Business this week: 17th – 23rd March 2007

articles from this week’s edition of The Economist
Human rights, dangerously blurred | America’s housing market | America’s debacle in Iraq | The politics of pay | Using mosquitoes to fight malaria | The future of books | Britain’s 2007 budget | The paradoxical effect of Palestinian sanctions | Evaluating Angela Merkel | Colombia’s embattled president | North Korea’s sulk impedes nuclear diplomacy | Barclays bids for ABN AMRO | Preah Maha Ghosananda, “The Gandhi of Cambodia”

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Business this week

Mar 22nd 2007
From The Economist print edition

Barclays confirmed it was talking to ABN Amro about a merger. A combination of the British and Dutch banks would create one of the world’s biggest financial institutions with interests in retail and investment banking. As negotiations continued, other European banks were rumoured to be interested in buying all (or part) of ABN AMRO, which is resisting a call for its break-up from an activist hedge fund. See article

Wal-Mart withdrew its application to enter the banking business, saying it had been surrounded by “manufactured controversy”. The retailer had been opposed by consumer groups and community banks, though Wal-Mart had insisted its intention had been to cut its own transaction costs, not to start a retail bank.

Morgan Stanley won its appeal against the $1.6 billion in damages awarded to Ronald Perelman in 2005. The billionaire investor alleged he had received fraudulent advice from the bank about the finances of Sunbeam, a maker of household appliances that eventually went bankrupt. A state appeals court in Florida ruled he did not prove the level of damage at the original trial.

In harm’s way

BP was berated for having a weak safety culture in the final report from America’s Chemical Safety Board into the blast at a Texas refinery in March 2005 that killed 15 workers and injured scores of others. The inquiry concluded that the oil company paid more attention to cutting costs at the facility than to the threat of an explosion. BP is being investigated by the Justice Department and faces the possibility of criminal charges. See article

Rosneft, Russia’s state oil company, disclosed it had secured $22 billion in loans from a consortium of Western banks so that it could bid at auction for refineries once owned by Yukos, a private oil firm that was forced to sell its main assets by the Russian government and was thereby bankrupted. It is one of the largest loans given to a Russian company.

In a deal worth $4 billion—one of the biggest in Brazil—Petrobras, the state-run oil company, and two partners announced a plan to buy Ipiranga, a fuel distributor and refiner. The decision follows the government’s recent stated intention to expand its strategic role in the energy sector.

Returns policy

John Antioco quit Blockbuster as chief executive after months of criticism from shareholders (led by Carl Icahn) about the size of his pay given the company’s languid performance. Mr Antioco has now agreed to take much smal
ler sums in both bonus and severance pay when he leaves at the end of this year.

Investors were excited at reports that Blackstone, which has funded some of the biggest buy-outs over the past two years, might offer some shares to the public. As well as pondering what such a decision might mean for future buy-outs, analysts were eager to learn what the private-equity firm’s prospectus could reveal about its operations. See article

The founder of Affiliated Computer Services unveiled an $8.2 billion buy-out offer for the computer-outsourcing company backed by Cerberus Capital Management, a private-equity firm. The chief executive and chief financial officer of ACS resigned last year amid an internal inquiry into its stock-option practices.

Community Health Systems agreed to buy Triad Hospitals, a rival, pipping a buy-out offer that had been made by two private-equity firms. The $6.8 billion deal creates the biggest publicly traded hospital operator in America (HCA went private in a management-led buy-out last year) with 144 medical facilities, primarily in the south.

Airbus’s A380 made inaugural flights to the United States in order to test the runway upgrades of airports that are trying to accommodate the world’s biggest passenger jet, which has faced a series of embarrassing production delays and losses. The aircraft touched down in New York and Los Angeles ahead of schedule.

The Federal Reserve held its main interest rate steady at 5.25%, but the tone of its accompanying statement was interpreted by the markets to mean the central bank was becoming flexible towards the idea of future rate-cuts.

Cause for concern?

Infographics

The Fed meeting came after the release of new inflation figures. America’s headline consumer prices increased by 0.4% in February compared with January as fuel and medical-care costs rose sharply (the core inflation rate, which excludes energy and food, slowed). There was also a rise in Britain’s consumer-price index, but more attention was paid to its retail-price index, which includes mortgage payments. Thus measured, annual inflation jumped to 4.6%.