News Archive


Ford recalls 370,000 Lincoln, Mercury, and Ford sedans


Sat Aug 31, 2013 5:35pm EDT

(Reuters) – Ford Motor Co is recalling about 370,000 model year 2005 to 2011 Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car sedans in the United States and Canada to fix a steering shaft issue, the company said in a statement.

Corrosion of the lower intermediate steering shaft of vehicles in “high corrosion states and provinces” may result in the loss of steering, the company said.

The 355,000 vehicles in the U.S. recall are in Connecticut, Delaware, the District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, Wisconsin and West Virginia.

The remaining 15,000 cars are in Canada.

Ford said that dealers will inspect and replace the lower intermediate steering shaft and, if necessary, secure a lower steering column bearing and replace the upper intermediate steering shaft.

The company was unaware of any accidents or injuries linked to the issue, it said.

(Reporting by Karl Plume in Chicago’ editing by Gunna Dickson)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Ibm50kJ0kf8/story01.htm

ECB’s Coeure says bank eyeing money market rates closely: paper


STOCKHOLM |
Sat Aug 31, 2013 8:31am EDT

STOCKHOLM (Reuters) – The European Central Bank is closely watching money market rates and will make sure they don’t rise too far, ECB policymaker Benoit Coeure said in an interview in a Swedish newspaper published on Saturday.

Money market rates have increased on the back of comments by U.S. Federal Reserve Chairman Ben Bernanke that U.S. policy makers could begin to cut back on extraordinary stimulus measures.

Some market players believe that the Fed could start tapering its $85 billion a month bond buying program as early as next month.

Furthermore, European banks have been paying back long-term loans taken from the ECB during the crisis, removing excess liquidity from the market and pushing up rates.

“We are watching this process closely and will make sure that money market rates remain at reasonable levels,” Coeure said in an interview in business daily Dagens Industri.

Banks took more than 1 trillion euros of three-year loans from the ECB in two LTROs in December 2011 and February 2012, of which the first matures in January 2015.

They now have the option to repay the loans early and have returned almost a quarter of the money already.

On Friday. The ECB said banks would pay back 4.646 billion euros in LTRO loans next week.

The ECB could cut interest rates to address the tightening liquidity situation, while another ultra-long-term funding operation could be an option.

The euro zone economy emerged from recession in the second quarter and a survey last week showed business activity across the euro zone picked up this month at a faster pace than expected.

However, recovery is likely to be slow, Coeure said.

“In the Euro zone, we are not in the position where we can begin normalizing monetary policy,” Coeure told business daily Dagens Industri.

“As you know, the ECB’s Governing Council has unanimously said that rates are going to remain low, at the present level or lower, for an extended period of time.”

He said recent data confirmed a recovery is in place, but that there were reasons to be cautious.

“It (recent data) doesn’t necessarily mean we have to revise our expectations for future growth, but only confirms that we are over the worst,” he said.

The ECB holds its next policy meeting on September 5.

(Reporting by Simon Johnson)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/NVLRLwoCHqw/story01.htm

Japan panel backs sales tax hike coupled with stimulus


TOKYO |
Sat Aug 31, 2013 7:36am EDT

TOKYO (Reuters) – Japan’s government won backing for a controversial decision to raise the national sales tax in 2014 after influential members of a special advisory panel said the step would not threaten economic recovery or business confidence if it was coupled with other stimulus.

“Japan’s economy is steady at the moment and we should raise the tax as planned,” Hiroshi Yoshikawa, a University of Tokyo economist told reporters on Saturday as he left the last session of a week-long, government hearing that also featured business leaders and consumer advocates.

Prime Minister Shinzo Abe convened the panel to hear a wide range of views on whether to press ahead with a planned hike in the consumption tax to 8 percent from the current 5 percent in April. Unless Abe changes the plan, the sales tax will be raised to 10 percent in October 2015.

Advocates, including officials at the Ministry of Finance, say raising the tax would be an important first step in trying to lower public debt, which is the worst among industrialized countries at more than twice the size of Japan’s economy.

Abe is expected to make a decision in the next several weeks.

“Most people on the panel said we should raise the sales tax and that the risks of not doing so outweighed the risks associated with proceeding as scheduled,” said Economics Minister Akira Amari.

Abe has made ending 15 years of deflation and revitalizing the economy among his top priorities, so some of his advisers and even some members of his ruling Liberal Democratic Party worry the sales tax hike will slow consumption.

Japan’s economy emerged from recession in 2012 and data for much of this year has shown the benefits of monetary easing from the central bank and the government’s drive to accelerate growth.

The jobless rate is at the lowest in almost five years, there are tentative signs wages will start rising and consumer spending has been strong. Exports grew at the fastest pace in nearly three years in July, while core consumer prices rose at the fastest pace in nearly five years.

Many on the 60-member tax advisory panel, which included labor union heads and executives from companies ranging from a small spring maker to Toyota Motor Corp (7203.T), said they could accept tax hikes if the government took some steps to offset the expected dip in consumer spending.

Akio Toyoda, president of Toyota, urged the government to cut the tax on vehicles when the consumption tax is hiked to 8 percent as an offset. Others urged public works investment or a tax incentive for companies to invest in new plant and equipment.

When Japan last hiked the sales tax from 3 percent to 5 percent in 1997, consumer spending tumbled by 13 percent in the quarter after the higher tax went into effect. That was followed by a recession.

“LOST DECADE”

Yoshikawa, an expert on Japan’s “lost decade” of economic decline, said he had told officials that the 1997 recession was more directly caused by a concurrent 7 percent drop in public works than the consumption tax hike.

“The economy is a living thing. If business conditions turned especially bad, some policy response would be necessary,” said Yoshikawa.

Masaaki Kanno, chief economist at JPMorgan in Tokyo, said he had urged the government to spend 3 trillion yen ($30.58 billion) to offset the impact of the sales tax hike, saying stimulus of that size would not harm public finances.

“I stressed that we should raise the sales tax as scheduled and consider raising it even further because it is important for fiscal discipline,” Kanno said.

At 5 percent, Japan and Canada have the lowest equivalent consumption tax in the Organisation for Economic Cooperation and Development.

Since Japan’s debt burden is so large, economists, ratings agencies and the International Monetary Fund have long argued Japan has ample room to raise its sales tax and increase government revenue.

Government officials have said revised April-June gross domestic product data, due on September 9, would be one factor Abe would consider in reaching a decision.

Preliminary data issued this month showed the world’s third-largest economy expanded for a third straight quarter in April-June but at a slower pace than expected.

(Editing by Dean Yates)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/NMKqmPDsUbU/story01.htm

Pentagon insists it is open to foreign investment in the U.S.


WASHINGTON |
Sat Aug 31, 2013 1:20am EDT

WASHINGTON (Reuters) – The Pentagon is taking a harder look at proposed foreign acquisitions of U.S. companies given the increasing financial complexity of such deals, but continues to encourage foreign investment, a top U.S. defense official said this week.

“If you have a deal that is in the interest of the U.S. economy and does not impinge on national security, we will approve it,” said Brett Lambert, the Pentagon’s representative on an interagency committee that reviews foreign takeovers.

Lambert, who retires Saturday after four years as the deputy assistant secretary of defense for manufacturing and industrial policy, bristled at the suggestion that the Committee on Foreign Investment in the United States (CFIUS) was making it difficult for foreign investors to acquire U.S. companies.

“It’s completely the opposite,” Lambert told Reuters in an interview on Tuesday.

He said foreign interest in U.S. companies remained high, given the continued importance of the U.S. defense market despite recent budget cuts, and said he expected the number of foreign transactions reviewed by CFIUS to double in coming years from more than 100 last year.

“You have foreign capital that wants to come in, which we want, which we encourage. The question is how do we allow that foreign capital to come in while protecting national security,” Lambert said.

He acknowledged that the Defense Department and other agencies involved in the CFIUS review process were often taking longer to review transactions but said that was largely because of the increasing complexity of the transactions.

Lambert said high-profile cases that were rejected tended to generate headlines but the majority of cases were approved, including some with conditions.

He declined to discuss specific CFIUS cases under review, including a $4.7 billion bid by a Chinese company to take over Virginia-based pork producer Smithfield Foods Inc.

The most recent CFIUS report to Congress showed that the committee reviewed 111 transactions in 2011, of which 40 were investigated under a longer 45-day review. Six of the notices were withdrawn. Data for 2012 has not been released.

U.S. lawmakers have raised concerns about various takeover bids by Chinese firms in recent years, but CFIUS approved plans by China’s largest auto parts maker in January to buy car battery maker A123 Systems Inc.

In February, CFIUS approved the $15.1 billion purchase of Canadian oil firm Nexen Inc by China’s state-owned CNOOC Ltd., although it imposed conditions limiting its operation of wells in the Gulf of Mexico.

CFIUS rejected a bid by another Chinese-owned company, Ralls Corp, to build wind farms near a U.S. military site in Oregon, but the company has challenged that decision in court.

Lambert said the Nexen case showed U.S. authorities were willing to work with companies seeking to invest in the United States as long as they showed a willingness to compromise. “We can come to accommodations. We will work with the companies but they have to respect our national security concerns.”

Lambert said foreign companies seeking to invest in the United States should hire lawyers who had already shepherded other deals through the process.

He said government officials also welcomed contact with companies involved in mergers or acquisitions, noting that senior officials in the proposed merger of Europe’s EADS, the parent of Airbus, and Britain’s BAE Systems had been forthcoming about their plans.

Lambert said meeting those officials helped him keep Pentagon leaders informed about the merger, which ultimately collapsed.

Lambert co-founded a national security consultancy, DFI International, in 1989 and then sold it in 2007 to Detica, a London-based firm that was subsequently taken over by BAE Systems. He said he reviewed the CFIUS files on the DFI sale after coming to the Pentagon to understand the process better from the government’s point of view.

(Editing by Paul Tait)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/FSqHsTRdThk/story01.htm

Microsoft offers ValueAct president seat on board


SEATTLE |
Fri Aug 30, 2013 6:52pm EDT

SEATTLE (Reuters) – Microsoft Corp on Friday offered a seat on its board to the president of ValueAct Capital Management, the activist fund manager that pressed for the ouster of Microsoft Chief Executive Steve Ballmer and wanted a say on the software giant’s strategy after taking a $2 billion stake earlier this year.

The offer marks a victory for ValueAct. Reuters first reported in July that the fund was seeking a board seat as poor quarterly results slammed Microsoft’s share price.

The San Francisco-based fund, which manages about $12 billion for clients, owns 0.8 percent of Microsoft’s shares. Co-founded by finance industry veteran Jeff Ubben in 2000, it has made a reputation for building stakes in companies and working with management to change fundamental strategy.

The fund has not said a great deal in public about its aims with Microsoft, but people familiar with its thinking have said it was concerned about Ballmer’s leadership as well as the wisdom of Microsoft’s foray into making hardware devices, and that it sought higher dividends and share buybacks to benefit shareholders.

Ballmer last week announced his plan to retire within 12 months, but said ValueAct had nothing to do with his decision.

His retirement came as a surprise, just six weeks after he launched an ambitious plan, received coolly by investors, to reorganize the company around devices and services rather than its core software products.

Under an agreement made public on Friday, Microsoft is offering ValueAct’s president, Mason Morfit, an option to join Microsoft’s board after the technology company’s annual shareholder meeting, which is usually held in mid-November.

ValueAct did not say whether it would take up the offer of a board seat, and did not immediately return calls seeking comment.

The agreement also provides for regular meetings between Morfit and selected Microsoft directors and management to discuss a “range of significant business issues,” Microsoft said, without giving further details about those issues.

Morfit has been at ValueAct since 2001, and previously worked in equity research for Credit Suisse First Boston. He also represents ValueAct on the board of Valeant Pharmaceuticals International Inc, where he won praise as the architect of Valeant CEO J. Michael Pearson’s innovative pay package, which included requirements to buy stock, zero annual share grants and a ‘lockup’ period on sales of stock.

If ValueAct accepts Microsoft’s offer, Morfit will become the 10th member of the board, which is led by former Symantec Corp CEO John Thompson.

Co-founder and Chairman Bill Gates and CEO Ballmer, which between them hold nearly 9 percent of Microsoft shares, also sit on the board.

As part of the agreement, ValueAct cannot launch a proxy contest, the generally hostile and public method of seeking to appoint new directors to a company’s board, Microsoft said in a regulatory filing.

Microsoft’s shares rose 10 cents to $33.50 in after-hours trading.

(Reporting by Bill Rigby in Seattle and Sruthi Ramakrishnan in Bangalore; Editing by Sreejiraj Eluvangal; Leslie Adler, Carol Bishopric and Ken Wills)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/dwrPFfrhb3M/story01.htm

Justice Department talks with Microsoft and Google stall


WASHINGTON |
Fri Aug 30, 2013 6:29pm EDT

WASHINGTON (Reuters) – The U.S. Department of Justice’s talks with Microsoft Corp and Google Inc have hit a wall as the government pushes back at the tech companies’ demand for the ability to disclose the now-secret data requests they receive.

Microsoft’s general counsel, Brad Smith, on Friday described as a failure the outcome of the companies’ recent negotiations with the government over the disclosure of Foreign Intelligence Surveillance Act (FISA) court orders the companies receive.

“While we appreciate the good faith and earnest efforts by the capable government lawyers with whom we negotiated, we are disappointed that these negotiations ended in failure,” he said.

The director of National Intelligence, James Clapper, on Thursday pledged to disclose aggregate numbers of FISA orders issued to tech and telecom companies, but the intelligence community has not agreed to allow particular companies to make such disclosures.

“FISA and national security letters are an important part of our effort to keep the nation and its citizens safe, and disclosing more detailed information about how they are used and to whom they are directed can obviously help our enemies avoid detection,” Clapper said in a statement.

The tech sector has been pushing for greater transparency of government data requests as companies seek to shake off the concerns about their involvement in vast secret U.S. surveillance programs revealed by former spy contractor Edward Snowden.

“Google’s reputation and business has been harmed by the false or misleading reports in the media, and Google’s users are concerned by the allegations. Google must respond to such claims with more than generalities,” the company said in a June motion filed with the FISA court, alongside a similar Microsoft filing.

The Department of Justice on Friday was due to file in a secret surveillance court its response to Microsoft and Google’s motions filed in the wake of Snowden’s leaks.

Filings in the court are classified, and the department’s response was not published on the court’s website late on Friday. A department spokesperson declined comment.

“We are deeply disappointed that despite months of negotiations and the efforts of many companies, the government has not yet permitted our industry to release more detailed and granular information about those requests,” the general counsel for Facebook Inc, Colin Stretch, said in a statement.

The tech companies and privacy advocates tepidly welcomed Clapper’s pledge for annual reports on numbers of data requests to Internet and phone companies, but expressed disappointment at stopping short of more detailed breakdowns.

“The new data that the government plans to publish is not nearly enough to justify the government’s continued attempts to gag companies like Google and Microsoft and prevent them from engaging in meaningful transparency reporting of their own,” said Kevin Bankston, director of free expression at privacy group Center for Democracy and Technology.

A Google spokesperson called Clapper’s announcement “a step in the right direction,” while adding, “There is still too much secrecy around these requests and that more openness is needed.”

(Reporting by Alina Selyukh; additional reporting by Joseph Menn and David Ingram; Editing by Leslie Adler)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/atqMOmip8hU/story01.htm

Wall Street Week Ahead: Jobs data could spur Fed action on stimulus


NEW YORK |
Fri Aug 30, 2013 6:24pm EDT

NEW YORK (Reuters) – Wall Street is bracing for a wave of economic reports next week, including the August jobs report, which might prove decisive in determining whether the economy is strong enough for the Federal Reserve to dial back its bond purchases in mid-September.

Anxiety about the Fed possibly reducing its $85 billion monthly stimulus, also known as QE3, has hurt the stock market, which recorded its steepest monthly fall since May 2012.

But the stock market’s greater anxiety, which has developed in recent weeks, is that the Fed will press ahead with a reduction in support, even as the economy remains fragile. The recent data has failed to provide evidence of the convincing growth the Fed says it wants to see. Until then, stocks will benefit from the cheap money resulting from the Fed’s bond purchases.

“Next week’s data should make or break the September expectations,” said Mike O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

A strong jobs report will likely reinforce the view the Fed will opt to decrease its bond purchases at its September 17-18 meeting, while a weak one would do the opposite, analysts said.

“From a real economy perspective, QE3 has done very little. From a financial markets perspective, it has had a major influence. If it is really not helping the real economy beyond pushing financial assets higher, there is no point in continuing the risk of increasing the balance sheet,” said O’Rourke.

For the month, the Standard Poor’s 500 index fell 3.1 percent in August; the Dow Jones industrial average lost 4.4 percent and the Nasdaq slipped 1 percent. .N

Speculation on the timing of Fed action has triggered a bond market sell-off that sent mortgage rates to two-year highs. The surge in home borrowing costs this summer has shown signs of slowing the housing recovery. Analysts also are watching if the higher rates have discouraged employers from adding workers.

Economists polled by Reuters forecast domestic employers likely hired 180,000 workers in August, more than 162,000 in July, while the jobless rate likely held steady at 7.4 percent, which is a four-year low.

Deutsche Bank economists said that if the payrolls figure exceeds 190,000 and the unemployment rate falls to 7.3 percent, they expect the Fed will start cutting bond purchases. “August employment would have to meaningfully disappoint for the Fed to back away from the timetable presented by Chairman Bernanke in the June post-meeting press conference,” they wrote.

Prior to the payrolls data on Friday, traders will face a heavy schedule of economic releases after the three-day holiday weekend. They include the latest readings on vehicle sales and national factory and service activities. ECI/US

U.S. financial markets will close on Monday for the Labor Day holiday.

Investors are watching the tense situation between the West and Syria. Signs of a U.S.-led military strike against Syria after chemical weapons were used to kill civilians could hurt the appetite for stocks globally.

Traders pared expectations on such a move after the British parliament voted against a military strike. But France said it supported punishing the Syrian government for the attack on civilians. U.S. Secretary of State John Kerry said on Friday the chemical weapons attack in Damascus last week killed more than 1,400 people.

Despite the sharp moves in equities due to the Syrian unrest, “we still expect the market to stop short of a 10 percent decline,” said Mike Dueker, head economist for North America at Russell Investments in Seattle.

Light volume in late summer likely exaggerated August’s stock decline, analysts said. The uncertainty has also boosted measures of volatility. The CBOE Volatility Index .VIX rose above 17 on Friday, a two-month high.

Bonds, in comparison, posted small losses. They were poised to lose 0.54 percent in August, according to Barclays’ Aggregate bond index that tracks U.S. investment-grade debt returns.

SHAKY SEPTEMBER

While Syria and economic data will be next week’s main concerns, other developments, such as President Barack Obama’s nominee to succeed Ben Bernanke as Fed chief and another possible showdown between Obama and congressional Republicans over the federal debt might keep investors on edge, analysts said.

“There is no doubt that September is teed up for a tsunami of data coming at us and headlines coming at us,” said David Lyon, investment specialist at JP Morgan Private Bank in San Francisco, California, which manages $910 billion in assets.

“So the market will look at September and really start to find its footing based on some of the economic data that comes out as well as clarity around some of these policy decisions at the central bank level or the geopolitical level,” he said

History might complicate that view.

September has traditionally been the worst month for stocks, with an average 0.6 percent decline in the SP 500 index over the past 62 years, although it rose 2.4 percent last September.

This September marks a milestone – the five-year anniversary of the global credit meltdown during which Wall Street witnessed the downfall of Lehman Brothers, the sale of Merrill Lynch, the near-demise of insurance giant AIG.

In that turbulent September 2008, the market tumbled 9.1 percent.

(Additional reporting by Chuck Mikolajczak and Rodrigo Campos; Editing by Kenneth Barry)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/IvFwOO2uAbA/story01.htm

Delta, Virgin Atlantic receive tentative antitrust immunity for alliance


NEW YORK |
Fri Aug 30, 2013 6:04pm EDT

NEW YORK (Reuters) – Delta Air Lines Inc (DAL.N) and Virgin Atlantic Airways LtdVA.UL are on track to receive immunity from U.S. antitrust laws to operate a planned trans-Atlantic joint venture.

In a filing on Friday, the U.S. Department of Transportation said it had tentatively concluded that the alliance, which involves Delta buying a 49 percent stake in Virgin Atlantic, would promote competition and would provide benefits to consumers in the North America-United Kingdom market.

Delta and Virgin Atlantic announced the joint venture in December. Delta agreed to buy the Virgin Atlantic stake from Singapore Airlines for $360 million.

The deal would help Delta and Virgin better compete in the market for business travelers, according to analysts, and also would give them an advantage over American Airlines and US Airways, whose merger is being contested by the U.S. Justice Department.

Among the consumer benefits the airlines touted are increased cooperation on flights from the United Kingdom to North America, including nine daily round-trip flights from London Heathrow Airport to John F. Kennedy International Airport in New York and Newark Liberty International.

The Transportation Department concluded that the proposed alliance would “ultimately create a strong, competitive counterweight” to another joint venture known as oneworld, which includes American Airlines, British Airways, Finnair and Iberia.

The Transportation Department gave parties 14 days to lodge objections to its conclusions. If no objections are made, it said its tentative finding and conclusions would become final.

Delta shares rose half a percent to $19.73 on Friday.

(Reporting by Andrew Longstreth; additional reporting by Alwyn Scott; Editing by Howard Goller and Ken Wills)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/Bt016jORwho/story01.htm

Exclusive: U.S. pension funds press Caesars’ private equity owners


NEW YORK |
Fri Aug 30, 2013 5:58pm EDT

NEW YORK (Reuters) – Some U.S. public pension funds are pressuring TPG Capital LP and Apollo Global Management LLC to share more of the fees they withdraw from loss-making casino operator Caesars Entertainment Corp, in a rare display of activism against private equity firms.

The two buyout firms charged Caesars a $200 million “transaction fee” when they took it private in a $30.7 billion deal in 2008, and have since been taking around $30 million a year as “monitoring fees” for their services to the casino company.

It was common place for private equity funds of that period to keep a portion of the fees and share the rest with their investors, but the practice has drawn criticism from at least two state pension funds in the Caesars case because the debt-laden casino operator’s financials have deteriorated since the buyout.

According to Rhode Island General Treasurer Gina Raimondo, the $6 billion in equity that the TPG-Apollo consortium put into Caesars was now worth just $2.2 billion.

“While I understand investing entails risk and not every investment will work, I expect us to sink or swim together,” Raimondo wrote in an August 19 letter to TPG Chief Investment Officer Jonathan Coslet about the fund, TPG Partners V, which invested in Caesars.

“The clear misalignment of our interests in TPG (Partners) V’s investment in Caesars Entertainment is problematic,” said the letter, a copy of which was provided to Reuters.

The Employees’ Retirement System of Rhode Island has invested $20 million with TPG Partners V. Raimondo said TPG Partners V has kept $252 million of the $717 million in transaction and monitoring fees collected from Caesars and other deals, and called it “a clear misalignment of interest” when fund investors had not seen any profits.

Raimondo asked TPG to retroactively share 100 percent of the TPG Partners V transaction and monitoring fees with its limited partners.

Raimondo’s letter came two months after Oregon State Treasurer Ted Wheeler sent letters to Apollo Chief Executive and co-founder Leon Black and TPG co-founding partner James Coulter on the same subject, expressing concerns over “alignment of interests.”

“I personally am concerned about the significant fees that have been paid in conjunction with the Caesars holdings,” Wheeler wrote to Black and Coulter. He did not say what he wanted TPG and Apollo to do with the fees.

The Oregon Public Employees Retirement Fund has invested $300 million in TPG Partners V and $200 million in Apollo Fund VI, which also invested in Caesars.

TPG and Apollo declined to comment for this story.

The letters from Wheeler and Raimondo were issued after the UNITE HERE labor union, representing nearly 20,000 of Caesars’ 68,000 employees, met with a number of public pension funds to try to persuade them to put pressure on TPG and Apollo to stop collecting monitoring fees from the casino operator.

The letters took issue with the portion of fees the private equity firms were keeping for themselves, and did not call for a reduction in the fees themselves.

“We are happy about the fact that we brought attention to the fee structure, this is a work in progress. What we wanted to do has not been accomplished yet, but we continue to talk to pension funds,” said UNITE HERE spokesman Jim Baker.

Executives, as well as employees, at private equity-owned companies monitor such cases closely because any success by a labor union in influencing public pension funds could embolden other unions to try the same.

“I think this is very rare. Having said that, public pension funds have always been subject to political pressures of various sorts,” said Bon French, chief executive of private equity investment group Adams Street Partners, which manages more than $22 billion for institutional investors.

As with many of the huge leveraged buyouts that preceded the 2008 financial crisis, Caesars was saddled with a lot of debt, leaving it vulnerable when gambling revenues plunged in the economic recession.

Earlier this year, it unveiled a plan to spin off its more lucrative online gambling assets, raising up to $1.2 billion, including $500 million from Apollo and TPG. It is also selling other assets though private transactions.

The cash may not be enough to spare Caesars from bankruptcy down the line. But if the operating company of Caesars became insolvent, Apollo and TPG would retain some of the value of the online gambling assets, according to a May research note by Fitch Ratings Inc.

NOT A SILENT BYSTANDER

UNITE HERE said that while the buyout firms collected hundreds of millions of dollars in fees, Caesars casinos suffered from staff reductions and other cutbacks. Headcount at Caesars dropped from 87,000 in 2007 to 68,000 in 2012, even as the number of its casinos increased from 50 to 52. Union wages, however, have risen under a contract negotiated before TPG and Apollo took over.

UNITE HERE said it chose to highlight the issue of fees now because labor contracts covering more than 12,000 Caesars employees expired at the end of May. Caesars spokesman Gary Thompson cited these negotiations as the reason the casino operator could not comment for this story.

Raimondo’s spokeswoman said the Rhode Island treasurer had not heard back from TPG so far. Wheeler’s spokesman declined to say if the Oregon treasurer’s letter had drawn a response.

It was not known how TPG or Apollo reacted to the letters from the two state treasurers.

Public pensions are considered an influential investor base as they accounted for 30 percent of the total capital invested in private equity between 2001 and 2011, according to market research firm Preqin.

When the board of the Oregon Investment Council met on May 29 to discuss its investment portfolio, the public pension fund hosted Cindy Ferrara, a 41-year-old cook at Caesars Palace hotel and casino in Las Vegas.

Ferrara had traveled to Oregon together with a few of her colleagues at the expense of UNITE HERE, and she went on to attend the board meetings of public pension funds in Texas, California and Washington.

“My whole objective of going was to share with these investors, from a worker’s perspective, what has been going at Caesars since 2008, when Apollo and TPG took over,” said Ferrara.

Three weeks later, Wheeler sent his letters to Apollo and TPG. “I look to our partner firms to create opportunities and to treat employees fairly,” he said in the letters.

Oregon State Treasury spokesman James Sinks said the issue was brought to the pension fund’s attention by UNITE HERE, but stressed that its board carried out independent research.

“Treasurer Wheeler is not a silent bystander when it comes to Oregon’s public investments, and the public does not want him to be one,” Sinks said.

Joy Fox, a spokeswoman for Raimondo, said the Rhode Island pension fund had communicated with representatives of UNITE HERE, but the decision to contact TPG was made independently.

“This is an appropriate time to reach out to TPG on this issue, because enough time – seven years – has passed to assess the returns, including the split between limited partners and general partners,” Fox said.

It is not known whether other public pension funds have or will join Rhode Island and Oregon in pressuring TPG and Apollo. UNITE HERE said it has attended the board meetings of 10 public pension funds so far.

“We have heard UNITE HERE’s concerns and shared them directly with the general partners, who also shared them with (Caesars) management,” said California State Teachers’ Retirement System spokesman Michael Sicilia, declining to disclose the discussions the funds had with the buyout firms.

“It is a labor issue and we expect our general partners to be good employers,” Sicilia added.

TPG Partners V has yet to make money whereas Apollo Fund VI is up. TPG Partners V was marked at 0.97 times its investors’ money as of the end of March, according to Oregon Public Employees Retirement Fund. Apollo Fund VI was marked at 1.85 times its investors’ money during the same period, according to Apollo’s first-quarter earnings statement.

Another case of private equity fund activism in the United States was in 2010, when Permira Advisors LLP yielded to pressure from public pension funds and politicians and reversed a decision to shut a manufacturing plant of Hugo Boss in Ohio.

(Reporting by Greg Roumeliotis in New York; Editing by Tiffany Wu and Leslie Gevirtz)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/mgGkAvC8COs/story01.htm