Business Blog: Hoover’s Business Insight Zone

First you’ve got your China, which is ubiquitous in the business news these days, and then you’ve got your Blackstone, which has been soaring in our Hoover’s Index rankings, month after month.

In strategy shift, China to buy a stake in Blackstone

China is looking for something besides U.S. Treasury bills to invest in. Especially considering its imminent IPO, Blackstone looks to be about as blue-chip as it comes these days. Could be a marriage made in financial heaven.

Mergers between securities markets have been going strong over the past few years. Leading the charge, waaaay back in 2000, were the Paris, Brussels, and Amsterdam exchanges, which combined to form Euronext. The past couple of years have seen particularly frenetic activity on this front, with various bourses touting new and bigger combinations. The venerable London Stock Exchange was the ripest target for takeover, and notional deals swirled: Would the Deutsche Börse buy the LSE? Would Euronext buy it instead? Or maybe the investment bank Macquarie? No, wait, Nasdaq!

Well, Nasdaq did finally buy more than 25% of the LSE, which drove away other suitors. Meanwhile, though, some Euronext shareholders wanted it to join up with the Deutsche Börse. In the end, Euronext merged with The Big Board to form NYSE Euronext.

Now the Wall Street Journal reports that NYSE Euronext may go after IntercontinentalExchange (ICE) an Atlanta-based derivatives market . . . which is itself embroiled in an M&A tug-of-war with the Chicago Mercantile Exchange. Both ICE and the Merc want to buy the Chicago Board of Trade.

So maybe one of these days we’ll be calling some hydra-headed NYSE Euronext ICE CBOT Inc. “The REALLY Big Board.”

Note this interesting list from MSN City Guides:

The 10 Greenest Cities in America

Austin, home of Hoover’s World HQ, is first on the list — alphabetically, at least! — and deservedly so, since Austin has a long-standing commitment to green energy and green lifestyles in general.

One small quibble with this statement:

If you want to sign up for green power from Austin Energy, possibly the greenest power grid in the country, you can get in line—this year’s demand was unpredictably high, and they’re fresh out.

Austin Energy has led the nation’s roughly 600 utilities in sales of sustainable energy year after year — it’s lapped the field, more or less — yet it’s been a while since it has matched the city ratepayers’ demand for green power.

Before I or anybody else gets tempted to slag Austin Energy, let me rush to point out that the utility is shelling out nearly $700 million to bring 225 megawatts of West Texas wind power online by the end of 2007. But that will come after two years during which the utility’s green power program, called GreenChoice, has been effectively closed to new customers, despite sustained interest from Austin homeowners and commercial customers who have consistently oversubscribed the program. They’re doing great in comparison to other utilities nationwide, but if they were able to keep up with Austinites’ demand, they would be doing even better.

For more on Austin Energy — most of it highly laudatory! — I humbly submit this little article I wrote about the utility for a local magazine a year ago.

Addendum:  My friend Jon Lebkowsky has just written a short piece in this vein, “The Utility of the Future,” at WorldChanging.  In it he talks about some of the topics discussed at this week’s Clean Energy Venture Summit, which was held here in Austin (and co-sponsored by Austin Energy).

Lots of talk in the blogosphere today about Google’s new Universal Search feature, which Google VP/wunderkind Marissa Mayer discusses here.

The idea is that users will be able to enter a term into the Google search box (Mayer’s blog post uses the example of Darth Vader, among others) and get back a range of results including text, images, YouTube videos, and so on.

Best take I’ve seen on this move so far? Robert Scoble’s. He says that this announcement helps make sense of Google’s 2006 YouTube acquisition. People were wondering how Google would make money off the YouTube deal (it was $1.65 billion, after all), but Robert thinks that the deal makes sense because it allows Google to retain its lead in search quality and to put Microsoft “in a box.”

For more details, also see Danny Sullivan’s long post at SearchEngineLand.

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* Google’s stated corporate objective is “organizing the world’s information and making it universally accessible and useful.”

A couple of weeks back I posted about the huge offer that Barclays made for ABN Amro. Days later, LaSalle Bank, the ABN Amro unit that is the biggest plum in the competing offers for the parent company, came in #2 on the Hoover’s Index for April. Now, on Hoover’s Bizmology blog, our own Patrice Sarath gives her witty take on how badly ABN Amro has tangled itself up in its attempt to sell itself off.

Bizmology: Can ABN Amro survive its own sale?

My favorite line: “Well, to paraphrase Jeff Goldblum in Jurassic Park II: first there’s the oohing and the aahing and then there’s the running and the screaming.” Check it out.

As our IPO Filings list makes clear, there are plenty of nine-figure IPOs on the agenda these days, but not many valued as high as $750 million — the price tag on the IPO that Orbitz Worldwide filed on Thursday.

My high-level verdict on this IPO, which might be summarized as “Ehh . . . ,” is offered in this BusinessWeek story by Olga Kharif and Aaron Pressman. (I’m quoted on page two of the article.)

I’ve used the Orbitz service in the past, and I respect the acumen of the folks who run Blackstone Group, which now owns Orbitz (or, techically, its parent company, Travelport). But the best IPOs are grounded in a company’s operations. Ideally, a company going public bases its IPO on a profitable history as a private company (or corporate division), and then uses proceeds from the IPO to fund future profitable expansion as a public company. That’s not happening in this case, since (1) Orbitz has years of sizeable losses, and (2) proceeds of its IPO will go to pay down Travelport’s debt.

I have absolutely no doubt that Blackstone will make money off of this deal. Orbitz seems to have some pretty good product offerings. But to my eyes (and, if it need be said, I’m not a financial or investment adviser, and you should not take this as financial or investment advice) . . . the Orbitz IPO bears the hallmarks of a dud.

When I signed on with Hoover’s back in 2000, one of the company veterans I talked to warned me about a common affliction of Hoover’s editors: you end up knowing waaaay more about companies and industries than you can ever safely trot out at a cocktail party. He said he knew he had reached this point when he was driving down the highway, saw an eighteen-wheeler owned by a big-but-not-huge trucking company, and immediately remarked to his passenger that the trucking company was owned by Parent Company A and competed primarily with Companies B, C, D, and E.

In other words, we’re geeks for this stuff.

A recent reminder of this came when I was talking to our editor Catherine Colbert, who has covered apparel makers for Hoover’s for several years. She was telling me about Crocs — they make the popular clog-style shoes of the same name — and said that the company was “doing really well and seems to have itself together.” Catherine covers her whole beat like a hawk, but she said that this company had really started to stand out from the crowd for her — a phenomenon I well remember from my days covering STMicroelectronics (the best huge microchip maker most people have never heard of).

As if I needed confirmation of Catherine’s opinion, I found it in this post about Crocs from the Trendsspotting blog. (Take a look at their logo and you’ll see why the double-s in the name is intentional.) The charts at the bottom of the post are particularly useful for showing how the Crocs brand has extended its reach over the past couple of years.

Two things ring sour for me in the Trendsspotting post:

1. The opening description of Crocs as “questionable shoes.” True enough, some people find them questionable in terms of fashion, but there’s no question that they’ve caught on in a big way. While I have no flag to carry for Crocs (and no financial interest in its success), I would note that my daughter’s third-grade class is populated wall-to-wall with Crocs wearers. She liked hers so much that she persuaded me to buy a pair, which I find great for gardening.

2. The post ends with this:

“My conclusion: yes, Crocs is behaving as a catching and spreading trend. Now, would you say it is a fad – soon to be eliminated?”

Catherine, at least, would say no. She points out that Crocs doubled its revenue last year, while also increasing its profit margins. The company has grown both in organic sales and through a series of small, complementary acquisitions, and seems to have an expanding reach in terms of its marketing. (Witness its big deal with Disney.) Yes, I’m biased, but my guess is that Catherine has read this one right.

Long live the merry Hoover’s band of business geeks!

On my desk sits a thick file with the heading “The China Market.” That’s what Americans of the late 19th century called the potentially bottomless market of East Asia, back when clearing the surplus of goods created by the American economy started to become a serious economic issue for U.S. industries and policy makers. Well, everything old is new again, and these days it seems like you can’t stroll through a dozen business stories without hearing about PetroChina’s new oil discovery in the Bohai Bay, or how Shanghai Automotive is competing with General Motors.

Today’s arresting news, courtesy of Salon’s Andrew Leonard: The Chinese stock market is now larger than the rest of Asia’s stock markets combined. And yes, to answer my own immediate question, that includes Japan. Here’s the opening of the Financial Times story to which Leonard pointed in his post:

Bourses in China eclipse all of Asia

The value of shares traded on China’s stock markets on Wednesday was greater than the rest of Asia combined – including Japan – helping the benchmark index to breach the 4,000 mark for the first time.

From the 19th century through the middle of the 20th, China represented no threat to the the United States, either strategically or economically. For decades after the 1949 victory of the Communists in China’s civil war, the U.S. kept the country at arm’s length — when it wasn’t fighting it directly, as during the Korean War. Today the challenge for U.S. businesses and policy makers is to figure out how to get along with China — ideally to the economic benefit of both countries — without allowing the Middle Kingdom to usurp the preeminence of the United States on the world stage.

Look for more — much more — on this topic in the weeks and months to come.

The inimitable John Paczkowski rightly chides Dick Parsons, CEO of Time Warner, for using a really, really bad historical metaphor.

Commenting on the piracy issues facing traditional media in the digital age, Parsons compared the fight over copyright protections in the U.S. to the Battle of the Little Bighorn. “The Googles of the world are the Custers of the modern world, and we are the Sioux nation” […]

I respect Parsons. He’s really smart — so smart, in fact, that he should know better than to step into a metaphor like this. Custer was seen in his day as a paragon of the fair-haired hero type. Yes, he also hunted down Native Americans, and he was an incorrigible glory-hog, but the public found him and his exploits magnetic . . . much like they do Google today. More to the point, Custer’s side eventually won. The costs were huge — and more people will cry for the destruction of the Sioux nation than will ever cry for the fate of Time Warner — but, for better and worse, the U.S. Army finally prevailed.

It won’t surprise me if someday old-line media companies like Time Warner go the way of Sitting Bull in his later years: respected, even fondly remembered, but stripped of real power. We may look back from that vantage point and say that Dick Parsons, despite himself, was exactly right with his ill-chosen metaphor.

The top company on this month’s Hoover’s Index list is Gerber, which drew tons of attention in April after its parent company, the drug giant Novartis, agree to sell Gerber to the world’s #1 food company, Nestlé, for $5.5 billion. In a sense, this is a transaction between neighbors, since Novartis and Nestlé are two of Switzerland’s largest corporate citizens.

Why this deal makes sense for the seller: Novartis has long operated across several market sectors, but its bread and butter is healthcare. Last year, Novartis drew three-fifths of its revenue from prescription drugs (Diovan, Zometa, Lotrel, etc.) and another 15% from the generic drugs sold by its Sandoz subsidiary. Disposing of Gerber fits in with Novartis’ focus on drugs and other healthcare products. (The same logic held when Novartis sold its medical nutrition business to Nestlé in 2006 for about $2.5 billion.)

Why this deal makes sense for the buyer: Although Americans are much likelier to associate Gerber’s name than Nestlé’s with baby food, in fact Nestlé is already a dominant player in that market worldwide. Nestlé likes being a global #1 — it holds that position in coffee (Nescafé), pet food (Purina), and other segments, and the Gerber purchase moves the Swiss giant into the top spot for baby food as well.