Deal for Anheuser-Busch Is Said to Be Near

July 11, 2008

By ANDREW ROSS SORKIN and MICHAEL J. de la MERCED

In a reversal of its previous hostility to the idea, Anheuser-Busch is in active talks to sell itself to the Belgian brewer InBev in a friendly deal, people briefed on the matter said Thursday night.

Exact terms of the potential deal could not be learned, but one person said that InBev had indicated that it would be willing to pay more than the $65 a share it had originally offered. People briefed on the deal cautioned that the talks might still break down.

In striking an agreement, Anheuser risks a political backlash from the growing number of hometown politicians and customers who had supported the company in its efforts to remain independent.

Helping to drive the deal talks was the indication that some of Anheuser’s largest shareholders, including Warren E. Buffett, were leaning toward backing a deal with InBev.

If a deal is reached, it would end more than a month of hostilities between the two beer giants and create the world’s largest brewer. It would combine Anheuser, the maker of Budweiser and a fixture in American culture, with InBev, the producer of Stella Artois, Beck’s and Bass, creating a new behemoth with distribution channels around the world.

Since InBev unveiled its original $46.3 billion, $65-a-share offer in June, however, the two sides have waged a very public and very bitter brawl. Both companies have sought to press their case in court: InBev has sought to oust the American company’s board, while Anheuser accused the Belgian brewer of lying about its financing commitments and criticized it for having operations in Cuba.

The fight is set against a backdrop of rising prices for beer ingredients like grain and a rapidly consolidating beer industry. Giants like InBev and SABMiller, the world’s two largest brewers — which were themselves the products of mergers struck this decade — have raced to outstrip each other in market share. Though SABMiller, based in London, currently holds the No. 1 position, an Anheuser deal would propel InBev to the top spot.

While the United States remains the world’s largest beer market, domestic brewers have struggled in recent years as their customers drift toward wine and spirits, as well as craft beers and imports. That has tempted the international brewers, as has the weak American dollar. SABMiller and Molson Coors will combine their operations in the United States, forming a formidable rival to Anheuser.

InBev has been mindful of the political pitfalls that could befall a hostile bidder for an American icon like Anheuser. The company said that it would keep St. Louis as its North American headquarters and would try to keep the Anheuser name somewhere in the combined brewers’ new title. Yet on Monday, InBev said that it would begin to canvass Anheuser’s shareholders, seeking their support in ousting the company’s directors. It named an alternate board, including a dissident member of the controlling Busch family.

August A. Busch IV, Anheuser’s chief executive and a scion of the company’s longtime owners, has consistently said that InBev’s offer is too low. But he has felt pressure to enhance his company’s long-stagnant stock. To counter InBev’s claims that it could bolster Anheuser’s bottom line, Mr. Busch and his management team have said that they will cut the company’s work force by as much as 15 percent.

Anheuser has also sought to stymie InBev’s efforts to dislodge its board with its own lawsuit, filed on Tuesday. The company accused its suitor of lying about the firmness of its lending commitments, drawn from a group of eight international banks including JPMorgan Chase. It also argued that because of InBev’s current brewery operations in Cuba, the combined company would run afoul of American trading prohibitions against the island nation.

Cruelest summer for teen jobs since 1958

June employment for teenagers drops nearly 40% below 2007 levels as companies cut extra positions. Summer hiring for teens at lowest pace in 50 years.

By David Goldman, CNNMoney.com staff writer

July 10, 2008: 1:47 PM EDT

NEW YORK (CNNMoney.com) -- Teenagers are finding jobs much harder to come by this summer, as employers trim payrolls amid a slumping economy.

According to an analysis of U.S. Bureau of Labor Statistics data by global outplacement consultant Challenger, Gray & Christmas, teen employment grew by only 683,000 jobs in June, 38.7% below the 1.1 million new positions that teens were able to fill in June of last year.

"This tells you how sparse and thin the job market is right now," said Challenger, Gray & Christmas Chief Executive John Challenger. "Companies are cutting back to their core and cutting out their extras."

June is typically the peak month for teen hiring, yet this June marks the first since 2004 in which companies added fewer than one million new jobs for 16- to 19-year olds.

"Companies tend to hire teens to build their pipelines for the future and give kids a chance to get into the workplace," said Challenger. "But those jobs are the first ones that companies cut back when they need to pare down."

A rebound in July is unlikely, Challenger said, because July employment has fallen an average of 43% from June levels over the past 10 years.

If the average holds, total summer hiring in May, June, and July would be about 1.2 million, which would be the smallest gain in teen summer employment since 1958.

Teen employment also fell in the most recent recessions of 2001 and 1991, but the drop was not nearly as pronounced, noted Challenger.

"This is pretty drastic," Challenger said. "You don't see drops like this too often unless the economy is in a recession."

The struggling U.S. economy has put a stranglehold on companies looking to hire new employees. In just the first half of 2008, the economy lost 438,000 jobs.

"This is about the sluggishness in the economy, rather than a long term change that's part of companies discounting teens," said Challenger. "Our economy, from a labor standpoint, has taken a nosedive in the last 3 months."

The $5 trillion mess

Fannie Mae and Freddie Mac were created by Congress to help more Americans buy homes. Now their shaky condition threatens the entire housing market.

By Katie Benner, writer

Last Updated: July 11, 2008: 3:13 PM EDT

NEW YORK (Fortune) -- They own or guarantee $5 trillion worth of mortgages­ - nearly half of all the country's outstanding home loan debt-and they're crashing. Big time.

Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they're unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market- making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers.

How could the companies end up in such awful straits? Given the way they were created and run, a better question might be: how could they not?

The two companies are so-called government-sponsored enterprises, created by Congress in 1938 (Fannie) and 1970 (Freddie) to help more Americans buy houses.

Their mandate is to maintain a market for mortgages - buying loans from banks, repackaging them as bonds, and selling those securities to investors with a guarantee that they will be paid. This makes lending more tempting for banks because Fannie and Freddie take on risks like missed payments, defaults and swings in interest rates.

But the companies are also publicly traded, with the usual mandate of trying to maximize profits for shareholders.

That effort, of course, involves risk, but as quasi-government programs, they've long carried an implicit guarantee that the feds wouldn't let them fail.

Their hybrid nature created both the opportunity and the temptation for the enterprises to take on more risk and to make themselves ever larger, more important and thus more profitable players in the mortgage market.

Very special treatment

The market and ratings agencies have treated Fannie and Freddie as bulletproof, even though the actual business of dealing with interest sensitive loans is very risky. This is in large part because of the very special perks granted to the mortgage giants, but to no one else.

Each may borrow up to $2.25 billion direct from the Treasury. They are exempt from state and local income taxes and from Securities and Exchange Commission registration requirements and fees. And they can use the Federal Reserve as their bank.

One result of all this special treatment was AAA credit ratings. That means Fannie and Freddie could borrow at super-low rates, a benefit they used to purchase - and hold -high-yielding mortgage loans. The spread between the two provided an irresistible earnings stream and the companies just kept getting bigger.

The mortgages they hold on their books alone total about $1.4 trillion, said Mike Stathis, managing Principal of Apex Venture Advisors, a research and advisory firm.

In the meantime, the companies were allowed to operate in this manner, piling on risk after risk, with virtually no capital cushion (Wall Street speak for the rainy-day piggybank financial companies keep should one of their investments blow up.) As the company's loan portfolio loses value and the mortgage market continues to crumble, it's easy to see why this was a fatal misstep.

Some saw the crisis coming before this week. For example, Alan Greenspan famously warned in 2004 that Fannie and Freddie's rapid growth needed to be curbed because their expansion threatened the financial markets.

Still, the cocktail of high credit ratings, domination of the mortgage securities market, and preferential government treatment led to the sort of shenanigans that go hand in hand with excessive privilege.

Fannie overstated its earnings by $10.6 billion from 1998 through 2004, and its chief executive Franklin Raines lost his job. Freddie Mac had understated its profit by nearly $5 billion from 2000 through 2002. Both companies missed earnings filings while their overhauled their books.

"If Fannie and Freddie had been created in the private sector, they wouldn't look like this," says Christopher Whalen, head of research firm Institutional Risk Analytics. "They have a public sector mission to expand housing and run what is essentially an insurance company. But they also have a conduit to securitize and sell loans, which is what broker-dealers like Lehman do; and they have an interest arbitrage piece (making money on the spread between interest rates) that looks like a hedge fund."

Robert Rodriguez, the founder of First Pacific Advisors, hasn't bought Fannie for Freddie bonds for over two years. "With the recent issuance of their financials, we were still uncomfortable with their leverage," Rodriguez says. "We believed there was considerable balance sheet risk in both of these companies.

Now the dwindling pool of mortgages, higher foreclosure risk, and a shaky interest rate environment have the companies on the ropes; and investors are beginning to lose faith in Fannie and Freddie.

Both firms told Fortune that they have enough capital to weather the storm and continue to support the nation's housing market.

And yet, Fannie has fallen 32% this week and 65% since the beginning of the year. Freddie plunged 47% so far this week and is down 75% since January.

Investors have lost faith that the companies can operate in their current incarnation without running into major problems.

If investors abandon these companies, what do we learn from this odd Frankenstein of a business model?

"Nobody every believed that Fannie and Freddie were truly private and they never should have been," says Whalen. "Now we will all have to pay for a company that has gone astray."

First Published: July 11, 2008: 10:22 AM EDT

(http://money.cnn.com)

IndianOil beats biggies to global technology award at 'oil olympics'

11 Jul 2008, 0104 hrs IST,TNN

MADRID: India has finally found its place on the global oil map. The 19th World Petroleum Congress, billed as the 'Olympics of oil', chose flagship refiner-marketer IndianOil Corporation for its Technical Excellence Award to recognise the Indian research and development prowess. Company chairman Sarthak Behuria received the award from Spain's King Juan Carlos-I during the inaugural session of the congress.

The award for IndianOil was followed by another recognition of emerging capabilites of Indian oilmen when D K Pandey, director (exploration) of flagship explorer Oil and Natural Gas Corporation, who became the first Indian to make it to the world oil body.

IndianOil won the award beating global peers such as Chevron of US and Saudi Aramco.

The award was given for IndianOil's path-breaking work in hydroprocessing technology for production of green fuels. The hydro-processing or diesel hydro-treating technology is closely guarded the world over. It is the technology of choice for secondary conversion.

''This award recognises IndianOil's efforts towards improving the quality of life of communities through developing and supplying green fuels,'' the company said in a release.

Select international technology licensors such as Chevron, UOP, IFP, etc. supply the hydroprocessing technology and enjoy a monopoly on this highly expensive and complex technology.

Each of these technologies is based upon exclusive proprietary component developed by each licensor. Development of this technology indigenously is the result of extensive and painstaking research by IndianOil's scientists and has given a major boost to India's auto fuel policy.

(http://www.timesofindia.com)

Chrysler Building Is Sold to Abu Dhabi Fund

July 9, 2008, 8:46 am

The Chrysler Building, the Art Deco tower whose graceful curves help define the Manhattan skyline, was purchased by the Abu Dhabi Investment Council on Tuesday for an undisclosed price, Bloomberg News reported.

The Abu Dhabi sovereign wealth fund, which bought the skyscraper from a fund managed by Prudential Financial, was set to pay about $800 million for the Midtown Manhattan building, an unnamed source told Bloomberg last month. The New York Post reported the same figure then.

Bloomberg pointed out that it is the second sale of a major New York tower to a Middle Eastern buyer in as many months. The General Motors Building was sold to a Boston Properties consortium that included a Dubai fund last month.

Falling Dollar Makes America Dirt Cheap

By AP
The Associated Press
| 07 Jul 2008 | 02:18 PM ET

Things in the U.S. sure are tough. Brother, can you spare a euro?

Signs saying "We accept euros" are cropping up in the windows of some Manhattan retailers. A Belgium company is trying to gobble up St. Louis-based Anheuser-Busch , the nation's largest brewer and iconic Super Bowl advertiser.

The almighty dollar is mighty no more. It has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.

Vacationing Europeans are finding bargains in the U.S., while Americans in Paris and other world capitals are being clobbered by sky-high tabs for hotels, travel and even sidewalk cafes. Northern border-city Americans who once flocked into Canada for shopping deals are staying home; it's the Canadians flocking here now.

Everything made in America — from goods to entire companies — is near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002.

Since oil is bought and sold in dollars worldwide, the devalued dollar has made the recent surge in energy prices even worse for Americans, leading to $4 gasoline in the United States. Analysts suggest that of the $140 a barrel that oil fetches globally, some $25 may be due to the devalued dollar.

Further declines in the dollar will add to oil's appeal as a commodity to be traded.

Oil, suggests influential energy consultant David Yergin, is "the new gold."

The limp greenback has had one big benefit to the U.S. economy: Since it makes American goods cheaper overseas, it has helped manufacturers who export and other U.S. based companies with international reach. Exports have been one of the few bright spots in an otherwise darkening U.S. economy.

Franklin Vargo, vice president of international economic affairs at the National Association of Manufacturers, welcomes the dollar slide, as do members of his organization.

"We can see that, when the dollar's not overpriced, that people around the world want American goods and our exports are going gangbusters now," he said.

He doesn't see the dollar as undervalued. He sees it as having being overpriced in the 1990s — and what's happened since as something along the lines of a correction. Still, Vargo acknowledges the dollar's decline has brought a measure of pain to some consumers.

"As the dollar has gone down in value, that has added to the dollar cost of oil. No question. So having the dollar decline is not unambiguously a plus. That's why we say there's got to be a balance there somewhere. What we want is a Goldilocks dollar. Not too strong, not too weak. But just right. And only the market can determine that," Vargo said.

Mark Zandi, chief economist at Moody's Economy.com, said expanding exports due to a weak dollar are "an important source of growth, but it doesn't add a lot to jobs, it doesn't mean very much for the average American household.

For the average American, for the average consumer, these are pretty tough times." The loss of the dollar's purchasing power and international respect has some experts worrying that the euro might one day replace the dollar as the so-called primary reserve currency.

And that could trigger a dollar rout as foreign governments and international investors flee from U.S. Treasury bonds and other dollar-denominated investments.

Making matters worse: The gaping U.S. current-account deficit — the amount by which the value of goods, services and investments bought in the U.S. from overseas exceeds the amount the U.S. sells abroad — and the low levels of domestic savings means that foreigners must purchase more than $3 billion every business day to fund the imbalance.

Since roughly half of the nation's nearly $10 trillion national debt is held by foreigners, mostly in Treasury bills and bonds, such a withdrawal could have enormous consequences.

Yet Washington finds its options limited. President Bush asserts longtime support for a "strong" dollar — an assertion he made again last week in a Rose Garden news conference.

"We're strong-dollar people in this administration and have always been for a strong dollar and believe that the relative strengths of our economy will reflect that," he said.

But not once in his presidency has the U.S bought dollars on foreign exchange markets — called intervention — to help prop up the greenback. There's no telling where the buck will stop these days, although for the past few weeks it seems to be in a holding pattern.

Even as three Bush Treasury secretaries in a row spouted the strong-dollar mantra, the dollar kept tumbling against the euro, the pound, the yen, the Canadian dollar and most other major currencies.

The Federal Reserve could prop up the dollar by increasing interest rates under its control. Increased yields would make dollar-denominated investments more attractive to foreigners.

But that could undercut the already anemic economic growth in a frail U.S. economy rocked by soaring fuel costs, falling home prices and rising unemployment — and the lowest reading of consumer confidence in 16 years.

The Fed must do a balancing act between keeping the domestic economy from going into recession and keeping inflation at bay. Furthermore, no Fed likes to raise rates aggressively in a presidential election year. It seems more inclined to hold interest rates low for now to give financial markets time to recover from the housing meltdown and credit crunch.

It did just that in its meeting on June 25, leaving a key short-term rate at 2 percent. The rate reached that level in April after a series of aggressive cuts that brought it down 3.25 percentage points since September. Those cuts helped ease the housing and credit crises — but drove the dollar further down.

In early June, Bush declared before his trip to Europe: "A strong dollar is in our nation's interests. It is in the interests of the global economy."

That, plus a warning by Fed Chairman Ben Bernanke that the dollar's weakness was contributing to U.S. inflation, seemed to temporarily break the dollar's tumble.

Presidents and Fed chairmen don't usually talk directly about the dollar and exchange rates — leaving that up to the Treasury secretary — and international bankers and investors took note of the high-level attention.

Over the past few weeks, the dollar has remained relatively stable, although it took a dip after the Fed decided to leave rates unchanged. The long slide may not be over.

Still, if the Fed moves to lift rates later this year, as some traders and investors anticipate, it could buttress the dollar and spur an exodus of speculators from the oil market — helping to both prop up the dollar and drive down oil prices.

But few economists are sanguine that the economy will improve any time soon. The other main tool to move the dollar — intervention in currency markets by buying dollars and selling other currencies — is risky. It would take great sums of money to make any difference.

The foreign exchange market is the largest in the world, with over $1 trillion traded each day. Seeing the U.S. trying to prop up the greenback by buying dollars could be taken as a sign of desperation and possibly trigger a renewed round of selling.

Furthermore, there has been little encouragement for such a strategy from finance ministers from the Group of Eight wealthy democracies — Japan, Britain, Germany, France, Italy, Canada and Russia plus the U.S. Leaders of the eight countries were to meet in Japan beginning Monday, but the falling dollar was not even on the formal agenda.

It's too touchy an issue, and the dollar's relative stability over the past few weeks makes it easier for world leaders to steer clear.

"People will be talking about it in the corridors," said Reginald Dale, a senior fellow with the Center for Strategic and International Studies.

Treasury Secretary Henry Paulson has suggested that nothing is "off the table" including intervention. But Bush has made statements suggesting he intends to let market forces set exchange rates.

The dollar has fallen so far, it will be difficult to halt or reverse its slide. U.S. efforts to persuade Saudi Arabia and other major oil-producing nations to increase their production — and help ease pressure on both oil prices and the dollar — have brought scant results.

"There's no magic wand," said White House press secretary Dana Perino. "It's not going to be a problem that we solve overnight."

The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels. But imported goods, from fuel to cars from Japanese automakers and toys from China — are getting more expensive just as U.S. wages are either stagnant or falling.

American companies suddenly look cheap to acquisition-minded foreigners, particularly those based in Europe.

Belgian-based InBev's hostile bid for Anheuser-Busch is a recent example. It has bid $46 billion to acquire the company — a 30 percent premium above where Anheuser's shares traded before the June 11 proposal.

A successful acquisition by InBev would put the last remaining mass-market American brewer in foreign hands. InBev is based in Belgium but run by Brazilians.

Anheuser-Busch, which brews both Budweiser and Bud light, holds a 48.5 percent share of U.S. beer sales. It rejected InBev's bid, but the Belgian brewer forged ahead, seeking to unseat Anheuser's 13-member board and take its offer directly to shareholders.

If the takeover goes through, it might open the floodgates to other foreign takeovers of American companies.

Some of the dollar's decline depends on hard-to-measure factors, like the psychology of foreign investors. When the U.S. economy is weakening, many investors stay away. The slide of the dollar has coincided with a long period of relatively low interest rates.

And some of the decline in the dollar's global role "is due to the foreign policy failures of the Bush administration, not just to recent economic developments and policies," suggests Adam S. Posen, deputy director of the Peterson Institute for International Economics and a former economist at the Federal Reserve Bank of New York.

In other words, some international investors unhappy with Bush's policy on Iraq or toward other parts of the world might not wish to invest in American companies or buy U.S. bonds.

Still, he argues that the euro is unlikely to replace the dollar as the world's main reserve currency, and that the euro may be at "a temporary peak of influence." David Wyss, chief economist at Standard & Poor's in New York, says he envisions a day when the dollar and the euro will share billing as the world's reserve currencies.

He predicts that the dollar will remain roughly at its present levels "for a couple years." Still, he says, "We might not be done with this down leg." Another big problem for the dollar is that the European Central Bank is likely to hike rates while the Federal Reserve stands pat, giving euro-based investments a bigger yield advantage.

"I could see more downward pressure on the dollar, over the course of the summer, not dramatically, if the ECB does raise rates," said Robert Dye, an economist with PNC Financial Services Group. "If it is one and done, pressure will be minimal. But if it's an ongoing pattern of rate increases, there will be more substantial pressure."

A euro now buys as much as $1.55 in the United States.

The dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted.

Paul Volcker, who headed the Federal Reserve from 1979-87, warned in April that the nation was in a dollar crisis, and that what is happening now reminds him of the early 1970s, when serious inflation erupted as economic growth stagnated. Then, as now, a weak economy limited the Fed's options.

The result was a spiral of rising prices and wages — until the Fed, led by Volcker, suppressed double-digit inflation with huge interest rate increases that pushed the economy into a steep recession in 1982. He recently criticized the current Fed as defending the economy and the market, instead of defending the dollar. Volcker said that will make defending the greenback much harder later.

Energy consultant Yergin, chairman of Cambridge Energy Research Associates, recently told the House-Senate Joint Economic Committee that oil had become "the new gold."

"Oil has become a storehouse of value — reflecting broad global economic trends and imbalances.

At the same time, oil is increasingly seen as an asset by financial investors, an uncorrelated alternative to equities, bonds, and real estate," he said.

When the credit crisis broke last summer, the result was a sharp reduction in interest rates by the Fed. That, in turn, accelerated the fall of the dollar.

"Instead of the traditional 'flight to the dollar' during a time of instability, there has been a 'flight to commodities' in search of stability during a time of currency instability and a falling dollar," Yergin said.

"There's a painful irony here: The crisis that started in the subprime market in the United States has traveled around the world and, through the medium of a weaker dollar, has come back home to Americans in terms of higher prices at the pump."
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URL: http://www.cnbc.com/id/25572301/