Archive for July, 2005

  • Apple’s Earnings
    , July 13th, 2005 at 9:48 am

    Apple Computer is set to report its earnings today. This will be an interesting report to watch. Last quarter, Apple reported very strong earnings, beating Wall Street’s expectations by ten cents a share. But the stock took a hit because the company said that its revenue forecast was merely in line with Wall Street’s expectations. Wall Street had become so used to Apple beating expectations that anything less was seen as a big disappointment. The stock fell sharply on the day of the earnings announcement, and it’s been struggling ever since. Today’s report will tell us if iPod sales are beginning to taper off.

  • Gillette Votes to Merge
    , July 12th, 2005 at 5:56 pm

    Gillette shareholders have approved the merger with Procter & Gamble. A total of 96% of votes were in favor of the deal. The EU anti-trust regulators are deciding if they need more time to examine the merger.

    I was glad to see the famous shareholder activist, Evelyn Y. Davis, question James Kilts’ outrageous $165 million compensation package. Ultimately, even Davis voted in favor of the deal.

    For his part, Kilts defended his pay:

    “If we would have performed like the rest of the industry, my compensation would have been like the rest of the industry, and I never feel good about apologizing for outperforming the industry and making a lot of money for shareholders and I have to make money as part of that,” Kilts said. “When I joined the company, I knew I was taking a risk of joining a company that hadn’t performed for five years.”

    For each share of Gillette, shareholders will get 0.975 shares of P&G.

  • The Oil Uproar That Isn’t
    , July 12th, 2005 at 1:50 pm

    The New York Times seems puzzled that there isn’t a greater uproar over the high price of oil. The article does mention that, corrected for inflation, oil is still well below where it was 25 years ago. However, the article fails to mention that there hasn’t been a domestic refinery built in 29 years. The reason for the high price for oil isn’t greater demand; it’s due to vast supplies being underneath corrupt governments.

  • The EU Strikes Again
    , July 12th, 2005 at 11:18 am

    This time the Eurocrats have raided the offices of Intel. The raids drew praise from……Advanced Micro Devices!

    “We welcome today’s dawn raid concerning Intel’s continuing infringement of European competition rules. AMD has worked with the EU Commission for years and submitted growing evidence of Intel’s illegal activities, including materials from third parties.”

    This shows the difference between American and European anti-trust laws. Our laws are geared to protect consumers. In Europe, they’re less worried about protecting competition, but protecting competitors.

  • P&G’s Shareholder Approve Gillette Merger
    , July 12th, 2005 at 10:55 am

    This wasn’t a big surprise—over 96% of Procter & Gamble’s shareholders approved the merger offer with Gillette. Later today, Gillette’s shareholders will vote to give their approval.

    William Galvin, the Massachusetts Secretary of State, was on CNBC’s Squawkbox this morning. While there are a lot of things I don’t like about the merger, especially the outrageous $165 million payout that Gillette’s CEO is getting, I like even less how Galvin is going after them. He’s only recourse is to question the “fair opinion” that the companies got from their investment banks. So the government has to make its case that P&G’s offer, which was an 18% premium to the free market price, wasn’t a fair price. So what is a fair price? Galvin claims that P&G undervalued the deal by over $20 billion.

    The market price of Gillette’s stock is determined the collective judgment of millions of investors. Yet this one person claims that they were all dramatically wrong. In fact, 18% more than that isn’t merely wrong—but unfair. Of course, it Gillette is such a bargain, why doesn’t the state buy it? By Mr. Galvin’s reasoning, this would be the best deal since the Louisiana Purchase.

  • Pepsi’s Earnings
    , July 12th, 2005 at 10:48 am

    Pepsi reported strong second-quarter earnings today. What I find interesting is that the company is pretty weak domestically, but it’s doing very well overseas. By volume, soft drink sales in North America actually declined 0.5%. But Pepsi was bailed out by the rest of the world. International profits rose by 23%.

  • Earnings Expectations
    , July 11th, 2005 at 12:18 pm

    Wall Street is finally realizing that earnings for the second quarter will be better-than-expected. That’s hardly not to be expected. Earnings have now been better-than-expected for the last twelve quarters. Which leads one to wonder less about the earnings, and more about the expectations. Or perhaps, the expectations of expectations.

    Nonetheless, things are looking good. Alcoa was the first major company to report earnings last week. The market liked what it saw, and Alcoa rallied sharply. This week, 24 S&P companies are due to report their earnings results. The biggest increase in earnings estimates is in the energy sector. At the beginning of the second quarter, Wall Street was expecting second-quarter’s energy profits to rise by 13%. Today, it looks like it will be about 33%. But if you take energy out of the equation, the earnings growth for the rest of the S&P 500 is likely to be less than 5%.

  • Europe Vs. Gillette and P&G
    , July 11th, 2005 at 9:22 am

    The European Constitution finally ended its nasty losing streak yesterday when it was approved by voters in Luxembourg. Even if the good people of the Grand Duchy had voted against the referendum, the Eurocrats don’t seem terribly interested in losses at the polls. The Constitution is quite popular as long as no one actually has to vote on it. That’s why the Luxembourgian Yes vote (or Jo vote?) is so important. It keeps “the process” alive. And that’s the important thing—the process. The Constitution has already been shot down by voters in Holland and France, yet the EU leaders insist that “the process” continues, which I take to mean as “vote until you get it right.”

    However, there’s another election coming this Tuesday that might similarly be ignored by the Brussels Busybodies. In Boston, Gillette’s shareholders will meet to vote to approve their merger with Procter & Gamble. The deal will almost certainly be approved. Warren Buffett, Gillette’s largest shareholder, has called it a “dream deal.” That’s a nice endorsement to have.

    But the merger has hit an unexpected snag—the EU doesn’t like it. Now let’s recount the action: We have two U.S.-based businesses agreeing to a friendly merger. The deal has been approved by U.S. regulators, and it will certainly be approved by shareholders. But the regulars in another country (or entity, at least) object. And what’s the sticking point?

    Toothbrushes.

    I’m not making this up. Gillette owns the Oral-B brand of battery-powered toothbrushes, and P&G has its own Crest brand. The EU thinks that if the two are combined, the new cowboy superpower will have a competition-stifling command of the global toothbrush market. Think of the horror. Across the continent, mom-and-pop toothbrush makers will be driven out of business by uncouth Americans. Oral care has generally not been a major concern for Europeans, so I guess this is progress of some sort, but it’s a disturbing trend nonetheless.

    This isn’t the first time Europe has interfered with American business. As the economy has gone global, so have the bureaucrats. Four years ago, the EU blocked General Electric’s merger with Honeywell. But the issue there was at least something cool, aircrafts. But toothbrushes?

    If you had to sum up the pettiness of the European bureaucracy, this would be as good as any. But this is what the Global Economy looks like. Gillette and P&G will have no problem finishing their merger. The Europeans might delay it for a while, and the companies will probably have to sell off some units. But now, every time two businesses even think about merging, they’ll have to consider what might happen in Brussels, not to mention, Luxembourg.