EU May Speed Permanent Fund to Stem Crisis

By James G. Neuger and Rainer Buergin - Sep 24, 2011 6:57 AM GMT+0700
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Passengers wait in a bus queue behind a television screen warning of stock market falls, broadcast on Sky News, in London on Sept. 23, 2011. Photographer: Chris Ratcliffe/Bloomberg

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Sept. 23 (Bloomberg) -- Goldman Sachs Asset Management Chairman Jim O’Neill talks about the relationship of the BRIC nations with the global economy, Chinese inflation and growth, the Japanese yen and the European equity markets. O'Neill speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Sept. 23 (Bloomberg) -- Jay Bryson, senior global economist at Wells Fargo Securities LLC, discusses the potential impact of a Greek default on the European banking system, and the role of European Financial Stability Facility in helping the euro-region's debt crisis. Bryson speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Sept. 23 (Bloomberg) -- Carlo Cottarelli, director of the International Monetary Fund's fiscal affairs department, speaks about U.S. fiscal policy and the European sovereign-debt crisis. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

European governments are exploring speeding the start of a permanent rescue fund for their cash- strapped economies amid fresh signs they may bolster efforts to halt the worsening sovereign debt crisis.

Senior finance officials will examine next week the cost advantages of setting up the fund, known as the European Stability Mechanism, in 2012, a year earlier than planned, according to a document prepared for the meetings and obtained by Bloomberg News.

As Greece’s prospects darken and the 18-month debt crisis threatens to tip Europe and the global economy back into recession, the euro area’s managers are stepping up efforts to identify measures that can stop it from spreading. Their strategy to date has been criticized at the annual meetings of the International Monetary Fund and World Bank, which continue today in Washington.

“Patience is running out in the international community,” U.K. Chancellor of the Exchequer George Osborne told reporters yesterday.

That pressure increased after concerns that a Greek default may be inevitable helped push global stocks into their first bear market in two years. Economists at Citigroup Inc. said yesterday they now expect Greece to begin restructuring its debt as soon as December, while those at JPMorgan Chase & Co. said the euro area will start shrinking in the fourth quarter.

Trimming Decline

U.S. stocks advanced yesterday, trimming the biggest weekly decline since October 2008 for the Dow Jones Industrial Average, amid speculation that policy makers will act to prevent the crisis from spiraling. Yields on 2-year Greek government notes nevertheless rose to 70 percent.

Drawing on paid-in capital, the ESM will have a 500 billion-euro ($677 billion) war chest that could help shield countries like Italy. It also includes provisions for sharing costs with bondholders for countries with “unsustainable” debt.

Faster ESM enactment would yield a “more effective financing structure” that cuts the extra debt of donor countries by 38.5 billion euros, saving Germany alone 11.5 billion euros, the paper said. “This gain is to be considered as a minimum,” it said.

Asked by Bloomberg Television about bringing forward the ESM’s start date, European Union Economic and Monetary Affairs Commissioner Olli Rehn said the focus for now is on upgrading the temporary fund, the 440 billion-euro European Financial Stability Facility.

Revamped EFSF

Public debate increased this week over how to allow the EFSF to buy bonds in markets and aid banks once it is revamped about mid-October. European lawmakers may face opposition from taxpayers balking at handing over even more cash to the facility.

An alternative option, inspired by the U.S. response to the 2008 financial crisis, is to use leverage to add to the EFSF’s firepower, according to Rehn and French Finance Minister Francois Baroin.

While U.S. Treasury Secretary Timothy Geithner pitched that idea at a Sept. 16 meeting with euro-area finance chiefs in Poland, it met initial resistance from Germany, Europe’s dominant economy.

One route, proposed by economists Daniel Gros and Thomas Mayer, is for the EFSF to operate like a bank and borrow from the European Central Bank, using the bonds it purchases as collateral. Another suggestion is to guarantee ECB loans to investors who buy stressed-country debt, with the EFSF covering initial losses.

‘Unavoidable’

Boosting the EFSF is “unavoidable” in the long run and may be followed by the issuance of joint euro bonds, Klaas Knot, the Dutch representative on the ECB’s Governing Council, said in a De Telegraaf interview published yesterday.

The ECB may also step up its own crisis-fighting as soon as next month, Governing Council members Luc Coene and Ewald Nowotny said in Washington. Potential measures include the revival of 12-month loans to banks and Coene didn’t rule out cutting the 1.5 percent benchmark interest rate. JPMorgan Chase and Royal Bank of Scotland Group Plc predict a 50-basis point reduction when policy makers gather Oct. 6.

ECB President Jean-Claude Trichet, attending his final IMF meetings before retiring Oct. 31, said the ECB “stands ready” to keep supplying unlimited liquidity to banks and pressed lawmakers to ratify the EFSF.

Speculative Attacks

Established in May 2010 after stopgap loans to Greece failed to restore market confidence, the EFSF was given a three- year lifespan amid expectations the crisis would run its course.

As Ireland and Portugal succumbed to speculative attacks, Germany then pushed for a permanent fund. Its statutes need to be approved by the 17 euro-area countries and it requires all 27 EU countries to pass a treaty amendment to become operational.

Ratification discussions have barely gotten under way. Germany won’t consider a timetable for approving the ESM until the reinforced EFSF is in place, the government said last week. German lawmakers vote to ratify the package next week.

While speedier enactment of the ESM would require donor countries to pay in as of 2012, those costs would be more than offset by switching away from the EFSF’s guarantee system, the working paper said. However, aid recipients would also have to contribute.

Planning Document

In a separate planning document obtained by Bloomberg News, EU officials said a buyback of Greek debt, part of the nation’s second bailout, should be broad-based and occur at the same time as a bond swap now being negotiated. The document says the operation would be open to all investors and include all of Greece’s outstanding government bonds. It also recommends making the buyback conditional on the debt swap, in order to minimize the amount of time that rating companies would consider Greece to be in “selective default.”

German Finance Minister Wolfgang Schaeuble suggested yesterday the terms of Greece’s international rescue may need to be revised. “One has to see whether what has been envisaged in June, July is still sustainable in the light of more recent developments,” Schaeuble told reporters in Washington. At the same time, he said that “to speculate on this at the current juncture would be wrong.”

Greek Prime Minister George Papandreou said yesterday his government was determined to proceed with the implementation of the July 21 decision for a second financing package.

“Since much is said and written, many scenarios, I want to stress once again, that our decision is to complete the July agreement,” he said.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net Rainer Buergin in Washington via rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Romney Rips Perry for ’Heart’ Debate Comment

By Julie Hirschfeld Davis - Sep 24, 2011 11:00 AM GMT+0700
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Rick Perry, Texas Governor and Republican presidential candidate. Photographer: Michael Nagle/Getty Images

Rick Perry was chastised yesterday by his top rival in the Republican presidential race for his support of allowing illegal-immigrant students in Texas to pay in-state tuition at public universities, an issue posing a political vulnerability for the Texas governor.

The day after a nationally televised debate in which Perry’s immigration stance sparked sustained criticism and his defense of it drew audience boos, former Massachusetts Governor Mitt Romney spotlighted the issue at a gathering of conservatives in Orlando, Florida.

“My friend Governor Perry said that if you don’t agree with his position on giving that in-state tuition to illegals, then you don’t have a heart,” Romney said. “I think if you’re opposed to illegal immigration, it doesn’t mean that you don’t have a heart; it means that you have a heart and a brain.”

Romney, who is Perry’s closest competitor in polls on the Republican race, was reprising Perry’s defense of the tuition program at the Sept. 22 debate in Orlando.

“If you say that we should not educate children who have come into our state for no other reason than they’ve been brought there by no fault of their own, I don’t think you have a heart,” Perry said at the forum that featured nine presidential contenders.

Perry’s Challenge

For Perry, the immigration issue could present a unique challenge. His stance fits the profile of his state, which has a large and growing Hispanic population. Yet it threatens to alienate many of the fiscal and social conservatives outside of Texas who hold sway in Republican nominating contests and oppose government aid to illegal immigrants.

Perry, speaking to the same audience as Romney yesterday, didn’t address the immigration matter, although he suggested a poor debate performance shouldn’t be held against him.

“It’s not who is the slickest candidate or the smoothest debater that we need to elect,” he said. “We need to elect the candidate with the best record and the best vision for this country.”

Perry criticized Romney on health care, equating a plan enacted during his governor’s term in Massachusetts with “socialized medicine,” and calling it “misguided.”

Perry’s immigration position drew sharp opposition from other rivals at the debate, including Minnesota Representative Michele Bachmann. She also came back to the issue during her appearance yesterday before the conservative activists, saying, “We will not have taxpayer-subsidized benefits for illegal immigrants or their children.”

Border Fence

Bachmann reiterated her debate vow to build a border fence the length of the U.S. border with Mexico, which Perry has denounced as impractical and ineffective.

Bachmann said at the debate: “I would build a fence on America’s southern border -- on every mile, on every yard, on every foot on every inch of the southern border.”

Romney said yesterday that what he “still can’t get over is the idea that a state would decide to give a $100,000 discount to illegals to go to school in their state.”

His comment referred to the estimate he had used at the debate of how much more a four-year degree would cost an illegal immigrant student at a Texas college who paid out-of-state tuition.

Florida Republican leaders and activists are meeting in Orlando for a three-day conference that culminates in a non- binding straw poll of the presidential candidates today.

Romney earlier this year said he wouldn’t actively campaign in any straw polls. In Florida, Perry was favored among 28 percent of the Republicans surveyed by Quinnipiac University Sept. 14-19, and Romney was favored among 22 percent.

To contact the reporter on this story: Julie Hirschfeld Davis in Orlando, Florida at or Jdavis159@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

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Kodak Draws $160M From Revolving Credit Line

By Krista Giovacco and Mary Childs - Sep 24, 2011 5:39 AM GMT+0700

The cost to protect Eastman Kodak Co. (EK)’s debt from default rose to the highest level in more than a month after the 131-year-old camera maker drew down $160 million from its revolving bank line.

Credit-default swaps linked to the Rochester, New York- based company rose 2.2 percentage points to 41 percent upfront, according to data provider CMA. That means investors would pay $4.1 million initially and $500,000 annually to protect $10 million of Kodak’s debt.

The borrowing came less than a month after Chief Executive Officer Antonio Perez said the patents Kodak is trying to sell have generated interest from potential bidders. The company is trying to raise cash to continue funding inkjet printing and other digital businesses that it has projected will generate operating profits by 2013.

“Here this guy says he is going to sell these patents for a lot of money and now he is borrowing from the bank,” Ken Luskin, chief executive officer of Intrinsic Value Asset Management Inc., which owns 3.6 million Kodak shares, said in a telephone interview. “What is going on? The communication is horrible.”

Kodak shares dropped as much as 20 percent to $1.90 in after-hours trading after closing at $2.38 in regular New York Stock Exchange composite trading

Kodak will pay interest beginning at 1.5 percentage points more than the base rate, the company said today in a regulatory filing. It may repay the money at any time without penalty.

Cash Management

The company entered into a restated credit agreement in April for the five-year asset-based revolving line for up to $400 million. Proceeds may be used for general corporate purposes, including the purchase of its 7.25 percent bonds due in 2013, Kodak said in an April 27 regulatory filing.

The credit facility “has been a part of Kodak’s cash- management tool kit for quite some time,” Christopher Veronda, a spokesman for Kodak, said in an e-mailed statement. “The purpose of the revolving credit facility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations.”

To contact the reporters on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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Boeing Seeks Lift With 787 Debut

By Susanna Ray - Sep 24, 2011 3:22 AM GMT+0700
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An All Nippon Airways Co. (ANA) flight attendant stands in the open doorway of a Boeing Co. 787 Dreamliner at Paine Field in Everett, Washington on Aug. 6, 2011. Photographer: Stuart Isett/Bloomberg

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Aug. 29 (Bloomberg) -- Bloomberg's Paul Allen reports from a ceremony at Boeing Co.’s factory in Everett, Washington, on production of the 787 Dreamliner and 777 aircraft. The 787 Dreamliner received its so-called type certifications from U.S. and European governments, verifying that it complies with aviation standards. (Source: Bloomberg)

Boeing Co. (BA)’s newest, biggest plane has cast a shadow over ceremonies to mark the three-years-late first delivery of its smaller cousin, the composite-plastic 787 Dreamliner.

Handing over the initial 747-8 jumbo jet on Sept. 19 was supposed to open a week of public-relations victories as Boeing delivered the first of its two beleaguered aircraft models. Instead, Boeing had to cancel three days of events as the launch customer for the 747-8 balked at the last minute.

The planemaker now heads into a weekend of celebrations for the 787, the jet being counted on to return Boeing to the top spot in industry sales lost to Airbus SAS in 2003. Chicago-based Boeing is trying to boost monthly Dreamliner output fivefold in the next two years to help make up for the delays.

“Boeing is not only facing issues on the 747, they need the 787 production ramp-up to go smoothly,” said Heidi Wood, a Morgan Stanley analyst in New York who recommends holding the stock. “But at the moment, it isn’t going real well.”

Speeding up final assembly will be pivotal for Boeing. Planemakers receive most of their payments as jets move through the production cycle before delivery, and airlines’ contracts generally provide for penalties upon delays. Boeing’s aim is to reach 10 Dreamliners a month by 2013, a record level for wide- body aircraft, as it works off a backlog for 821 orders.

“The aerospace supply base is working overtime just to produce two airplanes a month,” Wood said in an interview. “We are convinced that the ramp-up is going to be longer and more arduous than Boeing is describing.”

First Customer

Japan’s All Nippon Airways Co. will be the first airline to get the 787. The events for the handover begin on Sept. 25 near the wide-body jet factory in Everett, Washington, where Boeing builds the Dreamliner and the 747-8.

Scott Fancher, the 787 program chief, said Boeing is working “very hard” with customers to make sure the plane will meet their needs and resolve any concerns. Boeing has said the initial Dreamliners are overweight, as are the first 747-8s, and the company is working to make them lighter.

“We feel pretty good about this airplane and getting it ready to deliver to ANA,” Fancher said this week in a Bloomberg Television interview.

The 747-8 was already two years behind schedule before the freighter version’s entry into service was delayed indefinitely Sept. 16 by Cargolux Airlines International SA’s “unresolved issues.” On Sept. 21, Atlas Air Worldwide Holdings Inc. (AAWW) said it was dropping orders for three of its 12 747-8s, citing delays and “performance considerations.”

Multiple Models

That leaves Boeing tweaking that plane, starting work on a new U.S. Air Force tanker based on the 767 jet and developing an upgraded version of its top-selling single-aisle 737 model -- as well as ending the manufacturing setbacks that stalled the 787 by 2013 while unveiling a larger variant the same year.

“They really need to get it going like a Swiss watch,” Steven Udvar-Hazy, chief executive officer of jet lessor Air Lease Corp., said in an interview this week.

Udvar-Hazy, who has been buying planes from Boeing for four decades, predicted that delays on the Dreamliner may lengthen as the company tries to increase the production tempo. The 787 is the first airliner to be made out of carbon fibers spun around a barrel mold and baked, instead of traditional riveted aluminum, so its assembly is more complicated.

‘Financial Dimension’

“The financial dimension of this is critical,” Udvar-Hazy said. “The faster they can ramp up, the more revenue they can produce.”

Boeing rose 79 cents, or 1.3 percent, to $59.51 at 4:15 p.m. in New York Stock Exchange composite trading, paring its decline for this year to 8.8 percent. The shares have tumbled 41 percent since the first 787 delay in October 2007.

Boeing had been counting on design changes in the next Dreamliner variant, the 787-9, to apply to the first model, the 787-8, and help simplify manufacturing, Wood said. The engineering on the newer version isn’t done yet and its introduction is likely to be delayed a year until 2014, which would crimp 787-8 output, she said.

Boeing is sticking to its 2013 targets, said Lori Gunter, a spokeswoman in Everett.

The Dreamliner uses a new production system in which 65 percent of the jet is built by suppliers and flown to Boeing plants for assembly. Contractors struggled with new materials and responsibilities, contributing to the seven delays to the plane, originally due to enter service in May 2008.

Fighting Congestion

Boeing designed the 787 to counter rising congestion at hub airports. Lighter-weight plastics help reduce fuel consumption, increasing the range to as much as 9,800 miles (about 15,800 kilometers), more than any similar-sized jet.

That will let airlines add routes between smaller cities that lack the traffic to fill jumbo jets like the passenger version of the 747-8, rather than having to fly travelers through hubs. All Nippon plans to familiarize crews with the 787 on domestic trips, then put it on long-haul routes in 2012.

Carriers will still be clamoring for as many 787s as Boeing can build each month, Morgan Stanley’s Wood said. “As the world economies are under pressure, airlines might review parking their bigger airplanes and want to fly a smaller, mid-sized, twin-engine plane instead,” she said.

The challenge for Boeing is reaching production targets on its most-complicated plane while having so many other projects under development, she said.

“They’re craving engineering resources,” Wood said. “That issue on resources is what helped contribute to the 747-8 and 787 delays. It’s not a small problem.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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Oil Falls Below $80 on Recession Fears

By Margot Habiby - Sep 24, 2011 2:48 AM GMT+0700
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Crude for November delivery fell 66 cents to $79.85 a barrel on the New York Mercantile Exchange, the first settlement below $80 since Aug. 9. Photographer: Rich Press/Bloomberg

Oil sank below $80 a barrel and capped the biggest weekly drop since May as a pledge by Group of 20 nations to tackle rising risks failed to ease concern that the global economy is on the brink of another recession.

Futures fell 0.8 percent in New York as losses in silver, lead, gold and zinc took the Standard & Poor’s GSCI Index of 24 commodities to its lowest level since December. Prices trimmed an intraday decline as equities and the euro rebounded on speculation global central banks will take coordinated measures to prevent a financial crisis.

“The last couple of days have been pretty wild and it looks like a lot of fears about the economy continue to weigh on the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Crude for November delivery fell 66 cents to $79.85 a barrel on the New York Mercantile Exchange, the first settlement below $80 since Aug. 9. Futures decreased 9.2 percent this week, the first decline in five weeks and the biggest drop since the five days ended May 6. Prices have fallen 13 percent this year.

Implied volatility for at-the-money options expiring in November, a measure of expected price swings in futures and a gauge of options prices, surged to the highest level in six weeks yesterday for the contract nearest to expiration. Volatility slipped to 47.2 percent at 2 p.m. in New York from 48.5 percent yesterday, according to Bloomberg data.

Brent for November delivery fell $1.52, or 1.4 percent, to $103.97 a barrel on the London-based ICE Futures Europe exchange.

G-20 Pledge

G-20 finance chiefs pledged to address risks to the global economy and pushed Europe to contain its sovereign debt crisis. Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” group finance ministers and central bank governors said in a statement late yesterday in Washington.

“You’re having a tug-of-war in this $80-type range,” said Kyle Cooper, director of research for IAF Advisors in Houston. “There’s uncertainty regarding the equity markets, regarding demand, regarding the entire financial system.”

Central bankers and finance ministers were to discuss the economic outlook today at the annual meetings of the International Monetary Fund and World Bank in Washington.

The European Central Bank may act to address risks to growth as soon as next month should economic data disappoint, Governing Council member Luc Coene said.

Potential measures include the reintroduction of longer- term bank loans with maturities of 12 months or even longer, Coene, who heads Belgium’s central bank, said in an interview in Washington late yesterday.

Equities Rise

The Standard & Poor’s 500 Index rose 0.4 percent to 1,133.56 after earlier declining as much as 0.7 percent. The Dow Jones Industrial Average gained 1.81 points to 10,735.64. The benchmark Stoxx Europe 600 Index increased 0.6 percent to 216.19, recovering from a drop of as much as 2.6 percent.

The euro rose to $1.3487 at 2:43 p.m. in New York from $1.3465 yesterday, curbing the intraday decline in oil futures. A stronger euro and weaker dollar boosts the appeal of commodities as an alternative investment.

The S&P GSCI Index of 24 commodities fell as much as 2.2 percent to 594.12, the lowest level since Dec. 2. The index was down 1.2 percent at 2:34 p.m.

“A lot of this stuff is self-correcting,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Commodities have now come down quite a bit. Energy and metal prices are lower and that will put more money in consumers’ pockets. Eventually you will see this reflected in the economic data.”

Prices May Fall

Oil prices may fall next week, according to a Bloomberg News survey of analysts. Twenty-two of 40 respondents, or 55 percent, forecast oil will decline through Sept. 30, while nine, or 23 percent, predicted prices will increase. Nine estimated there will be little change. Last week, 45 percent of the surveyed analysts projected a drop.

U.S. fuel demand rose last month as the consumption of distillates, including diesel used by drivers, jumped to a record for August, according to the American Petroleum Institute. Total deliveries of petroleum products, a measure of demand, increased 0.3 percent to 19.7 million barrels a day last month from a year earlier, the industry-funded group said in a report today from Washington.

Oil volume in electronic trading on the Nymex was 713,513 contracts as of 2:35 p.m. in New York. Volume totaled 786,485 contracts yesterday, 19 percent above the average of the past three months. Open interest was 1.38 million contracts, up from the nine-month low of 1.36 million the day before.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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HP’s Whitman Sticks to Strategy Begun by Apotheker to Stem 47% Stock Drop

By Aaron Ricadela - Sep 24, 2011 5:17 AM GMT+0700
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Hewlett-Packard Co. Chief Executive Officer Meg Whitman. Photographer: Jonathan Alcorn/Bloomberg

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Sept. 22 (Bloomberg) -- Meg Whitman, chief executive officer of Hewlett-Packard Co., and Ray Lane, executive chairman, talk with Bloomberg's Aaron Ricadela about management changes at the company and business outlook. Hewlett-Packard replaced CEO Leo Apotheker with Whitman, asking the former head of an e-commerce company to turn around a computer maker plagued by slowing growth and management missteps. (Source: Bloomberg)

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Sept. 23 (Bloomberg) -- Eric Jackson, president of Ironfire Capital LLC, talks about Hewlett-Packard Co.'s decision to replace Chief Executive Officer Leo Apotheker with Meg Whitman, and the outlook for the company. Jackson speaks with Deirdre Bolton, Erik Schatzker, and Jon Erlichman on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Hewlett-Packard Co. (HPQ) Chief Executive Officer Meg Whitman plans to stick by strategies set in motion by her predecessor, Leo Apotheker, betting that investors prefer steady leadership to another unsettling change of course.

Whitman, in her first interview as Hewlett-Packard’s CEO, said the company stands by plans to acquire U.K. software marker Autonomy Corp. for $10.3 billion. The company also will continue to explore whether to sell or spin off the personal-computer division, she said. Those moves were announced on Aug. 18.

“It does not signal a change in the strategy,” Whitman said yesterday of her appointment. “We are behind the actions that were taken on Aug. 18. We are firmly committed to Autonomy.”

Whitman is hewing to those plans to avoid alienating shareholders who were fed up with the about-faces that characterized Apotheker’s reign. Still, Hewlett-Packard is overpaying for Autonomy and it shouldn’t have announced a possible PC unit sale without a concrete plan in place, said Chris Whitmore, an analyst at Deutsche Bank AG.

“We’re going to get more of the same from a Meg Whitman- led HP as we did from a Leo-led HP,” said Whitmore, who is based in San Francisco and has a “sell” rating on Hewlett- Packard. “The board isn’t going to change the strategy and is going to continue down this path, which frankly was the fear.”

Shares Fall

Hewlett-Packard’s shares fell 48 cents, or 2.1 percent, to $22.32 at 4 p.m. on the New York Stock Exchange, hitting the lowest price since May 2005. The stock had jumped 6.7 percent on Sept. 21 after Bloomberg reported that Apotheker would be ousted, evidence that shareholders were relieved to see his tenure end.

Apotheker, CEO for less than 11 months, was ousted yesterday after cutting sales forecasts three times and making strategy shifts that blindsided investors. Palo Alto, California-based Hewlett-Packard also said Chairman Ray Lane will become executive chairman.

Whitman’s challenge will be boosting revenue while assuaging the investors whose dismay fueled a 47 percent plunge in Hewlett-Packard stock under Apotheker. She said the company will decide the outcome of the PC business as soon as possible.

“We’ll make a decision as fast as we possibly can,” she said in the interview. “We understand uncertainty doesn’t help the business, doesn’t help customers, doesn’t help shareholders.”

Ill-Equipped

Her experience at consumer-oriented companies such as EBay Inc. (EBAY), Procter & Gamble Co. (PG) and Hasbro Inc. (HAS) may leave her ill- equipped to run Hewlett-Packard’s business-computing divisions, said Shaw Wu, an analyst at Sterne, Agee & Leach Inc. in San Francisco.

“She’s going to be heavily scrutinized,” said Wu, who has a “neutral” rating on the shares. “She doesn’t have the background to turn around HP.”

An estimated 25 percent of Hewlett-Packard’s sales come from consumers, Wu said. “What about the other 75 percent?”

Whitman defended her record at the helm of EBay.

“I have run a large company -- not obviously as large as HP, but I have run a very large company,” she said. “While I don’t have years of experience in an enterprise business, I bought a lot of software. I was one of the largest enterprise customers in Silicon Valley.”

Disparate Groups

“That’s like saying, ‘I’ve bought an iPhone, so I can run Apple Inc. (AAPL)” said Whitmore at Deutsche Bank.

Whitman will need to take Hewlett-Packard’s disparate operating groups -- including data-center computing gear, technology services, printers, and software -- and get them working as a team, Lane said in the interview. He also lauded Whitman’s ability to communicate company strategy.

“The market’s a little confused because we’re in so many different businesses,” he said. “This is 90 percent about leadership, communications and operating execution.”

Lane, who considered becoming the CEO himself, said Hewlett-Packard executives weren’t working well under Apotheker. To explain why the board picked an outsider, Lane said on a conference call that internal managers “were not ready” to become CEO.

Whitman, 55, is credited with helping build EBay into the world’s largest Internet auctioneer, with a market value of about $40 billion. She took the company public and built an online storefront that helped thousands of small businesses peddle their wares. Yet in her final years at EBay, she couldn’t reverse a slowdown in sales growth and overpaid for Skype Technologies SA after a bidding war with Google Inc. and Yahoo! Inc. EBay later wrote down Skype’s value.

Pressure on Apotheker

Whitman joined Hewlett-Packard’s board in January after a failed bid to become California’s governor last year. Before EBay, Whitman worked as an executive at the toy company Hasbro, the floral service FTD Inc., footwear maker Stride Rite Corp. and Walt Disney Co. (DIS)

Hewlett-Packard had revenue of more than $126 billion in the past fiscal year, almost 14 times the size of EBay’s sales.

“It’s not clear to me that someone who spent 30 years in the consumer space is the right person for an enterprise technology company,” said Dana Stalder, a partner at venture- capital firm Matrix Partners in Palo Alto. Stalder worked under Whitman for seven years at EBay.

Pressure on Apotheker intensified when in August he announced the overhaul that included the Autonomy deal and possible spinoff. He also killed off the company’s WebOS tablets and smartphones, five months after vowing to put the operating system on a full range of the company’s computers.

Hewlett-Packard Forecasts

Hewlett-Packard Chief Financial Officer Cathie Lesjak, who served as interim CEO before Apotheker, said yesterday on a conference call that the company was no longer confident in its fourth-quarter sales guidance. Hewlett-Packard is sticking by its profit forecast, she said.

The company said in August that fourth-quarter revenue would be $32.1 billion to $32.5 billion, with earnings of $1.12 to $1.16 a share, excluding some costs. According to Bloomberg data, analysts are predicting sales of $32.2 billion and profit of $1.14 for the period.

The board weighed whether to oust Apotheker for six to eight weeks, Lane said in the interview.

Apotheker stands to receive cash severance of at least $7.2 million, a figure that could be higher if his annual bonus was set above the minimum $2.4 million laid out in the employment agreement. Including his $1.1 million in salary received for the first year, along with a $4 million cash signing bonus and a $4.6 million relocation payment, Apotheker will have earned about $34.7 million in cash and stock for less than a year’s work.

‘Investors Wound Up’

“Not bad for a short-term job, unless you’re a HP shareholder,” said Brian Foley, a compensation consultant in White Plains, New York. “This is yet another ex-CEO of Hewlett- Packard who does very well despite the circumstances.”

Apotheker joined Hewlett-Packard after Mark Hurd departed as CEO amid a scandal over a personal relationship with a company contractor. Hurd now is a co-president at Oracle.

A steady hand may be just what Hewlett-Packard needs, said Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco. He has a “neutral” rating on the stock.

“The board is directionally behind the plan Apotheker’s put in place,” Noland said. “It’s just the execution of that plan that has investors wound up.”

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

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Yahoo’s Advisers Are Fielding Inquiries From ‘Multiple Parties,’ Yang Says

By Brian Womack - Sep 24, 2011 8:33 AM GMT+0700

Yahoo! Inc. advisers are fielding inquiries from “multiple parties” interested in various unspecified strategic options, according to a memo to employees from co-founder Jerry Yang.

“Our advisers are working with us to develop ideas that we will pursue proactively,” according to the memo, which was obtained by Bloomberg News. “They are fielding inquiries from multiple parties that have already expressed interest in a number of potential options.”

The process for reviewing strategic options is likely to take “months, not weeks,” according to the memo, which was also signed by co-founder David Filo and Chairman Roy Bostock.

Yahoo, the biggest U.S. Web portal, fired Chief Executive Officer Carol Bartz earlier this month and announced a strategic review to help the company revive growth and lure more users. Under Bartz, Yahoo had frustrated investors while grappling with rising competition from Google Inc. (GOOG) and Facebook Inc.

Private-equity investor Silver Lake is considering a bid for Yahoo, two people involved in the deliberations said last week. As part of a deal, Silver Lake would sell off Yahoo’s Asian assets and then attempt to turn around the main operations or find a buyer for that business, the people said.

Looking Around

Representatives of Silver Lake have approached other companies to gauge interest in purchasing Yahoo’s main business, one person said.

Yahoo replaced Bartz with Chief Financial Officer Tim Morse, who will serve as interim CEO. The board began a search for a permanent leader, and that process continues, according to the memo.

“By whatever measure you want to use -- engagement, quality of products and services, our value to our advertisers -- we all feel that we have what it takes to succeed,” the executives said. “Also, our Asia assets remain one of our top priorities and we continue to work well with the teams there.”

Yahoo’s Asian assets include stakes in Alibaba Group, which provides e-commerce services in China, and Yahoo Japan Corp. A private-equity company would likely seek a buyer for those assets, which according to Gabelli & Co., account for about 80 percent of Yahoo’s market value. Alibaba Group Chairman Jack Ma tried to repurchase the stake from Bartz and was rebuffed.

Yahoo’s directors are under pressure from investors such as Third Point LLC, which urged the board to resign this month after buying a 5.2 percent stake. The investment firm said directors erred in spurning a $47.5 billion takeover bid from Microsoft Corp. in 2008. Yahoo’s market value is now $18.6 billion.

Yang’s memo was earlier reported by Business Insider.

Yahoo, based in Sunnyvale, California, rose 72 cents to $14.71 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have fallen 12 percent this year.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Groupon COO Georgiadis Will Rejoin Google

By Douglas MacMillan - Sep 24, 2011 6:31 AM GMT+0700

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Sept. 23 (Bloomberg) -- Paul Kedrosky, author of the Infectious Greed blog and a Bloomberg contributing editor, talks about executive changes at Groupon Inc. and Hewlett-Packard Co., and the outlook for the companies. Groupon's Chief Operating Officer Margo Georgiadis resigned from the daily-coupon site to rejoin Google Inc., marking the second departure from that post in the past six months. HP Chief Executive Officer Meg Whitman said she plans to stick by strategies set in motion by her predecessor, Leo Apotheker. Kedrosky speaks with Emily Chang and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Groupon Inc., the largest daily- deal site, announced the departure of its second chief operating officer in six months and restated revenue figures, cutting sales to a fraction of their previous levels.

Margo Georgiadis, head of operations, is leaving to rejoin her former employer, Google Inc. (GOOG), the Chicago-based company said today in a filing. In restating sales, Groupon cited “an error in its presentation of revenue.”

Groupon has lost executives and had to delay its initial public offering amid a volatile stock market. Brad Williams, the former head of communications, and Rob Solomon, Georgiadis’s predecessor as operating chief, left the company earlier this year. It’s also drawn flak for the way it accounted for income, which critics said was masking its true costs.

The company restated 2010 sales to $312.9 million, down from a previous level of $713.4 million. In its earlier accounting, Groupon counted the total amount of its daily-deal sales as revenue, including fees paid to merchants. The company makes money by selling discounts -- known as Groupons -- from businesses such as restaurants and nail salons. It then splits the revenue with the businesses.

“The company restated its reporting of revenues from Groupons to be net of the amounts related to merchant fees,” Groupon said in the filing. “Historically, the company has reported the gross amounts billed to its subscribers as revenue.”

First Half

Revenue in the first half of 2011 is now $688.1 million, compared with an earlier figure of $1.52 billion.

The company also said JPMorgan Chase & Co. (JPM) is no longer a lead underwriter on its planned $750 million IPO. Groupon made the change after people with knowledge of the matter said online-coupon competitor LivingSocial hired the bank to raise more than $200 million in a round of private funding.

Wells Fargo & Co. (WFC) joined the list of underwriters on Groupon’s offering, the filing showed.

Georgiadis will become Google’s president for the Americas region. Before going to Groupon in April, she was Google’s vice president of global sales. Her Groupon contract gave her a $500,000 salary and 300,000 fully vested stock options. Based on the $25 billion valuation Groupon was said to have been contemplating in March, those options would be worth $25.2 million dollars in an IPO.

‘Hard Decision’

“Groupon is a great company and I feel privileged to have worked there even for a short time,” she said today in a statement published by Groupon. “It was a hard decision to leave as the company is on a terrific path. I have complete confidence in the team’s ability to realize its mission.”

The executive will have an expanded role in her new position at Google, said Nikesh Arora, senior vice president and chief business officer of Mountain View, California-based Google.

“I called a great colleague from the past and asked her if she’d like to come back,” Arora said. “I could not ask for a better person to come back and work with us.”

Her earlier experience included a stint as chief marketing officer at Discover Financial Services. (DFS)

To contact the reporter on this story: Douglas MacMillan in New York at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net Jennifer Sondag at jsondag@bloomberg.net.

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Senate Rejects House-Passed Stopgap Spending

By Laura Litvan and James Rowley - Sep 24, 2011 3:24 AM GMT+0700

Congress is at an impasse over a federal spending bill amid a partisan dispute over funding for disaster assistance, escalating a fight that threatens a shutdown of U.S. government operations.

The Senate rejected, 59-36, a House-passed stopgap measure to fund the government until Nov. 18 and provide $3.65 billion in aid to victims of Hurricane Irene, tornadoes, flooding and other natural disasters. Senate Democratic leaders opposed the House bill’s $1.6 billion in spending cuts to offset the disaster aid and said it didn’t provide enough money to help affected communities.

Senate Majority Leader Harry Reid, saying leaders in both parties need to “cool off,” offered an alternative to fund the government and provide the House-approved level of disaster aid without the spending offsets. The Senate plans a test vote on the measure Sept. 26.

Reid said at a news conference his plan should gain broad support in both chambers. The Nevada Democrat said he won’t consider other ways to offset disaster spending, while he and other Democratic leaders urged Republicans to meet to discuss how to end the standoff.

“Now it is the time to work toward a reasonable and fair solution to fund disaster relief and avoid an unnecessary and destructive government shutdown,” said Senator Charles Schumer of New York, the third-ranking Democratic leader.

FEMA Money

Without new money, the Federal Emergency Management Agency will run out of money for responding to disasters on Sept. 27, spokeswoman Rachel Racusen said in a statement. The rest of the government will run out of money Sept. 30. Both houses had been scheduled to be on recess next week.

Republican leaders signaled they aren’t ready to compromise. House Speaker John Boehner told reporters he spoke by telephone with Reid and “there wasn’t much progress made.”

“If we are back in Washington it means Harry Reid has shut down FEMA and denied disaster victims their relief,” said House Majority Leader Eric Cantor, a Virginia Republican.

Senate Democrats last week pushed through their chamber a $6.9 billion disaster assistance bill. They object to the House’s approach of partly offsetting the cost with spending cuts elsewhere, a break with the typical practice of approving disaster aid without accompanying reductions.

Democrats also oppose Republicans’ specific program cuts of $1.5 billion from a green-technology auto-loan program and $100 million from a program that provided a $535 million federal loan guarantee to Solyndra LLC, which filed for bankruptcy protection this month.

Shutdown Averted

A bipartisan group of four governors whose states suffered damage by Hurricane Irene and Tropical Storm Lee urged Congress in a statement to “to put aside politics” and provide help.

“It’s been 28 days since Irene and Lee started battering our states” said Democratic Governors Andrew Cuomo of New York and Bev Perdue of North Carolina and Republican Governors Chris Christie of New Jersey and Tom Corbett of Pennsylvania. In 2005, they said, Congress took 10 days to enact $60 billion in emergency aid after Hurricane Katrina destroyed communities along the Gulf Coast.

Vermont Representative Peter Welch, one of six Democrats who voted for the House measure last night, said he was worried about assistance for flood victims in his state if the disaster- relief fund is not replenished soon.

‘Just a Spectacle’

Congress’s inability to act is “just a spectacle,” Welch said in an interview. “There should not be roadblocks to getting disaster assistance to people when rivers are rising and fires are burning.”

Earlier this year, Congress averted a government shutdown and a default of obligations to government bondholders when compromises gained enough support from House Democrats to outweigh the opposition of Tea Party-backed Republicans.

Today, House Democratic Leader Nancy Pelosi of California suggested Reid’s proposal might frame a similar resolution, calling it an “excellent compromise.”

Two days ago, House Republicans unhappy with the plan’s overall cost joined Democrats to derail an earlier version of the measure, 230-195. The vote was a setback for Boehner, who has faced challenges in managing his large freshmen class of Tea Party-backed Republicans.

The dispute carries political risk for Republicans because polls show the public is weary of the rancor that marked previous battles over the budget. Disapproval ratings for Congress are at historic highs, and Republicans are faring worse than Democrats in polls.

Disapproval in Poll

In a Sept. 10-15 CBS News/New York Times poll, 72 percent of adults surveyed disapproved of the job performance of Republicans in Congress and just 19 percent approved. Democrats had a disapproval rating of 63 percent and an approval rating of 28 percent. The poll of 1,452 adults had a margin of error of plus or minus 3 percentage points.

The higher disapproval ratings for Republicans stem largely from perceptions that Boehner and other party leaders are unwilling to compromise with Democrats on key issues, said Michael Dimock, research director of the Pew Research Center.

The new legislation would set spending levels for the “discretionary” budget for the upcoming fiscal year that were agreed to last month in a compromise to raise the U.S. debt limit. Democrats say they have no intention of reopening that debate.

Schumer said yesterday, “You can’t shake hands on an agreement at the end of July and then they say ‘oh no, it’s up for negotiation again’ in September.”

The measure rejected by the Senate today is H.R. 2608.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Romney Rips Perry for ‘Heart’ Comment

By Julie Hirschfeld Davis - Sep 24, 2011 2:58 AM GMT+0700
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Rick Perry, Texas Governor and Republican presidential candidate. Photographer: Michael Nagle/Getty Images

Rick Perry faced attack today from his top rival in the Republican presidential race for his support of allowing illegal-immigrant students in Texas to pay in-state tuition at public universities, an issue posing a political vulnerability for the Texas governor.

The day after a nationally televised debate in which Perry’s immigration stance sparked sustained criticism and his defense of it drew audience boos, former Massachusetts Governor Mitt Romney spotlighted the issue.

“My friend Governor Perry said that if you don’t agree with his position on giving that in-state tuition to illegals, then you don’t have a heart,” Romney said at a gathering of conservatives in Orlando, Florida, a pivotal state with a large Hispanic population. “I think if you’re opposed to illegal immigration, it doesn’t mean that you don’t have a heart; it means that you have a heart and a brain.”

Romney, who is Perry’s closest competitor in polls on the Republican race, was reprising Perry’s defense of the tuition program at last night’s debate in Orlando.

“If you say that we should not educate children who have come into our state for no other reason than they’ve been brought there by no fault of their own, I don’t think you have a heart,” Perry said at the gathering of nine presidential contenders.

Perry’s Challenge

For Perry, the immigration issue could present a unique challenge. His stance fits the profile of his state, which has a large and growing Hispanic population. Yet it threatens to alienate many of the fiscal and social conservatives outside of Texas who hold sway in Republican nominating contests and oppose government aid to illegal immigrants.

Perry, speaking to the same audience as Romney today, didn’t address the immigration matter, although he suggested a poor debate performance shouldn’t be held against him.

“It’s not who is the slickest candidate or the smoothest debater that we need to elect,” he said. “We need to elect the candidate with the best record and the best vision for this country.”

Perry criticized Romney on health care, equating a plan enacted during his governor’s term in Massachusetts with “socialized medicine,” and calling it “misguided.”

Perry’s immigration position drew sharp opposition from other rivals at the debate, including Minnesota Representative Michele Bachmann. She also came back to the issue during her appearance today before the conservative activists, saying, “We will not have taxpayer-subsidized benefits for illegal immigrants or their children.”

Border Fence

Bachmann reiterated her debate vow to build a border fence the length of the U.S. border with Mexico, which Perry has denounced as impractical and ineffective.

Bachmann said at the debate: “I would build a fence on America’s southern border -- on every mile, on every yard, on every foot on every inch of the southern border.”

Romney said today that what he “still can’t get over is the idea that a state would decide to give a $100,000 discount to illegals to go to school in their state.”

His comment referred to the estimate he had used at the debate of how much more a four-year degree would cost an illegal immigrant student at a Texas college who paid out-of-state tuition.

Florida Republican leaders and activists are meeting in Orlando for a three-day conference that culminates in a non- binding straw poll of the presidential candidates tomorrow.

Romney earlier this year said he wouldn’t actively campaign for any straw polls. In Florida, Perry was favored among 28 percent of the Republicans surveyed by Quinnipiac University Sept. 14-19, and Romney was favored among 22 percent.

To contact the reporter on this story: Julie Hirschfeld Davis in Orlando, Florida at or Jdavis159@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

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Amazon’s Next Kindle Poised to Be Biggest Threat to IPad Holiday Dominance

By Danielle Kucera - Sep 24, 2011 1:21 AM GMT+0700
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An Amazon.com Inc. Kindle e-reader is shown. Photographer: Ted S. Warren/AP

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By taking advantage of its ties with media and publishing companies to pack the Kindle tablet with songs, books and videos, Amazon may succeed where companies such as Research In Motion Ltd. and Hewlett-Packard Co. have failed. Photographer: Chris Ratcliffe/Bloomberg

Amazon.com Inc. (AMZN)’s latest Kindle device, which may be unveiled next week, is poised to become the biggest threat to Apple Inc. (AAPL)’s iPad this holiday season.

Amazon has announced plans for a press conference Sept. 28 in New York, raising speculation that the company will provide its first glimpse of the new Kindle. The latest iteration of the e-book reader will have an improved interface and double as a tablet computer, with a touch screen in full color, said Anupam Palit, an analyst at GreenCrest Capital Management in New York.

By taking advantage of its ties with media and publishing companies to pack the Kindle tablet with songs, books and videos, Amazon may succeed where companies such as Research In Motion Ltd. (RIM) and Hewlett-Packard Co. (HPQ) have failed. Amazon Chief Executive Officer Jeff Bezos will probably set a price that’s near the cost of production, Palit said. That way, the company can attract users who balk at the $499 to $829 cost of the iPad.

“You’re going to get the first tablet that functions as well as the iPad,” Palit said. “You’re going to get the first major competitor for the iPad that has a full media and e- commerce platform.”

While Amazon didn’t reveal details about the Sept. 28 press conference, the event will likely showcase the new Kindle, said Herman Leung, an analyst at Susquehanna Financial Group in San Francisco.

First Look

“It’s got to be,” he said. “This holiday season everyone wants to start earlier and earlier. Why not educate people at the end of September?”

Mary Osako, a spokeswoman for Seattle-based Amazon, didn’t respond to a request for comment.

Sarah Epps, an analyst at Forrester Research Inc. in Cambridge, Massachusetts, predicts that Amazon will “easily” sell 3 million to 5 million tablets in the fourth quarter. That assumes a price of $299, she said in a report last month.

Apple shipped 9.25 million iPads in its most recent quarter, which ended June 25. Though the product is less than two years old, it’s already the company’s biggest source of revenue after the iPhone. Apple also leads the market for mobile applications, with more than 425,000. Over 100,000 of those apps are custom-designed for the iPad.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment on competition with Amazon.

Google’s Android

The Amazon tablet will run Google Inc. (GOOG)’s Android operating platform, which already supports Amazon’s application store, said Ken Sena, an analyst at Evercore Partners Inc. in New York. Amazon will have 5 percent of the total tablet market and about 16 percent of the Android tablet market this year, based on units sold, Sena said in July.

Even if it makes rapid gains, Amazon will have a fraction of Apple’s market share. The iPad accounted for 68 percent of all tablets shipped worldwide in the second quarter, according to Framingham, Massachusetts-based research firm IDC. Android tablets, including models from Motorola Mobility Holdings Inc. and Samsung Electronics Co., accounted for 27 percent.

Two other tablets have failed to make a dent so far. RIM’s PlayBook, introduced in the second quarter, sold 200,000 units, less than half of what analysts predicted. Analysts had already cut estimates for full-year PlayBook shipments to an average of 2.2 million, according to a Bloomberg survey.

Doomed TouchPad

Hewlett-Packard, meanwhile, discontinued its TouchPad in August -- only about a month after its debut. And Microsoft Corp. (MSFT) may not have its Windows operating system for tablets ready until next year.

Amazon’s store attracts millions of customers a month, which would help it promote a new tablet, said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. Total revenue is projected to rise 32 percent next year to $64.4 billion, according to data compiled by Bloomberg.

The company’s tablet “has a pretty good chance at emerging as a leader,” Sebastian said. “Amazon is likely the only one that’s going to produce something that’s close to the iPad that you would get with Android.”

The company can outpace other iPad competitors if it simplifies the tablet and makes the device intuitive to users, he said.

While price competition may take a toll on Amazon’s profit margins, the company hasn’t shied away from that in the past, Palit said. To challenge Apple’s iTunes music service, Amazon sold Lady Gaga’s album in its MP3 store for 99 cents.

Hardware Reliance

Apple gets more than 90 percent of its revenue from hardware. That may leave it vulnerable to an assault from Amazon, which could lose money on the device and then try to recoup the cost by selling more books and media.

The tablet also could set the stage for another source of revenue. Amazon has approached book publishers about starting a rental service for digital libraries that would require an annual fee, Palit said. Amazon would pay publishers a fee to participate, he said.

The retailer also may use video and book rentals on its tablet to promote its Prime membership program, which gives subscribers discounts on shipping and lets them watch movies for $79 a year, Sebastian said.

“It’s a way of enticing the content owners to leverage Amazon’s customer base,” he said. “They hope that there’s a payoff in terms of more velocity.”

Making it easy to get their books, movies and music will help Amazon stand out from failed tablet offerings, said Michael Norris, an analyst for Simba Information, a consulting firm based in Stamford, Connecticut.

“The thing that Amazon has done really, really well is they understand the relationship a consumer has with entertainment and content,” he said. “It’s all about the content that Amazon hopes to deliver with the tablet. If it’s seamless and easy, it could be attractive to a whole lot of people.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Dish ’Could’ Acquire Wireless Company, CEO Says

By Alex Sherman and Cliff Edwards - Sep 24, 2011 3:46 AM GMT+0700
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A Dish Network Corp. receiver sits on a home in Parker, Colorado. Photographer: Matthew Staver/Bloomberg

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Sept. 23 (Bloomberg) -- Joseph Clayton, chief executive officer of Dish Network Corp., talks about the company's Blockbuster-branded subscription online movie-rental service and the outlook for competition with Netflix Inc. He talks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Dish Network Corp. (DISH), the second- largest U.S. satellite-TV provider, may consider partnering with or buying a wireless carrier such as Sprint Nextel Corp. (S) or Clearwire Corp. (CLWR), Chief Executive Officer Joseph Clayton said.

“We’ll look at partnerships, acquisitions, all of the above,” Clayton said today in an interview in San Francisco. Asked whether that could include buying or partnering with Clearwire or Sprint, he said: “Could be.”

Dish needs a wireless network to utilize the spectrum it has acquired in its deals for DBSD North America Inc. and Terrestar Networks Inc. announced this year. Dish filed for U.S. government permission to offer mobile high-speed Internet service to its customers last month. Government approval would allow the company to build a network.

“There are several missing pieces,” Clayton said. “Wireless infrastructure, additional technology capabilities and even distribution are pieces that we’re still working on. Stay tuned.”

Sprint, the third-largest U.S. wireless carrier, is struggling to compete against larger rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ) and has lost money for 15 consecutive quarters. Sprint is in discussions with cable companies, including Comcast Corp. and Time Warner Cable Inc., about an investment in the company, three people familiar with the situation said last month.

Clearwire, the money-losing wireless broadband provider, is searching for new partners as it looks to raise capital to finance a shift to Long-Term Evolution. The company will spend about $600 million to add LTE to its network. Dish is also focused on LTE, said Clayton.

Sprint, based in Overland Park, Kansas, jumped 17 cents, or 5.7 percent, to $3.18 at 4 p.m. in New York Stock Exchange composite trading. Clearwire, based in Kirkland, Washington, fell 9 cents to $2.41 on the Nasdaq Stock Market. Dish, based in Englewood, Colorado, added $1.36, or 5.4 percent, to $26.76.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Commodities Tumble in ‘Downward Spiral’

By Sharon Lindores - Sep 24, 2011 5:23 AM GMT+0700
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Traders work in the gold and silver options pit of the New York Mercantile Exchange. Photographer: Scott Eells/Bloomberg

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Sept. 23 (Bloomberg) -- Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, talks about oil prices and the outlook for commodity markets. He speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Commodities fell to a nine-month low, led by routs in metals, on deepening concern that governments are running out of tools to avert a global recession, eroding prospects for raw-material demand.

European officials may accelerate the setup of a permanent rescue fund as the sovereign-debt crisis mounts. On Sept. 21, the Federal Reserve said the U.S. economy faces “significant downside risks.” In the next two days, gold plunged the most since 1983, and copper had the biggest slide in almost three years. Today, silver posted the largest drop in 32 years.

“We’re in a downward spiral, and no one knows when it’s going to end,” said Robin Bhar, an analyst at Credit Agricole SA in London. “There is a lot of uncertainty at this time as to how demand will develop.”

The Standard & Poor’s GSCI Index of 24 of energy, metal and agriculture prices fell 1.3 percent to settle at 599.25 at 3:47 p.m. New York. Earlier, the gauge touched 594.12, the lowest since Dec. 2. This week, the measure slumped 8.2 percent, the most in four months. The benchmark has tumbled 21 percent since touching a 32-month high in April.

The world economy will expand 4 percent this year and next, the International Monetary Fund said on Sept. 20, cutting forecasts made in June for a 4.3 percent expansion and 4.5 percent in 2012.

Economic ‘Fears’

“We are seeing commodity prices correcting, so they are more compatible with the global economy,” said Christin Tuxen, a senior analyst at Danske Bank A/S in Copenhagen. “When we have fears over the economic cycle as we have now and a higher probability of contraction, it hits industrial metals and commodities.”

Copper futures for December delivery declined 20.85 cents, or 6 percent, to $3.28 a pound on the Comex in New York. In two days, the price tumbled 13 percent, the most since October 2008.

Yesterday, a preliminary index of purchasing managers in China, the world’s top consumer of industrial metals, indicated that manufacturing contracted.

“We are not predicting a recession in the Western world, but low growth for the long term,” Tuxen said. “We are looking for a rebound in China and Asia in the fourth quarter and in 2012, which will help copper and aluminum.”

Gold futures for December delivery fell $101.90, or 5.9 percent, to $1,639.80 an ounce on the Comex, the biggest decline since March 2008. In two days, the metal dropped 9.3 percent, the most since February 1983.

Fed Twist

This week, the Fed said it will increase holdings of longer-maturity Treasuries in a bid to bolster the economy, shifting from debt maturing in three years of less.

“Gold has to roll with the masses, as markets show their disappointment in the Fed’s ‘Operation Twist’,” Edel Tully, a London-based analyst at UBS AG, said in a report.

The metal has dropped 15 percent since reaching a record $1,923.70 on Sept. 6.

“Gold has become the source of liquidity for global-margin calls,” said Michael A. Gayed, the chief investment strategist at Pension Partners LLC. “Also, deflationary pressures are acting on gold.”

Silver futures for December delivery fell $6.477, or 18 percent, to $30.101 an ounce on the Comex, the biggest drop since October 1979.

“We’re in a ‘risk-off’ mentality,” Bill O’Neill, a co- founder of Logic Advisors in Upper Saddle River, New Jersey, said in a telephone interview. “Some of it certainly is a case of sell the winning assets to meet the margin calls for the losing assets. We’re seeing massive selling across the spectrum in commodities.”

Today, CME Group Inc., the Comex owner, raised margins to trade gold, silver and copper futures.

Crude oil and corn had the biggest weekly drops since May. Coffee prices have tumbled 20 percent this month, and cocoa is down to a one-year low.

To contact the reporter on this story: Sharon Lindores in London at slindores@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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Stocks Rise on Belief Policy Makers Will Act

By Rita Nazareth - Sep 24, 2011 4:10 AM GMT+0700
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Traders work on the floor of the New York Stock Exchange on September 22, 2011. Photographer: Michael Nagle/Getty Images

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Sept. 23 (Bloomberg) -- David Kotok, chairman and chief investment officer of Cumberland Advisors, talks about the outlook for the U.S. economy and his investment strategy. Kotok also discusses U.S. stocks and Federal Reserve monetary policy. He speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)

U.S. stocks advanced, trimming the biggest weekly decline since October 2008 for the Dow Jones Industrial Average, amid speculation that policy makers will act to prevent a global financial crisis from getting worse.

Home Depot Inc. (HD) and Intel Corp. (INTC) added at least 2 percent, pacing gains in companies most-tied to economic growth. Bank of America Corp. (BAC) rallied 4.1 percent, the most in the Dow, as the lender prepared more asset sales to bolster capital. Nike Inc. (NKE), the world’s largest sporting-goods maker, jumped 5.3 percent after profit topped analysts’ estimates and it raised a sales forecast. Newmont Mining Corp. (NEM) and Halliburton Co. (HAL) retreated more than 3.2 percent as gold and oil prices slumped.

The Standard & Poor’s 500 Index rose 0.6 percent to 1,136.43 at 4 p.m. New York time, trimming its weekly drop to 6.5 percent. The Dow added 37.65 points, or 0.4 percent, to 10,771.48. The gauge lost 6.4 percent since Sept. 16.

“Policy is viewed as inept, inert and basically out of bullets,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, wrote in an e-mail. His firm oversees $550 billion. “If there was a good policy response, we could see the stock market rally 10 percent very quickly.”

A four-day rout this week erased $1.1 trillion in U.S. market value on speculation that central bankers would fail to prevent a financial crisis. The S&P 500 has slumped 17 percent since April 29 on concern that Europe’s debt crisis could derail the global economic recovery.

Ease Tension

The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said. European governments are exploring speeding the setup of a permanent rescue fund, an internal working paper shows.

“There was a mention that if things continue to deteriorate in Europe that there would be a policy announcement, a pro-active response,” said Peter Kenny, a managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey. “That could give the market some lift, but that doesn’t resolve the underlying problem.”

The S&P 500 started the session trading for 12.4 times earnings in the last 12 months, within 2 percent of a low of 12.2 reached Aug. 8, data compiled by Bloomberg show. The ratio would have to narrow another 18 percent to match its level on March 9, 2009, the start of the bull market in which the gauge rose as much as 102 percent, the data show.

‘Pretty Cheap’

The price-earnings ratio as of yesterday was 5.1 percent below the S&P 500’s average valuation of 13 at its lowest point in the last nine bear markets, data compiled by Bloomberg show. To reach the lowest of those, 7 on June 21, 1982, the index would have to fall 43 percent to about 640, based on profit in the last 12 months of $91.41 a share.

“Stocks are starting to get pretty cheap,” Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $55 billion, said in a telephone interview. “It’s reality versus expectations. I don’t know where reality is going to be, but if their expectations are pretty low, that’s a good sign for me.”

The Morgan Stanley Cyclical Index of companies most-tied to the economy rallied 1.1 percent. Home Depot, the largest U.S. home improvement retailer, gained 2 percent to $33.72. Intel rose 2.5 percent to $22.16.

The Dow Jones Transportation Average advanced for the first time in a week, stopping the worst five-day decline since Aug. 8, as airline shares rallied and traders were lured by the lowest valuations in about two years.

Delta, United

Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. surged at least 6.3 percent to lead gains as the average rallied 1.7 percent. Con-way Inc., a freight hauler, advanced 3.5 percent while railroad operator CSX Corp. (CSX) climbed 3.4 percent.

The benchmark gauge for transportation companies had slipped 11 percent in five days through yesterday, driving its price-earnings ratio down to a 26-month low of 18.7. The period marked the worst slump since early August when S&P stripped the U.S. of its AAA rating and policy makers struggled to reach a compromise on raising the nation’s debt ceiling, sending the S&P 500 to its 2011 low.

Bank of America rose 4.1 percent to $6.31. The lender is in exclusive talks to sell its stake in NPC International Inc., the biggest U.S. Pizza Hut franchisee, for more than $800 million, said two people with knowledge of discussions. The lender also agreed to sell about $880 million in commercial mortgages at a discount of as much as 25 percent, said another person.

Nike Rallies

Nike rallied 5.3 percent to $88.64. Chief Executive Officer Mark Parker has been trying to overcome rising costs for raw materials and transporting goods by cutting operating expenses. Nike’s gross margin, the percentage of sales left after the cost of goods sold, narrowed by 2.7 percentage points, less than the company’s projection for a 3 percentage point decline.

Gauges of energy and raw material producers had the two biggest declines in the S&P 500 within 10 industries, falling at least 0.3 percent. Newmont Mining, the largest U.S. gold producer, slumped 3.7 percent to $62.86. Halliburton decreased 3.2 percent to $31.67.

Stocks are having the worst quarter on record relative to U.S. Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan Chase & Co.’s Marko Kolanovic said.

U.S. and emerging-market equities have returned 43 percentage points less, the most during a quarter since at least 2002, according to data compiled by Kolanovic, whose analysis is based on a model portfolio composed of stocks, bonds and gold.

“This underperformance may trigger significant quarterly rebalance flows into equities and out of Treasuries at the end of next week,” Kolanovic, the New York-based global head of equity derivatives strategy at JPMorgan, wrote in a note to clients yesterday.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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