Sales may have risen only slightly on Black Friday as U.S. shoppers sought deals on electronics, toys and clothes, but retailers appeared to have been better-prepared to protect margins against tepid results.
At the start of the U.S. holiday shopping season on Friday and through the weekend, both discount chains like Wal-Mart Stores Inc and higher-end stores like Saks Inc seemed to have lured more spending and avoided steep discounts, retail consultants and executives said on Sunday.
Specialty apparel chains, however, may face another tough year as they relied on heavy promotions to draw shoppers.
“Going through the mall on Friday, the stores that had not been doing as well — AnnTaylor, Limited, Gap — were very aggressively promoting,” said Jeff Edelman, director of retail and consumer advisory services at RSM McGladrey.
“Saks, which had low inventories, Bloomingdale’s, which had low inventories, were maybe 25 percent off or 30 percent off, and it was on selected items,” he said. “It’s not as if the entire store was on sale as it was last year.”
Edelman expects holiday sales to be flat this year, but he said he expected profits for most retailers to be higher.
For a graphic on U.S. holiday sales trends, click here
For a Reuters Insider segment on holiday sales, click on link.reuters.com/wuj63g
Data released on Saturday showed that sales rose a scant 0.5 percent on Black Friday, the day after Thanksgiving. Shoppers interviewed across the country said they were lured by bargains, but many said they would stick to their budgets and avoid purchases if they could not find a good deal.
Bill Taubman of Taubman Centers Inc said that anecdotally in his 24 malls, it appeared that traffic and spending rose in the high single-digit to low double-digit percentage range on Friday. On Saturday, business slowed, and it appeared to rise in the mid to low single-digit range.
“You’re seeing a little bit of a barbell — the low end of stores are clearly recovering and the high-end stores are also recovering against a low base,” he said.
That does not mean consumer spending is rebounding to levels in 2007, before a global financial crisis and recession.
“You’re clearly down on a two-year run rate,” Taubman said. But he added, “margins are going to be extremely good because (retailers) have been careful about what they bought.”
ShopperTrak said retail sales rose to $10.66 billion on Black Friday, which often is the single-busiest shopping day of the holiday season and can set the tone for the weeks leading up to Christmas on December 25.
In 2008, Black Friday sales measured by ShopperTrak rose 3 percent compared with the prior year’s Black Friday. Last year’s entire holiday season marked the worst performance in nearly 40 years. The firm stuck by its forecast for total holiday sales to rise 1.6 percent this year compared with 2008.
University City — For nearly two years, no new development in St. Louis County has obtained tax-increment financing, the controversial incentive that cities use to attract developers.
The Kingsland Walk development, about two blocks north of the Delmar Loop in University City, is expected to change that.
It will be the first TIF project in the county since state law changed the make-up of TIF commissions on Jan. 1, 2008.
For years, local governments doled out tax-increment financing as a tool to encourage developers to locate in their cities. In 2007, the Missouri Legislature changed the law, taking some authority from the cities and adopting a regional countywide approach. That — combined with the downward spiral of the economy — put a lid on TIF requests.
While not as far along as the U. City project, Brentwood, Valley Park, Bridgeton and St. Louis County also are beginning to look at possible TIF projects, said Glenn Powers, the county’s planning director.
Under TIF, a developer may divert some money that would have been used for taxes to help pay for some development costs.
Local governments and schools receive the same base property and sales taxes as before, but forgo part of the additional tax money generated by the development for a period up to 23 years. The jurisdictions expect to benefit fully from the development in future years.
In University City, developer Metropolitan Development-Kingsland Walk LLC has asked for $5.5 million in tax-increment financing for its $36 million project, featuring 98 condos and apartments and more than 23,000 square feet of retail space at the southeastern corner of Vernon and Kingsland avenues. The development would be built in two phases.
The proposed agreement with the city requires the developer to close private financing by March 1 and begin construction within 60 days. A 12-member TIF Commission has given unanimous support and recommended the City Council do the same. Final approval is expected Dec. 7.
"It’s a fabulous re-use of an almost vacant area," Mayor Joe Adams said. "It will help University City move forward."
The developer sought $2.5 million in TIF money for phase one — an area north of Metcalfe Park — and $3 million for the second part, extending to Vernon. The builder will be Metropolitan Design and Building with Thomas Cohen Architecture as architect.
Lehman Walker, director of community development in University City, said Kingsland Walk fit the criteria for the special financing because it’s in a depressed, largely vacant area. University City had only awarded TIFs "if an area is truly blighted and in need of redevelopment," Walker said.
The project would be U. City’s third TIF project and its first in more than 10 years direct payday loan lenders. Powers said TIFs were intended to encourage retail and commercial growth in areas where development might not otherwise happen.
hurting competitors?
The changes in state law altered the composition of 12-member TIF commissions — increasing the number of St. Louis County representatives to six and cutting to three from six the number of slots for the municipality in which the project is situated.
The other three appointees represent affected taxing districts such as school and fire districts.
"The idea behind the changes was to get the composition of the TIF commissions more regional," Powers said. "When a city’s members dominated the commission, a TIF was usually about the city getting more commercial revenue into their city, a lot of times that was at the expense of other cities. You’d open a store here, and another one would shut down over there. "
He gave as an example a Wal-Mart closing in Town and Country and a larger one opening in Manchester a mile away.
"As a county TIF commission member myself, we’re going to be scrutinizing these things a little more. … Do we really want to approve a new retail development if it’s going to hurt the competitor down the road?"
If a county TIF commission turns down a project, the local government may still approve it but only with two-thirds majority of the council. Powers, who was on the commission that voted on Kingsland Walk, said the project was a good use of TIF. "It strengthens what’s already there in University City."
Jay Simon, president and CEO of Metropolitan Design and Building Co. here, said the 98 condos and apartments would vary from 680 square feet to 1,600 square feet. One, two and three-bedroom units would be available in the nine-building project.
"We plan on just building primarily apartments at first due to the market condition on condos," Simon said this week. "Those units will start at $750 a month and go up to $1,680 a month."
Preliminary plans call for Phase One to include four buildings with 51 residential units and about 8,800 square feet of retail space, scheduled for completion by early 2011. Phase Two includes five buildings with 47 residential units and about 11,000 square feet of retail space scheduled for completion by early 2012.
City officials hope the project will be a catalyst to revitalize the eastern part of University City.
"We think this will generate additional improvements as the Loop continues to expand," Walker said.
Lost in all the bickering between Democrats and Republicans when Bank of America officials testified before Congress last week was a seemingly crucial piece of evidence that seems to show the bank’s executives relied on faulty data leading up to the December 5, 2008 shareholder vote on the $50 billion acquisition of Merrill Lynch.
Testimony before (and documents released by) the House Committee on Oversight and Government Reform last week paint a picture of BofA officials and their lawyers at Wachtell, Lipton, Rosen & Katz basing their decision not to reveal the extent of Merrill Lynch’s growing fourth-quarter 2008 losses on a flawed "forecast." This forecast — dated November 12, 2008 and prepared by Merrill Lynch — omitted projected losses in November and December from Merrill’s portfolio of CDOs (collateralized debt obligations) and other illiquid assets.
The omission of any projected write-downs for those CDOs in the computer model behind the November 12 document resulted in a "zero" being calculated instead of billions of dollars of losses — as would become apparent a few weeks later — making the projected pre-tax fourth-quarter 2008 loss in the computer model — $8.942 billion — far lower than the $18 billion pre-tax loss it would turn out to be less than a month later on December 10, five days after the shareholder vote.
"Bank of America saw the deficiency in the document," Rep. Dennis Kucinich (D-Ohio) said at the hearing, "but they have not shown us that they actually did any actual analysis to make up for Merrill’s omissions. On the contrary, the evidence we have suggests that Bank of America pulled a number out of thin air." (For his part, Nelson Chai, Merrill’s chief financial officer at the time, told Kucinich’s staff that the "document was not intended to be a valid forecast, despite its title.").
The November 12 document is especially revealing not only for its omissions but also for the seemingly random tweaks Bank of America (BAC, Fortune 500) executives made to it as part of their internal deliberations about whether to make an announcement before the shareholder vote on December 5. At the bottom of a page described as "Merrill Lynch & Co. 4Q’08 Forecast," Bank of America’s executives had upped the projected loss of $8.942 billion to $10.942 billion, an increase of $2 billion in projected losses.
Half of that additional $2 billion in losses, or $1 billion, came simply from something described on the document as "neil gut," or the "gut" guess of Neil Crotty, Bank of America’s Chief Accounting Officer "rather than any actual analysis of Merrill holdings," according to notations on the document made by the Committee’s staff prior to its release publicly last week. The Committee staff also noted that "Bank of America’s top management and attorneys used" the seemingly randomly revised $10.942 billion in projected losses number "in making shareholder disclosure decision."
That process of whether to make the disclosure to shareholders began in earnest on November 12 when Bank of America’s general counsel Tim Mayopoulos called Wachtell Lipton attorney Nicholas Demmo to reveal that Merrill had lost "$7B in October," that "Nov, so far, is flat" and wondering "do we have to get the # out?" to shareholders.
At that point, after seven business days in November, Merrill had shown Bank of America a $227 million loss for the month but that number had not been adjusted downward for the write-downs in the CDO portfolio since no number had been included for that in the model. Bank of America executives seem to have based their decision-making on the faulty model and appear to have done no due diligence of their own.
When Rep. Kucinich’s staff asked Crotty about the November 12 document he said, according to Rep. Kucinich, that it was "of questionable validity" and that he did not have "time to delve deeply into the details of the forecast." Asked about whether the words "neil gut" on the document raised concerns to him, Tim Mayopoulos, Bank of America’s general counsel at the time, testified at the hearing: "I understood that this forecast was in part a guess, that it was an estimate."
On November 13, Mayopoulos had a meeting with the Wachtell attorneys, including Demmo and Ed Herlihy and their meeting notes showed that Mayopoulos "assume[d]" November would be "better" than October but was worried "about not disclosing" (Wachtell’s emphasis, suggesting there was some serious concern at the meeting about not disclosing the losses to shareholders.) Another set of notes from the meeting observed that Mayopoulos said that Merrill would "prob[ably] be deep in the red" for the fourth quarter and then revealed that the lawyers discussed whether Bank of America could just make a "trend disclosure" in the public filings about the deal and could discuss that Bank of America "expect[s] it to be no better than" some number and "might be worse." Mayopoulos remarked that it is "not the end of the world."
A week later, on November 20, Joe Price, Bank of America’s CFO, had a meeting with his attorneys about the question of whether to disclose the Merrill losses to Bank of America’s shareholders before the December 5 vote. On his copy of the November 12 "forecast" — the document that omitted any write-downs for November and December in the CDO portfolio — Price wrote that "Concluded [per] Tim [Mayopoulos] and Ed [Herlihy] that no pre meeting disclosures are necessary."
A spokesman for BofA told Fortune that it is important to view the actions of the bank’s executives in context rather than in hindsight. "In mid November 2008, the Merrill projected losses for 4th qtr 2008 were estimated to be in line with Merrill losses of the prior 5 quarters. For that and other factors, inside and outside counsel determined no intra-quarter disclosure was required. Apparently, some people looking at everything a year later with perfect hindsight may think they would have made a different decision, but at the time and without the benefit of 20/20 hindsight business people and counsel made good faith decisions based on the best information and estimates available." (Requests for comment from Wachtell went unanswered.)
The irony is that had BofA’s executives simply been more diligent in understanding the implications of the omissions in the November 12 "forecast," and released the magnitude of the growing Merrill losses to BofA shareholders prior to the December 5 vote, they might have avoided accusations they violated securities laws. Some in Congress, particularly Rep. Kucinich, and some investment bankers on Wall Street believe BofA’s senior executives violated securities laws by not releasing the growing losses to shareholders. In August, Rep. Kucinich sent Mary Schapiro, the Chairman of the Securities and Exchange Commission, a letter urging her to investigate the potential violation.
Indeed, the lack of public disclosure to shareholders about the growing losses at Merrill Lynch deprived them of their right to have all the available, material information at the time they were asked to vote on the merger. That would seem to be a violation of securities laws. The question still hanging in the air is whether Mary Schapiro and the SEC will do anything about it.
South Africa’s inflation rate fell into the central bank’s 3 percent to 6 percent target band for the first time in more than two years, giving Governor Gill Marcus room to keep the key interest rate unchanged for longer.
Headline inflation eased to 5.9 percent in October from 6.1 percent in the previous month, the Pretoria-based statistics office said on its Web site today, in line with the median estimate of 23 economists surveyed by Bloomberg. Prices were unchanged in the month.
The Reserve Bank left its repurchase rate unchanged at 7 percent for a third consecutive meeting on Nov. 17, concerned that rising electricity costs will boost inflation, just as six rate cuts since December helped to pull the economy out of recession. Inflation eased last month after the government cut gasoline costs by 5 percent on Oct. 7 as the rand’s 41 percent surge against the dollar since March 5 slashed import costs.
“It’s notable that inflation is back inside the target band,” said Jeffrey Schultz, a macroeconomic strategist at Absa Group Ltd. in Johannesburg. “But this is likely to be fleeting. The Reserve Bank is largely done with monetary easing.”
The central bank previously targeted the CPIX inflation rate, which excludes mortgage costs. That rate, which is no longer calculated, was last below 6 percent in March 2007.
Bonds gained today as investors bet a stronger rand will help to keep inflation inside the target band cash advance loan no fax. The yield on the R157 government bond, due 2015, fell 5 basis points, or 0.05 percentage point, to 8.36 percent. The rand was unchanged at 7.3987 against the dollar as of 11:51 a.m. in Johannesburg.
‘Adequate’
The Reserve Bank said on Oct. 18 that the benchmark interest rate of 7 percent is “adequate” to curb inflation and support economic growth. The bank expects the inflation rate to stay inside the target until the fourth quarter of 2011, when it is expected to average 5.5 percent.
That forecast is based on a 25 percent annual increase in electricity prices over the next two years. Eskom Holdings Ltd., the state-owned power utility, has applied to South Africa’s energy regulator to increase electricity tariffs by 45 percent a year over the next three years.
The central bank cut its key interest rate by 5 percentage points between December and August to help boost the economy, which the government expects will contract 1.9 percent in 2009. The economy expanded an annualized 0.9 percent in the third quarter from the previous three months, ending the first recession in 17 years, the statistics office said yesterday.
Gordon Brown and David Cameron will offer business leaders rival views of how to return the U.K. to economic growth after a poll showed the gap between their parties at its narrowest this year.
The prime minister and his Conservative Party rival will both address the Confederation of British Industry’s annual conference, starting at about 11 a.m. today in London. While Cameron said yesterday that the government needs to cut spending to avoid losing the confidence of bond investors, Brown will argue that such a course would put any recovery in danger.
“Choking off recovery by turning off the life support for our economies prematurely would be fatal to British jobs, British growth and British prosperity for years,” Brown will say, according to extracts released in advance by his office. “That’s why we will continue with our current plans to support our economy until the private sector recovery is established.”
With an election six months away at most and the country facing the biggest budget deficit since World War II, the question of when to cut spending is dominating political debate. Last month, the Conservatives pledged to freeze most public sector pay and make voters wait a year longer before they retire. Yesterday, an Ipsos-Mori poll showed their lead at six percent, putting them on course for a minority government.
Cameron told the BBC yesterday he was “working night and day” for a majority government pay day loans. “We’ve got to take some tough and difficult decisions and I’d rather have a government that could do that,” he said on the Andrew Marr show.
‘Emergency Budget’
Cameron pledged to deliver an “emergency budget” which “goes for growth” within 50 days of winning the election. The Organization for Economic Cooperation and Development last week urged Britain to do more to mend public finances as data showed the deficit in October was the worst for the month since records began in 1993.
While Brown will repeat the suggestion of a Tobin tax on banking that he aired at the Group of 20 finance ministers’ meeting earlier this month, he will say the idea could only work if adopted globally. The U.S. has rejected the proposal.
Brown will still tell bankers they must expect to pay for the costs of rescuing them.
“Make no mistake, we must agree international action to redress the balance of risk and reward between the public and the financial sector so that it reflects fully the potential damage of financial failure and the cost of preventing it,” the prime minister will say.
A prospective homebuyer might be surprised to find a new subdivision of large houses and townhouses in the city of St. Louis.
But there it is, the Boulevard Heights development, just off Blow Street and Trainor Court in south St. Louis.
Bearing the same name of the surrounding neighborhood, the project’s 11 acres are subdivided for new houses comparable to those offered in competing subdivisions throughout the suburbs.
C.F. Vatterott Construction Co. and Rolwes Homes Inc., the subdivision’s developers, are betting on the city’s housing renaissance. And they’re hoping to grab some of those returning to south St. Louis.
"This is a neighborhood that has deep roots, and a lot of people want to come back to it," said Gregory Vatterott, president of C.F. Vatterott.
Selling the houses hasn’t been helped by the recent collapse of the housing market. Despite the challenge, the project is doing rather well, said Joe Zanola, president of a real estate market research firm based in Rock Hill.
"Boulevard Heights, in line with the total St. Louis region market, has been closing more new homes than (they) have been starting," Zanola said. "This is a very healthy sign."
Mayor Francis Slay even gave a personal vote of confidence in the project. His family moved into a house he bought there earlier this year.
The subdivision is being built on the former site of greenhouses once maintained by the St. Louis Public Schools for a horticulture program.
The developers’ plan calls for 44 single-family houses and 32 townhouse units, with the first houses constructed in 2007. Sizes range from 1,200 square feet for the smallest townhouse unit to more than 3,000 square feet for the largest house.
So far, 25 houses and 11 townhouse units have been finished. Of those, 22 houses and nine units are occupied.
Work and sales of the houses and townhouses are split between the two developers. If there is enough interest, condominiums also could be built, Vatterott said.
Partnering on the project gave each company more leverage in financing about $35 million they’ve invested in the subdivision, he added.
Norma Stoltz, a Rolwes Homes sales manager for Boulevard Heights, said one good feature of the subdivision’s architecture was that "we maintain the historic integrity of the (Boulevard Heights) neighborhood in our designs."
Like sales elsewhere, demand for housing in Boulevard Heights subdivision slowed this year, Vatterott said. But he said there was a recent spike in interest.
The least expensive townhouse unit starts in the $190,000 range, while the most expensive house is in the $400,000 range.
The developers are offering customized house styles. Vatterott’s green package with energy-saving features includes high-efficiency heating and air-conditioning, tankless water heaters and double-pane insulated glass windows.
Energy-efficient features have helped Boulevard Heights compete with large older houses for sale in the area, said Jill Woodard, a Vatterott sales manager for Boulevard Heights.
"That’s one of the hidden benefits of new construction," she said.
Another draw is the variety of stores and restaurants nearby at shopping center Loughborough Commons, at Interstate 55 and Loughborough Avenue, Woodard added.
The Boulevard Heights project brings to almost 500 the number of city housing units Vatterott has built either on its own or with other developers since the mid-1980s.
But it is the first time the company has been involved in developing so large a subdivision within the city limits.
The developers said Boulevard Heights would be completed within a few years.
Banks that are considered too large to fail should be dismantled rather than “coddled,” Dallas Federal Reserve Bank President Richard Fisher said on Thursday.
Large-scale government bailouts of institutions like insurer American International Group have generated widespread controversy following last year’s global financial meltdown.
Fisher suggested the only way of ensuring that such financial giants to not pose recurrent problems is by making them smaller.
“This means finding ways not to live with ‘em and getting on with developing the least disruptive way to have them divest those parts of the ‘franchise,’ such as proprietary trading, that place the deposit and lending function at risk and otherwise present conflicts of interest,” Fisher said in prepared remarks to the Cato Institute, a libertarian think tank low fee cash advance.
It was one of the strongest calls to date from a sitting Fed official for an actual breaking up of large financial institutions.
Fisher also said the too-big-to-fail problem hinders the effectiveness of monetary policy, perverting incentives and contributing to financial volatility.
Even as the central bank cut interest rates sharply to deal with the crisis, the borrowing costs for banks and consumers actually climbed.
“Those banks with the greatest toxic asset losses were the quickest to freeze or reduce their lending activity,” Fisher said. “Their borrowers faced higher interest rates and restricted access to funding.”
Gold rose to record highs above $1,150 an ounce on Wednesday as the dollar index languished, boosting interest in the metal as an alternative asset, after largely benign U.S. inflation data.
The metal remains firmly underpinned by technical support after several days of gains, and is likely to break through to further fresh highs in coming sessions after a build-up of momentum, analysts said.
Spot gold hit a high of $1,150.20 an ounce and was at $1,148.50 an ounce at 1431 GMT, against $1,141.50 late in New York on Tuesday.
U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange also hit a record $1,151.00 and were later up $9.20 at $1,148.60 an ounce.
“This is a sentiment-driven market, which means that should data confirm expectations, the market trades on it, otherwise it ignores it,” said Commerzbank analyst Eugen Weinberg.
“The liquidity is still there, risk appetite is still there, the dollar is weak, so all the factors which have been in place for weeks and months are still in place.”
The metal is attracting a new wave of investment as it pushes through key technical resistance levels to fresh highs.
“(Gold’s) momentum is not down to any particular reason, it is just due to the extraordinary gains seen recently,” said Weinberg. “It is attracting new speculative capital emergency cash loans.”
The euro rose to a session high against the dollar on Wednesday on benign U.S. inflation data, while the dollar index, which measures the U.S. currency’s performance against a basket of six others, was still down 0.52 percent.
Other commodities also climbed, with oil rising back toward $80 a barrel and copper to 13-1/3 month highs near $7,000 a ton. Both have been lifted by the weak dollar.
NON-DOLLAR GOLD CLIMBS
Gold rose in currencies other than the U.S. dollar, reaching its highest since late February in euro and sterling terms, and since May when priced in the Australian dollar.
The physical market was quiet, however, with India’s gold demand abating as prices struck fresh record highs after offtake picked up slightly in the previous two sessions, while scrap flow eased on hopes for higher prices.
The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,113.833 tons as of November 17, unchanged from the previous business day.
Gold’s strength also lifted other precious metals, with silver hitting a 16-month high at $18.83 an ounce, platinum reaching a peak of $1,463.50, its highest since September 2008, and palladium reaching a 15-month high of $376.
U.S. stocks looked ready for a strong start Monday, as investors continue to be upbeat about the economic recovery following a key report on retail sales and ahead of comments from Federal Reserve Chairman Ben Bernanke.
The S&P 500, Nasdaq-100 and Dow Jones industrial average futures were higher.
Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.
Wall Street has rallied for the past two weeks as investors have gained confidence in the pace of the economic recovery.
"There really just doesn’t seem to be anything holding this market back," said Manus Cranny, senior market commentator of MF Global Spreads in London.
Cranny said the markets are being driven by "a tsunami of positive sentiment."
Economy: Retail sales jumped 1.4% in October from the prior month, according to the Census Bureau, exceeding the increase of 0.9% expected by a consensus of economists surveyed by Briefing.com. Sales without automobiles rose 0.2%, falling short of the 0.4% gain that was forecast by Briefing.com consensus.
That’s compared to an overall decline of 1.5%, or an increase of 0.5% without auto sales, the prior month.
A survey on manufacturing in New York state also comes out at 8:30 a payday loan companies.m. ET. That’s followed by a report on September business inventories at 10 a.m. ET.
The Fed: Bernanke will offer an outlook of the U.S. economy at a speech in New York City, starting at 12:15 p.m. ET.
Autos: General Motors, releasing its first financial results since emerging from bankruptcy in July, said it lost $1.2 billion in the third quarter. It also said it would begin repaying government loans in December. The U.S. government will received $1 billion, with nearly $200 million going to the Canadian and Ontario governments.
World markets: Stocks worldwide were lifted amid optimism that governments would keep up stimulus efforts. In Asia, Japan’s Nikkei added 0.2%. European shares jumped in midday trading.
Money, oil and gold: The anemic dollar was lower versus major international currencies.
Commodities continued to benefit from the weaker greenback. Oil for December delivery jumped 68 cents to $77.03 a barrel.
And gold prices, which have been on a tear this month, reached a new record of $1,133.50 a troy ounce before retreating slightly. The precious metal was still up $11.90 per troy ounce to $1,128.60 in electronic trading.
Citigroup Inc said on Sunday it has agreed to sell its stake in Japanese telemarketer Bellsystem24 to U.S. private equity firm Bain Capital for 93.5 billion yen ($1 billion).
Bain has been widely expected to buy Bellsystem24 after securing exclusive negotiation rights earlier this month.
Sources had told Reuters last week that Bain was close to finalizing a roughly 100 billion yen deal for the company, marking the largest buyout by a foreign private equity firm in Japan in nearly two years.
Bain has beaten off rivals Permira and a team of CVC Capital and Blackstone, which had also made offers in the final round of bidding for Bellsystem24.
Citigroup said in an e-mailed statement that it had agreed to sell its 93.5 percent stake in Bellsystem24 for 93.5 billion yen in cash in a tender offer to be launched by a firm owned by funds advised by Bain Capital.
The tender offer will likely start on or before November 20 and be completed on December 30, Citigroup said.
The U.S. bank said the deal was not expected to have a material impact on its net income or capital ratios.
Citigroup put Bellsystem24 up for sale as part of a global effort to raise cash and replenish its capital.
Citigroup has already sold broker Nikko Cordial, a fund management firm and a trust bank this year in Japan. Including the Bellsystem deal, it will have raised a total of about 964 billion yen ($10.8 billion), according to company press releases.
The sale of Bellsystem24 initially drew strong interest from a number of private equity firms including Kohlberg Kravis Roberts & Co, which teamed up with trading house Itochu Corp before dropping out of the race.
The Nikkei newspaper said the total cost of the deal for Bain would reach 120 billion yen, including a special dividend payment. No one at Bain Capital could be reached for comment.
The deal will rank as Japan’s largest buyout by a foreign private equity firm since March 2008, when Permira bought agrichemical company Arysta LifeScience Corp for more than $2 billion.
Bellsystem24 is Japan’s largest telemarketing firm. It competes against Moshi Moshi Hotline Inc and Transcosmos Inc in Japan.
Bellsystem24 is now owned by Citigroup Capital Partners, which was known as Nikko Principal Investments, a private equity arm of brokerage group Nikko Cordial, which was bought by Citigroup in 2007.
Nikko Principal paid 220 billion yen to buy Bellsystem24 in 2004. While the sale price is roughly half its purchase price, Citigroup has generated returns from its investment by restructuring the company’s debt to take some cash out, a method known as recapitalization.
Bain’s financing will be supported by banking units of Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc, sources familiar with matter have told Reuters.
(Reporting by Junko Fujita and Nathan Layne; Editing by Will Dunham)
Powered by WordPress -- XHTML 1.0