Virgin to takeover bmi

A £750 million takeover bid for bmi is discussed by Sir Richard Branson with Dubai International Capital (DIC), the $12 billion sovereign wealth fund, about financing a possible takeover. The billionaire entrepreneur is understood to have joined senior executives from Virgin Group when they visited Dubai recently to discuss potential deals in the health, mobile phone and airline sectors.

Sir Michael Bishop, who owns 50% plus one share in bmi, is widely expected to put his stake up for sale this year, although he insists that he is under no pressure to do so. However, Lufthansa, is a 30% shareholder in bmi and has an option to buy out Sir Michael. However, if Lufthansa passes on Sir Michael's stake, then Virgin Atlantic will try to take control of the airline. Alternatively, there are rumours that Lufthansa and Virgin may co-operate in a deal to buy bmi and create a European super-carrier.

Virgin will not be able to takeover bmi without a fight from rival British Airways, which revealed last year that it would be interested in acquiring bmi. Virgin and DIC were partners last year in the failed bid for the struggling Northern Rock bank. The recent meetings are thought to have been preliminary discussions on how the two groups could co-operate in the future.

Other than bmi, the possible joint ventures could include developing a Middle Eastern Virgin mobile operation and expanding the presence of Virgin Active health clubs in Dubai.

Virgin is also interested in bmi because it would give it a short and medium-haul feeder network. This would bring passengers from across Europe to its base at Heathrow, allowing them to transfer to long-haul Virgin flights. (source: Timesonline)

In a move to create the US largest air operator, Delta Air Lines agreed a $3 billion (£1.5 billion) takeover of Northwest Airlines. The all-share offer has to secure regulatory approval although analysts do not expect it to hit unsurmountable obstacles with the competition authorities. The new airline will fly under the Delta flag, be based in Atlanta and employ 75,000 people.

Airlines in the US are seen as under great pressure to consolidate as they face a range of challenges including high fuel costs, a weakening domestic economy, and competitive threat from European operators.

Delta and Northwest both came out of bankruptcy last year. Delta believes that the takeover will generate $1 billion (£500 million) in annual savings but it has said that no hubs will be closed. The two operators have very little geographical overlap so the merger will initially take no capacity out of the system. The takeover is likely to take months to complete. (source: Timesonline)

One of the key contenders, Joseph Brandon, to take over Berkshire Hathaway when Warren Buffett eventually retires was taken out of the running yesterday after he resigned amid federal pressure over a fraud case. Mr Brandon stepped down as chief executive of Berkshire's General Re insurance group.

His departure comes after the convictions in February of four of the firm's former executives for fraud. Franklin “Tad” Montross, General Re's co-president, will assume Mr Brandon's position immediately.

The defendants helped to add $500 million (£250 million) to AIG's loss reserves - a key indicator of an insurer's health, prosecutors said. One AIG executive was also convicted.

Neither the US Securities and Exchange Commission nor prosecutors has charged Mr Brandon with any wrongdoing. However, the conviction of his fellow executives in relation to the AIG case and an ongoing inquiry into General Re appears to have made his position untenable.

Other possible candidates to succeed Mr Buffett included David Sokol, chairman of Berkshire's MidAmerican Energy, and Ajit Jain, who runs the Berkshire Hathaway Reinsurance Group.

Berkshire owns more than 60 businesses, including furniture, jewellery, restaurants, natural gas and corporate jet companies, although its biggest exposure is to insurance. (source: Timesonline)

Silverjet News & 7 Attributes of Leadership

Following on from our article on the possible sale of Silverjet (10th April 2008 - Silverjet in takeover talks & How to earn from the Credit Crunch) directors of Silverjet have held talks with Lufthansa and Gibraltar’s Bland Group in their search for a buyer. Senior aviation-industry sources say cash constraints have forced the company to put its expansion plans on hold, with two new aircraft that were due to arrive this summer having been delayed.

The company’s share price finished the week at 21p, valuing the airline at £13.5 million. It floated on AIM in May 2006 at 112p, reaching a high of 209p in May last year.

Lufthansa, the German airline has looked at investment in Silverjet as a possible riposte to British Airways’ plans to operate services from continental cities this summer for the first time. Directors have also attempted to drum up interest from Middle Eastern investors, and from the Bland Group, a family-owned Gibraltar investment company.

The talks are thought to be only at an exploratory stage. (source: Timesonline) - Silverjet gets new lifeline

Philips, Europe’s biggest consumer electronics manufacturer, suffered a 28% drop in its core profits as its key TV business was hit by deepening losses.

The group warned that it would feel more impact from the global credit crunch with a softening in “mature economies”. Phillips posted a drop in first quarter profits to €265 million (£219 million) follows last week’s sharp profits drop at Philips’ US rival General Electric.

Operating losses in the television division deepened to €95 million compared with €51 million for the same period last year. Philips recently said it would stop making televisions for the North American market following continued losses.

Philips' sharp drop in core profits comes against a backdrop of a 75% fall in overall profits after the electronics group pulled out of much of its electronic chip interests last year. The company is trying to refocus on areas, which offer more stable earnings.

Shares in Philips fell 2.5% to €23.3million (£19.4 million) in early trading. (source: Timesonline)

A MUST READ

7 Attributes of Leadership:
http://life.halcode.com/archives/2008/04/13/the-7-attributes-of-leadership/

Google hires controversial banker

Google has hired controversial banker Frank Quattrone as a strategic advisor to help meet the threat of a potential takeover of Yahoo by Microsoft.

At Credit Suisse, Mr Quattrone once earned $120 million (£60 million) in one year and underwrote some of the biggest dotcom boom flotations. Frank Quattrone was accused by Federal prosecutors in 2003, as the internet boom had turned to bust, of forwarding an e-mail to colleagues in December 2000 suggesting that it was “time to clean up those files.”

Over 25 years, Quattrone led teams at Morgan Stanley, Deutsche Bank and Credit Suisse, which were responsible for 400 mergers valued at more than $500 billion (£250 billion).

Last month, Quattrone announced that he and some former colleagues had started Qatalyst Group, a tech-focused investment-banking boutique based in San Francisco, to provide merger and corporate finance advice to technology companies.

Yahoo announced on Wednesday it had agreed to a test of whether it should turn over its Web search advertising sales to Google so it can focus on other efforts.

Analysts say Google appears to have held back from getting involved in the Yahoo-Microsoft deal until it had antitrust clearance for its own $3.4 billion (£1.7 billion) DoubleClick acquisition, closed a month ago. (source: Timesonline)

Yahoo and Google, the world's two biggest search engines, have announced a two-week experiment that will see them share advertising space. During the pilot, Google will be able to place ads alongside 3% of search results on Yahoo's website.

Analysts say the move is designed to frustrate Microsoft, which has offered to buy Yahoo for $44.6 billion (£22.6 billion), or extract a higher offer. The news came as both sides were reported to be forging other alliances.

Microsoft and News Corporation are discussing making a joint bid for Yahoo, according to the New York Times. The idea would be to combine three of the world's most visited websites: MySpace, Yahoo and MSN.com.

Microsoft criticised Yahoo's advertising trial with Google, saying any lasting deal would not be in the consumers' interests. "Any definitive agreement between Yahoo and Google would consolidate over 90% of the search advertising market in Google's hands. This would make the market far less competitive," Brad Smith, Microsoft's General Counsel said.

But Yahoo said the testing did not necessarily mean that "any further commercial relationship with Google will result". Microsoft chief executive Steve Ballmer on Saturday gave Yahoo three weeks to agree to the company's offer or risk having the offer lowered. (source: BBC News)

Silverjet in takeover talks & How to earn from the Credit Crunch

Rumours are that Silverjet, the business-class only airline, was in takeover discussions after receiving a bid approach, which led to shares soaring to 43% to 21.75p.

EasyJet has been rumoured as a potential predator since Silverjet appointed Amir Eilon, a former board member of EasyJet and a close friend of easyJet's founder Stelios Haji-Ioannou, as a non executive. However, a move into business class only flights would be a change of strategy for easyJet whereas British Airways might be more interested since it has already announced plans to launch business class only flights to New York next year from London City airport, using two A318s.

SilverjetSilSilverjet’s planes have been flying only slightly more than half full and it has had to battle with a soaring fuel price as well as the credit crunch hitting demand for business travel and struggled to break even last month.

The struggle of the airline was clear after the Reuben brothers, who lent the carrier £10 million before Christmas, declined to convert their loan into shares earlier this year. Until today's news of a bid approach, the shares have slumped from 200p a year ago to 12.5p last week. (source: Timesonline) - Silverjet gets new lifeline

A messy legal battle with BSkyB over Virgin Media’s bid for ITV and a fall in customer numbers in 2007 contributed to the broadband giant missing a £1.3 billion target for cash that Virgin generated.

Virgin’s top six executives were awarded a total of just over $20 million (£10 million) in pay and share awards, compared with $50 million (£25 million) accrued by the seven top earners the previous year.

Steve Burch, who left abruptly as chief executive last August after disagreements at the top of the company, saw his total fall from $11.4 million in 2006 to $3.4 million. His base salary for the year was cut from $722,115 to $476,297. However, he received a further $1.5 million payment (twice his salary) on termination of his contract.

The total of Jim Mooney, executive chairman, fell from $7.29 million to $5.19 million.

Neil Berkett, who was promoted from chief operating officer to chief executive last month, was awarded $4.3 million, down from $5.1 million in 2006. This included a base salary of $850,723 (against $783,233 in 2006) and included compensation, such as insurance and private medical cover, worth $219,454.

Virgin Media blamed the failure to reach its target operating cashflow on intense competition and falling product prices in the UK. The shares have also fared poorly, falling from $29.39 at their peak in July to $14.02 yesterday.

Virgin’s second-quarter results for 2007 showed that it had lost more than 70,000 customers. However, it has since been clawing them back, with 13,000 added in the third quarter and 24,400 in the fourth. (source: Timesonline)

HOW TO BENEFIT FROM THE CREDIT CRUNCH

PRIVATE INVESTORS have made stunning profits of more than 1,000% during the credit crisis by betting that share prices will fall. However, some UK stocks have beaten the turmoil with gains of almost 180%.

Markets have suffered their worst quarter for five years, with the FTSE 100 share index down 12%, the poorest three-month performance since the third quarter of 2002.

Many investors have watched in dismay as the value of their funds has slumped; the average UK unit trust and pension fund has dropped 6% over the past three months.

The brave, however, have made big profits by using spread-bets, contracts for difference (CFDs) and fixed-odds financial bets. These tools, which enable you to “short-sell” – or make money by betting that shares will fall – were once the preserve of hedge funds and are not without their critics.

However, the techniques are now being exploited by a growing number of ordinary investors – with some spectacular results. Joe Paterson from Fulham, southwest London, made a £25,500 profit betting that the share price of the banking giant Citigroup would plunge earlier this year. His winnings represent a 1,020% return on his original £2,500 bet.

Paterson, 24, a sales and marketing manager, said: “During the credit crisis I have been focusing on banking shares. I also made good profits betting that Barclays would fall but sadly missed Northern Rock.”

Trading in CFDs has jumped by 292% over the past year, and it’s not just City professionals who are taking advantage.

Roy Camps, a self-employed painter and decorator from Witney in Oxfordshire, has taken to trading CFDs in winter. He said: “I could spend the winter months shivering on a building site or sitting in the comfort of my home and trading the markets. It’s not without risks. Overall this winter I’m about even in terms of profits and losses, but I have had big successes: I made £6,500 in 20 minutes betting that the dollar would weaken against the Swiss franc.”

Investors should be under no illusions about the risks. Only one in five spread-betters makes money, according to research by City University’s Cass Business School. However, there are things you can do to limit losses. Firms allow a “stop loss” that closes the bet if it moves against you.

If this sounds too risky, or complex, it is still possible to make money trading shares in the conventional way.
Although the FTSE 100 has

dropped 12% since the market’s peak about nine months ago, a closer look reveals that about a quarter of stocks are worth more today than they were then.

The winner in the FTSE All-Share index is the oil-equipment supplier Wellstream Holdings, up 177% over the past nine months. In the FTSE 100, Cairn Energy, also an oil explorer, is top with a 65% gain. The brewer Scottish & Newcastle is up 25% and defence group BAE Systems has risen 23%.

Henk Potts at Barclays Stockbrokers said: “The mining sector has hugely outperformed the broader market over the past nine months as emerging markets continue to demand ever-increasing amounts of commodities. Oil stocks and related industries have also performed well.”
But which shares are tipped for success now? We asked City fund managers and analysts to pick the companies they think can still make money.

British American Tobacco
Tobacco stocks are renowned for their ability to do well when markets are falling because they have strong brands, consumers continue to buy cigarettes even when conditions are tough and they are committed to growing dividends. BAT is favoured by Richard Hunter at Hargreaves Lansdown Stockbrokers: its shares have gained 19% over the past year to stand at £18.92 with a yield of 3.5%.

Vodafone
Investment banks say that companies paying good dividends have a better chance of withstanding further turbulence. Last year, Vodafone, the world’s biggest mobile-phone company, increased its dividend by 11% to 6.76p and yields 4.3%, which is high for a former growth stock. Morgan Stanley, the investment bank, expects it to raise its dividend by 10% a year until at least 2010. The shares have gained 15% over the past year to 159.20p.

Land Securities
Property stocks have taken a pounding over the past year: Land Securities is down 29% from £21.61 to £15.44. However, Nick Raynor at the Share Centre, a stockbroker, said: “The decision to split up the £15 billion Land Securities property portfolio into three separately quoted businesses should prove attractive. Due to the ongoing market volatility, this should be seen as a long-term investment but is still a worthwhile buy.” The shares are yielding 3.4%.

Reckitt Benckiser
Raynor also recommends Reckitt Benckiser, the world’s largest household cleaning-products group, which owns brands such as Vanish and Harpic. “The company’s strategy is simple and well executed,” he said. “As long as its core products remain strong, the constant stream of innovations should keep sales moving upwards.” The shares have gained 6% over the past year to £28.10 and are yielding 2%.

Thomas Cook
The global economy is slowing, household costs are rising and oil prices are high. It doesn’t sound like a good time to back a travel group such as Thomas Cook. But David Cumming at Standard Life said: “The negative effects of higher fuel prices and pressure on consumer spending will be more than offset by management actions to turn round the business.” The shares have dropped 4% over the past year to stand at 299p and now yield 1.9%.

SHORTING EXPLAINED
CONTRACTS FOR DIFFERENCE When you trade CFDs you agree to receive the difference between the price when the contract is opened and the price when it is closed. If you think the value will rise, you go ‘long’. If you think it will fall, you go ‘short’.

Say you thought shares in a company were about to drop and took out a CFD to go short of 1,000 shares at 100p. The contract value would be £1,000, but you would put down only about 20%. If you closed the contract at 95p, the difference in price would be 5p and you would make £50. If it rose to 120p, you would lose £200.

SPREAD BETS When you spread bet, the bookmaker will quote you a spread for a share or the level of an index or asset at a given date, and you bet on how far you think it will move above or below the spread.

Last week CMC Markets was quoting 5,933 to 5,936 for the FTSE 100 in June. If you thought it would beat that, you could bet £10 a point above 5,936. If you wanted to short-sell, you could bet below 5,933. If the Footsie finished at 5,900 and you had bet on it falling, you would have made £330 (£10 times 33). If you had closed the bet at 6,000 you would have lost £670

Airline News

After an already delayed programme, Boeing is expected to announce today that its 787 Dreamliner has been delayed by 18 months. This setback will cost the company billions of pounds and will make this revolutionary aircraft enter into service at the end of 2009.

The delay will affect all airlines that have ordered the 787, including British Airways and Virgin Atlantic. The delay is particularly bad for BA as it means the British flag carrier might not get the aircraft in time for the 2012 Olympics. BA needs the 787 to increase capacity and reduce operating costs.

The Dreamliner has taken orders worth more than $150 billion (£76 billion). It was scheduled to enter commercial service next month but this initially slipped to early 2009 and has now been delayed again.

Boeing is also thought to be ready to postpone or even scrap one of the three variants of the aircraft to enable its engineers to focus on solving existing problems.

The likely victim will the 787-3, a high passenger density model designed for the Japanese market. The 787 is a radical new design because its fuselage is entirely made out of composite materials — essentially carbon fibre.

Airlines are likely to demand billions in compensation from Boeing and the company will also have to allocate huge resources to prevent the problems worsening. Its share price has already fallen 25% since the 787 delays were first announced, wiping more than $18 billion (£9 billion) from Boeing’s value. (source: Timesonline) - Even more delays for the Dreamliner, BP fined for a record amount (Article on Dreamliner delays) (Also see Wednesday 12th December 2007 entry for more on this.) - Nintendo Wii dominated Argos toys sales over Christmas (article on delays effecting Qantas)

Hundreds of passengers have been left stranded after the Hong Kong airline Oasis stopped flying and applied to go into liquidation. Oasis first flew in October 2006, offering flights from London to Hong Kong for as little as 1,000 Hong Kong dollars (£65) each way. It later added flights from Hong Kong to Vancouver. (source: BBC News)

A further cancellation of flights is expected from American Airlines today after cancelling about 500 flights on Tuesday. Wednesday after cancelling about 500 on Tuesday. The cancellations came after American grounded its MD-80 aircraft to conduct extra safety inspections on wiring.

The FAA has been clamping down on safety inspections and several airlines have been forced to ground planes. Two weeks ago the Federal Aviation Administration (FAA) raised concerns about the wiring inspections that led to planes of American Airlines being grounded.

Southwest, Delta and United have also grounded some of their fleets for safety inspections. The FAA said that it had checked several American MD-80s and decided that the work carried out two weeks ago did not meet its standards. The airline runs about 2,300 flights a day, more than one third of which use MD-80s, mainly on mid-range flights. (source: BBC News)

Microsoft gives Yahoo! ultimatum

Microsoft has given Yahoo! a three-week deadline to accept its offer for a buy out at $44.6 billion (£22.3 billion). Microsoft CEO Steve Ballmer said his company would take its case directly to Yahoo's shareholders if Yahoo's directors did not respond by 26 April 2008.

Since the original bid on 31 January 2008 which Yahoo! rejected, has since explored alliances with other firms, but no offer has surfaced. In a letter, Mr Ballmer acknowledged that such negotiations were underway, but wondered why Yahoo was not talking to Microsoft too.

Mr Ballmer said his company's offer - 62% above Yahoo's market value at the time - had grown stronger as time had passed. "We believe that the majority of your shareholders share this assessment," he wrote, adding that Microsoft would take its case directly to them and work to elect a new board of directors if they did not respond within three weeks.

Last month, Yahoo estimated it would almost double its operating cash flow over the next three years and generate $8.8bn in revenue after costs in 2010. (source: BBC News) - Microsoft serious about takeover & Businessman of the Month, Yahoo! and AOL continue merger talks, Yahoo! rejects Microsoft offer, Microsoft not intending to raise its stake in Yahoo!

Thomas Cook the travel agency has snapped up bespoke holiday firm Elegant Resorts. Founded in 1988, the shareholders Geoff Moss and Barbara Catchpole have sold the business for an undisclosed sum.

The firm's packages feature luxuries such as helicopter transfers and champagne on arrival, and last year catered for more than 20,000 travellers. Thomas Cook is planned to run the business as a standalone unit with the current management team remaining in place.

Group chief executive Manny Fontenla-Novoa said "Elegant Resorts has a very strong brand name, associated with luxury, style and bespoke holidays and fully supports our strategic aim to become a leading independent travel provider."

Elegant Resorts currently has 160 staff, with three overseas offices in Barbados, Dubai and Mauritius. Last year it had total gross assets of £22.3 million. Chairman Mr Moss and PR director Ms Catchpole are the main shareholders, with other staff also holding shares.

The deal follows the £21.8 million paid by the travel giant hotel for booking website Hotels4U.com in February, which boosted its presence in the independent travel sector.

Thomas Cook shares were up nearly 1% today. (source: The Independent) -Thomas Cook on track for record profits

Apple iTunes to be taken on by MySpace

Apple iTunes is taken on by the world’s largest social networking group, MySpace, as they have plans to set up a music downloading service. Three of the “big four” record labels have signed up to the service, which will give users access to the music of big artists. With MySpace’s 30 million users a month, it is viewed as an ideal hub to showcase new music.

MySpace will be able to cash in on its vast community of loyal users. MySpace has more than 25 localised websites, in countries including, India, Brazil and Australia. The site will also sell ringtones, artist wallpaper, ticket sales and merchandise. There will also be a number of advertising-funded free services, from free downloads to video clips.

The online music store iTunes has sold more than four billion songs since its launch in 2001, and claims to be the No one music retailer in the US. However, iTunes users can only listen to song clips through the Apple store.

The launch comes as welcome news to the music industry, with many concerned about a lack of competition for iTunes in the digital music market. In the US, for example, iTunes takes more than 70% of digital download sales. Concerned about Apple’s increasing influence over its business, the music industry has been keen to see other sizeable players. (source: Timesonline)

After 18 years of offering the in-flight beauty therapy for its upper class executive customers, it appears as if Virgin Atlantic might withdraw this service. The airline has called its entire crew of 280 in-flight beauty therapists to London next week for a review of its Upper Class offering. This service was introduced to allow upper class travellers to arrive at their destination looking relaxed and refreshed with treatments such as the Handsome Hands mini-manicure and the Back in the Clouds upper back massage.

With a much smaller fleet than rival British Airways, Virgin uses the quirky treats to woo transatlantic passengers away from its more stuffy competitors which offer many more departures each day from London to the US.

However, the move appears to underline fears that the worsening economic climate is hurting business air travel and that mounting costs for airlines, particularly for aviation fuel, are dragging down margins.

“We are calling our in-flight beauty therapists in to get their input into the product and service review of our Upper Class cabin. We constantly look to review our Upper Class service to make sure that our investment is where it should be and that it is meeting the expectations of our customers,” a spokeswoman for Virgin Atlantic said.

One aviation analyst said: “It could be a huge mistake for Virgin to get rid of its service frills. Virgin’s treats have always been hugely enjoyed and a large part of the brand’s identity. Airlines are so competitive on price now that passengers look at other things, and Virgin doesn’t have the frequency of services that other airlines do because it only has 38 planes” (source: Timesonline)

Luqman Arnold is understood to have built up an 0.7 per cent stake in UBS, in a bid to push through a break up of the struggling Swiss bank. A former chief executive of UBS, Mr Arnold has been acquiring his shares, worth $450 million (£226 million), through Olivant, his London investment firm.

It is thought that he is also pushing for the separation of the bank’s investment and private banking arms and the sale of its asset management division. His proposals are detailed in a letter sent to Sergio Marchionne, the UBS chairman and recommend drastic changes to the bank’s board.

Mr Arnold’s activist campaign follows the announced resignation of Marcel Ospel, UBS’s chairman, earlier this week. Mr Ospel said that he was quitting as he revealed that losses had more than doubled to $37 billion (£18.6 billion). Mr Arnold, who recently led a failed rescue bid for Northern Rock, left UBS in December 2001 due to “differences of opinion,” between him and the board. (source: Timesonline)