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BW Businessworld

American Dream

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In what could be the largest tech stock debut ever in the US, Chinese e-commerce juggernaut Alibaba recently filed its IPO prospectus in the US. Alibaba Group Holding, which powers 80 per cent of all online commerce in the world’s second largest economy, is expected to raise over $15 billion, and could top the $16 billion pulled in by Facebook in 2012. The bulk of the proceeds will go to Yahoo — which bought a 40 per cent stake in Alibaba in 2005 and which must sell more than a third of its current 22.6 per cent stake through the IPO. While Alibaba is less known in the US, its listing has stirred up the most excitement in Silicon Valley and Wall Street since Facebook’s record IPO. Alibaba will become the largest Chinese firm to list on the NYSE or Nasdaq.

Up In The Air

Hewlett-Packard (HP) said it plans to invest more than $1 billion over the next two years to develop and offer cloud-computing products and services. The company said it will make its OpenStack-based public cloud services available in 20 data centres over the next 18 months. OpenStack, a cloud computing project that HP co-founded, provides a free and open-source cloud computing platform for public and private cloud services. HP recently inked a deal with Taiwanese contract manufacturer Foxconn Technology Group to make servers aimed at companies that provide cloud computing services.

Number Tweaks
The US trade deficit narrowed in March as exports rebounded, but the improvement was probably not enough to prevent the government from revising down its estimate of first-quarter growth to show a contraction. The Commerce Department recently said the trade gap shrank 3.6 per cent to $40.4 billion, broadly in line with economists’ expectations. When adjusted for inflation, the deficit dipped to $49.4 billion from $49.8 billion in February. March’s shortfall, however, was a bit bigger than the $38.9 billion that the government had assumed in its advance first-quarter gross domestic product (GDP) estimate. The report came on the heels of March construction spending and factory inventories data that also proved weaker than the government had assumed in its advance GDP report.

Patent Penalty
A US jury left the total damages Samsung Electronics must pay Apple unchanged at $119.6 million, after additional deliberations in a trial where the South Korean firm was found to have infringed three Apple patents. During the month-long trial, Apple accused Samsung of violating patents on smartphone features including universal search, while Samsung denied any wrongdoing.

Close-Lipped

JPMorgan Chase is reportedly closing the accounts of current and former foreign government officials to avoid the compliance costs associated with them. This affects around 3,500 accounts. JPMorgan said it was closing the Chase accounts and stopping credit cards of the officials because of hiked compliance costs. Banks are obliged to subject accounts of “politically exposed persons” to added scrutiny. The ban does not apply to JPMorgan’s private bank.

Resolution
Credit Suisse Group is in talks with the US justice department to pay around $1.6 billion to resolve an investigation into the bank’s role in helping Americans evade US taxes, sources are reported to have said. Prosecutors have also been pushing for Credit Suisse to plead guilty in connection with the probe. A spokesman for Credit Suisse declined comment. The penalty would exceed the 895 million Swiss francs ($1 billion) that Credit Suisse had set aside to pay potential penalties to the US.

Big Deal
Germany’s Bayer has trumped rival bidders for Merck & Co’s consumer care business in a $14.2-billion deal. Merck said it expects after-tax proceeds of $8-9 billion from the sale, which is expected to close in the second half of 2014. The transaction, the largest in the German healthcare industry since Bayer bought rival Schering for €17 billion ($24 billion) in 2006, will make Bayer the world’s second-biggest consumer healthcare firm, as it seeks to make better use of its distribution network and sales force.

Playing Coy
AstraZeneca laid out its defence against Pfizer’s $106-billion takeover approach by predicting its sales would rise by three quarters over the next decade, although only after a short-term drop. With promising new medicines expected to lift annual revenue above $45 billion by 2023, up from $25.7 billion in 2013, selling out to the US group now would deprive investors of huge gains, it argued. But the group has not ruled out a deal altogether, and sources say it is willing to talk if there is a compelling offer.

Tax Talk

France and Germany recently led a group of 10 EU nations in calling for a tax on financial trading, but their failure to agree to central elements of the plan means it will fall short of its original goals. The tax was promised in 2011 as a means to getting banks to contribute more towards solving a crisis that had by then bankrupted Greece and Ireland. The 10 finance ministers also pledged to phase in the tax on shares and derivatives trading from 2016.

Slow & Steady

Growth in China’s factory output and investment may have stabilised in April — estimated to grow 8.9 per cent over last year — as the government uses targeted policy measures to underpin growth, while the pace of declines in exports and imports may have eased, a news poll showed. However, the country may only get a temporary boost from such policy support, as growth will inevitably slow while the government seeks to tackle high debt levels and excessive factory capacity.

Air Pocket

Abu Dhabi’s Etihad Airways said its strategy of buying stakes in European airlines was bringing fresh competition to the region. Etihad currently has holdings in Air Berlin, Air Lingus and Air Serbia, and is looking to buy a chunk of Italy’s ailing carrier Alitalia. However, it has come under scrutiny of regulators to see if they comply with European ownership rules.

Foul Play
Tourists visiting Brazil for the World Cup (starting 12 June) are advised to pack a bathing suit, sunscreen, and lots of cash. Home to some of the world’s most expensive restaurants and hotels, visitors had better be prepared for the $10 caipirinha drink, $100 risotto and the $1,000-a-night hotel room — prices fuelled by many of the same imbalances and policies that have restrained economic growth in recent years. One reason for the steep prices is the high cost of doing business, courtesy a mix of taxes, import tariffs, bureaucracy and poor infrastructure.

(This story was published in BW | Businessworld Issue Dated 02-06-2014)


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