Business Blog Posts

TORONTO/HONG KONG Reuters Chinese officials have ordered state companies to meet investment bankers to explore ways to block BHP Billitons $39 billion bid for Potash Corp, a source with direct knowledge of the matter said.

In response to the directive, Sinochem is holding meetings with several banks, the source said on Friday, including Citigroup, HSBC and Morgan Stanley.

The order from Beijing underscores the seriousness with which China is taking the potential BHP-Potash tie up and its implications for the pricing and supply of the crop nutrient, despite obstacles to launching a successful counter-bid.

"They are being instructed," the source said, adding the order was issued late last week. "The chairman of Sinochem has been asked to speak to other banks."

A Wall Street Journal report on Thursday said Sinochem had hired HSBC to advise on options pertaining to Potash Corp.

One option being discussed is the possibility of Sinochem linking with Chinas $300 billion sovereign wealth fund CIC, according to a second banking source familiar with the matter.

The most likely scenario is that China will consider buying a blocking stake, rather than attempt a complete takeover of Potash Corp, said both sources who were not authorized to speak publicly due to the sensitive nature of the discussions.

Assuming a consortium pays a 20 percent premium to Potashs market price, a 15 percent stake would cost about $8.3 billion.

Sinochem and the banks declined to comment. CIC could not immediately be reached.

BHP CEO Marius Kloppers has poured cold water on the possibility of a rival bid but another source close to the situation in Europe said the latest developments are evidence of solid interest in Potash Corp by third parties.

"This shows theres credibility from Potash Corp, its not just hot air. Its not just a go-it-alone defense. Theres quite a lot of activity in terms of discussions," said the source.

Chinese firms have also approached at least one big Canadian pension manager about a rival bid. The disclosure on Thursday by Alberta Investment Management Corp, which manages some C$70 billion $67 billion in public sector pension funds, was one of the first pieces of hard evidence to back rumors that China is looking for a way to derail a BHP takeover.

Potash shares in New York closed down 5 cents at $148.50, while BHPs London shares ended the day up 1.8 percent.

BHPs bid for Potash Corp, coupled with consolidation moves in the Russian potash sector, have also raised concerns among other potash importers.

U.S. Awasthi, the head of Indias largest fertilizer maker IFFCO, also expressed concerns about the M&A activity in the potash sector.

"Everybody forgets one thing," said Awasthi. "Everybody thinks about industrial profit, but everybody forgets about a farmers profit."

India, one of the worlds largest potash importers, has no production capabilities of its own and relies on imports. In 2008, India imported roughly 6 million tonnes of the nutrient, with about a quarter of its needs being supplied by Canadian producers.

Earlier this year, IFFCO acquired a 10 percent stake in Calgary-based Americas Petrogas and a 20 percent stake in its GrowMax unit, which owns a potash brine project currently being developed in Peru. However, India is unlikely to attempt a move to block BHPs takeover bid.

"In India we dont have enough capital in our hands to make a big move of this sort," he said.

CANADIAN CONCERNS

In addition to concerns about job losses and declines in royalty revenues in the event of a foreign takeover of Potash Corp, Saskatchewan -- the western Canadian province that is home to Potash Corp -- is especially concerned by a takeover led by a Chinese state-owned entity.

"We want to be very circumspect about sovereign entities from customer countries and their involvement in all of this," said Saskatchewans Premier Brad Wall in a television interview.

Aside from political concerns, a bid from a Chinese state-owned entity could face an additional layer of scrutiny under the Investment Canada Act, notes Steve Szentesi, a Vancouver-based lawyer who focuses on competition law.

"The over-arching consideration under the Investment Canada Act, is whether a transaction is likely to be of net benefit to Canada," said Szentesi. "But in the case of state-owned enterprises there is an additional layer of scrutiny on top of the general net benefit to Canada test."

Additional reporting by Narayanan Somasundaram in Sydney, Michael Flaherty and Denny Thomas in Hong Kong, Tracy Zheng in Beijing and Eric Onstad in London

NEW YORK/DETROIT Reuters The U.S. government is likely to take a loss on General Motors Co in the first offering of the automakers stock, six people familiar with preparations for the landmark IPO said.

Subsequent offerings of the governments holdings may be profitable depending on how investors trade the newly listed stock, the sources said.

But the question of whether taxpayers are ultimately made whole on GMs $50 billion bailout could be left open for years, the people said.

It could take more than three years for the Treasury to sell down its remaining stake in GM after the IPO, one person said. That would push a final accounting into the next presidential term.

A decision to price the initial GM shares below the cost to taxpayers would follow the usual Wall Street practice of giving the first investors in a new stock a discount, but it could also help allay investor concern in the face of the slow recovery of the U.S. economy and flat auto sales.

Preparations for GMs IP0 remain confidential. Both GM and the U.S. Treasury have declined to comment, citing restrictions by U.S. securities regulators.

The Obama administration has pledged to exit its investment in GM as quickly as possible while holding out the prospect that taxpayers could ultimately be paid back in full.

Treasury spokesman Mark Paustenbach declined to comment. GM spokesman Tom Wilkinson also declined to comment.

GM plans to begin a roadshow for its IPO immediately after the November 2 U.S. midterm congressional elections, paving the way for a stock debut on November 18, sources have said.

GM in August filed paperwork for an IPO that could potentially be worth as much as $20 billion, making it one of the biggest IPOs of all time.

The U.S. Securities and Exchange Commission is now reviewing the automakers S-1 filing.

Analysts and potential investors have projected a market value for GM of between $50 billion to around $90 billion, based on projections for the automakers cash flow, comparisons with rival Ford Motor Co and trading in bonds in the old GM which are convertible into shares in the new company.

A market value at the high end of that range would be above the roughly $70 billion in market capitalization that GM needs to achieve for the U.S. government to break even on its $43 billion remaining investment in the automaker.

But IPOs typically price at a discount of 10 percent to 15 percent to theoretical fair value to reward investors for taking a risk on a new issue and pave the way for future stock floats. In tough market conditions, that discount can be even larger.

"You have to sell people on the notion that there is an upside to what they are buying," one of the sources said.

Another of the sources said the discount could be as much as 20 percent on the GM IPO compared with the U.S. Treasurys break-even point.

Preparations for the GM stock offering remain in the early stages. A number of the sources cautioned that the size and value of the deal and the size of the stake to be sold by the U.S. government have not been determined and will not be set for weeks.

GOVERNMENT STAKE IN GOVERNMENT MOTORS

The U.S. government pumped $49.5 billion worth of taxpayer money into the automaker and took nearly 61 percent of its common stock.

GM has paid back $6.7 billion in debt to the Treasury and returned another $700 million in interest and dividends. The U.S. government also holds $2.1 billion in perpetual preferred shares in the automaker.

That leaves the government with a roughly $40 billion investment in the GM common stock that will debut in an IPO along with a new class of preferred shares that will convert into common shares under a mandatory provision.

In the days leading up to GMs August S-1 filing, Republican Senator Charles Grassley asked a special Treasury Department watchdog for an analysis of the GM IPO and how much money would be returned to taxpayers.

In its pitch to potential investors, GM will tout its global reach, recent gains in quality and pricing in its home market, and its sharply lower cost of operations after its 2009 bankruptcy, sources have said.

GMs $1.3 billion second-quarter profit was its biggest since 2004, when industry-wide U.S. sales were near 17 million vehicles compared with the 11.5 million sales rate of August.

But GM will have to address investor concern that growth in industry car sales in the U.S. in the second half of 2010 and into 2011 will likely be slower than analysts had expected just a few months ago.

At the same time, GM will have to confront a pension shortfall that remains a liability from its pre-bankruptcy operations.

GM eliminated about $40 billion in unsecured debt and other obligations in bankruptcy, but the automaker still needs to address a pension shortfall estimated at about $26 billion.

A successful IPO would be a political victory for the Obama administration and would help GM distance itself from critics who dubbed it "Government Motors" after its bailout.

WASHINGTON Reuters President Barack Obama will outline new measures next week to boost the U.S. economy after August data on Friday showed again that jobs -- the central issue in November elections -- were being created too slowly.

Obama, speaking to reporters in the White House Rose Garden, greeted a better-than-expected August employment report that showed thousands of new private sector jobs were created as "positive news."

But he said the numbers were not good enough and more needed to be done to address U.S. economic woes.

The White House is under pressure to show tangible results in lifting growth and hiring before congressional elections in November, when Obamas Democrats face punishment from voters anxious about near double-digit unemployment.

"I will be addressing a broader package of ideas next week," Obama said. "We are confident that we are moving in the right direction. But we want to keep this recovery moving stronger and accelerate the job growth that is needed so desperately all across the country."

On Monday, the president highlighted a number of possible options including extending middle class tax cuts, investing in clean energy, spending more on infrastructure, and delivering more tax cuts to businesses to encourage hiring.

The White House declined to give more specifics about the measures and a spokeswoman said final decisions had not been made.

"We need to take further steps to create jobs and keep the economy growing, including extending tax cuts for the middle class and investing in the areas of our economy where the potential for job growth is greatest," Obama said.

"In the weeks ahead, Ill be discussing some of these ideas in more detail."

Obama will have ample opportunity to flesh out those thoughts next week. He is planning to travel to Milwaukee on Monday, the Labor Day holiday, and will visit Cleveland on Wednesday. He will also hold a White House news conference on Friday, September 10.

The August employment report earlier showed a bigger-than- expected rise of 67,000 in private payrolls, while unemployment inched up a tenth of a percentage point to 9.6 percent.

Overall, U.S. nonfarm payrolls fell 54,000 as temporary jobs to conduct the decennial census dropped by 114,000.

"Jobs are being created. Theyre just not being created as fast as they need to, given the big hole that we experienced," Obama said.

"Were going to have to continue to work with Republicans and Democrats to come up with ideas that can further accelerate that job growth. Im confident that we can do that."

Additional reporting by Patricia Zengerle; Editing by Doina Chiacu

CHICAGO Reuters Walgreen Co WAG.N posted weaker-than-expected August sales at stores open more than a year, hurt by generic drug introductions and a decrease in customer traffic.

The results were reported a day after most retailers beat analysts sales expectations for August.

Sales at stores open at least a year, a closely watched measure of retail performance, increased 2.1 percent from the same month in 2009, the drug store chain said Friday. Analysts were expecting same-store sales to increase 2.4 percent, according to Thomson Reuters data.

Comparable pharmacy sales increased 2.9 percent as new generic drugs -- which tend to have higher profit margins but hurt sales because they are cheaper than name-brand drugs -- entered the market. A lower incidence of flu drove fewer people into pharmacies.

Front-store comparable sales, which includes snacks, beverages and other items, increased 0.7 percent. Customer traffic dropped 0.8 percent, and basket size increased 1.5 percent, Walgreen said.

Sales at Duane Reade stores, which Walgreen bought earlier this year, are not included in comparable store sales. Total sales for the month, which does include Duane Reade stores, were $5.66 billion, up 8.6 percent from August 2009.

Total sales for the fourth quarter that ended August 31 were $16.89 billion, up 7.6 percent from $15.70 billion in 2009.

Analysts were expecting $16.80 billion, according to Thomson Reuters I/B/E/S.

Walgreen also announced Friday that it is acquiring Omnicare Incs OCR.N home infusion business, which involves administering drugs and other nursing services at a patients home. In exchange, Omnicare will pick up Walgreens long-term care pharmacy business, which served senior living communities.

The transaction is expected to close by November, according to a statement by the companies.

Reporting by Emily Stephenson, editing by Dave Zimmerman

WASHINGTON Reuters U.S. employment likely fell for a third straight month in August as more temporary census jobs ended and cautious businesses scaled back hiring, an outcome that could pressure the Federal Reserve to prop up growth.

Nonfarm payrolls fell 100,000 after declining 131,000 in July, according to a Reuters survey. Private payrolls, a better barometer of the labor markets underlying health, are seen rising only 41,000, well below the 71,000 jobs added in July.

The Labor Department will release the closely watched employment report for August at 8:30 a.m. EDT.

Against the backdrop of weak data such as housing, larger-than-expected job losses last month could heighten fears the economy is sliding back into recession and push the Fed -- the U.S. central bank -- closer to launching a fresh round of bond buying.

A downbeat report would also further dim chances Democrats would hold their majorities in the U.S. Senate and House of Representatives in mid-term elections in November.

Concerns of a double-dip recession have diminished somewhat this week as data showed strength in manufacturing and gains in consumer spending but the sluggish pace of growth has kept investors on edge.

"The bar is set fairly low for Fridays employment report, but if we get a much larger decline, with weakness particularly evident in private employment, that would raise the odds of a double-dip recession," said Ryan Sweet, a senior economist at Moodys Economy.com in West Chester, Pennsylvania.

Despite the expected sharp drop in employment, the jobless rate probably only rose a touch to 9.6 percent from 9.5 percent in July. This is mainly the result of a shrinking labor force as discouraged workers give up the search for jobs.

According to government data, temporary employment for the decennial census fell about 116,391 between the July and August survey periods for the employment report.

While the unwinding of temporary census jobs has been a major drag on payrolls, an uncertain economic outlook has also caused businesses to pare hiring.

CONSUMER SPENDING HURT

Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of U.S. economic activity, leaving the recovery from the worst recession in 70 years sputtering.

Growth slowed markedly in the second quarter and Fed Chairman Ben Bernanke has said the central bank stands ready to take fresh measures to support the economy if needed.

Minutes of the Feds last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate "appreciably" to spur fresh monetary support.

The Fed slashed overnight interest rates to near zero in December 2008 and has vowed to keep them ultra-low for an extended period to aid the recovery. In addition, it bought about $1.7 trillion in mortgage-related and government debt in a further effort to lower borrowing costs.

Bernanke said last week that further purchases were a top option if officials felt more economic support was needed.

"The economy is in a bit of a lull and gauging how long we are stuck in this rut will determine if the Federal Reserve needs to step in," said Sweet.

The economys poor health has weakened President Barack Obamas popularity and could see Republicans wrestle control of Congress away from the Democratic Party.

Typically in midterm elections when there is no presidential race the party in power in the White House suffers losses, but analysts say the drubbing Democrats could face may be unusually severe.

The weakness in employment last month was probably spread across all sectors. Employment in the goods-producing sector was likely held back by lackluster manufacturing payrolls, which had received a boost from some automakers who did not shut their plants for the traditional summer break.

While construction employment probably got a lift from the return of 10,000 strikers, the gain was likely neutralized by a downturn in residential construction following the end of a popular homebuyer tax credit.

Employment gains in the dominant service sector were likely muted given tepid spending. However, temporary help services, seen as a harbinger of permanent hiring, probably rebounded after falling in July for the first time since last September.

Analysts believe companies that need to add workers will opt for temporary help given the uncertain outlook and some think the length of the average workweek, which has barely budged this year, could grow longer in a sign employers prefer to add hours for existing workers rather than hire new staff.

However, the median forecast for the average workweek in the Reuters poll is unchanged at 34.2 hours.

Editing by James Dalgleish

CHICAGO Reuters Campbell Soup Co CPB.N reported higher-than-expected quarterly earnings on Friday, helped by cost cuts and sales of V8 juice drinks, even as U.S. soup sales fell.

The company also forecast sales growth for the current fiscal year to be below its long-term growth target.

Net income was $113 million, or 33 cents per share, in Campbells fiscal fourth quarter that ended on Aug 1, compared to $69 million, or 20 cents per share, a year earlier.

Analysts on average were expecting 30 cents per share, according to Thomson Reuters I/B/E/S.

U.S. soup sales fell 5 percent as the company had to spend more on promotions.

Overall sales edged lower to $1.52 billion, below the average analyst estimate of $1.59 billion.

Reporting by Brad Dorfman and Martinne Geller; Editing by Derek Caney

Reuters Stock index futures pointed to a slightly lower open on Wall Street on Friday, with futures for the S&P 500 down 0.21 percent, Dow Jones futures down 0.17 percent and Nasdaq100 futures flat at 0725 GMT 3:25 a.m. ET.

The Labor Department is due to release the August employment report at 1230 GMT. Economists in a Reuters survey forecast 100,000 jobs were lost in the month compared with 131,000 lost in July. The unemployment rate is seen at 9.6 percent, compared with a 9.5 percent rate in the prior month.

The nonfarm payrolls will probably show a hit from a combination of the fading boost from census hiring, a reluctance by firms to add staff and relentless layoffs at cash-strapped state and local governments.

Economic indicators on tap for Friday also include the Institute for Supply Managements services sector report, while on the earnings front, Campbell Soup Co CPB.N is the only S&P 500 company scheduled to post quarterly results Friday.

Tech shares will be in focus after Samsung Electronics Co Ltd 005930.KS, the worlds No.2 handset maker, expects to sell up to 25 million smartphones this year, exceeding its earlier target, and aims to double shipments next year, media reports said on Friday.

On the M&A front, Canadas Goldcorp Inc G.TO agreed to buy gold miner Andean Resources Ltd AND.TO for $3.2 billion, trumping a competing offer from rival Eldorado Gold Corp ELD.TO EAU.AX.

BP Plc BP.LBP.N said on Friday the cost of dealing with its oil spill in the Gulf of Mexico had risen to $8 billion and that it was a fortnight away from sealing the well for good.

Video game maker Take-Two Interactive Inc TTWO.O on Thursday smashed Wall Street expectations for its fiscal third quarter and raised its forecast for the current fourth quarter, citing strong sales for its "Red Dead Redemption" title. Shares of Take-Two traded in Frankfurt TTWO.F were up 18 percent.

H&R Block Inc HRB.N posted a narrower-than-expected quarterly loss as the No. 1 U.S. tax preparer cut costs in the face of stiff competition from Intuit Inc INTU.O and said it expects to sell about 150 more offices before the next tax season.

European shares were up 0.2 percent in morning trade, while Tokyos Nikkei average rose 0.6 percent, as more positive data reassured investors about the health of the global economic recovery.

U.S. stocks rose on low volume on Thursday as data showed improvement in housing and the job market a day ahead of the critical monthly payrolls figures. The Dow Jones industrial average .DJI added 50.63 points, or 0.49 percent, to 10,320.10. The Standard & Poors 500 Index .SPX rose 9.81 points, or 0.91 percent, to 1,090.10. The Nasdaq Composite Index .IXIC gained 23.17 points, or 1.06 percent, to close at 2,200.01.

Reporting by Blaise Robinson; Editing by Mike Nesbit

SYDNEY Reuters Canadas Goldcorp Inc G.TO agreed to buy gold miner Andean Resources Ltd AND.TO for C$3.6 billion $3.4 billion, trumping a competing offer from rival Eldorado Gold Corp ELD.TO EAU.AX.

The takeover is the latest in a series of mining deals this year, including Australias Newcrest Minings NCM.AX $8.4 billion purchase of rival Lihir Gold, as gold prices are hovering near a record high with global economic uncertainty driving investors to safer havens.

Goldcorp said its cash and share offer, at C$6.50 per share, was expected to close in late 2010 or early 2011 and had been unanimously approved by the boards of directors of both companies.

Goldcorps offer topped Eldorados all-share bid, worth C$6.36 a share, made hours earlier after the companies failed to agree.

Goldcorps offer puts a 35 percent premium to Andean Resources last traded price on the Toronto exchange. Andean Australian-listed shares AND.AX jumped 30.9 percent in Sydney trading to A$6.40 before it was placed on trading halt.

"Andeans plan to sell does not come as a surprise. It was set up to be taken over at some stage. It was a question of how and what price. The pricing and the premium looks pretty reasonable. There might be a small window to move," said Tim Barker, Portfolio Manager at BT Financial Group.

Goldcorp said Andeans principal asset was its 100-percent owned Cerro Negro Gold project in the southern province of Santa Cruz in Argentina, which would add to its gold production pipeline.

Cerro Negro is the companys advanced-stage gold exploration project, which preliminary studies suggest may have resource of 3.1 million ounces of gold and 25 million ounces of silver as of March 2010, according to the companys website.

The mining sector is leading the global M&A activity, which recorded $267 billion worth of deals in August, making it the biggest month since June 2009, Thomson Reuters data showed.

The materials sector has seen a 30 percent rise in deals with global miner BHP Billiton BHP.AX leading the charge with a $39 billion offer for Canadas Potash POT.TO.

$1=1.052 Canadian dollar Additional reporting by Krishna N. Das in Bangalore; Editing by Valerie Lee