• Death Is Inevitable. Taxes? Maybe Not.

    It's hard to turn on a TV this time of year without seeing an ad showing smiling people who've supposedly just learned they'll be getting income-tax refunds thanks to a tax service or software program. Of course, your refund is Uncle Sam returning an interest-free loan you graciously made him by overpaying during the year—but it sure feels better to get a check than to write one. So imagine the joy at Great-West Lifeco, which has figured out how to get cash today for tax savings that it won't see for up to 15 years. It will do this by getting $550 million by selling securities backed by tax savings that it expects to get as the result of its $3.9 billion cash purchase of the Putnam Investments mutual-fund business.Getting tax-savings money upfront? You gotta love it. Here's the deal: Great-West, of Winnipeg, Manitoba, is buying Putnam from Marsh & McLennan of New York. Normally, this would be a plain-vanilla deal, with Great-West's buying the stock of the M&M subsidiary that...
  • Sloan: It's Not All About Money

    If all you care about is reported profits, you wouldn't want any part of owning The Wall Street Journal. The paper, for all its cachet and influence, is at best marginally profitable; the profits of its parent, Dow Jones, come primarily from electronic data distribution. But the Journal, financial laggard though it may be, is the primary reason that Rupert Murdoch and possibly other players are willing to pay $5 billion or more for Dow Jones.Here's the deal. In a fragmenting world in which anyone with an Internet connection can become a "content provider" and start-ups like Google or Yahoo can lure tons of targeted advertising dollars, the Journal is still a central, trusted institution that's required reading for much of the business world. A journalistic megabrand, the Journal tries to make sense of what's going on in the financial world, then presents its findings in what I consider a highly professional, generally disinterested manner. (I'm talking about the Journal's news pages...
  • Sloan: Aflac Ducks a Punch Over Executive Pay

    When the public face of your company is a duck, you can't afford to foul up your reputation. (Yes, you can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking commercials. Something funny happened at the company's recent shareholder meeting: nothing. That's because unlike any other U.S. company with publicly traded stock, Aflac has been smart enough to voluntarily offer its shareholders a "say on pay."Giving in to social-activist shareholders, as Aflac did, doesn't make you popular among the CEO set. But boy, was it the smart thing to do. Compare Aflac's enhanced shareholder-friendly image with the embarrassment suffered by Verizon, Blockbuster and Merck, all of which—like Aflac—advertise heavily to the public. A majority of Verizon's and Blockbuster's holders approved nonbinding say-on-pay proposals despite management and board opposition, as did 49.2 percent of Merck's. The whole question has been a distraction to dozens of firms—but not Aflac.In any event,...
  • Sloan: Why Daimler Is Paying to Dump Chrysler

    It seems only fitting that DaimlerChrysler is dumping its stricken Chrysler subsidiary onto a firm called Cerberus Capital Management, which is named for the mythical three-headed dog that guarded the gates of hell. That's because when it comes to deals from hell, Daimler-Benz's purchase of Chrysler ranks close to the top of the list.Daimler-Benz (now DaimlerChrysler, soon to be plain old Daimler) paid $36 billion to buy Chrysler in 1998. Now, like the owner of an old junker, Daimler has to pay to have Cerberus cart Chrysler away."This is definitely in the hunt for being one of the all-time deals from hell," said Robert Bruner, dean of the University of Virginia's Darden School of Business, a connoisseur of corporate catastrophes and author of "Deals from Hell: M&A Lessons That Rise Above the Ashes." Unfortunately for me, Bruner doesn't keep a "Ten Worst Deals" list, so it's hard to compare disasters with each other. Some deals—such as Time Warner's disastrous decision to swap...
  • Sloan: Is Murdoch a Force Too Hard to Resist?

    The Wall Street Journal is a journalistic giant. Alas, its owner, Dow Jones, is a stock-market pygmy. That contrast is why Dow Jones is so utterly vulnerable to the takeover bid being mounted by Rupert Murdoch's News Corp., and why Murdoch seems likely to add the Journal to an empire that includes Homer Simpson, the Fantastic Four, Fox News, MySpace and the New York Post.Dow Jones's controlling Bancroft family is caught in a conflict between its obligations to shareholders (including themselves) and the stewardship of the public trust inherent in an enterprise like the Journal. It's a problem affecting lots of other family-controlled media companies, among them The New York Times Co. The newspaper industry's problems also affect private firms like Newhouse and Hearst, where the drama is playing outside public view.The Dow Jones drama, however, is a public spectacle, made possible by the way Murdoch, 76, has transformed News Corp. from a small Australian newspaper company into a...
  • Extra! Tribune Sale Involves Tax Dodge.

    Whenever you see a deal involving Los Angeles's Chandler family, you usually see a tax dodge. And sure enough, the pending sale of Tribune Co., the big media firm in which the Chandlers are the largest shareholders, exploits a loophole so gaping that we taxpayers can only pray that someone closes it quickly. But it's not the Chandlers, the media magnates (L.A. Times and Newsday) whose shenanigans I've tracked for 15 years, who are dodging taxes here. It's Sam Zell, the Chicago real-estate mogul who's buying control of Tribune.As best I can tell, the Chandlers are willing to pay taxes on their $1.7 billion of sale proceeds just to be out of the newspaper business and to end their battles with Tribune's Chicago-based managers. The Chandler family paying taxes is like the sun rising in the west—an unnatural event. The family pioneered in tax avoidance when it controlled the old Times Mirror Co., which Tribune bought in 2000. The Chandlers specialized in convoluted transactions designed...
  • Sloan: The Wall Street Journal's Value

    There’s a real difference between journalistic giants and stock market pygmies. That’s the lesson of Monday’s $5 billion hostile offer by Rupert Murdoch’s News Corp. for Dow Jones, owner of the nation’s leading business newspaper, The Wall Street Journal.To most of us, of course, $5 billion is real money. But not to Wall Street. In a world in which you’ve got individual hedge-fund managers and private-equity players knocking down more than $1 billion a year, a deal of this size wouldn’t rate much more than a yawn if The Wall Street Journal weren’t involved.While The Wall Street Journal is a wonderful paper, at least to me, Dow Jones has been a less-than-wonderful company and has been marked down by the stock market for its various shortcomings. Hence the disparity between Dow Jones’s immense journalistic value and its negligible market value.Another company where there’s a huge disparity between journalistic and stock market significance is the New York Times Co., which has been...
  • It's Never That Simple

    The world of high finance can be a perverse place. Consider the possibility that by playing financial games to make it look like they have less risk than they do, companies and Wall Street are unintentionally making the financial markets riskier for everyone. It's a function of the way accounting rules and financial markets intersect. Here's the deal. Businesses can make their financial statements look less volatile—less prone to up-and-down moves—by using high-cost, esoteric products that fee-hungry Wall Street is happy to provide. However, some of those products—ranging from old-time "portfolio insurance" to today's derivatives that involve lots of borrowing—have blown up in the past, and could easily blow up in the future. That's especially true today with so many companies playing so many games involving securities whose values are based on formulas rather than on actual transactions.The idea that reducing visible risk can increase actual risk isn't my insight—I wish it were. I...
  • Sloan: Pumping Hormones Into GM's Nest Egg

    There hasn't been much good news out of General Motors in recent years, but you'll be glad to know that at least one part of GM's United States operations is finally fixed: its pension funds. GM may be having a hard time turning around its auto business and getting its financial statements straight, but it's kicked butt in pensionland. In fact, GM's funds have done so well that the company has switched about $20 billion in pension assets to lower-risk bonds from higher-risk stocks. It's the equivalent of taking chips off the table after you've gotten ahead of the game.Here's the deal. For reasons we'll examine later, GM's pension surplus increased $9.6 billion in 2006. That gain would have made GM spectacularly profitable if pension results were part of companies' income statements, as some folks propose. I think that's a bad idea, because pension returns distort results, which in turn would discourage companies from offering them. Not that they need much discouragement these days...
  • Sloan: Harpooning Blackstone Group

    If you're wondering why people like me keep writing about Blackstone Group, the big private-equity player, there's a simple answer: The whale that comes to the surface gets harpooned. And whales don't get much bigger than Blackstone, which lately seems to be bidding on every asset in sight.When private-equity firms and hedge funds kept low profiles, they were well out of harpoon range. They benefited from an enormous tax loophole that few but the cognoscenti knew about and a nice legal loophole that's familiar to people in the world of partnerships but that I'd never heard of until last week. These things have now emerged into public view, thanks largely to Blackstone's bid to become a publicly traded company. The harpoons are flying-as well they should be.Let's start with the tax loophole. Hedge funds and private-equity funds charge substantial fees to their investors, but what's made some hedgies and private-equity folks into billionaires is that they get a "carried interest" in...
  • Sloan: Blackstone Is Hiding Its Private Parts

    What a letdown. Blackstone Group, the giant "private" equity firm, finally filed its going-public documents last week—but left out what Wall Street's financial voyeurs most wanted to see: how much of the firm cofounders Steve Schwarzman and Pete Peterson own, what their stakes might be worth and how much they and their partners have been paying themselves. It was like watching "Sex and the City" on basic cable: the good stuff's gone missing. Bummer.But this disappointment notwithstanding, there is news buried in Blackstone's 300-plus-page filing, like truffles hidden on a forest floor. The most interesting single revelation involves how much Blackstone made last year in "carry": the portion (typically 20 percent) of investors' profits the firm gets as a fee. The carry, buried on Page F-29, some 250 pages into the filing, is a stunning $1.55 billion, more than two thirds of Blackstone's $2.3 billion of "economic net income." Now watch. Blackstone's partners, like those at other...
  • Sloan: When Private Equity Goes Public

    You've got to be kidding me. That may be the only appropriate response to the news that the kings of "private" equity, Blackstone Group, may soon take their own company public.Private-equity houses, you see, always talk up the joys of being private, about how you can manage for the long term as a private enterprise rather than having to tailor your business to Wall Street whims. Private companies don't have to tell anybody anything about what they're doing. Forget having to give quarterly guidance to Wall Street. Stop sweating Sarbanes-Oxley. And no more of those embarrassing disclosures about how many zillions of dollars top executives make.So if being private is such a good thing for the companies that Blackstone buys on behalf of its clients, why would going public be a good thing for Blackstone itself? Blackstone — still a private company — declined to comment, as usual. So I'll have to answer that question myself.No, I don't think the answer is "hypocrisy." I think it's...
  • An Investment You Can't Lick

    Ok. you're sitting around dealing with big Financial Questions. Where's the stock market going? Will your 401(k) be fat enough for you to retire on caviar rather than cat food? How are you going to pay your kids' college tuition? Forget all that small stuff. Your new Big Economic Challenge for 2007 comes down to this: should you speculate in U.S. postage stamps?Stamp speculation usually means buying collector-quality issues and seeing whether they rise in price. But starting this spring, the U.S. PostalService will offer you a new way to play the stamp market: the Forever Stamp. It's a stamp that will forever be good for mailing up to one ounce of first-class mail, no matter how high the cost of stamps rises. These new issues are scheduled for their initial public offering at about the same time the price of a first-class stamp is scheduled to rise to 41 or 42 cents—the price hasn't yet been determined—from the current 39 cents. "You just can't lick this stamp," quips Postal Service...
  • Sloan: The Double Dummy Can Be Very Smart

    Tax law isn't exactly a bundle of laughs. But tax lawyers occasionally compensate by inventing hilarious terms like "horizontal double dummy" to describe the paper-shuffling that they do. Most of us, of course, wouldn't recognize a double dummy if we tripped over it (or is it them?). But knowing about double dummies—a term apparently borrowed from bridge— is the key to unlocking one of the little mysteries of the newspaper business. To wit: why can McClatchy Newspapers get a tax break by selling its Minneapolis operations for less than it paid, while the New York Times Co. can't do that with The Boston Globe, and Tribune Co. can't do it with the Los Angeles Times? The answer: McClatchy did a double-dummy deal when it acquired the Star Tribune's parent company, Cowles Media, in 1998. But Times and Tribune did standard corporate reorganizations when they bought Affiliated Publications and Times Mirror, respectively, in 1993 and 2000. Most acquiring companies could do double dummies,...
  • Sloan: Why Did Stocks Drop Last Week?

    When I write about the stock market, I usually tell you to ignore the short-term noise and concentrate on the long-term picture. Today, however, I'd like to depart from form and talk with you about what we can learn from the past week's sharp declines in worldwide stock prices.Let's start with $3.1 trillion. That's how much the market value of the world's stocks has dropped in the five trading days that ended yesterday, according to the folks at Wilshire Associates. Wilshire says $1 trillion of the loss comes from the drop in the U.S. market; the rest is from declines in the world's other markets. It works out to a drop of 6.6 percent, which is an awful lot for one trading week. And although owners of U.S. stocks have been whacked with a 5.5 percent decline, they're doing well compared with the rest of the world, which is down 7.4 percent.The good news, of sorts, is that despite the $3 trillion-plus drop, the world's stocks were still worth about $44 trillion when the U.S. market...
  • Color This Deal In Crimson And Green

    Mutual funds are designed to be the small investor's friend. By pooling their money and hiring a professional manager, the small fry can compete with the giant sharks that dominate the investment world. Or so the thinking goes. But sometimes, the big guy gets a much better deal out of a mutual-fund investment than the small guy can dream of getting. A case in point: the way a money manager for Harvard extracted a far better deal for the Crimson from the Korea Fund than mom-and-pop shareholders got. It's all perfectly legal.You've probably never heard of the Korea Fund, which is what investment types call a closed-end fund. Closed-ends are different from regular mutual funds, known as open-end funds. You buy or sell shares of an open-end fund by dealing with the fund directly. Closed-end funds, by contrast, trade like stocks. A fund manager raises cash with a one-time offering to investors, then puts the money to work. For a variety of reasons, including the fact that you have to pay...
  • No Money? No Problem!

    Can the federal government afford to pay $200 billion or so to repair the damage from Katrina? Of course not--but we're going to spend it anyway. So how are we going to get the money? We're going to borrow it, primarily from foreign lenders, such as the central banks of China and Japan. Borrowing is how we've been able to pay for the war in Iraq and cut taxes at the same time.And borrowing is how we'll pay for the additional tax cuts that Congress is likely to consider next month.Washington math, you see, isn't the same as household math. With household budgets, there are caps on how much you can borrow--banks will extend you only so much credit-card and mortgage debt with which to hang yourself. That provides some discipline. Not so in Washington, where Republicans' borrow and spend has replaced Democrats' tax and spend.The fact that Congress is preparing to cut a variety of taxes by up to $90 billion over five years at the same time Katrina is going to send spending to the moon is...
  • Hedge-Fund Horrors

    Once upon a time, the word "hedge" was used to describe shrubbery, such as those nifty privet hedges that make such wonderful boundary plantings. But these days, the word has taken on a financial cast: hedge funds, the legendary investment vehicles that allowed the likes of George Soros to make billions for themselves and their investors.But instead of restricting itself to a handful of rich investors, as it once did, the hedge-fund industry is now going downscale. Sort of. Securities laws require that anyone buying a hedge-fund stake be a "qualified"investor with a net worth of at least $1.5 million or an investment of at least $750,000 in the fund. Now, regardless of your net worth, some fund companies will let you buy a stake in regulated mutual funds that invest in hedge funds, which are largely unregulated.This lets you buy indirectly what you're not considered rich or sophisticated enough to buy directly. But, hey, owning shares in such a mutual fund lets you brag about your...
  • A Gm Discount For Kerkorian? Nope.

    The big consumer news out of General Motors lately has been employee-discount pricing, the buy-low program that GM said last week is drawing to a close. But GM's biggest shareholder, Kirk Kerkorian, has taken quite a different approach to purchasing GM's stock: buying high. The 88-year-old billionaire takeover tycoon is even willing to pay higher taxes to make his strategy work.Has Captain Kirk lost his golden touch? You might think so, but there's a good explanation for his latest Motown maneuvers: he thinks GM's cheap and prefers loading up on it to pinching pennies.Kerkorian, who finished his most recent round of purchases last week, now owns 9.53 percent of GM, a huge stake. Even though the stock has fallen well below the $35 to $35.71 a share he's just paid, he was ahead by $120 million (on an investment of $1.62 billion) as of Friday. He's betting big bucks that GM doomsayers are wrong.You'd think that such a big stock buyer might command a volume discount, the way GM does...
  • SPITZER'S DOMINO EFFECT

    The big news on the investment-crime front last week was the 18-month prison sentence dealt out to convicted felon Frank Quattrone, formerly a star investment banker at Credit Suisse First Boston, for obstruction of justice. But while Wall Street focused on Quattrone's sentence, the first anniversary of the mutual-fund scandal came and went largely unnoticed. Too bad, because while Quattrone's fate is of concern mainly to Wall Street insiders, mutual funds affect almost all of us.There's actually good news on the fund front. That's surprising, because for all the perp walks and posturing by regulators and commissions, skepticism is usually rewarded when it comes to anything really changing on Wall Street.New York Attorney General Eliot Spitzer made a huge splash just after Labor Day last year when he exposed funds that had let well-connected investors skim profits from regular investors in complicated ways. Given the technicalities--can you really explain how "market timing" hurts...

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