Archive for March, 2010

Geely to buy Volvo from Ford for $1.8 billion (AP)

Sunday, March 28th, 2010 | Finance News

STOCKHOLM – Zhejiang Geely Holding Group signed a binding deal Sunday to buy Ford Motor Co.'s Volvo Cars unit for $1.8 billion, representing a coup for the independent Chinese automaker which is aiming to expand in Europe.

The purchase gives Geely a European luxury car brand with a reputation for safety and quality at a time when China, which last year surpassed the U.S. as the world's largest car market, is eager to improve its competitiveness by acquiring foreign automotive brands that might help it improve its technology and expand into overseas markets.

The price, which includes a $200 million note with the remainder to be paid out in cash, is far less than the $6.45 billion Ford paid for the Swedish automaker in 1999. The U.S. automaker has been trying to sell Volvo since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," said Ford Chief Financial Officer Lewis Booth on Sunday at a news conference at Volvo Cars headquarters in Goteborg, on Sweden's west coast. Booth added that his company believes that, under Geely, "Volvo can continue to build its business and return to profitability."

The agreement was signed by Booth and Geely's chairman, Li Shufu, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson.

In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as "significant working capital facilities to fund Volvo Cars' ongoing business." The sale is expected to be completed in the third quarter, subject to regulatory approvals.

The deal also covers further agreements on intellectual property rights, supply, and research and development arrangements between Volvo Cars, Geely and Ford. The U.S. automaker has committed to provide engineering support, information technology, access to tooling for common parts and certain other services for a transition period to smooth the separation.

Li, whose comments were translated by an interpreter, described the deal as "a milestone" for both Geely and Volvo, adding that his group will make a Volvo CEO public "in due course."

Geely said it aims to keep Volvo's existing manufacturing facilities in Sweden and Belgium, but that it also will explore manufacturing opportunities in China. Volvo Cars will remain separate from Geely's other operations, with its own Sweden-based management team and a new board of directors, the company said.

"China, the largest car market in the world, will become Volvo's second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market," Li said.

As Western automakers unload unprofitable assets, they are finding keen buyers in Asia.

In 2008, Ford sold its Jaguar and Land Rover brands to India's Tata Motors Ltd. for $1.7 billion, a third of what it paid for them. In addition, General Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy equipment maker, but is now winding that brand down as the deal collapsed. China's Beijing Automotive Industry Holdings has also agreed to buy some powertrain technology from GM's Swedish Saab unit.

Geely, an independent automaker that has struggled to upgrade its image in overseas markets, has long coveted a bigger foothold in Europe and has earlier been rumored to be bidding for Opel and Saab. The long-awaited Volvo acquisition is therefore important for the company, which has gradually built its business with little government support.

Analyst Zhang Xin, with Guotai Junan Securities in Beijing, said Geely's pledge to keep Volvo's factory and business teams in Sweden after the takeover limits its leeway to cut costs.

"Reality is always much crueler than what people would wish. Geely wants to build itself as a new 'international Geely,' so they sought a strong foreign brand like Volvo," Zhang said. "Geely should foresee many difficulties. How will it manage to run Volvo well? How will it deal with the factory and employees? How much more will Geely have to spend to operate Volvo?"

Volvo, whose first car left its Swedish factory in 1927, employs nearly 20,000 workers, most of them based in Sweden. The group, initially a subsidiary of ballbearing maker SKF, was listed on the stock exchange in 1935. In 2009, it sold 334,808 cars. It currently has 10 models on the global market, with its crossover XC60 being the best-seller. The United States, Sweden and Britain account for its three biggest markets.

In a statement Sunday, Volvo Cars CEO Stephen Odell said Volvo managers fully endorse the sale to Geely.

"We believe this is the right outcome for the business, and will provide Volvo Cars with the necessary resources, including the capital investment, to strengthen the business and to continue to move it forward in the future," he said.

Volvo dealers in the U.S. said Sunday that Geely's assurance that the cars will still be made in Sweden has allayed customers' concerns about quality control. Chinese automakers seeking to expand into U.S. markets have faced quality questions from consumers concerned about defects and problems with a number of Chinese exports ranging from drugs and foods to furniture and appliances.

"They do show concern, but we are assuring them the quality of the car is still going to be there," said Chris Gastmeyer, sales manager at Volvo of Orange County in Santa Ana, California, on Sunday.

He said customers are comforted by the fact that the cars are still made in Sweden and that it's business as usual at this point.

Mike Kessler, new car sales manager at Volvo of Santa Monica, said he isn't seeing much worry from shoppers as it appears the manufacturing will remain the same. But staff are eager to see what changes are in store after the transfer in ownership.

"We are dying to see what happens because we need a jump-start," he said.

The sales staff hasn't received any information yet about the plans of its new owners but Kessler hopes Geely has plans to help build new car sales and leases.

"We are basically on hold," he said. "I'm hoping it gets exciting."

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AP Business Writers Elaine Kurtenbach in Shanghai and Sarah Skidmore in Portland, Oregon, contributed to this report.

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A bet on growth puts small-cap funds ahead in 1Q (AP)

Sunday, March 28th, 2010 | Finance News

NEW YORK – Investors are betting that small-caps will be the stock market's standouts as the economy improves.

Some of the strongest mutual fund returns in the January-March quarter have come from funds that focus on smaller companies.

Small-capitalization value funds returned an average 9.3 percent and small-cap growth funds returned 7.2 percent during the quarter. The numbers topped the 3.7 percent return for large-cap growth funds and the 5.3 percent return for large-cap value funds. The figures reflect trading through Thursday so they don't include the final four trading days of the quarter.

Value funds invest in companies that are considered undervalued and that are expected to pay dividends. Growth funds concentrate on stocks that are expected to post strong gains in price but aren't likely to hand out dividends. Many small companies are considered growth stocks because they shovel their cash into expanding and aren't as likely to have a long history.

The change in small-caps' fortune comes from investors' growing appetite for risk. Small-caps were in the dog house during the recession because many investors believed they had fewer resources than bigger companies to withstand hard times. But small-caps are considered more agile when business starts looking up.

That vaulted small-cap funds ahead of most large-cap funds in the first quarter, according to fund tracker Lipper Inc.

A popular measure of small-caps, the Russell 2000 index, shows how well that market segment has done. It's up 8.9 percent so far this year, including dividends. By comparison, the total return of the large-cap Standard & Poor's 500 index is 5 percent.

Overall, the stock market is climbing at a slower pace than it had for much of 2009, when major stock indexes rocketed off of 12-year lows. But for many analysts, a slowdown is just fine.

Linda Duessel, equity market strategist at Federated Investors in Pittsburgh, said the relatively subdued advance means the market is more likely to hold its gains instead of racing higher and then crashing.

"You don't want a blowout. It's going to blow up later," she said.

Funds put up first-quarter numbers that were impressive even though the market's pace has slowed. Diversified U.S. stock funds posted an average return of 5.3 percent. These funds often have an array of holdings and don't focus on a single industry.

Still, many analysts remain cautious. Channing Smith, co-manager of the Capital Advisors Growth Fund in Tulsa, Okla., said investors shouldn't be too quick to dump big companies. He said the strongest large-cap companies are going to hold up much better than small-cap names if the economic recovery unravels.

He said investors need to have a plan that will help them gain from some of the advances in stocks but still allow them to shift into more cautious investments if the market tumbles again.

"You need to understand what's happening in the short-term but you need to have your hand on the ripcord," Smith said.

It could be hard for some investors to let go of some of the strongest funds from the first quarter.

Financial-services funds posted an average return of 11.5 percent. Stocks of banks and other financial companies led the market down during its plunge but have also led the nearly 13-month rebound.

Real estate funds returned 11 percent for the quarter. The funds mostly hold shares of real-estate investment trusts. REITs invest in commercial property and some apartment buildings. They pass along most of their income to shareholders through dividends.

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Obama announces 15 recess appointments, scolds GOP (AP)

Saturday, March 27th, 2010 | Finance News

WASHINGTON – Fed up with waiting, President Barack Obama announced Saturday he would bypass a vacationing Senate and name 15 people to key administration jobs, wielding for the first time the blunt political tool known as the recess appointment.

The move immediately deepened the divide between the Democratic president and Republicans in the Senate following a long, bruising fight over health care. Obama revealed his decision by blistering Republicans, accusing them of holding up nominees for months solely to try to score a political advantage on him.

"I simply cannot allow partisan politics to stand in the way of the basic functioning of government," Obama said in a statement.

The 15 appointees to boards and agencies include the contentious choice of union lawyer Craig Becker to the National Labor Relations Board. Republicans had blocked his nomination on grounds he would bring a radical pro-union agenda to the job, and they called on Obama not to appoint Becker over the recess.

Obama went ahead anyway, while also choosing a second member for the labor board so that four of its five slots will be filled. The board, which referees labor-management disputes, has had a majority of its seats vacant for more than two years, slowing its work and raising questions about the legality of its rulings.

Overall, Obama's appointments will take place throughout the week, allowing people to make the transition to their new jobs, White House spokeswoman Jen Psaki said. The news of Becker's appointment drew the bulk of the ire from Republicans.

"Once again the administration showed that it had little respect for the time honored constitutional roles and procedures of Congress," said Republican Sen. John McCain of Arizona, Obama's foe in the 2008 presidential election. "This is clear payback by the administration to organized labor."

Both Republican and Democratic presidents have made recess appointments, which circumvents the Senate's authority to confirm nominees, when they could not overcome delays. President George W. Bush made more than 170 such appointments in his two-term presidency. President Bill Clinton made nearly 140.

Obama had been on record as warning of recess appointments if the Senate didn't act. He followed through at the end of a week in which his political standing was significantly bolstered by the party-line passage of a historic health care bill, a student loan overhaul and a hard-fought nuclear arms treaty with Russia.

The White House dropped the news in a press release on a quiet Saturday, with Obama at Camp David and lawmakers home in their districts.

The recess appointments mean the 15 people could serve in their jobs through the end of 2011, when the next Senate finishes its term. A recess appointment ends at the completion of the next Senate session or when a person is nominated and confirmed to the job, whichever comes first.

Obama filled two posts at the Treasury Department: Jeffrey Goldstein as under secretary for domestic finance and Michael Mundaca as assistant secretary for tax policy. He singled them out: "At a time of economic emergency, two top appointees to the Department of Treasury have been held up for nearly six months."

On Becker, Republicans have held up his confirmation for months, saying they fear he would circumvent Congress to make labor laws more union-friendly.

Democrats had failed to overcome Republican delaying tactics on Becker's nomination, and all 41 GOP senators wrote to Obama on Thursday urging him not to appoint Becker over the break — to no avail. Becker is a top lawyer at the Service Employees International Union and the AFL-CIO.

Labor unions were especially keen on getting Becker installed on the board that is responsible for certifying union elections and addressing unfair labor practices. Under a Democratic majority, the labor board could decide cases or make new rules that would make it easier for unions to organize workers. The board could allow speeded-up union elections that give employers less time to counter organizing drives.

The other pro-union lawyer Obama named to the board, Mark Pearce, has not faced opposition from Republicans.

The White House says its appointees have been awaiting a vote for an average of seven months.

Obama named three people to the Equal Opportunity Employment Commission, which has also been operating without a quorum.

The Senate's top Democrat, Harry Reid, welcomed Obama's move. "Regrettably, Senate Republicans have dedicated themselves to a failed strategy to cripple President Obama's economic initiatives by stalling key administration nominees at every turn," said Reid, the majority leader from Nevada.

Obama and Democratic leaders say he faces more obstruction, in terms of the number of pending nominees and the length of their delay in getting a vote, than Bush did. The hyper-partisan atmosphere in Washington began long before Obama's presidency but remains as entrenched as ever, if not worse, during his term.

Already in a struggle with the U.S. Chamber of Commerce over a financial overhaul, Obama now has another one over Becker. "The business community should be on red alert for radical changes that could significantly impair the ability of America's job creators to compete," the chamber said in a statement.

In February, Democrats fell far short of the 60 votes they needed to push through Becker's nomination. Two Democrats joined Republicans to halt Becker.

Senate Minority Leader Mitch McConnell said Saturday that Obama's move is "another episode of choosing a partisan path despite bipartisan opposition."

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Associated Press writer Sam Hananel contributed to this story

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On the Net:

Bush recess appointments: http://tinyurl.com/y8rlart

Recess appointments FAQ: http://tinyurl.com/c8s4vy

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