Thursday, July 01, 2004

HIGHLIGHTS


RETAIL – M&A

Sears to Buy Up to 54 Kmart Stores
Kmart Holding Corp. agreed to sell up to 54 stores to Sears, Roebuck and Co. for $621 million, the companies said on Wednesday, a deal that gives Kmart much-needed cash and Sears more room to expand.
The move comes less than a month after Kmart agreed to sell as many as 24 stores to Home Depot Inc. The discount retailer has been building up its cash position since getting out of bankruptcy in May 2003.
Kmart, which closed some 600 of its 2,100 stores while under bankruptcy court protection, said it would continue to operate these 54 stores until March or April 2005.
For Sears, the largest U.S. department store chain, buying the stores will help it get back into expansion mode after about two decades of stagnant growth. The company has been looking for ways to roll out its new Sears Grand prototype stores faster.
The stores, which Sears is opening away from the shopping malls that most of its 870 stores anchor, combine the retailer's usual assortment of appliances, tools and clothing with a small selection of food, books and magazines, and health and beauty aids.
Chairman Edward Lampert, by far Kmart's biggest shareholder, said at the company's annual meeting in May that Kmart is not actively looking to sell its stores, but would consider an offer if it involved more money than the company thought it could make running the stores.
In a statement on Wednesday, Kmart Chief Executive Julian Day said the retailer was "not currently in discussions regarding any additional significant store sales, although we will continue to evaluate opportunities as they arise."
Kmart in January 2002 became the largest U.S. retailer to file for bankruptcy, after a poor holiday shopping season compounded financial woes. It emerged from Chapter 11 in May 2003 with new investors, far less debt and a management team led by financier Lampert.
Lampert is also a big Sears shareholder. His investment companies owned 13.5 percent of Sears' stock, according to the retailer's proxy statement filed with the U.S. Securities and Exchange Commission in March.
Source; Reuters, June 04

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RETAIL – MARKET

Sears to Buy 61 Stores From Kmart, Wal-Mart; Expand Grand Concept
Sears, Roebuck & Co. here said yesterday it would acquire 54 Kmart locations and seven Wal-Mart stores, and convert them to an off-mall format similar to that of Sears Grand.
Three of the acquired Kmart stores will open under the Sears Grand banner, while the remaining locations will trade under the Sears name, but feature a product mix similar to Grand. The Sears Grand concept, which debuted in two locations last year, includes convenience food items in addition to apparel and home merchandise. The stores generate more frequent visits from a tighter trade area than mall-based stores, said Alan Lacy, Sears' chief executive officer, in a conference call yesterday. Sears did not disclose specific locations of stores to be purchased, but said about 60% of them are located in the top 15 population markets.
Source; Sears insider, June 04

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RETAIL – MARKETING

Internet marketing strategies on Wegmans
Wegmans Food Markets here is offering its customers a new computer screensaver that offers daily recipes for breakfast, lunch, and dinner. Consumers were alerted to the program via weekly e-mails that the chain sends out to its frequent shopper card customers.

"Be among the first to test drive our screensaver," the headline on the Wegmans Web site reads.

"You're invited to be among the first Wegmans customers to 'test drive' our very first screensaver," the copy reads. "Actually, it's more like an electronic cookbook that's continually updated with mouthwatering images that link directly to our latest seasonal, chef-developed recipes. The graphics are outstanding, and there's even a cool feature that lets you 'turn' the pages from one recipe to another and back again. You can send it to a friend, print recipes from it, and link to Wegmans.com for help with cooking techniques, making your shopping list, or looking up an ingredient."
Source; PGrosser, June 04

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LOGISTICS – RAIL

Slow going for rail freight liberalisation
The European Commission has issued an update on the performance on the main European networks, including an assessment of the rail freight industry several years after it first initiated legislation leading to deregulation.

In the rail freight sector the main development occurred in 2003 when legislation on market liberalisation entered into force. In theory the directive opened up the trans-European rail freight network to international goods services, with the entire network following in 2008. A second railways package proposed by the Commission in 2002 aimed to open up the national freight markets by 2006 and cabotage (the domestic movement of goods by operators from third party countries) by 2008.
However by 2003, the first package had not yet been fully 'transposed' in seven Member States. Countries, which have been slow in implementing the requisite legislation, are: Austria, Germany, Greece, Ireland, Luxembourg, Sweden and UK. In addition to legislative delays the Commission has found a whole range of other barriers to free market competition being employed by countries seeking to protect its present incumbent.
For instance in Germany the report found that the process to allocate capacities remained problematic, as its independence was not guaranteed. In other countries where a proper institutional framework does not exist, a range of informal barriers prevents access to new market entrants. The result has been that in many cases the state owned incumbent still dominates the markets with shares in excess of 90%. However where proper procedures are in place to facilitate private sector competition new market entrants have been forthcoming. This is particularly the case in the Netherlands.
Write; by LuisB, June 04

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INTERNET – BUSINESS

Google Says Sued Over Orkut Code
Google Inc. said late on Wednesday that it has been sued by Affinity Engines, which alleges that Google's Orkut social networking site is built with code stolen from its company.
Mountain View, California-based Google, which is preparing a much-anticipated initial public offering, said Affinity's claims are without merit.
In its lawsuit filed on May 25 in Santa Clara County Superior Court, and first reported by Wired News, Palo Alto, California-based Affinity Engines charged that company co-founder Orkut Buyukkokten took software code he wrote on Affinity's behalf and used it to build Orkut.
Affinity further charged that Buyukkokten had promised he would not build a rival social-networking service at Google.
Representatives from Affinity Engines, which is seeking damages and royalties, could not be immediately reached for comment.
Google said Affinity Engines had not provided any evidence to Google that their source code was used in the development of Orkut.com.
"We have repeatedly offered to allow a neutral expert to compare the code in the two programs and evaluate Affinity's claims, but Affinity has rejected that offer," the company said in a statement.
Google added that it has thoroughly investigated the claims and concluded that Affinity Engines' allegations are without merit.
Google rolled out Orkut, which is still in testing, in January. Other social networking companies include Friendster, Tribe and Zero Degrees, which was bought by Barry Diller's InterActiveCorp Web conglomerate in March.
The services connect friends of friends for dates and activities and have attracted millions in venture capital funding.
Source; Reuters, June 04

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ENERGY – DENMARK

Statoil: consolidating its position in Denmark
Statoil's acquisition of Haahr will have little long term impact on the Danish fuel sector.
The Danish Competition Advisory Board has passed Statoil's takeover of the Haahr petrol station chain after the deadline for objections expired. Despite it making Statoil the second largest retail gasoline brand in Denmark, the merger has gone through unopposed, primarily because the deal will not significantly boost the company's market share.

According to preliminary figures from Datamonitor's forthcoming Forecourt Retailing Database, the acquisition of the 30 Haahr sites would make Statoil the fourth ranked player in the Danish fuel sector on fuel volumes, with a 14.9% slice of the market. Statoil has yet to state its intentions for the 30 sites, 50% of which are unmanned.

Irrespective of how Statoil develops the newly acquired sites, it poses little direct competition to other main players, making the lack of objections understandable. DK Benzin, under the DK and OK retail brands, has a 26% share of volumes. It operates 202 manned and 586 unmanned sites, making it clear market leader. DK Benzin should only be concerned if Statoil attempts to acquire another small player. However, the opportunity for this is limited. Jet is the only smaller player in the market with a significant number of sites that is yet to merge with another company. Owner ConocoPhillips is unlikely to surrender its 60 unmanned operations in this important part of the Scandinavian region, especially in light of the company's 2% increase in market share over 2002-03.

The sole company with reasonable grounds for complaint over the Statoil purchase would be Q8. Given that Q8 enjoys a 14.6% share of fuel volumes, the takeover nudges Statoil slightly ahead of it in terms of market share. Nevertheless, despite the change in Q8's ranking position to fifth place, the merger will have little effect on its absolute position.

The reality is that Statoil's takeover of Haahr has simply enabled it to maintain its share of fuel volumes. In 2002 it accounted for 14.7% of volumes, and it now has 14.9%. In the absence of the Haahr merger this figure would have fallen to 13.8%. The takeover has simply been a sensible move by Statoil to make up some lost ground and consolidate its position. It is unlikely to alter significantly the competitive landscape of the Danish fuel retail market.
Source; DT, June 04

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FOCUS


ECONOMY – US ISSUE

The Fed’s
The wait is almost over.
The Fed’s meeting ends this afternoon and an announcement on the anticipated quarter-point rate hike will come about 2:15 p.m. EDT. It’s the announcement’s language that the market is going to dissect. The interest rate hike is already priced in.

If the language remains substantially the same, that will augur for a relief rally in the Treasury and foreign exchange markets. On the other hand, if the words conveying “measured” or “patience” are not in evidence, expect what one of my colleagues calls a brown trousers kind of day.

U.S. stocks are seen little changed at the open. Freddie Mac reported a 52 percent drop in net profit for 2003 due in part to last year’s restatement. Sears is buying more than 50 stores from Kmart for $621 million.

General Mills just reported its earnings and is warning that next year may not be so sweet. It also announced the winner of the 41st Pillsbury Bake-Off this morning. An ex-librarian from Ohio won the $1 million prize.

Note; U.S. central bank policy-makers were set to pull the plug on June 30, 2004 on the cheapest credit in decades by raising official interest rates for the first time in four years. Analysts universally expect the Federal Reserve's policy-setting Federal Open Market Committee to move the federal funds rate a quarter percentage point upward from its current 1 percent, which is its lowest level since 1958.


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