Tag Archives: Coverage
by Liz Hester
With the announcement that Coca-Cola Co. is buying a 10 percent stake in Green Mountain Coffee means that soon you’ll have the option of making your own single-serve Coke at home. The real question is what will happen to Coke’s global distribution network and its relationship with bottlers.
Michael J. de la Merced had this story in the New York Times:
Under the terms of the deal, Coke will buy about 16.7 million shares in Green Mountain for about $1.25 billion. The shares were priced at $74.98 each, representing the volume-weighted average price for the last 50 days.
In return, Green Mountain will be the official maker of the soda giant’s single-serve cold beverages, built on its popular Keurig pod-based system. Some of the proceeds from the investment will go toward expansion of its forthcoming Keurig Cold product.
Writing for the Wall Street Journal, Mike Esterl and Annie Gasparro:
The pact represents a major strategic shift for Atlanta-based Coke, which has relied on restaurant fountain systems and legions of bottlers to deliver its namesake cola to consumers since 1886.
It coincides with a nearly decade-long decline in U.S. soda consumption, a trend that puts pressure on Coke and rivals such as PepsiCo Inc. and Dr Pepper Snapple Group Inc. to find new ways to court drinkers.
In a conference call with reporters, Coke Chief Executive Muhtar Kent said the partnership represents “a real game-changing” innovation for the industry but that the company isn’t abandoning its traditional routes to market.
“This is not a zero-sum game,” he said, adding that Cokes bottlers will have “a very complementary role” in how the company’s products are marketed under the Keurig system.
Coke said it will make its global drink portfolio—which includes hundreds of other brands including Sprite, Fanta, Minute Maid and Powerade—available around the world through Green Mountain’s KeurigCold system. Green Mountain says the system should be available in fiscal 2015, which begins Sept. 28.
A Coke spokesman said the company has the option to increase its minority equity stake in Green Mountain to 16% during the first 36 months of the partnership.
Bloomberg reported in a story by Leslie Patton and Duane D. Stanford that while Keurig is working with Coca-Cola on developing the cold brew machine, Keurig may also partner with other beverage makers:
The companies are together working on the Keurig Cold single-cup beverage brewer that will be sold in Green Mountain’s fiscal 2015, which starts later this year. Green Mountain will make and sell Coca-Cola branded pods to go with the machine.
“This is what consumers told us they wanted,” Green Mountain CEO Brian Kelley said on the call. Coca-Cola cold-drink brands are “popular,” he said.
Still, Green Mountain will partner with other cold-beverage companies to sell single-serve pods that work in the Keurig Cold, he said. Kelley declined to discuss what other brands may be added and didn’t rule out PepsiCo Inc.
“We will have a number of partners and a number of brands on the system,” he said.
Jeff Dahncke, a spokesman for PepsiCo, declined to comment.
Kelley has been introducing new brewing machines and increasing advertising to get consumers to continue buying Keurig K-Cup packs. The Waterbury, Vermont-based company has been seeing more competition as grocery stores including Whole Foods Market Inc. begin selling private-label coffee pods.
The Reuters story by Lisa Baertlein and Phil Wahba:
“We are really excited to start with Coca-Cola,” said Kelley, who came to Green Mountain from the world’s largest soda maker, where he was viewed as a product-savvy executive with expertise in product and supply chain management.
Green Mountain’s cold drink machine is scheduled to debut in fiscal 2015, which begins in October this year.
Coca-Cola CEO Muhtar Kent said on the call that the deal would give his company access to new business opportunities. He added that it would enhance Coca-Cola’s bottling system and that its bottlers would have a complimentary role.
“This gives Green Mountain a beverage partner with some hugely powerful global brands. For Coke, it gives them access to some really cool, new cutting-edge pod cold-beverage technology,” said John Sicher, editor and publisher of Beverage Digest.
Sicher said soda sales in the United States have been in decline since 2005, while growth in pod-based coffee brewing has boomed.
Coca-Cola has a lot to lose as global soda sales decline. The company has come under fire as many scientists have pointed to its products as a factor in the rise of obesity and some have even tried to ban large-sized sodas. It’s an interesting move into a new product area, signaling that Kent is willing to look at anything to keep his company on top.
by Liz Hester
In selecting Satya Nadella to head Microsoft, the company’s board opted for a 22-year veteran and someone who has led its cloud computing efforts. Microsoft took six months in the search process, ultimately coming up with someone intimately familiar with the corporate bureaucracy.
The New York Times had this story by Nick Wingfield:
Microsoft on Tuesday announced that Satya Nadella was its next leader, betting on a longtime engineering executive to help the company keep better pace with changes in technology.
The selection of Mr. Nadella to replace Steven A. Ballmer, which was widely expected, was accompanied by news that Bill Gates, a company founder, had stepped down from his role as chairman and become a technology adviser to Mr. Nadella.
In Mr. Nadella, Microsoft’s directors selected both a company insider and an engineer, suggesting that they viewed technical skill and intimacy with Microsoft’s sprawling businesses as critical for its next leader. It has often been noted that Microsoft was more successful under the leadership of Mr. Gates, a programmer and its first chief executive, than it was under Mr. Ballmer, who had a background in sales. Mr. Ballmer, 57, said in August that he was stepping down.
The Economist story detailed how the appointment fits into Ballmer’s reorganization and emphasis on services over devices:
Two months before he said he would relinquish his job, Mr Ballmer unveiled a reorganisation of the giant firm’s business structures, accounting and management, declaring that Microsoft would henceforth be a “devices and services” company. Since then much of the talk about Microsoft—apart from gossip about who might succeed Mr Ballmer—has been about devices. Microsoft is buying Nokia’s ailing mobile-phone business, which is by far the biggest maker of smartphones that use Microsoft’s mobile operating system. The firm’s Surface tablet, despite encouraging results last quarter, has not sold well. Its Xbox entertainment console, however, has gone like hot cakes.
The appointment of Mr Nadella, a software engineer who has been at Microsoft for 22 years, is a reminder that services—especially the ones the firm sells to businesses—are every bit as important as consumer devices, and probably more so. Microsoft is not only battling Apple and makers of devices that run on Android, Google’s mobile operating system, as computing shifts from the personal computer to the smartphone and the tablet. The software giant is also fighting to retain business custom, as enterprise computing also becomes mobile and shifts from desktops and corporate data centres to cloud software and remote servers.
Under Mr Nadella’s leadership, the old “server and tools” division increased revenue by 9% in the year to June, to $20.3 billion (more than a quarter of total revenues), and operating income by 12.8%, to $8.2 billion, making it the best performing of the company’s big divisions. Mr Ballmer’s reorganisation makes comparisons since then difficult, but the new “commercial” segment saw revenue climb by 10% in the six months to December.
The Wall Street Journal story by John Kell and Shira Ovide said that Nadella would likely continue Microsoft’s current course, calling him a “safe choice”:
The appointment of Mr. Nadella, who is 46 years old and leads the Microsoft division that makes technology to run corporate computer servers and other back-end technology, is considered a safe choice. It comes after a lengthy search during which the company considered a long list of external and internal candidates.
Mr. Nadella, who will also join the company’s board, said his selection marked a “humbling day” and vowed to reinvigorate Microsoft’s role as a leader despite stiff competition in markets such as mobile devices and what the industry calls cloud services.
“Our industry does not respect tradition—it only respects innovation,” he said in a letter to employees. “The opportunity ahead will require us to reimagine a lot of what we have done in the past for a mobile and cloud-first world, and do new things.”
Little in Mr. Nadella’s public history at Microsoft, however, suggests he will break from the company’s pattern as a fast follower, rather than a trend setter.
“As Microsoft continues down the right lane of the highway at 55 mph with its new CEO in hand, the fear among many investors is that other tech vendors from social, enterprise, mobile, and the tablet segments continue to easily speed by the company in the left lane of innovation and growth,” wrote analysts at FBR Capital Markets.
The Bloomberg story, written by Dina Bass and Peter Burrows, led with the news of John Thompson taking over as chairman from Bill Gates:
With Microsoft Corp. (MSFT:US)’s appointment of John Thompson as chairman to replace co-founder Bill Gates, the world’s largest software maker is looking to the veteran technology executive as the main outside voice in its new leadership structure.
Thompson was the lead independent director heading the board’s search for a new chief executive officer, resulting in the appointment of Microsoft insider Satya Nadella to replace Steve Ballmer, the Redmond, Washington-based company said in a statement today. While the naming of Thompson and Nadella, who were already involved in Microsoft’s transition, signal continuity, it’s also the biggest break in the company’s history as the Gates-Ballmer duo who have been in charge for more than three decades step aside.
The former CEO of Symantec Corp. (SYMC:US), Thompson, 64, is stepping in at a crucial point as Microsoft remakes itself to better compete with rivals including Apple Inc. (AAPL:US) and Google Inc. (GOOG:US) In picking Thompson, the board is betting that he’ll be able to use his experience running a security-software company to help turn around Microsoft.
“Thompson’s going to be a major voice for the company,” James Staten, an analyst at Forrester Research, said in an interview. “They wouldn’t have made him chairman, if he didn’t have strong opinions about how to drive the company forward. And Satya is looking for strong partners on the board.”
Making changes at a company the size of Microsoft can seem nearly impossible. It’s hard to change the culture and shift directions. Nadella has a lot of work to do, particularly on the consumer side of the business. Whether he can innovate and keep investors happy will be critical to his success.
by Liz Hester
Just when it seemed like the economy was on an up swing and recovery underway, the debt ceiling is rearing its ugly head– again. Treasury Secretary Jacob Lew warned Congress on Monday that the borrowing limit needed to be increased so the government could continue to function.
Damien Paletta had this story in the Wall Street Journal:
A fresh battle over the debt ceiling is looming, and lawmakers will have less time and flexibility to negotiate than in earlier fights because of the annual rush of people seeking tax refunds this month.
Treasury Secretary Jacob Lew on Monday urged Congress to intervene quickly to raise the debt limit, the latest in a drumbeat of warnings from the Obama administration that dawdling could potentially lead to delays or cuts in Social Security benefits and military pay.
In October, as part of the deal that ended the government shutdown, Congress suspended the borrowing limit until Feb. 7. After that, the Treasury Department is expected to use emergency measures, such as halting certain pension payments, to allow it to continue borrowing money to pay the government’s bills. Those powers will run out by the end of the month, Mr. Lew said, a much shorter fuse than during previous fights.
“Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government,” Mr. Lew said in a speech to the Bipartisan Policy Center.
Enforcement of the debt limit is suspended, but it will come back into force Friday under the terms of a deal lawmakers struck in the fall. That leaves Lew bumping up against the limit in tax-filing season, he said Monday, when he will have far less flexibility to juggle the books and ward off disaster.
“Unlike other recent periods when we have had to use extraordinary measures to continue financing the government, this time these measures will give us only a brief span of time,” Lew said in a speech at the Bipartisan Policy Center. “Given these realities, it is imperative that Congress move right away to increase our borrowing authority.”
Congress, meanwhile, is moving at a relatively glacial pace. House Speaker John A. Boehner (R-Ohio) said last week that he will not permit the nation to default on its debt. But House Republicans emerged from their annual policy retreat without a plan for bartering with Democrats in exchange for raising the debt limit.
The most popular option under discussion by Republicans would combine a one-year extension of the debt limit with a ban on “bailouts” for health-insurance companies under the Affordable Care Act.
But Democrats say that the provisions dubbed “bailouts” by the GOP are necessary to ease the transition into the health-care law’s public marketplaces — and were employed when Republicans set up a similar system for the Medicare Part D prescription-drug program.
The Financial Times story by James Polti detailed the most recent history of the debt ceiling debate, which has many twists and turns recently:
The White House emerged triumphant from the last budgetary stand-off in October, when a 16-day government shutdown and brush with sovereign default was mostly blamed on Republican intransigence. Republicans recovered politically shortly afterwards as a result of the botched rollout of the 2010 health law. But they appeared to have learnt their lesson and are reluctant to force a new high-profile budget battle, even if it means triggering a backlash from conservative Tea Party members.
In December, Paul Ryan, the Republican chairman of the House budget committee, brokered a deal with Patty Murray, the Democratic chair of the Senate budget committee, to set spending levels for two years and avoid new federal shutdowns. But they avoided tackling the need to increase the debt ceiling, which is now looming.
In the recent past, Republicans have demanded huge concessions from the White House in exchange for debt ceiling increases, including deep spending cuts and a full repeal of the 2010 health law or a delay in its main provisions.
But this year, they are considering attaching much more modest policy changes as a condition of a debt ceiling increase, with the latest idea being to scrap some of the protections against big losses for insurers under “Obamacare” – the Affordable Care Act. But Mr Lew signalled the White House would continue to oppose negotiations over the debt ceiling, even in the face of sharply curtailed Republican ambitions.
The Reuters story did say the decrease in budget deficits had improved the nation’s finances:
U.S. politicians now partake in a regular dance around the country’s so-called debt limit. First, Congress authorizes spending that outstrips tax receipts. Then lawmakers balk over whether to OK enough borrowing to pay the bills. A rancorous debate ensues over putting public finances on a stable path.
Washington has danced perilously close to the edge of default several times since 2011, and this year some Republicans pledge to extract policy concessions from Democrats before they allow the debt limit to rise.
The administration has vowed not to negotiate on the matter, and Lew said public finances are in good enough shape that long-term fiscal problems don’t have to be solved this year anyway.
Federal debt ballooned during the 2007-09 recession and most analysts think Washington’s obligations to pay for health care for the elderly will stress the budget more as U.S. society ages.
But Lew said the sharp reduction in budget deficits over the last few years has bought America time to improve its fiscal outlook.
It’s impossible to say what would happen if Congress didn’t raise the debt limit. And while it’s unlikely to test it out, the fact that it’s even an issue is absurd. The economy shouldn’t be used in political brinkmanship.
by Liz Hester
While the rest of the country was watching the Super Bowl, Jos. A Bank was trying to remain an independent company. In the latest chapter of the drama around the men’s retailer, the company is now talking with Eddie Bauer.
Michael J. de la Merced had this story in the New York Times:
The company is in talks to buy Eddie Bauer, the outdoor clothing retailer, according to people briefed on the matter.
Jos. A. Bank publicly released a letter to Men’s Wearhouse on Sunday accusing its bigger rival of failing to properly disclose the antitrust risks in its takeover bid. (The letter made no mention of the talks with Eddie Bauer.)
Both Sunday’s letter and the discussions with Eddie Bauer represent the latest twists in a monthslong drama over two of the country’s biggest men’s wear sellers.
Men’s Wearhouse rebuffed the attempts and later turned the tables, offering to buy its onetime suitor. At the moment, it has bid $1.6 billion while threatening to nominate two candidates for the target company’s board, who if elected would replace its chairman and chief executive.
Bloomberg’s David Welch said Jos. A. Bank was looking at several other retailers for potential combinations after deeming the Men’s Wearhouse offer too low:
Jos. A. Bank, in an earlier filing, disclosed an interest in pursuing other targets it didn’t identify. While talks for Eddie Bauer are the main focus now, one of the other retailers considered was men’s clothier Brooks Brothers Inc., one of the people said. Arthur Wayne, a spokesman for Brooks Brothers, didn’t immediately respond to an e-mail seeking comment.
Golden Gate had committed financing to help Jos. A. Bank buy Men’s Wearhouse as part of an unsolicited $2.3 billion bid in October. Men’s Wearhouse rebuffed that overture; the two sides never entered talks and the two companies have been in conflict since then.
Men’s Wearhouse made its own offer for Jos. A. Bank in November, raised that bid in January, and said it will directly approach Jos. A. Bank’s shareholders with a cash tender offer.
In its letter today, Jos. A. Bank said the Men’s Wearhouse offer “substantially undervalues our company” and that “we see no benefit in commencing negotiations with Men’s Wearhouse.”
The Reuters story led with the rejection of the latest offer:
Jos. A. Bank Clothiers Inc on Sunday rejected yet another offer by rival Men’s Wearhouse Inc, the latest in a prolonged acquisition battle between the two men’s clothing retailers.
In response to Men’s Wearhouse offer last week that it is open to sweetening its spurned buyout offer under certain conditions, Jos. A. Bank said the proposal was still undervaluing the company.
“After carefully reviewing your offer with our financial and legal advisors, we continue to believe that your offer to acquire Jos. A. Bank substantially undervalues our company and that your proposal is not in the best interests of our stockholders,” said the letter to Douglas Ewert, president of Men’s Wearhouse.
“Accordingly, we see no benefit in commencing negotiations with Men’s Wearhouse.”
Earlier in the week, Jos. A Bank’s five largest shareholders were pushing for a sale, according to Bloomberg’s David Welch and Jodi Xu:
Jos. A. Bank Clothiers Inc. (JOSB), which is resisting a takeover by Men’s Wearhouse Inc., has been told by five of its largest shareholders to start talking to its rival about a sale, said people with knowledge of the matter.
Firms including P. Schoenfeld Asset Management LP and Beacon Light Capital LLC have urged Jos. A. Bank to engage Men’s Wearhouse and discuss its $1.61 billion hostile bid for the Hampstead, Maryland-based company, the people said, asking not to be identified discussing private information. The five investors own about 17 percent of Jos. A. Bank, according to the people and data compiled by Bloomberg.
Pressure on Jos. A. Bank’s board of directors, led by Chairman Robert Wildrick, is mounting after it refused to negotiate with Men’s Wearhouse and instead toughened the company’s anti-takeover defenses. Men’s Wearhouse today said it is prepared to raise its offer if it can justify doing so through discussions or due diligence, and asked Jos. A. Bank to form a special committee of directors to re-consider its offer.
The investors seeking a deal between the two companies also include Franklin Resources Inc. (BEN), Pentwater Capital Management LP and Praesidium Investment Management Co., the people said. Jos. A. Bank’s board is also facing a lawsuit by Eminence Capital LLC, which said this month that it plans to nominate two new directors. Eminence owns about five percent of Jos. A. Bank, according to a statement from the fund.
The back and forth of this story is fascinating. It’s anyone’s guess if a combination will happen and what it will look like if it does. Eventually Jos. A Bank will have to make a decision or risk losing the confidence of investors.
by Liz Hester
Internet giant Amazon.com Inc. missed analysts’ expectations for its fourth-quarter profit as it cost them more to get customers’ orders to them.
Bloomberg’s Adam Satariano had this straightforward story:
Amazon.com Inc. (AMZN:US), the world’s largest Web retailer, reported fourth-quarter revenue and profit that trailed analysts’ estimates after sales growth slowed outside the U.S. and holiday shipping costs surged.
Net income was $239 million, or 51 cents a share, the Seattle-based company said today in a statement. Analysts on average had projected profit of 69 cents a share, according to data (AMZN:US) compiled by Bloomberg. Revenue rose 20 percent to $25.6 billion, trailing the $26.1 billion average estimate.
Amazon’s dominance of U.S. e-commerce isn’t translating globally, with international sales growth slowing to 13 percent in the quarter from 21 percent a year earlier. Meanwhile, expenses are climbing as Chief Executive Officer Jeff Bezos pumps money into warehouses to speed shipments, a cost Amazon may try to offset as it considers raising the price of its Prime delivery service for the first time, the company said today.
David Streitfeld led his story in the New York Times with the news that Amazon is planning to raise shipping fees:
Amazon investors might have finally heard the news they have been waiting for: The retailer is raising shipping fees.
Amazon has 237 million active customers but as a general rule makes almost no profit. Thursday’s announcement that the company was considering raising prices by as much as 50 percent on its $79 Prime shipping program could mean $500 million for its skimpy bottom line.
“This is the first time we’ve ever seen Amazon flex its muscles in terms of pricing,” said Gene Munster, an analyst with Piper Jaffray. “It’s hugely significant.”
The news came in a conference call when the Seattle-based retailer discussed its fourth-quarter earnings. The announcement helped deflect disappointment that Amazon’s torrid growth might be slowing.
Amazon has been pouring money into new ventures, ranging from new warehouses to free videos for Prime subscribers. The eternal question is when it will turn all that expansion into profit.
Raising fees for the estimated 25 million Prime subscribers indicates that moment might be sooner, rather than later.
The Wall Street Journal’s Greg Bensinger pointed out that expenses have been weighing on the company:
The company ramped up expenses during the quarter, hiring 70,000 temporary workers at its warehouses and distribution centers in expectation of big sales gains. But the holiday season was marred by shipping problems at United Parcel Service Inc. that caused some customers to get their packages after Christmas, prompting Amazon to issue $20 purchase credits. (Please see related article on page B5.)
Its shares were down about 5%, or $20.01, in after-hours trading, after falling as much as 10%. The shares gained 4.9% to $403.01 at 4 p.m. on the Nasdaq Stock Market. The stock was up 63% last year.
“They have gotten a lot of hall passes on profitability; maybe that run is over,” said Colin Gillis, a BGC Partners analyst. “They’re selling widgets and they’re doing it basically at cost; you’ve got to sell a lot of widgets if you’re not making money on them.”
Investors’ faith in Amazon has relied in part on consistent sale gains fueling the company’s lavish spending on warehouse construction and secretive internal projects that it has indicated will yield bigger returns in the future.
The Reuters story by Bill Rigby and Edwin Chan led with Amazon’s expectation for a loss:
Amazon.com Inc missed Wall Street’s estimates for the crucial holiday period and cautioned investors about a possible operating loss this quarter as shipping costs climb, pushing its shares down more than 5 percent.
The world’s largest online retailer faced lofty expectations going into one of the most heavily competitive holiday seasons in years, with retailers vying to out-do each other with steep discounts. It was a contest that many retail industry executives have blamed on Amazon.
The Seattle-based company, which has spent freely to forge new markets in cloud computing and digital media, is experiencing slower growth at home after years of rip-roaring expansion, and its international business continues to underperform.
Amazon expects operating results for the current quarter to range from a $200 million loss to a $200 million profit, compared with a $181 million profit a year ago.
To cover rising fuel and transport costs, the company is considering a $20 to $40 increase in the annual $79 fee it charges users of its “Prime” two-day shipping and online media service, considered instrumental to driving online purchases of both goods and digital media.
Amazon has worked hard to become everyone’s go-to Internet retailer. They’re even talking about pre-shipping items to people based on what’s in their shopping carts. The fact that it might not even make a profit is telling. It has sacrificed shareholder value for market share, which may not pay off in the long run.
by Liz Hester
One thing about Google, it’s not one to invest in businesses that aren’t working. Less than two years after buying Motorola, Google is selling the unit to Lenovo.
Rolfe Winkler and Spencer E. Ante had this story in the Wall Street Journal:
Google Inc.’s experiment making Motorola phones has ended after just 22 months, with the company unloading the handset business to China’s Lenovo Group Inc. for $2.91 billion but keeping a valuable trove of patents.
The deal unwinds the Internet company’s costly move into smartphone hardware after it acquired Motorola Mobility for $12.5 billion in May 2012. Google has struggled to compete in the cutthroat phone-hardware business—its share of the world-wide smartphone market fell to about 1% last year from 2.3% a year earlier, according to IDC.
Google said it will retain the vast majority of Motorola’s patent portfolio, a key motivation of the original transaction that lets it defend those phone makers who use its Android software against patent suits. Google’s Android software powers the majority of the world’s smartphones.
The deal also signals the rising ambitions of Lenovo, which is seeking to be a bigger player in the global technology market.
Lenovo, which last week agreed to buy a server business from International Business Machines Corp., gains a brand that would catapult its place in the global smartphone market to third from fifth, yet far behind Samsung Electronics Co. and Apple Inc., according to IDC. Lenovo became the No. 1 personal-computer maker last year after buying IBM’s PC business in 2005.
The New York Times story by David Gelles, Claire Cain Miller and Quentin Hardy offered this context about the sale:
That acquisition was Google’s largest by far, and the biggest bet that Larry Page, its co-founder, has made since returning as chief executive in 2011. Google wanted Motorola’s patents and a cellphone maker to help its mobile business, and named Dennis Woodside, a former Google operations executive, as C.E.O.
Selling a major portion of the business would be a concession of defeat for Google and particularly for Mr. Page. Motorola has continued to bleed money, aggravating shareholders and stock analysts, and its new flagship phone, the Moto X, did not sell as well as expected.
This is the second time Google has sold off assets it acquired after buying Motorola Mobility, which was its largest-ever acquisition. In 2012, just months after that deal was completed, Google sold Motorola Home, which included its set-top boxes and cable modems, to Arris for $2.35 billion.
Google will retain most of the patents it acquired as part of its original deal for Motorola, while granting Lenovo a license to use certain ones for its new handsets.
And in a blog post on Wednesday, Mr. Page characterized the initial Motorola deal as more about patents than hardware. “We acquired Motorola in 2012 to help supercharge the Android ecosystem by creating a stronger patent portfolio for Google and great smartphones for users,” he said.
Bloomberg’s Alex Sherman, Brian Womack and Edmond Lococo pointed out that the sale is technically a loss, but not too big of one:
While Google has invested in Motorola, the unit’s revenue has declined. Motorola’s third-quarter sales fell by about a third, even as the company released Moto X, the first smartphone introduced under the direction of Google’s leadership. In November, Google announced it was rolling out a new lower-cost smartphone called the Moto G. Google reports fourth-quarter results tomorrow.
Motorola’s patents have also shown signs that they weren’t a bargain. Google has lost patent cases or was delivered disappointing sums in cases that involved some of the intellectual property. Google had estimated in regulatory filings that $5.5 billion of the purchase price for Motorola was for patents and developed technology.
“This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere,” said Google CEO Larry Page in a statement about selling Motorola to Lenovo.
A $2.91 billion sale of Motorola is a far cry from the $12.4 billion that Google paid for the business. Yet Google doesn’t appear to be taking much of a loss, analysts said. After closing the agreement to buy Motorola in 2012, Google got the unit’s $2.9 billion in cash. Google last year also sold Motorola’s set-top box business to Arris Group Inc. for $2.24 billion. And Google keeps the majority of Motorola’s patents, which it can license.
“It’s probably not as bad as it first appears,” said Aaron Kessler, an analyst with Raymond James & Associates, who rates Google the equivalent of a buy.
Reuters pointed out some of the difficulties that Chinese companies are facing in the U.S. market in a story by Nadia Damouni, Nicola Leske and Gerry Shih:
Chinese companies faced the most scrutiny over their U.S. acquisitions in 2012, according to a report issued in December by the Committee on Foreign Investment in the United States. Analysts say political issues could cloud the deal, especially with Lenovo trying to seal the IBM deal at the same time.
In the deal for the Motorola handset business, Lenovo will pay $660 million in cash, $750 million in Lenovo ordinary shares, and another $1.5 billion in the form of a three-year promissory note, Lenovo and Google said in a joint statement.
In two years, China’s three biggest handset makers – Huawei, ZTE Corp and Lenovo – have vaulted into the top ranks of global smartphone charts, helped in part by their huge domestic market and spurring talk of a new force in the smartphone wars.
The deal looks like a good one for both Google and Lenovo, especially since Google keeps access to the patents it wanted and Lenovo gets access to the U.S. market. While it’s rare to see a behemoth like Google make a misstep, this will likely not be considered one of them.
by Liz Hester
In his State of the Union address Tuesday, President Barack Obama took the time to call for increasing the minimum wage, reducing the income gap and stimulating economic recovery. While the speech covered many topics, including health care and the war in Afghanistan, it’s telling that more than five years after the financial crisis, the economy remains top of mind.
Peter Baker wrote for the New York Times that Obama “declared independence from Congress”:
But the main thrust of Mr. Obama’s message was the wide gap between the wealthiest and the rest of America, and he used the speech to position himself as a champion of those left behind in the modern economy. “Those at the top have never done better,” he said. “But average wages have barely budged. Inequality has deepened. Upward mobility has stalled.
“The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by, let alone to get ahead,” he added. “And too many still aren’t working at all. So our job is to reverse these trends.”
To do so, the president announced an executive order raising the minimum wage to $10.10 an hour for future federal contract workers and the creation of a new Treasury bond for workers without access to traditional retirement options. He proposed incentives for trucks running on alternative fuels and higher efficiency standards for those running on gasoline. And he announced a meeting on working families and a review of federal job training programs.
Mr. Obama was gambling that a series of ideas that seemed small-bore on their own would add up to a larger collective vision of an America with expanded opportunity. But the moderate ambitions were a stark contrast to past years when Mr. Obama proposed sweeping legislation to remake the nation’s health care system, regulate Wall Street, curb climate change and restrict access to high-powered firearms.
The top of the Wall Street Journal story by Carol E. Lee and Peter Nicholas also focused on Obama’s declaration to bypass Congress whenever possible:
President Barack Obama, seeking to restore confidence in his leadership, declared in his State of the Union address Tuesday that he would use executive power to try to narrow the gap between rich and poor and speed the nation’s economic recovery.
Mr. Obama’s speech was essentially a manifesto designed to inject new vigor into his languishing agenda and guide his presidency through the partisan divide in the capital. The goal was to position the president as the champion of struggling Americans fed up with the bickering in Washington, marshaling an array of policy proposals aimed at helping them save more, earn more and find work in a tough economy.
“Corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged,” Mr. Obama said. “Inequality has deepened. Upward mobility has stalled…Our job is to reverse these trends.”
The president told the joint session of Congress that “I’m eager to work with all of you,” but his message was clear: “Wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.”
A USA Today analysis by Susan Page said the president’s speech reflected a “political journey from the aspirational to the achievable”:
This time, the president announced a pledge by some top corporate CEOs not to discriminate against job seekers who have been out of work for a long time and unveiled an executive order raising the minimum wage for new federal contract workers. “Give America a raise,” he said, urging Congress to raise the base wage for everyone.
He called reducing economic inequality and restoring upward mobility “the defining project of our generation.” He repeated the word “opportunity” a dozen times. He spoke energetically and more quickly than he typically does in big speeches.
But on that same platform in 2013, his proposals were more sweeping and his threat of political leverage more muscular. “Now is the time to do it; now is the time to get it done,” he said then of overhauling immigration laws. On offering quality preschool to every child in America: “That’s something we should be able to do.” On raising the minimum wage: “We should be able to get that done.” On simplifying the tax code: “We can get this done.”
Politico’s Josh Gerstein and Darren Samuelsohn wrote a piece fact-checking some of the president’s statements, including who would benefit from a minimum wage increase:
Who benefits from minimum wage boost?
Obama: “I will issue an executive order requiring federal contractors to pay their federally funded employees a fair wage of at least $10.10 an hour — because if you cook our troops’ meals or wash their dishes, you should not have to live in poverty.”
Obama’s move-part of his challenge to Congress to boost the minimum wage for most workers to $10.10 — clearly fits with his drive to act where he can and press lawmakers to do more. But his ability to act unilaterally on this point is very limited as most employees of federal contractors make well over $10 an hour.
White House officials say a few hundred thousand employees could get a wage boost from the president’s action. But it would apply only to future contracts, so would likely take several years to have even that impact.
Across the U.S., according to the Labor Department, 3.6 million workers currently make minimum wage or below. And millions who make a little more would get a boost if the wage went up to $10.10 — though some might lose their jobs or hours if employers respond to the higher wage costs by trying to use less labor.
I’m looking for coverage in the next few days about this topic. Will business leaders respond by raising wages and hiring fewer people, which would seem to widen the gap between the haves and the have nots even further. The analysis of this and how it will fit into an overall agenda of economic recovery will be an interesting one.
by Liz Hester
Ever since it came out that government agencies were relying on data from Internet companies to track people, the debate over privacy has been raging. Monday, the government announced new rules.
Matt Apuzzo and Nicole Perlroth had these details in the New York Times:
The Obama administration says it will allow Internet companies to give customers a better idea of how often the government demands their information, but will not allow companies to disclose what is being collected or how much.
The new rules — which have prompted Google, Microsoft, Yahoo and Facebook to drop their respective lawsuits before the nation’s secret surveillance court — also contain a provision that bars start-ups from revealing information about government requests for two years.
Attorney General Eric H. Holder Jr. and James R. Clapper, director of national intelligence, said the new declassification rules were prompted by President Obama’s speech on intelligence reform earlier this month.
“Permitting disclosure of this aggregate data addresses an important area of concern to communications providers and the public,” Mr. Holder and Mr. Clapper said in a joint statement.
The Wall Street Journal story by Devlin Barrett and Danny Yadron pointed out that the revelations came after Edward Snowden disclosed the government’s requests:
The agreement represents another concrete consequence of the revelations about government spying by former National Security Agency contractor Edward Snowden. Earlier this month, President Barack Obama said the U.S. would stop storing huge amounts of phone-call data in NSA computers, though where that data would be stored has yet to be decided.
Monday’s agreement also suggests the Obama administration would rather reach compromises on such disclosures than wait to see whether courts or Congress order more far-reaching transparency measures.
The pact on disclosures focuses specifically on the government’s scrutiny of Internet traffic, and doesn’t apply to the phone-records program that also has been the subject of intense debate since Mr. Snowden’s revelations. It aims to strike a balance between the companies’ desires to say more about government searches and the government’s interest in not having the details of such requests revealed in a way that would tip off targets of investigations.
Among the biggest changes under the agreement: For the first time, companies can disclose how many court orders they receive from the Foreign Intelligence Surveillance Court, a specialized tribunal for national-security matters whose decisions typically are secret.
PCWorld’s Jeremy Kirk outlined the two options companies have for reporting data under the new rules:
Companies now have two options for publicly reporting data. Under the first option, statistics on Foreign Intelligence Surveillance Act (FISA) orders and National Security Letters (NSLs) can be published every six months.
For FISA requests, there must be a six-month delay between the publication date and the period covered in the report. Information about NSLs, including the number of customer accounts affected by NSLs, can be reported within ranges of 1,000, starting with 0-999. The same rule applies to FISA orders and the customer selectors, or search terms, targeted in them. There are no restrictions on reporting on criminal process inquiries.
If a company develops a new service, the government can use a “New Capability Order” exception to force the company to delay its reporting of orders for two years.
The second option lets companies report the total number of national security requests they received, including NSLs and FISA orders, within ranges of 250. That limit also applies to the total number of customer selectors targeted in FISA orders and NSLs, the letter said.
The Associated Press story by Jesse J. Holland offered this criticism of the new rules from companies and lawmakers:
“Permitting disclosure of this aggregate data addresses an important area of concern to communications providers and the public,” Attorney General Eric Holder and Director of National Intelligence James Clapper said in a joint statement.
The five companies welcomed the deal, but said more needs to be done. “We filed our lawsuits because we believe that the public has a right to know about the volume and types of national security requests we receive,” the companies said in a joint statement. “While this is a very positive step, we’ll continue to encourage Congress to take additional steps to address all of the reforms we believe are needed.”
Apple also released a statement. “We believe strongly that our customers have the right to understand how their personal information is being handled, and we are pleased the government has developed new rules that allow us to more accurately report law enforcement orders and national security orders in the U.S.,” the company said on its website.
Sen. Ron Wyden called it a “positive first step.” ”Though there is still a great deal of work to do, today’s announcement is good for American companies and the Americans they employ and serve,” he said.
As Wyden said, it’s a good start, but there are many more issues about the intersection of government security and personal privacy that will need to be sorted out. The debate started by Edward Snowden will continue, especially as Internet companies collect more and more personal information.
by Chris Roush
Michael Calderone of The Huffington Post writes about the need of muckraking journalism today to let the world know about income inequality.
Calderone writes, “Starkman gives high marks to Michael Hudson, now a senior editor at the International Consortium of Investigative Journalists, and The Financial Times’ Gillian Tett, for raising concerns about the subprime market and collateralized debt obligations before they were headlines and hashed out on cable chat shows.
“Starkman, who edits Columbia Journalism Review’s “The Audit” blog, has written about the similarities between investigative reporters of the early 21st century and their forbearers a century earlier.
“‘What industry concentration was to the muckrakers’ era, financialization is to ours,’ he wrote. ‘Both phenomena were equally baffling to the literate citizen. Both demanded an explanation. Both had been brewing for decades. Both were marked by institutionalized lawlessness perpetrated by increasingly brazen brand-names. Both were widely known among legislators, clerks, cops, bartenders, and prostitutes — just not the public.’”
Read more here.
by Liz Hester
The World Economic Forum is back in Davos and with it comes the debate (some might call it argument) that the conference is a playground for the rich elite instead of an exchange of ideas.
Christine Hauser wrote for the New York Times blog on Jan. 21 that the conference is coming under fire for not having enough women and other issues, particularly on social media forums:
But even before it starts, the World Economic Forum — which gets rolling Wednesday, after an opening ceremony on Tuesday, and runs through Jan. 25in Davos-Klosters, Switzerland — is being scrutinized on social media with an especially sharp eye on one of this year’s themes: economic inequality.
Some of the online discussion focused on how few delegates are women —only 15 percent of the more than 2,500 participants attending — and whether the profile of the attendees adequately represented the world.
But the issue of economic inequality seemed to spur the greater share of the social media focus, in terms of both worldwide and individual wealth and the forum’s apparent pecking order.
Then there’s the fight over corporate money chronicled in a Bloomberg Businessweek piece by Erik Schatzker on Jan. 20:
World Economic Forum founder Klaus Schwab said he’s in a “constant fight” to keep corporate interests from commandeering the annual meeting in Davos, Switzerland, even as his organization collects about $200 million from sponsors such as Citigroup Inc., Google Inc. and Accenture Plc.
“We fight the commercialization of the meeting,” Schwab said yesterday in a Bloomberg Television interview in Davos, the alpine town southeast of Zurich that hosts the meeting. “The forum has a great opportunity to tell the business community: You have to act in the global public interest.”
It’s a balancing act for Schwab, admonishing his corporate benefactors for an overemphasis on profits while at the same time holding his hand outstretched. Companies each pay 500,000 Swiss francs ($550,000) annually to become a “strategic partner” of the forum. In return they get exposure — a larger delegation and roles in panel discussions at the annual meeting — and media support. The 110 listed on the WEF’s website generate about $60 million in fees.
Industry partners get a lesser package of similar benefits for 250,000 francs. The WEF has about 500, good for almost $140 million in additional revenue.
Writing for the Huffington Post blog Jan. 22, Bloomberg TV anchor Francine Lacqua acknowledges the criticism, but argues that ideas trump all:
I myself have been covering the event as a Bloomberg Television anchor for over eight years and I’m a big fan of Davos, so I disagree with the cynics.
For me, it is all about the exchange of ideas whether that takes place on a panel in the conference hall, on the dance floor or in the hotel bar – it really doesn’t matter.
Much like political party conferences in the UK, socialising with a glass of bubbly goes hand in hand with the major speaking events and announcements that take place over the course of the four days.
In fact, most of the time, it provides a welcome distraction from the serious nature of the conversations being discussed. Delegates tend not to party too hard though, given the schedule kicks off at 8am each day and the daily programme is jam-packed with side events and other forums for debate.
This year’s meeting is particularly significant as it is the first Davos in five years where we aren’t tackling a crisis – the broader financial outlook is a little more positive for economies around the globe compared with 2012 or 2011. This helps to create a slightly less pressurised environment both for delegates and the journalists chasing down the stories.
Nevertheless, with chatter moving away from talk about whether certain companies will survive the global downturn toward more forward-focused discussion about the products they are producing and other innovations, there’s still a lot for us to cover.
Writing in his New York Times column on Jan. 20, Andrew Ross Sorkin took the time to drop the notable names who would not be attending the event:
The World Economic Forum, for which the cost of membership and a ticket to the annual meeting is more than $70,000, is both admired and derided as a velvet-rope club for the 1 percent of the 1 percent. The mayor of London, Boris Johnson, once attended Davos only to dismiss it as “a constellation of egos involved in massive mutual orgies of adulation.”
Whatever their reasons for staying away, the leaders of some of the largest and most transformative companies are demonstrating, with their absence, the difficulty of convening a global conversation with all the main stakeholders. Given that one of the themes this year is how to address economic inequality, it would be helpful to have the world’s largest employers participate in that discussion, not to mention a sampling of rank-and-file workers, who never receive an invitation.
It is interesting that the richest people in business and government are all meeting in a Swiss resort town to tackle “inequality” for the price of $70,000 a head. Sorkin makes a great point that many voices are missing from this conversation. Yet, the conference continues to grow, garnering thousands of articles and commanding hours of television time. But does it really solve anything? I’d like to see the Davos follow-up article outlining steps companies have taken to make changes after the event become a standard part of coverage for all organizations that attend.