Tag Archives: Coverage
by Liz Hester
It’s now time for retailers to report exactly how good (or bad) the holiday shopping season was last year. While the importance is well reported, the numbers usually are a harbinger for consumer sentiment and coming spending levels.
Anna Prior wrote for the Wall Street Journal that many stores had a tough season, with big-box store Costco as a lone standout:
The wholesale club reported sales at stores open at least a year rose 5% for the month, topping expectations for a 2.6% increase. Among the stronger performing categories were garden, automotive, apparel, small appliances and home furnishings. The consumer electronics category posted improvement from recent months, but the metric still declined slightly.
A number of retailers have offered disappointing holiday updates in recent days, suggesting the critical holiday period was marked by heavy promotions, especially for apparel and consumer electronics.
Although sales and store traffic appeared to pick up at the beginning of the Thanksgiving holiday weekend, shoppers took a break and didn’t start buying in earnest again until the week before Christmas.
At the same time, online sales were stronger than expected, but Ken Perkins of Retail Metrics said shopping on the web likely didn’t expand the overall spending pie so much as shift how and where that money was spent.
Driven largely by Costco, the eight retailers tracked by Thomson Reuters that have reported so far recorded a 2.7% increase in December same-store sales, or sales at stores open at least a year. Gap Inc. GPS +0.56% is scheduled to report after the market closes. Thomson Reuters projects the nine companies to post 1.9% growth, compared with a 7.2% increase a year earlier.
The New York Times reporter Julie Bosman wrote a story about Barnes & Noble’s lackluster year:
Barnes & Noble, the nation’s last remaining major bookstore chain, experienced steep sales declines in its digital division during the nine-week holiday period, the company announced on Thursday.
Revenue in the Nook division, which includes digital content and devices, was $125 million, a 60 percent drop compared with the period a year earlier.
Sales in its brick-and-mortar bookstores were less grim, with a 6.6 percent decrease from the previous year, to $1.1 billion.
The numbers reflect Barnes & Noble’s decreasing digital ambitions, as it declined to release a new color tablet in 2013. The bookseller has said it will pull back from trying to compete in the crowded tablet market against big companies like Amazon and Apple.
The release of the sales data came one day after Barnes & Noble announced that it had filled the long-vacant post of chief executive with a company insider, Michael P. Huseby, previously the president of Barnes & Noble and chief executive of Nook Media.
Reuters’ Phil Wahba reported that many retailers were beginning to cut earnings forecasts after discounts cut into their holiday numbers:
Many large U.S. retailers slashed their earnings forecasts on Thursday because of steep discounts they offered during the holidays to persuade reluctant consumers.
The discounts boosted overall industry sales but hurt profits at many chains, including L Brands Inc, Family Dollar Stores Inc and teen retailer Zumiez Inc. Even retailers that reported big sales gains, like Kay Jewelers parent Signet Jewelers Ltd, were not spared.
Fewer store visits and aggressive pricing at the start of the season by big retailers like Amazon.com Inc and Wal-Mart Stores Inc left many chains with little choice but to offer sweeter deals. Many also had too much holiday merchandise, which was ordered in late spring when retail executives were feeling upbeat.
“The discounts needed to be deeper, and they needed to be longer,” said Joel Bines, managing director of consulting firm AlixPartners.
The discounts did result in a stronger-than-expected 2.7 percent increase in December sales at the eight retailers tracked by the Thomson Reuters Same-Store Sales Index.
Still, L Brands cut its holiday-quarter profit forecast on disappointing December sales at its Victoria Secret and La Senza chains.
While L Brands’ sales at stores open at least year rose 2 percent last month, Wall Street had been expecting a gain of 3.7 percent, according to Thomson Reuters I/B/E/S. The company’s shares fell more than 4 percent.
Bloomberg’s Nick Taborek reported that retail stocks slid across the board on the news, indicating that investors are leery of what’s coming for many stores:
Retailers retreated 0.2 percent as a group. Companies from L Brands, which owns the Victoria’s Secret and Bath & Body Works brands, to discount chain Family Dollar (FDO) cut profit forecasts, showing the price war that marked the holiday season is taking a toll.
Family Dollar slid 2.1 percent to $64.97 and L Brands lost 4.1 percent to $57.75. The companies cut profit forecasts after reporting disappointing December sales as promotions that failed to lure shoppers hurt margins.
Bed Bath & Beyond slumped 12 percent to $69.75. The retailer projected fourth-quarter earnings of $1.60 to $1.67 a share, less than the $1.79 that analysts had estimated. Home-goods merchant Pier 1 Imports Inc. tumbled 12 percent to $20.44 as it also lowered its quarterly forecast.
While the Federal Reserve Board watches for more signs of growth in order to continue pulling back from its bond-buying program, signs that the economic recovery will continue are mixed. It doesn’t bode well if the backbone of the economy is cutting earnings forecasts and bracing for steeper discounts.
by Liz Hester
Minutes from the last Federal Reserve Board meeting where officials announced they were beginning to pull back from its bond-buying program showed officials are still cautious on the economy.
Jon Hilsenrath and Victoria McGrane wrote for the Wall Street Journal that one of the next pieces of business for the Fed would be watching for asset bubbles:
Federal Reserve officials in December turned their attention to the risk of dangerous financial bubbles emerging as they scanned a brightening economic outlook and formulated a plan to gradually wind down their bond-buying program this year.
While officials agreed that threats to financial stability were modest, the issue was at the center of wide-ranging discussions about emerging threats to the economy, according to minutes of the central bank’s Dec. 17-18 policy meeting, which were released Wednesday with the traditional three-week lag.
Watching for bubble threats could become one of the first big issues on the plate of Fed Vice Chairwoman Janet Yellen, who takes the reins as chairwoman on Feb. 1 after Ben Bernanke’s term as the Fed’s leader ends.
The Fed decided last month to reduce its monthly bond purchases to $75 billion from $85 billion. Barring a surprise in the economic data, the Fed is expected to shrink the size of its bond-buying again at its next policy meeting Jan. 28-29.
“The Fed is looking for evidence that they may be creating asset bubbles,” said Dan Greenhaus, chief global strategist at brokerage firm BTIG LLC. “That’s better than not looking.”
The Bloomberg story by Joshua Zumbrun and Craig Torres said that officials would discuss the next step for reducing the pace of bond buying as the economy gets stronger:
“A lot of people in the market think asset purchases have had declining benefits over time, and this is the first time I can recall the committee as a whole has really come out and agreed with that sentiment,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.
“The economy seems to be able to stand more on its own now,” Feroli said.
Some Fed officials “expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected,” the minutes said.
At the same time, “several” officials noted that “a range of other indicators had shown less progress toward levels consistent with a full recovery in the labor market, and that the projected pickup in economic growth was not assured.”
The committee cut monthly purchases to $75 billion in December, from $85 billion, citing improvement in the labor market that pushed the jobless rate down to a five-year low of 7 percent.
The New York Times piece by Binyamin Appelbaum pointed out that the decision to reduce purchases is the final act by outgoing chairman Ben Bernanke:
The Fed’s path forward is a final compromise forged by its outgoing chairman, Ben S. Bernanke. Some Fed officials worry that the economy needs still more help; others argue that the Fed already is doing more harm than good.
Mr. Bernanke, who will step down at the end of the month, predicted in June that the Fed would taper by the end of the year, and it did.
“Participants generally anticipated that the improvement in labor market conditions would continue, and most had become more confident in that outlook,” the account said. “Against this backdrop, most participants saw a reduction in the pace of purchases as appropriate at this meeting and consistent with the committee’s previous policy communications.”
The next wave of decisions will be made under new leadership. The Senate confirmed the Fed’s vice chairwoman, Janet L. Yellen, as Mr. Bernanke’s successor earlier this week. She will lead her first meeting of the Fed’s policy-making committee in March. While Ms. Yellen has expressed concerns about the labor market, she supported the decision to start tempering the stimulus efforts.
Paul Davidson wrote in USA Today that the Fed will continue to keep interest rates low after unemployment falls below 6.5%:
The Fed emphasized that the pace of the tapering would depend on the course of the economy, but that the Fed likely would cut the purchases “in further measured steps at future meetings,” assuming the economy continues to advance. At his post-meeting news conference, Fed Chairman Ben Bernanke indicated purchases could be reduced in increments of $10 billion and halted by the end of 2014.
The Fed also emphasized that it would keep short-term interest rates near zero until “well past” the time unemployment reaches its 6.5% threshold.
At the meeting, some Fed officials argued for lowering the threshold to 6%, saying that would be a “clear signal” of their intentions “in light of recent labor market and inflation trends.” They were particularly worried that investors would interpret the tapering as a signal that the Fed would increase its benchmark short-term rate earlier than anticipated, an assumption that would push up rates. Since the meeting, 10-year Treasury yields have risen relatively modestly from about 2.85% to about 3%.
But “a few others” said modifying the threshold “might be confusing and could undermine the credibility” of the Fed’s guidance.
So far, the Fed’s guidance has been fairly clear and consistent, allowing the markets to remain fairly stable. It will be interesting to see how Yellen will lead the organization, but if she follows Bernanke’s lead, at least investors will continue to have a window into how they’re making decisions.
by Liz Hester
One of the more dramatic stories continuing from last year is the merger drama between Jos. A Bank and Men’s Wearhouse, two men’s wear retailers battling for control and over a potential combined company.
The New York Times’ Michael J. de la Merced reported Monday that Men’s Wearhouse decided to take its offer directly to shareholders:
Men’s Wearhouse went hostile on Monday in its pursuit of Jos. A. Bank, raising its offer to $1.6 billion and taking it directly to the company’s shareholders. It also said that it intended to press for two new directors.
The moves signal a new stage in the takeover battle, one that began last year with Jos. A. Bank in the role of unwanted bidder. Now the pursuer is the pursued, one that has so far deemed the takeover bids too low.
And the onetime target has gone fully hostile, something that not even Jos. A. Bank was willing to do in its own aborted merger campaign.
“Although we have made clear our strong preference to work collaboratively with Jos. A. Bank to realize the benefits of this transaction, we are committed to this combination and, accordingly, we are taking our offer directly to shareholders,” Douglas S. Ewert, Men’s Wearhouse’s chief executive, said in a statement.
In its announcement on Monday, Men’s Wearhouse said that it had raised its offer by 4.5 percent, to $57.50 a share, and would start a tender offer for Jos. A. Bank stock that will expire on March 28.
Ronald Barusch wrote for the Wall Street Journal’s Dealpolitk blog that they key to completing the offer would be replacing two of the Jos. A. Bank directors, a task that could take a while given its structure:
Assuming the Jos. A. Bank board wants to fight the bid, which seems likely since it rejected Men’s $55 per share offer last month, it could take Men’s a year and a half to complete its tender offer. That is because Jos. A. Bank has a poison pill which effectively prohibits Men’s from buying a controlling stake in Jos. A. Bank without approval of the Jos. A. Bank board. The only people who can remove that impediment to the Men’s bid are the Jos. A. Bank directors. So on Monday, when it announced its tender, Men’s said it planned to seek to replace two of Jos. A Bank’s seven directors as well.
Jos. A. Bank has a staggered board, so directors serve three-years terms and under Delaware law cannot be removed prior to the end of their term. That means that even if the Jos. A. Bank shareholders fully support its bid, without the support of management it will take Men’s until the 2015 annual meeting (which if held at the same time as last year’s meeting would be in June of 2015 and could even be a couple of months later) for Men’s to replace a majority of the Jos. A. Bank board.
Lots could happen between now and then, including significant counter-moves by Jos. A. Bank. Jos. A. Bank started this situation by making a bid for Men’s at $48 per share. Undoubtedly, if there is to be a merger of the two companies, Jos. A. Bank management would prefer to end up on top as it proposed last September. And if Jos. A. Bank were to make a new bid for Men’s, with the cooperation of Men’s shareholders, it could move much faster than Men’s can to close a deal.
Men’s does not have a staggered board, and its entire board is up for election in at the 2014 annual meeting. (Its 2013 annual meeting was held in September.) So Jos. A. Bank could replace a majority of the Men’s board in the fall if it had a compelling offer on the table for Men’s. And that schedule could be significantly accelerated.
Elizabeth Lazarowitz wrote for The New York Daily News that an earlier offer was rejected, but investors liked the combination sending the stock of both companies higher since the initial bid:
The $57.50 per share cash offer is about 6% above the stock’s Friday close at $54.41 and higher than Men’s Wearhouse’s earlier bid of $55.
Jos. A. Bank had rejected the earlier offer in December, saying it “significantly undervalued” the company.
“Jos. A. Bank should be reluctant — in the best interest of its shareholders — in order to strengthen its position and maximize what Men’s Wearhouse will pay,” Stifel analyst Richard Jaffe told the News.
Jos. A. Bank kicked off the merger battle last year, offering $2.4 billion for Men’s Wearhouse. The bid came just months after Men’s Wearhouse booted founder and TV spokesman George Zimmer as executive chairman after he clashed with the board.
Shares of Jos. A. Bank, up about 8% since Men’s Wearhouse’s initial November bid, rose 4.5% to $56.87. Men’s Wearhouse shares also ticked higher, rising 2% to $51.68.
While the combination seems to make sense on paper, given the board structure it’s hard to see the hostile offer actually succeeding because it will take so much time. Investors believe that some type of deal will get done, but the moderate gains in the stock signal they’re still uncertain about the price – and the timing.
by Liz Hester
As the U.S. economy picks up and the Federal Reserve Board pulls back on its economic stimulus, the rest of the world continues to struggle with weakness.
The Wall Street Journal’s Stephen Fidler had this story:
Anxieties are rising in the euro zone that deflation—the phenomenon of persistent falling prices across the economy that blighted the lives of millions in the 1930s—may be starting to take root as it did in Japan in the mid-1990s. “Deflation: the hidden threat,” ran a headline emblazoned across a December research note by economists at HSBC.
At last count, prices are falling only in Latvia, Greece and Cyprus. And most forecasters, including those at HSBC, see low inflation as more likely than deflation on average in the euro zone.
But inflation is stubbornly low, under 1% on average across the 18-nation bloc, despite the money that the European Central Bank has been pumping into the economy with the aim of spurring investment and growth, actions that often push up inflation. That is way under the ECB target of “below, but close to 2%,” and, if the average is below 1%, more economies using the euro are at risk of deflation.
Why worry? If economies cope with inflation, why not with deflation? For centuries until World War II, capitalist economies experienced periods of severe deflation interspersed with spells of inflation and continued on a path of long-term growth.
Ian Wishart and Kristian Siedenburg wrote for Bloomberg Businessweek that leaders in Europe were struggling to find a way to help the economy grow:
European Union leaders pondering the fruits of a 120 billion-euro ($163 billion) push to jump-start the economy and create jobs can look to data this week for evidence of how little has been achieved.
The euro-area unemployment rate probably held near a record in November at 12.1 percent, according to the median estimate in a Bloomberg News survey of economists. That report on Jan. 8 follows tomorrow’s release of December consumer-price data. Analysts see inflation hovering near the four-year low that preceded a surprise interest-rate cut a month earlier by the European Central Bank.
In December, EU leaders acknowledged their struggle to create jobs, 18 months after they unveiled the Compact for Growth and Jobs, saying unemployment remains “unacceptably high.” Governments are relying for continued support from the ECB, which may this week repeat its vow to keep its policy accomodative for “as long as necessary.”
“Unemployment is bound to remain high amid a sluggish recovery,” said Tobias Blattner, senior economist at Bank of America (BAC:US)Merrill Lynch in (MER:US)London. “And with credit remaining scarce and expensive in large parts of the euro area, inflation will fail to creep higher. Deflation fears, however, are unlikely to materialize.”
With the euro-zone economy battered by the debt crisis and slow to shake off a record-long recession, policy makers are struggling to find a recipe for growth. The ECB estimates that the euro-area economy contracted 0.4 percent in 2013 and will expand 1.1 percent this year.
Bloomberg’s Kasia Klimasinska reported Jan. 3 that even U.S. officials are trying to help Europe avoid deflation and shore up the monetary policy:
U.S. Treasury Secretary Jacob J. Lew will urge European officials next week to pursue policies that boost economic growth, avoid deflation and strengthen the banking system, a Treasury official said today.
Euro-area domestic demand remains below its 2009 level when measured in real terms, and the unemployment rate is the highest in at least 20 years, the official, speaking on condition of not being further identified, told reporters on a conference call. Lew departs Jan. 6 on his fourth visit to Europe since he took office in February 2013.
Lew is scheduled to meet with French President Francois Hollande and Finance MinisterPierre Moscovici on Jan. 7. On Jan. 8 he will meet with German Finance Minister Wolfgang Schaeuble in Berlin before traveling to Lisbon later that day for talks with Portuguese government officials.
The eurozone is “sleepwalking” its way towards a Japanese-style deflationary trap that could last decades, the world’s largest bond fund has warned.
The Pacific Investment Management Company (PIMCO) said deflation posed the biggest threat to the single currency bloc in 2014. A stubbornly strong euro together with painfully slow reforms and a “paucity of ambition” threatened to push the bloc’s already low inflation rate into negative territory, the fund said.
“The demographics in large parts of Europe aren’t great,” said Mike Amey, portfolio manager and managing director at PIMCO.
“Even now, success in Europe is defined by 12pc unemployment and a growth rate of between zero and 1pc. If that’s success, they are at risk of slipping into deflation just because they’re willing to tolerate these economic conditions.”
Deflation poses a threat to economies, because if prices are falling people put off spending in anticipation of further falls. Retailers are forced to slash prices, which leads to declining profits, lower wages and people struggling to meet fixed loan repayments because of falling salaries.
While it experts disagree whether Europe will actually slip into full deflation or stay at extremely low inflation rates, it’s still a bit troubling that European policy makers don’t seem to be moving quickly to provide stimulus. Money managers will be watching closely to see what the economy will do and how it will impact their portfolios.
by Chris Roush
Vicki Gowler, the editor of the Idaho Statesman, explains the changes being made to its business magazine, Business Insider.
Gowler writes, “I increasingly believed it was important to make sure more of our readers could see this magazine.
“We are going to do that by shifting to a monthly themed magazine. That means we will highlight content on a certain topic, from technology to law to the business of health care to construction.
“Our largest magazines in the past year have been our themed ones, clearly serving readers and advertisers well.
“By shifting to a monthly and giving ourselves more time to produce each edition, we will be able to give this magazine to all of our readers. It will move to Wednesdays, usually the third one each month.
“We also will make some changes based in part on a readers survey we did last year. We will drop the public records pages and add more pages of stories, photos and graphics. We will have more room to include stories from around the state.
“Coverage of local business is, simply, an important thing for every daily newspaper. I am pleased that we will be giving a bigger, better magazine to all of you, even though we won’t have a magazine every week. And we will bring back a daily business section on Tuesdays as well.”
by Liz Hester
The New Year brings resolutions and in the world of financial journalism it brings stories that try to anticipate what the year holds for global financial markets.
The next 12 months may not prove as rich for initial public offerings as the last year. But to Wall Street bankers, 2014 still promises an abundance of opportunity.
And that could include what may be one of the biggest market debuts in years: that of Alibaba, the Chinese Internet behemoth.
Even as global merger activity turned in another lackluster performance, the business of taking companies public soared. The amount raised by I.P.O.’s in the United States last year jumped 40 percent over 2012, to $59.3 billion, according to data from Thomson Reuters.
Overall activity in equity capital markets banking totaled nearly $797 billion for the year, up 27 percent and one of the best years in recent memory. Fees for bankers in the field rose 34 percent from the previous year, to $17.9 billion, in what Thomson Reuters described as the highest level in three years.
The FTSE Renaissance Global I.P.O. Index, which tracks the returns of newly public shares, returned 31.7 percent last year through Dec. 17, outstripping the MSCI All Country World Index’s 15.4 percent.
Advisers are quick to caution that such a run — one with a number of big stock market debuts, like those of Hilton Worldwide, the animal health company Zoetis and, of course, Twitter — will be hard to duplicate. But as long as the economy holds up, so will the stock markets, prompting private companies to look to share sales to raise money.
According to Nicole Hong of the Wall Street Journal, the dollar is also kicking off 2014 with a rally:
The dollar soared on the first trading day of 2014, as expectations of a resurgent U.S. economy lured investors from around the world.
The euro was the most high-profile victim of the greenback’s surge. Its 0.6% drop, to $1.3670, was the biggest one-day percentage decline against the dollar since November.
Emerging markets’ currencies also came under pressure, as investors took a dim view of their economic growth prospects. The Turkish lira sank to a record low against the dollar, partly because of political problems in the country, while the South African rand tumbled to its weakest level against the U.S. currency since November 2008. The Brazilian real fell to a four-month low.
Driving the greenback’s renewed strength is anticipation that U.S. economic growth this year will outpace the recovery in Europe and other regions, which would boost the dollar’s value by attracting more cash to U.S. shores. As the economy heals, the Federal Reserve is expected to continue reducing, or “tapering,” its postcrisis stimulus program, a move that also helps the dollar because it slows the injection of new money into the financial system.
CNN Money’s Virginia Harrison recommended buying European and Japanese stocks instead of emerging markets:
Flush with liquidity, markets around the world surged last year, breaking records and pumping out healthy returns. So is there anything left for investors in 2014?
The flow of cheap money will lessen, say experts. But don’t despair.
While that will stir up risk in some regions, it will also present opportunities. At the same time, corporate earnings will take center stage as stock markets are weaned off massive amounts of stimulus.
“Prospects are much more dependent upon near-term earnings growth,” said John Wyn-Evans, head of investment strategy at Investec Wealth & Investment.
Strategists say developed markets hold better return potential than their emerging peers, as the U.S. Federal Reserve pulls back its support. Slowing growth in China is another challenge that could sap confidence and hurt equities in the year ahead.
But before you get too excited about 2014, Marc Jones of Reuters offers a reality check:
World share markets made a groggy start to 2014 on Thursday, with investors using some disappointing Chinese manufacturing data as a reason to cash in on some of last year’s gains.
After enjoying their best run in 15 years last year, U.S. shares were expected to edge lower when trading begins. Further gains depend on stronger growth this year, and investors were looking to U.S. jobless claims and updated December PMI figures to gauge the improvement in the world’s largest economy.
Manufacturing data from China overnight and on Wednesday proved disappointing. Equivalent data that showed euro zone manufacturing running at its fastest rate since mid-2011 were not enough to lift shares.
The pan-European FTSEurofirst 300 was down 0.3 percent before the U.S. open. It had started the day at a 5 1/2- year high. Earlier declines in Asia had left MSCI’s 45-country share index down 0.5 percent.
“We think it is a temporary blip in China, but that and also perhaps the data showing the contraction in Singapore’s economy earlier, maybe gave the market a slight scare,” said ABN Amro economist Aline Schuiling.
So, like anything, it’s going to be hard to predict. But if the overall global economy can continue to show some strength, there should be bright spots for smart investors.
by Liz Hester
The smallest U.S. auto company will now be fully owned by Italian firm Fiat, ending a dispute about ownership and clarifying the future for both firms.
The Wall Street Journal had this story by Christina Rogers:
Fiat SpA said it would get full control of Chrysler Group LLC in a $4.35 billion deal, ending a standoff that had clouded the future of both companies.
The deal, which helps clear the way for consolidation of the two auto makers, assumes a value for Chrysler at just over $10 billion, within the $9 billion to $12 billion valuation that banks underwriting a proposed initial public offering had been considering.
The IPO now will be called off, a person familiar with the plans said.
Analysts said the agreement is largely a win for Sergio Marchionne, the chief executive of both companies. The total price being paid for the 41.5% in Chrysler that Fiat didn’t already own is lower than some analysts had predicted. And averting an IPO gives Mr. Marchionne the freedom he needs to further consolidate the companies’ engineering and manufacturing operations.
The agreement also will allow him to spend more time on reworking Fiat’s operations in Europe, where it has suffered from a long slump in sales.
Jaclyn Trop of the New York Times added this background about the dispute between the autoworkers union and the company:
The agreement, which is expected to close on Jan. 20, will allow the carmaker and the union to end months of negotiations over the value of the U.A.W.’s stake. Union leadership had been pressing to force a public stock offering to cash out its shares on the open market amid arbitration in a Delaware court over the value of the trust’s stake.
Mr. Marchionne, who became Fiat’s chief executive in 2004, has been clear about his ambitions to create a company with a global scale to challenge the world’s leading automakers: General Motors, Volkswagen and Toyota. Fiat has held the majority stake in Chrysler since 2009 and has made no secret about wanting to acquire the remaining stake.
Fiat will pay the trust $1.75 billion in cash, and Chrysler will make a $1.9 billion contribution. Chrysler also agreed to pay the trust $700 million over four annual installments once the sale closes.
U.A.W. officials did not comment on the deal on Wednesday.
The merger will help both companies operate with a single set of financial statements, said Jack R. Nerad, the executive editorial director at Kelley Blue Book. “Their ability to move capital around is going to be a big advantage for them,” Mr. Nerad said.
USA Today also pointed out in a piece by James R. Healey that the agreement came as a surprise since the company had just announced plans for a stock sale:
The agreement, announced Wednesday, heads off a public stock offering of Chrysler shares that Fiat and Chrysler didn’t want, but the UAW was forcing, in order to set a value on its stake.
It puts to an end months of cantankerous wrangling between the union and automakers about the value of the retirement trust’s shares. And it’s happened suddenly, in an unexpected way, as firm plans had been announced late last year for the IPO.
UAW’s employee retirement trust — VEBA — owns the stake, and it and the automakers have been unable to agree on a price. The matter went to court, but the judge declined to set a price. As part of the buyout agreement, the retirement trust won’t pursue any further legal action.
Marchionne wants to own all of Chrysler so he can tap its cash to help support ailing Fiat, and to streamline operations of a merged company.
The Reuters story by Stephen Jewkes and Deepa Seetharaman pointed out that now it’s Fiat that needs Chrysler more than the other way around:
But it remains to be seen whether a merger will be enough to cut Fiat’s losses in Europe. Marchionne’s plan to shore up Fiat depends on the ability to share technology, cash and dealer networks with Chrysler, the No. 3 U.S. automaker.
“This is an increasingly American company now, because in Europe, and especially in Italy, the business conditions remain difficult,” said Andrea Giuricin, transport analyst at Milan’s Bicocca University. “Fiat has already lost many of its market positions in Europe and it won’t be easy to recover that.”
While Fiat is working to return to profitability and regain market share, Chrysler is working to conquer the American market and remain profitable in a tough environment. The combination seems to make sense on several fronts. Fiat gets access to cash and the American market, while Chrysler gains a simplified management structure and certainty about its future.
by Liz Hester
In a massive data breach, Target Corp. admitted Thursday that data from as many as 40 million credit and debit cards had been stolen. Coming during the busiest shopping season, the public relations nightmare is huge.
Reuters had this story by Jim Finkle and Dhanya Skariachan:
Target Corp said hackers have stolen data from up to 40 million credit and debit cards of shoppers who visited its stores during the first three weeks of the holiday season in the second-largest such breach reported by a U.S. retailer.
In terms of the speed at which the hackers were able to access large numbers of credit cards, the data theft was unprecedented. The operation was carried out over just 19 days during the heart of the crucial Christmas holiday sales season: from the day before Thanksgiving to this past Sunday.
Target, the third-largest U.S. retailer, said on Thursday that it was working with federal law enforcement and outside experts to prevent similar attacks in the future. It did not disclose how its systems were compromised.
Target did not detect the attack on its own, according to a person familiar with the investigation.
The story from Wired by Kim Zetter chronicled many recent incidences where customer data was compromised from point-of-sale terminals:
The breach, which was first reported by security journalist Brian Krebs on Wednesday, continued through December 15 and may have affected all locations nationwide. Customers who shopped through Target’s online storefront are not believed to have been affected.
The thieves breached the point-of-sale system (POS) and stole customer magstripe data, including names, credit or debit card numbers, expiration dates and everything else needed to make counterfeit cards. Target did not indicate if PIN numbers were also taken, which would allow the thieves to use the account data to withdraw cash from ATMs.
It’s unclear how the breach of the point-of-sale system occurred. It’s possible the thieves installed malware on the card readers at stores or breached the transaction network and sniffed data at a point that it was not encrypted.
Last year, thieves breached the point-of-sale system of 63 Barnes and Noble stores in nine states. In that case, the hackers installed malware on the point-of-sale card readers to sniff the card data and record PINs as customers typed them.
In July 2012, security researchers at the Black Hat security conference in Las Vegas showed how they were able to install malware onto POS terminals made by one vendor, by using a vulnerability in the terminals that would allow an attacker to change applications on the device or install new ones in order to capture card data and cardholder signatures.
USA Today’s story by Jayne O’Donnell focused on how stores are struggling to stay ahead of criminals who are finding it easier to steal information:
Increasingly sophisticated fraudsters can replace checkout line credit and debit card readers with ones that wirelessly transmit data to banks but also the criminals. But breaches as large as Target’s, reported to involved some 40 million cards, are more likely to involve network or software breaches, perhaps when an employee of the company or a contractor provides access to the “back door” of the system, says longtime retail crime expert Joe LaRocca, former head of loss prevention for the National Retail Federation.
The access can be done intentionally or unwittingly, says LaRocca.
“In my opinion, someone found a way to manipulate the system to extract the numbers,” says LaRocca, founder of RetaiLPartners, a loss prevention consulting company. “When a network intrusion occurs, typically a vulnerability is discovered and may involve some Inside collusion. Someone opened the back door or carelessly left the back door open” by not using proper security practices.
Target said it began investigating the incident as soon as it learned of it, but didn’t disclose when that was. The problem was first reported on a blog by security experts and former reporter Brian Krebs.
A third-party forensics firm is working with Target to investigate the incident and to determine what else the retailers can do to prevent the problem in the future.
Retailers are struggling to stay ahead of the criminals in this area, experts say.
Bloomberg’s Matt Townsend, Lindsey Rupp and Lauren Coleman-Lochner reported that the U.S. Secret Service was looking into the incident along with attorneys general in two states:
The U.S. Secret Service said yesterday that it was probing the incident, and two states’ attorneys general said today that they’ve begun inquiries.
Target’s challenges come as U.S. retailers gear up for the end of a holiday shopping season that ShopperTrak predicts will be the slowest since 2009. The last thing Target needs as rivals pour on discounts in a last-ditch grab for market share is for its customers to wonder if they should use their cards, said Ken Perkins, an analyst for Morningstar Inc. in Chicago.
“The timing could be a concern, especially only a few days before Christmas,” he said in an interview.
Target, which has 1,797 stores in the U.S. and 124 in Canada, fell 2.2 percent to $62.14 at the close in New York. The stock has gained 5 percent this year, compared with a 42 percent gain for Standard & Poor’s 500 Retailing Index.
The breach occurred when a computer virus infected Target’s point-of-sale terminals where shoppers swipe a credit or debit card to make a purchase, said a person familiar with the matter who asked not to be identified because the investigation is private. Molly Snyder, a spokeswoman for Target, didn’t respond to a request for comment on the cause.
Whatever the cause, Target is going to have some public relations work to do, especially since some people will be out money during the holidays. It’s never easy to tell customers you’ve got a problem but adding to the stress of the holidays could cause even more headaches and backlash for the retailer.
by Liz Hester
The Federal Reserve Board announced Wednesday its long-awaited decision to begin the pull back from its bond-buying program.
While the speculation about when this would happen and how much they’d pull back has been written about much of the second half of the year, the move is still significant for the markets since it means the Fed believes the economy is finally on the right track.
MJ Lee covered the story for Politico with a straightforward lead:
The Federal Reserve announced on Wednesday that it will begin pulling back on its efforts to boost economic growth through monthly bond purchases, arguing the economy is gaining enough strength for the central bank to begin its retreat.
Financial markets have closely watched and speculated on when the Fed would begin scaling back its monthly bond buys, the central bank’s signature response to the recession brought on by the financial crisis, and the issue has also stirred political debate with Republicans charging the Fed is intervening too much in financial markets and the economy.
On Wednesday, the Fed said its policy setting committee has decided to “modestly” scale back the pace of its monthly asset purchases by $10 billion and will now buy $75 billion worth of Treasury and mortgage-backed bonds each month starting in January.
The Los Angeles Times story by Andrew Tangel started out with the end-of-day rally in the stock markets set off by the news:
Stocks rallied nearly 2% after the Federal Reserve announced it would begin scaling back its stimulus program early next year.
The Dow Jones industrial average added 292.71, gaining 1.8% to 16,167.97 at the closing bell Wednesday. The broader Standard & Poor’s 500 index rose 29.65 points, or 1.7%, to 1,810.65.
The late-day rally pushed the Dow and S&P 500 to new all-time closing highs, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
The technology-focused Nasdaq composite rose 46.38 points, or 1.2%, to 4,070.06.
Wall Street has been obsessed over how long the Fed would continue its easy-money policies that have helped boost this year’s stock rally.
“The market sees it as the right thing to do,” said J.J. Kinahan, chief strategist at TD Ameritrade. “It views it as a vote of confidence that the [economy] is as healthy as the numbers have been portraying it.”
While it might be a vote of confidence, the Wall Street Journal’s story by Victoria McGrath and Jon Hilsenrath pointed out at the top that the Fed will likely continue its policy changes gradually:
The Fed also sought to enhance its commitment to keep short-term interest rates low for a long time after the bond-buying program ends. Fed officials repeated that they won’t raise their benchmark federal funds rate from near zero until unemployment drops at least to 6.5%, as long as inflation remains in check. They also added language to the statement saying, “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time” that the jobless rate dips below the 6.5% threshold.
U.S. stock prices fell as the news emerged, but rebounded almost immediately. The Dow Jones Industrial Average and the S&P 500 index both ended the day at record closing levels. Prices on Treasurys slipped, pushing the yield on the 10-year note up to 2.885%
Fed Chairman Ben Bernanke said in his press conference after the central bank’s two-day meeting that future steps on the bond-buying program will depend on the economic data. He said if the economy continues to improve as expected, the Fed could make “a measured reduction” at each of its eight meetings next year. But if the economy disappoints, the Fed could “skip a meeting or two,” and if it picks up more than expected it could scale back the bond buys “a bit faster,” he said.
The New York Times story by Binyamin Appelbaum added the context that by many measures the economy isn’t that robust and could be a while before the labor market returns to pre-crisis levels:
The Fed is struggling to calibrate its stimulus campaign in an environment of steady but mediocre growth. The unemployment rate has declined over the last year, reaching 7 percent in November. That is still a high rate by historical standards, and other measures of the labor market look even worse. Wages are barely rising, and the share of adults with jobs has not climbed since the recession.
A variety of indicators suggest that the American economy may be growing more quickly than analysts had predicted during the final quarter of the year, and Fed officials expect somewhat faster growth in the coming year. But the persistence of low inflation indicates that the economy still is operating well below its capacity.
By one measure, prices increased by only 0.7 percent during the 12 months that ended in October. “We don’t have a good story about why this is,” James B. Bullard, president of the Federal Reserve Bank of St. Louis, said in November. “You would have expected to see more inflation pressure by this point. We haven’t seen it.”
The Fed over the last year has purchased more than $1 trillion in Treasury and mortgage-backed securities in an effort to encourage job creation.
That’s a huge amount of stimulus by any measure. And the Fed has a hard line to walk given that any announcement seems to cause volatility in the markets. Now that investors know the plan, it’s likely to cause fewer issues moving forward. But only time will tell if the economic recovery will continue, giving the Fed some room to pull back further.
by Liz Hester
Facebook announced Tuesday it plans to start selling video ads that will appear in users news feeds. It’s another way for marketers to reach audiences, but will users actually want to watch the videos?
That’s the question posed by the Wall Street Journal’s story written by Reed Albergotti, Suzanne Vranica and Ben Fritz:
Marketers “have to be sensitive,” said Tony Pace, chief marketing officer for the Subway sandwich chain, which advertises on Facebook. “If someone said [this video ad] is going to run whether consumers want it or not, that would give me pause,” he said.
Facebook said its first video ad, a teaser for the coming sci-fi film “Divergent,” would begin appearing Thursday, marking an effort by the world’s largest social network to grab a slice of the $66 billion annual U.S. TV advertising pie.
The video ads, which the company says are still being tested to a limited number of users, will start playing automatically as users scroll through their news feed, the central real estate in Facebook’s desktop and mobile platforms. They will initially play without sound; users can stop the ad by scrolling past it in the news feed.
In a November survey of 735 Facebook users by global marketing consultancy Analytic Partners, 83% of users said they would find video ads “intrusive” and would likely “ignore” them.
USA Today’s story, by Scott Martin, pointed out the revenue potential of the move, saying investors welcomed the new source of income for the social networking site:
Facebook’s new video ad units could fetch between $1 million and $2.5 million per day to reach the social network’s entire audience, according to an ad industry source not authorized to speak on behalf of Facebook.
Spending on television ads in the United States is expected to reach $68.5 billion next year, according to eMarketer, up from $66.4 billion this year. U.S. digital video ad spending is expected to soar 39.5% to $5.79 billion in 2014.
“Big brands are eagerly awaiting to increase their FB spending through video,” says Brian Nowak, an analyst with Susquehanna Financial Group, who increased his price target to $68 from $52 ahead of the announcement.
Facebook’s video ads will begin running automatically across its News Feed but will remain muted unless people turn on the audio of the ads. The new ad forms will begin on both desktop and mobile.
Alexei Oreskovic wrote for Reuters that the move is an important one for the company’s stock, and Wall Street analysts have been waiting to see what the service will do:
Wall Street has been counting on video ads to open up a potentially lucrative market as the company tries to sustain its rapid growth. That market is considered crucial for Facebook’s market valuation, and poses a potential long-term threat to traditional TV networks.
The company’s shares, which have surged roughly 30 percent since September, gained 1.4 percent to $54.57 in morning trading on Tuesday, aided by Susquehanna and Oppenheimer price-target upgrades.
“In terms of monetization, the video ads are very important,” said Robert Baird & Co analyst Colin Sebastian.
“They’re priced a lot higher than traditional display or text ads. And it also opens up for Facebook a larger group of advertisers.”
The move could escalate competition between Facebook and Google Inc, which owns popular video website Youtube, and which is aggressively courting marketers to run video ads on its website.
Jenna Wortham wrote in The New York Times Bits blog that the opportunity is a huge one for Facebook as advertisers are looking for more ways to spend money on video content:
The video ads, if poorly received, could risk that growth, but they also present a tremendous opportunity. Digital video advertising spending is expected to hit $4.15 billion by the end of this year, a 23 percent increase over last year, according to the market research company eMarketer. YouTube has the biggest slice of that spending, at about 20 percent.
Sterne Agee, a research firm, projects Facebook could command as much as $3 million a day in video ads, which could represent as much as 10 percent of the company’s advertising dollars in 2014. Facebook had $1.8 billion in advertising revenue in its most recent quarter.
Facebook has taken steps to assure people its video ads won’t be too annoying. The videos are silent unless a user taps, clicks on the ad or enlarges it to a full screen.
For data-guzzling mobile devices, the company said that videos would be downloaded in advance when the device was connected to Wi-Fi. So if someone checks Facebook when a device is connected through a cellular network, it will rely on predownloaded versions of the video ads, keeping it from consuming too much data, a concern for people whose phone contracts have a monthly limit on the amount of data they can use.
At the end of each video ad, Facebook will show two other video advertisements that they can click or tap to view, if they choose.
If Facebook can show that users are watching and interacting with the videos, they’re sitting on a fortune. Advertisers are looking for new, innovate ways to reach consumers, especially younger audiences. But only time will tell if the new ads are intrusive and people begin to leave the site for other social media options.