Week in Review

Last updated: January 25, 2013 11:32 pm

Week in Review, January 26

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Jörg Reinhardt has agreed to rejoin the Swiss healthcare group as chairman

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

Corporate person in the news: Jörg Reinhardt

Sometimes revenge is a dish best eaten warm. Just three years after he lost out in the race to become chief executive of Novartis, Jörg Reinhardt has agreed to rejoin the Swiss healthcare group as chairman – and as the new boss of the man who beat him to the CEO’s post, writes Andrew Jack.

One question for surprised investors is what his unexpected appointment will mean for company strategy.

But another is how top managers, led by Joe Jimenez – to whom Mr Reinhardt lost out in the race to be CEO – will stomach his return. “I’m at best puzzled, at worst astounded,” said one industry executive who knows them both well, on hearing the news.

Spain wins again

Real Madrid's Cristiano Ronaldo runs with the ball during their Spanish King's Cup quarterfinal round first leg soccer match against Valencia at Santiago Bernabeu stadium in Madrid January 15, 2013.

Spain 5, England 0. No, it’s not a half-time score from the Bernabéu, but it does reflect the state of play between the nations’ football clubs, in revenue terms. Deloitte says Spanish teams out-earned Premier League sides in each of the past five seasons. Last year, Real Madrid beat Manchester United by €513m to €396m.

Mr Reinhardt, a modest, friendly German with a taste for hiking, fast cars and fine wine (he is a director of the Spanish winery Abadia Retuerta) will certainly savour the job. He had dedicated his entire career to Novartis, but was left humiliated and frozen out after his bid to be chief executive and resigned to run the pharmaceuticals division of Bayer in 2010.

He already has something to toast that may leave a bitter aftertaste for Daniel Vasella, his Swiss predecessor, who surprised the markets by announcing his departure this week after leading Novartis for 17 years. The share price initially jumped 5 per cent on the prospect of a shake-up.

However, many see Mr Reinhardt as bringing continuity, despite concerns that the company has to overcome loss of income from medicines coming off patent and lack of scale in its non-drug divisions.

But his skills and style are different from Mr Vasella’s, and the speed of a reshuffle which leaves a German in charge of a blue-blooded Swiss champion suggests underlying tensions have not yet been resolved.

Born in Homburg, halfway between the headquarters of Bayer in Leverkusen and Novartis in Basel, Mr Reinhardt trained in pharmaceutical sciences. After his doctorate he joined Sandoz, which merged with Ciba Geigy to create Novartis in 1996.

He rose to become chief operating officer ahead of the run-off for the chief executive when Mr Vasella decided to split his role in two and remain chairman.

The sharp end

The shard

Handling a “Cheesegrater” and a “Shard” requires a safe pair of hands. But the board of Severfield-Rowen – steel supplier to those painfully named London buildings – has found chief executive Tom Haughey somewhat lacking. He was ousted after fellow directors grew tired of cost overruns on contracts. Metal fatigue, one might say.

Simon Moroney, chief executive of MorphoSys, a German biotech business who persuaded Mr Reinhardt to join his board at the start of the century, praises both his humility and deep technical knowledge. “You could have a conversation about a particular target and a particular disease area, which is rare,” he says. “Jörg was a real pleasure to work with, and had a huge knowledge of the industry. He was not the sort of guy who made you feel they are big pharma and you are little biotech.”

Colleagues at Bayer cite the focus he brought to the company’s pipeline of products, notably concentrating resources on the most important priorities, including its new blood-thinning anticoagulant drug Xarelto and expansion of the salesforce in China. However, others argue such developments were already under way.

One analyst praises Mr Reinhardt’s “refreshingly honest” engagement with investors after Mr Vasella’s antagonism, but cautions that he was always more “a top-line guy” focused on new products and innovation, against Mr Jimenez’s bottom-line concentration on efficiencies and returns.

His appointment will ease bridge-building with Roche, Novartis’s neighbour across the Rhine in Basel, with which Mr Vasella had tense relations after buying a minority stake. Its sale could even help finance a far more ambitious deal with Bayer.

“He will make a very good chairman,” says Sir Richard Sykes, who serves with Mr Reinhardt on the board of Lonza, also based in Basel. “He understands the business thoroughly, is very thoughtful and a good listener.”

Once he takes up the post in August, he will have the chance to demonstrate his ability to act.

Huawei makes transparency pledge

Huawei, the Chinese telecoms equipment maker that has been dogged by rumours of links to the military, promised greater disclosure and transparency in future after confirming that revenues last year rose 8 per cent to Rmb220.2bn, writes Daniel Thomas in London.

Cathy Meng, pictured, the chief financial officer and daughter of the company’s founder, Ren Zhengfei, used her first interviews with western press to promise greater detail about its internal operations, such as board members’ shareholdings.

Huawei has grown rapidly in the past few years, with sales in the telecoms equipment industry only narrowly behind Ericsson. The group also became the third-largest handset maker last year behind Apple and Samsung, according to IDC data.

However, this growth has been followed by suspicions in countries such as the US about Huawei’s ownership structure, in part fostered by the past of its founder Mr Ren as a People’s Liberation Army officer. Huawei has always denied links to the Chinese state.

Huawei graphic

Ms Meng said Huawei had no plans for an IPO, not least because of the large number of shareholders would make it ineligible under Chinese law. She also said it had no need for extra capital, given a $33bn credit line and $4bn in operating cash flow last year.

She said Huawei’s distributable dividends under its shareholding scheme rose 38 per cent to Rmb12.5bn ($2bn) last year after net profit grew by a third to Rmb15.4bn. Huawei said it expected revenue to grow 10-12 per cent this year.

Boeing faces long delay over Dreamliner probe
Boeing’s rough 2013 continues unabated, as its flagship 787 Dreamliner shows no sign of taking off, writes Neil Munshi in Chicago.

This file picture taken on July 3, 2011 shows a Boeing's 787 Dreamliner, painted in the ANA colours of white and blue, arriving at Tokyo's Haneda airport as fire engines spray it with water during a test flight

The head of the National Transportation Safety Board on Friday called the battery fire in Boston that led to the worldwide grounding of the aircraft “unprecedented” and “a very serious air safety concern”.

“This is not something that we are expecting to solve overnight,” said Deborah Hersman, NTSB chairman. “There’s a lot of technical work and a lot of complex work to understand what happened.”

Following the January 7 fire, another 787 – operated by Japan’s All Nippon Airlines – was forced to make an emergency landing in western Japan on January 16 because of smoke coming from a lithium ion battery.

Boeing’s hopes of a quick fix were dashed earlier in the week when the NTSB ruled out excessive voltage as a cause of the fire. Japanese investigators had suggested that as the cause.

Ms Hersman said the agency had not determined what caused the short circuits and rapid heating that saw the battery spewing out molten electrolytes despite the presence of numerous protection systems.

She said investigators in both countries continue to work with Boeing and its suppliers, including Japanese battery-maker GS Yuasa and UK-based Meggit’s US subsidiary, which makes the battery chargers.

But the longer the plane is grounded, analysts say, the greater the shadow cast on the Dreamliner, as passengers grow more uncomfortable flying on the 787.

Rose appointment boosts Ocado
Sir Stuart Rose, the former chairman and chief executive of Marks and Spencer, is making his return to the City and a high-profile retail role by becoming chairman of Ocado. , writes Andrea Felsted.

He replaces Michael Grade, who will step down in May after seven years as chairman of the loss-making online grocer that came to market three years ago.

The announcement that Sir Stuart, pictured, would become a non-executive director, and then non-executive chairman, sent shares in Ocado to their highest level in more than six months as some investors bet that Sir Stuart would sell the retailer, possibly to his former employer M&S.

However, people close to both M&S and Ocado said this was a “red herring”.

At Ocado, Sir Stuart will have to deal with increasing online grocery competition from rivals Tesco, Asda and J Sainsbury. Wm Morrison also is expected to trial an online food business later this year, which is likely to be focused on London. Meanwhile, Waitrose is powering ahead and is seeking more capacity for its home shopping division.

Sir Stuart was criticised by some investors in his latter years at M&S for holding the roles of both chairman and chief executive, in contravention of corporate governance best practice.

However, Duncan Tatton-Brown, chief executive of Ocado, played down the impact from the past corporate governance issues.

Fidelity, Ocado’s fourth-biggest shareholder, with almost 10 per cent, welcomed Sir Stuart’s appointment.

He was not the only senior M&S alumni on the move. Roger Whiteside, chief executive of Punch Taverns and a former head of M&S’s food arm, has been poached to run the Greggs bakery chain.

Microsoft talks could aid deal to take Dell private

A deal to take Dell private for north of $20bn took firmer shape this week as news emerged that Microsoft could be helping the PC maker achieve its aim, writes Chris Nuttall in San Francisco.

The maker of the Windows operating system that runs on Dell’s PCs is in talks to join the investor group considering a buyout, said a person familiar with the situation.

The group is understood to have the support of Michael Dell, the company’s founder and chief executive, who would be able to accelerate his plans to refocus the company if it was taken private and not subject to the quarterly scrutiny of Wall Street.

It would be in Microsoft’s interest to support Dell , which was the world’s third-largest PC maker by shipments in the fourth quarter of 2012 with a 10.2 per cent share, according to the Gartner research firm.

The industry needs propping up in the face of the onslaught of tablets and smartphones that consumers are preferring over the purchase of a new PC. Shipments were down 6.4 per cent in the fourth quarter, according to the IDC research firm.

Microsoft taking a stake or enabling debt financing would give it a say on Dell’s future direction, lobbying for it to stay within the Windows camp rather than look at rival operating systems such as Google’s Android. It could also lead to tighter co-operation as both companies target the enterprise for future growth and Microsoft moves more into hardware.

The risk for Microsoft is that it antagonises other partners, such as Hewlett-Packard, with its move.

Rio explores options for Mozambique unit
As Sam Walsh left Perth this week for his new base at Rio Tinto’s headquarters in London, the Anglo-Australian resources company started work on a wide-ranging review of its coal business in Mozambique., writes Neil Hume in Sydney.

Rio was forced to take a $3bn writedown on the assets this month after admitting it overestimated the quality and quantity of coal in its mines and underestimated the challenges of developing infrastructure to support them.

The impairment charge led to the departure of chief executive Tom Albanese, replaced by Mr Walsh, pictured, the former head of Rio’s highly profitable iron ore business.

Analysts said Rio would either bring in a partner to help develop the assets, gained when it bought Riversdale Mining for $4bn in 2011, or join forces with a rival miner on a rail project to take the coal to port.

The Simandou iron ore project in Guinea, where Rio brought in its biggest shareholder, China’s Chinalco, as a joint venture partner, is a possible blueprint.

Or Rio could work with Brazil’s Vale, which is spending $4.4bn to revamp a railway from the Tete province to the deepwater port of Nacala, via Malawi.

Meanwhile, BHP Billiton flagged up possible write downs. In an otherwise positive production report, the world’s biggest mining company said a strong dollar and weak prices continued to pressure its lossmaking operations mining alumina and nickel in Australia.

Goldman Sachs forecast BHP’s aluminium operation could be hit by a $2bn-$3bn impairment charge.

In brief

If you’ve ever wanted to wash your hands of an obsolete PC, you may soon be able to do so – literally. IBM revealed this week that it has adapted materials from semiconductors to develop a new antimicrobial gel. It is not yet known whether Microsoft products can also be converted into something conducive to public health.

Ride a profitable trend . . . That’s the strategy Cantab Capital is relying on to keep its new hedge fund ahead of rival offerings from Man Group and BlueCrest. It may also explain why founder Ewan Kirk has removed the Lance Armstrong bike from the wall of his Cambridge office, and replaced it with one from Bradley Wiggins.

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