Archive for December, 2010

GM says it plans additional 1.0 billion-dollar debt cut

Wednesday, December 1st, 2010 | Finance News

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PARIS (AFP) – US auto maker General Motors said on Wednesday it planned to reduce its debt by a further 1.0 billion dollars (762 million euros) through the repayment of a credit owed by its South Korean subsidiary.

It said the unit, GM Daewoo Auto and Technology, would pay back the full amount this month.

The company added that with its return to the stock market it was determined to use every opportunity to bolster its financial health.

General Motors last month carried out an initial share offering worth 23.1 billion dollars, the biggest ever recorded anywhere.

Amid skyrocketing debt and plummeting sales, GM had been forced into bankruptcy protection in June 2009, when it received a 50-billion-dollar government bailout.

The IPO lowered the government stake in the company below 50 percent and recovered 11.7 billion dollars for US taxpayers.

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Wall Street wants more on Starbucks’ grocery plan

Wednesday, December 1st, 2010 | Finance News

NEW YORK (Reuters) – Starbucks is expected to lay out its plan to accelerate sales of bagged coffee and other consumer products beyond its coffeehouses when it hosts its investor meeting in New York on Wednesday.

The brass at Starbucks Corp (SBUX.O) says the consumer packaged goods business should grow faster than its retail cafes, which total 17,000 globally.

But analysts want specifics on how it will accomplish that goal, particularly as it works through a messy break-up with Kraft Foods Inc (KFT.N), which has handled sales of Starbucks packaged coffee and tea in supermarkets and club stores since 1998.

The Seattle coffee giant is seeking to sell more Starbucks-branded products, including packaged coffee and tea, Via instant coffee, bottled drinks and ice cream through channels ranging from supermarkets and warehouse stores to restaurants and hotels.

For its fiscal year ended October 3, packaged goods accounted for just 7 percent of Starbucks' revenue of $10.7 billion. The company says it has healthy margins and lots of room to run.

Starbucks is also expected to provide more information about the locations of 400 new international and 100 new U.S. cafes planned for its new fiscal year.

Earlier this week, Starbucks accused Kraft of multiple contractual breaches, including mismanaging grocery sales. It wants to end the union on March 1, ahead of what it says was a 2014 expiration date.

In the 12 years Kraft has handled Starbucks grocery coffee and tea sales, revenue grew to $500 million from $50 million.

Kraft asserts that the deal is perpetual and denied breaching the contract. It said that if Starbucks wants out, it must pay Kraft the fair market value of the business plus a premium of as much as 35 percent.

If the companies do not settle their differences on their own, it will go before dispute resolution firm JAMS in Chicago.

BUYING ITS FREEDOM

The biggest unknown is how much Starbucks might have to pay for its freedom from Kraft.

Bernstein analyst Sara Senatore said the value of Kraft's business could be around $1.2 billion, excluding any premium, if arbitrators agree that the contract is perpetual. If they agree with Starbucks that the pact would have expired in 2014, the value could be less than $300 million, she said.

"We would expect an arbitration award to be below the perpetuity value," Senatore said, pointing to the complaints Starbucks has levied against Kraft.

Baird analyst David Tarantino said the divorce from Kraft could be a wash for Starbucks, which does not have expertise in placing products in grocery stores.

"We view the near-term benefits and risks of (Starbucks) taking over the packaged goods business as roughly balanced," he said.

The Kraft deal brought Starbucks revenue of roughly $400 million in its fiscal year ended October 3, according to regulatory documents. Starbucks makes some profit selling the roasted, bagged coffee to Kraft, which also pays Starbucks a separate fee based on grocery sales and other factors.

While revenue from the partnership rose more than 9 percent in 2010 and more than 8 percent in 2009, analysts say Starbucks has suffered three years of sequential market share losses.

That was partly due to the success of rivals like Dunkin Donuts, which is distributed by J.M. Smucker Co (SJM.N), and Peet's Coffee & Tea (PEET.O), which has won fans among a growing number of people who are brewing coffee at home to save money.

Analysts declined to estimate how much extra revenue Starbucks could pick up by taking the business back from Kraft.

"We believe the Starbucks (grocery packaged coffee) brand is ripe for reinvigoration," said Senatore.

Starbucks on Monday told Reuters its new partner for the packaged coffee and tea business would be privately held Acosta Inc (ACSTA.UL), which in one year helped Starbucks drive Via sales of about $135 million.

Ending the deal with Kraft would also break Starbucks' tie to Kraft's Tassimo single-cup brewing system, which is a distant rival to the Keurig brewer from Green Mountain Coffee Roasters Inc (GMCR.O). Starbucks is not expected to make an announcement about single-cup brewing on Wednesday.

(Reporting by Lisa Baertlein in Los Angeles and Martinne Geller in New York; editing by John Wallace)

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EU extends looser rules on bailouts

Wednesday, December 1st, 2010 | Finance News

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BRUSSELS – European regulators on Wednesday extended into 2011 the more lenient rules on state aid for banks and companies they introduced during the financial crisis, suggesting officials remain wary of the repercussions on banks of the government debt crisis ravaging the region.

"After almost two years of a specific crisis state aid regime, we need to prepare a gradual return to normal market functioning," said EU Competition Commissioner Joaquin Almunia. However, he cautioned that "the remaining risk of renewed stress is a valid reason to proceed with care and caution in the exit process."

Almunia said he hoped that the commission could return to the normal rules on state aid for banks by 2012, but warned that it was "still too soon" to give an exact date.

"I cannot anticipate because nobody can assure that the normal conditions in the financial markets will be completely re-established by the end of next year." he said.

The EU's competition watchdog temporarily loosened some rules on state aid after the collapse of Lehman Brothers in 2008. Between Oct. 2008 and Oct. 2010 the commission approved euro4.59 trillion in state aid for the financial sector, the commission said. The overwhelming majority of that aid, euro3.94 trillion, was given in the form of loan guarantees.

Most of these guarantees haven't been used, and thus don't cost the taxpayer anything, but the case Ireland has shown what happens when banks suddenly are no longer able to repay their guaranteed loans. EU officials agreed Sunday on a euro67.5 billion ($89 billion) in bailout loans in an attempt to keep market fears about the country's financial stability from spreading to other countries in the currency union.

In a slight tightening of the temporary rules, all banks getting aid from the government that goes beyond loan guarantees from Jan. 1 onwards will have to submit a restructuring plan to show how they can continue to function without additional support in the future.

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