Business Blog Posts

The U.S. Treasury said it will take in $10.5 billion from a public offering of 2.4 billion Citigroup shares, announced just hours earlier. The price is 10 cents below the $4.45 closing price on the New York Stock Exchange.

"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, Treasury acting assistant secretary for financial stability.

"With this transaction, we have advanced our goals of recovering TARP funds, protecting the taxpayer, and getting the government out of the business of owning stakes in private companies," Massad added in a statement.

The Treasury invested a total of $45 billion to bail out Citigroup in 2008 and 2009 during the financial crisis. The company paid back $20 billion in preferred stock, while another $25 billion was converted to 7.7 billion common shares held by the Treasury.

It has whittled that stake down over the past year from 27 percent to less than 7 percent through controlled sales in the market.

The move to sell the remaining shares in one large offering follows last month's successful initial public offering in General Motors Corp, which significantly reduced the government's stake. The GM IPO attracted strong interest from domestic institutional investors and foreign sovereign wealth funds alike.

"Citi is pleased that the U.S. Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock. We are very appreciative of the support provided by the Treasury during the financial crisis," Citigroup spokesman Jon Diat said in a statement.

The offering, run by Morgan Stanley as bookrunning manager, is expected to close on or about December 10, 2010. Underwriting fees for the transaction will be paid by Citigroup, Treasury said.

IN THE BLACK

The Treasury said its estimate of a $12 billion profit from the $45 billion bailout includes gains from the sale of common stock, interest and dividends of $2.9 billion and $2.2 billion in Trust Preferred Securities it received for guarantees on a pool of Citigroup assets.

Treasury averaged a price of $4.14 for each of the 7.7 billion Citgroup shares it sold. It received the shares at a conversion rate of $3.25 each.

The sale, however, does not completely free Citigroup from the government's clutches. The Treasury also said it would continue to hold warrants to purchase Citigroup shares issued as part of the bailout. These may be repurchased by Citigroup or sold in a separate auction for an additional profit.

The Treasury also said it is entitled to receive some $800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program -- provided that the FDIC incurs no losses on Citigroup debt it backstopped during the financial crisis.

The Treasury next year is expected to begin selling off its stake in bailed-out insurer American International Group, and it anticipates a profit on the complex series of transactions. (Additional reporting by Glenn Somerville in Washington, Paritosh Bansal and Maria Aspan in New York; Editing by Muralikumar Anantharaman)

Under the deal being discussed, Bright Food would purchase GNC for $2.5 billion to $3 billion, a source familiar with the situation said late on Monday in the United States.

The potential acquisition of Pittsburgh-based GNC, which is owned by Ares Management and the Ontario Teachers' Pension Plan Board, could be announced in the next few days, said the source who declined to be identified because the talks were not public.

A spokesman for Shanghai-based Bright Food Group had no comment.

China has been aggressively snapping up overseas assets in the resources sector to feed its fast-growing economy, but a purchase of GNC marks a less common instance of a major acquisition in the U.S. consumer space by a Chinese company.

Analysts were generally positive on the deal, saying it would help Bright Food, backed by the Shanghai city government, to catch up with domestic rivals in catering to the growing number of Chinese who have money to spend on more discretionary products such as vitamins.

Bright Food, best known for its dairy products, has been less successful in building its brand compared with other major rivals including Mengniu (2319.HK) and Yili (600887.SS), said Shaun Rein, managing director of China Market Research Group.

"If they buy strong foreign brands and then bring them back to China, they are able to catch up with the local competitors which have better brands in their products category," he said.

"It is a very smart move because they need to be able to capture brands and technical expertise and products they currently don't have."

OTHER DEALS EXPLORED

GNC, which sells nutrition supplements, vitamins, sports drinks and other diet products through 7,100 stores worldwide, had been exploring an initial public offering, as well as an outright purchase.

In September, it filed registration papers with the U.S. stock regulator for an IPO to raise up to $350 million.

Ares Management LLC and the Ontario Teachers' Pension Plan bought GNC in 2007 from Apollo Management LP APOLO.UL in a deal with a total enterprise value of $1.65 billion. Apollo had twice previously tried to take GNC public.

Ares Management, and the Ontario Teachers' Pension Plan could not be immediately reached for comment.

Bright Food controls four listed companies, including Bright Dairy & Food Co.

The proposed offering would mark the disposal of a government stake in Citigroup that once stood as high as 36 percent after $45 billion in taxpayer bailouts in 2008 and 2009.

Citi has paid back $20 billion in preferred stock, while another $25 billion was converted to 7.7 billion common shares held by the Treasury. A subsequent Citi share offering reduced the government's stake to 27 percent, which the Treasury has whittled down over the past year via the sale of 5.3 billion shares in controlled trades in the market.

The Treasury, which will sell the final stake with Morgan Stanley acting as bookrunning manager, on Monday filed a prospectus for the sale with the Securities and Exchange Commission. It can be seen at: here#107

"Citi is pleased that the U.S. Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock. We are very appreciative of the support provided by the Treasury during the financial crisis," Citigroup spokesman Jon Diat said in a statement.

The move to sell the remaining shares in a public offering follows last month's stronger-than-expected initial public offering in General Motors Corp. (GM.N), the bailout-out automaker whose IPO attracted interest from domestic institutional investors and foreign sovereign wealth funds alike.

IN THE BLACK

The Treasury can already declare a profit on the Citigroup bailout, a person close to the offering said.

Through October, it took in $42.8 billion in total proceeds from Citigroup, including repayments, share sale proceeds and dividend payments against the $45 billion bailout.

The Treasury sold another 900 million shares in November and so far in December at prices above $4, providing at least another $3.6 billion, pushing the total take above $46 billion, said the person, who cited figures that have not yet been made public.

If the remaining 2.4 billion shares were sold at Monday's closing price of $4.45 a share, the offering would add another $10.68 billion to the Citi proceeds. The Treasury acquired the shares at a $3.25 conversion rate.

The Treasury also said it would continue to hold warrants to purchase Citigroup shares issued as part of the bailouts. These may be repurchased by Citigroup or sold in a separate auction for an additional profit.

The Treasury also said it is entitled to receive some $800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program -- provided that the FDIC incurs no losses on Citigroup debt it backstopped during the financial crisis.

(Additional reporting by Paritosh Bansal and Maria Aspan in New York; Editing by Leslie Adler)

The nation's highest court agreed to hear an appeal by the world's largest retailer and the largest private employer arguing the claims of as many as 1.5 million current and former female employees were too diverse to proceed as a single class-action lawsuit.

The justices decided to review a ruling by a appeals court in California that upheld the class-action certification in the lawsuit alleging discrimination against every woman employed over the past decade at the company's 3,400 U.S. stores.

The Supreme Court is expected to hear arguments in the case, which immediately became the most important business dispute before the justices this term, in March, with a ruling likely by the end of June.

The ruling could affect other class-action lawsuits. Anthony Sabino, a professor of law and business at St. John's University in New York, said the case "will test the very limits of class litigation."

Bentonville, Arkansas-based Wal-Mart said in a statement it was pleased the court granted review in the important case and it looked forward to the court's consideration of the appeal.

"The current confusion in class-action law is harmful for everyone -- employers, employees, businesses of all types and sizes and the civil justice system. These are exceedingly important issues that reach far beyond this particular case," Wal-Mart said.

The original lawsuit by seven women, filed in 2001, claimed that Wal-Mart paid female workers less than male colleagues and gave them fewer promotions. Wal-Mart denied that it discriminated on the basis of sex.

At issue in the Supreme Court appeal is the question of class certification, not the merits of the sex-discrimination allegations. The lawsuit has not yet gone to trial.

Large class-action lawsuits make it easier for big groups of plaintiffs to sue corporations and have led to huge payouts by tobacco makers, and oil and food companies. Companies have sought to limit such lawsuits to individual or small groups of plaintiffs.

The Supreme Court, with a conservative majority that has often ruled for businesses, in recent years has been highly skeptical of large class-action lawsuits.

WAL-MART: EMPLOYEES IN DIFFERENT STATES

In its appeal to the Supreme Court, Wal-Mart sought to undo the class-action certification and said the female employees held different jobs in different states under the supervision of different managers.

"The class is larger than the active-duty personnel in the Army, Navy, Air Force, Marines and Coast Guard combined -- making it the largest employment class action in history by several orders of magnitude," the company said.

Attorneys for the lead female plaintiffs in the case opposed the appeal and urged the Supreme Court to reject it.

Lacker, one of the central bank's vocal hawks, said the decision to increase monetary stimulus was based primarily on weakness in the labor market and set a precedent he said threatens future inflation.

"The provision of further monetary stimulus at this point in the business cycle is not without risks," Lacker told a conference sponsored by the Charlotte Chamber of Commerce in North Carolina.

"Historical experience, including the inception of the Great Inflation of the 1970s, suggests central banks should be careful not to steer monetary policy off course by targeting the unemployment rate," he said.

His comments come a day after Fed Chairman Ben Bernanke, a strong advocate of the policy, told CBS television program "60 Minutes" that inflation fears associated with Fed policy are "way overstated."

Bernanke also did not rule out an increase in bond purchases beyond $600 billion if the economy fails to respond. He added that the risk of deflation, a corrosive downward spiral in wages and prices, was receding in large part due to the Fed's efforts to stimulate growth.

Lacker, who is not a voting member this year on the policy-setting Federal Open Market Committee, has hinted strongly at his opposition to the November decision to ease.

"With many commodity prices spiking, outright deflation is clearly even less of a risk than it was a few months ago," Lacker said.

He said inflation is "well contained" and "very close to my own long-term objective," putting him at odds with other officials at the central bank, who are worried about a recent trend of disinflation and dire employment conditions.

Contradicting Bernanke's view that the economy is "close to the border" of being sustainable, Lacker argued growth already had enough momentum of its own.

EUROPE RISK "MANAGEABLE"

Asked about the situation in Europe, where markets have taken a beating over fears of possible defaults in some of the continent's more indebted nations, had only minor risks for the United States for now.

"At this point it looks like the magnitude of the likely fall out for the United States economy is relatively manageable and relatively minor," he said.

"If broader, deeper growth effects were to hit Europe, if they were to enter a substantial recession again, bets would be off and there could more substantial effects."

Regarding U.S. monetary policy, Lacker said he worries that more aggressive action by the Fed now could lead to a potentially turbulent day of reckoning down the line.

"Further balance sheet expansion now could require more rapid balance sheet reduction later on, complicating the withdrawal of monetary stimulus," he said.