Week in Review

May 31, 2013 8:23 pm

Week in review, June 1

Week in Review

A round up of some of the week’s most significant corporate events and news stories.

Corporate person in the news: Leonhard Fischer

For a time, Leonhard Fischer was the next big beast of European banking, writes Sam Jones.

Known as “Lenny” by friends and colleagues, the 50-year-old has had a gilded career: from one-time “wunderkind” to experienced dealmaker; from JPMorgan to Dresdner, to Allianz and then Credit Suisse, with directorships at Glencore and Julius Baer.

After losing the race to be chief executive of Credit Suisse in 2007 to Brady Dougan, Mr Fischer moved gracefully out of the banking limelight into the world of private equity – to try his hand at something different, and, perhaps, to mastermind his return.

But last week the chance of that return was rudely – if, for now, only temporarily – thwarted after a group of hedge funds called for the break-up of the investment company Mr Fischer runs: RHJ International.

In an excoriating letter to the company’s board, the funds said Mr Fischer had presided over years of “value destruction”, “poor investments” and “weak execution”.

Electric dreams

A worker cleans an electric car outside the headquarters of Better Place in Tel Aviv

The name of electric car start-up Better Place neatly summed up its ambitions: to rid the world of its dependence on fossil fuels. On Sunday it went to a different place: a district court close to Tel Aviv to file for bankruptcy. The company, which launched in 2007, said it lacked sufficient ‘resources’, despite initially raising almost $1bn

The urbane Mr Fischer, they alleged, was one of the most overpaid figures in banking – someone who has dodged scrutiny thanks only to RHJI’s complex holding company structure.

Mr Fischer’s €4.1m compensation package for 2012 had come down from 2011, they acidly noted, only because Mr Fischer had been using the private jet the company supplies him with a little less. While RHJI is based in Belgium and London, Mr Fischer remains a resident of Switzerland.

Mr Fischer’s pay, the letter went on to say, was “egregious”, while RHJI was “dysfunctional”.

Whether or not the activists’ campaign is successful, an unpleasant blot has been left on Mr Fischer’s copybook.

Since graduating – he holds an MA in finance from the university of Georgia and a degree in business management from the university of Bielefeld in his native North Rhine-Westphalia in Germany – Mr Fischer has so far had few failures, and has bounced back quickly from the worst.

Germany’s Spiegel magazine dubbed him the embodiment of a new turbocharged, “Anglo-Saxon” culture of investment banking for good reason.

Rocket fuel

A NASA artist's concept of a broken-up asteroid

Kickstarter, which recently helped raise $2m in 10 hours for a film based on TV show Veronica Mars, has gone truly galactic. Planetary Resources, a company backed by Google co-founder Larry Page that plans to mine asteroids, has launched a $1m fundraising drive on the crowdfunding website. It hopes to buy a space telescope

Having been head of JPMorgan’s Frankfurt office at the age of 29, Mr Fischer went on to make a name for himself building Dresdner Kleinwort as an investment bank – masterminding its acquisition of Wasserstein Perella for $1.4bn in 2000, before quitting after a dust-up with his superiors over differences in “strategic direction”.

His subsequent success as chief executive of Credit Suisse-owned insurer Winterthur, which he radically overhauled, propelled him into position as a likely future head of the whole organisation.

At RHJI, Mr Fischer has attempted to pull the same tricks again, but with far less success.

His effort to transform the company from the owner of a ragtag collection of private equity stakes into a full-blooded pan-European merchant bank has not only been slow, but also costly.

The company signalled its new approach in 2008 with a bid for German lender IKB. After that failed, RHJI turned its attention to Kleinwort Benson, one of the City of London’s oldest private banks. While the company won the deal, its success has yet to be felt. Since the acquisition, the bank’s performance has flatlined.

A bid for private bank BHF – already two years in the offing – is, meanwhile, yet to be approved by German regulator BaFin.

Analysts say the hedge funds are unlikely to get all they ask for – chiefly, Mr Fischer’s immediate defenestration – but the lines are already being drawn for a lengthy tussle. Mr Fischer’s well-remunerated position looks vulnerable, if not untenable.

Facebook pledges to improve moderation

Facebook vowed to review its moderation policies this week as leading brands pulled advertisements from the world’s dominant social network in protest at misogynistic posts on the website, writes Robert Budden .

Carmaker Nissan and Nationwide, the UK’s largest building society, were among several companies to suspend ads following a campaign orchestrated by women’s rights activists on Twitter.

To the companies’ embarrassment, screenshots juxtaposing the offensive images with their adverts were widely circulated online.

The posts highlight the risks of a new form of “targeted” advertising, whereby ads follow individual users and the pages they visit rather than the particular content on a site.

Facebook said it would review and improve its online moderation procedures, which would include additional training for the several hundred staff who moderate content on its site.

Nissan said it would resume advertising on Facebook following the announcement. But Nationwide said its ad spending remained suspended and called on the social networking site to have “stringent processes and guidelines in place to ensure that brands are able to protect themselves from appearing alongside inappropriate content”.

Sheryl Sandberg, Facebook’s chief operating officer, said there was “a real tension” between what advertisers wanted and free expression.

Agnelli scion steers Fiat towards US and Asia

Italy’s Agnelli family, the billionaire dynasty behind Fiat, signalled this week its determination to remain the carmaker’s biggest shareholder after its planned merger with Chrysler, the US group, writes Rachel Sanderson.

John Elkann

The Agnelli clan – led by its softly spoken scion, John Elkann, 38 (pictured) – owns a third of Fiat, the maker of Alfa Romeo and the Fiat 500, and its sister company, Fiat Industrial.

Mr Elkann, who is also Fiat chairman, said Exor, the family investment company, had enough money to maintain that stake when Fiat seeks to buy out the 41.5 per cent of Chrysler it does not own from a US union retirement fund, a move which is expected this year.

The comments from Mr Elkann underlined the growing internationalisation of the Agnelli family’s investments since he took the helm of Exor 10 years ago after the death of his grandfather, the Fiat patriarch and former playboy Gianni Agnelli.

The family, which has owned Fiat in one form or another since 1899, has just a third of its investments in Europe, compared with three quarters a decade ago, which has inflamed emotions in Italy about the family’s loyalty to its home country.

But Mr Elkann reiterated this week that he believed the only way to keep Fiat alive in a crisis-hit European industry is for it to merge with Chrysler and to expand internationally, tapping growing carmakers in the Americas and Asia.

Chinese group’s pig swoop avoids pork barrel politics

China, the world’s largest consumer of pork, needs a reliable supply of safe pigs. The US produces swine more efficiently than any other country, writes David Gelles.

The result, announced on Wednesday, is Shuanghui International’s acquisition of Smithfield Foods for $7bn including debt, making it the largest Chinese deal for a US company if completed.

Shuanghui, China’s largest meat processor, will be buying access to a consistent supply of the nation’s favourite animal protein. By keeping Smithfield management in place, Shuanghui will also have the chance to learn about best practices on quality and safety.

Tainted food scandals have rocked China in recent years, leading domestic consumers to shun locally made infant formula and prompting concerns about how to meet the appetite of the country’s burgeoning middle class.

To some, the prospect of a Chinese company owning a big US meat producer is a recipe for trouble. Senator Chuck Grassley of Iowa cautioned that US consumers could be jeopardised by lax safety standards.

But as Smithfield will be exporting pork to China, it is hard to make the case that tainted meat will be imported into the US.

For that reason, and the fact that Smithfield has no sensitive government contracts, opposition from the Committee on Foreign Investment in the US is unlikely.

And because Shuanghui has no operations in the US, antitrust concerns are also moot.

Buffett is good as his word as Berkshire buys NV Energy

Warren Buffett said in his March letter to investors in his Berkshire Hathaway group that “opportunities abound in America”. He proved true to his word this week, agreeing to spend $5.6bn to buy NV Energy, the largest electricity and gas utility in Nevada, writes Ed Crooks.

Warren Buffett

There is no territorial overlap between NV and MidAmerican Energy, Berkshire’s utility group, which has customers in the midwest, Rocky Mountain and western regions of the US. Under the agreed deal, NV will retain its management team, its Las Vegas headquarters and its separate identity.

Yet while that may not allow much scope for rationalisation through cost-cutting, there are other reasons for the deal.

The first is that Mr Buffett appears to be getting NV for quite an attractive price. The enterprise value of $10bn at the offer price of $23.75 per share, including about $4.5bn of debt, is only about 1.1 times the company’s fixed assets.

The other motive for the deal is that NV is going to face challenges over the coming decade meeting Nevada’s requirement that by 2025 25 per cent of its electricity should come from renewable sources such as wind, solar and geothermal power.

MidAmerican has the financial strength to support those investments, and is also building expertise in renewable energy. It is one of the largest wind power generators in the US, and has recently been making big bets on solar power as well.

The NV deal highlights how Mr Buffett is emerging as one of the most important figures in renewable energy in the US.

New Motorola phone to anticipate its next move

Google subsidiary Motorola this week announced it was working on a phone that is more aware of its surroundings and smart enough to anticipate how it will be used next, writes Bede McCarthy .

Google Motorola Razr HD phone

The device, called the Moto X, is seen as a major challenger to Apple’s iPhone, which continues to lead the market in terms of its tight integration of hardware and software.

Google’s 2011 purchase of Motorola has long fuelled talk that it would build a device more closely tailored to its open Android operating system, though Motorola insists it is treated in the same way as any other manufacturing partner.

According to Dennis Woodside, the former Google executive who now runs Motorola, the Moto X will be assembled in the US and be part of a campaign to drive down the cost of smartphones and end the high profit margins enjoyed by companies such as Apple and Samsung. The handset is expected to go on sale later this year and be priced well below the iPhone 5.

Mr Woodside refused to show the device. He spoke only in terms of its capability to marry leading-edge sensors with Google’s data-crunching algorithms to predict what the owner wants to do next.

Motorola will have its work cut out if it wants to become the top seller of Android-based phones. Samsung sold 100m mobile phones in the first quarter, according to Gartner – two-thirds of all Android phone sales. Apple came second with 38m, a rise of 9 per cent. Motorola was not in the top 10.

In brief

‘Here you come again,’ sang Dolly Parton. The ditty has attained new meaning now Gavin O’Reilly, the former Independent News & Media chief executive, has made a return to corporate life as head of a booking agency for artists including Ms Parton. Mr O’Reilly was ousted at IN&M following a battle with Irish billionaire Denis O’Brien

Nasa has confirmed that astronauts on a mission to Mars would receive a hefty dose of radiation. Some Asos customers know the feeling. The online fashion retailer this week revealed it had recalled a batch of metal-studded belts that contained traces of Cobalt-60 – a radioactive isotope used in radiotherapy

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