Tag Archives: Coverage

federal-reserve-400

Yellen makes Federal Reserve debut

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Janet Yellen’s debut didn’t say anything out of the ordinary, but apparently, investors didn’t care for her commentary.

The Wall Street Journal story by Jon Hilsenrath and Victoria McGrane led with investor reaction to Yellen’s comments around when the Federal Reserve might start raising interest rates:

Investors bristled after Janet Yellen emerged from her first meeting as Federal Reserve chairwoman with some unsettling signals about the central bank’s outlook for short-term interest rates.

The Fed intends to keep short-term rates near zero into next year, but investors sniffed out signs that rate increases might come a bit sooner and be a touch more aggressive than expected. Even though the Fed’s official policy statement sought to give assurances of continued low rates far into the future and Ms. Yellen played down rate-increase expectations, stock prices fell and longer-term rates on Treasury bonds moved up.

In a press conference after the meeting, Ms. Yellen suggested that interest-rate increases might come about six months after the bond-buying program ends—a conclusion that could come this fall. She offered that projection with many caveats, but some investors took it as a sign that the Fed could start raising interest rates sooner than expected.

“This could have been a rookie gaffe on Yellen’s part,” Paul Edelstein, director of financial economists at IHS Global Insight, said in a note to clients. “This was, after all, her first press conference.”

In futures markets, prices indicated investors’ expected rate for the Fed’s benchmark federal funds rate for June 2015 moved up from 0.28% before the Fed’s meeting to 0.36% after the meeting.

Writing for Bloomberg, Craig Torres, Steve Matthews and Michelle Jamrisko also led with investor reaction:

Janet Yellen said the Federal Reserve wasn’t altering policy when it overhauled the way it signals changes in borrowing costs. Investors didn’t buy it.

In her first press conference as Fed chair, Yellen emphasized that dropping a 6.5 percent unemployment threshold for considering an interest-rate increase “does not indicate any change in the committee’s policy intentions.”

Rather than paying heed to Yellen’s assertion, investors seized on an increase in Fed officials’ own interest-rate forecasts and Yellen’s comment that that borrowing costs could start rising “around six months” after it stops buying bonds. Yields on two-year Treasury notes climbed as much as 10 basis points, the most since June 2011.

The market reaction highlights the perils faced by central bankers when they retreat to language investors consider vague after setting precise numerical markers for changes in policy. Lacking specific guidance in the Fed’s policy statement, investors swung toward the next best thing: Fed officials’ own forecasts for the benchmark federal funds rate.

Binyamin Appelbaums story in the New York Times led with the announcement and added this background about the statement:

The latest statement — the longest one the committee has ever published — was careful to say that the change in guidance was not intended to alter the possible timing of a rate increase. Instead, Ms. Yellen said that new measuring sticks were necessary because the unemployment rate had fallen more quickly than expected, while other economic indicators, like inflation, remained weak.

“The purpose of this change is simply to provide more information than we have in the past, even though it is qualitative information, as the unemployment rate declines below 6.5 percent,” Ms. Yellen said.

But the Fed also released a separate set of economic forecasts showing that officials had raised their expectations for the level of their benchmark rate at the end of 2015 to 1 percent from 0.75 percent.

The Washington Post story by Yian Q. Mui led with the notion that the Fed way paving the way to increase rates:

The Federal Reserve began laying the groundwork Wednesday for the first increase in interest rates since the Great Recession upended the economy.

The nation’s central bank said it will consider a broad swath of indicators to determine the moment of liftoff, including job market data, inflation expectations and financial developments. The official statement was a retreat from the blanket assurances that rates would remain untouched, which have dominated the Fed’s message for the past five years. Instead, the debate has shifted to how much longer the Fed should wait before pulling the trigger.

The Federal Reserve began laying the groundwork Wednesday for the first increase in interest rates since the Great Recession upended the economy.

The nation’s central bank said it will consider a broad swath of indicators to determine the moment of liftoff, including job market data, inflation expectations and financial developments. The official statement was a retreat from the blanket assurances that rates would remain untouched, which have dominated the Fed’s message for the past five years. Instead, the debate has shifted to how much longer the Fed should wait before pulling the trigger.

No matter how the story was framed, it was a stumble for Yellen. Much of the earlier coverage anticipated that she would have an easy debut, especially since the Fed has clearly projected its moves to the markets. The fact she rattled the markets with her post comments shows that she has some work to do, despite her years of experience and knowledge of the markets.

High-frequency-trading

NY takes aim at high frequency traders

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The opaque world of high frequency trading is coming under increasing scrutiny from regulators as the New York Attorney General Eric Schneiderman said he was looking into practices in the space.

Andrew R. Johnson had this story for the Wall Street Journal:

New York Attorney General Eric Schneiderman is investigating services offered by stock exchanges that he alleges give certain high-speed investors an unfair advantage by getting early access to data.

Mr. Schneiderman said during a speech Tuesday that he was urging stock exchanges to consider curbing such features and adopting proposed safeguards to ensure investors are competing on an equal playing field.

The features in question include “co-location,” which allow traders to locate their computer servers within exchanges’ data centers, and services that provide extra network bandwidth to high-frequency traders.

“These valuable advantages give high-frequency traders a leg up on the rest of the market,” Mr. Schneiderman said in the speech at New York Law School.

Mr. Schneiderman’s proposal is the latest in a continuing probe of Wall Street activities that allow investors and other market participants to gain a competitive edge through the early release of market-moving data, a practice he calls “insider trading 2.0.

Bloomberg reported that stock exchanges have been alerted to the attorney general’s concerns in a story by Keri Geiger and Sam Mamudi:

The attorney general’s staff has discussed his concerns with executives of Nasdaq and NYSE and requested more information, according to a person familiar with the matter, who asked not to be named because the talks were private. Schneiderman’s office is also looking into private trading venues, known as dark pools, and the strategies deployed by the high-speed traders themselves.

The investigation threatens to disrupt a model that market regulators have openly permitted for years as high-speed trading and concerns about its influence have grown. Trading firms pay to place their systems in the same data centers as the exchanges, a practice known as co-location that lets them directly plug in their companies’ servers and shave millionths of a second off transactions. They also purchase proprietary data feeds, which are faster and more detailed than the stock-trading information available on the public ticker.

“We publicly file with the SEC for each and every one of these services, and we’re always engaged with government officials around the world,” Robert Madden, a spokesman for New York-based Nasdaq, said in a phone interview, referring to the U.S. Securities and Exchange Commission. He and Eric Ryan, a spokesman for NYSE, declined to comment on Schneiderman’s investigation.

Writing for the Financial Times, Kara Scannell and Arash Massoudi pointed out that the Securities and Exchange Commission brought enforcement actions against some trading platforms regarding this issue:

Mary Jo White, chairman of the Securities and Exchange Commission, the federal agency that regulates the equity markets, told a congressional panel last year that high-speed markets required “constant monitoring and analysis.”

Over the past few years the SEC has brought enforcement actions against NYSE and other trading platforms for giving certain investors better access to the markets.

An SEC spokesman said: “We are working on these and a wide range of issues as part of our ongoing review of our current equity market structure. We appreciate hearing the views of all market participants and other interested parties, including attorney-general Schneiderman.”

The investigation comes as Virtu Financial, a leading global proprietary trading company, is preparing to launch investor meetings for an initial public offering later this quarter, which would make it the first pure HFT company to go public.

People familiar with Virtu’s plans have said it hopes to raise $250m from a listing at a valuation of as much as $3bn.

The attorney-general’s office has made a priority of looking at potential insider trading by firms that are quick enough or rich enough to gain an early look at market moving information. While it is not Wall Street’s top regulator, the office has often wielded the Martin Act to force change in lieu of filing lawsuits.

In an interview on CNBC today, detailed in a story by Bruno J. Navarro, Scheinderman said he wasn’t opposed to capital markets, just those who have an unfair advantage:

“The problem is high-frequency trading—it creates liquidity; that’s a good thing—but it creates instability, and that’s a bad thing,” he said. “And the constant arms race of people having the incentive, which they have now, to try untested methods to gain those extra milliseconds of speed—that is a danger to the markets.”

Scheinderman suggested that frequent batch auctions might be one solution.

The practice would help maintain liquidity in the markets while removing the ability for traders to exploit momentary mispricings with increasingly faster computers.

“They’re using arbitrage between exchanges now,” he said. “Tiny, tiny differences in the timing of pricing can now make money for these folks. So, what my proposal was, as regulators—the federal government’s got to be involved in this, too, CFTC and SEC—we’ve got to step up to the plate and deal with the challenges of this new technology.”

Schneiderman said he wasn’t thinking about proposing a tax on certain kinds of trading.

“I’m a big fan of America’s capital markets,” he said. “In the last five years, we have funded something like five times all of Europe has funded in terms of investments and start-up companies and almost five times the rest of the world,” he said.

“Right now, because of this constant quest for those extra milliseconds, the markets are at a little bit more risk than they need to be. We can preserve the liquidity by something like our frequent batch auction proposal, which is being discussed at a forum at New York Law School right now, while protecting the markets and capping the race for speed.”

While milliseconds might not seem like a lot, it can mean millions for high-frequency traders. Schneiderman said that quest for timing created extra risk in the system than necessary, but that’s a claim that could be hard to prove. Hopefully he’ll publicly disclose the findings of his investigation in the spirit of transparency that he’s promoting.

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.

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.

TBN

Talking Biz News Today — March 13, 2014

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Thursday’s top stories:

The Associated Press

Amazon hikes prime membership to $99 a year by Mae Anderson

Reuters

U.S. business inventories up, sales post largest drop in 10 months by Lucia Mutikani

The Wall Street Journal

Shell sets plan to boost returns by Justin Scheck and Ian Walker

Fortune

Google’s plan for a store may be more like a museum by Courtney Subramanian

Businessweek

Missed alarms and 40 million stolen credit cards: How Target blew it by , , , and

Bloomberg

Chuck E. Cheese owner said to weigh Dave & Buster’s bid by Cristina Alesci and Leslie Patton

Today in business journalism

Washington Post names Ryan McCarthy assistant business editor
A mix of documentation and gumshoe reporting
Jaffe: Biz journalists need to use data with personal examples
Phoenix Business Journal publisher to retire
Heron, head of social media, leaving Wall Street Journal

This date in business journalism history

2011: Peoria business editor takes buyout

2006: Harwood joining CNBC as Washington correspondent

Business journalism birthday

March 13: Jeff Bercovici of Forbes

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.

TBN

Talking Biz News Today — March 12, 2014

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Wednesday’s top stories:

The Associated Press

Airlines lower forecast for record 2014 profit by John Heilprin

Reuters

Candy Crush maker King sees up to $7.6 billion IPO valuation by Aman Shah and Neha Demri

The Wall Street Journal

Energy XXI agrees to acquire EPL Oil & Gas by Tess Stynes

Fortune

Russian debt deal could haunt Ukraine’s economy by Stephen Gandel

Businessweek

To sell minor league merchandise, just add bacon by Ira Boudway

Bloomberg

Stock market surge bypasses most Americans, poll shows by David J. Lynch.

Today in business journalism

Denver Business Journal publisher to retire
Chronicle of Philanthropy hires Bloomberg’s Parks
Where the next big financial story is coming from
The drama ends between Jos. A. Bank and Men’s Wearhouse

This date in business journalism history

2009: Felix Salmon leaving Portfolio for Reuters

2007: Trish Regan joins CNBC

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.

TBN

Talking Biz News Today — March 11, 2014

by

Tuesday’s top stories:

The Associated Press

Bid of $1.8 billion suits Jos. A Bank just fine by Anne D’Innocenzio and Michelle Chapman

Reuters

Fox exec raises questions on Comcast-Time Warner Cable merger by Liana B. Baker

The Wall Street Journal

Congress to investigate GM recall by Jeff Bennett and Joseph B. White

Fortune

A star rises from Britain’s tech scene by Jonathan Weinberg

Businessweek

With Keurig 2.0, Green Mountain wants its monopoly back by Vanessa Wong

Bloomberg

Facebook’s share rally leaves analysts racing to catch up by Sarah Frier

Today in business journalism

How — and why — Bloomberg gets more women in its news coverage
A lot of people need to read the Wall Street Journal
Neil Cavuto celebrates 30 years of covering business
Kiplinger ponders its future

This date in business journalism history

2008: Conde Nast preparing to launch Portfolio and Wired in England
2006: Union attempting to organize Marketwatch employees

Business journalism birthdays

March 11: Robert Thomson of News Corp.