Global Business

Global Business |Update|
(A weekly update on Global Business )
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2686 6968

Issue 89

Global Business Update

(10th Sept.’08---16th Sept.’08)

Contents

Global Corporate

1. Lehman Bros files for bankruptcy

2. Merrill Lynch sold in $50bn deal

3. GKN buys Airbus plant for £136m

4. Deutsche Bank swoops on Postbank

5. Job cuts at Renault sparks strike

6. Ford cuts van production at site

7. Virgin aims to block BA-AA tie-up

Global Outsourcing

8. Outsourcing issue still divides Boeing, Machinists union

9. ACS Expands IT Outsourcing Relationship With Ingersoll Rand Through Renewed $551 Million Contract

10. Boeing outsourcing to help in post-strike recovery

11. Unions may strike against Telkom outsourcing

12. Vertex Outsourcing sets up U.S. headquarters in Richardson

13. ABA Ethics Committee Opinion on Outsourcing: A Step Forward

Global Economy

14. Lehman Bros files for bankruptcy

15. Economic gloom depresses the euro

16. Oil falls more than $5 a barrel

17. UK's trade gap narrows slightly

18. US retail sales decline in August

19. Japan's economy sees a sharp fall

20. Volatile oil prices slide again

Global Markets

21. Oil slips below $93 on Wall Street turmoil

22. RIL falls below Rs 2,000 level

23. Trading in Lehman Bros Holdings suspended

24. Oil slips to USD 91.79 a barrel

Lehman Brothers, the fourth-largest US investment bank, has filed for bankruptcy protection, dealing a blow to the fragile global financial system. The news led to sharp falls in share prices around the world, and officials took measures to reassure markets. Lehman had incurred losses of billions of dollars in the US mortgage market. Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America, the latest twist in a dramatic turn of events on Wall Street. US Treasury Secretary Henry Paulson said the US was "working through a difficult period in our financial markets right now as we work off some of the past excesses.

Bank of America is to buy Merrill Lynch in a deal worth $50bn (£28bn) that will create a new financial giant. The deal came amid a hectic weekend on Wall Street, with Lehman Brothers announcing that it would file for bankruptcy protection. There were worries that Merrill would be the next bank to lose the confidence of investors as it has been hit hard by bad mortgage debt. Merrill has written down more than $40bn of assets in the past year. Under the terms of the deal, Bank of America will pay about $29 for each Merrill share. While that represents a 70% premium to the closing share price on Friday, Merrill's share price stood at $50 in May and was above $90 at the start of 2007.

Part of the Airbus factory in south Gloucestershire is being sold to engineering company GKN for £136m. The firm is to buy the manufacturing operation at the Filton site, which makes wing components for Airbus. The Unite union said the deal was fantastic news for British manufacturing and would help secure the UK's aerospace industry for decades. Airbus has been negotiating to sell Filton to GKN for months and has been close to a deal for several weeks. There was speculation that a deal had been delayed by negotiations over price and a commitment by Airbus to provide the factory with future work on its pending A350 aircraft.

Deutsche Bank has confirmed it is buying a 29.75% stake in Germany's biggest retail bank Postbank for 2.79bn euros ($3.9bn; £2.2bn). Worth 57.25 euros a share - the offer is greater than the firm's share price, which ended at 47.51 euros on Thursday. The news hit Postbank's shares as Deutsche Bank said it would have to raise 2bn euros through a share placing to fund the purchase. It will allow Deutsche Bank to expand its presence in consumer banking. For relatively little capital, we have secured the dominant position in Europe's biggest economy forever, said Deutsche Bank chief executive Josef Ackermann. But the complicated structure of the deal left analysts unhappy. This is bad, said Dirk Becker, an analyst at Landsbanki Kepler. I don't know why Deutsche are doing it in the first place; it doesn't fit. I don't know why they are doing it for this price. It all seems to have been pretty spontaneous.

Renault factory workers have gone on strike across France in protest against job cuts announced earlier this week. The carmaker, which is struggling against a weak consumer backdrop, said participation in the action was low. The firm said the worst affected plant was Cleon where 10% of staff walked out, but officials at union CGT said the figure was nearer 20%. On Tuesday, Renault said that 4,000 positions would go in France through voluntary redundancy measures. Another 2,000 jobs will be shed in other European countries. Renault is hoping to make cost savings of 350m euros ($487.2m; £278m) in 2009 and 500m euros in 2010.

The Ford Motor Company is set halve its production of the Transit van at its plant in Southampton. The Unite union, which was briefed by managers on Monday, fears the plans could lead to the closure of the Hampshire plant in the long term. Ford said it was planning to continue making the Transit panel van at the Swaythling plant until 2011. After that it wants to use the site to make only a specialist version of the model called a chassis cab vehicle. The plant currently produces 75,000 transit vans a year but this will be reduced to 35,000 a year. Discussions with Unite are continuing and no final decision has been taken on the plans. About 1,100 people are employed at the city plant and Ford warned cuts in production could lead to job losses. The move follows the termination of 124 short-term contracts at the plant last month.

Sir Richard Branson is launching a campaign to try to block the proposed tie-up between British Airways (BA) and American Airlines (AA). The Virgin Atlantic boss has already attacked the plans, claiming it would create a monster monopoly. British Airways counters that the proposed tie-up would be good news for both passengers and the wider industry. A growing number of global airlines are seeking mergers or other forms of tie-ups as they battle high fuel prices.

Global Outsourcing

8 Outsourcing issue still divides Boeing, Machinists union

A resolution of the Machinists strike at Boeing may rest finally upon one perennial issue: the outsourcing of Machinist work now done in local plants. The union's ambition isn't to scrap the global-manufacturing model Boeing established with the new 787 Dreamliner, in which huge sections of the aircraft are completed overseas and elsewhere in this country. Boeing appears irrevocably committed to that strategic model, and the union can do little about it. Instead, union leaders are trying to preserve the assembly and ancillary work still done here, including the delivery of parts to the assembly line and the maintenance of the factory buildings.

11^th September 2008, www.tutorial-reports.com

9 ACS Expands IT Outsourcing Relationship With Ingersoll Rand Through Renewed $551 Million Contract

Affiliated Computer Services, Inc. (ACS) affiliated computer services is expanding and strengthening its relationship with Ingersoll Randexpanding and strengthening by committing to a 10-year information technology outsourcing services contract valued at $551 million. This extended contract enables ACS to continue servicing Ingersoll Rand's existing data center and network requirements as well as integrating the recently acquired Trane business into these services. Ingersoll Rand and ACS have established a strong partnership during the past several years. We are excited to expand the relationship and include the integration of Trane's data center and network operations, said Barry Libenson, vice president and CIO, Ingersoll Rand. "ACS possesses the experience, knowledge and familiarity with our infrastructure and operations to drive and ensure a successful integration. By outsourcing our network and data center operations to ACS, Ingersoll Rand will realize improved efficiencies through standardization of tools and processes while significantly reducing our operational expenses.

12^th September 2008, www.tutorial-reports.com

10 Boeing outsourcing to help in post-strike recovery

Boeing Co.machinists say they are striking in part because a proposed labor contract doesn't go far enough to ensure jobs won't be outsourced to suppliers, but one analyst on Tuesday said outsourcing is why the aircraft manufacturer may rebound quickly after the strike ends. As machinists walk, suppliers are progressing in parts and subassemblies, enabling Boeing to be closer to completion on new aircraft than in previous strikes once production re-starts, said Bernstein Research in a note to investors. As long as the strike remains under 60 days, Bernstein expects full recovery from lost production within six to nine months.

13^th September 2008, www.tutorial-reports.com

11 Unions may strike against Telkom outsourcing

TELKOM’s dramatic plan to outsource the running of its core networks has provoked a backlash from two unions, which may strike to keep the annual R4,8bn task of running the networks in-house. The Communication Workers’ Union (CWU) and the South African Communications Union are deciding whether to strike or seek an interdict to halt the outsourcing unless managers agree to hear their proposals. CWU national treasurer Richard Poulton said the unions had declared a dispute against Telkom’s unilateral restructuring. The CWU represents more than 65% of the workforce, and it is angry that Solidarity, with 10% of the staff, largely backs the outsourcing plan.

12^th September 2008, www.tutorial-reports.com

12 Vertex Outsourcing sets up U.S. headquarters in Richardson

Vertex Outsourcing has leased office space in Richardson, where it will set up its U.S. corporate headquarters, employing about 220. The outsourcing firm’s employees will move in October into 37,346 square feet at Richardson Commons, at 250 E. Arapaho Road just east of U.S. 75. The move comes after Vertex’s July 29 acquisition of Alliance Data Systems Corp.’s utility services component, which provides billing systems, professional services and process outsourcing to utilities in the United States and Canada. Alliance Data’s utility service component is currently located on Waterview Parkway in Richardson, and the employees there will move to Richardson Commons. The addition of Alliance Data’s utility services to Vertex’s existing utilities business created a service provider with more than 70 electric, gas, water and retail energy providers.

11^th September 2008, www.tutorial-reports.com

13 ABA Ethics Committee Opinion on Outsourcing: A Step Forward

Bethesda, MD – Legal Advantage LLC lauds the ABA Ethics Committee opinion for its recent ruling on outsourcing. American Bar Association Formal Opinion 08-451 addresses the growing outsourcing and off shoring phenomena within the legal community by providing guidelines for professional obligations. I am glad to see the ABA proactively address this issue. There have previously been some sporadic state and local bar opinions, but 08-451 comprehensively addresses the issues an outsourcing attorney who is considering using an offshore provider needs to contemplate. The ethical guidelines laid out by the ABA provide an excellent framework that will give comfort to both attorneys and service providers. As litigation support services provider, we have always looked to the Model Rules for guidance, and were thus already in compliance with the ethics and management rules as laid out by the ABA,” said Ashar Akhtar, Assistant General Counsel and Managing Attorney for Legal Advantage, LLC.

15^th September 2008, www.bbc.co.uk

Global Economy

14 Lehman Bros files for bankruptcy

Leading US shares shed more than 500 points on Monday in the wake of financial turmoil caused by the bankruptcy of Lehman Brothers. The Dow Jones industrial average lost 504.48 points, or 4.42%, to end at 10,917.51, marking the biggest point fall since the September 2001 attacks. The Standard & Poor's 500 index shed 4.69% while the Nasdaq composite index was 3.60% lower by close of trade. The falls came after shares in leading European indexes had ended lower. Earlier in the day, the UK's FTSE 100 index had closed 3.92% down, while France's Cac 40 index shed 3.78% and Germany's Dax lost 2.74%. Asian markets were hit by the news with Australian shares down 1.8%. Several of Asia's major stock exchanges - in Tokyo, Hong Kong, Shanghai and Seoul - were closed for holidays.

15^th September 2008, www.bbc.co.uk

15 Economic gloom depresses the euro

The euro has hit a fresh one-year low against the US dollar amid renewed worries about the health of the European economy. The single currency fell as low as $1.3882 in Thursday trading - its lowest level since September 2007. It later edged up slightly to $1.3942. An increasingly gloomy outlook for the eurozone region has hit the euro hard. The European Commission believes some countries in the European Union are on the brink of recession. The dollar, meanwhile, has benefited as US investors have sold assets in emerging markets, preferring to hold their own currency during a time of global economic uncertainty. We continue to see investors repatriating money from overseas holdings given how uncertain the global environment has become, said Sophia Drossos, a currency strategist at Morgan Stanley in New York. The commission has said that three countries - the UK, Germany and Spain - would see two negative quarters of economic growth in a row this year and would therefore be considered to be in recession.

14^th September 2008, www.bbc.co.uk

16 Oil falls more than $5 a barrel

World oil prices have shed more than $5, ending below $100 a barrel for the first time in six months, spurred by concerns about the global economy. With banking giant Lehman Brothers filing for bankruptcy protection, US light sweet crude shed $5.47 to settle at $95.71 in New York. London Brent also fell sharply, down $5.20 to $92.38 a barrel. News that Hurricane Ike had not damaged refineries as much as feared also contributed to the fall in prices. Concerns over the financial health of the banking sector - and its wider global impact - were deepened by the news that fellow investment bank Merrill Lynch had agreed to be bought by Bank of America. Merrill had been struggling with bad debts of more than $40bn (£22bn). And uncertainty about the future of insurance giant AIG also weighed on the market. Oil sold off in the aftermath of the collapse of Lehman Brothers and the buyout of Merrill Lynch," said Phil Flynn, an analyst at Alaron Trading in Chicago.

14^th September 2008, www.bbc.co.uk

17 UK's trade gap narrows slightly

The UK's goods trade gap with the rest of the world shrank slightly in July, official figures show. Analysts said a weaker pound, which makes UK exports more competitive on international markets, would help the trade deficit to shrink further. The Office for National Statistics said that deficit stood at £7.7bn, compared with £8.0bn in June. The deficit in trade in goods and services stood at £4.6bn, down from £5bn in June. Exports rose by 2.5% from June, while imports climbed by 0.5%.

15th September 2008, www.bbc.co.uk

18 US retail sales decline in August

US retail sales fell unexpectedly in August, the second monthly decline in succession, increasing concerns about the state of the domestic economy. Sales declined 0.3% last month said the Commerce Department, which also revised July's fall to 0.5% from the 0.1% it had first estimated. August's weak figure was a surprise for analysts who had predicted a 0.3% rise. Retail analyst Chris Rupkey said the latest figure "sounds the death knell for the consumer. It looks like consumer spending is retrenching, not only retrenching but digging a new hole, said Chris Rupkey, analyst, Bank of Japan-Mitsubishi. While the most recent US economic growth data showed that the economy expanded at an annual rate of 3.3% in the three months from April to June, much of that rise was contributed to by American exporters. By contrast, domestic consumer spending is being hit by a number of factors, such as higher unemployment, rising energy and food bills and a sharp decline in the housing market. Sales of cars and other vehicles rose 1.9% in August - the first increase since January - following a 4.3% drop in July.

14^th September 2008, www.bbc.co.uk

19 Japan's economy sees a sharp fall

Japan's economic output has recorded its sharpest quarterly fall in almost seven years as the country appears to be falling into recession. The world's second largest economy contracted at an annualised rate of 3% in the April to June quarter, as both domestic demand and exports weakened. It was the first decline in more than a year, and the biggest since the third quarter of 2001. The government has called on firms to raises wages to help boost spending. The Japanese economy, like most around the world, has also been affected by higher energy and food prices. It is desirable that income for employed people increases, said Economy and Fiscal Policy Minister Kaoru Yosano. We want company managers to recognise that pay rises would compensate for price rises.

12^th September 2008, www.bbc.co.uk

20 Volatile oil prices slide again

Oil prices hit six-month lows near $98 a barrel on Thursday as the dollar rallied and demand for fuel decreased. Prices had risen earlier as Hurricane Ike headed towards oil installations on the Texas coast forcing nearly 7% of US fuel production to be shut down. Opec had also reduced output to curb falling prices. Brent North Sea crude for delivery in October settled at $97.29 a barrel after hitting its lowest level since March at $96.99. And New York's benchmark contract, light sweet crude for October, fell $1.71 cents to $100.87 a barrel after dipping as low as $100.10. The dollar hit a one-year high against the euro and a number of other currencies on Thursday. The euro slid below $1.39 for the first time in a year on heightened concerns about a weak European economy. The strong greenback makes goods such as oil - which are priced in dollars - more expensive for foreign buyers, dampening demand. Crude oil futures slipped further... as the market focused on demand concerns and the strengthening dollar," said Sucden analyst Michael Davies. Oil prices reached record levels of above $147 in July, hit by worries that a US-led economic slowdown would curb global demand for energy.

11^th September 2008, www.bbc.co.uk

Global Markets

21 Oil slips below $93 on Wall Street turmoil

Oil prices plunged below USD 93 a barrel on Monday, reaching the lowest levels since February, on the prospect of weaker demand for energy amid a worsening global financial crisis in the wake of Lehman Brothers' bankruptcy, analysts said. Brent North Sea crude for delivery in October tumbled by more than USD four to USD 92.84 a barrel. Oil futures were down ... as turmoil in the financial markets hurt sentiment and reinforced concerns about weaker oil demand growth, said Sucden analyst Michael Davies in London.

12^th September 2008, www.financialexpress.com

22 RIL falls below Rs 2,000 level

Shares of Reliance Industries on Thursday slipped below the Rs 2,000 level on the bourses on heavy selling by foreign funds and retail investors, triggered by weak global cues. RIL opened on a weak note on Thursday and then lost further ground and touched an intra-day low of Rs 1,995 on the Bombay Stock Exchange, a dip of Rs 88.55 from its previous closing price. Similar trend was witnessed on the National Stock Exchange as well, where the company fell to an intra-day low of Rs 1,993, a fall of 4.46 per cent over its previous close. The fall in Reliance Industries is largely due to two reasons the weak global market and crude oil prices, domestic brokerage firm SMC Global Vice President Rajesh Jain said.

13^th September 2008, www.financialexpress.com

23 Trading in Lehman Bros Holdings suspended

Britain's Financial Services Authority has temporarily suspended trading in London of Lehman Brothers Holdings Inc., following the company's statement it would file for bankruptcy protection in the United States. The regulator also announced Monday that trading was suspended in several Lehman Brothers operations including Lehman Brothers Treasury Co B.V. and Lehman Brothers UK Capital Funding II LP. The Bank of England says it is monitoring the situation and will take appropriate actions if necessary to stabilize money markets.

15^th September 2008, www.financialexpress.com

Oil tumbled over 4 per cent to a seven-month low on Tuesday, in free fall for a second day as Lehman Brothers' collapse made investors ditch oil for safe-haven assets, and on fears the credit crisis will hurt the real economy. Reports that Hurricane Ike caused minor damage to US oil platforms and refineries also weighed on prices, adding to the previous session's more than $5 fall and almost 37-per cent decline from its peak above $147 in mid-July. US light crude for October delivery, which fell as much as $4.11 at one point, was down $3.92 at $91.79 a barrel by 0245 GMT, tumbling in concert with everything from Asian stock markets to grains. The yen rallied versus the dollar on widespread risk aversion in the wake of Wall Street's turmoil. London Brent crude fell $3.97 to $90.27 a barrel at the same time, having slumped earlier by as much as $4.44 to touch its lowest since Feb. 8.

Himanshu Gupta
BBA (MAHE) L3,S2 - 3rd Year
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2686 6968
www.SkylineCollege.com