International
Friday Newspaper Review - Irish Business News and International Stories
By Finfacts Team
Sep 22, 2006, 08:33

The Irish Independent also reports that advertisers spent €182m on national newspaper ads in the first six months of the year, an increase of 9.5pc across 18 titles.

The Irish Times reports that the biggest Irish stockbrokers and some of their smaller rivals are at odds over the value of their multimillion-euro shareholdings in the Irish Stock Exchange, the body that operates the market.

Unresolved differences over the weighting of their individual interests in the exchange have emerged as the main obstacle to the demutualisation of the highly profitable exchange before a likely move to take part in the consolidation of international exchanges.

Bigger companies such as Davy, Goodbody and NCB are on one side of the disagreement with others, including Bloxham, on the other.

The exchange is jointly-owned by seven market participants. In addition to Davy, Goodbody, NCB and Bloxham, they are: Dolmen, Campbell O'Connor and ABN-Amro. Each has an equal guarantee over the liabilities of the exchange, which is a company limited by guarantee.

This means they have equal stakes in the exchange business as it is structured at present.

The demutualisation process would convert the exchange into a company limited by shares. Such shares could be sold for a profit. That is the most likely mechanism through which the Irish exchange would take part in the round of mergers and takeovers now under way among international exchanges.

Market participants believe the Irish exchange might fare better as part of a wider group than going it alone in an international market dominated by big cross-continental exchanges.

With the Dublin market said to be worth considerably in excess of €100 million, the potential to realise significant windfalls on their interests in the exchange is a significant incentive for members to restructure the exchange.

Demutualisation has been on the agenda of the exchange since last year when the businessman Richard Keatinge produced a report on its strategic options.

But the process has been held back because the bigger stockbrokers say their dominance of trading in the market entitles them to a greater number of shares in the exchange after it demutualises.

They are understood to argue that they have made a greater contribution to the exchange and should, therefore, be entitled to a larger share of the reward from its success.

Some of the smaller players disagree, saying their equal guarantee over any liabilities of the exchange in the present structure entitles them to an equal shareholding.

"It's Davy and Goodbody versus more or less the rest.

"The process isn't going to go anywhere until that issue is resolved," said one source.

The stockbroking firms have been attempting for some months to resolve their differences, but have so far failed to find a formula agreeable to all that would enable them to proceed with demutualisation.

Some sources say the bigger firms have a larger share of voting rights at board level which creates a precedent for different share weightings.

However, no formal proposal has yet emerged along those lines.

John Maguire, a partner in Bloxham's who is also a member of the exchange board, declined to comment on the demutualisation process per se but said he was of the view that an equal guarantee was equivalent to an equal shareholding.

Exchange chief executive Tom Healy is on record as saying the organisation was examining ways of allowing member firms to sell their holdings, but said that flotation was not on the agenda.

Mr Healy declined to comment yesterday when asked about the process.

The Irish Times also reports that investor interest in the Aer Lingus flotation has taken brokers by surprise.

With the Eircom fiasco still fresh in the minds of many small investors and the volatile nature of airline industry stocks, it had been expected that there would be some reticence among potential investors in parting with their money.

The €10,000 minimum threshold for individual investors was set with a view to ensuring that investors without sufficient financial resources would not be exposed to stock market volatility.

As it happens, investors appear to have been flush with cash and only too happy to take a punt on the flotation of the national airline. Brokers say that average investments have been in excess of €20,000.

Much of the money is coming from people who are not regular dabblers in the stock market, with one broker estimated that as many as one in five applicants was not a regular client.

Investors remain in the dark on the exact number of shares they will receive. This will depend in part upon the price at which the offering will be set. It will also be determined by any scaling back in the event of the offer being oversubscribed.

The flotation prospectus indicated that the price would be somewhere in the range of €2.10 to €2.70 a share.

It had been anticipated that the eventual price would be at the lower end of this range but the strong investor interest will serve to increase the price at which the State and its advisers are likely to set the final price.

However, with a general election on the horizon and the experience of Eircom behind them, the Government will be keen to ensure that the eventual price will encourage the development of an orderly and liquid market in the shares after flotation.

Figures from the eight stockbrokers through whom individuals have been applying for shares in the airline will be collated over the next few days. Interest from institutional shareholders will also be assessed. The institutions do not have to finalise their bids for stock until the close of business next Tuesday.

There is no set percentage of shares reserved for retail investors, with the co-ordinators of the offer weighing up the offers from institutional investors as well.

A final price will be decided on Tuesday evening and will be advertised in The Irish Times, and other newspapers, as well as on the Aer Lingus and Irish Stock Exchange websites on Wednesday.

A "grey" market in the shares will commence at that stage but ordinary investors will not be able to trade until they have received their shares.

The airline will float formally on October 2nd on both the Irish and London stock exchanges.

Shareholders who keep their Aer Lingus shares for a full year after flotation will receive a bonus share for every 20 shares they hold. In the event that the offer is oversubscribed, the global co-ordinators behind the flotation process have the right to scale back or reject share applications.

The Irish Examiner reports that more men and women working in the private sector should take up roles in the public sector, bringing their entrepreneurial skill with them, a former business leader says.

Peter Malone, who now chairs the National Roads Authority, was formerly managing director of the Jury’s Doyle Hotel Group Plc. He says those working in the private sector bring a greater entrepreneurial spirit into the public sector and more people should follow in his footsteps.

“The most rewarding position is a non-executive position on a PLC — because your main focus is on giving value for money to the shareholder,” he said as he addressed Waterford Chamber of Commerce yesterday.

“Decisions made in the morning are followed through that afternoon. What can be frustrating when on a semi-state board is that a decision is made at board level and it can take months to follow through.”

“People with a strong private-sector background have a low tolerance of them for this reason.”

When Mr Malone came to the NRA board five years ago, he said it had no long-term budget and was struggling from year to year. Most of the time, the annual budget was spent just nine months into its term.

“What it really showed me was we could not plan two to three years down the road, like businesses could. I went to the Transport Minister and to the Finance Minister and made my case, stating the difficulty we were in. I outlined how impossible it was to plan.

“Shortly afterwards, the NRA got a five-year envelope of €7 billion. This is an example of what business people can bring to semi-states and how they can bring about change. It was an excellent decision by the Government and allowed us to change our way of giving contracts.”


“Maybe we should have more private sector people working in the public sector and that would bring the spirit and entrepreneurial skills that have made companies like CRH, AIB and Kerry Group such excellent, world-wide Irish companies into our public sector too.”

The Financial Times reports that the breakneck consolidation of Europe’s medium-sized pharmaceuticals makers continued on Thursday as Germany’s Merck went back on a pledge by buying Switzerland’s Serono, and domestic rival Altana sold its drugs unit for less than expected.

After losing to German rival Bayer in the race for Berlin-based Schering in the spring, Merck said it would buy biotechnology group Serono for €10.6bn ($13bn, £7.1bn) to create the seventh-largest drugs group in Europe.

The Darmstadt-based company agreed to buy the 64.5 per cent stake in Serono held by the Bertarelli family for SFr1,100 a share and will offer the same 20 per cent premium to Wednesday’s closing price to other shareholders.

Altana ended a one-year search for a buyer for its medium-sized drugs arm by selling its pharmaceuticals business to the Danish niche-player Nycomed for €4.5bn including debt.

Such deals involving family-controlled companies could release a logjam in the European sector, where a slew of drugs makers under the control of families or their foundations have sat out consolidation, one deal-making banker said.

“We’ve been waiting for this and I think there’ll be more deals now,” he said, adding that other closely held middleweight companies such as Solvay or UCB of Belgium, or Novo Nordisk of Denmark, would come under pressure to follow suit.

The deals end long searches for partners by Altana, Merck and Serono. They are controlled by founding families and depend on one big-selling drug to cover rising research and development and regulation costs.

Merck made an unprecedented hostile offer for Schering in March this year but was beaten by Bayer. The Bertarellis had tried and failed to sell Serono to a drugs giant such as Novartis or Pfizer.

Michael Römer, Merck chief executive, said Thursday’s deal would raise his company’s research and development budget for prescription drugs from €442m in 2005 to €1bn this year and provide a real “competitive advantage”.

The new drugs unit, Merck Serono Biopharmaceuticals, will handle Merck’s top-selling cancer drug, Erbitux, and Serono’s blockbuster multiple sclerosis treatment, Rebif. Sales will hit €3.6bn, just under half of Merck’s group sales.

Altana had wanted to sell its drugs unit to a big group such as GlaxoSmithKline, or Wyeth, a second-tier US company with which it has a marketing agreement, for upwards of €5bn. But its reliance on anti-stomach-acid drug Pantoprazole scared them off.

With the close of the deal, the company will turn into a pure chemicals company. It will pay out the €4.5bn sale proceeds as a special dividend. About 50.1 per cent of Altana is held by Susanne Klatten, a member of the Quandt industrial dynasty.

In spite of the apparent fit of both operations – Merck has hankered after a US sales force such as Serono’s for years – investors were wary of a transaction that seemed to be a product as much of desperation as vision.

After losing the race for Schering in late March, Mr Römer said Merck had no interest in bidding for Serono – although executives said on Thursday this was because the big drugs groups were talking to the Swiss at that time.

Ernesto Bertarelli, Serono chief executive, told the Financial Times the deal “came about very quickly and was executed very rapidly”.

The FT also reports that a flagship Conservative policy review body is poised to recommend multi-billion pound tax cuts next month, in an embarrassing rebuff to David Cameron’s stance that will fuel right-wing unease about the Tory leader.

The Tax Reform Commission, set up by the Tories last year to recommend options for “simpler, flatter and fairer” taxes, has come up with a radical set of proposals – far more radical than the party leadership expected or wanted.

The commission’s draft report recommends tax cuts worth about £19bn a year over the first term of a Conservative government, according to insiders.

The proposals are understood to include a reduction in the corporation tax rate from 30 per cent to 25 per cent. On income tax, the draft report mirrors the Liberal Democrats’ plans for a 2 point cut in the basic rate and the abolition of the 10p starting rate.

The Tory body also plans to recommend radical reform of inheritance and capital gains taxes, exempting homeowners’ main residence from death duties. Other proposals include two trailed by the party leadership – the abolition of stamp duty on shares and a transferable tax allowance for married couples with young children.

The scale of the proposed cuts has rattled Mr Cameron and George Osborne, the shadow chancellor. They lay much of the blame for the party’s last three general election defeats on voters’ fears that the Tories would slash public services to fund tax cuts. Since becoming leader last year, Mr Cameron has repeatedly pledged that a Conservative government would prioritise economic stability over tax cuts. Mr Osborne has reinforced this message, warning in June that the next Tory manifesto may not offer any up-front tax cuts at all.

The commission will finalise its report next week, ahead of its publication on October 19. Mr Osborne still hopes to persuade Lord Forsyth, the commission’s chairman, to tone down the proposals, although Tory officials stressed there was “no question” of pressure being put on the review body.

The party attempted a pre-emptive damage limitation exercise yesterday, stressing the advisory and non-binding nature of the report. An official told the Financial Times: “The commission is independent and will publish a menu of possible options for tax simplification next month. These can then be considered as part of our policy review. However, as George Osborne and David Cameron have repeatedly made clear, the Conservative party will always put stability before upfront promises of tax cuts.”

This apparent rejection of the commission’s radical approach will not stop calls from within the party for Mr Cameron to take a much stronger line on tax cuts closer to the election. The influential No Turning Back Group of rightwing MPs will publish a leaflet at next month’s Tory party conference making a strong call for a wide swathe of early tax cuts. Many grassroots activists also want the case for lower taxes to be made by Mr Cameron with much greater vigour.

The New York Times reports that pressure is mounting on Hewlett-Packard’s chief executive, Mark V. Hurd, to explain what appears to have been a greater role in the company’s spying operation than was initially indicated.

Mr. Hurd has largely escaped mention in connection with the company’s efforts to obtain private phone records and otherwise trace leaks from its board. But on Thursday, after his name figured in documents newly appearing in the investigation, Hewlett-Packard’s stock price fell significantly for the first time since the revelations began early this month. The shares closed down 5.19 percent, at $34.87.

The California attorney general, Bill Lockyer, threatened at one point Thursday to issue subpoenas to Hewlett-Packard because of what he said was a lack of cooperation in his criminal investigation. But later in the day, a spokesman for his office said H.P. had expressed a willingness to cooperate, as the attorney general wanted.

The problem for Mr. Hurd arises from a sheaf of e-mail messages and other documents obtained by news organizations that suggest that he approved of at least one aspect of the spying operation, offered names of possible targets and may have been briefed by the supervisors of the effort at the start of a crucial phase.

None of the leaked documents directly implicate Mr. Hurd. He did not write any of the e-mail messages, nor is it clear that he was sent copies of others that refer to him and actions attributed to him.

But what may yet emerge — Hewlett-Packard delivered more than 5,000 pages of documents to investigators with the House Committee on Energy and Commerce this week, and more are expected Monday — is what seems to have worried investors and analysts.

“To the degree it impacts the C.E.O., that is something we are nervous about,” said A. M. Sacconaghi, an analyst who tracks Hewlett-Packard for Sanford C. Bernstein & Company. But he said that “at this point the probability is very low” that Mr. Hurd, credited with turning the company around since his hiring in March 2005, might face criminal charges or be forced out.

Mr. Hurd offered Thursday to testify at a House subcommittee hearing on the case next Thursday. Several other Hewlett-Packard executives have also been asked to appear.

In addition, the company said the Securities and Exchange Commission was seeking records and information related to the resignation of Thomas J. Perkins from the board in May. It was Mr. Perkins’s effort to force the company to acknowledge the reason for his resignation — his objection to the leak investigation — that brought the operation into public view.

Since then, documents have shown that Hewlett-Packard’s detectives not only gained phone records of directors, employees, journalists and others, but also tried to plant software on a reporter’s computer to track a bogus document it sent her and even considered infiltrating newsrooms with spies masquerading as clerical workers or cleaners.

E-mail messages between company officials, cited Thursday in The New York Times and The Wall Street Journal, show efforts to organize a briefing for Mr. Hurd last January, when the leak investigation entered an intense phase over a news account of a senior management meeting. It is not clear whether the briefing occurred.

Another message said Mr. Hurd pointed to five potential leakers on the board at that juncture. And The Washington Post reported that e-mail from the company’s chairwoman, Patricia C. Dunn, cited Mr. Hurd as “fine with both the concept and the content” of the software tracking effort.

Mr. Lockyer, the California attorney general, said Thursday that he did not know yet whether the state would find culpability among senior officials in the company. “We haven’t ruled anything in or out,” he said. “We want to know who committed the wrongdoing.”

The company promised that Mr. Hurd would answer questions at a news conference Friday afternoon, after the stock market’s close, but the timing of the events also put investors on edge. “Traditionally in corporate America, bad news is delivered on a Friday after the markets close,” Mr. Sacconaghi said.

Several people with close ties to board members said Mr. Hurd was preparing a plan to present to the board for how get the company beyond its current problems. It may announce dismissals or resignations, though that course could present other problems. Ex-employees have no incentive to protect the company or its executives or managers.

Hewlett-Packard’s chairwoman, Ms. Dunn, has acknowledged that she authorized the internal inquiry, and documents have shown that she involved herself in it. Other documents show that Kevin T. Hunsaker, a senior company lawyer, directed the operation, which involved Hewlett-Packard investigators and several layers of outside detectives and their subcontractors.

Mr. Hunsaker has hired a San Diego criminal defense lawyer, Michael Pancer. Ann O. Baskins, the company’s general counsel, to whom Mr. Hunsaker reported, has hired Cristina C. Arguedas, a white-collar crime specialist with the law firm of Arguedas, Cassman & Headley in Berkeley, Calif.

Mr. Hurd has been popular with investors because he is transforming Hewlett-Packard from a lumbering technology company content to live off the profits of its lucrative ink-cartridge business into a growth company. Hewlett is projected to bring in $91.2 billion in revenue this year — enough to make it the largest technology company in the world.

Oddly, the internal animosities exposed in the disclosures from the leak investigation had their roots in the activities of a board subcommittee established in 2002 to help the company make smarter technology strategy decisions.

After its contentious $25 billion merger with Compaq Computer, the board and some top executives became bitterly divided over how quickly the computer business could grow and how it should invest in the future, according to a person with direct knowledge of the divisions within the board.

Established at the urging of Mr. Perkins, a Silicon Valley venture capitalist who returned to the company as a director after the Compaq merger in 2002, the technology subcommittee routinely met a day before each board meeting to thrash out technology strategy issues and wrestle with how to restart growth at Hewlett-Packard.

The subcommittee was dominated by directors who maintained that the company could grow much more quickly by investing in information technology. Initial members included Mr. Perkins; George A. Keyworth II, a former Reagan administration science adviser; Richard A. Hackborn, a former Hewlett-Packard executive; and Lawrence T. Babbio Jr., vice chairman of Verizon. Shane V. Robison, the executive in charge of research and development, attended the meetings.

Mr. Hurd began attending after he joined the company, succeeding Carleton S. Fiorina as chief executive. It was where the most spirited deliberations about Hewlett-Packard’s future took place, a person briefed on the sessions said.

But Ms. Dunn, who had become chairwoman, did not take part, and some subcommittee members have concluded that her exclusion rankled her. She and several other directors were skeptical of large research investments in computing, a person with detailed knowledge of the subcommittee’s activities said.

“The conflict on the board wasn’t about personalities; it was about growth strategies,” said Mark Stahlman, a financial industry analyst who is now a strategist at Gartner Invest, a Wall Street research firm.

Friends of Ms. Dunn, who asked not to be identified, said some of the animosity could also be traced to the period when Mr. Hurd was hired. Mr. Perkins, Mr. Keyworth and Ms. Dunn were in charge of the search committee, and while they agreed about Mr. Hurd, Ms. Dunn became angry with leaks from the board about the search, those friends said.

Mr. Perkins and Mr. Keyworth became targets in both phases of the leak investigation, around the time of Ms. Fiorina’s dismissal and again early this year. Their resulting confrontation with Ms. Dunn — Mr. Keyworth was identified as a source of unauthorized disclosures — ended in their resignations.

Nonetheless, with Ms. Dunn’s decision last week to step down as chairwoman in January, to be succeeded by Mr. Hurd, the strategic dispute was settled. “The growth faction has now won,” Mr. Stahlman said.

In a filing Thursday with the S.E.C., the company said Mr. Perkins and Mr. Keyworth, who resigned after Ms. Dunn stepped down, had agreed not to sue Hewlett-Packard, and the company had agreed to pay expenses arising from government inquiries or legal proceedings in the spying fiasco. The company and the former directors signed mutual non-disparagement agreements.

The NYT also reports that Sir Richard Branson, the British magnate and adventurer, said yesterday that his personal profits from airlines and a rail company that he controls — a sum he estimated at $3 billion over the next 10 years — would be invested in developing energy sources that do not contribute to global warming.

He announced the plan on the second day of the Clinton Global Initiative, a three-day meeting in Manhattan that amounts to a competitive festival of philanthropy run by former President Bill Clinton.

The money, Sir Richard said, would be invested in a host of alternative energy enterprises, including existing businesses within his Virgin Group, which consists of about 200 different companies connected in some way to Sir Richard’s sprawling corporate empire.

“Our generation has inherited an incredibly beautiful world from our parents and they from their parents,” Sir Richard said. “It is in our hands whether our children and their children inherit the same world. We must not be the generation responsible for irreversibly damaging the environment.”

Several people working in climate research said the pledge appeared to be the largest individual commitment of money aimed at avoiding dangerous climate change by reducing dependence on fossil fuels that add to the atmosphere’s load of carbon dioxide, the main heat-trapping greenhouse gas linked by scientists to rising temperatures.

But it was not clear how much money will ultimately go to the effort, because the businesses involved cannot necessarily count on generating as much in profits as Sir Richard has set as his goal.

Sir Richard said his companies were already engaged in developing an aviation fuel not derived from oil, along with better processes for making bio-fuels from grasses and other crops. Conventional bio-fuels now require a great deal of fossil fuel to manufacture.

Sir Richard said the prime goal was not making money, but financing research on ways to provide energy in a world of growing populations and economies without overheating the planet.

“Some will be profitable, some will not be profitable,” he said at a news conference. “But the only way global warming is going to be beaten is to invest in new fuels that can actually replace fossil fuels.”

Ted Turner, one of the progenitors of 10-figure philanthropy with his $1 billion pledge to the United Nations in 1997, called Sir Richard’s plan a “brilliant move,” both as an investment and as a way to protect the global environment.

“I’m looking to make investments in renewable clean energy myself,” Mr. Turner said. “He’ll probably make more money off of this than he would off the airlines themselves.”

Sir Richard (he was knighted by Queen Elizabeth in 1999 for promotion of entrepreneurship) is a household name in Britain, where he is known for outlandish self-promotional stunts, an avant-garde approach to business and a voracious appetite for new ventures, no matter how small or unusual.

Now 56, he began his career at 20 with a mail-order record business. It expanded into a record label that put out the first recording of the Sex Pistols, and went on to distribute Genesis, UB40 and others. Virgin Music was sold in 1992 for $1 billion.

His private company, Virgin Group, has played the parent to a host of different Virgin ventures from airlines to mobile phones to wine sales and railroads. The emphasis is always on presenting customers with a different, more entertaining way of doing something — often accompanied by blatantly sexy advertising or marketing.

Sir Richard usually owns a big chunk of most of these new companies. The complicated and often private books of the companies, some of which are registered offshore, are difficult for most outsiders to penetrate.

Like any entrepreneur, he has had some high-profile failures, like Virgin Cola, and a reality television show that never attracted much of an audience. But he has had equally high-profile successes. This year, for example, he sold Virgin Mobile in a deal that personally netted Sir Richard £690 million ($1.3 billion) in cash and stock.

His list of promotional stunts is long. He has dressed as a bride, a stewardess, a can of soda and a pirate. He has posed nearly nude in Times Square (to promote Virgin Mobile’s lack of hidden fees), and flown to press conferences via jet pack or dangling from wires off helicopters. Plans to sail around the world in a balloon were scrapped after several tries.

Like Donald Trump, to whom he is sometimes compared, Sir Richard usually operates with partners who often put up much of the money for his ventures. The transportation assets are co-owned by Sir Richard and other investors: Singapore Airlines owns 49 percent of Virgin Atlantic, for example.

Virgin Blue, the Australian carrier, is publicly traded, though Sir Richard retains a stake, as is Virgin Express, the European carrier.

In addition to the profits pledged to the effort, said Will Whitehorn, a Virgin Group spokesman, any money earned from sales of equity stakes in these businesses will be invested in the fuel ventures as well. He added that the group had already raised $300 million toward the investment, by selling thetrainline.com, a British Web site for selling train tickets.

Many experts say private and government research on nonpolluting energy options has lagged, even in the face of growing evidence of risks from rising concentrations of greenhouse gases. Should Sir Richard’s money flow as pledged, the research effort could end up exceeding similar efforts by individual governments.

In February, President Bush announced a bio-fuels initiative for 2007 of $150 million, nearly a 60 percent increase over spending on such fuels in the previous budget.

The overall United States budget for research in renewable energy sources like wind, solar, hydrogen and farmed fuels is a bit over $1 billion a year, but that amount is far less than what was spent during the oil shock of the 1970’s.

And while drug and semiconductor companies typically invest 10 percent or more of revenue into research, in the energy industry the typical research budget is about 0.3 percent of revenue, said Daniel M. Kammen, an energy expert at the University of California, Berkeley.

Kathleen D. McCarthy, director of the Center for the Study of Philanthropy at the City University of New York Graduate Center, said the scale, duration and style of Sir Richard’s pledge were indicative of a deep shift in the way wealthy people were pursuing a legacy.

“This is all new — the scale, the vision, the techniques and the decentralized nature of it,” she said. “Branson is also specifically focusing on an issue that’s not being adequately addressed.’’

Sir Richard said his new commitment grew out of a visit to his London home a few months ago by former Vice President Al Gore, who is on a prolonged worldwide speaking tour to promote “An Inconvenient Truth,” his documentary and book about global warming.

“You are in a position maybe to make a difference,” Sir Richard said Mr. Gore told him. “If you can make a giant step forward other people will follow.”