Archive for the ‘Business’ Category

Supreme Court rules against Bollywood union ban on women make-up artists

November 4, 2014

I posted recently about the challenge to the Bollywood union’s ban on women make up artists. The Supreme Court in India has now ruled that this ban is illegal (but in India labour laws are still among the most restrictive in the world though the new Modi government is beginning to address them). The court has given the union one week to delete their own rule restricting women and has assured the petitioners that if the union does not, the Court will.

Indian Express:

The 59-year-old practice in the Indian film industry that bars women from being classified as make-up artists is set to end with the Supreme Court stating on Monday that it would not allow this “constitutionally impermissible discrimination” to continue.

In the film industry, only men are allowed to become make-up artists while women are classified as hairdressers. The trade unions say this is to ensure that the men are not deprived of work.

“How can this discrimination continue? We will not permit this. It cannot be allowed under our Constitution. Why should only a male artist be allowed to put make-up? How can it be said that only men can be make-up artists and women can be hairdressers? We don’t see a reason to prohibit a woman from becoming a make-up artist if she is qualified,” said a bench of Justices Dipak Misra and U U Lalit.

“You better delete this clause on your own. Remove this immediately. We are in 2014, not in 1935. Such things cannot continue even for a day,” the court told the Cine Costume Make-up Artists and Hair Dressers Association (CCMAA). The court said the film industry, as a unit, could not be allowed to prolong this “gender bias”.

The court was hearing a petition by Charu Khurana and other women make-up artists, who were rebuffed by the CCMAA when they sought make-up artist cards. Khurana qualified from the Cinema Make-up School, California, but her application for membership was rejected by the CCMAA in 2009 because she is a woman.

The bench directed the body to come back with a “positive response” within a week. Khurana’s counsel, Jyotika Kalra, complained that Maharashtra’s union refused to delete the clause even after a state government order. “Don’t worry. If they don’t do it this time, we will order deletion,” assured the bench.

In the meantime the new Modi government has initiated moves to rationalise some of India’s archaic and restrictive labour laws:

India’s labour laws are restrictive in nature and hurt investments in the manufacturing sector. The Industrial Disputes Act (1947) has rigid provisions such as compulsory and prior government approval in the case of layoffs, retrenchment and closure of industrial establishments employing more than 100 workers. This clause applies even when there is a good reason to shut shop, or worker productivity is seriously low.

The Contract Labour (Regulation and Abolition) Act (1970) states that if the job content or nature of work of employees needs to be changed, 21 days’ notice must be given. The changes also require the consent of the employees, and this can be tricky.

While the right of workers to associate is important, the Trade Union Act (1926) provides for the creation of trade unions where even outsiders can be office-bearers. This hurts investor faith and restricts economic growth.

Rigid labour laws discourage firms from trying to introduce new technology, requiring some workers to be retrenched. This deters FDI because of the fear that it would not be possible to dismiss unproductive workers or to downsize during a downturn. Hence getting FDI into export-oriented labour-intensive sectors in India has not been fully achieved.

In contrast, China has succeeded in attracting FDI to export-oriented labour-intensive manufacturing, in part because of flexible labour laws such as the contract labour system implemented in 1995. Whereas in India, employers have taken to hiring workers on contract outside the institutional and legislative ambit, resulting in informalisation of the labour market. This hampers worker well-being. ……

To undo the malady in India’s labour market, some changes have recently been initiated in the three acts that largely govern India’s labour market: the Factories Act (1948), the Labour Laws Act (1988) and the Apprenticeship Act (1961). Amendments to some restrictive provisions of all these acts have been cleared by the Cabinet and are set to be tabled in Parliament. Key changes proposed include dropping the punitive clause that calls for the imprisonment of company directors who fail to implement the Apprenticeship Act of 1961.

The Government is also going to do away with a proposed amendment to the Act that would mandate employers to absorb at least half of its apprentices in regular jobs.

In order to provide flexibility to managers and employers, the amendment to the Factories Act includes doubling the provision of overtime from 50 hours a quarter to 100 hours in some cases and from 75 hours to 125 hours in others involving work of public interest. This is seen by some as being anti-labour as it imposes greater working hours without ensuring their security and welfare. …..

Big Pharma’s “Pay-for-delay” tactics delay generic drugs and kill people

October 30, 2014

It is not often that the Huffington Post can bring itself to criticise President Obama. But even their usual blind support for Democrats in general and for Barack Obama in particular has taken a back-seat to their outrage over Obama’s support for Big Pharma and his opposition to generic drugs (often from India) and to Medicines Sans Frontiers (Doctors without borders).

Much of their indignation is due to the collusive practice of “pay-for delay” agreements made by Big Pharma with drug manufacturers – often in developing countries – to delay the introduction of generic medicines – many for life threatening conditions. The purpose of course is to keep their prices high and to maximise their profits on their successful drugs. They delayed the introduction of generic AIDS drugs and are now opposing the introduction of cancer fighting generics.

ThinkProgress: ….. the widespread and arguably collusive practice of “reverse payment” settlements — commonly referred to as “pay for delay” — between brand name drug manufacturers and their cheaper generic drug counterparts. Such arrangements involve brand name drug makers paying off generic manufacturers to delay a generic drug’s release into the market, allowing the brand name producers to further profit off of their significantly more expensive drugs. …..

The practice has been quite successful in maintaining profits. But in the developed world the high – and protected – cost of medicines take away from other resources (people and equipment). In the developing world it denies treatment to many who need it. The difference in price between a generic drug and a “brand name” drug is almost obscene. AIDS treatments of over $12,000 per year reduced to less than $400 using generics from India. A generic version of Nexavar (for treatment of liver and kidney cancer) reduced cost of treatment from $5,000 per month to just $157 per month.

A generic drug only enters the market after patent protection has expired. The original developer has by then had his time to exploit his invention. Production costs at Big Pharma are perhaps upto twice that at low-cost manufacturers – but not much more. Yet they often have support from their governments in the developed countries (in extension of patent protection through patent “bombing” and in global and bi-lateral trade agreements) in maintaining prices which are hundreds of times higher than the production cost.

In an article today HuffPo writes:

Obama Has Been Fighting Doctors Without Borders For Years

It’s a little unusual to see the Obama administration singing the praises of Doctors Without Borders, the Nobel Peace Prize-winning nonprofit that is shipping doctors, drugs and supplies to West Africa to combat the Ebola outbreak. …… But the recent executive branch acclaim for Doctors Without Borders obscures a long-running struggle between the humanitarian group and the White House over global drug prices. Through trade talks, meetings with foreign governments and negotiations with multiple U.N. bodies, the Obama administration has aggressively pursued policies that prevent poor countries from accessing low-cost generic versions of expensive name-brand medications, despite persistent calls from Doctors Without Borders for the White House to reverse course.

Americans pay the highest prescription drug prices in the world. Those prices are elevated in large part by aggressive intellectual property standards that grant pharmaceutical companies long-term monopolies on new drugs, letting firms charge whatever they want without regard to traditional market pressures. Generic drugs can’t enter the market whenever those monopolies are in place. Doctors Without Borders, along with many other medical groups and nonprofits, has spent years advocating for looser standards and greater flexibility for developing countries.

Drug companies, of course, argue that they need patents and other government perks to recoup their research and development costs. Large U.S. drug companies don’t seem to be having trouble breaking even, however. Pfizer made $22 billion in 2013, while Merck & Co. posted a $4.5 billion profit and Eli Lilly & Co. earned $4.7 billion.

India’s generic drug market has been at the center of disputes between the White House and Doctors Without Borders. AIDS and HIV medication was wildly expensive in developing countries in the late 1990s — about $12,000 a year per patient in South Africa, a country with an average income of just $2,600 a year, for instance. When Indian generics entered the global market, they were priced as low as $1 a day, enabling programs like George W. Bush’s global AIDS relief plan to serve millions of people.

U.S. drug companies are particularly concerned about repeating that experience with expensive cancer treatments, and they’ve been backed up by the Obama administration, which has placed India on it’s international trade blacklist. In the spring of 2012, U.S. Patent and Trademark Office Deputy Director Teresa Stanek Rea attacked India’s government in congressional testimony for approving a generic version of a Bayer AG cancer drug called Nexavar. The generic version cost patients$157 a month. Bayer had been charging over $5,000 a month there, in a country with a per capita income of just $1,410 per year, a price so high that less than 2 percent of potential patients were able to access the drug. But before Congress, Rea falsely called the generic approval an “egregious” violation of World Trade Organization treaties.

Doctors Without Borders called it “unprecedented, really shocking testimony,” but it wasn’t a one-time gaffe from an obscure agency official. In the summer of 2013, Secretary of State John Kerry went to India to pressure its government over its approval of generic versions of patented U.S. and European drugs. When India’s new prime minister, Narendra Modi, made his first visit to the United States in September of this year, Doctors Without Borders urged him to resist the Obama administration’s demands on generic medicine.

“India’s production of affordable medicines is a vital life-line for MSF’s medical humanitarian operations and millions of people in developing countries,” said Rohit Malpani, director of policy and analysis for MSF’s Access Campaign. “India’s patent laws and policies have fostered robust generic competition over the past decade, which has brought the price of medicines down substantially — in the case of HIV, by more than 90 percent. The world can’t afford to see India’s pharmacy shut down by U.S. commercial interests.”

Big Pharma is surely entitled to make a reasonable profit from its inventions. The development costs of unsuccessful drugs also has to be paid for. But any concept of Intellectual Property (which itself is deeply flawed) can be defended when it is based on the denial of the benefits of the invention to other than a privileged few. A denial to the point of loss of life.

Silicon Valley’s EFI pays Indian workers $1.21 per hour for a 122 hour week

October 24, 2014

Sweatshop in California: Electronics for Imaging in Silicon Valley

The land of milk and honey has a seamy side of its own. There are sweat shops in Silicon Valley in California as well. And this particular sweat shop – Electronics for Imaging (EFI) – which paid workers imported from India $1.21 per hour (in Rupees) and worked them upto 122 hours per week, is no fly-by-night operation but a  company listed on Nasdaq and generated about $200 million in revenue in its last quarter. Taking the cost of living into account and the relative salaries in California and Bangladesh, EFI is worse than the textile companies in Bangladesh.

Business Journal

Electronics for Imaging Inc. has been ordered by the U.S. Department of Labor to pay $40,156 in back wages to employees who had allegedly received as little as $1.21 an hour, the San Jose Mercury News reported.

EFI also paid a fine of $3,500 following a federal investigation into its wage and hour practices, which had included paying its workers in Indian rupees and having them work up to 122 hours in the Fremont company’s IT department. …. 

The EFI violations of state and federal labor laws concerned eight employees who were paid to help install a computer network when the company moved its home office from Foster City to Fremont, according to the Mercury News. The data storage provider said that it had brought in some of its IT employees from Bangalore, India, to do the jobs in Fremont between Sept. 8, 2013 and Dec. 21, 2013.

You couldn’t get the hours worked into a 5 day week. 122 hours a week averages to over 17 hours a day for a 7 day week. The EFI defence is remarkable for its callousness – “we unintentionally overlooked laws that require even foreign employees to be paid based on local U.S. standards” the company said in a statement. Who in their right minds would expect foreign workers in California to be paid the local Californian wage?

Not so very different from conditions in Bangladesh:


The majority of garment workers in Bangladesh earn little more than the minimum wage, set at 3,000 taka a month (approximately £25), far below what is considered a living wage, calculated at 5,000 taka a month (approximately £45), which would be the minimum required to provide a family with shelter, food and education. 

As well as earning a pittance, Bangladeshi factory workers face appalling conditions. Many are forced to work 14-16 hours a day seven days a week, with some workers finishing at 3am only to start again the same morning at 7.30am.

Nokia adapts genetically while Microsoft drops the “Nokia” brand

October 24, 2014
Nokia NMT900 1987

Nokia NMT900 1987

A few days ago Microsoft announced that it was dropping the “Nokia” brand and would continue with “Lumia”.  My first mobile phone ever was an NMT900 in 1988 or ’89. My first five mobile phones were all Nokias. It felt like the end of an era. As if some well loved species was going extinct.

Irish IndependentFor many of us it’s a name synonymous with mobile phones, but Microsoft is now officially axing the Nokia brand in favour of its own Lumia range of Windows smartphones.

The tech giant bought Nokia’s mobile division back in April for $7.2bn along with a 10-year deal to use the Finnish company’s name on smartphones. Now, however, it seems Microsoft wishes to push its own Lumia brand, the most successful iteration of the company’s Windows Phone OS – rival to Google’s Android and Apple’s iOS systems.

The company actually began life in the 19 century as a single paper mill in what was then part of the Russian Empire. It grew into an industrial conglomerate with interests in everything from galoshes to gas masks, with the push into electronics only coming in the 1960s.

From the 1980s to 2000s it had a string of mobile hits (including the famous 3310 – one of the best selling mobile devices of all time, with more than 126 million units sold worldwide) but failed to keep on top of its smartphone competitors.

Windows Phone meanwhile continues to struggle against iOS and Android, with global market falling to 2.5 per cent. Microsoft will be hoping that Nokia’s ever-popular range of capable, low-end devices will eventually shuffle users in developing markets onto its OS, but nothing looks like it will shake Android and iOS in the high end.

But there is no need to be sad.

The brand is not going extinct. It is adapting and changing with the times. The company started with a paper mill and only enetered electronics in the 1960s. Now it has adapted and has returned to profit  – demonstrating the benefits of genetic evolution over stagnating conservation.

The Register: Nokia reported strong results on Thursday even after giving long-suffering shareholders a dividend and taking the hit of a one-time charge.

Profits rose to €353m on earnings of €3.3bn, up from €2.9bn a year ago. 

With the Windows Phone albatross thrown to a reluctant new owner, Nokia is now three divisions: network equipment (Nokia Networks), mapping (HERE) and IPR licensing (Nokia Technologies), but with €2.6bn of income, Networks provides most of the meat.

Nokia Networks sales rose 13 per cent year on year, based on LTE sales into China and North America, the company said. HERE grew 12 per cent, and IP licensing nine per cent to €152m; Microsoft is now a more important licensee. 

The company paid out €1.372bn in dividends and recorded a goodwill charge of €1.2bn against HERE’s profits, the latter reflecting a new evaluation of the division at €2bn.

The HERE charge reflected, “an adjustment to the HERE strategy and the related new long-range plan”. Nokia also spent €220m buying back shares.

Nokia made a string of mapping acquisitions in the Noughties, the largest of which was Navteq for $8.1bn (€5.6bn at the time). The company defended its continuing investment in HERE, declaring that “we continue to believe we have an opportunity to create significant value with the HERE business, as connected cars become more pervasive and as enterprises deploy new location-services to improve their productivity and efficiency”.

Despite all the charges, the company still has €5.4bn in cash and assets.

For a corporation to change its genetic code and shift away from a previously successful habitat and move into new territory is not easy. It needs changes to corporate competences and culture and shape and size – and many of the changes are painful. But Nokia seems to be well on the way to reinventing itself – again.

It is a lesson from the corporate world which should be taken to heart by all so-called conservationists. In the corporate world, continuing with a failing strategy, or a failing habitat or living in past glories does not help survival. It is genetic adaptation (from paper to tyres to gas masks to phones to networks) which provides Nokia with a new future. Similarly, in the animal world, trying to freeze failing species into a failed strategy in an artificial habitat is pointless. Genetic adaptation not stagnating conservation is the way to go.


Design the change — better still, invent it, but don’t forget to manage it

July 10, 2014

(Extracts from a recent lecture on change management).

Without change even time does not exist.

Without change life itself is impossible. Elementary particles could be here or may be there. Schrodinger’s cat may be alive or maybe not. Atoms vibrate. Chemistry happens. Molecules are built. Some reproduce. Life emerges. The earth rotates. The Sun radiates. Energy is transformed. Species appear. Species disappear.  Evolution results. Continents drift. Climate changes. Energy is transformed. Radiation dissipates. Entropy increases. The Universe expands.

Before the Big Bang and the existence of time, all was stasis and maybe there will be stasis again. One day the Sun will die.

But till then we live – and die – with change. “Change Management”  appeared as a new discipline in the 1980’s to try and manage our behaviour during such change. Mergers and acquisitions across borders and cultures has given impetus to the field.

Change makes us uncomfortable but some deny it, some run away from it and some embrace it, but we all have to cope with it. The key lies in how pro-active we can be. We can classify increasing levels of being pro-active:

  1. Deny the change
  2. Observe the change
  3. React to the change
  4. Manage the change
  5. Design the change
  6. Invent the change

In the commercial world I would claim that the greatest benefit lies in being as high up among these levels as possible. I suspect that this applies to all fields of human endeavour and not just to commercial enterprises.

Denying that change has happened generally leads to isolation and eventually to extinction. That applies as well to a species as to a commercial enterprise or to an individual. Change can be gradual along existing trends or it could be a change in the trend or it can be a discontinuity and the start of a new paradigm. Observing and forecasting the changes to come is where change management begins. But there has to be a caveat here. Denying or failing to observe a change is very dangerous but so is assuming that a change is happening when it isn’t. Merely reacting to change is the norm and this passive approach means that the level of control is generally low. What will be will be. If change has happened, passive reaction must be replaced by active decisions. Even a “do nothing” option should be an active choice.

Predicting market trends is the stuff of life for market analysts and commercial enterprises. It is an attempt to observe change before it happens and to try and manage it. Even a defensive strategy should be an active decision. Establishing new products or penetrating new markets are attempts to design and manage a change. While designing a change gives a very strong position, it is no guarantee of success. Subsequent management of the change created will not happen automatically. Inventing change is the most powerful way of handling change but carries inordinate risks. A new paradigm – if created – may be quite unpredictable.

Sony invented Betamax but didn’t properly foresee the changing market they helped create.  But when they created the Walkman they shifted a paradigm. Nokia helped design the mobile telephony market but missed the switch to smart phones. Facebook and Myspace invented something new and a new paradigm of social connections ensued. But Myspace has not managed the subsequent change very well. The US invented the new Iraq but forgot to foresee or manage the change that they set in motion. The Indian electorate has invented Modi and it remains to be seen if he can manage the change and reinvent the country.

My message for all commercial enterprises becomes:

  1. Observe the changes around you (and try to forecast what they will be)
  2. Never forget to react to change
  3. Actively manage the changes which have already happened
  4. Aim to design or invent future changes but don’t forget to manage the change you create.


The end of the road for the large Alstom gas turbines?

July 7, 2014

(corrected February 2015)

The large (>50MW) Alstom gas turbines (GT11N2, GT13E2, GT24 and GT26) represent a line of technology which derives mainly from the BBC range of products (developed further as ABB) and acquired by Alstom in 1999. At that time Alstom’s licence with GE came to an end. But as GEC-Alsthom, Alstom had also inherited the gas turbine technology which came out of GEC in the UK. In the current Alstom range not much remains of the GEC tradition. At the smaller end Alstom also once had the gas turbine technology of the Ruston engines from Lincoln and acquired the ABB range of small machines (which themselves carried forward the developments as ASEA and some of the Sulzer range). But the entire range of industrial (<50MW) gas turbines was divested to Siemens in 2003 (and they are doing very well there).

Now as GE takes over Alstom’s power business (which has still to get final regulatory approval but looks to be a done deal), the days of the Alstom range of large gas turbines are strictly numbered. GE (and Siemens) have their own machines competing directly with the GT24 (60Hz) and GT26 (50Hz) and I do not expect that any more of these machines will ever be sold again. The sequential combustion design concept that these machines employ is so far from the GE approach that it seems impossible for any versions of these machines to continue. Alstom (as ABB) had adopted sequential combustion in the late 1990’s firstly to differentiate themselves from GE and Siemens and to get over their lack of access to advanced, high-temperature materials coming out of military jet engine programmes. Sequential combustion was first used/tested by BBC in the 1960’s 1948* though at much lower temperatures and ABB was trying to create a virtue out of a disadvantage – which the GT24 and GT26 did eventually do, but not without great problems and great cost.

GE may well have some benefit from some of the component solutions that Alstom has been forced to develop – at great expense – to get over the challenges posed by sequential combustion. Similarly some of the low-NOx solutions developed by Alstom could possibly be of use for GE. There may be some tricks for GE to pick-up regarding compressors. Certainly GE will continue with the very lucrative service market in maintaining the Alstom fleet and this will continue for perhaps 10 or 12 years at most. So while GE will benefit from the service revenue and by the reach of Alstom’s global sales organisation, the GT24 and GT26 – as products – have very little benefit to offer. It will not be possible for GE to absorb all the manpower currently employed with Alstom’s gas turbines. Not all those currently involved with the design and manufacture of the GT24 and GT26 will be needed for – or be able to switch over to – the design and manufacture of the GE range. GE’s global procurement network and its qualification of sub-suppliers is probably much more advanced than Alstom’s. I don’t expect that GE’s global sourcing will be much enhanced by the acquisition of Alstom’s Power business. Some job losses at Alstom locations are inevitable and I suspect these will be mainly in Switzerland while jobs in France will be somewhat protected by GE’s promises to the French government. At Belfort, Alstom produced GE machines under licence till 1999 and no doubt this will become GE’s centre for large gas turbines in Europe.

The GT11N2 gas turbine will probably die a natural death. It has not been a really competitive machine for over a decade and even though it has gone through many upgrades and cost reduction exercises, It has some unique advantages with low-Btu fuels but I do not think it offers GE any great advantages and they already have competing machines. The GT11N2 may have survived a little longer within the more restricted Siemens stable but even here it would have eventually withered.

The GT13E2 is possibly the only machine that may survive for a while under GE. It has some unique advantages with low-Btu fuels and could have a geographical market niche in Russia and the former CIS countries. But if it does survive it will do so only as a niche product. Again it would probably have had a longer life under Siemens but my guess is that it will not be sold for more than another 2 or 3 years.

The next market boom for large gas turbines – by my analysis – will come in the second half of 2015. This will be due partly to the 7-8 year “normal” business cycle and partly due to, and reinforced by, the advent of shale gas. And when that boom comes, the Alstom machines will be absent and there will be one less gas turbine technology available in the world. GE, Siemens and MHI will be the only three technologies left and they will be the main beneficiaries. But just three technologies are not enough. A growing market together with a dearth of technology suppliers will probably ensure the entry of another player into the field of large gas turbines.

(Actually Siemens and MHI get the best return at the lowest cost. They gain increased market space as Alstom’s machines disappear at no cost to themselves. GE gains no new products, gets the same increased market space and gets increased service revenue for Alstom machines. But GE has a large cost of acquisition and a great deal of hassle – and cost – to come as they restructure and integrate the Alstom business).

I would guess that this fourth player could well be Shanghai Electric with their newly acquired 40% stake in Ansaldo Energia. This has been something of a coup for Shanghai Electric. Doosan were also eyeing Ansaldo as a way of entering the gas turbine playing field (the entry barriers are too high for a scratch player). Both Doosan and Siemens had made bids for Ansaldo Energia but Siemens’ bid was essentially a defensive and a spoiling bid and they eventually withdrew. Doosan were the sole remaining bidder but it seems that Shanghai have pipped them at the post for this strategic acquisition.

* Correction – Sequential combustion was first used by BBC at Beznau in 1948, operating on distillate and with a TIT of 575ºC.

Bouygues’ need for cash will make or break GE’s bid for Alstom assets

June 21, 2014

As I suspected it seems to be the share price at which Bouygues are prepared to divest their shareholding in Alstom which will determine whether GE will acquire Alstom’s energy assets or whether the rival bid from Siemens/MHI will succeed. It seems that if a share price of less than €30 per Alstom share is accepted by Bouygues then GE may win the deal with the governments backing. IF they hold out for €32 or more then it may be Siemens/MHI who get the nod.

It is a hectic weekend for Alstom, the French government and Bouygues. The French government’s acquisition of 20% of Alstom’s shares is integral to their backing of GE’s bid over the rival bid from Siemens/MHI.

It is Bouygues need to exit from their 29% shareholding in Alstom and their need for cash which is probably the main driver for Alstom’s divestment. For Bouygues the book value of their holding of some 89 million shares is at about a value of  €33 per share whereas the market price is currently only around €28-29. Clearly the French government would prefer to just pay market price but Bouygues could well argue that their shareholding was acquired at the behest of the French government in the first place. Without their “white knight” intervention Alstom would have gone to the wall.

If Bouygues holds out for close to book value and the French government balks at the price then the Siemens /MHI offer may gain traction – especially if it offers Bouygues not only a higher price but also a clean exit from their entire shareholding.

ReutersTalks on an industrial tie-up between Alstom and General Electric entered a critical phase on Saturday, as the French government wrangled with Alstom shareholder Bouygues over a key plank of the transaction. Sources close to the negotiations said talks were continuing over the price at which the French state would acquire 20 percent of Alstom from Bouygues – a condition for government approval of Alstom’s alliance with GE in preference to a rival Siemens-Mitsubishi offer. ……

French President Francois Hollande applied more pressure to Bouygues, telling reporters in Paris he expected rapid progress in the stake purchase talks. “This is a major condition for the government’s acceptance of the alliance,” Hollande told reporters in Paris. “That’s why I believe we will make progress by the end of the day.” Without an acceptable deal on the Bouygues stake, he added, “it would be necessary to reconsider the alliance as it has just been announced”. …….

……  Economy Minister Arnaud Montebourg finally announced state backing on Friday for a GE-Alstom deal valuing Alstom’s energy business at 12.35 billion euros ($16.77 billion). But the official green light remains subject to strict conditions agreed with GE as well as the government’s successful purchase of a 20 percent stake from Paris-based Bouyues.

Montebourg said the French state was prepared to pay only market price for the Alstom shares, which closed at 28 euros on Friday – about 20 percent short of their accounting value to Bouygues.

My guess is that if Bouygues needs around €2.8 billion and if they hold out for more than €32 per share the GE deal may fail and the scales may tip in favour of the Siemens/MHI bid.

Auction for Alstom develops as GE and Siemens/MHI up their bids

June 20, 2014


The auction could be over. It looks like the French government is backing GE’s offer and will itself take a 20% stake in Alstom.

France to Back G.E.’s Bid for Alstom Assets


Once upon a time I was recruited by ASEA in Sweden. Then ASEA merged with BBC and through no action on my part I became an employee of ABB. Some years later ABB sold all its Power Generation business to Alstom (along with me) and – once again without any action on my part – I became an employee of Alstom. In due course I retired but one of my last actions was to sell off part of Alstom’s industrial power generation business to Siemens as part of a global divestment. Whereupon I was recruited by Siemens in Germany to help with growing the business just acquired from Alstom. And then I finally did “retire” – insofar as “retirement” means that I can now reject engagements which do not interest me.

So the current battle going on between GE on the one hand and Siemens/MHI on the other to acquire all of Alstom’s power generation business is of particular interest. The Alstom Board which had -in principle – accepted GE’s offer, is now faced with evaluating two rival bids. During this week both have improved their bids.

Alstom’s Board will convene no later than June 23 to review the bids.

My personal view is that that the Alstom need for divestment is driven not only by their debt but – perhaps more importantly – by the desire of their largest shareholder to exit. Bouygues owns 29% of Alstom and came in – at the behest of the French Government – when Alstom were in dire straits. But now Boygues themselves are in some trouble and need to exit and they need to convert their 29% to as much cash as possible. With Alstom paying no dividend, Bouygues’ 29% holding represents about €2.5 billion locked up as a non performing asset. So in my view the critical points for Alstom in selecting a buyer will be

  1. ensuring that whatever is left of Alstom after the divestment is more than merely viable, and
  2. that Bouygues gets the maximum cash return for its 29% in a “clean” and lucrative exit.

In any event a good, old fashioned, “bidding war” between GE and Siemens/MHI is probably a good thing for all Alstom shareholders – including Bouygues. I recall – during my time with Alstom – when Alstom was forced to sell its profitable industrial power generation business. The final sale price ended up about 48% higher than Alstom’s internally evaluated value – just because an auction did develop between Siemens and Hitachi. And the auction did not just happen – it took much time and effort to promote.

Whether the Alstom Board can engineer a “good” auction to the benefit of the remaining Alstom train business and their shareholders remains to be seen.


Immelt is in Paris to present new details of GE’s $17 billion plan to officials including Economy Minister Arnaud Montebourg, according to GE. Negotiators for the U.S. manufacturer continue to refine specifics ahead of a June 23 deadline, including the structure of Alstom’s renewable energy, grid and transport businesses, the company said.

Seven weeks after unveiling its proposal for Alstom’s energy operations, GE confronts a counterbid by Siemens that seeks to carve up Alstom together with Japan’s Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) The Siemens proposal values the energy assets at 14.2 billion euros ($19.3 billion).

Immelt’s return to Paris underscores the stakes in a deal that would give Fairfield, Connecticut-based GE control of Alstom’s technology for electricity transmission and power-plant maintenance as Europe’s economy starts to recover. The acquisition would be GE’s biggest ever and bolster Immelt’s push to return the company to its industrial roots.


Siemens and Mitsubishi Heavy Industries (MHI) raised their offer for Alstom’s energy businesses to compete with a revised bid by U.S. rival General Electric.

Siemens-MHI and GE have been facing off in a battle for control of Alstom’s power businesses that has seen the Socialist government give itself powers to block any deal in the name of protecting local jobs and influence over a strategic sector. 

Under their amended offer, Siemens-MHI would pay 8.2 billion euros ($11.2 billion) in cash rather than 7 billion and value Alstom’s power businesses at 14.6 billion euros, 400 million more than previously and still well above GE’s 12.4 billion.

……. The improved Siemens-MHI proposal still foresees Siemens buying Alstom’s gas turbine business. But MHI is now offering to buy a 40 percent stake in the combined steam, grid and hydro business of Alstom and bundle them in a holding company. It previously planned to create three joint ventures by acquiring 40 percent of the steam business, 20 percent of grid and 20 percent of hydro. The change will increase MHI’s share of the cash payment to 3.9 billion euros from 3.1 billion. Siemens’s contribution rises to 4.3 billion euros from 3.9 billion, with the company saying the increase was based on “a subsequent, more advanced opportunity/risk analyses”.

In addition, Siemens is offering to immediately enter into a joint venture for mobility management, including signalling, with Alstom.

Ericsson’s headcount in India now exceeds that at HQ in Sweden

June 11, 2014

Ultimately, adding value as close to the customer as possible is not only inevitable but it is also going to be the critical criterion which determines which companies will survive.

Ericsson the Swedish manufacturer of telecommunications equipment has just passed a kind of milestone when its headcount in India has now exceeded the headcount at its headquarters in Sweden. This will be seen negatively in Sweden especially by the unions, but it is this readiness and ability to get close to the market which actually gives me confidence that they are on the right track. Ericsson, I think, have played this balancing act of changing roles at headquarters while growing close to the market rather well. (Which is why I have Ericsson in my portfolio).

Mobiletor: Ericsson which prides itself as a growing provider of communications technology and services, now has more employees in India than it does in its home country of Sweden, according to the company’s Facts & Figures web page. The headcount is 17,991 staff in India and 17,545 employees in Sweden, with about 80 percent of its workforce being male. In total, Ericsson has 111,383 employees from across the world working for it and has its headquarters in Stockholm, Sweden. …..

India is the fastest growing smartphone market on the globe and 4G LTE is still at its nascent stage, with few operators still appearing to be in the mood for testing the waters before diving right in. Going by an Ericsson report, the country’s mobile broadband users will grow in number to touch four times the present figures by the year 2020. This is directly tied to the 80 percent of consumers who still haven’t adopted smartphones and are yet to experience the mobileweb.

Ericsson have a fairly upbeat view of the mobile market in the latest Ericsson Mobility Report and their own prospects:

The number of mobile subscriptions worldwide grew approximately 7 percent year-on-year during Q1 2014. The number of mobile broadband subscriptions grew even faster over this period – at a rate of 35 percent year-on-year, reaching 2.3 billion. The amount of data usage per subscription also continued to grow steadily. Around 65 percent of all mobile phones sold in Q1 2014 were smartphones. Together, these factors have contributed to a 65 percent growth in mobile/cellular data traffic between Q1 2013 and Q1 2014.

By 2019, global mobile broadband subscriptions will exceed the world population.

Total mobile subscriptions are expected to grow from 6.8 billion in Q1 2014 to 9.2 billion by the end of 2019. Global mobile broadband subscriptions are predicted to reach 7.6 billion by 2019 and will gain an increasing share of the total mobile subscriptions over time.

Mobile broadband users in India will grow in numbers to reach four times the present figures by 2020. In 2013, people accessing data on their mobile devices reached 90 million. The smartphone penetration of 10% or 90 million devices will grow to 45% or 520 million mobile gadgets by 2020. The mobile subscriber base is expected to increase from 795 million last year to 1145 million by 2020.

AstraZeneca prepared to talk to Pfizer if bid is increased another 10%

May 19, 2014

According to the Svenska Dagbaldet

After AstraZeneca today rejected Pfizer’s latest bid of nearly 770 billion kronor, it looks like no deal for this year But in its written response to the bid Astra Zeneca’s board writes that it is prepared to negotiate with Pfizer if the bid is raised by ten percent.

So I suspect that it may be better for shareholders in AstraZeneca to sit tight and wait for the next bid – but it may take a few months. In the worst case, holding on to an independent AstraZeneca is not such a bad deal in the long run.

I have been a little amused with the conservative politicians in Sweden and the UK abandoning their “free market” principles and  invoking the “public interest”  to oppose the deal. But unless they can convert their concern for the “public interest” into something tangible for AstraZeneca shareholders, they are doing them a disservice. In fact I would argue that without acknowledging that the AstraZeneca shareholder interests are also a public interest to be protected, both Cameron’s government and Reinfeldt’s government are engaging in an extra-legal, repressive and discriminatory behaviour.

Needless to say the Left and the Communists are opposed to the deal on religious grounds because rationalisation  – if it leads to the loss of any jobs and even redundant jobs –  is always a great SIN.


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