Friday, July 22, 2005

Business Digest - Unocal board opts for Chevron

 
Banking and Insurance Business Review

Business Digest

Business Digest
22nd July 2005

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Once upon a time, it was accepted wisdom that, when two or more companies were engaged in battle to buy another firm, the prize would ultimately go to the highest bidder. Events this week seem to suggest that such simple notions may no longer be quite so applicable.

In the US, the debate surrounding two Chinese companies' efforts to acquire American rivals has reached near fever pitch. China's Haier Group has dropped out of the running to buy the Iowa-based household appliance group Maytag, but uncertainty still surrounds the fate of the Californian oil firm Unocal - currently the subject of an increasingly high profile tug of war between Chevron and the Chinese state-owned player CNOOC.

Chevron this week sweetened its offer for Unocal by roughly $400 million to $17 billion, still leaving it some way below the CNOOC offer of $18.5 billion. Yet the uprated Chevron bid was seemingly sufficient to sway the Unocal board, who recommended that shareholders accept it. It appears however that the likely outcome of this deal may have more to do with politics and patriotism than it will with hard cash.

A flurry of reports this week suggested that elements in Washington are alarmed by the notion of the Chinese buying a US oil company, with the some asking whether this could be the first stage in a global effort by Beijing to secure its own future energy needs at the expense of other powers - particularly the US. Equally, the possible buy-out also raised concerns that industrial and technological know-how could be unintentionally passed on to the Chinese, who could then potentially put it to use in a military setting.

Such worries do however seem somewhat exaggerated - it is worth bearing in mind that Unocal is hardly a giant in the US oil industry, merely a mid-sized independent producer. And as Lenovo's acquisition of IBM's PC business showed, there may ultimately be little that US regulators can do if Chinese firms are willing to stump up the money to push through deals in the US - they are, after all, trading within a global economy.

Moreover, as we report below, US firms are hardly immune from provoking a storm over possible M&A deals elsewhere: French politicians are up in arms over rumors that PepsiCo may be about to bid for the Paris-based food and drink giant Groupe Danone. C'est la vie, as they say...

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Edited by

Nick Kingsley

 
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IN THIS ISSUE

 
QUOTE OF THE WEEK Franck Riboud, Danone CEO...
NEWS & COMMENT IBM axes research projects...
GOOD WEEK / BAD WEEK Microsoft adds to security offering...
MARKET TRENDS

Impulse ice cream: more Brits feel the urge...

ANALYST'S VIEW Powergen's retail price increase reinforces need to mitigate wholesale exposure...
WEEKLY RANKINGS UK gas market...
COMPANY SPOTLIGHT Sun Microsystems ...
RESEARCH REPORTS The latest market research and industry intelligence reports...
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QUOTE OF THE WEEK

 

"A hostile takeover, by whoever it may be, would mean risking losing our identity, our specificity, our culture,"

-- Franck Riboud, chief executive of Danone, vows to defend the company's independence in an interview with the French newspaper Les Echos, reported by the International Herald Tribune.

 

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LATEST NEWS & COMMENT

 
Automotive

Earlier this week, following much speculation, SAIC tabled its bid for MG Rover. However, yet more developments have emerged since then, with businessman David James making two counter-bids, for the company's sports car and Powertrain assets. In other news, Honda revealed an ambitious plan to increase its global vehicle sales by 16% over the next three years. The Japanese company also stated that its Thai subsidiary intends to double its engine parts production by next spring, to reach 300,000 units. In the US meanwhile, big losses in North American vehicle sales have contributed to a 19% drop in Ford's overall Q2 profits. Even a strong performance from the company's finance arms was not enough to offset the sales loss in its domestic market, although the carmaker did deliver more encouraging figures for most of its other regions.
Company information: MG Rover, SAIC, Honda, Ford


Consumer

Danone's shares have reached record levels this week amid speculation that it may be bought by PepsiCo or another foreign buyer. Shares in rivals Numico and Unilever also rose on the talk, but resistance from the French government has since been reported, meaning any takeover attempts could prove tricky. Elsewhere, brewer SABMiller has confirmed that it will buy a controlling stake in Colombia's Grupo Empresarial Bavaria, ending months of speculation. The $4.8 million deal should give SABMiller a strong position within the South American market and the combined group is expected to have aggregated net revenues of around $12.5 billion. Back in the food industry, Heinz plans to expand its snacks, deserts and appetizers business with the acquisition of Nancy's Specialty Foods. According to Heinz, Nancy's branded products generate approximately $64 million in annual net sales and will give Heinz increased presence not only within traditional retail channels but also within the club store channel.
Company information: Groupe Danone, PepsiCo, SABMiller, Heinz


Energy

After a prolonged period of deliberation, Unocal has finally broken the silence to reaffirm its endorsement of Chevron's takeover offer. For the past few weeks Unocal had been trying to decide between offers from Chevron and CNOOC but, with after increasing its bid price, the US giant is now firmly in pole position to clinch the deal. In other mergers and acquisitions news, shareholders of Public Service Enterprise Group have overwhelmingly approved the company's plan to merge with Exelon to form the largest utility company in the US. The vote from Exelon's shareholders is expected today and, if approved, the merger is expected to be completed in the first half of 2006. Finally, in financial news, US utility El Paso Electric has released disappointing quarterly figures, reporting a net loss of $4 million for the quarter ended June 30. The company has blamed its poor results on refinancing costs and on a dramatic drop in business customers' electricity volumes.
Company information: Unocal, Chevron, Exelon, Public Service Enterprise Group


Financial Services

The UK government has come under fire for its warmth towards the independent ATM sector this week after stating that it was pleased to see the recent growth in independently-owned ATMs. Following the government's response to the UK Treasury Committee's report on ATM charges, those opposing the fee-charging machines have been vocal with their criticism, with, for example, consumer group Which? accusing the government of adopting a "see no evil hear no evil" approach to the matter. Over in the US, Munich Re's US subsidiary, American Re, has received a $1.6 million boost from its parent to cover casualty and asbestos claims. Although the payout has triggered a E388 million cut to Munich Re's pre-tax profits this year, the company remains confident of hitting its target 12% return on equity after tax. In mortgages news, the European Commission has published a green paper in which it has adopted a cautious attitude in its pursuit of an integrated European mortgage market. In launching the discussion paper, the European Commission has held back from making any significant recommendations on the future of a single European mortgage market until a detailed cost-benefit analysis is undertaken.
Company information: Munich Re


Healthcare

Wyeth has reported positive second quarter earnings with Q2 net income rising to $976.6 million, up from $827.3 million in the same period a year ago. This increase was thanks in part to strong demand for Enbrel, a treatment for rheumatoid arthritis and certain other inflammatory conditions, and for the antidepressant Effexor. Good news has also been reported in regulatory developments, with an HIV drug co-developed by GlaxoSmithKline and Vertex Pharmaceuticals receiving FDA fast-track status. The designation is based on the positive results from earlier studies of the drug, which is currently known as VX-385. Fellow healthcare giant Roche completes this week's line-up, having made the headlines after inking an E150 million deal to acquire Swiss biotech firm GlycArt. The deal is expected to boost Roche's position in the oncology market by strengthening its drug development capabilities and by adding three preclinical anticancer drug candidates to its pipeline.
Company information: Wyeth, GSK, Vertex, Roche


Technology

In line with its recently-announced restructuring plan, Hewlett-Packard has shelved four major US-based research projects. News of the project cuts, which include the Advanced Software Research group and the Cambridge Research Lab, was not meant to be made public but broke after an internal email was leaked to local press. IBM, which has also announced a major restructuring strategy in recent weeks, has moved a step further down the line with its plan with the reorganization of its Global Services division. According to an internal memo, the company has named a team of three executives to run the unit, with the changes effective immediately. In Internet-related news, VeriSign has revealed that the number of web sites being opened purely to publish pay-per-click advertising links is rocketing. According to the company's CEO, almost a quarter of a million domain names a week are being registered for just a few days, while people 'test' the traffic potential of those names before discarding them. As a result of this, VeriSign is to change the way it reports the size of its domain name business, in terms of active registrations.
Company information: Hewlett-Packard, IBM, VeriSign

 

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GOOD WEEK / BAD WEEK

 

Good Week

Bad Week

Microsoft has added another security string to its bow with the acquisition of FrontBridge Technologies. With the purchase, Microsoft gets its hands on a suite of hosted services including spam, virus and content filtering from a company that competes with MessageLabs, BlackSpider and Postini. Rivals have welcomed the move, believing it validates the security solutions industry and could potentially increase the overall size of the market.

Following the recent credit card fiasco at payments processor CardSystems, in which around 40 million credit and debit cards were left vulnerable to hackers due to a security breach, the company is to be dropped by card giants Visa USA and American Express. As of October this year, CardSystems will no longer manage Visa and Amex transactions. The company has released a statement, in which it claimed to be both disappointed and surprised by Visa's decision, and, no doubt, losing Amex's business will prove a further blow.
Biopharmaceutical firm Geron Corporation, meanwhile, has received a boost this week, with its shares rising by more than 20% after it inked a cancer vaccine deal with Merck & Co. The two companies will work together on developing a vaccine that could target a range of cancers and which, if all goes well, could prove to be an extremely lucrative investment. Under the terms of the agreement, not only will Geron will receive an upfront payment, milestone payments and royalties, but Merck will acquire a stake in the company at a future date.
Over in the healthcare sector, Chiron Corporation, whose corporate image suffered following last year's flu vaccine shortage due to troubles with its Fluvirin manufacturing plant, has been forced to halt production of its other flu vaccine, Begrivac. In a statement that echoes last year's woes, the company revealed that, following further investigation into contaminations at its German plant, it will be unable to supply any Begrivac to non-US markets for the 2005-2006 flu season. This means that, even if Fluvirin production is resumed, as the majority of this drug will be destined the US market, other areas could well be left short.
 

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Commercial Insight: ADHD - Strattera Reigns Supreme as Branded Stimulants Slump

In-depth analysis of the ADHD market with forecasts of all leading products on a country-by-country basis for the seven major pharmaceutical markets until 2015

 
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MARKET TRENDS

 

Brain cancer: glioblastoma incidence to pass 18,000 cases by 2015
The incidence of glioblastoma is increasing, with the 2003 level of 17,604 cases predicted to have increased to reach 18,130 by 2015.
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Impulse ice cream: more and more Brits feel the urge
By 2009, the UK impulse ice cream market is expected to be worth $582.7 million. Although this is less than half the value of the US impulse ice cream market, the UK market is forecast to grow more quickly than the US market.
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Cough & congestion relief products: top flavors in new launches
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New drinks launches March-May: energy levels on the rise
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Product claims: new food launches, Mar-May
New food launches using the 'upscale' claim seem to be declining, with Productscan Online showing that the term fell in popularity in the March-May period 2005 compared to the same period in 2004.
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ANALYST'S VIEW

 
Powergen's retail price increase reinforces need to mitigate wholesale exposure

The sizeable increases in retail gas and power prices announced by E.ON's UK arm Powergen this week are an inevitable consequence of rising wholesale prices. With other UK utilities guaranteed to follow suit in the short term, the need for utilities to reduce their exposure to wholesale markets again returns to the fore, as Datamonitor's Andrew Hill explains...

Given the ongoing volatility and continued record price levels achieved in the wholesale energy markets it comes as little surprise that Powergen has announced a 7.2% increase in its retail power prices and 11.9% for gas.

Rising wholesale prices

The past two and a half years have seen increasingly frequent price spikes of a growing magnitude throughout the gas and power forward curves. In 2003 gas for the forward year averaged less than 23 pence per therm, reaching a peak price of just 26.2 pence. In 2004, the average was 30.67 pence per therm with a peak of 47.10 reached. So far in 2005 forward calendar year gas has averaged 40.30 pence per therm reached an unprecedented record peak of 52.50 pence per therm. Elsewhere in the curve the pattern is similar, particularly in the forward winter contract which has been further driven upwards in value by supply fears.

In the power market a similar volatility in wholesale prices is taking place. Month ahead baseload power is currently being traded at around GBP37 per MWh, nearly twice the level seen at the same time last year. Based on trends seen in recent years and seasonality, further power price movements upwards can be expected later in the year, particularly if gas prices continue to rise.

UK becomes a net gas importer

The supply fears in the gas market relate to the UK's new status as a net gas importer caused by the maturing of North Sea production. This movement from net exporter to net importer status came in December 2004 (some three years sooner than expected).

The fact that the majority of much needed new import infrastructure will not be online until 2007 means that prices for the coming two winters will remain, at best, at the upper of the scale. At worst, in the event of a particularly cold winter combined with unscheduled field outages, wholesale prices will spike further, causing an even greater need for utilities to pass on these higher wholesale prices to their retail customer base.

Retail price increases driven by structural positions

The need for utilities to pass on increased wholesale costs relates to their structural assets base and the resultant exposure to wholesale markets. Utilities with significant gas supply portfolios in the form of equity gas, long term purchase contracts and gas storage have less need to buy gas from the wholesale markets. Analysis of Datamonitor's forecast portfolio profiles shows that all of the UK utilities are structurally short of gas to varying degrees. The key differentiator is that those that are the least short in relation to the size of their gas portfolios, have the greatest ability to hold off on passing on to end users the effects of the rising wholesale market. Utilities such as Centrica, which has a significant and diversified portfolio of gas supply assets, have a slightly stronger ability to delay price rises compared to the other UK utilities that generally have few, if any, gas assets.

In the power market the situation is reversed with all of the UK utilities other than Centrica being structurally long on power to varying degrees. As such the need for them to pass on wholesale power price spikes is diminished.

Further price rises are a case of 'when' rather than 'if'

The combined competitive pressures felt by utilities resulting from wholesale price increases mean that further prices rises by other utilities following Powergen's lead are inevitable. As such, in the absence of a falling wholesale market, utilities need to follow the example set by Centrica in investing in upstream assets to reduce wholesale market exposure. Despite the maturing of North Sea gas supplies, commercial opportunities remain in the upstream gas market in the form of equity gas or even in exploration acreage. By securing bigger gas supply portfolios, there is increased scope for utilities to delay passing on switching inducing increased wholesale costs to their customers, thus giving them a valuable weapon in the ongoing battle for market share.

 

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WEEKLY RANKINGS

 

UK Gas Market

British Gas has gained electricity market share steadily throughout the period, but just as steadily lost share in the gas and dual fuel sectors. Being the incumbent gas supplier, its natural strategy has been to keep gas prices higher than those of its competitors in order to extract larger profit margins, but accepting that it will see a gradual loss of customers to cheaper rivals.

It has made up for this by trying to acquire electricity customers. An added advantage is that the more products a customer buys from the same supplier, the more unlikely it is that he or she will switch - results published in early 2004 stated that British Gas now sells an average 1.62 products to each customer, and it is likely that this figure will rise.

Datamonitor has identified the leading organizations in the UK gas market by identifying the total number of customers for each supplier in August 2004.

Company

Market Share Aug 2004

British Gas (Centrica)

58.54%

Powergen

12.46%

npower

8.96%

Scottish & Southern Energy

7.89%

Scottish Power

6.14%

EDF Energy

5.66%

Others

0.35%


Source: Datamonitor

Related Research: UK Mass Market Energy Retail 2004 Review

 

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COMPANY SPOTLIGHT

 

Sun Microsystems

Sun Microsystems has announced plans to release its website authentication and web single sign-on technologies under an open source license. The technology is currently available in the form of Sun's Java System Access Manager product but will be made freely available via its Open Source Web Single Sign-On project.

The company said the plan will help Java developers to make use of freely available basic authentication and SSO technologies, but can also be seen as a way to drive more interest in the company's Java Enterprise System software.

Santa Clara, California-based Sun will also release the source code for agents to connect the authentication and SSO technologies with its Java System Web Server and Java System Application Server products.

Sun has set up an OpenSSO community web site to house the project and intends to begin making source code available in the fourth quarter, with a full release under the Common Development and Distribution License scheduled for April 2006.

Sun created the CDDL in late 2004 to license its open source version of the Solaris operating system, and it was later approved by the Open Source Initiative in early 2005 ahead of the OpenSolaris launch in June. It has also been adopted for the forthcoming open source release of the company's Java System Application Server Platform Edition 9.0 and the Java System Enterprise Server Bus technologies.

The initial OpenSSL delivery will be a high-level architecture document in August 2005, to be followed by read-only buildable sources for Session Module, providing the ability to implement basic single sign-on solutions, in October 2005. December will see the delivery of read-only buildable sources for Authentication Module, providing the ability to implement full-scale SSO, while February 2006 will see read-only buildable source code for early access and the Web and Application Server agents. Finally, complete open source availability for all sources is scheduled for April 2006.


Key Facts

Sun Microsystems, Inc.
4150 Network Circle
Santa Clara
CA 95054
USA

www.sun.com

T: 1 650 960 1300
F: 1 408 276 3804

NASDAQ National Market Ticker: SUNW
No. Employees: 35,000
Turnover: (USD $mn) 11,185
Financial Year End: June

 

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RESEARCH REPORTS

 

PharmaVitae 2005: Genzyme Global and US Analysis
22 Jul 2005
Global and US specific analysis of Genzyme's strategy, marketed portfolio, pipeline potential and financial position in 2005


Gender Marketing Strategies in Food and Drinks: Future profit opportunities, best practice innovation and NPD
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UK Secured Lending 2005
15 Jul 2005
This report takes an in-depth look at the fast growing UK secured lending market. Datamonitor sizes the secured loan market, examines the factors specific to its growth, covers trends and challenges, and concludes with a five-year forecast.

PharmaVitae 2005: Johnson & Johnson Global & US Analysis
15 Jul 2005
Global and US analysis ofJohnson & Johnson's strategy, marketed portfolio, pipeline potential and financial position in 2004

Stakeholder Opinions: Primary Brain Cancer - Temozolomide Turns Heads
6 Jul 2005
Key issues surrounding the glioma market including epidemiology data, current treatment controversies, unmet needs, economic issues associated with therapy and profiles of agents in the developmental pipeline

Horizontal BPO in European FS
6 Jul 2005
This report looks at the outsourced central enterprise services of human resources outsourcing, finance and accounting outsourcing and procurement outsourcing.

MCI and European Competition Forecasts
1 Jul 2005
Assessments of Competitive Development in 10 Key European Gas and Power Markets

Global Email Filtering Solutions Markets
30 Jun 2005
Looks at the rapidly growing market for email filtering software, appliances and services - examining projected market growth, indentifying key market drivers and inhibitors and profiling some of the market leaders in each sub-sector.

Meeting the Need for an Absolute Return: Strategies for Success
23 Jun 2005
Assesses the strategic implications of HNW individuals' increasing demand for an absolute return from their wealth manager

PharmaVitae 2005: Roche Global Analysis
22 Jun 2005
Global analysis of Roche's strategy, marketed portfolio, pipeline potential and financial position in 2005

Digital rights management: selecting the key influencers of a nascent market
15 Jun 2005
This report investigates the digital rights management market for the consumer. It analyzes the key players, current initiatives and the dynamics of the sector.

Lending for the wealthy
14 Jun 2005
Assesses the role of lending products within a wealth manager's proposition to understand what opportunities exist for wealth managers with respect to satisfying the short and long term borrowing needs of their customers.

PharmaVitae 2004: Mitsubishi Pharma Global & US Analysis
9 Jun 2005
Analysis of Mitsubishi Pharma's strategy, marketed portfolio, pipeline potential and financial position in 2004

Innovation in the USA: New product launches, key trends and leading companies in FMCG for 2005
3 Jun 2005

PharmaVitae 2005: Lundbeck Global & US Analysis
2 Jun 2005
Global and US analysis of Lundbeck's strategy, marketed portfolio, pipeline potential and financial position in 2005

For further information on these or other reports, please feel free to contact us.

 

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SPONSOR'S MESSAGE

 

UK Plastic Cards 2005

Detailed overview of the key trends and developments in the UK plastic card market. Full market data and five year forecasts provided for the credit, debit, charge, and private label markets, along with credit and private label competitor figures.

 
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Copyright 2005  Business Review Ltd

XM's advantage; Buffalo's do-it-all DVD; wall-mount HDTV

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CNET | Home Theater Dispatch
July 22, 2005     
What's hot this week
David Katzmaier
  David Katzmaier
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XM's hardware advantage
Lots of similarities exist between satellite radio services Sirius and XM--subscription fees, number of channels, and lack of ads--but XM has a serious lead in hardware. Two reviews this week demonstrate that advantage: another portable iPod-like XM radio called the Tao XM2go and the first XM-ready A/V receiver from Yamaha. I love Sirius's programming, but this kind of gear is hard to resist.
Read the Tao XM2go review
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Most popular home audio:
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      IN OUR OPINION
Weekend HDTV viewing picksWeekend HDTV viewing picks
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Dew the tennis and poker
Friday, Saturday, and Sunday each offer uncommon HDTV sports broadcasts, starting with the Dew Action Sports Tour's Panasonic Open, which happened last June but should be worth a glance in HD anyway--think BMX, skate tubes, freestyle motorcross, and lots of video game ads. On Saturday and Sunday, NBC airs the RCA Tennis Championships (Panasonic, RCA, HDTV...notice a pattern?), a lead-up to the U.S. Open next month. And while some may not call it a sport, I love poker on TV, and one of the rare high-def presentations will hit INHD Sunday evening. If only ESPN did the World Series (of Poker) in high-def.

2005 Dew Action Sports Tour
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--Anita and Ashley D'Costa
  CNET reader e-mail


A: We've heard reports of "lag" when playing games on new HDTVs, including Samsung DLPs, but this is the first I've seen of an official statement by a company admitting something's amiss. There's also lots of anecdotal evidence of microdisplay HDTVs performing perfectly well with gaming consoles, so it's not the kind of thing where we can say, "Don't buy a certain manufacturer's TV for gaming"--at least not yet. Going forward, we plan to initiate special game-console tests as part of all HDTV reviews we do at CNET; you should see them appearing in the next couple of weeks. For existing HDTVs, I'd recommend looking for consensus among user opinions. The Samsung you mention has plenty of users weighing in.

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