Business Blog Posts

SYDNEY Reuters BHP Billitons chief executive flies to North America this week to crank up the charm offensive with Potash Corp shareholders after dousing expectations he would sweeten a $39 billion bid for the fertilizer giant.

Fresh from reporting its richest half-year profit in two years, executives at the Anglo-Australian miner will brief BHP investors on four continents on the results, but that is likely to be overshadowed by its bid for Potash.

BHP is likely to focus on wooing Potash shareholders with its current $130 per share offer. Chief Executive Marius Kloppers has sought to discourage expectations he might raise the bid.

Kloppers was expected to spend the coming weeks shuttling between Europe and North America, one source familiar with the situation said. BHP refuses to comment on the movements of Kloppers or other senior executives at the worlds biggest miner.

The chief executive is under huge pressure to clinch his first major deal after three years on the job, and sources who have worked with him on previous deals said he was likely to be at the front-line of any efforts to win over Potash shareholders.

If BHP raised its offer above $158.50 a share, or $47 billion, UK stock market rules would require the company to get approval from its own shareholders because the purchase would exceed 25 percent of BHPs market capitalization.

Some BHP investors have indicated this might not be a problem as the miner was under huge pressure to grow.

"A company the size of BHP has so few options to grow and diversify the business. If they can get this Potash deal people are not going to turn around and say that was a ludicrous bid. We are dealing with a top quality asset," Limestreet Capital portfolio manager Stephen Bartrop said.

POTASH PLANS?

Analysts say Potash Corp could still foil BHP by selling assets into a joint venture at a price that implies a higher value for the whole company than BHP has offered, with Chinas Sinochem as a likely partner.

Sinochem subsidiary Sinofert Holdings could give some clue on its parents intentions when it releases its first-half results in Hong Kong later on Thursday. Sinofert is 22 percent owned by Potash Corp.

The two companies considered big enough to mount rival bids on their own -- Vale and Rio Tinto -- have faded as prospective white knights. Vale pulled itself out of the running, while analysts think Rio has all it can handle after its ill-timed, $38 billion takeover of Canadas Alcan.

Some shareholders worry about risks BHP will assume if it acquires Potash Corp and expands into a new market. BHP aims to tap an expected boom in demand for potash from farmers trying to boost crop yields to feed countries like China and India.

BHPs Sydney-listed shares were trading 0.6 percent weaker at A$37.21 at 0243 GMT on Thursday after the company reported its results late on Wednesday when it revealed a hefty balance sheet and annual cash flow of $17.9 billion.

Investors have pushed Potash shares 13 percent above the $130 bid, betting BHP would eventually boost its offer, or that a rival bidder would emerge. A Reuters survey indicated Potash shareholders would accept $162 a share.

Kloppers has hinted a higher offer would have to wait until BHP received regulatory approvals for its plans, which is expected to take up to two months.

Sources familiar with the matter have indicated they do not expect any major regulatory hurdles.

Editing by Ed Davies and Dean Yates

TOKYO Reuters Japans government will urge the Bank of Japan to ease monetary policy further as part of a package of steps to stem the yens rise and support the fragile economy, the Asahi newspaper said, ratcheting up pressure on the central bank to take action before a policy meeting next month.

Japanese policymakers have scrambled to talk down the yen, which rose to a 15-year high against the dollar this week, and have hinted at the possibility of intervening in the markets for the first time since 2004.

"The government apparently is counting on the BOJs further easing to slow the yens rise as it wants to avoid actually intervening in the currency market and causing friction with the United States that wants a weak dollar," said Seiji Adachi, senior economist at Deutsche Securities.

"The BOJ may resignedly ease its policy further in the face of government pressure, but its steps are likely to have short-term impacts."

The BOJ is considering easing monetary policy further at its next rate review on September 6-7 or earlier, with the most likely option an expansion of its cheap fixed-rate loan program for banks put in place in December, sources said.

Prime Minister Naoto Kan is mapping out a series of steps to spur growth, such as extending the deadline for subsidies on purchases of energy-efficient electronics, but the governments options are limited with public debt nearly twice the size of the economy.

That is putting pressure on the BOJ to do its part to help the economy.

Asahi said the government package is expected to be outlined by the end of this month and will stress the need to work increasingly closely with the central bank to deal with rapid rises in the yen that are threatening Japans export-reliant economy.

The package will also call for more action from the central bank, urging it to make its "utmost effort" to beat deflation, according to a draft of the steps cited by the newspaper.

Some analysts say if the yen appreciates rapidly and shoots past 80 to the dollar, the central bank may hold an emergency meeting to decide further easing before the government package comes out.

Additional reporting by Rie Ishiguro; Editing by Edmund Klamann & Kazunori Takada

WASHINGTON Reuters New orders for long-lasting U.S. manufactured goods excluding transportation equipment posted their largest decline in 1-1/2 years in July while overall booking rose far less than expected, pointing to a slowdown in manufacturing.

The Commerce Department report on Wednesday was the latest to indicate continued subdued U.S. economic growth and an increased risk of a slide back into recession, though most analysts still do not believe a double-dip recession is imminent.

It adds to the slew of softer-than-expected data coming out of the U.S., increasing the risk of a very gradual recovery going forward, said Matthew Strauss, senior currency strategist, RBC Capital Markets in Toronto.

I think were not yet looking at double-dip as a base case scenario, but clearly the risk of entering into a period of very, very sluggish growth has risen.

The Commerce Department said durable goods orders excluding transportation dropped 3.8 percent -- the biggest fall since January 2009 -- after rising 0.2 percent in June. Overall orders rose 0.3 percent following a revised 0.1 percent fall in June.

Analysts polled by Reuters had forecast orders increasing 2.8 percent last month from Junes previously reported 1.2 percent fall. Orders excluding transportation had been forecast to increase 0.5 percent from a previously reported 0.9 percent fall.

U.S. stock index futures fell on the report, while prices for safe-haven government debt prices rallied. The dollar U.S. dollar fell against the yen and Swiss franc.

Durable goods orders are a leading indicator of manufacturing and last months moderate increase was the latest indication the sector that has been the main driver of the economys recovery from the worst downturn since the Great Depression is losing some steam.

Overall orders last month were lifted by the volatile commercial aircraft component, which jumped 75.9 percent after a surprise 25.3 percent fall in June. The jump last month reflected 130 aircraft orders received from Boeing and probably included some of the 49 plane bookings in June.

Defense aircraft orders dropped 8.3 after rising 5.7 percent in June, while motor vehicle orders rose 5.3 percent after Junes 4.0 percent rise.

Orders outside transportation were depressed by weak bookings for machinery, electrical equipment and computers and related products and

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, fell 8.0 percent last month after a 3.6 percent increase in June. Markets had expected a 0.4 percent rise last month.

The strength of second quarter GDP was business spending. It looks like businesses are pulling back from this commitment in a very big way in July. Its an indication of how sentiment is deteriorating, said Christopher Low, chief economist at FTN Financial in New York.

Durable goods inventories rose 0.6 percent after increasing 1.3 percent in June. It was the seventh straight month of gains in inventories.

Shipments, which go into the calculation of gross domestic product, last month rose 2.2 percent, adding to Junes 0.2 percent gain. Unfilled orders slipped 0.1 percent after rising for three straight months.

Reporting by Lucia Mutikani, Editing by Chizu Nomiyama

NEW YORK Reuters U.S. luxury homebuilder Toll Brothers Inc TOL.N bested Wall Street expectations and reported its first profit in three years on Wednesday, helped by tax benefits and lower writedowns on land values.

For its fiscal third quarter ended July 31, Toll reported net income of $27.3 million, or 16 cents per share, compared with a loss of $472.3 million, or $2.93 per share, a year earlier.

Excluding certain one-time items, the company broke even, while analysts, on average, had expected a loss of 14 cents a share, according to Thomson Reuters I/B/E/S. Thomson Reuters I/B/E/S stripped the tax benefit out of its estimate, but some analysts may have included it.

In addition to the tax benefit and a decline in writedowns, lower administrative costs and better margins also contributed to the quarterly performance that surpassed analysts expectations, Credit Suisse analyst Dan Oppenheim wrote in a client note.

Revenue slipped 2 percent to $454.2 million.

Orders fell 16 percent. Builders have reported a decline in demand subsequent to expiration of the federal homebuyer tax credit on April 30, noting that the credit induced buyers to accelerate their decision to purchase a home.

Orders are a leading indicator for homebuilders, who do not book revenue from a sale until they deliver a home.

Horsham, Pennsylvania-based Toll Brothers builds in 21 states, with a focus on the move-up market.

Shares of the company, which have fallen about 32 percent in the last four months, closed at $16.19 Tuesday on the New York Stock Exchange. They touched a 52-week low of $15.57 Tuesday.

Reporting by Archana Shankar in Bangalore; Editing by Gopakumar Warrier and John Wallace

LONDON Reuters Stock futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 rise 0.3 to 0.5 percent, pointing to a higher start on Wall Street on Wednesday, after steep declines in the previous session on grim data.

The Mortgage Bankers Association releases at 1100 GMT 7 a.m. EDT Weekly Mortgage Market Index for the week ended August 20, versus the prior week. The mortgage market index read 829.7 and the refinancing index was 4,676.7 in the previous week.

At 1230 GMT, Commerce Department releases July durable goods orders. Economists in a Reuters survey expect a rise in orders of 2.8 percent versus a drop of 1.2 percent in June.

American International Group Inc AIG.N is expected to decide by early next week whether to enter formal negotiations with strategic investors for its Asian life insurance business, AIA, sources familiar with the process told Reuters on Wednesday.

Commerce Department releases at 1400 GMT new home sales data for July. Economists in a Reuters survey forecast a total of 330,000 annualized units in July, a repeat of the figure reported in June.

Telecoms equipment maker JDS Uniphase Corp JDSU.O is due to announce quarterly results.

Resource-related stocks will be in focus after crude oil bounced from a seven-week low as investors looked for relief in U.S. durable goods and oil inventory reports due later in the day, after fears of a double-dip recession intensified with dismal housing data.

European stocks erased early losses and inched higher on Wednesday, taking a breather after the previous sessions sharp losses, with Heineken HEIN.AS rising on forecast-beating results.

The Nikkei average .N225 hit a 16-month closing low on Wednesday as disappointment spread over the lack of policy action by Japan to rein in the strong yen, which threatens a fragile economic recovery.

Japans finance minister sharpened his rhetoric on the yens steep gains after the Nikkei newspaper reported Japan may consider selling the yen in solo intervention if speculators drive it up, threatening the economys recovery.

Finance Minister Yoshihiko Noda told reporters he would respond appropriately as needed, an expression he has not previously used in his campaign to talk the currency down. Noda was to meet Prime Minister Naoto Kan and other ministers later.

U.S. stocks fell to their lowest level in seven weeks on Tuesday as an unexpectedly large drop in home sales ratcheted up concerns that the economic recovery is even weaker than had been feared.

The Dow Jones industrial average .DJI fell 133.96 points, or 1.32 percent, to 10,040.45. The Standard & Poors 500 Index .SPX shed 15.49 points, or 1.45 percent, to 1,051.87. The Nasdaq Composite Index .IXIC lost 35.87 points, or 1.66 percent, to 2,123.76.

There was confusion over the results of a key pressure test of the Macondo well hours before the Deepwater Horizon rig exploded in April, a senior rig official told federal investigators on Tuesday.

Standard & Poors on Tuesday cut its ratings on Ireland and assigned the country a negative outlook, saying it expects Ireland faces substantially higher costs to support its ailing financial institutions.

S&P cut Irelands long-term rating one step to AA-minus, the fourth highest investment grade. A negative outlook indicates another downgrade is more likely over the next one to two years.

Reporting by Atul Prakash

DUBLIN Reuters Irelands financial headache worsened on Wednesday after Standard & Poors cut its credit rating in a move criticized by the countrys debt management agency.

In a strongly worded statement, the National Treasury Management Agency said it disagreed with S&Ps view that Ireland faced substantially higher costs to bail out its ailing banking sector.

In terms of the specific analysis by S&P, this is largely predicated upon an extreme estimate of bank recapitalization costs of up to 50 billion euros, the NTMA said.

We believe this approach is flawed.

Concerns over the final bill for purging Irish banks of bad debts clocked up in a decade-long property binge have pushed Ireland back to the center of the European debt crisis and it is viewed as the second riskiest euro zone country after Greece.

The premium investors demand to hold Irelands 10-year bonds over German bunds has been steadily widening in the past few weeks and remained elevated at 327 basis points on Wednesday.

The spread finished at 330 bps on Tuesday, its highest level since the Greek financial crisis broke in May.

Brenda Kelly, an analyst at CMC Markets, said she expected Irish borrowing costs to climb on the back of S&Ps move.

I think we are going to have to an awful lot more in interest payments, she said.

Although Ireland has raised virtually all of the 20 billion euros of long-term debt targeted for 2010, S&Ps move may make it more difficult for the countrys banks to extend the maturity of their funding later this year and eventually wean themselves off a state guarantee on their debt.

The NTMA will auction treasury bills worth between 400 million and 600 million euros on Thursday as part of a regular sale of short-term paper.

S&P cut Irelands long-term rating by one notch to AA-, the fourth highest investment grade, and assigned the country a negative outlook late on Tuesday saying the cost to the government of supporting the financial sector had increased significantly.

Rating agencies have been steadily hacking away at Irelands credit rating and S&Ps is now on a par with Fitch and one notch below Moodys, which cut its rating to Aa2 last month.

S&P said it expects Ireland will need to spend 90 billion euros to support its banking system, up from its prior estimate of 80 billion euros including capital used to improve the solvency of financial institutions and losses taken from loans the government acquired from banks.

Irelands budget deficit ballooned to 14 percent of gross domestic product, the highest in Europe, last year due to the cost of propping up nationalized lender Anglo Irish ANGIB.UL and it could climb higher if Dublin injects an additional 10.05 billion euros into the bank.

Irelands central bank governor said last week that the final bill for Anglo could be between 22-25 billion euros, though the cost of bailing out the lender would not increase debt to an unmanageable level.

Editing by John Stonestreet

MELBOURNE Reuters BHP Billiton, the worlds biggest miner, reported a 47 percent rise in second-half profit on Wednesday, in line with analysts forecasts, after a sharp rebound in iron ore and copper prices.

BHP, which has made a $39 billion hostile bid for top global fertilizer maker Potash Corp, said it was cautious on the short-term global outlook and that the Chinese economy, its biggest customer, would slow from recent highs.

Net profit before one-offs for January-June rose to $6.77 billion from $4.59 billion a year earlier, compared with analysts forecasts for around $6.9 billion, according to a survey of 13 international brokers.

BHP is targeting Potash Corp with a $130 a share offer to power its next phase of growth, launching into a completely new market for the global miner, which has made some of its shareholders nervous.

BHP shares have dropped 6.8 percent since announcing the bid a week ago, heavily underperforming a 2.6 percent fall in rival Rio Tinto, as investors are worried about the risks BHP is taking on with the bid.

Reporting by Sonali Paul; Editing by Valerie Lee

WASHINGTON Reuters Central bankers from around the world will assess a darkening economic outlook at their annual U.S. mountain retreat this week with discussion of printing yet more money to spur growth on the agenda.

Federal Reserve Chairman Ben Bernanke is likely to signal his views about the uncertain prospects for the worlds biggest economy but he probably wont give many clues on whether the U.S. central bank will pump more cash to keep the recovery going.

Other top central bankers will arrive in the Jackson Hole resort with concerns, too.

European Central Bank President Jean-Claude Trichet faces his own challenge of a two-tier recovery.

While the euro zone economy as a whole has strengthened thanks to strong German growth, the ECB looks set to keep providing banks with unlimited funds at a fixed rate to help banks and governments in Europes troubled periphery.

Bank of England and the Bank of Japan officials will come to the Teton mountains likely to talk about how they might have to push more money into their economies to stimulate growth, a last resort when benchmark interest rates approach zero.

Its not just the U.S. that stalled in June and July, its the world economy that hit a wall over the summer months, said Ellen Zentner, a U.S. economist for Bank of Tokyo-Mitsubishi UFJ in New York.

The likely mood of concern among the central bankers heading for the wilds of Wyoming contrasts with the optimism of a year ago, when debate at Jackson Hole centered on ways to wean economies off emergency support as they emerged from recession.

The discussions give the worlds top central bankers a chance to thrash out the major challenges of the moment as well as hike on trails in the scenic national park.

Past roundups have come at economic turning points: the start of the credit crisis in 2007, the days before Lehman collapsed in 2008 and before the start of the recovery in 2009.

Chicago Federal Reserve Bank President Charles Evans said Tuesday that the risks of a double-dip U.S. recession have risen in the last six months. While he added he did not think that was the most likely scenario, he said high unemployment and a fractured housing sector would make the recovery a fragile one.

EYES ON BERNANKE

Bernankes speech Friday will be a keystone of the three-day conference, which has chosen as its theme the challenges of the next decade. His audience will be listening keenly for clues about shorter-term support for the economy.

The Fed said on August 10 it would buy Treasury bonds with proceeds of maturing securities in its massive portfolio. It had been letting its balance sheet shrink naturally, effectively removing some of its huge stimulus.

This wasnt the right time to send a signal that we would be allowing a tightening to take place as these securities rolled off our balance sheet, Dallas Fed President Richard Fisher told Fox Business Network Tuesday.

The big question now is whether the Federal Reserve will start buying Treasury bonds more aggressively again to provide the U.S. economy with a new injection of cash.

The Wall Street Journal said Tuesday that more senior Fed officials than previously thought voiced concerns about or objections to the relatively modest move to use mortgage debt maturities to buy Treasuries at the August 10 meeting.

The reported split within the central banks upper echelons suggested the Fed could stand pat after rebalancing its balance sheet and set a high bar for any further asset purchases.

Under these circumstances, it would be premature for Chairman Bernanke to provide a set of guideposts for future policy moves, as helpful as that would be for the markets and as much as we believe that additional easing will ultimately be needed, analysts at Goldman Sachs said in a note Tuesday.

Instead, we expect him to concentrate on how the economy and the Fed have come to where they are now, with at best just a general sense of economic risks in the months ahead.

Reporting by Mark Felsenthal; Editing by Kim Coghill