Thursday, November 20, 2008

Yahoo shares plummet nearly 21 percent on Ballmer comments

Yahoo shares went into a free fall Wednesday, plummeting 20.9 percent following comments from Microsoft CEO Steve Ballmer that the software giant is interested in a search-only partnership and not a buyout of the entire company.

The Internet search pioneer fell $2.41 a share to close at $9.14 a share, during the regular trading session. And at one point in the trading day, Yahoo's shares dipped as low as $9.07 a share.

(Credit: Yahoo Finance)

The stock went into shock after Ballmer reiterated that Microsoft has no plans to acquire Yahoo and that its interests mainly lie in a potential to do a search-only partnership with the company.

Ballmer's comments were made during a question and answer session at Microsoft's annual shareholders meeting.

That disappointed Yahoo investors, who were holding out hope that Microsoft would come back to the negotiating table after the Internet search pioneer announced Monday that CEO Jerry Yang would step down as soon as a replacement was found. Many investors had blamed Yang for the failed Microsoft buyout talks, when the software giant walked away from its previous offer of $33 a share to acquire the company.

Yahoo's stock has undergone two rounds of whiplash this week, soaring as much as 16 percent in intraday trading on Tuesday after the Yang announcement.

Over the past 10 months, Yahoo's stock has repeatedly been whipsawed whenever Ballmer or Yang have made a reference to a deal or no deal.

Earlier in the week, after Yahoo had announced Yang would be stepping down, one influential Microsoft source had told CNET News that Yahoo investors who were still "lusting" after a Microsoft buyout would be disappointed.

The source had noted that the topic of a Yahoo buyout has not come up in Redmond for months and months now and that the two companies are not talking.

And another source quoted in the story, who is familiar with Yahoo's thinking, noted it was unlikely the Internet search pioneer would consider any search-only related deals until Yahoo had a new CEO in place, allowing that person to weigh in on the topic. Yahoo is expected to make a decision on its next CEO within the next six months.

Dawn Kawamoto covers enterprise security and financial news relating to technology for CNET News. E-mail Dawn.

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Let Detroit Go Bankrupt


IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

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A Sea of Unwanted Imports


LONG BEACH, Calif. — Gleaming new Mercedes cars roll one by one out of a huge container ship here and onto a pier. Ordinarily the cars would be loaded on trucks within hours, destined for dealerships around the country. But these are not ordinary times.

For now, the port itself is the destination. Unwelcome by dealers and buyers, thousands of cars worth tens of millions of dollars are being warehoused on increasingly crowded port property.

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

“This is one way to look at the economy,” Art Wong, a spokesman for the port, said of the cars. “And it scares you to death.”

The backlog at the port is just part of a broader rise in the nation’s inventories, which were up 5.5 percent in September from a year earlier, according to the Commerce Department. The car industry has been hurt particularly, with sales down nearly 15 percent this year. General Motors has said it would run out of operating cash by the end of the year if it does not receive a government bailout.

But the inventory glut in Long Beach is not limited to imported cars. There has also been a sharp drop in demand for the port’s single largest export: recycled cardboard and paper products.

This material typically goes to China, where it is used to make boxes for new electronics and other products that are sent back to the United States. But Chinese factories reacting to sharply falling demand are slowing production, so they need less cardboard. Tons of paper are piling up recycling businesses around the port, the detritus of economies on hold.

Long Beach is an important port, particularly for the West. It is where imported products arrive and filter through the tributary of trucks, trains and retailers into the hands of consumers. But now, products are just sitting.

“We’re supposed to move things, not store them,” Mr. Wong said.

Roughly 20 percent of the nation’s container imports last year came through Long Beach, putting it close behind the largest container port, Los Angeles. This year, shipping volume at Long Beach is down 10 percent from 2007, and nearly all major ports around the country have seen similar declines. Veteran port workers say the slowdown since mid-October is like nothing they have ever seen. And it is having a cascading impact on other businesses and workers.

In the 150-acre terminal where Toyotas are unloaded, there is a sea of Corollas, Camrys and RAV4s. The mere presence of so many cars is not unusual, given that Toyota brings in 250,000 cars a year in biweekly shipments. But in a sign that something is amiss, dozens of tractor-trailers that transport new cars to dealers sat empty last week amid the rows of Toyotas.

Kurt Golledge, 48, was one of just two truckers loading his green, 75-foot-long hauler with cars last week. Mr. Golledge said eight of his colleagues were laid off this month because Toyota dealers did not want more deliveries.

“I was dropping cars in Henderson, Nev., about a month ago and the dealer told me: ‘Take ’em somewhere else and dump ’em,’ ” said Mr. Golledge, who works for a company called Allied Systems. “All the dealers are telling us the same thing.”

Auto dealers typically place orders with manufacturers months in advance, but they can modify their orders to receive fewer vehicles.

“The ships keep coming, but there’s nowhere for the cars to go,” Mr. Golledge said. He said he believed the vehicles he was loading would be his last before he was laid off, and he was already considering where he might find a new job.

While shipments for some items have slowed, the cars have kept coming in at their regular pace partly because the auto factories can take months to adjust to changes in demand. Toyota is wrapping up a deal to use six acres to park cars at the port, and is seeking more space.

“Toyota wants as much as we can give them,” said Gail Wasil, assistant director of the port’s real estate division.

For its part, Toyota says the higher-than-usual inventories at the Long Beach port are a result of shrinking demand, particularly in Southern California, which is one of its biggest markets. The company declined to say how many cars were at the port or how long they would be warehoused.

Toyota has adjusted its output to reflect falling demand, said Sona Iliffe-Moon, a Toyota spokeswoman.

Ms. Wasil said Nissan, whose cars arrive through the port of Los Angeles, sought a deal with Long Beach to park its overflow vehicles there. Mercedes struck a deal to use more acres just a few weeks ago, she said.

Officials from Mercedes and Nissan did not return calls seeking comment.

The mothballing of cars is nothing new for Detroit, where thousands of unwanted American-made cars have been parked over the last two years at Michigan’s state fairground and in lots at its airports.

It is more unusual to see a lot at the California port filled with thousands of unsold Mercedeses, most of them gathering dirt on the plastic white film that protects their hoods and trunks. Some appeared to have been stashed at the port for several months.

Last week, Mercedes delivered around 1,000 more cars to Long Beach on the Grus, a 580-foot container ship.

“A year ago, I was looking into buying one of these for my wife,” said Kurt Garland, the terminal manager overseeing the unloading of the white, silver and black sports cars, sport utility vehicles and sedans. “Now I’m not. I’m saving money, paying bills, hunkering down.”

Not far away, metal, cardboard, paper and plastic are piling up in the lot of Corridor Recycling. The company takes in refuse from around the country, then bales it for shipment to China. The cardboard is used to make new boxes while used shrink wrap is turned into shoe soles and insulation for sleeping bags and coats.

For much of this year, the company shipped about 25 containers a day, each filled with 23 tons of refuse to be recycled. But after the Olympics, demand slowed for recycled metal. In October, demand for everything else took a sharp downturn, and for the last two weeks the company has not shipped a single container.

“It just came to a complete stop. Absolutely a stop,” said Gilbert Dodson, the recycling company’s co-owner. “I’ve seen it slow over the last 25 years, but this is the worst,” he said of the current downturn.

Like his counterparts in the auto industry, Mr. Dodson is looking for extra space to accommodate the growing number of bales on his three-acre property. The recycled goods keep arriving in big trucks, even though he now pays only $21 a ton for refuse he paid $120 a ton for earlier this year, but there is nowhere for him to export.

“It keeps coming in,” he says. “But no one is buying.”

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Arraignment Set for Cheney, Gonzales in Prisoner Abuse Case

RAYMONDVILLE, Texas — A Texas judge has set an arraignment for Vice President Dick Cheney, former Attorney General Alberto Gonzales and other officials accused of involvement in prisoner abuse.

Presiding Judge Manuel Banales said Wednesday he will allow them to waive arraignment or have attorneys present rather than appear in person Friday.

Banales also said he would issue summonses, not warrants. That allows them to avoid arrest and the need to post bond.

Willacy County District Attorney Juan Guerra accuses Cheney, Gonzales, a state senator and others of involvement in prisoner abuse at a federal detention center in south Texas.

Defense attorney Tony Canales accuses Guerra of "prosecutorial vindictiveness" and not following procedure.

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Islamists vow to fight Somali pirates

Sirius Star - Islamists vow to fight Somali pirates
The Sirius Star's owners are reported to be negotiating with the pirate crew that seized it on Saturday Photo: REUTERS

The hardline Islamic authorities in the southern Somali port of Kismayo vowed to forge an unlikely alliance by joining the efforts of the Nato and European Union naval task forces patrolling the pirate-infested Gulf of Aden.

"We will set up marine forces and will protect all ships and vessels from the pirates off the coastal areas we control," said Sheikh Hasan Yaqub, a spokesman for the Islamist administration in Kismayo.

"We will never allow those gangs to cause havoc in our waters anymore and we will protect all vessels."

Kismayo, one of the largest cities in Somalia, was captured in August by an alliance of Islamist fighters - who are conquering much of the country - and the warlord Hassan al-Turki, the leader of a group called al-Itihaad al-Islamiya which is considered a terrorist organisation by the US government.

Sheikh Yaqub told AFP that on Wednesday alone, 20 small ships bringing goods from the United Arab Emirates had offloaded their cargo in Kismayo under the watch of the local authorities' security forces.

Omar Abdiyare, one of the Somali traders whose vessel arrived in Kismayo, said local businesses had asked the Islamist rulers to set up an anti-piracy force.

"We are very concerned at the growing number of attacks by pirates so we asked Islamists to protect our ships as much as possible off the coastal areas they control," he said.

The Kismayo administration has imposed a very strict form of Sharia law in recent weeks. Under Islamic law, piracy is punishable by death.

Most Somali pirates operate from ports located further north along the country's coastline, particularly Eyl and Harardhere, off which the Saudi supertanker Sirius Star is anchored.

The ship's owners are reported to be negotiating with the pirate crew that seized it on Saturday. It is not yet known what ransom has been demanded for the release of the vessel, its cargo of more than £60 million of crude oil, and its crew of 25, including two Britons.

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Texas grand jury indicts Cheney, Gonzales of crime

HOUSTON (Reuters) - A grand jury in South Texas indicted U.S. Vice President Dick Cheney and former attorney General Alberto Gonzales on Tuesday for "organized criminal activity" related to alleged abuse of inmates in private prisons.

The indictment has not been seen by a judge, who could dismiss it.

The grand jury in Willacy County, in the Rio Grande Valley near the U.S.-Mexico border, said Cheney is "profiteering from depriving human beings of their liberty," according to a copy of the indictment obtained by Reuters.

The indictment cites a "money trail" of Cheney's ownership in prison-related enterprises including the Vanguard Group, which owns an interest in private prisons in south Texas.

Former attorney general Gonzales used his position to "stop the investigations as to the wrong doings" into assaults in county prisons, the indictment said.

Cheney's office declined comment. "We have not received any indictments. I can't comment on something we have not received," said Cheney's spokeswoman Megan Mitchell.

The indictment, overseen by county District Attorney Juan Guerra, cites the case of Gregorio De La Rosa, who died on April 26, 2001, inside a private prison in Willacy County.

The grand jury wrote it made its decision "with great sadness," but said they had no other choice but to indict Cheney and Gonzales "because we love our country."

Texas is the home state of U.S. President George W. Bush.

Bush and his Republican administration, which first took office in January 2001, leave the White House on January 20 after the November presidential elections won by Democrat Barack Obama. Gonzales was attorney general from 2005 to 2007.

(Reporting by Chris Baltimore and JoAnne Allen, Editing by Frances Kerry)

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