Cityam 2013-02-14

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Cityam 2013-02-14
  BUSINESS WITH PERSONALITY US airlinesclinch $11bn mega-merger  THE WORLD’S biggest airline will beunveiled this morning after the boards of American Airlines and US Airways voted late last night tomerge the two businesses in an$11bn (£7bn) deal. The combined company will have1,500 aircraft, $39bn (£25bn) inannual revenues and employ morethan 100,000 people.US Airways chief executive DougParker is expected to head the com- bined business, which will see American Airlines exit bankruptcy proceedings after 15 months. American’s chief executive TomHorton will stay on the board foranother year as non-executive chair-man. Up to $1bn annual savings areexpected as a result of the deal. The merger is set to give Americancreditors 72 per cent of ownership inthe combined company and US Airways shareholders the rest. Thecompany will have a board of 12members: four from US Airways,three from American and five to bedesignated by the American credi-tors. As part of the deal, US Airways willalso leave the Star Alliance to join theoneworld global airline alliance, of  which American Airlines is already amember along with British Airways.US Airways will follow through onits agreement with American unionslast year that the combined carrier would be branded American Airlinesand be based in Fort Worth, Texas, where American is currently based,sources said. US Airways has its head-quarters in Tempe, Arizona. The US airline industry has seen aspate of consolidation over the lastdecade after United merged withContinental and Delta joined forces with Northwest. Vittorio Colao has been on the acquisition trail since a dividend windfall from Vodafone’s US partner  VODAFONE yesterday became the lat-est telecoms giant to join the return todealmaking, after the firm was linkedto Germany’s biggest cable operatorKabel Deutschland.FTSE 100-listed Vodafone is believedto be discussing a bid for the firm, which had a market capitalisation of   € 5.6bn (£4.85bn) before the takeovertalk sent its shares up almost nine percent. Including debt, the group now has an enterprise value of   € 8.9bn.Executives at Vodafone have not yetmade a decision whether to bid andhave not been in contact with KabelDeutschland, but are believed to havestudied the merits of a takeover severaltimes recently. Analysts said a deal could enable Vodafone to sell lucrative bundles of mobile, fixed-line and TV services inEurope. The discussions surfaced a week aftera string of blockbuster deals in the sec-tor. Virgin Media agreed a $23.3bn(£15bn) takeover by American firmLiberty Global, Dell revealed a $24.4bn buyout led by founder Michael Dell,and Comcast agreed to take the rest of NBC Universal for $16.7bn. A bid for Kabel Deutschland wouldmark an acceleration in Vodafone’srace down the acquisitions trail, as itlooks to spend some of the billions inlong-awaited dividends granted by USpartner Verizon Wireless. The firm last year paid £1.3bn forCable & Wireless Worldwide, a pur-chase that included more than FREE 20,000km of fibre cables in the UK,and snapped up New Zealand tele-coms group TelstraClear for £429m.“Vodafone have said they have a con- vergence strategy that includes M&A and they have indicated that they areinterested in fixed assets,” said EspiritoSanto telecoms analyst Nick Brown.“Liberty Global potentially could coun-terbid, but after the Virgin Media dealit may be a good time for Vodafone topursue a bid.”Chief executive Vittorio Colao saidlast week, after revealing a disappoint-ing two per cent slide in quarterly rev-enues, that Vodafone would look tomake acquisitions to prop up growth. The firm already has around 3.4minternet customers in Germany through its ownership of Arcor, butstands apart from its European com-petitors in focusing on mobile opera-tions, reducing its ability to offerpackage deals and offload data trafficonto its own fixed line networks.Espirito Santo noted that a Vodafone-Kabel Deutschland tie-up couldprompt scrutiny from the Germanantitrust watchdog.However, analysts at Jefferies said adeal “would elicit little regulatory con-cern in our view, not least as it wouldcreate a more viable competitor toDeutsche Telekom”. OUR ANALYSIS OF SIR MERVYN KING’S LAST REPORT BY JAMES WATERSON FTSE 100  6,359.11 +20.73DOW M 13,982.91 -35.79NASDAQ  3,196.88 +10.39£/$ M 1.55 -0.01£/€ M 1.16 -0.01€/$ M 1.34 -0.01 BY MARION DAKERS  VODAFONE MULLS£5BN CABLE DEAL INFLATION SPECIAL ISSUE 1,819 THURSDAY 14 FEBRUARY 2013 GADGETS TO WATCH OUT FOR See Page 30 Allister Heath p2, News p3, The Capitalist p15 and Andrew Sentance in the Forum p26 B   OT   TOMLINE: P   a   g   e 9   , DE   ALS:   Pa   ge 7              Certified Distribution from 31/12/12 to 27/01/13 is 127,008  allister.heath@cityam.comFollow me on Twitter: @allisterheath Hedge funds win big on yen bets Hedge fund giants have made billionsbetting against the yen in recent months,marking a return to form for some blue-blood investors that stumbled after thefinancial crisis. Managers who speculateon economic shifts by trading currencies,bonds and derivatives have reaped theirbiggest gains in years trading on theJapanese currency. Tax avoiders face Whitehall ban Big companies face being banned frombidding for major government contractsunder rules aimed at clamping down onaggressive tax avoidance by some ofWhitehall’s most important suppliers.Companies will have to sign a declarationthat they have not fallen foul of wide-ranging tax avoidance rules in the past 10years before bidding for governmentcontracts worth £2m or more. SEC to launch anti-fraud RoboCop The US securities and exchangecommission is deploying an innovativecomputer tool designed to automaticallytrigger alerts over suspicious accountingat publicly traded companies. Longer contracts halt phone growth Sales of mobile phones worldwide havegone into reverse as the industry’s drivetowards longer contracts has reduced theneed constantly to upgrade a handset.About 1.75bn were sold last year almost 2per cent lower than in the previous year. Bic makes more disposable income Bic, the maker of disposable pens,lighters and razors, announced a 10.6 percent rise in net profit yesterday, lifting thefigures for 2012 to €263.1m. Standard Life to buy Newton arm Standard Life is in exclusive discussions tobuy Newton Investment Management’swealth management division for up to£90m. The sale, of Newton’s £3.5bnwealth portfolio, could be announcedimminently.  AgustaWestland faces uncertainty Yeovil-based helicopter manufacturerAgustaWestland was facing uncertaintyyesterday after the Indian governmentthreatened to cancel a $750m (£482m)order because of bribery allegations.  Apple loses Brazilian ruling Brazilian regulators yesterday rejectedApple Inc.'s request to register the iPhonename in that country, setting up apotentially costly legal dispute in one ofthe world's fastest-growing smartphonemarkets. Barnes & Noble warns on Nook Barnes & Noble Inc. said on Wednesdaythat its Nook business will perform worsefor the fiscal year ended April 27 thanforecast as recently as early January. 2 NEWS To contact the newsdesk email I F you have lots of debt, own ahome in London with a mortgage,are employed and hope that your wages will rise, you may be one of the great winners of our age. If youare self-employed, work in the privatesector, have lots of savings and havelimited control over your income, youare fast becoming one of the losers. That, in a nutshell, are the conclu-sions to be drawn from devastatingdata showing the extent and distribu-tion of falling real wages in the UK –and the Bank of England’s dramatic,semi-explicit admission that inflationis now being allowed to rip. Prices willcontinue to rise above the target, withthe Bank blaming all sorts of factorsapart from themselves. That suitssome borrowers just fine but is a dis-aster for many, who wrongly trustedthe authorities to protect the pound.Real median wages are now slightly  EDITOR’SLETTER ALLISTER HEATH Stagnant growth and high inflation crippling take home pay THURSDAY 14 FEBRUARY 2013 lower than they were in 2003. Averageprivate sector wages have been fallingsince 2009; they peaked in 2008 butgains seen in previous years have been undone. Male full-time employ-ees resident in London earned £15.54per hour in 2012, compared with£16.14 in real terms in 2002 – a dropof 4 per cent.Public sector workers have done best. Their incomes started to fall wellafter those of their private sectorcounterparts; the drops, when they happened, were smaller. Between2010-2012, the decline in median realearnings averaged 2.1 per cent per year for full-time male public sector workers (and rose in cash terms,despite the supposed pay freeze) com-pared with a drop of 3.1 per cent per year for their private sector counter-parts. Yet again, austerity has beenmuch harsher in the private sectorthan in the public sector. Astonishingly, median self-employed income has collapsed by 25per cent in real terms from peak –and by an almost incredible 33.8 percent in London. So why are the self-employed doing so badly? Theirincome fluctuates much more withthe economic cycle; freelance con-tracts are short-term and can easily berenegotiated up or down very quickly. Their number is up by 367,000 since2008; far more Brits are working forlike overtime getting axed); whendemand rises, their hours rise beforestaff get hired. A final reason may bemeasurement error: income is hardto quantify in the freelance sector.Unless you are lucky, very skilledand in an industry where productivi-ty is increasing (or a firm that is buck-ing the trend), brace for years of misery and declining living stan-dards. Deals are back in the City – with yesterday’s mulled bid by  Vodafone for Kabel Deutschland justthe latest – but the financial sector’spartial recovery should not be misin-terpreted for an overall economicrebound. For most people, especially outside of London and its commuter belt, the grim reality of declining real wages won’t go away any time soon.themselves, an excellent developmentas it increases the flexibility in thelabour market and makes peoplefreer and more responsible for theirown lives. The increase in numbers (of around 10 per cent) is one reason forthe decline in median incomes; new entrants probably earn less becausethey lost their jobs, couldn’t (or didn’t want to) find an alternative position but found that they could still earnsomething by going freelance. Another reason is the collapse in theconstruction industries. Many otherfreelance intensive industries – suchas personal trainers – are very dependent on the earnings of theirclients; if these fall, the impact on theself-employed is disproportionate.Self-employed people who work for big firms are the easiest buffer: whendemand falls, their hours getchopped before staff get fired (a bit  WHAT THE OTHER PAPERS SAY THIS MORNING Find your next step at CITY  AM REAL wages have sunk to levels lastseen a decade ago, due to stubborninflation and sluggish pay growth.Including the effects of inflation,the median average UK wage last year was even lower than it was in2003, new data revealed yesterday. The Office for National Statistics(ONS) said that the median hourly  wage dropped to £11.21 in 2012 – below 2003, when it would have been the equivalent of £11.24 whenadjusted to last year’s price levels.Real wages peaked in 2009 whenthey reached an equivalent of £12.25per hour, adjusted to 2012 prices – yet they have been on the declinesince, partly due to the UK’sstubbornly high inflation. The consumer price indexmeasure of inflation was confirmedearlier this week at 2.7 per cent for January, the 38th straight monththat it has held above the Bank of England’s two per cent target. Yesterday, the ONS figures alsorevealed a stark drop in the medianaverage real wage of the self-employed. Having touched a peak of £281 per week in 2006/07, atconstant 2012 prices, it was down to£212 last year. And London’s self-employed haveseen their median weekly pay dropfrom a high of £378 in 2007/08 to just £250 in 2012.“In April-June 2012, self-employedpeople comprised 14 per cent of people in employment in the UK and18 per cent of people in employmentin London,” the ONS report added. BY JULIAN HARRIS Real wages tumble to below 2003 levels MEDIAN HOURLY WAGE FOR 2012 £17.33 PRIVATE SECTOR £20.22 PUBLIC SECTOR MALE WORKERS IN LONDONREAL UK WAGES 8 20122011201020092008200720062005200420032002 101214£ per hour   REAL LONDON WAGES 20122011201020092008200720062005200420032002 16141218£ per hour   ALL WORKERS IN LONDONWORKERS IN LONDON WHO ALSO LIVE IN THE CAPITALUKLONDON REAL SELF-EMPLOYED WAGES 2010/112008/092006/072004/052002/03 400350300250200£ per week£ per hour PRIVATE SECTORMENPUBLIC SECTORMENPRIVATE SECTORWOMENPUBLIC SECTORWOMEN   REAL PUBLIC vs PRIVATE WAGES 20122011201020092008200720062005200420032002 18161412108 MEDIAN HOURLY WAGE AT 2012 CONSTANT PRICES £11.24 2003 UK 2012 £11.21 -0.26% MEDIAN WEEKLY WAGE AT 2010/11 CONSTANT PRICES £378 2007-08 LONDON’S SELF EMPLOYED 2010-11 £250 -33.8% MEDIAN HOURLY WAGE AT 2012 CONSTANT PRICES £15.74 2003 LONDON* -0.25% 2012 £15.70 *includes workers who commute into London *ALL GRAPHS SHOW MEDIAN AVERAGE  GOVERNMENT policies are pushingprices up beyond the control of theBank of England while a lack of sup-ply side policies from the Treasury means consumers and firms are being given little hope of bettergrowth in future, governor SirMervyn King claimed yesterday. And he added monetary policy is becoming less and less effective atstimulating the economy further,meaning the government needs tohelp rebalance the economy to pre-pare the country for growth in future. The outgoing head of the Bank launched the unusually strong attack on the government as he explained why inflation is still running wellabove its target – at 2.7 per cent in January, above the two per cent goal– and will stay high until 2016.Sir Mervyn argued green energy policies are driving up energy prices Prices will soarfor three moreyears says King BY TIM WALLACE  while rising university tuition fees arehaving a bigger impact than expected.Between them factors like those adda full percentage point to inflation,meaning the Bank would have totighten policy unacceptably hard, hit-ting jobs for no good reason, he said.“This makes our job more difficult inthe short run, we have to deal with theconsequences,” Sir Mervyn said.“But it would be a mistake to pushup unemployment to compensate fora short term rise in prices.” And the Bank predicts it will be atleast another two years before theeconomy grows back to its pre-crisissize, not because of deficit reduction but because of a lack of reforms.“The government should put togeth-er a package of supply-side reforms toraise future income expecta-tions and so raise consumerspending today,” he argued. The Treasury rejects SirMervyn’s analysis, arguing ithas kept prices down by freez-ing fuel duty and helped by cutting corporation tax.ROLLS-ROYCE will today unveil ex-McKinsey boss Ian Davis as its new chairman, replacing Sir SimonRobertson who will leave the busi-ness after eight years. The announcement will be madealongside today’s year-end results which are expected to show theengineering giant made bumperprofits in 2012, according to Sky News.Davis spent 31 years with manage-ment consultants McKinsey, includ-ing six years as managing director –effectively chief executive –between2003 and 2009.He is currently a non-executivedirector at both BP and Johnson & Johnson, in addition to work advis-ing Apax Partners and the govern-ment’s cabinet office.Meanwhile Rolls-Royce yesterday signed a 10-year contract with theMinistry of Defence for the develop-ment of submarines, which will helpsafeguard up to 2,000 jobs in the UK and deliver up to £200m worth of savings to the department. The contract, worth around £800mover the next decade, would helpdeliver cost savings around the pro- vision of nuclear propulsion systemsfor Britain’s existing and future sub-marine flotilla. Rolls-Royce to appoint formerMcKinsey boss as new chairman Sir Mervyn said loosemonetary policy maybe hitting its limits  THE EUROPEAN UNION will this sum-mer begin talks with the United Stateson producing a free-trade agreementthat would be the biggest such tradedeal in history.European Commission president Jose Manuel Barroso made theannouncement after President Obama backed reducing trade barriers in Tuesday’s State of the Union address.Under an outline for the deal, thetwo sides expect it to add 0.5 per centto the EU economy and 0.4 per cent tothe U.S. economy by 2027 – equiva-lent to  € 86bn (£55bn) a year for theEuropeans and  € 65bn for the US. The resulting free trade area couldencompass half of world output and athird of all trade. It is hoped that talks– which depend upon the agreementof all EU member states and the UScongress – can be completed at a brisk pace with a deal signed by the end of 2014.“If we want to go down this road, we want to get there on one tank of gasand we don't want to spend 10 yearsnegotiating what are well knownissues and not reach a result,” WhiteHouse adviser Michael Froman said yesterday. Agriculture is likely to produce mostdisputes, particularly EU farm subsi-dies and the use of genetically modi-fied crops in the US. Other issuesinclude battle over state aid for aircraftmanufacturers Airbus and Boeing. EU aims to signUS trade dealby end of 2014 BY JAMES WATERSON C   API   TALIS   T: P   a   g   e 15       THURSDAY 14 FEBRUARY 2013   3 NEWS Ian Davis (above) spent 31 years with management consultancy McKinsey BY JAMES WATERSONAND CATHY ADAMS
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