Business this week: 7th – 13th July 2007

Highlights from this week’s edition of The Economist
The surprising revival of Europe | Jihad on the internet | Subprime mortgage problems shake global markets | Pakistan’s mosque showdown | George Melly, jazzman and writer | Iraq’s wobbly coalition government | The paradox of Colombia’s Uribe | Continuing arguments over Kosovo’s status | Scotland’s high-tech oil-support businesses | Germany’s economy | What computing can teach biology, and vice versa | The tale of Elizabeth Marsh

More highlights »

Business this week

Jul 12th 2007
From The Economist print edition

Investors reacted nervously to more bad news stemming from the slowdown in America’s housing market. Standard & Poor’s and Moody’s disclosed that they were downgrading or considering downgrading credit ratings on more than $17 billion-worth of bonds backed by subprime mortgages (aimed at low-income and poor-credit households) because they had underestimated the level of defaults. Stockmarkets in America and Europe fell sharply and the dollar continued its slide, reaching a record low against the euro. See article

Shareholders in both the Chicago Board of Trade and Chicago Mercantile Exchange voted to support their merger, ending a nine-month effort to create the world’s largest derivatives platform.

After weeks of speculation Rio Tinto, a global mining giant, formalised a $38.1 billion offer for Alcan, an aluminium producer based in Canada. Alcan was open to a deal after Alcoa, its American rival, made a hostile $27 billion bid in May. Alcan’s board unanimously recommended Rio’s offer, one of the biggest in the booming commodities sector in recent years.

Company digest

Danone, a French food-group which last week sold its biscuits division to Kraft, agreed to buy Numico, a Dutch company specialising in baby food and “clinical nutrition” for the elderly and sick, for euro12.3 billion ($16.8 billion). Danone maintains that the acquisition will enhance its yogurt and bottled-water divisions (which include the Volvic and Evian brands) as it repositions itself as a leader in the fast-growing health-and-wellness market. Some analysts, however, thought it was paying too much for a business in which it had little experience and viewed Danone’s move as a defence against any potential takeover bids.

Google said it would pay $625m for Postini, a private firm best known to office workers for its web-based e-mail security and spam-sieving technology. The deal will expand the services available in the Google Apps package tailored to the corporate world, further encroaching on Microsoft’s territory.

Nielsen//NetRatings made changes to its gauge of activity on the internet by adding the number of minutes spent by browsers at websites to its criteria. The media research company wants to provide a more accurate measure of audience engagement to advertisers, which allocate spending by pages viewed.

Future flight

Boeing unveiled the 787 Dreamliner in an elaborate ceremony broadcast on TV and the internet. The Dreamliner is Boeing’s first new jet in 12 years. It is partly made from light composite material, and so uses 20% less fuel per passenger than similarly sized aeroplanes. The company’s order book for the aircraft is full.

The $8.1 billion deal between General Electric and Abbott Laboratories unravelled. GE said in January it was buying Abbott’s lucrative medical-diagnostics division, but the pair couldn’t agree on terms.

Sony cut the price of its PlayStation 3 games console by $100 in America in an effort to boost sales. Sony’s device is lagging in popularity behind Microsoft’s cheaper Xbox 360. Its rival seemed unfazed by the price cut, though it has its own problems. Microsoft said last week that it would take a profit charge of more than $1 billion to cover complaints about a flaw in its console.

There were signs that Russia is softening its stance towards Western participation in its energy projects. Gazprom, the state-controlled gas monopoly, reversed course on allowing foreign firms a stake in the Shtokman field (Gazprom rejected five potential partners last autumn). And Royal Dutch Shell signed a co-operation pact with Rosneft, Russia’s state oil company. Shell was pressured into ceding co
ntrol of an energy project to Gazprom last year, but analysts say Russia is now facing up to the costs of developing its oil and gas assets alone.

The International Energy Agency issued a pessimistic outlook on the supply of oil and natural gas, predicting a “crunch” after 2010 because of slow production among non-OPEC countries. The demand for oil was forecast to rise by 2.2% a year. As a consequence the IEA does not expect much easing of oil prices, which hit an 11-month high this week.

The right direction

There was some good news for George Bush. The White House’s mid-year budget review forecast that because tax revenues were higher than expected during the spring, the government’s spending deficit would be $205 billion this fiscal year, $39 billion less than had been thought. Others, including Congress’s number-crunchers, predict the actual deficit will be even less when it is made official in October.