Groupon's IPO biggest by U.S. Web company since Google

By Alistair Barr and Clare Baldwin

Fri Nov 4, 2011 12:55pm EDT

(Reuters) - Groupon Inc raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by a U.S. Internet company since Google Inc raised $1.7 billion in 2004.

The global leader in "daily deals" is now valued at almost $13 billion after saying it increased the offering by 5 million shares to 35 million in total and pricing them at $20 each, above an initial range of $16 to $18.

The debut of the three-year-old company, which sells Internet coupons for everything from spa treatments to nose jobs, is one of this year's most closely watched. Its tiny float represents just above 5 percent of the company and helped drive up demand and price.

That constraint -- one of the smallest floats of the past decade -- should support Groupon's share price when it begins trading on the Nasdaq on Friday under the ticker GRPN, analysts say.

But in the longer run, they cited concerns about competition from the deep-pocketed likes of Google and Amazon.com Inc; the need to spend continuously to drive user growth; and questions about accounting after the company altered its IPO filings twice to change the way it accounted for revenue.

"Groupon is expensive. The $12.8 billion valuation is only achievable because of the low float," said Rob Romero, head of technology-focused hedge fund firm Connective Capital Management.

"Today's reaction to LinkedIn floating additional share supply is an indication of how tight supply-demand of shares can distort valuation for a new IPO."

LinkedIn, which remains well above its $45 IPO price, plummeted 9 percent after-hours after unveiling a proposal to sell up to $500 million in stock. It had floated 8.3 percent of its shares during the IPO.

Pandora Media, a music streaming service and another recent dotcom debutante, sold 9.2 percent of the company.

At $12.8 billion, Groupon commands a price tag more than twice what Google offered to buy the company last year.

WIDESPREAD CRITICISM

Beyond Friday, Groupon shares may prove volatile on concern about the company's ability to generate long-term profit and revenue growth, plus the likelihood that existing investors will sell some of their holdings at some point.

Quirky music major and CEO Andrew Mason and his executive team spent almost two weeks on the road pitching to investors and addressing widespread criticism about Groupon's replicable business model, slowing growth and accounting concerns.

"The post-IPO investor will be taking a risk on this deal," said Josef Schuster, founder of IPO research and investment house IPOX Schuster. "It's maybe a good trade for a day trader, in and out in a single day, but I don't want to be in it for the long run."

To pull the deal off, the company cut its valuation by about half. Existing shareholders aren't selling. And it skipped meetings with potential investors in Europe and Asia.

If underwriters, led by Morgan Stanley, Goldman Sachs and Credit Suisse, exercise their right to buy just over 5 million more Groupon shares in the IPO, known as the greenshoe, Groupon will raise more than $800 million, before fees.

Wall Street will scrutinize Groupon's Friday showing for clues as to how other highly anticipated dotcom IPOs -- from the likes of Facebook or Zynga -- may fare.

LinkedIn surged on the first day of trading in May and remains far above its $45 IPO price. Pandora's shares surged initially, then slumped. Its shares traded below the $16 IPO price on Thursday at just over $15.

Groupon "is a company with permission to market to 150 million consumers daily. No other company in the world has ever had that type of reach," said Boyan Josic, chief executive at DailyDealMedia, which tracks the industry.

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Talks on Greek coalition to start soon: Papandreou

By Lefteris Papadimas and Renee Maltezou

ATHENS | Sat Nov 5, 2011 8:18am EDT

(Reuters) - Negotiations to form a Greek coalition government will start soon, Prime Minister George Papandreou said on Saturday, launching a new push to save the nation from bankruptcy and prevent its crisis from sweeping over Europe and beyond.

Papandreou told the Greek president that the nation had to forge a political consensus to prove it wanted to keep the euro, as European leaders try to persuade the outside world that the currency bloc can overcome its huge debt problems.

"In order to create this wider cooperation, we will start the necessary procedures and contacts soon," he told reporters after meeting President Karolos Papoulias.

Hours after surviving a parliamentary confidence vote, Papandreou said Greece had to avoid early elections, calling for a broad-based government to secure a bailout from the euro zone, the main weapon in Europe's battle against the spreading economic crisis.

"My aim is to immediately create a government of cooperation," he told the president in the presence of reporters before they held talks behind closed doors. "A lack of consensus would worry our European partners over our country's will to stay in the euro zone."

Political sources involved in the dealmaking said negotiations are being led behind the scenes by Finance Minister Evangelos Venizelos, who aims to head the new coalition.

FAMOUS FATHER, FAMOUS GRANDFATHER

The sources said Papandreou, a socialist whose father and grandfather were Greek prime ministers, would step aside to make way for Venizelos, the man he beat to his PASOK party's leadership in 2004.

Without saying when he might quit, Papandreou -- who has led

Greece through two years of political, economic and social turmoil -- said he was ready to discuss who should lead the new government which would rule until elections probably early next year.

"The last thing I care about is my post. I don't care even if I am not re-elected. The time has come to make a new effort ... I never thought of politics as a profession," he told parliament before the vote in the early hours of Saturday.

A new coalition is likely to exclude the main opposition party, the conservative New Democracy.

Papandreou said the coalition should aim to ram the 130-billion-euro bailout deal through the assembly, the last financial lifeline for a nation that is due to run out of money in December.

Under heavy domestic and international pressure, the prime minister has backed down on a proposal for a referendum on the euro zone rescue. Greek voters could well have rejected the deal, potentially sinking euro zone leaders' attempts to stop the debt crisis devastating economies such as Italy and Spain.

THINGS MAY TURN UGLY

Greeks, burdened by waves of spending and welfare cuts plus tax rises which have pushed the country into a long recession, expressed disgust at the political wrangling up at parliament.

"I'm sick of politicians in Greece, and feel that things will now turn ugly. If only they could cooperate, everything would be much better," said Tassos Pagonis, a 48-year-old Athens taxi driver. "But will Greece be saved? I'm afraid not. Europeans don't trust us anymore, they will throw us out."

Pagonis expressed a fear widespread in the nation -- that Greece might be forced out of the euro zone to go it alone with a revived national currency. "I hope we don't return to the drachma," he said.

Pensioner Yiannis Vlahos, 83, compared the fates of Greece and Germany, which occupied the country in World War Two.

"When the Germans left we had some hope. They were ruined by World War Two but they worked hard and became the strongest economy. We Greeks haven't learned our lesson, we only steal," he said. "We ourselves hate our beautiful country."

Papandreou's socialist government won with 153 votes in the 300 member parliament, and a rebellion by some dissidents in his PASOK party failed to materialize after he indicated that his term as prime minister was close to an end.

The leaders of France and Germany told Papandreou this week that Greece would not get a cent more of aid if Greece failed to approve the bailout, meaning that the state would run out of money in December.

Newspapers labeled Papandreou's confidence victory as little more than a deal paving the way for a new government without Papandreou. The pro-government Ta Nea ran with "New government now!"

Greece has been racked by torment since soon after Papandreou won power in 2009 and revealed that the real budget deficit was three times bigger than original estimates put out by his conservative predecessor.

International investors took fright, Greece's borrowing costs soared and Papandreou was forced to go cap in hand last year to the only bodies still willing to lend at affordable rates -- the European Union and IMF.

In return they demanded wave after wave of spending cuts, tax rises and pension cuts which provoked widespread protests on the streets on Greek cities, with bloody clashes between demonstrators and riot police in Athens.

FAILING AGAIN

Masamichi Adachi, senior economist at JP Morgan Securities Japan, said the main concern was what would happen when international lenders returned to Athens in the coming months to assess the progress of the austerity plan and "find them failing again."

"This is just pushing away the timing of the real problem. Of course it's welcome that Greece didn't blow up today, but it doesn't solve the problem."

Analysts said Papandreou's victory had been Pyrrhic, and many ordinary Greeks said they were disenchanted with Byzantine political wrangling that was not addressing their basic need for jobs and cash.

Sources said Venizelos has won the backing of leaders of some smaller parties to support a coalition that he would head. The leaders of the far-right LAOS party and another center-right party indicated after Papandreou's speech that they would cooperate in a new coalition.

In parliament, Venizelos said a new government should rule until next February and then call elections.

Opposition leader Antonis Samaras counted his New Democracy party out of the coalition, saying Papandreou had spurned his call for a national unity government. "Mr Papandreou rejected our proposal. The only solution is elections," he said.

(Additional reporting by Reuters Athens bureau; Writing by David Stamp)

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MF Global CEO Jon Corzine quits as big bet fails

By Jonathan Stempel and Christopher Doering

Sat Nov 5, 2011 12:29am EDT

(Reuters) - Jon Corzine, one of Wall Street's best-known stars, stepped down as MF Global Holdings Ltd's chairman and chief executive after his bets on European debt drove the futures brokerage into bankruptcy.

The departure was announced on Friday, hours before conflicting reports surfaced about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global's effort this week to quickly sell a variety of assets.

JPMorgan Chase & Co said late on Friday it had no information about whether balances in MF Global accounts at the bank contained any of the missing customer funds. It also declined to disclose the balances of those funds.

"The accounts and their balances have been and continue to be wholly transparent to MF Global and the recently appointed (brokerage) trustee," JPMorgan said in a statement.

Earlier in the day, Bloomberg News had said customer funds had been found in a JPMorgan custodial account holding $658.8 million, citing two people with knowledge of the matter.

Corzine, a former chief of Goldman Sachs & Co, characterized his abrupt departure from a company he once joked as "too small to care about" as "difficult" but voluntary.

It was effective on Friday, four days after MF Global sought bankruptcy protection, a company spokeswoman said.

Corzine, 64, joined MF Global in March 2010 as his ticket back to Wall Street, after stints as a U.S. senator from New Jersey and one-term governor of that state. He had run Goldman from 1994 to early 1999.

But when MF Global's $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain went public, counterparties and investors headed for the exits.

"He was seeking redemption," said Robert Fagenson, former vice chairman of the New York Stock Exchange. "When you're not dealing with a Goldman Sachs-type of balance sheet, though, you can't take Goldman Sachs-type bets."

MF Global's decline accelerated last week as the New York-based company revealed more details about its European exposure, posted a larger-than-expected quarterly loss, and was downgraded by major credit rating agencies to "junk" status.

Many investors were also spooked by MF Global's roughly 30-to-1 leverage ratio, based on more than $40 billion of assets and just $1.4 billion of equity. Corzine himself has said that much leverage is unacceptably high.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

"My how the mighty are fallen," said Jim Rogers, a prominent commodities investor. "It is inconceivable to me he would do this after Refco," he added, referring to a brokerage that failed in a 2005 accounting scandal.

CFTC'S GENSLER OUT

Corzine's departure comes as the head of the U.S. futures regulator working on a sweeping review into the business practices of MF Global has said he will not be participating in any further parts of the inquiry.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, and Corzine worked at Goldman Sachs at the same time and held prominent positions. They both left the investment bank in the late 1990s.

"I don't know if there is an official refusal but he's said he's not going to participate in the MFG inquiry. He's done with it," a source who has participated in meetings on MF Global told Reuters on Friday.

Gensler has not participated in meetings during the last few days, and has chosen to not participate in the review because he doesn't want to create an appearance of a conflict of interest, the source said.

MF Global's problems this week triggered steep declines in stocks of other financial companies, such as Morgan Stanley and investment bank Jefferies Group Inc.

Jefferies, seeking to soothe investors, said on Friday it had a net short position in sovereign risk of Greece, Ireland, Italy, Portugal and Spain. Its shares closed up 0.5 percent on Friday, but lost 18 percent for the week.

"The idea that you might be holding European debt is very frightening" to markets," said Franklin Edwards, a Columbia Business School professor specializing in futures markets, regulation and governance. "There is so much uncertainty."

It is unclear how Corzine's resignation might affect the various ongoing investigations. Neither MF Global nor Corzine has been charged with wrongdoing.

Corzine said he intended to "continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm's assets.

James Giddens, the trustee overseeing the liquidation of the company's MF Global Inc unit, is working with CME Group Inc and others to move about 50,000 accounts to new clearing firms.

Giddens said his team is "securing" MF Global offices in Chicago and New York, plans to work through the weekend to transfer large accounts, and will try through next week to transfer individual accounts. Corzine's departure will not affect that process, a spokesman for Giddens said.

CME late on Friday said it expected to finish transferring all customer segregated positions by the end of the day, for a total transfer of positions in about 15,000 MF Global accounts and $1.45 billion of associated clearing collateral.

'GREAT SADNESS'

In his statement, Corzine said his departure is best for MF Global and its stakeholders.

"I feel great sadness for what has transpired at MF Global and the impact it has had on the firm's clients, employees and many others," he said.

MF Global said Corzine is not seeking severance. He had been entitled to $12.1 million in severance, prorated bonus and other benefits if he were let go without cause, a July 7 regulatory filing shows. The severance portion was $9 million.

Corzine has hired prominent white-collar defense lawyer Andrew Levander of the law firm Dechert to represent him in cases that might stem from the bankruptcy filing, a legal source briefed on the matter said on Thursday.

Chief executives often step down as their companies face federal probes or bankruptcy. Leaving might also give him greater flexibility in dealing with authorities.

"If you're no longer with the company, it gives you freedom to respond from the perspective of solely protecting your own interest," said Barry Pollack, a partner at law firm Miller & Chevalier specializing in white-collar defense.

Chief Operating Officer Bradley Abelow and lead director Edward Goldberg will stay in their positions, MF Global said.

STALLING REFORMS

Brokerages are required to keep customer money segregated from their own cash. Questions about the integrity of MF Global client accounts have also attracted the attention of the Federal Bureau of Investigation.

"To the extent there were diversions of funds in segregated accounts, or funds that were lost, it would certainly violate regulatory rules and perhaps even rise to the level of securities fraud," said Edwards, the Columbia professor. "We just don't know the facts."

It is unclear why regulators such as the Securities and Exchange Commission, Commodity Futures Trading Commission and Financial Industry Regulatory Authority did not do more to rein in MF Global's risk-taking, coming so soon after the 2008 financial crisis.

Last year's Dodd-Frank financial reforms have yet to take full effect, and would likely have done little to avert MF Global's collapse. But Corzine played a key role in stalling reforms designed to stop firms from using customer funds for proprietary trades.

"Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations," CFTC Commissioner Bart Chilton said in a Friday speech.

Corzine's original decision to join MF Global surprised many on Wall Street.

He has referred to himself as a "recidivist banker," and said he was willing to join a small Wall Street company because financial regulatory reform would force big banks to shrink. (Reporting by Jennifer Ablan, Suzanne Barlyn, Nick Brown, Matthew Goldstein, David Henry, Jed Horowitz, Herb Lash, Jennifer Merritt, Marcy Nicholson, Jeanine Prezioso, Jonathan Stempel and Dan Wilchins in New York; Alexandra Alper and Christopher Doering and Sarah N. Lynch in Washington, D.C.; and K.T. Arasu, Karl Plume and Theopolis Waters in Chicago; Editing by Edward Tobin and Tim Dobbyn)

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Bangkok Faces Threat From Water, Angry Residents as Thailand’s Floods Near

By Suttinee Yuvejwattana - Nov 5, 2011 12:33 PM GMT+0700

Bangkok is facing a dual threat from a “massive” flow of floodwater from the north and angry residents intent on tearing down defensive walls to save their flooded neighborhoods, Prime Minister Yingluck Shinawatra said.

“The dikes can’t resist the massive amount of water and there are also problems with water pumps breaking down,” Yingluck said today in a radio address. “The second problem is groups of residents who live north of the flood gates want the gates to be opened to drain water, but people who live on the other side don’t want their areas to flood.”

Bangkok officials are protecting a network of dikes, canals and sandbag barriers to help divert a slow-moving mass of floodwater around the city center and protect industrial zones east of the city. Thailand’s floods have claimed at least 442 lives since late July and shuttered 10,000 factories in provinces north of Bangkok, disrupting global supply chains.

“We should be able to save most of the areas in the east, including the economic zones,” Yingluck said. “For the west, drainage is quite difficult. People in the west need to be patient.”

A 6-kilometer (3.7-mile) wall of sandbags being completed along a canal north of Bangkok will help ease flooding in eastern parts of the capital, Yingluck said. Rising floodwaters in the city’s northern suburbs yesterday forced the closure of the Central Plaza Ladprao shopping mall, close to the city’s famous Chatuchak weekend market.

“Water has spread to a wide area in Bangkok,” Yingluck said. Efforts to save the city of 9.7 million people are slowing the flow of water to the Gulf of Thailand, 30 kilometers (19 miles) to the south, exacerbating flooding in areas north, east and west of the capital.

Inner Bangkok Dry

Bangkok’s business districts of Silom and lower Sukhumvit Road remain dry and Suvarnabhumi Airport and public transport links are unaffected. The airport’s perimeter is protected by a 3.5-meter-high dike, Airports of Thailand Pcl said yesterday.

“I am confident the airport can operate safely and as normal,” Somchai Sawasdeepon, the company’s senior executive vice president, told reporters in Bangkok. “But we will have a team to monitor the situation 24 hours a day.”

Evacuations have been ordered in almost a quarter of Bangkok’s 50 districts, the Bangkok Metropolitan Administration said. An evacuation order for additional areas of Chatuchak and Nong Khen districts was issued yesterday, the BMA said.

The government is balancing the need to protect an area that accounts for about half of Thailand’s industrial output with demands from residents to drain water from parts of outer Bangkok where homes have been inundated for weeks.

Angry Residents

Bangkok Governor Sukhumbhand Pariibatrathis week ordered police to protect water gates on canals after local residents tried to destroy them to ease flooding around their homes. Yingluck said today that people who destroy flood barriers may be prosecuted.

“Residents should be aware of the effects of their actions,” Yingluck said. “If people don’t look at the overall picture and only think about their own situation, it will damage the country. I will focus on the national benefit and won’t let any groups obstruct efforts to solve the problem.”

The disaster worsened last month, when rainfall about 40 percent more than the annual average filled dams north of Bangkok to capacity, prompting authorities to release more than 9 billion cubic meters of water down a river basin the size of Florida, with Bangkok at its southern tip.

Factories Swamped

The deluge spread over 64 of Thailand’s 77 provinces, damaging World Heritage-listed temples in Ayutthaya province, destroying 15 percent of the nation’s rice crop and flooding the homes of almost 10 million people, according to government data.

The floods have already swamped seven industrial parks, halting production at factories operated by companies including Western Digital Corp. and Nidec Corp. Sony Corp.

The Bank of Thailand, which last week slashed its 2011 economic growth forecast to 2.6 percent from 4.1 percent, expects expansion to slow as the global economy weakens and the impact of the nation’s flood crisis increases, according to the minutes of its Oct. 19 meeting.

Rehabilitation efforts have begun in parts of Nakhon Sawan province and will start soon in Ayutthatya as flood waters recede, Yingluck said. The government has an initial budget of more than 100 billion baht ($3.3 billion) to help rebuild damaged areas, she said, adding that Cabinet will discuss new measures to help the economy recover on Nov. 8.

“We can’t lose the battle this time,” Army chief Prayuth Chan-Ocha told reporters yesterday. “If we’re defeated, the damage to the country will be tremendous. Now we’re still fighting, but the enemy is massive.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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U.S. Jobs Gains Show ‘Frustratingly Slow’ Growth

By Shobhana Chandra - Nov 5, 2011 4:24 AM GMT+0700

Play Video

Nov. 4 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., talks about the U.S. economy, the October employment report and the European sovereign-debt crisis. El-Erian, speaking with Betty Liu and Michael McKee on Bloomberg Television's "In the Loop," also discusses market volatility and investment strategy. (Source: Bloomberg)

Play Video

Nov. 4 (Bloomberg) -- Diane Swonk, chief economist at Mesirow Financial Holdings Inc., talks about the U.S. employment report for October, the outlook for the labor market and economy, and the U.S. dollar. The U.S. jobless rate unexpectedly fell in October while employers added fewer workers than forecast. Swonk speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

The U.S. jobless rate unexpectedly fell in October while employers added fewer workers than forecast, illustrating the “frustratingly slow” progress cited by Federal Reserve Chairman Ben S. Bernanke this week.

The unemployment rate fell to a six-month low of 9 percent from 9.1 percent, even as the labor force grew. The 80,000 increase in payrolls followed gains in the prior two months that were revised up by 102,000, Labor Department figures showed today in Washington.

“We’re making progress at a very slow pace,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, whose forecast for a gain of 85,000 jobs was among those that came closest to the result. “It indicates continued consumer spending, getting a little better over time.”

The report shows the world’s largest economy is maintaining its expansion in the face of risks such as the European debt crisis and political wrangling on reducing the U.S. budget deficit. Fed policy makers are forecasting “moderate” growth that won’t push unemployment below 8 percent until 2013 at the earliest, one reason why they are considering further steps to boost the economy.

Stocks fell as the decline in the jobless rate was overshadowed by a disagreement on boosting the International Monetary Fund’s resources to fight Europe’s debt crisis. The Standard & Poor’s 500 Index dropped 0.6 percent to 1,253.23 at the close of trading in New York. The yield on the benchmark 10- year Treasury note declined to 2.03 percent from 2.07 percent late yesterday.

Economists’ Forecasts

The unemployment rate was forecast to hold at 9.1 percent, according to the median of 87 forecasts in a Bloomberg News survey of economists. Payrolls were forecast to rise by 95,000.

Sustained payroll increases of around 150,000 a month are needed to bring unemployment down about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Even so, “this labor market recovery is for real despite the economy having everything but the kitchen sink thrown its way,” Rupkey said.

Faster hiring would spur bigger gains in incomes and bolster confidence, helping cushion against declines in home prices and allowing households to sustain their spending. Household purchases grew at a 2.4 percent annual rate in the third quarter and the economy expanded at a 2.5 percent pace, the Commerce Department reported last week.

Jobs Plan

President Barack Obama used the employment report to call on Congress to approve his $447 billion jobs plan, which includes tax cuts and spending on infrastructure.

The U.S. economy is “underperforming,” Obama said at a news conference in Cannes, France, where he attended a meeting of leaders from the Group of 20 nations. The Labor Department’s figures “were positive but indicate once again that the economy’s growing way too slow.”

Retailers like Macy’s Inc. (M) are adding staff, while companies such as Whirlpool Corp. (WHR) plan to cut workers, evidence of an uneven economic recovery.

Macy’s is among those betting last quarter’s gain in spending will be sustained during the November-December holiday shopping season. The second-biggest U.S. department-store chain is stepping up hiring of mostly part-time employees by 4 percent for the period.

Whirlpool Plans Cuts

Whirlpool, the world’s largest maker of household appliances, said it planned to cut more than 5,000 jobs and trimmed its earnings forecast. The reductions will be primarily within North America and Europe and include the closure of the refrigeration manufacturing site in Fort Smith, Arkansas, by mid-2012.

“We are taking necessary actions to address a much more challenging global economic environment,” Chief Executive Officer Jeff Fettig said in a statement on Oct. 28.

The payroll revisions for September and August put those numbers closer to the bigger gains in hiring seen in the separate survey of households. The latter showed a 277,000 increase in employment for October.

“The good news is the report, in relative terms, was better than expected, mainly because of the revisions to August and September,” Mohamed El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said in an interview on Bloomberg Television. “The bad news is that we’re still in this unemployment crisis. It doesn’t do enough to remove the risk of stall speed, which is growth but not fast enough growth.”

Private Hiring

Private hiring, which excludes government agencies, rose by 104,000 after a revised gain of 191,000. It was projected to advance by 125,000, the survey showed.

Factory payrolls rose by 5,000, the first increase in three months, and construction companies cut 20,000 jobs.

Employment at service-providers increased 90,000 after a 129,000 gain. Retailers added 17,800 employees, the most in three months.

Government payrolls decreased by 24,000. State and local governments cut employment by 22,000, while the federal government trimmed 2,000 workers.

Average hourly earnings rose 0.2 percent to $23.19, while the workweek held at 34.3 hours, today’s report showed.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- dropped to 16.2 percent from 16.5 percent.

Long-Term Jobless

The report also showed a decrease in long-term unemployed Americans. The number of people jobless for 27 weeks or more fell to 42.4 percent as a share of all those without work from 44.6 percent. It was last lower in November 2010.

The number of temporary workers increased 15,000 after rising 21,100 the prior month. Payrolls at temporary-help agencies often slow as companies seeing a steady increase in demand take on permanent staff.

Uncertainty over the amount and speed of reductions in government spending is weighing on businesses as the Nov. 23 deadline looms for the congressional supercommittee charged with finding at least $1.2 trillion in deficit savings. In the fiscal year ended Sept. 30, the government reported the second-highest annual deficit on record, $1.3 trillion.

‘Downside Risks’

Fed policy makers, who refrained from taking additional steps to ease monetary policy at their meeting this week, said in a statement that there are “significant downside risks to the economic outlook.”

The central bank’s latest forecasts showed less optimism about the economy and employment. Policy makers project growth next year of 2.5 percent to 2.9 percent, with unemployment in the 8.5 percent to 8.7 percent range. Joblessness in 2013 is forecast at 7.8 percent to 8.2 percent.

Additional stimulus “remains on the table,” Bernanke said at a Nov. 2 press conference in Washington, declining to specify conditions that would prompt a move. “While we still expect that economic activity and labor market conditions will improve gradually over time, the pace of progress is likely to be frustratingly slow.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Intel Cuts Mean U.S. Will Have More Blind Spots

By John Walcott - Nov 5, 2011 2:49 AM GMT+0700

After seeing spending double over a decade, U.S. intelligence agencies are bracing for about $25 billion in budget cuts over the next 10 years that top officials said will increase security risks.

“We’re going to have less capability in 10 years than we have today,” said Director of National Intelligence James Clapper, who sits atop the 16 departments, agencies and offices that comprise the intelligence community and spend a combined $80 billion a year. “This is about risk management, because we’re going to have some risk,” he said in an interview Thursday with Bloomberg News and two other organizations.

For example, after spending enormous amounts on collecting intelligence to support the wars in Iraq and Afghanistan and the pursuit of al-Qaeda, intelligence officials and policy makers must decide whether to pay less attention to those areas, said a former intelligence official who spoke on the condition of anonymity because he’s still charged with protecting classified information.

Clapper, along with intelligence and congressional officials who spoke on the condition of anonymity due to the classified material, said that much of the savings will come from consolidating a multitude of different information technology systems which together cost about $12 billion a year.

“The focus right now is on eliminating unnecessary and redundant IT systems” across the intelligence community, Clapper told the United States Geospatial Intelligence Foundation’s annual symposium in San Antonio on October 17.

More Clouds

Moving toward cloud computing, single enterprises, and thin clients loaded with fewer applications will help reduce the reliance on outside vendors, help desks and contractors, the officials said. One advantage, Clapper said, is that intelligence agencies will “avoid vendors selling us the same stuff over and over again.”

Because consolidation and reliance on the cloud can create greater security risks, some of those savings are likely to be offset by greater investments in Internet security by the FBI, the CIA and the National Security Agency.

Clapper and U.S. counterintelligence officials, for example, said the U.S. cannot park large amounts of data in the same cloud. Instead, they forecast cyberskies with multiple clouds, some of which can take over if one of them is compromised.

Contractor Cuts

In San Antonio, Clapper, a retired U.S. Air Force lieutenant general and a former executive at Booz Allen Hamilton, SRA International Inc. (SRX) and Detica DFI, now a U.S. subsidiary of BAE Systems Plc, also said the intelligence community “must reduce our contractor profile.” He hastened to add: “If all the contractors failed to come to work tomorrow, the intelligence community would stop.”

The use of contractors, Clapper and other officials said, makes it easier and less expensive for the intelligence community to add and subtract people -- linguists, for example - - as the nation’s needs and interests change. Oversight of contractors should be improved, they said.

Clapper also said he’s determined to avoid the mistakes of past intelligence budget cuts, notably the one that followed the collapse of the Soviet Union.

This time, Clapper said, the U.S. needs to protect its people, which range from traditional spies with language skills to NSA code-breakers and linguists, to the analysts in multiple agencies who must cope with an ever-increasing flood of information -- good, bad, indifferent and malicious -- from spies, informants, tweets, Facebook pages, news articles, emails, spy satellites and overheard phone conversations.

Bin Laden Example

For example, said a senior intelligence official, a staff of 125 people worked 24 hours a day just to analyze the information collected when U.S. special operations forces raided Osama bin Laden’s hideout in Pakistan on May 2 and killed the al-Qaeda leader.

At the same time, the intelligence community must sustain robust research and development of new technologies and invest more in what’s called “overhead” -- the spy satellites that photograph, watch, listen, measure and map areas that interest or concern U.S. policy makers, Clapper said.

Those capabilities are especially important because, as U.S. troops are withdrawn from Afghanistan over the next three years, policy makers will need more of what’s called Intelligence, Surveillance and Reconnaissance (ISR) to war them of possible attacks and protect a shrinking combat force.

Surveillance Targets

Top priorities for U.S. intelligence also will continue to include places such as Iran, North Korea and China where it’s difficult for human spies to move around, recruit agents, and steal secrets.

The proliferation of information technology also means the U.S. must invest more in counterintelligence to protect government and commercial secrets, as a report this week from the National Counterintelligence Executive said.

Keith Masback, the president of the U.S. Geospatial Intelligence Foundation, a group of intelligence specialists, applauded Clapper’s approach in an e-mail.

“In front of the largest annual gathering of intelligence professionals in the nation, to include most of the contractors which serve the community, he could have sort of puffed out his chest and pandered to them saying, ‘I am charged with securing the nation, and I will fight to ensure that the Intelligence Community is spared from cuts,’” Masback said. “Instead, he delivered the cold, hard reality that the IC will have to take its fair share of cuts.”

To contact the reporter on this story: John Walcott in Washington at jwalcott9@bloomberg.net

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

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Apple Doles Out $60M Stock Grants to Execs

By Adam Satariano - Nov 5, 2011 6:32 AM GMT+0700

Apple Inc. (AAPL), seeking to retain its management team in the wake of former Chief Executive Officer Steve Jobs’s death last month, gave $60 million restricted-stock grants to most of its senior vice presidents.

Software executive Scott Forstall, hardware manager Bob Mansfield, Chief Financial Officer Peter Oppenheimer, marketing chief Phil Schiller, General Counsel Bruce Sewell and operations manager Jeff Williams each received 150,000 in restricted stock units, which vest between 2013 and 2016, according to filings today. Eddy Cue, a newer senior vice president who handles Internet software, received 100,000 stock units.

“Our executive team is incredibly talented and they are all dedicated to Apple’s continued success,” said Steve Dowling, a spokesman for the Cupertino, California-based company. “These stock grants are meant to reward them down the road for their hard work in helping to keep Apple the most innovative company in the world.”

CEO Tim Cook is working to prevent a brain drain at Apple, which Jobs built into the world’s most valuable technology company. Over the past 14 years, the management team helped Jobs introduce one best-selling product after another -- from the iMac computer to the iPhone to the iPad. Cook took on the CEO role in August, less than two months before Jobs’s death.

The $60 million figure is based on the current stock price, and the final value will depend on the price when the grants are exercised. The shares, up 24 percent this year, were little- changed today, closing at $400.24.

Cook’s Grant

Cook received 1 million restricted stock units, currently worth more than $400 million, when he became CEO in August. Half the grant vests in 2016, with the rest vesting in 2021, so long as he stays at the company.

One top executive, industrial-design manager Jony Ive, wasn’t mentioned in the latest stock grants. Because Ive isn’t classified as an executive officer by Apple under Securities and Exchange Commission rules, the company can keep his compensation private. Despite carrying the senior vice president title, Ive isn’t listed as an executive officer by Apple in its annual shareholder proxy statement.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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California Oil, Natural Gas Producers Cheer Firing of Top State Regulators

By Bradley Olson and Mark Chediak - Nov 5, 2011 11:00 AM GMT+0700

Representatives for California oil and natural-gas producers expressed approval for Governor Jerry Brown’s decision to fire two state regulators who they said played a role in a slowdown in permitting for new drilling projects.

Brown fired Derek Chernow, acting director of the California Department of Conservation, and Elena Miller, oil and gas supervisor at the department’s Division of Oil, Gas and Geothermal Resources, said Richard Stapler, spokesman for the California Natural Resources Agency.

The number of permits granted for new drilling projects declined 73 percent since 2008, the last year before Miller took over. That decline came during a fourfold increase in applications as energy companies sought to tap the vast potential of the Monterey Shale, which holds more than 15 billion barrels of oil, according to the U.S. Energy Information Administration.

Oil companies are “extremely happy” about the governor’s decision, Catherine H. Reheis-Boyd, president of the Western States Petroleum Association, a Sacramento-based trade group, said yesterday in a telephone interview. “They have been extremely frustrated dealing with an agency that in the past had a wonderful working relationship with industry.”

Occidental Petroleum Corp. (OXY), Plains Exploration & Production Co. (PXP), Berry Petroleum Co. (BRY) and Venoco Inc. (VQ) all hold thousands of acres in California, and Los Angeles-based Occidental has the highest rig count with 26, said Phil McPherson, an analyst with Global Hunter Securities LLC, in a Sept. 9 note. The next- highest rig count is 11, held by Aera Energy LLC, a jointly held subsidiary of Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc. (RDSA)

Crude Production

Melissa Schoeb, a spokeswoman for Occidental, did not immediately return a call seeking comment.

“The governor made the right decision,” Les Clark, executive vice president of the Independent Oil Producers Agency, an industry trade group, said yesterday in a telephone interview. “If you continue to turn down permits that involve the oil industry, it’s going to take its toll.”

Miller and Chernow couldn’t be immediately reached for comment.

Chernow will be replaced by Cliff Rechtschaffen, a senior energy adviser in the governor’s office, Stapler said. A replacement for Miller has yet to be named, he said.

As the state’s oil and gas supervisor, Miller was charged with balancing environmental concerns with the need to maximize oil and gas production in the nation’s third-largest crude- producing state, said Randy Adams, who led the Division of Oil and Gas’s Bakersfield office before retiring Oct. 19.

Permits Needed

The division approves permits for a variety of oil drilling in California, where crude was collected and used to light buildings as early as 1854 from natural “seeps” where it spilled out of canyons, according to the California Department of Conservation.

The state had granted 14 permits essential to new drilling projects as of September of this year out of 199 applications received, compared with 27 out of 100 in 2010 and 37 out of 52 the year before that, according to state figures.

To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Tina Davis at tinadavis@bloomberg.net

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U.S. Employers Add Fewest Jobs in Four Months in Slow Economic Recovery

By Shobhana Chandra - Nov 5, 2011 11:00 AM GMT+0700

The U.S. jobless rate unexpectedly fell in October while employers added the fewest workers in four months, reinforcing Federal Reserve Chairman Ben S. Bernanke’s prediction of a “frustratingly slow” recovery.

The unemployment rate dropped to a six-month low of 9 percent from 9.1 percent, even as more people entered the labor force. Payrolls rose by a less-than-forecast 80,000, following increases in the prior two months that were revised up by 102,000, Labor Department data showed yesterday in Washington.

The figures indicate the world’s largest economy will be able to weather risks such as the European debt crisis and political wrangling on cutting the U.S. budget deficit. Fed policy makers are forecasting “moderate” growth that won’t push unemployment below 8 percent until 2013, one reason why they are considering further stimulus to spur demand.

The employment gain is “enough for the economy to get along, and no more,” said Eric Green, chief market economist at TD Securities Inc. in New York, who correctly forecast the jobless rate. “Unemployment is going to remain well above what the Fed wants for the next two or three years. The high level of uncertainty has fostered caution. Companies are making do with very little labor.”

The jobless rate was forecast to hold at 9.1 percent, according to the median of 87 estimates in a Bloomberg News survey of economists. Payrolls were projected to rise by 95,000.

Sustained employment increases of around 150,000 a month are needed to bring unemployment down about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Labor Recovery

Even so, “this labor market recovery is for real despite the economy having everything but the kitchen sink thrown its way,” Rupkey said.

Stocks fell yesterday as concern about Europe eclipsed the decline in the jobless rate. The Standard & Poor’s 500 Index dropped 0.6 percent to 1,253.23 at the close of trading in New York. The yield on the benchmark 10-year Treasury note declined to 2.04 percent from 2.07 percent late the prior day.

Faster hiring would spur bigger gains in incomes and bolster confidence, helping cushion against declines in home prices and allowing households to sustain their spending. Household purchases grew at a 2.4 percent annual rate in the third quarter and the economy expanded at a 2.5 percent pace, the Commerce Department reported last week.

Retailers like Macy’s Inc. (M) are adding staff, while companies such as Whirlpool Corp. (WHR) plan to cut workers, evidence of an uneven economic recovery.

Holiday Hiring

Macy’s is among those betting last quarter’s gain in spending will be sustained during the November-December holiday shopping season. The second-biggest U.S. department-store chain is stepping up hiring of mostly part-time employees by 4 percent for the period.

Whirlpool, the world’s largest maker of household appliances, plans to cut more than 5,000 jobs and trimmed its earnings forecast. The reductions will be primarily within North America and Europe and include the closure of the refrigeration manufacturing site in Fort Smith, Arkansas, by mid-2012.

“We are taking necessary actions to address a much more challenging global economic environment,” Chief Executive Officer Jeff Fettig said in a statement on Oct. 28.

The payroll revisions for September and August put those numbers closer to the bigger gains in hiring seen in the separate survey of households. The latter showed a 277,000 increase in employment for October.

Jobs ‘Crisis’

The revisions meant the report was better than it appeared based on October payrolls, Mohamed El-Erian, chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said yesterday in an interview on Bloomberg Television. At the same time, “the bad news is that we’re still in this unemployment crisis,” he said.

Private hiring, which excludes government agencies, rose by 104,000 after a revised gain of 191,000. It was projected to advance by 125,000, the survey showed.

Factory payrolls rose for the first time in three months, while construction companies cut 20,000 jobs, the most since January.

Service-providers added 90,000 positions, about the same as the average gain in the previous six months. Employment at retailers climbed by the most in three months.

Government payrolls decreased by 24,000 in October, most of which occurred at state and municipalities.

Average hourly earnings rose 0.2 percent to $23.19, while the workweek held at 34.3 hours.

Underemployment Rate

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- dropped to 16.2 percent from 16.5 percent.

The report also showed a decrease in long-term unemployed Americans. The number of people jobless for 27 weeks or more fell to 42.4 percent as a share of those out of work, the lowest since November 2010, from 44.6 percent.

Uncertainty over the amount and speed of reductions in government spending is weighing on businesses as the Nov. 23 deadline looms for the congressional supercommittee charged with finding at least $1.2 trillion in deficit savings. In the fiscal year ended Sept. 30, the government reported the second-highest annual deficit on record, $1.3 trillion.

Fed policy makers, who refrained from taking additional steps to ease monetary policy at their Nov. 1-2 meeting, said in a statement there are “significant downside risks to the economic outlook.”

Fed Forecast

The central bank’s latest forecasts showed less optimism about the economy and employment. Policy makers project growth next year of 2.5 percent to 2.9 percent, with unemployment in the 8.5 percent to 8.7 percent range. Joblessness in 2013 is forecast at 7.8 percent to 8.2 percent.

Additional stimulus “remains on the table,” Bernanke said at a Nov. 2 press conference in Washington, declining to specify conditions that would prompt a move. “While we still expect that economic activity and labor market conditions will improve gradually over time, the pace of progress is likely to be frustratingly slow.”

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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$4 Trillion Debt Deal Possible With Tax-Spending Measures, Lawmakers Say

By James Rowley and Brian Faler - Nov 5, 2011 11:01 AM GMT+0700

A “bold” deficit-reduction deal worth $4 trillion is possible, say two influential lawmakers, one a Democrat the other a Republican, who expressed willingness to compromise over their previous positions on taxes and spending.

Representative Xavier Becerra, a California Democrat who last year voted against a plan put forth by President Barack Obama’s debt commission, said this time he is prepared to back something close to it as long as about one-third of the plan includes higher revenue.

A “balanced” plan is “something that Americans can look at and feel it and say, ‘You know what, I think I gave -- put a little bit of skin in the game, but so did so-and-so,’” Becerra, a member of a congressional deficit-reduction supercommittee, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

Representative Mike Simpson, an Idaho Republican who sits on the House Budget Committee, said he is willing to accept tax increases as part of a major deficit-reduction package.

Simpson, also speaking on “Political Capital,” said he favors a plan cutting between $4 trillion and $6 trillion over the next decade and that, while he’s “personally, fine” with $3 in spending cuts for every $1 in new revenue, he might consider a lower ratio.

“You can’t do it with just entitlement reform, you can’t do it with just discretionary spending and you can’t do it with just tax increases,” said Simpson. “You need all of those on the table.”

‘Not Balanced’

Becerra said a 3-to-1 ratio of spending cuts to new revenue, “is not balanced,” while signaling he might be receptive to a 2-to-1 ratio. “Show me the two and the other one,” he said.

On spending for entitlements such as Medicare or Social Security, Becerra and Simpson said those programs are part of the deficit-reduction discussion.

Simpson said the supercommittee should tackle Social Security as well as Medicare. “If we don’t do something, they won’t be here for future generations,” he said.

Becerra declined to give specifics on what he would cut, saying “it would be wrong” to “protect this particular interest” because “everything should be on the table.”

Democrats have balked at cutting entitlements without revenue increases, and Republicans want what House Speaker John Boehner calls “real reform” of those programs before they agree to any revenue increases.

Simpson-Bowles

Obama’s debt commission, led by former Republican Senator Alan Simpson and Erskine Bowles, who was President Bill Clinton’s chief of staff, debated a plan that would have cut roughly three times as much spending as it raised in new revenue, if reduced interest payments on the debt are included in the cuts.

The $3.9 trillion, 10-year Simpson-Bowles plan envisioned about $2.2 trillion in spending cuts, $673 billion in reduced interest payments, and $1 trillion in tax increases.

Becerra said that while he had opposed the commission’s recommendation, it could be “the ultimate template that we use for a solution” in the supercommittee.

Becerra, 53, the vice chairman of the House Democratic Caucus, is one of three House Democrats on the 12-member supercommittee, equally composed of lawmakers of both parties and both legislative chambers of Congress. The panel must find at least $1.2 trillion in deficit cuts.

Insufficient Amount

Both he and Simpson dismissed that figure as insufficient.

“We can get it done in ways that are not just $1.2 trillion worth of savings. We could make it big,” Becerra said. “Big and bold.”

Simpson said the $1.2 trillion in savings “just kicks the can down the road.” He called the deficit “the biggest issue we face in this country,” and said “if we don’t solve this problem -- we’ve got one chance, and if we don’t do it, I think you’re going to see our economy go through the floor.”

A plan to promote short-term jobs growth “should be part of this,” Becerra said. More jobs will produce more tax revenue, further helping cut the deficit, he said. “You’ve got to make the economy work before you can really expect to get the deficits down and get us back to balance,” he said.

Simpson said it’s possible to combine long-term deficit reduction with short-term job creation.

Outside the Mandate

Boehner, an Ohio Republican, told reporters jobs legislation is outside the supercommittee’s mandate. He and other Republicans argue that cutting the deficit will restore business confidence which, in turn, will lead to more jobs.

Putting Social Security on a secure fiscal path “is probably the easier thing to handle,” Becerra said. Fixing the old-age income-security program “easily could be” included in a deal that “takes a long-term approach to find balance.”

Talks are deadlocked and supercommittee members, facing a Nov. 23 deadline to produce legislation that would receive up- or-down votes in the House and Senate, said they planned to work over the weekend in Washington or via telephone to seek a solution.

Simpson, 61, said Republicans ought to ditch their anti-tax vows. He said he signed an anti-tax pledge sponsored by Grover Norquist when he first ran for Congress in 1998 because, “when you first run for Congress,” you “get these pledges and ‘yeah, I’m not in favor of tax increases -- I’ll sign that pledge.’”

“I didn’t know I was signing a marriage vow with this,” said Simpson.

To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net Brian Faler in Washington at bfaler@bloomberg.net

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

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Berkshire Earnings Decline 24% on Derivatives

By Andrew Frye - Nov 5, 2011 11:00 AM GMT+0700
Enlarge image

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during an interview at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) said third-quarter profit fell 24 percent as derivative bets declined in value.

Net income slid to $2.28 billion, or $1,380 a share, from $2.99 billion, or $1,814, a year earlier, the Omaha, Nebraska- based company said yesterday. Operating earnings, which exclude some investment results, were $2,309 a share, beating the $1,796 average estimate of three analysts surveyed by Bloomberg.

Buffett, 81, uses derivatives to speculate on long-term gains in stocks and the creditworthiness of corporate and municipal borrowers. The contracts tied to equity indexes, which aren’t scheduled to settle until 2018 or later, produced a loss of $2.09 billion in the period as the Standard & Poor’s 500 Index posted its biggest decline since 2008. Liabilities on the equity derivatives rose to $8.85 billion.

“He’s been in the negative position for some time now and I’m not worried yet, but it’s something to keep an eye on,” said Tom Lewandowski, an analyst with Edward Jones & Co., who has a “buy” rating on Berkshire. “Outside of the derivative losses it seems like he had a lot of broad-based growth throughout the businesses.”

Insurance, which accounted for more than 40 percent of Berkshire’s earnings last year, posted underwriting profit of $1.7 billion pretax, up from $305 million a year earlier. Berkshire Hathaway Reinsurance Group, which specializes in large risks, had a gain of $1.38 billion, compared with a loss of $237 million. The gain at car insurer Geico narrowed to $114 million from $289 million. Gains at General Re fell to $148 million from $201 million.

Burlington Northern

Burlington Northern Santa Fe, the railroad Buffett bought in a $26.5 billion deal last year, contributed $766 million in net earnings in the third quarter, compared with $706 million a year earlier. Berkshire said it will receive a $750 million distribution from the railroad this month.

The equity derivative result compares with a loss of $700 million in the same quarter a year ago. Credit-default swaps, in which Buffett bets on the solvency of borrowers, declined by $247 million after posting a $519 million gain a year earlier.

Berkshire’s collateral posting requirement tied to derivatives soared in three months to $443 million on Sept. 30 from $25 million.

Book value, a measure of assets minus liabilities, fell in the three months ended Sept. 30 to $96,876 per Class A share from $98,716 on June 30. It was the first sequential decline in book value per share since June 30, 2010.

$34 Billion

Buffett, Berkshire’s chief executive officer, sold the equity derivatives to undisclosed buyers for $4.9 billion. Liabilities on the so-called equity-index puts widen when four stock indexes fall from the levels they were at when Buffett made the contracts near the market peaks in 2006 and 2007. If the indexes are at zero when the agreements expire, the losses would be about $34 billion.

Berkshire Class A shares have slipped 3.9 percent to $115,806 in New York trading this year, compared with the decline of less than 1 percent in the S&P 500. The Euro Stoxx 50 Index, one of the four equity baskets tied to Buffett’s derivatives, has gained 5.1 percent since Sept. 30. The S&P 500, another of the four, advanced 11 percent.

Buffett drew down Berkshire’s cash hoard 27 percent in three months to $34.8 billion as of Sept. 30 to fund new investments. In the quarter, Berkshire increased common-stock bets, and spent $5 billion on Bank of America Corp. (BAC) preferred shares and about $9 billion on the takeover of Lubrizol Corp. On Sept. 26, Berkshire announced a plan to repurchase shares.

‘Burden of Cash’

“The burden of cash is back,” said Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner.

Berkshire repurchased 15 Class A shares at an average price of about $107,462 from Sept. 26 to Sept. 30. It bought back 227,669 Class B shares at an average price of $71.45. Combined, Berkshire spent about $17.9 million in the period, according to data compiled by Bloomberg.

As of Oct. 28, the firm had 1.65 million Class A equivalent shares, about 525 fewer than it had on July 28, according to Berkshire data and calculations by Bloomberg.

Buffett spent $6.9 billion on equities and $1.9 billion on fixed-maturity securities in the quarter. He sold about $675 million of stocks and $257 million of fixed-income holdings. The company hasn’t filed its third-quarter stocks statement to U.S. regulators yet. The stock portfolio was valued at $68.1 billion at the end of the quarter, up from $67.6 billion on June 30.

Net investment income, which includes stock dividends and bond coupons, fell 10 percent to $783 million at Berkshire’s insurance operations.

Equities Falter

Berkshire, which doesn’t pay a dividend, announced its first buyback in at least four decades to help spend the $1 billion of earnings Buffett has said his company generates in a typical month. It has more than 70 units that haul freight, produce power and sell goods and services from insurance to carpet. Berkshire said it won’t reduce cash holdings below $20 billion or buy back shares for more than 110 percent of book value.

“I know that that price is demonstrably less than the businesses are worth,” Buffett said at a conference on Oct. 4. “The book value happens to be an understated measure” of Berkshire’s worth, he said.

Berkshire, in preparation for Buffett’s eventual retirement, announced in September the hiring of Ted Weschler, who will join Todd Combs in overseeing a portion of investments. The two money managers, and possibly a third, will take over the portfolio after the departure of Buffett, who is also chairman and head of investments.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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Clearwire Shares Climb After Sprint Says It May Provide Financial Backing

By Sarah Frier - Nov 5, 2011 4:10 AM GMT+0700

Clearwire Corp. (CLWR), the unprofitable wholesale wireless carrier, rose after partner and main owner Sprint Nextel Corp. (S) said it may use proceeds from a note offering to help finance the company.

Clearwire gained 8 percent to $1.89 at the close in New York, after climbing as much as 29 percent. The shares have lost 63 percent this year on concern that the company will run out of money.

Money from Sprint would allow Kirkland, Washington-based Clearwire to fund its operations and help pay for a planned network upgrade. Clearwire said this week that it has capital for 12 months and that its future may depend on Sprint, with which it is in talks for a new wholesale agreement. Sprint had previously signaled that it wouldn’t provide Clearwire with financial backing.

“The fact that funding Clearwire is mentioned as a possible use of proceeds suggests the companies are moving in the right direction,” Jonathan Chaplin, an analyst at Credit Suisse in New York, said in a note to investors. He rates both Sprint and Clearwire shares “outperform.”

The debt sale is also a positive for Sprint because it shows that the company has access to capital markets, Chaplin said. Sprint, which didn’t disclose the size of the note offering, said last week it plans to refinance $4 billion of its debt and seek as much as $3 billion in financing from suppliers.

Sprint shares rose 2.1 percent to $2.87. The company also had its credit rating cut further into junk by Standard & Poor’s because of costs related to a planned network upgrade.

Network Deal

Sprint said proceeds from the sale of the seven- and 10- year notes will be used “for general corporate purposes, which may include, among other things, redemptions or service requirements of outstanding debt, network expansion and modernization and potential funding of Clearwire,” according to a company statement.

Leigh Horner, a Sprint spokeswoman, declined to comment beyond the statement. Mike DiGioia, a Clearwire spokesman, also declined to comment.

Clearwire said this week that its priority is to reach a new network-sharing agreement with Sprint, adding that a failure to do so could jeopardize operations. Clearwire has also said it needs about $1 billion for operations and to upgrade its network from the WiMax technology to long-term evolution, or LTE.

Fundraising Hampered

“We really have one overarching goal which is to get the company to profitability,” Clearwire Chief Executive Officer Erik Prusch said this week in an interview. “We want to have a long-term WiMax commitment, a long-term LTE commitment, and funding. We’ve got to get these things done as soon as we can.”

Sprint, which accounts for most of Clearwire’s revenue and customers, said last month it will stop selling WiMax devices after 2012. The carrier also said it may use Clearwire’s network to handle traffic from customers using LTE beginning in 2013, though the talks haven’t yet concluded. Their existing network- sharing agreement expires at the end of next year.

Clearwire said this week access to funding has been hampered by the “perceived impact of Sprint’s new 4G strategy on our business,” according to a company filing. “If these events continue to adversely affect us, additional capital may not be available on acceptable terms, or at all.”

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

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

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Third Point Increases Pressure on Yahoo

By Brian Womack - Nov 5, 2011 3:52 AM GMT+0700

Yahoo! Inc. investor Third Point LLC increased pressure on the company by demanding two board seats and asking co-founder Jerry Yang to step down as a director.

Third Point objected to reports that Yahoo is considering a transaction with private equity firms that would effectively establish a “controlling position” when combined with the stakes of Yang and co-founder David Filo, Third Point Chief Executive Officer Daniel Loeb said in a letter to the board. The New York-based investment firm also faulted Yang for the role the reports say he is playing in negotiations.

“We are deeply concerned by news reports that you are considering a leveraged recapitalization that will allow private equity firms to gain substantial equity positions,” Loeb said. “We will not tolerate any transaction which appropriates for insiders opportunities that duly belong to current Yahoo shareholders.”

Yahoo responded to the letter by saying the “board’s comprehensive strategic review is being properly managed for the benefit of all shareholders,” according to an e-mailed statement. “Mr. Yang is one of 9 directors with the exact same fiduciary duties and motivation as all of his fellow directors - - to serve the best interests of all the company’s shareholders.”

Third Point already had called for Chairman Roy Bostock to step down after he fired Yahoo CEO Carol Bartz in September. Yahoo, which had failed to keep pace with rivals Google Inc. (GOOG) and Facebook Inc., has said it is reviewing its strategic options and seeking a new CEO.

’Look at All Options’

Yang said last month that Yahoo isn’t necessarily up for sale.

“The intent going in is not to put ourselves up for sale,” Yang said at the All Things Digital Asia conference in Hong Kong. “The intent is to look at all options. There’s plenty of options for the board, and plenty of options for our shareholders to realize value.”

The comments came after Jack Ma, chief executive officer of Alibaba Group Holding Ltd., China’s biggest e-commerce company, said he is “interested” in buying Yahoo and is awaiting a decision.

Loeb wants access to the board seats soon, he said.

“Given the board’s inability -- or perhaps unwillingness - - to properly solicit true strategic alternative bids, let alone to negotiate them, Third Point demands that we be awarded two board seats -- those created by the vacancies of Chairman Bostock and Mr. Yang, or two newly-created ones,” he said. “We are prepared to assume these positions immediately.”

Yahoo shares pared losses after the statement was released. The Sunnyvale, California-based company slipped 1.6 percent to $15.24 at 4 p.m. New York time. It had earlier fallen to $14.95.

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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$4 Trillion Deficit Deal Possible: Lawmakers

By James Rowley and Brian Faler - Nov 5, 2011 3:53 AM GMT+0700

A $4 trillion deficit-reduction deal is possible, say two influential lawmakers, one a Democrat and one a Republican, with both saying they’re willing to compromise over their previous positions on spending and taxes.

Representative Xavier Becerra, a California Democrat who last year voted against a plan put forth by President Barack Obama’s debt commission, said this time he’s prepared to back something close to it as long as about one-third of the plan includes higher revenue.

A “balanced” plan is “something that Americans can look at and feel it and say, ‘You know what, I think I gave -- put a little bit of skin in the game, but so did so-and-so,’” Becerra, a member of a congressional deficit-reduction supercommittee, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

Representative Mike Simpson, an Idaho Republican who sits on the House Budget Committee, said he’s willing to accept tax increases as part of a major deficit-reduction package.

Simpson, also speaking on “Political Capital,” said he favors a plan cutting between $4 trillion and $6 trillion over the next decade and that while he’s “personally, fine” with $3 in spending cuts for every $1 in new revenue, he might consider a lower ratio.

“You can’t do it with just entitlement reform, you can’t do it with just discretionary spending and you can’t do it with just tax increases,” said Simpson. “You need all of those on the table.”

‘Not Balanced’

Becerra said a 3-to-1 ratio of spending cuts to new revenue, “is not balanced,” while signaling he might be receptive to a 2-to-1 ratio. “Show me the two and the other one,” he said.

On spending for entitlements such as Medicare or Social Security, both Becerra and Simpson said those programs are part of the deficit-reduction discussion.

Simpson said the supercommittee should tackle Social Security as well as Medicare, saying “if we don’t do something, they won’t be here for future generations.”

Becerra declined to give specifics on what he would cut, saying “it would be wrong” to “protect this particular interest,” because “everything should be on the table.”

Democrats have balked at cutting entitlements without revenue increases, and Republicans want what House Speaker John Boehner calls “real reform” of those programs before they agree to any revenue increases.

Simpson-Bowles

Last year’s debt commission, led by former Republican Senator Alan Simpson and Erskine Bowles, who was President Bill Clinton’s chief of staff, debated a plan that would have cut three times as much spending as it raised in new revenue, if reduced interest payments on the debt are included in the cuts.

The $3.9 trillion, 10-year Simpson-Bowles plan envisioned about $2.2 trillion in spending cuts, $673 billion in reduced interest payments, and $1 trillion in tax increases.

Becerra said that while he opposed the commission’s recommendation last year, it could be “the ultimate template that we use for a solution” in the supercommittee.

Becerra, 53, the vice chairman of the House Democratic Caucus, is one of three House Democrats on the 12-member supercommittee, equally composed of lawmakers of both parties and both legislative chambers of Congress. The panel must find at least $1.2 trillion in deficit cuts.

Both he and Simpson dismissed that figure as insufficient.

“We can get it done in ways that are not just $1.2 trillion worth of savings. We could make it big,” Becerra said. “Big and bold.”

Simpson said the $1.2 trillion in savings “just kicks the can down the road.”

Jobs Plan

A plan to promote short-term jobs growth “should be part of this,” Becerra said. More jobs will produce more tax revenue, further helping cut the deficit, he said. “You’ve got to make the economy work before you can really expect to get the deficits down and get us back to balance,” he said.

Simpson said it’s possible to combine long-term deficit reduction with short-term job creation.

Boehner, an Ohio Republican, told reporters yesterday that jobs legislation is outside the supercommittee’s mandate. He and other Republicans argue that cutting the deficit will restore business confidence which, in turn, will lead to more jobs.

Putting Social Security on a secure fiscal path “is probably the easier thing to handle,” Becerra said. Fixing the old-age income-security program “easily could be” included in a deal that “takes a long-term approach to find balance.”

Talks Deadlocked

Talks are deadlocked and supercommittee members, facing a Nov. 23 deadline to produce legislation that would receive up- or-down votes in the House and Senate, said they planned to work over the weekend in Washington or via telephone to keep seeking a solution.

Simpson, 61, said Republicans ought to ditch their anti-tax vows. He said he signed an anti-tax pledge sponsored by Grover Norquist when he first ran for Congress in 1998 because “when you first run for Congress” you “get these pledges and ‘yeah, I’m not in favor of tax increases -- I’ll sign that pledge.’”

“I didn’t know I was signing a marriage vow with this,” said Simpson.

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

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Groupon Surges After Pricing IPO Above Range

By Lee Spears and Douglas MacMillan - Nov 5, 2011 3:20 AM GMT+0700

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Nov. 4 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, driving the Standard & Poor’s 500 Index to its first weekly decline since September, as a disagreement on Europe’s resources to fight the debt crisis offset a drop in the American unemployment rate. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

Groupon Inc. advanced 31 percent in its trading debut as optimism about the company’s lead in the online-coupon market outweighed concern that ballooning costs and rising competition will drag on growth.

Shares of the Chicago-based company, listed under the symbol GRPN, climbed $6.11 to $26.11 at 4 p.m. New York time in Nasdaq Stock Market trading, after surging to as high as $31.14. Groupon raised $700 million selling 35 million shares at $20 each yesterday, the biggest IPO by a U.S. Internet company since Google Inc. (GOOG) first sold shares in 2004.

As the first daily-deal site to go public, Groupon offers a toehold in a market predicted by BIA/Kelsey to surge almost fivefold to $4.2 billion in 2015 from last year. Expectations for gains allayed concerns over Groupon’s lack of profitability and accelerating rivalry from Google and LivingSocial.

“They’ve got mind share and first-mover advantage,” said Erick Maronak, who helps oversee $2.5 billion as chief investment officer of New York-based Victory Capital Management Inc., which hasn’t ruled out buying Groupon stock in the future. “At some point down the line, if they actually succeed, there’ll be plenty of time to get in.”

Groupon also benefited from selling only 5.5 percent of its outstanding shares, fewer than are typically available to investors. Today’s trading gave Groupon a market capitalization of $16.7 billion, higher than the $11.4 billion the company sought in its offering.

Swelling Costs

The company had discussed an IPO valuation of as much as $25 billion with bankers, people said this year, and it rejected a buyout offer from Google in 2010 that would have valued it at $6 billion.

Groupon had initially offered 30 million shares for $16 to $18 apiece, or as much as $540 million. While the company said in its prospectus that it won’t need to use the proceeds from the IPO for at least a year and has no urgent cash needs, the company owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile.

The company is also facing competitive pressures. Amazon.com, Google and LivingSocial all offer group discounts and are giving more favorable terms to merchants, according to private-company researcher PrivCo. That’s led Groupon to accept lower margins to avoid losing business, PrivCo said.

Growth Projections

Advisers to Groupon based the price range for the IPO on a projection that the company will have sales of about $2.1 billion next year, people familiar with the matter said last week. The $17 midpoint of its earlier range valued the company at $10.8 billion, or about 5 times that sales prediction, making Groupon more expensive than Amazon.com, the world’s largest online retailer, which traded at about 1.5 times estimated 2012 revenue yesterday.

Co-founders Andrew Mason, Bradley Keywell and Eric Lefkofsky will collectively own more than a third of Groupon’s common stock, according to the prospectus. They will also share more than 58 percent of the voting power by virtue of their Class B shares, which have 150 votes each. Class A stockholders get a single vote.

Groupon followed a sometimes rocky path to its IPO. Lefkofsky, the chairman, told Bloomberg News in June that he expected the company to be “wildly profitable,” a statement the company later asked investors to disregard in a regulatory filing. Company executives are forbidden from talking about financials during the so-called quiet period before an IPO.

Restated Results

In September, the company restated its revenue figures to exclude sales passed on to merchants, and it announced the departure of its second operating chief in six months. It had a net loss of $214.5 million for the first three quarters of 2011.

Groupon floated a record-low percentage of its total outstanding shares among U.S. Internet companies, helping to stoke demand. It sold less than in any U.S. Internet company IPO of more $200 million since at least 2000, Bloomberg data show.

Some investors said they’re shunning the stock on concerns about Groupon’s business model.

“For individual investors, it’s hard to justify buying,” said Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $60 billion. “You’re buying it at what arguably could be a very elevated valuation level.”

All of the shares in the offering were sold by Groupon, and net proceeds at the midpoint of the marketed range were estimated at $479 million.

Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group AG led the IPO.

Groupon has granted the underwriters a 30-day option to purchase up to an additional 5.25 million shares of Class A common stock to cover over-allotments, if any, the company said in a statement.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net

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

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