Iran Feels Pinch As Major Banks Curtail Business
U.S. Campaign Urges Firms to Cut Ties
By Robin Wright
Washington Post Staff Writer
Monday, March 26, 2007; A10
More than 40 major international banks and financial institutions have either cut off or cut back business with the Iranian government or private sector as a result of a quiet campaign launched by the Treasury and State departments last September, according to Treasury and State officials.
The financial squeeze has seriously crimped Tehran's ability to finance petroleum industry projects and to pay for imports. It has also limited Iran's use of the international financial system to help fund allies and extremist militias in the Middle East, say U.S. officials and economists who track Iran.
The U.S. campaign, developed by Treasury Secretary Henry M. Paulson Jr. and Secretary of State Condoleezza Rice, emerged in part over U.S. frustration with the small incremental steps the U.N. Security Council was willing to take to contain the Islamic republic's nuclear program and support for extremism, U.S. officials say. The council voted Saturday to impose new sanctions on Tehran, including a ban on Iranian arms sales and a freeze on assets of 28 Iranian individuals and institutions.
"All the banks we've talked to are reducing significantly their exposure to Iranian business," said Stuart Levey, Treasury's undersecretary for terrorism and financial intelligence. "It's been a universal response. They all recognize the risks -- some because of what we've told them and some on their own. You don't have to be Sherlock Holmes to see the dangers."
The new campaign particularly targets financial transactions involving the Iranian Revolutionary Guard Corps, which is now a major economic force beyond its long-standing role in procuring arms and military materiel. Companies tied to the elite unit and its commanders have been awarded government contracts such as airport management and construction of the Tehran subway. The practice has increased since the 2005 election of Iranian President Mahmoud Ahmadinejad, U.S. officials say. The Revolutionary Guard -- of which Ahmadinejad is a former member -- is part of the hard-line leader's constituency.
"The Revolutionary Guard's control and influence in the Iranian economy is growing exponentially under the regime of Ahmadinejad," Levey said in a speech in Dubai this month.
The campaign differs from formal international sanctions -- and has proved able to win wider backing -- because it targets Iran's behavior rather than seeking to change its government. "This is not an exercise of power," Levey said in the interview. "People go along with you if it's conduct-based rather than a political gesture."
Iranian importers are particularly feeling the pinch, with many having to pay for commodities in advance when a year ago they could rely on a revolving line of credit, said Patrick Clawson, a former World Bank official now at the Washington Institute for Near East Policy. The scope of Iran's vulnerability has been a surprise to U.S. officials, he added.
The financial institutions cutting back business ties are mainly in Europe and Asia, U.S. officials say. UBS last year said it was cutting off all dealings with Iran. London-based HSBC (which has 5,000 offices in 79 countries) and Standard Chartered (with 1,400 branches in 50 countries) as well as Commerzbank of Germany have indicated they are limiting their exposure to Iranian business, Levey said. The rest have asked the United States not to publicize their names.
Ahmadinejad's rhetoric -- from denying the Holocaust to comparing Iran's stock exchange to gambling -- has helped, experts say. "There is very little foreign investment in Iran not because of sanctions, but because of the atmosphere created by Ahmadinejad's crazy statements," said Jahangir Amuzegar, former Iranian finance minister and executive director of the International Monetary Fund.
Paulson kicked off the effort to warn major financial institutions and government officials about the long-term costs of doing business with Iran during the annual International Monetary Fund and World Bank meetings in Singapore in September. Paulson, Levey and Treasury Deputy Secretary Robert M. Kimmitt have all held dozens of meetings with banks to explain how Iran is using dummy companies and deceptive practices through banks to finance its non-traditional or illicit business activities, U.S. officials say.
Both the Iranian government and the private sector have increasingly tried to persuade financial institutions to keep the name of "Iran" or the originating bank in Iran off transactions so they are not traced to the Islamic republic, U.S. officials say.
In a related effort, the Bush administration has warned "relevant companies and countries" about the risks of investing in Iran's oil and gas sector, R. Nicholas Burns, undersecretary of state for political affairs, said in congressional testimony Wednesday. Washington is generally trying to drive home to Tehran that its policies will lead to serious "financial hardship," he said.
In December, Iranian oil minister Kazem Vaziri Hamaneh acknowledged that Tehran was having trouble financing petroleum development projects. "Currently, overseas banks and financiers have decreased their cooperation," he told the oil ministry news agency Shana.
The Bush administration has taken several other actions in recent months to contain Iran, including deploying two Navy carrier strike groups near the Persian Gulf, arresting operatives of the Revolutionary Guards' al-Quds Force in Iraq and pressing for two U.N. resolutions to punish Iran for not suspending its uranium enrichment program.
Saturday, May 26, 2007
Venezuelans march against closure of TV station
Sat May 26, 2007 2:33PM EDT
By Brian Ellsworth
CARACAS (Reuters) - Tens of thousands of Venezuelan protesters marched on Saturday to the Caracas headquarters of an anti-government television station, which is being forced off the air after President Hugo Chavez's administration refused to renew its broadcasting license.
Waving flags with the logo of RCTV, demonstrators packed the streets of the capital where news anchors and soap opera stars slammed the imminent closure of the opposition channel.
"What is happening here is simply the silencing of a television station," shouted soap opera actress Gledys Ibarra.
The government is not renewing RCTV's license after 53 years on the air because of accusations that the broadcaster participated in a bungled 2002 coup against Chavez, incited violent demonstrations and aired immoral programming.
On Friday Venezuela's top court ordered the military to seize control of some of the TV station's installations and equipment in a show of force that included mobilization of anti-riot vehicles to prevent protests from turning violent.
Critics condemned the closure for silencing an influential opposition voice and called the move evidence that Chavez's self-styled socialist revolution is concentrating power and muzzling the opposition.
Late on Friday a group of demonstrators shouting pro-Chavez slogans spray-painted the headquarters of news channel Globovision, the country's last openly anti-government station, which Chavez has also threatened to take off the air for its critical coverage.
The closure of RCTV drew heavy international criticism including a U.S. Senate resolution last week unanimously condemning "transgression of freedom of thought and expression" in Venezuela.
For years, Venezuela's television stations were virulently anti-Chavez and openly supported the 2002 putsch that briefly ousted him. But more recently the media have slowly started falling in line with the increasingly powerful government.
Chavez's government announced on Saturday it had renewed the broadcast license of four other television stations, including Venevision, which the government said committed many of the same crimes that were used to deny a license to RCTV.
Sat May 26, 2007 2:33PM EDT
By Brian Ellsworth
CARACAS (Reuters) - Tens of thousands of Venezuelan protesters marched on Saturday to the Caracas headquarters of an anti-government television station, which is being forced off the air after President Hugo Chavez's administration refused to renew its broadcasting license.
Waving flags with the logo of RCTV, demonstrators packed the streets of the capital where news anchors and soap opera stars slammed the imminent closure of the opposition channel.
"What is happening here is simply the silencing of a television station," shouted soap opera actress Gledys Ibarra.
The government is not renewing RCTV's license after 53 years on the air because of accusations that the broadcaster participated in a bungled 2002 coup against Chavez, incited violent demonstrations and aired immoral programming.
On Friday Venezuela's top court ordered the military to seize control of some of the TV station's installations and equipment in a show of force that included mobilization of anti-riot vehicles to prevent protests from turning violent.
Critics condemned the closure for silencing an influential opposition voice and called the move evidence that Chavez's self-styled socialist revolution is concentrating power and muzzling the opposition.
Late on Friday a group of demonstrators shouting pro-Chavez slogans spray-painted the headquarters of news channel Globovision, the country's last openly anti-government station, which Chavez has also threatened to take off the air for its critical coverage.
The closure of RCTV drew heavy international criticism including a U.S. Senate resolution last week unanimously condemning "transgression of freedom of thought and expression" in Venezuela.
For years, Venezuela's television stations were virulently anti-Chavez and openly supported the 2002 putsch that briefly ousted him. But more recently the media have slowly started falling in line with the increasingly powerful government.
Chavez's government announced on Saturday it had renewed the broadcast license of four other television stations, including Venevision, which the government said committed many of the same crimes that were used to deny a license to RCTV.
As EU turns 50, new members bring hope to the party
By Roger Bootle
Last Updated: 3:33am BST 26/03/2007
As EU turns 50, new members bring hope to the party
Yesterday marked the anniversary of the signing of the Treaty of Rome and hence the 50th birthday of what we now call the EU. As with most 50th birthdays, as well as a celebration, there has been some soul-searching, looking back and asking what has been achieved, and looking forward to the future. Should we be toasting the next 50 years?
Much of what is wrong with the EU has nothing directly to do with economics, but here I confine myself to the economic issues. At one level the EU has been an enormous economic success.
It is the world's largest economy. It has expanded from the original six members to 27 and other states clamour to gain admittance. None is asking to leave. On the old Berlin Wall test this is a clear mark of approval. And the improvement in the living standards of the EU's people has been impressive.
Then why are the celebrations only lukewarm and the questioning intense? For a start, much of the Union's apparent achievements are nothing of the sort. Just because economies grew while they were part of the EU does not mean to say that they grew because of the EU. In the modern world, economic growth is the normal state of affairs. Plenty of countries have grown well outside the EU and still do.
Admittedly, there are some features of the EU's operations which its defenders can point to as having boosted growth. It has effectively brought about the free movement of goods, capital and labour within the Union.
And in several areas it has directly stimulated competition. For instance, it was the EU that broke up cosy national markets in air travel and hence brought about our current cornucopia of cheap intra-European flights.
But there is plenty to lay on the other side of the account, including the absurd Common Agricultural Policy, the limits on cheap Chinese imports of shoes and bras, forests of ludicrous and damaging regulations, wasteful spending of member countries' money and wasteful and corrupt management of its own finances.
Indeed, although some member states have been clear beneficiaries, not least through receipts of EU funds, it is debatable whether the EU has contributed anything to the growth of its members on average. There is a respectable case that in pure economic terms the UK would be better off out.
But if the economic benefits are so meagre or non-existent, then why the clamour to get in? There are some strong political reasons. For small countries, and particularly for small ones with a history of being dominated by a larger neighbour, the EU has offered a safe haven.
For those countries which were formerly under the Soviet yoke, as well as apparent security, it has offered respectability and a sense of having returned to the European mainstream.
But in many cases it also means access to European funds, thank you very much, and for the elites, a place not only on the top table but also on the euro gravy train.
On the pure economics, access to the European market has been an important draw. To be inside the EU means that your exports are not subject to European tariffs and other non-tariff restrictions. This fact can attract new members even if the overall economic effect of the EU is malign. Indeed, the larger the grouping gets, the greater this pull becomes.
Also, it should be admitted, that whatever you think of membership of the EU, preparing to get in has almost always been beneficial. This has acted as the prod and the incentive to undertake cleaning-up reforms, both political and economic, which should have been undertaken anyway in the countries' self interest but probably would not have been.
For some members the journey has been better than the arrival.
So has the EU been a good thing? Any assessment of the past requires knowledge of the counterfactual - ie what Europe would have looked like without the EU. And on that no one can be sure. But, in my view, the EU has been less significant than both its advocates and its detractors suggest. Many of the weaknesses in the European economy are blamed on the EU but in fact emanate from national policy.
The EU, for instance, did not decree that France should impose a 35-hour week and that to enforce it officials should snoop round office car parks after 5 o'clock to see who is working late, or sneaking out a laptop in order to work at home. Remarkably, these absurdities were inflicted on France by the French.
Indeed, although in some ways it is appropriate to regard the EU as a single economic entity, the differences in economic performance between members is remarkable, as our chart shows. Spain continues to do stonkingly well while Italy does badly.
And it is still possible for EU members to make significant reforms which will enhance their economic performance, as evidenced by the Hartz labour market reforms in Germany and the reductions in tax rates in Germany and other members.
What of the future? Over the past decade, many of the EU's member states have grown poorly and unemployment has been appallingly high. On the face of it there is little reason to think this picture will change.
Meanwhile, the European population is set to fall. We can only presume that continued rapid growth in Asia will cause its economies to loom larger in the world. In the US, continued growth of population alone should see its growth rate outstripping the EU's.
All this suggests that the EU's weight in the world is set to fall. Indeed, if it isn't careful it could become a backwater.
I must confess, though, to a modicum of hope. The new EU members, operating from a much lower cost base and, on the whole, not burdened with anti-competitive attitudes, are posing serious competition for the old members. And they actively oppose excessive EU regulation.
It is becoming more widely understood across Europe that European economic performance is not very good. And people are becoming increasingly conscious of the economic challenges posed by the rise of India and China and doubtful of the EU's, and their governments', responses.
As political pressure mounts perhaps national and EU policies will turn in a more competitive and market-friendly direction.
Am I naïve to hope for this? How many 50-year-olds do you know who completely re-invent themselves?
# Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. You can contact him at roger.bootle@capitaleconomics.com
By Roger Bootle
Last Updated: 3:33am BST 26/03/2007
As EU turns 50, new members bring hope to the party
Yesterday marked the anniversary of the signing of the Treaty of Rome and hence the 50th birthday of what we now call the EU. As with most 50th birthdays, as well as a celebration, there has been some soul-searching, looking back and asking what has been achieved, and looking forward to the future. Should we be toasting the next 50 years?
Much of what is wrong with the EU has nothing directly to do with economics, but here I confine myself to the economic issues. At one level the EU has been an enormous economic success.
It is the world's largest economy. It has expanded from the original six members to 27 and other states clamour to gain admittance. None is asking to leave. On the old Berlin Wall test this is a clear mark of approval. And the improvement in the living standards of the EU's people has been impressive.
Then why are the celebrations only lukewarm and the questioning intense? For a start, much of the Union's apparent achievements are nothing of the sort. Just because economies grew while they were part of the EU does not mean to say that they grew because of the EU. In the modern world, economic growth is the normal state of affairs. Plenty of countries have grown well outside the EU and still do.
Admittedly, there are some features of the EU's operations which its defenders can point to as having boosted growth. It has effectively brought about the free movement of goods, capital and labour within the Union.
And in several areas it has directly stimulated competition. For instance, it was the EU that broke up cosy national markets in air travel and hence brought about our current cornucopia of cheap intra-European flights.
But there is plenty to lay on the other side of the account, including the absurd Common Agricultural Policy, the limits on cheap Chinese imports of shoes and bras, forests of ludicrous and damaging regulations, wasteful spending of member countries' money and wasteful and corrupt management of its own finances.
Indeed, although some member states have been clear beneficiaries, not least through receipts of EU funds, it is debatable whether the EU has contributed anything to the growth of its members on average. There is a respectable case that in pure economic terms the UK would be better off out.
But if the economic benefits are so meagre or non-existent, then why the clamour to get in? There are some strong political reasons. For small countries, and particularly for small ones with a history of being dominated by a larger neighbour, the EU has offered a safe haven.
For those countries which were formerly under the Soviet yoke, as well as apparent security, it has offered respectability and a sense of having returned to the European mainstream.
But in many cases it also means access to European funds, thank you very much, and for the elites, a place not only on the top table but also on the euro gravy train.
On the pure economics, access to the European market has been an important draw. To be inside the EU means that your exports are not subject to European tariffs and other non-tariff restrictions. This fact can attract new members even if the overall economic effect of the EU is malign. Indeed, the larger the grouping gets, the greater this pull becomes.
Also, it should be admitted, that whatever you think of membership of the EU, preparing to get in has almost always been beneficial. This has acted as the prod and the incentive to undertake cleaning-up reforms, both political and economic, which should have been undertaken anyway in the countries' self interest but probably would not have been.
For some members the journey has been better than the arrival.
So has the EU been a good thing? Any assessment of the past requires knowledge of the counterfactual - ie what Europe would have looked like without the EU. And on that no one can be sure. But, in my view, the EU has been less significant than both its advocates and its detractors suggest. Many of the weaknesses in the European economy are blamed on the EU but in fact emanate from national policy.
The EU, for instance, did not decree that France should impose a 35-hour week and that to enforce it officials should snoop round office car parks after 5 o'clock to see who is working late, or sneaking out a laptop in order to work at home. Remarkably, these absurdities were inflicted on France by the French.
Indeed, although in some ways it is appropriate to regard the EU as a single economic entity, the differences in economic performance between members is remarkable, as our chart shows. Spain continues to do stonkingly well while Italy does badly.
And it is still possible for EU members to make significant reforms which will enhance their economic performance, as evidenced by the Hartz labour market reforms in Germany and the reductions in tax rates in Germany and other members.
What of the future? Over the past decade, many of the EU's member states have grown poorly and unemployment has been appallingly high. On the face of it there is little reason to think this picture will change.
Meanwhile, the European population is set to fall. We can only presume that continued rapid growth in Asia will cause its economies to loom larger in the world. In the US, continued growth of population alone should see its growth rate outstripping the EU's.
All this suggests that the EU's weight in the world is set to fall. Indeed, if it isn't careful it could become a backwater.
I must confess, though, to a modicum of hope. The new EU members, operating from a much lower cost base and, on the whole, not burdened with anti-competitive attitudes, are posing serious competition for the old members. And they actively oppose excessive EU regulation.
It is becoming more widely understood across Europe that European economic performance is not very good. And people are becoming increasingly conscious of the economic challenges posed by the rise of India and China and doubtful of the EU's, and their governments', responses.
As political pressure mounts perhaps national and EU policies will turn in a more competitive and market-friendly direction.
Am I naïve to hope for this? How many 50-year-olds do you know who completely re-invent themselves?
# Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. You can contact him at roger.bootle@capitaleconomics.com
Sterling to smash $2, says ABN
By Ambrose Evans-Pritchard
Last Updated: 1:43am BST 28/03/2007
Traders are betting the pound will punch through $2 over the next month, reaching the highest level in a quarter of a century as the Bank of England raises rates further to choke off inflation.
ABN Amro said the landscape had changed dramatically in both Britain and America over the past month, pulling the two economies in opposite directions.
"It seems in March that the red flag of rising economic inflation expectations is being flashed across almost every major UK economic statistic," said the Dutch bank in a note to clients.
It cited a "whopping" rise in retail sales and the strongest surge in orders since the mid-1990s in the latest CBI manufacturing survey, as well as booming house prices and early warning signs that the producers aim to crank up prices at the fastest rate in 12 years.
"The data suggests the Bank of England's three rate rises since August have failed to either slow personal spending or constrain house price inflation," it said.
The markets have already priced in a certain rate rise by May, startled by warnings from MPC members Andrew Sentence and Timothy Besley that inflation expectations are becoming "unhinged".
While Britain is on the cusp of over-heating, the US Federal Reserve has retreated abruptly from its tightening campaign amid fears that the sub-prime mortgage meltdown could spread. The US markets are already betting on a quarter-point cut by May from 5.25pc, with at least one further cut in the Autumn.
ABN Amro said the gap in interest yields now certain to develop over coming months ensures yet another upward push by sterling.
"We look for Cable [sterling/dollar rate] to rally $2 by next month, with $2.02 as our trading target," it said. This would lift the pound above its 1992 high of $2.0064, breaking through to levels not seen since the North Sea Oil boom briefly turned the pound into a "petro-currency" in the early 1980s.
Most big banks had been predicting a sharp fall in sterling this year as the UK economy begins to lag after years of star performance, but the day of reckoning has clearly been put off again.
Funds have relaunched the "carry trade" with a vengeance over recent days, borrowing cheaply in Japan and Switzerland to reap higher yields in Britain.
Sterling tumbled 7pc against the yen in a brief unwinding of the speculative trade at the end of February as global markets liquidated positions, falling much harder than the euro or the dollar.
It has since regained most of the ground but veterans of the 1998 Asian crisis warn that the yen may yet snap back more viciously, forcing a "disorderly unwind" that would rattle global markets.
If so, sterling - as the darling of the carry trade - will most likely fall harder than any other major currrency.
By Ambrose Evans-Pritchard
Last Updated: 1:43am BST 28/03/2007
Traders are betting the pound will punch through $2 over the next month, reaching the highest level in a quarter of a century as the Bank of England raises rates further to choke off inflation.
ABN Amro said the landscape had changed dramatically in both Britain and America over the past month, pulling the two economies in opposite directions.
"It seems in March that the red flag of rising economic inflation expectations is being flashed across almost every major UK economic statistic," said the Dutch bank in a note to clients.
It cited a "whopping" rise in retail sales and the strongest surge in orders since the mid-1990s in the latest CBI manufacturing survey, as well as booming house prices and early warning signs that the producers aim to crank up prices at the fastest rate in 12 years.
"The data suggests the Bank of England's three rate rises since August have failed to either slow personal spending or constrain house price inflation," it said.
The markets have already priced in a certain rate rise by May, startled by warnings from MPC members Andrew Sentence and Timothy Besley that inflation expectations are becoming "unhinged".
While Britain is on the cusp of over-heating, the US Federal Reserve has retreated abruptly from its tightening campaign amid fears that the sub-prime mortgage meltdown could spread. The US markets are already betting on a quarter-point cut by May from 5.25pc, with at least one further cut in the Autumn.
ABN Amro said the gap in interest yields now certain to develop over coming months ensures yet another upward push by sterling.
"We look for Cable [sterling/dollar rate] to rally $2 by next month, with $2.02 as our trading target," it said. This would lift the pound above its 1992 high of $2.0064, breaking through to levels not seen since the North Sea Oil boom briefly turned the pound into a "petro-currency" in the early 1980s.
Most big banks had been predicting a sharp fall in sterling this year as the UK economy begins to lag after years of star performance, but the day of reckoning has clearly been put off again.
Funds have relaunched the "carry trade" with a vengeance over recent days, borrowing cheaply in Japan and Switzerland to reap higher yields in Britain.
Sterling tumbled 7pc against the yen in a brief unwinding of the speculative trade at the end of February as global markets liquidated positions, falling much harder than the euro or the dollar.
It has since regained most of the ground but veterans of the 1998 Asian crisis warn that the yen may yet snap back more viciously, forcing a "disorderly unwind" that would rattle global markets.
If so, sterling - as the darling of the carry trade - will most likely fall harder than any other major currrency.
Tamil Tiger 'air force' bombs airbase
By staff and agencies
Last Updated: 2:28am BST 27/03/2007
Tamil Tiger rebels launched their first ever air strike early this morning, attacking Sri Lanka's main military airbase.
At least three people were killed and 16 were wounded in the attack.
The Sri Lankan military said the bombs hit a barracks and that none of its aircraft had been damaged. The government said the raid did not cause any damage to the adjacent civilian airport, which is 23 miles (37 km) north of the capital, Colombo.
A spokesman for the Tamil Tigers warned of further attacks from their new air wing, threatening to intensify the renewed conflict.
"A light aircraft flew over the base and dropped explosives. There have been two explosions. At the same time our air defences activated and there is a search operation going on," said Grp Capt Ajantha de Silva, an air force spokesman.
The government signed a ceasefire with the Tigers in 2002 but hostilities resurfaced in late 2005 and more than 4,000 fighters and civilians have been killed in the last 15 months alone.
The Tigers, who say they are fighting for an independent state for minority Tamils in the north and east, last attacked the airport in 2001.
The civil war has killed more than 50,000 people since it began in 1983, and has forced hundreds of thousands of Sri Lankans to flee their homes.
Today there are fears that the strike could be a blow to the island's economy; the country's stock market has already fallen 1.4 per cent following the attack.
By staff and agencies
Last Updated: 2:28am BST 27/03/2007
Tamil Tiger rebels launched their first ever air strike early this morning, attacking Sri Lanka's main military airbase.
At least three people were killed and 16 were wounded in the attack.
The Sri Lankan military said the bombs hit a barracks and that none of its aircraft had been damaged. The government said the raid did not cause any damage to the adjacent civilian airport, which is 23 miles (37 km) north of the capital, Colombo.
A spokesman for the Tamil Tigers warned of further attacks from their new air wing, threatening to intensify the renewed conflict.
"A light aircraft flew over the base and dropped explosives. There have been two explosions. At the same time our air defences activated and there is a search operation going on," said Grp Capt Ajantha de Silva, an air force spokesman.
The government signed a ceasefire with the Tigers in 2002 but hostilities resurfaced in late 2005 and more than 4,000 fighters and civilians have been killed in the last 15 months alone.
The Tigers, who say they are fighting for an independent state for minority Tamils in the north and east, last attacked the airport in 2001.
The civil war has killed more than 50,000 people since it began in 1983, and has forced hundreds of thousands of Sri Lankans to flee their homes.
Today there are fears that the strike could be a blow to the island's economy; the country's stock market has already fallen 1.4 per cent following the attack.
On Its 50th, E.U. Faces an Identity Crisis
27-Member Bloc Riven by Competing Visions
By Craig Whitlock
Washington Post Foreign Service
Sunday, March 25, 2007; A12
BERLIN -- The European Union will celebrate its 50th birthday here Sunday in grand style, with all-night street parties and cakes from all over the continent. But its members are squabbling, as usual, over what to wish for when the time comes to blow out the candles.
For months, diplomats have labored to draft a formal birthday message that would highlight the historic accomplishments of the union, such as the creation of the euro currency and the elimination of many border controls. The 27 countries that belong to the bloc are struggling mightily to agree on the wording of the platitudes, however, not to mention their goals.
German diplomats, led by Chancellor Angela Merkel, have been pushing for the adoption of "the Berlin Declaration," a grandly titled document that would prod the union to adopt a constitution by 2009. The document sets a goal of renewing "the common foundation on which the European Union is built" by overhauling its bureaucratic bylaws.
Although the declaration is nonbinding and almost devoid of specifics, hardly anyone is willing to sign it. The Poles are upset that the document makes no mention of Europe's Christian heritage. The British are unhappy that it singles out the euro for praise, ignoring the pound. And while the declaration doesn't actually contain the word "constitution," veiled references to the idea led other countries to balk, especially the French and the Dutch, whose voters soundly rejected a proposed European constitution in 2005.
As a result, the declaration -- a draft of which includes the phrase "We, the peoples of Europe" -- is likely to be signed only by three individuals: Merkel, European Commission President Jose Manuel Barroso and Hans-Gert Poettering, president of the European Parliament.
Other European leaders have promised the Germans that they won't stand in the way of the declaration, which will be adopted as long as no one formally objects. But skepticism still runs deep. In an interview Friday with the BBC, Czech President Vaclav Klaus derided the document as "Orwellian Eurospeak."
The main sticking point is whether the European Union should have a constitution. Ever since the six original members signed the Treaty of Rome a half-century ago, the bloc has been governed according to an ever-growing pile of bylaws, financial regulations and legal precedents, but no common code of values.
Starting in 2002, a convention headed by former French president Val?ry Giscard d'Estaing devoted a year and a half to drafting a constitution, but the ratification process collapsed in 2005 after the two referendum defeats. Each country in the European Union must approve such a measure before it can take effect.
Dutch and French voters -- as well as critics in other countries -- complained that the bloc had expanded too quickly, from 15 members in 2004 to 27 today. Sentiment was also widespread that the organization lacked public input. Others said bureaucrats at E.U. headquarters in Brussels had become answerable to no one as they issued more and more regulations governing everyday life, from cheese production to environmental protection.
After taking a couple of years to regroup, however, proponents of the constitution are gingerly resuming their efforts.
Using language usually reserved for the Israeli-Palestinian conflict, Merkel said she would unveil a "road map" by June that would lay out a way to win approval of a constitution by 2009. "We need an E.U. constitutional treaty which is suited to the decision-making mechanism of a larger E.U.," she said in an interview with Bild, Germany's largest newspaper.
Supporters argued that a new accord is necessary to streamline the bureaucracy and give the European Union new powers, such as a foreign minister who could represent the entire bloc. Without a constitution, they warned, Europe risks losing some of the economic and political gains it has achieved in recent years.
"Europe could still fail," Italian Prime Minister Romano Prodi said Friday in a speech in Rome. "For us, completing the process of reviving Europe before 2009 is an imperative that we cannot ignore."
Merkel and German diplomats have been pushing the issue in part because their country holds the E.U. presidency, a status that rotates among member countries every six months. But Juergen Neyer, a German political scientist, said the country has increasingly tied its future to the fate of the bloc.
"Europe is in desperate need of a constitutional treaty," said Neyer, director of the European studies program at the Viadrina European University in Frankfurt on the Oder. "If the European vision is in crisis, then the German idea of its place in the world is also in crisis."
But he and other analysts said backers of the constitution were repeating old mistakes by drafting the declaration behind closed doors and keeping it secret from the public. The final wording won't be disclosed until Sunday.
"If they speak as 'we, the people of Europe' but do not involve the people of Europe in the process, then something has gone wrong," said Andreas Maurer, a researcher at the German Institute for International and Security Affairs in Berlin. "You cannot continue to have this kind of decision making in this era of parliamentary democracy."
27-Member Bloc Riven by Competing Visions
By Craig Whitlock
Washington Post Foreign Service
Sunday, March 25, 2007; A12
BERLIN -- The European Union will celebrate its 50th birthday here Sunday in grand style, with all-night street parties and cakes from all over the continent. But its members are squabbling, as usual, over what to wish for when the time comes to blow out the candles.
For months, diplomats have labored to draft a formal birthday message that would highlight the historic accomplishments of the union, such as the creation of the euro currency and the elimination of many border controls. The 27 countries that belong to the bloc are struggling mightily to agree on the wording of the platitudes, however, not to mention their goals.
German diplomats, led by Chancellor Angela Merkel, have been pushing for the adoption of "the Berlin Declaration," a grandly titled document that would prod the union to adopt a constitution by 2009. The document sets a goal of renewing "the common foundation on which the European Union is built" by overhauling its bureaucratic bylaws.
Although the declaration is nonbinding and almost devoid of specifics, hardly anyone is willing to sign it. The Poles are upset that the document makes no mention of Europe's Christian heritage. The British are unhappy that it singles out the euro for praise, ignoring the pound. And while the declaration doesn't actually contain the word "constitution," veiled references to the idea led other countries to balk, especially the French and the Dutch, whose voters soundly rejected a proposed European constitution in 2005.
As a result, the declaration -- a draft of which includes the phrase "We, the peoples of Europe" -- is likely to be signed only by three individuals: Merkel, European Commission President Jose Manuel Barroso and Hans-Gert Poettering, president of the European Parliament.
Other European leaders have promised the Germans that they won't stand in the way of the declaration, which will be adopted as long as no one formally objects. But skepticism still runs deep. In an interview Friday with the BBC, Czech President Vaclav Klaus derided the document as "Orwellian Eurospeak."
The main sticking point is whether the European Union should have a constitution. Ever since the six original members signed the Treaty of Rome a half-century ago, the bloc has been governed according to an ever-growing pile of bylaws, financial regulations and legal precedents, but no common code of values.
Starting in 2002, a convention headed by former French president Val?ry Giscard d'Estaing devoted a year and a half to drafting a constitution, but the ratification process collapsed in 2005 after the two referendum defeats. Each country in the European Union must approve such a measure before it can take effect.
Dutch and French voters -- as well as critics in other countries -- complained that the bloc had expanded too quickly, from 15 members in 2004 to 27 today. Sentiment was also widespread that the organization lacked public input. Others said bureaucrats at E.U. headquarters in Brussels had become answerable to no one as they issued more and more regulations governing everyday life, from cheese production to environmental protection.
After taking a couple of years to regroup, however, proponents of the constitution are gingerly resuming their efforts.
Using language usually reserved for the Israeli-Palestinian conflict, Merkel said she would unveil a "road map" by June that would lay out a way to win approval of a constitution by 2009. "We need an E.U. constitutional treaty which is suited to the decision-making mechanism of a larger E.U.," she said in an interview with Bild, Germany's largest newspaper.
Supporters argued that a new accord is necessary to streamline the bureaucracy and give the European Union new powers, such as a foreign minister who could represent the entire bloc. Without a constitution, they warned, Europe risks losing some of the economic and political gains it has achieved in recent years.
"Europe could still fail," Italian Prime Minister Romano Prodi said Friday in a speech in Rome. "For us, completing the process of reviving Europe before 2009 is an imperative that we cannot ignore."
Merkel and German diplomats have been pushing the issue in part because their country holds the E.U. presidency, a status that rotates among member countries every six months. But Juergen Neyer, a German political scientist, said the country has increasingly tied its future to the fate of the bloc.
"Europe is in desperate need of a constitutional treaty," said Neyer, director of the European studies program at the Viadrina European University in Frankfurt on the Oder. "If the European vision is in crisis, then the German idea of its place in the world is also in crisis."
But he and other analysts said backers of the constitution were repeating old mistakes by drafting the declaration behind closed doors and keeping it secret from the public. The final wording won't be disclosed until Sunday.
"If they speak as 'we, the people of Europe' but do not involve the people of Europe in the process, then something has gone wrong," said Andreas Maurer, a researcher at the German Institute for International and Security Affairs in Berlin. "You cannot continue to have this kind of decision making in this era of parliamentary democracy."
Justices to Review Limits on Retail Prices
1911 Antitrust Decision Bars Manufacturers From Setting Minimums for Sellers
By Robert Barnes
Washington Post Staff Writer
Sunday, March 25, 2007; A06
Bargain hunters everywhere have an unwitting patron saint they've probably never heard of. His name is Dr. Miles. His days may be numbered.
It is because of Dr. Miles that anyone who has ever watched "The Price Is Right" knows that the manufacturer's retail price is only suggested. It is his unintended legacy that shoppers have developed the unshakable belief that if they only look hard enough, they can find the same product somewhere else for less money.
But tomorrow, the Supreme Court will hear arguments that it should do away with its nearly century-old opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., a decision that has meant retailers are free to price products at less than what the manufacturer thinks they should. Dr. Miles, whose company later changed its name to Miles Laboratories, wanted to set a minimum price for his elixirs.
Some economists argue that the Dr. Miles rule has outlived its usefulness and is unnecessary as an antitrust weapon in a modern economy. Consumer groups counter that the restriction has saved shoppers hundreds of billions of dollars.
Although the impact of reversing the rule at this point is debatable -- many manufacturers who care to have already found ways around it -- the reach of the Dr. Miles decision is vast.
"It really pertains to the whole economy. Everything from cars to computers to toothpaste," said Andrew I. Gavil, an antitrust expert at Howard University School of Law.
And so it makes sense that Monday's legal battle before the court has drawn a host of interested parties. On the side of doing away with Dr. Miles are the National Association of Manufacturers, makers of high-end goods such as Ping golf clubs and the Bush administration. Opposing the change are the Consumer Federation of America, discounters such as Burlington Coat Factory and the attorneys general of 36 states, including Maryland.
The issue at stake is the court's 1911 decision that a manufacturer's requirement that a reseller not price its goods below a set minimum is a per se-- that is, automatic -- violation of the Sherman Antitrust Act. Proponents of a change argue that such requirements should not be categorically deemed violations but should be evaluated case by case, under a "rule of reason," to decide whether they interfere with market competition.
The current case is about handbags.
Leegin Creative Leather Products is a California company that makes purses, belts and other accessories under the brand name Brighton. It said it would refuse to sell its goods to any retailer that did not comply with its "Brighton Retail Pricing and Promotion Policy," which mostly bans discount prices for Brighton products.
Leegin said that "the typical retail strategy of putting products on and off 'sale' degrades a manufacturer's brand by causing customers to feel cheated when they buy at the wrong moment."
But Kay's Kloset, a women's boutique in the Dallas suburb of Flower Mound, refused to abide by the rules and placed all of its Brighton products on sale. Leegin stopped selling to Kay's Kloset, the store's business suffered, and Kay's parent company, PSKS, sued.
A jury, finding that Leegin's actions were automatically a violation of the Sherman act, awarded Kay's Kloset $1.2 million, damages that were tripled because the actions violated antitrust laws. The U.S. Court of Appeals for the 5th Circuit upheld the ruling.
Leegin contends in its brief to the court that the Dr. Miles decision is "premised upon the antiquated common-law rule" and that it "squarely conflicts with the modern economic understanding that resale price maintenance agreements can have significant procompetitive effects."
Such a free-market economic analysis holds that minimum resale pricing would ensure that retailers would make enough profit to provide better service to customers and promote the manufacturer's products. It would eliminate "free riding," in which a consumer might try out the latest tennis racket at the local pro shop and then hit the Internet to find a cheaper price.
Even if setting a minimum price hurts "intrabrand" competition by forbidding stores to set their own prices, free-market thinking holds, it doesn't affect "interbrand" competition. Not every manufacturer would take advantage of such a rule, such analysis says, nor would any manufacturer price itself out of business.
But Mark Cooper, director of research for the Consumer Federation of America, said the reality is that a change would mean higher prices for shoppers.
"Basically, they want to get rid of discounters, particularly Internet discounters," Cooper said. And he added that if manufacturers' actions must be challenged on a case-by-case basis, "the burden becomes immense."
Cooper said that Congress has continually shown its approval of the current system and that it doesn't make sense to change what has worked because of theories that it can work better.
"When you make a change like this, you better expect the worst, not the best," he said.
The Justice Department and the Federal Trade Commission told the court that the debate shows why an automatic prohibition such as Dr. Miles creates is wrong. Because setting minimum prices "can be either anticompetitive or procompetitive depending on the facts in a given case, a per se rule is clearly inappropriate," they wrote.
The court has shown little reluctance to relax or even reverse antitrust rulings in light of changing economic reality, and it seems unlikely that the justices would have decided to hear Leegin's direct challenge of the rule unless they were seriously considering a change.
"I think there's almost no chance that Dr. Miles will survive," said Gavil, the law professor.
The question is what rule will replace it.
1911 Antitrust Decision Bars Manufacturers From Setting Minimums for Sellers
By Robert Barnes
Washington Post Staff Writer
Sunday, March 25, 2007; A06
Bargain hunters everywhere have an unwitting patron saint they've probably never heard of. His name is Dr. Miles. His days may be numbered.
It is because of Dr. Miles that anyone who has ever watched "The Price Is Right" knows that the manufacturer's retail price is only suggested. It is his unintended legacy that shoppers have developed the unshakable belief that if they only look hard enough, they can find the same product somewhere else for less money.
But tomorrow, the Supreme Court will hear arguments that it should do away with its nearly century-old opinion in Dr. Miles Medical Co. v. John D. Park & Sons Co., a decision that has meant retailers are free to price products at less than what the manufacturer thinks they should. Dr. Miles, whose company later changed its name to Miles Laboratories, wanted to set a minimum price for his elixirs.
Some economists argue that the Dr. Miles rule has outlived its usefulness and is unnecessary as an antitrust weapon in a modern economy. Consumer groups counter that the restriction has saved shoppers hundreds of billions of dollars.
Although the impact of reversing the rule at this point is debatable -- many manufacturers who care to have already found ways around it -- the reach of the Dr. Miles decision is vast.
"It really pertains to the whole economy. Everything from cars to computers to toothpaste," said Andrew I. Gavil, an antitrust expert at Howard University School of Law.
And so it makes sense that Monday's legal battle before the court has drawn a host of interested parties. On the side of doing away with Dr. Miles are the National Association of Manufacturers, makers of high-end goods such as Ping golf clubs and the Bush administration. Opposing the change are the Consumer Federation of America, discounters such as Burlington Coat Factory and the attorneys general of 36 states, including Maryland.
The issue at stake is the court's 1911 decision that a manufacturer's requirement that a reseller not price its goods below a set minimum is a per se-- that is, automatic -- violation of the Sherman Antitrust Act. Proponents of a change argue that such requirements should not be categorically deemed violations but should be evaluated case by case, under a "rule of reason," to decide whether they interfere with market competition.
The current case is about handbags.
Leegin Creative Leather Products is a California company that makes purses, belts and other accessories under the brand name Brighton. It said it would refuse to sell its goods to any retailer that did not comply with its "Brighton Retail Pricing and Promotion Policy," which mostly bans discount prices for Brighton products.
Leegin said that "the typical retail strategy of putting products on and off 'sale' degrades a manufacturer's brand by causing customers to feel cheated when they buy at the wrong moment."
But Kay's Kloset, a women's boutique in the Dallas suburb of Flower Mound, refused to abide by the rules and placed all of its Brighton products on sale. Leegin stopped selling to Kay's Kloset, the store's business suffered, and Kay's parent company, PSKS, sued.
A jury, finding that Leegin's actions were automatically a violation of the Sherman act, awarded Kay's Kloset $1.2 million, damages that were tripled because the actions violated antitrust laws. The U.S. Court of Appeals for the 5th Circuit upheld the ruling.
Leegin contends in its brief to the court that the Dr. Miles decision is "premised upon the antiquated common-law rule" and that it "squarely conflicts with the modern economic understanding that resale price maintenance agreements can have significant procompetitive effects."
Such a free-market economic analysis holds that minimum resale pricing would ensure that retailers would make enough profit to provide better service to customers and promote the manufacturer's products. It would eliminate "free riding," in which a consumer might try out the latest tennis racket at the local pro shop and then hit the Internet to find a cheaper price.
Even if setting a minimum price hurts "intrabrand" competition by forbidding stores to set their own prices, free-market thinking holds, it doesn't affect "interbrand" competition. Not every manufacturer would take advantage of such a rule, such analysis says, nor would any manufacturer price itself out of business.
But Mark Cooper, director of research for the Consumer Federation of America, said the reality is that a change would mean higher prices for shoppers.
"Basically, they want to get rid of discounters, particularly Internet discounters," Cooper said. And he added that if manufacturers' actions must be challenged on a case-by-case basis, "the burden becomes immense."
Cooper said that Congress has continually shown its approval of the current system and that it doesn't make sense to change what has worked because of theories that it can work better.
"When you make a change like this, you better expect the worst, not the best," he said.
The Justice Department and the Federal Trade Commission told the court that the debate shows why an automatic prohibition such as Dr. Miles creates is wrong. Because setting minimum prices "can be either anticompetitive or procompetitive depending on the facts in a given case, a per se rule is clearly inappropriate," they wrote.
The court has shown little reluctance to relax or even reverse antitrust rulings in light of changing economic reality, and it seems unlikely that the justices would have decided to hear Leegin's direct challenge of the rule unless they were seriously considering a change.
"I think there's almost no chance that Dr. Miles will survive," said Gavil, the law professor.
The question is what rule will replace it.
U.N. Backs Broader Sanctions On Tehran
Security Council Votes to Freeze Some Assets, Ban Arms Exports
By Colum Lynch
Washington Post Staff Writer
Monday, March 26, 2007; A11
UNITED NATIONS, March 24 -- The U.N. Security Council voted unanimously Saturday to approve a resolution that bans all Iranian arms exports and freezes some of the financial assets of 28 Iranian individuals and entities linked to Iran's military and nuclear agencies.
The 15 to 0 vote came one day after President Mahmoud Admadinejad canceled plans to travel to New York to confront the Security Council, leaving his foreign minister to speak in his place. It unfolded as 15 British sailors and marines seized by Iranian naval forces were transferred to Tehran, escalating diplomatic tensions between the two countries.
The 15-nation panel imposed the latest sanctions in response to Iran's refusal to abide by repeated U.N. demands to stop its most sensitive nuclear activities, including the enrichment of uranium and the reprocessing of spent nuclear fuel.
The council also threatened to impose new penalties on Tehran after 60 days if it fails to stop its nuclear activities and provide verifiable assurance that it is not secretly pursuing a nuclear weapon.
The measures adopted Saturday fell far short of the punishing trade, travel and military sanctions initially proposed by the United States and its European partners. But they insisted they were pleased with the outcome.
"We got more than we thought we were going to get" in this resolution, said R. Nicholas Burns, the U.S. undersecretary of state for political affairs. He also said that it criminalizes Iran's military support for extremists and exposes its political isolation. "If Iran has Qatar, a Gulf Arab state; and Indonesia, a Muslim state; and South Africa, a leading member of the nonaligned movement, voting for these sanctions, Iran is in trouble internationally."
Iran's Foreign Minister Manouchehr Mottaki told the council after the vote that its action was "unlawful, unnecessary and unjustifiable" and that "pressure and intimidation" would not force Iran to abandon its right, under the 1970 Nuclear Non-proliferation Treaty, to develop nuclear energy. He characterized those targeted by the sanctions as "heroes."
"Suspension is neither an option nor a solution," he said. "We realize now that we must be prepared to pay the price for our dignity and our independence."
After the vote, the council's five permanent members -- the United States, Russia, Britain, France and China -- issued a statement deploring Iran's "failure" to comply with U.N. resolutions but reiterated an offer to talk to Iran to resolve the nuclear standoff.
The resolution goes beyond Iran's nuclear program, targeting individuals and institutions that have been linked to Iran's widening military role in the Middle East.
For instance, the resolution imposes an asset freeze on several commanders of the Iranian Revolutionary Guard Corps, including Brig. Gen. Qasem Soleimani, commander of Iran's Quds force, which oversees Iran's support for foreign Islamic revolutionary movements -- including Hezbollah, Hamas and Iraqi Shiite militants.
The resolution's widening scope suggests that the United States and its allies are seeking to use the council as part of an effort to contain Iran, and some council members and observers were concerned that Western powers may be using the council to undercut the regime. "Is this aimed at preventing Iran from obtaining nuclear weapons, or is this regime change in another form?" asked Jean du Preez, director of the international organizations and nonproliferation program at the Monterey Institute of International Studies.
Saturday's vote ended more than five weeks of intense talks on how to respond to Iran's defiance.
The resolution's chief sponsors -- Britain, France, Germany and the United States -- secured backing from China and Russia only after dropping several of the toughest measures, including calls for a travel ban on select Iranian officials, a cutoff of billions of dollars in export credits for companies trading with Iran and a prohibition on arms imports by Iran.
They also overcame opposition from South Africa, Qatar and Indonesia by adding provisions that highlighted the importance of a nuclear-free zone in the Middle East and the role of the International Atomic Energy Agency in resolving the nuclear dispute with Iran.
"The purpose of the new Security Council resolution is not to punish Iran but to urge Iran to return to the negotiations," said Wang Guangya, China's U.N. ambassador.
The resolution prohibits Iran from being able to "supply, sell or transfer" arms, and calls on nations to "exercise vigilance and restraint" in selling combat aircraft, attack helicopters, tanks, warships, missiles and other heavy weapons to Iran.
The resolution will also make it more awkward for select Iranian officials and scientists to travel abroad.
The resolution expands an asset freeze to some Iranian institutions and individuals -- including Bank Sepah and the Esfahan Nuclear Fuel Research and Production Center -- that are allegedly linked to Iran's nuclear and ballistic missile programs. The restrictions, however, will not apply to contracts they signed before being placed on the list.
"The impact is primarily political rather than practical," said Abbas Milani, the director of Stanford University's Iranian Studies program. The financial and military restrictions are "rather limited and toothless" but they are having a profound psychological impact on investors and eroding President Ahmadinejad's standing in Iran.
Security Council Votes to Freeze Some Assets, Ban Arms Exports
By Colum Lynch
Washington Post Staff Writer
Monday, March 26, 2007; A11
UNITED NATIONS, March 24 -- The U.N. Security Council voted unanimously Saturday to approve a resolution that bans all Iranian arms exports and freezes some of the financial assets of 28 Iranian individuals and entities linked to Iran's military and nuclear agencies.
The 15 to 0 vote came one day after President Mahmoud Admadinejad canceled plans to travel to New York to confront the Security Council, leaving his foreign minister to speak in his place. It unfolded as 15 British sailors and marines seized by Iranian naval forces were transferred to Tehran, escalating diplomatic tensions between the two countries.
The 15-nation panel imposed the latest sanctions in response to Iran's refusal to abide by repeated U.N. demands to stop its most sensitive nuclear activities, including the enrichment of uranium and the reprocessing of spent nuclear fuel.
The council also threatened to impose new penalties on Tehran after 60 days if it fails to stop its nuclear activities and provide verifiable assurance that it is not secretly pursuing a nuclear weapon.
The measures adopted Saturday fell far short of the punishing trade, travel and military sanctions initially proposed by the United States and its European partners. But they insisted they were pleased with the outcome.
"We got more than we thought we were going to get" in this resolution, said R. Nicholas Burns, the U.S. undersecretary of state for political affairs. He also said that it criminalizes Iran's military support for extremists and exposes its political isolation. "If Iran has Qatar, a Gulf Arab state; and Indonesia, a Muslim state; and South Africa, a leading member of the nonaligned movement, voting for these sanctions, Iran is in trouble internationally."
Iran's Foreign Minister Manouchehr Mottaki told the council after the vote that its action was "unlawful, unnecessary and unjustifiable" and that "pressure and intimidation" would not force Iran to abandon its right, under the 1970 Nuclear Non-proliferation Treaty, to develop nuclear energy. He characterized those targeted by the sanctions as "heroes."
"Suspension is neither an option nor a solution," he said. "We realize now that we must be prepared to pay the price for our dignity and our independence."
After the vote, the council's five permanent members -- the United States, Russia, Britain, France and China -- issued a statement deploring Iran's "failure" to comply with U.N. resolutions but reiterated an offer to talk to Iran to resolve the nuclear standoff.
The resolution goes beyond Iran's nuclear program, targeting individuals and institutions that have been linked to Iran's widening military role in the Middle East.
For instance, the resolution imposes an asset freeze on several commanders of the Iranian Revolutionary Guard Corps, including Brig. Gen. Qasem Soleimani, commander of Iran's Quds force, which oversees Iran's support for foreign Islamic revolutionary movements -- including Hezbollah, Hamas and Iraqi Shiite militants.
The resolution's widening scope suggests that the United States and its allies are seeking to use the council as part of an effort to contain Iran, and some council members and observers were concerned that Western powers may be using the council to undercut the regime. "Is this aimed at preventing Iran from obtaining nuclear weapons, or is this regime change in another form?" asked Jean du Preez, director of the international organizations and nonproliferation program at the Monterey Institute of International Studies.
Saturday's vote ended more than five weeks of intense talks on how to respond to Iran's defiance.
The resolution's chief sponsors -- Britain, France, Germany and the United States -- secured backing from China and Russia only after dropping several of the toughest measures, including calls for a travel ban on select Iranian officials, a cutoff of billions of dollars in export credits for companies trading with Iran and a prohibition on arms imports by Iran.
They also overcame opposition from South Africa, Qatar and Indonesia by adding provisions that highlighted the importance of a nuclear-free zone in the Middle East and the role of the International Atomic Energy Agency in resolving the nuclear dispute with Iran.
"The purpose of the new Security Council resolution is not to punish Iran but to urge Iran to return to the negotiations," said Wang Guangya, China's U.N. ambassador.
The resolution prohibits Iran from being able to "supply, sell or transfer" arms, and calls on nations to "exercise vigilance and restraint" in selling combat aircraft, attack helicopters, tanks, warships, missiles and other heavy weapons to Iran.
The resolution will also make it more awkward for select Iranian officials and scientists to travel abroad.
The resolution expands an asset freeze to some Iranian institutions and individuals -- including Bank Sepah and the Esfahan Nuclear Fuel Research and Production Center -- that are allegedly linked to Iran's nuclear and ballistic missile programs. The restrictions, however, will not apply to contracts they signed before being placed on the list.
"The impact is primarily political rather than practical," said Abbas Milani, the director of Stanford University's Iranian Studies program. The financial and military restrictions are "rather limited and toothless" but they are having a profound psychological impact on investors and eroding President Ahmadinejad's standing in Iran.
Speech at the 43rd Munich Conference on Security Policy
02/10/2007
Speaker: Putin, Wladimir W.
Function: President, Russian Federation
Nation/
Organization: Russian Federation
Thank you very much dear Madam Federal Chancellor, Mr Teltschik, ladies and gentlemen!
I am truly grateful to be invited to such a representative conference that has assembled politicians, military officials, entrepreneurs and experts from more than 40 nations.
This conference’s structure allows me to avoid excessive politeness and the need to speak in roundabout, pleasant but empty diplomatic terms. This conference’s format will allow me to say what I really think about international security problems. And if my comments seem unduly polemical, pointed or inexact to our colleagues, then I would ask you not to get angry with me. After all, this is only a conference. And I hope that after the first two or three minutes of my speech Mr Teltschik will not turn on the red light over there.
Therefore. It is well known that international security comprises much more than issues relating to military and political stability. It involves the stability of the global economy, overcoming poverty, economic security and developing a dialogue between civilisations.
This universal, indivisible character of security is expressed as the basic principle that “security for one is security for all”. As Franklin D. Roosevelt said during the first few days that the Second World War was breaking out: “When peace has been broken anywhere, the peace of all countries everywhere is in danger.”
These words remain topical today. Incidentally, the theme of our conference – global crises, global responsibility – exemplifies this.
Only two decades ago the world was ideologically and economically divided and it was the huge strategic potential of two superpowers that ensured global security.
This global stand-off pushed the sharpest economic and social problems to the margins of the international community’s and the world’s agenda. And, just like any war, the Cold War left us with live ammunition, figuratively speaking. I am referring to ideological stereotypes, double standards and other typical aspects of Cold War bloc thinking.
The unipolar world that had been proposed after the Cold War did not take place either.
The history of humanity certainly has gone through unipolar periods and seen aspirations to world supremacy. And what hasn’t happened in world history?
However, what is a unipolar world? However one might embellish this term, at the end of the day it refers to one type of situation, namely one centre of authority, one centre of force, one centre of decision-making.
It is world in which there is one master, one sovereign. And at the end of the day this is pernicious not only for all those within this system, but also for the sovereign itself because it destroys itself from within.
And this certainly has nothing in common with democracy. Because, as you know, democracy is the power of the majority in light of the interests and opinions of the minority.
Incidentally, Russia – we – are constantly being taught about democracy. But for some reason those who teach us do not want to learn themselves.
I consider that the unipolar model is not only unacceptable but also impossible in today’s world. And this is not only because if there was individual leadership in today’s – and precisely in today’s – world, then the military, political and economic resources would not suffice. What is even more important is that the model itself is flawed because at its basis there is and can be no moral foundations for modern civilisation.
Along with this, what is happening in today’s world – and we just started to discuss this – is a tentative to introduce precisely this concept into international affairs, the concept of a unipolar world.
And with which results?
Unilateral and frequently illegitimate actions have not resolved any problems. Moreover, they have caused new human tragedies and created new centres of tension. Judge for yourselves: wars as well as local and regional conflicts have not diminished. Mr Teltschik mentioned this very gently. And no less people perish in these conflicts – even more are dying than before. Significantly more, significantly more!
Today we are witnessing an almost uncontained hyper use of force – military force – in international relations, force that is plunging the world into an abyss of permanent conflicts. As a result we do not have sufficient strength to find a comprehensive solution to any one of these conflicts. Finding a political settlement also becomes impossible.
We are seeing a greater and greater disdain for the basic principles of international law. And independent legal norms are, as a matter of fact, coming increasingly closer to one state’s legal system. One state and, of course, first and foremost the United States, has overstepped its national borders in every way. This is visible in the economic, political, cultural and educational policies it imposes on other nations. Well, who likes this? Who is happy about this?
In international relations we increasingly see the desire to resolve a given question according to so-called issues of political expediency, based on the current political climate.
And of course this is extremely dangerous. It results in the fact that no one feels safe. I want to emphasise this – no one feels safe! Because no one can feel that international law is like a stone wall that will protect them. Of course such a policy stimulates an arms race.
The force’s dominance inevitably encourages a number of countries to acquire weapons of mass destruction. Moreover, significantly new threats – though they were also well-known before – have appeared, and today threats such as terrorism have taken on a global character.
I am convinced that we have reached that decisive moment when we must seriously think about the architecture of global security.
And we must proceed by searching for a reasonable balance between the interests of all participants in the international dialogue. Especially since the international landscape is so varied and changes so quickly – changes in light of the dynamic development in a whole number of countries and regions.
Madam Federal Chancellor already mentioned this. The combined GDP measured in purchasing power parity of countries such as India and China is already greater than that of the United States. And a similar calculation with the GDP of the BRIC countries – Brazil, Russia, India and China – surpasses the cumulative GDP of the EU. And according to experts this gap will only increase in the future.
There is no reason to doubt that the economic potential of the new centres of global economic growth will inevitably be converted into political influence and will strengthen multipolarity.
In connection with this the role of multilateral diplomacy is significantly increasing. The need for principles such as openness, transparency and predictability in politics is uncontested and the use of force should be a really exceptional measure, comparable to using the death penalty in the judicial systems of certain states.
However, today we are witnessing the opposite tendency, namely a situation in which countries that forbid the death penalty even for murderers and other, dangerous criminals are airily participating in military operations that are difficult to consider legitimate. And as a matter of fact, these conflicts are killing people – hundreds and thousands of civilians!
But at the same time the question arises of whether we should be indifferent and aloof to various internal conflicts inside countries, to authoritarian regimes, to tyrants, and to the proliferation of weapons of mass destruction? As a matter of fact, this was also at the centre of the question that our dear colleague Mr Lieberman asked the Federal Chancellor. If I correctly understood your question (addressing Mr Lieberman), then of course it is a serious one! Can we be indifferent observers in view of what is happening? I will try to answer your question as well: of course not.
But do we have the means to counter these threats? Certainly we do. It is sufficient to look at recent history. Did not our country have a peaceful transition to democracy? Indeed, we witnessed a peaceful transformation of the Soviet regime – a peaceful transformation! And what a regime! With what a number of weapons, including nuclear weapons! Why should we start bombing and shooting now at every available opportunity? Is it the case when without the threat of mutual destruction we do not have enough political culture, respect for democratic values and for the law?
I am convinced that the only mechanism that can make decisions about using military force as a last resort is the Charter of the United Nations. And in connection with this, either I did not understand what our colleague, the Italian Defence Minister, just said or what he said was inexact. In any case, I understood that the use of force can only be legitimate when the decision is taken by NATO, the EU, or the UN. If he really does think so, then we have different points of view. Or I didn’t hear correctly. The use of force can only be considered legitimate if the decision is sanctioned by the UN. And we do not need to substitute NATO or the EU for the UN. When the UN will truly unite the forces of the international community and can really react to events in various countries, when we will leave behind this disdain for international law, then the situation will be able to change. Otherwise the situation will simply result in a dead end, and the number of serious mistakes will be multiplied. Along with this, it is necessary to make sure that international law have a universal character both in the conception and application of its norms.
And one must not forget that democratic political actions necessarily go along with discussion and a laborious decision-making process.
Dear ladies and gentlemen!
The potential danger of the destabilisation of international relations is connected with obvious stagnation in the disarmament issue.
Russia supports the renewal of dialogue on this important question.
It is important to conserve the international legal framework relating to weapons destruction and therefore ensure continuity in the process of reducing nuclear weapons.
Together with the United States of America we agreed to reduce our nuclear strategic missile capabilities to up to 1700-2000 nuclear warheads by 31 December 2012. Russia intends to strictly fulfil the obligations it has taken on. We hope that our partners will also act in a transparent way and will refrain from laying aside a couple of hundred superfluous nuclear warheads for a rainy day. And if today the new American Defence Minister declares that the United States will not hide these superfluous weapons in warehouse or, as one might say, under a pillow or under the blanket, then I suggest that we all rise and greet this declaration standing. It would be a very important declaration.
Russia strictly adheres to and intends to further adhere to the Treaty on the Non-Proliferation of Nuclear Weapons as well as the multilateral supervision regime for missile technologies. The principles incorporated in these documents are universal ones.
In connection with this I would like to recall that in the 1980s the USSR and the United States signed an agreement on destroying a whole range of small- and medium-range missiles but these documents do not have a universal character.
Today many other countries have these missiles, including the Democratic People’s Republic of Korea, the Republic of Korea, India, Iran, Pakistan and Israel. Many countries are working on these systems and plan to incorporate them as part of their weapons arsenals. And only the United States and Russia bear the responsibility to not create such weapons systems.
It is obvious that in these conditions we must think about ensuring our own security.
At the same time, it is impossible to sanction the appearance of new, destabilising high-tech weapons. Needless to say it refers to measures to prevent a new area of confrontation, especially in outer space. Star wars is no longer a fantasy – it is a reality. In the middle of the 1980s our American partners were already able to intercept their own satellite.
In Russia’s opinion, the militarisation of outer space could have unpredictable consequences for the international community, and provoke nothing less than the beginning of a nuclear era. And we have come forward more than once with initiatives designed to prevent the use of weapons in outer space.
Today I would like to tell you that we have prepared a project for an agreement on the prevention of deploying weapons in outer space. And in the near future it will be sent to our partners as an official proposal. Let’s work on this together.
Plans to expand certain elements of the anti-missile defence system to Europe cannot help but disturb us. Who needs the next step of what would be, in this case, an inevitable arms race? I deeply doubt that Europeans themselves do.
Missile weapons with a range of about five to eight thousand kilometres that really pose a threat to Europe do not exist in any of the so-called problem countries. And in the near future and prospects, this will not happen and is not even foreseeable. And any hypothetical launch of, for example, a North Korean rocket to American territory through western Europe obviously contradicts the laws of ballistics. As we say in Russia, it would be like using the right hand to reach the left ear.
And here in Germany I cannot help but mention the pitiable condition of the Treaty on Conventional Armed Forces in Europe.
The Adapted Treaty on Conventional Armed Forces in Europe was signed in 1999. It took into account a new geopolitical reality, namely the elimination of the Warsaw bloc. Seven years have passed and only four states have ratified this document, including the Russian Federation.
NATO countries openly declared that they will not ratify this treaty, including the provisions on flank restrictions (on deploying a certain number of armed forces in the flank zones), until Russia removed its military bases from Georgia and Moldova. Our army is leaving Georgia, even according to an accelerated schedule. We resolved the problems we had with our Georgian colleagues, as everybody knows. There are still 1,500 servicemen in Moldova that are carrying out peacekeeping operations and protecting warehouses with ammunition left over from Soviet times. We constantly discuss this issue with Mr Solana and he knows our position. We are ready to further work in this direction.
But what is happening at the same time? Simultaneously the so-called flexible frontline American bases with up to five thousand men in each. It turns out that NATO has put its frontline forces on our borders, and we continue to strictly fulfil the treaty obligations and do not react to these actions at all.
I think it is obvious that NATO expansion does not have any relation with the modernisation of the Alliance itself or with ensuring security in Europe. On the contrary, it represents a serious provocation that reduces the level of mutual trust. And we have the right to ask: against whom is this expansion intended? And what happened to the assurances our western partners made after the dissolution of the Warsaw Pact? Where are those declarations today? No one even remembers them. But I will allow myself to remind this audience what was said. I would like to quote the speech of NATO General Secretary Mr Woerner in Brussels on 17 May 1990. He said at the time that: “the fact that we are ready not to place a NATO army outside of German territory gives the Soviet Union a firm security guarantee”. Where are these guarantees?
The stones and concrete blocks of the Berlin Wall have long been distributed as souvenirs. But we should not forget that the fall of the Berlin Wall was possible thanks to a historic choice – one that was also made by our people, the people of Russia – a choice in favour of democracy, freedom, openness and a sincere partnership with all the members of the big European family.
And now they are trying to impose new dividing lines and walls on us – these walls may be virtual but they are nevertheless dividing, ones that cut through our continent. And is it possible that we will once again require many years and decades, as well as several generations of politicians, to dissemble and dismantle these new walls?
Dear ladies and gentlemen!
We are unequivocally in favour of strengthening the regime of non-proliferation. The present international legal principles allow us to develop technologies to manufacture nuclear fuel for peaceful purposes. And many countries with all good reasons want to create their own nuclear energy as a basis for their energy independence. But we also understand that these technologies can be quickly transformed into nuclear weapons.
This creates serious international tensions. The situation surrounding the Iranian nuclear programme acts as a clear example. And if the international community does not find a reasonable solution for resolving this conflict of interests, the world will continue to suffer similar, destabilising crises because there are more threshold countries than simply Iran. We both know this. We are going to constantly fight against the threat of the proliferation of weapons of mass destruction.
Last year Russia put forward the initiative to establish international centres for the enrichment of uranium. We are open to the possibility that such centres not only be created in Russia, but also in other countries where there is a legitimate basis for using civil nuclear energy. Countries that want to develop their nuclear energy could guarantee that they will receive fuel through direct participation in these centres. And the centres would, of course, operate under strict IAEA supervision.
The latest initiatives put forward by American President George W. Bush are in conformity with the Russian proposals. I consider that Russia and the USA are objectively and equally interested in strengthening the regime of the non-proliferation of weapons of mass destruction and their deployment. It is precisely our countries, with leading nuclear and missile capabilities, that must act as leaders in developing new, stricter non-proliferation measures. Russia is ready for such work. We are engaged in consultations with our American friends.
In general, we should talk about establishing a whole system of political incentives and economic stimuli whereby it would not be in states’ interests to establish their own capabilities in the nuclear fuel cycle but they would still have the opportunity to develop nuclear energy and strengthen their energy capabilities.
In connection with this I shall talk about international energy cooperation in more detail. Madam Federal Chancellor also spoke about this briefly – she mentioned, touched on this theme. In the energy sector Russia intends to create uniform market principles and transparent conditions for all. It is obvious that energy prices must be determined by the market instead of being the subject of political speculation, economic pressure or blackmail.
We are open to cooperation. Foreign companies participate in all our major energy projects. According to different estimates, up to 26 percent of the oil extraction in Russia – and please think about this figure – up to 26 percent of the oil extraction in Russia is done by foreign capital. Try, try to find me a similar example where Russian business participates extensively in key economic sectors in western countries. Such examples do not exist! There are no such examples.
I would also recall the parity of foreign investments in Russia and those Russia makes abroad. The parity is about fifteen to one. And here you have an obvious example of the openness and stability of the Russian economy.
Economic security is the sector in which all must adhere to uniform principles. We are ready to compete fairly.
For that reason more and more opportunities are appearing in the Russian economy. Experts and our western partners are objectively evaluating these changes. As such, Russia’s OECD sovereign credit rating improved and Russia passed from the fourth to the third group. And today in Munich I would like to use this occasion to thank our German colleagues for their help in the above decision.
Furthermore. As you know, the process of Russia joining the WTO has reached its final stages. I would point out that during long, difficult talks we heard words about freedom of speech, free trade, and equal possibilities more than once but, for some reason, exclusively in reference to the Russian market.
And there is still one more important theme that directly affects global security. Today many talk about the struggle against poverty. What is actually happening in this sphere? On the one hand, financial resources are allocated for programmes to help the world’s poorest countries – and at times substantial financial resources. But to be honest -- and many here also know this – linked with the development of that same donor country’s companies. And on the other hand, developed countries simultaneously keep their agricultural subsidies and limit some countries’ access to high-tech products.
And let’s say things as they are – one hand distributes charitable help and the other hand not only preserves economic backwardness but also reaps the profits thereof. The increasing social tension in depressed regions inevitably results in the growth of radicalism, extremism, feeds terrorism and local conflicts. And if all this happens in, shall we say, a region such as the Middle East where there is increasingly the sense that the world at large is unfair, then there is the risk of global destabilisation.
It is obvious that the world’s leading countries should see this threat. And that they should therefore build a more democratic, fairer system of global economic relations, a system that would give everyone the chance and the possibility to develop.
Dear ladies and gentlemen, speaking at the Conference on Security Policy, it is impossible not to mention the activities of the Organisation for Security and Cooperation in Europe (OSCE). As is well-known, this organisation was created to examine all – I shall emphasise this – all aspects of security: military, political, economic, humanitarian and, especially, the relations between these spheres.
What do we see happening today? We see that this balance is clearly destroyed. People are trying to transform the OSCE into a vulgar instrument designed to promote the foreign policy interests of one or a group of countries. And this task is also being accomplished by the OSCE’s bureaucratic apparatus which is absolutely not connected with the state founders in any way. Decision-making procedures and the involvement of so-called non-governmental organisations are tailored for this task. These organisations are formally independent but they are purposefully financed and therefore under control.
According to the founding documents, in the humanitarian sphere the OSCE is designed to assist country members in observing international human rights norms at their request. This is an important task. We support this. But this does not mean interfering in the internal affairs of other countries, and especially not imposing a regime that determines how these states should live and develop.
It is obvious that such interference does not promote the development of democratic states at all. On the contrary, it makes them dependent and, as a consequence, politically and economically unstable.
We expect that the OSCE be guided by its primary tasks and build relations with sovereign states based on respect, trust and transparency.
Dear ladies and gentlemen!
In conclusion I would like to note the following. We very often – and personally, I very often – hear appeals by our partners, including our European partners, to the effect that Russia should play an increasingly active role in world affairs.
In connection with this I would allow myself to make one small remark. It is hardly necessary to incite us to do so. Russia is a country with a history that spans more than a thousand years and has practically always used the privilege to carry out an independent foreign policy.
We are not going to change this tradition today. At the same time, we are well aware of how the world has changed and we have a realistic sense of our own opportunities and potential. And of course we would like to interact with responsible and independent partners with whom we could work together in constructing a fair and democratic world order that would ensure security and prosperity not only for a select few, but for all.
Thank you for your attention.
02/10/2007
Speaker: Putin, Wladimir W.
Function: President, Russian Federation
Nation/
Organization: Russian Federation
Thank you very much dear Madam Federal Chancellor, Mr Teltschik, ladies and gentlemen!
I am truly grateful to be invited to such a representative conference that has assembled politicians, military officials, entrepreneurs and experts from more than 40 nations.
This conference’s structure allows me to avoid excessive politeness and the need to speak in roundabout, pleasant but empty diplomatic terms. This conference’s format will allow me to say what I really think about international security problems. And if my comments seem unduly polemical, pointed or inexact to our colleagues, then I would ask you not to get angry with me. After all, this is only a conference. And I hope that after the first two or three minutes of my speech Mr Teltschik will not turn on the red light over there.
Therefore. It is well known that international security comprises much more than issues relating to military and political stability. It involves the stability of the global economy, overcoming poverty, economic security and developing a dialogue between civilisations.
This universal, indivisible character of security is expressed as the basic principle that “security for one is security for all”. As Franklin D. Roosevelt said during the first few days that the Second World War was breaking out: “When peace has been broken anywhere, the peace of all countries everywhere is in danger.”
These words remain topical today. Incidentally, the theme of our conference – global crises, global responsibility – exemplifies this.
Only two decades ago the world was ideologically and economically divided and it was the huge strategic potential of two superpowers that ensured global security.
This global stand-off pushed the sharpest economic and social problems to the margins of the international community’s and the world’s agenda. And, just like any war, the Cold War left us with live ammunition, figuratively speaking. I am referring to ideological stereotypes, double standards and other typical aspects of Cold War bloc thinking.
The unipolar world that had been proposed after the Cold War did not take place either.
The history of humanity certainly has gone through unipolar periods and seen aspirations to world supremacy. And what hasn’t happened in world history?
However, what is a unipolar world? However one might embellish this term, at the end of the day it refers to one type of situation, namely one centre of authority, one centre of force, one centre of decision-making.
It is world in which there is one master, one sovereign. And at the end of the day this is pernicious not only for all those within this system, but also for the sovereign itself because it destroys itself from within.
And this certainly has nothing in common with democracy. Because, as you know, democracy is the power of the majority in light of the interests and opinions of the minority.
Incidentally, Russia – we – are constantly being taught about democracy. But for some reason those who teach us do not want to learn themselves.
I consider that the unipolar model is not only unacceptable but also impossible in today’s world. And this is not only because if there was individual leadership in today’s – and precisely in today’s – world, then the military, political and economic resources would not suffice. What is even more important is that the model itself is flawed because at its basis there is and can be no moral foundations for modern civilisation.
Along with this, what is happening in today’s world – and we just started to discuss this – is a tentative to introduce precisely this concept into international affairs, the concept of a unipolar world.
And with which results?
Unilateral and frequently illegitimate actions have not resolved any problems. Moreover, they have caused new human tragedies and created new centres of tension. Judge for yourselves: wars as well as local and regional conflicts have not diminished. Mr Teltschik mentioned this very gently. And no less people perish in these conflicts – even more are dying than before. Significantly more, significantly more!
Today we are witnessing an almost uncontained hyper use of force – military force – in international relations, force that is plunging the world into an abyss of permanent conflicts. As a result we do not have sufficient strength to find a comprehensive solution to any one of these conflicts. Finding a political settlement also becomes impossible.
We are seeing a greater and greater disdain for the basic principles of international law. And independent legal norms are, as a matter of fact, coming increasingly closer to one state’s legal system. One state and, of course, first and foremost the United States, has overstepped its national borders in every way. This is visible in the economic, political, cultural and educational policies it imposes on other nations. Well, who likes this? Who is happy about this?
In international relations we increasingly see the desire to resolve a given question according to so-called issues of political expediency, based on the current political climate.
And of course this is extremely dangerous. It results in the fact that no one feels safe. I want to emphasise this – no one feels safe! Because no one can feel that international law is like a stone wall that will protect them. Of course such a policy stimulates an arms race.
The force’s dominance inevitably encourages a number of countries to acquire weapons of mass destruction. Moreover, significantly new threats – though they were also well-known before – have appeared, and today threats such as terrorism have taken on a global character.
I am convinced that we have reached that decisive moment when we must seriously think about the architecture of global security.
And we must proceed by searching for a reasonable balance between the interests of all participants in the international dialogue. Especially since the international landscape is so varied and changes so quickly – changes in light of the dynamic development in a whole number of countries and regions.
Madam Federal Chancellor already mentioned this. The combined GDP measured in purchasing power parity of countries such as India and China is already greater than that of the United States. And a similar calculation with the GDP of the BRIC countries – Brazil, Russia, India and China – surpasses the cumulative GDP of the EU. And according to experts this gap will only increase in the future.
There is no reason to doubt that the economic potential of the new centres of global economic growth will inevitably be converted into political influence and will strengthen multipolarity.
In connection with this the role of multilateral diplomacy is significantly increasing. The need for principles such as openness, transparency and predictability in politics is uncontested and the use of force should be a really exceptional measure, comparable to using the death penalty in the judicial systems of certain states.
However, today we are witnessing the opposite tendency, namely a situation in which countries that forbid the death penalty even for murderers and other, dangerous criminals are airily participating in military operations that are difficult to consider legitimate. And as a matter of fact, these conflicts are killing people – hundreds and thousands of civilians!
But at the same time the question arises of whether we should be indifferent and aloof to various internal conflicts inside countries, to authoritarian regimes, to tyrants, and to the proliferation of weapons of mass destruction? As a matter of fact, this was also at the centre of the question that our dear colleague Mr Lieberman asked the Federal Chancellor. If I correctly understood your question (addressing Mr Lieberman), then of course it is a serious one! Can we be indifferent observers in view of what is happening? I will try to answer your question as well: of course not.
But do we have the means to counter these threats? Certainly we do. It is sufficient to look at recent history. Did not our country have a peaceful transition to democracy? Indeed, we witnessed a peaceful transformation of the Soviet regime – a peaceful transformation! And what a regime! With what a number of weapons, including nuclear weapons! Why should we start bombing and shooting now at every available opportunity? Is it the case when without the threat of mutual destruction we do not have enough political culture, respect for democratic values and for the law?
I am convinced that the only mechanism that can make decisions about using military force as a last resort is the Charter of the United Nations. And in connection with this, either I did not understand what our colleague, the Italian Defence Minister, just said or what he said was inexact. In any case, I understood that the use of force can only be legitimate when the decision is taken by NATO, the EU, or the UN. If he really does think so, then we have different points of view. Or I didn’t hear correctly. The use of force can only be considered legitimate if the decision is sanctioned by the UN. And we do not need to substitute NATO or the EU for the UN. When the UN will truly unite the forces of the international community and can really react to events in various countries, when we will leave behind this disdain for international law, then the situation will be able to change. Otherwise the situation will simply result in a dead end, and the number of serious mistakes will be multiplied. Along with this, it is necessary to make sure that international law have a universal character both in the conception and application of its norms.
And one must not forget that democratic political actions necessarily go along with discussion and a laborious decision-making process.
Dear ladies and gentlemen!
The potential danger of the destabilisation of international relations is connected with obvious stagnation in the disarmament issue.
Russia supports the renewal of dialogue on this important question.
It is important to conserve the international legal framework relating to weapons destruction and therefore ensure continuity in the process of reducing nuclear weapons.
Together with the United States of America we agreed to reduce our nuclear strategic missile capabilities to up to 1700-2000 nuclear warheads by 31 December 2012. Russia intends to strictly fulfil the obligations it has taken on. We hope that our partners will also act in a transparent way and will refrain from laying aside a couple of hundred superfluous nuclear warheads for a rainy day. And if today the new American Defence Minister declares that the United States will not hide these superfluous weapons in warehouse or, as one might say, under a pillow or under the blanket, then I suggest that we all rise and greet this declaration standing. It would be a very important declaration.
Russia strictly adheres to and intends to further adhere to the Treaty on the Non-Proliferation of Nuclear Weapons as well as the multilateral supervision regime for missile technologies. The principles incorporated in these documents are universal ones.
In connection with this I would like to recall that in the 1980s the USSR and the United States signed an agreement on destroying a whole range of small- and medium-range missiles but these documents do not have a universal character.
Today many other countries have these missiles, including the Democratic People’s Republic of Korea, the Republic of Korea, India, Iran, Pakistan and Israel. Many countries are working on these systems and plan to incorporate them as part of their weapons arsenals. And only the United States and Russia bear the responsibility to not create such weapons systems.
It is obvious that in these conditions we must think about ensuring our own security.
At the same time, it is impossible to sanction the appearance of new, destabilising high-tech weapons. Needless to say it refers to measures to prevent a new area of confrontation, especially in outer space. Star wars is no longer a fantasy – it is a reality. In the middle of the 1980s our American partners were already able to intercept their own satellite.
In Russia’s opinion, the militarisation of outer space could have unpredictable consequences for the international community, and provoke nothing less than the beginning of a nuclear era. And we have come forward more than once with initiatives designed to prevent the use of weapons in outer space.
Today I would like to tell you that we have prepared a project for an agreement on the prevention of deploying weapons in outer space. And in the near future it will be sent to our partners as an official proposal. Let’s work on this together.
Plans to expand certain elements of the anti-missile defence system to Europe cannot help but disturb us. Who needs the next step of what would be, in this case, an inevitable arms race? I deeply doubt that Europeans themselves do.
Missile weapons with a range of about five to eight thousand kilometres that really pose a threat to Europe do not exist in any of the so-called problem countries. And in the near future and prospects, this will not happen and is not even foreseeable. And any hypothetical launch of, for example, a North Korean rocket to American territory through western Europe obviously contradicts the laws of ballistics. As we say in Russia, it would be like using the right hand to reach the left ear.
And here in Germany I cannot help but mention the pitiable condition of the Treaty on Conventional Armed Forces in Europe.
The Adapted Treaty on Conventional Armed Forces in Europe was signed in 1999. It took into account a new geopolitical reality, namely the elimination of the Warsaw bloc. Seven years have passed and only four states have ratified this document, including the Russian Federation.
NATO countries openly declared that they will not ratify this treaty, including the provisions on flank restrictions (on deploying a certain number of armed forces in the flank zones), until Russia removed its military bases from Georgia and Moldova. Our army is leaving Georgia, even according to an accelerated schedule. We resolved the problems we had with our Georgian colleagues, as everybody knows. There are still 1,500 servicemen in Moldova that are carrying out peacekeeping operations and protecting warehouses with ammunition left over from Soviet times. We constantly discuss this issue with Mr Solana and he knows our position. We are ready to further work in this direction.
But what is happening at the same time? Simultaneously the so-called flexible frontline American bases with up to five thousand men in each. It turns out that NATO has put its frontline forces on our borders, and we continue to strictly fulfil the treaty obligations and do not react to these actions at all.
I think it is obvious that NATO expansion does not have any relation with the modernisation of the Alliance itself or with ensuring security in Europe. On the contrary, it represents a serious provocation that reduces the level of mutual trust. And we have the right to ask: against whom is this expansion intended? And what happened to the assurances our western partners made after the dissolution of the Warsaw Pact? Where are those declarations today? No one even remembers them. But I will allow myself to remind this audience what was said. I would like to quote the speech of NATO General Secretary Mr Woerner in Brussels on 17 May 1990. He said at the time that: “the fact that we are ready not to place a NATO army outside of German territory gives the Soviet Union a firm security guarantee”. Where are these guarantees?
The stones and concrete blocks of the Berlin Wall have long been distributed as souvenirs. But we should not forget that the fall of the Berlin Wall was possible thanks to a historic choice – one that was also made by our people, the people of Russia – a choice in favour of democracy, freedom, openness and a sincere partnership with all the members of the big European family.
And now they are trying to impose new dividing lines and walls on us – these walls may be virtual but they are nevertheless dividing, ones that cut through our continent. And is it possible that we will once again require many years and decades, as well as several generations of politicians, to dissemble and dismantle these new walls?
Dear ladies and gentlemen!
We are unequivocally in favour of strengthening the regime of non-proliferation. The present international legal principles allow us to develop technologies to manufacture nuclear fuel for peaceful purposes. And many countries with all good reasons want to create their own nuclear energy as a basis for their energy independence. But we also understand that these technologies can be quickly transformed into nuclear weapons.
This creates serious international tensions. The situation surrounding the Iranian nuclear programme acts as a clear example. And if the international community does not find a reasonable solution for resolving this conflict of interests, the world will continue to suffer similar, destabilising crises because there are more threshold countries than simply Iran. We both know this. We are going to constantly fight against the threat of the proliferation of weapons of mass destruction.
Last year Russia put forward the initiative to establish international centres for the enrichment of uranium. We are open to the possibility that such centres not only be created in Russia, but also in other countries where there is a legitimate basis for using civil nuclear energy. Countries that want to develop their nuclear energy could guarantee that they will receive fuel through direct participation in these centres. And the centres would, of course, operate under strict IAEA supervision.
The latest initiatives put forward by American President George W. Bush are in conformity with the Russian proposals. I consider that Russia and the USA are objectively and equally interested in strengthening the regime of the non-proliferation of weapons of mass destruction and their deployment. It is precisely our countries, with leading nuclear and missile capabilities, that must act as leaders in developing new, stricter non-proliferation measures. Russia is ready for such work. We are engaged in consultations with our American friends.
In general, we should talk about establishing a whole system of political incentives and economic stimuli whereby it would not be in states’ interests to establish their own capabilities in the nuclear fuel cycle but they would still have the opportunity to develop nuclear energy and strengthen their energy capabilities.
In connection with this I shall talk about international energy cooperation in more detail. Madam Federal Chancellor also spoke about this briefly – she mentioned, touched on this theme. In the energy sector Russia intends to create uniform market principles and transparent conditions for all. It is obvious that energy prices must be determined by the market instead of being the subject of political speculation, economic pressure or blackmail.
We are open to cooperation. Foreign companies participate in all our major energy projects. According to different estimates, up to 26 percent of the oil extraction in Russia – and please think about this figure – up to 26 percent of the oil extraction in Russia is done by foreign capital. Try, try to find me a similar example where Russian business participates extensively in key economic sectors in western countries. Such examples do not exist! There are no such examples.
I would also recall the parity of foreign investments in Russia and those Russia makes abroad. The parity is about fifteen to one. And here you have an obvious example of the openness and stability of the Russian economy.
Economic security is the sector in which all must adhere to uniform principles. We are ready to compete fairly.
For that reason more and more opportunities are appearing in the Russian economy. Experts and our western partners are objectively evaluating these changes. As such, Russia’s OECD sovereign credit rating improved and Russia passed from the fourth to the third group. And today in Munich I would like to use this occasion to thank our German colleagues for their help in the above decision.
Furthermore. As you know, the process of Russia joining the WTO has reached its final stages. I would point out that during long, difficult talks we heard words about freedom of speech, free trade, and equal possibilities more than once but, for some reason, exclusively in reference to the Russian market.
And there is still one more important theme that directly affects global security. Today many talk about the struggle against poverty. What is actually happening in this sphere? On the one hand, financial resources are allocated for programmes to help the world’s poorest countries – and at times substantial financial resources. But to be honest -- and many here also know this – linked with the development of that same donor country’s companies. And on the other hand, developed countries simultaneously keep their agricultural subsidies and limit some countries’ access to high-tech products.
And let’s say things as they are – one hand distributes charitable help and the other hand not only preserves economic backwardness but also reaps the profits thereof. The increasing social tension in depressed regions inevitably results in the growth of radicalism, extremism, feeds terrorism and local conflicts. And if all this happens in, shall we say, a region such as the Middle East where there is increasingly the sense that the world at large is unfair, then there is the risk of global destabilisation.
It is obvious that the world’s leading countries should see this threat. And that they should therefore build a more democratic, fairer system of global economic relations, a system that would give everyone the chance and the possibility to develop.
Dear ladies and gentlemen, speaking at the Conference on Security Policy, it is impossible not to mention the activities of the Organisation for Security and Cooperation in Europe (OSCE). As is well-known, this organisation was created to examine all – I shall emphasise this – all aspects of security: military, political, economic, humanitarian and, especially, the relations between these spheres.
What do we see happening today? We see that this balance is clearly destroyed. People are trying to transform the OSCE into a vulgar instrument designed to promote the foreign policy interests of one or a group of countries. And this task is also being accomplished by the OSCE’s bureaucratic apparatus which is absolutely not connected with the state founders in any way. Decision-making procedures and the involvement of so-called non-governmental organisations are tailored for this task. These organisations are formally independent but they are purposefully financed and therefore under control.
According to the founding documents, in the humanitarian sphere the OSCE is designed to assist country members in observing international human rights norms at their request. This is an important task. We support this. But this does not mean interfering in the internal affairs of other countries, and especially not imposing a regime that determines how these states should live and develop.
It is obvious that such interference does not promote the development of democratic states at all. On the contrary, it makes them dependent and, as a consequence, politically and economically unstable.
We expect that the OSCE be guided by its primary tasks and build relations with sovereign states based on respect, trust and transparency.
Dear ladies and gentlemen!
In conclusion I would like to note the following. We very often – and personally, I very often – hear appeals by our partners, including our European partners, to the effect that Russia should play an increasingly active role in world affairs.
In connection with this I would allow myself to make one small remark. It is hardly necessary to incite us to do so. Russia is a country with a history that spans more than a thousand years and has practically always used the privilege to carry out an independent foreign policy.
We are not going to change this tradition today. At the same time, we are well aware of how the world has changed and we have a realistic sense of our own opportunities and potential. And of course we would like to interact with responsible and independent partners with whom we could work together in constructing a fair and democratic world order that would ensure security and prosperity not only for a select few, but for all.
Thank you for your attention.
Google Data on Users May Break EU Law, Watchdog Says (Update2)
By Stephanie Bodoni
May 25 (Bloomberg) -- Google Inc., owner of the world's most popular search engine, may be violating the European Union's privacy laws by storing information on customer queries for as long as two years, advisers to EU regulators told the company.
Google's privacy counsel in Paris, Peter Fleischer, said the company received a letter this month from the EU's data-protection advisory agency asking it to explain why records of user searches are retained.
The scrutiny of policies at Google, the gateway to the Internet for tens of millions of users, has increased since it announced plans in April to buy New York-based online advertiser DoubleClick Inc. for $3.1 billion. Regulators have said that competition among Google, Microsoft Corp. and Yahoo! Inc. to deliver ads to specific users may violate civil liberties.
``Google may have initiated personalization efforts which are more advanced in some ways, but it's an industrywide issue,'' Greg Sterling, an analyst at Sterling Market Intelligence in Oakland, California, said in a telephone interview. ``It is something that the industry as a whole should tackle.''
Google's Fleischer said in a May 22 e-mail that the company will reply before the next meeting of the advisory group, called the Article 29 Data Protection Working Party, in June.
Google's Response
``We are committed to engaging in a constructive dialogue with privacy stakeholders, including the Article 29 Working Party, on how to improve privacy practices for the benefit of Google users and for everyone on the Internet,'' Fleischer said.
Google, based in Mountain View, California, on March 13 cut the time it keeps users' data on Web searches to between 18 and 24 months. Peter Schaar, Article 29's chairman, called the changes ``very much a step in the right direction,'' according to the May 16 letter.
Still, he said the new storage period, ``on the basis indicated by Google thus far,'' doesn't seem to meet EU data protection rules. Schaar didn't return three phone calls for comment to his office in Bonn, Germany, this week.
``We first wanted to give Google the time to respond before we comment,'' Schaar's spokeswoman, Gabriele Loewnau, said in a telephone interview today. Loewnau, who is also an Article 29 member, said the group will consider the U.S. company's response at its next meeting on June 19 and 20.
The questions raised in the letter to Google are ``appropriate and legitimate,'' Pietro Petrucci, a spokesman for the EU Justice Commissioner Franco Frattini, told reporters in Brussels today. Frattini won't comment on the letter further while the Article 29 group waits for Google's response, Petrucci said.
Yahoo, Microsoft
The privacy-law advisers are also reviewing the policies of Microsoft, the world's largest software maker, and Yahoo, Alexander Dix, a German member of the group, said in a telephone interview April 27. No one at Dix's office answered a telephone call for comment on May 22. The privacy inspectors haven't been in touch with the two companies in writing, Loewnau said today.
Alex Laity, a spokesman for Sunnyvale, California-based Yahoo, said in a telephone interview May 23 that he wasn't aware of the group's investigation or whether it had contacted Yahoo, the second-biggest Internet search engine.
Tom Brookes, a spokesman for Redmond, Washington-based Microsoft, said in a May 23 e-mail that the company couldn't comment.
Privacy issues are also a focus of regulatory reviews in the U.S. over the DoubleClick takeover. The New York State Consumer Protection Board on May 9 urged federal regulators to delay Google's takeover until the company gives consumers the right to prevent tracking and storing of information about Web sites they visit.
Key to Growth
The company made 43 percent of its revenue outside of the U.S. last year, according to data compiled by Bloomberg. Gathering more personal data will be key to Google's expansion, Eric Schmidt, Google's chief executive officer, told the Financial Times in a report published May 23.
A separate probe of Google's privacy policy by the data regulator in Norway, which isn't part of the EU, may not conclude until after the EU group's meeting, its senior legal adviser Guro Slettemark said. The Norwegian Data Inspectorate began investigating Google's data-storage system in January on concern that the practice breached national privacy laws.
Google said in a statement last month that it received a letter from Norway in March, inquiring about the way the company collects information and about the announced changes to its data- retention policies.
By Stephanie Bodoni
May 25 (Bloomberg) -- Google Inc., owner of the world's most popular search engine, may be violating the European Union's privacy laws by storing information on customer queries for as long as two years, advisers to EU regulators told the company.
Google's privacy counsel in Paris, Peter Fleischer, said the company received a letter this month from the EU's data-protection advisory agency asking it to explain why records of user searches are retained.
The scrutiny of policies at Google, the gateway to the Internet for tens of millions of users, has increased since it announced plans in April to buy New York-based online advertiser DoubleClick Inc. for $3.1 billion. Regulators have said that competition among Google, Microsoft Corp. and Yahoo! Inc. to deliver ads to specific users may violate civil liberties.
``Google may have initiated personalization efforts which are more advanced in some ways, but it's an industrywide issue,'' Greg Sterling, an analyst at Sterling Market Intelligence in Oakland, California, said in a telephone interview. ``It is something that the industry as a whole should tackle.''
Google's Fleischer said in a May 22 e-mail that the company will reply before the next meeting of the advisory group, called the Article 29 Data Protection Working Party, in June.
Google's Response
``We are committed to engaging in a constructive dialogue with privacy stakeholders, including the Article 29 Working Party, on how to improve privacy practices for the benefit of Google users and for everyone on the Internet,'' Fleischer said.
Google, based in Mountain View, California, on March 13 cut the time it keeps users' data on Web searches to between 18 and 24 months. Peter Schaar, Article 29's chairman, called the changes ``very much a step in the right direction,'' according to the May 16 letter.
Still, he said the new storage period, ``on the basis indicated by Google thus far,'' doesn't seem to meet EU data protection rules. Schaar didn't return three phone calls for comment to his office in Bonn, Germany, this week.
``We first wanted to give Google the time to respond before we comment,'' Schaar's spokeswoman, Gabriele Loewnau, said in a telephone interview today. Loewnau, who is also an Article 29 member, said the group will consider the U.S. company's response at its next meeting on June 19 and 20.
The questions raised in the letter to Google are ``appropriate and legitimate,'' Pietro Petrucci, a spokesman for the EU Justice Commissioner Franco Frattini, told reporters in Brussels today. Frattini won't comment on the letter further while the Article 29 group waits for Google's response, Petrucci said.
Yahoo, Microsoft
The privacy-law advisers are also reviewing the policies of Microsoft, the world's largest software maker, and Yahoo, Alexander Dix, a German member of the group, said in a telephone interview April 27. No one at Dix's office answered a telephone call for comment on May 22. The privacy inspectors haven't been in touch with the two companies in writing, Loewnau said today.
Alex Laity, a spokesman for Sunnyvale, California-based Yahoo, said in a telephone interview May 23 that he wasn't aware of the group's investigation or whether it had contacted Yahoo, the second-biggest Internet search engine.
Tom Brookes, a spokesman for Redmond, Washington-based Microsoft, said in a May 23 e-mail that the company couldn't comment.
Privacy issues are also a focus of regulatory reviews in the U.S. over the DoubleClick takeover. The New York State Consumer Protection Board on May 9 urged federal regulators to delay Google's takeover until the company gives consumers the right to prevent tracking and storing of information about Web sites they visit.
Key to Growth
The company made 43 percent of its revenue outside of the U.S. last year, according to data compiled by Bloomberg. Gathering more personal data will be key to Google's expansion, Eric Schmidt, Google's chief executive officer, told the Financial Times in a report published May 23.
A separate probe of Google's privacy policy by the data regulator in Norway, which isn't part of the EU, may not conclude until after the EU group's meeting, its senior legal adviser Guro Slettemark said. The Norwegian Data Inspectorate began investigating Google's data-storage system in January on concern that the practice breached national privacy laws.
Google said in a statement last month that it received a letter from Norway in March, inquiring about the way the company collects information and about the announced changes to its data- retention policies.
Bush Says Wars in Iraq, Afghanistan Are Promoting Freedom
By Holly Rosenkrantz
May 26 (Bloomberg) -- President George W. Bush, in a Memorial Day weekend radio address, said the wars in Iraq and Afghanistan are aimed at promoting in those countries the freedom people enjoy in the U.S.
``Our troops are helping them build democracies that respect the rights of their people, uphold the rule of law and fight extremists alongside America in the war on terror,'' Bush said.
As the U.S. began a three-day holiday weekend, Bush yesterday paid his seventh visit to wounded troops at National Naval Medical Center in Bethesda, Maryland, outside Washington.
Congress this week approved almost $100 billion for U.S. military operations in Iraq and Afghanistan through Sept. 30. The package, stripped of a troop-withdrawal timeline Democrats sought and Bush opposed, handed the president a victory in the continuing debate over war policy.
The U.S. celebrates Memorial Day on May 28, a national holiday commemorating war dead. This will be the sixth straight Memorial Day with the nation at war.
Since the March 2003 invasion of Iraq, 3,433 U.S. personnel have died and more than 25,500 have been wounded, Pentagon figures show. In Afghanistan, 387 U.S. troops have been killed and 1,250 wounded since October 2001, when the U.S. opened the war on terrorism.
After the hospital visit, the president left for Camp David for the weekend. He'll return to the White House tomorrow. On May 28, he lays a wreath at the Tomb of the Unknowns and makes a speech at Arlington National Cemetery.
By Holly Rosenkrantz
May 26 (Bloomberg) -- President George W. Bush, in a Memorial Day weekend radio address, said the wars in Iraq and Afghanistan are aimed at promoting in those countries the freedom people enjoy in the U.S.
``Our troops are helping them build democracies that respect the rights of their people, uphold the rule of law and fight extremists alongside America in the war on terror,'' Bush said.
As the U.S. began a three-day holiday weekend, Bush yesterday paid his seventh visit to wounded troops at National Naval Medical Center in Bethesda, Maryland, outside Washington.
Congress this week approved almost $100 billion for U.S. military operations in Iraq and Afghanistan through Sept. 30. The package, stripped of a troop-withdrawal timeline Democrats sought and Bush opposed, handed the president a victory in the continuing debate over war policy.
The U.S. celebrates Memorial Day on May 28, a national holiday commemorating war dead. This will be the sixth straight Memorial Day with the nation at war.
Since the March 2003 invasion of Iraq, 3,433 U.S. personnel have died and more than 25,500 have been wounded, Pentagon figures show. In Afghanistan, 387 U.S. troops have been killed and 1,250 wounded since October 2001, when the U.S. opened the war on terrorism.
After the hospital visit, the president left for Camp David for the weekend. He'll return to the White House tomorrow. On May 28, he lays a wreath at the Tomb of the Unknowns and makes a speech at Arlington National Cemetery.
Pakistan Central Bank Expects Faster Economic Growth (Update4)
By Farhan Sharif
May 26 (Bloomberg) -- Pakistan's economy may expand as much as 7.2 percent this fiscal year because of a record wheat harvest and higher cement and sugar production, the central bank said.
The $129 billion South Asian economy could surpass the government's 7 percent growth target in the year to June 30, following a 6.6 percent gain in the previous 12-month period, Shamshad Akhtar, governor of the State Bank of Pakistan said at a news conference in Karachi today, restating her previous forecast.
``The indication that growth could exceed 7 percent is quite positive,'' said Nasim Beg, who oversees the equivalent of $320 million in stocks and bonds as chief executive of Arif Habib Investment Management Ltd., in Karachi. ``The real challenge for the tax collectors is balancing tax relief and higher tax collection in the upcoming budget.''
The government needs to increase tax collection and seek to narrow the current account deficit, which is likely to widen to 4.8 percent of gross domestic product this year, Akhtar said. Pakistan's economy is expanding even as the nation experiences its greatest unrest since President Pervez Musharraf seized power in 1999, as protests against him mount.
``The long-run health of the economy requires a lower sustainable current account deficit and an increase in tax receipts,'' Akhtar said.
Military Coup
Musharraf, who seized power in a military coup and remains army chief of staff, is facing protests that erupted after he removed Supreme Court Chief Justice Iftikhar Muhammad Chaudhry from his post on March 9 for alleged misuse of authority. Demonstrations have escalated into protests over the president seeking a second five-year term in elections that are scheduled to be held by January 2008.
The National Economic Council, headed by Prime Minister Shaukat Aziz, will announce on May 31 the government's estimate for growth this fiscal year and its forecast for the next 12 months. The figures will be released 10 days prior to the announcement in parliament of the 2008 national budget on June 9.
Prime Minister Shaukat Aziz is targeting annual economic growth of 7 percent to 7.5 percent in the next five years and the expansion will be driven by agriculture, manufacturing, services and infrastructure spending, the government told an April 26 meeting of donor nations.
Pakistan's tax collection rose 18 percent in the 10 months ended April 30 to 646.9 billion rupees ($10.64 billion), the Central Board of Revenue, the federal tax authority said on April 30.
Farm Growth
The farm sector could grow as much as 5 percent this year, exceeding the target of 4.5 percent because of a record wheat harvest, the report said. Pakistan is expected to produce 23 million tons of wheat this year. Agriculture, which accounts for one-fourth of the economy expanded 2.5 percent last year.
South Asia's second-largest economy may expand 7.2 percent in the fiscal year starting July, quickening from 7 percent this year and 6.6 percent in the previous 12 months, Standard Chartered Plc said in a May 22 report. The $129 billion economy has grown at an average pace of 7.5 percent in the past four years, the report said.
Consumer prices are likely to rise faster than forecast, the central bank report said. Inflation, as measured by the consumer price index, could rise between 7.5 percent and 7.8 percent in the year to June 30, faster than the 6.5 percent target, the report said.
Monetary Policy
``It is important that appropriate monetary policy be sustained as price stability is important to sustain long-term growth and for poverty reduction,'' the report said.
Rising prices prompted the State Bank of Pakistan to lift its key interest rate half a percentage point to 9.5 percent in July last year, the first increase in 15 months.
Consumer prices rose 6.92 percent in April from a year ago, following a gain of 7.67 percent in March. Consumer prices in the first 10 months of the year rose an average 7.89 percent from 8.03 percent a year earlier.
Aziz's government is betting sustained expansion will help to reduce poverty in a nation where the World Bank estimates about 70 percent of the population of 160 million people lives on less than $2 a day.
The government's fiscal deficit is likely to be on target at 4.2 percent of gross domestic product in the year to June 30, the central bank report said.
The current account deficit is likely to widen to 4.8 percent of GDP, higher than the 4.3 percent target and last year's 3.9 percent, the central bank report said.
``The current account deficit is likely to be comfortably financed in the short-run, particularly given strong international liquidity flows toward emerging markets,'' the report said.
Overseas Bonds
Pakistan raised $750 million selling foreign currency bonds to investors in Asia, Europe and the U.S., in the South Asian nation's fourth debt offering in three years, Prime Minister Shaukat Aziz said on May 24.
``It is positive that international investors are looking at Pakistan in a long-term perspective,'' Akhtar said. More than two-thirds of the investors have never invested in Pakistan before, she said.
Pakistan got offers of $3.54 billion for the sovereign bonds, or seven times more than the government's initial plan to sell $500 million bonds, he said.
``This positive response puts recent fears of waning international interest aside and indicates that attention toward Pakistan's growth story remains firmly in place despite ongoing political issues,'' BMA Capital Management Ltd. in Karachi, said in a report yesterday.
By Farhan Sharif
May 26 (Bloomberg) -- Pakistan's economy may expand as much as 7.2 percent this fiscal year because of a record wheat harvest and higher cement and sugar production, the central bank said.
The $129 billion South Asian economy could surpass the government's 7 percent growth target in the year to June 30, following a 6.6 percent gain in the previous 12-month period, Shamshad Akhtar, governor of the State Bank of Pakistan said at a news conference in Karachi today, restating her previous forecast.
``The indication that growth could exceed 7 percent is quite positive,'' said Nasim Beg, who oversees the equivalent of $320 million in stocks and bonds as chief executive of Arif Habib Investment Management Ltd., in Karachi. ``The real challenge for the tax collectors is balancing tax relief and higher tax collection in the upcoming budget.''
The government needs to increase tax collection and seek to narrow the current account deficit, which is likely to widen to 4.8 percent of gross domestic product this year, Akhtar said. Pakistan's economy is expanding even as the nation experiences its greatest unrest since President Pervez Musharraf seized power in 1999, as protests against him mount.
``The long-run health of the economy requires a lower sustainable current account deficit and an increase in tax receipts,'' Akhtar said.
Military Coup
Musharraf, who seized power in a military coup and remains army chief of staff, is facing protests that erupted after he removed Supreme Court Chief Justice Iftikhar Muhammad Chaudhry from his post on March 9 for alleged misuse of authority. Demonstrations have escalated into protests over the president seeking a second five-year term in elections that are scheduled to be held by January 2008.
The National Economic Council, headed by Prime Minister Shaukat Aziz, will announce on May 31 the government's estimate for growth this fiscal year and its forecast for the next 12 months. The figures will be released 10 days prior to the announcement in parliament of the 2008 national budget on June 9.
Prime Minister Shaukat Aziz is targeting annual economic growth of 7 percent to 7.5 percent in the next five years and the expansion will be driven by agriculture, manufacturing, services and infrastructure spending, the government told an April 26 meeting of donor nations.
Pakistan's tax collection rose 18 percent in the 10 months ended April 30 to 646.9 billion rupees ($10.64 billion), the Central Board of Revenue, the federal tax authority said on April 30.
Farm Growth
The farm sector could grow as much as 5 percent this year, exceeding the target of 4.5 percent because of a record wheat harvest, the report said. Pakistan is expected to produce 23 million tons of wheat this year. Agriculture, which accounts for one-fourth of the economy expanded 2.5 percent last year.
South Asia's second-largest economy may expand 7.2 percent in the fiscal year starting July, quickening from 7 percent this year and 6.6 percent in the previous 12 months, Standard Chartered Plc said in a May 22 report. The $129 billion economy has grown at an average pace of 7.5 percent in the past four years, the report said.
Consumer prices are likely to rise faster than forecast, the central bank report said. Inflation, as measured by the consumer price index, could rise between 7.5 percent and 7.8 percent in the year to June 30, faster than the 6.5 percent target, the report said.
Monetary Policy
``It is important that appropriate monetary policy be sustained as price stability is important to sustain long-term growth and for poverty reduction,'' the report said.
Rising prices prompted the State Bank of Pakistan to lift its key interest rate half a percentage point to 9.5 percent in July last year, the first increase in 15 months.
Consumer prices rose 6.92 percent in April from a year ago, following a gain of 7.67 percent in March. Consumer prices in the first 10 months of the year rose an average 7.89 percent from 8.03 percent a year earlier.
Aziz's government is betting sustained expansion will help to reduce poverty in a nation where the World Bank estimates about 70 percent of the population of 160 million people lives on less than $2 a day.
The government's fiscal deficit is likely to be on target at 4.2 percent of gross domestic product in the year to June 30, the central bank report said.
The current account deficit is likely to widen to 4.8 percent of GDP, higher than the 4.3 percent target and last year's 3.9 percent, the central bank report said.
``The current account deficit is likely to be comfortably financed in the short-run, particularly given strong international liquidity flows toward emerging markets,'' the report said.
Overseas Bonds
Pakistan raised $750 million selling foreign currency bonds to investors in Asia, Europe and the U.S., in the South Asian nation's fourth debt offering in three years, Prime Minister Shaukat Aziz said on May 24.
``It is positive that international investors are looking at Pakistan in a long-term perspective,'' Akhtar said. More than two-thirds of the investors have never invested in Pakistan before, she said.
Pakistan got offers of $3.54 billion for the sovereign bonds, or seven times more than the government's initial plan to sell $500 million bonds, he said.
``This positive response puts recent fears of waning international interest aside and indicates that attention toward Pakistan's growth story remains firmly in place despite ongoing political issues,'' BMA Capital Management Ltd. in Karachi, said in a report yesterday.
U.S. Existing Home Sales Drop to Lowest in Four Years (Update3)
By Shobhana Chandra
May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.
Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.
The decline comes a day after a government report showed sales of new homes surged as buyers took advantage of a slide in prices. Today's figures suggest that owners of existing homes may have to cut prices further during the prime spring selling season. The drop also reflects the impact of banks making it tougher to get subprime loans, a response to rising defaults.
``The housing market correction won't be resolved quickly,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``Downward pressure on prices will persist and sales will be sluggish for some time.''
Resales were expected to be at a 6.12 million annual rate, unchanged from the originally reported March figure, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 5.9 million to 6.4 million. Logan forecast a 6 million pace.
Inventory Grows
The number of previously owned unsold homes on the market at the end of April represented 8.4 months' worth at the current sales pace. The supply of homes for sale increased 10.4 percent to 4.2 million last month.
Purchases fell in all four regions. They declined 8.8 percent in the Northeast and 0.7 percent in the Midwest. They slid 1.2 percent in the South and 1.7 percent in the West.
The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900.
Resales of single-family homes declined 2.4 percent in April to an annual rate of 5.22 million, the report said. Sales of condos and co-ops dropped 3.8 percent to a 770,000 annual rate.
``There is just no way that the housing slump is over,'' said Roger Kubarych, chief U.S. economist at UniCredit HVB in New York.
Sales of new homes jumped 16 percent in April, the Commerce Department reported yesterday, as buyers took advantage of the biggest decline in median prices since 1970. New homes make up about 15 percent of the market.
Timely Barometer
Economists consider sales of new homes a more timely barometer because they are recorded when a contract is signed. Figures on home resales are compiled from contract closings and may reflect agreements reached a month or two earlier.
The housing slump helped reduce the pace of economic growth last quarter to an annual 1.3 percent, the slowest in more than four years. Federal Reserve policy makers say housing remains a risk to their forecast that growth will pick up later this year.
The Realtors group forecasts resales will fall 2.9 percent this year, after an 8.5 percent drop in 2006, and the median price of an existing home will drop 1 percent.
A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.
`Spillovers'
Curbs on subprime lending ``are expected to be a source of some restraint on home purchases and residential investment in coming quarters,'' Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee ``significant spillovers'' from the subprime market to the rest of the economy.
At least 50 subprime lenders have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data, leading to a smaller supply of money for lending.
Builders are still struggling. Toll Brothers Inc., the largest U.S. luxury home builder, yesterday reported a 79 percent plunge in profit in the quarter ended April 30.
The Horsham, Pennsylvania-based company didn't provide an earnings forecast for the rest of the year because of ``uncertainty'' about the pace of sales and the direction of the market.
``We continue to operate conservatively in the current difficult market,'' Chief Executive Officer Robert Toll said in a statement. Still, he said he was ``a little more confident'' than he was on a May 9 call.
Affordability
Lower prices and higher incomes may make homes more affordable, drawing buyers back into the market. Affordability has improved since the second quarter of last year, when it slipped to the lowest since at least 1992.
Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is ``at or near the bottom.'' Lowe's, based in Mooresville, North Carolina, lowered its annual earnings forecast after fewer home sales hurt demand for cabinets and appliances last quarter.
Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.
By Shobhana Chandra
May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.
Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.
The decline comes a day after a government report showed sales of new homes surged as buyers took advantage of a slide in prices. Today's figures suggest that owners of existing homes may have to cut prices further during the prime spring selling season. The drop also reflects the impact of banks making it tougher to get subprime loans, a response to rising defaults.
``The housing market correction won't be resolved quickly,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``Downward pressure on prices will persist and sales will be sluggish for some time.''
Resales were expected to be at a 6.12 million annual rate, unchanged from the originally reported March figure, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 5.9 million to 6.4 million. Logan forecast a 6 million pace.
Inventory Grows
The number of previously owned unsold homes on the market at the end of April represented 8.4 months' worth at the current sales pace. The supply of homes for sale increased 10.4 percent to 4.2 million last month.
Purchases fell in all four regions. They declined 8.8 percent in the Northeast and 0.7 percent in the Midwest. They slid 1.2 percent in the South and 1.7 percent in the West.
The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900.
Resales of single-family homes declined 2.4 percent in April to an annual rate of 5.22 million, the report said. Sales of condos and co-ops dropped 3.8 percent to a 770,000 annual rate.
``There is just no way that the housing slump is over,'' said Roger Kubarych, chief U.S. economist at UniCredit HVB in New York.
Sales of new homes jumped 16 percent in April, the Commerce Department reported yesterday, as buyers took advantage of the biggest decline in median prices since 1970. New homes make up about 15 percent of the market.
Timely Barometer
Economists consider sales of new homes a more timely barometer because they are recorded when a contract is signed. Figures on home resales are compiled from contract closings and may reflect agreements reached a month or two earlier.
The housing slump helped reduce the pace of economic growth last quarter to an annual 1.3 percent, the slowest in more than four years. Federal Reserve policy makers say housing remains a risk to their forecast that growth will pick up later this year.
The Realtors group forecasts resales will fall 2.9 percent this year, after an 8.5 percent drop in 2006, and the median price of an existing home will drop 1 percent.
A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.
`Spillovers'
Curbs on subprime lending ``are expected to be a source of some restraint on home purchases and residential investment in coming quarters,'' Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee ``significant spillovers'' from the subprime market to the rest of the economy.
At least 50 subprime lenders have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data, leading to a smaller supply of money for lending.
Builders are still struggling. Toll Brothers Inc., the largest U.S. luxury home builder, yesterday reported a 79 percent plunge in profit in the quarter ended April 30.
The Horsham, Pennsylvania-based company didn't provide an earnings forecast for the rest of the year because of ``uncertainty'' about the pace of sales and the direction of the market.
``We continue to operate conservatively in the current difficult market,'' Chief Executive Officer Robert Toll said in a statement. Still, he said he was ``a little more confident'' than he was on a May 9 call.
Affordability
Lower prices and higher incomes may make homes more affordable, drawing buyers back into the market. Affordability has improved since the second quarter of last year, when it slipped to the lowest since at least 1992.
Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is ``at or near the bottom.'' Lowe's, based in Mooresville, North Carolina, lowered its annual earnings forecast after fewer home sales hurt demand for cabinets and appliances last quarter.
Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.
Is U.S. Ceding `Master of the Universe' Status?: Caroline Baum
By Caroline Baum
May 25 (Bloomberg) -- China is trying to slow its breakneck pace of economic growth. The U.S. could use a little of what China has too much of. Are the two countries working at cross purposes?
The notion of a global growth cycle, with countries taking their cues from the U.S., is being challenged as Asia's developing economies continue to boom amid a slowdown in the U.S.
In this new age of globalization, synchronicity is out, decoupling is in. Yes, China and India are growing in ways that may be independent of the business cycle. (China, for example, just snags a bigger market share of global exports.) Still, it's much too early to conclude that the U.S. slowdown will be a non- event for the rest of the world.
``The oldest rule of economic forecasting in the modern era still holds, even in the earliest years of the 21st century,'' says Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York. ``When America sneezes, the world catches a cold.''
Weinberg reviewed 20 years of year-over-year and annual gross domestic product data for the U.S. and the six developed countries (Japan, Canada, Germany, France, the U.K., and Australia) he tracks. He found that the six economies' growth rates moved in the same direction as the U.S. two-thirds of the time.
U.S. real GDP growth, measured on a year-over-year basis, downshifted from 3.1 percent in the fourth quarter of 2006 to about 2 percent in the January-to-March quarter this year. (The Commerce Department is expected to revise down its initial estimate of first-quarter growth from 1.3 percent to 0.7 percent next week.)
Contemporaneous Relationship
Growth in the U.K., Japan and euro zone slowed in the first quarter as well, and Weinberg expects Canada and Australia to follow suit when they report next week.
The reason for believing synchronicity is still the operative model is ``the United States is still the largest importer of goods and services in the world,'' he says. Europe's ``gross imports may be larger,'' but much of that trade is with member countries.
U.S. import growth slowed in the past year, in both real and nominal terms, with oil included and without it. China's exports, however, are ``cyclically immune,'' Weinberg says.
It's somewhat surprising that the relationship between U.S. and foreign growth is contemporaneous, not lagged. After all, today's orders for foreign goods are clocked as imports (in the trade data) when they arrive in the U.S. a couple of months hence.
Weinberg says intuition implies a lagged relationship, but ``empirical evidence suggests there is not. The response of imports to demand is quick.''
Global Immunity
Not everyone subscribes to the old U.S. cold-contagion model. Some economists argue the world has become increasingly immune to American viruses.
``The evidence is overwhelming that the global economy has decoupled from the U.S.,'' says Alex Patelis, head of international economics at Merrill Lynch & Co. in London. ``Domestic demand growth elsewhere has accelerated, overcompensating for the negative U.S. impulse.''
A boom in capital spending, with a larger role played by emerging countries, is one reason the onus is off the U.S. to keep the world humming.
``Global capital spending has increased faster than real consumer spending and overall GDP the past four years,'' says Joe Carson, director of global economic research at AllianceBernstein.
Capital Over Consumer
From 2003 through 2006, capital spending growth averaged 16.5 percent annually in emerging countries compared with 3.5 percent in the developed world, Carson says. Much of the increase was in ``infrastructure -- airports, ports, transportation systems, energy generation and other types of commercial and service-related projects'' -- which has different implications for global growth than investment to add capacity for consumer goods output, he says.
Of course, no discussion about global growth would be complete without reference to the U.S. consumer, who dwarfs his counterparts overseas. Consumer spending in the U.S. totaled an inflation-adjusted $8 trillion in 2006, well above second-place winner Japan, with $2.5 trillion, Carson says. Germany came in third with $1.1 trillion, followed by the U.K. at $1 trillion.
Global growth seems to be ``smoothing the U.S. business cycle'' and cushioning the profit cycle, with roughly 35 percent of first-quarter profits coming from international operations, Carson says.
Him Again
So while U.S. imports (some other country's exports) have slowed, strong commodity prices suggest ``the world is holding up OK,'' Carson says.
Listening to economists argue the impact of the U.S. on the rest of the world, I'm reminded of something that old wordsmith, Alan Greenspan, said in September 1998. With Russia defaulting on its debt and hedge fund Long-Term Capital Management on the verge of collapse, the (at the time) Federal Reserve chairman warned that ``it is just not credible that the U.S. can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.''
He was wrong. The U.S. economy sailed right through the crisis, with some official (interest-rate cuts) and unofficial (a Fed-orchestrated bailout for LTCM) help from Greenspan.
Now the tide has reversed. Is it credible that the rest of the world can remain an oasis of prosperity in the face of distress in the U.S? We await Greenspan's verdict, not to mention a new desert metaphor.
(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)
By Caroline Baum
May 25 (Bloomberg) -- China is trying to slow its breakneck pace of economic growth. The U.S. could use a little of what China has too much of. Are the two countries working at cross purposes?
The notion of a global growth cycle, with countries taking their cues from the U.S., is being challenged as Asia's developing economies continue to boom amid a slowdown in the U.S.
In this new age of globalization, synchronicity is out, decoupling is in. Yes, China and India are growing in ways that may be independent of the business cycle. (China, for example, just snags a bigger market share of global exports.) Still, it's much too early to conclude that the U.S. slowdown will be a non- event for the rest of the world.
``The oldest rule of economic forecasting in the modern era still holds, even in the earliest years of the 21st century,'' says Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York. ``When America sneezes, the world catches a cold.''
Weinberg reviewed 20 years of year-over-year and annual gross domestic product data for the U.S. and the six developed countries (Japan, Canada, Germany, France, the U.K., and Australia) he tracks. He found that the six economies' growth rates moved in the same direction as the U.S. two-thirds of the time.
U.S. real GDP growth, measured on a year-over-year basis, downshifted from 3.1 percent in the fourth quarter of 2006 to about 2 percent in the January-to-March quarter this year. (The Commerce Department is expected to revise down its initial estimate of first-quarter growth from 1.3 percent to 0.7 percent next week.)
Contemporaneous Relationship
Growth in the U.K., Japan and euro zone slowed in the first quarter as well, and Weinberg expects Canada and Australia to follow suit when they report next week.
The reason for believing synchronicity is still the operative model is ``the United States is still the largest importer of goods and services in the world,'' he says. Europe's ``gross imports may be larger,'' but much of that trade is with member countries.
U.S. import growth slowed in the past year, in both real and nominal terms, with oil included and without it. China's exports, however, are ``cyclically immune,'' Weinberg says.
It's somewhat surprising that the relationship between U.S. and foreign growth is contemporaneous, not lagged. After all, today's orders for foreign goods are clocked as imports (in the trade data) when they arrive in the U.S. a couple of months hence.
Weinberg says intuition implies a lagged relationship, but ``empirical evidence suggests there is not. The response of imports to demand is quick.''
Global Immunity
Not everyone subscribes to the old U.S. cold-contagion model. Some economists argue the world has become increasingly immune to American viruses.
``The evidence is overwhelming that the global economy has decoupled from the U.S.,'' says Alex Patelis, head of international economics at Merrill Lynch & Co. in London. ``Domestic demand growth elsewhere has accelerated, overcompensating for the negative U.S. impulse.''
A boom in capital spending, with a larger role played by emerging countries, is one reason the onus is off the U.S. to keep the world humming.
``Global capital spending has increased faster than real consumer spending and overall GDP the past four years,'' says Joe Carson, director of global economic research at AllianceBernstein.
Capital Over Consumer
From 2003 through 2006, capital spending growth averaged 16.5 percent annually in emerging countries compared with 3.5 percent in the developed world, Carson says. Much of the increase was in ``infrastructure -- airports, ports, transportation systems, energy generation and other types of commercial and service-related projects'' -- which has different implications for global growth than investment to add capacity for consumer goods output, he says.
Of course, no discussion about global growth would be complete without reference to the U.S. consumer, who dwarfs his counterparts overseas. Consumer spending in the U.S. totaled an inflation-adjusted $8 trillion in 2006, well above second-place winner Japan, with $2.5 trillion, Carson says. Germany came in third with $1.1 trillion, followed by the U.K. at $1 trillion.
Global growth seems to be ``smoothing the U.S. business cycle'' and cushioning the profit cycle, with roughly 35 percent of first-quarter profits coming from international operations, Carson says.
Him Again
So while U.S. imports (some other country's exports) have slowed, strong commodity prices suggest ``the world is holding up OK,'' Carson says.
Listening to economists argue the impact of the U.S. on the rest of the world, I'm reminded of something that old wordsmith, Alan Greenspan, said in September 1998. With Russia defaulting on its debt and hedge fund Long-Term Capital Management on the verge of collapse, the (at the time) Federal Reserve chairman warned that ``it is just not credible that the U.S. can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.''
He was wrong. The U.S. economy sailed right through the crisis, with some official (interest-rate cuts) and unofficial (a Fed-orchestrated bailout for LTCM) help from Greenspan.
Now the tide has reversed. Is it credible that the rest of the world can remain an oasis of prosperity in the face of distress in the U.S? We await Greenspan's verdict, not to mention a new desert metaphor.
(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)
Lebanese militants cheered on al Qaeda Web sites
25 May 2007 10:37:35 GMT
Reuters
By Mark Trevelyan, Security Correspondent
LONDON, May 25 (Reuters) - Islamist radicals have whipped up a vociferous Internet campaign in support of militant group Fatah al-Islam as it battles the Lebanese army, but al Qaeda's leadership has yet to grant the faction its official blessing.
The U.S.-based SITE Institute, which monitors jihadist Web sites, reports a flood of support for Fatah al-Islam from members of Internet forums affiliated to al Qaeda since fighting broke out last Sunday.
A user of the al-Hesbah network, one of the main password-protected forums linked to Osama bin Laden's movement, expressed the hope that Lebanese owns would be turned into battlefields like those of the Iraqi insurgency.
"Allah willing, Tripoli is al-Ramadi, El Mina is al-Falluja, Beirut is Baghdad, and Lebanon is Iraq. We ask Allah for victory," said the contributor, identified as Khattab_0.
On another network, al-Nusra, user Ma'asker_Tadrib posted a series of photographs of "the Lions of Fatah al-Islam" fighting Lebanese troops this week at Nahr al-Bared, a Palestinian refugee camp in northern Lebanon.
Pictures of the Lebanese soldiers were accompanied by mocking captions such as "Cowards", "Haha, that is how they fire bullets" and "To hell and what a bad fate", according to translations by SITE.
NEW AL QAEDA FRONT?
The worst internal fighting in Lebanon since its 1975-90 civil war has prompted some security analysts to warn of the opening of a new al Qaeda front in the country.
But the extent of any ties between Fatah al-Islam and al Qaeda is unproven. Fatah al-Islam denies any organisation links, despite sharing al Qaeda's goal of fighting "infidels".
The Lebanese government calls Fatah al-Islam a terrorist group and anti-Syrian Lebanese leaders have linked it to Syrian intelligence, although this is rejected by the group and by Damascus. Lebanese authorities say they have arrested Saudi, Algerian, Tunisian, Syrian and Lebanese members of the group.
"It is too early to tell if this group is an official new arm of al Qaeda in Lebanon," Rita Katz, head of the SITE institute, told Reuters.
She said jihadists' enthusiasm for Fatah al-Islam on the al Qaeda-linked Web sites reflected their desire to open a new Sunni militant front in Lebanon to challenge the dominant Shi'ite Hezbollah.
Katz said the faction had received both moral and logistical support from the jihadist community, which exploits the Internet intensively as a propaganda tool. Several jihadists with media skills, including a Saudi Web master, had volunteered their services to the group.
Since Israel fought a war with Lebanese-based Hezbollah last summer, al Qaeda has made no secret of its desire to exploit the country's turmoil.
Its number two Ayman al-Zawahri last year urged Muslims to "fight and become martyrs" in response to the Israel-Hezbollah conflict and condemned United Nations forces in Lebanon as "enemies of Islam".
Katz said that, given al Qaeda's record of trying to exploit exploit conflicts from Iraq to Indonesia, bin Laden or Zawahri may issue a call at some point for Muslims to support the mujahideen fighters in Lebanon.
But she said any group hoping to become an official branch of al Qaeda -- such as those now operating in Iraq and North Africa -- must first pledge its allegiance and obtain bin Laden's backing. That would not happen until al Qaeda was certain the group would adhere to its principles.
"If al Qaeda prematurely offered its support to Fatah al-Islam and the latter suddenly changed its ideology or acted in a way contrary to al Qaeda, the leadership would likely be embarrassed," Katz said.
25 May 2007 10:37:35 GMT
Reuters
By Mark Trevelyan, Security Correspondent
LONDON, May 25 (Reuters) - Islamist radicals have whipped up a vociferous Internet campaign in support of militant group Fatah al-Islam as it battles the Lebanese army, but al Qaeda's leadership has yet to grant the faction its official blessing.
The U.S.-based SITE Institute, which monitors jihadist Web sites, reports a flood of support for Fatah al-Islam from members of Internet forums affiliated to al Qaeda since fighting broke out last Sunday.
A user of the al-Hesbah network, one of the main password-protected forums linked to Osama bin Laden's movement, expressed the hope that Lebanese owns would be turned into battlefields like those of the Iraqi insurgency.
"Allah willing, Tripoli is al-Ramadi, El Mina is al-Falluja, Beirut is Baghdad, and Lebanon is Iraq. We ask Allah for victory," said the contributor, identified as Khattab_0.
On another network, al-Nusra, user Ma'asker_Tadrib posted a series of photographs of "the Lions of Fatah al-Islam" fighting Lebanese troops this week at Nahr al-Bared, a Palestinian refugee camp in northern Lebanon.
Pictures of the Lebanese soldiers were accompanied by mocking captions such as "Cowards", "Haha, that is how they fire bullets" and "To hell and what a bad fate", according to translations by SITE.
NEW AL QAEDA FRONT?
The worst internal fighting in Lebanon since its 1975-90 civil war has prompted some security analysts to warn of the opening of a new al Qaeda front in the country.
But the extent of any ties between Fatah al-Islam and al Qaeda is unproven. Fatah al-Islam denies any organisation links, despite sharing al Qaeda's goal of fighting "infidels".
The Lebanese government calls Fatah al-Islam a terrorist group and anti-Syrian Lebanese leaders have linked it to Syrian intelligence, although this is rejected by the group and by Damascus. Lebanese authorities say they have arrested Saudi, Algerian, Tunisian, Syrian and Lebanese members of the group.
"It is too early to tell if this group is an official new arm of al Qaeda in Lebanon," Rita Katz, head of the SITE institute, told Reuters.
She said jihadists' enthusiasm for Fatah al-Islam on the al Qaeda-linked Web sites reflected their desire to open a new Sunni militant front in Lebanon to challenge the dominant Shi'ite Hezbollah.
Katz said the faction had received both moral and logistical support from the jihadist community, which exploits the Internet intensively as a propaganda tool. Several jihadists with media skills, including a Saudi Web master, had volunteered their services to the group.
Since Israel fought a war with Lebanese-based Hezbollah last summer, al Qaeda has made no secret of its desire to exploit the country's turmoil.
Its number two Ayman al-Zawahri last year urged Muslims to "fight and become martyrs" in response to the Israel-Hezbollah conflict and condemned United Nations forces in Lebanon as "enemies of Islam".
Katz said that, given al Qaeda's record of trying to exploit exploit conflicts from Iraq to Indonesia, bin Laden or Zawahri may issue a call at some point for Muslims to support the mujahideen fighters in Lebanon.
But she said any group hoping to become an official branch of al Qaeda -- such as those now operating in Iraq and North Africa -- must first pledge its allegiance and obtain bin Laden's backing. That would not happen until al Qaeda was certain the group would adhere to its principles.
"If al Qaeda prematurely offered its support to Fatah al-Islam and the latter suddenly changed its ideology or acted in a way contrary to al Qaeda, the leadership would likely be embarrassed," Katz said.
Sadr appears, Basra militia leader killed
Fri May 25, 2007 7:28PM EDT
By Khaled Farhan
KUFA, Iraq (Reuters) - Fiery Shi'ite cleric Moqtada al-Sadr appeared in public for the first time in months on Friday to renew demands for the withdrawal of U.S. forces from Iraq and paint himself as a leader for all Iraqis.
About the time he was delivering a sermon at Friday prayers in the holy city of Kufa, Iraqi special forces killed a top leader of his feared Mehdi Army militia in southern Basra.
The U.S. military announced on Friday the deaths of eight more soldiers in Iraq, underscoring President George W. Bush's prediction on Thursday that a bloody summer lay ahead.
Sadr had not been seen since before a security crackdown began in Baghdad and other areas in February, but the charismatic cleric re-emerged to brand the United States, Britain and Israel the "evil trio".
In his sermon, Sadr sought to portray himself as a national leader prepared to defend the interests of Sunni Muslims and Christians as well as majority Shi'ites. He also tried to reinforce his authority over his Mehdi Army militia, calling on them to stop fighting Iraqi forces.
"I renew my demand for the occupiers to leave or to draw up a timetable for withdrawal, and I ask the government not to let the occupiers extend their occupation even for one day," Sadr told thousands of worshippers.
The U.S. military says Sadr fled to Iran in January before the Baghdad security plan was launched, but aides to the young cleric insist he never left Iraq.
"Now that he's back from four months in Iran, we hope he'll play a constructive role in the future of Iraq," White House National Security Council spokesman Gordon Johndroe said in Washington.
In Washington, a new Senate report said on Friday that U.S. intelligence agencies warned the Bush administration before the Iraq war that al Qaeda and Iran could exploit a U.S. invasion to extend their sway in the region.
Congressional Democrats seized on the report as clear evidence that Bush, a Republican, and his advisers ignored warnings about the chaos that could follow a U.S. invasion.
POLITICAL FLUX
Sadr's reappearance comes at a crucial time for Prime Minister Nuri al-Maliki's Shi'ite-led government, which is under increasing pressure from Washington to meet targets for promoting national reconciliation.
Six Sadrist ministers withdrew from Maliki's weak and divided government last month in protest at the prime minister's refusal to set a timetable for a U.S. troop withdrawal.
In Basra, the British military said Iraqi special forces had killed the leader of Sadr's militia in the oil hub, 550 km (340 miles southeast of Baghdad.
Wissam Abdul Qader and at least one aide were shot shortly after leaving Sadr's office in the center of the city, which is the gateway to the Gulf and to Iraq's main oilfields.
British military spokesman Major David Gell said Abdul Qader resisted arrest. He was suspected of involvement in planting roadside bombs, weapons trafficking, assassinations and planning and participating in attacks against British troops.
British troops have stepped up operations against Shi'ite militias as they prepare to hand Basra over to Iraqi security forces later this year.
The U.S. military has deployed thousands of extra troops around Baghdad and other areas in a last-ditch attempt to drag Iraq back from the brink of all-out sectarian civil war between majority Shi'ites and Sunni Arabs dominant under Saddam Hussein.
The crackdown is an attempt to buy time for Maliki to meet Washington's political targets, which include a crucial revenue-sharing oil law.
In what could be disappointing news for Washington, Iraqi Oil Minister Hussain al-Shahristani said in India that the oil law, which parliament had been expected to pass by the end of May, might not be ready for a further two months.
Five U.S. soldiers died on Thursday and one on Tuesday, the military said, all but one killed by roadside bombs. The U.S. military said two more soldiers died on Friday, one from an explosion in Muqdadiyah, 90 km (56 miles) northeast of Baghdad and another from small arms fire in the capital.
April was the worst month this year for the U.S. military, with 104 soldiers killed. Ninety two have died in May so far.
Fri May 25, 2007 7:28PM EDT
By Khaled Farhan
KUFA, Iraq (Reuters) - Fiery Shi'ite cleric Moqtada al-Sadr appeared in public for the first time in months on Friday to renew demands for the withdrawal of U.S. forces from Iraq and paint himself as a leader for all Iraqis.
About the time he was delivering a sermon at Friday prayers in the holy city of Kufa, Iraqi special forces killed a top leader of his feared Mehdi Army militia in southern Basra.
The U.S. military announced on Friday the deaths of eight more soldiers in Iraq, underscoring President George W. Bush's prediction on Thursday that a bloody summer lay ahead.
Sadr had not been seen since before a security crackdown began in Baghdad and other areas in February, but the charismatic cleric re-emerged to brand the United States, Britain and Israel the "evil trio".
In his sermon, Sadr sought to portray himself as a national leader prepared to defend the interests of Sunni Muslims and Christians as well as majority Shi'ites. He also tried to reinforce his authority over his Mehdi Army militia, calling on them to stop fighting Iraqi forces.
"I renew my demand for the occupiers to leave or to draw up a timetable for withdrawal, and I ask the government not to let the occupiers extend their occupation even for one day," Sadr told thousands of worshippers.
The U.S. military says Sadr fled to Iran in January before the Baghdad security plan was launched, but aides to the young cleric insist he never left Iraq.
"Now that he's back from four months in Iran, we hope he'll play a constructive role in the future of Iraq," White House National Security Council spokesman Gordon Johndroe said in Washington.
In Washington, a new Senate report said on Friday that U.S. intelligence agencies warned the Bush administration before the Iraq war that al Qaeda and Iran could exploit a U.S. invasion to extend their sway in the region.
Congressional Democrats seized on the report as clear evidence that Bush, a Republican, and his advisers ignored warnings about the chaos that could follow a U.S. invasion.
POLITICAL FLUX
Sadr's reappearance comes at a crucial time for Prime Minister Nuri al-Maliki's Shi'ite-led government, which is under increasing pressure from Washington to meet targets for promoting national reconciliation.
Six Sadrist ministers withdrew from Maliki's weak and divided government last month in protest at the prime minister's refusal to set a timetable for a U.S. troop withdrawal.
In Basra, the British military said Iraqi special forces had killed the leader of Sadr's militia in the oil hub, 550 km (340 miles southeast of Baghdad.
Wissam Abdul Qader and at least one aide were shot shortly after leaving Sadr's office in the center of the city, which is the gateway to the Gulf and to Iraq's main oilfields.
British military spokesman Major David Gell said Abdul Qader resisted arrest. He was suspected of involvement in planting roadside bombs, weapons trafficking, assassinations and planning and participating in attacks against British troops.
British troops have stepped up operations against Shi'ite militias as they prepare to hand Basra over to Iraqi security forces later this year.
The U.S. military has deployed thousands of extra troops around Baghdad and other areas in a last-ditch attempt to drag Iraq back from the brink of all-out sectarian civil war between majority Shi'ites and Sunni Arabs dominant under Saddam Hussein.
The crackdown is an attempt to buy time for Maliki to meet Washington's political targets, which include a crucial revenue-sharing oil law.
In what could be disappointing news for Washington, Iraqi Oil Minister Hussain al-Shahristani said in India that the oil law, which parliament had been expected to pass by the end of May, might not be ready for a further two months.
Five U.S. soldiers died on Thursday and one on Tuesday, the military said, all but one killed by roadside bombs. The U.S. military said two more soldiers died on Friday, one from an explosion in Muqdadiyah, 90 km (56 miles) northeast of Baghdad and another from small arms fire in the capital.
April was the worst month this year for the U.S. military, with 104 soldiers killed. Ninety two have died in May so far.
Qaeda tells Bush expect "tougher days" in Iraq: Web
Fri May 25, 2007 7:28PM EDT
DUBAI (Reuters) - An al Qaeda-led Iraqi group said on Friday fresh funding for U.S. forces will not help Washington win the war, vowing U.S. troops will face tougher times just as U.S. President George W. Bush predicted.
"The tyrant of this era Bush came out and said ... the coming days in Iraq would be difficult. We say that God willing they will be tougher days on the enemies than past ones," the self-styled Islamic State in Iraq said in a statement.
Bush on Thursday predicted heavy fighting for U.S. troops in Iraq as a divided U.S. Congress approved $100 billion for the unpopular war in Iraq and Afghanistan.
"Do not rejoice that funds have been allocated for your soldiers because God willing this will not heal their wounds or change anything," it said.
Despite the deployment of tens of thousands of U.S. and Iraqi troops in a major U.S.-led security crackdown, attacks have continued unabated. (THAT IS NOT THE STANDARD)
"What you have said about sending a last wave (of troops) is rubbish. The battle field would be the witness," it said. "We raise our children to love jihad," it said in the statement posted on a Web site used by Islamist militants.
It quoted remarks by al Qaeda's second-in-command Ayman al-Zawahri in a video statement in January in which he said: "Why send 20,000 only? Why not send 50 or 100,000? Aren't you aware that the dogs of Iraq are pining for your troops' dead bodies?"
April was the worst month this year for the U.S. military since the invasion to topple Saddam Hussein in 2003, with 104 soldiers killed. About 90 have been killed in May so far.
The U.S. military announced on Friday the deaths of six more soldiers in Iraq.
Fri May 25, 2007 7:28PM EDT
DUBAI (Reuters) - An al Qaeda-led Iraqi group said on Friday fresh funding for U.S. forces will not help Washington win the war, vowing U.S. troops will face tougher times just as U.S. President George W. Bush predicted.
"The tyrant of this era Bush came out and said ... the coming days in Iraq would be difficult. We say that God willing they will be tougher days on the enemies than past ones," the self-styled Islamic State in Iraq said in a statement.
Bush on Thursday predicted heavy fighting for U.S. troops in Iraq as a divided U.S. Congress approved $100 billion for the unpopular war in Iraq and Afghanistan.
"Do not rejoice that funds have been allocated for your soldiers because God willing this will not heal their wounds or change anything," it said.
Despite the deployment of tens of thousands of U.S. and Iraqi troops in a major U.S.-led security crackdown, attacks have continued unabated. (THAT IS NOT THE STANDARD)
"What you have said about sending a last wave (of troops) is rubbish. The battle field would be the witness," it said. "We raise our children to love jihad," it said in the statement posted on a Web site used by Islamist militants.
It quoted remarks by al Qaeda's second-in-command Ayman al-Zawahri in a video statement in January in which he said: "Why send 20,000 only? Why not send 50 or 100,000? Aren't you aware that the dogs of Iraq are pining for your troops' dead bodies?"
April was the worst month this year for the U.S. military since the invasion to topple Saddam Hussein in 2003, with 104 soldiers killed. About 90 have been killed in May so far.
The U.S. military announced on Friday the deaths of six more soldiers in Iraq.
The Great Pushback
Private Equity Alert May 2007
By Michael Weisser and Lindsay Germano
Taking a public company private is no longer as straightforward a proposition as it used to be. A number of recent sponsor-backed going private transactions have encountered increased opposition and resistance from several sources. Sponsors have recently faced challenges to signed deals by competing strategic and financial bidders, such as Community Healthcare’s bid for Triad, Apollo’s bid for EGL and Fillmore Capital’s bid for Genesis HealthCare. Sponsors are also experiencing increased judicial skepticism with respect to management’ s conflicts of interest in going private transactions. Additionally, sponsors are also beginning to see resistance by public stockholders to their proposed buyouts. This pushback by public stockholders is effecting several pending transactions, including Clear Channel and OSI Restaurant Partners, and may impact the structure and strategies employed by sponsors in future deals.
Until recently, conventional wisdom has been that a going private transaction will easily be approved by a significant majority of the target’s stockholders. After all, these transactions are typically viewed as a “sure thing” in the form of an all cash offer with a meaningful premium to current trading prices and typically involve minimal regulatory or other deal risks. However, the great pushback from activist hedge funds and institutional investors alike recently resulted in the termination of the Eddie Bauer and Herbalife transactions and are currently impacting the outcomes of several other transactions. Before embarking on a going private transaction, sponsors should be aware of the threat of public stockholder resistance, the lessons learned from recent deals and strategies that may be utilized to maximize the likelihood of stockholder approval and sponsor success.
Do Your Diligence
As a preliminary matter, it is important for a sponsor to know the requisite stock-holder percentage required to approve a transaction. In most states the stockholder approval required is the affirmative vote of a threshold percentage of stockholders - with abstentions generally counting as a vote against the transaction. Most states, including Delaware, provide for a simple majority stockholder approval requirement. However, certain states, such as Texas which is the state of incorporation for Clear Channel, have a two-thirds or other “supermajority” percentage requirement. While it may not be expected that a supermajority approval requirement would be a significant obstacle to a transaction, if certain large holders (or proxy advisory firms such as ISS) publicly announce their opposition to a deal, obtaining the requisite vote could prove to be an uphill battle. At the very least, as seen in Clear Channel and other recent transactions, the increased leverage of a few significant stockholders (or proxy advisory firms) could result in increased pressure on the sponsors to sweeten the terms of the merger. Sponsors may wish to consider engaging a proxy solicitation firm to set-up meetings to help persuade proxy advisory firms and significant stockholders. In addition to state statutory requirements, a target’s organizational or stockholder documents may provide for a super-majority or a class voting requirement to approve a merger, as was the case in the recently consummated Univision Communications deal.
Understand Target Stockholder Composition
Understanding the composition of the target’s stockholders is an essential ingredient in determining the most efficient strategy for a sponsor to employ in a going private transaction. By reviewing publicly available SEC filings and talking to management in the course of due diligence, sponsors should be able to determine who the five percent beneficial owners are, the degree of stock ownership concentration, whether such stock-holders are activist hedge funds or institutional or retail investors, the relative investment cost of such stockholders in the target stock, management’s historical relationship with such stockholders and, hopefully, a sense of the likelihood of public stockholder resistance to the proposed going private transaction. Sponsors should also monitor changes to the target’s stockholder composition following announcement of the transaction. Sponsors and the target may wish to strategically determine the record date for the stockholder meeting based in part on the levels of shares held by arbitrageurs and hedge funds.
Minimize Flaws in the Sales Process
Sponsors often have limited, if any, control or meaningful influence over the sales process engaged by the target board of directors. However, sponsors inherit many of the associated risks and costs of a flawed sales process. Not only will the sponsor assume the settlement and other financial costs of stockholder litigation, but it will also bear the risk that a flawed sales process will strengthen the case for any public stockholder resistance to the transaction. One of the lessons of recent court cases, including Netsmart and Caremark, is that courts will not be reluctant to require heightened proxy disclosure regarding the details of the sales process which are necessary to provide public stockholders with sufficient knowledge to make an informed decision on whether to approve the transaction.
Sponsors should be mindful of the impact of the target board’s key sales process decisions, including the formation of a special committee, hiring independent advisors, the structure of the target’s investment banker fees, any evaluation of strategic alternatives (including the option of continuing as a public company), the scope of any market check, determining whether to use a post-signing go shop and the timing and substance of the sponsor’s arrange-ments with the target’s management team. Sponsors should also review management’s existing employment agreements and other incentive arrangements. Total cash payments to key executives, including as a result of stock ownership, acceleration of options, single trigger change of control payments and retention and stay bonuses, will be disclosed in the proxy. In certain recent transactions, large executive payments in connection with the proposed change of control transaction triggered media scrutiny and public stockholder backlash which further hampered sponsor’s efforts to secure the requisite stockholder vote.
Since a flawed sales process could strengthen any public stockholder resistance to a going private trans-action, sponsors need to carefully balance the deal protection and other desired transactional benefits, on the one hand, and the increased likelihood of litigation risk and public stockholder resistance that could result from such activities, on the other hand.
Don’t Go Naked on Expenses
As a downside protective measure, sponsors should try to negotiate in the merger agreement for expense reimbursement if the target’s stock-holders fail to approve the proposed transaction (often referred to as a “naked no vote”). Sponsors should resist any efforts by the target board to condition expense reimbursement on the existence of a publicly announced competing acquisition proposal at the time of the stockholder meeting. However, sponsors should be aware that a break up fee, as compared to an expense reimbursement, payable solely as a result of the target stockholders failure to approve the deal (i.e., not tied to the announcement or consum-mation of a competing acquisition proposal) could be challenged by stock-holders as coercive and unenforceable.
Consider Strategic Alternatives
If a sponsor anticipates stiff public stockholder resistance, the following strategic alternatives may be considered in addition to the old-fashioned alternative of increasing the cash offer price:
* Stub Equity - “Stub equity” has been included as a feature in several recent transactions, including Harman, Clear Channel and Aeroflex in the United States and Country-wide in the United Kingdom. Stub equity gives public stockholders the option to choose either cash or stock in the company post-leveraged buyout. Stub equity is intended to deflect concerns that the going concern value of the target is worth more than the sponsor takeout price by offering the public stockholders the ability to choose, at least in part, to roll its investment going forward (possibly on a tax deferred basis). The amount of stock that may be issued to public stockholders is typically contractually capped by the sponsors. Generally, caps have been in the 20% to 30% range of the company’s equity post-leveraged buyout, although in at least one transaction, Countryside, the cap was set at 55%. Stub equity has a number of disadvantages to sponsors, such as the requirement to register with the Securities and Exchange Commission the shares to be issued to the public stockholders and the requirement that the target remain a public company and file Securities and Exchange Commission reports for some period of time after the closing. This structure also has certain drawbacks for public stock-holders, particularly retail investors, as the sponsors may not be required to maintain a NYSE or Nasdaq listing for the stub equity so there may be very limited liquidity. This potential lack of liquidity coupled with the fact that public stockholders will unlikely have any meaningful governance rights calls into question whether stub equity is a viable option for certain institutional investors.
* Contingent Value Rights - Similar to stub equity, contingent value rights provide a mechanism to bridge a perceived value gap and could help mitigate public stockholder opposition. Contingent value rights give public stockholders additional value if future hurdles are met and, as an example, can be tied to future financial targets or the sales price in the event of a divestiture of a division or key assets. However, unlike stub equity, contingent value rights customarily give public stock-holders limited upside potential and don’t carry any downside risk. A variation of contingent value rights was recently part of a stockholder derivative settlement in the Sabre Holdings going private transaction. The sponsors agreed to pay the public stockholders a percentage of any profits above a certain benchmark price if the sponsors flipped the company or divested certain crown jewel assets within a six month period following closing. It will be interesting to see if this type of “schmuck insurance” for public stockholders becomes more common in stockholder derivative settlements or whether this type of provision is negotiated for by target boards in merger agreements.
Conclusion
Time will tell how the great pushback by public stockholders affects the sponsor-backed going private trend. As public stockholders in some transactions ultimately choose to “stay the course” as a public company rather than electing to approve a sponsor-backed all cash premium offer, many of us will be tracking future financial results and stock performance to see if the stockholders chose correctly and how the real story ends. However, most going private transactions are not predetermined to this fate and sponsors are not left helpless. By doing your diligence, understanding the target stockholder base, minimizing flaws in the sales process and employing alternative strategies, such as stub equity or contingent value rights, sponsors can maximize the likelihood of stock-holder approval and sponsor success.
Private Equity Alert May 2007
By Michael Weisser and Lindsay Germano
Taking a public company private is no longer as straightforward a proposition as it used to be. A number of recent sponsor-backed going private transactions have encountered increased opposition and resistance from several sources. Sponsors have recently faced challenges to signed deals by competing strategic and financial bidders, such as Community Healthcare’s bid for Triad, Apollo’s bid for EGL and Fillmore Capital’s bid for Genesis HealthCare. Sponsors are also experiencing increased judicial skepticism with respect to management’ s conflicts of interest in going private transactions. Additionally, sponsors are also beginning to see resistance by public stockholders to their proposed buyouts. This pushback by public stockholders is effecting several pending transactions, including Clear Channel and OSI Restaurant Partners, and may impact the structure and strategies employed by sponsors in future deals.
Until recently, conventional wisdom has been that a going private transaction will easily be approved by a significant majority of the target’s stockholders. After all, these transactions are typically viewed as a “sure thing” in the form of an all cash offer with a meaningful premium to current trading prices and typically involve minimal regulatory or other deal risks. However, the great pushback from activist hedge funds and institutional investors alike recently resulted in the termination of the Eddie Bauer and Herbalife transactions and are currently impacting the outcomes of several other transactions. Before embarking on a going private transaction, sponsors should be aware of the threat of public stockholder resistance, the lessons learned from recent deals and strategies that may be utilized to maximize the likelihood of stockholder approval and sponsor success.
Do Your Diligence
As a preliminary matter, it is important for a sponsor to know the requisite stock-holder percentage required to approve a transaction. In most states the stockholder approval required is the affirmative vote of a threshold percentage of stockholders - with abstentions generally counting as a vote against the transaction. Most states, including Delaware, provide for a simple majority stockholder approval requirement. However, certain states, such as Texas which is the state of incorporation for Clear Channel, have a two-thirds or other “supermajority” percentage requirement. While it may not be expected that a supermajority approval requirement would be a significant obstacle to a transaction, if certain large holders (or proxy advisory firms such as ISS) publicly announce their opposition to a deal, obtaining the requisite vote could prove to be an uphill battle. At the very least, as seen in Clear Channel and other recent transactions, the increased leverage of a few significant stockholders (or proxy advisory firms) could result in increased pressure on the sponsors to sweeten the terms of the merger. Sponsors may wish to consider engaging a proxy solicitation firm to set-up meetings to help persuade proxy advisory firms and significant stockholders. In addition to state statutory requirements, a target’s organizational or stockholder documents may provide for a super-majority or a class voting requirement to approve a merger, as was the case in the recently consummated Univision Communications deal.
Understand Target Stockholder Composition
Understanding the composition of the target’s stockholders is an essential ingredient in determining the most efficient strategy for a sponsor to employ in a going private transaction. By reviewing publicly available SEC filings and talking to management in the course of due diligence, sponsors should be able to determine who the five percent beneficial owners are, the degree of stock ownership concentration, whether such stock-holders are activist hedge funds or institutional or retail investors, the relative investment cost of such stockholders in the target stock, management’s historical relationship with such stockholders and, hopefully, a sense of the likelihood of public stockholder resistance to the proposed going private transaction. Sponsors should also monitor changes to the target’s stockholder composition following announcement of the transaction. Sponsors and the target may wish to strategically determine the record date for the stockholder meeting based in part on the levels of shares held by arbitrageurs and hedge funds.
Minimize Flaws in the Sales Process
Sponsors often have limited, if any, control or meaningful influence over the sales process engaged by the target board of directors. However, sponsors inherit many of the associated risks and costs of a flawed sales process. Not only will the sponsor assume the settlement and other financial costs of stockholder litigation, but it will also bear the risk that a flawed sales process will strengthen the case for any public stockholder resistance to the transaction. One of the lessons of recent court cases, including Netsmart and Caremark, is that courts will not be reluctant to require heightened proxy disclosure regarding the details of the sales process which are necessary to provide public stockholders with sufficient knowledge to make an informed decision on whether to approve the transaction.
Sponsors should be mindful of the impact of the target board’s key sales process decisions, including the formation of a special committee, hiring independent advisors, the structure of the target’s investment banker fees, any evaluation of strategic alternatives (including the option of continuing as a public company), the scope of any market check, determining whether to use a post-signing go shop and the timing and substance of the sponsor’s arrange-ments with the target’s management team. Sponsors should also review management’s existing employment agreements and other incentive arrangements. Total cash payments to key executives, including as a result of stock ownership, acceleration of options, single trigger change of control payments and retention and stay bonuses, will be disclosed in the proxy. In certain recent transactions, large executive payments in connection with the proposed change of control transaction triggered media scrutiny and public stockholder backlash which further hampered sponsor’s efforts to secure the requisite stockholder vote.
Since a flawed sales process could strengthen any public stockholder resistance to a going private trans-action, sponsors need to carefully balance the deal protection and other desired transactional benefits, on the one hand, and the increased likelihood of litigation risk and public stockholder resistance that could result from such activities, on the other hand.
Don’t Go Naked on Expenses
As a downside protective measure, sponsors should try to negotiate in the merger agreement for expense reimbursement if the target’s stock-holders fail to approve the proposed transaction (often referred to as a “naked no vote”). Sponsors should resist any efforts by the target board to condition expense reimbursement on the existence of a publicly announced competing acquisition proposal at the time of the stockholder meeting. However, sponsors should be aware that a break up fee, as compared to an expense reimbursement, payable solely as a result of the target stockholders failure to approve the deal (i.e., not tied to the announcement or consum-mation of a competing acquisition proposal) could be challenged by stock-holders as coercive and unenforceable.
Consider Strategic Alternatives
If a sponsor anticipates stiff public stockholder resistance, the following strategic alternatives may be considered in addition to the old-fashioned alternative of increasing the cash offer price:
* Stub Equity - “Stub equity” has been included as a feature in several recent transactions, including Harman, Clear Channel and Aeroflex in the United States and Country-wide in the United Kingdom. Stub equity gives public stockholders the option to choose either cash or stock in the company post-leveraged buyout. Stub equity is intended to deflect concerns that the going concern value of the target is worth more than the sponsor takeout price by offering the public stockholders the ability to choose, at least in part, to roll its investment going forward (possibly on a tax deferred basis). The amount of stock that may be issued to public stockholders is typically contractually capped by the sponsors. Generally, caps have been in the 20% to 30% range of the company’s equity post-leveraged buyout, although in at least one transaction, Countryside, the cap was set at 55%. Stub equity has a number of disadvantages to sponsors, such as the requirement to register with the Securities and Exchange Commission the shares to be issued to the public stockholders and the requirement that the target remain a public company and file Securities and Exchange Commission reports for some period of time after the closing. This structure also has certain drawbacks for public stock-holders, particularly retail investors, as the sponsors may not be required to maintain a NYSE or Nasdaq listing for the stub equity so there may be very limited liquidity. This potential lack of liquidity coupled with the fact that public stockholders will unlikely have any meaningful governance rights calls into question whether stub equity is a viable option for certain institutional investors.
* Contingent Value Rights - Similar to stub equity, contingent value rights provide a mechanism to bridge a perceived value gap and could help mitigate public stockholder opposition. Contingent value rights give public stockholders additional value if future hurdles are met and, as an example, can be tied to future financial targets or the sales price in the event of a divestiture of a division or key assets. However, unlike stub equity, contingent value rights customarily give public stock-holders limited upside potential and don’t carry any downside risk. A variation of contingent value rights was recently part of a stockholder derivative settlement in the Sabre Holdings going private transaction. The sponsors agreed to pay the public stockholders a percentage of any profits above a certain benchmark price if the sponsors flipped the company or divested certain crown jewel assets within a six month period following closing. It will be interesting to see if this type of “schmuck insurance” for public stockholders becomes more common in stockholder derivative settlements or whether this type of provision is negotiated for by target boards in merger agreements.
Conclusion
Time will tell how the great pushback by public stockholders affects the sponsor-backed going private trend. As public stockholders in some transactions ultimately choose to “stay the course” as a public company rather than electing to approve a sponsor-backed all cash premium offer, many of us will be tracking future financial results and stock performance to see if the stockholders chose correctly and how the real story ends. However, most going private transactions are not predetermined to this fate and sponsors are not left helpless. By doing your diligence, understanding the target stockholder base, minimizing flaws in the sales process and employing alternative strategies, such as stub equity or contingent value rights, sponsors can maximize the likelihood of stock-holder approval and sponsor success.
Friday, May 25, 2007
Bush, Reviving Baker-Hamilton Advice, Recasts Mission in Iraq
By Ken Fireman and Janine Zacharia
May 25 (Bloomberg) -- President George W. Bush, reviving the bipartisan advice of the Iraq Study Group he largely ignored five months ago, is redefining the ultimate U.S. mission as limited to training Iraq's forces, guarding its territory and battling al-Qaeda.
When the panel headed by former Secretary of State James Baker and former Representative Lee Hamilton issued its findings in December, Bush implicitly rejected its recommendations to negotiate unconditionally with Iran and Syria, withdraw most U.S. combat troops by the first quarter of 2008 and change the American role to one of support.
Yesterday, the president publicly embraced the report and sought to use it as a rationale for his troop buildup in Iraq. He called the military reinforcements a way-station to the smaller and narrower U.S. presence envisioned by the panel.
``The recommendations of Baker-Hamilton appeal to me, and that is to be embedded and to train and to guard the territorial integrity of the country and to have special forces to chase down al-Qaeda,'' Bush said at a White House news conference.
``But I didn't think we could get there unless we increased the troop levels to secure the capital,'' Bush said. ``And so, therefore, the decisions I made are all aimed at getting us to a different position.''
A few hours later, Defense Secretary Robert Gates said the Pentagon has already begun planning for a transition to a smaller U.S. force with a mission limited to ``a train, equip, continue to go after al-Qaeda and provide support kind of role.''
Congressional Fight
During a Pentagon news conference, Gates added: ``That kind of a role clearly would involve fewer forces than we have now and forces with a different mission.'' He said he couldn't yet say how much U.S. troops could be reduced from their current level of about 155,000 or when the transition could begin.
The statements by Bush and Gates represented a significant shift by an administration that has fought efforts by congressional Democrats to limit the U.S. military role in Iraq. That role currently involves trying to quell a sectarian conflict between Sunni and Shiite Muslims. The Democrats earlier this week dropped an effort to tie new war funding to a withdrawal timetable after Bush vetoed the measure.
Conditions
In responding to the Iraq Study Group's report, Bush said Dec. 7 he would authorize direct talks with Iran and Syria only if they first agreed ``to not fund terrorists, to help this young democracy survive, to help with the economics of the country.''
Bush brushed off the panel's recommendation to withdraw most U.S. combat forces by 2008, telling reporters he first wanted to hear the military's views. One month later, he announced he was sending an additional 21,500 combat troops -- a decision he argued was in line with the Baker-Hamilton approach.
Yesterday, members of the study group welcomed Bush's new support for their plan, which the president referred to favorably four times yesterday, while saying it was largely the result of the course of events in Iraq and declining political support for the war at home.
``We made 79 recommendations, and they were not really warmly embraced at the time,'' said a Republican panel member, former Senator Alan Simpson of Wyoming, in an interview. ``They did not crush them to their bosom. But now they're looking at them, which I think is tremendous.''
`Matter of Time'
A Democratic member of the study group, Leon Panetta, said Bush has already accepted the panel's recommendations to talk with Syria and Iran and set performance benchmarks for Iraq's government. ``It's only a matter of time before he embraces the recommendations to transition from combat to support,'' Panetta, who served as chief of staff to President Bill Clinton, said in an interview.
Panetta said the panel had expressed support for a temporary buildup only in the context of ``a larger strategy'' that included ``transition from combat to support and a gradual reduction'' of combat troops. Had Bush embraced this overall approach at that time, said Panetta, he would have encountered far less opposition to the buildup.
The commander of all U.S. forces in the Middle East, Admiral William Fallon, said Bush's new embrace of the Baker- Hamilton recommendations made sense in light of recent events that ``open up opportunities,'' such as new U.S. diplomatic contacts with Syria and Iran.
``My sense is the whole thing has been moving in that direction for a while,'' Fallon said in an interview. ``You can read the tea leaves. We said we're going to do the surge, have all the stops pulled out to make it work. We've said we're either going to recognize success or we're going to recognize that we're not making it.''
The U.S. ambassador to Iraq, Ryan Crocker, is scheduled to meet an Iranian diplomat in Baghdad to discuss Iraq on May 28. It will be one of the highest-level direct exchanges between U.S. and Iranian diplomats since the two countries severed ties in 1979.
By Ken Fireman and Janine Zacharia
May 25 (Bloomberg) -- President George W. Bush, reviving the bipartisan advice of the Iraq Study Group he largely ignored five months ago, is redefining the ultimate U.S. mission as limited to training Iraq's forces, guarding its territory and battling al-Qaeda.
When the panel headed by former Secretary of State James Baker and former Representative Lee Hamilton issued its findings in December, Bush implicitly rejected its recommendations to negotiate unconditionally with Iran and Syria, withdraw most U.S. combat troops by the first quarter of 2008 and change the American role to one of support.
Yesterday, the president publicly embraced the report and sought to use it as a rationale for his troop buildup in Iraq. He called the military reinforcements a way-station to the smaller and narrower U.S. presence envisioned by the panel.
``The recommendations of Baker-Hamilton appeal to me, and that is to be embedded and to train and to guard the territorial integrity of the country and to have special forces to chase down al-Qaeda,'' Bush said at a White House news conference.
``But I didn't think we could get there unless we increased the troop levels to secure the capital,'' Bush said. ``And so, therefore, the decisions I made are all aimed at getting us to a different position.''
A few hours later, Defense Secretary Robert Gates said the Pentagon has already begun planning for a transition to a smaller U.S. force with a mission limited to ``a train, equip, continue to go after al-Qaeda and provide support kind of role.''
Congressional Fight
During a Pentagon news conference, Gates added: ``That kind of a role clearly would involve fewer forces than we have now and forces with a different mission.'' He said he couldn't yet say how much U.S. troops could be reduced from their current level of about 155,000 or when the transition could begin.
The statements by Bush and Gates represented a significant shift by an administration that has fought efforts by congressional Democrats to limit the U.S. military role in Iraq. That role currently involves trying to quell a sectarian conflict between Sunni and Shiite Muslims. The Democrats earlier this week dropped an effort to tie new war funding to a withdrawal timetable after Bush vetoed the measure.
Conditions
In responding to the Iraq Study Group's report, Bush said Dec. 7 he would authorize direct talks with Iran and Syria only if they first agreed ``to not fund terrorists, to help this young democracy survive, to help with the economics of the country.''
Bush brushed off the panel's recommendation to withdraw most U.S. combat forces by 2008, telling reporters he first wanted to hear the military's views. One month later, he announced he was sending an additional 21,500 combat troops -- a decision he argued was in line with the Baker-Hamilton approach.
Yesterday, members of the study group welcomed Bush's new support for their plan, which the president referred to favorably four times yesterday, while saying it was largely the result of the course of events in Iraq and declining political support for the war at home.
``We made 79 recommendations, and they were not really warmly embraced at the time,'' said a Republican panel member, former Senator Alan Simpson of Wyoming, in an interview. ``They did not crush them to their bosom. But now they're looking at them, which I think is tremendous.''
`Matter of Time'
A Democratic member of the study group, Leon Panetta, said Bush has already accepted the panel's recommendations to talk with Syria and Iran and set performance benchmarks for Iraq's government. ``It's only a matter of time before he embraces the recommendations to transition from combat to support,'' Panetta, who served as chief of staff to President Bill Clinton, said in an interview.
Panetta said the panel had expressed support for a temporary buildup only in the context of ``a larger strategy'' that included ``transition from combat to support and a gradual reduction'' of combat troops. Had Bush embraced this overall approach at that time, said Panetta, he would have encountered far less opposition to the buildup.
The commander of all U.S. forces in the Middle East, Admiral William Fallon, said Bush's new embrace of the Baker- Hamilton recommendations made sense in light of recent events that ``open up opportunities,'' such as new U.S. diplomatic contacts with Syria and Iran.
``My sense is the whole thing has been moving in that direction for a while,'' Fallon said in an interview. ``You can read the tea leaves. We said we're going to do the surge, have all the stops pulled out to make it work. We've said we're either going to recognize success or we're going to recognize that we're not making it.''
The U.S. ambassador to Iraq, Ryan Crocker, is scheduled to meet an Iranian diplomat in Baghdad to discuss Iraq on May 28. It will be one of the highest-level direct exchanges between U.S. and Iranian diplomats since the two countries severed ties in 1979.
U.S. Working To Sabotage Iran Nuke Program
May 23, 2007(CBS) This article was written by Sheila MacVicar and Ashley Velie with Amy Guttman.
CBS News has learned that Iran is continuing to make progress on its expanded efforts to enrich uranium — in spite of covert efforts by U.S. and other allied intelligence agencies to actively sabotage the country's nuclear program.
"Industrial sabotage is a way to stop the program, without military action, without fingerprints on the operation, and really, it is ideal, if it works," says Mark Fitzpatrick, the former Deputy Assistant Secretary of State for Non-Proliferation and now Senior Fellow in Non-Proliferation at the International Institute for Strategic Studies.
Sources in several countries involved told CBS News that the intelligence operatives involved include former Russian nuclear scientists and Iranians living abroad. Operatives have sold Iran components with flaws that are difficult to detect, making them unstable or unusable.
"One way to sabotage a program is to make minor modifications in some of the components Iran obtains on the black market, and because it's a black market … you don't know exactly who you are dealing with," Fitzpatrick says.
Senior government representatives, who spoke to CBS News on condition that neither they nor their country be identified, pointed to the case of the exploding power supplies. Installed at the pilot enrichment facility at Natanz in April 2006 as Iran was first attempting to enrich uranium, the power supplies, used to regulate voltaage current, blew up, destroying 50 centrifuges. The head of the Iranian Atomic Energy Agency, Vice-President Gholamreza Aghazadeh said in January of this year that the equipment had been "manipulated."
There is other evidence, CBS News was told, that some of the technical difficulties Iran is having in consistently running its centrifuges are the results of a concerted effort at industrial sabotage.
Sources familiar with the U.S. effort against Iran tell CBS News that U.S. intelligence agencies have run several programs in recent years, employing different techniques, including modifying components in hard-to-detect ways and making subtle changes to technical documents and drawings, rendering them useless.
"Governments [interested in deterring Iran] are investing a lot of effort to disrupt the Iranian trade, or track their purchases," says David Albright, President of the Institute for Science and International Security.
Iran is vulnerable to industrial sabotage because it is prohibited from buying what it wants on the open market. Instead, analysts say, it has turned to the black market, focusing efforts to clandestinely acquire the technology in Western Europe. Intelligence sources tell CBS News that Iranian agents working from the Islamic Republic's consulate in Frankfurt, Germany, have shipped home banned components using the protection and secrecy of diplomatic bags.
Although export controls are stronger in Europe than in many other countries, the Iranians still need European products because of either their quality or reliability, or because they already have European-manufactured products and are looking for spare parts.
But the procurement network is global, and trans-national, analysts say. In Dubai and other neighboring nations, Iran has established a shifting network of front companies.
"These are clandestine efforts. Iran frequently changes its front companies, frequently changes its financial arrangements, and government intelligence agencies have been looking at this," says Fitzpatrick
Albright says Iran has become even more sophisticated in its illicit procurement efforts than the network established by AQ Khan that obtained components and materiel for Pakistan's bomb program.
"They have moved beyond just front companies and are very hard to detect," he said. "The Iranians are very clever."
Iran is described as "highly suspicious" and "almost paranoid," and is believed to be predisposed to believe that any of its many technical problems may be the result of foreign sabotage.
"It’s impossible to say the extent to which Iran has discovered any industrial espionage," Fitzpatrick says. "Any technical problems that Iran experiences in its program, some of which were the result of its own speed-up effort, Iran may attribute to foreign espionage."
According to diplomats, getting the Iranians to believe that components may have been tampered with can be as effective in delaying the program as the real thing. But the diplomats also warn that with enough money and time, Iran's nuclear ambitions cannot be derailed by sabotage alone.
May 23, 2007(CBS) This article was written by Sheila MacVicar and Ashley Velie with Amy Guttman.
CBS News has learned that Iran is continuing to make progress on its expanded efforts to enrich uranium — in spite of covert efforts by U.S. and other allied intelligence agencies to actively sabotage the country's nuclear program.
"Industrial sabotage is a way to stop the program, without military action, without fingerprints on the operation, and really, it is ideal, if it works," says Mark Fitzpatrick, the former Deputy Assistant Secretary of State for Non-Proliferation and now Senior Fellow in Non-Proliferation at the International Institute for Strategic Studies.
Sources in several countries involved told CBS News that the intelligence operatives involved include former Russian nuclear scientists and Iranians living abroad. Operatives have sold Iran components with flaws that are difficult to detect, making them unstable or unusable.
"One way to sabotage a program is to make minor modifications in some of the components Iran obtains on the black market, and because it's a black market … you don't know exactly who you are dealing with," Fitzpatrick says.
Senior government representatives, who spoke to CBS News on condition that neither they nor their country be identified, pointed to the case of the exploding power supplies. Installed at the pilot enrichment facility at Natanz in April 2006 as Iran was first attempting to enrich uranium, the power supplies, used to regulate voltaage current, blew up, destroying 50 centrifuges. The head of the Iranian Atomic Energy Agency, Vice-President Gholamreza Aghazadeh said in January of this year that the equipment had been "manipulated."
There is other evidence, CBS News was told, that some of the technical difficulties Iran is having in consistently running its centrifuges are the results of a concerted effort at industrial sabotage.
Sources familiar with the U.S. effort against Iran tell CBS News that U.S. intelligence agencies have run several programs in recent years, employing different techniques, including modifying components in hard-to-detect ways and making subtle changes to technical documents and drawings, rendering them useless.
"Governments [interested in deterring Iran] are investing a lot of effort to disrupt the Iranian trade, or track their purchases," says David Albright, President of the Institute for Science and International Security.
Iran is vulnerable to industrial sabotage because it is prohibited from buying what it wants on the open market. Instead, analysts say, it has turned to the black market, focusing efforts to clandestinely acquire the technology in Western Europe. Intelligence sources tell CBS News that Iranian agents working from the Islamic Republic's consulate in Frankfurt, Germany, have shipped home banned components using the protection and secrecy of diplomatic bags.
Although export controls are stronger in Europe than in many other countries, the Iranians still need European products because of either their quality or reliability, or because they already have European-manufactured products and are looking for spare parts.
But the procurement network is global, and trans-national, analysts say. In Dubai and other neighboring nations, Iran has established a shifting network of front companies.
"These are clandestine efforts. Iran frequently changes its front companies, frequently changes its financial arrangements, and government intelligence agencies have been looking at this," says Fitzpatrick
Albright says Iran has become even more sophisticated in its illicit procurement efforts than the network established by AQ Khan that obtained components and materiel for Pakistan's bomb program.
"They have moved beyond just front companies and are very hard to detect," he said. "The Iranians are very clever."
Iran is described as "highly suspicious" and "almost paranoid," and is believed to be predisposed to believe that any of its many technical problems may be the result of foreign sabotage.
"It’s impossible to say the extent to which Iran has discovered any industrial espionage," Fitzpatrick says. "Any technical problems that Iran experiences in its program, some of which were the result of its own speed-up effort, Iran may attribute to foreign espionage."
According to diplomats, getting the Iranians to believe that components may have been tampered with can be as effective in delaying the program as the real thing. But the diplomats also warn that with enough money and time, Iran's nuclear ambitions cannot be derailed by sabotage alone.
Attack of the cyber terrorists
by MICHAEL HANLON
Last updated at 22:54pm on 24th May 2007
Dailymail.co.uk
At first it would be no more than a nuisance. No burning skyscrapers, no underground explosions, just a million electronic irritations up and down the land.
Thousands of government web pages suddenly vanish to be replaced with the Internet's version of the Testcard - that dreaded screen '404 - Not Found' or, more amusingly, some pastiche or parody.
Then the Labour website starts to promise a wholesale renationalisation of the railways. The popular response this generates turns to amusement then bemusement as everything from Jaguar to BT is, the sites claim, to be taken back into state hands.
When conservatives.org.uk starts to promise compulsory repatriation and the return of capital punishment, bemusement turns to alarm.
The disruption continues: thousands of popular websites, from eBay to YouTube, start malfunctioning or are replaced by malicious parodies.
Tens of millions of pounds are wiped off the share price of companies like Amazon as fears grow that the whole Internet credit card payment network is now vulnerable and insecure.
Eventually, reports start to flood in that hundreds of thousands of personal bank accounts have been raided overnight.
Panicked bank chiefs and PR men go on TV to try to reassure, promising that this is no more than an electronic glitch, but thousands of anxious citizens take to the streets, many in tears, and pour angrily into the banks to demand their savings in cash.
When the ATM system goes down, the government steps in. A task force is appointed. There is a rush on hard cash that leads to a shortage of notes and coins.
Soon, it is clear that the United Kingdom (and much of Europe) has been subjected to a sustained and effective cyber-terrorist attack. Disaster is narrowly avoided when a series of sophisticated viruses disrupt the workings of the National Air Traffic Control System.
Slowly, the computer network is disinfected; the viruses, botnets and worms that are the electronic versions of bombs and bullets are defused and rendered harmless. No one has died, but the attack has cost Britain £10bn, and share prices take months to recover.
Such a scenario, say some experts, is not only possible but likely in the near future.
Look, for example, at what happened to Estonia last week. Ever since the government of the Baltic state decided (rather tactlessly it must be said) to remove a war memorial to the Red Army from a square in the capital, Tallinn, Russian outrage has ensued.
This took the form of demonstrations and even riots. But then something extraordinary happened: quickly, and wholly without warning, the whole country was subjected to a barrage of cyber-warfare, disabling the websites of government ministries, political parties, banks and newspapers.
Techniques normally employed by cybercriminals, such as huge remotely-controlled networks of hijacked computers, were used to cripple vital public services.
Nato has sent its top cyber-terrorism experts to Tallinn, with western democracies caught on the hop over the implications of such an attack.
The Estonian defence ministry said: "We've been lucky to survive this. If an airport, bank or state infrastructure is attacked by a missile, it's clear war. But if the same result is done by computers, then what do you call it? Is it a state of war? These questions must be addressed."
Estonia has blamed Russia, predictably enough - which, if true, would mean this is the first cyber attack by one sovereign state upon another.
To be fair, no one ever discovered where the plot was hatched, who carried it out, nor what their motives were.
It is more likely that the attacks on Estonia were similar to the attacks seen on Danish websites a couple of years ago, after a Jutland newspaper published cartoon images of the Prophet Mohammed.
The Estonian attacks were more likely to be the work of angry young Russian hackers working alone than any sort of organised blitz by the Kremlin. But either way, the implications are serious.
The Internet, developed as a rather ad hoc joint venture between the American military and academia as a way of sharing information quickly and reliably, has become - 30 years later - a vast worldwide infrastructure. It is now a huge, ungoverned electronic machine upon which we are all more and more dependent.
We don't only bank and shop online, our governments use the infrastructure of the Net to do their business too.
Secure information is entrusted to cyberspace, information held by the likes of MI5 and the Pentagon, as well as various financial authorities, health services and treasuries.
The attacks on Estonia show that cyber-terrorism is real, but how worried should we be? After all, the history of the Internet and IT in general is littered with false alarms and, to be frank, in Estonia no one died.
In the Nineties, fear and then some panic resulted from the claims that at the stroke of midnight at the end of the decade, a simple glitch in the way that some computer software is programmed to deal with dates would lead to a global catastrophe.
The Millennium Bug was, of course, a false alarm - hyped up by greedy and, frankly, mendacious computer consultants who persuaded the planet's companies and governments to spend what is now estimated to be about $1 trillion fighting a threat that saner voices always said was either non-existent or easily containable.
Is the same thing true of cyberterrorism? It is certainly the case that there is money to be made hyping the threat.
Books, such as the 2001 tome Cybershock by Winn Schwartau have sold well on the back of general post-9/11 fear of terror.
Scenarios have included hackers gaining control of atomic power plants or even America's nuclear missiles.
So far we have seen no such disasters. Such attacks as there have been have mostly been the work of bored young hackers making mischief.
But as computer systems have grown in extent and power (and as the amount of information and power we entrust to them has also grown) they are inevitably more vulnerable to attack.
Apart from Estonia, one example of a real cyber attack was when hackers in Romania illegally gained access to the computers controlling an Antarctic research station, potentially endangering the lives of the scientists there.
Other attacks have been the result of disgruntled ex- employees taking revenge on their former employers.
That is why people fired from organisations where a large amount of sensitive data is stored electronically are often escorted out of the building before they get a chance to unleash electronic mayhem.
Certainly the potential for mischief is enormous. Greg Day, security analyst at Internet software firm McAfee, says: "The challenge with the Internet is the ease in which the average person can either recruit others to achieve such attacks or pick up the skills to do it themselves. As the Internet is a global entity, tracing the origin can be a complex and very timeconsuming task."
There is certainly no doubt that cyberspace is vulnerable. As British Middle East expert Mark Allen pointed out in his recent book entitled Arabs, modern Islamism, although grounded in an ideology that is both puritanical and deeply conservative, has nevertheless managed to master the power of information technology and the Internet with some aplomb.
In the United States, the Joint Task-Force Global Network Operations, part of the Department of Defense, is charged with combating cyber-terrorism.
Its UK equivalent is the Centre for Protection of the National Infrastructure, a multi- departmental body which comes, ultimately, under the control of MI5 and MI6.
But policing the Net will probably prove futile. Cyberspace is part of the world's infrastructure, but it less resembles the railways and airports of commerce and travel than the oceans upon which so much of the world's trade is conducted.
The genie is out of the bottle. Controlling - and policing - the Net, still less trying to shut the thing down, will probably prove to be as impossible as trying to stop the waves and the tides.
If you bank online, best keep an eye on your account.
by MICHAEL HANLON
Last updated at 22:54pm on 24th May 2007
Dailymail.co.uk
At first it would be no more than a nuisance. No burning skyscrapers, no underground explosions, just a million electronic irritations up and down the land.
Thousands of government web pages suddenly vanish to be replaced with the Internet's version of the Testcard - that dreaded screen '404 - Not Found' or, more amusingly, some pastiche or parody.
Then the Labour website starts to promise a wholesale renationalisation of the railways. The popular response this generates turns to amusement then bemusement as everything from Jaguar to BT is, the sites claim, to be taken back into state hands.
When conservatives.org.uk starts to promise compulsory repatriation and the return of capital punishment, bemusement turns to alarm.
The disruption continues: thousands of popular websites, from eBay to YouTube, start malfunctioning or are replaced by malicious parodies.
Tens of millions of pounds are wiped off the share price of companies like Amazon as fears grow that the whole Internet credit card payment network is now vulnerable and insecure.
Eventually, reports start to flood in that hundreds of thousands of personal bank accounts have been raided overnight.
Panicked bank chiefs and PR men go on TV to try to reassure, promising that this is no more than an electronic glitch, but thousands of anxious citizens take to the streets, many in tears, and pour angrily into the banks to demand their savings in cash.
When the ATM system goes down, the government steps in. A task force is appointed. There is a rush on hard cash that leads to a shortage of notes and coins.
Soon, it is clear that the United Kingdom (and much of Europe) has been subjected to a sustained and effective cyber-terrorist attack. Disaster is narrowly avoided when a series of sophisticated viruses disrupt the workings of the National Air Traffic Control System.
Slowly, the computer network is disinfected; the viruses, botnets and worms that are the electronic versions of bombs and bullets are defused and rendered harmless. No one has died, but the attack has cost Britain £10bn, and share prices take months to recover.
Such a scenario, say some experts, is not only possible but likely in the near future.
Look, for example, at what happened to Estonia last week. Ever since the government of the Baltic state decided (rather tactlessly it must be said) to remove a war memorial to the Red Army from a square in the capital, Tallinn, Russian outrage has ensued.
This took the form of demonstrations and even riots. But then something extraordinary happened: quickly, and wholly without warning, the whole country was subjected to a barrage of cyber-warfare, disabling the websites of government ministries, political parties, banks and newspapers.
Techniques normally employed by cybercriminals, such as huge remotely-controlled networks of hijacked computers, were used to cripple vital public services.
Nato has sent its top cyber-terrorism experts to Tallinn, with western democracies caught on the hop over the implications of such an attack.
The Estonian defence ministry said: "We've been lucky to survive this. If an airport, bank or state infrastructure is attacked by a missile, it's clear war. But if the same result is done by computers, then what do you call it? Is it a state of war? These questions must be addressed."
Estonia has blamed Russia, predictably enough - which, if true, would mean this is the first cyber attack by one sovereign state upon another.
To be fair, no one ever discovered where the plot was hatched, who carried it out, nor what their motives were.
It is more likely that the attacks on Estonia were similar to the attacks seen on Danish websites a couple of years ago, after a Jutland newspaper published cartoon images of the Prophet Mohammed.
The Estonian attacks were more likely to be the work of angry young Russian hackers working alone than any sort of organised blitz by the Kremlin. But either way, the implications are serious.
The Internet, developed as a rather ad hoc joint venture between the American military and academia as a way of sharing information quickly and reliably, has become - 30 years later - a vast worldwide infrastructure. It is now a huge, ungoverned electronic machine upon which we are all more and more dependent.
We don't only bank and shop online, our governments use the infrastructure of the Net to do their business too.
Secure information is entrusted to cyberspace, information held by the likes of MI5 and the Pentagon, as well as various financial authorities, health services and treasuries.
The attacks on Estonia show that cyber-terrorism is real, but how worried should we be? After all, the history of the Internet and IT in general is littered with false alarms and, to be frank, in Estonia no one died.
In the Nineties, fear and then some panic resulted from the claims that at the stroke of midnight at the end of the decade, a simple glitch in the way that some computer software is programmed to deal with dates would lead to a global catastrophe.
The Millennium Bug was, of course, a false alarm - hyped up by greedy and, frankly, mendacious computer consultants who persuaded the planet's companies and governments to spend what is now estimated to be about $1 trillion fighting a threat that saner voices always said was either non-existent or easily containable.
Is the same thing true of cyberterrorism? It is certainly the case that there is money to be made hyping the threat.
Books, such as the 2001 tome Cybershock by Winn Schwartau have sold well on the back of general post-9/11 fear of terror.
Scenarios have included hackers gaining control of atomic power plants or even America's nuclear missiles.
So far we have seen no such disasters. Such attacks as there have been have mostly been the work of bored young hackers making mischief.
But as computer systems have grown in extent and power (and as the amount of information and power we entrust to them has also grown) they are inevitably more vulnerable to attack.
Apart from Estonia, one example of a real cyber attack was when hackers in Romania illegally gained access to the computers controlling an Antarctic research station, potentially endangering the lives of the scientists there.
Other attacks have been the result of disgruntled ex- employees taking revenge on their former employers.
That is why people fired from organisations where a large amount of sensitive data is stored electronically are often escorted out of the building before they get a chance to unleash electronic mayhem.
Certainly the potential for mischief is enormous. Greg Day, security analyst at Internet software firm McAfee, says: "The challenge with the Internet is the ease in which the average person can either recruit others to achieve such attacks or pick up the skills to do it themselves. As the Internet is a global entity, tracing the origin can be a complex and very timeconsuming task."
There is certainly no doubt that cyberspace is vulnerable. As British Middle East expert Mark Allen pointed out in his recent book entitled Arabs, modern Islamism, although grounded in an ideology that is both puritanical and deeply conservative, has nevertheless managed to master the power of information technology and the Internet with some aplomb.
In the United States, the Joint Task-Force Global Network Operations, part of the Department of Defense, is charged with combating cyber-terrorism.
Its UK equivalent is the Centre for Protection of the National Infrastructure, a multi- departmental body which comes, ultimately, under the control of MI5 and MI6.
But policing the Net will probably prove futile. Cyberspace is part of the world's infrastructure, but it less resembles the railways and airports of commerce and travel than the oceans upon which so much of the world's trade is conducted.
The genie is out of the bottle. Controlling - and policing - the Net, still less trying to shut the thing down, will probably prove to be as impossible as trying to stop the waves and the tides.
If you bank online, best keep an eye on your account.
North Korea tests short-range missiles
By JAE-SOON CHANG, Associated Press WriterFri May 25, 8:27 AM ET
North Korea fired several short-range guided missiles Friday into the sea that separates it from Japan in an apparent test launch, South Korean officials and media reports said.
Analysts and media reports said the North's test was in response to South Korea's launch of its first destroyer equipped with high-tech Aegis radar technology on Friday. South Korea is now one of only five countries armed with the technology, which will make it easier to track and shoot down North Korean aircraft and missiles.
"This shows North Korea, whose navy is rather small, is extremely alarmed," said Toshimitsu Shigemura, an expert on North Korean issues at Japan's Waseda University.
South Korea's Joint Chiefs of Staff confirmed Friday's missile launches.
"The short-range missile launches are believed to be part of a routine exercise that North Korea has conducted annually on the east and the west coasts in the past," the statement said.
The missiles were fired from the communist country's east coast into the sea between Japan and the Korean peninsula, a Joint Chiefs official said on condition of anonymity, citing official protocol.
Japan's public broadcaster and other media, citing Japanese and U.S. sources, reported the missiles were surface-to-ship. Japan's Defense Ministry and Foreign Ministry could not immediately confirm the reports.
South Korea's Yonhap news agency cited an unidentified Unification Ministry official as saying the tests would not strain ties because they were apparently part of regular exercises. North and South Korea are planning Cabinet level talks on reconciliation efforts next week in Seoul.
In Japan, Prime Minister Shinzo Abe called the tests "extremely regrettable" but said, "We do not consider (the missile firing) as a serious threat to Japan's national security."
Public broadcaster NHK said the missiles were shorter-range, and were not North Korea's existing Rodong or Taepodong I ballistic missiles.
Kyodo News agency said the missiles were launched from Hamgyong Namdo on the east coast of the Korean Peninsula and are considered modified silkworm or miniaturized Scuds, with a range of 60-125 miles.
Mobile missile carriers, communication equipment and personnel were seen in the area before the launch, but they left after the missiles were fired, Kyodo said.
Last month, North Korea displayed a newly developed ballistic missile capable of reaching the U.S. territory of Guam during a military parade, the South Korean newspaper Chosun Ilbo reported, citing an unidentified South Korean government official familiar with an analysis of U.S. satellite images.
North Korea's missile program has been a constant concern to the region, along with its pursuit of nuclear weapons.
The hard-line regime test-fired a series of missiles in July last year, including its latest long-range model, known abroad as the Taepodong-2, which experts believe could reach parts of the United States.
The North rattled the world again in October by conducting its first-ever test of a nuclear device. However, experts believe it does not have a bomb design advanced enough to be placed on a missile.
By JAE-SOON CHANG, Associated Press WriterFri May 25, 8:27 AM ET
North Korea fired several short-range guided missiles Friday into the sea that separates it from Japan in an apparent test launch, South Korean officials and media reports said.
Analysts and media reports said the North's test was in response to South Korea's launch of its first destroyer equipped with high-tech Aegis radar technology on Friday. South Korea is now one of only five countries armed with the technology, which will make it easier to track and shoot down North Korean aircraft and missiles.
"This shows North Korea, whose navy is rather small, is extremely alarmed," said Toshimitsu Shigemura, an expert on North Korean issues at Japan's Waseda University.
South Korea's Joint Chiefs of Staff confirmed Friday's missile launches.
"The short-range missile launches are believed to be part of a routine exercise that North Korea has conducted annually on the east and the west coasts in the past," the statement said.
The missiles were fired from the communist country's east coast into the sea between Japan and the Korean peninsula, a Joint Chiefs official said on condition of anonymity, citing official protocol.
Japan's public broadcaster and other media, citing Japanese and U.S. sources, reported the missiles were surface-to-ship. Japan's Defense Ministry and Foreign Ministry could not immediately confirm the reports.
South Korea's Yonhap news agency cited an unidentified Unification Ministry official as saying the tests would not strain ties because they were apparently part of regular exercises. North and South Korea are planning Cabinet level talks on reconciliation efforts next week in Seoul.
In Japan, Prime Minister Shinzo Abe called the tests "extremely regrettable" but said, "We do not consider (the missile firing) as a serious threat to Japan's national security."
Public broadcaster NHK said the missiles were shorter-range, and were not North Korea's existing Rodong or Taepodong I ballistic missiles.
Kyodo News agency said the missiles were launched from Hamgyong Namdo on the east coast of the Korean Peninsula and are considered modified silkworm or miniaturized Scuds, with a range of 60-125 miles.
Mobile missile carriers, communication equipment and personnel were seen in the area before the launch, but they left after the missiles were fired, Kyodo said.
Last month, North Korea displayed a newly developed ballistic missile capable of reaching the U.S. territory of Guam during a military parade, the South Korean newspaper Chosun Ilbo reported, citing an unidentified South Korean government official familiar with an analysis of U.S. satellite images.
North Korea's missile program has been a constant concern to the region, along with its pursuit of nuclear weapons.
The hard-line regime test-fired a series of missiles in July last year, including its latest long-range model, known abroad as the Taepodong-2, which experts believe could reach parts of the United States.
The North rattled the world again in October by conducting its first-ever test of a nuclear device. However, experts believe it does not have a bomb design advanced enough to be placed on a missile.
Looking back, the Iraq Study Group report is even worse than we thought
By Anthony H. Cordesman
Commentary by
Wednesday, May 23, 2007
Not everything dies when it should, and the report of the Iraq Study Group (ISG), released late last year, is a grim example. Even at the time it was issued, it was a remarkably vacuous and unrealistic report. Its key recommendations were hopelessly impractical and the detailed report - while good on some aspects of historical diagnostics - ended in a long list of sometimes contradictory conceptual recommendations lacking any detail justification, details, and operational plans. It was at best a warning of what overblown committees seeking a lowest common denominator could not accomplish.
Looking back, it emerges as even worse. Its key recommendations never made sense. For example, there was never any chance that development of the Iraqi Army could be rushed forward in ways that would permit rapid American force reductions, and recent months have made it all too clear that the Iraqi Army needs more time, more aid, and more American embeds and support. The existing schedule for creating an Iraqi Army already was far too fast. The months that have followed have shown it takes time, patience, and resources to build an effective military force. It takes political conciliation to allow it to operate in ways that serve the nation. Without internal Iraqi political conciliation, the army can end up either fracturing along sectarian and ethnic lines or becoming a Shiite-dominated force with a separate Kurdish force in the Kurdish area.
The ISG's recommendations to speed up development of the Iraq police force to serve the same purpose of enabling faster American withdrawals were truly absurd. Somehow, this was to be accomplished by completely reorganizing American and Multinational Force-Iraq police aid and training effort, taking it out of the hands of Multi-National Security Transition Command-Iraq (MNSTC-I) and putting it back into the same civilian hands that had failed so badly earlier that the police effort had to be taken away from them and put into MNSTC-I hands in October 2005 - after more than two years of going nowhere.
It is all too clear that effective development of the police is even more dependent on effective political conciliation than development of the army. It will take several years at a minimum to accomplish, and will immediately come up against the realities of the need for some form of effective local government and a functioning court and criminal justice system.
It is equally clear that for the police to function, it must find some way to deal with local security forces, the militias, and the prospect of federalism. The ISG effectively failed to deal with two of these issues, and set an impossible deadline for abolishing the militias, with no explanation of how a weak and divided Iraqi government could do this, or what would happen when they were abolished long before the police could provide security.
The ISG also never addressed the issue of Iraqi conciliation in any meaningful way, or the level of internal civil conflict. It did not explain how its implied time schedule could avoid pushing the country toward civil war nor did it suggest any practical ways to heal the fractures inside Iraqi society. It offered no useful plans for new incentives, and implied that a weak national government without strong Sunni participation, with a steadily more divided Shiite majority, and a Kurdish faction interested in autonomy, could somehow be pressured into effective action by some form of United States-defined benchmarks and deadlines.
"We'll blame you as we leave," has since become something of a mantra for the US Congress. Then as now, however, it does not explain what the US should be prepared to do to meet its strategic interests in Iraq or the region. Nor does it deal with the fact that American failures to prepare for nation-building and stability operations are at least as much an explanation for why Iraq is broken as any Iraqi failures.
As for its idea of a regional conference held under US auspices to solve Iraq, this was probably the most absurd recommendation of all. The US lacked the credibility to call such a conference, and it was never clear why such a proposal would bring neighboring powers with deeply diverse interests to display any unity to outside efforts - much less to work in uniting Iraq. When the Iraqi government did try to hold such conference under its own auspices, it produced a few gestures from already friendly states, no progress in aiding internal conciliation in Iraq, and no real progress in terms of changing the attitudes of outside powers.
It is true that the Bush administration seems to have finally learned it needs to talk to Iran and Syria, rather than demonize them. It is all too clear, however, that such dialogue may produce very limited results.
Syria may be willing to deal. Alawites (who make up 16 percent of the population) are not Shiites; Syria has a strong Sunni majority (74 percent). The Syrian Baath is largely secular and has every reason to fear Islamist extremists - Sunni and Shiite. In practice, however, the US and Syria need time to deal with issues like Israel, the Golan Heights, and Lebanon - if they can deal with them at all. The best deal they can hope for on Iraq is a trade whereby Syria quietly cracks down on Sunni Iraqi insurgent groups operating in Syria in return for the US backing off treating Syria as a pariah and ceasing to push hard on the Hariri assassination. If this happens, it will be quiet and bilateral, not something for a major conference.
The ISG focus on Iran and Syria also ignored Turkey and the Sunni Gulf states. The US, Iraq, the Kurds, and Turkey have issues to resolve that already are extremely difficult and will play out over years. Iraq's national unity is a key to avoiding a Kurdish-Turkish clash and Arab-Kurdish tensions are key conflict issues that the US must try to address. Both require focused US diplomacy and not regional meetings.
There are good reasons for someone like King Abdullah of Saudi Arabia to call the US occupation of Iraq illegitimate. Arab Sunnis see the current "surge" strategy as empowering Arab Shiites and Iraqi separatism at the expense of Sunnis and Iraq's unity as an Arab nation. These views represent different values from the US, and underestimate just how hard the US is pushing for conciliation and unity. They do, however, need to be addressed and will be critical to the future US position in the Gulf - whether or not the US is forced to withdraw. Once again, a regional conference is perhaps the worst possible way to address such sensitive issues.
As for talking to Iran, the US should make every effort to have an official dialogue. It isn't going to change the regime, the US has a host of issues that it should try to address, and the history of the Cold War indicates it is better to talk to hostile regimes and try to prepare the way for limited cooperation and a better future. Iran has made it clear, however, that there is not going to be any grand bargain, easy progress on the nuclear issue, cutbacks in Iranian missile development and asymmetric forces in the Gulf, or progress on Israel and support for anti-Israeli extremists.
American and Iranian envoys are to meet in Baghdad on May 28. However, Iran's position on meeting with the US to talk about Iraq is also hardly reassuring. Iran's supreme leader, Ayatollah Ali Khamenei, said in Mashhad on May 17 that Iran had only agreed to "face-to-face" talks with the US so that it could "remind the US of its responsibilities and duties regarding security," and to "give them an ultimatum ... The talks will only be about the responsibilities of the occupiers in Iraq ... They think that the Islamic Republic has changed its firm, logical, and defendable policy in rejecting negotiation with the US. They are wrong ... How is it possible to negotiate with the arrogant, bullying, expansionist, and colonialist government of the US?"
Iranian Foreign Minister Manouchehr Mottaki said last Friday at the World Economic Forum in Jordan that the only way to deal with the Iraq issue was for the US to admit its role in the country was illegitimate and withdraw from Iraq and the Gulf, leaving security to Iraq's neighbors. "We believe that sooner or later they have to decide to withdraw their troops from Iraq because that is the cause for the continuation of terrorist activities."
Mottaki went on to say that Iraqi instability and the US occupation of Iraq were the two fundamental problems plaguing Iran's neighbors, and called for a "comprehensive solution" to address both issues. This really meant pushing the US out of the region. These were not low-profile remarks. He spoke while sharing a panel with Afghan President Hamid Karzai, Pakistani Prime Minister Shawkat Aziz, Jordanian Prime Minister Maarouf Bakhit, Bahraini Crown Prince Sheikh Salman bin Hamad al-Khalifa, and Saudi Prince Turki al-Faisal, a former ambassador to the United States.
Ali Larijani, who heads Iran's National Security Council, said at the same meeting that the Bush administration was trying to bring Baathists back to power to create political conditions where it could leave Iraq: "Unfortunately, the Americans are under some pressure to leave faster [from] Iraq. They want some elements in Iraq to take control and they discovered the Baathists could do the job." Larijani went on to warn that efforts at conciliation would mean "disaster for the Iraqi people, for the Iranians, for the Kuwaitis, [and] for the region."
Whatever the US might have done in talking to Iran when it seemed to have won in Iraq, and when Iran was under President Muhammad Khatami, it almost certainly cannot do now. Iran believes the US will be forced to leave Iraq and has created a weak Iraqi Shiite-dominated government that Iran can influence and use. The US has no incentives to offer Iran and no sticks. It does not even seem to have a clear plan for Iraqi stability and conciliation.
One wishes the new US ambassador in Baghdad, Ryan Crocker, luck, but there were good reasons why Iraqi Vice President Tareq al-Hashemi told the Iranians at the conference in Jordan: "Our role is to put pressure on Iran but I must be realistic about that. I know who's actually the troublemaker. Not only Iran and Syria and neighboring countries. Many countries in fact ... The Iraqi issue is becoming a threat to global stability and regional stability so everyone should be very careful about what is going on ... For the benefit of the national security of Iran, Iran should not be tempted to interfere in my country. They should think seriously about that ... At the end of the day I would like the Iranians to end their interference."
The crippling irrelevance and unrealism of the ISG does not mean that the Bush strategy is valid. It is, however, a broader warning to both the Congress and the administration. The US cannot fix an Iraq it did so much to help break through simple, quick, and glib solutions, particularly ones imposed from Washington. The US still has great influence, but it does not control Iraq's internal politics and cannot do so by threatening to leave or by simply turning over the nation's problems to Iraqi forces and some mythical international forum.
The US has no good options in Iraq: It can either stay or leave. At best, it can today only try to find the least bad path of uncertainty and work out the best compromises over time. To do this, it must focus on its overall long-term strategic interests in the region, working with its friends and allies, and looking both at what can be done in Iraq and in the region as a whole.
The current surge strategy may well fail, but there is no better option until it does. This means the US should work for both conciliation and security in Iraq as long as there is a credible - if limited - chance of success. The key is conciliation and its success or failure will be determined by Iraqis, not by outsiders.
If the end result is to force major or total US military withdrawal, the US needs a clear plan as how to reposition its forces in the region. It also cannot simply abandon Iraq to chaos or to Iran. It must try to maintain political, economic aid, and security aid ties to Iraq if at all possible - doing what it can to prevent or ameliorate all out civil war and the breakup of the country. The Iraq Study Group never addressed these realities, any more than it realistically addressed any other aspect of US policy.
Anthony H. Cordesman is Arleigh A. Burke chair in Strategy at the Center for Strategic and International Studies in Washington. This commentary is published by permission.
By Anthony H. Cordesman
Commentary by
Wednesday, May 23, 2007
Not everything dies when it should, and the report of the Iraq Study Group (ISG), released late last year, is a grim example. Even at the time it was issued, it was a remarkably vacuous and unrealistic report. Its key recommendations were hopelessly impractical and the detailed report - while good on some aspects of historical diagnostics - ended in a long list of sometimes contradictory conceptual recommendations lacking any detail justification, details, and operational plans. It was at best a warning of what overblown committees seeking a lowest common denominator could not accomplish.
Looking back, it emerges as even worse. Its key recommendations never made sense. For example, there was never any chance that development of the Iraqi Army could be rushed forward in ways that would permit rapid American force reductions, and recent months have made it all too clear that the Iraqi Army needs more time, more aid, and more American embeds and support. The existing schedule for creating an Iraqi Army already was far too fast. The months that have followed have shown it takes time, patience, and resources to build an effective military force. It takes political conciliation to allow it to operate in ways that serve the nation. Without internal Iraqi political conciliation, the army can end up either fracturing along sectarian and ethnic lines or becoming a Shiite-dominated force with a separate Kurdish force in the Kurdish area.
The ISG's recommendations to speed up development of the Iraq police force to serve the same purpose of enabling faster American withdrawals were truly absurd. Somehow, this was to be accomplished by completely reorganizing American and Multinational Force-Iraq police aid and training effort, taking it out of the hands of Multi-National Security Transition Command-Iraq (MNSTC-I) and putting it back into the same civilian hands that had failed so badly earlier that the police effort had to be taken away from them and put into MNSTC-I hands in October 2005 - after more than two years of going nowhere.
It is all too clear that effective development of the police is even more dependent on effective political conciliation than development of the army. It will take several years at a minimum to accomplish, and will immediately come up against the realities of the need for some form of effective local government and a functioning court and criminal justice system.
It is equally clear that for the police to function, it must find some way to deal with local security forces, the militias, and the prospect of federalism. The ISG effectively failed to deal with two of these issues, and set an impossible deadline for abolishing the militias, with no explanation of how a weak and divided Iraqi government could do this, or what would happen when they were abolished long before the police could provide security.
The ISG also never addressed the issue of Iraqi conciliation in any meaningful way, or the level of internal civil conflict. It did not explain how its implied time schedule could avoid pushing the country toward civil war nor did it suggest any practical ways to heal the fractures inside Iraqi society. It offered no useful plans for new incentives, and implied that a weak national government without strong Sunni participation, with a steadily more divided Shiite majority, and a Kurdish faction interested in autonomy, could somehow be pressured into effective action by some form of United States-defined benchmarks and deadlines.
"We'll blame you as we leave," has since become something of a mantra for the US Congress. Then as now, however, it does not explain what the US should be prepared to do to meet its strategic interests in Iraq or the region. Nor does it deal with the fact that American failures to prepare for nation-building and stability operations are at least as much an explanation for why Iraq is broken as any Iraqi failures.
As for its idea of a regional conference held under US auspices to solve Iraq, this was probably the most absurd recommendation of all. The US lacked the credibility to call such a conference, and it was never clear why such a proposal would bring neighboring powers with deeply diverse interests to display any unity to outside efforts - much less to work in uniting Iraq. When the Iraqi government did try to hold such conference under its own auspices, it produced a few gestures from already friendly states, no progress in aiding internal conciliation in Iraq, and no real progress in terms of changing the attitudes of outside powers.
It is true that the Bush administration seems to have finally learned it needs to talk to Iran and Syria, rather than demonize them. It is all too clear, however, that such dialogue may produce very limited results.
Syria may be willing to deal. Alawites (who make up 16 percent of the population) are not Shiites; Syria has a strong Sunni majority (74 percent). The Syrian Baath is largely secular and has every reason to fear Islamist extremists - Sunni and Shiite. In practice, however, the US and Syria need time to deal with issues like Israel, the Golan Heights, and Lebanon - if they can deal with them at all. The best deal they can hope for on Iraq is a trade whereby Syria quietly cracks down on Sunni Iraqi insurgent groups operating in Syria in return for the US backing off treating Syria as a pariah and ceasing to push hard on the Hariri assassination. If this happens, it will be quiet and bilateral, not something for a major conference.
The ISG focus on Iran and Syria also ignored Turkey and the Sunni Gulf states. The US, Iraq, the Kurds, and Turkey have issues to resolve that already are extremely difficult and will play out over years. Iraq's national unity is a key to avoiding a Kurdish-Turkish clash and Arab-Kurdish tensions are key conflict issues that the US must try to address. Both require focused US diplomacy and not regional meetings.
There are good reasons for someone like King Abdullah of Saudi Arabia to call the US occupation of Iraq illegitimate. Arab Sunnis see the current "surge" strategy as empowering Arab Shiites and Iraqi separatism at the expense of Sunnis and Iraq's unity as an Arab nation. These views represent different values from the US, and underestimate just how hard the US is pushing for conciliation and unity. They do, however, need to be addressed and will be critical to the future US position in the Gulf - whether or not the US is forced to withdraw. Once again, a regional conference is perhaps the worst possible way to address such sensitive issues.
As for talking to Iran, the US should make every effort to have an official dialogue. It isn't going to change the regime, the US has a host of issues that it should try to address, and the history of the Cold War indicates it is better to talk to hostile regimes and try to prepare the way for limited cooperation and a better future. Iran has made it clear, however, that there is not going to be any grand bargain, easy progress on the nuclear issue, cutbacks in Iranian missile development and asymmetric forces in the Gulf, or progress on Israel and support for anti-Israeli extremists.
American and Iranian envoys are to meet in Baghdad on May 28. However, Iran's position on meeting with the US to talk about Iraq is also hardly reassuring. Iran's supreme leader, Ayatollah Ali Khamenei, said in Mashhad on May 17 that Iran had only agreed to "face-to-face" talks with the US so that it could "remind the US of its responsibilities and duties regarding security," and to "give them an ultimatum ... The talks will only be about the responsibilities of the occupiers in Iraq ... They think that the Islamic Republic has changed its firm, logical, and defendable policy in rejecting negotiation with the US. They are wrong ... How is it possible to negotiate with the arrogant, bullying, expansionist, and colonialist government of the US?"
Iranian Foreign Minister Manouchehr Mottaki said last Friday at the World Economic Forum in Jordan that the only way to deal with the Iraq issue was for the US to admit its role in the country was illegitimate and withdraw from Iraq and the Gulf, leaving security to Iraq's neighbors. "We believe that sooner or later they have to decide to withdraw their troops from Iraq because that is the cause for the continuation of terrorist activities."
Mottaki went on to say that Iraqi instability and the US occupation of Iraq were the two fundamental problems plaguing Iran's neighbors, and called for a "comprehensive solution" to address both issues. This really meant pushing the US out of the region. These were not low-profile remarks. He spoke while sharing a panel with Afghan President Hamid Karzai, Pakistani Prime Minister Shawkat Aziz, Jordanian Prime Minister Maarouf Bakhit, Bahraini Crown Prince Sheikh Salman bin Hamad al-Khalifa, and Saudi Prince Turki al-Faisal, a former ambassador to the United States.
Ali Larijani, who heads Iran's National Security Council, said at the same meeting that the Bush administration was trying to bring Baathists back to power to create political conditions where it could leave Iraq: "Unfortunately, the Americans are under some pressure to leave faster [from] Iraq. They want some elements in Iraq to take control and they discovered the Baathists could do the job." Larijani went on to warn that efforts at conciliation would mean "disaster for the Iraqi people, for the Iranians, for the Kuwaitis, [and] for the region."
Whatever the US might have done in talking to Iran when it seemed to have won in Iraq, and when Iran was under President Muhammad Khatami, it almost certainly cannot do now. Iran believes the US will be forced to leave Iraq and has created a weak Iraqi Shiite-dominated government that Iran can influence and use. The US has no incentives to offer Iran and no sticks. It does not even seem to have a clear plan for Iraqi stability and conciliation.
One wishes the new US ambassador in Baghdad, Ryan Crocker, luck, but there were good reasons why Iraqi Vice President Tareq al-Hashemi told the Iranians at the conference in Jordan: "Our role is to put pressure on Iran but I must be realistic about that. I know who's actually the troublemaker. Not only Iran and Syria and neighboring countries. Many countries in fact ... The Iraqi issue is becoming a threat to global stability and regional stability so everyone should be very careful about what is going on ... For the benefit of the national security of Iran, Iran should not be tempted to interfere in my country. They should think seriously about that ... At the end of the day I would like the Iranians to end their interference."
The crippling irrelevance and unrealism of the ISG does not mean that the Bush strategy is valid. It is, however, a broader warning to both the Congress and the administration. The US cannot fix an Iraq it did so much to help break through simple, quick, and glib solutions, particularly ones imposed from Washington. The US still has great influence, but it does not control Iraq's internal politics and cannot do so by threatening to leave or by simply turning over the nation's problems to Iraqi forces and some mythical international forum.
The US has no good options in Iraq: It can either stay or leave. At best, it can today only try to find the least bad path of uncertainty and work out the best compromises over time. To do this, it must focus on its overall long-term strategic interests in the region, working with its friends and allies, and looking both at what can be done in Iraq and in the region as a whole.
The current surge strategy may well fail, but there is no better option until it does. This means the US should work for both conciliation and security in Iraq as long as there is a credible - if limited - chance of success. The key is conciliation and its success or failure will be determined by Iraqis, not by outsiders.
If the end result is to force major or total US military withdrawal, the US needs a clear plan as how to reposition its forces in the region. It also cannot simply abandon Iraq to chaos or to Iran. It must try to maintain political, economic aid, and security aid ties to Iraq if at all possible - doing what it can to prevent or ameliorate all out civil war and the breakup of the country. The Iraq Study Group never addressed these realities, any more than it realistically addressed any other aspect of US policy.
Anthony H. Cordesman is Arleigh A. Burke chair in Strategy at the Center for Strategic and International Studies in Washington. This commentary is published by permission.
Buyout Firms Engage Banks in Financing LBOs With Novel Bridge
By Jason Kelly and Edward Evans
May 23 (Bloomberg) -- Kohlberg Kravis Roberts & Co. wanted Alliance Boots Plc, owner of the U.K.'s largest drugstore chain, for itself. Instead of teaming up with another private equity firm, a practice known as clubbing, KKR kept all of the bragging rights to the 11.1 billion pound ($22 billion) deal, Europe's biggest buyout ever.
``It enabled us to have a very straight and clear discussion with the Alliance Boots board,'' says Dominic Murphy, 40, the London-based KKR partner who led the acquisition. ``We could make decisions very quickly and effectively. We didn't need to revert to other partners.''
Private equity's record war chests are giving firms the power to make billion-dollar deals by themselves, avoiding the cumbersome clubs that spurred U.S. prosecutors last year to begin an antitrust probe, according to a person familiar with the matter. As buyout shops drive the value of acquisitions past last year's record $701.5 billion, they're pushing fee-hungry banks into providing new kinds of financing for their solo purchases.
Buyout partnerships rose to prominence in the past three years, highlighted by the deal in which Blackstone Group LP and six other firms paid $10.4 billion for Wayne, Pennsylvania-based software developer SunGard Data Systems Inc. in March 2005.
Less than two years later, in February, New York-based Blackstone took the opposite approach, single-handedly paying $39 billion for Equity Office Properties Trust, the second- biggest buyout on record. That was followed by Cerberus Capital Management LP's $7.4 billion agreement in May to take over Chrysler from DaimlerChrysler AG.
Boost From Equity Bridges
``You'll see more of it,'' says David Rubenstein, co- founder of Washington-based Carlyle Group. ``Private equity firms realize they can get the money they need for these deals.''
As the buyout firms fly solo, they're getting a boost from banks, which are providing so-called equity bridges to help them purchase companies. In a bridge, banks buy equity in the target company, reducing the amount of money required from the private equity firm.
After the deal is completed, banks sell their stake, often to limited partners -- pension funds, university endowments and wealthy individuals -- in the private equity firm's funds. New York-based KKR received a 1.39 billion pound equity bridge from Barclays Plc and six other banks in April to buy Alliance Boots, marking the first use of this type of financing in Europe.
Banks are providing bridges to get a bigger share of the advisory fees from today's buyout boom. ``We have to do it,'' says Piero Novelli, co-head of global takeovers at UBS AG in London. ``It's certainly not something most banks would be delighted to be doing. In very large, lucrative buyouts, clients demand it.''
Pension Funds Take Stakes
Pension funds and endowments are also helping buyout firms go it alone, Rubenstein, 57, says. Institutional investors are beginning to take stakes directly in the acquired companies because the payoff is likely to be bigger than returns from buyout funds, which charge fees of up to 20 percent of the profit from each deal.
``It has better economic terms, and the investors like those terms,'' Rubenstein says. ``They like to pick individual deals.'' The Canada Pension Plan Investment Board, the country's second-biggest public pension fund manager, in April joined KKR in an undisclosed bid for BCE Inc., Canada's largest telephone company.
Buyout firms raised an all-time high of $210 billion in 2006, a 57 percent jump from the prior year, according to London-based research firm Private Equity Intelligence Ltd. In April, Goldman Sachs Group Inc. collected $20 billion for the world's biggest fund. The rising pool of capital is fueling another unprecedented year for leveraged buyouts: Firms announced $409.8 billion in deals this year.
Justice Department Probe
Private equity firms prefer sole ownership because it gives them more control in boosting the performance of companies, says Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire.
Blaydon says club deals such as SunGard make it difficult for owners to hammer out strategic decisions about acquisitions and selling shares to the public. SunGard's seven owners say they're now trying to expand the company through acquisitions in China and Europe.
``No one talks about these situations enthusiastically,'' Blaydon says. ``Everyone seems more than happy to go back to sole control.''
Buyout firms may also dodge further scrutiny from the U.S. Department of Justice by avoiding the partnerships. In October 2006, the government launched an informal inquiry into club deals to determine whether firms were colluding to thwart competition and artificially hold down the prices paid for companies, say lawyers at Bingham McCutchen LLP.
Megadeal Buzz
Michael Flynn, a partner who works on private equity transactions at Sonnenschein Nath & Rosenthal LLP, says single- buyer deals eliminate any appearance of impropriety.
``Nobody wants the DOJ sniffing around,'' says Flynn, who's based in New York.
A DOJ spokesperson didn't return a phone call.
The biggest buyout ever -- the $45 billion deal in February for Dallas-based power producer TXU Corp. -- took the combination of KKR and TPG Inc., formerly known as Texas Pacific Group. Such partnerships will occur less often as a growing number of private equity firms battle to distinguish themselves, says Stefan Selig, global head of mergers and acquisitions at Banc of America Securities LLC.
The best way for a firm to attract investment from a limited partner or be chosen by a company for an LBO, Selig says, is to be named in a blaring headline as the sole master of a megadeal.
By Jason Kelly and Edward Evans
May 23 (Bloomberg) -- Kohlberg Kravis Roberts & Co. wanted Alliance Boots Plc, owner of the U.K.'s largest drugstore chain, for itself. Instead of teaming up with another private equity firm, a practice known as clubbing, KKR kept all of the bragging rights to the 11.1 billion pound ($22 billion) deal, Europe's biggest buyout ever.
``It enabled us to have a very straight and clear discussion with the Alliance Boots board,'' says Dominic Murphy, 40, the London-based KKR partner who led the acquisition. ``We could make decisions very quickly and effectively. We didn't need to revert to other partners.''
Private equity's record war chests are giving firms the power to make billion-dollar deals by themselves, avoiding the cumbersome clubs that spurred U.S. prosecutors last year to begin an antitrust probe, according to a person familiar with the matter. As buyout shops drive the value of acquisitions past last year's record $701.5 billion, they're pushing fee-hungry banks into providing new kinds of financing for their solo purchases.
Buyout partnerships rose to prominence in the past three years, highlighted by the deal in which Blackstone Group LP and six other firms paid $10.4 billion for Wayne, Pennsylvania-based software developer SunGard Data Systems Inc. in March 2005.
Less than two years later, in February, New York-based Blackstone took the opposite approach, single-handedly paying $39 billion for Equity Office Properties Trust, the second- biggest buyout on record. That was followed by Cerberus Capital Management LP's $7.4 billion agreement in May to take over Chrysler from DaimlerChrysler AG.
Boost From Equity Bridges
``You'll see more of it,'' says David Rubenstein, co- founder of Washington-based Carlyle Group. ``Private equity firms realize they can get the money they need for these deals.''
As the buyout firms fly solo, they're getting a boost from banks, which are providing so-called equity bridges to help them purchase companies. In a bridge, banks buy equity in the target company, reducing the amount of money required from the private equity firm.
After the deal is completed, banks sell their stake, often to limited partners -- pension funds, university endowments and wealthy individuals -- in the private equity firm's funds. New York-based KKR received a 1.39 billion pound equity bridge from Barclays Plc and six other banks in April to buy Alliance Boots, marking the first use of this type of financing in Europe.
Banks are providing bridges to get a bigger share of the advisory fees from today's buyout boom. ``We have to do it,'' says Piero Novelli, co-head of global takeovers at UBS AG in London. ``It's certainly not something most banks would be delighted to be doing. In very large, lucrative buyouts, clients demand it.''
Pension Funds Take Stakes
Pension funds and endowments are also helping buyout firms go it alone, Rubenstein, 57, says. Institutional investors are beginning to take stakes directly in the acquired companies because the payoff is likely to be bigger than returns from buyout funds, which charge fees of up to 20 percent of the profit from each deal.
``It has better economic terms, and the investors like those terms,'' Rubenstein says. ``They like to pick individual deals.'' The Canada Pension Plan Investment Board, the country's second-biggest public pension fund manager, in April joined KKR in an undisclosed bid for BCE Inc., Canada's largest telephone company.
Buyout firms raised an all-time high of $210 billion in 2006, a 57 percent jump from the prior year, according to London-based research firm Private Equity Intelligence Ltd. In April, Goldman Sachs Group Inc. collected $20 billion for the world's biggest fund. The rising pool of capital is fueling another unprecedented year for leveraged buyouts: Firms announced $409.8 billion in deals this year.
Justice Department Probe
Private equity firms prefer sole ownership because it gives them more control in boosting the performance of companies, says Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business in Hanover, New Hampshire.
Blaydon says club deals such as SunGard make it difficult for owners to hammer out strategic decisions about acquisitions and selling shares to the public. SunGard's seven owners say they're now trying to expand the company through acquisitions in China and Europe.
``No one talks about these situations enthusiastically,'' Blaydon says. ``Everyone seems more than happy to go back to sole control.''
Buyout firms may also dodge further scrutiny from the U.S. Department of Justice by avoiding the partnerships. In October 2006, the government launched an informal inquiry into club deals to determine whether firms were colluding to thwart competition and artificially hold down the prices paid for companies, say lawyers at Bingham McCutchen LLP.
Megadeal Buzz
Michael Flynn, a partner who works on private equity transactions at Sonnenschein Nath & Rosenthal LLP, says single- buyer deals eliminate any appearance of impropriety.
``Nobody wants the DOJ sniffing around,'' says Flynn, who's based in New York.
A DOJ spokesperson didn't return a phone call.
The biggest buyout ever -- the $45 billion deal in February for Dallas-based power producer TXU Corp. -- took the combination of KKR and TPG Inc., formerly known as Texas Pacific Group. Such partnerships will occur less often as a growing number of private equity firms battle to distinguish themselves, says Stefan Selig, global head of mergers and acquisitions at Banc of America Securities LLC.
The best way for a firm to attract investment from a limited partner or be chosen by a company for an LBO, Selig says, is to be named in a blaring headline as the sole master of a megadeal.
Iraq: Why Has Sadr Resurfaced Now?
Radical Shiite leader Moqtada al-Sadr has returned to fill a vacuum on Iraq’s political stage. The question now is whether he’s come as a voice of opposition or reconciliation.
WEB EXCLUSIVE
By Larry Kaplow
Updated: 3:50 p.m. ET May 25, 2007
May 25, 2007 - Shiite Muslim cleric Moqtada al-Sadr made a dramatic return today to the public stage from wherever he had been hiding. After about four months out of sight, he picked an opportune time to show his might and sound his message to a movement that seems to feed off Iraq's protracted chaos.
Sadr climbed the minbar, or pulpit, of the large Kufa mosque for Friday prayers while the city was under complete and open control of Sadr's Mahdi Army militia (traffic police were the only government forces in view). His bodyguards, in beige business suits with earphones in place, stood by and his three convoys, including BMWs with tinted glass, were on hand to provide an exit and decoys.
True to form, he took after the United States and called for an end to the American presence in Iraq. Also, Sadr said he decided to "advise" the Mahdi Army to avoid conflict with Iraqi police and the army and to use peaceful tactics, though that does not indicate any call for disarming his loyalists.
But he also sounded themes that could come into play in coming weeks. He reached out to Sunni Muslims: "I specifically refer to our brothers the Iraqi Sunnis, [and say] that the occupier made a division between us and them in order to weaken the Iraqi people."
He issued a soft threat against an Iraqi government in which his own partisans were members just weeks ago, warning it to improve services like water and electricity: "If the government does not try to provide them, we will change our position, knowing that providing the services will enhance the security situation that the government claims to be trying to achieve."
A year ago, Sadr seated six ministers in the cabinet of Prime Minister Nuri al-Maliki, apparently ready to build patronage and support doling out welfare and jobs. But as the government showed itself to be more and more ineffective, the ministers pulled out, and now Sadr's statements appear to position him as a kind of opposition figure who can voice the mass's dissatisfaction with power outages, water shortages, car bombs and corruption.
His call for Shiite-Sunni unity, also not new, comes as his leadership has been holding meetings with Sunni representatives, who consider themselves Iraqi nationalists. Sadr has also portrayed himself as a nationalist—an indigenous Shiite figure compared to Iranian-backed rivals who were in exile during Saddam Hussein's regime. Like leading Sunnis, Sadr's faction wants a strong central government and hopes for local elections this year—in which they're expected to do well in some areas. Some hope he sticks to these goals and becomes a figure for reconciliation.
An expanding vacuum at the top of Iraqi politics also makes this a ripe time for an emergence by the cleric. Prime Minister Maliki is bogged down in a sweeping security operation that has not impressed most Iraqis and is tied up on legislative battles over how to share national oil revenues and amend the Constitution. One of Sadr's primary competitors for the hearts of religious Shiites is on the sidelines. Cleric Abdul Aziz Hakim, who leads the Supreme Islamic Iraqi Council, one of the major powers in the government, is reportedly being treated for lung cancer in Iran. Iraqi President Jalal Talabani is in the United States for medical care. Sadr, said to be in his 30s, appeared energetic despite the already wilting Iraqi heat.
Sadr's forces fought—and died—in great numbers against U.S. troops in 2004 and 2005. They are widely accused of sectarian attacks since the bombing of the beloved Shiite Golden Mosque in Samarra in February 2006. But he is also working the political track. One of the aides who escorted Sadr into the mosque was Nassar al-Rubaie, a Sadr politician who helped gather signatures from more than half the Parliament demanding a timetable for a U.S. withdrawal from Iraq.
Crowds were emotional and large—a few thousand—but not overflowing for the cleric's reappearance in Kufa, close to the Shiite holy city of Najaf. His return had been erroneously rumored on Fridays past, and many remained skeptical this time. When he did show, the decoy convoys weren't the only mysteries Sadr cultivated. U.S. officials claim he has been in Iran since the start of the Baghdad security plan in February. Sadr's people have given conflicting accounts of where he has been, and he did not address the issue when he spoke in the mosque. Some of Sadr's forces have tried to lay low during the increased U.S. operations, and others are splintering off to continue their attacks on U.S. forces and Sunnis.
But as Iraq's turmoil continues, its political leadership falters and its people become more desperate, the biggest mystery of all remains what the cleric plans to do next with all his options.
Radical Shiite leader Moqtada al-Sadr has returned to fill a vacuum on Iraq’s political stage. The question now is whether he’s come as a voice of opposition or reconciliation.
WEB EXCLUSIVE
By Larry Kaplow
Updated: 3:50 p.m. ET May 25, 2007
May 25, 2007 - Shiite Muslim cleric Moqtada al-Sadr made a dramatic return today to the public stage from wherever he had been hiding. After about four months out of sight, he picked an opportune time to show his might and sound his message to a movement that seems to feed off Iraq's protracted chaos.
Sadr climbed the minbar, or pulpit, of the large Kufa mosque for Friday prayers while the city was under complete and open control of Sadr's Mahdi Army militia (traffic police were the only government forces in view). His bodyguards, in beige business suits with earphones in place, stood by and his three convoys, including BMWs with tinted glass, were on hand to provide an exit and decoys.
True to form, he took after the United States and called for an end to the American presence in Iraq. Also, Sadr said he decided to "advise" the Mahdi Army to avoid conflict with Iraqi police and the army and to use peaceful tactics, though that does not indicate any call for disarming his loyalists.
But he also sounded themes that could come into play in coming weeks. He reached out to Sunni Muslims: "I specifically refer to our brothers the Iraqi Sunnis, [and say] that the occupier made a division between us and them in order to weaken the Iraqi people."
He issued a soft threat against an Iraqi government in which his own partisans were members just weeks ago, warning it to improve services like water and electricity: "If the government does not try to provide them, we will change our position, knowing that providing the services will enhance the security situation that the government claims to be trying to achieve."
A year ago, Sadr seated six ministers in the cabinet of Prime Minister Nuri al-Maliki, apparently ready to build patronage and support doling out welfare and jobs. But as the government showed itself to be more and more ineffective, the ministers pulled out, and now Sadr's statements appear to position him as a kind of opposition figure who can voice the mass's dissatisfaction with power outages, water shortages, car bombs and corruption.
His call for Shiite-Sunni unity, also not new, comes as his leadership has been holding meetings with Sunni representatives, who consider themselves Iraqi nationalists. Sadr has also portrayed himself as a nationalist—an indigenous Shiite figure compared to Iranian-backed rivals who were in exile during Saddam Hussein's regime. Like leading Sunnis, Sadr's faction wants a strong central government and hopes for local elections this year—in which they're expected to do well in some areas. Some hope he sticks to these goals and becomes a figure for reconciliation.
An expanding vacuum at the top of Iraqi politics also makes this a ripe time for an emergence by the cleric. Prime Minister Maliki is bogged down in a sweeping security operation that has not impressed most Iraqis and is tied up on legislative battles over how to share national oil revenues and amend the Constitution. One of Sadr's primary competitors for the hearts of religious Shiites is on the sidelines. Cleric Abdul Aziz Hakim, who leads the Supreme Islamic Iraqi Council, one of the major powers in the government, is reportedly being treated for lung cancer in Iran. Iraqi President Jalal Talabani is in the United States for medical care. Sadr, said to be in his 30s, appeared energetic despite the already wilting Iraqi heat.
Sadr's forces fought—and died—in great numbers against U.S. troops in 2004 and 2005. They are widely accused of sectarian attacks since the bombing of the beloved Shiite Golden Mosque in Samarra in February 2006. But he is also working the political track. One of the aides who escorted Sadr into the mosque was Nassar al-Rubaie, a Sadr politician who helped gather signatures from more than half the Parliament demanding a timetable for a U.S. withdrawal from Iraq.
Crowds were emotional and large—a few thousand—but not overflowing for the cleric's reappearance in Kufa, close to the Shiite holy city of Najaf. His return had been erroneously rumored on Fridays past, and many remained skeptical this time. When he did show, the decoy convoys weren't the only mysteries Sadr cultivated. U.S. officials claim he has been in Iran since the start of the Baghdad security plan in February. Sadr's people have given conflicting accounts of where he has been, and he did not address the issue when he spoke in the mosque. Some of Sadr's forces have tried to lay low during the increased U.S. operations, and others are splintering off to continue their attacks on U.S. forces and Sunnis.
But as Iraq's turmoil continues, its political leadership falters and its people become more desperate, the biggest mystery of all remains what the cleric plans to do next with all his options.
Afghanistan Should Talk to Taliban, Musharraf Says (Update1)
By Paul Tighe
May 24 (Bloomberg) -- Afghanistan's government should hold talks with the Taliban movement as part of a new strategy to bring peace to the South Asian country, Pakistan's President Pervez Musharraf said.
Peace will not be found through the barrel of a gun, Musharraf told Canada's Globe and Mail newspaper yesterday, according to transcript of the interview.
``Warring factions are the Afghan government and coalition forces on one side and the militant Taliban and even non- Taliban,'' Musharraf said. ``Some form of negotiation'' is needed between the two sides.
Pakistan and Afghanistan are trying to repair relations soured by accusations that each side is failing to control security on their 2,430-kilometer (1,510-mile) border. The Taliban, ousted from power in 2001, stepped up its insurgency in Afghanistan's southern and eastern provinces last year in response to military operations led by NATO's International Security Assistance Force.
``We have to have a multipronged strategy,'' Musharraf said, according to the Globe and Mail's Web site. ``In Afghanistan, it is only the military strategy which is working now.''
Pakistan is the only country implementing a strategy to defeat terrorism and extremism using military, political and economic development elements, Musharraf said.
Talks in Turkey
Musharraf and Afghan President Hamid Karzai met last month in the Turkish city of Ankara and agreed to boost cooperation in the fight against terrorism, including denying sanctuary, training and financing to gunmen.
Karzai has criticized Pakistan for failing to stop Taliban and al-Qaeda fighters using camps in the tribal region bordering Afghanistan. Musharraf rejects the accusation and points to the 80,000 soldiers Pakistan has deployed in the region and the 1,000 military posts it has established on the frontier.
Musharraf has said that, while controls on the Afghan- Pakistani border need to be improved, Afghan and international forces must support the effort from inside Afghan territory.
Pakistani and Afghan troops have clashed twice in the border region since Musharraf and Karzai met. The countries accused each other of sending soldiers across the border.
The Taliban-led insurgency in Afghanistan remains a ``capable and resilient threat to stability,'' the U.S. State Department said in a report issued last month in Washington by the Office of the Coordinator for Counterterrorism.
Drug Trafficking
The Taliban are receiving ``reliable streams'' of financing, in part from working with drug traffickers, and have havens in Pakistan's Federally Administered Tribal Areas bordering Afghanistan, the office said in the report.
``Pakistan remains a major source of Islamic extremism and a safe haven for some top terrorist leaders,'' it said. ``Despite having approximately 80,000 troops in the FATA, including Army and Frontier Corps. units, the government of Pakistan has been unable to exert control over the area.''
Musharraf joined the U.S.-led war on terrorism in 2001 when he ended Pakistan's support for the Taliban regime that sheltered al-Qaeda leader Osama bin Laden.
He has defended agreements his government reached with tribal leaders in North and South Waziristan to expel non- Pakistani fighters and said last month that 300 gunmen were killed by tribesmen in recent weeks.
Tribal Leaders
Pakistan's strategy is to identify pro-government tribal leaders and negotiate with them, Musharraf said in the newspaper interview. ``That's the strategy that should have been adopted a long time back,'' he said. ``But we left the field open for the Taliban so everyone is now suppressed and they are scared. Either they have joined them or they are lying low.''
Pakistan last year rejected a report by the Brussels-based International Crisis Group, an organization that tries to resolve conflicts, that said the accords with tribal leaders boosted the activities of al-Qaeda and the Taliban because they curbed army operations.
Musharraf, who has stressed that Pakistan must follow a path of moderation and defeat extremism, is facing opposition from Pakistan's Islamist groups over his support for the U.S.-led war on terrorism.
Maulana Mohammad Abdul Aziz, the chief cleric at Islamabad's Lal Masjid, or Red Mosque, set up a court on the premises last month, saying he wanted to bring the capital under Islamic law. Deputy mosque leader Abdul Rashid Ghazi said the government would face a Taliban-style revolt if it tried to resist the move, Agence France-Presse reported.
``If the government tries to suppress the change that our movement is demanding, then there is a likelihood of Talibanization,'' AFP cited Ghazi as saying yesterday. ``The system we want is an Islamic system.''
By Paul Tighe
May 24 (Bloomberg) -- Afghanistan's government should hold talks with the Taliban movement as part of a new strategy to bring peace to the South Asian country, Pakistan's President Pervez Musharraf said.
Peace will not be found through the barrel of a gun, Musharraf told Canada's Globe and Mail newspaper yesterday, according to transcript of the interview.
``Warring factions are the Afghan government and coalition forces on one side and the militant Taliban and even non- Taliban,'' Musharraf said. ``Some form of negotiation'' is needed between the two sides.
Pakistan and Afghanistan are trying to repair relations soured by accusations that each side is failing to control security on their 2,430-kilometer (1,510-mile) border. The Taliban, ousted from power in 2001, stepped up its insurgency in Afghanistan's southern and eastern provinces last year in response to military operations led by NATO's International Security Assistance Force.
``We have to have a multipronged strategy,'' Musharraf said, according to the Globe and Mail's Web site. ``In Afghanistan, it is only the military strategy which is working now.''
Pakistan is the only country implementing a strategy to defeat terrorism and extremism using military, political and economic development elements, Musharraf said.
Talks in Turkey
Musharraf and Afghan President Hamid Karzai met last month in the Turkish city of Ankara and agreed to boost cooperation in the fight against terrorism, including denying sanctuary, training and financing to gunmen.
Karzai has criticized Pakistan for failing to stop Taliban and al-Qaeda fighters using camps in the tribal region bordering Afghanistan. Musharraf rejects the accusation and points to the 80,000 soldiers Pakistan has deployed in the region and the 1,000 military posts it has established on the frontier.
Musharraf has said that, while controls on the Afghan- Pakistani border need to be improved, Afghan and international forces must support the effort from inside Afghan territory.
Pakistani and Afghan troops have clashed twice in the border region since Musharraf and Karzai met. The countries accused each other of sending soldiers across the border.
The Taliban-led insurgency in Afghanistan remains a ``capable and resilient threat to stability,'' the U.S. State Department said in a report issued last month in Washington by the Office of the Coordinator for Counterterrorism.
Drug Trafficking
The Taliban are receiving ``reliable streams'' of financing, in part from working with drug traffickers, and have havens in Pakistan's Federally Administered Tribal Areas bordering Afghanistan, the office said in the report.
``Pakistan remains a major source of Islamic extremism and a safe haven for some top terrorist leaders,'' it said. ``Despite having approximately 80,000 troops in the FATA, including Army and Frontier Corps. units, the government of Pakistan has been unable to exert control over the area.''
Musharraf joined the U.S.-led war on terrorism in 2001 when he ended Pakistan's support for the Taliban regime that sheltered al-Qaeda leader Osama bin Laden.
He has defended agreements his government reached with tribal leaders in North and South Waziristan to expel non- Pakistani fighters and said last month that 300 gunmen were killed by tribesmen in recent weeks.
Tribal Leaders
Pakistan's strategy is to identify pro-government tribal leaders and negotiate with them, Musharraf said in the newspaper interview. ``That's the strategy that should have been adopted a long time back,'' he said. ``But we left the field open for the Taliban so everyone is now suppressed and they are scared. Either they have joined them or they are lying low.''
Pakistan last year rejected a report by the Brussels-based International Crisis Group, an organization that tries to resolve conflicts, that said the accords with tribal leaders boosted the activities of al-Qaeda and the Taliban because they curbed army operations.
Musharraf, who has stressed that Pakistan must follow a path of moderation and defeat extremism, is facing opposition from Pakistan's Islamist groups over his support for the U.S.-led war on terrorism.
Maulana Mohammad Abdul Aziz, the chief cleric at Islamabad's Lal Masjid, or Red Mosque, set up a court on the premises last month, saying he wanted to bring the capital under Islamic law. Deputy mosque leader Abdul Rashid Ghazi said the government would face a Taliban-style revolt if it tried to resist the move, Agence France-Presse reported.
``If the government tries to suppress the change that our movement is demanding, then there is a likelihood of Talibanization,'' AFP cited Ghazi as saying yesterday. ``The system we want is an Islamic system.''
Michigan's Budget Crisis Puts Job-Starved State at Crossroads
By John Lippert and Mike Ramsey
May 24 (Bloomberg) -- Michigan, bleeding jobs even as its Rust Belt neighbors begin to prosper, has an $803 million hole in this year's state budget that could force layoffs of government workers and cutbacks for schools and health care starting June 1.
That's when the state's cash flow will dry up, as it faces a fiscal crisis rooted in dependence on General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler unit. The three carmakers lost a combined $15.3 billion last year. Michigan and hurricane-ravaged Louisiana were the only two U.S. states to shed jobs in 2006.
The revenue gap also is a legacy of two decades of tax cuts. As they struggle to balance the budget, Democratic Governor Jennifer Granholm and Republican lawmakers are arguing over what blend of tax increases and spending cuts is conducive to economic revival.
``We're at the moment when we will decide what the next Michigan will be,'' Granholm, 48, said in an interview. ``This crisis is a great opportunity to rise from the ashes, to diversify the economy in a way that builds on our natural strengths and history as the automotive capital of the world.''
Historically, Michigan and its auto industry rode the ups and downs of the U.S. economy. This time, it's different.
Shrinking Market Share
Michigan was been left behind as the U.S. economy expanded because of Detroit's diminishing clout among world automakers. Japan's Toyota Motor Corp. captured 15.6 percent of U.S. sales in January-April, up from 7.3 percent in 1995.
Dana Johnson, Detroit-based Comerica Bank's chief economist, predicted that federal data next month will show Michigan in a recession, with a 1.2 percent economic decline in 2006.
Michigan's six-year string of job losses, including 246,000 in manufacturing, is the longest since the Great Depression. Since 2004, non-farm employment fell 1.7 percent in Michigan while rising 3 percent in Illinois, 2.4 percent in Indiana, 0.7 percent in Ohio and 5.2 percent nationwide.
Joan Crary, a University of Michigan economist, said she expects Michigan to keep losing jobs until at least 2009.
The state budget outlook is just as bleak. Two days ago, Standard & Poor's cut Michigan's general obligation bond rating for the third time since 2003, to AA-, citing ``additional revenue shortfalls driven by ongoing economic weakness and a lack of timely progress'' in budget negotiations.
Wider Gap
Four days earlier, the Granholm administration and legislative economists said the gap in the $22.3 billion general fund and school budget was worse than had been estimated. For the year ending Sept. 30, the deficit is projected at $803 million, up from $723 million.
For fiscal 2008, the gap is forecast to be $1.6 billion, $300 million more than before. It will get even bigger unless the state finds a way to replace $1.9 billion in annual revenue from a recently repealed business tax.
Granholm has said the $7,108 per student paid to Michigan's schools will be reduced by as much as $122 if a budget compromise isn't reached by June 1. Medicaid provider fees would be trimmed 6 percent. On May 22, state employee unions were given 30-day notices of possible layoffs, said Liz Boyd, a Granholm spokeswoman.
Estate Tax
Granholm and Democrats are proposing revenue-raising ideas such as a 2 percent sales tax on services, an estate tax on Michigan's 350 wealthiest families, and higher liquor and tobacco taxes.
``Nothing is off the table,'' said Greg Bird, a Michigan Budget Office spokesman.
The state needs money for economic incentives to woo new business and for education investment to make its workforce attractive to employers, Granholm said. Mike Bishop, leader of the State Senate's Republican majority, said Michigan can't tax its way to prosperity.
``We don't have the ability to invest, because our economy is not healthy,'' he said.
When Granholm talks about a potential new industrial base, she points to a $1 billion expansion announced May 3 by Hemlock Semiconductor Corp., a joint venture between Midland, Michigan- based Dow Corning Corp. and Japan's Shin-Etsu Chemical Co. and Mitsubishi Materials Corp. The expansion will add 500 jobs near Saginaw.
State Aid
Granholm and local governments contributed $250 million in training grants and tax abatements. The governor said she hopes to leverage that investment by attracting companies that use Hemlock's silicon to make devices such as solar panels.
``You've got the global leader in silicon-based materials,'' said Stephanie Burns, 52, Dow Corning's chief executive. ``It's a great opportunity to attract other business along the entire solar value chain.''
Granholm also is seeking makers of fuel-cell engines and alternative fuels such as ethanol. Incentives would come partly from a $2 billion bond fund for new business financed by a 1998 settlement with tobacco companies.
Lou Glazer, president of Michigan Future Inc., a nonprofit think tank, said he is concerned that neither side has made proposals to turn the state around.
``The debate is about managing the decline,'' he said.
Johnson, the Comerica Bank economist, said the budget crisis must be solved so businesses can plan for the future.
``I feel pretty confident that once the bleeding stops in the auto industry, that Michigan's economy will begin to grow again,'' he said.
By John Lippert and Mike Ramsey
May 24 (Bloomberg) -- Michigan, bleeding jobs even as its Rust Belt neighbors begin to prosper, has an $803 million hole in this year's state budget that could force layoffs of government workers and cutbacks for schools and health care starting June 1.
That's when the state's cash flow will dry up, as it faces a fiscal crisis rooted in dependence on General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler unit. The three carmakers lost a combined $15.3 billion last year. Michigan and hurricane-ravaged Louisiana were the only two U.S. states to shed jobs in 2006.
The revenue gap also is a legacy of two decades of tax cuts. As they struggle to balance the budget, Democratic Governor Jennifer Granholm and Republican lawmakers are arguing over what blend of tax increases and spending cuts is conducive to economic revival.
``We're at the moment when we will decide what the next Michigan will be,'' Granholm, 48, said in an interview. ``This crisis is a great opportunity to rise from the ashes, to diversify the economy in a way that builds on our natural strengths and history as the automotive capital of the world.''
Historically, Michigan and its auto industry rode the ups and downs of the U.S. economy. This time, it's different.
Shrinking Market Share
Michigan was been left behind as the U.S. economy expanded because of Detroit's diminishing clout among world automakers. Japan's Toyota Motor Corp. captured 15.6 percent of U.S. sales in January-April, up from 7.3 percent in 1995.
Dana Johnson, Detroit-based Comerica Bank's chief economist, predicted that federal data next month will show Michigan in a recession, with a 1.2 percent economic decline in 2006.
Michigan's six-year string of job losses, including 246,000 in manufacturing, is the longest since the Great Depression. Since 2004, non-farm employment fell 1.7 percent in Michigan while rising 3 percent in Illinois, 2.4 percent in Indiana, 0.7 percent in Ohio and 5.2 percent nationwide.
Joan Crary, a University of Michigan economist, said she expects Michigan to keep losing jobs until at least 2009.
The state budget outlook is just as bleak. Two days ago, Standard & Poor's cut Michigan's general obligation bond rating for the third time since 2003, to AA-, citing ``additional revenue shortfalls driven by ongoing economic weakness and a lack of timely progress'' in budget negotiations.
Wider Gap
Four days earlier, the Granholm administration and legislative economists said the gap in the $22.3 billion general fund and school budget was worse than had been estimated. For the year ending Sept. 30, the deficit is projected at $803 million, up from $723 million.
For fiscal 2008, the gap is forecast to be $1.6 billion, $300 million more than before. It will get even bigger unless the state finds a way to replace $1.9 billion in annual revenue from a recently repealed business tax.
Granholm has said the $7,108 per student paid to Michigan's schools will be reduced by as much as $122 if a budget compromise isn't reached by June 1. Medicaid provider fees would be trimmed 6 percent. On May 22, state employee unions were given 30-day notices of possible layoffs, said Liz Boyd, a Granholm spokeswoman.
Estate Tax
Granholm and Democrats are proposing revenue-raising ideas such as a 2 percent sales tax on services, an estate tax on Michigan's 350 wealthiest families, and higher liquor and tobacco taxes.
``Nothing is off the table,'' said Greg Bird, a Michigan Budget Office spokesman.
The state needs money for economic incentives to woo new business and for education investment to make its workforce attractive to employers, Granholm said. Mike Bishop, leader of the State Senate's Republican majority, said Michigan can't tax its way to prosperity.
``We don't have the ability to invest, because our economy is not healthy,'' he said.
When Granholm talks about a potential new industrial base, she points to a $1 billion expansion announced May 3 by Hemlock Semiconductor Corp., a joint venture between Midland, Michigan- based Dow Corning Corp. and Japan's Shin-Etsu Chemical Co. and Mitsubishi Materials Corp. The expansion will add 500 jobs near Saginaw.
State Aid
Granholm and local governments contributed $250 million in training grants and tax abatements. The governor said she hopes to leverage that investment by attracting companies that use Hemlock's silicon to make devices such as solar panels.
``You've got the global leader in silicon-based materials,'' said Stephanie Burns, 52, Dow Corning's chief executive. ``It's a great opportunity to attract other business along the entire solar value chain.''
Granholm also is seeking makers of fuel-cell engines and alternative fuels such as ethanol. Incentives would come partly from a $2 billion bond fund for new business financed by a 1998 settlement with tobacco companies.
Lou Glazer, president of Michigan Future Inc., a nonprofit think tank, said he is concerned that neither side has made proposals to turn the state around.
``The debate is about managing the decline,'' he said.
Johnson, the Comerica Bank economist, said the budget crisis must be solved so businesses can plan for the future.
``I feel pretty confident that once the bleeding stops in the auto industry, that Michigan's economy will begin to grow again,'' he said.
Funeral procession bombed in Iraq
By STEVEN R. HURST, Associated Press Writer
Thu May 24, 6:24 PM ET
A bomb hidden in a parked car struck the funeral procession of a Sunni tribal leader who was gunned down earlier Thursday, killing at least 26 mourners as al-Qaida appeared to turn up its campaign of frightening its growing opposition into submission.
The attack in Fallujah, 40 miles west of Baghdad, targeted the passing procession for Alaa Zuwaid, a 60-year-old restaurant owner who was part of a Sunni tribe that had formed an alliance with other tribal leaders against al-Qaida. Police and medical officials said 45 other people were wounded in the bombing.
Zuwaid was killed that morning when militants shot him in front of his house, police said — nearly a month after his 25-year-old son was slain as he walked down the street.
In all, 87 people were killed or found dead in sectarian violence across Iraq on Thursday.
In Washington, President Bush told a news conference he supported a $120 billion Iraq war spending bill that was on track to pass Congress, ending weeks of wrangling with congressional Democrats on how long U.S. troops should stay.
The bill funds the war through September as Bush wanted and does not set a date for troop withdrawals. In exchange for dropping restrictions on the military, Bush agreed to some $17 billion in spending added by Democrats to fund domestic and military-related projects.
"By voting for this bill, members of both parties can show our troops and the Iraqis and the enemy that our country will support our service men and women in harm's way," Bush said.
Iraqi Prime Minister Nouri al-Maliki, meanwhile, asked Parliament to approve six new Cabinet ministers, all independents, to replace a group loyal to radical Shiite cleric Muqtada al-Sadr that resigned on his orders last month.
There was no quorum and a vote on the nominees was put off until Sunday.
Al-Sadr, who went into hiding in Iran at the start of the Baghdad security crackdown, ordered his ministers to quit the government over al-Maliki's refusal to call for a timetable for U.S. withdrawal.
Thousands of U.S. and Iraqi troops pressed their search through the fields of southern Iraq in scorching temperatures, and the military said it would not call off the hunt for two missing U.S. soldiers.
The body of a third soldier — 20-year-old Pfc. Joseph Anzack Jr., missing since a May 12 ambush claimed by al-Qaida — was pulled from the Euphrates River and identified Wednesday.
Members of Anzack's platoon choked back tears at news of his death and said they would not stop looking for the two others.
"We can't leave them behind. I just hope that they have enough faith to keep them going. What they're going through right now, I can't imagine," said Pfc. Sammy Rhodes, 25, of Albuquerque, N.M.
The U.S. military also announced Thursday that two U.S. soldiers were killed the day before while conducting combat operations in Iraq's volatile Anbar Province. Those deaths raised the American death toll for the month to at least 82. Last month, 104 U.S. troops were killed in Iraq.
In other violence, gunmen attacked a small bus in a predominantly Shiite region on the northern outskirts of Baghdad, killing 11 passengers. Then the gunmen planted a bomb on the bus, which they exploded when police arrived. Four policemen were wounded.
A suicide bomber detonated a bomb aboard another small bus driving through Baghdad, killing three civilians and wounding eight, police said.
In Sulaiman Bek, 75 miles south of the northern city of Kirkuk, a roadside bomb an Iraqi police convoy killed six police officers Thursday morning, Iraqi police said.
By STEVEN R. HURST, Associated Press Writer
Thu May 24, 6:24 PM ET
A bomb hidden in a parked car struck the funeral procession of a Sunni tribal leader who was gunned down earlier Thursday, killing at least 26 mourners as al-Qaida appeared to turn up its campaign of frightening its growing opposition into submission.
The attack in Fallujah, 40 miles west of Baghdad, targeted the passing procession for Alaa Zuwaid, a 60-year-old restaurant owner who was part of a Sunni tribe that had formed an alliance with other tribal leaders against al-Qaida. Police and medical officials said 45 other people were wounded in the bombing.
Zuwaid was killed that morning when militants shot him in front of his house, police said — nearly a month after his 25-year-old son was slain as he walked down the street.
In all, 87 people were killed or found dead in sectarian violence across Iraq on Thursday.
In Washington, President Bush told a news conference he supported a $120 billion Iraq war spending bill that was on track to pass Congress, ending weeks of wrangling with congressional Democrats on how long U.S. troops should stay.
The bill funds the war through September as Bush wanted and does not set a date for troop withdrawals. In exchange for dropping restrictions on the military, Bush agreed to some $17 billion in spending added by Democrats to fund domestic and military-related projects.
"By voting for this bill, members of both parties can show our troops and the Iraqis and the enemy that our country will support our service men and women in harm's way," Bush said.
Iraqi Prime Minister Nouri al-Maliki, meanwhile, asked Parliament to approve six new Cabinet ministers, all independents, to replace a group loyal to radical Shiite cleric Muqtada al-Sadr that resigned on his orders last month.
There was no quorum and a vote on the nominees was put off until Sunday.
Al-Sadr, who went into hiding in Iran at the start of the Baghdad security crackdown, ordered his ministers to quit the government over al-Maliki's refusal to call for a timetable for U.S. withdrawal.
Thousands of U.S. and Iraqi troops pressed their search through the fields of southern Iraq in scorching temperatures, and the military said it would not call off the hunt for two missing U.S. soldiers.
The body of a third soldier — 20-year-old Pfc. Joseph Anzack Jr., missing since a May 12 ambush claimed by al-Qaida — was pulled from the Euphrates River and identified Wednesday.
Members of Anzack's platoon choked back tears at news of his death and said they would not stop looking for the two others.
"We can't leave them behind. I just hope that they have enough faith to keep them going. What they're going through right now, I can't imagine," said Pfc. Sammy Rhodes, 25, of Albuquerque, N.M.
The U.S. military also announced Thursday that two U.S. soldiers were killed the day before while conducting combat operations in Iraq's volatile Anbar Province. Those deaths raised the American death toll for the month to at least 82. Last month, 104 U.S. troops were killed in Iraq.
In other violence, gunmen attacked a small bus in a predominantly Shiite region on the northern outskirts of Baghdad, killing 11 passengers. Then the gunmen planted a bomb on the bus, which they exploded when police arrived. Four policemen were wounded.
A suicide bomber detonated a bomb aboard another small bus driving through Baghdad, killing three civilians and wounding eight, police said.
In Sulaiman Bek, 75 miles south of the northern city of Kirkuk, a roadside bomb an Iraqi police convoy killed six police officers Thursday morning, Iraqi police said.
RBS to Decide ABN Offer on May 29
May 25, 2007 1:42 PM ET
AMSTERDAM, Netherlands (AP) - A consortium of banks led by Royal Bank of Scotland PLC will decide by May 29 whether it will make an official bid for the Netherlands' ABN Amro, it said in a statement Friday.
The RBS-led banks had previously said they would decide by May 27 whether they would push ahead with a hostile bid to beat Barclays PLC's friendly all-share offer worth around 61.9 billion euros ($83.3 billion).
In a short statement, the consortium banks said they were pushing back the date because Monday is a holiday in Britain, Belgium and the Netherlands.
They said on the 29th they will "make an announcement...clarifying whether or not, and if so under what circumstances" they will bid for ABN Amro Holding NV. Previously, the banks had said they planned to make a mostly cash offer worth around 38.40 euros per ABN Amro share, or 69.9 billion euros ($94.1 billion).
Barclays CEO John Varley says its offer is a merger, while an RBS takeover would amount to a carve-up of ABN: RBS's partners are Belgian-Dutch bank Fortis NV, which wants ABN's Dutch operations, and Spanish bank Banco Santander Central Hispano SA, which wants ABN's Brazilian and Italian arms.
The fight to acquire ABN Amro has been mired since ABN's management agreed on the side to sell its U.S. arm, LaSalle Bank Corp. of Chicago, to Bank of America Corp. for $21 billion, with the proceeds going to Barclays.
That was widely seen as a poison pill measure to ward off the hostile bid from RBS, which also wants LaSalle.
A Dutch court froze the LaSalle deal, ruling that ABN's management had overstepped its bounds by agreeing to it without consulting shareholders. But Bank of America filed suit in the United States to ensure the deal goes through, arguing that its purchase contract is binding.
Hearings in the U.S. case and three separate appeals of the Dutch ruling are pending, and threaten to drag on for months or even years. RBS and BofA have declined to comment on reports they are working on a compromise in the meantime.
ABN shares rose 0.85 percent to 35.80 euros ($48.13) in Amsterdam Friday. That's above Barclays' offer, which is worth around 33.86 euros ($45.52) per share at current prices, but well below the level of the prospective RBS bid, suggesting investors are unsure which will prevail.
May 25, 2007 1:42 PM ET
AMSTERDAM, Netherlands (AP) - A consortium of banks led by Royal Bank of Scotland PLC will decide by May 29 whether it will make an official bid for the Netherlands' ABN Amro, it said in a statement Friday.
The RBS-led banks had previously said they would decide by May 27 whether they would push ahead with a hostile bid to beat Barclays PLC's friendly all-share offer worth around 61.9 billion euros ($83.3 billion).
In a short statement, the consortium banks said they were pushing back the date because Monday is a holiday in Britain, Belgium and the Netherlands.
They said on the 29th they will "make an announcement...clarifying whether or not, and if so under what circumstances" they will bid for ABN Amro Holding NV. Previously, the banks had said they planned to make a mostly cash offer worth around 38.40 euros per ABN Amro share, or 69.9 billion euros ($94.1 billion).
Barclays CEO John Varley says its offer is a merger, while an RBS takeover would amount to a carve-up of ABN: RBS's partners are Belgian-Dutch bank Fortis NV, which wants ABN's Dutch operations, and Spanish bank Banco Santander Central Hispano SA, which wants ABN's Brazilian and Italian arms.
The fight to acquire ABN Amro has been mired since ABN's management agreed on the side to sell its U.S. arm, LaSalle Bank Corp. of Chicago, to Bank of America Corp. for $21 billion, with the proceeds going to Barclays.
That was widely seen as a poison pill measure to ward off the hostile bid from RBS, which also wants LaSalle.
A Dutch court froze the LaSalle deal, ruling that ABN's management had overstepped its bounds by agreeing to it without consulting shareholders. But Bank of America filed suit in the United States to ensure the deal goes through, arguing that its purchase contract is binding.
Hearings in the U.S. case and three separate appeals of the Dutch ruling are pending, and threaten to drag on for months or even years. RBS and BofA have declined to comment on reports they are working on a compromise in the meantime.
ABN shares rose 0.85 percent to 35.80 euros ($48.13) in Amsterdam Friday. That's above Barclays' offer, which is worth around 33.86 euros ($45.52) per share at current prices, but well below the level of the prospective RBS bid, suggesting investors are unsure which will prevail.
Topics That Make Money Managers Get All Sentimental
May 25, 2007
By JENNY ANDERSON
IT takes all kinds of investors to make a market, or so it seemed at a conference this week of the crème de la crème of money managers. Typically a reclusive bunch, the managers agreed to offer up a few of their investment ideas to a roomful of attentive money managers in an effort to raise money for pediatric cancer and other childhood diseases.
With hedge funds complaining that it has never been harder to make money, the crowd of nearly 1,000 sat glued to their seats, with papers rustling and BlackBerrys clicking as soon as a name of a stock was mentioned. The ideas included Google, coal, real estate investment trusts, and the bond insurers exposed to subprime debt.
Since Douglas Hirsch, Daniel Nir and Lance Laifer founded the Ira W. Sohn Investment Research Conference 12 years ago, it has been an “It” event in hedge fund circles. It is like the Robin Hood benefit dinner, but without the auction and with some stock ideas to take home.
The event attracts some of the best-known money managers, many of whom successfully avoid all possible publicity, willing to talk about the thing near and dear to any money manager’s heart: investment ideas. (Steven A. Cohen of SAC Capital gave a presentation a few years ago and started by saying that he had not spoken to so many people at once since his bar mitzvah.)
Add to that the fact that a lot of the money raised by the conference goes to the Tomorrow’s Children Fund, a charity devoted to helping children with cancer and their families, and it lends the conference an almost rock concert feel.
This year’s lineup was another who’s who in hedge fund land, including Steve Mandel of Lone Pine Capital; Dinakar Singh of TPG-Axon Capital; David Einhorn of Greenlight Capital; and Larry Robbins of Glenview Capital Management.
Mr. Robbins started his presentation with a slide entitled “Honey, I LBO’d the kids,” and went on to joke that if a rumor were started that Blackstone was going to buy out Kohlberg Kravis Roberts, it would probably happen in a month.
Bill Miller, the money manager who beat the Standard & Poor’s 500-stock index for 15 years running until last year, noted that the market was indeed puzzling: How is it that both he and James Chanos, the short seller who catapulted to fame by questioning Enron, have successful businesses even though they are always on opposite sides of the same stocks?
Mr. Mandel from Lone Pine, a widely admired yet extremely private manager, made a strong case for Google, suggesting that paid search is still in “its early innings.”
William Ackman of Pershing Square Capital Management, a passionate activist who has made successful and well-publicized investments in Sears, Wendy’s and McDonald’s, condensed an hourlong presentation on the architecture of the meltdown in the subprime mortgage market into 20 minutes.
He explained how Wall Street created collateralized debt obligations to buy up risky paper, pool it and make it less risky, in turn enabling more reckless lending. He highlighted the conflicted role of the rating agencies (they are paid to rate things, not to be right) and deconstructed the high levels of leverage and low capital bases underlying the bond insurers, namely MBIA and Ambac. He is short the stock of both.
Mr. Chanos was unequivocal in his prediction that the current LBO boom would end in tears. He voiced concern about the number of large institutions, like endowments and pension funds that are reducing their exposure to stocks but increasing their allocation to private equity — high-fee pools of capital that are buying up large-cap stocks at large premiums. The institutions, he said, mistakenly think that they are lowering their correlations to the market.
Mr. Chanos’s short idea was Macquarie Bank, an Australian bank that has made a lot of money by raising big investment funds, using the money to buy expensive assets at soaring premiums and selling to separate Macquarie entities and capturing a lot of fees along the way. He drew some comparisons between Enron and Macquarie — whose business model Wall Street is desperately trying to replicate. A spokesman for the bank rejected Mr. Chanos’s observations.
Wilbur Ross, who has made a fortune on contrarian bets in out-of-favor industries, made the case for coal, a very out-of-favor industry. (He said that his wife had accused him of trying to reinvent the 19th century.)
Mr. Ross predicted that the current inventory glut would be corrected by the fourth quarter of 2007 and suggested that coal would gain a larger share of electricity generation. Mr. Ross acknowledged the environmental issues, but argued that coal could be made clean. He also predicted that Congress would not do anything punitive. “If they do, the public will have to choose between green and lights out,” he said.
Mr. Singh, who once ran Goldman Sachs’s principal strategies trading, predicted that the shift away from an “exaggerated U.S. focus” would continue and identified value in Europe through restructuring plays, notably in chemicals. In the United States, he likes noncredit-sensitive financial stocks, recommending the American International Group.
The event was not all about investing ideas. Joel Greenblatt and his business partner, Robert Goldstein, announced the Gotham Prize for Cancer Research, a $1 million annual award to be given to innovative approaches to cancer research by a panel of scientists.
While there were all sorts of reverential notes made to the money managers, the only standing ovation of the day went to Mark Messier, the hockey star, who works closely with the Tomorrow’s Children fund. Mr. Messier, visibly moved, talked about what it was like to spend time with young cancer victims and their families. It takes all types to finance a cause.
May 25, 2007
By JENNY ANDERSON
IT takes all kinds of investors to make a market, or so it seemed at a conference this week of the crème de la crème of money managers. Typically a reclusive bunch, the managers agreed to offer up a few of their investment ideas to a roomful of attentive money managers in an effort to raise money for pediatric cancer and other childhood diseases.
With hedge funds complaining that it has never been harder to make money, the crowd of nearly 1,000 sat glued to their seats, with papers rustling and BlackBerrys clicking as soon as a name of a stock was mentioned. The ideas included Google, coal, real estate investment trusts, and the bond insurers exposed to subprime debt.
Since Douglas Hirsch, Daniel Nir and Lance Laifer founded the Ira W. Sohn Investment Research Conference 12 years ago, it has been an “It” event in hedge fund circles. It is like the Robin Hood benefit dinner, but without the auction and with some stock ideas to take home.
The event attracts some of the best-known money managers, many of whom successfully avoid all possible publicity, willing to talk about the thing near and dear to any money manager’s heart: investment ideas. (Steven A. Cohen of SAC Capital gave a presentation a few years ago and started by saying that he had not spoken to so many people at once since his bar mitzvah.)
Add to that the fact that a lot of the money raised by the conference goes to the Tomorrow’s Children Fund, a charity devoted to helping children with cancer and their families, and it lends the conference an almost rock concert feel.
This year’s lineup was another who’s who in hedge fund land, including Steve Mandel of Lone Pine Capital; Dinakar Singh of TPG-Axon Capital; David Einhorn of Greenlight Capital; and Larry Robbins of Glenview Capital Management.
Mr. Robbins started his presentation with a slide entitled “Honey, I LBO’d the kids,” and went on to joke that if a rumor were started that Blackstone was going to buy out Kohlberg Kravis Roberts, it would probably happen in a month.
Bill Miller, the money manager who beat the Standard & Poor’s 500-stock index for 15 years running until last year, noted that the market was indeed puzzling: How is it that both he and James Chanos, the short seller who catapulted to fame by questioning Enron, have successful businesses even though they are always on opposite sides of the same stocks?
Mr. Mandel from Lone Pine, a widely admired yet extremely private manager, made a strong case for Google, suggesting that paid search is still in “its early innings.”
William Ackman of Pershing Square Capital Management, a passionate activist who has made successful and well-publicized investments in Sears, Wendy’s and McDonald’s, condensed an hourlong presentation on the architecture of the meltdown in the subprime mortgage market into 20 minutes.
He explained how Wall Street created collateralized debt obligations to buy up risky paper, pool it and make it less risky, in turn enabling more reckless lending. He highlighted the conflicted role of the rating agencies (they are paid to rate things, not to be right) and deconstructed the high levels of leverage and low capital bases underlying the bond insurers, namely MBIA and Ambac. He is short the stock of both.
Mr. Chanos was unequivocal in his prediction that the current LBO boom would end in tears. He voiced concern about the number of large institutions, like endowments and pension funds that are reducing their exposure to stocks but increasing their allocation to private equity — high-fee pools of capital that are buying up large-cap stocks at large premiums. The institutions, he said, mistakenly think that they are lowering their correlations to the market.
Mr. Chanos’s short idea was Macquarie Bank, an Australian bank that has made a lot of money by raising big investment funds, using the money to buy expensive assets at soaring premiums and selling to separate Macquarie entities and capturing a lot of fees along the way. He drew some comparisons between Enron and Macquarie — whose business model Wall Street is desperately trying to replicate. A spokesman for the bank rejected Mr. Chanos’s observations.
Wilbur Ross, who has made a fortune on contrarian bets in out-of-favor industries, made the case for coal, a very out-of-favor industry. (He said that his wife had accused him of trying to reinvent the 19th century.)
Mr. Ross predicted that the current inventory glut would be corrected by the fourth quarter of 2007 and suggested that coal would gain a larger share of electricity generation. Mr. Ross acknowledged the environmental issues, but argued that coal could be made clean. He also predicted that Congress would not do anything punitive. “If they do, the public will have to choose between green and lights out,” he said.
Mr. Singh, who once ran Goldman Sachs’s principal strategies trading, predicted that the shift away from an “exaggerated U.S. focus” would continue and identified value in Europe through restructuring plays, notably in chemicals. In the United States, he likes noncredit-sensitive financial stocks, recommending the American International Group.
The event was not all about investing ideas. Joel Greenblatt and his business partner, Robert Goldstein, announced the Gotham Prize for Cancer Research, a $1 million annual award to be given to innovative approaches to cancer research by a panel of scientists.
While there were all sorts of reverential notes made to the money managers, the only standing ovation of the day went to Mark Messier, the hockey star, who works closely with the Tomorrow’s Children fund. Mr. Messier, visibly moved, talked about what it was like to spend time with young cancer victims and their families. It takes all types to finance a cause.
Assad grows into role of Syria's iron ruler
By Hassan M. Fattah
Published: May 24, 2007
IHT
DAMASCUS: Inside the tent, the trappings of a modern election campaign were on display - jingles playing, flags waving, confetti coating the floor and posters of President Bashar al-Assad hanging near the stage.
Outside, however, Syria's realities were evident. Government security men manhandled anyone trying to come in and blocked reporters from covering the rally - one of several held across the country recently - funded by one of Syria's most powerful oligarchs. The sparse crowd hinted at growing popular fear of the future, and apathy about Syrian politics.
Only a year ago, Assad faced so many troubles that some Syrians began questioning his political survival.
His troops had been forced out of Lebanon, his government faced allegations of collusion in the assassination of former Prime Minister Rafik Hariri of Lebanon, and the Bush administration had imposed sanctions that affected everything from the fleet of Boeings in Syria's national airline to medical equipment used in hospitals. Waning oil reserves hinted at economic collapse and the European Union delayed signing a much-needed trade agreement.
But as he prepares to be overwhelmingly "re-elected" on Sunday to a second seven-year term, Assad seems very much in control, with his rivals isolated, his critics increasingly in prison or fearing retribution, and international pressure having eased significantly.
He has consolidated power around his immediate family and rewarded those who have been loyal. He has continued to reap the benefits of Washington's troubles in the region. And in Lebanon, Syrian-backed unrest is growing.
"Syria has a great deal of confidence now," said Abdel Fattah Al-Awad, editor in chief of the government-run newspaper Al Thawra. "The country is convinced that the major pressures that once faced us have disappeared. We want to offer security - that's what we offer. The Americans, they offer Iraq, which is chaos."
Assad came to power seven years ago on a wave of optimism, promising to bring change and to rule differently than his iron-fisted father, Hafez, did. But as he prepares for another term in a so-called national referendum, Assad has increasingly begun to emulate his father.
Where political campaigners openly called for change several years ago, today many have landed in jail in a government crackdown on dissent. Others have shrunk from public life.
Few Syrians would even speak on the record for this article, fearing reprisal.
Assad once focused his speeches on reform and economic development; today he speaks of security and stability. A small group of businessmen close to him have cornered the majority of Syria's economy. Some foreign investors from the Gulf, encouraged to invest in Syria, have found themselves mired in webs of corruption that have delayed their projects.
"The Bashar of 2000 was a young, new leader who embodied the promise of change," said Emile Hokayem, a research fellow at The Henry L. Stimson Center in Washington. "As he prepares for a new term, there is more repression in Syria, a hardening of the regime's stands, and little movement on economic reform. Syria's ills are as acute as they were seven years ago."
Most of all, Assad has sought to prove to Syrians that he is a survivor, like his father, who brought stability to Syria under the Baath party, but dominated almost every part of society through a network of omnipresent informants and the dreaded secret police, known as the Mukhabarat. The elder Assad held his grip over the country for 32 years under an authoritarian government that not only helped end Lebanon's civil war but also put Syria in control over its politics and economy.
"We used to say he was not as clever as his father," said one respected doctor in Damascus, who spoke on condition of anonymity for fear of retribution. "But now things are different. I wasn't so confident of him before, but he has gained good experience."
Assad made three critical bets that proved successful, analysts here say. He bet that the U.S. occupation of Iraq would falter, hampered in part by Syria's funneling of militants to Iraq, and that Syria would become a critical part of any effort to stabilize the country.
He maintained support for Hezbollah in Lebanon, which, when it survived a war with Israel last year, became a powerful Lebanese force that could spoil American ambitions in that country and further define Syria as a power that must be dealt with. And just as important, he maintained support for Hamas and other Palestinian militant groups, ensuring a Syrian role in any future Israeli-Arab peace effort.
Syria's alliance with Iran, too, brought needed economic and political support and made Syria an important go-between to Iran. When British marines in southern Iraq were taken hostage by the Iranians recently, the Syrians played an important part in getting them released.
Soon European officials and, later, American congressional delegations, including the speaker of the House, Nancy Pelosi, began visiting Damascus, chipping away at America's isolation policy.
When Secretary of State Condoleezza Rice spoke with her Syrian counterpart, Walid al Moallem, on the sidelines of an Iraq conference in Sharm El-Sheikh, Egypt, the Syrians quickly painted the 30-minute meeting as a strategic victory. Though little was discussed, the meeting's symbolism was critical.
"Whoever wants to isolate Syria is in fact isolating himself from the region's issues, because Syria has a rightful role," Assad said in a speech before Parliament last week, appearing confidant and defiant. The Bush administration's attempt to isolate the country, he said, "has seen nothing but failure."
Critics fear that an emboldened government will become even more repressive and reliant on its security apparatus. After years of tolerating the fractious opposition movement, the government cracked down on opposition figures last year, hoping to turn several prominent figures into examples, opposition campaigners say.
On Sunday, a court sentenced four, including Michel Kilo, a prominent Syrian writer and columnist, to three years in prison for "spreading false news, weakening national feeling and inciting sectarian sentiments." Kilo was arrested after signing the so-called Beirut-Damascus Declaration, which calls on Syria to respect Lebanon's territorial integrity.
Two other activists, Suleiman Shummar and Khalil Hussein, were sentenced in absentia to 10 years in jail on similar charges.
Just a few days earlier a court sentenced Kamal Labawani, a Syrian physician and opposition leader, to 15 years for "communicating with a foreign country and inciting it to initiate aggression against Syria" after he met with Bush officials in Washington. And early last month, a court sentenced a human rights lawyer, Anwar al Bunni, to 5 years in jail, also for "spreading false news" about Syria.
They all languish together with an estimated 3,000 other political prisoners still in Syrian prisons.
The government still has much to fear, however. Despite Syrian efforts to stymie the establishment of a United Nations-backed tribunal in Lebanon to try suspects connected to the assassination of Hariri, deliberations about the court continue. The Syrians fear that the tribunal could call on senior regime figures to testify or, worse, to indict them.
On Monday, Lebanon's prime minister, Fouad Siniora, requested that the UN Security Council proceed to create the tribunal despite objections from Lebanon's opposition, which has refused to hold a session of Parliament to vote on a Lebanese plan to establish the court.
The government has also been under pressure to show some form of change domestically. A successful boycott of parliamentary elections last month, fueled by political apathy, resulted in low turnout that both embarrassed the government and put the legitimacy of the body in question, analysts say. Assad's allies intend to make sure that the same is not repeated in the national referendum.
Meanwhile, a continuing flood of Iraqi refugees has also strained Syria's economy, costing the country up to $2 billion a year in subsidies and expenses.
Many expect the referendum to be a turning point, but they differ on its direction. Some hope that Assad will begin reforms and pardon the jailed reformers; others fear that the referendum will further embolden the government to take an even tougher line domestically and cement its position.
By Hassan M. Fattah
Published: May 24, 2007
IHT
DAMASCUS: Inside the tent, the trappings of a modern election campaign were on display - jingles playing, flags waving, confetti coating the floor and posters of President Bashar al-Assad hanging near the stage.
Outside, however, Syria's realities were evident. Government security men manhandled anyone trying to come in and blocked reporters from covering the rally - one of several held across the country recently - funded by one of Syria's most powerful oligarchs. The sparse crowd hinted at growing popular fear of the future, and apathy about Syrian politics.
Only a year ago, Assad faced so many troubles that some Syrians began questioning his political survival.
His troops had been forced out of Lebanon, his government faced allegations of collusion in the assassination of former Prime Minister Rafik Hariri of Lebanon, and the Bush administration had imposed sanctions that affected everything from the fleet of Boeings in Syria's national airline to medical equipment used in hospitals. Waning oil reserves hinted at economic collapse and the European Union delayed signing a much-needed trade agreement.
But as he prepares to be overwhelmingly "re-elected" on Sunday to a second seven-year term, Assad seems very much in control, with his rivals isolated, his critics increasingly in prison or fearing retribution, and international pressure having eased significantly.
He has consolidated power around his immediate family and rewarded those who have been loyal. He has continued to reap the benefits of Washington's troubles in the region. And in Lebanon, Syrian-backed unrest is growing.
"Syria has a great deal of confidence now," said Abdel Fattah Al-Awad, editor in chief of the government-run newspaper Al Thawra. "The country is convinced that the major pressures that once faced us have disappeared. We want to offer security - that's what we offer. The Americans, they offer Iraq, which is chaos."
Assad came to power seven years ago on a wave of optimism, promising to bring change and to rule differently than his iron-fisted father, Hafez, did. But as he prepares for another term in a so-called national referendum, Assad has increasingly begun to emulate his father.
Where political campaigners openly called for change several years ago, today many have landed in jail in a government crackdown on dissent. Others have shrunk from public life.
Few Syrians would even speak on the record for this article, fearing reprisal.
Assad once focused his speeches on reform and economic development; today he speaks of security and stability. A small group of businessmen close to him have cornered the majority of Syria's economy. Some foreign investors from the Gulf, encouraged to invest in Syria, have found themselves mired in webs of corruption that have delayed their projects.
"The Bashar of 2000 was a young, new leader who embodied the promise of change," said Emile Hokayem, a research fellow at The Henry L. Stimson Center in Washington. "As he prepares for a new term, there is more repression in Syria, a hardening of the regime's stands, and little movement on economic reform. Syria's ills are as acute as they were seven years ago."
Most of all, Assad has sought to prove to Syrians that he is a survivor, like his father, who brought stability to Syria under the Baath party, but dominated almost every part of society through a network of omnipresent informants and the dreaded secret police, known as the Mukhabarat. The elder Assad held his grip over the country for 32 years under an authoritarian government that not only helped end Lebanon's civil war but also put Syria in control over its politics and economy.
"We used to say he was not as clever as his father," said one respected doctor in Damascus, who spoke on condition of anonymity for fear of retribution. "But now things are different. I wasn't so confident of him before, but he has gained good experience."
Assad made three critical bets that proved successful, analysts here say. He bet that the U.S. occupation of Iraq would falter, hampered in part by Syria's funneling of militants to Iraq, and that Syria would become a critical part of any effort to stabilize the country.
He maintained support for Hezbollah in Lebanon, which, when it survived a war with Israel last year, became a powerful Lebanese force that could spoil American ambitions in that country and further define Syria as a power that must be dealt with. And just as important, he maintained support for Hamas and other Palestinian militant groups, ensuring a Syrian role in any future Israeli-Arab peace effort.
Syria's alliance with Iran, too, brought needed economic and political support and made Syria an important go-between to Iran. When British marines in southern Iraq were taken hostage by the Iranians recently, the Syrians played an important part in getting them released.
Soon European officials and, later, American congressional delegations, including the speaker of the House, Nancy Pelosi, began visiting Damascus, chipping away at America's isolation policy.
When Secretary of State Condoleezza Rice spoke with her Syrian counterpart, Walid al Moallem, on the sidelines of an Iraq conference in Sharm El-Sheikh, Egypt, the Syrians quickly painted the 30-minute meeting as a strategic victory. Though little was discussed, the meeting's symbolism was critical.
"Whoever wants to isolate Syria is in fact isolating himself from the region's issues, because Syria has a rightful role," Assad said in a speech before Parliament last week, appearing confidant and defiant. The Bush administration's attempt to isolate the country, he said, "has seen nothing but failure."
Critics fear that an emboldened government will become even more repressive and reliant on its security apparatus. After years of tolerating the fractious opposition movement, the government cracked down on opposition figures last year, hoping to turn several prominent figures into examples, opposition campaigners say.
On Sunday, a court sentenced four, including Michel Kilo, a prominent Syrian writer and columnist, to three years in prison for "spreading false news, weakening national feeling and inciting sectarian sentiments." Kilo was arrested after signing the so-called Beirut-Damascus Declaration, which calls on Syria to respect Lebanon's territorial integrity.
Two other activists, Suleiman Shummar and Khalil Hussein, were sentenced in absentia to 10 years in jail on similar charges.
Just a few days earlier a court sentenced Kamal Labawani, a Syrian physician and opposition leader, to 15 years for "communicating with a foreign country and inciting it to initiate aggression against Syria" after he met with Bush officials in Washington. And early last month, a court sentenced a human rights lawyer, Anwar al Bunni, to 5 years in jail, also for "spreading false news" about Syria.
They all languish together with an estimated 3,000 other political prisoners still in Syrian prisons.
The government still has much to fear, however. Despite Syrian efforts to stymie the establishment of a United Nations-backed tribunal in Lebanon to try suspects connected to the assassination of Hariri, deliberations about the court continue. The Syrians fear that the tribunal could call on senior regime figures to testify or, worse, to indict them.
On Monday, Lebanon's prime minister, Fouad Siniora, requested that the UN Security Council proceed to create the tribunal despite objections from Lebanon's opposition, which has refused to hold a session of Parliament to vote on a Lebanese plan to establish the court.
The government has also been under pressure to show some form of change domestically. A successful boycott of parliamentary elections last month, fueled by political apathy, resulted in low turnout that both embarrassed the government and put the legitimacy of the body in question, analysts say. Assad's allies intend to make sure that the same is not repeated in the national referendum.
Meanwhile, a continuing flood of Iraqi refugees has also strained Syria's economy, costing the country up to $2 billion a year in subsidies and expenses.
Many expect the referendum to be a turning point, but they differ on its direction. Some hope that Assad will begin reforms and pardon the jailed reformers; others fear that the referendum will further embolden the government to take an even tougher line domestically and cement its position.
Osama Bin Laden Told Iraqi Terrorist Zarqawi To Attack The United State - Experts Say President Selective In Disclosing Intel
Submitted by Tom Madison on May 23, 2007 - 6:34pm. Current Events | Middle East
(Best Syndication) President Bush said in a commencement speech at the Coast Guard Academy on Wednesday that Osama bin Laden told one of his subordinates that he wanted to attack the U.S. homeland. Bin Laden asked one of his top terrorist operatives, Hamza Rabia, to send Abu Musab al-Zarqawi a briefing on al Qaeda's “external operations against the United States homeland”.
Counterterrorist experts say that the intelligence revealed is “incomplete”, according to a report from Newsweek. The President ignored contradictory reporting about what actually happened, say U.S. counterterrorism officials with knowledge of the matter. Newsweek reporters, Michael Isikoff and Mark Hosenball, say that the officials, following standard policy, declined to be identified publicly talking about sensitive intelligence.
President Bush made the announcement to a welcoming audience in New London, Connecticut, who applauded and cheered his words. “Victory in Iraq is important for Osama bin Laden - and victory in Iraq is vital for the United States of America,” the President said as the crowd erupted in applause.
The President told the audience that “Bin Laden emphasized that America should be Zarqawi's number one priority in terms of foreign attacks.” Isikoff and Hosenball say the President did not tell the whole story. Officials told them that “some of the intel showed that Zarqawi actually resisted bin Laden’s instructions at the time, sending word back to the Al Qaeda leader that he had his hands full orchestrating attacks against U.S. forces inside Iraq.”
There was no mention in the President’s speech that Rabia was killed in Pakistan in December 2005 and never even made it to Iraq. The President said that bin Laden wants to make Iraq the training ground for future terrorist attacks. The Newsweek report indicates that those assertions were quickly challenged by some former national-security officials. The officials contend that “the administration has habitually distorted intelligence about Iraq and international terrorism to suit its purposes.”
Steven Simon, a former Clinton administration counter-terror official, said the “selective use of intelligence” by the administration “fails to make the case” that Iraq is the central front in the war on terror. The recent intelligence reporting on terror plots aimed at the U.S. shows that the plans were hatched in Pakistan, not Iraq.
The April 2006 National Intelligence Estimate (NIE – the gold standard for intelligence reports) indicated that the war in Iraq has made Americans less safe. The Bush Administration did not want that report released. The 2006 NIE made it clear that the war has increased the terror threat. “The Iraq conflict has become the cause celebre for jihadists, breeding a deep resentment of US involvement in the Muslim world and cultivating supporters for the global jihadist movement.”
A former intelligence official agrees with that assessment. Rand Beers said “Bin Laden is using Iraq to kill and demonize the United States, while remaining secure and planning further operations in Pakistan.”
The United Kingdom's counter-intelligence and security agency, MI5, has investigated whether the war in Iraq has increased their terror threat. In a speech made in November 2006, the Director General of the security service, Dame Eliza Manningham-Buller said “The video wills of British suicide bombers make it clear that they are motivated by perceived worldwide and long-standing injustices against Muslims; an extreme and minority interpretation of Islam promoted by some preachers and people of influence; and their interpretation as anti-Muslim of UK foreign policy, in particular the UK's involvement in Iraq and Afghanistan.”
Submitted by Tom Madison on May 23, 2007 - 6:34pm. Current Events | Middle East
(Best Syndication) President Bush said in a commencement speech at the Coast Guard Academy on Wednesday that Osama bin Laden told one of his subordinates that he wanted to attack the U.S. homeland. Bin Laden asked one of his top terrorist operatives, Hamza Rabia, to send Abu Musab al-Zarqawi a briefing on al Qaeda's “external operations against the United States homeland”.
Counterterrorist experts say that the intelligence revealed is “incomplete”, according to a report from Newsweek. The President ignored contradictory reporting about what actually happened, say U.S. counterterrorism officials with knowledge of the matter. Newsweek reporters, Michael Isikoff and Mark Hosenball, say that the officials, following standard policy, declined to be identified publicly talking about sensitive intelligence.
President Bush made the announcement to a welcoming audience in New London, Connecticut, who applauded and cheered his words. “Victory in Iraq is important for Osama bin Laden - and victory in Iraq is vital for the United States of America,” the President said as the crowd erupted in applause.
The President told the audience that “Bin Laden emphasized that America should be Zarqawi's number one priority in terms of foreign attacks.” Isikoff and Hosenball say the President did not tell the whole story. Officials told them that “some of the intel showed that Zarqawi actually resisted bin Laden’s instructions at the time, sending word back to the Al Qaeda leader that he had his hands full orchestrating attacks against U.S. forces inside Iraq.”
There was no mention in the President’s speech that Rabia was killed in Pakistan in December 2005 and never even made it to Iraq. The President said that bin Laden wants to make Iraq the training ground for future terrorist attacks. The Newsweek report indicates that those assertions were quickly challenged by some former national-security officials. The officials contend that “the administration has habitually distorted intelligence about Iraq and international terrorism to suit its purposes.”
Steven Simon, a former Clinton administration counter-terror official, said the “selective use of intelligence” by the administration “fails to make the case” that Iraq is the central front in the war on terror. The recent intelligence reporting on terror plots aimed at the U.S. shows that the plans were hatched in Pakistan, not Iraq.
The April 2006 National Intelligence Estimate (NIE – the gold standard for intelligence reports) indicated that the war in Iraq has made Americans less safe. The Bush Administration did not want that report released. The 2006 NIE made it clear that the war has increased the terror threat. “The Iraq conflict has become the cause celebre for jihadists, breeding a deep resentment of US involvement in the Muslim world and cultivating supporters for the global jihadist movement.”
A former intelligence official agrees with that assessment. Rand Beers said “Bin Laden is using Iraq to kill and demonize the United States, while remaining secure and planning further operations in Pakistan.”
The United Kingdom's counter-intelligence and security agency, MI5, has investigated whether the war in Iraq has increased their terror threat. In a speech made in November 2006, the Director General of the security service, Dame Eliza Manningham-Buller said “The video wills of British suicide bombers make it clear that they are motivated by perceived worldwide and long-standing injustices against Muslims; an extreme and minority interpretation of Islam promoted by some preachers and people of influence; and their interpretation as anti-Muslim of UK foreign policy, in particular the UK's involvement in Iraq and Afghanistan.”
Bush: Iraq at Center of Terror Fight
Thursday May 24, 2007 1:16 AM
By DEB RIECHMANN
Associated Press Writer
NEW LONDON, Conn. (AP) - President Bush portrayed the Iraq war as a battle between the U.S. and al-Qaida on Wednesday and shared nuggets of intelligence to contend Osama bin Laden was setting up a terrorist cell in Iraq to strike targets in America.
Bush, who faces a public weary of war and is at odds with Democrats in Congress over funding troops, said that while the Sept. 11 attacks occurred in 2001, Americans still face a major threat from terrorists.
``In the minds of al-Qaida leaders, 9/11 was just a down payment on violence yet to come,'' Bush said during a commencement speech at the U.S. Coast Guard Academy in which he defended his decision to order a troop buildup in Iraq. ``It is tempting to believe that the calm here at home after 9/11 means that the danger to our country has passed.''
``Here in America, we are living in the eye of a storm,'' he said. ``All around us, dangerous winds are swirling and these winds could reach our shores at any moment.''
Critics of the war insist that U.S. troops are in the middle of fights among Shiites, Sunnis and Kurds.
``As global terror threats remain very real, President Bush is sinking more money and sending more troops to referee Iraq's civil war, when those precious resources would be better spent in finishing the mission left unaccomplished in Afghanistan,'' said Brian Katulis, a national security expert at the Center for American Progress think tank.
The White House has repeatedly said the U.S. and its allies will be successful when the Iraqis can sustain, govern and defend themselves, yet Bush used his speech to stress the threat from al-Qaida activities in Iraq.
``Hear the words of Osama bin Laden: He calls the struggle in Iraq a `war of destiny,''' Bush said. ``He proclaimed `The war is for you or for us to win. If we win it, it means your defeat and disgrace forever.'''
Much of the intelligence information Bush cited in his speech described terrorism plots already revealed. But he declassified information to flesh out details and highlight U.S. successes in foiling planned attacks orchestrated by bin Laden, the al-Qaida boss.
``Victory in Iraq is important for Osama bin Laden, and victory in Iraq is vital for the United States of America,'' Bush told the graduating class seated in a stadium under bright sunshine along the Thames River.
Bush said intelligence showed that in January 2005, bin Laden tasked Abu Musab al-Zarqawi, his senior operative in Iraq, to organize a terrorist cell and use Iraq as a staging ground for attacking the United States.
This information expanded on a classified bulletin the Homeland Security Department issued in March 2005. The bulletin, which warned that bin Laden had enlisted al-Zarqawi to plan potential strikes in the United States, was described at the time as credible but not specific. It did not prompt the administration to raise its national terror alert level.
Bush said that in the spring of 2005, bin Laden also instructed Hamza Rabia, a senior operative, to brief al-Zarqawi on an al-Qaida plan to attack sites outside Iraq.
``Our intelligence community reports that a senior al-Qaida leader, Abu Faraj al-Libi, went further and suggested that bin Laden actually send Rabia, himself, to Iraq to help plan external operations,'' Bush said. ``Abu Faraj later speculated that if this effort proved successful, al-Qaida might one day prepare the majority of its external operations from Iraq.''
Bush said another suspected al-Qaida operative, Ali Salih al-Mari, was training in poisoning at a camp in Afghanistan and dispatched to the United States before the Sept. 11 attacks to ``serve as a sleeper agent ready for follow-on attacks.''
Bush said bin Laden attempted to send a new commander to Iraq, an Iraqi-born terrorist named Abd al-Hadi al-Iraqi. Al-Iraqi, who was al-Qaida's top commander in Afghanistan, was captured last year and recently transferred to Guantanamo Bay.
Democrats and other critics have accused Bush of selectively declassifying intelligence, including portions of a sensitive National Intelligence Estimate on Iraq, to justify the U.S.-led invasion on grounds that Saddam Hussein's government possessed weapons of mass destruction. That assertion proved false.
Rand Beers, national security adviser to John Kerry's 2004 Democratic presidential campaign, contended Wednesday that the Bush administration was releasing intelligence to buttress the argument that Iraq is the central front in the war on terrorism while a number of intelligence sources say the most recent attacks or planned attacks against the U.S. and its allies have originated in Pakistan instead.
``Bin Laden is using Iraq to kill and demonize the United States while remaining secure and planning further operations in Pakistan,'' Beers said.
Frances Fragos Townsend, the White House homeland security adviser, said new details about the plots were declassified because the intelligence community had tracked all leads from the information and the players were either dead or in U.S. custody.
In May 2005, al-Libi was captured. Several months later, in December 2005, al-Rabia was killed in Pakistan. In June of 2006, al-Zarqawi was killed in Iraq in a U.S. airstrike.
Actually, making the new information public earlier might have allowed Bush to use it to his political advantage, Townsend said. ``This is kind of late to be able to bring this to the game,'' she said, adding that intelligence officials needed time to exploit the information.
Thursday May 24, 2007 1:16 AM
By DEB RIECHMANN
Associated Press Writer
NEW LONDON, Conn. (AP) - President Bush portrayed the Iraq war as a battle between the U.S. and al-Qaida on Wednesday and shared nuggets of intelligence to contend Osama bin Laden was setting up a terrorist cell in Iraq to strike targets in America.
Bush, who faces a public weary of war and is at odds with Democrats in Congress over funding troops, said that while the Sept. 11 attacks occurred in 2001, Americans still face a major threat from terrorists.
``In the minds of al-Qaida leaders, 9/11 was just a down payment on violence yet to come,'' Bush said during a commencement speech at the U.S. Coast Guard Academy in which he defended his decision to order a troop buildup in Iraq. ``It is tempting to believe that the calm here at home after 9/11 means that the danger to our country has passed.''
``Here in America, we are living in the eye of a storm,'' he said. ``All around us, dangerous winds are swirling and these winds could reach our shores at any moment.''
Critics of the war insist that U.S. troops are in the middle of fights among Shiites, Sunnis and Kurds.
``As global terror threats remain very real, President Bush is sinking more money and sending more troops to referee Iraq's civil war, when those precious resources would be better spent in finishing the mission left unaccomplished in Afghanistan,'' said Brian Katulis, a national security expert at the Center for American Progress think tank.
The White House has repeatedly said the U.S. and its allies will be successful when the Iraqis can sustain, govern and defend themselves, yet Bush used his speech to stress the threat from al-Qaida activities in Iraq.
``Hear the words of Osama bin Laden: He calls the struggle in Iraq a `war of destiny,''' Bush said. ``He proclaimed `The war is for you or for us to win. If we win it, it means your defeat and disgrace forever.'''
Much of the intelligence information Bush cited in his speech described terrorism plots already revealed. But he declassified information to flesh out details and highlight U.S. successes in foiling planned attacks orchestrated by bin Laden, the al-Qaida boss.
``Victory in Iraq is important for Osama bin Laden, and victory in Iraq is vital for the United States of America,'' Bush told the graduating class seated in a stadium under bright sunshine along the Thames River.
Bush said intelligence showed that in January 2005, bin Laden tasked Abu Musab al-Zarqawi, his senior operative in Iraq, to organize a terrorist cell and use Iraq as a staging ground for attacking the United States.
This information expanded on a classified bulletin the Homeland Security Department issued in March 2005. The bulletin, which warned that bin Laden had enlisted al-Zarqawi to plan potential strikes in the United States, was described at the time as credible but not specific. It did not prompt the administration to raise its national terror alert level.
Bush said that in the spring of 2005, bin Laden also instructed Hamza Rabia, a senior operative, to brief al-Zarqawi on an al-Qaida plan to attack sites outside Iraq.
``Our intelligence community reports that a senior al-Qaida leader, Abu Faraj al-Libi, went further and suggested that bin Laden actually send Rabia, himself, to Iraq to help plan external operations,'' Bush said. ``Abu Faraj later speculated that if this effort proved successful, al-Qaida might one day prepare the majority of its external operations from Iraq.''
Bush said another suspected al-Qaida operative, Ali Salih al-Mari, was training in poisoning at a camp in Afghanistan and dispatched to the United States before the Sept. 11 attacks to ``serve as a sleeper agent ready for follow-on attacks.''
Bush said bin Laden attempted to send a new commander to Iraq, an Iraqi-born terrorist named Abd al-Hadi al-Iraqi. Al-Iraqi, who was al-Qaida's top commander in Afghanistan, was captured last year and recently transferred to Guantanamo Bay.
Democrats and other critics have accused Bush of selectively declassifying intelligence, including portions of a sensitive National Intelligence Estimate on Iraq, to justify the U.S.-led invasion on grounds that Saddam Hussein's government possessed weapons of mass destruction. That assertion proved false.
Rand Beers, national security adviser to John Kerry's 2004 Democratic presidential campaign, contended Wednesday that the Bush administration was releasing intelligence to buttress the argument that Iraq is the central front in the war on terrorism while a number of intelligence sources say the most recent attacks or planned attacks against the U.S. and its allies have originated in Pakistan instead.
``Bin Laden is using Iraq to kill and demonize the United States while remaining secure and planning further operations in Pakistan,'' Beers said.
Frances Fragos Townsend, the White House homeland security adviser, said new details about the plots were declassified because the intelligence community had tracked all leads from the information and the players were either dead or in U.S. custody.
In May 2005, al-Libi was captured. Several months later, in December 2005, al-Rabia was killed in Pakistan. In June of 2006, al-Zarqawi was killed in Iraq in a U.S. airstrike.
Actually, making the new information public earlier might have allowed Bush to use it to his political advantage, Townsend said. ``This is kind of late to be able to bring this to the game,'' she said, adding that intelligence officials needed time to exploit the information.
Hezbollah backs Lebanon's army in standoff with Sunni group
IHT
Published: May 22, 2007
BEIRUT, Lebanon: The Shiite Muslim Hezbollah militant group has so far backed Lebanon's army in its confrontation with a Sunni militant group inside a refugee camp — despite the fact that Hezbollah has been pushing to topple Lebanon's government.
The Hezbollah stance highlights the complex tensions among Lebanon's various factional and militant groups. Hezbollah — as a Shiite group — is a sworn ideological and religious enemy to groups like Fatah Islam, the Sunni militant group involved in the siege, whose leader had ties to former al-Qaida in Iraq leader Abu Musab al-Zarqawi.
Such emnity is often bitter — Al-Zarqawi pushed for the killings of Shiites in Iraq and elsewhere before his death last year, calling them infidels.
Such tensions are longstanding across the Mideast, even though countries like Syria have been accused of sometimes backing both Sunni and Shiite militants.
The Sunni-Shiite tensions have intensified, however, because of the war in Iraq that pits the two sects against each other. Lebanon's own civil war from 1975-1990 also included strong tensions among various Shiite and Sunni factions, as well as against the country's Christian factions. Shiite-Sunni tensions exploded in violence in recent months inside Lebanon, leaving 11 people dead, as Sunnis backed the Lebanese government and the Shiites of Hezbollah and their allies backed the pro-Syrian opposition.
The complex nature of Hezbollah's stance also reflects the fact that the group has something of a dual nature — it belongs to Lebanon's democratic system and is the country's strongest political opposition group, while also being a militant group that has attacked Israel and has backing from Syria and Iran.
Hezbollah has been calling for the formation of a new government in Lebanon and is strongly opposed to the current anti-Syrian one. So far, however, its protests against the current government have been peaceful.
Political analysts have said Hezbollah, while supporting the army, does not want to back the government publicly and give it credit for fighting the Sunni militant group. Also, any wholehearted backing by Hezbollah for Lebanese authorities could inflame animosity by Sunni militants against the Shiite group.
In a statement from the group that shows its complex stance, Hezbollah denounced the attacks against the Lebanese army — stressing the role of the Lebanese army in safeguarding peace, but also tacitly criticized Lebanon's current government.
"We feel that there is someone out there who wants to drag the army to this confrontation and bloody struggle ... to serve well-known projects and aims. We are hearing calls for more escalation and fighting, which will ultimately lead to more chaos and confrontation in Lebanon," the Hezbollah statement said. It called for a political solution to the crisis.
Hezbollah has good relations with the national army, which covertly helped support the militant group in the fight against Israel.
Other Lebanese factions also have so far backed the Lebanese government, despite internal divisions — as have most Arab countries. Some Palestinians in Lebanese refugee camps have, however, begun to protest the Lebanese army's shelling of the camp.
IHT
Published: May 22, 2007
BEIRUT, Lebanon: The Shiite Muslim Hezbollah militant group has so far backed Lebanon's army in its confrontation with a Sunni militant group inside a refugee camp — despite the fact that Hezbollah has been pushing to topple Lebanon's government.
The Hezbollah stance highlights the complex tensions among Lebanon's various factional and militant groups. Hezbollah — as a Shiite group — is a sworn ideological and religious enemy to groups like Fatah Islam, the Sunni militant group involved in the siege, whose leader had ties to former al-Qaida in Iraq leader Abu Musab al-Zarqawi.
Such emnity is often bitter — Al-Zarqawi pushed for the killings of Shiites in Iraq and elsewhere before his death last year, calling them infidels.
Such tensions are longstanding across the Mideast, even though countries like Syria have been accused of sometimes backing both Sunni and Shiite militants.
The Sunni-Shiite tensions have intensified, however, because of the war in Iraq that pits the two sects against each other. Lebanon's own civil war from 1975-1990 also included strong tensions among various Shiite and Sunni factions, as well as against the country's Christian factions. Shiite-Sunni tensions exploded in violence in recent months inside Lebanon, leaving 11 people dead, as Sunnis backed the Lebanese government and the Shiites of Hezbollah and their allies backed the pro-Syrian opposition.
The complex nature of Hezbollah's stance also reflects the fact that the group has something of a dual nature — it belongs to Lebanon's democratic system and is the country's strongest political opposition group, while also being a militant group that has attacked Israel and has backing from Syria and Iran.
Hezbollah has been calling for the formation of a new government in Lebanon and is strongly opposed to the current anti-Syrian one. So far, however, its protests against the current government have been peaceful.
Political analysts have said Hezbollah, while supporting the army, does not want to back the government publicly and give it credit for fighting the Sunni militant group. Also, any wholehearted backing by Hezbollah for Lebanese authorities could inflame animosity by Sunni militants against the Shiite group.
In a statement from the group that shows its complex stance, Hezbollah denounced the attacks against the Lebanese army — stressing the role of the Lebanese army in safeguarding peace, but also tacitly criticized Lebanon's current government.
"We feel that there is someone out there who wants to drag the army to this confrontation and bloody struggle ... to serve well-known projects and aims. We are hearing calls for more escalation and fighting, which will ultimately lead to more chaos and confrontation in Lebanon," the Hezbollah statement said. It called for a political solution to the crisis.
Hezbollah has good relations with the national army, which covertly helped support the militant group in the fight against Israel.
Other Lebanese factions also have so far backed the Lebanese government, despite internal divisions — as have most Arab countries. Some Palestinians in Lebanese refugee camps have, however, begun to protest the Lebanese army's shelling of the camp.
Fatah al-Islam: Al-Qaida or Not? An Inside Look
By Evan Kohlmann
May 22, 2007 05:58 AM
www.counterterrorismblog.org
The explosion of violence this week in the northern, predominantly Sunni Lebanese city of Tripoli has refocused attention on the elusive Fatah al-Islam extremist movement based there, and has led to rampant speculation over the group's actual motives. While some observers have pointed to the Salafi jihadist ideology of Fatah al-Islam and its vocal support for Al-Qaida, others have accused the group as serving as a proxy for Syrian intelligence in a bid to derail an international investigation of the assassination of former Lebanese Prime Minister Rafik Hariri.
While any connections between Fatah al-Islam and the Syrian government remain hazy at best, there is significant and troubling evidence linking the group to Al-Qaida fighters in Iraq and elsewhere. Less than a month ago, according to a militant spokesman, Syrian security forces allegedly killed four members of Fatah al-Islam (including two senior military commanders) "while trying to get into Iraq to support their Islamic brothers." The clash was hardly a well-orchestrated Syrian intelligence operation--according to Fatah al-Islam, at least five Syrian soldiers were killed in the process. Lebanese Internal Security Forces have also reportedly uncovered evidence of links between Fatah al-Islam and four suspects in the February 13 twin bus bombings in Ain Alaq, which killed three people and wounded 24 others. Allegedly, authorities were able to trace phone calls made by a prime suspect in the bombings to the main office of Fatah al-Islam in the Nahr al-Bared camp.
Yet, arguably, some of the most convincing primary evidence showing Fatah al-Islam's orientation towards Al-Qaida comes from a somewhat unlikely source: private, password-protected chat sessions on an infamous Internet forum known as "Al-Hesbah", used by Al-Qaida and other Islamic militant groups to disseminate propaganda and to recruit new members. During the past two years, one of the more prolific participants on Al-Hesbah was a user known as "Khattab Laden"--a composite ID formed from the names of his two heroes, Al-Qaida leader Usama Bin Laden and the late Saudi mujahideen commander in Chechnya, Ibn-ul-Khattab.
In the real world, "Khattab Laden" was "Abu Abdelrahman al-Maqdisi", a twenty-something Palestinian refugee originally from the Gaza Strip. After earning a college degree in chemistry, in mid-2006, al-Maqdisi passed up an opportunity to continue studying medicine in Germany, and instead joined the Fatah al-Islam movement in northern Lebanon. Al-Maqdisi was a regular participant on Al-Hesbah, offering words of support for Al-Qaida and insurgents in Iraq and providing online technical assistance to other "brothers in need". The young Fatah al-Islam commander was also clearly an avid supporter of Abu Musab al-Zarqawi, offering his unqualified support for statements spread by Zarqawi and, likewise, the current leader of Al-Qaida's "Islamic State of Iraq" Abu Omar al-Baghdadi. When al-Hesbah offered its users the opportunity to submit questions to notorious Saudi Al-Qaida leader Abu Nasser al-Qahtani in Afghanistan, Abu Abdelrahman al-Maqdisi immediately responded, asking, "Is there an ability to receive young men arriving in Afghanistan? Are there camps and weapons training? Or will they be forced to hide indoors?" Separately, al-Maqdisi posted files for download by other Al-Hesbah users justifying and celebrating the July 7, 2005 suicide bombings in London. Perhaps it is no surprise, then, to learn that Al-Hesbah and other online terrorist websites have recently begun carrying official releases from Fatah al-Islam alongside similar material produced by Al-Qaida and jihadist organizations based in Iraq.
A final note: some commentators on the recent violence in Lebanon--including a representative of Al-Hayat newspaper interviewed on CNN--have suggested that the Salafi-orientated Fatah al-Islam and the Shiite Hezbollah party are nonetheless working together to destabilize the Lebanese government. Rather than explaining at length how far-fetched this notion is, I would simply quote the words of the late Abu Abdelrahman al-Maqdisi in response to reports of crimes allegedly committed by Shiite "gangs" in Iraq and Lebanon: "May Allah curse the apostates, the tyrants, and their supporters."
By Evan Kohlmann
May 22, 2007 05:58 AM
www.counterterrorismblog.org
The explosion of violence this week in the northern, predominantly Sunni Lebanese city of Tripoli has refocused attention on the elusive Fatah al-Islam extremist movement based there, and has led to rampant speculation over the group's actual motives. While some observers have pointed to the Salafi jihadist ideology of Fatah al-Islam and its vocal support for Al-Qaida, others have accused the group as serving as a proxy for Syrian intelligence in a bid to derail an international investigation of the assassination of former Lebanese Prime Minister Rafik Hariri.
While any connections between Fatah al-Islam and the Syrian government remain hazy at best, there is significant and troubling evidence linking the group to Al-Qaida fighters in Iraq and elsewhere. Less than a month ago, according to a militant spokesman, Syrian security forces allegedly killed four members of Fatah al-Islam (including two senior military commanders) "while trying to get into Iraq to support their Islamic brothers." The clash was hardly a well-orchestrated Syrian intelligence operation--according to Fatah al-Islam, at least five Syrian soldiers were killed in the process. Lebanese Internal Security Forces have also reportedly uncovered evidence of links between Fatah al-Islam and four suspects in the February 13 twin bus bombings in Ain Alaq, which killed three people and wounded 24 others. Allegedly, authorities were able to trace phone calls made by a prime suspect in the bombings to the main office of Fatah al-Islam in the Nahr al-Bared camp.
Yet, arguably, some of the most convincing primary evidence showing Fatah al-Islam's orientation towards Al-Qaida comes from a somewhat unlikely source: private, password-protected chat sessions on an infamous Internet forum known as "Al-Hesbah", used by Al-Qaida and other Islamic militant groups to disseminate propaganda and to recruit new members. During the past two years, one of the more prolific participants on Al-Hesbah was a user known as "Khattab Laden"--a composite ID formed from the names of his two heroes, Al-Qaida leader Usama Bin Laden and the late Saudi mujahideen commander in Chechnya, Ibn-ul-Khattab.
In the real world, "Khattab Laden" was "Abu Abdelrahman al-Maqdisi", a twenty-something Palestinian refugee originally from the Gaza Strip. After earning a college degree in chemistry, in mid-2006, al-Maqdisi passed up an opportunity to continue studying medicine in Germany, and instead joined the Fatah al-Islam movement in northern Lebanon. Al-Maqdisi was a regular participant on Al-Hesbah, offering words of support for Al-Qaida and insurgents in Iraq and providing online technical assistance to other "brothers in need". The young Fatah al-Islam commander was also clearly an avid supporter of Abu Musab al-Zarqawi, offering his unqualified support for statements spread by Zarqawi and, likewise, the current leader of Al-Qaida's "Islamic State of Iraq" Abu Omar al-Baghdadi. When al-Hesbah offered its users the opportunity to submit questions to notorious Saudi Al-Qaida leader Abu Nasser al-Qahtani in Afghanistan, Abu Abdelrahman al-Maqdisi immediately responded, asking, "Is there an ability to receive young men arriving in Afghanistan? Are there camps and weapons training? Or will they be forced to hide indoors?" Separately, al-Maqdisi posted files for download by other Al-Hesbah users justifying and celebrating the July 7, 2005 suicide bombings in London. Perhaps it is no surprise, then, to learn that Al-Hesbah and other online terrorist websites have recently begun carrying official releases from Fatah al-Islam alongside similar material produced by Al-Qaida and jihadist organizations based in Iraq.
A final note: some commentators on the recent violence in Lebanon--including a representative of Al-Hayat newspaper interviewed on CNN--have suggested that the Salafi-orientated Fatah al-Islam and the Shiite Hezbollah party are nonetheless working together to destabilize the Lebanese government. Rather than explaining at length how far-fetched this notion is, I would simply quote the words of the late Abu Abdelrahman al-Maqdisi in response to reports of crimes allegedly committed by Shiite "gangs" in Iraq and Lebanon: "May Allah curse the apostates, the tyrants, and their supporters."
GM Receives New SEC Request, Raises Tab for Delphi (Update8)
By Jeff Green
May 24 (Bloomberg) -- General Motors Corp. said U.S. regulators are reviewing the automaker's accounting for commodity and foreign-exchange contracts and said it expects $1 billion in added costs to bail out former auto-parts subsidiary Delphi Corp.
The U.S. Securities and Exchange Commission is seeking documents related to the accounting used in GM's latest annual report, the Detroit-based company said in a regulatory filing today. Separately, GM said it may also have to restate some results after the SEC reviews accounting at the former General Motors Acceptance Corp. finance unit.
``I wish they were able to put the accounting issue behind them,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``The thing that's more troubling is that they're raising the costs to bail out Delphi.''
The SEC request extends GM's two-year struggle to clean up its accounting and end restatements. Last year, the carmaker revised financial figures dating back to 2000 and overhauled its controller's office to improve oversight.
GM in March delayed its 2006 annual report to restate financial figures from 2002 to 2005. The SEC inquiry relates to the accounting in that report.
The company wasn't surprised by the move because GM has restated results related to the issues and the SEC is now seeking clarification, GM spokeswoman Melisa Tezanos said
Shares of GM dropped 96 cents, or 3.1 percent, to $30.47 at 4:01 p.m. in New York Stock Exchange composite trading. The perceived risk of owning GM's bonds fell.
Delphi
GM also said it expects costs related to the bailout of Delphi to be modified by the withdrawal of Cerberus Capital Management LP, which had been the lead private-equity firm behind a planned $3.4 billion investment.
As part of those changes, GM now expects to pay $500 million when Troy, Michigan-based Delphi emerges from bankruptcy. GM will also provide annual labor-related payments of between $300 million and $400 million along with additional yearly payments of $100 million.
The automaker earlier this month estimated an ongoing range of $100 million to $200 million a year as part of a bailout of Delphi. GM spun off the parts-making unit in 1999.
Retirement costs of some former GM workers at Delphi may total $7 billion, up from an earlier estimated range of $6 billion to $7.5 billion, GM said in the filing. GM will take an additional pretax charge of $1 billion in the second quarter to reflect the new estimate, Tezanos said. GM had previously set aside $6 billion for those obligations.
Bolstering Cash
General Motors reiterated a plan disclosed yesterday to bolster cash by raising $5.2 billion with a convertible-bond sale and a new line of credit. Fitch Ratings cut GM's unsecured debt rating in response.
A new, $1.1 billion convertible bond will replace one the company paid off in March and the carmaker added a $4.1 billion line of credit, secured by GM's 49 percent stake in the GMAC LLC finance unit, to be used for general corporate purposes.
Lehman Brothers analyst Brian Johnson said GM may use the added cash as a strike fund to strengthen its position in bargaining this year with the United Auto Workers. Talks begin in July on a four-year contract that expires in September. The money may also help GM set up a union retiree health-care fund, he said.
`Opportunity'
``It was an opportunity to raise some cash at a low rate, nothing more than that,'' GM North American chief Troy Clarke in an interview late yesterday.
GM's 8.375 percent note due July 2033 rose 0.13 cent to 93.50 cents on the dollar today, according to Trace, the NASD's bond-price reporting system. The yield fell to 9 percent.
The automaker also said that its Indianapolis-based Allison Transmission unit, which is for sale, had 2006 revenue of about $2.2 billion and an operating profit of $338 million. The automaker said it disclosed the unit results because the sale is now ``probable.''
GM may be able to raise $3 billion or more with the sale of Allison, Johnson estimated.
GM sold 51 percent of its former wholly owned General Motors Acceptance Corp. auto loan, mortgage and insurance unit to a group led by Cerberus in November. In the first quarter, the automaker had to inject $1 billion back into GMAC to make up for subprime loan losses at GMAC's mortgage unit.
New Accounting Chief
In November, GM hired former Interpublic Group of Cos. and AT&T Inc. executive Nicholas Cyprus as controller and chief accounting officer. He replaced chief accounting officer Peter Bible and controller Paul Schmidt. Bible resigned in June, and Schmidt said he would retire pending a replacement after GM restated results for 2000 to 2005 and disclosed U.S. investigations of its finances.
The company disclosed in October 2005 that it had received subpoenas relating to supplier cost reductions and credits. Supplier credits are generally cash an auto-parts maker would pay to GM in exchange for future business or as an advance on future price cuts. GM now bans that practice.
In March 2006, the automaker said it had received a second round of subpoenas relating to accounting for the disposal of precious-metal inventory. Those investigations continue.
The same month, GM reduced net income for 2000 to 2004 by a total of $387 million because of accounting errors involving supplier credits, a 2001 lawsuit settlement, economic assumptions for benefit-plan changes and the precious-metals transaction.
In November 2005, GM restated its 2001 earnings and its second-quarter 2005 earnings to reflect deeper losses.
Credit-default swaps based on $10 million of GM's bonds dropped $3,200 to $399,300 according to London-based CMA Datavision. A decrease in the five-year contracts indicates improvement in the perception of credit quality; an increase suggests the opposite.
By Jeff Green
May 24 (Bloomberg) -- General Motors Corp. said U.S. regulators are reviewing the automaker's accounting for commodity and foreign-exchange contracts and said it expects $1 billion in added costs to bail out former auto-parts subsidiary Delphi Corp.
The U.S. Securities and Exchange Commission is seeking documents related to the accounting used in GM's latest annual report, the Detroit-based company said in a regulatory filing today. Separately, GM said it may also have to restate some results after the SEC reviews accounting at the former General Motors Acceptance Corp. finance unit.
``I wish they were able to put the accounting issue behind them,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``The thing that's more troubling is that they're raising the costs to bail out Delphi.''
The SEC request extends GM's two-year struggle to clean up its accounting and end restatements. Last year, the carmaker revised financial figures dating back to 2000 and overhauled its controller's office to improve oversight.
GM in March delayed its 2006 annual report to restate financial figures from 2002 to 2005. The SEC inquiry relates to the accounting in that report.
The company wasn't surprised by the move because GM has restated results related to the issues and the SEC is now seeking clarification, GM spokeswoman Melisa Tezanos said
Shares of GM dropped 96 cents, or 3.1 percent, to $30.47 at 4:01 p.m. in New York Stock Exchange composite trading. The perceived risk of owning GM's bonds fell.
Delphi
GM also said it expects costs related to the bailout of Delphi to be modified by the withdrawal of Cerberus Capital Management LP, which had been the lead private-equity firm behind a planned $3.4 billion investment.
As part of those changes, GM now expects to pay $500 million when Troy, Michigan-based Delphi emerges from bankruptcy. GM will also provide annual labor-related payments of between $300 million and $400 million along with additional yearly payments of $100 million.
The automaker earlier this month estimated an ongoing range of $100 million to $200 million a year as part of a bailout of Delphi. GM spun off the parts-making unit in 1999.
Retirement costs of some former GM workers at Delphi may total $7 billion, up from an earlier estimated range of $6 billion to $7.5 billion, GM said in the filing. GM will take an additional pretax charge of $1 billion in the second quarter to reflect the new estimate, Tezanos said. GM had previously set aside $6 billion for those obligations.
Bolstering Cash
General Motors reiterated a plan disclosed yesterday to bolster cash by raising $5.2 billion with a convertible-bond sale and a new line of credit. Fitch Ratings cut GM's unsecured debt rating in response.
A new, $1.1 billion convertible bond will replace one the company paid off in March and the carmaker added a $4.1 billion line of credit, secured by GM's 49 percent stake in the GMAC LLC finance unit, to be used for general corporate purposes.
Lehman Brothers analyst Brian Johnson said GM may use the added cash as a strike fund to strengthen its position in bargaining this year with the United Auto Workers. Talks begin in July on a four-year contract that expires in September. The money may also help GM set up a union retiree health-care fund, he said.
`Opportunity'
``It was an opportunity to raise some cash at a low rate, nothing more than that,'' GM North American chief Troy Clarke in an interview late yesterday.
GM's 8.375 percent note due July 2033 rose 0.13 cent to 93.50 cents on the dollar today, according to Trace, the NASD's bond-price reporting system. The yield fell to 9 percent.
The automaker also said that its Indianapolis-based Allison Transmission unit, which is for sale, had 2006 revenue of about $2.2 billion and an operating profit of $338 million. The automaker said it disclosed the unit results because the sale is now ``probable.''
GM may be able to raise $3 billion or more with the sale of Allison, Johnson estimated.
GM sold 51 percent of its former wholly owned General Motors Acceptance Corp. auto loan, mortgage and insurance unit to a group led by Cerberus in November. In the first quarter, the automaker had to inject $1 billion back into GMAC to make up for subprime loan losses at GMAC's mortgage unit.
New Accounting Chief
In November, GM hired former Interpublic Group of Cos. and AT&T Inc. executive Nicholas Cyprus as controller and chief accounting officer. He replaced chief accounting officer Peter Bible and controller Paul Schmidt. Bible resigned in June, and Schmidt said he would retire pending a replacement after GM restated results for 2000 to 2005 and disclosed U.S. investigations of its finances.
The company disclosed in October 2005 that it had received subpoenas relating to supplier cost reductions and credits. Supplier credits are generally cash an auto-parts maker would pay to GM in exchange for future business or as an advance on future price cuts. GM now bans that practice.
In March 2006, the automaker said it had received a second round of subpoenas relating to accounting for the disposal of precious-metal inventory. Those investigations continue.
The same month, GM reduced net income for 2000 to 2004 by a total of $387 million because of accounting errors involving supplier credits, a 2001 lawsuit settlement, economic assumptions for benefit-plan changes and the precious-metals transaction.
In November 2005, GM restated its 2001 earnings and its second-quarter 2005 earnings to reflect deeper losses.
Credit-default swaps based on $10 million of GM's bonds dropped $3,200 to $399,300 according to London-based CMA Datavision. A decrease in the five-year contracts indicates improvement in the perception of credit quality; an increase suggests the opposite.
It may take buyout to help Circuit City
May 24, 12:54 AM EDT
CHARLOTTE, N.C. (AP) -- Circuit City's recent profit warning and concerns about competition have pulled the plug on the consumer electronics retailer's shares.
Trading around their lowest level in more than two years, shares are below the $17 buyout offer Circuit City Stores Inc. rejected from a Boston hedge fund in 2005. At $15.77 Wednesday, a share of Circuit City is cheaper than a DVD copy of the recent "Borat" movie the retailer sells on its Internet site.
But the near-term outlook is so cloudy that some company watchers believe it will take either a buyout offer, a major management change or both to spark shares in the months ahead.
A price war on flat-screen televisions that erupted late last year as Wal-Mart Stores Inc. and others made a big push into the product category has vexed Circuit City's latest turnaround efforts. The pricing prompted Circuit City to replace 3,400 retail employees with lower-cost workers in a move analysts now believe has hurt sales. Meanwhile, larger rival Richfield, Minn.-based Best Buy Co. appears to be weathering the tough industry environment much better and continues to expand rapidly.
"There's a lot of questions in the marketplace in regard to Circuit City's (market) share losses and consumer spending in general," said Chris Kagaoan, a retail analyst with investment firm J. & W. Seligman. The firm doesn't own shares of Circuit City but does manage close to 1 million shares of Best Buy.
Circuit City's chief executive, former Best Buy executive Phil Schoonover, has financial flexibility - his company has more than $4 a share in cash on the balance sheet, and a potential sale of its Canadian business could add an estimated $1 a share. But shares are so cheap by some measures that the Richmond, Va.-based retailer has landed on numerous takeout-candidate screens on Wall Street.
Several firms, including UBS AG and Bear Stearns, consider Circuit City one of the most attractive candidates for a private equity buyout among hardline retailers.
"It's a really inexpensive stock," said Bear Stearns analyst Christopher Horvers, whose financial models indicate a buyout price in the range of $22 to $24 a share still would generate attractive returns for a buyer. "Structurally, there are a lot of things they can do to improve profitability."
Besides rejecting the offer in 2005 from hedge fund Highfields Capital, Circuit City's board also rebuffed a 2003 takeover offer of $8 a share from Mexican billionaire Carlos Slim Helu. There's no sign board sentiment has changed.
Company spokesman Bill Cimino declined to comment for this story, other than to say "management and the board are laser-focused on building and delivering shareholder value." Highfields, through a spokesman, declined to comment, and Slim could not be reached for comment.
At least 10 retail chains have been sold over the past couple of years, and Circuit City has the kind of sector leadership, strong cash flow prospects and potential for operating margin expansion a buyer might like, said UBS analyst Brian Nagel in a recent note.
Consider this: Fiscal 2007 earnings before interest and taxes were 1.1 percent of sales, compared with 5.6 percent at Best Buy.
Circuit City has about 650 U.S. stores, or about three-fourths as many as Best Buy, but it generates roughly a third of the sales. Circuit City's biggest structural issue is that it has way more warehouse and non-selling space in its stores than does Best Buy, hurting sales productivity, according to JP Morgan. Circuit City last year generated an average $593 in sales per square foot, compared with $942 at Best Buy. Meanwhile, the companies' expenses per selling square foot are nearly equal.
Consumer electronics retailing is complex, with so many vendors and cyclicality of products, but most company watchers see opportunity for a strong No. 2 player.
Analysts and investors expect a buyer would be able to speed up store renovations or relocations and shut down at least 100 less productive stores. Other electronics retailers, including CompUSA Inc. and Tweeter Home Entertainment Group Inc., have announced hundreds of store closings.
Circuit City's profit warning on April 30, however, has thrown some cold water on buyout buzz. It blamed "substantially below-plan sales" for withdrawing its financial guidance for a pretax loss of $40 million to $50 million in the first half of fiscal 2008. Now it expects a pretax loss of about twice that in the first quarter alone.
At least eight brokerage firms followed the news by downgrading their investment ratings, citing the uncertain sales outlook and impact on profitability.
Circuit City has been a client of Bear Stearns in the last 12 months.
May 24, 12:54 AM EDT
CHARLOTTE, N.C. (AP) -- Circuit City's recent profit warning and concerns about competition have pulled the plug on the consumer electronics retailer's shares.
Trading around their lowest level in more than two years, shares are below the $17 buyout offer Circuit City Stores Inc. rejected from a Boston hedge fund in 2005. At $15.77 Wednesday, a share of Circuit City is cheaper than a DVD copy of the recent "Borat" movie the retailer sells on its Internet site.
But the near-term outlook is so cloudy that some company watchers believe it will take either a buyout offer, a major management change or both to spark shares in the months ahead.
A price war on flat-screen televisions that erupted late last year as Wal-Mart Stores Inc. and others made a big push into the product category has vexed Circuit City's latest turnaround efforts. The pricing prompted Circuit City to replace 3,400 retail employees with lower-cost workers in a move analysts now believe has hurt sales. Meanwhile, larger rival Richfield, Minn.-based Best Buy Co. appears to be weathering the tough industry environment much better and continues to expand rapidly.
"There's a lot of questions in the marketplace in regard to Circuit City's (market) share losses and consumer spending in general," said Chris Kagaoan, a retail analyst with investment firm J. & W. Seligman. The firm doesn't own shares of Circuit City but does manage close to 1 million shares of Best Buy.
Circuit City's chief executive, former Best Buy executive Phil Schoonover, has financial flexibility - his company has more than $4 a share in cash on the balance sheet, and a potential sale of its Canadian business could add an estimated $1 a share. But shares are so cheap by some measures that the Richmond, Va.-based retailer has landed on numerous takeout-candidate screens on Wall Street.
Several firms, including UBS AG and Bear Stearns, consider Circuit City one of the most attractive candidates for a private equity buyout among hardline retailers.
"It's a really inexpensive stock," said Bear Stearns analyst Christopher Horvers, whose financial models indicate a buyout price in the range of $22 to $24 a share still would generate attractive returns for a buyer. "Structurally, there are a lot of things they can do to improve profitability."
Besides rejecting the offer in 2005 from hedge fund Highfields Capital, Circuit City's board also rebuffed a 2003 takeover offer of $8 a share from Mexican billionaire Carlos Slim Helu. There's no sign board sentiment has changed.
Company spokesman Bill Cimino declined to comment for this story, other than to say "management and the board are laser-focused on building and delivering shareholder value." Highfields, through a spokesman, declined to comment, and Slim could not be reached for comment.
At least 10 retail chains have been sold over the past couple of years, and Circuit City has the kind of sector leadership, strong cash flow prospects and potential for operating margin expansion a buyer might like, said UBS analyst Brian Nagel in a recent note.
Consider this: Fiscal 2007 earnings before interest and taxes were 1.1 percent of sales, compared with 5.6 percent at Best Buy.
Circuit City has about 650 U.S. stores, or about three-fourths as many as Best Buy, but it generates roughly a third of the sales. Circuit City's biggest structural issue is that it has way more warehouse and non-selling space in its stores than does Best Buy, hurting sales productivity, according to JP Morgan. Circuit City last year generated an average $593 in sales per square foot, compared with $942 at Best Buy. Meanwhile, the companies' expenses per selling square foot are nearly equal.
Consumer electronics retailing is complex, with so many vendors and cyclicality of products, but most company watchers see opportunity for a strong No. 2 player.
Analysts and investors expect a buyer would be able to speed up store renovations or relocations and shut down at least 100 less productive stores. Other electronics retailers, including CompUSA Inc. and Tweeter Home Entertainment Group Inc., have announced hundreds of store closings.
Circuit City's profit warning on April 30, however, has thrown some cold water on buyout buzz. It blamed "substantially below-plan sales" for withdrawing its financial guidance for a pretax loss of $40 million to $50 million in the first half of fiscal 2008. Now it expects a pretax loss of about twice that in the first quarter alone.
At least eight brokerage firms followed the news by downgrading their investment ratings, citing the uncertain sales outlook and impact on profitability.
Circuit City has been a client of Bear Stearns in the last 12 months.
Britain Announces Inquiry Into BSkyB
May 24, 2007 2:15 PM ET
LONDON (AP) - The British government ordered the country's competition watchdog on Thursday to carry out a full inquiry into British Sky Broadcasting PLC's purchase of a significant stake in commercial broadcaster ITV PLC.
The order for the investigation is the first major test of the influence held over the British media by Rupert Murdoch, BSkyB's chairman and largest stockholder.
Britain's competition and media watchdogs said last month that a full probe was necessary after the government called for preliminary reports to determine whether the deal was against the public interest.
"On the basis of the evidence before me, a fuller investigation by the Competition Commission is justified," said Trade Secretary Alistair Darling.
BSkyB, which is 39 percent owned by Murdoch's News Corp., bought the ITV stake in November 2006 for $1.8 billion, a move that most analysts viewed as an attempt to prevent its pay-TV rival NTL Inc. from acquiring ITV.
NTL, which is now called Virgin Media after a merger with Richard Branson's Virgin Mobile, had announced shortly before BSkyB's acquisition that it was talking with ITV about an offer.
NTL and Branson, who are also embroiled in a separate dispute with BSkyB over content fees, complained bitterly about BSkyB's acquisition.
The Competition Commission, which rules on antitrust activity in Britain, will scrutinize the impact of the deal on competition and will look at public interest issues relating specifically to control of media companies.
The Office of Fair Trading said in April that it believed BSkyB's share ownership could result in "a substantial lessening of competition" in the markets in which BSkyB and ITV operate.
There is a separate inquiry into the British pay-TV market, which BSkyB dominates, following criticism that the company abuses its position through pricing and other issues.
BSkyB and ITV have both pledged to cooperate with Competition Commission to head a fully inquiry, pledging full cooperation, but declined to comment further.
Shares in BSkyB fell 0.86 percent to 634.50 pence ($12.55) Thursday, while ITV stock dropped 1.63 percent to 114.60 pence ($2.26).
May 24, 2007 2:15 PM ET
LONDON (AP) - The British government ordered the country's competition watchdog on Thursday to carry out a full inquiry into British Sky Broadcasting PLC's purchase of a significant stake in commercial broadcaster ITV PLC.
The order for the investigation is the first major test of the influence held over the British media by Rupert Murdoch, BSkyB's chairman and largest stockholder.
Britain's competition and media watchdogs said last month that a full probe was necessary after the government called for preliminary reports to determine whether the deal was against the public interest.
"On the basis of the evidence before me, a fuller investigation by the Competition Commission is justified," said Trade Secretary Alistair Darling.
BSkyB, which is 39 percent owned by Murdoch's News Corp., bought the ITV stake in November 2006 for $1.8 billion, a move that most analysts viewed as an attempt to prevent its pay-TV rival NTL Inc. from acquiring ITV.
NTL, which is now called Virgin Media after a merger with Richard Branson's Virgin Mobile, had announced shortly before BSkyB's acquisition that it was talking with ITV about an offer.
NTL and Branson, who are also embroiled in a separate dispute with BSkyB over content fees, complained bitterly about BSkyB's acquisition.
The Competition Commission, which rules on antitrust activity in Britain, will scrutinize the impact of the deal on competition and will look at public interest issues relating specifically to control of media companies.
The Office of Fair Trading said in April that it believed BSkyB's share ownership could result in "a substantial lessening of competition" in the markets in which BSkyB and ITV operate.
There is a separate inquiry into the British pay-TV market, which BSkyB dominates, following criticism that the company abuses its position through pricing and other issues.
BSkyB and ITV have both pledged to cooperate with Competition Commission to head a fully inquiry, pledging full cooperation, but declined to comment further.
Shares in BSkyB fell 0.86 percent to 634.50 pence ($12.55) Thursday, while ITV stock dropped 1.63 percent to 114.60 pence ($2.26).
Canada: Cerberus Plans Bell Bid
By IAN AUSTEN
Published: May 24, 2007
BCE, the parent of Bell Canada, the largest communications company in Canada, said that a group led by Cerberus Capital had joined the bidding for the company. While the other investors were not identified, they will be vital to any deal because Canadian law bans foreign control of telephone companies. Three groups are now vying to take BCE private. BCE’s largest shareholder, the Ontario Teachers’ Pension Plan, has allied itself with other institutional investors for a possible bid. The Canada Pension Plan Investment Board and Kohlberg Kravis Roberts have formed a rival group that may make a bid potentially worth about $45 billion.
By IAN AUSTEN
Published: May 24, 2007
BCE, the parent of Bell Canada, the largest communications company in Canada, said that a group led by Cerberus Capital had joined the bidding for the company. While the other investors were not identified, they will be vital to any deal because Canadian law bans foreign control of telephone companies. Three groups are now vying to take BCE private. BCE’s largest shareholder, the Ontario Teachers’ Pension Plan, has allied itself with other institutional investors for a possible bid. The Canada Pension Plan Investment Board and Kohlberg Kravis Roberts have formed a rival group that may make a bid potentially worth about $45 billion.
Key senator urges rejection of XM-Sirius deal
By Reuters
Story last modified Thu May 24 06:19:18 PDT 2007
The chairman of the U.S. Senate's antitrust subcommittee on Wednesday urged regulators to block Sirius Satellite Radio's proposed acquisition of XM Satellite Radio Holdings.
Democratic Sen. Herb Kohl of Wisconsin said he had sent a letter to the Justice Department and the Federal Communications Commission calling on them to oppose the deal on grounds that it would cause "substantial harm to competition and consumers."
"Such a result should be unacceptable under antitrust law and as a matter of communication policy," Kohl wrote to FCC Chairman Kevin Martin and the Justice Department's antitrust chief, Thomas Barnett.
Sirius plans to buy XM in an all-stock deal worth about $4 billion. The deal would combine the only two providers of satellite radio service in the United States and has sparked concerns among some U.S. lawmakers and consumer groups.
The deal is currently being reviewed by both the Justice Department and the FCC, which issued both satellite radio licenses in 1997 on the condition that the two companies would never merge.
Although they can exert political influence over the agencies generally, lawmakers have no direct input into the decisions about individual merger reviews.
In testimony before Kohl's subcommittee and other congressional panels, Sirius Chief Executive Mel Karmazin has promised that the combined company would not raise prices, and that customers would be able to block adult channels and get a refund for those channels.
Karmazin has also argued that the deal would not be anticompetitive because satellite radio faces competition from other forms of audio like traditional AM/FM radio and personal audio players.
But in Wednesday's letter to the agencies, Kohl said he was unconvinced. Terrestrial radio is too limited to compete with satellite radio, while personal audio players cannot match the programming of satellite service, he wrote.
"No other technology available today is a substitute for the satellite radio," Kohl wrote.
Beyond that, Kohl said, other possible alternatives are years away from being available to consumers.
"Uncertain promises of competition from new technologies tomorrow do not protect consumers from higher prices today," Kohl wrote.
By Reuters
Story last modified Thu May 24 06:19:18 PDT 2007
The chairman of the U.S. Senate's antitrust subcommittee on Wednesday urged regulators to block Sirius Satellite Radio's proposed acquisition of XM Satellite Radio Holdings.
Democratic Sen. Herb Kohl of Wisconsin said he had sent a letter to the Justice Department and the Federal Communications Commission calling on them to oppose the deal on grounds that it would cause "substantial harm to competition and consumers."
"Such a result should be unacceptable under antitrust law and as a matter of communication policy," Kohl wrote to FCC Chairman Kevin Martin and the Justice Department's antitrust chief, Thomas Barnett.
Sirius plans to buy XM in an all-stock deal worth about $4 billion. The deal would combine the only two providers of satellite radio service in the United States and has sparked concerns among some U.S. lawmakers and consumer groups.
The deal is currently being reviewed by both the Justice Department and the FCC, which issued both satellite radio licenses in 1997 on the condition that the two companies would never merge.
Although they can exert political influence over the agencies generally, lawmakers have no direct input into the decisions about individual merger reviews.
In testimony before Kohl's subcommittee and other congressional panels, Sirius Chief Executive Mel Karmazin has promised that the combined company would not raise prices, and that customers would be able to block adult channels and get a refund for those channels.
Karmazin has also argued that the deal would not be anticompetitive because satellite radio faces competition from other forms of audio like traditional AM/FM radio and personal audio players.
But in Wednesday's letter to the agencies, Kohl said he was unconvinced. Terrestrial radio is too limited to compete with satellite radio, while personal audio players cannot match the programming of satellite service, he wrote.
"No other technology available today is a substitute for the satellite radio," Kohl wrote.
Beyond that, Kohl said, other possible alternatives are years away from being available to consumers.
"Uncertain promises of competition from new technologies tomorrow do not protect consumers from higher prices today," Kohl wrote.
Bracing for Bioterror
A major biological attack could kill or injure millions. We can and should do more to protect our food supplies and distribution systems
Viewpoint May 21, 2007, 12:01AM EST
by Greg Blonder
We insure ourselves against unlikely events of many stripes: fires, hurricanes, burglaries, to name a few. Some of these may not happen in a lifetime, but insuring against them offers peace of mind.
But what about events considered "unlikely certainties"—significant occurrences, guaranteed to happen, but at an unspecified, perhaps distant time? An example in the political realm is the death of Cuban leader Fidel Castro. And scientists tell us that global unlikely certainties include a giant asteroid hitting the earth, wiping out much of humanity.
How do we prepare for these kinds of events? Because they're inevitable, we cannot afford to play the odds, avoiding the cost of insurance with the hopes that they'll never occur.
Either we plan ahead, such as by accruing resources and funds to mitigate the disaster's effects, or we self-insure by improvising a response and planning to dig into savings to pay for recovery. Of course, opting for the latter isn't always wise.
Which brings us to the war on terror. I believe any careful observer would conclude that an airplane hijacking, suicide bombing, and even an atomic explosion and a biological attack on American soil can be considered unlikely certainties. In war, if it can be done, it will be done.
So the question becomes: How do we prepare? Specifically, which attack deserves "investment" before the fact? In terms of sheer scale of the devastation, the answer must be biological attack. By comparison, even the massive loss of lives that would result from an atomic bomb would be limited geographically and economically.
Widspread Concern
If present trends continue, within the next decade or so it appears certain we'll undergo a major biological attack that could kill or injure millions of U.S. citizens. Our centralized distribution networks and global sourcing make us uniquely vulnerable.
A virulent disease carried by airline passengers or passed through our food distribution network virtually guarantees the nationwide spread of the attacking biological agent within a matter of days. We've already previewed such an event last summer with the spinach E. coli outbreak, and the more recent rash of pet deaths caused by melamine adulterated feed from China. Don't you worry that it took months to backtrack those poisonings to their source?
Imagine a world in which you couldn't trust the food you eat, the bus you ride on, or the hand you shake—no matter where you live, no matter how far you run. A biological attack, much more devastating than a nuclear bomb, could set America back a decade.
The tools and knowledge for biological weapons are now widespread. Soon they will be within the reach of any dedicated individual. It won't be a surprise attack. Today's terrorists know practice makes perfect, especially when resources are limited and the risk of failure is high.
In recent years, terrorists have been steadily climbing the ladder of weapon sophistication, from simple shootings to large-scale explosives and, most recently, to chlorine bombs. Before terrorists attack New York, they will likely practice in Somalia.
Overcome Obstacles
Given the potential size of the threat, what is stopping us from acting to prevent it? One obstacle surely is our collective inability—despite the spinach and pet food contaminations—to admit we are at war and that casualties are inevitable.
Our politicians prefer to spend billions on visible palliatives, such as screening airline passengers' toothpaste tubes for explosives, while spending almost nothing on screening our food supply. In other words, billions of dollars to save a few and only millions to preserve the American way of life.
A second obstacle is the apparent immensity of the preventative task. Rethinking our vast distribution networks seems an insurmountable problem. Where to begin? Some green ideas—such as buying food produced only within a 500-mile radius—indirectly help by localizing the food supply, but when practiced alone are too piecemeal to avert widespread damage.
However, as I discussed in earlier columns, expensive programs can be cost effectively implemented if driven by a related, commercial need. They can be rapidly implemented as well, if guided by wise laws, regulations, and incentives.
Tracking and Sensor Systems
One obvious effective solution would be a tracking system meshed into our existing distribution networks. Such a system would identify toxic or infectious dangers in their early stages, communicate their various locations, then support a rapid reaction before the threat spreads, thus intercepting pandemics or poisonings before they spiral out of control.
We already have at hand much of the logistics infrastructure and technology that such a system would require. Radio Frequency Identification tags have reached a degree of sophistication where, if we wanted to, we could bar-code all food—whether tomatoes grown on an Amish farm outside town or broccoli from Mexico.
Similarly, sensor technology that lets us tag gold nanoparticles with DNA or miniaturized spectrometers has attained enough sensitivity that we can accurately identify a wide range of dangerous bacteria and toxic chemicals by smell or even color. If we communicated the collected data via the Internet, expert systems could then quickly identify unusual disease trends.
Aside from protection against bioterrorism, such a system would offer enough value to justify its cost through improved logistics. Local restaurants and grocery stores could provide assurance they were offering safe food—even food free of accidental E. coli contaminations.
Your supermarket could advertise: "Each morning we rescan every product in our aisles to assure you our produce is free of 27 diseases. And we can tell you the exact farm where it was grown. Enjoy!"
Similarly, a sensor system could also determine whether the 10% of gray-market drugs passing as genuine are safe, and perhaps avoid the tens of thousands of deaths resulting each year from incorrectly dispensed pharmaceuticals. My bet is that we would regard the interim value of such a system—beyond just bioterrorism protection—as well worth the cost. Indeed, we would wonder how we ever did without it.
Such a system may appear to belong more in the realm of fantasy than sober planning. Yet one-time fantasies, from landing on the moon to curing disease, are becoming reality with ever greater acceleration. Even collision with a giant asteroid is worth contemplating. In 2029 one is scheduled to miss the earth by a mere 25,000 miles. The next time we may not be so lucky.
A major biological attack could kill or injure millions. We can and should do more to protect our food supplies and distribution systems
Viewpoint May 21, 2007, 12:01AM EST
by Greg Blonder
We insure ourselves against unlikely events of many stripes: fires, hurricanes, burglaries, to name a few. Some of these may not happen in a lifetime, but insuring against them offers peace of mind.
But what about events considered "unlikely certainties"—significant occurrences, guaranteed to happen, but at an unspecified, perhaps distant time? An example in the political realm is the death of Cuban leader Fidel Castro. And scientists tell us that global unlikely certainties include a giant asteroid hitting the earth, wiping out much of humanity.
How do we prepare for these kinds of events? Because they're inevitable, we cannot afford to play the odds, avoiding the cost of insurance with the hopes that they'll never occur.
Either we plan ahead, such as by accruing resources and funds to mitigate the disaster's effects, or we self-insure by improvising a response and planning to dig into savings to pay for recovery. Of course, opting for the latter isn't always wise.
Which brings us to the war on terror. I believe any careful observer would conclude that an airplane hijacking, suicide bombing, and even an atomic explosion and a biological attack on American soil can be considered unlikely certainties. In war, if it can be done, it will be done.
So the question becomes: How do we prepare? Specifically, which attack deserves "investment" before the fact? In terms of sheer scale of the devastation, the answer must be biological attack. By comparison, even the massive loss of lives that would result from an atomic bomb would be limited geographically and economically.
Widspread Concern
If present trends continue, within the next decade or so it appears certain we'll undergo a major biological attack that could kill or injure millions of U.S. citizens. Our centralized distribution networks and global sourcing make us uniquely vulnerable.
A virulent disease carried by airline passengers or passed through our food distribution network virtually guarantees the nationwide spread of the attacking biological agent within a matter of days. We've already previewed such an event last summer with the spinach E. coli outbreak, and the more recent rash of pet deaths caused by melamine adulterated feed from China. Don't you worry that it took months to backtrack those poisonings to their source?
Imagine a world in which you couldn't trust the food you eat, the bus you ride on, or the hand you shake—no matter where you live, no matter how far you run. A biological attack, much more devastating than a nuclear bomb, could set America back a decade.
The tools and knowledge for biological weapons are now widespread. Soon they will be within the reach of any dedicated individual. It won't be a surprise attack. Today's terrorists know practice makes perfect, especially when resources are limited and the risk of failure is high.
In recent years, terrorists have been steadily climbing the ladder of weapon sophistication, from simple shootings to large-scale explosives and, most recently, to chlorine bombs. Before terrorists attack New York, they will likely practice in Somalia.
Overcome Obstacles
Given the potential size of the threat, what is stopping us from acting to prevent it? One obstacle surely is our collective inability—despite the spinach and pet food contaminations—to admit we are at war and that casualties are inevitable.
Our politicians prefer to spend billions on visible palliatives, such as screening airline passengers' toothpaste tubes for explosives, while spending almost nothing on screening our food supply. In other words, billions of dollars to save a few and only millions to preserve the American way of life.
A second obstacle is the apparent immensity of the preventative task. Rethinking our vast distribution networks seems an insurmountable problem. Where to begin? Some green ideas—such as buying food produced only within a 500-mile radius—indirectly help by localizing the food supply, but when practiced alone are too piecemeal to avert widespread damage.
However, as I discussed in earlier columns, expensive programs can be cost effectively implemented if driven by a related, commercial need. They can be rapidly implemented as well, if guided by wise laws, regulations, and incentives.
Tracking and Sensor Systems
One obvious effective solution would be a tracking system meshed into our existing distribution networks. Such a system would identify toxic or infectious dangers in their early stages, communicate their various locations, then support a rapid reaction before the threat spreads, thus intercepting pandemics or poisonings before they spiral out of control.
We already have at hand much of the logistics infrastructure and technology that such a system would require. Radio Frequency Identification tags have reached a degree of sophistication where, if we wanted to, we could bar-code all food—whether tomatoes grown on an Amish farm outside town or broccoli from Mexico.
Similarly, sensor technology that lets us tag gold nanoparticles with DNA or miniaturized spectrometers has attained enough sensitivity that we can accurately identify a wide range of dangerous bacteria and toxic chemicals by smell or even color. If we communicated the collected data via the Internet, expert systems could then quickly identify unusual disease trends.
Aside from protection against bioterrorism, such a system would offer enough value to justify its cost through improved logistics. Local restaurants and grocery stores could provide assurance they were offering safe food—even food free of accidental E. coli contaminations.
Your supermarket could advertise: "Each morning we rescan every product in our aisles to assure you our produce is free of 27 diseases. And we can tell you the exact farm where it was grown. Enjoy!"
Similarly, a sensor system could also determine whether the 10% of gray-market drugs passing as genuine are safe, and perhaps avoid the tens of thousands of deaths resulting each year from incorrectly dispensed pharmaceuticals. My bet is that we would regard the interim value of such a system—beyond just bioterrorism protection—as well worth the cost. Indeed, we would wonder how we ever did without it.
Such a system may appear to belong more in the realm of fantasy than sober planning. Yet one-time fantasies, from landing on the moon to curing disease, are becoming reality with ever greater acceleration. Even collision with a giant asteroid is worth contemplating. In 2029 one is scheduled to miss the earth by a mere 25,000 miles. The next time we may not be so lucky.
Canada: Alcoa Stands by Bid
May 24, 2007
By IAN AUSTEN
The aluminum producer Alcoa said in a statement that it would continue to pursue its $27.4 billion cash and stock bid for a rival, Alcan, despite the Canadian company’s rejection of the offer. But Alcoa’s chairman and chief executive, Alain J. P. Belda, said that the company would not enhance the proposal, which Alcan called inadequate. “We have studied Alcan’s response and have not seen anything that would lead us to re-evaluate our offer,” Mr. Belda said. He also rejected suggestions by Alcan that Alcoa would have difficulty obtaining antitrust approval for the merger and urged Alcan’s board to resume its examination of the bid.
May 24, 2007
By IAN AUSTEN
The aluminum producer Alcoa said in a statement that it would continue to pursue its $27.4 billion cash and stock bid for a rival, Alcan, despite the Canadian company’s rejection of the offer. But Alcoa’s chairman and chief executive, Alain J. P. Belda, said that the company would not enhance the proposal, which Alcan called inadequate. “We have studied Alcan’s response and have not seen anything that would lead us to re-evaluate our offer,” Mr. Belda said. He also rejected suggestions by Alcan that Alcoa would have difficulty obtaining antitrust approval for the merger and urged Alcan’s board to resume its examination of the bid.
Thursday, May 24, 2007
Goldman Takes 'Private' Equity To a New Level
Firm's Trading System Lets Unregistered Stock Reach Exclusive Market
By RANDALL SMITH
May 24, 2007
Goldman Sachs Group Inc. ranks as the most profitable securities firm on Wall Street -- reflecting its mastery of trading on the world's public markets.
Now Goldman is turning that franchise on its head, creating its own private system to trade the stocks of companies that don't want the scrutiny and regulatory burdens of going public.
The new system, GS TRuE -- short for Goldman Sachs Tradable Unregistered Equity -- was announced two weeks ago and made its debut on Monday with an $880 million sale of a 15% stake in Oaktree Capital Management LLC, an alternative-investment manager.
It is the first of several new, private exchanges like these being considered by Wall Street firms and others. Nasdaq is also planning its own new market for smaller, unregistered securities.
These markets will generally be closed to individual investors. For instance, Goldman's market is open only to large institutional investors with assets of more than $100 million. That is because the stocks traded on GS TRuE aren't registered with the Securities and Exchange Commission and issuers aren't subject to SEC regulations designed to protect individual investors.
It represents the latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. For instance, giant private-equity firms are busy buying public companies and delisting them from stock exchanges. The growing importance of hedge funds -- which are generally limited to wealthy investors, institutions and endowments -- also excludes individuals.
The new system is "a manifestation of the growth of private-equity relative to public equity," said Jay Ritter, a finance professor at the University of Florida in Gainesville, pointing to the record-setting pace of private-equity buyouts of public companies recently.
Traditional mutual funds -- one of the main investment tools at the disposal of individual investors -- are also limited in the amount of unregistered securities they can buy or sell. Hedge funds, by contrast, have more freedom to buy unregistered stocks and bonds.
Indeed, bankers and capital-markets executives at rival firms say that, at GS TRuE's debut, hedge funds were prominent among buyers for the issue by Los Angeles-based Oaktree.
Some investor advocates criticized the trend of selling more securities faster with less disclosure. "It becomes much more of a buyer-beware marketplace with little regulatory oversight or protection," said Steven B. Caruso, a New York lawyer who represents investors in disputes with Wall Street.
Business Backlash
Goldman's move partly reflects a business-community backlash against increased regulation of public-company accounting practices -- a favorite theme, as it happens, of Treasury Secretary Henry M. Paulson Jr., who is also a former Goldman chief executive.
Wall Street executives said the market offers an alternative to companies that don't want to wait for regulators to approve their financial disclosures needed for an initial public offering, which can take 90 days or more.
They also said it offers a haven for firms that don't want to be subject to what Oaktree described as "the full panoply of regulations applicable to publicly traded companies in the United States." In a memorandum describing the stock sale, Oaktree added that staying private would avoid "pressure to describe the company as one capable of steady growth, whereas our underlying business is actually quite variable."
Although the Oaktree offering was sold to only about 50 buyers, it traded at roughly the same multiple of expected 2008 earnings as Fortress Investment Group LLC, a comparable alternative-investment manager that recently sold stock in a conventional initial public offering, according to Wall Street traders.
In other words, the Oaktree stock traded without a price discount that would reflect the lack of a public market with multiple dealers. In that respect, the new market passed an important first test. If stocks traded at too much of a discount, that might dissuade other companies from listing there.
What History Says
Bankers at rival firms -- many of which are developing similar systems -- predict that there will be consolidation among the different platforms.
"History in other markets would indicate that this will converge into a single platform," said Daniel Simkowitz, a managing director in capital markets at Morgan Stanley, which advised Oaktree on the issue.
Indeed, Nasdaq Stock Market Inc. is in the home stretch of getting approval for a similar unregistered trading facility for smaller companies called Portal. Another securities firm, Friedman, Billings, Ramsey Group Inc., has sold unregistered stock for numerous companies in real estate, energy and lodging.
Goldman executives said one reason they launched their own system solo, without asking other rival securities firms to participate, was to insure control over the number of investors in any particular security. That is crucial, they said, because any company that goes over 499 investors must register as a public company.
That 499-investor limit, said one executive of a top private-equity firm, is one reason why such buyout firms aren't likely to rush pell-mell into this type of new issue for their portfolio companies. The buyout firms want to attract far more investors to make sure they get the best prices for their stock, he explained.
'New Tool' in the Kit
Rob Pace, a senior capital-markets executive who played a lead role in developing the Goldman system, called such issues "a new tool in the tool kit" for investors, filling out a spot between harder-to-trade traditional private placements and public offerings.
Mr. Pace noted that Goldman still believes "the U.S. public capital markets are the deepest and most liquid," and will continue to represent "a more prevalent way to raise equity capital."
Goldman also said companies that issue stock on its system must promise to issue quarterly, annual and event-related financial reports comparable to those of public companies. However, they don't have the same obligation for widespread dissemination of detailed business information that can be of use to competitors.
Gregg Weinstein, a Goldman trading executive who also worked on the system, said Goldman doesn't "have any expectation that we're going to be able to stand alone in this product forever." But, he said, working with other dealers on the first issue would have risked delays.
Firm's Trading System Lets Unregistered Stock Reach Exclusive Market
By RANDALL SMITH
May 24, 2007
Goldman Sachs Group Inc. ranks as the most profitable securities firm on Wall Street -- reflecting its mastery of trading on the world's public markets.
Now Goldman is turning that franchise on its head, creating its own private system to trade the stocks of companies that don't want the scrutiny and regulatory burdens of going public.
The new system, GS TRuE -- short for Goldman Sachs Tradable Unregistered Equity -- was announced two weeks ago and made its debut on Monday with an $880 million sale of a 15% stake in Oaktree Capital Management LLC, an alternative-investment manager.
It is the first of several new, private exchanges like these being considered by Wall Street firms and others. Nasdaq is also planning its own new market for smaller, unregistered securities.
These markets will generally be closed to individual investors. For instance, Goldman's market is open only to large institutional investors with assets of more than $100 million. That is because the stocks traded on GS TRuE aren't registered with the Securities and Exchange Commission and issuers aren't subject to SEC regulations designed to protect individual investors.
It represents the latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. For instance, giant private-equity firms are busy buying public companies and delisting them from stock exchanges. The growing importance of hedge funds -- which are generally limited to wealthy investors, institutions and endowments -- also excludes individuals.
The new system is "a manifestation of the growth of private-equity relative to public equity," said Jay Ritter, a finance professor at the University of Florida in Gainesville, pointing to the record-setting pace of private-equity buyouts of public companies recently.
Traditional mutual funds -- one of the main investment tools at the disposal of individual investors -- are also limited in the amount of unregistered securities they can buy or sell. Hedge funds, by contrast, have more freedom to buy unregistered stocks and bonds.
Indeed, bankers and capital-markets executives at rival firms say that, at GS TRuE's debut, hedge funds were prominent among buyers for the issue by Los Angeles-based Oaktree.
Some investor advocates criticized the trend of selling more securities faster with less disclosure. "It becomes much more of a buyer-beware marketplace with little regulatory oversight or protection," said Steven B. Caruso, a New York lawyer who represents investors in disputes with Wall Street.
Business Backlash
Goldman's move partly reflects a business-community backlash against increased regulation of public-company accounting practices -- a favorite theme, as it happens, of Treasury Secretary Henry M. Paulson Jr., who is also a former Goldman chief executive.
Wall Street executives said the market offers an alternative to companies that don't want to wait for regulators to approve their financial disclosures needed for an initial public offering, which can take 90 days or more.
They also said it offers a haven for firms that don't want to be subject to what Oaktree described as "the full panoply of regulations applicable to publicly traded companies in the United States." In a memorandum describing the stock sale, Oaktree added that staying private would avoid "pressure to describe the company as one capable of steady growth, whereas our underlying business is actually quite variable."
Although the Oaktree offering was sold to only about 50 buyers, it traded at roughly the same multiple of expected 2008 earnings as Fortress Investment Group LLC, a comparable alternative-investment manager that recently sold stock in a conventional initial public offering, according to Wall Street traders.
In other words, the Oaktree stock traded without a price discount that would reflect the lack of a public market with multiple dealers. In that respect, the new market passed an important first test. If stocks traded at too much of a discount, that might dissuade other companies from listing there.
What History Says
Bankers at rival firms -- many of which are developing similar systems -- predict that there will be consolidation among the different platforms.
"History in other markets would indicate that this will converge into a single platform," said Daniel Simkowitz, a managing director in capital markets at Morgan Stanley, which advised Oaktree on the issue.
Indeed, Nasdaq Stock Market Inc. is in the home stretch of getting approval for a similar unregistered trading facility for smaller companies called Portal. Another securities firm, Friedman, Billings, Ramsey Group Inc., has sold unregistered stock for numerous companies in real estate, energy and lodging.
Goldman executives said one reason they launched their own system solo, without asking other rival securities firms to participate, was to insure control over the number of investors in any particular security. That is crucial, they said, because any company that goes over 499 investors must register as a public company.
That 499-investor limit, said one executive of a top private-equity firm, is one reason why such buyout firms aren't likely to rush pell-mell into this type of new issue for their portfolio companies. The buyout firms want to attract far more investors to make sure they get the best prices for their stock, he explained.
'New Tool' in the Kit
Rob Pace, a senior capital-markets executive who played a lead role in developing the Goldman system, called such issues "a new tool in the tool kit" for investors, filling out a spot between harder-to-trade traditional private placements and public offerings.
Mr. Pace noted that Goldman still believes "the U.S. public capital markets are the deepest and most liquid," and will continue to represent "a more prevalent way to raise equity capital."
Goldman also said companies that issue stock on its system must promise to issue quarterly, annual and event-related financial reports comparable to those of public companies. However, they don't have the same obligation for widespread dissemination of detailed business information that can be of use to competitors.
Gregg Weinstein, a Goldman trading executive who also worked on the system, said Goldman doesn't "have any expectation that we're going to be able to stand alone in this product forever." But, he said, working with other dealers on the first issue would have risked delays.
Telstra Takes Networking to Next Level
Well-Timed 3G Play Attracts Many Users; Investors Are Bullish
By LYNDAL MCFARLAND
February 23, 2007; Page B5
Sol Trujillo, the U.S.-born chief of Australia's largest telecommunications company, is used to pushing buttons. And when it comes to offering advanced cellphone services, his timing has been right on target.
In late 2006, Mr. Trujillo's Telstra Corp. launched a high-speed mobile-phone network called Next G. While there was some initial skepticism, the new Telstra network is attracting users in droves -- and it has investors and international telcos talking.
At a time when the growth of so-called third-generation, or 3G, services has been sluggish in Europe and mixed in Asia -- and is still virtually nonexistent in the U.S. -- Telstra's network is gaining more than 100,000 subscribers each month. In Australia, Mr. Trujillo is burying competitors in the race for what the industry calls "high-calorie" 3G customers.
With Telstra's fixed-line business in decline and brutal competition in the traditional mobile space, Mr. Trujillo is looking to Next G, along with his broadband and Sensis advertising divisions, to drive growth.
Telstra has lured more than 415,000 subscribers since Next G's October launch. Its total of 3G subscribers has topped one million, or more than 11% of its customer base. The company has nearly 40% of Australia's 3G market.
"Next G is a powerful force in the marketplace," Mr. Trujillo, the former boss of US West and Orange of Britain, told investors last week. Average revenue per user from the 3G services is 20 Australian dollars (US$15.83) a month more than from Telstra's traditional mobile services, with three times as many music downloads on Next G, for example, the company says.
David Moffat, who heads the mobiles division, said Next G generated many inquiries at a recent 3G summit in Barcelona, Spain. "From an industry point of view, Australia would otherwise be seen as a relatively small global market."
The new 850-megahertz Next G network, which Telstra says is the world's fastest, adds to the group's existing 3G network. In 3G in Australia, Telstra competes with a local unit of Hutchison Whampoa Ltd., Singapore Telecommunications Ltd. and Vodafone Group PLC.
Charlie Aitken, head of institutional dealing at Southern Cross Equities in Sydney, urges investors "not to underestimate this network and the uniqueness of Telstra's investment case."
Telstra next year will switch off its slower-speed network using CDMA technology and migrate the 1.6 million users to Next G, which it says is substantially cheaper to operate. "Data prices can be less than 10% of the traditional network, either 3G or other types of networks," Mr. Moffat says.
The key to Mr. Trujillo's early success with Next G has been the timing, analysts say, pointing to falling handset prices and growing willingness by consumers to pay for better content.
"Hutchison may have seen it earlier than others, but Sol has got the timing right," ABN Amro analyst Ian Martin said in a note last week.
The Telstra CEO "quickly repositioned" its mobile operation to exploit advantages in reach and scale "just as the market has ripened, in terms of willingness to pay, for mobile data services," Mr. Martin said.
The dramatic fall in 3G handset prices bodes well for the takeup of 3G globally, analysts say. In some cases, handset prices have dropped 60% in the past two years, so the price gap with 2G phones has narrowed dramatically, according to Deutsche Bank analyst Sameer Chopra.
Nathan Burley, an analyst in Melbourne for telecom-research firm Ovum, says Telstra, unlike many other carriers around the world, has "pushed all its resources towards 3G." He adds that "a lot of what is driving the migration is handset subsidies on 3G devices."
Indeed, Telstra paid an average of A$183 to lure each new subscriber in last six months of 2006, up from A$121 a year earlier, mostly on the back of handset subsidies. Total handset subsidies were up a striking 98% from a year earlier. To Mr. Trujillo, the higher costs are easily justified. While there is increased expense initially to attract the customers, "the economics of this accelerated Next G growth are truly attractive," he told investors.
Incremental acquisition and retention costs for 3G subscribers since June "will be paid back in a little over three months," he said. Still, some analysts remain cool to Telstra. There is concern about its mobile margins, which in the six months ended Dec. 31 fell more than 10 percentage points from a year earlier, to less than 35%.
"The newfound mantra appears to be 'win and retain customers at all costs,'" Andrew Hines, analyst at Morgan Stanley, wrote in a note to clients after Telstra released first-half results last week. Analysts at J.P. Morgan and Citigroup also have reservations about the blowout in customer-acquisition costs and see Telstra as chasing growth at any cost.
Telstra Chief Financial Officer John Stanhope expects mobile margins to return to wider levels. As the company reduces handset costs, gets higher revenue from more users and cashes in on a competitive advantage in 3G, "we expect to drive margin improvement over the medium term," he said last week.
Well-Timed 3G Play Attracts Many Users; Investors Are Bullish
By LYNDAL MCFARLAND
February 23, 2007; Page B5
Sol Trujillo, the U.S.-born chief of Australia's largest telecommunications company, is used to pushing buttons. And when it comes to offering advanced cellphone services, his timing has been right on target.
In late 2006, Mr. Trujillo's Telstra Corp. launched a high-speed mobile-phone network called Next G. While there was some initial skepticism, the new Telstra network is attracting users in droves -- and it has investors and international telcos talking.
At a time when the growth of so-called third-generation, or 3G, services has been sluggish in Europe and mixed in Asia -- and is still virtually nonexistent in the U.S. -- Telstra's network is gaining more than 100,000 subscribers each month. In Australia, Mr. Trujillo is burying competitors in the race for what the industry calls "high-calorie" 3G customers.
With Telstra's fixed-line business in decline and brutal competition in the traditional mobile space, Mr. Trujillo is looking to Next G, along with his broadband and Sensis advertising divisions, to drive growth.
Telstra has lured more than 415,000 subscribers since Next G's October launch. Its total of 3G subscribers has topped one million, or more than 11% of its customer base. The company has nearly 40% of Australia's 3G market.
"Next G is a powerful force in the marketplace," Mr. Trujillo, the former boss of US West and Orange of Britain, told investors last week. Average revenue per user from the 3G services is 20 Australian dollars (US$15.83) a month more than from Telstra's traditional mobile services, with three times as many music downloads on Next G, for example, the company says.
David Moffat, who heads the mobiles division, said Next G generated many inquiries at a recent 3G summit in Barcelona, Spain. "From an industry point of view, Australia would otherwise be seen as a relatively small global market."
The new 850-megahertz Next G network, which Telstra says is the world's fastest, adds to the group's existing 3G network. In 3G in Australia, Telstra competes with a local unit of Hutchison Whampoa Ltd., Singapore Telecommunications Ltd. and Vodafone Group PLC.
Charlie Aitken, head of institutional dealing at Southern Cross Equities in Sydney, urges investors "not to underestimate this network and the uniqueness of Telstra's investment case."
Telstra next year will switch off its slower-speed network using CDMA technology and migrate the 1.6 million users to Next G, which it says is substantially cheaper to operate. "Data prices can be less than 10% of the traditional network, either 3G or other types of networks," Mr. Moffat says.
The key to Mr. Trujillo's early success with Next G has been the timing, analysts say, pointing to falling handset prices and growing willingness by consumers to pay for better content.
"Hutchison may have seen it earlier than others, but Sol has got the timing right," ABN Amro analyst Ian Martin said in a note last week.
The Telstra CEO "quickly repositioned" its mobile operation to exploit advantages in reach and scale "just as the market has ripened, in terms of willingness to pay, for mobile data services," Mr. Martin said.
The dramatic fall in 3G handset prices bodes well for the takeup of 3G globally, analysts say. In some cases, handset prices have dropped 60% in the past two years, so the price gap with 2G phones has narrowed dramatically, according to Deutsche Bank analyst Sameer Chopra.
Nathan Burley, an analyst in Melbourne for telecom-research firm Ovum, says Telstra, unlike many other carriers around the world, has "pushed all its resources towards 3G." He adds that "a lot of what is driving the migration is handset subsidies on 3G devices."
Indeed, Telstra paid an average of A$183 to lure each new subscriber in last six months of 2006, up from A$121 a year earlier, mostly on the back of handset subsidies. Total handset subsidies were up a striking 98% from a year earlier. To Mr. Trujillo, the higher costs are easily justified. While there is increased expense initially to attract the customers, "the economics of this accelerated Next G growth are truly attractive," he told investors.
Incremental acquisition and retention costs for 3G subscribers since June "will be paid back in a little over three months," he said. Still, some analysts remain cool to Telstra. There is concern about its mobile margins, which in the six months ended Dec. 31 fell more than 10 percentage points from a year earlier, to less than 35%.
"The newfound mantra appears to be 'win and retain customers at all costs,'" Andrew Hines, analyst at Morgan Stanley, wrote in a note to clients after Telstra released first-half results last week. Analysts at J.P. Morgan and Citigroup also have reservations about the blowout in customer-acquisition costs and see Telstra as chasing growth at any cost.
Telstra Chief Financial Officer John Stanhope expects mobile margins to return to wider levels. As the company reduces handset costs, gets higher revenue from more users and cashes in on a competitive advantage in 3G, "we expect to drive margin improvement over the medium term," he said last week.
The anarchists
For jihadist, read anarchist
Aug 18th 2005
From The Economist print edition
Repression did little to stop anarchist violence. But eventually the world moved on and the movement withered
Mary Evans
BOMBS, beards and backpacks: these are the distinguishing marks, at least in the popular imagination, of the terror-mongers who either incite or carry out the explosions that periodically rock the cities of the western world. A century or so ago it was not so different: bombs, beards and fizzing fuses. The worries generated by the two waves of terror, the responses to them and some of their other characteristics are also similar. The spasm of anarchist violence that was at its most convulsive in the 1880s and 1890s was felt, if indirectly, in every continent. It claimed hundreds of lives, including those of several heads of government, aroused widespread fear and prompted quantities of new laws and restrictions. But it passed. Jihadism is certainly not a lineal descendant of anarchism: far from it. Even so, the parallels between the anarchist bombings of the 19th century and the Islamist ones of today may be instructive.
Islamists, or at least those of the Osama bin Laden stripe, have several aims. Some—such as the desire “to regain Palestine”, to avenge the killing of “our nation's sons” and to expel all “infidel armies” from “the land of Muhammad”—could be those of any conventional national-liberation movement. Others are more millenarian: to bring everyone to Islam, which, says Mr bin Laden, “is the religion of showing kindness to others, establishing justice between them, granting them their rights, and defending the oppressed and persecuted.” All this will come to pass once everyone is living in an Islamic state, a caliphate governed by sharia law. Hence “the martyrdom operations against the enemy” and the promise of paradise for those who carry them out.
Anarchists have always believed in the antithesis of a Muslim state. They want a world without rule. Their first great theoretician, Pierre-Joseph Proudhon, wanted to abolish centralised government altogether. This, though, would not bring the chaos with which the word anarchy is often considered synonymous. On the contrary, a sort of harmonious order would ensue, the state being replaced by a system of autonomous groups and communities, glued together by contract and mutual interest in place of laws. Justice, argued this essentially non-violent man, was the “central star” governing society.
Though Proudhon is remembered for the dictum, “Property is theft!” he actually believed that a man had the right to possess a house, some land and the tools to work it. This was too much for Mikhail Bakunin, a revolutionary nationalist turned anarchist who believed in collective ownership of the means of production. He believed, too, that “the passion for destruction is also a creative urge,” which was not a description of the regenerative workings of capitalism but a call to the barricades. Regeneration, however, was very much an anarchist theme, just as it is a jihadist one. As one of anarchism's leading interpreters, George Woodcock, has put it, “It is through the wrecks of empires and faiths that the anarchists have always seen the glittering towers of their free world arising.”
What prompts the leap from idealistic thought to violent action is largely a matter for conjecture. Every religion and almost every philosophy has drawn adherents ready to shed blood, their own included, and in the face of tyranny, poverty and exploitation, a willingness to resort to force is not hard to understand. Both anarchism and jihadism, though, have incorporated bloodshed into their ideologies, or at least some of their zealots have. And both have been ready to justify the killing not just of soldiers, policemen and other agents of the state, but also of civilians.
The heads roll
For anarchists, the crucial theory was that developed in Italy, where in 1876 Errico Malatesta put it thus: “The insurrectionary deed, destined to affirm socialist principles by acts, is the most efficacious means of propaganda.” This theory of “propaganda by deed” was cheerfully promoted by another great anarchist thinker, Peter Kropotkin, a Russian prince who became the toast of radical-chic circles in Europe and America. Whether the theory truly tipped non-violent musers into killers, or whether it merely gave a pretext to psychopaths, simpletons and romantics to commit murders, is unclear. The murders, however, are not in doubt. In deadly sequence, anarchists claimed the lives of President Sadi Carnot of France (1894), Antonio Cánovas del Castillo, the prime minister of Spain (1897), Empress Elizabeth of Austria (1898), King Umberto of Italy (1900), President William McKinley of the United States (1901) and José Canalejas y Méndez, another Spanish prime minister (1912).
Such assassinations, it may be argued, were less similar to al-Qaeda's than to those of the Narodniki, the members of the Russian Party of the People's Will, who believed in “destroying the most powerful person in government” to undermine its prestige and arouse the revolutionary spirit. This they had undoubtedly done in 1881 by murdering Tsar Alexander II, even though he had been a reformer and, indeed, a liberator of the serfs. In truth, the practice of assassination is as old as the hills, though it got its name only in the 11th-13th centuries when it was followed by the Nizari Ismailiyun, a Shia sect that considered the murder of its enemies—conducted under the influence of hashish (hence assassin)—to be a religious duty.
Mr bin Laden would surely delight in some dramatic assassinations today. Presidents and prime ministers, however, do not nowadays sit reading the newspaper on the terraces of hotels where out-of-work Italian printers wander round with revolvers in their pockets, as Cánovas did, or walk the streets of Madrid unprotected while looking into bookshop windows, as Canalejas did. So Mr bin Laden must content himself with the assertion that on September 11th, “God Almighty hit the United States at its most vulnerable spot. He destroyed its greatest buildings...It was filled with terror from its north to its south and from its east to its west.”
The anarchists, too, were happy to resort to more indiscriminate acts of terror. “A pound of dynamite is worth a bushel of bullets,” said August Spies, the editor of an anarchist newspaper in Chicago, in 1886. His readers evidently agreed. A bomb thrown soon afterwards was to kill seven policemen breaking up a strikers' gathering in the city's Haymarket Square.
France, too, had its dynamitards. One of their bombs blew up the Restaurant Véry in Paris in 1892. Another, some months later, which was destined for a mining company's offices, killed six policemen and set off a flurry of wild rumours: acid had been placed in the city's water supply, it was said, churches had been mined and anarchists lurked round every corner. A year later a young anarchist, unable to earn enough to feed himself, his lover and his daughter, decided to take his own life—and at the same time make a protest. Ready to bomb but unwilling to kill, he packed some nails and a small charge of explosive into a saucepan and lobbed it from the public gallery into the Chamber of Deputies. Though it caused no deaths, he was executed—and then avenged with another bomb, this one in the Terminus café at the Gare St-Lazare which killed one customer and injured 19. The perpetrator of this outrage, designed to “waken the masses”, regretted only that it had not claimed more victims. A popular street song boasted:
It will come, it will come,
Every bourgeois will have his bomb.
And many were inclined to agree. Four more bombs went off in Paris in the next two months.
Other countries were hardly more peaceful. A bomb was lobbed into a monarchist parade in Florence in 1878, another into a crowd in Pisa two days later. In 1893, two bombs were thrown into the Teatro Liceo in Barcelona, killing 22 opera-goers on the first night of the season. A year later a French anarchist blew himself up by accident in Greenwich Park in London, presumably on his way to the observatory there. Two years later, at least six people taking part in a religious procession in Barcelona were blown to bits by an anarchist bomb. Countless attempts were also made on the lives of bigger names, such as King Alfonso XII of Spain (1878), Kaiser Wilhelm I of Germany (May and June 1878), Andrew Carnegie's business partner, Henry Clay Frick (Pittsburgh, 1892), a Serbian minister (Paris, 1893) and King Alfonso XIII and his English bride (Madrid, on their wedding day, 1906). In this last incident alone 20 bystanders died.
Then, as now, alarm and consternation broke out. Admittedly, violent attacks on prominent figures were quite frequent: one American president had been assassinated in 1865 (Lincoln) and another in 1881 (Garfield), and seven attempts were made on Queen Victoria's life before her reign ended in 1901, none of them by anarchists. Even so, governments could hardly do nothing. The response of some was repression and retribution, which often provoked further terrorist violence. Germany arrested 500 people after the second attack on the kaiser, many for “approving” of the attempts on his life. Spain was particularly prone to round up the usual suspects and torture them, though it also passed new laws. After the Liceo bombing, it brought in courts-martial for all crimes committed with explosives, and only military officers were allowed to be present during the trial of the supposed bombers.
France, too, resorted to unusual measures. After the bombing of the French Chamber of Deputies, 2,000 warrants were issued, anarchist clubs and cafés were raided, papers were closed down and August Vaillant, the bomber, was tried, found guilty and sentenced to death in a day. An apologist who declared that not a single man in France would grieve for the president if he confirmed the sentence (as he did), and then was assassinated (as he was), was jailed for two years for incitement to murder. The French parliament made it a crime not just to incite sedition but also to justify it. Criminal “associations of malefactors” were defined by intent rather than by action, and all acts of anarchist propaganda were banned.
Similarly, in Britain soon after last month's bombings, the prime minister, Tony Blair, announced that “condoning or glorifying terrorism” anywhere, not just in the United Kingdom, would become a crime. Places of worship used as centres for “fomenting extremism” are to be closed down. Measures will be taken to deport foreigners “fostering hatred, advocating violence to further a person's beliefs, or justifying or validating such violence.” Naturalised Britons engaged in “extremism” will be stripped of their citizenship.
Jihadists, of course, cross borders, and many are presumed to be indoctrinated by foreigners, even if they commit their deeds at home. So it was too with the anarchists, even though they often plotted and acted alone. Many of the ideas came from Russia. Besides Bakunin, Russia also produced Kropotkin, “an uncompromising apostle of the necessity of violence”, according to Barbara Tuchman in “The Proud Tower”.
Italy, by contrast, produced many of the assassins: for example, those who killed Carnot, Cánovas, Empress Elizabeth and King Umberto. It also exported utopians who founded anarchist settlements like the Cecilia colony in Brazil. Germany, too, had its share of fanatics, including Johann Most, the editor of an incendiary New York newspaper, Freiheit, and many of the Jewish anarchists who congregated in London's East End. France also sent anarchos abroad: a prominent theorist, Elisée Reclus, taught in Brussels. The man who shot McKinley was the child of Polish immigrants to America. And Switzerland, like England, played host to exiles who came and went with considerable freedom.
No wonder, then, that anti-foreigner feeling ran high in many places. In the United States, President Theodore Roosevelt asked Congress to exclude anyone who believed in “anarchistic principles” and, by treaty, to make the advocacy of killing an offence against international law. Congress duly obliged with an act that kept out anyone “teaching disbelief in or opposition to all organised government”.
By then an international conference had been held (in 1898) at the behest of Italy to seek help in fighting anarchism. The Italians did not get all they wanted: Belgium, Britain and Switzerland refused to abandon the right of asylum or to extradite suspected anarchists. But in 1893, just after the Liceo bombing, Britain had reluctantly banned open meetings of anarchists after the Liberal home secretary, H.H. Asquith, had come under attack for allowing an anarchist meeting to commemorate the Chicago Haymarket martyrs.
The vast majority of anarchists, like the vast majority of Islamists, were not violent, and some of those who once believed in bloodshed, notably Kropotkin, were to turn against it in time. But those who relished indiscriminate violence used an argument with striking similarities to that used by Mr bin Laden. Thus Emile Henry, who had left the bomb in the café at the Gare St-Lazare, was to justify his act by saying that those in the café were all “satisfied with the established order, all the accomplices and employees of Property and the State...There are no innocent bourgeois.” For his part, Mr bin Laden, in his “Letter to America” of November 2002, justifies the “aggression against civilians for crimes they did not commit” with a slightly more sophisticated variant. They deserved to die, he said, because, as American citizens, they had chosen “their government by way of their own free will, a choice which stems from their agreement to its policies.”
Such sentiments recall the characters of Conrad's “The Secret Agent” and Fyodor Dostoevsky's “Devils”. Inspired by 19th-century anarchist intellectuals and events, they describe men of almost autistic lack of empathy and contorted moral sense. For Conrad's protagonist, nicknamed the Professor, the world's morality
"...was artificial, corrupt and blasphemous. The way of even the most justifiable revolutions is prepared by personal impulses disguised into creeds. The Professor's indignation found in itself a final cause that absolved him from the sin of turning to destruction as the agent of his ambition. To destroy public faith in legality was the imperfect formula of his pedantic fanaticism; but the subconscious conviction that the framework of an established social order cannot be effectually shattered except by some form of collective or individual violence was precise and correct. He was a moral agent—that was settled in his mind. By exercising his agency with ruthless defiance he procured for himself the appearances of power and personal prestige. That was undeniable to his vengeful bitterness. It pacified its unrest; and in their own way the most ardent of revolutionaries are perhaps doing no more but seeking for peace in common with the rest of mankind—the peace of soothed vanity, of satisfied appetites, or perhaps of appeased conscience."
Anarchists like the Professor, a quiet man who went round with a bomb in his pocket that he could detonate with the squeeze of a rubber ball should he be arrested, were difficult to detect and impossible to deter. So why did their wave of terror pass? Not, it seems, because of the measures taken to deter them. The main reason, rather, was that the world became consumed with the first world war, the Russian revolution, the fight against fascism and the struggles against colonialism. Another was that, after a while, the more rational anarchists realised that terrorism seldom achieves the ends desired of it—as the IRA has recently acknowledged.
But in truth the wave did not entirely pass; it merely changed. The anarchist terrorists of 1880-1910 were replaced by other terrorists—Fenians, Serb nationalists (one killed the Archduke Franz Ferdinand and thus sparked the first world war), Bolsheviks, Dashnaks (revolutionary Armenians), Poles, Macedonians, Hindu nationalists (among them the killers of Mahatma Gandhi), fascists, Zionists, Maoists, Guevarists, Black Panthers, Red Brigades, Red Army Fractions, Palestinians and even al-Qaeda's jihadists. Few of these shared the anarchists' explicit aims; all borrowed at least some of their tactics and ideas.
And the world went on. It probably would even if yesterday's dynamitards become today's plutoniumards. But terrorism is unlikely to be expunged. As long as there are men like Conrad's Professor, there will be causes to excite them, and therefore deeds to terrify their fellow citizens.
Sources:
“Anarchism”, by George Woodcock, Pelican Books, 1962.
“The Anarchists”, by James Joll, Eyre & Spottiswoode, 1964.
“The Proud Tower”, by Barbara W. Tuchman, Macmillan, 1962.
“How Russia Shaped the Modern World”, by Steven G. Marks, Princeton University Press, 2003.
“East End Jewish Radicals 1875-1914”, by William J. Fishman, Five Leaves Publications, 2004.
“Violent London: 2,000 Years of Riots, Rebels and Revolts”, by Clive Bloom, Sidgwick & Jackson, 2003.
For jihadist, read anarchist
Aug 18th 2005
From The Economist print edition
Repression did little to stop anarchist violence. But eventually the world moved on and the movement withered
Mary Evans
BOMBS, beards and backpacks: these are the distinguishing marks, at least in the popular imagination, of the terror-mongers who either incite or carry out the explosions that periodically rock the cities of the western world. A century or so ago it was not so different: bombs, beards and fizzing fuses. The worries generated by the two waves of terror, the responses to them and some of their other characteristics are also similar. The spasm of anarchist violence that was at its most convulsive in the 1880s and 1890s was felt, if indirectly, in every continent. It claimed hundreds of lives, including those of several heads of government, aroused widespread fear and prompted quantities of new laws and restrictions. But it passed. Jihadism is certainly not a lineal descendant of anarchism: far from it. Even so, the parallels between the anarchist bombings of the 19th century and the Islamist ones of today may be instructive.
Islamists, or at least those of the Osama bin Laden stripe, have several aims. Some—such as the desire “to regain Palestine”, to avenge the killing of “our nation's sons” and to expel all “infidel armies” from “the land of Muhammad”—could be those of any conventional national-liberation movement. Others are more millenarian: to bring everyone to Islam, which, says Mr bin Laden, “is the religion of showing kindness to others, establishing justice between them, granting them their rights, and defending the oppressed and persecuted.” All this will come to pass once everyone is living in an Islamic state, a caliphate governed by sharia law. Hence “the martyrdom operations against the enemy” and the promise of paradise for those who carry them out.
Anarchists have always believed in the antithesis of a Muslim state. They want a world without rule. Their first great theoretician, Pierre-Joseph Proudhon, wanted to abolish centralised government altogether. This, though, would not bring the chaos with which the word anarchy is often considered synonymous. On the contrary, a sort of harmonious order would ensue, the state being replaced by a system of autonomous groups and communities, glued together by contract and mutual interest in place of laws. Justice, argued this essentially non-violent man, was the “central star” governing society.
Though Proudhon is remembered for the dictum, “Property is theft!” he actually believed that a man had the right to possess a house, some land and the tools to work it. This was too much for Mikhail Bakunin, a revolutionary nationalist turned anarchist who believed in collective ownership of the means of production. He believed, too, that “the passion for destruction is also a creative urge,” which was not a description of the regenerative workings of capitalism but a call to the barricades. Regeneration, however, was very much an anarchist theme, just as it is a jihadist one. As one of anarchism's leading interpreters, George Woodcock, has put it, “It is through the wrecks of empires and faiths that the anarchists have always seen the glittering towers of their free world arising.”
What prompts the leap from idealistic thought to violent action is largely a matter for conjecture. Every religion and almost every philosophy has drawn adherents ready to shed blood, their own included, and in the face of tyranny, poverty and exploitation, a willingness to resort to force is not hard to understand. Both anarchism and jihadism, though, have incorporated bloodshed into their ideologies, or at least some of their zealots have. And both have been ready to justify the killing not just of soldiers, policemen and other agents of the state, but also of civilians.
The heads roll
For anarchists, the crucial theory was that developed in Italy, where in 1876 Errico Malatesta put it thus: “The insurrectionary deed, destined to affirm socialist principles by acts, is the most efficacious means of propaganda.” This theory of “propaganda by deed” was cheerfully promoted by another great anarchist thinker, Peter Kropotkin, a Russian prince who became the toast of radical-chic circles in Europe and America. Whether the theory truly tipped non-violent musers into killers, or whether it merely gave a pretext to psychopaths, simpletons and romantics to commit murders, is unclear. The murders, however, are not in doubt. In deadly sequence, anarchists claimed the lives of President Sadi Carnot of France (1894), Antonio Cánovas del Castillo, the prime minister of Spain (1897), Empress Elizabeth of Austria (1898), King Umberto of Italy (1900), President William McKinley of the United States (1901) and José Canalejas y Méndez, another Spanish prime minister (1912).
Such assassinations, it may be argued, were less similar to al-Qaeda's than to those of the Narodniki, the members of the Russian Party of the People's Will, who believed in “destroying the most powerful person in government” to undermine its prestige and arouse the revolutionary spirit. This they had undoubtedly done in 1881 by murdering Tsar Alexander II, even though he had been a reformer and, indeed, a liberator of the serfs. In truth, the practice of assassination is as old as the hills, though it got its name only in the 11th-13th centuries when it was followed by the Nizari Ismailiyun, a Shia sect that considered the murder of its enemies—conducted under the influence of hashish (hence assassin)—to be a religious duty.
Mr bin Laden would surely delight in some dramatic assassinations today. Presidents and prime ministers, however, do not nowadays sit reading the newspaper on the terraces of hotels where out-of-work Italian printers wander round with revolvers in their pockets, as Cánovas did, or walk the streets of Madrid unprotected while looking into bookshop windows, as Canalejas did. So Mr bin Laden must content himself with the assertion that on September 11th, “God Almighty hit the United States at its most vulnerable spot. He destroyed its greatest buildings...It was filled with terror from its north to its south and from its east to its west.”
The anarchists, too, were happy to resort to more indiscriminate acts of terror. “A pound of dynamite is worth a bushel of bullets,” said August Spies, the editor of an anarchist newspaper in Chicago, in 1886. His readers evidently agreed. A bomb thrown soon afterwards was to kill seven policemen breaking up a strikers' gathering in the city's Haymarket Square.
France, too, had its dynamitards. One of their bombs blew up the Restaurant Véry in Paris in 1892. Another, some months later, which was destined for a mining company's offices, killed six policemen and set off a flurry of wild rumours: acid had been placed in the city's water supply, it was said, churches had been mined and anarchists lurked round every corner. A year later a young anarchist, unable to earn enough to feed himself, his lover and his daughter, decided to take his own life—and at the same time make a protest. Ready to bomb but unwilling to kill, he packed some nails and a small charge of explosive into a saucepan and lobbed it from the public gallery into the Chamber of Deputies. Though it caused no deaths, he was executed—and then avenged with another bomb, this one in the Terminus café at the Gare St-Lazare which killed one customer and injured 19. The perpetrator of this outrage, designed to “waken the masses”, regretted only that it had not claimed more victims. A popular street song boasted:
It will come, it will come,
Every bourgeois will have his bomb.
And many were inclined to agree. Four more bombs went off in Paris in the next two months.
Other countries were hardly more peaceful. A bomb was lobbed into a monarchist parade in Florence in 1878, another into a crowd in Pisa two days later. In 1893, two bombs were thrown into the Teatro Liceo in Barcelona, killing 22 opera-goers on the first night of the season. A year later a French anarchist blew himself up by accident in Greenwich Park in London, presumably on his way to the observatory there. Two years later, at least six people taking part in a religious procession in Barcelona were blown to bits by an anarchist bomb. Countless attempts were also made on the lives of bigger names, such as King Alfonso XII of Spain (1878), Kaiser Wilhelm I of Germany (May and June 1878), Andrew Carnegie's business partner, Henry Clay Frick (Pittsburgh, 1892), a Serbian minister (Paris, 1893) and King Alfonso XIII and his English bride (Madrid, on their wedding day, 1906). In this last incident alone 20 bystanders died.
Then, as now, alarm and consternation broke out. Admittedly, violent attacks on prominent figures were quite frequent: one American president had been assassinated in 1865 (Lincoln) and another in 1881 (Garfield), and seven attempts were made on Queen Victoria's life before her reign ended in 1901, none of them by anarchists. Even so, governments could hardly do nothing. The response of some was repression and retribution, which often provoked further terrorist violence. Germany arrested 500 people after the second attack on the kaiser, many for “approving” of the attempts on his life. Spain was particularly prone to round up the usual suspects and torture them, though it also passed new laws. After the Liceo bombing, it brought in courts-martial for all crimes committed with explosives, and only military officers were allowed to be present during the trial of the supposed bombers.
France, too, resorted to unusual measures. After the bombing of the French Chamber of Deputies, 2,000 warrants were issued, anarchist clubs and cafés were raided, papers were closed down and August Vaillant, the bomber, was tried, found guilty and sentenced to death in a day. An apologist who declared that not a single man in France would grieve for the president if he confirmed the sentence (as he did), and then was assassinated (as he was), was jailed for two years for incitement to murder. The French parliament made it a crime not just to incite sedition but also to justify it. Criminal “associations of malefactors” were defined by intent rather than by action, and all acts of anarchist propaganda were banned.
Similarly, in Britain soon after last month's bombings, the prime minister, Tony Blair, announced that “condoning or glorifying terrorism” anywhere, not just in the United Kingdom, would become a crime. Places of worship used as centres for “fomenting extremism” are to be closed down. Measures will be taken to deport foreigners “fostering hatred, advocating violence to further a person's beliefs, or justifying or validating such violence.” Naturalised Britons engaged in “extremism” will be stripped of their citizenship.
Jihadists, of course, cross borders, and many are presumed to be indoctrinated by foreigners, even if they commit their deeds at home. So it was too with the anarchists, even though they often plotted and acted alone. Many of the ideas came from Russia. Besides Bakunin, Russia also produced Kropotkin, “an uncompromising apostle of the necessity of violence”, according to Barbara Tuchman in “The Proud Tower”.
Italy, by contrast, produced many of the assassins: for example, those who killed Carnot, Cánovas, Empress Elizabeth and King Umberto. It also exported utopians who founded anarchist settlements like the Cecilia colony in Brazil. Germany, too, had its share of fanatics, including Johann Most, the editor of an incendiary New York newspaper, Freiheit, and many of the Jewish anarchists who congregated in London's East End. France also sent anarchos abroad: a prominent theorist, Elisée Reclus, taught in Brussels. The man who shot McKinley was the child of Polish immigrants to America. And Switzerland, like England, played host to exiles who came and went with considerable freedom.
No wonder, then, that anti-foreigner feeling ran high in many places. In the United States, President Theodore Roosevelt asked Congress to exclude anyone who believed in “anarchistic principles” and, by treaty, to make the advocacy of killing an offence against international law. Congress duly obliged with an act that kept out anyone “teaching disbelief in or opposition to all organised government”.
By then an international conference had been held (in 1898) at the behest of Italy to seek help in fighting anarchism. The Italians did not get all they wanted: Belgium, Britain and Switzerland refused to abandon the right of asylum or to extradite suspected anarchists. But in 1893, just after the Liceo bombing, Britain had reluctantly banned open meetings of anarchists after the Liberal home secretary, H.H. Asquith, had come under attack for allowing an anarchist meeting to commemorate the Chicago Haymarket martyrs.
The vast majority of anarchists, like the vast majority of Islamists, were not violent, and some of those who once believed in bloodshed, notably Kropotkin, were to turn against it in time. But those who relished indiscriminate violence used an argument with striking similarities to that used by Mr bin Laden. Thus Emile Henry, who had left the bomb in the café at the Gare St-Lazare, was to justify his act by saying that those in the café were all “satisfied with the established order, all the accomplices and employees of Property and the State...There are no innocent bourgeois.” For his part, Mr bin Laden, in his “Letter to America” of November 2002, justifies the “aggression against civilians for crimes they did not commit” with a slightly more sophisticated variant. They deserved to die, he said, because, as American citizens, they had chosen “their government by way of their own free will, a choice which stems from their agreement to its policies.”
Such sentiments recall the characters of Conrad's “The Secret Agent” and Fyodor Dostoevsky's “Devils”. Inspired by 19th-century anarchist intellectuals and events, they describe men of almost autistic lack of empathy and contorted moral sense. For Conrad's protagonist, nicknamed the Professor, the world's morality
"...was artificial, corrupt and blasphemous. The way of even the most justifiable revolutions is prepared by personal impulses disguised into creeds. The Professor's indignation found in itself a final cause that absolved him from the sin of turning to destruction as the agent of his ambition. To destroy public faith in legality was the imperfect formula of his pedantic fanaticism; but the subconscious conviction that the framework of an established social order cannot be effectually shattered except by some form of collective or individual violence was precise and correct. He was a moral agent—that was settled in his mind. By exercising his agency with ruthless defiance he procured for himself the appearances of power and personal prestige. That was undeniable to his vengeful bitterness. It pacified its unrest; and in their own way the most ardent of revolutionaries are perhaps doing no more but seeking for peace in common with the rest of mankind—the peace of soothed vanity, of satisfied appetites, or perhaps of appeased conscience."
Anarchists like the Professor, a quiet man who went round with a bomb in his pocket that he could detonate with the squeeze of a rubber ball should he be arrested, were difficult to detect and impossible to deter. So why did their wave of terror pass? Not, it seems, because of the measures taken to deter them. The main reason, rather, was that the world became consumed with the first world war, the Russian revolution, the fight against fascism and the struggles against colonialism. Another was that, after a while, the more rational anarchists realised that terrorism seldom achieves the ends desired of it—as the IRA has recently acknowledged.
But in truth the wave did not entirely pass; it merely changed. The anarchist terrorists of 1880-1910 were replaced by other terrorists—Fenians, Serb nationalists (one killed the Archduke Franz Ferdinand and thus sparked the first world war), Bolsheviks, Dashnaks (revolutionary Armenians), Poles, Macedonians, Hindu nationalists (among them the killers of Mahatma Gandhi), fascists, Zionists, Maoists, Guevarists, Black Panthers, Red Brigades, Red Army Fractions, Palestinians and even al-Qaeda's jihadists. Few of these shared the anarchists' explicit aims; all borrowed at least some of their tactics and ideas.
And the world went on. It probably would even if yesterday's dynamitards become today's plutoniumards. But terrorism is unlikely to be expunged. As long as there are men like Conrad's Professor, there will be causes to excite them, and therefore deeds to terrify their fellow citizens.
Sources:
“Anarchism”, by George Woodcock, Pelican Books, 1962.
“The Anarchists”, by James Joll, Eyre & Spottiswoode, 1964.
“The Proud Tower”, by Barbara W. Tuchman, Macmillan, 1962.
“How Russia Shaped the Modern World”, by Steven G. Marks, Princeton University Press, 2003.
“East End Jewish Radicals 1875-1914”, by William J. Fishman, Five Leaves Publications, 2004.
“Violent London: 2,000 Years of Riots, Rebels and Revolts”, by Clive Bloom, Sidgwick & Jackson, 2003.
Navy Stages Show of Force Off Iran Coast
May 23, 10:31 AM (ET)
By BARBARA SURK
DUBAI, United Arab Emirates (AP) - The U.S. Navy staged its latest show of military force off the Iranian coastline on Wednesday, sending two aircraft carriers and landing ships packed with 17,000 U.S. Marines and sailors to carry out unannounced exercises in the Persian Gulf.
The carrier strike groups led by the USS John C. Stennis and USS Nimitz were joined by the amphibious assault ship USS Bonhomme Richard and its own strike group, which includes landing ships carrying members of the 13th Marine Expeditionary Unit.
The Navy said nine U.S. warships passed through the narrow Strait of Hormuz on Wednesday. Merchant ships passing through the busy strait carry two-fifths of the world's oil exports.
Aircraft aboard the three carriers and the Bonhomme Richard were to conduct air training while the ships ran submarine, mine and other exercises.
The maneuvers came just two months after a previous exercise in March when two U.S. carrier groups carried out two days of air and sea maneuvers off the Iranian coast.
Before the arrival of the Bonhomme Richard strike group, the Navy maintained around 20,000 U.S personnel at sea in the Gulf and neighboring waters.
U.S. warships have frequently collided with merchant ships in the busy shipping lanes of the Gulf.
May 23, 10:31 AM (ET)
By BARBARA SURK
DUBAI, United Arab Emirates (AP) - The U.S. Navy staged its latest show of military force off the Iranian coastline on Wednesday, sending two aircraft carriers and landing ships packed with 17,000 U.S. Marines and sailors to carry out unannounced exercises in the Persian Gulf.
The carrier strike groups led by the USS John C. Stennis and USS Nimitz were joined by the amphibious assault ship USS Bonhomme Richard and its own strike group, which includes landing ships carrying members of the 13th Marine Expeditionary Unit.
The Navy said nine U.S. warships passed through the narrow Strait of Hormuz on Wednesday. Merchant ships passing through the busy strait carry two-fifths of the world's oil exports.
Aircraft aboard the three carriers and the Bonhomme Richard were to conduct air training while the ships ran submarine, mine and other exercises.
The maneuvers came just two months after a previous exercise in March when two U.S. carrier groups carried out two days of air and sea maneuvers off the Iranian coast.
Before the arrival of the Bonhomme Richard strike group, the Navy maintained around 20,000 U.S personnel at sea in the Gulf and neighboring waters.
U.S. warships have frequently collided with merchant ships in the busy shipping lanes of the Gulf.
'War on terror' dividing world, Amnesty warns
May 23 07:16 AM US/Eastern
Fears stoked by the post-9/11 "war on terror" are increasingly dividing the world, Amnesty International said Wednesday, while rapping rights abuses from China to Darfur and Russia to the Middle East.
The gap between Muslims and non-Muslims notably deepened, fueled by discriminatory counter-terrorism strategies in Western countries, warned the rights group in its annual report. (WHERE ELSE SHOULD THE LIMITED RESOURCES BE FOCUSED?)
Human rights are also routinely flouted in Iraq and Afghanistan, on the front line of the US-led crackdown on international extremism since the September 11, 2001 attacks which triggered a profound geopolitical shift.
"The politics of fear is fueling a downward spiral of human rights abuse in which no right is sacrosanct and no person safe," said Amnesty International chief Irene Kahn.
(FOR SOME REASON, I THINK THE ATTACKS THEMSELVES HAVE SOMETHING TO DO WITH IT...WHERE ARE THE COMPLAINTS AGAINST THOSE USING TERROR AS A WEAPON?)
"The 'war on terror' and the war in Iraq, with their catalogue of human rights abuses, have created deep divisions that cast a shadow on international relations," making it harder to resolve conflicts and protect civilians.
The 320-page report, covering rights abuses worldwide in 2006, focused particular attention on violence against women, as well as torture, terror and the death penalty, which Amnesty fiercely opposes.
While noting that 144 states have ratified the UN Convention Against Torture, it documented abuse and ill-treatment by security forces in 102 states worldwide.
The US detention camp at Guantanamo Bay came in for particular criticism: Amnesty said 400 detainees from more than 30 countries are still held in what it called "the public symbol of the injustices in the 'war on terror.'"
As for violence against women, it said one in three women is subjected to intimate abuse by a partner during their lifetime, while 70 percent of casualties in recent conflicts are civilians -- mostly women and children.
Regional conflicts around the globe provide the context for much of the abuse documented in the report.
Sudan's Darfur region is near the top of areas for particular concern.
"Darfur is a bleeding wound on world conscience," said its authors, adding that the UN Security Council "is hampered by distrust and double-dealing of its most powerful members."
Last year's war between Israel and Lebanon brought shame on the international community, with the United Nations taking "weeks ... to muster the will to call for a ceasefire" in a conflict which saw 1,200 civilians killed.
In Iraq "the worst practices of Saddam (Hussein)'s regime -- torture, unfair trials, capital punishment and rape with impunity -- remained very much alive" last year, it said.
Russia has seen "widespread" hate crimes against foreigners, while Roma suffer "rampant" exclusion around Europe "illustrating the blatant failure of leadership to combat racism and xenophobia."
Elsewhere the report condemned clampdowns on human rights defenders in China, Zimbabwe and Iran, "repression" in Egypt, and a "potential threat" to free speech in the form of new counter-terrorism laws in Britain.
Specifically, the report identified "an arc of instability" extending from the borders of Pakistan to the Horn of Africa, where armed groups were flexing their muscles.
"Unless governments address the grievances on which these groups feed, unless they provide effective leadership to bring these groups to account ... the prognosis for human rights is dire," said Khan. (LESSON: PICK UP WEAPONS AND THEN GET WHAT YOU WANT)
But the US-led "war on terror" provided an over-arching theme of the report's criticism.
"Five years after 9/11, new evidence came to light in 2006 of the way in which the US administration treated the world as one giant battlefield for its 'war on terror,'" said Khan, singling out "extraordinary renditions" which also implicated countries including Italy, Pakistan, Germany and Kenya.
"Ill-conceived counter-terrorism strategies have done little to reduce the threat of violence or ensure justice for victims of terrorism but much to damage human rights and the rule of law globally," she added.
(THIS IS VERY WEIRD - I WOULD HAVE THOUGHT THE TERRORISTS WERE THE ONES DIVIDING THE WORLD. AGAIN, THE FOCUS AND ALL RESPONSIBILITY FALLS ON THE UNITED STATES AND NO BLAME IS PLACED ON THE TERRORISTS)
May 23 07:16 AM US/Eastern
Fears stoked by the post-9/11 "war on terror" are increasingly dividing the world, Amnesty International said Wednesday, while rapping rights abuses from China to Darfur and Russia to the Middle East.
The gap between Muslims and non-Muslims notably deepened, fueled by discriminatory counter-terrorism strategies in Western countries, warned the rights group in its annual report. (WHERE ELSE SHOULD THE LIMITED RESOURCES BE FOCUSED?)
Human rights are also routinely flouted in Iraq and Afghanistan, on the front line of the US-led crackdown on international extremism since the September 11, 2001 attacks which triggered a profound geopolitical shift.
"The politics of fear is fueling a downward spiral of human rights abuse in which no right is sacrosanct and no person safe," said Amnesty International chief Irene Kahn.
(FOR SOME REASON, I THINK THE ATTACKS THEMSELVES HAVE SOMETHING TO DO WITH IT...WHERE ARE THE COMPLAINTS AGAINST THOSE USING TERROR AS A WEAPON?)
"The 'war on terror' and the war in Iraq, with their catalogue of human rights abuses, have created deep divisions that cast a shadow on international relations," making it harder to resolve conflicts and protect civilians.
The 320-page report, covering rights abuses worldwide in 2006, focused particular attention on violence against women, as well as torture, terror and the death penalty, which Amnesty fiercely opposes.
While noting that 144 states have ratified the UN Convention Against Torture, it documented abuse and ill-treatment by security forces in 102 states worldwide.
The US detention camp at Guantanamo Bay came in for particular criticism: Amnesty said 400 detainees from more than 30 countries are still held in what it called "the public symbol of the injustices in the 'war on terror.'"
As for violence against women, it said one in three women is subjected to intimate abuse by a partner during their lifetime, while 70 percent of casualties in recent conflicts are civilians -- mostly women and children.
Regional conflicts around the globe provide the context for much of the abuse documented in the report.
Sudan's Darfur region is near the top of areas for particular concern.
"Darfur is a bleeding wound on world conscience," said its authors, adding that the UN Security Council "is hampered by distrust and double-dealing of its most powerful members."
Last year's war between Israel and Lebanon brought shame on the international community, with the United Nations taking "weeks ... to muster the will to call for a ceasefire" in a conflict which saw 1,200 civilians killed.
In Iraq "the worst practices of Saddam (Hussein)'s regime -- torture, unfair trials, capital punishment and rape with impunity -- remained very much alive" last year, it said.
Russia has seen "widespread" hate crimes against foreigners, while Roma suffer "rampant" exclusion around Europe "illustrating the blatant failure of leadership to combat racism and xenophobia."
Elsewhere the report condemned clampdowns on human rights defenders in China, Zimbabwe and Iran, "repression" in Egypt, and a "potential threat" to free speech in the form of new counter-terrorism laws in Britain.
Specifically, the report identified "an arc of instability" extending from the borders of Pakistan to the Horn of Africa, where armed groups were flexing their muscles.
"Unless governments address the grievances on which these groups feed, unless they provide effective leadership to bring these groups to account ... the prognosis for human rights is dire," said Khan. (LESSON: PICK UP WEAPONS AND THEN GET WHAT YOU WANT)
But the US-led "war on terror" provided an over-arching theme of the report's criticism.
"Five years after 9/11, new evidence came to light in 2006 of the way in which the US administration treated the world as one giant battlefield for its 'war on terror,'" said Khan, singling out "extraordinary renditions" which also implicated countries including Italy, Pakistan, Germany and Kenya.
"Ill-conceived counter-terrorism strategies have done little to reduce the threat of violence or ensure justice for victims of terrorism but much to damage human rights and the rule of law globally," she added.
(THIS IS VERY WEIRD - I WOULD HAVE THOUGHT THE TERRORISTS WERE THE ONES DIVIDING THE WORLD. AGAIN, THE FOCUS AND ALL RESPONSIBILITY FALLS ON THE UNITED STATES AND NO BLAME IS PLACED ON THE TERRORISTS)
Edwards: Move Past 'War on Terror'
May 23 11:36 AM US/Eastern
By BETH FOUHY
Associated Press Writer
NEW YORK (AP) - Democrat John Edwards Wednesday repudiated the notion that there is a "global war on terror," calling it an ideological doctrine advanced by the Bush administration that has strained American military resources and emboldened terrorists.
In a defense policy speech he planned to deliver at the Council on Foreign Relations, Edwards called the war on terror a "bumper sticker" slogan Bush had used to justify everything from abuses at the Abu Ghraib prison to the invasion of Iraq.
"We need a post-Bush, post-9/11, post-Iraq military that is mission focused on protecting Americans from 21st century threats, not misused for discredited ideological purposes," Edwards said in remarks prepared for delivery. "By framing this as a war, we have walked right into the trap the terrorists have set—that we are engaged in some kind of clash of civilizations and a war on Islam."
In the first presidential debate last month in South Carolina, Edwards was one of four Democrats—including Delaware Sen. Joe Biden, Ohio Rep. Dennis Kucinich and former Alaska Sen. Mike Gravel—who said they did not believe there was a global war on terror. Front-runners Hillary Rodham Clinton and Barack Obama indicated that they did.
Edwards, a former North Carolina senator, voted in 2002 to authorize the invasion of Iraq but has since become a harsh critic of the conflict. In his speech, he reiterated his call to remove American combat troops from Iraq within a year and vowed to "restore the contract we have with those who proudly wear the uniform to defend our country and make the world a safe and better place."
Edwards outlined several steps he said he would pursue as president to strengthen the military, including using force only to pursue essential national security missions, improve civilian-military relations, and root out mismanagement at the Pentagon.
He said he would created a "national security budget" to include the activities of several agencies, including the Pentagon, Energy Department, and Homeland Security. He also said he would boost the budget for military recruiting.
But Edwards saved his toughest words for the Bush administration, whom he accused of engaging in wrongheaded military adventures while abandoning U.S. "moral leadership" in the world. Because of the administration's poor stewardship, Edwards said troops were exhausted, overworked, and potentially ill-prepared for future threats.
"Leading the military out of the wreckage left by the poor civilian leadership of this administration will be the single most important duty of the next commander in chief," Edwards said.
Anticipating the speech, the Republican National Committee sent out a research document titled "Edwards' Troop Profiteering," noting that his campaign routinely solicits donations to help Edwards pursue his anti-war efforts.
"One can't help but wonder how John Edwards is comfortable beefing up his campaign coffers at the expense of our troops," RNC spokeswoman Summer Johnson said. "Edward's profiteering isn't only in poor taste but it also illustrates his hunger for the White House trumps his sensitivity toward those serving America."
May 23 11:36 AM US/Eastern
By BETH FOUHY
Associated Press Writer
NEW YORK (AP) - Democrat John Edwards Wednesday repudiated the notion that there is a "global war on terror," calling it an ideological doctrine advanced by the Bush administration that has strained American military resources and emboldened terrorists.
In a defense policy speech he planned to deliver at the Council on Foreign Relations, Edwards called the war on terror a "bumper sticker" slogan Bush had used to justify everything from abuses at the Abu Ghraib prison to the invasion of Iraq.
"We need a post-Bush, post-9/11, post-Iraq military that is mission focused on protecting Americans from 21st century threats, not misused for discredited ideological purposes," Edwards said in remarks prepared for delivery. "By framing this as a war, we have walked right into the trap the terrorists have set—that we are engaged in some kind of clash of civilizations and a war on Islam."
In the first presidential debate last month in South Carolina, Edwards was one of four Democrats—including Delaware Sen. Joe Biden, Ohio Rep. Dennis Kucinich and former Alaska Sen. Mike Gravel—who said they did not believe there was a global war on terror. Front-runners Hillary Rodham Clinton and Barack Obama indicated that they did.
Edwards, a former North Carolina senator, voted in 2002 to authorize the invasion of Iraq but has since become a harsh critic of the conflict. In his speech, he reiterated his call to remove American combat troops from Iraq within a year and vowed to "restore the contract we have with those who proudly wear the uniform to defend our country and make the world a safe and better place."
Edwards outlined several steps he said he would pursue as president to strengthen the military, including using force only to pursue essential national security missions, improve civilian-military relations, and root out mismanagement at the Pentagon.
He said he would created a "national security budget" to include the activities of several agencies, including the Pentagon, Energy Department, and Homeland Security. He also said he would boost the budget for military recruiting.
But Edwards saved his toughest words for the Bush administration, whom he accused of engaging in wrongheaded military adventures while abandoning U.S. "moral leadership" in the world. Because of the administration's poor stewardship, Edwards said troops were exhausted, overworked, and potentially ill-prepared for future threats.
"Leading the military out of the wreckage left by the poor civilian leadership of this administration will be the single most important duty of the next commander in chief," Edwards said.
Anticipating the speech, the Republican National Committee sent out a research document titled "Edwards' Troop Profiteering," noting that his campaign routinely solicits donations to help Edwards pursue his anti-war efforts.
"One can't help but wonder how John Edwards is comfortable beefing up his campaign coffers at the expense of our troops," RNC spokeswoman Summer Johnson said. "Edward's profiteering isn't only in poor taste but it also illustrates his hunger for the White House trumps his sensitivity toward those serving America."
Is al-Qaeda on the Run in Iraq?
By JOE KLEIN
Time.com
Wednesday, May. 23, 2007
There is good news from Iraq, believe it or not. It comes from the most unlikely place: Anbar province, home of the Sunni insurgency. The level of violence has plummeted in recent weeks. An alliance of U.S. troops and local tribes has been very effective in moving against the al-Qaeda foreign fighters. A senior U.S. military official told me—confirming reports from several other sources—that there have been "a couple of days recently during which there were zero effective attacks and less than 10 attacks overall in the province (keep in mind that an attack can be as little as one round fired). This is a result of sheiks stepping up and opposing AQI [al-Qaeda in Iraq] and volunteering their young men to serve in the police and army units there." The success in Anbar has led sheiks in at least two other Sunni-dominated provinces, Nineveh and Salahaddin, to ask for similar alliances against the foreign fighters. And, as TIME's Bobby Ghosh has reported, an influential leader of the Sunni insurgency, Harith al-Dari, has turned against al-Qaeda as well. It is possible that al-Qaeda is being rejected like a mismatched liver transplant by the body of the Iraqi insurgency.
The good news comes with caveats, of course. The removal of AQI's havens in Anbar may ultimately hurt the terrorists' ability to blow up markets in Baghdad, but it hasn't yet. As I reported in September 2005, there is also the scandalous reality that an alliance with the tribes was proposed by U.S. Army intelligence officers as early as October 2003 and rejected by L. Paul Bremer's Coalition Provisional Authority on the grounds that "tribes are part of the past. They have no place in the new democratic Iraq." The damage caused by that myopic stupidity may never be repaired: it gave al-Qaeda a base in the Sunni tribal areas, which enabled the sustained, spectacular anti-Shi'ite bombing campaign, which, along with the Sunnis' historic disdain for the Shi'ite majority, created the conditions for the current civil war. "Just because the Sunni tribesmen have joined with us in Anbar doesn't mean they like the Baghdad government," a senior Administration official told me. "They just hate al-Qaeda more."
Which is why there is some very bad news from Iraq as well. There is a growing sense among senior U.S. military and intelligence officials that the government of Prime Minister Nouri al-Maliki—and the Shi'ite factions in general—has little interest in making concessions to the Sunnis. "The Shi'ites suffer from a battered-child syndrome. They simply don't trust the Sunnis," said a senior U.S. official. There was a long history, even before Saddam Hussein's massacres, of Sunni prejudice and pogroms against the Shi'ites. In recent months, the al-Maliki government has sent several clear signals of anti-Sunni intransigence. It has supported the "voluntary" relocation of Sunni Arabs from the disputed, Kurdish-dominated city of Kirkuk. And in an instance that is particularly vexing to U.S. intelligence officials, al-Maliki has supported the creation of a parallel Shi'ite-dominated intelligence service to supplant the authority of the Iraq Intelligence Service, which has been run by a Sunni general named Mahmoud Shahwani, who is considered "very effective" by U.S. officials. It is beginning to seem quite implausible that the various Iraqi political factions will meet "benchmarks" like rescinding the punitive de-Baathification programs and passing a law guaranteeing fair distribution of oil profits anytime soon. And as General David Petraeus keeps reminding us, a political solution is necessary: a military victory is not possible. So let's try to put the good and bad news together. It's not impossible that the Iraqis will eventually remove the al-Qaeda cancer from the Sunni insurgency—which would put a serious crimp in President George W. Bush's current rationale for the war, that we're there to fight al-Qaeda. But it's also probable that without a political deal, the sectarian conflict between the Sunnis and Shi'ites will intensify—and eventually explode when the U.S. military pulls back from Iraq. The stakes in Iraq then become questions of moral responsibility and regional stability. "How many Srebrenicas do you have the stomach for?" a senior U.S. official asked me, referring to the Bosnian massacre by the Serbs in 1995. Given the antipathy of the American people for the war, I'd guess the public reaction would be, "Those Arabs are just a bunch of barbarians, and we could never tell the difference between Shi'ites and Sunnis anyway." A more pointed question is, How many massacres of Sunnis will the Saudis and Jordanians have the stomach for? How hard will Iran press its obvious advantage with a Shi'ite-dominated government in Iraq? The answers to those questions are completely out of American hands. They rest with the Iraqi Shi'ites. Eventually even battered children have to grow up.
By JOE KLEIN
Time.com
Wednesday, May. 23, 2007
There is good news from Iraq, believe it or not. It comes from the most unlikely place: Anbar province, home of the Sunni insurgency. The level of violence has plummeted in recent weeks. An alliance of U.S. troops and local tribes has been very effective in moving against the al-Qaeda foreign fighters. A senior U.S. military official told me—confirming reports from several other sources—that there have been "a couple of days recently during which there were zero effective attacks and less than 10 attacks overall in the province (keep in mind that an attack can be as little as one round fired). This is a result of sheiks stepping up and opposing AQI [al-Qaeda in Iraq] and volunteering their young men to serve in the police and army units there." The success in Anbar has led sheiks in at least two other Sunni-dominated provinces, Nineveh and Salahaddin, to ask for similar alliances against the foreign fighters. And, as TIME's Bobby Ghosh has reported, an influential leader of the Sunni insurgency, Harith al-Dari, has turned against al-Qaeda as well. It is possible that al-Qaeda is being rejected like a mismatched liver transplant by the body of the Iraqi insurgency.
The good news comes with caveats, of course. The removal of AQI's havens in Anbar may ultimately hurt the terrorists' ability to blow up markets in Baghdad, but it hasn't yet. As I reported in September 2005, there is also the scandalous reality that an alliance with the tribes was proposed by U.S. Army intelligence officers as early as October 2003 and rejected by L. Paul Bremer's Coalition Provisional Authority on the grounds that "tribes are part of the past. They have no place in the new democratic Iraq." The damage caused by that myopic stupidity may never be repaired: it gave al-Qaeda a base in the Sunni tribal areas, which enabled the sustained, spectacular anti-Shi'ite bombing campaign, which, along with the Sunnis' historic disdain for the Shi'ite majority, created the conditions for the current civil war. "Just because the Sunni tribesmen have joined with us in Anbar doesn't mean they like the Baghdad government," a senior Administration official told me. "They just hate al-Qaeda more."
Which is why there is some very bad news from Iraq as well. There is a growing sense among senior U.S. military and intelligence officials that the government of Prime Minister Nouri al-Maliki—and the Shi'ite factions in general—has little interest in making concessions to the Sunnis. "The Shi'ites suffer from a battered-child syndrome. They simply don't trust the Sunnis," said a senior U.S. official. There was a long history, even before Saddam Hussein's massacres, of Sunni prejudice and pogroms against the Shi'ites. In recent months, the al-Maliki government has sent several clear signals of anti-Sunni intransigence. It has supported the "voluntary" relocation of Sunni Arabs from the disputed, Kurdish-dominated city of Kirkuk. And in an instance that is particularly vexing to U.S. intelligence officials, al-Maliki has supported the creation of a parallel Shi'ite-dominated intelligence service to supplant the authority of the Iraq Intelligence Service, which has been run by a Sunni general named Mahmoud Shahwani, who is considered "very effective" by U.S. officials. It is beginning to seem quite implausible that the various Iraqi political factions will meet "benchmarks" like rescinding the punitive de-Baathification programs and passing a law guaranteeing fair distribution of oil profits anytime soon. And as General David Petraeus keeps reminding us, a political solution is necessary: a military victory is not possible. So let's try to put the good and bad news together. It's not impossible that the Iraqis will eventually remove the al-Qaeda cancer from the Sunni insurgency—which would put a serious crimp in President George W. Bush's current rationale for the war, that we're there to fight al-Qaeda. But it's also probable that without a political deal, the sectarian conflict between the Sunnis and Shi'ites will intensify—and eventually explode when the U.S. military pulls back from Iraq. The stakes in Iraq then become questions of moral responsibility and regional stability. "How many Srebrenicas do you have the stomach for?" a senior U.S. official asked me, referring to the Bosnian massacre by the Serbs in 1995. Given the antipathy of the American people for the war, I'd guess the public reaction would be, "Those Arabs are just a bunch of barbarians, and we could never tell the difference between Shi'ites and Sunnis anyway." A more pointed question is, How many massacres of Sunnis will the Saudis and Jordanians have the stomach for? How hard will Iran press its obvious advantage with a Shi'ite-dominated government in Iraq? The answers to those questions are completely out of American hands. They rest with the Iraqi Shi'ites. Eventually even battered children have to grow up.
Side Deals in a Gray Area
May 22, 2007
By JENNY ANDERSON
Global deal making is on a tear, accompanied by a surge of insider trading cases.
While regulators have focused on the buying of options or stocks on leaks about deals before they become public, there is another, more subtle way that big investors can trade while possessing information that the market does not have.
And it is — for now at least — all perfectly legal.
This little-known leeway comes in the form of “big-boy letters” — letters between buyers and sellers that say, in essence, “We are all big boys here, so let’s not sue each other.”
Big-boy letters are typically used when an investor has confidential information about a stock or bond and wants to sell those securities. By signing the letter, the buyer effectively recognizes that the seller has better information but promises not to sue the seller, much like a homebuyer who agrees to buy a house in “as is” condition.
But what happens when that security is then sold in the market and plummets in value? Put another way, what if that house collapses soon after it is sold to another buyer?
The use of big-boy letters is about to face its first significant legal challenge. In a lawsuit set to go to trial next month, a Texas hedge fund contends that it was on the losing end of such a letter in 2001, when Salomon Smith Barney, now Smith Barney, sold more than $20 million worth of World Access bonds to the Jefferies Group, the investment bank, using a big-boy letter.
Jefferies, in turn, flipped those bonds to the hedge fund, R2 of Fort Worth, through the Fimat Group, a service that matches trades. When World Access, a telecommunications company, announced that it was out of cash two days later, the bonds plummeted 30 percent, leaving the hedge fund holding the bag.
In a world of rapid trading, complex and arcane derivatives and secretive traders, the contours of what makes a level playing field for investors are sometimes hard to see.
Big-boy letters are a case in point. They are widely used and represent a private contract between presumably sophisticated investors.
Lawyers agree that big-boy letters do not technically shield either party from insider trading laws, but rather protect the two parties from suing each other. Still, the letters are widely used and have not — until now — been legally challenged. (The Securities and Exchange Commission has not weighed in on the letters.)
And lawyers do not agree on what happens when the securities at issue in big-boy letters are then put into the market with trades that might otherwise be deemed illegal.
Typically, insiders are barred from trading on significant information they have agreed to receive in confidence that gives them an advantage over other investors.
“With big-boy letters, we have a situation where the public at large can be exposed to tainted claims without knowing about it,” said Edward S. Weisfelner, the chairman of the bankruptcy and corporate restructuring practice group at the law firm of Brown Rudnick.
Big-boy letters are used in other situations. For example, companies might use them to sell stock when they are close to reporting earnings and clearly have an information advantage. Big-boy letters “avoid having to deal with the obvious, that someone knows more,” said Dennis J. Block, a senior partner at Cadwalader, Wickersham & Taft.
In another case involving big-boy letters, Barclays, the British bank, disclosed recently that the Securities and Exchange Commission was considering a civil enforcement action against it. According to government filings and a related lawsuit brought by Michael Econn, a former credit analyst at the bank, Barclays’ employees traded debt while simultaneously sitting on bankruptcy committees, giving them nonpublic information that would inform those traders about the value of the debt.
According to Mr. Econn’s lawsuit, Barclays supervisors told the employees the trades were acceptable because the bank was using big-boy letters, even though only a few big-boy letters were ever drafted.
Barclays says it does not comment on regulatory matters. Mr. Econn’s lawyer declined to comment.
In the lawsuit brought by the R2 hedge fund, which is scheduled go before a federal jury in Manhattan, the issue is whether Smith Barney and Jefferies worked together to unload toxic securities into the market and whether Jefferies was obligated to disclose the existence of the big-boy letters to the fund.
E-mail messages that have emerged in documents filed in a related suit in Texas indicate that traders were frantic to sell the World Access bonds before the company’s dire financial condition became known. The same day that Smith Barney received detailed confidential information about World Access, it asked Jefferies to find a buyer for its bonds, according to R2’s lawsuit. Buyers were scarce.
The following afternoon, as the market was nearing its close, a Jefferies trader sent an e-mail message to Fimat Group, which was helping Jefferies’ find a buyer: “I need an answer this thing is a mess.”
By the end of the day, the bonds were sold to R2 with Jefferies selling to Fimat minutes before buying from Smith Barney to cover the trade. Jefferies and Smith Barney completed their big-boy letter the next day.
“We believe it is clearly illegal for someone with material nonpublic information to dump securities on unsuspecting buyers in the marketplace by funneling the trade through a middleman who signs a big-boy letter,” said Andrew Cole, a spokesman for R2. “If we are proven wrong, then a giant loophole exists that essentially makes the insider trading laws meaningless."
A spokesman for Citigroup, which owns Smith Barney, said, “We believe the case is without merit and will fight it vigorously.” A Jefferies spokesman declined to comment.
Documents filed in the related Texas case suggest that Smith Barney may argue that it did not agree to protect the confidentiality of the information it received, making it free to trade. Jefferies may contend that it was unaware that Smith Barney had confidential information.
The genesis of the case was the popping of the bubble in telecommunications spending. In 2000, World Access, a Nasdaq-listed company, provided bundled telecom services, including voice, data and Internet to small and medium-size businesses in Europe.
At the end of that year, World Access was required by its lenders to buy back more than $160 million worth of bonds under terms of a previous covenant. In January 2001 it began the buyback. By February 2001, the stock of World Access hovered around $3 and its bonds, which were highly illiquid, were trading at about 64 cents on the dollar. It was a troubled company in a flailing industry.
On Feb. 8, World Access executives called investors at J.& W. Seligman & Company, another major bondholder, and said they needed approval to restructure the tender offer to buy back only $80 million worth of bonds. The company was running out of money and if the bondholders did not agree to the changes, it faced possible bankruptcy.
The next day, a Seligman executive called other bondholders. He made clear that the information was confidential, according to R2’s lawsuit, and over the next few days, sent the group detailed financial information, including a PowerPoint presentation with projections, all marked confidential. Three days later, the bondholders met with the company at Seligman’s office on Park Avenue in Manhattan to discuss the materials and the company’s prospects.
Soon after that meeting, a trader from Smith Barney called Jefferies, looking for bids on World Access bonds. The Jefferies trader, by e-mail, informed Smith Barney that there had been a buyer, but that the buyer had apparently got wind of the bondholder deal — information that had not been publicly disclosed — and had backed away.
By Feb. 13, the Smith Barney trader appeared agitated, anxious to unwind his position, according to the e-mail messages. As Jefferies tried to pry out more information about the deal, the trader said he was not authorized to say anything because the bank was restricted, meaning that it had nonpublic information.
As the afternoon wore on, the e-mail became more testy. At 3:30 p.m., seeking a buyer, the Jefferies trader e-mailed Fimat: “I need to execute 20mm — forget the rest — this is a prob if nothing gets done.” At 4:05, Jefferies sold $20 million of bonds to Fimat for $498.75 per $1,000 bond. Four minutes later, it covered the sale by buying $20 million of bonds at $487.50 for every $1,000. By the end of the day, R2 bought the bonds for $501.875. When the World Access news release came out, disclosing its true financial condition, the bonds dropped to $360 per $1,000.
In general, lawyers disagree as to whether the buyer of the securities, knowing that the securities were obtained via a big-boy letter, has an obligation to inform the next buyer.
Howard Seife, head of the bankruptcy practice at Chadbourne & Parke, said: “If I am the buyer and I want to resell, it would be prudent for the new seller to enter into a big-boy letter. You are protecting yourself to the new buyer in the chain.”
Others disagree. “The existence of a big-boy letter is not a material fact that needs to be disclosed in connection with a sale,” said Mr. Block from Cadwalader, Wickersham & Taft.
Interviews with more than a dozen law firms elicit a wide range of opinions on big-boy letters. “It’s a fairly gray area,” Mr. Seife acknowledged.
May 22, 2007
By JENNY ANDERSON
Global deal making is on a tear, accompanied by a surge of insider trading cases.
While regulators have focused on the buying of options or stocks on leaks about deals before they become public, there is another, more subtle way that big investors can trade while possessing information that the market does not have.
And it is — for now at least — all perfectly legal.
This little-known leeway comes in the form of “big-boy letters” — letters between buyers and sellers that say, in essence, “We are all big boys here, so let’s not sue each other.”
Big-boy letters are typically used when an investor has confidential information about a stock or bond and wants to sell those securities. By signing the letter, the buyer effectively recognizes that the seller has better information but promises not to sue the seller, much like a homebuyer who agrees to buy a house in “as is” condition.
But what happens when that security is then sold in the market and plummets in value? Put another way, what if that house collapses soon after it is sold to another buyer?
The use of big-boy letters is about to face its first significant legal challenge. In a lawsuit set to go to trial next month, a Texas hedge fund contends that it was on the losing end of such a letter in 2001, when Salomon Smith Barney, now Smith Barney, sold more than $20 million worth of World Access bonds to the Jefferies Group, the investment bank, using a big-boy letter.
Jefferies, in turn, flipped those bonds to the hedge fund, R2 of Fort Worth, through the Fimat Group, a service that matches trades. When World Access, a telecommunications company, announced that it was out of cash two days later, the bonds plummeted 30 percent, leaving the hedge fund holding the bag.
In a world of rapid trading, complex and arcane derivatives and secretive traders, the contours of what makes a level playing field for investors are sometimes hard to see.
Big-boy letters are a case in point. They are widely used and represent a private contract between presumably sophisticated investors.
Lawyers agree that big-boy letters do not technically shield either party from insider trading laws, but rather protect the two parties from suing each other. Still, the letters are widely used and have not — until now — been legally challenged. (The Securities and Exchange Commission has not weighed in on the letters.)
And lawyers do not agree on what happens when the securities at issue in big-boy letters are then put into the market with trades that might otherwise be deemed illegal.
Typically, insiders are barred from trading on significant information they have agreed to receive in confidence that gives them an advantage over other investors.
“With big-boy letters, we have a situation where the public at large can be exposed to tainted claims without knowing about it,” said Edward S. Weisfelner, the chairman of the bankruptcy and corporate restructuring practice group at the law firm of Brown Rudnick.
Big-boy letters are used in other situations. For example, companies might use them to sell stock when they are close to reporting earnings and clearly have an information advantage. Big-boy letters “avoid having to deal with the obvious, that someone knows more,” said Dennis J. Block, a senior partner at Cadwalader, Wickersham & Taft.
In another case involving big-boy letters, Barclays, the British bank, disclosed recently that the Securities and Exchange Commission was considering a civil enforcement action against it. According to government filings and a related lawsuit brought by Michael Econn, a former credit analyst at the bank, Barclays’ employees traded debt while simultaneously sitting on bankruptcy committees, giving them nonpublic information that would inform those traders about the value of the debt.
According to Mr. Econn’s lawsuit, Barclays supervisors told the employees the trades were acceptable because the bank was using big-boy letters, even though only a few big-boy letters were ever drafted.
Barclays says it does not comment on regulatory matters. Mr. Econn’s lawyer declined to comment.
In the lawsuit brought by the R2 hedge fund, which is scheduled go before a federal jury in Manhattan, the issue is whether Smith Barney and Jefferies worked together to unload toxic securities into the market and whether Jefferies was obligated to disclose the existence of the big-boy letters to the fund.
E-mail messages that have emerged in documents filed in a related suit in Texas indicate that traders were frantic to sell the World Access bonds before the company’s dire financial condition became known. The same day that Smith Barney received detailed confidential information about World Access, it asked Jefferies to find a buyer for its bonds, according to R2’s lawsuit. Buyers were scarce.
The following afternoon, as the market was nearing its close, a Jefferies trader sent an e-mail message to Fimat Group, which was helping Jefferies’ find a buyer: “I need an answer this thing is a mess.”
By the end of the day, the bonds were sold to R2 with Jefferies selling to Fimat minutes before buying from Smith Barney to cover the trade. Jefferies and Smith Barney completed their big-boy letter the next day.
“We believe it is clearly illegal for someone with material nonpublic information to dump securities on unsuspecting buyers in the marketplace by funneling the trade through a middleman who signs a big-boy letter,” said Andrew Cole, a spokesman for R2. “If we are proven wrong, then a giant loophole exists that essentially makes the insider trading laws meaningless."
A spokesman for Citigroup, which owns Smith Barney, said, “We believe the case is without merit and will fight it vigorously.” A Jefferies spokesman declined to comment.
Documents filed in the related Texas case suggest that Smith Barney may argue that it did not agree to protect the confidentiality of the information it received, making it free to trade. Jefferies may contend that it was unaware that Smith Barney had confidential information.
The genesis of the case was the popping of the bubble in telecommunications spending. In 2000, World Access, a Nasdaq-listed company, provided bundled telecom services, including voice, data and Internet to small and medium-size businesses in Europe.
At the end of that year, World Access was required by its lenders to buy back more than $160 million worth of bonds under terms of a previous covenant. In January 2001 it began the buyback. By February 2001, the stock of World Access hovered around $3 and its bonds, which were highly illiquid, were trading at about 64 cents on the dollar. It was a troubled company in a flailing industry.
On Feb. 8, World Access executives called investors at J.& W. Seligman & Company, another major bondholder, and said they needed approval to restructure the tender offer to buy back only $80 million worth of bonds. The company was running out of money and if the bondholders did not agree to the changes, it faced possible bankruptcy.
The next day, a Seligman executive called other bondholders. He made clear that the information was confidential, according to R2’s lawsuit, and over the next few days, sent the group detailed financial information, including a PowerPoint presentation with projections, all marked confidential. Three days later, the bondholders met with the company at Seligman’s office on Park Avenue in Manhattan to discuss the materials and the company’s prospects.
Soon after that meeting, a trader from Smith Barney called Jefferies, looking for bids on World Access bonds. The Jefferies trader, by e-mail, informed Smith Barney that there had been a buyer, but that the buyer had apparently got wind of the bondholder deal — information that had not been publicly disclosed — and had backed away.
By Feb. 13, the Smith Barney trader appeared agitated, anxious to unwind his position, according to the e-mail messages. As Jefferies tried to pry out more information about the deal, the trader said he was not authorized to say anything because the bank was restricted, meaning that it had nonpublic information.
As the afternoon wore on, the e-mail became more testy. At 3:30 p.m., seeking a buyer, the Jefferies trader e-mailed Fimat: “I need to execute 20mm — forget the rest — this is a prob if nothing gets done.” At 4:05, Jefferies sold $20 million of bonds to Fimat for $498.75 per $1,000 bond. Four minutes later, it covered the sale by buying $20 million of bonds at $487.50 for every $1,000. By the end of the day, R2 bought the bonds for $501.875. When the World Access news release came out, disclosing its true financial condition, the bonds dropped to $360 per $1,000.
In general, lawyers disagree as to whether the buyer of the securities, knowing that the securities were obtained via a big-boy letter, has an obligation to inform the next buyer.
Howard Seife, head of the bankruptcy practice at Chadbourne & Parke, said: “If I am the buyer and I want to resell, it would be prudent for the new seller to enter into a big-boy letter. You are protecting yourself to the new buyer in the chain.”
Others disagree. “The existence of a big-boy letter is not a material fact that needs to be disclosed in connection with a sale,” said Mr. Block from Cadwalader, Wickersham & Taft.
Interviews with more than a dozen law firms elicit a wide range of opinions on big-boy letters. “It’s a fairly gray area,” Mr. Seife acknowledged.
Equity firm Oaktree in a private share sale
The Los Angeles company is the first to offer a stake in itself through an exclusive market, away from the public eye.
By Tom Petruno
Times Staff Writer
May 23, 2007
Oaktree Capital Management, one of the Southland's most successful investment firms, sold shares in itself Tuesday to an elite group of investors, in the latest move by the burgeoning private equity industry to raise money for expansion.
Los Angeles-based Oaktree and its principals took in more than $800 million selling a stake of about 14% to fewer than 50 other large investors.
The deal is another sign of the growing financial clout of private equity firms — investment partnerships that have been buying businesses outright or acquiring significant stakes in companies at an accelerating pace. They are hungry for more and are reaching out to investors who are eager to help them finance their purchases in the hope of earning high returns.
Another major private equity firm, New York-based Blackstone Group, last weekend signed a deal for a $3-billion capital infusion from the Chinese government. Blackstone also is planning to sell shares to the public, raising as much as $4.75 billion in additional funds.
Oaktree, which manages about $40 billion in assets, specifically decided not to offer shares to the public at large. Instead, its stock offering is the first on an exclusive market created by brokerage Goldman Sachs Group Inc.
The idea behind the market is to allow private firms to raise money — and create a way for their executives and employees to cash out some of their wealth in the business — without taking the cumbersome route of going public.
In a memo to clients Tuesday, Oaktree partners Howard Marks and Bruce Karsh indicated that they were happy with the results as the first firm to try Goldman's market.
They said Oaktree's shares, or units, were priced at $44 apiece late Monday and began trading at $50 on Tuesday. Only institutional investors can trade the shares; the general public isn't allowed in.
"In time, we expect to see this [market] employed by a number of premier companies in other industries that wish to access liquidity and outside capital but also to remain private," Marks and Karsh said in the memo. "It makes sense that there be a way for leading companies to accomplish these dual goals."
Oaktree declined to comment further on the deal. A Goldman spokesman couldn't be reached for comment.
One key advantage of limiting a stock sale to well-heeled, sophisticated investors is that Oaktree can avoid sharing detailed information about its operations with the rest of the world. Private equity firms consider secrecy a crucial advantage as they wheel and deal for attractive investments.
If Goldman's market becomes popular, it could present more competition for the New York Stock Exchange and the Nasdaq market as they seek to entice public stock offerings.
"I think it's quite appealing," said David Brophy, a finance professor at the University of Michigan. The greater federal regulatory burdens imposed on public companies since the corporate scandals of a few years ago have raised the cost and hassle of being publicly traded, he said.
"A lot of companies now say, 'What's the point of being public?' " Brophy said.
Although some analysts said Oaktree could have raised more money selling a minority stake in the public market, Marks and Karsh said in their memo to clients that that issue "meant little to us in comparison to the advantages" of staying private.
Oaktree, formed in 1995 by Marks, Karsh and other investment managers who split from L.A.-based Trust Co. of the West, has generally been publicity-shy. It is best known as a big player in high-yield bonds and in "distressed" assets, including securities of struggling companies.
"They are probably the best in class in the distressed" sector, said Stephen Nesbitt, a principal at investment advisory firm Cliffwater in Marina del Rey. "They look for opportunities where others are leaving."
Among some of its recent company purchases, Oaktree bought the Czech Republic's biggest spirits producer, Stock Plzen. It also has agreed to buy Taiwan-based Fu Sheng Industrial Co., the world's biggest maker of golf-club heads.
Oaktree also is involved in real estate. It's the master developer of Vellano, a 600-acre community nearly completed in Chino Hills in San Bernardino County.
Having a tradable stock will allow Oaktree to finance larger investments in its funds and offer new investment strategies to clients, Marks and Karsh said in their memo.
The shares also will help the firm lure talent and keep current fund managers aboard, the executives said. A tradable stock allows employees to know what their stakes are worth at any moment, and provides an easy way to turn those stakes into cash.
"We expect that many of our most significant competitors will soon become public or otherwise access the public markets," Marks and Karsh said. "Choosing not to do likewise could have put us at a major disadvantage in the highly competitive market for top investment professionals."
The Los Angeles company is the first to offer a stake in itself through an exclusive market, away from the public eye.
By Tom Petruno
Times Staff Writer
May 23, 2007
Oaktree Capital Management, one of the Southland's most successful investment firms, sold shares in itself Tuesday to an elite group of investors, in the latest move by the burgeoning private equity industry to raise money for expansion.
Los Angeles-based Oaktree and its principals took in more than $800 million selling a stake of about 14% to fewer than 50 other large investors.
The deal is another sign of the growing financial clout of private equity firms — investment partnerships that have been buying businesses outright or acquiring significant stakes in companies at an accelerating pace. They are hungry for more and are reaching out to investors who are eager to help them finance their purchases in the hope of earning high returns.
Another major private equity firm, New York-based Blackstone Group, last weekend signed a deal for a $3-billion capital infusion from the Chinese government. Blackstone also is planning to sell shares to the public, raising as much as $4.75 billion in additional funds.
Oaktree, which manages about $40 billion in assets, specifically decided not to offer shares to the public at large. Instead, its stock offering is the first on an exclusive market created by brokerage Goldman Sachs Group Inc.
The idea behind the market is to allow private firms to raise money — and create a way for their executives and employees to cash out some of their wealth in the business — without taking the cumbersome route of going public.
In a memo to clients Tuesday, Oaktree partners Howard Marks and Bruce Karsh indicated that they were happy with the results as the first firm to try Goldman's market.
They said Oaktree's shares, or units, were priced at $44 apiece late Monday and began trading at $50 on Tuesday. Only institutional investors can trade the shares; the general public isn't allowed in.
"In time, we expect to see this [market] employed by a number of premier companies in other industries that wish to access liquidity and outside capital but also to remain private," Marks and Karsh said in the memo. "It makes sense that there be a way for leading companies to accomplish these dual goals."
Oaktree declined to comment further on the deal. A Goldman spokesman couldn't be reached for comment.
One key advantage of limiting a stock sale to well-heeled, sophisticated investors is that Oaktree can avoid sharing detailed information about its operations with the rest of the world. Private equity firms consider secrecy a crucial advantage as they wheel and deal for attractive investments.
If Goldman's market becomes popular, it could present more competition for the New York Stock Exchange and the Nasdaq market as they seek to entice public stock offerings.
"I think it's quite appealing," said David Brophy, a finance professor at the University of Michigan. The greater federal regulatory burdens imposed on public companies since the corporate scandals of a few years ago have raised the cost and hassle of being publicly traded, he said.
"A lot of companies now say, 'What's the point of being public?' " Brophy said.
Although some analysts said Oaktree could have raised more money selling a minority stake in the public market, Marks and Karsh said in their memo to clients that that issue "meant little to us in comparison to the advantages" of staying private.
Oaktree, formed in 1995 by Marks, Karsh and other investment managers who split from L.A.-based Trust Co. of the West, has generally been publicity-shy. It is best known as a big player in high-yield bonds and in "distressed" assets, including securities of struggling companies.
"They are probably the best in class in the distressed" sector, said Stephen Nesbitt, a principal at investment advisory firm Cliffwater in Marina del Rey. "They look for opportunities where others are leaving."
Among some of its recent company purchases, Oaktree bought the Czech Republic's biggest spirits producer, Stock Plzen. It also has agreed to buy Taiwan-based Fu Sheng Industrial Co., the world's biggest maker of golf-club heads.
Oaktree also is involved in real estate. It's the master developer of Vellano, a 600-acre community nearly completed in Chino Hills in San Bernardino County.
Having a tradable stock will allow Oaktree to finance larger investments in its funds and offer new investment strategies to clients, Marks and Karsh said in their memo.
The shares also will help the firm lure talent and keep current fund managers aboard, the executives said. A tradable stock allows employees to know what their stakes are worth at any moment, and provides an easy way to turn those stakes into cash.
"We expect that many of our most significant competitors will soon become public or otherwise access the public markets," Marks and Karsh said. "Choosing not to do likewise could have put us at a major disadvantage in the highly competitive market for top investment professionals."
Wednesday, May 23, 2007
Alcan Rejects a Hostile Bid From Alcoa
May 23, 2007
By IAN AUSTEN
OTTAWA, May 22 — The Canadian aluminum producer Alcan rejected a $27.4 billion hostile bid from a rival, Alcoa, on Tuesday, calling the offer inadequate. Alcan said that it was in talks with other companies and added that it was considering the possibility of turning the tables with a counterbid for Alcoa.
Alcan said in a statement that its directors had unanimously concluded that the bid by Alcoa, which is based in Pittsburgh, did not reflect the Canadian company’s full value or offer its shares a sufficient premium.
Yves Fortier, Alcan’s chairman, said that “the company is evaluating all options in the interest of shareholder value.”
When asked during an interview whether those options included Alcan reversing the situation through a hostile bid for Alcoa, Richard B. Evans, the president and chief executive, replied: “All means ‘all.’ ”
In a statement, Alcoa said it was “reviewing Alcan’s response and will provide a more in-depth response after we have had time to examine it further.”
Mr. Evans declined to name which other companies were in negotiations with Alcan. But the mining companies BHP Billiton, Rio Tinto and Companhia Vale do Rio Doce have all been named as potential buyers, as have several aluminum producers in Russia and China.
While the idea of a counteroffer by Alcan for Alcoa — often called a Pac-Man bid, after the video game in which characters try to gobble up opponents before being eaten themselves — has been floated by analysts, most expect that Alcoa will simply enrich its offer.
Not all analysts, however, view Alcan’s rejection as a ploy to bolster its takeover value.
Carol Levenson, a debt analyst with Gimme Credit in New York, wrote in a note to debt holders after Tuesday’s announcement that while another offer for Alcan was possible “we think the company is more likely to attempt to remain independent.”
Alcan and Alcoa held secret talks for almost two years before negotiations broke down late last year.
“Despite two years of approaches by Alcoa,” Mr. Evans said in the Alcan statement, “at no time was Alcan presented a compelling proposal — either in terms of economics, structure or conditionality — that was in the best interests of our shareholders.”
Mr. Evans said that although Alcoa’s chief executive, Alain J. P. Belda, told him last year that a hostile bid was his company’s “fallback position,” he was nevertheless “somewhat surprised” when Alcoa took that step on May 7.
“We felt it would be somewhat risky for them,” Mr. Evans said. “Based on everything we had seen, it would be very difficult for them to execute.”
The hostile offer, Mr. Evans said, did not vary substantially from the friendly proposal that Alcoa had made earlier. It was also, he added, no more appealing to Alcan. Alcoa’s current bid, according to regulatory filings, includes $22 a share in cash and 0.9418 of an Alcoa common share for each Alcan share.
“There are certain elements of the combination that do make industrial sense, as there would be with other companies,” he said. One of Alcan’s concerns, Mr. Evans said, was the possibility that any merger would have a difficult time with antitrust regulators in Canada, the United States and Europe. Combined, the two companies would have about $54 billion in sales in 2006 figures and would have produced 7.8 million metric tons of aluminum.
While Alcoa has identified some assets it would shed, most in aerospace products, Mr. Evans contended that the company did not have a clear plan for dealing with antitrust issues.
“Any list that might be floated out for this asset or any asset is just a starting point,” he said.
Mr. Evans added that even though Alcan had a “clear solution” for competition issues surrounding its 2003 acquisition of the French aluminum producer Pichiney, approval still required months of talks.
Another sticking point is headquarters locations of a merged company. Alcan is prominent in Canada and its home province of Quebec. As a result, Mr. Evans said that it insisted that Montreal act as the head office of a merged operation. Alcoa continues to propose that Montreal act as a joint head office with New York, where it has its executive offices.
Alcan, which is slightly smaller than Alcoa, will probably encounter difficulties with the state of Pennsylvania if it attempts a reverse takeover. Alcoa did not opt out of a series of anti-takeover laws that were adopted by the state in 1990 to stem the loss of head offices from its cities. Because Alcoa is not based in Canada, its bid for Alcan must be approved by the Canadian government. While Investment Canada, the agency responsible for such reviews, does not publicly discuss its decisions, it is thought to have never turned down a merger.
While word of the secret talks emerged only after Alcoa’s bid, Mr. Evans said that the much stronger share price performance of Alcan compared with Alcoa over the last five years was an endorsement of his company’s decision not to merge. From May 1999, when Mr. Belda became Alcoa’s chief executive, to last February, when takeover speculation lifted share prices, Alcoa’s stock rose by 3 percent. Alcan shares increased 48 percent.
May 23, 2007
By IAN AUSTEN
OTTAWA, May 22 — The Canadian aluminum producer Alcan rejected a $27.4 billion hostile bid from a rival, Alcoa, on Tuesday, calling the offer inadequate. Alcan said that it was in talks with other companies and added that it was considering the possibility of turning the tables with a counterbid for Alcoa.
Alcan said in a statement that its directors had unanimously concluded that the bid by Alcoa, which is based in Pittsburgh, did not reflect the Canadian company’s full value or offer its shares a sufficient premium.
Yves Fortier, Alcan’s chairman, said that “the company is evaluating all options in the interest of shareholder value.”
When asked during an interview whether those options included Alcan reversing the situation through a hostile bid for Alcoa, Richard B. Evans, the president and chief executive, replied: “All means ‘all.’ ”
In a statement, Alcoa said it was “reviewing Alcan’s response and will provide a more in-depth response after we have had time to examine it further.”
Mr. Evans declined to name which other companies were in negotiations with Alcan. But the mining companies BHP Billiton, Rio Tinto and Companhia Vale do Rio Doce have all been named as potential buyers, as have several aluminum producers in Russia and China.
While the idea of a counteroffer by Alcan for Alcoa — often called a Pac-Man bid, after the video game in which characters try to gobble up opponents before being eaten themselves — has been floated by analysts, most expect that Alcoa will simply enrich its offer.
Not all analysts, however, view Alcan’s rejection as a ploy to bolster its takeover value.
Carol Levenson, a debt analyst with Gimme Credit in New York, wrote in a note to debt holders after Tuesday’s announcement that while another offer for Alcan was possible “we think the company is more likely to attempt to remain independent.”
Alcan and Alcoa held secret talks for almost two years before negotiations broke down late last year.
“Despite two years of approaches by Alcoa,” Mr. Evans said in the Alcan statement, “at no time was Alcan presented a compelling proposal — either in terms of economics, structure or conditionality — that was in the best interests of our shareholders.”
Mr. Evans said that although Alcoa’s chief executive, Alain J. P. Belda, told him last year that a hostile bid was his company’s “fallback position,” he was nevertheless “somewhat surprised” when Alcoa took that step on May 7.
“We felt it would be somewhat risky for them,” Mr. Evans said. “Based on everything we had seen, it would be very difficult for them to execute.”
The hostile offer, Mr. Evans said, did not vary substantially from the friendly proposal that Alcoa had made earlier. It was also, he added, no more appealing to Alcan. Alcoa’s current bid, according to regulatory filings, includes $22 a share in cash and 0.9418 of an Alcoa common share for each Alcan share.
“There are certain elements of the combination that do make industrial sense, as there would be with other companies,” he said. One of Alcan’s concerns, Mr. Evans said, was the possibility that any merger would have a difficult time with antitrust regulators in Canada, the United States and Europe. Combined, the two companies would have about $54 billion in sales in 2006 figures and would have produced 7.8 million metric tons of aluminum.
While Alcoa has identified some assets it would shed, most in aerospace products, Mr. Evans contended that the company did not have a clear plan for dealing with antitrust issues.
“Any list that might be floated out for this asset or any asset is just a starting point,” he said.
Mr. Evans added that even though Alcan had a “clear solution” for competition issues surrounding its 2003 acquisition of the French aluminum producer Pichiney, approval still required months of talks.
Another sticking point is headquarters locations of a merged company. Alcan is prominent in Canada and its home province of Quebec. As a result, Mr. Evans said that it insisted that Montreal act as the head office of a merged operation. Alcoa continues to propose that Montreal act as a joint head office with New York, where it has its executive offices.
Alcan, which is slightly smaller than Alcoa, will probably encounter difficulties with the state of Pennsylvania if it attempts a reverse takeover. Alcoa did not opt out of a series of anti-takeover laws that were adopted by the state in 1990 to stem the loss of head offices from its cities. Because Alcoa is not based in Canada, its bid for Alcan must be approved by the Canadian government. While Investment Canada, the agency responsible for such reviews, does not publicly discuss its decisions, it is thought to have never turned down a merger.
While word of the secret talks emerged only after Alcoa’s bid, Mr. Evans said that the much stronger share price performance of Alcan compared with Alcoa over the last five years was an endorsement of his company’s decision not to merge. From May 1999, when Mr. Belda became Alcoa’s chief executive, to last February, when takeover speculation lifted share prices, Alcoa’s stock rose by 3 percent. Alcan shares increased 48 percent.
Alcan rejects Alcoa, turns to BHP
But Alcan CEO says all options are open, including a bid for Alcoa
SINCLAIR STEWART ANDY HOFFMAN and ANDREW WILLIS AND BOYD ERMAN
From Wednesday's Globe and Mail
May 23, 2007 at 11:18 AM EDT
NEW YORK AND TORONTO — Alcan Inc. has entered early-stage discussions with global mining giant BHP Billiton Ltd. as it looks to fend off an unwanted takeover attempt by U.S. rival Alcoa Inc., according to people familiar with the matter.
As expected, Montreal-based Alcan rejected Alcoa's $28.4-billion (U.S.) hostile offer Tuesday, arguing that it undervalues the company and is “highly conditional and uncertain.”
Shares of Alcan rose 3 per cent in Toronto and 3.7 per cent in New York on Wednesday morning. Alcoa stock, meanwhile, climbed 4.4 per cent.
In the filing with regulators, Alcan took several jabs at Alcoa, highlighting everything from its “strategic challenges” to its weaker stock market performance. It also suggested that Alcoa threatened it with a hostile offer last fall, and said one of the main reasons Alcoa pushed for a deal was that it feared becoming a target itself.
But even this appearance of bad blood doesn't mean the deal is officially dead.
In an interview, Alcan chief executive officer Dick Evans said all options are being considered, and he refused to rule out any scenario – including one in which Alcan would turn the tables by launching its own bid for Alcoa.
“The operative word here is all,” he said, adding that Alcan is in “ongoing discussions with other third parties.”
Mr. Evans declined to identify them, but sources said BHP, the world's largest miner, has begun talks with Alcan. BHP approached the company about a possible union late last year, but was rebuffed, sources said. Rio Tinto PLC C has been cited by several industry observers as another logical suitor for Alcan.
Officials at Alcoa declined to comment, saying they were still studying Alcan's response.
When Alcoa tabled its bid earlier this month, it said it had been in intermittent merger talks with Alcan for the past two years. It also disclosed in regulatory filings that these discussions dissolved after Alcan insisted on signing a two-year standstill agreement—something Alcoa felt was far too long.
But Mr. Evans took issue with that characterization, saying the Alcoa offer was subject to far too many conditions.
He added that Alcan was never presented with a compelling offer that would have been in the best interest of its shareholders, and that Alcan's shares have gained 81 per cent over the past five years, while Alcoa's have increased 3 per cent.
“Some people might say this is a set of conditions looking for an offer,” he said of Alcoa's current bid. “The Alcoa-Alcan [merger] has the highest degree of complexity. “There are many issues that are greater in this particular transaction than they would be in any other combination. That gets to the heart of why we did not carry forward with these discussions.”
If the two companies joined forces, they would control approximately 20 per cent of global aluminum production. That has sparked concerns, particularly in the Alcan camp, that a merger could run into problems with antitrust authorities.
Alcoa has attempted to head off these concerns by approaching competition regulators in Canada, the United States and Europe. It has already drawn up a list of automotive and aerospace plants, primarily in Europe, that it would jettison in order to win approval for the deal.
But Alcan insisted winning this approval would be much more difficult than Alcoa has suggested.
“Alcoa has remained unable to articulate any clear plan for identifying and dealing with competition regulatory issues,” the filings stated.
Alcan said it is worried about the potential impact of spinning off businesses, and whether this will be offset by the synergies the two companies could realize in a merger. Alcoa has suggested a merger could result in $1-billion worth of synergies, but Alcan said that figure does not accurately reflect previous discussions between the two companies.
According to Alcan's filing yesterday, Alcoa CEO Alain Belda told Mr. Evans last fall that the synergies could be 50 per cent higher.
Alcan also attempted to pour cold water on any idea that Alcoa has received reassurances from the Quebec government that it would support the deal. Alcan has a special arrangement with Quebec, called the “continuity agreement,” that allows the company to have cheap access to water and power.
“Any assertion by Alcoa of its own belief that it meets the requirements of the Continuity Agreement can only be seen as self-serving,” Alcan said in its regulatory filing.
But Alcan CEO says all options are open, including a bid for Alcoa
SINCLAIR STEWART ANDY HOFFMAN and ANDREW WILLIS AND BOYD ERMAN
From Wednesday's Globe and Mail
May 23, 2007 at 11:18 AM EDT
NEW YORK AND TORONTO — Alcan Inc. has entered early-stage discussions with global mining giant BHP Billiton Ltd. as it looks to fend off an unwanted takeover attempt by U.S. rival Alcoa Inc., according to people familiar with the matter.
As expected, Montreal-based Alcan rejected Alcoa's $28.4-billion (U.S.) hostile offer Tuesday, arguing that it undervalues the company and is “highly conditional and uncertain.”
Shares of Alcan rose 3 per cent in Toronto and 3.7 per cent in New York on Wednesday morning. Alcoa stock, meanwhile, climbed 4.4 per cent.
In the filing with regulators, Alcan took several jabs at Alcoa, highlighting everything from its “strategic challenges” to its weaker stock market performance. It also suggested that Alcoa threatened it with a hostile offer last fall, and said one of the main reasons Alcoa pushed for a deal was that it feared becoming a target itself.
But even this appearance of bad blood doesn't mean the deal is officially dead.
In an interview, Alcan chief executive officer Dick Evans said all options are being considered, and he refused to rule out any scenario – including one in which Alcan would turn the tables by launching its own bid for Alcoa.
“The operative word here is all,” he said, adding that Alcan is in “ongoing discussions with other third parties.”
Mr. Evans declined to identify them, but sources said BHP, the world's largest miner, has begun talks with Alcan. BHP approached the company about a possible union late last year, but was rebuffed, sources said. Rio Tinto PLC C has been cited by several industry observers as another logical suitor for Alcan.
Officials at Alcoa declined to comment, saying they were still studying Alcan's response.
When Alcoa tabled its bid earlier this month, it said it had been in intermittent merger talks with Alcan for the past two years. It also disclosed in regulatory filings that these discussions dissolved after Alcan insisted on signing a two-year standstill agreement—something Alcoa felt was far too long.
But Mr. Evans took issue with that characterization, saying the Alcoa offer was subject to far too many conditions.
He added that Alcan was never presented with a compelling offer that would have been in the best interest of its shareholders, and that Alcan's shares have gained 81 per cent over the past five years, while Alcoa's have increased 3 per cent.
“Some people might say this is a set of conditions looking for an offer,” he said of Alcoa's current bid. “The Alcoa-Alcan [merger] has the highest degree of complexity. “There are many issues that are greater in this particular transaction than they would be in any other combination. That gets to the heart of why we did not carry forward with these discussions.”
If the two companies joined forces, they would control approximately 20 per cent of global aluminum production. That has sparked concerns, particularly in the Alcan camp, that a merger could run into problems with antitrust authorities.
Alcoa has attempted to head off these concerns by approaching competition regulators in Canada, the United States and Europe. It has already drawn up a list of automotive and aerospace plants, primarily in Europe, that it would jettison in order to win approval for the deal.
But Alcan insisted winning this approval would be much more difficult than Alcoa has suggested.
“Alcoa has remained unable to articulate any clear plan for identifying and dealing with competition regulatory issues,” the filings stated.
Alcan said it is worried about the potential impact of spinning off businesses, and whether this will be offset by the synergies the two companies could realize in a merger. Alcoa has suggested a merger could result in $1-billion worth of synergies, but Alcan said that figure does not accurately reflect previous discussions between the two companies.
According to Alcan's filing yesterday, Alcoa CEO Alain Belda told Mr. Evans last fall that the synergies could be 50 per cent higher.
Alcan also attempted to pour cold water on any idea that Alcoa has received reassurances from the Quebec government that it would support the deal. Alcan has a special arrangement with Quebec, called the “continuity agreement,” that allows the company to have cheap access to water and power.
“Any assertion by Alcoa of its own belief that it meets the requirements of the Continuity Agreement can only be seen as self-serving,” Alcan said in its regulatory filing.
China Says It Made Blackstone Investment to Raise Returns
By KEITH BRADSHER
HONG KONG, May 21 — From the outside, the Chinese government’s $3 billion purchase of a nonvoting stake in the Blackstone Group might look like a prelude to a broader campaign for control of foreign companies.
But a Chinese official ruled that out in an interview Monday, saying the purchase was simply a way to raise returns on overseas investments and did not signal any plan to take control of foreign companies.
In fact, the deal seems more to represent a move by China to pounce on a strategy many foreign banks have adopted in China: buy into a company just before it begins its initial public offering. That strategy has given many banks, like Bank of America and Goldman Sachs, significant initial gains, at least on paper, on their early investments.
The Chinese government moved quickly with Blackstone to make an investment before Blackstone holds its initial public offering, said Jesse Wang, chairman of the Chinese government agency that is managing the Blackstone deal on behalf of a new state investment company still being set up.
China said months ago that it was setting up the investment company to diversify the country’s overseas investments beyond Treasury notes, bonds and other public securities.
Mr. Wang added, however, that the new state investment company was not negotiating for more large stakes in overseas companies. The main goal of the company is to accumulate a broad portfolio of small stakes in many companies, he said.
The Blackstone transaction, “is an individual case,” Mr. Wang said in a telephone interview from Beijing. “I assume the investment company will engage in portfolio investment rather than takeovers.”
Sunday’s transaction will transfer less than 10 percent of Blackstone’s equity to the Chinese government, and is a nonvoting stake, Mr. Wang said. He said it was purely a financial investment in which the government did not expect to play a role in managing Blackstone, and he added that the Chinese government did not expect Blackstone to provide any advice in exchange for the investment.
Nonetheless, the Blackstone investment stirred memories in the United States of the unsuccessful bid two years ago by Cnooc, a Chinese state-owned oil company, to acquire Unocal, an American oil company once known for the Union 76 brand of gasoline; Congressional opposition blocked that transaction.
Some in the United States have also been wary of any pattern of prominent Chinese acquisitions that might resemble acquisitions in the 1980s by Japanese investors of landmarks like Rockefeller Center and the Pebble Beach golf course.
Mr. Wang went out of his way to try to allay those fears, saying that the new investment company would be more interested in investments like funds that buy shares in most or all of the stocks in broad indices that track stock markets.
“In the future, yes, we surely think we will invest in the index funds,” he said.
Mr. Wang is the chairman of China Jianyin, an operating unit of the Central Huijin Investment Company, a Chinese government agency that handles a broad array of transactions between Chinese state-owned companies and foreign investors.
Michael R. P. Smith, the chief executive of HSBC’s Asian operations, said in an interview that few companies were likely to oppose the sale of minority stakes to the Chinese government.
“Too many shareholders just think for tomorrow, so in many ways they bring some stability,” he said of the Chinese.
In the Blackstone deal, the new state investment company will acquire a nonvoting stake at a 4.5 percent discount to the public offering price to be set in Blackstone’s initial public offering later this year.
Blackstone filed an amended prospectus with regulators fleshing out the financial aspects of the offering. It plans to offer 133.3 million units at $29 to $31 each and is giving underwriters the option of selling 20 million more. At the maximum, the offering could raise $4.75 billion, an amount that does not include the $3 billion infusion from China.
The new filing also suggested that Blackstone will not quite reach the $40 billion valuation mark. Based on the firm’s own estimate, the high end of the expected range would value the firm at about $33.6 billion, larger than Bear Stearns but smaller than Lehman Brothers.
It is common in China for tycoons and large companies to take large stakes in a company before its initial public offering. Mr. Wang said that to some extent the state investment company would be following this general precedent.
The investment work of the agency is so fresh that it agreed to the Blackstone deal even before the Chinese government has decided on many details about how its investment agency will operate.
The timing of the Blackstone deal two days before senior Chinese and American economic policy makers begin meeting in Washington was purely coincidental, Mr. Wang insisted. “I don’t think that I.P.O. schedule is coordinated” with the Sino-American talks, he said.
The new investment company is supposed to buy a broader array of assets than the central bank can purchase with its foreign exchange reserves. But the new investment company is still a long way from being established even as a separate legal entity. “We hope it will be in operation before the end of this year, but I don’t know,” Mr. Wang said.
China’s State Council, the country’s top government body, will inject capital into the company by putting in foreign exchange, but there has been no decision yet on how much money the company will have, Mr. Wang said.
“When the new company is set up, it cannot possibly manage tens or even hundreds of billions of dollars” unless it receives help from other government agencies, he added.
Holding $1.2 trillion in foreign exchange reserves, as China does, can be a curse as well as a blessing, forcing tough decisions. Long before Sunday’s investment, the managers of China’s foreign exchange reserves had proved themselves unusually willing to venture beyond the Treasuries that make up the bulk of most countries’ reserves.
Whereas countries like Japan have kept almost all of their reserves in Treasuries, the People’s Bank of China has bought at least $100 billion of American mortgage-backed securities as well as large purchases of bonds denominated in euros and other currencies, people close to the purchases said.
China’s enormous role in financing the budget deficits of other countries is a somewhat delicate subject in China, with occasional postings on Chinese Web sites suggesting that the money could be better spent inside the country. The state-controlled media have largely ignored the issue and the postings have tended to disappear, a sign that the government is not allowing open discussion.
The official Xinhua news agency waited more than 14 hours, until late Monday, to report the Blackstone announcement.
Part of the reason China has such large foreign exchange reserves is that it buys dollars on a vast scale to slow the rise of its currency, known as the yuan. If it were to invest the reserves domestically, the government would effectively have to sell dollars and buy yuan, which would drive up the value of the yuan and defeat the purpose of accumulating the reserves in the first place.
By KEITH BRADSHER
HONG KONG, May 21 — From the outside, the Chinese government’s $3 billion purchase of a nonvoting stake in the Blackstone Group might look like a prelude to a broader campaign for control of foreign companies.
But a Chinese official ruled that out in an interview Monday, saying the purchase was simply a way to raise returns on overseas investments and did not signal any plan to take control of foreign companies.
In fact, the deal seems more to represent a move by China to pounce on a strategy many foreign banks have adopted in China: buy into a company just before it begins its initial public offering. That strategy has given many banks, like Bank of America and Goldman Sachs, significant initial gains, at least on paper, on their early investments.
The Chinese government moved quickly with Blackstone to make an investment before Blackstone holds its initial public offering, said Jesse Wang, chairman of the Chinese government agency that is managing the Blackstone deal on behalf of a new state investment company still being set up.
China said months ago that it was setting up the investment company to diversify the country’s overseas investments beyond Treasury notes, bonds and other public securities.
Mr. Wang added, however, that the new state investment company was not negotiating for more large stakes in overseas companies. The main goal of the company is to accumulate a broad portfolio of small stakes in many companies, he said.
The Blackstone transaction, “is an individual case,” Mr. Wang said in a telephone interview from Beijing. “I assume the investment company will engage in portfolio investment rather than takeovers.”
Sunday’s transaction will transfer less than 10 percent of Blackstone’s equity to the Chinese government, and is a nonvoting stake, Mr. Wang said. He said it was purely a financial investment in which the government did not expect to play a role in managing Blackstone, and he added that the Chinese government did not expect Blackstone to provide any advice in exchange for the investment.
Nonetheless, the Blackstone investment stirred memories in the United States of the unsuccessful bid two years ago by Cnooc, a Chinese state-owned oil company, to acquire Unocal, an American oil company once known for the Union 76 brand of gasoline; Congressional opposition blocked that transaction.
Some in the United States have also been wary of any pattern of prominent Chinese acquisitions that might resemble acquisitions in the 1980s by Japanese investors of landmarks like Rockefeller Center and the Pebble Beach golf course.
Mr. Wang went out of his way to try to allay those fears, saying that the new investment company would be more interested in investments like funds that buy shares in most or all of the stocks in broad indices that track stock markets.
“In the future, yes, we surely think we will invest in the index funds,” he said.
Mr. Wang is the chairman of China Jianyin, an operating unit of the Central Huijin Investment Company, a Chinese government agency that handles a broad array of transactions between Chinese state-owned companies and foreign investors.
Michael R. P. Smith, the chief executive of HSBC’s Asian operations, said in an interview that few companies were likely to oppose the sale of minority stakes to the Chinese government.
“Too many shareholders just think for tomorrow, so in many ways they bring some stability,” he said of the Chinese.
In the Blackstone deal, the new state investment company will acquire a nonvoting stake at a 4.5 percent discount to the public offering price to be set in Blackstone’s initial public offering later this year.
Blackstone filed an amended prospectus with regulators fleshing out the financial aspects of the offering. It plans to offer 133.3 million units at $29 to $31 each and is giving underwriters the option of selling 20 million more. At the maximum, the offering could raise $4.75 billion, an amount that does not include the $3 billion infusion from China.
The new filing also suggested that Blackstone will not quite reach the $40 billion valuation mark. Based on the firm’s own estimate, the high end of the expected range would value the firm at about $33.6 billion, larger than Bear Stearns but smaller than Lehman Brothers.
It is common in China for tycoons and large companies to take large stakes in a company before its initial public offering. Mr. Wang said that to some extent the state investment company would be following this general precedent.
The investment work of the agency is so fresh that it agreed to the Blackstone deal even before the Chinese government has decided on many details about how its investment agency will operate.
The timing of the Blackstone deal two days before senior Chinese and American economic policy makers begin meeting in Washington was purely coincidental, Mr. Wang insisted. “I don’t think that I.P.O. schedule is coordinated” with the Sino-American talks, he said.
The new investment company is supposed to buy a broader array of assets than the central bank can purchase with its foreign exchange reserves. But the new investment company is still a long way from being established even as a separate legal entity. “We hope it will be in operation before the end of this year, but I don’t know,” Mr. Wang said.
China’s State Council, the country’s top government body, will inject capital into the company by putting in foreign exchange, but there has been no decision yet on how much money the company will have, Mr. Wang said.
“When the new company is set up, it cannot possibly manage tens or even hundreds of billions of dollars” unless it receives help from other government agencies, he added.
Holding $1.2 trillion in foreign exchange reserves, as China does, can be a curse as well as a blessing, forcing tough decisions. Long before Sunday’s investment, the managers of China’s foreign exchange reserves had proved themselves unusually willing to venture beyond the Treasuries that make up the bulk of most countries’ reserves.
Whereas countries like Japan have kept almost all of their reserves in Treasuries, the People’s Bank of China has bought at least $100 billion of American mortgage-backed securities as well as large purchases of bonds denominated in euros and other currencies, people close to the purchases said.
China’s enormous role in financing the budget deficits of other countries is a somewhat delicate subject in China, with occasional postings on Chinese Web sites suggesting that the money could be better spent inside the country. The state-controlled media have largely ignored the issue and the postings have tended to disappear, a sign that the government is not allowing open discussion.
The official Xinhua news agency waited more than 14 hours, until late Monday, to report the Blackstone announcement.
Part of the reason China has such large foreign exchange reserves is that it buys dollars on a vast scale to slow the rise of its currency, known as the yuan. If it were to invest the reserves domestically, the government would effectively have to sell dollars and buy yuan, which would drive up the value of the yuan and defeat the purpose of accumulating the reserves in the first place.
Blackstone reveals more IPO details
by David Carey, Peter Moreira and Trond Vagen
Updated 06:05 PM EST, May-21-2007
Along with the announcement that it plans to sell a nearly 10% stake in itself to a Chinese government agency, Blackstone Group LP has laid out details of its plans to go public.
In an amended initial public offering prospectus filed Monday, May 21, the New York private equity behemoth pegged for the first time the size of the stake it will sell to the public: 12.3%. Based on the target price range, also disclosed Monday, the offering would value the firm at $31.4 billion to $33.7 billion. The firm also disclosed that its assets under management surged by nearly $10 billion, to $88.4 billion, between March 1 and May 1, 2007.
The revised prospectus filed with the Securities and Exchange Commission Monday sheds light on how Blackstone would use an expected $3.9 billion or more in gross IPO proceeds and the $3 billion it will take in from the Chinese government in exchange for a 9.7% nonvoting stake.
The landmark arrangement with China, announced Sunday, would transform the Asian nation's investment strategy and help Blackstone enter the fast-growing market.
There is precedent for such an investment by an Asian institution.
In January, Nomura Holdings Inc., the Japanese financial giant, invested in New York buyout and hedge fund manager Fortress Investment Group LLC as Fortress was preparing to go public the next month. Nomura took a 15% stake, which funded an $888 million distribution to Fortress principals. In both cases, the investment appeared to be intended in part to help buttress the firm's valuation in advance of the initial public offering.
There have also been press reports recently that Apollo Management LP, another buyout firm, has been laying plans for a private placement of equity as a prelude to going public.
The new filing said Blackstone plans to offer 133.3 million common units at $29 to $31 a unit, generating gross proceeds of $3.9 billion to $4.1 billion. That could swell to as much as $4.75 billion if the underwriters exercise their overallotment option to buy another 20 million units.
Blackstone said it expects to generate at least $6.7 billion in combined net proceeds from the IPO and China's investment, after fees and commissions.
Of that, $1.3 billion will be used to repay short-term debt and $1.5 billion is earmarked for expansion.
At least $3.9 billion will be used to buy back partnership units from existing owners. The sellers will include co-founder and senior chairman Peter Peterson; Hamilton 'Tony' James, Blackstone's president and CCO and J. Tomilson Hill, the firm's vice chairman.
Monday's filing did not reveal the stakes each of the three executives hold. Nor did it say how much Blackstone chairman and CEO Stephen Schwarzman owns.
Shareholdings of key executives typically are included in an IPO prospectus by the time a price range is set, but Blackstone appears to be keeping its cards close to its chest as long as possible.
The firm also has not yet disclosed another critical but sensitive piece of information — the distributions it has made to partners recently. Those likely totaled hundreds of millions, if not billions, of dollars last year.
The prospectus includes some updated financial information.
Blackstone indicated that since March 1, it has raised an additional $2 billion in private equity investment funds, elevating its total buyout assets under management to $33.1 billion.
Meanwhile, the capital raised for real estate opportunity investment rose to $19.9 billion from $17.7 billion. In all, assets under management escalated to $88.4 billion from $78.7 billion.
Blackstone also released first-quarter 2007 results. It reported revenue, mostly from management and advisory fees, of $479.4 million. That's 117% above first-quarter 2006 revenue of $220.9 million.
Pretax income last quarter was $1.15 billion, up $657 million or 133% from last year's first quarter.
The arrangement with China would be the first investment by the Chinese state foreign exchange investment company, which China said in March it would set up to invest up to $200 billion of the country's $1.2 trillion in foreign-exchange reserves, which have been largely held in U.S. Treasury securities.
The Blackstone investment comes just before this week's U.S.-China economic talks in Washington, led by U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi.
Blackstone only recently signaled its intention to focus on the Chinese market and in January appointed Antony Leung, a former financial secretary of Hong Kong, as head of its Chinese operations. Though it has not made any major investments in China, the transaction may facilitate regulatory approvals of future deals.
China's stake in Blackstone, which Beijing has agreed to hold for at least four years, will be just below the level requiring U.S. government approval. It will consist of nonvoting common stock and will be priced at a 4.5% discount to the IPO unit price.
by David Carey, Peter Moreira and Trond Vagen
Updated 06:05 PM EST, May-21-2007
Along with the announcement that it plans to sell a nearly 10% stake in itself to a Chinese government agency, Blackstone Group LP has laid out details of its plans to go public.
In an amended initial public offering prospectus filed Monday, May 21, the New York private equity behemoth pegged for the first time the size of the stake it will sell to the public: 12.3%. Based on the target price range, also disclosed Monday, the offering would value the firm at $31.4 billion to $33.7 billion. The firm also disclosed that its assets under management surged by nearly $10 billion, to $88.4 billion, between March 1 and May 1, 2007.
The revised prospectus filed with the Securities and Exchange Commission Monday sheds light on how Blackstone would use an expected $3.9 billion or more in gross IPO proceeds and the $3 billion it will take in from the Chinese government in exchange for a 9.7% nonvoting stake.
The landmark arrangement with China, announced Sunday, would transform the Asian nation's investment strategy and help Blackstone enter the fast-growing market.
There is precedent for such an investment by an Asian institution.
In January, Nomura Holdings Inc., the Japanese financial giant, invested in New York buyout and hedge fund manager Fortress Investment Group LLC as Fortress was preparing to go public the next month. Nomura took a 15% stake, which funded an $888 million distribution to Fortress principals. In both cases, the investment appeared to be intended in part to help buttress the firm's valuation in advance of the initial public offering.
There have also been press reports recently that Apollo Management LP, another buyout firm, has been laying plans for a private placement of equity as a prelude to going public.
The new filing said Blackstone plans to offer 133.3 million common units at $29 to $31 a unit, generating gross proceeds of $3.9 billion to $4.1 billion. That could swell to as much as $4.75 billion if the underwriters exercise their overallotment option to buy another 20 million units.
Blackstone said it expects to generate at least $6.7 billion in combined net proceeds from the IPO and China's investment, after fees and commissions.
Of that, $1.3 billion will be used to repay short-term debt and $1.5 billion is earmarked for expansion.
At least $3.9 billion will be used to buy back partnership units from existing owners. The sellers will include co-founder and senior chairman Peter Peterson; Hamilton 'Tony' James, Blackstone's president and CCO and J. Tomilson Hill, the firm's vice chairman.
Monday's filing did not reveal the stakes each of the three executives hold. Nor did it say how much Blackstone chairman and CEO Stephen Schwarzman owns.
Shareholdings of key executives typically are included in an IPO prospectus by the time a price range is set, but Blackstone appears to be keeping its cards close to its chest as long as possible.
The firm also has not yet disclosed another critical but sensitive piece of information — the distributions it has made to partners recently. Those likely totaled hundreds of millions, if not billions, of dollars last year.
The prospectus includes some updated financial information.
Blackstone indicated that since March 1, it has raised an additional $2 billion in private equity investment funds, elevating its total buyout assets under management to $33.1 billion.
Meanwhile, the capital raised for real estate opportunity investment rose to $19.9 billion from $17.7 billion. In all, assets under management escalated to $88.4 billion from $78.7 billion.
Blackstone also released first-quarter 2007 results. It reported revenue, mostly from management and advisory fees, of $479.4 million. That's 117% above first-quarter 2006 revenue of $220.9 million.
Pretax income last quarter was $1.15 billion, up $657 million or 133% from last year's first quarter.
The arrangement with China would be the first investment by the Chinese state foreign exchange investment company, which China said in March it would set up to invest up to $200 billion of the country's $1.2 trillion in foreign-exchange reserves, which have been largely held in U.S. Treasury securities.
The Blackstone investment comes just before this week's U.S.-China economic talks in Washington, led by U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi.
Blackstone only recently signaled its intention to focus on the Chinese market and in January appointed Antony Leung, a former financial secretary of Hong Kong, as head of its Chinese operations. Though it has not made any major investments in China, the transaction may facilitate regulatory approvals of future deals.
China's stake in Blackstone, which Beijing has agreed to hold for at least four years, will be just below the level requiring U.S. government approval. It will consist of nonvoting common stock and will be priced at a 4.5% discount to the IPO unit price.
Aeroflot Seeks Loan to Deal for Alitalia
May 22, 2007
By ANDREW E. KRAMER
MOSCOW, May 21 — The Russian airline Aeroflot is seeking up to 900 million euros ($1.2 billion) in loans to finance its bid for all or part of the Italian national airline, Alitalia, in its first merger or acquisition effort outside the former Soviet Union.
A spokeswoman for Aeroflot, Irina Dannenberg, said Monday that the company’s pledge to pursue financing should be seen as a sign of its seriousness. Aeroflot is up against an Italian airline tycoon and a consortium of two American private equity firms and an Italian bank, with final offers expected by the end of June.
Aeroflot has argued that the routes the two airlines fly are complementary and will bring efficiencies. Alitalia flies to cities in Africa and South America from its hub in Rome that Aeroflot cannot easily reach.
Finally, Aeroflot executives say they bring something else to the table; they are presenting themselves as turnaround specialists and pointing to their success in pulling the beleaguered Aeroflot out of a decade-long tailspin after the breakup of the Soviet Union and making it profitable.
Any buyer of the money-losing Alitalia would have to deal with tense labor relations. Nearly 400 flights, or about half of Alitalia’s daily flights, were canceled for Tuesday because of a planned eight-hour walkout by the flight attendants, their second in three weeks.
Flight attendants are demanding pay increases, said Alberto Cassandra, a representative of the union. The employees are also protesting Alitalia’s growing dependence on workers without full-time contracts.
In 2006, Aeroflot turned a profit of $310 million flying its mixed fleet of Soviet and Western airplanes. The airline is now poised to benefit from a government-backed consolidation in Russia’s domestic airline industry.
“As we broaden our work in Europe we want Alitalia to help us with the new routes,” Ms. Dannenberg said in a telephone interview Monday. The two airlines already cooperate as members of the SkyTeam alliance.
In a sign of at least some support in Italy, the bid by Aeroflot is backed by UniCredit, Italy’s largest bank.
The Italian government plans to sell most of its 49 percent of Alitalia, in hopes of turning the airline around while requiring that any new owner retain the company’s Italian character for several years after the purchase.
Under the terms of the tender, potential buyers must agree to acquire more than 30 percent of the airline and make an offer to buy out minority shareholders.
The Russians are competing against two other bidders: a team of the Texas Pacific Group, MatlinPatterson and the Italian bank Mediobanca; and AP Holding, representing the Italian tycoon Carlo Toto, owner of Alitalia’s domestic competitor, Air One.
May 22, 2007
By ANDREW E. KRAMER
MOSCOW, May 21 — The Russian airline Aeroflot is seeking up to 900 million euros ($1.2 billion) in loans to finance its bid for all or part of the Italian national airline, Alitalia, in its first merger or acquisition effort outside the former Soviet Union.
A spokeswoman for Aeroflot, Irina Dannenberg, said Monday that the company’s pledge to pursue financing should be seen as a sign of its seriousness. Aeroflot is up against an Italian airline tycoon and a consortium of two American private equity firms and an Italian bank, with final offers expected by the end of June.
Aeroflot has argued that the routes the two airlines fly are complementary and will bring efficiencies. Alitalia flies to cities in Africa and South America from its hub in Rome that Aeroflot cannot easily reach.
Finally, Aeroflot executives say they bring something else to the table; they are presenting themselves as turnaround specialists and pointing to their success in pulling the beleaguered Aeroflot out of a decade-long tailspin after the breakup of the Soviet Union and making it profitable.
Any buyer of the money-losing Alitalia would have to deal with tense labor relations. Nearly 400 flights, or about half of Alitalia’s daily flights, were canceled for Tuesday because of a planned eight-hour walkout by the flight attendants, their second in three weeks.
Flight attendants are demanding pay increases, said Alberto Cassandra, a representative of the union. The employees are also protesting Alitalia’s growing dependence on workers without full-time contracts.
In 2006, Aeroflot turned a profit of $310 million flying its mixed fleet of Soviet and Western airplanes. The airline is now poised to benefit from a government-backed consolidation in Russia’s domestic airline industry.
“As we broaden our work in Europe we want Alitalia to help us with the new routes,” Ms. Dannenberg said in a telephone interview Monday. The two airlines already cooperate as members of the SkyTeam alliance.
In a sign of at least some support in Italy, the bid by Aeroflot is backed by UniCredit, Italy’s largest bank.
The Italian government plans to sell most of its 49 percent of Alitalia, in hopes of turning the airline around while requiring that any new owner retain the company’s Italian character for several years after the purchase.
Under the terms of the tender, potential buyers must agree to acquire more than 30 percent of the airline and make an offer to buy out minority shareholders.
The Russians are competing against two other bidders: a team of the Texas Pacific Group, MatlinPatterson and the Italian bank Mediobanca; and AP Holding, representing the Italian tycoon Carlo Toto, owner of Alitalia’s domestic competitor, Air One.
British Airways Plans to Support TPG's Bid for Iberia (Update9)
By Emmet Oliver and Tracy Alloway
May 22 (Bloomberg) -- British Airways Plc plans to support private-equity investor TPG Inc.'s bid for Iberia Lineas Aereas de Espana SA to protect the U.K. airline's stake in the carrier.
Europe's third-largest airline, the biggest shareholder in Iberia with a 10 percent stake, said in a statement in London today that other bidders would be Spanish investors Vista Capital SA, Inversiones Ibersuizas SA and Quercus Equity.
TPG, formerly Texas Pacific Group, said March 30 it was considering a 3.4 billion-euro ($4.6 billion) bid for Iberia as carriers prepare for more access to routes under the new ``open skies'' accord between the U.S. and European Union. British Airways manages flights between the U.K. and Spain with Iberia, which also has a profitable Latin American network.
``To retain influence over Iberia without having to put money in is a sensible move,'' said Chris Avery, an analyst at JPMorgan in London with a ``neutral'' rating on the stock. ``BA is highly likely to retain its joint routes and a significant influence over the ownership.''
Shares of Iberia in Madrid were unchanged at 3.92 euros. The stock has gained 42 percent this year, valuing the company at 3.74 billion euros. British Airways shares fell 13.5 pence, or 2.8 percent, to 466.5 pence in London.
Spanish Bidders
Vista is a private equity company owned by Banco Santander Central Hispano SA and Royal Bank of Scotland. Inversiones Ibersuizas is a Madrid-based investment company and Quercus is a private equity group with a 20 percent stake in Clickair, a Barcelona-based low-cost carrier. At least 51 percent of Iberia must remain in Spanish control to preserve its landing rights in Latin America. British Airways said it wouldn't invest more in Iberia beyond the current stake.
The bidders will request financial information from Iberia and then decide whether to make an offer, said Paul Marston, a British Airways spokesman in London. ``This is likely to take two to three months.''
Europe's biggest carriers, Air France and Deutsche Lufthansa AG, have acquired smaller airlines to boost their market share. Air France merged with KLM Royal Dutch Airlines NV in 2004. Lufthansa bought Swiss International Air Lines Ltd. in 2005. British Airways' last acquisition was French carrier Air Liberte in 1997, which it sold to Swissair, the predecessor of Swiss International, in 2000.
``They haven't really been playing an active role in the consolidation,'' said Gert Zonneveld, an analyst with Panmure Gordon in London with a ``hold'' recommendation on the stock. ``They've been getting their own house in order.''
Pension Deficit
British Airways has reduced its pension deficit to 1.6 billion pounds ($3.2 billion) from 2.1 billion pounds and sold its regional subsidiary BA Connect since Chief Executive Officer Willie Walsh joined the airline in October 2005.
The new ``open skies'' aviation agreement, effective next March, triggered interest in industry consolidation. The agreement would allow European carriers to fly from any airport in the EU to the U.S.
British Airways needs ``to remain in the European consolidation end game,'' Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with Iberia on his ``focus list,'' said in an interview. ``My only worry would be if that other private equity group, Apax, were to continue their interest and you end up with some sort of bidding war.''
Apax Partners
Apax Partners Worldwide Ltd. was considering a bid for Iberia, U.K. and Spanish newspapers reported last month. The London-based buyout group started Spain's first low-cost domestic carrier, Vueling Airlines SA.
British Airways was unable to reach agreement with Apax Partners ``on a small number of key commercial issues,'' Marston said without specifying.
In addition to its 10 percent stake, British Airways has right of first refusal on another 30 percent of Iberia. That means the airline could repel a hostile bid or hold out for a higher price.
The U.K. carrier said in April it was assessing ``how to use'' its stake in Iberia after Fort Worth, Texas-based TPG said it was considering a bid. It ruled out an independent offer for the airline.
David Bonderman, a TPG founder, bought Continental Airlines Inc. in 1993, when the Houston-based carrier hadn't produced a profit in 15 years. Two years later, Continental was making money and in 1998, Bonderman sold his stake for about $700 million, a 10-fold return.
Qantas Bid
TPG was part of a failed Macquarie Bank Ltd.-led attempt to acquire Qantas Airways Ltd., Australia's largest carrier. The A$11.1 billion ($9 billion) bid for Qantas lapsed May 4 after failing to receive a required 50 percent of shareholder acceptances.
TPG also has teamed up with MatlinPatterson Global Advisers LLC and Mediobanca SpA to buy Alitalia SpA, Italy's state- controlled airline. Three groups will be given access to Alitalia's books this week and present bids by July 2.
Other investments by TPG include stakes in America West Airlines Inc., Ryanair Holdings Plc and Tiger Airways Pte. Bonderman is chairman of Dublin-based Ryanair, Europe's biggest low-cost carrier.
British Airways appointed UBS AG to advise on how to use its stake in the Spanish airline after the TPG move. The company bought a 9 percent holding in 1999 after Spain's government decided to sell 40 percent of Iberia to a group of investors including AMR Corp.'s American Airlines.
The two airlines paid 273 million euros for their stakes and British Airways bought American's 1 percent stake in November.
Iberia Fleet
Iberia has a fleet of 225 planes and flies to destinations including Buenos Aires, Rio de Janeiro and Miami. The company posted a first-quarter profit of 12.2 million euros compared with a loss of 45 million euros a year earlier because of growth on long-distance routes.
The Spanish carrier has added capacity on long-haul routes and dropped European services to boost profit and offset higher fuel costs. The airline's load factor, or proportion of seats filled, rose to 88.8 percent on long-haul flights from 85.8 percent.
Lufthansa Chief Executive Officer Wolfgang Mayrhuber said April 18 that his airline, Europe's second-biggest after Air France-KLM, wasn't planning any immediate takeovers, though Iberia's Latin American network would fit well with the Cologne, Germany-based carrier. Lufthansa considers Iberia too expensive, Chief Financial Officer Stephan Gemkow reiterated on April 26.
By Emmet Oliver and Tracy Alloway
May 22 (Bloomberg) -- British Airways Plc plans to support private-equity investor TPG Inc.'s bid for Iberia Lineas Aereas de Espana SA to protect the U.K. airline's stake in the carrier.
Europe's third-largest airline, the biggest shareholder in Iberia with a 10 percent stake, said in a statement in London today that other bidders would be Spanish investors Vista Capital SA, Inversiones Ibersuizas SA and Quercus Equity.
TPG, formerly Texas Pacific Group, said March 30 it was considering a 3.4 billion-euro ($4.6 billion) bid for Iberia as carriers prepare for more access to routes under the new ``open skies'' accord between the U.S. and European Union. British Airways manages flights between the U.K. and Spain with Iberia, which also has a profitable Latin American network.
``To retain influence over Iberia without having to put money in is a sensible move,'' said Chris Avery, an analyst at JPMorgan in London with a ``neutral'' rating on the stock. ``BA is highly likely to retain its joint routes and a significant influence over the ownership.''
Shares of Iberia in Madrid were unchanged at 3.92 euros. The stock has gained 42 percent this year, valuing the company at 3.74 billion euros. British Airways shares fell 13.5 pence, or 2.8 percent, to 466.5 pence in London.
Spanish Bidders
Vista is a private equity company owned by Banco Santander Central Hispano SA and Royal Bank of Scotland. Inversiones Ibersuizas is a Madrid-based investment company and Quercus is a private equity group with a 20 percent stake in Clickair, a Barcelona-based low-cost carrier. At least 51 percent of Iberia must remain in Spanish control to preserve its landing rights in Latin America. British Airways said it wouldn't invest more in Iberia beyond the current stake.
The bidders will request financial information from Iberia and then decide whether to make an offer, said Paul Marston, a British Airways spokesman in London. ``This is likely to take two to three months.''
Europe's biggest carriers, Air France and Deutsche Lufthansa AG, have acquired smaller airlines to boost their market share. Air France merged with KLM Royal Dutch Airlines NV in 2004. Lufthansa bought Swiss International Air Lines Ltd. in 2005. British Airways' last acquisition was French carrier Air Liberte in 1997, which it sold to Swissair, the predecessor of Swiss International, in 2000.
``They haven't really been playing an active role in the consolidation,'' said Gert Zonneveld, an analyst with Panmure Gordon in London with a ``hold'' recommendation on the stock. ``They've been getting their own house in order.''
Pension Deficit
British Airways has reduced its pension deficit to 1.6 billion pounds ($3.2 billion) from 2.1 billion pounds and sold its regional subsidiary BA Connect since Chief Executive Officer Willie Walsh joined the airline in October 2005.
The new ``open skies'' aviation agreement, effective next March, triggered interest in industry consolidation. The agreement would allow European carriers to fly from any airport in the EU to the U.S.
British Airways needs ``to remain in the European consolidation end game,'' Stephen Furlong, an analyst at Davy Stockbrokers in Dublin with Iberia on his ``focus list,'' said in an interview. ``My only worry would be if that other private equity group, Apax, were to continue their interest and you end up with some sort of bidding war.''
Apax Partners
Apax Partners Worldwide Ltd. was considering a bid for Iberia, U.K. and Spanish newspapers reported last month. The London-based buyout group started Spain's first low-cost domestic carrier, Vueling Airlines SA.
British Airways was unable to reach agreement with Apax Partners ``on a small number of key commercial issues,'' Marston said without specifying.
In addition to its 10 percent stake, British Airways has right of first refusal on another 30 percent of Iberia. That means the airline could repel a hostile bid or hold out for a higher price.
The U.K. carrier said in April it was assessing ``how to use'' its stake in Iberia after Fort Worth, Texas-based TPG said it was considering a bid. It ruled out an independent offer for the airline.
David Bonderman, a TPG founder, bought Continental Airlines Inc. in 1993, when the Houston-based carrier hadn't produced a profit in 15 years. Two years later, Continental was making money and in 1998, Bonderman sold his stake for about $700 million, a 10-fold return.
Qantas Bid
TPG was part of a failed Macquarie Bank Ltd.-led attempt to acquire Qantas Airways Ltd., Australia's largest carrier. The A$11.1 billion ($9 billion) bid for Qantas lapsed May 4 after failing to receive a required 50 percent of shareholder acceptances.
TPG also has teamed up with MatlinPatterson Global Advisers LLC and Mediobanca SpA to buy Alitalia SpA, Italy's state- controlled airline. Three groups will be given access to Alitalia's books this week and present bids by July 2.
Other investments by TPG include stakes in America West Airlines Inc., Ryanair Holdings Plc and Tiger Airways Pte. Bonderman is chairman of Dublin-based Ryanair, Europe's biggest low-cost carrier.
British Airways appointed UBS AG to advise on how to use its stake in the Spanish airline after the TPG move. The company bought a 9 percent holding in 1999 after Spain's government decided to sell 40 percent of Iberia to a group of investors including AMR Corp.'s American Airlines.
The two airlines paid 273 million euros for their stakes and British Airways bought American's 1 percent stake in November.
Iberia Fleet
Iberia has a fleet of 225 planes and flies to destinations including Buenos Aires, Rio de Janeiro and Miami. The company posted a first-quarter profit of 12.2 million euros compared with a loss of 45 million euros a year earlier because of growth on long-distance routes.
The Spanish carrier has added capacity on long-haul routes and dropped European services to boost profit and offset higher fuel costs. The airline's load factor, or proportion of seats filled, rose to 88.8 percent on long-haul flights from 85.8 percent.
Lufthansa Chief Executive Officer Wolfgang Mayrhuber said April 18 that his airline, Europe's second-biggest after Air France-KLM, wasn't planning any immediate takeovers, though Iberia's Latin American network would fit well with the Cologne, Germany-based carrier. Lufthansa considers Iberia too expensive, Chief Financial Officer Stephan Gemkow reiterated on April 26.
Terra Firma Agrees to Buy EMI for 2.4 Billion Pounds (Update5)
By Aisha Phoenix
May 21 (Bloomberg) -- Guy Hands's Terra Firma Capital Partners Ltd. agreed to buy EMI Group Plc for 2.4 billion pounds ($4.7 billion), a transaction that analysts said raised the prospect of a takeover battle for the record label of the Beatles and Coldplay.
EMI investors will get 265 pence a share in cash, London- based Terra Firma, a buyout firm, said today. Shares of London- based EMI rose to 271 pence, indicating some investors expect another bid for the world's third-largest music company.
``The company is totally in play,'' Claire Enders, founder of independent media research firm Enders Analysis, said today in an interview. ``They are hoping a bidding war erupts.''
Warner Music Group, whose 2.1 billion-pound offer was rejected in March, may raise its bid for EMI and buyout firms including One Equity Partners LLC are also interested, the Sunday Times said yesterday. EMI, which ended talks with Permira Advisers LLP in December, today reported a 288.5 million-pound loss and a 13 percent revenue drop as music downloads failed to make up for piracy and falling CD sales.
Music companies saw U.S. album sales fall 17 percent in the first quarter. Retailers sold 117.1 million albums in the three months ended April 1, researcher Nielsen SoundScan said last month.
``EMI is suffering from what all the majors have suffered from, the decline in physical sales of CDs,'' said Theresa Wise, a media analyst at Accenture in London. ``They have invested in digital music sales, but those aren't climbing as fast as traditional sales are falling,'' she said.
Will Tanous, a spokesman for Warner Music, said the company had no comment on the EMI bid.
Terra Firma
Terra Firma plans to ``build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy,'' Hands said in a statement.
Hands, 47, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. His other investments have included the German rest-stop chain Autobahn Tank & Rast GmbH.
Last month, he lost out to New York-based Kohlberg Kravis Roberts & Co. in the 11.1 billion-pound takeover battle for Alliance Boots Plc, owner of the U.K.'s biggest drugstore chain.
Hands declined to comment when reached on his mobile phone today. His spokesman, Andrew Dowler, also declined to comment.
Music Publishing
In addition to EMI's recorded music business, Terra Firma would get the more profitable music publishing unit. The division's operating margin increased to 26.3 percent in the year ended in March from 25.1 percent a year earlier.
EMI said April 18 it planned to use revenue in the music- publishing unit as collateral for bonds by the end of fiscal 2008. Asset-backed securities typically carry lower interest rates than bonds that only have a company's promise to repay the debt.
Terra Firma's Hands has used asset-backed debt in the U.K. since 1995 as a strategy to help pay for acquisitions.
The bid is ``good news for EMI,'' said Alex DeGroote, an analyst at Panmure Gordon in London. ``It's an all-cash offer, so it's a way out for shareholders,'' he said.
Before today, shares of EMI had declined 6.4 percent this year to 248 pence. Warner Music shares fell 37 cents, or 2.1 percent, to $17.03 in New York Stock Exchange Composite trading.
Multiple Offers
``The EMI board received a number of proposals from several different parties,'' EMI Chairman John Gildersleeve said in the statement. ``Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company.''
EMI said May 4 that it had received several takeover approaches. Greenhill, Citigroup Inc. and Deutsche Bank AG are acting as joint financial advisers to EMI. Dresdner Kleinwort is acting as financial adviser and corporate broker to Terra Firma.
New York-based Warner Music offered 260 pence a share in March, a bid EMI said at the time was ``inadequate.'' The two companies abandoned $4.6 billion offers for each other in July on concern a combination would be blocked by European Union regulators. Warner had bid 320 pence a share for EMI in June.
The combined company would have a quarter of the global market, moving ahead of Sony BMG to rank second worldwide behind Vivendi SA's Universal Music Group.
Falling Sales
The company had a net loss for the year ended March 31 of 288.5 million pounds, compared with a profit of 86.1 million pounds a year earlier, EMI said today in a statement. Sales fell to 1.81 billion pounds from 2.08 billion pounds.
EMI cut its revenue and profit forecasts twice this year. The company, which released albums by Robbie Williams and Norah Jones in the second half, reported an ``unprecedented level of market decline'' and ``an exceptionally high level of product returns'' when it cut its forecasts in February.
Slumping revenue previously has driven EMI Chief Executive Officer Eric Nicoli to seek a combination with Warner Music as a way to reduce costs.
Warner and EMI dropped efforts to merge in 2000 after regulators opposed the plan. EMI's attempt to buy Bertelsmann AG's BMG unit in 2001 was also stymied by regulators. EMI again failed to combine with Warner in 2003, when a group led by Bronfman won the bidding for Time Warner Inc.'s music unit.
Last July, Warner and EMI withdrew bids for each other after the European Court of First Instance in Luxembourg threw out EU regulators' approval of the merger that created Sony BMG Music Entertainment in 2004. The Sony BMG combination is still subject to EU approval.
By Aisha Phoenix
May 21 (Bloomberg) -- Guy Hands's Terra Firma Capital Partners Ltd. agreed to buy EMI Group Plc for 2.4 billion pounds ($4.7 billion), a transaction that analysts said raised the prospect of a takeover battle for the record label of the Beatles and Coldplay.
EMI investors will get 265 pence a share in cash, London- based Terra Firma, a buyout firm, said today. Shares of London- based EMI rose to 271 pence, indicating some investors expect another bid for the world's third-largest music company.
``The company is totally in play,'' Claire Enders, founder of independent media research firm Enders Analysis, said today in an interview. ``They are hoping a bidding war erupts.''
Warner Music Group, whose 2.1 billion-pound offer was rejected in March, may raise its bid for EMI and buyout firms including One Equity Partners LLC are also interested, the Sunday Times said yesterday. EMI, which ended talks with Permira Advisers LLP in December, today reported a 288.5 million-pound loss and a 13 percent revenue drop as music downloads failed to make up for piracy and falling CD sales.
Music companies saw U.S. album sales fall 17 percent in the first quarter. Retailers sold 117.1 million albums in the three months ended April 1, researcher Nielsen SoundScan said last month.
``EMI is suffering from what all the majors have suffered from, the decline in physical sales of CDs,'' said Theresa Wise, a media analyst at Accenture in London. ``They have invested in digital music sales, but those aren't climbing as fast as traditional sales are falling,'' she said.
Will Tanous, a spokesman for Warner Music, said the company had no comment on the EMI bid.
Terra Firma
Terra Firma plans to ``build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy,'' Hands said in a statement.
Hands, 47, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. His other investments have included the German rest-stop chain Autobahn Tank & Rast GmbH.
Last month, he lost out to New York-based Kohlberg Kravis Roberts & Co. in the 11.1 billion-pound takeover battle for Alliance Boots Plc, owner of the U.K.'s biggest drugstore chain.
Hands declined to comment when reached on his mobile phone today. His spokesman, Andrew Dowler, also declined to comment.
Music Publishing
In addition to EMI's recorded music business, Terra Firma would get the more profitable music publishing unit. The division's operating margin increased to 26.3 percent in the year ended in March from 25.1 percent a year earlier.
EMI said April 18 it planned to use revenue in the music- publishing unit as collateral for bonds by the end of fiscal 2008. Asset-backed securities typically carry lower interest rates than bonds that only have a company's promise to repay the debt.
Terra Firma's Hands has used asset-backed debt in the U.K. since 1995 as a strategy to help pay for acquisitions.
The bid is ``good news for EMI,'' said Alex DeGroote, an analyst at Panmure Gordon in London. ``It's an all-cash offer, so it's a way out for shareholders,'' he said.
Before today, shares of EMI had declined 6.4 percent this year to 248 pence. Warner Music shares fell 37 cents, or 2.1 percent, to $17.03 in New York Stock Exchange Composite trading.
Multiple Offers
``The EMI board received a number of proposals from several different parties,'' EMI Chairman John Gildersleeve said in the statement. ``Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company.''
EMI said May 4 that it had received several takeover approaches. Greenhill, Citigroup Inc. and Deutsche Bank AG are acting as joint financial advisers to EMI. Dresdner Kleinwort is acting as financial adviser and corporate broker to Terra Firma.
New York-based Warner Music offered 260 pence a share in March, a bid EMI said at the time was ``inadequate.'' The two companies abandoned $4.6 billion offers for each other in July on concern a combination would be blocked by European Union regulators. Warner had bid 320 pence a share for EMI in June.
The combined company would have a quarter of the global market, moving ahead of Sony BMG to rank second worldwide behind Vivendi SA's Universal Music Group.
Falling Sales
The company had a net loss for the year ended March 31 of 288.5 million pounds, compared with a profit of 86.1 million pounds a year earlier, EMI said today in a statement. Sales fell to 1.81 billion pounds from 2.08 billion pounds.
EMI cut its revenue and profit forecasts twice this year. The company, which released albums by Robbie Williams and Norah Jones in the second half, reported an ``unprecedented level of market decline'' and ``an exceptionally high level of product returns'' when it cut its forecasts in February.
Slumping revenue previously has driven EMI Chief Executive Officer Eric Nicoli to seek a combination with Warner Music as a way to reduce costs.
Warner and EMI dropped efforts to merge in 2000 after regulators opposed the plan. EMI's attempt to buy Bertelsmann AG's BMG unit in 2001 was also stymied by regulators. EMI again failed to combine with Warner in 2003, when a group led by Bronfman won the bidding for Time Warner Inc.'s music unit.
Last July, Warner and EMI withdrew bids for each other after the European Court of First Instance in Luxembourg threw out EU regulators' approval of the merger that created Sony BMG Music Entertainment in 2004. The Sony BMG combination is still subject to EU approval.
Alcan shares surge as it rejects Alcoa bid
Wed May 23, 2007 7:57PM EDT
By Robert Melnbardis
MONTREAL (Reuters) - Alcan Inc. shares rose strongly on Wednesday on speculation a counter- offer could emerge to Alcoa Inc.'s $28.4 billion hostile bid for the big Canadian aluminum maker.
Alcan stock rose C$4.28 to a new high of C$92.50 on the Toronto Stock Exchange and $4.86 to $85.89 on the New York Stock Exchange.
John Redstone, analyst at Desjardins Securities, thinks there is a 50 percent chance of a counter-bid for Alcan, especially as Alcoa's May 7 offer would likely take several months to gain approval from anti-trust authorities.
"A lengthy delay of this deal would grant another company sufficient time to review its options and launch a counter- bid," he wrote in a research report.
Alcoa reaffirmed its offer after North American markets closed on Wednesday.
"We are prepared to move forward as quickly as possible to address the remaining conditions to our offer," Alain Belda, chief executive of Alcoa, said in a statement.
"We have an aggressive, well-developed plan that recognizes and eliminates potential competitive overlaps and we are confident that we can effectively resolve any regulatory issues."
Alcoa expects to extend its offer for Alcan, which expires on July 10, from time to time to accommodate the longer period needed to fulfill the offer's conditions.
Alcoa added it has begun discussions on its proposal with anti-trust authorities in the United States, Canada and Europe.
The Globe and Mail newspaper said on Wednesday that Alcan was in talks with BHP Billiton Plc as part of its plan to consider alternatives to the Alcoa bid.
A spokeswoman for BHP Billiton, whose U.S.-listed shares rose $1.01, or 2 percent, to $51.76 in New York, declined to comment.
Alcan officials would not respond to questions about market speculation, but Alcan Chief Executive Dick Evans has acknowledged the company is looking at all alternatives and is talking with others.
ALCAN TRADES WELL ABOVE BID
Sources familiar with the matter said Alcan is likely to encourage counter offers, but it is too early to pick a favorite in any auction for the Montreal-based company.
Among potential counter bidders are Xstrata Plc, BHP, Rio Tinto Ltd.and Anglo American Plc, banking sources added.
Alcoa shares rose $1.42, or 3.6 percent, to close at $40.37 in New York.
Alcan's shares ended trading in New York some 14 percent above Alcoa's cash-and-stock offer of $75.18 a share.
Alcoa was offering $58.60 a share plus 0.4108 of its shares, for Alcan.
In Alcan's filing with the U.S. Securities and Exchange Commission rejecting Alcoa's offer, the Canadian company said it had 369,045,969 common shares outstanding as of May 17 and options to purchase an additional 8,581,805 shares.
Alcoa says it has offered a good price, but Alcan says the bid is inadequate and subject to too many conditions.
Those include satisfying Alcan's commitments to the Quebec government on keeping its head office in Montreal and reinvesting heavily in the mainly French-speaking province.
Alcan profits have been rising over the past few years along with aluminum prices and it has a line of bauxite, alumina and aluminum production expansion projects underway that analysts expect will add to earnings.
Yet some analysts think the company ought to consider diversifying into other metals.
Evans previously acknowledged that Alcan considered making a bid for Canadian nickel miner Inco, which was subsequently bought by Brazil's Companhia Vale do Rio Doce but found the acquisition price too high.
Wed May 23, 2007 7:57PM EDT
By Robert Melnbardis
MONTREAL (Reuters) - Alcan Inc. shares rose strongly on Wednesday on speculation a counter- offer could emerge to Alcoa Inc.'s $28.4 billion hostile bid for the big Canadian aluminum maker.
Alcan stock rose C$4.28 to a new high of C$92.50 on the Toronto Stock Exchange and $4.86 to $85.89 on the New York Stock Exchange.
John Redstone, analyst at Desjardins Securities, thinks there is a 50 percent chance of a counter-bid for Alcan, especially as Alcoa's May 7 offer would likely take several months to gain approval from anti-trust authorities.
"A lengthy delay of this deal would grant another company sufficient time to review its options and launch a counter- bid," he wrote in a research report.
Alcoa reaffirmed its offer after North American markets closed on Wednesday.
"We are prepared to move forward as quickly as possible to address the remaining conditions to our offer," Alain Belda, chief executive of Alcoa, said in a statement.
"We have an aggressive, well-developed plan that recognizes and eliminates potential competitive overlaps and we are confident that we can effectively resolve any regulatory issues."
Alcoa expects to extend its offer for Alcan, which expires on July 10, from time to time to accommodate the longer period needed to fulfill the offer's conditions.
Alcoa added it has begun discussions on its proposal with anti-trust authorities in the United States, Canada and Europe.
The Globe and Mail newspaper said on Wednesday that Alcan was in talks with BHP Billiton Plc as part of its plan to consider alternatives to the Alcoa bid.
A spokeswoman for BHP Billiton, whose U.S.-listed shares rose $1.01, or 2 percent, to $51.76 in New York, declined to comment.
Alcan officials would not respond to questions about market speculation, but Alcan Chief Executive Dick Evans has acknowledged the company is looking at all alternatives and is talking with others.
ALCAN TRADES WELL ABOVE BID
Sources familiar with the matter said Alcan is likely to encourage counter offers, but it is too early to pick a favorite in any auction for the Montreal-based company.
Among potential counter bidders are Xstrata Plc, BHP, Rio Tinto Ltd.and Anglo American Plc, banking sources added.
Alcoa shares rose $1.42, or 3.6 percent, to close at $40.37 in New York.
Alcan's shares ended trading in New York some 14 percent above Alcoa's cash-and-stock offer of $75.18 a share.
Alcoa was offering $58.60 a share plus 0.4108 of its shares, for Alcan.
In Alcan's filing with the U.S. Securities and Exchange Commission rejecting Alcoa's offer, the Canadian company said it had 369,045,969 common shares outstanding as of May 17 and options to purchase an additional 8,581,805 shares.
Alcoa says it has offered a good price, but Alcan says the bid is inadequate and subject to too many conditions.
Those include satisfying Alcan's commitments to the Quebec government on keeping its head office in Montreal and reinvesting heavily in the mainly French-speaking province.
Alcan profits have been rising over the past few years along with aluminum prices and it has a line of bauxite, alumina and aluminum production expansion projects underway that analysts expect will add to earnings.
Yet some analysts think the company ought to consider diversifying into other metals.
Evans previously acknowledged that Alcan considered making a bid for Canadian nickel miner Inco, which was subsequently bought by Brazil's Companhia Vale do Rio Doce but found the acquisition price too high.
UN Congo troops traded arms for gold - rights groups
Wed 23 May 2007, 14:30 GMT
By Joe Bavier
KINSHASA (Reuters) - U.N. peacekeepers from Pakistan trafficked arms for gold with an eastern militia in Democratic Republic of Congo, human rights groups said on Wednesday, adding a U.N. inquiry into the affair was deliberately slowed.
The United Nations denied any arms were handed over and said an inquiry was under way. Pakistan rejected the accusations as malicious and distorted but said it was investigating.
The allegations threaten to strike another blow to the image of the 17,000-strong peacekeeping mission in Congo, credited with guiding the vast central African country to historic polls last year but repeatedly plagued by scandal.
The smuggling accusations are from late 2005, when Pakistani peacekeepers were stationed in the mining town of Mongbwalu in the eastern Ituri district, where fighting between ethnic militias continued after the official end of a 1998-2003 war.
"Pakistani officers were involved in illegal smuggling of between $2-5 million in gold out of Ituri. We have very solid information on this," Anneke Van Woudenberg, a senior researcher with U.S.-based Human Rights Watch, told Reuters.
She said the peacekeepers colluded with Congolese military, local armed groups and Indian businessmen.
"They all became part of one group," she said.
Joel Bisubu, a researcher with Congolese human rights group Justice Plus, said the peacekeepers -- meant to help disarm thousands of militia members -- returned weapons to the Front of Nationalists and Integrationalists (FNI), an armed group accused by the Congolese government of war crimes.
"There was cooperation between the Pakistanis and the FNI," Bisubu said. "The weapons were meant to be surrendered. But there was a shady operation whereby the Pakistanis handed the weapons back."
PAKISTANI, U.N. DENIAL
The Pakistani Foreign Ministry said it had only been informed of the allegations on Tuesday and relevant authorities were looking into them. Military spokesman Major-General Waheed Arshad dismissed reports as "distorted".
Kemal Saiki, spokesman for Congo's U.N. peacekeeping mission, known by its acronym MONUC, denied peacekeepers rearmed the fighters, but said the matter was handed over to U.N. internal investigators in late 2005.
"The moment we heard about these allegations, we ordered an investigation. It is being conducted independently of MONUC," he said. "Any matters that have a legal impact, they must go about them very deliberately with attention to due process."
Van Woudenberg said U.N. officials stifled an inquiry by the Office for Internal Oversight Services, the U.N.'s own internal auditor, as its findings became more politically sensitive.
"They never completely shut it down, but they took the resources away from it," she said. "Here's a situation where the U.N. got lots of information from Human Rights Watch and others, and, 18 months later, nothing has been done. It appears as if it has been swept under the carpet."
Despite its successes in bolstering security in Congo following a conflict that killed an estimated four million people, the U.N.'s largest peacekeeping operation has been dogged by allegations of misconduct.
Most charges relate to sexual abuse, including rape, prostitution and paedophilia. U.N. officials say they have investigated and taken disciplinary action where necessary.
Though civilian staff accused of criminal offences risk prosecution locally or in their home countries, punishment of peacekeepers is left to the troop contributing nations.
Wed 23 May 2007, 14:30 GMT
By Joe Bavier
KINSHASA (Reuters) - U.N. peacekeepers from Pakistan trafficked arms for gold with an eastern militia in Democratic Republic of Congo, human rights groups said on Wednesday, adding a U.N. inquiry into the affair was deliberately slowed.
The United Nations denied any arms were handed over and said an inquiry was under way. Pakistan rejected the accusations as malicious and distorted but said it was investigating.
The allegations threaten to strike another blow to the image of the 17,000-strong peacekeeping mission in Congo, credited with guiding the vast central African country to historic polls last year but repeatedly plagued by scandal.
The smuggling accusations are from late 2005, when Pakistani peacekeepers were stationed in the mining town of Mongbwalu in the eastern Ituri district, where fighting between ethnic militias continued after the official end of a 1998-2003 war.
"Pakistani officers were involved in illegal smuggling of between $2-5 million in gold out of Ituri. We have very solid information on this," Anneke Van Woudenberg, a senior researcher with U.S.-based Human Rights Watch, told Reuters.
She said the peacekeepers colluded with Congolese military, local armed groups and Indian businessmen.
"They all became part of one group," she said.
Joel Bisubu, a researcher with Congolese human rights group Justice Plus, said the peacekeepers -- meant to help disarm thousands of militia members -- returned weapons to the Front of Nationalists and Integrationalists (FNI), an armed group accused by the Congolese government of war crimes.
"There was cooperation between the Pakistanis and the FNI," Bisubu said. "The weapons were meant to be surrendered. But there was a shady operation whereby the Pakistanis handed the weapons back."
PAKISTANI, U.N. DENIAL
The Pakistani Foreign Ministry said it had only been informed of the allegations on Tuesday and relevant authorities were looking into them. Military spokesman Major-General Waheed Arshad dismissed reports as "distorted".
Kemal Saiki, spokesman for Congo's U.N. peacekeeping mission, known by its acronym MONUC, denied peacekeepers rearmed the fighters, but said the matter was handed over to U.N. internal investigators in late 2005.
"The moment we heard about these allegations, we ordered an investigation. It is being conducted independently of MONUC," he said. "Any matters that have a legal impact, they must go about them very deliberately with attention to due process."
Van Woudenberg said U.N. officials stifled an inquiry by the Office for Internal Oversight Services, the U.N.'s own internal auditor, as its findings became more politically sensitive.
"They never completely shut it down, but they took the resources away from it," she said. "Here's a situation where the U.N. got lots of information from Human Rights Watch and others, and, 18 months later, nothing has been done. It appears as if it has been swept under the carpet."
Despite its successes in bolstering security in Congo following a conflict that killed an estimated four million people, the U.N.'s largest peacekeeping operation has been dogged by allegations of misconduct.
Most charges relate to sexual abuse, including rape, prostitution and paedophilia. U.N. officials say they have investigated and taken disciplinary action where necessary.
Though civilian staff accused of criminal offences risk prosecution locally or in their home countries, punishment of peacekeepers is left to the troop contributing nations.
Tuesday, May 22, 2007
On Third Time Around, Clear Channel Accepts Takeover Bid
May 19, 2007
By MICHAEL J. de la MERCED
For the two bidders for Clear Channel Communications, the third time may be the charm.
The company, which owns the largest radio network in the nation, agreed yesterday to accept a revised buyout offer from Bain Capital and Thomas H. Lee Partners, potentially clinching a deal that had eluded the two private equity firms for months.
Unlike the previous offers, the latest one was drawn up with guidance by several shareholders, Scott Sperling, managing director of Thomas H. Lee, said yesterday.
"We were guided to this spot by the shareholders," Mr. Sperling said, specifically highlighting the roles played by Highfields Capital Management and Fidelity Investments in reaching the new deal.
Investors will receive $39.20 a share. Alternatively, they have the option of rolling their holdings into a cumulative 30 percent stake in the newly private Clear Channel, in what is known as stub equity. The portion available to investors is worth about $1.2 billion, but no shareholder may hold more than 9.9 percent of the new company.
Bain and Thomas H. Lee have also agreed to limit their fees from the deal, as well as to allow for two independent directors for the new company. Highfields will choose one, while the other shareholders will elect the other, according to people briefed on the negotiations.
A spokesman for Calpers, the California public employee pension fund, said it supported the latest offer; Calpers holds 3.3 million shares of Clear Channel. “What we focus on is what will get the highest value for our members,” the spokesman, Brad Pacheco, said.
Shares of Clear Channel closed at $38.23 yesterday, up 1.2 percent.
The deal is substantially the same that Bain and Thomas H. Lee offered earlier this month — and that Clear Channel initially rejected. But a few days later, several institutional investors, including Highfields, a hedge fund, urged the company to take more time to consider the offer.
After Clear Channel’s announcement on May 7 that it would reconsider the revised buyout offer, the company took about a week before agreeing to the new bid.
The six-month-long contest illustrates the increased assertiveness of public investors, as private equity firms have acquired scores of companies. In the bidding for Clear Channel, the power of shareholders was amplified by the law in Texas, where the company is based. Under that state’s regulations, approval of a buyout requires the support of two-thirds of all shareholders — not just those voting.
Shortly after Clear Channel announced its first agreement with the buyout firms, at $37.60 a share in cash, several major shareholders, as well as proxy advisory firms, complained that the company was being sold too cheaply. The bidders raised their offer to $39, which Clear Channel accepted, but the offer again met resistance from investors.
But after Clear Channel’s initial rejection of the third buyout bid, the company received worried phone calls from scores of investors.
Though some technical details remain unresolved, the deal is expected to go through.
Clear Channel said it would postpone a vote on the deal, originally scheduled for a special meeting on May 22. The company will instead set a new record date and a new vote, which will probably take place within the next three months, pending the filing of amended registration materials with federal regulators.
May 19, 2007
By MICHAEL J. de la MERCED
For the two bidders for Clear Channel Communications, the third time may be the charm.
The company, which owns the largest radio network in the nation, agreed yesterday to accept a revised buyout offer from Bain Capital and Thomas H. Lee Partners, potentially clinching a deal that had eluded the two private equity firms for months.
Unlike the previous offers, the latest one was drawn up with guidance by several shareholders, Scott Sperling, managing director of Thomas H. Lee, said yesterday.
"We were guided to this spot by the shareholders," Mr. Sperling said, specifically highlighting the roles played by Highfields Capital Management and Fidelity Investments in reaching the new deal.
Investors will receive $39.20 a share. Alternatively, they have the option of rolling their holdings into a cumulative 30 percent stake in the newly private Clear Channel, in what is known as stub equity. The portion available to investors is worth about $1.2 billion, but no shareholder may hold more than 9.9 percent of the new company.
Bain and Thomas H. Lee have also agreed to limit their fees from the deal, as well as to allow for two independent directors for the new company. Highfields will choose one, while the other shareholders will elect the other, according to people briefed on the negotiations.
A spokesman for Calpers, the California public employee pension fund, said it supported the latest offer; Calpers holds 3.3 million shares of Clear Channel. “What we focus on is what will get the highest value for our members,” the spokesman, Brad Pacheco, said.
Shares of Clear Channel closed at $38.23 yesterday, up 1.2 percent.
The deal is substantially the same that Bain and Thomas H. Lee offered earlier this month — and that Clear Channel initially rejected. But a few days later, several institutional investors, including Highfields, a hedge fund, urged the company to take more time to consider the offer.
After Clear Channel’s announcement on May 7 that it would reconsider the revised buyout offer, the company took about a week before agreeing to the new bid.
The six-month-long contest illustrates the increased assertiveness of public investors, as private equity firms have acquired scores of companies. In the bidding for Clear Channel, the power of shareholders was amplified by the law in Texas, where the company is based. Under that state’s regulations, approval of a buyout requires the support of two-thirds of all shareholders — not just those voting.
Shortly after Clear Channel announced its first agreement with the buyout firms, at $37.60 a share in cash, several major shareholders, as well as proxy advisory firms, complained that the company was being sold too cheaply. The bidders raised their offer to $39, which Clear Channel accepted, but the offer again met resistance from investors.
But after Clear Channel’s initial rejection of the third buyout bid, the company received worried phone calls from scores of investors.
Though some technical details remain unresolved, the deal is expected to go through.
Clear Channel said it would postpone a vote on the deal, originally scheduled for a special meeting on May 22. The company will instead set a new record date and a new vote, which will probably take place within the next three months, pending the filing of amended registration materials with federal regulators.
UniCredit to Buy Capitalia for $29.5 Billion in Stock
May 21, 2007
By JULIA WERDIGIER
LONDON, May 20 — The Italian bank UniCredit agreed Sunday to buy a rival, Capitalia, for 21.8 billion euros, or $29.5 billion, in an all-stock deal that would create Europe’s second-biggest bank behind HSBC Holdings.
The merger also would strengthen the position of Italian lenders as consolidation in Europe’s banking industry gathers pace.
The takeover will help UniCredit, Italy’s biggest bank, expand at home, where it is facing heightened competition since last year, when Banca Intesa bought Sanpaolo IMI to create Italy’s biggest branch network.
Matteo Arpe, Capitalia’s chief executive, resigned on Sunday, bowing to pressure from its chairman, Cesare Geronzi, who will be deputy chairman of the new bank and head of its executive committee.
The two men had fallen out earlier this year over diverging opinions about the bank’s merger strategy.
European banks are trying to position themselves to profit from an increasingly integrated market in the European Union and in the 13 countries that use the euro.
ABN Amro, the largest Dutch bank, is currently the target of the biggest takeover battle in the financial services industry, which has pitted Barclays of London against a consortium led by the Royal Bank of Scotland.
The takeover by UniCredit, which is based in Milan, will keep Capitalia, which is based in Rome and is the country’s third-largest bank, from falling into foreign hands. It also will create a large Italian bank to compete in Europe with rivals like BNP Paribas, the French bank that has been buying into Italy.
Italy has attracted the attention of foreign buyers because its banks are among the most profitable in Europe. The Italian loan market expanded last year at an annual rate of 11 percent and consumer credit advanced at an annual rate of 18 percent.
UniCredit agreed to pay 1.12 of its own shares for each of Capitalia’s and said it would issue new shares to pay for the deal. The price represents a premium of 23.5 percent over Capitalia’s closing share price on May 8, the day before rumors about a combination started to circulate, the two banks said Sunday.
Through acquisitions, Alessandro Profumo, UniCredit’s chief executive, has turned the bank into one of the fastest-growing in Europe. He has spent more than $25 billion in the past two years to expand in Germany, Austria and Russia, including the $21 billion purchase of the HVB Group of Germany a year and a half ago.
“Whenever mergers are in the air you either seize opportunities or you miss out,” Mr. Profumo said at a news conference in Rome on Sunday. “We realized that there were the right conditions in place to seize the opportunity.”
Mr. Profumo repeatedly said he believed in a truly unified European banking system and would like to be at the forefront of its creation.
He introduced English as a common language at the bank’s headquarters and changed the final letters of employees’ e-mail addresses to .eu, from .it, to illustrate that he sees UniCredit as being European as much as Italian.
The pace of deals involving Italian banks has increased since Antonio Fazio, who opposed foreign takeovers, resigned as governor of the Bank of Italy in December 2005.
But Italy has recently taken some steps to protect its companies from foreign buyers. The government last year opposed a foreign takeover of Autostrade, an Italian highway operator, and encouraged investors to team up to keep Telecom Italia, the telephone company, in Italian hands.
Mr. Geronzi said Sunday that Capitalia had held takeover talks with several other banks in the past, including Banca Intesa and ABN Amro, one of its shareholders, but that he always saw a deal with UniCredit as “the one deal that would protect our banking system.”
The combined bank will have a 16 percent market share in Italy, where it will have 5,000 branches. It will have 9,200 bank branches globally and 40 million customers.
UniCredit, which has a strong business in Eastern Europe, will still generate more than 50 percent of its revenue from outside Italy.
UniCredit was advised by Merrill Lynch and its own investment banking unit. Claudio Costamagna, a former Goldman Sachs investment banker, advised Capitalia.
The combination is still subject to approval by shareholders, who will vote this summer. If the takeover is approved, the two companies expect to complete it by the end of this year.
May 21, 2007
By JULIA WERDIGIER
LONDON, May 20 — The Italian bank UniCredit agreed Sunday to buy a rival, Capitalia, for 21.8 billion euros, or $29.5 billion, in an all-stock deal that would create Europe’s second-biggest bank behind HSBC Holdings.
The merger also would strengthen the position of Italian lenders as consolidation in Europe’s banking industry gathers pace.
The takeover will help UniCredit, Italy’s biggest bank, expand at home, where it is facing heightened competition since last year, when Banca Intesa bought Sanpaolo IMI to create Italy’s biggest branch network.
Matteo Arpe, Capitalia’s chief executive, resigned on Sunday, bowing to pressure from its chairman, Cesare Geronzi, who will be deputy chairman of the new bank and head of its executive committee.
The two men had fallen out earlier this year over diverging opinions about the bank’s merger strategy.
European banks are trying to position themselves to profit from an increasingly integrated market in the European Union and in the 13 countries that use the euro.
ABN Amro, the largest Dutch bank, is currently the target of the biggest takeover battle in the financial services industry, which has pitted Barclays of London against a consortium led by the Royal Bank of Scotland.
The takeover by UniCredit, which is based in Milan, will keep Capitalia, which is based in Rome and is the country’s third-largest bank, from falling into foreign hands. It also will create a large Italian bank to compete in Europe with rivals like BNP Paribas, the French bank that has been buying into Italy.
Italy has attracted the attention of foreign buyers because its banks are among the most profitable in Europe. The Italian loan market expanded last year at an annual rate of 11 percent and consumer credit advanced at an annual rate of 18 percent.
UniCredit agreed to pay 1.12 of its own shares for each of Capitalia’s and said it would issue new shares to pay for the deal. The price represents a premium of 23.5 percent over Capitalia’s closing share price on May 8, the day before rumors about a combination started to circulate, the two banks said Sunday.
Through acquisitions, Alessandro Profumo, UniCredit’s chief executive, has turned the bank into one of the fastest-growing in Europe. He has spent more than $25 billion in the past two years to expand in Germany, Austria and Russia, including the $21 billion purchase of the HVB Group of Germany a year and a half ago.
“Whenever mergers are in the air you either seize opportunities or you miss out,” Mr. Profumo said at a news conference in Rome on Sunday. “We realized that there were the right conditions in place to seize the opportunity.”
Mr. Profumo repeatedly said he believed in a truly unified European banking system and would like to be at the forefront of its creation.
He introduced English as a common language at the bank’s headquarters and changed the final letters of employees’ e-mail addresses to .eu, from .it, to illustrate that he sees UniCredit as being European as much as Italian.
The pace of deals involving Italian banks has increased since Antonio Fazio, who opposed foreign takeovers, resigned as governor of the Bank of Italy in December 2005.
But Italy has recently taken some steps to protect its companies from foreign buyers. The government last year opposed a foreign takeover of Autostrade, an Italian highway operator, and encouraged investors to team up to keep Telecom Italia, the telephone company, in Italian hands.
Mr. Geronzi said Sunday that Capitalia had held takeover talks with several other banks in the past, including Banca Intesa and ABN Amro, one of its shareholders, but that he always saw a deal with UniCredit as “the one deal that would protect our banking system.”
The combined bank will have a 16 percent market share in Italy, where it will have 5,000 branches. It will have 9,200 bank branches globally and 40 million customers.
UniCredit, which has a strong business in Eastern Europe, will still generate more than 50 percent of its revenue from outside Italy.
UniCredit was advised by Merrill Lynch and its own investment banking unit. Claudio Costamagna, a former Goldman Sachs investment banker, advised Capitalia.
The combination is still subject to approval by shareholders, who will vote this summer. If the takeover is approved, the two companies expect to complete it by the end of this year.
China seeks to play down $3 billion investment in Blackstone
By Keith Bradsher
Monday, May 21, 2007
HONG KONG: A day after buying a $3 billion stake in the Blackstone Group, China sought Monday to offer assurances that it was looking only to improve its returns on overseas investments - not to take control of foreign companies, which could aggravate political tension.
The government moved quickly on the deal to make an investment before Blackstone, a U.S. private equity firm, conducted its initial public offering of shares, said Jesse Wang, the chairman of the Chinese government agency that is managing the transaction on behalf of a new state investment company, which has yet to be set up.
But the new state investment company is not currently negotiating for further large stakes in overseas companies, Wang added.
The Blackstone investment stirred memories of the unsuccessful bid two years ago by Cnooc, a Chinese state-owned oil company, to acquire Unocal, an American oil company; congressional opposition in Washington blocked that transaction.
Some in the United States have also been wary of any pattern of high-profile Chinese acquisitions that might resemble Japanese investors' acquisitions in the 1980s of landmarks like Rockefeller Center and the Pebble Beach golf course.
Wang went out of his way to try to allay those fears, saying that the new investment company would be more interested in investments paralleling funds that buy shares in most or all of the stocks in indexes that track the overall performance of overseas stock markets.
"In the future, yes, we surely think we will invest in the index funds," he said.
The Chinese government is setting up the state investment company to diversify the country's overseas investments beyond U.S. Treasury securities and other bonds. But the main goal is to accumulate a broad portfolio of small stakes in lots of companies, instead of purchasing controlling stakes in a few companies, Wang said.
The Blackstone transaction, "is an individual case - I assume the investment company will engage in portfolio investment rather than takeovers," Wang said by telephone from Beijing.
The transaction Sunday will transfer less than 10 percent of Blackstone's equity to the Chinese government, and is a nonvoting stake, Wang said.
He said that the government did not expect to play a role in managing Blackstone, and added that the government did not expect Blackstone to provide any advice in exchange for the investment.
[Blackstone said Monday that it planned to raise as much as $7.75 billion from selling stakes to the public and to China, Reuters reported from New York. The initial public offering would rank among the top 10 U.S. IPOs, according to Dealogic, and be the largest by a private equity firm. ]
Wang is the chairman of China Jianyin, an operating unit of the Central Huijin Investment, a Chinese government agency that handles a broad array of transactions between Chinese state-owned companies and foreign investors, including the sale of Chinese banks' problem loans.
Michael Smith, the chief executive of HSBC's Asian operations, said during an interview that few companies were likely to oppose the sale of minority stakes to the Chinese government.
"Too many shareholders just think for tomorrow, so in many ways they bring some stability," he said.
In the Blackstone deal, the new state investment company will acquire a nonvoting stake at a 4.5 percent discount to the public offering price to be set in Blackstone's initial public offering this year.
It is common in China for tycoons and large companies, often from Hong Kong, to take large stakes in a company before its initial public offering. Wang said that to some extent the state investment company would be following this precedent in agreeing to a deal with Blackstone even before the Chinese government has decided many details about the investment company.
"Personally, I think it may be a Chinese way" of doing business, he said.
The timing of the Blackstone deal two days before senior Chinese and American economic policy makers begin meeting in Washington was purely coincidental, Wang insisted.
"I don't think that IPO schedule is coordinated" with the China-U.S. talks, he said.
The new investment company is supposed to buy a broader array of assets than the central bank usually purchases with its foreign exchange reserves, but it is still a long way from even being established as a separate legal entity. "We hope it will be in operation before the end of this year, but I don't know," Wang said.
China's State Council, the country's top government body, will give the company its capital by putting in foreign exchange, but there has been no decision yet on how much money the company will have, Wang said. The central bank will closely advise the new company once it is created.
"When the new company is set up, it cannot possibly manage tens or even hundreds of billions of dollars" unless it receives help from other government agencies, he added.
It is unusual for Chinese officials to take questions from the media regarding overseas investments, but Wang allowed his phone number to be printed on a Blackstone news release. Answering some of the resulting phone calls was "a little scary," he said.
Holding $1.2 trillion in foreign exchange reserves, as China does, can be a curse as well as a blessing, forcing tough decisions.
Well before the investment Sunday, the managers of China's foreign exchange reserves had proven themselves unusually willing to venture beyond the U.S. Treasury securities that make up the bulk of most countries' reserves.
Whereas countries like Japan have kept as much as 90 percent of their reserves in Treasury securities, the People's Bank of China has bought at least $100 billion of U.S. mortgage-backed securities as well as large purchases of bonds denominated in euros and other currencies, people close to the purchases said.
China's enormous role in financing other countries' budget deficits is a somewhat sensitive subject within China, with occasional postings on Chinese Web sites suggesting that the money could be better spent inside the country. The state-controlled media have largely ignored the issue and the postings have tended to disappear, a clear sign that the government is not allowing open discussion of the issue.
The official Xinhua press agency waited more than 14 hours, until late Monday evening, to report the Blackstone announcement.
China has such large foreign exchange reserves because it has been buying dollars on a large scale so as to slow the rise of its currency, known as the yuan or renminbi. For most approaches to investing the reserves domestically, the government would effectively have to sell dollars and buy yuan, which would drive up the value of the yuan and defeat the purpose of accumulating the reserves in the first place.
By Keith Bradsher
Monday, May 21, 2007
HONG KONG: A day after buying a $3 billion stake in the Blackstone Group, China sought Monday to offer assurances that it was looking only to improve its returns on overseas investments - not to take control of foreign companies, which could aggravate political tension.
The government moved quickly on the deal to make an investment before Blackstone, a U.S. private equity firm, conducted its initial public offering of shares, said Jesse Wang, the chairman of the Chinese government agency that is managing the transaction on behalf of a new state investment company, which has yet to be set up.
But the new state investment company is not currently negotiating for further large stakes in overseas companies, Wang added.
The Blackstone investment stirred memories of the unsuccessful bid two years ago by Cnooc, a Chinese state-owned oil company, to acquire Unocal, an American oil company; congressional opposition in Washington blocked that transaction.
Some in the United States have also been wary of any pattern of high-profile Chinese acquisitions that might resemble Japanese investors' acquisitions in the 1980s of landmarks like Rockefeller Center and the Pebble Beach golf course.
Wang went out of his way to try to allay those fears, saying that the new investment company would be more interested in investments paralleling funds that buy shares in most or all of the stocks in indexes that track the overall performance of overseas stock markets.
"In the future, yes, we surely think we will invest in the index funds," he said.
The Chinese government is setting up the state investment company to diversify the country's overseas investments beyond U.S. Treasury securities and other bonds. But the main goal is to accumulate a broad portfolio of small stakes in lots of companies, instead of purchasing controlling stakes in a few companies, Wang said.
The Blackstone transaction, "is an individual case - I assume the investment company will engage in portfolio investment rather than takeovers," Wang said by telephone from Beijing.
The transaction Sunday will transfer less than 10 percent of Blackstone's equity to the Chinese government, and is a nonvoting stake, Wang said.
He said that the government did not expect to play a role in managing Blackstone, and added that the government did not expect Blackstone to provide any advice in exchange for the investment.
[Blackstone said Monday that it planned to raise as much as $7.75 billion from selling stakes to the public and to China, Reuters reported from New York. The initial public offering would rank among the top 10 U.S. IPOs, according to Dealogic, and be the largest by a private equity firm. ]
Wang is the chairman of China Jianyin, an operating unit of the Central Huijin Investment, a Chinese government agency that handles a broad array of transactions between Chinese state-owned companies and foreign investors, including the sale of Chinese banks' problem loans.
Michael Smith, the chief executive of HSBC's Asian operations, said during an interview that few companies were likely to oppose the sale of minority stakes to the Chinese government.
"Too many shareholders just think for tomorrow, so in many ways they bring some stability," he said.
In the Blackstone deal, the new state investment company will acquire a nonvoting stake at a 4.5 percent discount to the public offering price to be set in Blackstone's initial public offering this year.
It is common in China for tycoons and large companies, often from Hong Kong, to take large stakes in a company before its initial public offering. Wang said that to some extent the state investment company would be following this precedent in agreeing to a deal with Blackstone even before the Chinese government has decided many details about the investment company.
"Personally, I think it may be a Chinese way" of doing business, he said.
The timing of the Blackstone deal two days before senior Chinese and American economic policy makers begin meeting in Washington was purely coincidental, Wang insisted.
"I don't think that IPO schedule is coordinated" with the China-U.S. talks, he said.
The new investment company is supposed to buy a broader array of assets than the central bank usually purchases with its foreign exchange reserves, but it is still a long way from even being established as a separate legal entity. "We hope it will be in operation before the end of this year, but I don't know," Wang said.
China's State Council, the country's top government body, will give the company its capital by putting in foreign exchange, but there has been no decision yet on how much money the company will have, Wang said. The central bank will closely advise the new company once it is created.
"When the new company is set up, it cannot possibly manage tens or even hundreds of billions of dollars" unless it receives help from other government agencies, he added.
It is unusual for Chinese officials to take questions from the media regarding overseas investments, but Wang allowed his phone number to be printed on a Blackstone news release. Answering some of the resulting phone calls was "a little scary," he said.
Holding $1.2 trillion in foreign exchange reserves, as China does, can be a curse as well as a blessing, forcing tough decisions.
Well before the investment Sunday, the managers of China's foreign exchange reserves had proven themselves unusually willing to venture beyond the U.S. Treasury securities that make up the bulk of most countries' reserves.
Whereas countries like Japan have kept as much as 90 percent of their reserves in Treasury securities, the People's Bank of China has bought at least $100 billion of U.S. mortgage-backed securities as well as large purchases of bonds denominated in euros and other currencies, people close to the purchases said.
China's enormous role in financing other countries' budget deficits is a somewhat sensitive subject within China, with occasional postings on Chinese Web sites suggesting that the money could be better spent inside the country. The state-controlled media have largely ignored the issue and the postings have tended to disappear, a clear sign that the government is not allowing open discussion of the issue.
The official Xinhua press agency waited more than 14 hours, until late Monday evening, to report the Blackstone announcement.
China has such large foreign exchange reserves because it has been buying dollars on a large scale so as to slow the rise of its currency, known as the yuan or renminbi. For most approaches to investing the reserves domestically, the government would effectively have to sell dollars and buy yuan, which would drive up the value of the yuan and defeat the purpose of accumulating the reserves in the first place.
Blackstone Seeks Up to $7.75 Billion in Stock Sales (Update6)
By Edward Evans and Jason Kelly
May 21 (Bloomberg) -- Blackstone Group LP plans to raise as much as $7.75 billion selling stock to the public and the Chinese government in the biggest offering of shares by a private-equity firm.
Blackstone, whose funds own 43 companies, will sell as many as 153.3 million shares for $29 to $31 each, bringing in as much as $4.75 billion, the New York-based firm said today in a regulatory filing. It increased the value of the initial public offering by almost 20 percent after agreeing yesterday to sell a $3 billion stake to China's state-owned investment company.
The sale of the minority stakes would value the firm, founded in 1985 by Stephen Schwarzman and Peter G. Peterson, at as much as $33.6 billion, about a third of Goldman Sachs Group Inc.'s market value. Blackstone's owners, which also include insurer American International Group Inc. and 57 senior managing directors, will get as much as $4.5 billion. Remaining proceeds will be used to expand into new businesses and buy out partners as they leave.
``Blackstone is more appealing now because they have the Chinese connection,'' Andrew Metrick, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia, said today in an interview. ``That will really open a lot of doors for them.''
China's soon-to-be-formed State Investment Co. will buy a nonvoting stake of less than 10 percent, Blackstone said yesterday, giving the firm an ally as it expands into the country's private-equity market. The investment company will hold its Blackstone shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.
Following Fortress
China, the largest holder of U.S. government debt behind Japan, is creating the investment company to buy potentially more lucrative assets such as private equity. Swelled by export revenue, foreign exchange reserves rose by a record $136 billion in the first quarter to $1.2 trillion, the most in the world, according to China's central bank. Most of it is invested in sovereign debt.
Blackstone, whose assets under management rose 12 percent to $88.4 billion in the past two months, is going public as the lowest borrowing costs in a decade have allowed LBO firms to take companies private at a record pace. New York-based Fortress Investment Group LLC was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising $635 million in February. Apollo Management LP founder Leon Black is also considering whether to go public. Blackstone spokesman John Ford declined to comment.
``Fortress tested the waters and Blackstone is now following in what is undoubtedly going to be a huge success,'' Juan Manuel Mendoza, who helps oversee $96 billion at Clariden Leu AG in Zurich, said in an interview.
Shareholders
Blackstone's existing shareholders will keep a 76 percent stake in the company valued at as much as $25.5 billion. Investors are being offered about 14 percent of the company in the IPO, with the Chinese government taking the remainder.
The company will pay the existing owners about $610.4 million in ``undistributed earnings'' before the offering, Blackstone said in the filing, noting that the amount may change. The owners may also benefit from a change in the company's tax basis, according to the filing. A reduction in taxes after the offering will allow the company to pay about $993.2 million to the owners over the next 15 years.
Blackstone's IPO has drawn scrutiny from unions and politicians about its limited partnership structure, which allows it to avoid corporate taxes of as much as 35 percent on most income. The firm also won't be regulated as an investment company under the U.S. Investment Company Act of 1940. The AFL- CIO, the biggest labor union in the U.S., is urging the Securities and Exchange Commission to investigate the offering.
Valuation
The IPO values Blackstone at about 14.9 times 2006 net income, less than the 16.7 times earnings Fortress fetched, according to data compiled by Bloomberg. Fortress shares have gained 51 percent since the IPO, and now trade at 25 times estimated 2007 profit. Values for Blackstone's offering are based on the number of shares outstanding if underwriters exercise the so-called over-allotment option, or green shoe, of 20 million shares.
The IPO will be the sixth-largest of a U.S.-based company since 1999, according to Bloomberg data. The largest was the 2000 IPO of New Cingular Wireless Inc., now a part of AT&T Inc., which pulled in $10.6 billion. Blackstone's offering tops the $3.66 billion raised by Goldman Sachs in 1999.
Recent Deals
Blackstone manages about $33 billion in buyout funds, $20 billion in real estate funds, and about $20 billion in hedge, mutual and distressed debt funds. The firm raised $15.6 billion in July for its latest buyout fund, second to the $20 billion gathered by Goldman Sachs. Schwarzman and Peterson have reaped annual net returns of 23 percent from their buyout funds. The firm's assets under management rose 12 percent from March 1 to May 1.
The firm's recent deals include the $39 billion purchase of Equity Office Properties Trust, the largest U.S. owner of office buildings, in February. Blackstone said May 17 it would buy Alliance Data Systems Inc., a credit-card processor and marketing contractor, for $6.8 billion.
Blackstone's net income rose to $1.1 billion in the first quarter, more than twice the $487 million it earned in the same period a year earlier, and almost half the $2.3 billion it earned in the whole of 2006. Each of the company's 770 employees produced an average of $2.95 million in net income, almost nine times the mean for Goldman, Wall Street's most profitable firm.
Morgan Stanley and Citigroup Inc. are managing the Blackstone IPO, according to the filing with the SEC. Merrill Lynch & Co., Credit Suisse Group, Lehman Brothers Holdings Inc. and Deutsche Bank AG are assisting.
The stock will be listed on the New York Stock Exchange under the ticker symbol BX. Blackstone didn't say when it expects the stock to begin trading.
By Edward Evans and Jason Kelly
May 21 (Bloomberg) -- Blackstone Group LP plans to raise as much as $7.75 billion selling stock to the public and the Chinese government in the biggest offering of shares by a private-equity firm.
Blackstone, whose funds own 43 companies, will sell as many as 153.3 million shares for $29 to $31 each, bringing in as much as $4.75 billion, the New York-based firm said today in a regulatory filing. It increased the value of the initial public offering by almost 20 percent after agreeing yesterday to sell a $3 billion stake to China's state-owned investment company.
The sale of the minority stakes would value the firm, founded in 1985 by Stephen Schwarzman and Peter G. Peterson, at as much as $33.6 billion, about a third of Goldman Sachs Group Inc.'s market value. Blackstone's owners, which also include insurer American International Group Inc. and 57 senior managing directors, will get as much as $4.5 billion. Remaining proceeds will be used to expand into new businesses and buy out partners as they leave.
``Blackstone is more appealing now because they have the Chinese connection,'' Andrew Metrick, a professor of finance at the University of Pennsylvania's Wharton School in Philadelphia, said today in an interview. ``That will really open a lot of doors for them.''
China's soon-to-be-formed State Investment Co. will buy a nonvoting stake of less than 10 percent, Blackstone said yesterday, giving the firm an ally as it expands into the country's private-equity market. The investment company will hold its Blackstone shares for at least four years and isn't allowed to invest in a competing private-equity firm for a year.
Following Fortress
China, the largest holder of U.S. government debt behind Japan, is creating the investment company to buy potentially more lucrative assets such as private equity. Swelled by export revenue, foreign exchange reserves rose by a record $136 billion in the first quarter to $1.2 trillion, the most in the world, according to China's central bank. Most of it is invested in sovereign debt.
Blackstone, whose assets under management rose 12 percent to $88.4 billion in the past two months, is going public as the lowest borrowing costs in a decade have allowed LBO firms to take companies private at a record pace. New York-based Fortress Investment Group LLC was the first U.S. manager of hedge funds and private equity to sell a stake to investors, raising $635 million in February. Apollo Management LP founder Leon Black is also considering whether to go public. Blackstone spokesman John Ford declined to comment.
``Fortress tested the waters and Blackstone is now following in what is undoubtedly going to be a huge success,'' Juan Manuel Mendoza, who helps oversee $96 billion at Clariden Leu AG in Zurich, said in an interview.
Shareholders
Blackstone's existing shareholders will keep a 76 percent stake in the company valued at as much as $25.5 billion. Investors are being offered about 14 percent of the company in the IPO, with the Chinese government taking the remainder.
The company will pay the existing owners about $610.4 million in ``undistributed earnings'' before the offering, Blackstone said in the filing, noting that the amount may change. The owners may also benefit from a change in the company's tax basis, according to the filing. A reduction in taxes after the offering will allow the company to pay about $993.2 million to the owners over the next 15 years.
Blackstone's IPO has drawn scrutiny from unions and politicians about its limited partnership structure, which allows it to avoid corporate taxes of as much as 35 percent on most income. The firm also won't be regulated as an investment company under the U.S. Investment Company Act of 1940. The AFL- CIO, the biggest labor union in the U.S., is urging the Securities and Exchange Commission to investigate the offering.
Valuation
The IPO values Blackstone at about 14.9 times 2006 net income, less than the 16.7 times earnings Fortress fetched, according to data compiled by Bloomberg. Fortress shares have gained 51 percent since the IPO, and now trade at 25 times estimated 2007 profit. Values for Blackstone's offering are based on the number of shares outstanding if underwriters exercise the so-called over-allotment option, or green shoe, of 20 million shares.
The IPO will be the sixth-largest of a U.S.-based company since 1999, according to Bloomberg data. The largest was the 2000 IPO of New Cingular Wireless Inc., now a part of AT&T Inc., which pulled in $10.6 billion. Blackstone's offering tops the $3.66 billion raised by Goldman Sachs in 1999.
Recent Deals
Blackstone manages about $33 billion in buyout funds, $20 billion in real estate funds, and about $20 billion in hedge, mutual and distressed debt funds. The firm raised $15.6 billion in July for its latest buyout fund, second to the $20 billion gathered by Goldman Sachs. Schwarzman and Peterson have reaped annual net returns of 23 percent from their buyout funds. The firm's assets under management rose 12 percent from March 1 to May 1.
The firm's recent deals include the $39 billion purchase of Equity Office Properties Trust, the largest U.S. owner of office buildings, in February. Blackstone said May 17 it would buy Alliance Data Systems Inc., a credit-card processor and marketing contractor, for $6.8 billion.
Blackstone's net income rose to $1.1 billion in the first quarter, more than twice the $487 million it earned in the same period a year earlier, and almost half the $2.3 billion it earned in the whole of 2006. Each of the company's 770 employees produced an average of $2.95 million in net income, almost nine times the mean for Goldman, Wall Street's most profitable firm.
Morgan Stanley and Citigroup Inc. are managing the Blackstone IPO, according to the filing with the SEC. Merrill Lynch & Co., Credit Suisse Group, Lehman Brothers Holdings Inc. and Deutsche Bank AG are assisting.
The stock will be listed on the New York Stock Exchange under the ticker symbol BX. Blackstone didn't say when it expects the stock to begin trading.
Equity Firms to Buy Alltel in $27.5 Billion Deal
May 21, 2007
By ANDREW ROSS SORKIN
Alltel, the wireless phone company, agreed last night to be sold to a consortium of private equity firms for $27.5 billion, marking the largest buyout ever in the telecommunications industry.
The consortium includes the Texas Pacific Group and the private equity arm of Goldman Sachs. The deal would make Alltel, based in Little Rock, Ark., the latest large public company to seek to go private amid a frenzy of deal-making among private equity firms.
The transaction ends months of speculation about the future of Alltel, which was built through a series of acquisitions of regional carriers and now has more than 12 million customers. Alltel had announced earlier this year that it was considering various options for its future, sending its shares up in anticipation that it might be sold.
Under the terms of the deal, Texas Pacific and Goldman will pay $71.50 a share for Alltel. That represents a premium of about 10 percent over Alltel’s closing price on Friday and about 25 percent over its price late last year, when speculation about its future began to build. Two weeks ago, William Power, an analyst at Robert W. Baird & Company, said that Alltel could fetch $70 a share, sending its shares up 3 percent.
It is unclear how Alltel shareholders will react. In recent buyout attempts, shareholders have sought to reject deals in hopes of pushing the buyers to pay more. Just last week, a consortium of investors seeking to buy Clear Channel Communications, the giant radio broadcaster, raised its bid after Clear Channel shareholders threatened to vote against the deal.
Texas Pacific and Goldman came in with their offer last week, hoping to short-circuit what was expected to be a formal auction. Several other private equity consortiums had lined up to bid for the company, including the Blackstone Group with Providence Equity Partners, and the Carlyle Group with Kohlberg Kravis Roberts & Company.
Alltel has been considered a ripe takeover target ever since it spun off its wire-line business in 2005. Some analysts had speculated that Verizon, whose wireless customers switch to Alltel’s network when they exit Verizon’s coverage area, would eventually buy Alltel.
Merrill Lynch, Stephens and JPMorgan Chase advised Alltel. Citigroup and Goldman advised Texas Pacific and Goldman Sachs.
May 21, 2007
By ANDREW ROSS SORKIN
Alltel, the wireless phone company, agreed last night to be sold to a consortium of private equity firms for $27.5 billion, marking the largest buyout ever in the telecommunications industry.
The consortium includes the Texas Pacific Group and the private equity arm of Goldman Sachs. The deal would make Alltel, based in Little Rock, Ark., the latest large public company to seek to go private amid a frenzy of deal-making among private equity firms.
The transaction ends months of speculation about the future of Alltel, which was built through a series of acquisitions of regional carriers and now has more than 12 million customers. Alltel had announced earlier this year that it was considering various options for its future, sending its shares up in anticipation that it might be sold.
Under the terms of the deal, Texas Pacific and Goldman will pay $71.50 a share for Alltel. That represents a premium of about 10 percent over Alltel’s closing price on Friday and about 25 percent over its price late last year, when speculation about its future began to build. Two weeks ago, William Power, an analyst at Robert W. Baird & Company, said that Alltel could fetch $70 a share, sending its shares up 3 percent.
It is unclear how Alltel shareholders will react. In recent buyout attempts, shareholders have sought to reject deals in hopes of pushing the buyers to pay more. Just last week, a consortium of investors seeking to buy Clear Channel Communications, the giant radio broadcaster, raised its bid after Clear Channel shareholders threatened to vote against the deal.
Texas Pacific and Goldman came in with their offer last week, hoping to short-circuit what was expected to be a formal auction. Several other private equity consortiums had lined up to bid for the company, including the Blackstone Group with Providence Equity Partners, and the Carlyle Group with Kohlberg Kravis Roberts & Company.
Alltel has been considered a ripe takeover target ever since it spun off its wire-line business in 2005. Some analysts had speculated that Verizon, whose wireless customers switch to Alltel’s network when they exit Verizon’s coverage area, would eventually buy Alltel.
Merrill Lynch, Stephens and JPMorgan Chase advised Alltel. Citigroup and Goldman advised Texas Pacific and Goldman Sachs.
Lebanon Clash Implies Diaspora Is Open to Jihad
By TIM BUTCHER
The Daily Telegraph
May 21, 2007
While Al Qaeda has struggled to establish itself among Palestinian Arabs in Gaza and the West Bank, yesterday's violence in Lebanon suggested the Palestinian diaspora is more receptive to the jihadist creed.
The group that clashed with the Lebanese army was named Fatah al-Islam, but it has no connection whatsoever with Fatah, the long-established Palestinian Arab political movement that has always emphasized its secularism.
By contrast, Fatah al-Islam is tiny — estimated to have just 200 members — and fiercely religious, advocating a militant Islamic agenda of violence not just against Jews in the Holy Land but all "infidels," which includes Muslims who do not support its radical agenda.
Although it only announced its creation last November, it has already claimed a significant terrorist coup by bombing two buses in a Christian suburb of Beirut in February, killing three people.
Initially it was believed to be closely connected to Syria, as it was formed as a splinter group from a Damascus-backed Palestinian Arab group, Fatah al-Intifada.
It was later suggested its more radically Islamic agenda has put it at odds with Syria. Damascus recently claimed to be seeking the arrest of the group's leader, Shaker al-Abssi. Mr. Abssi is also being sought by the Jordanian authorities. They accuse him of being a close associate of the dead Jordanian jihadist who was notorious for beheading Western hostages in Iraq, Abu Musab al-Zarqawi. Mr. Abssi was in a seven-strong gang including Zarqawi convicted in absentia by a Jordanian court of the murder of an American diplomat, Laurence Foley, in Amman in 2002.
The suggestion that Fatah al-Islam retains no links to Syria could, however, be a deliberate ruse by Damascus to distance itself from the group while secretly retaining control over it.
The violence could be interpreted as a deliberate attempt to sabotage international attempts, led by the United Nations, to set up a tribunal to try those responsible for the Valentine's Day 2005 assassination of a former prime minister of Lebanon, Rafik Hariri.
By TIM BUTCHER
The Daily Telegraph
May 21, 2007
While Al Qaeda has struggled to establish itself among Palestinian Arabs in Gaza and the West Bank, yesterday's violence in Lebanon suggested the Palestinian diaspora is more receptive to the jihadist creed.
The group that clashed with the Lebanese army was named Fatah al-Islam, but it has no connection whatsoever with Fatah, the long-established Palestinian Arab political movement that has always emphasized its secularism.
By contrast, Fatah al-Islam is tiny — estimated to have just 200 members — and fiercely religious, advocating a militant Islamic agenda of violence not just against Jews in the Holy Land but all "infidels," which includes Muslims who do not support its radical agenda.
Although it only announced its creation last November, it has already claimed a significant terrorist coup by bombing two buses in a Christian suburb of Beirut in February, killing three people.
Initially it was believed to be closely connected to Syria, as it was formed as a splinter group from a Damascus-backed Palestinian Arab group, Fatah al-Intifada.
It was later suggested its more radically Islamic agenda has put it at odds with Syria. Damascus recently claimed to be seeking the arrest of the group's leader, Shaker al-Abssi. Mr. Abssi is also being sought by the Jordanian authorities. They accuse him of being a close associate of the dead Jordanian jihadist who was notorious for beheading Western hostages in Iraq, Abu Musab al-Zarqawi. Mr. Abssi was in a seven-strong gang including Zarqawi convicted in absentia by a Jordanian court of the murder of an American diplomat, Laurence Foley, in Amman in 2002.
The suggestion that Fatah al-Islam retains no links to Syria could, however, be a deliberate ruse by Damascus to distance itself from the group while secretly retaining control over it.
The violence could be interpreted as a deliberate attempt to sabotage international attempts, led by the United Nations, to set up a tribunal to try those responsible for the Valentine's Day 2005 assassination of a former prime minister of Lebanon, Rafik Hariri.
Monday, May 21, 2007
Iran's secret plan for summer offensive to force US out of Iraq
Simon Tisdall
Tuesday May 22, 2007
Guardian
Iran is secretly forging ties with al-Qaida elements and Sunni Arab militias in Iraq in preparation for a summer showdown with coalition forces intended to tip a wavering US Congress into voting for full military withdrawal, US officials say.
"Iran is fighting a proxy war in Iraq and it's a very dangerous course for them to be following. They are already committing daily acts of war against US and British forces," a senior US official in Baghdad warned. "They [Iran] are behind a lot of high-profile attacks meant to undermine US will and British will, such as the rocket attacks on Basra palace and the Green Zone [in Baghdad]. The attacks are directed by the Revolutionary Guard who are connected right to the top [of the Iranian government]."
The official said US commanders were bracing for a nationwide, Iranian-orchestrated summer offensive, linking al-Qaida and Sunni insurgents to Tehran's Shia militia allies, that Iran hoped would trigger a political mutiny in Washington and a US retreat. "We expect that al-Qaida and Iran will both attempt to increase the propaganda and increase the violence prior to Petraeus's report in September [when the US commander General David Petraeus will report to Congress on President George Bush's controversial, six-month security "surge" of 30,000 troop reinforcements]," the official said.
"Certainly it [the violence] is going to pick up from their side. There is significant latent capability in Iraq, especially Iranian-sponsored capability. They can turn it up whenever they want. You can see that from the pre-positioning that's been going on and the huge stockpiles of Iranian weapons that we've turned up in the last couple of months. The relationships between Iran and groups like al-Qaida are very fluid," the official said.
"It often comes down to individuals, and people constantly move around. For instance, the Sunni Arab so-called resistance groups use Salafi jihadist ideology for their own purposes. But the whole Iran- al-Qaida linkup is very sinister."
Iran has maintained close links to Iraq's Shia political parties and militias but has previously eschewed collaboration with al-Qaida and Sunni insurgents.
US officials now say they have firm evidence that Tehran has switched tack as it senses a chance of victory in Iraq. In a parallel development, they say they also have proof that Iran has reversed its previous policy in Afghanistan and is now supporting and supplying the Taliban's campaign against US, British and other Nato forces.
Tehran's strategy to discredit the US surge and foment a decisive congressional revolt against Mr Bush is national in scope and not confined to the Shia south, its traditional sphere of influence, the senior official in Baghdad said. It included stepped-up coordination with Shia militias such as Moqtada al-Sadr's Jaish al-Mahdi as well as Syrian-backed Sunni Arab groups and al-Qaida in Mesopotamia, he added. Iran was also expanding contacts across the board with paramilitary forces and political groups, including Kurdish parties such as the PUK, a US ally.
"Their strategy takes into account all these various parties. Iran is playing all these different factions to maximise its future control and maximise US and British difficulties. Their co-conspirator is Syria which is allowing the takfirists [fundamentalist Salafi jihadis] to come across the border," the official said.
Any US decision to retaliate against Iran on its own territory could be taken only at the highest political level in Washington, the official said. But he indicated that American patience was wearing thin.
Warning that the US was "absolutely determined" to hit back hard wherever it was challenged by Iranian proxies or agents inside Iraq, he cited the case of five alleged members of the Revolutionary Guard's al-Quds force detained in Irbil in January. Despite strenuous protests from Tehran, which claims the men are diplomats, they have still not been released.
"Tehran is behaving like a racecourse gambler. They're betting on all the horses in the race, even on people they fundamentally don't trust," a senior administration official in Washington said. "They don't know what the outcome will be in Iraq. So they're hedging their bets."
The administration official also claimed that notwithstanding recent US and British overtures, Syria was still collaborating closely with Iran's strategy in Iraq.
"80% to 90%" of the foreign jihadis entering Iraq were doing so from Syrian territory, he said.
Despite recent diplomatic contacts, and an agreement to hold bilateral talks at ambassadorial level in Baghdad next week, US officials say there has been no let-up in hostile Iranian activities, including continuing support for violence, weapons smuggling and training.
"Iran is perpetuating the cycle of sectarian violence through support for extra-judicial killing and murder cells. They bring Iraqi militia members and insurgent groups into Iran for training and then help infiltrate them back into the country. We have plenty of evidence from a variety of sources. There's no argument about that. That's just a fact," the senior official in Baghdad said.
In trying to force an American retreat, Iran's hardline leadership also hoped to bring about a humiliating political and diplomatic defeat for the US that would reduce Washington's regional influence while increasing Tehran's own.
But if Iran succeeded in "prematurely" driving US and British forces out of Iraq, the likely result would be a "colossal humanitarian disaster" and possible regional war drawing in the Sunni Arab Gulf states, Syria and Turkey, he said.
Despite such concerns, or because of them, the US welcomed the chance to talk to Iran, the senior administration official said. "Our agenda starts with force protection in Iraq," he said. But there were many other Iraq-related issues to be discussed. Recent pressure had shown that Iran's behaviour could be modified, the official claimed: "Last winter they were literally getting away with murder."
But tougher action by security forces in Iraq against Iranian agents and networks, the dispatch of an additional aircraft carrier group to the Gulf and UN security council resolutions imposing sanctions had given Tehran pause, he said.
Washington analysts and commentators predict that Gen Petraeus's report to the White House and Congress in early September will be a pivotal moment in the history of the four-and-a-half-year war - and a decision to begin a troop drawdown or continue with the surge policy will hinge on the outcome. Most Democrats and many Republicans in Congress believe Iraq is in the grip of a civil war and that there is little that a continuing military presence can achieve. "Political will has already failed. It's over," a former Bush administration official said.
A senior adviser to Gen Petraeus reported this month that the surge had reduced violence, especially sectarian killings, in the Baghdad area and Sunni-dominated Anbar province. But the adviser admitted that much of the trouble had merely moved elsewhere, "resulting in spikes of activity in Diyala [to the north] and some areas to the south of the capital". "Overall violence is at about the same level [as when the surge began in February]."
Iranian officials flatly deny US and British allegations of involvement in internal violence in Iraq or in attacks on coalition forces. Interviewed in Tehran recently, Mohammad Reza Bagheri, deputy foreign minister for Arab affairs with primary responsibility for Iran's policy in Iraq, said: "We believe it would be to the benefit of both the occupiers and the Iraqi people that they [the coalition forces] withdraw immediately."
Simon Tisdall
Tuesday May 22, 2007
Guardian
Iran is secretly forging ties with al-Qaida elements and Sunni Arab militias in Iraq in preparation for a summer showdown with coalition forces intended to tip a wavering US Congress into voting for full military withdrawal, US officials say.
"Iran is fighting a proxy war in Iraq and it's a very dangerous course for them to be following. They are already committing daily acts of war against US and British forces," a senior US official in Baghdad warned. "They [Iran] are behind a lot of high-profile attacks meant to undermine US will and British will, such as the rocket attacks on Basra palace and the Green Zone [in Baghdad]. The attacks are directed by the Revolutionary Guard who are connected right to the top [of the Iranian government]."
The official said US commanders were bracing for a nationwide, Iranian-orchestrated summer offensive, linking al-Qaida and Sunni insurgents to Tehran's Shia militia allies, that Iran hoped would trigger a political mutiny in Washington and a US retreat. "We expect that al-Qaida and Iran will both attempt to increase the propaganda and increase the violence prior to Petraeus's report in September [when the US commander General David Petraeus will report to Congress on President George Bush's controversial, six-month security "surge" of 30,000 troop reinforcements]," the official said.
"Certainly it [the violence] is going to pick up from their side. There is significant latent capability in Iraq, especially Iranian-sponsored capability. They can turn it up whenever they want. You can see that from the pre-positioning that's been going on and the huge stockpiles of Iranian weapons that we've turned up in the last couple of months. The relationships between Iran and groups like al-Qaida are very fluid," the official said.
"It often comes down to individuals, and people constantly move around. For instance, the Sunni Arab so-called resistance groups use Salafi jihadist ideology for their own purposes. But the whole Iran- al-Qaida linkup is very sinister."
Iran has maintained close links to Iraq's Shia political parties and militias but has previously eschewed collaboration with al-Qaida and Sunni insurgents.
US officials now say they have firm evidence that Tehran has switched tack as it senses a chance of victory in Iraq. In a parallel development, they say they also have proof that Iran has reversed its previous policy in Afghanistan and is now supporting and supplying the Taliban's campaign against US, British and other Nato forces.
Tehran's strategy to discredit the US surge and foment a decisive congressional revolt against Mr Bush is national in scope and not confined to the Shia south, its traditional sphere of influence, the senior official in Baghdad said. It included stepped-up coordination with Shia militias such as Moqtada al-Sadr's Jaish al-Mahdi as well as Syrian-backed Sunni Arab groups and al-Qaida in Mesopotamia, he added. Iran was also expanding contacts across the board with paramilitary forces and political groups, including Kurdish parties such as the PUK, a US ally.
"Their strategy takes into account all these various parties. Iran is playing all these different factions to maximise its future control and maximise US and British difficulties. Their co-conspirator is Syria which is allowing the takfirists [fundamentalist Salafi jihadis] to come across the border," the official said.
Any US decision to retaliate against Iran on its own territory could be taken only at the highest political level in Washington, the official said. But he indicated that American patience was wearing thin.
Warning that the US was "absolutely determined" to hit back hard wherever it was challenged by Iranian proxies or agents inside Iraq, he cited the case of five alleged members of the Revolutionary Guard's al-Quds force detained in Irbil in January. Despite strenuous protests from Tehran, which claims the men are diplomats, they have still not been released.
"Tehran is behaving like a racecourse gambler. They're betting on all the horses in the race, even on people they fundamentally don't trust," a senior administration official in Washington said. "They don't know what the outcome will be in Iraq. So they're hedging their bets."
The administration official also claimed that notwithstanding recent US and British overtures, Syria was still collaborating closely with Iran's strategy in Iraq.
"80% to 90%" of the foreign jihadis entering Iraq were doing so from Syrian territory, he said.
Despite recent diplomatic contacts, and an agreement to hold bilateral talks at ambassadorial level in Baghdad next week, US officials say there has been no let-up in hostile Iranian activities, including continuing support for violence, weapons smuggling and training.
"Iran is perpetuating the cycle of sectarian violence through support for extra-judicial killing and murder cells. They bring Iraqi militia members and insurgent groups into Iran for training and then help infiltrate them back into the country. We have plenty of evidence from a variety of sources. There's no argument about that. That's just a fact," the senior official in Baghdad said.
In trying to force an American retreat, Iran's hardline leadership also hoped to bring about a humiliating political and diplomatic defeat for the US that would reduce Washington's regional influence while increasing Tehran's own.
But if Iran succeeded in "prematurely" driving US and British forces out of Iraq, the likely result would be a "colossal humanitarian disaster" and possible regional war drawing in the Sunni Arab Gulf states, Syria and Turkey, he said.
Despite such concerns, or because of them, the US welcomed the chance to talk to Iran, the senior administration official said. "Our agenda starts with force protection in Iraq," he said. But there were many other Iraq-related issues to be discussed. Recent pressure had shown that Iran's behaviour could be modified, the official claimed: "Last winter they were literally getting away with murder."
But tougher action by security forces in Iraq against Iranian agents and networks, the dispatch of an additional aircraft carrier group to the Gulf and UN security council resolutions imposing sanctions had given Tehran pause, he said.
Washington analysts and commentators predict that Gen Petraeus's report to the White House and Congress in early September will be a pivotal moment in the history of the four-and-a-half-year war - and a decision to begin a troop drawdown or continue with the surge policy will hinge on the outcome. Most Democrats and many Republicans in Congress believe Iraq is in the grip of a civil war and that there is little that a continuing military presence can achieve. "Political will has already failed. It's over," a former Bush administration official said.
A senior adviser to Gen Petraeus reported this month that the surge had reduced violence, especially sectarian killings, in the Baghdad area and Sunni-dominated Anbar province. But the adviser admitted that much of the trouble had merely moved elsewhere, "resulting in spikes of activity in Diyala [to the north] and some areas to the south of the capital". "Overall violence is at about the same level [as when the surge began in February]."
Iranian officials flatly deny US and British allegations of involvement in internal violence in Iraq or in attacks on coalition forces. Interviewed in Tehran recently, Mohammad Reza Bagheri, deputy foreign minister for Arab affairs with primary responsibility for Iran's policy in Iraq, said: "We believe it would be to the benefit of both the occupiers and the Iraqi people that they [the coalition forces] withdraw immediately."
What's Aiding Buyout Boom: Toggle Notes
An Innovative Means To Structure Debt Helps Defaults Remain Low
By HENNY SENDER
February 21, 2007; Page C1
In the fall of 2005, when Texas Pacific Group and Warburg Pincus LLC bought luxury retailer Neiman Marcus Group Inc., Jim Coulter, TPG's co-founder, was nervous, said people familiar with the deal. What if there was another terrorist attack or a sharp economic downturn? What if Neiman's management got fashion trends all wrong?
To protect against an unexpected turn, TPG came up with an unusual structure for some of the debt it put on Neiman Marcus to help pay for the purchase. If the retailer experienced unexpected head winds, it could stop paying cash interest on $700 million in debt, and instead agree to pay back much more when the bonds mature in 2015.
"If the company hits a speed bump, it gives it liquidity and a cushion," said Kewsong Lee, a partner at Warburg Pincus who worked on the deal. "This innovation was one factor enabling us to pay a more aggressive price."
The bond, formally known as a payment-in-kind toggle note, is becoming an increasingly important part of the arsenal of private-equity firms as they pile debt on their corporate trophies.
These "PIK toggle" securities allow borrowers to make a choice. They can keep paying interest on a bond, or they can defer paying interest until the bond matures, and in the process agree to pay an interest rate that is effectively higher. In the case of Neiman Marcus, the interest rate on its debt with this feature will rise from 9% to 9.75% if it decides to defer payments, which it hasn't done.
The increased use of these bonds is one of the latest examples of the easy lending terms that dominate the corporate borrowing market these days and have helped fuel the historic buyout boom. It also is a sign the boom could keep going for some time.
Corporate default rates are at record lows less than 1%. That has investors clamoring for corporate bonds and loans, because they don't seem very risky. In 2006, companies issued $624 billion in speculative grade bonds and loans, up from $389 billion in 2005.
Easy lending terms such as those of PIK-toggle bonds make it possible for even companies with strained cash flows to stay afloat longer than they otherwise would by putting off interest payments. The downside is that borrowers and investors in the end could find they have even more debt than expected if the credit cycle turns.
"Cheap debt is the rocket fuel," said Bill Conway, a co-founder of Carlyle Group, at a January conference. "We try to get as much as we can as cheaply as we can and as flexibly as we can."
The health of the debt market matters hugely to private-equity firms, which have used massive dollops of debt to go after ever larger prey and reap higher returns on their investments. Nearly every TPG deal since Neiman Marcus includes debt with the PIK toggle feature. All the megadeals, including Freescale Semiconductor Inc., HCA Inc. and ballpark-concessionaire Aramark Corp. do as well.
A similar feature that allowed companies to defer interest payments was popular during the late 1980s buyout boom, but fell out of favor in the 1990s.
Although default rates are low, and easy lending terms make it easier to stay solvent, the credit quality of some companies show some signs of deteriorating. Some 30% of companies issuing debt in 2006 carry "junk" credit ratings of "B plus" or below, compared with 7% in 2002, according to Standard & Poor's Leveraged Commentary & Data group. In many cases, the debt itself isn't going to fund new investments; rather it is used to finance takeovers or to pay new owners a special dividend.
Many companies have been able to issue debt without the usual terms, known as covenants, that require them to meet certain performance metrics to avoid defaulting. Last year, there was about $24 billion in such debt, ten times the amount in 2005.
This is another factor that is making it easier for companies to avoid defaulting. In the past, when companies fell short of financial performance targets, "banks would take over the company at the worst possible time or we would have to put more money in," said Tony James, president of Blackstone Group at a conference at Harvard Business School. "Now we can live to fight another day."
To many analysts, such "covenant lite" loans or PIK toggle notes are glaring signs of the bull market in debt, and underscore the power of bond issuers at a time when investors are flush with cash and willing to take chances for high returns. Some bond issuers said the new features are in the interest of investors, because the features help companies avoid default and complex bankruptcy proceedings. Proponents have said the high interest rates attached to PIK toggle notes give borrowers an incentive to keep making interest payments unless times turn dire.
Others are less sure. S&P's Leveraged Commentary & Data Group noted in a commentary, for example, that PIK toggle bonds could be risky because they have the potential to saddle investors with more debt in companies and less cash from them just as the companies are beginning to struggle.
"Because there is so much cash around, lenders are being pushed to give up more and more," said Howard Gellis, who runs the debt capital markets group at Blackstone Group.
So far this cycle, none of the issuers have taken advantage of their option and ceased paying interest. It remains unclear how investors will react if companies do start exercising this right.
"Since the message is that a company can't afford to pay cash, it is hard to see how the market won't be spooked," said Steven Shapiro, a partner at GoldenTree Asset Management, which has $6 billion to invest out of its hedge-fund operations. "For the most part we don't invest in them."
An Innovative Means To Structure Debt Helps Defaults Remain Low
By HENNY SENDER
February 21, 2007; Page C1
In the fall of 2005, when Texas Pacific Group and Warburg Pincus LLC bought luxury retailer Neiman Marcus Group Inc., Jim Coulter, TPG's co-founder, was nervous, said people familiar with the deal. What if there was another terrorist attack or a sharp economic downturn? What if Neiman's management got fashion trends all wrong?
To protect against an unexpected turn, TPG came up with an unusual structure for some of the debt it put on Neiman Marcus to help pay for the purchase. If the retailer experienced unexpected head winds, it could stop paying cash interest on $700 million in debt, and instead agree to pay back much more when the bonds mature in 2015.
"If the company hits a speed bump, it gives it liquidity and a cushion," said Kewsong Lee, a partner at Warburg Pincus who worked on the deal. "This innovation was one factor enabling us to pay a more aggressive price."
The bond, formally known as a payment-in-kind toggle note, is becoming an increasingly important part of the arsenal of private-equity firms as they pile debt on their corporate trophies.
These "PIK toggle" securities allow borrowers to make a choice. They can keep paying interest on a bond, or they can defer paying interest until the bond matures, and in the process agree to pay an interest rate that is effectively higher. In the case of Neiman Marcus, the interest rate on its debt with this feature will rise from 9% to 9.75% if it decides to defer payments, which it hasn't done.
The increased use of these bonds is one of the latest examples of the easy lending terms that dominate the corporate borrowing market these days and have helped fuel the historic buyout boom. It also is a sign the boom could keep going for some time.
Corporate default rates are at record lows less than 1%. That has investors clamoring for corporate bonds and loans, because they don't seem very risky. In 2006, companies issued $624 billion in speculative grade bonds and loans, up from $389 billion in 2005.
Easy lending terms such as those of PIK-toggle bonds make it possible for even companies with strained cash flows to stay afloat longer than they otherwise would by putting off interest payments. The downside is that borrowers and investors in the end could find they have even more debt than expected if the credit cycle turns.
"Cheap debt is the rocket fuel," said Bill Conway, a co-founder of Carlyle Group, at a January conference. "We try to get as much as we can as cheaply as we can and as flexibly as we can."
The health of the debt market matters hugely to private-equity firms, which have used massive dollops of debt to go after ever larger prey and reap higher returns on their investments. Nearly every TPG deal since Neiman Marcus includes debt with the PIK toggle feature. All the megadeals, including Freescale Semiconductor Inc., HCA Inc. and ballpark-concessionaire Aramark Corp. do as well.
A similar feature that allowed companies to defer interest payments was popular during the late 1980s buyout boom, but fell out of favor in the 1990s.
Although default rates are low, and easy lending terms make it easier to stay solvent, the credit quality of some companies show some signs of deteriorating. Some 30% of companies issuing debt in 2006 carry "junk" credit ratings of "B plus" or below, compared with 7% in 2002, according to Standard & Poor's Leveraged Commentary & Data group. In many cases, the debt itself isn't going to fund new investments; rather it is used to finance takeovers or to pay new owners a special dividend.
Many companies have been able to issue debt without the usual terms, known as covenants, that require them to meet certain performance metrics to avoid defaulting. Last year, there was about $24 billion in such debt, ten times the amount in 2005.
This is another factor that is making it easier for companies to avoid defaulting. In the past, when companies fell short of financial performance targets, "banks would take over the company at the worst possible time or we would have to put more money in," said Tony James, president of Blackstone Group at a conference at Harvard Business School. "Now we can live to fight another day."
To many analysts, such "covenant lite" loans or PIK toggle notes are glaring signs of the bull market in debt, and underscore the power of bond issuers at a time when investors are flush with cash and willing to take chances for high returns. Some bond issuers said the new features are in the interest of investors, because the features help companies avoid default and complex bankruptcy proceedings. Proponents have said the high interest rates attached to PIK toggle notes give borrowers an incentive to keep making interest payments unless times turn dire.
Others are less sure. S&P's Leveraged Commentary & Data Group noted in a commentary, for example, that PIK toggle bonds could be risky because they have the potential to saddle investors with more debt in companies and less cash from them just as the companies are beginning to struggle.
"Because there is so much cash around, lenders are being pushed to give up more and more," said Howard Gellis, who runs the debt capital markets group at Blackstone Group.
So far this cycle, none of the issuers have taken advantage of their option and ceased paying interest. It remains unclear how investors will react if companies do start exercising this right.
"Since the message is that a company can't afford to pay cash, it is hard to see how the market won't be spooked," said Steven Shapiro, a partner at GoldenTree Asset Management, which has $6 billion to invest out of its hedge-fund operations. "For the most part we don't invest in them."
Blackstone boosts IPO after Beijing takes $3bn stake
By Francesco Guerrera in New York
Published: May 20 2007 19:22 | Last updated: May 21 2007 11:58
The Chinese government is to use $3bn of its vast foreign exchange reserves to buy a 9.9 per cent stake in Blackstone, the US buy-out fund, in an unprecedented move that underlines Beijing’s desire to tap into the private equity boom.
The investment will coincide with Blackstone’s landmark $40bn-plus stock market listing, expected in the next few months, and will allow the private equity group to nearly double its original target of raising $4bn.
News of the deal came as Blackstone unveiled details of initial public offering. The group said on Monday that it would raise up to $4.75bn – higher than the previously expected $4bn – through the issue of 133.3m common units at $29-$31 apiece.
Blackstone said it will China sell $3bn of non-voting common units at a 4.5 per cent discount to the IPO price. The number of non-voting common units purchased by the Beijing investment vehicle will be reduced if necessary so that its equity interest in Blackstone remains under 10 per cent, Blackstone said in a filing with the Securities and Exchange Commission.
Beijing has also agreed to keep the stake for at least four years.
Stephen Schwarzman, Blackstone’s chief executive, hailed the Chinese deal – the first time Beijing has invested its foreign reserve in a commercial transaction – as an “historic event that changes the paradigm in global capital flows”.
Under the terms of the deal, which is believed to have been agreed in just a few weeks, the Chinese government has taken the unusual step of giving up its voting rights associated with the stake in Blackstone.
The move appears aimed at defusing any US political opposition to the deal at a time of tension between Washington and Beijing over the renminbi.
The US Treasury pointed out that it had decided last week to allow the Chinese to invest more in foreign stocks and was working to create “opportunities for US financial services firms like this”.
The announcement comes just before Tuesday’s visit to the US by Wu Yi, China’s vice-premier, to discuss bilateral trade relations.
The investment – announced on Sunday – will come through a new Chinese agency charged with managing part of the country’s $1,200bn in foreign reserves.
It is understood that China’s foreign reserve agency has agreed not to invest in rival private equity groups for 12 months. A number of Blackstone’s rivals, including Kohlberg Kravis Roberts, Texas Pacific Group and Apollo are exploring listings or private placings.
China’s decision to buy a stake in Blackstone’s IPO rather than in one of its buy-out funds, which are more volatile and risky, is a sign of Beijing’s cautious approach to private equity.
The Chinese government has been looking to diversify its foreign exchanges reserves away from low-yielding US Treasuries.
However, buying into Blackstone’s listed entity may deprive the Chinese government of some of the large returns earned by its buy-out funds.
In its prospectus, Blackstone warned that its priority was to return cash to the private investors in its funds, rather than to pay dividends to shareholders.
Over the past two years, private equity has been one of the best performing asset classes, as private equity funds have exploited favourable debt market conditions to buy ever-larger companies.
However, there are growing fears the private equity cycle may be nearing its peak, as takeover prices and debt levels reach record levels.
By Francesco Guerrera in New York
Published: May 20 2007 19:22 | Last updated: May 21 2007 11:58
The Chinese government is to use $3bn of its vast foreign exchange reserves to buy a 9.9 per cent stake in Blackstone, the US buy-out fund, in an unprecedented move that underlines Beijing’s desire to tap into the private equity boom.
The investment will coincide with Blackstone’s landmark $40bn-plus stock market listing, expected in the next few months, and will allow the private equity group to nearly double its original target of raising $4bn.
News of the deal came as Blackstone unveiled details of initial public offering. The group said on Monday that it would raise up to $4.75bn – higher than the previously expected $4bn – through the issue of 133.3m common units at $29-$31 apiece.
Blackstone said it will China sell $3bn of non-voting common units at a 4.5 per cent discount to the IPO price. The number of non-voting common units purchased by the Beijing investment vehicle will be reduced if necessary so that its equity interest in Blackstone remains under 10 per cent, Blackstone said in a filing with the Securities and Exchange Commission.
Beijing has also agreed to keep the stake for at least four years.
Stephen Schwarzman, Blackstone’s chief executive, hailed the Chinese deal – the first time Beijing has invested its foreign reserve in a commercial transaction – as an “historic event that changes the paradigm in global capital flows”.
Under the terms of the deal, which is believed to have been agreed in just a few weeks, the Chinese government has taken the unusual step of giving up its voting rights associated with the stake in Blackstone.
The move appears aimed at defusing any US political opposition to the deal at a time of tension between Washington and Beijing over the renminbi.
The US Treasury pointed out that it had decided last week to allow the Chinese to invest more in foreign stocks and was working to create “opportunities for US financial services firms like this”.
The announcement comes just before Tuesday’s visit to the US by Wu Yi, China’s vice-premier, to discuss bilateral trade relations.
The investment – announced on Sunday – will come through a new Chinese agency charged with managing part of the country’s $1,200bn in foreign reserves.
It is understood that China’s foreign reserve agency has agreed not to invest in rival private equity groups for 12 months. A number of Blackstone’s rivals, including Kohlberg Kravis Roberts, Texas Pacific Group and Apollo are exploring listings or private placings.
China’s decision to buy a stake in Blackstone’s IPO rather than in one of its buy-out funds, which are more volatile and risky, is a sign of Beijing’s cautious approach to private equity.
The Chinese government has been looking to diversify its foreign exchanges reserves away from low-yielding US Treasuries.
However, buying into Blackstone’s listed entity may deprive the Chinese government of some of the large returns earned by its buy-out funds.
In its prospectus, Blackstone warned that its priority was to return cash to the private investors in its funds, rather than to pay dividends to shareholders.
Over the past two years, private equity has been one of the best performing asset classes, as private equity funds have exploited favourable debt market conditions to buy ever-larger companies.
However, there are growing fears the private equity cycle may be nearing its peak, as takeover prices and debt levels reach record levels.
How Whole Foods' Wild Oats Deal Is Unhealthy for Rivals
By JAMES COVERT and JANET ADAMY
February 22, 2007; Page A13
Whole Foods Market Inc.'s agreement to buy competitor Wild Oats Markets Inc. will create a tougher competitor for supermarket chains as consumers gravitate toward natural fare.
Whole Foods, based in Austin, Texas, announced a $565 million deal yesterday afternoon to buy its struggling rival Wild Oats. Whole Foods will pay $18.50 a share in cash, an 18% premium to Wild Oats' closing price yesterday and a 23% premium to Wild Oats' one-month average closing price, the companies said.
The move comes as bigger rivals like Safeway Inc., Kroger Co. and even Wal-Mart Stores Inc. have been elbowing into Whole Foods' bread-and-butter organic-food business. Sales of natural and organic foods are growing far faster than those of traditional fare, thanks to affluent shoppers who are willing to pay higher prices for foods with a healthy image.
Analysts expect Whole Foods to introduce pricier premium meats and prepared foods into the Wild Oats stores, which will be converted to the Whole Foods brand. Whole Foods said it expects the merger will reduce overhead, increase purchasing power with vendors, and make better use of the combined companies' facilities.
Whole Foods also will assume Wild Oats' existing net debt, which was about $106 million as of Sept. 30. Whole Foods shares fell 37 cents, or 0.8%, to $45.70 in 4 p.m. Nasdaq Stock Market composite trading. Wild Oats shares changed hands at $15.72, down six cents, or 0.4%, at 4 p.m. on Nasdaq.
Wild Oats, founded in Boulder, Colo., in 1987, operates 110 stores in 24 states and British Columbia. Its four store brands are Wild Oats Marketplace, Henry's Farmers Market in Southern California, Sun Harvest in Texas, and Capers Community Market in British Columbia. Despite the explosion in popularity of natural foods, Wild Oats has struggled to chart consistent sales and earnings growth.
John Mackey, chairman and chief executive of Whole Foods, said the acquisition "is a great geographical fit as all of our 11 operating regions will gain stores and three of our smallest regions -- our Pacific Northwest, Rocky Mountain and Florida regions -- will gain critical mass." He said the company "will also gain immediate access into a significant number of new markets." Whole Foods has 191 stores in the U.S., Canada and the United Kingdom.
The companies said Yucaipa Cos., a private-equity fund based in Los Angeles and controlled by billionaire Ronald Burkle, has committed to tendering its Wild Oats stake, which recently was 17% of outstanding shares. Whole Foods said it expects to close the transaction in April.
By JAMES COVERT and JANET ADAMY
February 22, 2007; Page A13
Whole Foods Market Inc.'s agreement to buy competitor Wild Oats Markets Inc. will create a tougher competitor for supermarket chains as consumers gravitate toward natural fare.
Whole Foods, based in Austin, Texas, announced a $565 million deal yesterday afternoon to buy its struggling rival Wild Oats. Whole Foods will pay $18.50 a share in cash, an 18% premium to Wild Oats' closing price yesterday and a 23% premium to Wild Oats' one-month average closing price, the companies said.
The move comes as bigger rivals like Safeway Inc., Kroger Co. and even Wal-Mart Stores Inc. have been elbowing into Whole Foods' bread-and-butter organic-food business. Sales of natural and organic foods are growing far faster than those of traditional fare, thanks to affluent shoppers who are willing to pay higher prices for foods with a healthy image.
Analysts expect Whole Foods to introduce pricier premium meats and prepared foods into the Wild Oats stores, which will be converted to the Whole Foods brand. Whole Foods said it expects the merger will reduce overhead, increase purchasing power with vendors, and make better use of the combined companies' facilities.
Whole Foods also will assume Wild Oats' existing net debt, which was about $106 million as of Sept. 30. Whole Foods shares fell 37 cents, or 0.8%, to $45.70 in 4 p.m. Nasdaq Stock Market composite trading. Wild Oats shares changed hands at $15.72, down six cents, or 0.4%, at 4 p.m. on Nasdaq.
Wild Oats, founded in Boulder, Colo., in 1987, operates 110 stores in 24 states and British Columbia. Its four store brands are Wild Oats Marketplace, Henry's Farmers Market in Southern California, Sun Harvest in Texas, and Capers Community Market in British Columbia. Despite the explosion in popularity of natural foods, Wild Oats has struggled to chart consistent sales and earnings growth.
John Mackey, chairman and chief executive of Whole Foods, said the acquisition "is a great geographical fit as all of our 11 operating regions will gain stores and three of our smallest regions -- our Pacific Northwest, Rocky Mountain and Florida regions -- will gain critical mass." He said the company "will also gain immediate access into a significant number of new markets." Whole Foods has 191 stores in the U.S., Canada and the United Kingdom.
The companies said Yucaipa Cos., a private-equity fund based in Los Angeles and controlled by billionaire Ronald Burkle, has committed to tendering its Wild Oats stake, which recently was 17% of outstanding shares. Whole Foods said it expects to close the transaction in April.