The return of GM as a public company

We all remember the day when the world's leading manufacturer in the automobile industry filed for chapter 11 (reorganization). Many thousands of workers will remember June 1, 2009 as the date when they had to return home and tell their families the horrible truth about their job loss... 

Source: ft.com

Today, General Motors (GM), the second world's largest carmaker after the Japanese Toyota returned to the stock exchange through IPO, which promises to be a record in world history. After the bankruptcy of the automobile giant its common shares once again started to be traded on the New York Stock Exchange (NYSE) and on the Toronto Stock Exchange under the ticker symbols "GM" and "GMM". The first transaction was at a price of $35 per share after the starting point of $33 IPO price.

I don't think that the return of GM back on the stock exchange can be called a debut but this is truly something that the company can be proud of. However, investors were unable to sell their shares of this carmaker in the last half year, which until recently were considered "blue chip" and were part of the Dow Jones index.

Dan Akerson, GM’s chief executive, said that “going public is an important milestone on the way to becoming a new and better and different GM”.

On Wednesday the General Motors Company announced the successful placement of 478 million common shares at the upper boundary of the earlier announced price range (32-33 dollars per share), as well as 87 million of convertible preferred shares at $50 per share. The sellers of common shares are current shareholders of GM, including U.S. Treasury to whom belonged about 61% of the company before the IPO and now - 37%. Total income from the placement accounted to 20.1 billion dollars, making it the largest IPO in U.S. history. Very impressive for the company once being the bankrupt, isn't it? 

Many analysts unanimously say that the return of General Motors on the stock exchange, which took place much faster than it was anticipated, plays a huge positive role for both the company and the U.S. government. GM leadership has repeatedly complained that the label "Government Motors", which got stuck to the company after its bankruptcy, damages its image and has a negative impact on their sales. In the mean time Barack Obama's Administration should be quite satisfied as the demand for shares of GM has been very high, and the government will manage to return to the treasury about $14 billion of those $50 billion that were allocated under the bail-out to the "symbol" of American national industry.

It is seems like a "happy end of the happy beginning" or vise versa! Well at least for this moment this IPO did not only start generating big bucks for the investors but also providing job places which is so important during the current "no jobs" situation.

K.S.

Posted on: Wednesday, 17 November 2010

Sources:

www.ft.com

www.bbc.co.uk

www.rbc.ru

R. Zoellick initiates the return of the global monetary system to an improved form of gold standard

Robert Zoellick, the president of the World Bank, has called on bickering G20 nations to bring gold back into the global monetary system as an anchor to guide currency movements.

Source: telegraph.co.uk/finance

The new system "is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi (Chinese yuan) that moves towards internationalisation and then an open capital account. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Mr Zoellick said in a commentary piece for the Financial Times.

Robert Zoellick's plan involves five steps. As a first step the United States and China must come to an agreement on economic policy, which would include a process of increasing the yuan's exchange rate. After that, the world leading economies need to develop an agreement on the refusal of their central banks from foreign exchange intervention. The first two steps should remove the most painful problems of international monetary relations and prevent currency wars.

Subsequently the "Big Twenty" begins to create a new financial and economic system in the world. The third step, should become the education of the coordination system of exchange rates in developing countries. In the next stage the "Big Twenty" must develop a program to maintain stable growth in the global economy. Based on progress achieved during the first four stages of the reform, the fifth step would be the formation of a new monetary system, which will be based on a basket of five major currencies and gold. "Creating a new monetary architecture will take time, but this work should begin now," - said Mr. Zoellick.

Restoration of the gold standard in the global monetary system is called a new Bretton Woods system, which can replace the current one - Jamaica. The original version of the Bretton Woods system was established in 1944 as a result of agreements of the world leading powers aimed at ensuring financial stability after the Second World War. The main currency in international payments was set to be U.S. dollar and its exchange rate was fixed to gold ($35 per ounce). In addition, fixed exchange rates were established for the currencies of participating countries.

Economists started talking more seriously about the need for a new "gold standard" in the global financial crisis which began in 2007. This idea was particularly popular among the critics of neo-Keynesian model of economic regulation, embodied in the current economic policy of the US Federal Reserve System, which allows virtually unlimited issue of money to stimulate the growth of GDP. However, despite the fact that many well-known economists speak out from time to time in favor of the introduction of the gold standard, many believe that this will lead to excessively tight monetary policy, which will slow down the economic growth and increase unemployment.

It is expected that the currency wars to become one of the main topics at the G20 Summit in South Korea. Earlier, a meeting of "Big Twenty" finance ministers, which was held in late October, was not able to prevent the beginning of currency wars. There is no surprise that Robert Zoellick proposed his initiative shortly before the summit of the "Big Twenty" in Seoul, which, as expected, conflicts and discussions about the exchange rates of major world currencies will receive a new continuation...

Google breaks privacy laws?

Probably many of you have noticed those weird looking cars with huge cameras installed on their roofs! Well they belong to Google a world known leader in providing live street views and photographs which you can find on google maps. So today's post will be written about Google and whether they are doing a right thing by taking pictures of public even though not intentionally.

According to the UK regulator Google broke data protection laws when cars that they use for taking photographs of residential streets not intentionally collected additional personal data.

The Information Commissioner’s Office said that it had concluded that there had been “a significant breach of the Data Protection Act” when Street View cars collected payload data as part of a WiFi mapping service (FT.com)

According to the commission , they decided not to impose a financial penalty on Google but said the US giant would have to sign a document to ensure a similar breach would not happen again. Pitiful for the company but they will have to go through a number of audits.

A similar incident happened with Google one month before in Canada and Spain last month when regulators ruled that Google had broken local laws after finding evidence that the US group had collected fragments of personal data including e-mails, URLs and passwords.

Google said that it was “profoundly sorry” for mistakenly collecting payload data in the UK from unencrypted wireless networks.

Google: “Since we announced our mistake in May we have co-operated closely with the ICO and worked to improve our internal controls,” said Peter Fleischer, Google’s global privacy counsel. “As we have said before, we did not want this data, have never used any of it in our products or services, and have sought to delete it as quickly as possible.”

The final decision was made when the IOC said it would delete the payload data collected in the UK as soon as it was legally cleared to do so.

Now the final question stands in front of us general public: "Do we really need this Street View which interferes in our daily life and collects the data that we might not want to share?"

K.S.

When will the Gold Bubble burst?

Source: Gold Stocks Daily

Since the beginning of Fall 2010 gold prices have achieved record prices 33 times, settling at around $1380 per ounce. This result was achieved on October 14. Since the last record date, the price of gold fell slightly. 

The main factor, which kept pushing gold prices up in recent months, was the fear of investors for the future of the US dollar. Markets are expecting that the U.S. Federal Reserve will make a decision to continue creating incentives for the American economy and soften the credit policy by new money injections into the economy. Without a doubt this will further weaken the dollar. Against these expectations, the demand for gold has risen significantly, this is due to the common known fact that investments in precious metals are traditional means of protection against inflation. 

In so doing, all investment gurus keep claiming in one voice that the next gold bubble “inflates” in the gold market. For example, George Soros said at the beginning of this year that because of the oversupply of money in the market the gold bubble emerged. However, this information did not prevent this clever investor from increasing his investments in gold at the end of 2009, by nearly $500 million. As I observed from the dynamics of metal prices, even though it kept rising by 20% from the beginning of the year, Mr. Soros made a very smart decision!

“Gold is rising with bad news” (Boris Davidenko, financial analyst at the RBC).

I think the most intriguing question that draws attention of investors at the moment: how far and big will this gold bubble go? Most economists agree that the gold market will cool down when the economy as a whole, foremost the U.S. economy, will begin showing signs of recovery and the Federal Reserve will begin raising interest rates. However, experts’ opinions differ on when it will actually happen. There are some optimistic views that we should be expecting some positive results in 2012 and there are pessimists too who believe that the “number one” economy still has to do a lot of work until 2015. 

The only thing that most forecasters agree with is that gold will remain in favour with investors in the next 6-12 months and accordingly its price will continue to grow. From current $1400s to $2200s. 

However, not everyone is so optimistic about gold prices, for example, people in ABN Amro believe that after the growth next year up to $1,425 per ounce the price of the metal will fall by more than 18% - down to $1,165 per troy ounce in 2011.

I think many people can make many right decisions if this information will be analysed properly!

K.S.


Sources:
www.ft.com
www.rbc.ru
www.goldstocksdaily.com
www.forbes.com
www.zerohedge.com

American money and English football

Today's topic is a bit off the world's economic matters, however it surely is an economic matter for such a glorious football club as Liverpool FC. There is a big "fuss" in the press and among the club's fans these days while its american owners are unwillingly planning to sell the club due to large debts.

In the past recent years it has become sort of a trend to buy English football clubs, however the history tells us that previously it were the cases when some oil-rich Russian billionaire Roman Abramovich and a mega-rich  Arab family meaning that this game is for high-rollers. Americans taking over a British football club especially one like Liverpool should have thought well before putting a final signature on a document. These purchased clubs become more than just football clubs, or money making machines they become internationally recognised brand names.

Liverpool FC alongside Manchester United is according to the statistics is the most successful football club in the English Premier League which currently holds 18 national titles. But the club had the misfortune to be bought by American owners rather than rich Arabs or Russians and therefore the current standing in the league.

Current possible new owners of the club, New England Sports Ventures, look better organised and better funded than the current one. Despite its name, NESV are also Americans. And the lesson of English football teams to date is that American ownership has brought a major club to a major debt.

It is all quite linked with the way things are going in the current global economy. American owners are heavily-indebted and rely on financial engineering. It is the oil-rich Arabs and Russians who have the cash and will to buy English football clubs to penetrate them with millions of pounds.

K.S.

Unilever to acquire the US-based Alberto Culver

Due to the high volume of recent activities in the M&A sector I have decided to devote my attention to this particular topic.

Most of us people are familiar with products of such famous companies as Unilever and Sara Lee. We tend to use these products in our daily life. They vary from Unilever's Food Brands such as famous Lipton Tea and Flora butters to Home Care Brands such as Cif, Comfort and Persil that we also regularly use in our household. 

                                                                  (Picture Source: badlani.com)

From now on Unilever will also add very famous brands such as  Radox, Sanex and Duschdas to its portfolio after the acquisition of US company Sara Lee's personal care division. Unilever said it had made a binding offer to buy the unit for €1.275 bn in cash. The company said that the purchase will allow it to strengthen its position in the skin cleansing and deodorant market in Europe. It will also expand the brands in emerging markets, which already account for 15pc of their annual sales (Telegraph.co.uk).

Paul Polman, Unilever's chief executive, said: "Personal care is a strategic category and a key growth driver for Unilever. This transaction builds on our portfolio in Western Europe and also in Asia. The Sara Lee brands enjoy strong consumer recognition, offer significant growth potential and are an excellent fit with Unilever's existing business."

This acquisition will strengthen its leading position in Western Europe as a whole. In addition, there is a significant growth potential of these brands in emerging markets, which already accounts for about 15% of sales a year. 

Annual income from sales of Sara Lee's brands exceeds €750 million and annual EBITDA margin was  €128 million at the end of June 2009.

Not so much time past since Unilever acquired one of the leading producers of personal care brands Sara Lee when it comes the time for Unilever to announce their acquisition of the US-based company Alberto Culver for US$3.7 billion in cash.

Same as the old time, the CEO of Unilever Paul Polman has something positive to say about their decision: “We are delighted to be acquiring Alberto Culver. Their people have done an excellent job of building an impressive range of brands such as TRESemmé, VO5, Nexxus, St. Ives and Simple. These will complement Unilever’s existing portfolio of iconic brands like Dove, Clear and Sunsilk in hair care and Pond’s and Vaseline in skin and will help build on our strong global positions in both the hair care and skin care categories.”

This acquisition makes Unilever the world’s leading company in hair conditioning, the second largest in shampoo and the third largest in styling, and significantly enhances its hair care presence in the US, Canada, the UK, Mexico and Australasia, all of which will be significant hair care markets for years to come.

However, this acquisition is still the subject to regulatory approval and also an approval of Alberto Culver shareholders.

Sources:

http://www.reuters.com/finance/deals/mergers

http://www.unilever.ru/mediacentre/news/2009/Sara-Lee.aspx

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6232155/Unilever-buys-Sara-Lees-personal-care-division-for-1.17bn.html

http://spb.rbc.ru/freenews/20090925161529.shtml?print

FSA issues several warnings to companies for leaks to media

The Financial Services Authority has issued several warnings to companies to crack down on the leaks to the media. These actions were taken ahead of announcing deals as part of the regulator’s drive to stamp out market abuse. 

The authority is trying to threaten publicly traded companies with penalties and legal actions in order to compel them to start controlling the communication level of their executives and the reporters. The regulator said that it would consider rule changes if there was no improvement in the levels of leakage in the markets.

Warnings that have been issued are the part of the FSA’s strategy of “credible deterrence” which has been adopted by the authority in recent years. In their opinion, increased enforcement and tougher penalties will frighten off some white collar criminals and will also deliver home the message that financial firms must have strong controls and compliance in place or they will be expecting to undergo the same sort of actions as the firms yesterday.

Picture Source: sblawlink.com

So far this year, the FSA has imposed almost £84m in fines – more than double the £35m imposed for the whole of last year, and four times the total for 2008 (FT.com).

Now this situation can be reviewed from two different angles. From one side it is any financial firm who is interested in carrying out further disclosures to interested media or third party in order to gain aimed benefits in the market, on the other side it is such a powerful institution such as FSA who is interested in prosecuting the actual and potential criminal firms. Both of the sides are trying to reach their goals, however, the success of each one will bring different outcome to the real economy and to the advantage of the financial market. However, individual insiders will not stop leaking strategically valuable information. Therefore, FSA will be looking into individual cases to reveal those who are suspected in such practices. To further strengthen above said, FSA obligates companies' communication teams and press officers to record all telephone conversations and any other type of communication with the media.

In spite of stepping up its enforcement efforts, suspicious trading took place ahead of 30.6 per cent of UK takeovers last year – the highest level in eight years! (FT.com)

K.S.