News Archive

ECB’s Nowotny says don’t expect rate rise for some time

ALPBACH, Austria |
Fri Aug 30, 2013 3:06am EDT

ALPBACH, Austria (Reuters) – Financial markets should not expect the European Central Bank to raise interest rates for the foreseeable future as long as expectations for inflation remain steady, ECB policymaker Ewald Nowotny said.

He also told reporters that turmoil on emerging markets was not having a direct impact on the euro zone so far, but that it was premature to say this would remain the case.

“The forward guidance of the ECB is a clear statement that means that monetary policy will be conducted so that interest rates will remain at the current rate or lower. The translation is that for the foreseeable future interest rate rises are ruled out,” he said late on Thursday in remarks for release on Friday.

“….Some (ECB policymakers) … interpret this differently, but this from my side – and I believe what has been approved by the ECB president – is the applicable interpretation,” he added.

“The central issue is the stability of inflation expectations. As long as these expectations are stable, the forward guidance signals to markets that they do not have to expect a rate rise.”

The next ECB policy meeting is next Thursday. A Reuters survey of 60 economists showed the central bank is expected to keep both its main refinancing and deposit rates – now at 0.5 percent and zero respectively – on hold until at least 2015.

The ECB’s 23 Governing Council members will meet against a backdrop of improving economic data in the euro zone, though the gradual recovery is uneven and led by Germany, where business sentiment hit its highest level in 16 months in August.

Nowotny said turmoil in emerging markets was not having an impact so far on the euro zone economy.

“It has had more the effect that for example financing conditions have improved for European states, particularly the rather weaker states. For the medium term this (fallout) is possible but it is too early to say,” he noted.

Developing markets have borne the brunt of investor unease over a possible U.S.-led military strike on Syria as well as expectations the U.S. Federal Reserve will soon scale back its economic stimulus.

Nowotny said the issue of the Fed tapering its bond-buying program, possibly as early as next month, was primarily a psychological one.

“The Fed at the moment is buying $85 billion a month in either government or mortgage securities and the whole discussion is really about whether I buy maybe $50 billion instead of $85 billion,” he said.

Nowotny’s spokesman said the remarks referred to a general discussion among central bankers at last week’s Jackson Hole conference and not to specific comments by Fed officials.

Unlike the Fed, the ECB moved to shore up confidence by providing cheap three-year loans to banks.

When these loans mature or banks repay them early, it acts as a kind of “quasi-automatic” way to exit extraordinary provisions of liquidity to help weather the financial crisis, Nowotny said.

(Reporting by Michael Shields; Editing by John Stonestreet)

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Herbalife billionaire brawl puts spotlight on N.J. professor

Thu Aug 29, 2013 9:05pm EDT

BOSTON/NEW YORK (Reuters) – In the battle of investors who’ve made opposite bets on the shares of Herbalife (HLF.N), both sides – including firms led by billionaires Bill Ackman and George Soros – have consulted a New Jersey college professor and studied his research.

For decades, William Keep, dean of the School of Business at the College of New Jersey, has pursued a relatively obscure marketing specialty known as multilevel marketing businesses, or MLMs. But as a new go-to adviser for some of Wall Street’s biggest players, Keep has been suddenly thrust into the spotlight.

In December, Ackman placed a $1 billion short bet against Herbalife, citing the professor’s research. Since then, Soros bought a large block of the company’s shares around the time his firm was seeking out Keep’s research and personal insights.

Through it all, Keep insists he has remained neutral to the investment implications of his studies.

“As my agenda has to do with MLMs and pyramid schemes, this sideshow is a distraction,” he said of the attention he’s received from investors and the media.

Multilevel marketers pay their sales force not only for the products they sell but also for recruiting other sales people. A pyramid scheme occurs where a company’s sales team earns more for finding new distributors than they get for selling the product.


Ackman cited a paper co-authored by Keep in his December presentation when he lambasted Herbalife’s business model. Months later, Ackman called Keep and spoke to him on the phone, though it is not clear what the two discussed.

Herbalife has repeatedly rejected Ackman’s characterization of the company as a pyramid scheme that will eventually go bust.

Keep told Reuters in an interview that he has not voiced an opinion one way or another on whether Herbalife is a pyramid scheme. He makes clear to investors he isn’t giving them investment advice.

Keep said that in his discussions with investments managers he never gets an indication of how they will react to his research.

“Once I leave the room, they could say, ‘this is silly’. I don’t know what kind of investment decisions they will make.”

But investors still seek him out. Keep has been invited as a guest speaker at several hedge fund events and even visited the offices of Soros’ family office.

During the summer, Keep met with some of Soros’s investment staff, including portfolio manager Paul Sohn, to give them a tutorial on his research. Keep said Soros’s investment team wanted to know how he thinks the epic battle over Herbalife will play out.

Keep declined to tell Reuters what he specifically told the Soros team, but said they had one burning question: Are regulators going to take action against Herbalife – something Ackman has been counting on in betting the company’s shares will crash.

He also declined to handicap the outcome of any potential regulatory investigation, saying only that it would take a long time and cost a lot of money.

Keep visited Soros in June and again in July. Regulatory filings show Soros Fund Management purchased 5 million shares of Herbalife in the second quarter, becoming the latest high-profile investor to line up against Ackman and his Pershing Square Capital Management fund.

Another manager investing for Soros, East Side Capital, had a long position on Herbalife long before Ackman made his December presentation and still ranks as Herbalife’s seventh-largest investor.


Besides meeting with the Soros team, Keep said he also spoke at a luncheon sponsored by research firm DeMatteo Monness for its hedge fund clients and at an event sponsored by research firm Hedgeye in recent months.

Keep has often been called as an expert witness when the government, including the Federal Trade Commission, has investigated pyramid schemes. And because of his specialist knowledge, Keep has frequently been featured in the media. Even as he was preparing for a new school semester, he said, he has been swamped by calls from reporters.

For months, the battle of the future of Herbalife has fascinated Wall Street, given the number of high-profile investors lining up to bet against Ackman.

Ackman’s most notable and outspoken critic has been Carl Icahn, Herbalife’s biggest shareholder, who got into the stock shortly after Ackman unveiled his big short positions.

So far, Ackman and his $11 billion Pershing Square have been losers in this contest of Wall Street billionaires, with Herbalife shares rising 83 percent this year. Pershing Square has incurred at least $300 million in paper losses on its investment.

(Reporting By Svea Herbst-Bayliss and Jennifer Ablan; Editing by Matthew Goldstein and Ken Wills)

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Daimler’s Mercedes-Benz set to beef up sales network in China

CHENGDU, China |
Thu Aug 29, 2013 9:03pm EDT

CHENGDU, China (Reuters) – Daimler AG’s Mercedes-Benz will try to reach deeper into China’s inland-west region and small “lower-tier” cities for growth as part of a broader turnaround plan for the world’s biggest auto market, according to people familiar with the matter.

The initiative, due to be detailed by top Mercedes-Benz China executives at the Chengdu auto show on Friday, is a key component of Daimler’s (DAIGn.DE) strategic plan to invest 2 billion euros ($2.67 billion) in China over the next two years.

The German brand aims to boost sales of Mercedes-Benz cars by a third to more than 300,000 cars a year by 2015, from this year’s forecast sales of 230,000 cars.

If achieved, the target would make China Mercedes-Benz’s biggest market globally. Currently, China is the brand’s No. 3 market behind Germany and the United States.

The sale network plan, according to two sources close to the company, calls for increasing the number of Mercedes-Benz dealer retail outlets to 300 covering more than 150 cities by the end of this year, compared with 285 the brand operates currently.

This year, Mercedes-Benz is aiming to add a total of 75 stores, about 45 percent of them sited in lower, third-tier and fourth-tier cities, the individuals said.

In addition to Mercedes-Benz stores, the German auto maker currently has about 90 Smart dealer-shops. It was not clear how many additional Smart outlets Mercedes-Benz plans to add by year’s end.

One of the 20 new or upgraded products Mercedes-Benz plans to launch in China through 2015 is the E-class sedan specially redesigned for China, which the company is due to officially launch at the auto show in Chengdu, southwest China.

On Tuesday, Daimler’s new China chief, Hubertus Troska, told reporters in Beijing about the planned new product blitz and noted Mercedes-Benz was going to expand its manufacturing capacity in Beijing, as part of an effort to make its cars more affordable and expand their appeal in China amid a slowdown in economic growth.

In order to be the world’s No. 1 luxury auto brand by volume, which is Daimler’s objective for Mercedes-Benz, Troska said the brand needed to improve its performance in China.

“If we are not more successful in China, then our goal of global position No. 1 will be difficult to achieve,” the German executive said in Beijing on Tuesday.

“There is a recognition that we need to improve our performance in China vis-à-vis some of our competitors.”

One factor behind Mercedes-Benz’s struggle in China was a lack of market coverage.

“If you compare us to our competitors, they cover more cities. They have more outlets,” Troska said. “The expansion of dealer network and bringing more new products to market are going to drive our growth momentum.”

(Editing by Alex Richardson)

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Indian rupee charts in uncharted territory

Thu Aug 29, 2013 8:49pm EDT

MUMBAI/HONG KONG (Reuters) – The rupee has fallen so far so fast that not even technical analysts can divine the currency’s future.

The chartists, as these analysts are also known, are struggling to make sense of a currency that is now firmly in territory that is uncharted.

Strategists said that technical factors did not count for much in crisis situations in which investors were fleeing markets and the fact that the rupee was at record low levels compounded the problem because making comparisons with past price patterns was impossible.

The rupee has consistently fallen below all reasonable technical targets since breaking its then record low of 57.32 to the dollar on June 10. The rupee is now at 66.55 and heading towards 70.00.

“Some say the next would be 70, while others say 75. But I don’t see any specific target. It is almost impossible to set a technical target as the rupee hits all-time lows every day,” said a non-deliverable forward (NDF) trader at a European bank in Singapore.

Saktiandi Supaat, head of FX research at Maybank in Singapore agreed.

“It looks like the rupee is in a new uncharted territory. A next key level is 70.00, but the 70.00 is just a psychological level (not a technical one).”

With technical analysis not offering much guidance, investors are looking even more closely at forwards and futures markets, which can be an excellent gauge of price expectations.

These markets suggest the rupee – despite being down 18 percent against the dollar this year and recently hitting a record low of 68.85 – could fall further yet.

There are both onshore forwards and futures markets and offshore NDF markets for the rupee, with trade in the latter taking place in Singapore, Hong Kong, New York and London, unfettered by Indian central bank regulations that control the onshore market.

Rates in the onshore futures market have the rupee at 67.06 in one-month, versus a spot rate of 66.55. Three-month rates are quoted at 68.40, six-month at 69.24 and 12-month at 70.80.

Quotes in the offshore NDF market are also bearish. One-month rupee NDFs are trading at 67.49, while the three-month is at 68.74, the six-month at 70.05 and the 12-month at 72.34.

The difference between the onshore and offshore quotes reflects the different players that are active in each market. While traditionally the NDF market has been the home of offshore speculators – and still is given the pressure the rupee is under – it is also home to genuine hedging now that so many restrictions have been imposed onshore.

Indian regulators have taken steps to reduce arbitrage opportunities between the onshore and offshore markets because they believe that speculation in these markets puts pressure on the spot rate.

The NDF market has influenced India’s foreign exchange market but more so has influenced volatility, outgoing Reserve Bank of India governor Duvvuri Subbarao said after his monetary policy review on July 30. “It will be a better world for us if there is no NDF market, but we cannot wish it away.”

Onshore spot traders in Mumbai agree, saying that the severe bearish bets against the rupee in the offshore markets had a negative impact on the rupee’s opening trades on days when other Asian currencies were relatively stable.

“We are seeing the NDF markets having a big impact on the rupee’s fortunes during the current bout of depreciation. It is complicating the RBI’s rupee defence as it does not have any regulatory purview over the market,” said Subramanian Sharma, director at Greenback Forex.

The RBI has tried to make speculating on the rupee expensive. Among a wide range of measures the most acute has been to raise short-term interest rates, which have spiked by almost 300 basis points, roiling bond markets and raising the cost of funds for banks and companies looking to short the rupee – as well as inducing a rupee credit squeeze.

These measures have certainly reduced currency futures volumes, which traders estimate have plummeted to an average $2-$3 billion a day from as much as $7 billion before the measures were put in place.

What they have not done, however, is stop the rupee falling.

“Frankly, you can throw a dart on where dollar/rupee is going to be next. Unless there is a clear resolve from the authorities on the currency front, there is potential for more downside,” said a trader.

While the forwards and futures markets offer some bearish views, their quotes are positively sober compared to some of the bets being laid in offshore foreign exchange options markets.

A currency trader at a European bank in Hong Kong said many dollar options against the rupee had been bought around the 80 level with implied volatility on rupee options above 20 percent for the first time in almost a decade. Wide volatility bands are closely associated with depreciation.

India’s twin fiscal and current account deficits are putting the rupee under pressure, problems that have been exacerbated by expectations that the U.S. Federal Reserve will begin reducing its monetary stimulus measures soon, prompting many investors to withdraw from emerging markets.

While some analysts think the rupee’s depreciation is overdone, the currency market is not the only market where investors are laying negative bets against the country’s fortunes. They are also doing so in the credit markets.

Net notional volumes in State Bank of India credit default swaps, which investors use as a proxy for the Indian sovereign, have jumped by a fifth since the start of the year to $850 million, according to DTCC data on Thomson Reuters CreditViews.

The spread on the five-year CDS contract, meanwhile, has blown out to 355 basis points since mid-May.

(Additional reporting by Jong Woo Cheong; Writing by Nachum Kaplan; Editing by Neil Fullick)

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Analysis: Why Wall Street doesn’t blink at extra $30 billion for Verizon Wireless

Thu Aug 29, 2013 7:37pm EDT

NEW YORK (Reuters) – It’s not often that Wall Street shrugs off what amounts to a 30 percent price hike for an asset inside of four months.

But that is what happened to Verizon Communications Inc (VZ.N) when news broke that it is in talks to buy out Vodafone Group Plc’s (VOD.L) 45 percent stake in their U.S. wireless venture for up to $130 billion, up from the $100 billion price range that it was considering back in April.

Verizon shares closed 2.7 percent higher on Thursday as investors took in stride the prospect of the company taking on tens of billions of dollars in debt to fund such a deal.

For years, Verizon has made no secret of its ambitions to own all of Verizon Wireless – the top U.S. mobile service provider – because it has the best customer growth rate and profitability of any telecom company in the country. But concern around overpaying for an asset that it already controls has always gotten in the way.

Analysts saw three big motivating factors to support a deal now: rising interest rates, rapidly intensifying competition and a 12 percent drop in Verizon’s shares since April.

If these trends continue, and analysts expect they will, a deal gets that much more expensive for Verizon to pull off.

“With interest rates rising, Verizon and Vodafone are cognizant of the fact that they have a narrow window to get this deal done,” said New Street analyst Jonathan Chaplin.

Vodafone has confirmed it is in talks with Verizon but declined to give details. Verizon declined to comment.

The U.S. Federal Reserve has said it expects to begin scaling back its monthly purchases of government and mortgage-backed debt with an aim to eventually ending the practice next year. The expectation that this policy shift may come as soon as September has already lifted long-term interest rates.

In such a rate environment, a deal for Verizon Wireless will only get more expensive the longer Verizon waits. Already, Verizon can expect to pay several hundred million dollars more in annual interest rate payments today than it would have expected to pay in April.

The yield on the benchmark 10-year US Treasury note has risen about 1 percentage point to 2.76 percent.


Even with the higher interest rate costs, Macquarie analyst Kevin Smithen estimated that buying the rest of Verizon Wireless could still increase Verizon’s 2014 earnings per share by 14.7 percent. But if Verizon had done a $130 billion deal earlier this year, when its share price was higher and interest rates were lower, that increase would have been more like 21.8 percent, according to Smithen.

“If price was the only sticking point, we’re not sure why Verizon didn’t pull the trigger earlier,” said Smithen.

Verizon, which currently leads the U.S. pack in wireless customer growth and profitability, needs new ways to grow as the U.S. market slows because most people already own smartphones, and competition is intensifying rapidly.

Thanks in part to aggressive marketing, No. 4 U.S. mobile operator T-Mobile US (TMUS.N) started reporting net subscriber growth in the second quarter after years of losses to rivals such as Verizon Wireless. Sprint Corp (S.N) is also expected to become a tougher rival as it beefs up its network and now has the backing of majority owner SoftBank Corp (9984.T).

“Verizon would like to have total control of this asset, particularly as we’re getting into a more competitive environment,” said SP analyst James Moorman. “When you look at the value of this asset it makes sense to get it in house.”

Still, such a deal is not without risk as it would saddle Verizon with a heavy debt burden that could tie up its cash flow. Craig Moffett of Moffett Research was more hesitant about the merits of such a huge deal at a time when growth is slowing in the U.S. wireless market.

Because the United States has been one of the best wireless growth markets in the world and Verizon has been a leader, it is unlikely to face much more improvement to its business, he said.

“There is little prospect for things getting materially better for Verizon Wireless, and a meaningful chance that things get worse,” Moffett said.

The downside to swallowing such a high price tag is it might make it tough for Verizon to bid in upcoming spectrum auctions, leaving the coast clear for rivals like ATT Inc (T.N), noted New Street’s Chaplin.

But he said investors would likely still prefer to see Verizon buying “the best asset globally in telecom.”

“Its worth $130 billion,” he said.

Analysts also point out that full ownership of Verizon Wireless would automatically boost Verizon cash flow without it having to make any strategic changes.

With Verizon Wireless’ free cash flow of $28.6 billion last year, RBC Capital Markets analyst Doug Colandrea said Verizon has the ability to pay back debt “very rapidly.”

(Additional reporting by Jonathan Stempel; Editing by Edward Tobin and Tim Dobbyn)

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Two U.S. traders plead guilty in Venezuelan bank bribery case

Thu Aug 29, 2013 7:35pm EDT

NEW YORK (Reuters) – Two former employees of a New York broker-dealer pleaded guilty on Thursday to conspiring to pay kickbacks to Venezuelan state banking officials, as U.S. prosecutors moved to broaden their case.

Tomas Alberto Clarke Bethancourt, 43, and Ernesto Lujan, 50, admitted to participating in the conspiracy to help secure trading business for their employer, Direct Access Partners.

Federal prosecutors in New York previously said Direct Access Partners made more than $60 million in fees from trading business allegedly directed to it by an official at Caracas-based Banco de Desarrollo Económico y Social de Venezuela, known as Bandes.

But the case has now expanded as Thursday’s pleas linked Direct Access to a second state-owned bank, San Cristobal-based Banfoandes, which the Venezuela government shut down in 2009.

In court, Clarke, a former executive vice president at the broker-dealer in its Miami office, said that, by 2009, he had been aware that some fees that Direct Access paid to a foreign finder were split with an unnamed Banfoandes official.

“In other words, that official was being paid to send DAP business in furtherance of the scheme,” Clarke said, referring to Direct Access.

A representative for Bicentenario Banco, the successor to Banfoandes, did not immediately respond to a request for comment.

The Banfoandes official would be at least the third Venezuelan state banking official the U.S. government has said received payments from people tied to Direct Access.

A civil forfeiture action filed in May cited an unnamed second Bandes official who also received payments.

Two other individuals have also been charged criminally in the conspiracy, including former Bandes official Maria De Los Angeles Gonzalez de Hernandez, who prosecutors said received more than $5 million of kickbacks. Gonzalez was arrested in May with Clarke and defendant Jose Alejandro Hurtado. Lujan was arrested in June.

In the wake of the arrests, Direct Access Group LLC, the broker-dealer’s parent, filed for Chapter 11 bankruptcy protection in July after creditors had begun an involuntary Chapter 7 case.

Clarke and Lujan both pleaded guilty to six criminal counts, including conspiracy to violate the Foreign Corrupt Practices Act, and agreed to cooperate with prosecutors. They also admitted to obstructing an examination by U.S. Securities and Exchange Commission by destroying emails.

The SEC has filed a related civil case against five people with ties to Direct Access, including Clarke and Lujan.

Neither a lawyer for Gonzalez nor representatives for Direct Access responded to requests for comment.

The case, in the U.S. District Court, Southern District of New York, are U.S. v. Clarke Bethancourt, No. 13-cr-00670.

(The story corrects 12th paragraph to say law at issue is the Foreign Corrupt Practices Act; corrects spelling of Banfoandes in paragraph 8.)

(Reporting by Nate Raymond in New York. Editing by Andre Grenon)

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BoE’s Carney says uncertainty about RBS’ future must end

Thu Aug 29, 2013 7:05pm EDT

LONDON (Reuters) – Britain should end the uncertainty over long-term plans for state-controlled Royal Bank of Scotland (RBS.L), Bank of England Governor Mark Carney said in a newspaper interview.

Carney’s position echoes that of his predecessor, Mervyn King, who said RBS’ ability to sustain lending was being hampered by a lack of clarity over its future.

Britain’s government ploughed 45.8 billion pounds into RBS to save it from collapse in 2008, and now holds an 81 percent stake.

Carney would not be drawn on whether he thought RBS should be split into a ‘good’ bank and a ‘bad’ bank – something advocated by King and recommended by a parliamentary commission – but made clear the status quo was a damaging one.

“It’s absolutely imperative that the uncertainty around RBS is dissipated, absolutely imperative,” Carney told the Daily Mail newspaper.

Carney said the core of the banking system had been “substantially repaired” but it was still not as strong as it needed to be. He singled out the opaque world of derivatives trading as a particular concern.

“We have improved the infrastructure and the transparency in bank reporting,” he said. “Where we still need to make a lot of progress is in the derivatives markets, huge markets, multi-trillion markets.”

Carney said giving banks the confidence to lend and businesses the confidence to borrow was at the heart of the guidance policy on interest rates he announced earlier this month.

Still, he said it was wrong to expect a rapid increase in overall lending. What was needed was an increase in lending to firms that were expanding.

“As the recovery progresses, you need to take lending capacity and shift it from existing businesses that aren’t going to pick up,” he said.

Asked whether the Bank of England would provide more quantitative easing, Carney said monetary policy would remain simulative until British economic growth was self-sustaining.

“We are telling you the minimum amount of stimulus that we’re going to provide. There could be more if necessary. But there won’t be less. We are absolutely clear on that,” he said.

(Reporting by Christina Fincher)

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Wal-Mart ready to loan $50 million to Bangladesh factories

Thu Aug 29, 2013 7:01pm EDT

(Reuters) – Wal-Mart Stores Inc (WMT.N) told investors on Thursday that it could provide up to $50 million in low-interest loans or other types of payments to Bangladesh factory owners for building improvements.

The money is part of the more than $100 million in loans and access to capital that a group of North American companies including Wal-Mart and Gap Inc (GPS.N) pledged in July. The Bangladesh central bank would need to approve any foreign currency loan. Details about lending rates also need to be finalized.

A massive push for improved factory conditions in Bangladesh comes after 1,129 workers were killed in the collapse of a garment plant in April and another 112 people perished in a factory fire there in November.

In July, North American companies including Wal-Mart created the Alliance for Bangladesh Worker Safety, which is separate from a European-led group including a larger number of retailers and union groups known as the Accord on Fire and Building Safety in Bangladesh. The North American plan was criticized by groups that think the European-led plan including binding arbitration is stronger.

Wal-Mart is speaking with the central bank of Bangladesh as it tries to figure out the best way to fund factory safety improvements, whether through loans, earlier payments for shipments or other methods, global Chief Compliance Officer Jay Jorgensen told analysts and investors on a call on Thursday.

The call, run by Wal-Mart’s investor relations staff, was not made publicly available. Wal-Mart confirmed details of the call that were presented to the company by Reuters. A transcript of the call is expected to be posted by Friday.

Wal-Mart has become more vocal about its activities in Bangladesh over the past several months, for example posting a list of banned factories online in May. Some investors have pressed the company for more details, and a few of those on Thursday’s call thanked it for its more transparent approach.

“It’s still somewhat unclear what is the right way to best take care of the workers in Bangladesh,” said Citi Managing Director Deborah Weinswig, who rates Wal-Mart a “buy.”

Wal-Mart is considering several options including paying factories for orders more promptly; paying for orders even before products are delivered, either through a loan or through payment; or having a bank issue a loan with the retailer standing behind it as kind of a credit guarantee in order to keep the interest rate lower, Jorgensen said.

The North American alliance said in July that some companies have offered more than $100 million in loans and access to capital, in order to help the owners of factories they do business with make necessary safety improvements. Gap is part of that group and said in October it would loan vendors up to $20 million for safety improvements. It was not immediately clear how much other companies are set to offer.

The Interfaith Center on Corporate Responsibility (ICCR), a group of faith-based and socially responsible investors, wants Wal-Mart and other retailers to join the European accord. That initiative could have the biggest impact, especially if more companies work together, said Reverend David Schilling, ICCR’s senior program director. He said he was not on Thursday’s call but spoke with Wal-Mart about Bangladesh last week.

“There’s a greater likelihood of success if there’s a multi-stakeholder collaborative process,” said Schilling, adding that having funds for loans is a good step in the overall efforts.

The Bangladesh factory that burned in November was making Wal-Mart’s Faded Glory clothing without the retailer’s consent. Since then, Wal-Mart’s efforts have included a no-tolerance policy for unauthorized sourcing.

Wal-Mart has also started thorough inspections of the roughly 280 Bangladesh factories it gets goods from. Engineers often find dozens of things to fix, both small and large, and factories are given a set time for remediation, Jorgensen said.

“We’re not talking about millions of dollars per factory. We’re talking about tens of thousands of dollars per factory for the reports that I’ve seen,” he said, stressing that he had seen only a small number of reports.

(Reporting by Jessica Wohl in Chicago; Editing by Steve Orlofsky)

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Verizon in talks to buy out Vodafone stake: sources

Thu Aug 29, 2013 6:52pm EDT

LONDON/NEW YORK (Reuters) – Verizon Communications is close to buying the remaining stake in Verizon Wireless from Vodafone Group PLC it does not own for potentially $130 billion, according to people familiar with the talks, in what could be the third-biggest deal of all time.

Verizon, the number one U.S. mobile carrier, has made no secret of its desire to gain full ownership of a network that is growing fast and generating billions of dollars in free cash flow, hoping to reap the monetary benefits.

Now, rising interest rates, rapidly intensifying competition and Verizon’s share price, which is off 12 percent in recent weeks, have lent urgency to get a deal done before raising money becomes too expensive.

Across the ocean, Vodafone’s Chief Executive Vittorio Colao has bided his time, making it clear he would only sell the 45 percent stake at what he considered the right time and most importantly the right price. The deal would leave the world’s second largest mobile operator with assets in Europe and emerging markets such as India, Turkey and Africa and money to give back to shareholders.

The deal has been years in the making. Vodafone came close selling out in 2004, when it bid for ATT Wireless and would have had to shed its Verizon stake. The British company, however, lost that bid to Cingular, and has since held on to the Verizon Wireless stake for its exposure to the U.S. wireless market.

The Verizon Wireless joint venture started in 2000.


A few weeks ago, Verizon and Vodafone resumed talks discussing a sale for around $130 billion, according to a person familiar with the situation, who asked not to be named. Two sources said an announcement could come as soon as next week.

A third person familiar with the matter cautioned that while the companies had made progress, some issues around taxes, price and structure still need to be ironed out. The person cautioned that the deal could still fall apart.

If conditions remain as they are, financing would not be a problem, the source added, saying it would include syndicated loans and tiers of lenders.

Reuters reported in April that Verizon had hired advisers for a possible $100 billion bid, an opening gambit that analysts and investors said was too low, putting the value of Vodafone’s holding nearer $120 billion.

With the price tag rising from there, the only MA deals bigger than this would be Vodafone’s $203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s $181 billion acquisition of Time Warner the following year.

A statement from Vodafone on Thursday confirming talks sent its shares up 9 percent to a 12-year high of 207 pence as investors and analysts said a deal could finally be on the cards. It shares closed at 205.78 pence. Shares in Verizon ended the day with a 2.7 percent gain in New York to $47.82.

Assuming a $130 billion price tag, total advisory fees for banks involved would be in the $200 million to $250 million range, according to Freeman estimates. Arrangement fees for a loan syndication could be around 0.2 percent to 0.4 percent of the proceeds raised or in a range of $125 million to 250 million range for a $60 billion syndication, the research firm estimated.


As U.S. growth slows, because most people already own smartphones, and competition intensifies, Verizon is under pressure to find ways to expand. Despite the steep sums being discussed, Verizon investors expect handsome rewards from full Verizon Wireless ownership.

Even assuming a $130 billion price tag, with roughly half funded by debt, such a deal would increase Verizon’s pro forma earnings per share by 13 percent in 2014, Nomura analyst Adam Ilkowitz said in a research note.

“As Verizon would own 100 percent of arguably the best wireless asset in the country, in addition to a modestly improving wireline business, we believe the market should support this deal even at this lofty multiple,” Ilkowitz said.

With 2012 free cash flow of $28.6 billion at Verizon Wireless, RBC Capital Markets analyst Doug Colandrea said Verizon has the ability to rapidly repay the debt raised to fund the deal.

The two companies also own a cross holding in Vodafone Italy, which could form part of the deal, with Verizon possibly selling its 23 percent back to Vodafone, which has 77 percent, sources told Bloomberg.

Charles Stanley analyst Tom Gidley-Kitchin said it was inevitable Verizon would make a serious approach.

“Vodafone doesn’t have to sell, they are quite prepared to wait,” he said. “I don’t think Vittorio Colao is going to be bamboozled into selling at a sub-optimal price, so I think Verizon will understand they will have to pay closer to $130 billion.”

Vodafone has changed its strategy from being a pure mobile operator to offering combined services such as television and fixed line broadband. To that end it has agreed to buy Kabel Deutschland for 7.7 billion euros.


The stake in Verizon Wireless has become increasingly valuable to Vodafone as its fortunes have waned in its core European markets.

But it has a strategy of wanting full control of its assets, and as the junior partner in Verizon Wireless, it has no control over the timing and level of dividends from the group.

Vodafone’s Colao said in May he would not bow to pressure to do any deal.

Verizon has been able to use the dividend as a lever to persuade Vodafone to sell. The company paid no dividends from the asset between 2005 and 2011, which at the time was viewed by analysts as trying to pressure Vodafone into doing a deal.

Verizon Wireless paid out a $7 billion dividend to its parent companies in June, indicating that they were on better terms than at earlier stages in the relationship.

A Verizon representative declined to comment.

Vodafone investors and analysts expect the company, which has $30.6 billion of debt according to Thomson Reuters data, to return a lot of the proceeds of a deal to shareholders, rather than embark on more MA or paying down borrowing.

“We would expect them to distribute a very large proportion of the proceeds to shareholders,” analyst Gidley-Kitchin said.

A disposal would change the investment case for Vodafone, as the group would be left with a mixture of low growth, but cash generation in Europe and higher growth, but less cash generating emerging markets, he said.

Analysts and investors have said that structuring the deal to ensure not too much tax was payable by the seller was a tricky issue.

“The tax leakage being rumored is $10 billion, which I think would be a good result for Vodafone holders,” one of the 10 largest investors in the UK-listed telecoms company told Reuters.

Vodafone’s credit default swaps, which measure the cost of insuring against a default on its debts, fell 6 basis points to 70 basis points after the news.

(Additional reporting by Avik Das and Sakthi Prasad in Bangalore, Paul Sandle and Sinead Cruise in London, Nicola Leske in New York; Editing by Edwina Gibbs, Edward Tobin, Will Waterman, and Leslie Gevirtz)

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