Business this week: 6th – 12th January 2007

Business this week

Jan 11th 2007
From The Economist print edition

George Bush and Susan Schwab, America’s trade chief, met José Manuel Barroso, the president of the European Commission, and Peter Mandelson, the European Union’s trade commissioner, at the White House in an effort to push forward the stalled Doha round of trade negotiations. No new offers overcame the sticking points of American farm subsidies or European agricultural tariffs, but trade officials promised to continue talking. See article

US Airways increased the value of its bid to buy Delta Air Lines by 20%, to $10.2 billion, putting pressure on Delta’s creditors to accept the offer. Delta’s management rejected US Airways’ initial advance last November, deciding to stick with a bankruptcy restructuring plan instead.

The next big thing

Apple held the annual jamboree designed to show off its new products. The highlight was the unveiling of the touch-screen iPhone, which Steve Jobs, the company’s chief executive, claimed would revolutionise the mobile-communications industry just as the iPod changed the music industry. The share prices of some of Apple’s putative competitors suffered. See article

Motorola’s share price slipped further following last week’s profit warning, which analysts blamed on the low profit margins to be had from the company’s bestselling range of RAZR ultra-thin mobile phones.

The battle for the market in high-definition DVDs moved to new ground when LG Electronics introduced the first machine capable of playing both Blu-ray and HD DVD discs. Consumer-electronics firms and film studios have had to choose between the two formats, making consumers uncertain which one will triumph and causing them to delay buying new players.

Eastman Kodak said it would sell its medical-imaging unit, which traces its roots back to 1896 (soon after the discovery of X-rays), to a division of Canada’s Onex conglomerate. The deal, worth up to almost $2.6 billion, is part of the photography company’s strategy to refocus its business. It has made eight consecutive quarterly losses.

Out of fashion

Gap’s share price rose by more than 7% amid speculation that its review of “brand strategies” might lead to the sale or break-up of the company, which owns the Old Navy label. The review was disclosed last week by Gap’s boss when he reported poor sales leading up to Christmas.

Express Scripts filed a lawsuit with the intent of blocking Caremark’s acceptance of a merger with CVS. Express Scripts has offered $26 billion for Caremark (both companies manage pharmacy services for consumers and health-care firms), but Caremark says a lower bid from CVS, America’s biggest retail-drug chain, provides less risk. A merger with Caremark is attractive because of the extra weight it will bring to price negotiations with drugs firms.

China National Offshore Oil Corporation agreed to invest in a $5.5 billion Indonesian biofuels project, thought to be one of the world’s largest. The state-owned company is looking for energy sources that could one day ease China’s reliance on oil and coal. However, the news was not welcomed by environmentalists worried about the rainforest that will be cleared to make way for crops needed to produce the biofuels.

France’s stockmarket regulator gave François Pinault, a retail and luxury-goods tycoon, a deadline of February 2nd to make a firm offer for Suez, a French utility company which is in the midst of a messy merger with Gaz de France.

NYSE Group and three other foreign investors, including Goldman Sachs, acquired a combined stake of 20% (of 5% each) in India’s biggest stockmarket, the National Stock Exchange. The move by the operator of the New York Stock Exchange underscores the trend toward consolidation among bourses. Under new rules, the Indian government allows foreign investors to take combined stakes of up to 49% of the country’s stock exchanges.

In a decision that took markets by surprise, the Bank of England raised its key interest rate by one-quarter of a percentage point to 5.25%. Britain’s inflation rate has recently crept up to its highest level in a decade. See article

Bulging fuel inventories in America on the back of mild winter weather helped to dampen the price of oil, which fell below $53. See article

Too much of a good thing

The price of copper continued to fall sharply (the metal’s price has dropped by some 10% since the start of the year). Copper almost doubled its value last year, but supplies have been steadily storing up as the demand from carmakers and housebuilders in America has tapered off.