Greenhill Pushed Into League Table Obscurity After AT&T Pulls T-Mobile Bid

By Dakin Campbell - Dec 20, 2011 12:00 PM GMT+0700

AT&T Inc. (T)’s failed $39 billion acquisition of Deutsche Telekom AG (DTE)’s T-Mobile USA Inc. is sending Greenhill & Co. (GHL) toward M&A league-table obscurity.

Greenhill plunged to 40th place in the mergers and acquisitions rankings after AT&T scrapped its deal yesterday, from 18th place with the transaction included, according to data compiled by Bloomberg. AT&T’s advisers -- Greenhill, JPMorgan Chase & Co. (JPM) and Evercore Partners Inc. (EVR) -- will lose about $65 million in fees, according to estimates by New York-based researcher Freeman & Co.

“It’s an embarrassment, but they will feel the loss more financially,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco and a former managing director at Salomon Brothers Inc. “They want to hold onto their star bankers, some of whom worked on this deal, and they have to pay them bonuses. They have a heck of a lot less to pay them with now.”

Greenhill Chief Executive Officer Scott Bok has lost at least three managing directors since early June. Previously, the firm averaged less than one such departure annually since its founding in 1996 by Robert Greenhill. The company has slid 57 percent in New York trading this year, the worst performance (S4FINL) in the 79-company Standard & Poor’s Midcap Financials Index.

Superior Energy

With the scrapping of the AT&T deal, the largest transaction for Greenhill this year was advising Superior Energy Services Inc. (SPN) in its purchase of Complete Production Services Inc. (CPX), according to Bloomberg data. Greenhill has served as an adviser on 25 deals valued at $21.2 billion this year, the data show.

Greenhill had been set to beat last year’s 23rd-place ranking. At 40th, the firm ranks below Wells Fargo Co. (WFC) and BMO Capital Markets Corp., among other firms.

Jeffrey Taufield, a spokesman for Greenhill, declined to comment.

The “great weakness” of boutique firms is that without research, they have less leverage with potential clients and are thus more reliant on the league tables to prove their worth, Connelly said. The fall in the rankings makes Greenhill’s job more difficult, he said.

“If you are a naked boutique, as I call the M&A boutiques, you don’t have enough axes to grind with clients,” Connelly said. “The league table standing is more vital for them than it would be for even, say, Lazard, which has other lines of business.”

Global Volume

Greenhill posted net income of $8.56 million in the third quarter, compared with $14.5 million in the same period a year earlier, according to a statement. The firm will have “considerably lower” fixed compensation costs this year because of the departure of managing directors, Bok said in July.

The collapse of the T-Mobile deal pulls global takeover volume down to about $2.19 trillion this year, little changed from all of 2010.

Advisers on the Deutsche Telekom side may fare better, and could still get a percentage of the deal’s reverse $3 billion breakup fee, said Lam Nguyen, a director at Freeman. Deutsche Telekom’s bankers included Morgan Stanley (MS), Credit Suisse Group AG (CSGN), Deutsche Bank AG and Citigroup Inc. (C)

Goldman Sachs (GS), the only bank among the top four advisers that wasn’t involved in the deal, now has 24 percent of the market with $529.8 billion in takeovers, according to data compiled by Bloomberg. JPMorgan’s share fell to 19.6 percent, followed by Morgan Stanley with 19.2 percent and Credit Suisse with 15 percent, the data show.

Express Scripts

T-Mobile is the biggest deal to be scrapped since BHP Billiton Ltd. (BHP)’s $40 billion takeover bid for Potash Corp. of Saskatchewan Inc. was blocked by the Canadian government, according to the data.

Goldman Sachs may further extend its lead over rivals if regulators reject Express Scripts Inc.’s proposed purchase of Medco Health Solutions Inc. (MHS) The $29.1 billion acquisition, which would result in the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, is under review by the Federal Trade Commission, and states have opened inquiries into the sale out of concern that the combined company will command too much market power.

St. Louis-based Express Scripts plunged 18 percent since July 20, the day before the deal was announced. Medco, based in Franklin Lakes, New Jersey, has dropped 2.5 percent.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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Stocks Rally as Treasuries, Dollar Retreat on Economic Data

By Claudia Carpenter and Rita Nazareth - Dec 20, 2011 9:41 PM GMT+0700

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Dec. 20 (Bloomberg) -- Builders broke ground in November on the most houses in over a year, led by a three-year high on work in multifamily units. Starts increased 9.3 percent to a 685,000 annual rate, the highest level since April 2010, Commerce Department figures showed today. Building permits, a proxy for future construction, also climbed to a more than one-year high. Michael McKee and Lisa Murphy report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Dec. 20 (Bloomberg) -- Binay Chandgothia, Hong Kong-based portfolio manager at Principal Global Investors, talks about the European debt crisis and its implications for global stock markets and banking industry. Chandgothia speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

Stocks rallied, with the Standard & Poor’s 500 Index rebounding from its lowest level of the month, and Treasuries fell as U.S. housing starts topped economists’ estimates and German business confidence unexpectedly grew.

The Standard & Poor’s 500 Index climbed 2 percent to 1,229.69 at 9:39 a.m. in New York and the Stoxx Europe 600 Index rose 1.3 percent. Spain’s government bonds stayed higher as the nation sold 5.64 billion euros ($7.4 billion) of Treasury bills. The yield on the 10-year U.S. Treasury note advanced six basis points to 1.87 percent, with the dollar weakening versus all 16 of its most-traded peers. Oil gained 3 percent and the GSCI index of 24 commodities climbed for a second day.

U.S. builders broke ground in November on the most houses in over a year, a sign that the market is stabilizing heading into 2012. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow at least 2 percent next year. German business confidence unexpectedly rose for a second month in December, according to the Ifo institute.

“It looks like our economy is doing pretty good despite the challenges of Europe,” said Michael Strauss, who helps oversee about $27 billion of assets as chief investment strategist at Commonfund in Wilton, Connecticut. “We’re seeing better economic news and the housing report fits right in line with that. The data provides confirmation that the surprise may be that housing is a pretty good contributor to economic activity. It’s another piece of news that’s helping the stock market.”

Housing Starts

The S&P 500 rebounded after yesterday’s 1.2 percent loss. Housing starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed. Building permits, a proxy for future construction, also climbed to a more than one-year high.

Jefferies Group Inc. (JEF), the investment bank battling speculation about its financial strength, rallied after earnings topped analysts’ estimates.

About five shares advanced for every one that declined in the Stoxx 600. Bayerische Motoren Werke AG and Daimler AG led gains among automakers, rising more than 3 percent.

The German Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 107.2 from 106.6 in November, the Munich-based institute said. Economists had expected a drop to 106, the median forecast of 36 economists in a Bloomberg survey showed.

Fresenius Medical

Health-care shares limited gains in Europe as AstraZeneca Plc, the U.K.’s second-biggest drugmaker, slid 2.3 percent after saying earnings will be at the low end of its forecast following research setbacks. Fresenius Medical Care AG slipped 1.3 percent as the world’s largest provider of kidney dialysis cut its full- year revenue forecast.

Per-share earnings at health-care companies in the Stoxx 600 are forecast to grow 1.7 percent in 2012, compared with an increase of 9.8 percent for the index as a whole, according to analyst estimates compiled by Bloomberg.

The five-year Treasury note yield increased three basis points before the government auctions $35 billion of the securities. The yield on Germany’s 10-year bund rose seven basis points, while similar-maturity Italian yields slid 23 basis points to 6.61 percent.

Spain’s 10-year bond yields were 11 basis points lower at 5.07 percent and two-year note yields were nine basis points lower at 3.28 percent.

The nation sold 5.64 billion euros of three-month and six- month bills, the Bank of Spain said, compared with a maximum target of 4.5 billion euros the Treasury had set for the sale.

Commodities

Oil for January delivery climbed 3 percent to $96.69 a barrel. U.S. crude inventories dropped 2 million barrels last week, according to the median of seven analyst estimates before today’s weekly Energy Department report. The GSCI index jumped 2 percent, as Brent crude, heating oil, cocoa, aluminum and gasoline climbed more than 1.9 percent.

The euro strengthened 0.9 percent to $1.3112. Australia’s dollar climbed 1.5 percent against the greenback after minutes of the central bank’s last meeting showed policy makers saw a continued expansion in the domestic economy even as Europe’s debt crisis weighs on global economic growth.

Sweden’s krona appreciated against the dollar and the euro even as the nation’s central bank lowered its main rate for the first time since 2009 to protect the economy from the debt crisis.

The MSCI Emerging Markets Index (MXEF) rose 0.9 percent. The Kospi Index climbed 0.9 percent in Seoul, rebounding from a 3.4 percent slide yesterday, and the won strengthened 1.5 percent against the dollar. South Korea’s National Pension Service, the nation’s biggest investor, said it bought stocks yesterday after the death of North Korean leader Kim Jong Il spurred some investors to sell on concern the leadership transition may lead to conflict on the peninsula. Moody’s Investors Service and S&P said Kim Jong Il’s death is unlikely to affect South Korea’s credit rating.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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U.S. Stocks Rise as Housing Starts Beat Expectations

By Rita Nazareth - Dec 20, 2011 9:45 PM GMT+0700

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Dec. 20 (Bloomberg) -- Ellen Braitman summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

U.S. stocks rose, following yesterday’s decline in the Standard & Poor’s 500 Index, amid expectations the world’s largest economy will avoid a recession as housing starts rose to the highest level in a year.

Morgan Stanley and Bank of America Corp. (BAC) added at least 3.1 percent. Jefferies Group Inc., the investment bank that’s been battling speculation about its financial strength, gained 6 percent after reporting earnings that beat estimates. AT&T Inc. (T) rose 0.5 percent after pulling its bid for T-Mobile USA. Rival Sprint Nextel Corp. rallied 4.6 percent. Red Hat Inc. (RHT), the largest seller of the open-source Linux operating system, tumbled 3.4 percent as billings missed some estimates.

The S&P 500 rose 2.2 percent to 1,231.93 at 9:44 a.m. New York time. The benchmark measure for American equities slumped 1.2 percent yesterday. The Dow Jones Industrial Average added 244.84 points, or 2.1 percent, to 12,011.10 today.

“The U.S. market is the most inviting on a global basis,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “It’s a combination of being relatively inexpensive plus the fact that our economy is warming when Europe is going cold. When you look at the cumulative evidence, the housing report is one more brick in the wall and an important indication of strengthening.”

The S&P 500 fell 12 percent from a three-year high in April through yesterday amid concern about a global economic slowdown as Europe struggles to tame its debt crisis. The benchmark gauge is trading (SPX) for 12.7 times reported earnings, compared with its average since 1954 of 16.4 times, according to data compiled by Bloomberg.

Housing Data

Stocks rose today after a report showed that housing starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also climbed to a more than one-year high.

“It looks like our economy is doing pretty good despite the challenges of Europe,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “We’re seeing better economic news and the housing report fits right in line with that. The data provides confirmation that the surprise may be that housing is a pretty good contributor to economic activity. It’s another piece of news that’s helping the stock market.”

Financials Rebound

Financial companies rebounded. Morgan Stanley (MS), owner of the world’s largest brokerage, climbed 3.3 percent to $14.62, after yesterday’s 5.5 percent slump. Bank of America, which yesterday ended at the lowest level since March 2009, gained 3.1 percent to $5.14.

Jefferies rallied 6 percent to $12.51. Earnings per share excluding some items amounted to 17 cents, compared with the 14 cent average estimate (JEF) of eight analysts surveyed by Bloomberg.

The shares have plunged more than 50 percent this year as MF Global Holdings Ltd. (MF)’s $6.3 billion bet on European debt led to an Oct. 31 bankruptcy. The firm cut its sovereign securities holdings last month after Egan-Jones Ratings said it may face losses tied to the region’s debt crisis. Fitch Ratings said on Dec. 6 that Jefferies has sufficient liquidity to “weather challenging markets” and on Dec. 15 affirmed the company’s BBB rating.

Energy and raw material shares jumped as the U.S. dollar retreated, boosting the appeal of commodities. Alcoa Inc. (AA), the largest U.S. aluminum producer, increased 2.9 percent to $8.78. Schlumberger Ltd. (SLB), the world’s largest oilfield-services provider, climbed 3.6 percent to $67.40.

Higher Dividend

CVS Caremark Corp. rose 4.4 percent to $38.17. The largest U.S. distributor of prescription drugs boosted (CVS) its quarterly dividend to 16.25 cents a share from 12.5 cents a share.

AT&T gained 0.5 percent to $28.87 after its $39 billion bid to acquire Deutsche Telekom AG’s T-Mobile USA came to an end yesterday in a phone call between the companies’ chief executive officers, according to people familiar with the matter.

AT&T’s Randall Stephenson and Deutsche Telekom’s Rene Obermann ultimately agreed the costs of continuing to fight for the deal unveiled nine months earlier were too high, given the opposition from U.S. regulators, the people said.

Rival Sprint Nextel (S) jumped 4.6 percent to $2.26.

Red Hat tumbled 3.4 percent to $44.47. Billings, a predictor of revenue, increased 23 percent from a year earlier in the period that ended Nov. 30. That was lower than the 24 percent growth projected by Walter Pritchard, an analyst at Citigroup Inc., according to a note yesterday.

Green Giant

General Mills Inc. (GIS) declined 1.8 percent to $38.87. The maker of Cheerios and Green Giant frozen vegetables reported second-quarter earnings excluding some items of 76 cents a share, missing the average analyst estimate of 79 cents a share.

Consumer stocks are defying this year’s drop in the S&P 500 regardless of their ties to the economy, and UBS AG says they will keep beating the market next year.

Makers of food, beverages and other consumer staples (S5CONS) in the S&P 500 gained 7.1 percent as a group through yesterday. Their index was the year’s second-best (SPXL1) performer among the 10 main industry groups in the benchmark, and only trailed utilities. An index of retailers, media companies and other industries that rely on consumers’ discretionary index added 0.3 percent.

“The American consumer is alive and well and consumer companies are likely to post solid results in 2012,” Jonathan Golub, the chief U.S. market strategist at UBS, wrote yesterday in a report.

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

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

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AT&T Left With Few Options After T-Mobile Bid

By Scott Moritz - Dec 20, 2011 9:39 PM GMT+0700

The collapse of AT&T Inc. (T)’s $39 billion bid for T-Mobile USA leaves the second-largest U.S. mobile carrier with few attractive strategic options as it seeks to challenge market leader Verizon Wireless.

To accommodate data-usage growth, AT&T argued it needed the airwaves the T-Mobile USA purchase would have brought. With that option now unavailable, AT&T can either seek to buy spectrum from another company, wait for the government to auction more frequencies or try to squeeze more capacity out of its current airwaves. Each option is time-consuming, expensive and risky, said Colby Synesael, a Cowen & Co. analyst in New York.

“Without this deal, it is going to be difficult for AT&T,” Synesael said. “There’s no clear solution.”

Already criticized for dropped calls and network coverage, AT&T will face more constrained capacity than Verizon Wireless, Synesael said. That may hurt customer growth at a time when carriers are seeking to sign up lucrative smartphone and tablet subscribers who will generate revenue for years to come. Earlier this year, AT&T lost U.S. exclusivity to the Apple Inc. iPhone.

While AT&T focused on winning regulatory approval for the takeover, rivals negotiated their own airwave deals. That means several spectrum assets that would have still been available for AT&T to purchase earlier this year are now off the market.

AT&T abandoned the T-Mobile deal yesterday after a nine- month campaign that underestimated opposition from regulators. The Justice Department sued to block the deal in August, saying it would reduce competition. The purchase of T-Mobile from parent Deutsche Telekom AG (DTE) would have vaulted Dallas-based AT&T past Verizon Wireless as the biggest U.S. mobile carrier.

Wireless Airwaves

Spectrum is a term used for airwaves, licensed by the government, that carry wireless voice and data signals. Governments often sell unused or repurposed frequencies to the highest bidder, and companies also trade them.

Still, AT&T can’t rely on the U.S. government auctioning new wireless spectrum soon. While lawmakers are working on legislation that would allow carriers to bid on airwaves currently held by television broadcasters, no timing for such a sale has been set.

That leaves AT&T seeking spectrum holders willing to sell. However, any such attempts became more difficult in the past few weeks because purchases by rivals reduced the amount available.

Rivals’ Moves

On Dec. 1, wholesale wireless-service provider and spectrum-owner Clearwire Corp. (CLWR) secured its ties with partner Sprint Nextel Corp. (S) through a financing and network-sharing agreement. Sprint, the No. 3 carrier, reserved rights to buy Clearwire’s spectrum if other offers were made.

That move was followed by Verizon Wireless’s $3.6 billion deal to acquire airwaves held mostly by Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC), something Synesael called “a real coup.” Verizon Wireless, co-owned by Verizon Communications Inc. (VZ) and Vodafone Group Plc, and the cable companies will also market and sell each other’s services under the agreement.

The deal, combined with one struck with Cox Communications Inc., means Verizon Wireless will have “the highest-quality and deepest 4G spectrum position among the major U.S. carriers,” John Hodulik, a UBS AG analyst, said in a research note. It will have 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100, giving it a “meaningful competitive advantage,” Hodulik said. AT&T has 100.7 million subscribers, trailing Verizon Wireless’s 107.7 million.

Dish Network Corp. (DISH), a satellite-TV provider that owns spectrum, said this month it isn’t interested in selling it and that it may partner with T-Mobile if AT&T’s takeover bid fails.

Spending Through It

AT&T, down 33 percent since a 2007 high, rose 0.3 percent to $28.84 at 9:36 a.m. New York time. Before today, the stock had lost 2.2 percent this year, while Verizon Communications had gained 8 percent.

Among AT&T’s other “very limited options” is an attempt to squeeze more performance out of its network, said Jennifer Fritzsche, an analyst at Wells Fargo & Co. (WFC) in Chicago. That investment would require building more cell-phone towers and adding more network equipment on the existing airwaves. That increases the number of antennas so more people are served through the same spectrum.

“With the lack of more spectrum, they can split cell sites and spend their way through it,” Fritzsche said.

That would require AT&T to boost spending at a time when it also has to compensate Deutsche Telekom for the deal’s demise. Deutsche Telekom has said it values the breakup package at as much as $7 billion, including lower charges for its customers to terminate calls on AT&T’s network. AT&T said yesterday it took a $4 billion pretax charge for the deal’s failure.

The solution of adding network gear would also be a shorter-term solution and not solve the longer-term spectrum crunch, Fritzsche said.

Risk to Investors

Citing the potential for increased spending, Fitch Ratings issued a report last week pointing to the possible risks to investors.

“AT&T’s need to enhance its capacity could lead to a rise in capital spending and/or the acquisition of spectrum through other transactions,” the credit-rating company said.

AT&T had more than $70 billion of debt at the end of the third quarter and capital expenditures rose to $14.7 billion in the first nine months of the year, from $13.7 billion in the same period a year earlier.

While the T-Mobile acquisition would have also represented a large investment, the deal would have included benefits such as additional customers and revenue, a network and possible cost savings from combined operations and job cuts.

Kevin Smithen, a Macquarie Capital USA Inc. analyst who downgraded AT&T to “sell” from “hold” last week on concern that the company has lost ground, said Verizon Wireless now has a spectrum advantage as customers move to faster networks.

“AT&T is running out of options,” Smithen said in a note.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

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

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U.S. Housing Starts Jump 9.3%, to Highest in Year

By Timothy R. Homan - Dec 20, 2011 9:55 PM GMT+0700

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Dec. 20 (Bloomberg) -- Builders broke ground in November on the most houses in over a year, led by a three-year high on work in multifamily units. Starts increased 9.3 percent to a 685,000 annual rate, the highest level since April 2010, Commerce Department figures showed today. Building permits, a proxy for future construction, also climbed to a more than one-year high. Michael McKee and Lisa Murphy report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Builders broke ground in November on more houses than at any time in the past 19 months, led by a surge in multifamily units, signaling the market is stabilizing heading into 2012.

Starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the most since April 2010, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also climbed to a more than one-year high.

Work on multifamily units like apartments and townhouses is growing as the rental market improves. Single-family-home construction may be starting to strengthen as lower home prices and borrowing costs near record lows draw in some buyers, even as builders face competition from existing houses as another wave of foreclosures throws more marked-down properties on the market.

“It’s a solid report,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who had the highest forecast in the Bloomberg survey. “For months we’ve been flagging the strength in multifamily construction, but now we’re starting to get signs that single-family is pulling itself off the canvas.”

Stocks rose as the housing data added to recent evidence the world’s largest economy was strengthening. The Standard & Poor’s 500 Index climbed 2.06 percent to 1,230.07 at 9:48 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.87 percent from 1.81 percent late yesterday.

Growing Confidence

German business confidence unexpectedly rose in December for a second month as two economic institutes predicted Europe’s biggest economy will stave off the debt crisis and avoid a recession in 2012, other reports showed today.

Australia’s central bank said resource investment is also helping the economy ride out Europe’s sovereign-debt crisis. The Reserve Bank of Australia lowered borrowing costs Dec. 6 because of the “non-trivial possibility of a very sharp contraction” in Europe, according to minutes of the meeting released today.

The median estimate of 79 economists surveyed by Bloomberg called for a gain in U.S. housing starts to a 635,000 rate from a previously reported 628,000. Projections ranged from 600,000 to 655,000. The Commerce Department revised the October reading down to 627,000.

The November results compare with last year’s overall tally of 587,000 starts, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959.

More Permits

Permits increased to a 681,000 annual pace in November, the highest level since March 2010. They were projected to fall to a 635,000 rate from 644,000 the prior month, according to the survey median. Applications for the construction of single- family homes climbed 1.6 percent, and those for multifamily units jumped 14 percent.

New construction of single-family houses rose 2.3 percent from the prior month to a 447,000 annual rate, the most since June. The category is heading for a record low this year at around 423,000, about 10 percent less than in 2010, according to Bloomberg News calculations. The worst year so far in five decades of data was 2009, when 445,100 homes were started.

The industry is being buoyed by work on multifamily units, which surged 25 percent in November to an annual rate of 238,000, the highest level since September 2008. Apartments and other multifamily dwellings are gaining ground as foreclosures turn more Americans into renters.

‘Mini Boom’

“Multifamily construction is experiencing a mini boom as Americans shift from buying to renting,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Homebuilders still compete with a glut of cheaply priced foreclosed homes, but their own inventory is nearing historic norms in relation to sales.”

Three of four regions had a November increase in starts, led by a 54 percent jump in the Northeast and a 23 percent gain in the West. Starts fell 18 percent in the Midwest.

Purchases of new houses rose 1.3 percent in October, as discounted prices lured in some buyers, Commerce Department figures show. Sales of previously owned homes, which now make up about 94 percent of the market, increased 1.4 percent that same month, according to the National Association of Realtors.

The Obama administration this month started a new version of the federal Home Affordable Refinance Program, or HARP, after the original program helped less than a quarter of the people targeted to lock in lower mortgage rates.

Fed Policy

Federal Reserve policy makers reiterated at a meeting this month that they will keep the benchmark interest rate near zero until at least 2013. The central bank in September decided to reinvest maturing housing debt into new mortgage-backed securities instead of Treasuries.

Some policy efforts may be contributing to signs of improvement in the housing market. A report yesterday showed the National Association of Home Builders/Wells Fargo index of builder confidence rose in December for a third straight month, to 21, the highest level since May 2010. Readings below 50 mean more respondents said conditions were poor.

“November is a time that historically sales slow down,” Larry Sorsby, chief financial officer at Hovnanian Enterprises Inc. (HOV), said in a Dec. 15 call with analysts. “And this year we’ve not seen as dramatic a slowdown as we have in recent prior years. The market feels a little bit better than we would have expected.”

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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European Stocks Rise on German Business Confidence; UniCredit, BNP Advance

By Sarah Jones - Dec 20, 2011 8:08 PM GMT+0700

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Dec. 20 (Bloomberg) -- Michael O'Sullivan, head of U.K. research and global asset allocation at Credit Suisse Group AG's private banking unit, talks about investment strategy and the euro-zone economy. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Dec. 20 (Bloomberg) -- Christian Gattiker, head of research at Bank Julius Baer & Co., discusses the outlook for stocks and bonds amid the ongoing sovereign-debt crisis. He talks from Zurich with Owen Thomas and Linda Yueh on Bloomberg Television's "On the Move." (Source: Bloomberg)

European stocks climbed, erasing an earlier selloff, led by a rally in banks, after a report showed that German business confidence unexpectedly rose for a second month. Asian shares and U.S. index futures rose.

UniCredit SpA (UCG), BNP Paribas SA and Intesa Sanpaolo SpA (ISP) all climbed more than 3 percent as borrowing costs eased. Arkema SA (AKE) rallied 5.4 percent amid speculation the company may be a takeover target. AstraZeneca (AZN) Plc paced declining shares after the drugmaker said full-year earnings will be at the low end of its previous forecast.

The benchmark Stoxx 600 gained 0.5 percent to 234.84 at 1:07 p.m. in London, erasing an earlier slide of as much as 0.5 percent. The gauge has still lost 15 percent this year. Standard & Poor’s 500 Index futures expiring in March added 1 percent today, while the MSCI Asia Pacific Index (MXAP) rose 0.3 percent.

“The data is an incremental positive which may have given rise to some short covering,” said Ioan Smith, a director at Knight Capital Europe Ltd. in London. “This follows the surprise improvement last month that was followed by up-ticks in both the ZEW and PMI readings, and together with today’s report suggests that confidence has bottomed out.”

Stocks gained after German business confidence climbed in December, suggesting Europe’s largest economy is weathering the euro area’s debt crisis. The gauge of business confidence, based on a survey of 7,000 executives, rose to 107.2 from 106.6 in November, the Munich-based Ifo institute said today. The median economist forecast called for a drop to 106.

In the U.K., consumer confidence rose in November from a record low as Britons’ expectations for the economy improved in the run-up to Christmas, Nationwide Building Society said.

Stocks initially fell, pacing yesterday’s sell off in U.S. stocks, after the Wall Street Journal reported that large financial institutions will have to hold extra capital.

ECB’s Mario Draghi

European Central Bank President Mario Draghi said yesterday that substantial risks to the economy remain and the law forbids him from increasing government-bond purchases to fight the crisis. The benchmark Stoxx 600 tumbled 2.8 percent last week after the Federal Reserve refrained from taking new action to bolster the world’s largest economy.

Lenders paced advancing shares today. UniCredit rallied 3.4 percent to 71.95 euro cents. BNP Paribas (BNP) rose 5.4 percent to 29.97 euros and Intesa climbed 4.1 percent to 1.27 euros.

Spain’s Debt Sale

Spain sold 5.64 billion euros ($7.4 billion) of three-month and six-month bills, the Bank of Spain said, compared with the maximum target of 4.5 billion euros that the Treasury had set for the sale.

The average yield on the three-month debt dropped to 1.735 percent, compared with 5.110 percent when the securities were last issued on Nov. 22. The average six-month yield fell to 2.435 percent from 5.227 percent last month.

Arkema jumped 5.4 percent to 50.23 euros. The company, which is cheaper than any rival industrial-chemical producer, may be a takeover target for Saudi Basic Industries Corp. (SABIC) and DuPont Co. after deciding to spin off its unprofitable vinyls business.

“It revives the allure for a takeover,” Francoise Delva, an analyst at Gilbert Dupont in Paris, said in a telephone interview. Selling the vinyls unit “is positive for the company, hence it will expose it to the appetite” of potential buyers, she said.

AstraZeneca fell 2.4 percent to 2,877 pence after the drugmaker predicted earnings per share at the low end of its forecast because of research setbacks. The company will take a charge of $381.5 million in the fourth quarter after two experimental medicines had disappointing results.

Core earnings per share will probably be “in the lower half” of the company’s $7.20 to $7.40 estimate, it said.

Deutsche Telekom Drops

Deutsche Telekom declined 1.3 percent to 8.77 euros after AT&T pulled its bid for T-Mobile USA in a phone call between the companies’ chief executive officers, people familiar with the matter said.

AT&T’s Randall Stephenson and Deutsche Telekom’s Rene Obermann agreed that the costs of continuing to fight for the deal unveiled nine months earlier were too high, given the opposition from U.S. regulators, according to the people.

Fresenius Medical Care AG retreated 1.4 percent to 50.48 euros after the world’s biggest provider of kidney dialysis predicted 2011 revenue of 1 to 2 percent below its $13 billion target. The company cited a weakening euro. Fresenius Medical also forecast full-year net income at the lower end of its $1.07 billion to $1.09 billion range.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Bankers Seek to Debunk Attack on Top 1%

By Max Abelson - Dec 20, 2011 12:01 PM GMT+0700

Jamie Dimon, the highest-paid chief executive officer among the heads of the six biggest U.S. banks, turned a question at an investors’ conference in New York this month into an occasion to defend wealth.

“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” the JPMorgan Chase & Co. (JPM) CEO told an audience member who asked about hostility toward bankers. “Sometimes there’s a bad apple, yet we denigrate the whole.”

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. (HD) co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

‘Feels Lonely’

The organization assisted John A. Allison IV, a director of BB&T Corp. (BBT), the ninth-largest U.S. bank, and Staples Inc. co- founder Thomas Stemberg with media appearances this month.

“It still feels lonely, but the chorus is definitely increased,” Allison, 63, a former CEO of the Winston-Salem, North Carolina-based bank and now a professor at Wake Forest University’s business school, said in an interview.

At a lunch in New York, Stemberg and Allison shared their disdain for Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the ratio between the compensation of their CEOs and employee medians, according to Allison. The rule, still being fine-tuned by the Securities and Exchange Commission, is “incredibly wasteful” because it takes up time and resources, he said. Stemberg called the rule “insane” in an e-mail to Bloomberg News.

“Instead of an attack on the 1 percent, let’s call it an attack on the very productive,” Allison said. “This attack is destructive.”

Income Tripled

The top 1 percent of taxpayers in the U.S. made at least $343,927 in 2009, the last year data is available, according to the Internal Revenue Service. While average household income increased 62 percent from 1979 through 2007, the top 1 percent’s more than tripled, an October Congressional Budget Office report showed. As a result, the U.S. had greater income inequality in 2007 than China or Iran, according to the Central Intelligence Agency’s World Factbook.

Not all affluent Americans are on the defensive. Billionaire Warren Buffett, 81, chairman and CEO of Berkshire Hathaway Inc., has called for increasing taxes on the wealthy, as has Patriotic Millionaires, a group whose supporters include Ask.com co-founder Garrett Gruener and Peter Norvig, director of research at Google Inc., according to its website.

“Rich businesspeople like me don’t create jobs,” Nick Hanauer, co-founder of aQuantive Inc., an online advertising company he sold to Microsoft Corp. for about $6 billion, wrote in a Dec. 1 Bloomberg View article. “Let’s tax the rich like we once did and use that money to spur growth.”

Two out of three Americans support raising taxes on households with incomes of at least $250,000, according to a Bloomberg-Washington Post national poll conducted in October.

Schwarzman, Paulson

Asked if he were willing to pay more taxes in a Nov. 30 interview with Bloomberg Television, Blackstone Group LP (BX) CEO Stephen Schwarzman spoke about lower-income U.S. families who pay no income tax.

“You have to have skin in the game,” said Schwarzman, 64. “I’m not saying how much people should do. But we should all be part of the system.”

Some of Schwarzman’s capital gains at Blackstone, the world’s largest private-equity firm, are taxed at 15 percent, not the 35 percent top marginal income-tax rate. Attacking the banking system is a mistake because it contributes to “a healthier economy,” he said in the interview.

Paulson, the New York hedge-fund manager who became a billionaire by betting against the U.S. housing market, has also said the rich benefit society.

“The top 1 percent of New Yorkers pay over 40 percent of all income taxes,” Paulson & Co. said in an e-mailed statement on Oct. 11, the day Occupy Wall Street protesters left a mock tax-refund check at its president’s Upper East Side townhouse.

‘Going to Vomit’

Tom Golisano, billionaire founder of payroll processer Paychex Inc. (PAYX) and a former New York gubernatorial candidate, said in an interview this month that while there are examples of excess, it’s “ridiculous” to blame everyone who is rich.

“If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” said Golisano, who turned 70 last month, celebrating the birthday with girlfriend Monica Seles, the former tennis star who won nine Grand Slam singles titles.

Ken Langone, 76, another Home Depot co-founder and chairman of the NYU Langone Medical Center, said he isn’t embarrassed by his success.

“I am a fat cat, I’m not ashamed,” he said last week in a telephone interview from a dressing room in his Upper East Side home. “If you mean by fat cat that I’ve succeeded, yeah, then I’m a fat cat. I stand guilty of being a fat cat.”

Job Creators

Wilbur Ross, 74, another private-equity billionaire, said in an e-mail that entrepreneurship and capitalism didn’t cause the financial crisis.

“Tearing down the rich does not help those less well- off,” said the chairman of New York-based WL Ross & Co. LLC. “If you favor employment, you need employers whose businesses are flourishing.”

That view is shared by Robert Rosenkranz, CEO of Wilmington, Delaware-based Delphi Financial Group Inc., a seller of workers’-compensation and group-life insurance.

“It’s simply a fact that pretty much all the private- sector jobs in America are created by the decisions of ‘the 1 percent’ to hire and invest,” Rosenkranz, 69, said in an e- mail. “Since their confidence in the future more than any other factor will drive those decisions, it makes little sense to undermine their confidence by vilifying them.”

‘Persecuted Minority’

Peter Schiff, CEO of Westport, Connecticut-based broker- dealer Euro Pacific Capital Inc., is delivering the message directly. He went in October to Zuccotti Park in lower Manhattan, where Occupy Wall Street protesters had camped out, with a sign that said “I Am the 1%” and a video camera.

“Somebody needs to do it,” Schiff said in an interview.

Schiff, 48, disclosed assets of at least $64.7 million before losing the 2010 Republican primary for a Connecticut U.S. Senate seat, according to filings. He’s wealthier now, even though his taxes are “more than a medieval lord would have taken from a serf,” he said.

A clip from Schiff’s video was used in a Nov. 1 segment of Comedy Central’s “The Daily Show,” in which comedian John Hodgman, wearing a cravat, called the wealthy a “persecuted minority.” He asked that the phrase “moneyed Americans” replace “the 1 percent.”

Neither term appeared in a Nov. 28 open letter to President Barack Obama from hedge-fund manager Leon Cooperman, the Omega Advisors Inc. chairman and former CEO of Goldman Sachs Group Inc. (GS)’s money-management unit. Capitalists “are not the scourge that they are too often made out to be” and the wealthy aren’t “a monolithic, selfish and unfeeling lot,” Cooperman wrote. They make products that “fill store shelves at Christmas” and provide health care to millions.

Cooperman, 68, said in an interview that he can’t walk through the dining room of St. Andrews Country Club in Boca Raton, Florida, without being thanked for speaking up. At least four people expressed their gratitude on Dec. 5 while he was eating an egg-white omelet, he said.

“You’ll get more out of me,” the billionaire said, “if you treat me with respect.”

To contact the reporter on this story: Max Abelson in New York at mabelson@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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Apple Wins Ruling Ban On Some HTC Phones

By Susan Decker - Dec 20, 2011 8:08 PM GMT+0700
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A customer examines an HTC Corp. Rhyme mobile handset device at an HTC store in Taipei on Dec. 14, 2011. Photographer: Ashley Pon/Bloomberg

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Dec. 20 (Bloomberg) -- Brian Marshall, a San Francisco-based analyst at ISI Group, talks about the patent dispute between Apple Inc. and Taoyuan, Taiwan-based HTC Corp. Apple won a patent-infringement ruling that bans some HTC smartphones from the U.S. starting next year, bolstering efforts to prove that devices running Google Inc.’s Android operating system copy the iPhone. Marshall speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)

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Dec. 9 (Bloomberg) -- Apple Inc., the world’s largest technology company, failed to get a ban on Samsung Electronics Co.’s iPad 2 rival extended in Australia, enabling the South Korean manufacturer to start selling the tablet immediately. Joe Schneider reports from Sydney on Bloomberg Television's "On the Move Asia" with John Dawson. (Source: Bloomberg)

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Dec. 19 (Bloomberg) -- Brian Blair, an analyst at Wedge Partners Corp., talks about AT&T Inc.'s decision to abandon a $39 billion takeover bid for T-Mobile USA and Apple Inc.'s victory in a final patent-infringement ruling that bans some HTC Corp. smartphones from the U.S. Blair speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Apple Inc. (AAPL) won a patent-infringement ruling that bans some HTC Corp. smartphones from the U.S. starting next year, bolstering efforts to prove that devices running Google Inc.’s Android operating system copy the iPhone.

The U.S. International Trade Commission, in a review of a judge’s findings in July, said yesterday that HTC is violating one Apple patent related to data-detection technology and issued a limited import exclusion order that takes effect April 19.

While less than what Apple sought, the ruling provides its first victory in patent cases designed to slow the growth of Google’s Android, which former Chief Executive Officer Steve Jobs claimed “ripped off the iPhone.” Apple’s fight against the Google system includes another case against HTC, as well as complaints against Samsung Electronics Co. and Motorola Mobility Holdings Inc. Apple is involved in more than a dozen other cases before the trade commission.

“The battle between Apple and Android is going to continue,” said Peter Toren, a patent lawyer with Shulman Rogers in Potomac, Maryland, who has been watching the cases. “I’m not sure this decision, the way it is, is enough to push the parties to settlement. Apple doesn’t have the leverage of a total exclusionary order.”

Representatives from Google had no immediate comment. HTC will completely remove it from all of our phones soon, Grace Lei, general counsel for Taoyuan, Taiwan-based HTC, said in an e-mail. The six-member commission determined that three other patents in the case weren’t infringed.

Google, HTC Partnership

HTC, the second-largest maker of Android phones, used its partnership with Mountain View, California-based Google to help transform itself from a contract manufacturer founded in 1997 to the biggest U.S. smartphone seller in the third quarter.

The ruling is the first definitive decision in the dozens of patent cases that began to proliferate in 2010 as smartphone makers battle over a market that Strategy Analytics Inc. said increased 44 percent last quarter from a year earlier to 117 million phones worldwide.

Google, which hasn’t been named in any Apple cases, denies copying the iPhone and said in a filing that Apple is trying to control the U.S. smartphone market through litigation.

HTC’s Android devices “are helping prevent Apple’s iOS from becoming the sole viable mobile platform and thus ‘locking in’ consumers and software developers to that platform,” Google said in an Oct. 6 filing.

Google Licenses

Google’s Android accounts for about 70 percent of the smartphone operating systems used in the U.S., according to Canalys. Google licenses Android to handset makers for free as a way to further its business of selling display and search advertising on mobile devices.

Google’s share of this year’s estimated $2.1 billion U.S. mobile-ad market will expand to 24 percent from 19 percent in 2010, Framingham, Massachusetts-based researcher IDC said Dec. 13. Millennial Media Inc.’s slice may climb to 17 percent from 15 percent, and Apple’s will decline to 15 percent from 19 percent.

The list of affected products and a full reason for the commission’s decision, which is subject to appeal and a presidential review, wasn’t immediately made public. Apple’s original complaint named HTC’s Nexus One, Touch Pro, Diamond, Tilt II, Dream, myTouch, Hero and Droid Eris.

Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, declined to discuss the possibility of a settlement. She repeated the company’s position that “competition is healthy, but competitors should create their own original technology.”

Recognizing Telephone Numbers

HTC shares (2498) rose by the 7 percent daily limit to NT$476 in Taipei after the company said it will buy back 10 million of its own shares, equal to 1.16 percent of those outstanding.

HTC generated about $5 billion in U.S. sales last year, according to a separate patent complaint it filed at the trade agency against Apple. That’s more than half of HTC’s $9 billion (NT$275 billion) in global sales last year.

The commission’s order applies to new phone imports and doesn’t force HTC to pull existing devices off U.S. store shelves. The company can import refurbished phones to fulfill warranties or insurance contracts through Dec. 19, 2013.

“This exemption does not permit HTC to call new devices ‘refurbished’ and to import them as replacements,” the commission said.

Apple’s so-called ‘647 patent covered a feature in which the phone recognizes a telephone number so it can be stored in directories or called without dialing.

“The ‘647 patent is a small user interface experience,” Lei said. The company is pleased with the commission’s overall decision, and “we respect it.”

IPhone 4s, Galaxy

HTC phones accounted for 24 percent of the U.S. smartphone market in the third quarter, based on shipments, Palo Alto, California-based researcher Canalys reported Oct. 31. Samsung held 21 percent of the market, and Apple 20 percent. The market is volatile, and the Apple iPhone 4s that went on sale in October and Samsung’s newest Galaxy phone are likely to change the rankings for the fourth quarter.

Apple contended in its complaint that the HTC phones infringed four patents. Administrative Law Judge Carl Charneski in July sided with Apple for two of the patents: the data- detection one and the other covering the transmission of multiple types of data. The commission overturned the judge’s findings on that patent, and affirmed his determination that the remaining two patents weren’t infringed, which covered ways software programs are written and executed.

The commission, a quasi-judicial arbiter of trade disputes with the power to block products that infringe U.S. patents, chose in September to review Charneski’s findings.

‘Destroy Android’

Apple has a second complaint pending before the commission that claims other HTC smartphones and Flyer tablet computers infringe five patents related to software architecture and user interfaces. Apple also has cases before the trade commission and in district courts against Samsung and Motorola Mobility, which Google agreed to acquire in August.

The fight can be traced back to a decision by Jobs in March 2010 to file the HTC case, the first patent complaint by a device maker targeting Google’s Android operating system. Jobs, who died Oct. 5, made it his mission “to destroy Android,” which he said “ripped off the iPhone, wholesale,” according to Walter Isaacson’s biography of the Apple founder.

HTC has retaliated with two trade commission cases against Apple, one submitted last year and one in August. HTC lost a preliminary ruling by a judge in the case filed last year, a decision that the commission is now reviewing. The other case has yet to be decided. S3 Graphics Co., a company HTC agreed to buy in July, also has two commission cases against Apple, one of which Apple won last month.

The case is In the Matter of Certain Personal Data and Mobile Communications Devices and Related Software, 337-710, U.S. International Trade Commission (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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AT&T Pulls its $39 Billion Bid for T-Mobile

By Scott Moritz and Cornelius Rahn - Dec 20, 2011 6:03 PM GMT+0700

AT&T Inc.’s $39 billion bid to acquire Deutsche Telekom AG (DTE)’s T-Mobile USA came to an end yesterday in a phone call between the companies’ chief executive officers, according to people familiar with the matter.

AT&T’s Randall Stephenson and Deutsche Telekom’s Rene Obermann ultimately agreed the costs of continuing to fight for the deal unveiled nine months earlier were too high, given the opposition from U.S. regulators, the people said. AT&T’s bid to close the year’s biggest acquisition and become the largest U.S. wireless carrier was over.

“They made an unprecedented move bidding on T-Mobile and appear to have miscalculated the risks and the regulatory opposition,” said Kevin Smithen, an analyst with Macquarie Capital USA Inc.

AT&T failed to convince the Justice Department, which sued to block the transaction in August, that it could remedy the market impact of absorbing T-Mobile, the nation’s No. 4 mobile- phone operator. AT&T would have spent months in litigation to try to win court approval, and the company also faced possible opposition from the Federal Communications Commission.

Deutsche Telekom shares fell as much as 2.2 percent and were down 1.1 percent at 8.79 euros at 11:58 a.m. in Frankfurt. The stock has declined 9 percent this year. AT&T fell (T) 0.4 percent to $28.74 yesterday and has lost 2.2 percent this year.

AT&T, the second-largest U.S. wireless operator, will take a pretax charge of $4 billion to reflect cash payments and other considerations due to Deutsche Telekom, the Dallas-based company said in a statement yesterday.

Last Best Offer

The move comes a week after the judge in the Justice Department lawsuit agreed on Dec. 12 to put the case on hold as the telephone company decided whether or how to revise the transaction. The delay may have made it more difficult for AT&T to close the deal by the Sept. 20 deadline.

AT&T had been trying to get regulatory approval for the deal by selling off T-Mobile assets and creating a stronger wireless competitor. The last proposal before the deal was killed was the transfer of $8 billion to $9 billion worth of T-Mobile assets to Leap Wireless International Inc. (LEAP) for a cost of about $2 billion, said two people familiar with the talks.

The Justice Department didn’t consider Leap a strong alternative because the San Diego-based company didn’t have enough money to make substantial capital investments in its network if it acquired the assets, the people said.

AT&T’s Stephenson said in the statement yesterday that efforts by the DOJ and FCC to block the deal may hurt customers and industry investment.

Stephenson’s Confidence

“To meet the needs of our customers, we will continue to invest,” Stephenson said, adding that regulators need to allow more airwave sales and reform rules to “meet our nation’s longer-term spectrum needs.”

Stephenson said in March, when the deal was announced, that he was confident of receiving regulatory clearance. He said the combination would help improve service, speed up investment in faster networks and drive wireless expansion in rural areas. The deal would have added T-Mobile’s 33.7 million customers to AT&T’s 100.7 million subscribers, surpassing Verizon Wireless’s 107.7 million.

Critics of the deal said it would eliminate an aggressive price competitor, driving up subscription costs. T-Mobile’s monthly wireless plans are $15 to $50 cheaper than comparable AT&T plans, according to an analysis by Consumer Reports.

“I’m relieved that we are no longer at risk of concentrating such enormous power in the hands of AT&T and Verizon,” U.S. Senator Al Franken said in a statement.

‘Paying the Price’

What Stephenson thought was an opportunity turned out to be an insurmountable challenge, said Charles Golvin, an analyst with Forrester Research Inc.

“I think he overreached,” said Golvin. “They overestimated their ability to influence the regulatory agencies and influence that process. Now they are paying the price.”

The failed deal may cost AT&T next year, said Smithen. The company may have to lower its profit forecast due to capital spending or acquisitions as it makes up for the capacity it had planned to add through T-Mobile, he said.

“The next shoe to drop could be 2012 guidance,” said Smithen. “The company will report earnings next month and we are concerned that there will be downside revisions to 2012 earnings and estimates,” said Smithen.

Ashley Zandy, a spokeswoman for AT&T, declined to comment on the financial forecast.

DT’s Plans

For Deutsche Telekom, the collapse of the deal leaves it with one more subscriber-losing business as the Bonn-based company confronts the fallout from Europe’s debt crisis. Deutsche Telekom had planned to use the proceeds to cut debt by 13 billion euros ($17 billion) and repurchase 5 billion euros of its shares. The company also needs funds to upgrade fiber and wireless networks in Germany and other European markets.

Deutsche Telekom says the deal’s demise won’t change its financial targets for 2011 and that it will remain within its forecast range for debt reduction. The company also said it expects to receive the breakup fee’s cash component by the end of this year, adding that it will resume reporting T-Mobile USA’s earnings as “continued operations.” The division had been reported as “discontinued operations” since the first quarter.

AT&T and Deutsche Telekom pulled their applications to the FCC on Nov. 24, with AT&T announcing the same day that it would record $4 billion in costs this quarter to reflect the risk of the deal collapsing.

$7 Billion Breakup

The withdrawal came after FCC Chairman Julius Genachowski asked the commission on Nov. 22 to send the proposal to an agency judge for a hearing. The same move by the FCC in 2002 helped block EchoStar Communications Corp.’s acquisition of satellite-TV rival DirecTV.

According to the terms of the offer, AT&T must pay Deutsche Telekom a $3 billion breakup fee in cash, transfer radio spectrum to T-Mobile and strike a more favorable network-sharing agreement. Deutsche Telekom has valued the breakup package at as much as $7 billion.

In an effort to sell the deal to regulators and the public, AT&T vowed to honor the T-Mobile service plan prices after the merger. The company also vowed to bring 5,000 call-center jobs currently based overseas to the U.S. in the event of approval.

“They rolled the dice and took their chances,” said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York. “In the end, it didn’t work out, but that doesn’t mean it was a mistake to try.”

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

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

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Greenhill Falls Toward League-Table Obscurity

By Dakin Campbell - Dec 20, 2011 12:00 PM GMT+0700

AT&T Inc. (T)’s failed $39 billion acquisition of Deutsche Telekom AG (DTE)’s T-Mobile USA Inc. is sending Greenhill & Co. (GHL) toward M&A league-table obscurity.

Greenhill plunged to 40th place in the mergers and acquisitions rankings after AT&T scrapped its deal yesterday, from 18th place with the transaction included, according to data compiled by Bloomberg. AT&T’s advisers -- Greenhill, JPMorgan Chase & Co. (JPM) and Evercore Partners Inc. (EVR) -- will lose about $65 million in fees, according to estimates by New York-based researcher Freeman & Co.

“It’s an embarrassment, but they will feel the loss more financially,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco and a former managing director at Salomon Brothers Inc. “They want to hold onto their star bankers, some of whom worked on this deal, and they have to pay them bonuses. They have a heck of a lot less to pay them with now.”

Greenhill Chief Executive Officer Scott Bok has lost at least three managing directors since early June. Previously, the firm averaged less than one such departure annually since its founding in 1996 by Robert Greenhill. The company has slid 57 percent in New York trading this year, the worst performance (S4FINL) in the 79-company Standard & Poor’s Midcap Financials Index.

Superior Energy

With the scrapping of the AT&T deal, the largest transaction for Greenhill this year was advising Superior Energy Services Inc. (SPN) in its purchase of Complete Production Services Inc. (CPX), according to Bloomberg data. Greenhill has served as an adviser on 25 deals valued at $21.2 billion this year, the data show.

Greenhill had been set to beat last year’s 23rd-place ranking. At 40th, the firm ranks below Wells Fargo Co. (WFC) and BMO Capital Markets Corp., among other firms.

Jeffrey Taufield, a spokesman for Greenhill, declined to comment.

The “great weakness” of boutique firms is that without research, they have less leverage with potential clients and are thus more reliant on the league tables to prove their worth, Connelly said. The fall in the rankings makes Greenhill’s job more difficult, he said.

“If you are a naked boutique, as I call the M&A boutiques, you don’t have enough axes to grind with clients,” Connelly said. “The league table standing is more vital for them than it would be for even, say, Lazard, which has other lines of business.”

Global Volume

Greenhill posted net income of $8.56 million in the third quarter, compared with $14.5 million in the same period a year earlier, according to a statement. The firm will have “considerably lower” fixed compensation costs this year because of the departure of managing directors, Bok said in July.

The collapse of the T-Mobile deal pulls global takeover volume down to about $2.19 trillion this year, little changed from all of 2010.

Advisers on the Deutsche Telekom side may fare better, and could still get a percentage of the deal’s reverse $3 billion breakup fee, said Lam Nguyen, a director at Freeman. Deutsche Telekom’s bankers included Morgan Stanley (MS), Credit Suisse Group AG (CSGN), Deutsche Bank AG and Citigroup Inc. (C)

Goldman Sachs (GS), the only bank among the top four advisers that wasn’t involved in the deal, now has 24 percent of the market with $529.8 billion in takeovers, according to data compiled by Bloomberg. JPMorgan’s share fell to 19.6 percent, followed by Morgan Stanley with 19.2 percent and Credit Suisse with 15 percent, the data show.

Express Scripts

T-Mobile is the biggest deal to be scrapped since BHP Billiton Ltd. (BHP)’s $40 billion takeover bid for Potash Corp. of Saskatchewan Inc. was blocked by the Canadian government, according to the data.

Goldman Sachs may further extend its lead over rivals if regulators reject Express Scripts Inc.’s proposed purchase of Medco Health Solutions Inc. (MHS) The $29.1 billion acquisition, which would result in the largest U.S. manager of pharmacy benefits for employers, insurers and union health plans, is under review by the Federal Trade Commission, and states have opened inquiries into the sale out of concern that the combined company will command too much market power.

St. Louis-based Express Scripts plunged 18 percent since July 20, the day before the deal was announced. Medco, based in Franklin Lakes, New Jersey, has dropped 2.5 percent.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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Deutsche Telekom $3B Fee Buys T-Mobile Time

By Cornelius Rahn - Dec 20, 2011 3:55 PM GMT+0700

Deutsche Telekom AG, whose proposed $39 billion sale of T-Mobile USA to AT&T Inc. (T) collapsed yesterday, has about a year before it needs to start the search for another partner amid rising costs for improving its network.

A breakup package that includes the payment of $3 billion in cash to Deutsche Telekom will only cover T-Mobile’s expenses for 12 to 24 months, said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf. If T-Mobile doesn’t find a new partner after that time, it risks failing to generate enough operating cash flow to cover capital spending, he said.

“Stabilization is the first step and then it’s about finding a new partner in the medium term,” said Specht, who has an “add” recommendation on Deutsche Telekom shares. “In the long run a standalone strategy seems impossible. Everything from here on is only a second-best solution.”

AT&T and Deutsche Telekom agreed to abandon this year’s biggest transaction, which would have created the largest U.S. mobile-phone operator and dethroned market leader Verizon Wireless. Bonn-based Deutsche Telekom cited unwillingness by the U.S. Justice Department and the Federal Communications Commission to change their “non-supportive stance” even after the companies proposed changes to the size and structure of the March 20 transaction. The Justice Department sued in August to block the deal.

Roaming Agreement

Deutsche Telekom fell 1.5 percent to 8.76 euros at 9:48 a.m. in Frankfurt, valuing Europe’s largest phone company at 37.8 billion euros ($49 billion). Before today, the stock had dropped 7.3 percent since the takeover was announced.

T-Mobile is valued at about $19 billion, Berenberg Bank analyst Paul Marsch wrote in a Dec. 12 note, citing a survey the bank held with about 40 investors “a few weeks back.”

In addition to the $3 billion in cash, T-Mobile will receive a package of wireless frequencies from AT&T in 128 market areas, including Los Angeles, Dallas, Houston, Washington and San Francisco. The separation agreement also includes a roaming deal lasting at least seven years, which Deutsche Telekom said will improve T-Mobile’s coverage to 280 million potential customers from 230 million.

T-Mobile spends about $3 billion annually on capital expenditures, including network upgrades, WestLB’s Specht estimates. Upgrading to the long-term evolution technology being rolled out by its competitors, including new spectrum, may cost $8 billion to $9 billion and such a process may take three years, said Jonathan Atkin, an analyst at RBC Capital Markets.

Sprint Talks

T-Mobile USA lost 849,000 contract customers in the first nine months of the year. Its operating income before depreciation and amortization was $3.91 billion in that period, compared with $4.14 billion a year earlier.

Deutsche Telekom Chief Executive Officer Rene Obermann had planned to part with T-Mobile USA to focus on restoring growth in Europe amid a debt crisis that has reduced demand for phone services. Before Deutsche Telekom agreed on the deal with AT&T, it had also held talks with Sprint Nextel Corp. (S), people with knowledge of the matter said in March. Sprint remains a potential suitor for T-Mobile in the future, said RBC’s Atkin.

“They’ll need to make the asset as competitive as they can, not only to bring in good results for the operating business, but also in order to fetch a better price at a future date,” he said.

T-Mobile may reduce the costs of an LTE rollout by sharing next-generation wireless infrastructure with AT&T or Sprint, Atkin said. For additional frequencies, T-Mobile may look to Clearwire Corp. (CLWR) or Sprint for more spectrum, or wait for the next round of spectrum auctions in the U.S., which may come in as little as six months, he said.

Verizon Deal

T-Mobile missed a potential opportunity to purchase additional wireless frequencies this month after Verizon Wireless agreed to buy spectrum valued at $3.6 billion from cable companies Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC) and closely held Bright House Networks LLC. Phone companies need wireless frequencies to add capacity to meet increasing demand for high-speed mobile Internet devices.

Deutsche Telekom may revisit plans, shelved after the AT&T agreement, to sell its U.S. tower network. Those assets may be worth as much as $3 billion, RBC’s Atkin estimated.

“We think they will go back to the old fashioned sort of plan - run the business,” Sanford C. Bernstein analyst Robin Bienenstock wrote in a note today. “T-Mobile USA will compete for prepay customers and hope that Sprint or someone else comes under enough strain they free up more spectrum.”

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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Audis Made on Skodas Mark Major VW Overhaul

By Chris Reiter - Dec 20, 2011 6:00 AM GMT+0700
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An Audi A3 automobile sits on the assembly line at the Audi AG factory in Ingolstadt. Photographer: Guenter Schiffmann/Bloomberg

Volkswagen AG will kick off its biggest technology overhaul in almost two decades when Europe’s largest carmaker revamps the Audi A3 next year.

The compact Audi will mark the first of more than 40 models that will use a set of standardized components such as axles, steering columns and chassis. Sharing parts across brands such as VW, Skoda and Seat may lower costs by 5 billion euros ($6.5 billion) a year, even as it risks a repeat of recalls that hobbled Toyota Motor Corp. (7203), analysts said.

“If something goes wrong, then one may get hit by an epidemic plague,” said Christoph Stuermer, a Frankfurt-based analyst with IHS Automotive. “The more connected the structures, the higher the threat of contagion.”

The technology, which is targeted for use in as many as 3.5 million small and mid-sized cars a year, will help Volkswagen’s plan to become the world’s biggest and most profitable automaker by 2018, surpassing Toyota and General Motors Co. (GM) The Wolfsburg, Germany-based manufacturer estimates it will lower production costs 20 percent and cut assembly times 30 percent.

VW’s approach is more aggressive than the parts sharing that has become standard in the auto industry. Bayerische Motoren Werke AG said it will lower the cost of building the best-selling 3-Series sedan, which hits showrooms in February, by 7 percent to 9 percent by using components from the 1-Series compact and midsize 5-Series.

Flexible Factories

The technology will provide the basis for VW models stretching from the Polo subcompact to the mid-sized Passat, representing the bulk of the carmaker’s sales. The company will be able to produce cars from different brands at the same plant. Volkswagen is not planning to close any factories or fire workers and instead said it will save money by making the process of building cars simpler and faster.

“There’ll be many benefits, including shorter assembly times and increased flexibility,” said Ulrich Hackenberg, VW’s development chief. “We’re creating a system that enables us to produce vehicles based on this architecture at any factory.”

The initiative marks the biggest technology overhaul since Ferdinand Piech, chairman and former chief executive officer, pushed the company to use common underpinnings in the early 1990s in an effort to cut losses. The manufacturer has set aside 62.4 billion euros in its rolling five-year budget to invest in plants, vehicles and development.

‘Big Lever’

“The parts-sharing program is a very big lever to improve profitability that other companies don’t make use of” because of the complexity, said Juergen Pieper, an analyst with Bankhaus Metzler in Frankfurt, who estimates that the technology will save 5 billion euros by 2016. “Without this cost-cutting program, margins wouldn’t likely rise” from this year’s peak.

Volkswagen reported an operating margin of 7.7 percent through the first nine months of 2011 and has a goal of lifting that to more than 8 percent by 2018. Margins could average about 6 percent without the new vehicle architecture, said Pieper, who recommends buying VW shares.

Toyota demonstrated the problem of sharing parts starting in 2009 after defects spread across models and to the Lexus brand. The manufacturer recalled more than 8 million U.S. vehicles following claims of defects and incidents involving unintended acceleration.

Toyota paid $48.8 million in U.S. government fines for the way some of the recalls were conducted, the largest ever by an automaker in the U.S.

Managing Risks

VW expects to avoid these stumbles and maintain quality, said Hubert Waltl, production chief for the VW brand.

“Risks exist when you undertake far-reaching improvements, but the implementation process is manageable,” said Waltl in an e-mail response to questions. Volkswagen declined to comment on financial aspects of the shift.

The new compact-car architecture is more flexible than previous platforms, allowing VW to build models with different height, width and length. The technology will be rolled out first at German factories in Wolfsburg, Zwickau and Ingolstadt next year. Adjusting assembly lines may cost VW between 50 million and 500 million euros per factory, IHS’s Stuermer said.

The emphasis on sharing underpinnings with VW, Skoda and Seat poses a risk for Audi by potentially diluting the brand’s image as it competes with BMW for the luxury-car lead, said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.

Volkswagen said it will guard against that. Chief Executive Martin Winterkorn has said that the company’s cars will remain “completely different.”

To contact the reporter on this story: Chris Reiter in Berlin at acremer@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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