Opening Bell: 7.28.06

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Are Deal Makers On Wall Street Leaking Secrets? (WSJ)
It took until Friday, but the Wall Street Journal finally took the crown for the most painfully naïve headline of the week. Asking whether Wall Street leaks secrets is like, well, asking any other obvious question you could think of. The article in question is prompted by some unusual action in derivatives of HCA, which bounced around a lot the week before the deal was announced. Hello, everyone had some sense that a deal was happening with HCA. In fact, most buyouts these days are preceded by days of rumors, or "chatter". Certainly, after the deal happens, there's no shortage of industry analysts ready to jump on the tube saying they'd heard rumors of this for awhile. And in a case like HCA, with so many parties involved, right down to the Senate Majority Leader (ok, he probably wasn't involved directly), it would be amazing if word hadn't been leaked. That might be cause for a story. Of course, anyone aggressively bidding up shares in the week leading up to a major buyout probably has what's coming to them -- yeah, that's not obvious at all.
Critics jump on big oil's huge profits (Chicago Tribune)
A few days ago we wondered why he hadn't hear much out of our finest Senators about price caps or a windfall profits tax. That was a thought. Duh; it's because earnings for big oil hadn't come out yet and so there wasn't any fresh news to be enraged about. Now, however, the earnings are trickling out and surprisingly, record profits happen to coincide with record prices at the pump. First off, all kudos to Exxon for cracking the $10 billion mark on their earnings. The company came just shy of this number in their last quarterly report, prompting some to wonder why they didn't cook the books just a little to hit the mark. So now we can expect another round of outrage -- Chuck Schumer should be chiming in any moment now. Fortunately, it should die down in a few weeks, at least until next earnings season.
Councilors say they'll explore a city wage bill (Boston Globe)
Apparently, Chicago had all of the other big cities over for dinner. But it served some spoiled fish, and they all went home with food poisoning. After the Windy City's move to require Wal-Mart to pay a so-called living wage to its employees, it seems like other cities may look to do the same. Two councilmen in Boston said they're interested in passing a similar ordinance so that the local $6.75 minimum wage doesn't apply to big-box retailers. Councilman Felx Arroyo said he plans to reach out to local labor leaders and see if they're interested in such a plan. Answer: yes. He said "There's no reason why we the City of Boston should accept workers being underpaid". At the moment there are no Wal-Marts in Boston, so it would only affect those bastions of yuppie retailing, Target and Home Depot. Besides, we always felt Wal-Mart was just better suited for exits on the side of the highway.
Microsoft acquires more, but R&D still the focus (Reuters)
Over the years, Microsoft management has been seen as a good steward of shareholder money, because it never went out and made wildly overpriced acquisitions just to boost the company's heft. Now, in the past couple of years, as Microsoft's competitive advantage has started to erode, the company has given into the temptation a bit more. In fact, it's acquired a Cisco-like 23 companies over the past year. Still, management insists this isn't a change of strategy. None of these buyouts have been major, averaging around $30 million a piece, and this buyout expenditure is still dwarfed by R&D and internal investment. Still, it seems the company has opted for the lazy route in filling holes in its product line.


Inco offer for Falconbridge fails (National Post)
Just earlier we were talking about how consolidated the mining industry was becoming. Well, it's going to be a little less consolidated than it could have been. Nickel miner Inco has dropped its bid to purchase Falconbridge, leaving the door open to Xstrata. Inco management will now turn its attention to being bought out, itself, by PhelpsDodge, which was ready to acquire both companies Inco and Falconbridge, had that merger gone through. Still, one interesting aspect remains, now that Inco isn't in the process of buying anyone else, a new suitor may emerge to challenge PhelpsDodge's designs on the company. Confused? Maybe that's why we don't hear more about the nickel market in the media. Or maybe because it's the nickel market, which has never seemed to capture our imagination the way other have done.

Buy It, Strip It, Then Flip It (BusinessWeek)

Just the other day we were talking about the differences between this era of private equity and previous ones. It was noted that the the world "leverage" had become silent, and that these days it was just buyouts. And in the HCA deal, it wasn't about breakup value, or squeezing water from a stone, but about exploiting growth opportunities. Well, any generalization will fail eventually. The Hertz buyout seems like a real vestige from the past, as its quick 7-month, buyout-to-IPO turnaround hardly gave it time to mount a change in business. Instead, the buyers really stripped the hell out of the company, as the company took on large amounts of debt to pay special dividends to the private equity owners. Of course, this debt will be held by those buying the IPO -- hope they don't notice.
Africa may sue US over subsidies (News24)
It's all fun and academic, most of the time, to talk about US agriculture subsidies and the way they hurt poor farmers (of course they also hurt US consumers too, whose interests, you'd think, are larger than the remaining agriculture interests). But it's not academic at all to the farmers in places like Africa whose businesses are suffering because the developed countries won't embrace free trade, like they've promised to do. So after years of disappointment, a group of African nations may be ready to file suit, through the WTO system, alleging that US subsidies aren't fair. No more waiting around for the US to get over itself. We certainly welcome such a move.
FBI raids office of Bristol-Myers CEO (Reuters)
It seemed like it was only a matter of time before something like this would happen. The FBI has raided the office of Bristol-Myers and its CEO Peter Dolan over a deal it made with a generic drug maker to hold off on producing a generic version of its popular pill Plavix. Of course, anyone who follows the pharmaceutical industry knows that deals like this are pretty common, particularly at a period when several big-name drugs are coming off patent. It's not clear what about this one crossed the line into potential criminality, but they'll probably come up with something. Here's an easy prediction: if this investigation turns out to be substantial, expect a lot of calls to crack down on this practice using new legislation that prevents incumbent pill makers from buying off their generic rivals.
Why it's just great to be a Dane (The Scotsman)
And because it's a slow Friday, here's a story that stretches our typical editorial boundaries. A new study has found that the Danes are the happiest people on the earth, which of course contradicts a previous study from last week showing that the residents of Vanuatu were the happiest on earth. It's obvious that the researchers were looking to promote a certain ideology, because they cited the Danes sense of collectivism as the reason they're so happy. Fine, but then it turned out that Japan and several Asian countries scored low on the list. This result surprised the researchers, who said they expected Japan to score higher based on its, again, sense of collectivism. Well, then the obvious direction from there is to maybe question how much collectivism will be a predictor of happiness. But no, they just see Japan as being anomalous and stick to the key thesis. Surprisingly, from a European researcher with an obvious agenda, The US comes in at a respectable 23rd. Boo-ya.

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