Friday, 16 November 2007

Final bids for Northern Rock today

All potential suitors for Northern Rock have until today to submit their proposals to rescue the failing bank. Virgin Group and US private equity firms JC Flowers and Cerberus are among those expected to come forward with offers for the beleaguered lender. With a pay back to the Bank of England of £24 billion, bids are set to be very low. Options ranging from an outright buyout to a breaking up of the ailing bank's assets are expected to be proposed.

A consortium led by Richard Branson's Virgin Group has expressed interest in buying a majority stake in the Newcastle bank, which is responsible for about 1 in 5 mortgages in the UK, and rebranding it as Virgin Money. JC Flowers, has put together a high-profile management team to make their case for taking over the bank stronger, while rival private equity firm Cerberus has also been rumoured to have been scouring Northern Rock's books. Other expressions of interest have become from the former boss of Abbey National, Luqman Arnold. Mr Arnold will make a move through his investment group Olivant and will take minority stake in Northern Rock.

BBC business editor Robert Peston has previously said that there were three possible different destinations for Northern Rock:

1. the sale of the whole company
2. the sale of the basic physical infrastructure of the business i.e. the branches, information technology and call centre, which may also include Northern Rock's £13.5 billion of retail deposits and matching assets
3. the sale of the infrastructure plus all those securitised mortgages

A private equity buyer would be a controversial choice given their reputation for buying firms on the cheap to turn a fast profit, particularly because any buyer is likely to demand that the Government continuing to guarantee savers' deposits in the bank. There have been reports that buyers would call for interest payments on the Bank of England loans to be scrapped - arguing this would enable them to save jobs. (source: BBC News)

J.C. Penney Co. the department store operator based in Texas, reported Thursday a 9.1% drop in third-quarter profit, hurt by sweeping discounts to clear unsold merchandise. The department-store operator cut forecasts for the fourth quarter and the full year, citing macroeconomic concerns.

J.C. Penney's sales have been hurt by unseasonably warm weather and softer consumer spending, forcing it to lower prices more than expected to clear increased stocks of goods. Against a backdrop of record-high oil prices and slowing housing and credit markets that have hurt mid-priced shoppers, the retailer lowered salary expenses, is reducing the size of its Big Book catalogue and will keep a tight rein on inventory and other expenses heading into the holiday season. Chief Executive, Myron Ullman said at a conference with analysts “Our focus is the moderate consumer, the consumer who has always had to make serious choices about their discretionary spending. We have to be realistic about our expectations for the balance of the year," and added that "2008 is going to continue to be a difficult environment. We are planning 2008 very conservatively on expenses."

J.C. Penney's net income fell to $261 million (£127.9 million), or $1.17 (57 pence) a share, for the third quarter ended November, 3rd, from $287 million (£140.6 million), or $1.26 (61 pence) a share, a year earlier. Sales fell 1.1% to $4.73 billion (£2.31 billion).

Many retailers last week reported their worst October results in a decade, hurt by weather and consumers' jitters about the economy. (source: Market Watch)

Black Economic Empowerment (BEE) laws in South Africa may clip Comair’s, which operates the British Airways franchise in South Africa, wings by the Government for failing to comply with laws aimed at increasing the number of black employees in its workforce.

The Department of Labour said the airline, which also runs the low-fare service, could become the first publicly traded company to be taken before the courts for breaching the employment equity provisions of Black Economic Empowerment (BEE) legislation. The airline confirmed that it had received notification from the department of its intention.

Comair representative said: “We don’t want to comment on the specifics of the allegations as it may jeopardise the current legal proceedings besides to reiterate the following: Over the past five years Comair has increased its representation of black employees from 29% to 55%, and employees from designated groups now represent 80% of the workforce. This is despite the general shortage of pilots in the industry, of which approximately 7% are black.”

The company is 12.9% owned by British Airways, and also allegedly failed to submit a report to the director-general on the first working day of October and submitted reports to the Department of Labour that were not based on any existing employment equity plan.

Industry sources said the charges include allegedly failing to prepare an employment equity plan and failing to appoint one or more senior managers to take responsibility for monitoring and implementing an employment equity plan from 2000 to last year. (source: Timesonline)

Starbucks is having to scrap some of its most ambitious expansion plans after figures showed that Americans are popping into the local Starbucks for their morning pick-me-up in fewer numbers. News of lower customer traffic at its 10,000 US stores and a warning of lower profit growth next year sent Starbucks shares plunging 9% in after-hours trading last night.

The company scattered the blame for the bad news saying it had scared customers away with price rises meant to compensate for rising milk prices, and many of its managers had spent too much time focusing on expanding the snacks business and failed to focus on the quality of the coffee service. Most of all, executives said, US consumers simply have less money to spend since mortgage payments, petrol prices and the cost of groceries have all gone up this year.

Wall Street analysts, though, suspected another reason, namely that the Seattle chain has expanded to such an extent that new stores are eating into the customer numbers of existing outlets, which might be as close as one block away.

Starbucks chief executive, Jim Donald said “the company would open 1 600 stores in the US next year, 100 fewer than previously suggested. This would rectify the fact that the company opened more than originally planned this year, and there was still plenty of room for growth since the company accounts for less than 10% of takeaway coffee sales in the US and less than 1% worldwide.”

In the financial year just ended, the company opened 2 571 new coffee shops, 70% of them in the US. It posted net income of $673 million (£329.9 million), up from $574 million (£281.3 million) last time, on sales up 21%. Mr Donald revealed that Starbucks would this morning begin its first nationwide television advertising campaign to promote its special Christmas coffees. (source: The Independent)

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