LyrArc Article Gist
Swiss bank UBS plans to make 10,000 job cuts in the next 3-5 years. Most of the job cuts will come at the investment banking operations which has 16,432 employees. Carsten Kengeter will be made chief of investment banking to concentrate on the downsizing effort. Andrea Orcel, who was brought in by new CEO Sergio Ermotti to be co-head of investment banking will run the remaining businesses of advising on mergers and equity underwriting. Trading businesses, especially fixed income, will be closed down. A third of the employees and 15 lines of business in the investment banking operation will be cut. The strategy is focus on businesses that do not require much capital to run and to build on its competitive advantages. This means focussing on its strong points in wealth management operations and the asset management division, which combined have $2 trillion under management. This move away from capital intensive business is part of an effort by Mr. Ermotti to dispel notions that UBS is not adequately capitalized. UBS suffered losses of $50 billion during the early part of the 2008 financial crisis, followed by the rogue bets by a trader in the London office leading to a loss of $2 billion in 2012. Following the most recent losses Sergio Ermotti was hired to replace Oswald Grubel in 2012. UBS now provides an example for other banks to overhaul their banking operations and downscale the importance and risks of investment banking....

LyrArc Article Gist
At the end of 2008 China's crude steel making capacity was 660 million tons, but production was only about 500 million tons. The draft plan for steel industry for phaseout of backward production capacity onlyphases out 25 million tons. Capacity for automobile production is 12 million but only 9.37 million were sold in 2008. The government plan encourages mergers but not much thought has bee given to reducing capacity. About 30% of aluminium capacity is idle, 20% of cement capacity, and 70% of semiconductor production is idle. Some of this overcapacity may have to be written off at this rate says a World Bank specialist. The Stimulus spending of $585 billion would help utilize some of this capacity but the concern is that once its clear that 10% growth rates each year are a thing of the past there will still be alot of unneeded capacity that will have to be written off at great expense.

LyrArc Article Gist
The merger between U.S. based Omnicom Group and France based Publicis Groupe SA, two of the largest ad agencies. The merger is a response to the increasing shift to digital advertising, the shift to advertising being sold in automated trading, and data driven analysis. In all these shifts digital companies such as Google and Facebook have strong advantages. Around 22% of global ad spending is now digital, according to emarketer, with forecasts showing this going up to 27% by 2017. Automated buying of ad space is taking off. U.S. advertisers are expected to spend $3.4 billion on real-time bidding. Omnicom's CEO, John Wren tells analysts: "Digital buying of media is done by machines, as if you are standing on the floor of the Nasdaq as opposed to traditional media shop. I hold the long term belief that eventually traditional media, or a lot of traditional media is going to be purchased that way." Just as computers have upended the environment for traditional players such as the NYSE creating new opportunities for Intercontinental Exchange (ICE), computers and the internet are changing the advertising environment. CEO Levy of Publicis Groupe SA says the data explosion, Big Data, is also creating a new playing field in which companies such as Google and Facebook have advantages. In a statement about the deal he says: "the communication and marketing landscape has undergone dramatic changes in recent years, including the exponential development of new media giants, the explosion of Big Data, blurring of roles of all players and profound changes in consumer behaviour." The merger will provide the new company the scale to develop these resources to compete with digital companies like Google and new entrants such as Salesforce.com and Adobe Systems. Omnicom has agencies BBDO, TBWA Worldwide, media buyer OMD. Publicis has Leo Burnett and Saatchi & Saatchi, media buyer Starcom MediaVest and digital agency Razorfish. The new Publicis Omnicom Group will have combined revenue of about $23 billion for 2012, and passes WPP Group PLC's $15.95 billion revenue. It will still be much smaller than Google with about 3 times WPP's revenue, and Google's advantage in storing trillions of pieces of data about user behaviour....

LyrArc Article Gist
Expedia plans to buy Orbitz in a $1.34 billion merger in Feb. 2015. The merger is in response to changes in the hotel and airline bookings business with new competitors changing the field. Google's travel site, and other newer sites in the hotel business such as Airbnb are posing a challenge to established sites Priceline.com and Expedia. In addition the airlines have improved their own sites and offer incentives to travellers booking directly. Delta Airlines and American Airlines now have sites that are in the top 20 of online travel sites. Marriott, Hilton and other hotel chains now try to get customers to book directly. The commission charged by Expedia and Orbitz has dropped from 21% to 15% for hotel operators. Smaller hotel operators look warily at the concentration of power in two major hotel online companies, one led by Priceline.com that includes Kayak, Rentalcars.com, Bookings.com, and the other led by Expedia which now includes Orbitz, Travelocity, Hotels.com, CheapTickets.com. The competition is more intense in the hotel bookings business....

LyrArc Article Gist
Pearlstein says American Airlines (AMR) management had hoped to reduce employees count by 13,000, reduce benefits for employees and retirees and reform work rules by going through bankruptcy in the manner of other airlines such as Delta and Northwest. As it turns out AMR's unions and US Airways have made their own deal and come up with labor agreements that are likely to result in a merger deal with AMR with 1.2 billion in savings from synergies, instead of relying on labor savings for $800 million as AMR management had planned. This is because US Airways CEO, Doug Parker, sees increased savings and revenue from a new combined airline and a better hands on management team. Part of the reason is also the the way the combined airline provides additional feeder traffic from smaller cities to hubs in the east coast and midwest markets and in the Miami routes to South America. The Pension Benefit Guarantee Corporation also tacitly sees the benefit of a stronger airline so that its funds are not depleted further by having to support AMR's underfunded pension plan. The creditors have also realized what all this means by increasing the value of AMR bonds to 50 cents on the dollar from 30 cents on the dollar....

LyrArc Article Gist
Many small, high growth companies in China have listed on US stock exchanges through back-door mergers with shell companies. The questionable practice are in the "reverse takeover" market for Chinese listings. It involves networks of accountants, lawyers and bankers helping to bring these Chinese companies into US stock markets. Some of these companies have minimal revenues, questionable accounting and no clear corporate governance. By mid 2010 about 340 Chinese companies were listed on US stock exchanges and were using small largely unknown US auditing firms, who were contracting the work back out to local Chinese firms, according to the SEC's chief accountant. The SEC is conducting an investigation into this practice. The House Financial Services Committee is looking into this, especially because it is feared that with the interest in Chinese listings there is the opportunity for self-dealing and potential fraud. Says Rep. Chris Lee: "I don't want this to be a junior Madoff scandal."...

LyrArc Article Gist
Time Inc. publishes about 80 print magazines, including Time, People, and Sports Illustrated. CEO Joe Ripp says Time Inc. was slow to respond to the digital transformation of media, and revenue is declining for several years. In 2014 Time Inc. ad revenue from digital ads was only 17%. Unlike Meredith Corp. and other companies which have television stations, or cable-television systems which can support its business, Time has little in the way of support, and could be broken up if the transformation into digital fails. Ripp was Chief Financial Officer of first Time Warner in 1999, and then of AOL Inc. at the time of the merger with Time Warner Inc. One of Ripp's recent risky moves not followed by other media companies is merging the media content side with the advertising side in native advertising. Time Inc. has 7000 employees as of Dec. 31, 2014, 800 fewer than the prior year.

LyrArc Article Gist
AMR announces it will purchase 260 A320 planes from Airbus and 200 additional 737's from Boeing. This is the first order from Airbus since the 1980's. Airbus and Boeing have agreed to $13 billion in lease financing to fully cover 230 deliveries . AMR president Horton says financing has been arranged for all othe orders from 2013 to 2016 and for 80% of 2017. This is critical because AMR is still losing money. Its second quarter loss increased to $286 millon from $11 million the prior year. Total debt is at $17.1 billion on June 30, 2011 compared to $16.1 billon the prior year, and cash balance at $5.1 billion the same as prior year. The new order will help reduce fuel costs. They will use 35% less fuel per seat than the old MD-80 planes according to AMR CEO Arpey. The new engines on the aircraft deliveries of A320s and 737s in 2017 and 2018 will provide even more fuel efficiencies compared to the 737s and A320s for this model year. For this reason Standard &Poors says the large order and financial commitment by AMR does not affect its ratings. It said the order will result in an airline that is over time more profitable because of the fuel effiencies gained but also more heavily indebted. S&P estimates of fully adjusted debt are at $24 billon. For Boeing the order means a decision to go with a new engine 737 and not an all new model that would succeed the 737. The technology was there says Jim Albaugh, CEO of the Boeing commercial plane unit, but the production system was not clearly understood to get production to 60 planes a month and avoid delays. For Airbus the AMR order is a significant advance. Except for Southwest which has an all 737 fleet, AMR was the last holdout without any Airbus planes. And the decision by Boeing to stay with a new engine 737 means Airbus wil not have to worry about Boeing leapfrogging the A320neo, which is anew engine A320. ...

LyrArc Article Gist
A look at Department of Transportation data shows a downward trend in airline ticket prices. Average domestic fares in the U.S. declined 16%, adjusted for inflation, compared to 1995. A comparison shows a round trip ticket price of $410 in 2010 dollars in 1995, the same ticket is priced $338 in 2011, including $22 for bags and reservation charges that were added in recent years. Not including the $22 would give a 21% decline in prices in 2010 compared to 1995. Higher labor costs for American which could not shed legacy costs because it did not go into bankruptcy like some of its competitors, combined with higher fuel prices have posed a serious threat to American Airlines. American Airlines (AMR) experienced a 33% drop in share price on Sept. 3, 2011, with a recovery gaining 21% the following day to close at $2.39. UnitedContinental had a 2nd quarter 2011 average fare- revenue divided by number of passengers- excluding taxes, of $273. Southwest had an average one way fare of $143 for the 2nd quarter 2011. According to DOT figures, passenger tickets provide only 71% of total passenger revenues to airlines, compared to 88% in 1990. The remaining 29% comes from reservations charges, standby service, checked luggage, in-flight food service, transporting pets and other charges. ...

LyrArc Article Gist
With the sale of its stake in TNK-BP to Rosneft BP will have 19.75% of Rosneft. It will lose TNK-BP's oil production of 986 billion barrels of oil equivalent, and it will gain 900 million barels from its share of Rosneft output. BP's oil reserves will increase by 12.5% after the deal. TNK-BP has paid annual dividend of an average of $2.2 billion since 2004, BP payout from Rosneft is estimated at $500 million. BP's share of the new Rosneft after the deal would be $3.6 billion in expected earnings for 2013 compared to $4.1 billion from the 50% share of TNK-BP. Some of this dilution may be restored by share buybacks by BP.

LyrArc Article Gist
Cia Mexicana de Aviacion, Mexico's largest airline filed for bankruptcy protection in July 2010. The airline says losses amount to $350 million since 2007, and the debt is about $1 billion. Mexicana and Aeromexico were given government bailouts in the 1990's, later merged into one government run airline holding company called Cintra. In 2005 Mexicana was sold to hotel chain Grupo Posadas SAB for $165.5 million. The Mexican government is trying to introduce more competition in the airline industry and opposes another merger of the two airlines.

LyrArc Article Gist
How the Delta Pan Am merger is still a mess at JFK Terminal. Not a good sign for future mergers. Describes the results of prior mergers and shows a rather mixed record at best. Cites difficulties such as meshing computer reservation systems and facilities. Of major importance is the pride in their work and energy of the people involved, and how it be best tapped into, considering the experience of Continental and Gordon Bethune. America West's Doug Parker is trying to do this at US Airways, and Brazilian airline TAM is working with Varig assets.

LyrArc Article Gist
American Airlines share price ended at $1.98, down 33%, on Oct. 3, 2011. AMR averted bankruptcy protection in 2003. This is the lowest level for the share price since 2003. AMR suffers from higher labor costs than other large airlines that went through bankruptcy and realigned costs. AMR says its labor costs are $800 millon higher than its competitors. AMR says it has $4.2 billion in unrestricted cash as of Sept 30, 2011, a decline from the $5.1 billion on June 30, 2011. Debt obligations due for AMR are $2.5 billion for 2011, $1.8 for 2012 and $1 billion in 2013. AMR raised $726 million in aircraft- backed bonds to refinance part of $1.3 billion in debt obligations due in second half of 2011. AMR has ordered 460 new fuel efficient aircraft in a lease financing deal offered by Boeing that does not stress AMR's balance sheet. Fears that AMR is burning cash with its expected operating loss caused Moddy's to change its outlook for AMR to negative from stable. AMR had $17.1 billion in total debt on June 30, 2011....

LyrArc Article Gist
Everything Everywhere, is a joint venture between T-Mobile and France Telecom. It is the market leader in Britain in mobile phone services since it was formed in 2010. Now Telefonica's O2 UK and Britain's Vodafone will form a 50-50 joint venture to combine their wireless grid so that they can reduce costs, invest in innovation and setup a new broadband LTE (Long Term Evolution technology) network. This will help both companies compete more effectively in the British market. It is not a merger as both companies will continue to run competing services. This type of arrangement is becoming popular in Europe because of the high costs of building one's own LTE network, and makes sense, say analysts, because quality is perceived by customers in terms of speed and reliability of service than simply coverage. O2 sees the potential of reducing cell tower masts by 10% with the new venture.

LyrArc Article Gist
By the time NYSE began the switch to becoming a technology company it was too late, says one expert. Other stock exchanges such as the Frankfurt Stock Exchange switched entirely to electronic trading even as the NYSE clung to old ways. All the time the trading floor of the NYSE was losing trading volume, handling only 20% of all trading volume in NYSE-listed stocks in 2012, down more than 40% from 2007, according to analysts. NYSE's Liffe, European derivatives business that came from the merger with Euronext in 2007 alone could be worth about $6 billion, close to the market capitalization of NYSE Euronext. Liffe was one of the main reasons NYSE was attractive to ICE. NYSE CEO Niederauer and the Board sensed the danger if NYSE remained by itself, according to people informed about discussions. The feeling was NYSE would fall further behind in a few years and lose control over its future. This created a new urgency to the talks with ICE, a doable merger from a regulatory perspective because there was not much overlap in the businesses. Niederauer's personal relationship with Sprecher of ICE provided the catalyst to move ahead and work out details such as headquarters locations in Atlanta and New York City, and sharing of management roles with Niederauer reporting to Sprecher. In his letter to employees Niederauer made it clear that ICE was acquiring NYSE. ICE started with electricity trading in Atlanta, embraced technology and electronic trading as its foundation, and took advantage of the opportunities in using technology to meet the requirements set by the Dodd Frank legislation for derivatives and futures trading....

LyrArc Article Gist
Niederauer brings a straightforward style to his efforts to bring together NYSE Euronext and Deutsche Bourse in a new combination. He joined Goldman in 1985, after studying business at Emory University in Atlanta. In his 22 year career at Goldman he worked his way up as a stock trader. He worked in Tokyo where he supervised efforts for electronic trading. He was brought to NYSE in 2007 by Mr Thain, a former Goldman executive. The NYSE has seen its dominance erode since 2000, as investors shifted to fast trading. In the U.S. the NYSE traded 34% of NYSE listed shares bought or sold in January 2011, a significant drop from the 54% in late 2007, and more than 80% when the NYSE was the dominant exchange. This is reflected in the stock price, which is down 56% for NYSE shares since the end of 2007. With a merger Niederauer will be the leading executive of the merged company.

LyrArc Article Gist
About 38% of Gen Y (18-34 years) prefer to locate in mid or large sized cities such as San Francisco, Chicago and Boston. Companies are following this trend especially in the tech and internet field to attract young employees. Many professionals marry later with both partners working and prefer living in a close environment with many opportunities for interaction and activities. Commercial vacancy rates in central business districts are down faster than in the suburbs- 13.9% of urban space is empty in the 3rd quarter of 2013 compared to 18.5% in the suburbs, according to Reis Inc. The recession had reduced downtown rents and cities offered additional incentives. After the merger of Continental with United, the corporate offices were moved to the Sears Tower in downtown Chicago. Google's Motorola Mobility is moving into the Merchandise Mart in downtown Chicago from the suburbs. Twitter moved to a location in downtown San Francisco attracted by the space and lower rents.