Skip to main content

Opening Bell: 10.24.06

Sponsored by
Shell bid may start rush for oil sands majors (Globe & Mail)
We saw yesterday that Shell would buy out the remaining 22% of Shell Canada that it didn't already own, but we didn't really appreciate the significance of that. That last chunk is no small amount, as Shell is coughing up over $7 billion for the stake. If the move is being properly understood, then the desire to consolidate it into the company is a sign of growing seriousness about the role that Canadian oil -- particularly Canadian oil sands -- will play for Shell. Some of the big oil sands companies -- many of which are independent trusts -- could be attractive acquisition candidates, particularly if falling oil prices causes investors to lose confidence in them. (By the way, that picture should clear up why they call it oil sands, and why it costs to much to refine it into something cool and drinkable.)
Canada Wonders Why It’s the Bought and Not the Buyer (NYT)
Why do we read so many stories like the one above? It's Canada that's seen billions upon billions of petro-Loonies flow into its boarders, and yet it's Canadian companies that keep getting acquired. Conventional wisdom would suggest that wealthy Canadian firms would like to snatch a bit of the US, if for no other reason than to boost its ego. We've been hearing the same thing about China too, that it's got so much cash it could buy out the entire Dow Jones 5 times over tomorrow if it wanted to. And yet it's always American companies buying into China, not the other way around, with the exception of Lenovo's purchase of IBM's PCs. Not sure what China's excuse is; pundits in Canada think that Canadian firms are just too cautious, noting that actual foreign investment is up, but that aggressive buyouts -- going all the way -- is beyond the strategic scope of many Canadian companies.
HBiPod (Cafe Hayek)
The iPod got a lot of attention yesterday for celebrating its fifth birthday. Raise your hand if you have iPod fatigue, by the way. But even if you've come to agree with the Opening Bell, that there's not an iota of coolness left in the iPod, you can still appreciate it as an economic achievement. In just 5 years, you can now buy 20-times the storage capacity of the original for $50 less. Pretty impressive, and pretty anti-inflationary. It's also evidence that supply is the mother of demand.
Biotech draws lion's share of shrinking venture dollars (Boston Globe)
For the most part, when you hear about venture capital it's tech or internet related. Some hot new startup sells out to Google and makes Sequoia, the famed VC firm, $1 billion over two years. But it's actually biotech that still draws more cash, which is good. Drug development and production is not a cheap proposition, unlike, say, building a web 2.0 community site for oenophiles. But maybe we don't hear about it as much because there's no consumer angle, and you don't have VC bloggers banging the drum, telling people to try the latest pancreatic cancer cure from one of their portfolio companies. And if a company don't have jack, it's not going to sell out for billions to Pfizer.

Bond Traders Lose $1 Million Incomes as Transparency Cuts Jobs (Bloomberg)
Perhaps Dealbreaker's failure to put together a good list of hot bond traders is somehow due to the decline of the bond trader. Here's a sad story about how automation has taken a lot of the fat margins out of bond trading, causing some shops to close down. What's funny is that when you hear stories about automation leading to a loss of jobs, it's usually something industrial. And yet the bond guys in the story use the same language. Seriously, check this out: "It's very sad, too, because I provided health insurance, pension funds to my employees." You'd think they were unionized factory workers.
Reinsurance Start-Ups Headed To Go Public (NY Sun)
We mentioned above that you don't hear about new venture-backed biotech startups the same way you hear about new .coms. But every once in a while, perhaps in the last segment on the nightly news, you will hear about some experimental drug that will cure the ringing in your ears when it comes to market in 2011. But you never ever hear about reinsurance startups. Not once. And yet there are plenty, particularly in the wake of disasters when the insurance industry is undercapitalized and rates are high. Many of those formed in the wake of Katrina are set to come to market soon. So will we see a .re boom?
Worried about outsourcing? Cheer 'insourcing' (Fortune)
Did you realize that Fortune had an advice column called "Ask Annie"? Neither did we, until we saw this answer to a reader question about 'insourcing'. Insourcing is really a misnomer, as it describes when companies from other countries outsource some work to the US -- so it really should be called outsourcing. Anyway, the idea of cheering insourcing, as Annie suggests, is a great idea. Anyone who's relieved that it's creating American jobs should promptly move to Lincoln Alabama and get a job at the new Honda SUV plant there. Here's our advice: you got to meet these companies half way. These companies come to the US, but don't expect them to come to your state, since labor's too expensive and the environment regulations are onerous.
Telmex to Buy Spanish-Language Directories in U.S. (WSJ)
Counterintuitively, phonebooks remain one of the hottest businesses around. Do we have any readers in the phonebook M&A department? If so, perhaps you could enlighten us. From our plugged-in perspective, we just look online for phone numbers, and for the most part, nobody's even listed anymore. Granted, if we need a locksmith, we might pop into a store, and look up the number for AAAAAAAAAA American Locksmiths, or we might just dial 411. Mexican telecom operator Telmex may be gearing up to make a major purchase in the Spanish language phone directory sector. It's seen as -- as every other Spanish language investment -- a demographics play. According to rumors, the company will buy an 80% in Kentucky-based Enlace Spanish Yellow Pages, which is currently held by a private equity firm.
US Moving to Ban Microcredit (Organizations and Markets)
After the Nobel Peace Prize for Dr. Yunus and his Grameen bank, you'd think that politicians would understand the importance of small loans. But there's small loans we like, like loans to Indian women so they can start their own cell phone company, and then there are small loans we don't like, like inner-city payday loan houses that cash your check for you with a 25% interest rate. There's a move afoot to ban these "extortionist loan sharks", a ban which would be premised on the idea that people who take out these loans, to make rent, pay for medicine, pay for alcohol, buy food, etc., just don't know what's good for them. Already, President Bush has signed a legal cap of 36% interest that can be charged on such loans. But we're assured that the number was arrived it very scientifically.
Bombardier could launch new jet this year -analyst (Reuters)
You may have noticed that a couple of the big plane makers have their hands full these days. Airbus of course is putting most of its effort into killing itself. Every conceivable mistake it could make, ranging from the political to the technical (the wiring problem that everyone knows about may actually have been caused by incompatible design software at two different facilities). And Boeing is also pretty busy, having no extra capacity to exploit Airbus' weakness. In come Bomardier. The company is considering an expansion into mid-size jets, a market that's not currently being served. There's also Embraer, which has gotten a lot of attention as a supplier to jetBlue, which could see some extra business.