Sony PlayStation Vita Sales Fall: Report

By Mariko Yasu - Dec 30, 2011 8:12 AM GMT+0700

Sales of Sony Corp. (6758)’s PlayStation Vita, the company’s latest handheld game machine, declined last week after initial demand at the product’s debut, according to a researcher Media Create Co.

Sales totaled 72,479 units during the week ended Dec. 25, down from 324,859 units sold during the two days after the Dec. 17 introduction of the product, the Tokyo-based researcher said on its website, without citing anyone.

The device, with a 5-inch display using OLED, or organic light-emitting diode, technology and touch pads, had sold out in pre-ordering in Japan, Andrew House, chief executive of Sony’s game unit, said earlier this month. Sony introduced Vita, the first major overhaul of the handheld since the PlayStation Portable went on sale in 2004, after its bigger rival Nintendo Co. (7974) cut the price for its flagship 3DS model.

Satoshi Fukuoka, a spokesman for Sony’s game unit in Tokyo, declined to comment on the research report.

3DS was the best-selling game device in Japan during the week with 482,200 units sold, a 31 percent gain from a week earlier, according to Media Create.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.

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Alibaba Hired Lobbying Firm Duberstein Group to Aid in Possible Yahoo Deal

By Ian King - Dec 30, 2011 4:14 AM GMT+0700

Alibaba Group Holding Ltd (ALIBABZ). hired Washington lobbying firm Duberstein Group Inc. earlier this year as it explored potential transactions involving Yahoo! Inc.

Duberstein, founded by Kenneth Duberstein, a former chief of staff under President Ronald Reagan, disclosed its affiliation with Alibaba’s legal representatives in a filing this month.

Alibaba, China’s largest e-commerce business, has sought to buy back a stake that Yahoo owns in the company. It stepped up efforts to make a deal after the September ouster of Yahoo Chief Executive Officer Carol Bartz, who opposed a sale. Yahoo also is considering proposals by private-equity firms seeking to buy minority stakes, people with knowledge of the talks have said.

Yahoo’s 40 percent stake in Alibaba has given it a piece of the fast-growing Chinese market, helping maintain the U.S. Internet company’s value even as it loses ground to Google Inc. and Facebook Inc. Yahoo acquired the stake in Hangzhou, China- based Alibaba for about $1 billion in 2005.

Yahoo has considered offers for a minority stake from bidders such as TPG Capital and a group led by Silver Lake, people familiar with the matter have said. Silver Lake’s bid valued Yahoo at about $16.60 a share, these people said. TPG Capital’s offer was higher, they said.

Huawei’s Example

Alibaba’s involvement in a deal may draw scrutiny from the U.S. government, especially because Yahoo handles online communications for millions of Americans.

In 2008, China’s Huawei Technologies Co. dropped a bid for Marlborough, Massachusetts-based computer-equipment maker 3Com Corp. after the U.S. government began investigating whether a deal would give China access to technology used by the Defense Department.

John Spelich, an Alibaba spokesman, declined to comment, as did Dana Lengkeek, a spokeswoman for Sunnyvale, California-based Yahoo. The Duberstein Group said it doesn’t comment on its clients.

Yahoo shares (YHOO) rose 2.2 percent to $16.13 at the close in New York. The stock has declined 3 percent this year.

Alibaba hiring Duberstein was previously reported by Reuters.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

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

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Google Backing Israel Entrepreneurs

By Jonathan Ferziger and Gwen Ackerman - Dec 30, 2011 5:01 AM GMT+0700

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Dec. 30 (Bloomberg) -- Startup investor and Digital Life Design conference organizer Yossi Vardi discusses the growing interest in Israel's technology industry from large U.S. companies. He spoke Nov. 6 in Tel Aviv with Bloomberg's Gwen Ackerman. (Source: Bloomberg)

The Google Inc. (GOOG) executive with his bright yellow vest was impossible to miss in the middle of the Israeli startup owners seeking cash in a rusty boathouse at Tel Aviv’s Jaffa port.

David Lawee, Google’s mergers and acquisitions chief, used the early November session, called Garage Geeks, to round out his contact list. “I’ve met about 100 Israeli companies in two days and that’s, like, super-efficient,” he said between conversations at the corporate speed-dating-style event arranged by startup promoter Yossi Vardi that introduced local businesses to multinationals.

Google set up a funding program two weeks later for Israeli entrepreneurs, part of an acceleration in U.S. technology companies’ backing in late 2011 that has included Apple Inc. (AAPL) buying a company in the country for the first time, according to business newspaper Calcalist.

The foreign investments are important to Israel, where the high-tech industry accounts for 47 percent of manufactured exports, and could be a new source of innovation for giants like Google because of the Mountain View, California-based company’s strength in technology startups.

Money from Google and others is making up for a decline in local financing that Avi Sasson, Israel’s state research-grant provider, says could hurt industry growth.

Venture Capital Slump

“The minute the Israeli venture-capital funds aren’t helping in the early stage, there won’t be a new generation of companies for the foreign investors to invest in three or four years down the road,” said Koby Simana, head of the Israel Venture Capital Research Center, in an interview. “Israeli startups won’t exist if there is no Israeli venture capital.”

Of the $522 million raised by Israeli technology companies in the third quarter, $96 million came from domestic venture- capital funds, a drop of 40 percent from the second quarter and 12 percent from a year earlier, according to the research center. The proportion coming from Israel, at 18 percent, was the lowest since the center started covering the industry in 1999, Simana said.

Many Israeli venture capital funds, hurt by the global recession, have been unable to raise money, and 2012 will be “crucial” for their recovery, Simana said. “For some, it will be a make or break year because they haven’t raised funds since 2007 or 2006 and if they don’t raise any money this year or next, many will cease to operate,” he said.

State Funding

The Israeli government’s annual research-funding allocation has been cut by 1 billion shekels ($262 million) over the past decade, Sasson, who oversees the Ministry of Industry and Trade’s development financing for local companies, said this month at a conference in Tel Aviv. That represents a decrease of 56 percent to a yearly budget of about 800 million shekels.

Israel, with a population similar to Switzerland’s at 7.7 million people, was dubbed the “startup nation” in a 2009 book of that name by Saul Singer and Dan Senor. It has 64 companies on the Nasdaq (CCMP) Stock Market, the most of any country outside North America after China, with 56 percent focused on technology.

Google’s investments in fledgling Israeli companies in the past two years include takeovers (GOOG) of LabPixies, a developer of game applications, for $25 million, and Quiksee, which makes software for posting three-dimensional video online, for an undisclosed price. Other U.S. investors that have acquired Israeli assets include social-networking site Facebook Inc. and online marketplace EBay Inc. (EBAY)

Netanyahu on Twitter

Apple agreed to buy semiconductor designer Anobit Technologies Ltd., Calcalist reported Dec. 20. On the same day, Prime Minister Benjamin Netanyahu’s office posted on its Twitter account a message congratulating Apple “on your first acquisition here,” without naming the target company. Mark Regev, a spokesman for Netanyahu, declined to elaborate.

Anobit, founded in 2006 and based in Herzliya Pituach, and investor Pitango Venture Capital declined to comment. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on “rumor and speculation.”

International investments may not be the answer to the needs of Israel’s startups because the smaller number of local financiers poses a risk to the industry’s independence, said Abraham Peled, executive chairman of Staines, England-based digital-television coding developer NDS Group Plc.

“The minute Israeli high-tech is primarily based on development centers of major companies, their fortune will be tied to that of those companies so that, if they are cutting staff, they will cut in Israel as well,” Peled said.

‘Nimble’ Startups

Israel’s “nimble” startup model can still thrive even as government funds drop because Internet companies only need small amounts of money, Vardi said. The city of Tel Aviv recently opened a working space called the Library for young technology entrepreneurs, he said.

The hour-long Garage Geeks event closed the Tel Aviv part of Digital Life Design, an international technology industry convention held in Munich. The Israeli edition attracted 300 visitors from outside the country, Vardi said.

“Somehow the word is out that this is where everyone has to be,” said Vardi, co-chairman of the global conference and a founding investor in the former Mirabilis Ltd., which developed the ICQ online-chat system.

Top executives from Seattle-based Amazon.com Inc. (AMZN), Paris- based Alcatel-Lucent and Russia’s Yandex NV were among nine potential benefactors at Garage Geeks who donned yellow vests. About 300 startup founders, clustering in groups as large as 30, roamed from suitor to suitor making appeals under loose rules that urged “short” presentations.

“When you make a connection with an entrepreneur who’s really excited, whether you do a deal with him or not, that’s kind of the juice of the job,” Google’s Lawee said.

To contact the reporters on this story: Jonathan Ferziger in Tel Aviv jferziger@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Andrew J. Barden at barden@bloomberg.net.

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Singapore Economy Probably Contracted as Factories Hurt by Global Slowdown

By Shamim Adam and Sarina Yoo - Dec 30, 2011 10:00 AM GMT+0700

Singapore’s economy probably contracted in the fourth quarter as manufacturing slumped, increasing pressure on the island’s policy makers to stimulate growth even as inflation accelerates.

Gross domestic product (SGDYTY) probably dropped an annualized 5 percent in the three months through December from the previous quarter, when it rose 1.9 percent, according to the median (SGAVYOY) of 11 estimates in a Bloomberg News survey. The report is scheduled for release at 8 a.m. on Jan. 3.

Singapore forecasts economic expansion will moderate next year as a faltering global recovery weighs on demand for goods and services. The island’s exports have dropped even after the central bank, which uses the local dollar to manage inflation, moved in October to slow gains in the currency, which has retreated 4.5 percent against the dollar in the past two months.

“Singapore is one of Asia’s most vulnerable economies to a slowdown in global growth,” said Sukhy Ubhi, an economist at Capital Economics Ltd. in London. “The upshot is we think that the Monetary Authority will loosen its policy settings at its next biannual review in April.”

Other Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European debt crisis. Taiwan’s central bank yesterday left borrowing costs unchanged for a second straight quarter after boosting its benchmark earlier in the year to damp inflation.

2012 Outlook

China’s manufacturing contracted for a second month in December as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market, according to an index released by HSBC Holdings Plc and Markit Economics today.

Still, Asian stocks climbed in the last trading day of 2011 after rising U.S. home sales signaled the world’s largest economy is weathering Europe’s turmoil. The MSCI Asia Pacific Index trimmed its biggest yearly decline since 2008, adding 0.2 percent as of 11:42 a.m. in Tokyo. The measure is set for an 18 percent drop this year.

Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message tomorrow. The government expects GDP to expand about 5 percent in 2011 and predicts growth will slow to 1 percent to 3 percent in 2012.

The island’s inflation (SICPIYOY) was 5.7 percent in November, matching the fastest pace since 2008. The Monetary Authority of Singapore has joined most other Asian policy makers who have allowed their currencies to depreciate this year to defend exports even as the step boosts inflation risk by making imported goods more costly.

The Singapore dollar weakened about 5.5 percent in the second half of 2011. The Indian rupee lost about 16 percent in the same period, the biggest decliner in Asia, followed by the South Korean won.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report fourth-quarter data. GDP advanced 4.3 percent on a year-on-year basis, according to the median estimate of 13 economists surveyed by Bloomberg News.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Stocks Rise as Euro-Yen Nears Decade Low; U.S. Futures Little Are Changed

By Shiyin Chen and Norie Kuboyama - Dec 30, 2011 3:09 PM GMT+0700

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Dec. 29 (Bloomberg) -- Jeff Papp, an analyst at Oberweis Asset Management Inc., talks about the outlook for China's economy and stock markets in 2012, and his investment strategy. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Stocks (MXAP) and commodities rose, paring the first annual loss in three years, as signs the U.S. economic recovery is strengthening countered concern Europe’s debt crisis will worsen. The euro was near a decade-low against the yen.

The MSCI All Country World Index added 0.3 percent as of 8:02 a.m. in London, set for a 9.5 percent decline this year. Standard & Poor’s 500 Index futures were little changed and Treasury 10-year yields rose one basis point to 1.91 percent. The S&P GSCI Total Return Index of raw materials gained 0.3 percent as copper jumped 1.4 percent and gold snapped three days of losses. The euro slid 0.2 percent versus the yen and weakened 0.2 percent against the dollar.

Global equity markets have lost $6.3 trillion in value this year as Europe’s debt crisis and slowing economic expansion worldwide weighed on investor demand for riskier assets. Italy yesterday raised less than its maximum target at a debt auction. Data yesterday showed U.S. home sales rose more than economists forecast and jobless claims dropped over the past month to a three-year low.

“This year, the world was swayed by the European debt crisis,” said Takashi Aoki, who helps manage 120 billion yen ($1.5 billion) at Tokyo-based Mizuho Asset Management Co. “More investors think the U.S. economy is firmer and growing slowly, and this will last for a while. Europe has entered a recession but it’s unlikely to deteriorate badly. Emerging counties are transitioning from economic slowdown to faster growth again.”

Europe’s Declines

The Stoxx Europe 600 Index advanced 0.4 percent, paring its 2011 loss to 12 percent. An index of bank shares on the gauge has dropped 33 percent this year, the worst performance among 19 industry groups. The Stoxx 600’s decline this year compares (MXAP) with an 18 percent drop in the MSCI Asia Pacific Index and a 0.4 percent increase in the S&P 500.

About two shares advanced for every one that fell on MSCI’s Asia Pacific index, which rose 0.4 percent. Japan’s Nikkei 225 Stock Average added 0.7 percent and Hong Kong’s Hang Seng Index gained 0.2 percent. South Korean and Philippine financial markets are closed today.

Gree Inc. (3632), a social-network operator, has rallied 157 percent this year, the best performer on MSCI’s Asia Pacific index. Tokyo Electric Power Co. (9501), whose Fukushima Dai-Ichi nuclear station was wrecked by the March 11 earthquake, is the worst performer, losing 91 percent this year.

The Shanghai Composite Index rose 1.2 percent even after HSBC Holdings Plc and Markit Economic said a purchasing managers’ index was at 48.7 in December. That compares with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November.

‘Firmer’ U.S. Economy

The S&P 500 erased losses (SPX) for the year after data yesterday showed the National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

Other figures showed business activity in the U.S. expanded more than forecast in December, while the four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department data showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

Yearly Gain

Treasuries fell for the first time in four days amid speculation the rally that pushed U.S. government securities to their best yearly gain since 2008 will give way to losses in 2012 as the economy improves. American debt returned 9.6 percent in 2011 as of yesterday, according to Bank of America Merrill Lynch data, even after S&P cut the U.S.’s AAA credit rating on Aug. 5.

The cost of insuring corporate and sovereign bonds against non-payment fell in Asia, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreasing two basis points to 204.5, according to BNP Paribas SA prices. At those levels, the gauge will have climbed 101.5 basis points this year, the biggest gain since 2008 when it advanced 275 basis points, according to data provider CMA.

Europe’s shared currency fell yesterday to 100.06 yen, the weakest level since June 2001, after Italy auctioned 7 billion euros ($9 billion) of debt. That fell short of the 8.5 billion- euro target even as borrowing costs declined from last month. Italian 10-year yields rose three basis points to 7.03 percent after the sale.

‘Dire’ Sentiment

The 17-nation euro has dropped against the dollar and yen this year amid concern the debt crisis will weigh on the region’s economy growth. Data next week may confirm European manufacturing contracted for a fifth straight month.

“The risks in Europe will get worse before it gets better,” said Matt Brady, an executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “Risk sentiment is going to be dire as we head into 2012 and I’m not a believer in being long any risk currencies.”

The Australian dollar rose 0.1 percent to $1.0148, while New Zealand’s currency gained 0.1 percent to 77.24 U.S. cents. The currencies are poised to end the year lower against their U.S. counterpart. China’s yuan climbed to a 17-year high of 6.3070 per dollar. It gained 4.4 percent this year, beating the 3.6 percent advance in 2010.

Copper, Gold

S&P’s GSCI Total Return Index (SPGSCITR) of raw materials has slipped 0.8 percent this year. Three-month copper rallied 1.3 percent to $7,522.75 a metric ton in London, paring a 22 percent annual fall. Oil for February delivery was little changed at $99.66 a barrel in New York after having gained 9.1 percent this year. Crude is headed for a third yearly increase on speculation that escalating tension in the Middle East may disrupt supplies.

Gold rebounded from a drop to the lowest level in six months, as the slump that threatened to tip the metal into a bear market spurred purchases. Immediate-delivery gold climbed 1 percent to $1,561.18 an ounce, up 9.9 percent in 2011. Bullion reached a record $1,921.15 on Sept. 6, and would need to close below $1,536.92 to enter a bear market, typically defined as a drop of more than 20 percent.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Darren Boey at dboey@bloomberg.net

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Asian Stocks Edge Higher on Signs U.S. Weathering Europe Crisis

By Yoshiaki Nohara and Norie Kuboyama - Dec 30, 2011 1:20 PM GMT+0700

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Dec. 29 (Bloomberg) -- Jeff Papp, an analyst at Oberweis Asset Management Inc., talks about the outlook for China's economy and stock markets in 2012, and his investment strategy. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Asian stocks (MXAP) edged higher on the last trading day of 2011, with the region’s benchmark index set for its first yearly drop since 2008, as rising U.S. home sales signaled the world’s largest economy is weathering Europe’s debt crisis.

Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, gained 2 percent. Techtronic Industries Company Ltd., a maker of industrial products that gets about 73 percent of its revenue in North America, added 1.3 percent in Hong Kong. Cnooc Ltd. (883), China’s largest offshore energy explorer, rose 0.7 percent after oil prices gained. Power Finance Corp. gained 5.5 percent after saying it plans to sell bonds next week.

The MSCI Asia Pacific Index (MXAP) added 0.4 percent to 113.26 as of 3:12 p.m. in Tokyo, with all 10 of its industry groups advancing. The measure has lost 0.3 percent this month and is set for an 18 percent drop this year. For the week, the gauge is down 0.4 percent.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

The Asia Pacific gauge has lost about $1.78 trillion this year amid concern Europe’s three-year debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark are valued at 12.6 times estimated earnings on average, compared with 12.6 times for Standard & Poor’s 500 Index (SPXL1) and 10.5 times for the Stoxx Europe 600 Index.

Fukushima Dai-Ichi

Utilities have fallen 26 percent this year, dropping the most among the 10 industry groups on the Asian gauge. Japanese power producers tumbled amid a nuclear crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The utility has lost 91 percent this year, the biggest drop on the MSCI All Country World Index (MXWD).

Japan’s Nikkei 225 Stock Average (NKY) gained 0.7 percent today. Trading volume was 53 percent below the 100-day average ahead of a four-day weekend. Hong Kong’s Hang Seng Index rose 0.3 percent. Australia’s S&P/ASX 200 lost 0.4 percent. South Korea’s market was closed today for a holiday.

Futures on the S&P 500 Index slid 0.2 percent. The gauge advanced 1.1 percent yesterday in New York after a report showed a jump in pending sales of existing homes that exceeded economist estimates by almost five times.

Sony, James Hardie

Exporters to the U.S rose. Sony added 2 percent to 1,382 yen in Tokyo, while Techtronic Industries rose 1.3 percent to HK$8.02.

Gains in stocks were limited after Italy yesterday fell short of its target in a debt auction. Prime Minister Mario Monti said his government won’t “rule out” more aggressive efforts to reduce debt.

“Markets will continue to be unstable for the first quarter of next year,” said Masaru Hamasaki, Tokyo-based chief strategist at Toyota Asset Management Co., which oversees the equivalent of $24 billion. “European nations will need to unite as they debate how to rehabilitate the region’s finances. The leadership will be tested.”

Cnooc rose 0.7 percent to HK$13.68. West Texas Intermediate crude for February delivery gained as much as 0.5 percent to $100.16 a barrel on the New York Mercantile Exchange.

Power Finance (POWF) rose the most on the Asia Pacific index after R. Nagarajan, executive director for finance said the company plans to sell at least 1.5 billion rupees ($28 million) of bonds next week. The stock gained 5.5 percent to 139.3 rupees.

Among other stocks that advanced, Japanese engineering company Chiyoda Corp. (6366) gained 2.1 percent to 783 yen. The Nikkei newspaper reported the company will likely beat its forecast for operating profit by up to 3 billion yen ($39 million) in the year ending March due to lower-than-expected costs on a liquefied natural gas project in Qatar.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Asia Crisis Haunts Thailand With Over $35B Debt

By Daniel Ten Kate and Suttinee Yuvejwattana - Dec 30, 2011 10:00 AM GMT+0700

Thailand’s government will today press the central bank chief to take on $35 billion of legacy debt from bank bailouts as Prime Minister Yingluck Shinawatra looks for fiscal scope to finance flood defenses.

Bank of Thailand Governor Prasarn Trairatvorakul meets with cabinet members in Bangkok over the proposal to shift the debt to the BOT’s balance sheet. Deputy Prime Minister Kittiratt Na- Ranong said yesterday the step would save the government as much as 65 billion baht ($2 billion) in annual interest costs that could be used to fund anti-flood measures.

The push risks deepening concern that Yingluck’s administration is infringing on the central bank’s independence, after Kittiratt in October said the BOT should lower interest rates to help businesses cope with the country’s worst flooding since 1942. The government itself lacks unanimity on the move, with Finance Minister Thirachai Phuvanatnaranubala warning it could hurt investor confidence and stoke inflation.

“The weakening of the baht in the last few days may come from this concern about inflation,” said Somprawin Manprasert, an economist at Tisco Securities in Bangkok. “It’s not a good thing to do at all and will hurt both fiscal and monetary discipline. People will start to think that if the government can do it one time, they can do it again when debts pile up.”

The baht yesterday fell the most in two months to 31.75 per dollar, the weakest level since Aug. 16, 2010, according to data compiled by Bloomberg. It was unchanged today as of 8:46 a.m. in Bangkok, set for its biggest annual loss since 2005. The benchmark SET Index (SET) has dropped 1.8 percent over the past six days, the worst performer in Asia after Vietnam in that time.

‘Quite Strange’

Thailand’s Cabinet resolved earlier this week to study moving 1.1 trillion baht in debt incurred bailing out financial institutions 14 years ago onto the central bank’s balance sheet. Prasarn said this week it was “quite strange” that the government didn’t discuss the debt transfer officially with the central bank before bringing the issue to the Cabinet.

“Our losses on the balance sheet will be higher and that may affect confidence,” Prasarn told reporters on Dec. 28.

The Financial Institutions Development Fund racked up a 1.4 trillion baht debt during the 1997 Asian financial crisis on loans aimed at rescuing struggling lenders. The government closed more than 60 non-bank financial companies and seized half of the nation’s 14 commercial banks that received help from the fund.

Under a repayment agreement in 2002, the finance ministry makes interest payments while the central bank pays down the principal whenever it earns a yearly profit. The Bank of Thailand has reported annual net income once since 2004 (BOT) and last year reported a net loss of 117 billion baht, mostly due to losses on foreign exchange.

Proud to Repay

Since 1997, the principal on the debt has fallen by 300 billion baht, or about 21 billion baht per year. During that time the government has paid as much as 65 billion baht in interest annually, according to Kittiratt, who said yesterday the central bank would report a “record high profit” for 2011.

“The central bank should be proud that they can take care of part of the nation’s debts,” he told reporters in Bangkok yesterday. “If we transfer the debt to the Bank of Thailand, it will help reduce the government’s concerns.”

The move would reduce the public debt-to-gross domestic product ratio by 10 percentage points from 40 percent now, providing room for more government borrowing, Kittiratt said. Thailand’s Cabinet this week approved a proposal to borrow 350 billion baht to set up a fund for long-term water-management projects following the floods.

‘Amend the Bible’

The government’s move has more to do with sidestepping restrictions on budget deficits than its ability to borrow, said Sethaput Suthiwart-Narueput, managing partner of Advisor Co., a Bangkok-based corporate advisory, and former executive vice president of Siam Commercial Bank Pcl. Yingluck’s government could spend more by passing a stimulus bill as the previous administration did in 2009, he said.

Thailand’s Budget Procedures Act passed in 1959 prevents the government from borrowing more than 20 percent of approved annual budget expenditures plus 80 percent of expenses allocated to government debt payments.

The government is “trying to get more spending out without having to issue a new law,” he said. “They certainly don’t want to amend the budget law because to do that it would be seen as ‘Oh my God, they are undermining the fiscal discipline our forefathers put in place.’ It’s like trying to amend the Bible.”

Printing Money

Thirachai, the finance minister, suggested allowing the use of interest from the country’s $167 billion in foreign reserves, amounting to 25 billion baht this year, for debt payments. His predecessor under the previous government, Korn Chatikavanij, said such a move would “retain the prudency and accountability and transparency of the current structure.”

The debt “is a burden for sure, but what would be worse is trying to push it off the government balance sheet and pretend it doesn’t exist,” Korn said in a telephone interview. “It would also be detrimental to the central bank, which would have no way to repay the debt except printing fresh money.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Oil Heads for Third Yearly Gain on Iran Tension, U.S. Economy Speculation

By Ann Koh and Ramsey Al-Rikabi - Dec 30, 2011 2:41 PM GMT+0700

Oil rose for a second day, heading for a third yearly increase, on speculation escalating tension in the Middle East may disrupt supplies as a recovery in the U.S. economy bolsters demand.

Futures advanced for the eighth day in nine, extending this year’s gain to 9.3 percent. A U.S. State Department spokeswoman yesterday called Iran’s threats to shut the Straits of Hormuz “irrational behavior.” About one-sixth of global supply travels through the seaway. The country faces sanctions on its crude exports and a possible boycott by European oil buyers over its nuclear program. Prices gained yesterday after U.S. jobless claims fell to a three-year low.

“With both the Brent price and West Texas sitting roughly on $100, these types of prices are related very much to the overall geopolitical risk premium,” said David Land, the head of analysis at CMC Markets Ltd. in Sydney, who expects oil to outperform other commodities next year. “Compared to the wider commodity space, oil is one area that I’d be more bullish on.”

West Texas Intermediate crude for February delivery gained as much as 51 cents, or 0.5 percent, to $100.16 a barrel on the New York Mercantile Exchange. It was at $99.83 at 3:38 p.m. Singapore time, headed for a second weekly increase. Oil climbed 15 percent in 2010.

Brent for February settlement was at $108.14 a barrel, up 13 cents on the London-based ICE Futures Europe Exchange, headed for a 14 percent increase this year. The European contract’s premium to New York crude was $8.31.

Price Fluctuation

Crude surged to the highest in more than two years in May, trading at $114.83 in New York after a popular uprising in Tunisia sparked similar protests across the Middle East and North Africa. Clashes in Libya between rebels and forces loyal to then-leader Muammar Qaddafi cut off more than 1.5 million barrels a day of oil exports from the country.

A meeting of the Organization of Petroleum Exporting Countries broke down June 8 when six members, including Iran and Venezuela, opposed a Saudi Arabian-led push to supply more oil to compensate for lost Libyan output. The International Energy Agency responded with a coordinated release of 60 million barrels of emergency oil stockpiles on June 23.

Prices gave up the year’s gains by August amid concern the U.S. economic recovery was stalling and speculation that Libya would resume oil production faster than expected after Qaddafi’s ouster that month. New York crude slipped to $74.95 on Oct. 4, the lowest in a year, as Europe’s escalating debt crisis sapped confidence in the health of the global economy.

Iran, Confidence

An improving economic outlook in the U.S., combined with the escalation of tension in the Middle East, has taken prices back above $100 a barrel, even as Europe’s debt crisis threatens to plunge the region into recession and China shows signs of weaker growth.

Iranian Vice President Mohammad Reza Rahimi issued a warning to shut the Straits of Hormuz in a Dec. 27 report published by the state-run Islamic Republic News Agency. About 15.5 million barrels of oil a day passes through the waterway between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department.

“We’ve seen quite a bit of irrational behavior from Iran recently,” said Victoria Nuland, a State Department spokeswoman, when asked yesterday about Iran’s threats. “One can only guess the sanctions are beginning to pinch.”

A U.S. aircraft carrier was spotted in the area where Iran is conducting naval exercises, state-run Islamic Republic News Agency reported yesterday, citing the navy’s Deputy Commander Mahmoud Mousavi. Iran’s navy started the exercises on Dec. 24 and plans to conclude the drills on Jan. 4, the news agency reported.

‘Geopolitical Premium’

The country pumped 3.56 million barrels a day of crude in November, according to data compiled by Bloomberg, making it the second-largest producer in OPEC after Saudi Arabia.

“For a country that relies so heavily on oil exports like Iran does, it’s obviously not something that they would do lightly,” said Land. “But certainly the threat of it is enough to add back the geopolitical premium we’re seeing.”

Prices may rise next week amid Iran’s threat, a Bloomberg News survey showed. Thirteen of 32 analysts, or 41 percent, forecast oil will increase through Jan. 6. Ten respondents, or 31 percent, predicted prices will decrease and nine estimated there will be little change.

U.S. Economy

Oil also gained today on signs the U.S. economy is weathering Europe’s debt crisis. The four-week moving average for jobless claims dropped to 375,000 last week, the lowest level since June 2008, Labor Department data showed in Washington yesterday.

“At this stage, WTI looks like it’s found a fairly comfortable range at $95 to $100,” Land said. “If the U.S. starts showing better-than-expected improvement, that would go a long way to make the outlook for the global economy more rosy than currently.”

Oil prices in the U.S. and Europe became dislocated in 2011 as the loss of Libyan supplies, used primarily by refiners in Europe, combined with a glut of crude at WTI’s delivery point in Cushing, Oklahoma, to push Brent to a record $28.08 a barrel above New York futures on Oct. 14.

Brent-WTI

The premium has since narrowed more than 70 percent, settling at $7.93 on Dec. 27, the lowest since January, after Enbridge Inc. and Enterprise Products Partners LP said they would reverse the 500-mile (805-kilometer) Seaway pipeline from Cushing to refineries on the Gulf Coast, opening an outlet to clear supplies.

Total U.S. crude inventories (DOESCRUD) rose 3.9 million barrels to 327.5 million in the week ended Dec. 23, the Energy Department reported. Supplies were forecast to drop 2.5 million barrels, based on the median of 10 analyst estimates in a Bloomberg News survey. Stockpiles at Cushing shrank to 29.9 million barrels, the lowest since February 2010.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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Exchange Merger Deals Worth $37B Fail to Close

By Whitney Kisling, Nandini Sukumar and Nina Mehta - Dec 30, 2011 7:01 AM GMT+0700

The biggest wave of takeover offers ever for publicly traded stock and derivatives exchanges has done little for investors in 2011, as more than $21 billion of equity value was erased and only one deal closed.

NYSE Euronext (NYX) shares have fallen 13 percent in 2011 as German stocks plunged and regulators in Europe resisted its combination with Deutsche Boerse AG. (DB1) ASX Ltd. (ASX), the Australian market owner whose agreement with Singapore Exchange Ltd. fell through in April, has lost (BNWEXCH) 19 percent. London Stock Exchange Group (LSE) Plc is down 5.2 percent after owners of Toronto Stock Exchange operator TMX Group Inc. (X) spurned its offer in favor of the bid from a group of Canadian banks and pensions.

Populist outcry, antitrust concern and some of the most volatile markets (SPX) on record have prevented the completion of more than $37 billion in announced transactions, according to data compiled by Bloomberg on deals valued at $1 billion or more. Foundering mergers leave exchanges with the same problems they started with, including lower trading margins and diminishing prospects for sales and profit growth.

“The next time any exchange announces any merger whatsoever, I’m selling the stock instantaneously,” Thomas Caldwell, Toronto-based chief executive officer of Caldwell Securities Ltd., which oversees $1 billion, said in a telephone interview. “Every single deal takes a minimum of one year of dissecting, probing, prodding, X-rays and God knows what else. And while you wait a year, stuff happens and it’s all bad.”

Russian Deal

Six proposed transactions involving public companies totaling $37 billion failed to close in the past year, the most for any 12-month period, data compiled by Bloomberg show. Russia’s Micex Exchange acquired RTS Stock Exchange on Dec. 19 for $1.5 billion, according to data compiled by Bloomberg. Exchanges completed $28.7 billion of deals in 2007 and 2008.

The 25-company Bloomberg World Exchanges Index fell (BNWEXCH) 20 percent this year, twice the loss for the MSCI All-Country World Index. The gauge of market operators has averaged gains of 35 percent a year between 2003 and 2010, falling only in 2008. More than $21 billion was erased from the market value of exchanges worldwide in 2011 as deals were delayed or blocked from Sydney to Toronto and New York, Bloomberg data show.

In the biggest merger, Frankfurt-based Deutsche Boerse has seen the shares it’s offering for NYSE Euronext (NYX) decline to $6.7 billion from $9.5 billion, after Germany’s DAX Index lost 20 percent and European Union regulators sought to curb the combined company’s dominance in derivatives. NYSE Euronext added 1.5 percent on Dec. 22 after the Justice Department cleared the deal.

Antitrust Review

U.S. approval left the merger in the hands of antitrust authorities in Europe, where scrutiny has been greater because it would unite the region’s two biggest derivatives exchanges, NYSE’s Liffe and Deutsche Boerse’s Eurex. EU regulators have a deadline of Feb. 9 to rule on the proposal.

James Dunseath, a spokesman for NYSE Euronext in London, and Heiner Seidel, a spokesman for Deutsche Boerse in Frankfurt, both declined to comment.

“In the 2011 climate, regulators and politicians weren’t disposed to approve these mergers,” Jamie Selway, head of liquidity management at New York-based Investment Technology Group Inc., said in a phone interview. “That surprised a lot of people.”

Executives have embraced consolidation after the number of U.S. and European trading (MVOLUSE) venues increased by about 50 in the past decade, driving down profitability (NYX). NYSE Euronext revenue per European equity trade has dropped 61 percent since 2007 to 64 cents, and in the U.S., the amount per 100 shares is projected to fall 9.8 percent next year, according to Macquarie Group Ltd.

Lower Margins

Shrinking margins have left derivative venues as the world’s largest exchange companies. Hong Kong Exchange & Clearing Ltd., with a market value of $17.3 billion and a price- earnings ratio of 25, is the biggest member of the Bloomberg index, followed by CME Group Inc. at $16.4 billion, with a multiple of 14.4. By comparison (BNWEXCH), Nasdaq OMX Group Inc. (NDAQ) is valued at $4.4 billion and trades for 9.9 times earnings.

“Trading is completely commoditized now,” Bruce Weber, dean of the Lerner College of Business and Economics, who co- wrote “The Equity Trader Course” with Robert Schwartz and Deutsche Boerse CEO Reto Francioni in 2006, said in a telephone interview. “The exchange business is no longer as attractive in margin and growth as it was five years ago.”

Derivatives have been an increasing share (NYX) of NYSE Euronext’s profits. Operating margins at its futures and options businesses were 57 percent in the first three quarters of 2011, compared with 40 percent for equities trading and listings, according to NYSE Euronext.

Japanese Deal

Tokyo Stock Exchange Group Inc. offered this year to merge with Osaka Securities Exchange Co., whose derivatives platform hosts Nikkei 225 Stock Average futures. NYSE Euronext’s deal with Deutsche Boerse would push derivatives to 37 percent of the combined company’s revenue, according to pro forma data for 2010 from the company. Stock trading and listings would shrink to 29 percent from 49 percent of NYSE Euronext’s net revenue for the same year.

Even if the NYSE Euronext takeover collapses, exchange companies will still keep trying to buy each other, according to Macquarie’s Ed Ditmire.

“The underlying rationale for consolidation in the industry is still there,” Ditmire, a New York-based analyst with Macquarie, said in a telephone interview. “‘For NYSE-DB, for example, it’d be hard to imagine easily coming up with a new product over the next decade that would deliver equal cost synergies and bottom-line profit.”

Technology, Services

While the profitability of trades is declining, exchanges have so far found ways to keep earnings growing by expanding into trading technology and related services. Profits rose (BNWEXCH) 25 percent last year for companies in the exchange index. Analysts forecast 2011 earnings will rise 25 percent, compared with 17 percent for the S&P 500, data (BNWEXCH) compiled by Bloomberg show.

Every U.S. and European exchange matched or exceeded third- quarter estimates, except Hellenic Exchanges SA, the operator of the Greek bourse, Bloomberg data show. Nasdaq OMX’s 2012 profit projections have increased (NDAQ) 8.2 percent this year following better-than-estimated results that Chief Executive Officer Robert Greifeld attributed to “redefining what it means to operate in each and every one of our businesses,” according to a third-quarter conference call.

Staying Competitive

Earnings based on today’s business models aren’t sustainable and companies will have to make acquisitions to stay competitive, according to Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust, which manages $6 billion and owns NYSE Euronext shares.

“In the long run, it’s important that exchanges become global players, and they do that with mergers,” he said in a telephone interview. “That’s the trend.”

Nasdaq OMX shares have fallen 8.5 percent since the company dropped its hostile bid for NYSE Euronext in May after the U.S. Justice Department indicated it would block it. NYSE Euronext’s shares have slumped 36 percent since then. Nasdaq OMX’s partner, IntercontinentalExchange Inc. (ICE), is up 2.5 percent.

Singapore Exchange’s $8.3 billion bid for Sydney-based ASX was blocked in April after lawmakers rejected losing control of the venue to foreigners. London Stock Exchange Group ended its bid for TMX in June after failing to get enough shareholder support for the $3.1 billion deal. That left Maple Group Acquisition Corp., formed by Canadian banks and pensions to bid against LSE, as the only suitor. Canada’s competition watchdog has raised “serious concerns” about that deal.

Restructuring

Deutsche Boerse’s bid for NYSE Euronext may still result in a restructuring of the industry and show whether regulators are ever willing to clear the biggest cross-border mergers. The combined entity would be the world’s largest exchange company, according to the market capitalization of the two stocks.

“On a grand scale, people are watching to see how the merger between the NYSE and Deutsche Boerse does,” Richard Repetto, an analyst at Sandler O’Neill & Partners LP in New York, said in a phone interview. “Momentum will either be gained or lost in the consolidation arena based on what happens there. If you don’t get that deal done, you will likely see consolidation attempts subside.”

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Nandini Sukumar in London at nsukumar@bloomberg.net; Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net

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Japan to Double Sales Tax by 2015 as Noda Fights Off Ruling Party Revolt

By Sachiko Sakamaki - Dec 30, 2011 10:53 AM GMT+0700

Japan’s ruling party agreed on a plan to double the sales tax by 2015 after weeks of internal debate and a member revolt as Prime Minister Yoshihiko Noda fights to head off another credit-rating downgrade.

The proposal decided on late yesterday would raise the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent in October 2015. The details must be approved by a government panel led by Finance Minister Jun Azumi before discussion with an opposition whose Liberal Democratic Party has already hinted it may not back them.

“It will be very tough,” Jun Okumura, a former Japanese trade ministry official and a consultant at the Eurasia Group risk consulting firm in Tokyo, said today by telephone. “The bill may not pass parliament as the LDP may oppose the Democratic Party of Japan bill for political reasons.”

Noda is staking his job on raising the sales tax, a stance that already contributed to his predecessor’s resignation. Standard & Poor’s said last month it was considering lowering the country’s sovereign rating, already cut in January to AA-, as Noda’s government makes little progress at tackling the country’s debt burden.

With an aging population and two decades of low growth fueling the world’s largest public debt, the burden is projected to exceed 1 quadrillion yen ($13 trillion) in the current fiscal year. Still, Noda faces dissent within his own party as he pushes to raise the sales tax, with at least nine members citing the party’s failure to keep campaign promises for resigning two days ago.

Election Call

After the defection, LDP leader Sadakazu Tanigaki said Noda should call an election.

“The DPJ promised not to raise the sales tax and they’re going to raise it,” Tanigaki told reporters on Dec. 28. “Noda is staking his job on this, so he should call an election to ask the public.”

Noda’s approval rating dropped to 31 percent from 40 percent last month, according to an Asahi newspaper telephone survey of 1,655 voters taken Dec. 10-11. The same survey showed the public divided on doubling the sales tax by 2015, with 45 percent in favor and 45 percent opposed. Asahi didn’t give an error margin.

“Unless we send a message that we’ll maintain social security and fiscal discipline, we could find ourselves in a crisis,” Noda told party members yesterday.

Tax Pledges

Japan introduced a sales tax in 1989 and raised it to 5 percent in 1997, a decision blamed for pushing the nation into a 20-month recession that caused then Prime Minister Ryutaro Hashimoto’s LDP to lose a majority in the lower house of parliament for the first time.

When the DPJ took power in 2009, former Prime Minister Yukio Hatoyama pledged not to alter the 5 percent tax during the current lower house term, which ends in August 2013. Naoto Kan, who would follow Hatoyama as premier, began pushing for a debate on raising while he was still finance minister.

While Kan cited his response to the March earthquake and tsunami for stepping down, his support within the party had waned after it lost an upper house election in July 2010 as he signaled he aimed to raise the consumption levy.

“Prime Minister Noda will work on implementing the plan no matter what happens,” Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute in Tokyo, said by telephone. “As long as Japan maintains the stance to raise taxes, the risk of a downgrade will be eased to some degree for now.”

To contact the reporter on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Slowing China Manufacturing Calls for Easing

By Bloomberg News - Dec 30, 2011 11:49 AM GMT+0700

China’s manufacturing (EC11CHPM) contracted for a second month in December as Europe’s debt crisis cut export demand, fueling speculation that the central bank may cut lenders’ reserve requirements within days.

A purchasing managers’ index was at 48.7 in December from 47.7 in November, HSBC Holdings Plc and Markit Economics said today. A reading below 50 indicates a contraction.

Export orders (CNFREXPY) fell in December for the first time in three months and domestic demand was “sluggish,” today’s report said. Demand for cash ahead of the week-long Chinese Lunar New Year holiday starting Jan. 23 may give officials an additional reason to cut banks’ reserve ratios after a reduction last month that was the first since 2008.

“A reserve ratio cut is likely to happen by Jan. 3, before markets resume trading,” said Li Wei, a Shanghai-based economist with Standard Chartered Bank. China’s exports are under threat because “the euro area is slipping into a recession and the U.S. is also expected to slow down in early 2012,” Li said.

A deeper slowdown in China, the world’s second-biggest economy, would impair a global expansion that is already faltering because of Europe’s austerity measures. Asian stocks rose today, paring the regional index’s first annual decline in three years, on signs of strength in the U.S. economy, where a report yesterday showed stronger-than-forecast home sales.

‘Starting to Bite’

The MSCI Asia Pacific Index added 0.2 percent at 12:42 p.m. in Tokyo, heading for an 18 percent drop this year.

In China, “weakening external demand is starting to bite,” said Qu Hongbin, a Hong Kong-based economist for HSBC. Policy easing may enable China’s economy to avoid a “hard landing,” he said.

Elsewhere in Asia, data from South Korea showed the government wrestling with elevated inflation even as threats to growth mount. The leadership handover in North Korea as Kim Jong Un takes control after the death of Kim Jong Il may undermine confidence in the South by adding to the risk of instability on the Korean peninsula.

South Korea’s inflation exceeded the central bank’s target and all forecasts in a Bloomberg News survey (KOCPIYOY), limiting the scope for an interest-rate cut in January to support growth. Consumer prices rose 4.2 percent from a year earlier, matching November’s gain, Statistics Korea said. The median estimate of 12 analysts was 4 percent, and the central bank targets inflation of 2 percent to 4 percent.

Australian Lending

In Australia earlier, a central bank report showed private lending by banks and other financial companies rose 0.3 percent in November from the prior month, matching the median of nine economists’ forecasts.

In Europe today, reports may show house prices in the U.K. were unchanged in December from a month ago and German retail sales rose 0.2 percent in November from the prior month, according to the median estimates of economists surveyed by Bloomberg.

In Spain, a report may show consumer prices advanced 2.5 percent in December from a year ago, while figures on Italian producer prices may show a 0.1 percent gain in November from the month before, surveys showed.

The Chinese manufacturing index released today is based on answers to questionnaires sent to purchasing executives at over 400 manufacturing companies. The statistics bureau and the China Federation of Logistics and Purchasing will release a separate manufacturing index (CPMINDX) on Jan. 1. Last month, that gauge showed the first contraction since February 2009.

Property Crackdown

In November, China’s export growth was the weakest since 2009, excluding seasonal distortions at the start of each year.

Hitachi Construction Machinery Co. (6305), Japan’s second-largest heavy-equipment maker, said this month that Chinese demand for excavators will decline in the first half of next year, as the government prolongs a crackdown on property speculation.

Developer China Vanke Co.’s contract sales dropped 36 percent last month from a year earlier, while new home prices in Shanghai, Beijing, Shenzhen and Guangzhou slid from the previous month.

China’s inflation slowed to 4.2 percent in November, the slowest pace in 14 months. Third-quarter economic growth of 9.1 percent was the least in two years.

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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HP Ex-CEO Pursued Sex With Jodie Fisher: Letter

By Aaron Ricadela - Dec 30, 2011 12:01 PM GMT+0700
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Jodie Fisher, right, with lawyer Gloria Allred in New York on August 11, 2010. Photographer: Bryan Bedder/Getty Images

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Dec. 29 (Bloomberg) -- Bloomberg's Cory Johnson talks about new details surrounding the scandal that ousted former Hewlett-Packard Co. Chief Executive Officer Mark Hurd. Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court today. Johnson speaks with Jon Erlichman on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Former Hewlett-Packard Co. (HPQ) Chief Executive Officer Mark Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court yesterday.

During dinners, hotel-room visits and other meetings in cities such as Los Angeles, Atlanta, St. Louis and Madrid between 2007 and 2009, Hurd kissed and embraced Fisher, brushed his hand against her breast and attempted to initiate an affair, according to the letter sent to Hurd on June 24, 2010, by Fisher’s lawyer, Gloria Allred. Hurd, who is now a president at Oracle Corp. (ORCL), wasn’t found to have committed sexual harassment by Hewlett-Packard, and Fisher herself later said the document contained inaccuracies.

“You had designs to make her your lover from the onset using your status and authority as CEO of HP,” Allred said in the letter to Hurd, the contents of which were first reported by Bloomberg News. “At times you would behave professionally seemingly ‘getting’ that she was not going to have sex with you. At other times, not, and you would relentlessly attempt to cajole her into having sex with you.”

The letter, which sought a settlement for sexual harassment, was obtained after a ruling by the Delaware Supreme Court that it should be unsealed as part of the evidence in a shareholder lawsuit against the Palo Alto, California-based company. Hurd’s relationship with Fisher led to his resignation as CEO on Aug. 6, 2010, after a company investigation found he had violated its standards of business conduct. Hurd settled with Fisher the week he resigned.

Hurd’s Aftermath

Since Hurd’s departure, Hewlett-Packard has struggled to revive sales and seen its stock tumble 45 percent. He was replaced last year by Leo Apotheker, who himself was ousted on Sept. 22 and replaced by Meg Whitman.

Allred and Michael Thacker, a Hewlett-Packard spokesman, declined to comment.

In settling with Hurd last year, Fisher and Allred said there was no romantic or sexual affair between the two. Hewlett- Packard’s investigation found that he didn’t violate the sexual- harassment policy.

Fisher told Hurd in a 2010 letter, also obtained by Bloomberg News, that the Allred document had “many inaccuracies in the details” and that the CEO’s behavior didn’t hurt Hewlett-Packard or its reputation.

Contrasting Views

The Allred “letter was recanted by Ms. Fisher,” said Ken Glueck, a senior vice president for Redwood City, California- based Oracle. “She admitted it was full of inaccuracies.”

Allred’s letter portrays Fisher as being nervous in Hurd’s presence because of his advances. In contrast, e-mails from Fisher to Hurd show her enthusiastically discussing her job. The messages, also obtained by Bloomberg News, depict her politely inquiring about Hurd’s family and describing him as “fun” to work with.

The eight-page letter from Allred to Hurd portrays a two- year romantic pursuit of Fisher, an actress and former contestant on the reality show “Age of Love.” She worked as a greeter at Hewlett-Packard events around the world. Her job was to introduce key customers to Hurd at the events.

According to Allred’s letter, Hurd, who is married with two daughters, made sexual advances toward Fisher during dinners and other meetings. During an October 2007 visit to her hotel room at the Ritz Carlton in Atlanta, Hurd twice touched Fisher’s breast and asked her to stay in his room for the night, the letter said. Two months later in a hotel room in St. Louis, he embraced her and quickly kissed her on the lips.

‘Major Strings Attached’

At another meeting, Hurd told Fisher he had girlfriends in New York and San Francisco, according to the letter. He also told her that many women were “crazy about” him, including singer Sheryl Crow, the document said. Jay Cooper, a lawyer at Greenberg Traurig LLP who represents Crow, said he’d never heard her name in connection with Hurd.

At a final meeting in Boise, Idaho, in October 2009, Hurd “grabbed and kissed” Fisher, the letter said. The meetings made her nervous and worried about her employment status, according to the document.

“She felt tired, irritated and depressed, sad and mad with the growing unbending realization that her great new job had some major strings attached,” said Allred, who works at Allred Maroko & Goldberg in Los Angeles.

EDS Deal

Hurd also told Fisher of plans to buy technology services company Electronic Data Systems Corp., a deal that was ultimately completed in 2008 for $13.9 billion, according to the letter. During a meeting in Madrid in March 2008, Hurd walked Fisher to an ATM and showed her his checking account balance of more than $1 million to impress her, the document said.

Amy Wintersheimer, an employment attorney for Hurd at the firm Allen Matkins, said in an e-mailed statement that she sought to keep the letter confidential because it is “filled with inaccuracies.”

“The truth is, there never was any sexual harassment, which HP’s investigation confirmed, and there never was any sexual relationship, which Ms. Fisher has confirmed,” Wintersheimer said.

Hewlett-Packard shareholder (HPQ) Ernesto Espinoza sought the letter, along with company books and records, in a suit aimed at investigating possible corporate wrongdoing in conjunction with the payment of Hurd’s severance package of as much as $40 million, according to court papers.

After Hurd received Allred’s letter, he turned it over to Hewlett-Packard’s general counsel. Espinoza’s lawyer has said publicizing the letter would help “air out” details of Hurd’s departure from the company.

This week’s court decision followed Oct. 12 arguments in Dover challenging a ruling in March by Delaware Chancery Court Judge Donald Parsons Jr. that most of the letter should be released.

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

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

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