Zynga Lets Bing Gordon Turn $35M Into $650M

By Ari Levy - Dec 5, 2011 12:01 PM GMT+0700

It’s a good thing for Kleiner Perkins Caufield & Byers that Bing Gordon really likes online video games. That made the venture firm into the biggest winner in Zynga Inc.’s initial public offering, poised to turn a $35 million investment into about $650 million.

Gordon worked at Electronic Arts Inc. (ERTS) for 26 years, serving as chief creative director for a decade. Electronic Arts was a major force in early computer games, the kind on floppy disks, with a hot stock and popular titles such as the “Madden” football series. Its fortunes sagged in 2008, however, as gamers began to switch to social networks such as Facebook Inc.’s site.

The rise of Zynga, whose IPO values the company at as much as $7 billion, and the struggles of Electronic Arts show how quickly today’s leading-edge companies can become yesterday’s news unless they quickly embrace the latest technologies.

“When you’re inside a big company like Electronic Arts and you’ve got momentum in a direction, it’s sometimes very difficult to break away from that direction,” said Neil Young, co-founder of the mobile-gaming startup Ngmoco Inc. He worked as a vice president at Electronic Arts until 2008. “Bing was always challenging the company to try to think outside of its norms and also to think very big.”

Gordon, 61, graduated from Yale University in 1972 and spent a year as an actor in New York, a skill that still makes its way into board meetings, where Gordon is known to break into a song or poem. He attended business school at Stanford University in 1976 and then joined Electronic Arts in 1982, just as the company was getting established.

Early Gains

One of the company’s original investors was Kleiner Perkins, which was willing to bet on the relatively novel idea of playing games on computers. As the market boomed, Electronic Arts held its own IPO in 1989 and saw its stock gain more than 12,000 percent over the next 18 years.

Then came the shift to social networks -- something Zynga capitalized on by rolling out a series of Facebook games, including “Mafia Wars” and “FarmVille.”

Electronic Arts was getting about three-quarters of its revenue from consoles and personal-computer games in 2007. As the economic slump deepened and more consumers switched to free games online, the company racked up losses. Electronic Arts lost almost $2.5 billion over a four-year period. The stock fell by about three-quarters between October 2007 and the end of 2008.

Who Knew?

Zynga’s ascent was hard to predict in 2007, said Jeff Brown, a spokesman for Redwood City, California-based Electronic Arts.

“All of the metrics, all of the analytics at the time may not have pointed to Zynga’s success,” Brown said. Zynga “really created lightning and did an extraordinary job, in jump-starting not just the company but the genre.”

Electronic Arts is now putting more resources into social games, helped by its acquisitions of Internet-gaming startups PopCap Games Inc. and Playfish Inc., Electronic Arts Chief Executive Officer John Riccitiello has said this year.

Online gaming took a leap forward in 2007 when Facebook started letting outside developers build applications for the site. Dave Morin, who was Facebook’s senior platform manager, met Gordon in June of that year at Apple Inc.’s developer conference in San Francisco. Gordon had been on stage with Steve Jobs discussing plans to bring Electronic Arts games to Macintosh computers.

Brainstorming Sessions

The next week, Gordon visited Morin at Facebook’s headquarters in Palo Alto, California. They had two or three lengthy brainstorming sessions in the following weeks, during which Gordon showed him some preliminary projects he was building at Electronic Arts, Morin said.

“They did a bunch of experimenting on Facebook and built some simple games,” said Morin, who last year co-founded Path, a San Francisco-based social-networking company backed by Kleiner Perkins. “He knew there was this opportunity.”

Mark Pincus founded Zynga in 2007 as a way to let Facebook friends play games together. Gordon later met Pincus, who had built a poker app for Facebook that was gaining popularity. Pincus talked with a group of Electronic Arts executives, including Gordon, about investing in his venture, according to Paul Martino, who had started a previous company with Pincus and provided some seed funding for Zynga.

“Mark has a very enlightened view of partnering with people who can really help,” said Martino, who’s now a partner at investment firm Bullpen Capital in Menlo Park, California. “While EA didn’t like what they heard at the time, Bing sure liked what he heard.”

Frequent Visits

Gordon started making regular visits to Pincus’s incubator space in San Francisco’s Potrero Hill district. After their initial meeting, every time Martino stopped by to see what Pincus was working on, Gordon was there.

“It was clear that this was going to be a special mentoring relationship,” Martino said. “He and Mark had absolutely the same vision of where games were going.”

Gordon already sat on Amazon.com Inc.’s board alongside John Doerr, a lead partner at Kleiner Perkins. In 2008, after more than a quarter-century at Electronic Arts, Gordon jumped to the venture firm. The move gave him a freer hand to act on his vision for the industry.

Gordon is still held in high esteem at Electronic Arts, said Brown, the company spokesman.

Still Beloved

“He is one of the most respected and revered people in the 30-year history of this company,” said Brown, who helped organize Gordon’s going-away party in 2008. “He’s created so many careers and so many opportunities for so many people. He’s a true visionary.”

Gordon’s arrival sparked a return to Web investing for Kleiner Perkins. While the firm had profited from Internet companies during the dot-com boom, it had shifted its focus to alternative energy in the past decade. Accel Partners, Greylock Partners and Union Square Ventures, meanwhile, were financing the next generation of Internet companies, such as Facebook, Twitter Inc. and LinkedIn Corp.

Gordon soon made his first investment: Zynga. The company had already received financing from investors such as Avalon Ventures and Foundry Group. Gordon also joined Zynga’s board. His second bet: mobile-game company Ngmoco, which was acquired for $400 million by Japan’s DeNA Co.

The year after Gordon left his old company, Electronic Arts tried to catch up in social gaming by spending $400 million to acquire Zynga’s biggest rival, Playfish. Yet Zynga owns five of the 12 most popular applications on Facebook, while Electronic Arts has one, according to research firm AppData.com.

Shares Rebound

Still, Electronic Arts’ efforts to adapt, along with its narrowing losses, have reassured investors. The shares have increased more than 40 percent this year. Analysts expect the company to post its first profit in six years in fiscal 2012, which ends in March.

Electronic Arts’ Riccitiello says Zynga will have a hard time maintaining its dominance in the market, especially as his company puts more of its influence behind Playfish.

“Zynga probably has something on the order of 80 percent of the social platform for gaming, which hats off, they’ve done a great job,” Riccitiello said in March at an investment conference. “I am unaware of any sustained 80 percent market share on any entertainment platform at any time, ever. It just takes time to compete.”

In addition to investing in Zynga, Ngmoco and Path, Gordon has backed Klout Inc., which tracks influence on social networks; Callaway Digital Arts Inc., a maker of applications for kids; and Lockerz Inc., a members-only website that caters to fans of fashion, electronics and music.

Sales Jump

Gordon’s biggest bet to date remains Zynga, where revenue in the third quarter jumped 80 percent from the previous year, surpassing $306.8 million.

Kleiner Perkins owns 65.2 million Class B shares of Zynga. Assuming a $10 share price, that would be worth more than $650 million. Gordon still spends at least one day a week in Zynga’s office, and is an avid player of the company’s top titles: “FarmVille,” “CityVille” and “CastleVille.”

For Kleiner to secure its returns on Zynga, the company’s stock price needs to hold up for at least six months -- the so-called lock-up period during which insiders are barred from selling. Groupon Inc., Pandora Media Inc. and HomeAway Inc. have all dropped since their IPOs this year.

In the meantime, Gordon is hunting for the next big idea. During visits to Lockerz’s offices in Seattle, he holds three- or four-hour brainstorming sessions where he sketches out features on a whiteboard, said Kathy Savitt, the startup’s founder.

“One of the things about Bing that’s so disruptive is not just his ideas but his presence,” Savitt said. “He might start singing, he might recite a poem, but he’s definitely someone who is full of life in everything he does.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

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

Read more...

India Signals Readiness to Defend Rupee

By Anoop Agrawal and Unni Krishnan - Dec 5, 2011 11:49 AM GMT+0700

India signaled it’s prepared to act against excessive declines in the rupee, as Asia’s worst performing currency this year threatens to exacerbate the fastest inflation among so-called BRIC nations and hurt growth.

The recent sharp depreciation isn’t a sign of “helplessness in dealing with the kind of global turbulence we are seeing,” central bank Deputy Governor Subir Gokarn said in Mumbai on Dec. 3. “We do have the instruments to do this in the form of strategic capital controls, which can be used to enhance the supply of foreign exchange.”

The rupee has fallen 12.9 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession. India’s economy expanded last quarter at the slowest pace since 2009 after the central bank raised interest rates by a record to tame inflation, while Prime Minister Manmohan Singh’s efforts to stimulate growth were hamstrung by corruption scandals that have stalled legislation.

“The central bank is trying to manage expectations right now having given an impression that they don’t have the tools to control rupee weakness earlier,” said Ramya Suryanarayanan, an economist at DBS Group Holdings Ltd. in Singapore. While it would be pointless to fight the trend, “there are negative consequences, in the short term, given the speed of the fall.”

Asian currencies from Indonesia to India have fallen this year as policy makers grapple with Europe’s protracted sovereign-debt crisis, which has hurt demand for the region’s exports and prompted nations from Australia to Thailand to lower borrowing costs.

China Services

Asia’s stocks pared gains today after a report showed China’s non-manufacturing industries contracted last month. The MSCI Asia Pacific Index (MXAP) rose 0.2 percent at 1:42 p.m. in Tokyo after earlier rising as much as 0.4 percent. The Shanghai Stock Exchange Composite Index retreated 0.6 percent.

A China purchasing managers’ index for non-manufacturing industries fell to 49.7 in November from 57.7 the previous month, the China Federation of Logistics and Purchasing said on its website Dec. 3. A reading above 50 indicates expansion. A services index issued by HSBC Holdings Plc and Markit Economics today fell to 52.5, the lowest level in three months.

Elsewhere in the Asia-Pacific region, reports today showed Australian business profits advanced 4.8 percent in the third quarter from the previous three months, more than economists estimated, while inventories declined, as high commodity prices boosted earnings in mining. New Zealand construction fell to the lowest level in more than 10 years in the third quarter. Taiwan may report at 4 p.m. inflation held near a nine-month low.

Australia Rates

Australia’s central bank will probably make its first consecutive interest-rate cuts this quarter since the global recession that followed Lehman Brothers Holdings Inc.’s 2008 collapse. Traders are betting on an 88 percent chance that Reserve Bank Governor Glenn Stevens, who lowered borrowing costs last month for the first time in 2 1/2 years, will reduce the key rate tomorrow by a quarter percentage point to 4.25 percent, a Credit Suisse Group AG Index shows.

Service industries in the U.S. probably expanded in November at the fastest pace in six months, economists said before an Institute for Supply Management’s non-manufacturing index report today. Other reports may show factory orders fell in October.

Russia’s inflation rate probably fell last month to the lowest since September 2010, a Bloomberg survey showed ahead of data today or tomorrow. Euro zone retail sales, and services PMIs for Spain, Italy, Germany, France and the U.K. are also due today. Spain will report industrial output for October.

India’s Signal

In India, where the government said last week it has limited scope for a boost in spending to create demand and spur growth, the Reserve Bank of India signaled in October it’s nearing the end of monetary tightening, provided inflation slows.

India’s benchmark wholesale-price inflation was 9.73 percent in October. By comparison, consumer prices rose 7 percent in Brazil, 5.5 percent in China and 7.2 percent in Russia in the same month. The central bank has boosted the repurchase rate by 375 basis points in 13 moves since the start of 2010, the fastest round of increases since the monetary authority was established in 1935, according to Bloomberg data.

The rupee’s decline is adding to concern Indian policy makers will be unable to cool inflation which has stayed above 9 percent all year. The currency weakened 6.7 percent against the dollar last month, the biggest decline in almost two decades, touching a record low of 52.4550 on Nov. 25.

‘Warning Shot’

Foreign-exchange reserves fell $4.3 billion to $304.4 billion in the week ended Nov. 25, the central bank said in a statement on Dec. 2, a sign it sold dollars to stem losses. Intervention isn’t “an easy judgment” and the RBI has no target exchange rate for the rupee, Gokarn said.

“He’s firing a warning shot,” rather than committing the central bank to a series of capital controls, said Robert Prior- Wandesforde, Singapore-based head of India and Southeast Asia economics at Credit Suisse Group AG. “That hasn’t been their policy and would go against their stated aims. It may be designed to scare the speculators.”

Any measures are more likely to be designed to encourage greater inflows rather than to discourage outflows, he said. India needs to do more to keep the rupee from weakening further “given the inflationary issues,” he said.

“Our broad objective is to find a balance between the short-term risk of the rupee spiraling downwards and the medium- term risk of a loss of confidence in our ability to meet our external obligations,” Gokarn said.

Currency Swaps

On Nov. 23, the central bank raised the limit on interest rates paid by the nation’s companies on some maturing overseas borrowings and also relaxed rules for currency swaps in an attempt to stem the rupee’s slide. The currency rose 0.6 percent the following day.

There are already restrictions on debt inflows applying to quantity, tenor and pricing, Gokarn said.

“Short-term debt is the least preferred, because it’s seen as most vulnerable to sudden reversals, while long-term, despite risk concerns, is seen as contributing to the resource flow into infrastructure,” he said. “These controls on debt might be viewed as structural or strategic capital controls.”

Overseas investors have sold $325 million more of Indian stocks than they bought this year through Dec. 1, according to exchange data. Asia’s third-largest economy grew 6.9 percent in the three months to September from a year earlier, the slowest pace in more than two years.

To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

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

Read more...

Australian Homes Shrinking as Demand Falters

By Nichola Saminather - Dec 5, 2011 1:21 PM GMT+0700

Australian homebuilders are responding to declining demand and higher land costs by reducing the sizes of houses and lots.

Stockland, Australia’s biggest listed home builder, has cut the average size of plots in its house-and-land packages by almost 20 percent to 481 square meters (5,177 square feet) over three years. Australand Property Group (ALZ), a unit of Singapore’s CapitaLand Ltd. (CAPL), is redesigning homes as it shrinks them, while Peet Ltd. (PPC), which has 70 housing estates, is building on smaller lots with shared barbecue and exercise areas to compensate.

Higher prices for land and materials and increasing wages and taxes are pushing costs higher at a time the prices developers can charge are restrained as the developed world’s most expensive housing market cools. Home prices in Australia’s eight capital cities dropped 4 percent in the year to Oct. 31, according to RP Data, the most since the real estate researcher began compiling the figures in 1999.

“There’s an affordability crisis in Australia, and one way of keeping the price point where people can afford it is to reduce the size,” said Peter Sherrie, national president of industry group the Urban Development Institute of Australia. “With some innovative house designs, developers are able to provide a perfectly acceptable dwelling on a much smaller lot.”

Pursuit of the Great Australian Dream -- ownership of a stand-alone house on a quarter-acre piece of land -- has seen households double their debt load as a proportion of disposable income in the past 15 years to 154 percent in the quarter ended June 30, according to central bank figures. That’s higher than the 133 percent ratio Americans accumulated at the height of the U.S. sub prime-mortgage boom.

Australian Dream

The Great Australian Dream is a phrase derived from the American Dream, which equates prosperity and freedom with land ownership. In Australia, it encapsulates an idealized suburban lifestyle of grassy backyards, swimming pools and barbecues.

At 243.6 square meters, Australian houses are the biggest in the world, according to an August report by Commonwealth Securities Ltd., a unit of Commonwealth Bank of Australia. The average house in the U.S. was 222.2 square meters in 2010, Canada’s homes averaged 177 square meters and Japan’s 132 square meters, it said.

Stockland has decided to build smaller homes closer to public spaces rather than with big backyards, said Andrew Whitson, general manager for Victoria state at the company. The Sydney-based company has increased the proportion of homes on lots less than 450 square meters to 50 percent of all its housing projects, from 27 percent three years ago, it said at its full-year results presentation in August.

“The push is driven not only by affordability, but also to cater to our growing population and to make more efficient use of land,” Whitson said.

Stockland (SGP) climbed 1.2 percent to A$3.45 in Sydney today.

Urban Sprawl

With about two-thirds of Australia’s 22.8 million people living in the nation’s eight capitals, cities have historically expanded out, rather than up, to fit a growing population.

Melbourne, the nation’s densest city, had 530 people per square kilometer (0.4 square mile) and Sydney, the nation’s most populous city, had 380 as of June 2010, a March statistics bureau report shows. That compares with about 10,194 people per square kilometer in New York, according to the city’s department of planning, 6,017 in Tokyo and 7,126 in Singapore, according to statistics bureau data for each city.

State governments are now pushing developers to build closer to urban centers. Authorities require between 50 percent and 70 percent of new housing estates to be located within existing city limits, are restricting land releases on city fringes, and are demanding developers help pay for roads, transport and other amenities when building outside the limits.

Smaller Lots

“Developer charges, infrastructure charges are escalating,” said Andrew Harvey, senior economist at the Housing Industry Association, Australia’s biggest residential building organization. “They have to pay for schools and bike paths and a range of other gold-plated facilities, and that gets passed on in its entirety to home buyers.”

That’s helping push up the price of land plots even as they shrink. The average plot of land in Australian capital cities in the June quarter cost A$214,656 ($219,600), up 5 percent from a year ago, HIA data shows. The size has fallen 13 percent in Sydney to 525 square meters, 16 percent in Melbourne to 513 square meters, and 27 percent in Perth to 451 square meters from a peak about eight years ago.

New home sales fell 8 percent in the three months to Oct. 31, according to HIA. Sales of detached houses slumped 8.4 percent, while apartment sales declined 5.1 percent.

Rising Costs

Meanwhile, building costs are also rising. The price of building materials increased 2.1 percent in the three months ended Sept. 30 from a year earlier, and construction wages climbed 3.4 percent, according to statistics bureau data.

Australand is reconfiguring its homes as it downsizes them, replacing a third or fourth bedroom with smaller spaces that better suit a gym, media room or other use, said Rod Fehring, executive general manager of the Sydney-based company’s residential division.

“The number of households with one or two people in them has been rising, but we as an industry are still consistently designing three- and four-bedroom homes,” Fehring said. “Australand is moving away from the conventional definitions of bedrooms to activities that those spaces are used for, so they can have more flexible uses.”

Australand stock added 1.5 percent to A$2.74.

More than three-quarters of Australian households had more bedrooms than were needed to accommodate the occupants, according to a statistics bureau report released Nov. 16.

World’s Costliest

Australian homes cost 6.1 times the gross annual median household income, compared with 3 times in the U.S. and 5.2 times in the U.K., according to a report by Belleville, Illinois-based consulting company Demographia.

The median price for houses and apartments across all regions in Australia was A$316,000 as of Oct. 31, according to RP Data. That compares with a median of $171,475 in the U.S., based on figures from property website Zillow.com.

At Perth-based Peet, which owns, syndicates and jointly develops it projects, the push for smaller homes has been driven by both increasing development costs and demand from buyers seeking smaller dwellings that are easier to maintain, Managing Director Brendan Gore said.

“This includes many people who now don’t want a large backyard which requires time-consuming maintenance, but would like landscaped parks and open spaces nearby,” Gore said.

Falling Prices

While Peet’s average lot size has dropped as much as 20 percent in some areas over the past three years, community amenities such as exercise areas or barbecue facilities have increased, he said. Peet shares added 1.3 percent to 81 cents.

As the market sours, landed properties are losing value faster than apartments. House prices in Australian capitals fell 4.7 percent in October compared with a year earlier, while apartment values slipped 1.7 percent, according to Brisbane- based RP Data.

“The trend will absolutely be toward more smaller lot houses,” said Tim Lawless, director of research at RP Data. “There is demand for it based on affordability pressures. Developers want to maximize their yields, and potential buyers want to max the bang for their buck.”

Sydney-based Monarch Investments has reduced the size of its homes to between 160 square meters and 170 square meters, from 250 square meters two years ago, Chief Executive Officer Peter Icklow said. It is splitting normal 460 square-meter lots in half on two of its current projects, and building homes with smaller rooms and only one-car garages, he said.

“I can see the size of houses going down to 130 square meters,” Icklow said. “It will keep going down until people can afford them. The Great Australian Dream isn’t gone; it’s just a smaller dream now.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

Read more...

Tepco Reports More Radioactive Water Leaks

By Tsuyoshi Inajima - Dec 5, 2011 11:00 AM GMT+0700

As much as 45,000 liters (11,870 gallons) of highly radioactive water leaked from Japan’s crippled Fukushima nuclear station at the weekend and some may have reached the sea, Tokyo Electric Power Co. (9501) said.

The leakage shows the company known as Tepco is still struggling to control the disaster nine months after an earthquake and tsunami wrecked the plant. The water contained 1.8 millisieverts per hour of gamma radiation and 110 millisieverts of beta radiation, Tepco said in an e-mailed statement yesterday.

“The source of the beta radiation in the water is likely to include strontium 90, which if absorbed in the body through eating tainted seaweed or fish, accumulates in bone and can cause cancer,” said Tetsuo Ito, the head of Kinki University’s Atomic Energy Research Institute.

Since the March 11 disaster, the utility has reported several leaks of radiated water into the sea, though its estimates of their size have been disputed. In October, a French nuclear research institute said the Fukushima plant was responsible for the biggest discharge of radioactive material into the ocean in history.

The water leaked from a desalination unit and through a cracked concrete wall into a gutter that drains into the Pacific Ocean, spokeswoman Chie Hosoda said by phone. Radiated water has now been pumped out of the building where it was leaking from.

Environmental Checks

As much as 300 liters leaked through the crack, Junichi Matsumoto, a general manager at the utility, told reporters in Tokyo today. The utility is still checking how much contaminated water has reached the sea and the effects on the environment, Matsumoto said.

Tepco said the leaked water contained 16,000 becquerels and 29,000 becquerels per liter of radioactive cesium 134 and 137 respectively. Those levels exceed government safety limits by 267 and 322 times, according to Bloomberg calculations.

The water may have contained one million times as much radioactive strontium as the government limit, the Asahi newspaper reported today. Matsumoto said Tepco may take three weeks to analyze the strontium level in the water.

The study by the French government-funded Institute for Radiological Protection and Nuclear Safety said radioactive cesium that flowed into the sea from the Fukushima Dai-Ichi nuclear plant was 20 times the amount estimated by Tepco.

Prolonged exposure to high levels of radiation can cause leukemia and other forms of cancer, according to the World Nuclear Association.

To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editor responsible for this story: Peter Langan at plangan@bloomberg.net

Read more...

Chow Tai Fook May Beat Prada With $2.8B IPO

By Vinicy Chan - Dec 5, 2011 9:34 AM GMT+0700
Enlarge image

Gold bracelets at a Chow Tai Fook jewelry store in Hong Kong. Photographer: Jerome Favre/Bloomberg

Play Video

Dec. 2 (Bloomberg) -- Arjuna Mahendran, head of Asia investment strategy at HSBC Private Bank in Singapore, talks about the European sovereign debt crisis, and its impact on global financial markets. Mahendran also discusses U.S. and Asian economies. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Chow Tai Fook Jewellery Group Ltd. aims to raise as much as HK$22 billion ($2.8 billion) in what may be Hong Kong’s biggest initial public offering this year as luxury-goods companies tap growing affluence in China.

The jewelry chain with revenue greater than Tiffany & Co., set a price range of HK$15 to HK$21 for the 1.05 billion new shares on sale, according to a prospectus released yesterday. Hong Kong-based Chow Tai Fook, controlled by real-estate billionaire Cheng Yu-tung, will set the price on Dec. 9.

“We are confident that the company will continue to benefit from China’s robust retail sales growth in the long term, and we’ll focus on expanding our retail network in Greater China,” Henry Cheng, executive chairman and Cheng Yu-tung's son, said during a video conference call in Hong Kong yesterday.

The offering will test investors’ appetite as Prada SpA dropped since first trading in June after raising $2.5 billion, including stock sold under the overallotment option, in Hong Kong’s biggest IPO this year. Sales of luxury items in China will more than double to about 180 billion yuan ($28 billion) in 2015 compared with last year, McKinsey & Co. estimates.

The jeweler’s shares will start trading Dec. 15, according to a term sheet.

‘Big Blessing’

Companies have raised more than $16.2 billion from initial public offerings this year in Hong Kong, compared with more than $50.3 billion for the same period last year, data compiled by Bloomberg show. As many as 20 companies plan to offer shares in Hong Kong this month, said Lawrence Fok, chief marketing officer for Hong Kong Exchanges and Clearing Ltd.

Chow Tai Fook, with more than 1,400 outlets in China, forecasts net income of more than HK$6.3 billion in the year ending March 31, according to the prospectus. Earnings per-share on a pro forma basis will be at least 63 Hong Kong cents, it said.

Founded in 1929 in the southern Chinese city of Guangzhou, the company was named after founder Chow Chi Yuen. “Tai Fook” means “big blessing” in Chinese.

Chow Tai Fook is initially selling 1.05 billion new shares, of which 95 percent will be allocated to an international offering. The remaining 5 percent will go to a Hong Kong public offering that starts tomorrow and ends Dec. 8.

Loan Repayment

The stock being offered will account for 10.5 percent of the company’s enlarged share capital, according to the prospectus. Shareholders, including the Cheng family and company executives, will have the option to sell 210 million shares, as well as the equivalent of up to 15 percent of the new shares being offered via an overallotment option to cover additional demand.

Half of the funds raised by the company will be used to buy raw materials and inventory, 36.5 percent will go toward repayment of loans and 5 percent will be spent on buying properties and renovating stores, according to the prospectus. The remainder will be used to buy production and research and development equipment, build an office in Shenzhen and for working capital.

Cheng said one of the reasons the 82-year-old family-run business is seeking a public listing is to improve transparency and make it more independent.

More Transparency

“The business will be under greater scrutiny from company directors and regulators after the listing, and it will operate in a much more transparent and systematic manner,” Cheng said. “I hope to expand the family business beyond the current generations. Seeking a public listing is the only way.”

Retail sales (TIF) in China climbed and average of 17 percent in the first 10 months of this year, according to government data. Sales will more than double to 40.5 trillion yuan in 2015 from 15.4 trillion yuan in 2010, according to a KPMG report released in April.

In Hong Kong, mainland visitors splurging on high-end shoes, watches and jewelry have driven monthly retail sales to record highs. Chow Tai Fook made 56 percent of its revenue in its last fiscal year in mainland China, with the rest coming from Hong Kong, according to data compiled by Bloomberg.

About 110 companies are seeking approval to list in Hong Kong, according to Fok of Hong Kong’s stock exchange operator. About 40 have permission to go ahead and 10 to 20 companies, mostly from mainland China, are likely to complete their share sales by the end of the month, he said.

Bigger Than Tiffany

Revenue for Chow Tai Fook jumped 53 percent to HK$35 billion, or about $4.5 billion, in the year ending March 31, 2011, while Tiffany’s sales rose 14 percent to $3.09 billion in its fiscal year ended January, according to data compiled by Bloomberg.

The Hong Kong-based company’s gross margin of 28.33 percent was about half that of Tiffany’s, the data show.

Chow Tai Fook has 12.6 percent of China’s jewelry market, and a 20 percent share in Hong Kong and Macau, the company said in its prospectus, citing a report from research firm Frost & Sullivan Inc. It sources rough diamonds from companies including Rio Tinto Plc and Diamond Trading Co., the distribution arm of De Beers.

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. are managing the offering.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Stephanie Wong at swong139@bloomberg.net

Read more...

Asia Stocks Rise for 6th Day, Extend Weekly Gain on Italy Moves

By Yoshiaki Nohara - Dec 5, 2011 12:47 PM GMT+0700

Play Video

Dec. 5 (Bloomberg) -- Steven Sun, head of China equity strategy at HSBC Holdings Plc, talks about the nation's stock market, economy and central bank monetary policy. Sun also discusses initial public offerings in Hong Kong. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Dec. 5 (Bloomberg) -- Clive McDonnell, Singapore-based head of emerging-market equity strategy for Standard Chartered Plc, talks about the outlook for emerging markets in Asia and their exposure to Europe's debt crisis. McDonnell also discusses the U.S. jobless rate. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Asian stocks rose for a sixth day, the longest winning streak since Oct. 13, as Italy took steps to resolve its debt problems before European Union leaders meet this week to tackle the region’s crisis.

Cosco Pacific Ltd., which operates container facilities at Greece’s Piraeus port, added 0.8 percent. Li & Fung Ltd. (494), a supplier of toys and clothes to Wal-Mart Stores Inc., rose 2.9 percent after the U.S. jobless rate fell to the lowest level since March 2009. BHP Billiton Ltd. (BHP) advanced 1.7 percent to lead an increase by Australian miners after the nation’s ruling Labor Party ended a ban on uranium exports to India.

The MSCI Asia Pacific Index rose 0.2 percent to 117.92 as of 2:40 p.m. in Tokyo with six of 10 industry groups on the index gaining. The measure jumped 8 percent last week, the biggest weekly advance since Aug. 24, 2007.

“It’s pleasing that Italy backed relatively swiftly the new government to put in an austerity measure and demonstrate moving forward in terms of meeting requirements put in place by the EU,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Whether that in fact will see a quite reaction from the public, you will have to wait and see.”

Italian Measures

Stocks (MXAP) gained after Italian Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures yesterday. The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement, to both houses of parliament today.

German Chancellor Angela Merkel meets French President Nicolas Sarkozy today to advance a plan for stricter enforcement of the region’s deficit rules that will be presented to European leaders at a summit in Brussels on Dec. 9.

“Expectations are mounting for this week’s European Union summit, making the market sensitive to any negative factors,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “They are likely to reach an agreement, but domestic issues facing Germany and France may hamper the process.”

Japan’s Nikkei 225 Stock Average rose 0.5 percent and Australia’s S&P/ASX 200 added 0.8 percent. South Korea’s Kospi Index advanced 0.2 percent. Hong Kong’s Hang Seng Index rose 0.3 percent. The MSCI Asia Pacific excluding Japan Index was little changed.

Cosco, Nintendo

Asian exporters tied to Europe rose. Cosco Pacific Ltd. (1199) added 0.8 percent to HK$9.24 in Hong Kong. Nintendo Co., the world’s largest maker of video-game players that gets more than 34 percent sales in Europe, rose 0.8 percent to 11,330 yen in Tokyo.

The MSCI Asia Pacific Index declined 15 percent this year through yesterday, compared with a 1.1 percent drop by the S&P 500 and a 13 percent slump by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.9 times estimated earnings on average, compared with 12.6 times for the S&P 500 and 10.6 times for the Stoxx 600.

Futures on the Standard & Poor’s 500 Index rose 0.8 percent today. The S&P 500 index fell less than 0.1 percent on Dec. 2, wiping out an early rally. The U.S. jobless rate slid to 8.6 percent in November, the lowest level since March 2009, and employment climbed by 120,000 workers, Labor Department figures showed on Dec. 2.

Exporters Gain

Exporters to the U.S. advanced. Li & Fung, a supplier of toys and clothes to Wal-Mart Stores Inc., jumped 2.9 percent to HK$16.88 in Hong Kong. Toyota Motor Corp., the world’s biggest carmaker by market value, gained 2.7 percent to 2,663 yen in Tokyo.

Gains in Asian stocks were limited as China’s stocks fell after a purchasing managers’ index for November dropped to 49.7 from 57.7 the previous month, the China Federation of Logistics and Purchasing said on its website. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 0.9 percent.

Anhui Conch Cement Co., China’s biggest cement maker, dropped 2.4 percent to 16.44 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., lost 4.1 percent to 14.66 yuan.

Australia’s mining firms rose after the nation’s ruling Labor Party ended a ban on uranium exports to India to strengthen diplomatic ties with the South Asian nation and open a new market for suppliers. Shipping uranium to India would benefit producers such as Energy Resources of Australia Ltd. (ERA), controlled by BHP Billiton and Rio Tinto Group. Australia is the world’s third-biggest uranium supplier.

Energy Resources jumped 10 percent to A$1.57. BHP Billiton rose 1.7 percent to A$37.26 and Rio Tinto gained 1 percent to A$67.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

Read more...

Honda ‘Prays’ for Disaster-Free U.S. Rebound Led by New, Civics, Acuras

By Alan Ohnsman - Dec 5, 2011 6:00 AM GMT+0700
Enlarge image

2010 Honda Accord sedans sit on display at AutoPark Honda dealership in Cary, North Carolina. Tight inventory and competition from Ford Motor Co., Hyundai Motor Co. and Kia Motors Corp. and others cut Honda’s U.S. sales 5.3 percent through November. Photographer: Jim R. Bounds/Bloomberg

Play Video

Dec. 1 (Bloomberg) -- Japan's automakers have unveiled fuel-efficient cars targeting cost-conscious consumers at this week's Tokyo Motor Show. Mike Firn reports on Bloomberg Television's "Asia Edge" with John Dawson. (Source: Bloomberg)

Honda Motor Co. (7267) says replenished vehicle inventory and new Honda and Acura models planned for the next 24 months will spur a U.S. sales rebound next year after natural disasters dashed its 2011 goals.

Honda’s loss of some North American output in October and November due to parts shortages caused by floods in Thailand led to it being the only large automaker to post a U.S. sales decline last month as total sales jumped 14 percent. That came after six months of declines resulting from reduced auto inventory triggered by Japan’s March earthquake and tsunami.

“I’m going to the shrine to pray to avoid any more such disasters from Mother Nature,” Tetsuo Iwamura, Honda’s top North American executive, said in an interview on Dec. 2 in Las Vegas. “Next year, even starting this month, we’ll recover.”

Japan’s third-largest automaker counts on the U.S. for the largest portion of its global sales. Tight inventory and competition from Ford Motor Co., Hyundai Motor Co. (005380) and Kia Motors Corp. (000270) and others cut Tokyo-based Honda’s U.S. sales 5.3 percent through November.

While Honda’s market share has fallen to 9 percent from 10.5 percent so far in 2011, combined share for South Korean affiliates Hyundai and Kia rose to 9 percent from 7.8 percent a year ago.

“It is a year to forget, and then push the reset button,” said Rebecca Lindland, an analyst with researcher IHS Automotive. “We’re now seeing heavy replacement demand, so there is a lot of sales opportunity out there.”

IHS Automotive estimates U.S. sales of new cars and trucks will rise to about 13.7 million units in 2012, from about 12.7 million this year, she said.

‘Outrageous’ Competition

“The competition is outrageous and it’s coming from every part of the market,” Lindland said. “Every year we say this is an incredibly competitive market, but this year we mean it.”

Honda’s immediate goal is to boost production of its new Civic compact and CR-V compact sport-utility vehicle that goes on sale this month, Iwamura said. The company starts December with about a 40-day supply of vehicles, he said.

“Unfortunately, our competitors didn’t show us any mercy,” Iwamura said. “They took as much market share from us as they could. That’s the reality of the market. You have to fight back.”

In 2012, the company releases a revamped Accord, Honda’s top-selling U.S. nameplate, and other models Iwamura declined to identify. “Fortunately, we are going to have lots more models in the next 24 months,” he said.

New Engines, Hybrids

Vehicles coming out next year will also begin powered by new four- and six-cylinder engines and transmissions Honda unveiled last week at the Tokyo Motor Show, claiming they will lead the industry in fuel efficiency.

The company also will add new hybrid models from next year that will boost its reputation for fuel-efficiency and advanced technology, he said.

“New models with good technology, yet very value-oriented pricing for the sake of competitiveness,” said Iwamura, 60. “That is our key for a successful year in 2012 and onwards.”

Sales of the new Civic, released this year, will continue to increase and haven’t really been hurt by some critical reviews, he said.

“In November, Civic was the number one selling compact vehicle,” Iwamura said. “Customers still believe in the Civic.”

The 2012 Civic failed to receive the “recommended” status from Consumer Reports magazine. The revamped model “ranks near the bottom of its category,” David Champion, senior director of the magazine’s auto test center, said in an Aug. 1 e-mailed statement.

Honda’s U.S. headquarters are based in Torrance, California.

To contact the reporter on this story: Alan Ohnsman in Las Vegas at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

Read more...

Obama Uses Cordray Consumer Confirmation in Populist Push for Re-Election

By Kate Andersen Brower - Dec 5, 2011 8:00 AM GMT+0700

President Barack Obama is using a battle over the stalled nomination of his candidate to run the Consumer Financial Protection Bureau and extension of a payroll tax cut to campaign as a populist defender of the middle class.

“From nominations to economic proposals, the point right now is for the administration to show that they’re looking for economic solutions and that Republicans are looking to obstruct them,” said Julian Zelizer, a professor of history and public affairs at Princeton University in New Jersey.

In recent weeks, Obama has traveled to battleground states such as Pennsylvania and New Hampshire accusing Republicans of hypocrisy for refusing to let Bush-era tax cuts expire while blocking extension and expansion of the payroll tax cut, which the president has said saves the typical family $1,000 a year.

On a Nov. 30 trip to Scranton, Pennsylvania, Obama said Republicans face a choice: “Are you going to cut taxes for the middle class and those who are trying to get into the middle class, or are you going to protect massive tax breaks for millionaires and billionaires?”

Less than a year before Election Day 2012, with his approval rating at 44 percent in a Dec. 1-3 Gallup Poll, Obama is making a “very important and fundamental strategic shift from 2010” when Republicans won by framing the election in terms of spending and deficit reduction, said Paul Begala, a Democratic strategist who is advising an independent campaign group raising money for the president’s reelection bid.

“He is advancing the Democratic message that we’re for the middle class and Republicans are for the rich,” said Begala, former president Bill Clinton’s onetime political aide.

Populist Theme

The populist theme in the president’s re-election argument has been taking shape since Obama unveiled a job-creating plan in September that made the payroll tax-cut its centerpiece and called for higher taxes on millionaires to pay for the cost.

The White House is hoping that Richard Cordray’s nomination as chief of the consumer protection bureau plays into that theme. White House spokesman Josh Earnest said during a conference call with reporters today that the administration will begin “aggressively” campaigning for Cordray’s confirmation ahead of a likely Dec. 8 Senate vote.

Earnest said the White House will ratchet up pressure on lawmakers from Alaska, Indiana, Iowa, Maine, Nevada, Tennessee and Utah. The president is slated to give television interviews to local news anchors from the seven states on Dec. 8, and administration officials will brief Washington-based reporters from the states on Dec. 5. Dozens of state attorneys general, mayors and other elected officials will push for Corday’s nomination. Administration officials also will appear on television stations in the major markets in the states.

Consequences

Earnest said the goal is to drive home “the tangible consequences for families in those states if the senator who is elected to represent them in Washington, D.C., sides with the financial industry and votes to block his nomination.”

Senate Majority Leader Harry Reid of Nevada has said he plans to hold a vote on Cordray’s nomination this week. Cordray, a former Ohio attorney general who is serving as the consumer bureau’s enforcement director, has drawn widespread Republican opposition.

Republican strategist John Feehery said he thinks voters will view Obama’s message as pure politics. “He’s trying to put on his populist hat going into this campaign, and I’m not sure if people really believe that Obama’s fighting for them or just fighting for his re-election,” Feehery said.

’Anti-Business’

Feehery said the administration’s “goal is to be as anti- business as they can be, but the problem for Obama is that business is the one that actually creates jobs in this country and being anti-business means being anti-jobs.”

Obama trailed former Massachusetts Governor Mitt Romney among likely general election voters in New Hampshire by 10 percentage points amid voter discontent with the president’s job performance and the economy in a Bloomberg News poll Nov. 10-11. Obama carried New Hampshire by 54-45 percent in 2008.

On Dec. 6 Obama will travel to Osawatomie, Kansas, where he will argue that this is “a make-or-break moment for the middle class and all those working to join it,” according to a White House statement. President Teddy Roosevelt, a Republican, visited Osawatomie calling for a “new nationalism” more than 100 years ago. Obama is seeking to capitalize on a connection with Roosevelt, who said then: “I stand for the square deal.”

Kansas Stage

Kansas’s economy ranked 38th among U.S. states in the year through June 30, according to the Bloomberg Economic Evaluation of States Index, which uses data on employment, real estate, taxes and local stocks to track the direction of state economies. The state’s personal income increased by 6.8 percent over the year, according to the study. Employment declined 0.8 percent, and home prices fell 2.5 percent, the study shows.

“This is part of the narrative which is portraying Republicans as defenders of privilege and plutocrats and Democrats basically looking out for ordinary Americans consumers, middle class people,” said Ross Baker, a political scientist at Rutgers University in New Brunswick, New Jersey.

The president promoted the Dodd-Frank legislation passed last year creating the financial protection agency, which Deputy Director of the National Economic Council Brain Deese said is “hamstrung” by not having a director in place.

“It cannot supervise and exercise its full authorities over these non-bank financial institutions which affect the lives and financial security of tens of millions of American families,” he said on the conference call with reporters.

Leaderless Agency

“Every day that we go without having a director in place and without having an agency that’s able to exercise its full authorities is another day that those tens of millions of American families remain at risk,” Deese said.

An administration report argues that tens of millions of Americans rely on non-bank institutions not supervised by a federal regulators such as payday lenders, mortgage lenders and credit reporting agencies. They play an “incredibly important part in the lives of American families” and lack of supervision “creates an unlevel playing field” in the financial system, Deese said.

The report points to studies showing that payday lenders on average charge fees of approximately $16 for a $100 two-week loan.

Republican opposition to Cordray, if it holds, would be enough to block his nomination, because it takes 60 votes in the 100-member Senate to end debate and advance a nomination.

“I think Obama’s best hope is not a message, it’s unemployment continuing to drop,” Zelizer said.

Joblessness

The Labor Department said Dec. 2 that the nation’s jobless rate fell to 8.6 percent in November from 9 percent the month before after employers added 120,000 jobs and 315,000 Americans left the labor force. The unemployment rate was the lowest since March 2009.

Obama has been pushing Congress to extend and expand the payroll tax cut, which lowered the employee portion of the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011. The tax cut is set to expire Dec. 31.

At a Dec. 2 event with former President Bill Clinton promoting energy-efficient upgrades for buildings, Obama said Congress must extend the payroll tax cut and renew unemployment insurance.

“Failure to take either of these steps would be a significant blow to our economy,” he said as Clinton looked on.

“It would take money out of the pocket of Americans who are most likely to spend it, and it would harm small businesses that depend on the spending. It would be a bad idea.”

This year’s tax break cost the government $111.7 billion in forgone revenue, according to the congressional Joint Committee on Taxation. The U.S. transferred money from the general fund to cover the reduced funding for Social Security.

Paying for Tax-Cut

On Dec. 1, the Democrat-controlled Senate rejected a Democratic proposal that would have imposed a 3.25 percent surtax on annual income exceeding $1 million to pay for extending the payroll tax cut and expanding it to employers.

The Senate also rejected a separate Republican measure that would have extended the payroll tax cut for employees for one year and offset the cost by reducing the federal work force by 10 percent, freezing federal pay through 2015 and requiring high earners to pay more for Medicare premiums.

To contact the reporter on this story: Kate Andersen Brower in Washington at kandersen7@bloomberg.net

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

Read more...

SAP Sheds M&A Inhibitions as Oracle Rivalry Moves to the Cloud

By Ragnhild Kjetland and Aaron Ricadela - Dec 5, 2011 6:43 AM GMT+0700

SAP AG’s then-chief Leo Apotheker told investors in 2009 that the German company’s homegrown technology was “significantly better” than that of Oracle Corp. (ORCL), which had “not done a good job with acquisitions.”

Apotheker was forced to leave three months later and his successors, co-CEOs Bill McDermott and Jim Hagemann Snabe, have already spent more than $9 billion on two major takeovers. The most recent came on Dec. 3, when SAP agreed to buy San Mateo, California-based SuccessFactors Inc. for $3.4 billion in cash to catch up with Oracle in the cloud-computing market.

McDermott and Snabe have changed tack at the largest maker of business-management software to do a better job meeting demand for new technologies, such as cloud computing, real-time analytics and mobile applications. The SuccessFactors deal shows SAP’s previous go-it-alone approach to the cloud was lacking, said Thomas Otter, a vice president at Gartner Inc.

“My first reaction was: what took you so long?” Otter said in a phone interview from Heidelberg, Germany, less than 50 miles away from SAP’s headquarters in Walldorf. “This means a fundamental shift in terms of their cloud strategy, which has been rather slow to get off the ground. This is a tacit admission that their cloud strategy was a failure.”

SAP, Oracle and companies such as Apple Inc., Salesforce.com Inc. (CRM), International Business Machines Corp. (IBM), Amazon.com Inc. (AMZN), Dell Inc. (DELL) and Microsoft Corp. (MSFT) are promoting cloud computing as a secure way to outsource data centers and reduce the need for pricey servers and other hardware.

Sales Boost

SuccessFactors, which makes software used to manage employee performance, has more than 3,500 customers and 15 million subscribers in 168 countries. The company is predicted to have $502 million in revenue in 2013, up from $332 million this year, according to analyst estimates (SFSF) compiled by Bloomberg.

The purchase could add another 1 billion euros ($1.34 billion) to SAP’s 2015 sales target of 20 billion euros, co-CEO McDermott said in a telephone interview.

SAP is paying 8 times SuccessFactors’s forecast revenue for next year, compared with a median of 3 times revenue companies paid for 32 North American software targets over the past five years, Bloomberg data show. It is paying a premium of 54 percent, based on a 20-day average of the target’s share price, compared with a 22 percent premium Oracle paid for cloud competitor RightNow Technologies Inc. on Oct. 24.

‘Crown Jewel’

“You get what you pay for and if you want the crown jewel in this industry, you have got to pay for it,” McDermott said. “We are very comfortable with the relationship between the price and 2012 revenues. It’s very much in the medium range. We don’t consolidate old tired companies that don’t grow anymore.”

SAP may take a break from large deals following the close of SuccessFactors, while it concentrates on expanding in cloud computing, mobile business software, data analysis and in-memory computing, McDermott added.

“For now, I think we have the assets we need to win,” he said.

McDermott and SuccessFactors CEO Lars Dalgaard first met on Sept. 27 at SuccessFactors’s suburban office in San Mateo, the executives said. McDermott said he “personally” evaluated a number of cloud computing competitors -- including having dinners with their executives -- before deciding to buy SuccessFactors. Competing with Oracle wasn’t a driving factor in the deal, he said. One asset SAP gains is Dalgaard himself.

‘Catalyst’ for Cloud

Dalgaard, 44, will have the job of overseeing SAP’s broad software-as-a-service efforts, including its Business ByDesign Web programs for midsized companies. Peter Lorenz, an SAP executive vice president in charge of the group of products, will report to him, McDermott said.

“Lars will oversee the entire SAP cloud,” McDermott said. “This is our catalyst.”

Owning SuccessFactors, which helps companies decide which employees to retain and how much to pay them, can help SAP sell “human capital management” software to the highest echelons of its customers’ management, McDermott said. SuccessFactors may also add programs for handling logistics and supply-chain operations, Dalgaard said.

“The talent management market will probably be worth about $3.5 billion this year,” Otter said. “SAP has essentially spent what the whole market will be worth this year in one swoop. It is a lot to pay for a niche in their portfolio, but human resources technology is a hot space.”

The global market for cloud services may surge to $148.8 billion in 2014 from $68.3 billion in 2010, Gartner estimates.

Concur, Ariba (ARBA)

Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, said SAP may need to make more cloud acquisitions.

“I think they’ve now got a very good basis here but I would expect them to make smaller acquisitions in cloud to complement this,” he said in an interview. “Maybe they’d look at someone in expense management, like Concur Technologies Inc. (CNQR), or in procurement, like Ariba Inc.”

While Oracle has spent more than $42 billion on takeovers since the beginning of 2005, SAP had only made only two large acquisitions in its 39-year history before SuccessFactors: Sybase, a maker of mobile-device applications, for $5.8 billion in May of last year, and business-intelligence company Business Objects for 4.8 billion euros in 2007.

“They need to make acquisitions,” Ray Wang, head of San Francisco-based Constellation Research, a research and advisory firm focused on technology, said in an interview. “Innovation now happens at start-ups and SuccessFactors is a lot like a start-up.”

‘M&A Factory’

SAP shares have gained 17 percent this year in Frankfurt trading, valuing the company at 54.9 billion euros. SuccessFactors has lost 9.4 percent, giving the company a market capitalization of $2.2 billion.

SAP has added three categories since May 2010: mobile- computing software; Hana real-time analytics technology; and software that can be accessed over the Internet. Hana and mobile made up 10 percent of third-quarter sales, Snabe said on Nov. 17, adding that SAP aims to add product categories to accelerate sales growth.

Siemens AG (SIE), Exxon Mobil Corp. (XOM) and Wal-Mart Stores Inc. (WMT) are among more than 176,000 companies that use SAP’s applications to order goods, plan inventory levels and manage sales. The company is trying to sell them mobile software gained through the Sybase acquisition and the Hana software, which lets companies analyze data in a computer’s memory instead of through slower disk drives.

SAP Chief Information Officer Oliver Bussmann said the largest maker of business-management software has more than 20 staff dedicated to integrating acquired companies in the information technology department.

“We have an M&A factory at SAP,” he said in an interview in San Francisco on Nov. 30.

Gartner’s Otter says SAP’s more aggressive M&A strategy may spark a reaction from its U.S. archrival.

“Oracle took the first move with the acquisition of RightNow and SAP needed to respond,” he said. “Given Oracle’s propensity to acquire, this is going to heat things up.”

To contact the reporters on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net; Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Simon Thiel at sthiel1@bloomberg.net

Read more...

Obama Offers ‘Condolences’ to Pakistan

By Seth Stern - Dec 5, 2011 1:48 AM GMT+0700

U.S. President Barack Obama called Pakistani President Asif Ali Zardari to “personally express his condolences” regarding a NATO attack that killed 24 Pakistani soldiers, the White House said in a statement.

The president’s telephone call today came more than a week after the Nov. 25 attack on Pakistani border posts by North Atlantic Treaty Organization aircraft that triggered an angry backlash in Pakistan.

Pakistan closed border crossings used by trucks shipping supplies to the U.S. military in Afghanistan, ordered U.S. personnel out of Shamsi Airbase in Baluchistan province and announced plans to boycott an international conference on Afghanistan to be held in Germany.

“The president made clear that this regrettable incident was not a deliberate attack on Pakistan and reiterated the United States’ strong commitment to a full investigation,” according to the White House statement.

To contact the reporter on this story: Seth Stern in Washington at sstern14@bloomberg.net

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

Read more...

Japanese Stocks Advance for Third Day After Italy Announces Austerity Plan

By Norie Kuboyama and Toshiro Hasegawa - Dec 5, 2011 7:38 AM GMT+0700

Japanese stocks extended the biggest weekly gain in two years after the Italian premier announced 30 billion euros ($40 billion) of austerity and growth measures, boosting optimism Europe’s debt crisis would be contained.

Nissan Motor Co. (7201), a carmaker that gets about 80 percent of its revenue overseas, rose 1 percent. Inpex Corp., the nation’s largest oil explorer by market value, climbed 1.4 percent after oil and metals prices advanced. Fast Retailing Co., Asia’s largest clothing chain, gained after a drop in November same- store sales was smaller than in the previous month.

The Nikkei 225 Stock Average (NKY) rose 0.4 percent to 8,673.66 as of 9:24 a.m. in Tokyo. The broader Topix climbed 0.2 percent to 745.83, with about twice as many shares advancing as falling.

Futures on the Standard & Poor’s 500 Index rose 0.6 percent today. The S&P 500 index fell less than 0.1 percent on Dec. 2, wiping out an early rally, as a drop in the jobless rate to a two-year low wasn’t enough to extend the biggest weekly advance since March 2009.

Italian Prime Minister Monti will present his plan to lawmakers today after his Cabinet approved the package ahead of schedule yesterday. The package, which includes more than 12 billion euros in spending cuts, will force workers to delay retirement, resurrect a tax on first homes, crackdown on tax evasion and open up closed professions.

Also today, German Chancellor Angela Merkel meets French President Nicolas Sarkozy to advance a plan for stricter enforcement of the region’s deficit rules that will be presented to European Leaders at a summit on Dec. 8.

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

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

Read more...

Italy Approves 30B-Euro Emergency Plan

By Chiara Vasarri and Andrew Davis - Dec 5, 2011 3:39 AM GMT+0700

Italian Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures as he seeks to cut the euro-region’s second-biggest debt and prevent a breakup of the euro.

Monti’s Cabinet in Rome passed the measures a day earlier than planned as the new prime minister rushed to reassure investors he is serious about taming a debt of almost 1.9 trillion euros. The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement, to both houses of parliament tomorrow.

“The huge public debt of Italy isn’t the fault of Europe, it’s the fault of Italians because in the past we didn’t pay enough attention to the well being of the young and the future adults of Italy,” Monti said at a press conference in Rome today after his Cabinet passed the package.

Monti, sworn in on Nov. 16 after Silvio Berlusconi resigned, is under pressure to move quickly as a selloff of the country’s bonds sent borrowing costs surging last month past the 7 percent threshold that led Greece, Ireland and Portugal to seek aid. Italy is seen as too big to bail out with 450 billion euros of bonds maturing in the next three years, more than the current size of the EU’s rescue fund.

‘Tough Package’

“It’s a very tough package, but we don’t have any choice except to pass it,” Emma Marcegaglia, head of employers’ lobby Confindustria, said in comments broadcast on Sky TG24 today after meeting with Monti. “The plan is key to saving Italy and preventing the collapse of the euro.”

The plan includes 20 billion euros of austerity measures and another 10 billion euro of proposals that aim to boost growth of an economy where expansion has lagged the European averaged for more than a decade.

The package touches on all aspects of Italian society with items aimed at shrinking the size of the government, raising the retirement age, forcing all transactions of more than 1,000 euros to be done electronically to fight tax evasion, an increase of the sales tax of two percentage points, and tax breaks for companies that hire young workers and women.

The Italian budget package comes at the start of a critical week for Europe’s efforts to end the debt crisis and prevent Italy and Spain from succumbing and causing a breakup of the single currency. German Chancellor Angela Merkel meets French President Nicolas Sarkozy tomorrow to advance a plan for stricter enforcement of the region’s deficit rules that will be presented to European Leaders at a summit on Dec. 8.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

Read more...

Asian Stocks Climb as Italy Moves to Cut Debt

By Lynn Thomasson and Candice Zachariahs - Dec 5, 2011 7:34 AM GMT+0700

Asian stocks (MXAP) rose, extending the biggest weekly gain since August 2007, as the euro and oil advanced on signs Italy is taking steps to resolve its debt crisis.

The MSCI Asia Pacific Index increased 0.3 percent as of 9:03 a.m. in Tokyo, adding to the 8 percent surge last week. Standard & Poor’s 500 Index futures added 0.7 percent. The euro gained against the dollar and oil climbed for a second day to $101.56 a barrel. The Australian and New Zealand dollars rose at least 0.3 percent versus the greenback.

Italian Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures as he seeks to cut the euro-region’s second-biggest debt and prevent a breakup of the euro. European leaders will take another run at fixing the debt crisis at a Dec. 9 summit in Brussels after the failure of their fourth rescue blueprint intensified concern the 17-nation euro area was on the brink of unraveling.

“Everything points in the direction of something big coming out of this week’s meeting,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “In the early part of this week we will continue to see risk appetite improve.”

S&P 500 futures expiring in December climbed to 1,252. Service industries in the U.S. probably expanded in November at the fastest pace in six months, a sign the economy is accelerating in the final months of 2011, economists said before a report today.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Read more...

Putin’s Party Fails to Get Majority: Exit Poll

By Ilya Arkhipov and Henry Meyer - Dec 5, 2011 2:31 AM GMT+0700

Premier Vladimir Putin’s party failed to win a majority in parliamentary elections, according to exit polls and early results, dealing the Russian leader his first electoral setback since he came to power a decade ago.

United Russia’s backing fell to about 47 percent from 64 percent in 2007, the Central Election Commission said on state television after about 26 percent of votes were counted. The party, whose results were estimated at 45.5 percent and 48.5 percent by two exit polls, expects to retain a majority in the State Duma. Official results are due tomorrow.

“This is a personal defeat for Putin,” saidDmitry Oreshkin, an independent political analyst based in Moscow. “He understands that his popularity is falling and it’s falling increasingly fast.”

Putin, 59, who plans to return as president next year to give him potentially almost a quarter-century in power if he runs again in 2018, lost support as stalling wage growth and the government’s shortcomings in curbing corruption repel voters.

The loss of United Russia’s two-thirds majority, which allowed it to change the Constitution singlehandedly, is the first time the party’s support fell from one nationwide election to the next since it was set up 10 years ago. Putin next year may be forced to make unpopular cuts in social spending and raise the pension age to balance the budget.

‘Coalition Bloc Agreements’

“Given the new composition of the Duma, on individual issues and on certain questions, we will have to enter into coalition bloc agreements,” Medvedev told supporters at the party’s campaign headquarters today. “The party performed honorably. And the breakdown we get in the Duma reflects the real balance of political forces in the country. This is democracy in action.”

Speaking after the president, Putin said voters “maintained” United Russia’s “role as the leading political party.

‘‘It’s the optimal result,’’ he said. ‘‘With this result, we can guarantee the stable development of our state.’’

United Russia may still keep more than half of seats in the 450-member State Duma, the lower house of parliament, Boris Gryzlov, the party’s leader in the legislature, said at the group’s campaign headquarters today.

The party got 45.5 percent, according to an exit poll of 80,000 people by the Public Opinion Foundation and 48.5 percent according to an exit poll of 250,994 people by the state-run All-Russian Center for the Study of Public Opinion.

‘Slightly Negative’

United Russia’s ‘‘results are obviously lower than expected, so the market could potentially interpret this as slightly negative,” Ivan Tchakarov, chief economist at Renaissance Capital in Moscow, said in a telephone interview today. “But not massively so.”

The ruble advanced 2.1 percent to 30.851 per dollar last week, its biggest weekly gain since Oct. 30. The Russian currency has fallen 0.9 percent against the greenback overall this year, heading for a fourth consecutive yearly loss.

The yield on Russia’s only ruble-denominated Eurobond, due in 2018, has fallen 55 basis points, or 0.55 percentage point, since it first traded March 1. The debt yielded four basis points less Dec. 2, at 7.192 percent.

‘Smashing’ Parliament’s Unity

The premier, who will run in March presidential elections, warned last week against “smashing” the parliament’s unity and suffering the political paralysis afflicting Europe and the U.S. as Russia seeks to avoid contagion from the euro region’s debt crisis.

“If United Russia fails to get a majority then the government will have to rely on support from the LDPR to get legislation through,” Chris Weafer, Moscow-based based chief strategist at Troika Dialog, Russia’s oldest investment bank, said by e-mail. “This would slow, if not prevent, any unpopular legislation including cuts to social spending or changes to the retirement age.”

In the Russian capital, Europe’s largest city, United Russia got 27.5 percent, just ahead of the Communists’ 25.5 percent, according to the Public Opinion Foundation exit poll.

“This represents a growing defiance,” said Masha Lipman, an analyst at the Carnegie Moscow Center. “People just wouldn’t vote for United Russia because the government wanted them to.”

Above the Threshold

Three other parties scored above the 7 percent threshold for proportional representation in the legislative body. The Communists are set to garner between 20 percent and 21 percent, with between 13 percent and 14 percent for the Just Russia party, which campaigns for increased social spending, and between 11.5 percent and 14.5 percent for the nationalist Liberal Democratic Party, or LDPR, according to the exit polls and provisional results.

Opposition parties complained of violations during the election, including ballot stuffing and misuse of absentee voting. Before the poll, the opposition also accused authorities of detaining their candidates and activists and seizing campaign material.

“Some violations were registered but according to observers, there weren’t any abuses that could have influenced the outcome of the vote,” Gryzlov said.

Putin would get 31 percent in a presidential election, compared with 8 percent for Communist leader Gennady Zyuganov and 7 percent for President Dmitry Medvedev, according to a Nov. 18-21 Levada poll. A third were undecided.

‘Venal and Detached’

“Dissatisfaction with the level of wages and a distrust of power as venal and detached from people are directly reflected on United Russia’s approval rating,” Grigoriy Kertman, the chief analyst for the Public Opinion Foundation, said before the election.

Real wages increased an average of 15 percent a year between 2000 and 2008, according to data compiled by Bloomberg. Including declines for much of 2009, growth has averaged 1.5 percent since.

Russia placed 143rd of 182 surveyed countries in Transparency International’s 2011 Corruption Perceptions Index. Russia is the world’s most corrupt major economy, with higher levels of graft than in Pakistan, Cameroon and Niger.

During Putin’s first two terms as president, he worked to centralize power and increase state ownership of the country’s biggest companies. Buffeted by a booming global economy, Russia’s economic growth averaged 7 percent a year during his 2000-2008 tenure.

Gross domestic product of the world’s biggest energy exporter will increase 4.1 percent this year after 4 percent last year, the government estimates.

“Of course popular discontent is boiling over but Putin will continue to keep power in his hands,” said Mikhail Kasyanov, a former prime minister under Putin who is now an opposition figure.

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Read more...

Economy Avoiding ‘Death Spiral’ Boosts Bullish Fund Wagers: Commodities

By Whitney McFerron - Dec 5, 2011 6:24 AM GMT+0700

Hedge funds boosted wagers on higher commodity prices for the first time in three weeks as the outlook for the U.S. economy improved.

Money managers increased combined bullish positions across 18 U.S. futures and options by 0.7 percent to 566,494 contracts in the week ended Nov. 29, Commodity Futures Trading Commission data show. Investors trimmed their bearish holdings in copper for the first time in four weeks, and pared bets on lower wheat and soybean prices.

The value of world equities rose more than $2.2 trillion last week as the MSCI All-Country World Index climbed for five consecutive days, the longest rally since October. The Federal Reserve and five other central banks made it easier and cheaper for banks to obtain dollars in emergencies and China, the biggest consumer of everything from energy to copper to soybeans, lowered banks’ reserve requirements for the first time since 2008. The U.S. jobless rate fell to a two-year low in November.

“We’re more on a moderate growth path, not the death spiral people feared two months ago,” said Michael Strauss, who helps oversee about $27 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “That puts a little bit more support into commodities.”

Copper Rallies

The Standard & Poor’s GSCI Commodity Index jumped 3.5 percent last week, the most since mid-October, led by copper, zinc and aluminum. The MSCI All-Country World Index gained 8.4 percent while the Dollar Index, a measure against six trading partners, slipped 1.3 percent. The yield on 10-year Treasuries rose 7 basis points, or 0.07 percentage point, according to Bloomberg Bond Trader prices.

Twenty-one of the 24 commodities tracked by the GSCI rose last week, while coffee, hogs and cocoa declined. Copper rose 9.2 percent, the most in five weeks, and wheat gained 6.2 percent in the biggest advance since mid-July.

Commodities will return 15 percent in the next 12 months, led by industrial metals and energy, Goldman Sachs Group Inc. said in a report Dec. 1. The S&P GSCI rebounded 15 percent since Oct. 4, when mounting concern about the European debt crisis drove the index to the lowest since November 2010.

U.S. consumer confidence surged in November by the most in eight years, the Conference Board, a New York-based private research group, reported Nov. 29. Manufacturing expanded at the fastest speed in five months, according to the Institute for Supply Management’s factory index on Dec. 1.

80 Commodities

Four of the six largest automakers in the U.S. beat analysts’ expectations in November, boosting industry sales to the fastest pace since August 2009, Woodcliff Lake, New Jersey- based Autodata Corp. reported Dec. 1. Palladium, used mostly in catalytic converters, surged 13 percent last week, the most of any of the 80 commodities tracked by Bloomberg.

The GSCI gauge climbed 1.6 percent last month for a second consecutive gain. While the index is 14 percent lower than the 32-month high reached in April, it’s still up 4.2 percent for the year. When economies tumbled into recession in 2008, the gauge fell as much as 66 percent.

China’s growth may slow to 8.5 percent next year, compared with 9.3 percent in 2011, the Organization for Economic Cooperation and Development in Paris said in a report Nov. 28. Chinese manufacturing slowed last month to the weakest since February 2009, according to an index from the China Federation of Logistics and Purchasing.

‘Slow-Growth Mode’

In the 17-nation euro region, a manufacturing gauge based on a survey of purchasing managers fell to the lowest since July 2009, London-based Markit Economics said Dec. 1. Europe accounts for 19 percent of global copper demand and consumes about one in six barrels of the world’s oil, according to Barclays Capital and the International Energy Agency.

“We think Europe is in the process of entering a recession,” said John Bailey, the founder and chief executive officer of Stamford, Connecticut-based Spruce Private Investors LLC, which manages about $3 billion of assets. “Even if the U.S. stabilizes into a slow-growth mode, there are other challenges you’re starting to see. The numbers coming out of China have been weaker than expected.”

Funds pulled $122 million out of commodities in the week ended Nov. 30, even as gold and precious-metal investments had a net-inflow of $446 million, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks investment flows.

Crude Net-Longs

“There was definitely some enthusiasm in the past few days, with China switching its reserve policy and more good U.S. data,” Brandt said by phone. “Inflows next week may be driven by non-gold funds.”

Net-long positions in crude oil rose 2.6 percent from a week earlier to 194,695 contracts, according to CFTC data. Futures climbed 4.3 percent to $100.96 a barrel on the New York Mercantile Exchange last week, the most since mid-November. The most widely held option gives holders the right to buy oil at $150 by November, exchange data show.

Speculators trimmed bets on lower copper prices to 7,017 contracts, from 7,731 a week earlier, the CFTC data show. Twelve of 24 analysts surveyed by Bloomberg expect the metal to advance this week and two were neutral, the first majority bullish outlook in six weeks. Stockpiles monitored by exchanges in London, New York and Shanghai fell 23 percent since March.

Supply ‘Struggle’

Copper will average a record $4.14 a pound in 2012, as economic concerns dissipate amid the “struggle simply to maintain, never mind increase, copper-mine output,” analysts at Macquarie Capital (Europe) Ltd. led by London-based Jeff Largey said in a report Dec. 1. Prices averaged $4.06 this year on the Comex exchange in New York.

A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 2.4 percent to 267,643 contracts, the first gain in three weeks.

“We have seen a nice rally in the past couple of weeks as investors rush back to risk assets,” said Peter Buchanan, a senior economist and commodity analyst at CIBC World Markets Inc. in Toronto. “What we’ve really seen is the risk-on, risk- off trade.”

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

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

Read more...

Australia Company Profits Advance More Forecast on Mining and Construction

By Michael Heath - Dec 5, 2011 7:40 AM GMT+0700

Australian business profits advanced more than economists estimated in the three months through September, the second straight quarterly gain, as earnings strengthened in mining and construction.

Gross operating profits gained 4.8 percent in the third quarter from the previous three months, when they rose a revised 7.3 percent, the Bureau of Statistics said in Sydney today. The result compares with the median forecast for a 3 percent gain in a Bloomberg News survey of 15 economists.

Reserve Bank of Australia Governor Glenn Stevens will lower the overnight cash rate target tomorrow for a second straight meeting, 13 of 25 economists in a Bloomberg News survey predicted, as Europe’s debt crisis threatens global growth. Australia’s exports are rebounding after storms and floods devastated the nation’s northeast in the first quarter.

“Export prices likely peaked at an all-time high in the third quarter,” Kieran Davies, a Sydney-based economist at Royal Bank of Scotland Group Plc., said in a research report before today’s release. As a result, mining profits may fall in the fourth quarter, he said.

The Australian dollar has gained 3.1 percent against its U.S. counterpart in the past 12 months, the third-best performer among the 16 major currencies tracked by Bloomberg. That strength has hurt the nation’s manufacturers and other non- resource industries.

Currency Reaction

The Australian dollar was little changed after the data. The so-called Aussie traded at $1.0243 as of 11:32 a.m. in Sydney from $1.0244 earlier.

From a year earlier, profits advanced 8.8 percent, today’s report showed.

Profits at mining companies advanced 5 percent and construction jumped 21.7 percent in the third quarter, while financial and insurance services earnings gained 36.1 percent, according to today’s report. Profits at manufacturers fell 3 percent and earnings declined 2.9 percent at retailers, it showed.

Inventories held by companies fell 1.1 percent in the third quarter. Economists had forecast a 1.2 percent gain.

Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses.

The RBA on Nov. 1 lowered its benchmark rate from a developed-world high of 4.75 percent to 4.5 percent help boost domestic demand, its first reduction in 31 months.

BHP Billiton Ltd., the world’s biggest mining company, said last month fiscal second-half profit rose to a record, beating analyst estimates, after prices of copper, iron ore and coal reached all-time highs because of demand from China.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

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

Read more...