarter. But some of the coverage wasn’t positive as reporters actually dug into the causes for the increase.

Here’s the beginning of the Wall Street Journal story:

The U.S. economy expanded significantly faster than initially estimated in the third quarter as businesses fattened their inventories, a factor that is likely to weigh on growth in the year’s final quarter.

Gross domestic product, the broadest measure of goods and services produced in the economy, grew at a seasonally adjusted annual rate of 3.6% from July through September, the Commerce Department said Thursday. The measure was revised up from an earlier 2.8% estimate and marks the strongest growth pace since the first quarter of 2012.

The upgrade was nearly entirely the result of businesses boosting their stockpiles. The change in private inventories, as measured in dollars, was the largest in 15 years after adjusting for inflation.

As a result, inventories are likely to build more slowly or decline in the current quarter, slowing overall economic growth. The forecasting firm Macroeconomic Advisers expects the economy to advance at a 1.4% rate in the fourth quarter. Other economists say the pace could fall below 1%.

“The meat and potatoes of the economy are still trending pretty low,” said Scott Brown, chief economist at Raymond James & Associates.

The New York Times added the caveat that the growth was based on less-than-desirable factors:

Inventory changes are notoriously volatile, so while the healthier signals would be welcomed by economists, inventory gains can essentially pull growth forward into the third quarter, causing fourth-quarter gains to slacken.

Indeed, Wall Street was already estimating that the fourth quarter of 2013 would be much weaker than the third quarter, with growth estimated to run at just below 2 percent, according to Bloomberg News.

The anemic pace of fourth-quarter growth also stems from the fallout of the government shutdown in October, as well as the continuing fiscal drag from spending cuts and tax hikes imposed by Congress earlier in 2013.

Still, if the better data on growth from the Commerce Department on Thursday is followed by more robust numbers Friday for the nation’s November job creation and unemployment, it increases the odds the Federal Reserve will soon ease back on stimulus efforts. The jobs data is scheduled to be released by the Labor Department at 8:30 a.m. Friday.

The Reuters story did a good job of breaking down the numbers and explaining why they weren’t as robust as first seemed:

Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011. The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.

A gauge of domestic demand rose at just a 1.8 percent rate. The strong inventory accumulation in the face of a slowdown in domestic demand means businesses will need to draw down on stocks, which will weigh on GDP growth this quarter.

Fourth quarter growth estimates are already on the low side, with a 16-day shutdown of the government in October expected to shave off as much as half a percentage point from GDP.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.4 percent rate, the lowest since the fourth quarter of 2009. Spending had previously been estimated to have increased at 1.5 percent pace.

The Washington Post blog’s headline said it most clearly – ”put away the champagne”:

But there’s a bigger story here than the weird blips to GDP being driven by inventories. It’s that we keep getting mixed signals on how robust the U.S. economy really is as 2014 approaches. Some recent data have been good. The Institute for Supply Management survey of manufacturers for November indicated the strongest growth in output since the spring of 2011. The number of people filing new claims for jobless benefits has been hitting rock-bottom levels (including only 298,000 last week, the Labor Department said Thursday, though that was dragged downward by seasonal adjustment quirks tied to the late Thanksgiving).

At the same time, overall growth has remained tame once inventory effects are taken out, and we’ve seen enough false starts and moments of unjustified optimism during this long, slow recovery that policymakers, particularly those at the Federal Reserve, may want more overwhelming evidence that things are picking up before taking it for granted that above-trend growth has finally arrived.

Which brings us to the November jobs report, due out Friday morning at 8:30. Yes, it’s worth mentioning all the usual caveats about not putting too much faith in any one data point, the large margin of error in the survey, the revisions that could ultimately make the initial reading meaningless.

All that’s true, but you go to battle (or in this case, set monetary policy) based on the data you have, not on the data you might wish to have. So the Friday jobs numbers, which analysts expect will show 185,000 net jobs added in November, are the single most important data point in determining whether the Fed begins slowing its monthly bond purchases at its Dec. 17-18 policy meeting. And for the rest of us, it will be the best indicator of whether this recovery is starting to take off, or whether the long slog continues apace.

Despite the numbers, it looks like the economy isn’t doing as well as it might appear on the surface. The numbers don’t lie.

Morgan Campbell

Giving people something more exciting and engaging


Toronto Star reporter Morgan Campbell talked with Jason Clinkscales of The Sports Fan Journal about his new sports business show, called “Sportonomics.”

Here is an excerpt:

TSFJ: At least Stateside, there have been at least several sports business shows that struggled to find their traction on television. What stands out about Sportonomics that will allow the show to become the destination those programs wanted to be?

Campbell: We try to keep it dynamic. If you followed my writing, I take that same attitude to Sportonomics. What we don’t want is, week after week, boring people reading annual reports and giving us really dry numbers. What we want to do is tell stories creatively, get dynamic people on camera. The reason why we started telling sports-industry stories in the business section is to give people something a little more exciting and a little more engaging than most of what you read in a lot of business sections. A story where this aspect of sports industry is a starting point, but is exciting and engaging, it photographs well and videos well.

It’s different from the television shows because they’re locked in to time slots, but they’re not appointment television the way a game is. The beauty of the Web is that we publish every Monday morning, but if that’s not a convenient time for you, you can go whenever you want because we have a page with all of these episodes archived. The appetite for sports business journalism is only growing; it’s just a matter of tapping in to it.

Read more here.


More fines for banks


The European Union is getting into the bank-fining act, imposing record penalties on six financial firms for their roles in the Libor case. It’s just the latest round of payments for many of these firms and ultimately their shareholders.

Here’s the Wall Street Journal story:

Six financial institutions were fined €1.71 billion ($2.32 billion) by European Union regulators Wednesday for colluding in an attempt to manipulate key benchmark interest rates, the EU’s largest-ever penalty in a cartel case.

The settlements involved penalties against some of the world’s biggest banks, including Deutsche Bank AG, Société Générale SA, Royal Bank of Scotland Group PLC and J.P. Morgan Chase & Co. The action brings to roughly €6 billion the total penalties levied by regulators against financial institutions in connection with probes into manipulation of the London interbank offered rate, or Libor, and other widely used financial benchmarks.

Further penalties are possible. The EU’s competition commissioner, Joaquín Almunia, said Wednesday at a news conference in Brussels that his office is pursuing cartel proceedings against several other large financial institutions, including the U.K.’s HSBC Holdings PLC and ICAP PLC and France’s Crédit Agricole SA, for their alleged roles in colluding to rig one or more rates. Regulators are also pursuing J.P. Morgan in connection with allegations other than those for which it was fined on Wednesday.

CNN Money’s story added this background and some context to the fines:

The scandal broke in the middle of 2012 when Barclays admitted trying to manipulate Libor, which together with related rates is used to price trillions of dollars of financial products around the world.

Wednesday’s announcement takes the global total of Libor-related penalties to almost $6 billion. A handful of traders have been charged with criminal offenses.

The EU fine is the latest blow to an industry trying to rebuild its reputation and finances in the wake of a series of legal battles over foreclosure abuses, misleading clients over mortgages, payment protection insurance and other products.

Some of the biggest banks are also facing a global probe into allegations that they manipulated foreign exchange benchmarks to profit at the expense of clients.

And the Libor story is not over yet. The European Commission is still going after HSBC, Credit Agricole and JP Morgan on related charges, and broker ICAP, who opted out of the settlement on yen Libor.

“We intend to defend ourselves vigorously,” an HSBC spokesman said.

The Telegraph led with fines on the Royal Bank of Scotland and then added in Barclays, focusing on the United Kingdom banks having to pay up:

Royal Bank of Scotland has been fined €391m (£324m) following a European Commission investigation into Libor-rigging that has seen eight major financial institutions hit with penalties totalling €1.7bn.

The taxpayer-backed lender settled with the European authorities over its attempts to manipulated European and Japanese interest rates, the second time this year it has been fined for its involvement in the scandal.

Barclays was found to have attempted to rig European rates, but avoided a fine of €690m because it had blown the whistle on the practice to the authorities.

In total, RBS and Barclays avoided more than €821m in fines from the EC because of their cooperation with the investigation.

Philip Hampton, the chairman of RBS, said in a statement: “We acknowledged back in February that there were serious shortcomings in our systems and controls on this issue, but also in the integrity of a very small number of our employees.

The New York Times piece brought up criticism of the European system by pointing out that they have limited abilities to enforce laws:

Unlike its American and British counterparts, the European Union has limited enforcement powers over financial firms, which are primarily regulated in their home markets or where they conduct the bulk of their business.

As a result, European Union antitrust authorities had to build a case based collusive conduct among a group of financial firms, rather than improper behavior by a single entity or group of traders at one bank.

To set the Libor and Euribor rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and varying maturities. Those rates are averaged, after the highest and lowest ones are eliminated, and that becomes that day’s rate.

The settlement was seen as a demonstration by European authorities that despite a reputation for excessive deference to banks, they, too, can come down hard on offenders.

“By European standards, it’s a large fine,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. “It signals that the time when only the U.S. can impose big fines is probably over.”

But the settlement also highlighted Europe’s lack of a financial markets enforcer with powers similar to the Securities and Exchange Commission in the United States, including authority to pursue criminal charges.

What we haven’t really seen is a broad sell-off of financial stocks despite the fines they’re paying and will likely have to pay in the near future. For some of the largest banks, regulators are looking into everything from mortgage-back securities to credit cards. That’s a lot of uncertainty about when it will all be resolved and what the ultimate price tag will be. I’d like to see a story about why investors seem unconcerned about the continued legal issues.


Reporting on holiday spending


Despite retailers’ best efforts, holiday spending dropped this year even as more people went to stores. It’s not a great sign for the season if people are watching their budgets instead of taking advantage of the discounts.

Here’s the Wall Street Journal story:

Aggressive discounts on clothes and toys lured slightly more consumers into stores on Thanksgiving and Black Friday this year, but budget-conscious shoppers spent less.

Total spending from Thursday through Sunday fell 3% from a year earlier to $57.4 billion, with shoppers spending an average $407.02, down 4% from $423.55 a year earlier, according to the National Retail Federation.

The retail trade group said the number of people who went shopping over the four-day weekend that kicked off with Thanksgiving rose slightly to 141 million, up from 139 million last year.

As retailers offered some of their biggest promotions a day earlier, store traffic on Thanksgiving Day jumped 27% to 45 million shoppers. As a result, traffic on Black Friday rose just 3.4% to 92 million shoppers.

More consumers decided to bypass stores altogether. Online shopping continued its steady rise over the Black Friday weekend, accounting for 42% of sales racked up over the four-day period, up from 40% last year and 26% in 2006, the trade group said.

The results suggest that the crowds that piled into stores across the country were careful in their spending and the weekend’s added hours didn’t lead to a surge in buying. Retailers have warned that intense promotions this holiday season could hurt margins as they battle for sales in a barely growing market.

The Reuters story had a similar lead as the WSJ story, and went on to note that the week is often a predictor for how much money people will end up spending:

The Thanksgiving weekend is an early gauge of consumer mood and intentions in a season that generates about 30 percent of sales and nearly 40 percent of profit for retailers.

But many have given modest forecasts for the quarter. Wal-Mart Stores Inc said it expects no growth in its U.S. comparable sales, and Macy’s Inc didn’t raise its full-year sales forecast despite strong numbers last quarter.

The shorter holiday period this year – there are six fewer days between Thanksgiving and Christmas compared with 2012 – prompted retailers to begin offering bargains on Monday, earlier than usual, something Shay said likely pulled some sales forward to the first part of the week.

The NRF stuck to its forecast for retail sales to rise 3.9 percent for the whole season.

One problem for some retailers is that if customers expect deep discounts the entire season, it cuts into profit. The Associated Press story had a quote from National Retail Federation CEO highlighting the problem:

Matthew Shay, president and CEO of The National Retail Federation, said that the survey results only represent one extended weekend in what is typically the biggest shopping period of the year. The combined months of November and December can account for up to 40 percent of retailers’ revenue.

Overall, Shay said the trade group still expects sales for the combined two months to increase 3.9 percent to $602.1 billion. That’s higher than the 3.5 percent pace in the previous year.

But to achieve that growth, retailers will likely have to offer big sales events. In a stronger economy, people who shopped early would continue to do so throughout the season. But analysts say that’s not likely to be the case in this still tough economic climate.

“It’s pretty clear that in the current environment, customers expect promotions,” Shay said. “Absent promotions, they’re not really spending.”

Interestingly, Bloomberg chose to use statistics from a different organization that reported sales were up for the season. Lower in the story they used the NRF numbers every other outlet used in the lead:

U.S. retailers eked out a 2.3 percent sales gain on Thanksgiving and Black Friday, in line with a prediction for the weakest holiday results since 2009.

Sales at brick-and-mortar stores on Thanksgiving and Black Friday rose to $12.3 billion, according to a report yesterday from ShopperTrak. The Chicago-based researcher reiterated its prediction that sales for the entire holiday season will gain 2.4 percent, the smallest increase since the last recession.

Retailers offered more and steeper deals on merchandise from flat-screen televisions to crockpots that, while luring shoppers, may ultimately hurt fourth-quarter earnings. Many consumers showed up prepared to zero in on their favored items while shunning the impulse buys that help retailers’ profits.

“You could get the same deals online as you could get in the store, and yet there were still a ton of people out there,” Charles O’Shea, a senior analyst at Moody’s Investors Service in New York, said in an interview. Going out to stores, “is part of the experience,” he said.

While the story might seem mundane, sales during the Thanksgiving weekend are an important indicator of how the year will end for retailers and if they’ll hit their predictions. Analysts, investors and the media, who are likely hoping that customers will open their wallets a bit more this holiday season, are closely watching the numbers.

New York Post Christmas

Forget Black Friday, many shopping on Thanksgiving


In the quest to grab as big a share of people’s holiday shopping budget as possible, more and more retailers are opening their doors on Thanksgiving. While Black Friday has traditionally been the day for people to spend money, those looking to get the best deals are shopping earlier than ever before.

The New York Times had this story with an excellent anecdote to begin:

Before most Thanksgiving turkeys even approached the oven on Thursday, a small line of tents had formed in front of a Best Buy in Falls Church, Va., their inhabitants waiting for the holiday deals to begin. First in line was William Ignacio, who pitched his tent at 2 p.m. on Wednesday.

Traditionally, the holiday shopping season kicks off on Black Friday, the day after Thanksgiving. But every year, more stores are opening on the holiday itself and keeping their doors open longer, beginning in the predawn hours and stretching through the day.

“The sales are good,” said Divya Quamara, 25, who stood in an Old Navy in Manhattan on Thanksgiving afternoon. “And the stores are open.”

In Annandale, Va., rock salt had been sprinkled on the parking lot in front of the Kmart that opened at 6 a.m. Though the temperature was just below freezing, a handful of shoppers were lured out of bed for discounted electronics or to browse in advance of Friday’s sales. Wind had partly dislodged a plastic banner hanging above the entry.

The Associated Press led with retailers instead of customers shopping:

Stores are hoping holiday shoppers will gobble their turkey on Thanksgiving afternoon, but save the pumpkin pie for later.

As more than a dozen major retailers from Target to Toys R Us open on Thanksgiving Day, shoppers across the country are expected to get a jump start on holiday shopping. The Thanksgiving openings come despite planned protests across the country from workers’ groups that are against employees missing Thanksgiving meals at home.

The holiday openings are a break with tradition. The day after Thanksgiving, called Black Friday, for a decade had been considered the official start to the holiday buying season. It’s also typically the biggest shopping day of the year.

But in the past few years, retailers have pushed opening times into Thanksgiving night. They’ve also pushed up discounting that used to be reserved for Black Friday into early November, which has led retail experts to question whether the Thanksgiving openings will steal some of Black Friday’s thunder.

In fact, Thanksgiving openings took a bite out of Black Friday sales last year: Sales on turkey day were $810 million last year, an increase of 55 percent from the previous year as more stores opened on the holiday, according to Chicago research firm ShopperTrak. But sales dropped 1.8 percent to $11.2 billion on Black Friday, though it still was the biggest shopping day last year.

“Black Friday is now Gray Friday,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy. “It’s been pulled all the way to the beginning of November.”
Stores are trying to get shoppers to buy in an economy that’s still challenging. While the job and housing markets are improving, that hasn’t yet translated into sustained spending increases among most shoppers.

Overall, The National Retail Federation expects retail sales to be up 3.9 percent to $602.1 billion during the last two months of the year. That’s higher than last year’s 3.5 percent growth, but below the 6 percent pace seen before the recession.

USA Today found the best lead, a family who celebrated Thanksgiving on Wednesday in order to shop without the hindrance of family obligations on Thursday:

 Asked what day Thanksgiving is each year, Katie Brenner’s kids can barely wait to answer.

“I know this one!” says 6-year-old Alex Brenner, waiting in line Thursday afternoon at a Toys “R” Us store in Asheville, N.C.

“It’s on the very fourth Wednesday, every year, on every November,” she says. “You eat turkey and green beans, you go to sleep, then you go for big shopping.”

Katie Brenner covers her daughter’s ears and whispers.

“They don’t even know most people celebrate Thanksgiving on Thursday,” she says. “All the good stores open on Thanksgiving now, so we just have to celebrate a day early.”

Maybe Thanksgiving Day isn’t a secret in most homes, but more families are celebrating the day as the Brenners did — standing in line to score bargains as the holiday shopping season is launched.

Much of the criticism around shopping on Thanksgiving is that it takes away a holiday for people who have to show up and work in the stores. Fox News had a counter story about laws that prevent retailers to be open on the holiday:

As workers across America protest against working on Thanksgiving Day, laws that may date back to the Colonial era are keeping shoppers and employees in three states at the dinner table.

In Rhode Island, Maine and Massachusetts so-called “blue laws” prohibit large supermarkets, big box stores and department stores from opening on Thanksgiving.

Business groups say the laws are unnecessary barriers during an era of 24-hour online retailers, but many shoppers, workers and even retailers say they appreciate one day free of holiday shopping.

“I shop all year. People need to be with their families on Thanksgiving,” Debra Wall, of Pawtucket, R.I., told The Associated Press.

The holiday shopping frenzy has crept deeper than ever into Thanksgiving this year. Macy’s, J.C. Penney and Staples will open on Thanksgiving for the first time. Toys R Us will open at 5 p.m., and Wal-Mart, already open 24 hours in many locations, will start holiday deals at 6 p.m., two hours earlier than last year. In recent years, some retail employees and their supporters have started online petitions to protest stores that open on Thanksgiving — but shoppers keep coming.

No matter when you decide to start shopping, someone will have to open the doors, restock the shelves and run the registers. As retailers strive to better each other, they’re also pushing steeper discounts and costly days of labor. Soon, the competition could drive some to a loss.

Mens Wearhouse

Men’s Wearhouse turns tables on suitor


When Jos. A. Bank made a bid for Men’s Wearhouse, it was just a straightforward M&A transaction. But on Tuesday, when Men’s Wearhouse turned the tables and made a bid for Jos. A. Bank, the whole story got a lot more interesting.

The Wall Street Journal wrote this story:

Men’s Wearhouse Inc. launched a surprise offer to buy rival men’s clothing retailer Jos. A. Bank Clothiers Inc., turning the tables on its erstwhile suitor in what has become one of the year’s most colorful takeover dramas.

The bid comes less than two weeks after Jos. A. Bank walked away from its bid to buy its larger competitor, which said the $2.3 billion offer was too low and rebuffed it. The new bid values Jos. A. Bank at about $1.5 billion, or $55 a share—an 8.7% premium over its closing price Monday and 32% above where the shares traded before the possibility of the two companies uniting surfaced in early October.

Investors in both companies cheered the latest step in the takeover dance, with Jos. A. Bank and Men’s Wearhouse shares rising 11% and 8%, respectively, from their already-elevated levels. Both stocks surged when Jos. A. Bank made its $48-a-share bid—and the stocks barely retreated even after it pulled the offer Nov. 15, suggesting investors expected another chapter in the saga.

Men’s Wearhouse’s countermove sets up one of the year’s most unusual deal situations. The company, based in Fremont, Calif., is attempting a version of a rare maneuver known in mergers-and-acquisitions circles as a Pac-Man defense, in which deal prey turns into predator. Popularized during the 1980s, the gambit has met with mixed results, with the proposed deals often not getting consummated.

Reuters reported that this wasn’t just about trying to get a higher price on the original deal, but a true takeover attempt:

The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.

The retaliatory offer from Men’s Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital LLC.

Eminence, along with other hedge funds that hold about 30 percent of Men’s Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.

“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Eminence Chief Executive Ricky Sandler.

The last person to push Men’s Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catch phrase, “You’re going to like the way you look – I guarantee it.”

Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.

Men’s Wearhouse is serious about acquiring Jos. A. Bank and is not simply trying to force the company to raise its bid for Men’s Wearhouse, according to sources familiar with the process.

USA Today had this information about the deal and the combined finances of two firms:

A combination of the two companies would create the fourth-largest U.S. men’s apparel retailer, with more than 1,700 total stores and annual sales of more than $3.5 billion, Men’s Wearhouse said.

The company forecast that the combination would create about $100 million to $150 million of annual synergies over three years through more efficient purchasing, customer service and marketing, and streamlining corporate functions. The deal would add to Men’s Wearhouse’s earnings in the first year following closing, it added.

Men’s Wearhouse said it plans to pay for the deal with existing cash from its balance sheet and borrowed money.

Jos. A. Bank withdrew its $2.3 billion offer to buy Men’s Wearhouse earlier in November.

The New York Times story had this background on the original offer and the history of the negotiations:

Jos. A. Bank made an unsolicited $2.3 billion bid in early October for Men’s Wearhouse, which rejected the offer as highly conditional and said it believed that its own turnaround plan would be better for shareholders.

Jos. A. Bank indicated later that it would consider raising its $48-a-share offer if it were allowed confidential access to Men’s Wearhouse’s books. Men’s Wearhouse again rejected the offer, and Jos. A. Bank withdrew its bid this month, but left the door open for possible talks in the future.

The Men’s Wearhouse offer is not contingent on any financing and will not require additional costly third-party equity commitments, the company said.

Bank of America and JPMorgan Chase are advising Men’s Wearhouse, and Willkie Farr & Gallagher is providing legal advice.

Now is when the talks get interesting. One thing is for sure, investors like the idea of a combination of the two men’s retailers and are willing to buy into the idea. Who will have control is the big unknown.


Wal-Mart investors get new CEO for the holidays


Wal-Mart shareholders and employees are getting a new head of the company for the holidays. The world’s largest retailer announced that its promoting Douglas McMillon to replace retiring chief executive Michael Duke.

The Wall Street Journal reported he will be the fifth person to head the company:

Wal-Mart Stores Inc. said company veteran Douglas McMillon will take over as the retailing giant’s chief executive, a rare leadership change at a company that brings in nearly half a trillion dollars in annual revenue but is struggling to book further growth.

The retail giant’s board met Friday in Bentonville, Ark., and named Mr. McMillon as the company’s fifth-ever CEO. The 47-year-old executive, currently president and CEO of Wal-Mart International, will take the top job on Feb. 1, after current CEO Michael Duke retires early next year.

Wal-Mart has a long history of grooming leaders from within and said it began planning for Mr. Duke’s succession years earlier.

The move will create a ripple effect throughout the world’s largest retailer at a time when it is grappling with sluggish sales in its international and U.S. businesses, a global investigation into allegations of bribery at its foreign operations, and worker protests over poor pay practices at its domestic stores.

Mr. McMillon and William Simon, president of Wal-Mart U.S., were among the favored candidates. Now, analysts are watching to see what happens with Mr. Simon and are waiting to see who will take over the international operations as it tries to retool its strategy at its 6,200 stores abroad.

The New York Times added this context around Wal-Mart’s recent performance and struggles to continue to grow:

In recent weeks, Walmart has been busily promoting its holiday deals, in one of the fiercest competitive sales seasons in recent memory, driven partly because there is a very short window this year between Thanksgiving and Christmas. The company’s executives have noted that Walmart’s core customer base remains very budget-conscious, hit by the end of the payroll tax holiday earlier this year and uneasiness over events like the federal budget shutdown. At the busiest time of the year, major retailers are already slashing prices and many are chipping away at the lure of Black Friday deals by offering them even earlier.

Mr. McMillon’s ascension is also occurring at a time when the company has announced major expansion plans in China.

Bloomberg Businessweek wrote a piece about the four things to know about McMillon, including that his division has had some troubles recently. Here are the first two:

1. McMillon’s part of Wal-Mart has had its share of troubles recently.The U.S. Department of Justice and the Securities and Exchange Commission are investigating allegations of corruption by Wal-Mart executives in its Mexican subsidiary, the company’s biggest, and a potential cover-up by executives at its headquarters in Bentonville, Ark. Wal-Mart is cooperating with the investigations and conducting its own internal investigation and review. The retailer also facedcriticism that it wasn’t doing enough to ensure safe working conditions in garment factories in Bangladesh, after several fires killed more than 1,000 people. And last month Wal-Mart had to break up with its Indian partner, delaying its ambitious plans to open hundreds of supercenters there.

2. His rival for the job faced worse problems. Bill Simon, the head of Wal-Mart’s U.S. operations, was the other executive frequently named as a potential successor to Duke. But Wal-Mart’s U.S. stores have been dealing with even bigger issues than its international ones. Bloomberg News has reported that the retailer alienated some shoppers on its home turf because the retailer doesn’t have enough workers to keep shelves adequately stocked. Some of those workers, meanwhile, have been protesting Wal-Mart’s low wages. And recently the company said it expects same-store sales over the all-important holiday season to be “relatively flat.”

The USA Today story chose to focus on McMillon’s qualifications, which helped him edge out other candidates for the top job:

“Unless you’re there, you don’t really understand it, and when you’re big, people may assume that you’ve got bad intentions,” McMillon said. “I learned more in the first six months at Wal-Mart than I learned in 5 1/2 years of post-secondary education.”

Originally from Jonesboro, Ark., McMillon, 47, started his career in 1984 as a summer associate at a Wal-Mart distribution center.

He got a B.S. in business administration from the University of Arkansas and an MBA from the University of Tulsa. While pursuing the MBA, he rejoined the company in a Tulsa Walmart store.

A lot of McMillon’s 22 years at the company were spent in merchandising in the Walmart U.S. division, giving him with experience with food, apparel and general goods. From 2006 to February 2009, he ran Sam’s Club and then took over Walmart International.

That deep Wal-Mart experience likely gave him leg up versus other candidates like Bill Simon, who runs Walmart U.S.

“Bill Simon was more of an outsider,” said Sucharita Mulpuru, a retail analyst at Forrester Research. “It was going to be one of them.”

McMillon also has a record of generating growth – both at Sam’s Club and the International business, which he ran from Arkansas.

Investors seemed to be indifferent to the news of an insider taking over since the stock only rose slightly on the news. It will remain to be seen how radically a nearly life-long Wal-Mart executive will change things. With all the pressure to keep costs low on one hand and to pay workers more on the other, McMillon will have his fair share of problems to solve.

Money stacks

Investors love Cinda IPO


Chinese asset management company Cinda is shaping up to be the hottest initial public offering of the holiday season. Hedge funds and other investors are pouring cash into the offering, hoping to capitalize on the growing pile of debt expected to go bad.

The Wall Street Journal offered this list of investors:

China Cinda Asset Management Co. has lined up 10 cornerstone investors to take up 44% of the funding it seeks to raise—up to $2.46 billion—in its initial public offering, people familiar with the deal said Sunday.

The offering is set to be Hong Kong’s biggest IPO of the year, and if the interest among cornerstone investors is any indication, it may be one of the more popular. The so-called bad bank, whose bread-and-butter business is buying up bad loans from Chinese banks and distressed assets from factories and real-estate firms, could benefit from an uptick in nonperforming loans in China.

The 10 cornerstone investors have together committed to buying $1.09 billion of the IPO.

New York-based Och-Ziff Capital Management Group LLC, which has a strong focus on distressed debt, and China Life Insurance Co. are taking $200 million each, the people said. Norges Bank Investment Management, Norway’s sovereign-wealth fund, is buying $150 million.

Three other investors, including San Francisco-based Farallon Capital Management LLC and Chinese fund Rongtong Capital Management Co. are taking $100 million each.

Ping An of China Asset Management, a unit of Ping An Insurance (Group) Co.  of China Ltd. is investing $75 million and Shandong State-owned Assets Investment Holdings Co. is buying $60 million.

Distressed-investment specialist Oaktree Capital Management, a unit of the U.S.’s Oaktree Capital Group LLC, and Upper Horn Investments Ltd., a unit of Chinese power firm Guangdong Yudean Group Co., are buying $52.95 million and $50 million, respectively, the people said.

Reuters offered this background on the firm’s creation and how investors expect to make money as more people fall behind on their loans:

The offering is set to be the biggest in Hong Kong this year as global investors bet that soured loans will be a growth business in China. It opens a window into how the four firms have managed loans, investments and properties seized from companies unable to repay their lenders as the world’s second-largest economy slowed.

Cinda, the first of the four to launch an IPO, said in a filing to the Hong Kong Stock Exchange that total assets rose 11 percent to 283.55 billion yuan ($46.5 billion) as of June 30, compared to the end of December last year.

The next Chinese bad debt manager expected to pursue an IPO is Huarong Asset Management Corp, which hopes to raise up to $2 billion through a listing though no timetable has been set. Reuters reported the Huarong IPO plans in June.

Created in 1999 to handle the bad loans of China Construction Bank, the country’s No. 2 lender, Cinda said profit attributable to equity holders was 4.06 billion yuan ($667 million) for the six months ended June 30, 2013, up 36 percent from 2.99 billion yuan a year earlier.

In its IPO Cinda is offering 5.32 billion new shares in an indicative range of HK$3.00 to HK$3.58 ($0.39 to $0.46) each.

The MarketWatch story pointed out that the Chinese financial system is become more complex, creating both opportunities and problems for companies like Cinda that are trying to capitalize on the missteps of others:

In recent years, investment trusts, real estate and investment banking have been added to Cinda’s distressed-loan business. It also appears to have done well, with an operating margin of 28% in 2012 referenced in pre-deal research. No doubt China’s asset boom in recent years will have done its part to rescue some of these earlier bad loans.

But going forward, investors will need some comfort understanding its business model.

Indeed, reports suggest Cinda will be using funds raised in this listing — and then some — to help clean up China’s next batch of problem loans. The Financial Times says Cinda is ready to buy 100 billion yuan ($16.4 billion) in bad debt over the next two years.

As concerns mount that China is careening toward a new bad-loan cycle, the reception of Cinda will be a key gauge of how much confidence investors have that the lid can be kept on problem loans.

Optimists will hope that this listing exercise will, at the very least, bring a bit more transparency to China’s murky world of distressed debt.

At a conference on China debt-restructuring opportunities held in Hong Kong earlier this month, a key message was that the next bad-debt cycle will be tougher than the last one.

Not only has the size of China’s financial sector grown exponentially, but it’s also much more complicated. China’s banks are not just much bigger, but also now have operations and listings overseas.

The last time around, for instance, China cleaned up loans without outside help, and it appeared relatively painless, with problem loans taken on at par. This time, however, the size of the financial sector means it may not be realistic to expect a crisis to be handled alone.

And that’s likely why all these U.S. hedge funds and distressed investment vehicles are turning to Cinda. Yields on opaque foreign restructurings will likely be higher than the well-understood reworkings in the U.S. Anything that sheds more light onto the financial sector is a good thing, especially in a country as tightly controlled as China.

Bangladesh factory

Retailers agree on standards for Bangladesh


With consumers ready to open their wallets for the holiday shopping season, those worried about the quality of working conditions for factory workers may find some comfort in a retail agreement announced Wednesday.

The Wall Street Journal had this story:

Three parallel safety pacts spurred by the death of more than 1,100 people in the April collapse of a garment factory in Bangladesh have tentatively agreed on common standards for plant inspections in the country.

Experts from the three groups—the Accord on Fire and Safety in Bangladesh, which is led by mostly European retailers; the Alliance for Bangladesh Worker Safety, led by Wal-Mart Stores Inc. and Gap Inc.; and the government’s own National Tripartite Action Plan—reached the deal last week.

It would prompt the groups to adopt unified standards to simplify inspections and avoid duplication, officials with the three programs said.

The agreement, which still needs final approval from each group’s steering committee, could be a significant breakthrough in international efforts to raise standards in Bangladesh’s garment industry, according to Srinivas Reddy, country director of the International Labor Organization, which helped broker the deal.

“It was vital to agree on a coordinated approach toward safety standards and inspection methodologies to avoid multiple inspections of the same factories and to ensure that the same basic standards are applied,” Mr. Reddy said.

Reuters added these details of the agreement between the various retailers:

European retailers have agreed to finance fire and safety reforms for buildings that do not meet requirements, while the North American group – Alliance for Bangladesh Worker Safety – pledged $100 million in loans to factory owners to finance safety upgrades.

“The reason garment factories continue to be unsafe is not for a lack of common standards. It is because the monitoring visits carried out by brands were not conducted by competent engineers, not done in manner that is transparent, and did not include any commitment by brands and retailer to finance repairs,” said Theresa Haas, a spokeswoman for the Worker Rights Consortium, a labor rights group that is a member of the European-led Accord on Fire and Building Safety in Bangladesh.

“It’s up to the factory owner to decide if they want to remediate. We can’t force them to make these changes,” said Jeffrey Krilla, president of the American-led alliance, who called the agreement a huge step forward.

Individual retailers can voluntarily pull out of factories that do not meet safety requirements.

The new agreement comes as hundreds of workers take to the streets, demanding higher wages in protests that resulted in the death of least two workers and suspended production in up to 200 clothing factories.

Bangladesh garment factory working conditions have been under close scrutiny since the April collapse of the Rana Plaza factory complex killed more than 1,100 garment workers and a November 2012 fire at the Tazreen factory killed 112 workers.

USA Today’s story talked about how many labor groups felt the agreement didn’t go far enough:

The agreement is less stringent than the guidelines being pushed coalition of labor groups that called for third-party monitoring and labor representation and the coalition immediately lashed out at the retailers’ plan, calling it a “sham.”

“Worker representatives are not part of the agreement and have no role whatsoever in its governance,” the labor groups said in a statement Wednesday. “Given the grave risks facing millions of workers in Bangladesh, there can be no credible or effective program without a central leadership role for worker representatives.”

Scott Nova of the Worker Rights Campaign called the deal “an attempt to side-step the issue.”

Retailers said they objected to the labor-backed pact because they say it exposes them to unlimited liability. They also say that the pact called for large funding from the retailers and other private businesses without providing accountability for how the money would be spent.

Under the retailers’ plan, inspectors will “prioritize factory safety risks for remediation efforts” and will be empowered to report dangerous safety conditions to all parties. The initiative also includes an independent chair of a board of directors responsible for oversight.

The Bloomberg story added this context about the backdrop for labor unrest and why retailers are being pressured to make changes to business practices:

Unsafe factories and wages higher than only Myanmar in Asia have sparked labor tensions in Bangladesh’s $20 billion garment industry. A series of protests by workers demanding higher wages have taken place in the past several months in the industrial zones of Gazipur and Ashulia on the outskirts of the capital Dhaka. Some workers clashed with the police in demonstrations that forced the shutdown of factories.

Two workers died and 30 others injured in a protest this week as thousands took to the streets demanding a higher monthly salary of 8,000 taka ($103). The government last week increased the minimum wage to 5,300 taka, below the amount unions are demanding.

Except for one or two factories, most that had been shut by labor unrest have resumed production, Abdus Salam Murshedy, president of Exporters Association of Bangladesh, said via phone today. “Workers have joined work,” he said. “We expect that the government will issue a formal, written notice on the new wage structure today. The situation is returning to normal.”

Bangladesh Prime Minister Sheikh Hasina yesterday urged workers to accept the wage increase and to end violence, she said in a speech broadcast by Bangladesh Television.

The standards will hopefully help relieve some of the worst labor abuses, but often when regulations are enacted, business simply moves to a less regulated environment. As pressure mounts for retailers to lower costs and increase margins, it will remain to be seen how many companies continue to manufacture in Bangladesh instead of moving to another location. What would really be newsworthy is if these standards could be applied to all countries.