Anchors Aweigh

Diane Francis column Thursday Post March 9:

NEW YORK CITY - The fuss over the purchase of this city's port by Middle Eastern interests is another example of how protectionist economic nationalism is being cloaked as legitimate national security concerns.

The deal involves an estimated US$6.8-billion purchase of a British company by Dubai Ports World, owned by the United Arab Emirates government. The company manages ports around the world but also in New York and New Jersey; Philadelphia, Pennsylvania; Baltimore; Miami; and New Orleans.

The transaction has been delayed voluntarily in the wake of the political firestorm which erupted in Congress.
Key Republican, Senator Bill Frist, said he will introduce legislation to stop the transaction. President George Bush said he will veto any such law.

Last week, President Bush said the U.S. would send "mixed signals" by attacking a Middle East company on the basis of foreign ownership after the ports had been run for years by a British firm.

Homeland Security and other government agencies have also examined the deal and signed off, he said.

"I don't understand why it's OK for a British company to operate our ports but not a company from the Middle East when we've already determined security is not an issue," Bush told reporters aboard Air Force One after Frist urged the administration to block the deal.

Security is a non-issue.

This is because port logistics may be managed by a private-sector firm, but customs, law enforcement and other U.S. government agencies really run the ports, having the final say as well as access at all times.

The situation also involves an interesting sideshow concerning the Clintons.

New York Senator Hillary Clinton fiercely opposes the and is co-sponsor of a bill which would ban foreign ownership of ports. At the same time, her husband - former President Bill Clinton - has been on a Middle East gravy train.

News reports say in private meetings he is favoring the deal his wife opposes.

Both husband and wife deny they are at odds, but Mr. Clinton's lucrative post-presidential career makes for interesting reading.

News reports say that the UAE shelled out a total of US$600,000 to Clinton to give speeches there in 2002 and 2005 and Dubai chipped in US$1 million to the Clinton presidential Library in Little Rock, Arkansas.

The Dubai debacle is also embarrassing for the Bush administration because it involves economic discrimination against its best allies in the Middle East, apart from Israel.

Dubai, United Arab Emirates, Qatar and Kuwait are these liberalized and progressive Gulf states that are fiercely pro-American. Qatar is host to the Americans' large military contingent in the region while Dubai and UAE is in the process of building a Singaporean financial capital and high-end, sun-drenched playground for Europeans.

All four are also moving slowly toward democratization, which is near and dear to the administration's heart.
But politics trumps sound economic or diplomatic policies.

So does unenlightened self-interest on the part of American companies who may want to discourage foreign ownership by invoking security or other concerns merely to pick up local assets more cheaply.

This was obviously at play last year when U.S. Senators actually criticized China for paying too much to buy U.S.-owned oil giant, Unocal Corporation.

Since when did free enterprisers criticize an auction that yielded a better price for American shareholders?

National security matters were trotted out then too as the principal reason to hold up the deal pending a Congressional investigation.

But the real modus operandi behind opposition was to allow Chevron Corporation to buy Unocal for less money by forming clouds in Congress over China's offer.

One wag dubbed these anti-China politicians as the "Senators from Chevron".

All of which goes to show that economic nationalism is rearing its ugly head more frequently as well as selectively.
As the President pointed out, nobody objected to a British company owning these port business, but only did so when it decided to sell to Middle Eastern interest.

This was not because Britain is considered a friendly after sending troops to Iraq. It was probably because some American rival is now lurking around, hiring lobbyists, in order to scoop these assets from the Brits and the Arabs by eliminating a bidder.

Even Canadian companies have been caught in such crossfires. Take the bid by Canadian National Railways a few years back to buy a high-profile U.S. railway giant. The "national security" issue was raised in regulatory hearings and led to CNR's withdrawal.

Interestingly, that didn't stop CNR from buying another large railway giant later in a deal that was unopposed, probably because there wasn't another American bidder pulling lobbying strings backstage.

The Greed Beat

Diane Francis Saturday gossip column March 9:

NEW YORK CITY - The investing public got a glimpse into the true extent of obscene executive payouts this week thanks to proposed Securities and Exchange Commission disclosure requirements.
Citigroup voluntarily and shamelessly complied ahead of time by revealing the true extent of its Chairman's remuneration. It showed, for the first time, the true cost of corporate jet travel by executives, a perq that is widely abused in Canada too.
Citigroup Chair Sanford Weill was paid US$21.5 million and the company also paid his taxes. Citigroup's CEO got a 16% raise or US$23 million last year despite the fact that shareholders only enjoyed a 1% increase in the value of the company's shares.
Mr. Weill's use of company planes was calculated at US$524,000 for the year. The company also forked out a small fortune paying other personal bills for him. His medical and dental benefits totalled US$61,846 and personal financial planning advice US$85,714.
Other execs also had the same benefits.
Worst of all, Mr. Weill is due to retire this year and has been given lifetime use of the company jets on top of his US$1.1 million-a-year retirement benefit.
The Commission hopes such enhanced disclosure rules, which won't kick in until 2007, will embarrass executives and enlighten shareholders into demanding lower payouts.
The rules go much further and should be enacted by the Ontario Securities Commission too.


OTHER PERQS

It seems that some top dogs feel they are entitled to other "perquisites" that won't be revealed in the proposed disclosure requirements.
In 2004, Morgan Stanley paid US$54 million to settle a lawsuit brought by women complaining about breast-shaped cakes, lewd comments and strippers in the office.
Saleswoman Laura Zubulake last year won a US$29-million verdict against UBS AG, Europe's biggest bank.
In January, six women sued Germany's Dresdner Kleinwort Wasserstein for US$1.4 billion because they were cut out of strip parties where huge bonuses and promotions were doled out.
And last week the latest lawsuit hit Societe Generale's New York office. It was sued for US$450 million by a former employee, Kristin Polidori, who claims that her boss made lewd suggestions to her and bragged about his sexual exploits with colleagues.
"Societe Generale takes allegations of sexual harassment very seriously," read the bank's statement.


LITIGATION HIJINKS

The nasty spat between Biovail Corp., Eugene Melnyk and a couple of analysts took a new turn in the New York tabloids last week. The Canadians hired attorneys to pursue legal remedies in the dispute and those lawyers hired two private detectives.
These detectives were caught on camera removing the trash from one analyst's house and accused of following another's wife.
Melnyk and Biovail did not hire these gumshoes, but their lawyers did, according to the New York Post.


OUTSOURCING THE PRESS

India is the darling of the world of outsourcing. This is because it has a pool of educated workers who speak English that is twice the population of North America.
It's been highly publicized that the call centre world is moving there as fast as they can build cubicles in Bangalore. And outsourcing is taken very seriously. One company had two million applications for two jobs.
These people are very professional. Some are selling goods and services. Others are providing service advice to people struggling with new computers or other electronic devices.
Before they start on the job, workers are trained carefully, given elocution lessons and taught colloquialisms and local turns of phrase.
The migration to India of call centres is well known, but few people realize that virtually every service is being re-examined as to its suitability for outsourcing there.
For instance, American hospitals are e-mailing everything from x-rays to MRI, catscan and petscan results to Indian doctors for analysis and diagnosis at a fraction of the cost in the U.S.
Even journalism is being outsourced to India. Last year, Reuters, the news giant, hired dozens of Indians to read corporate materials and press releases and convert them into journalistic stories for their wire service around the world.


REALTORS AND DODO BIRDS?

New businesses are sprouting up in the Big Apple and elsewhere which will end up disintermediating or eliminating the traditional real estate agents and their 5 to 6% fees.
For an average of US$750, homeowners can have their property evaluated and listed. Agents will show the property to prospects for a fee of US$50 an hour. And a closing, which includes all the paperwork, is another US$500.
Real estate may be the next target for disintermediation, thanks to the Internet which has changed the travel and brokerage businesses.
More interestingly, anti-trust authorities are looking complaints by these new operators about lack of access to MLS listings and whether fixed commissions amount to illegal price fixing.

BlackBerry is Back

NEW YORK CITY – Wall Street breathed easier after the creator of their favorite wireless device, the BlackBerry made by Research in Motion Ltd., was forced to settle a patent dispute for US$612.5 million.

Shareholders should also breathe easier and the stock bounced by nearly b20% immediately after the announced deal.
The deal followed three days of marathon talks at Citigroup Global Markets which is banker for NTP, the holding company that sued in 2001 and won a decision in 2002 by a jury which found that RIM had infringed five NTP patents.

The settlement was “eye popping” in size but less than the US$1-billion that some New York analysts estimated it would have to pay.

What is also “eye popping” is that there’s some question that NTP’s patents are invalid and they are being reviewed by the U.S. Patent and Trademark Office.

But the two sides were forced to the table last week by an impatient U.S. District Court Judge in Richmond, Virginia. He had been asked by NTP for an injunction against RIM’s operations in the U.S. which could have ruined the company.

All of RIM’s appeals had failed as did its request that the court hold off until the U.S. Supreme Court made its anticipated ruling whether such injunctions should be imposed before all remedies were exhausted in patent infringement disputes.
“The prudent thing for stakeholders was to put this thing behind us,” RIM’s Chairman Jim Balsillie said in a conference call to analysts and media.

He’s right.

But it has been a bitter and unjust battle, a high-profile corporate law equivalent of a lynching in the Deep South which underscores the dangers of doing business in the U.S.

The BlackBerry is Canada’s most successful technology creation and one of its most recognized brand names, ranking up there with the Royal Canadian Mounted Police, Celine Dion or Jim Carrey. They are visible everywhere in this city of financial services and the wireless device can be credited with inventing thumb-typing and lap-reading in meetings.

The BlackBerry is such an entrenched product that the U.S. government waded into the fray asking to intervene in this court case lest one million of its civil servants who rely on BlackBerry services were damaged by a shutdown.

The BlackBerry is simply the latest case which shows how American juries can make outlandish decisions and judges can impose unfair deadlines that threaten a business’s survival.

The worst case involved funeral chain company Loewen Group of Vancouver which was forced into bankruptcy after an ignorant Mississippi jury imposed a punitive US$600-million fine involving a lawsuit asking for only US$2 million in damages. The company was unable to appeal this unless it deposited US$600 million in trust. Shareholders lost everything.

American business organizations have been lobbying for years to change laws and cap jury awards. Thousands of companies are driven out of business by corporate ambulance chasers operating in background states with questionable courts in the south.

The Research in Motion case involves a second problem which is the tortuous and questionable patent process south of the border.

Research in Motion could have settled a year ago for US$200 million less but held off due to the possibility that NTP’s patents would not be validated by the U.S. Patent authorities.

But that wait ended last week when the Virginia Judge James R. Spencer warned that he might agree to stop BlackBerry sales and service in the U.S. and impose a settlement on them if the two sides didn’t settle out of court.

This deadline led to another injustice, say sources.

The settlement should have been conditional on the U.S. Patent and Trademark Office’s decision about the validity of NTP’s patents next year. That is, if NTP’s patents are rejected, Research in Motion should have been able to get the money back plus be able to countersue for damages.

There was no such contingency in the settlement.

Research’s Chairman Balsillie says that would have cost the company even more money.

In the end, the company has done the only sensible thing which was to cut its losses and move on. Duking it out in a monkey court in the Deep South can prove to be not only costly but ruinous, as Ray Loewen and many others have discovered.

RIM’s decision was vindicated immediately and its shares rose by nearly 20% after the announcements to US$86.05.

That’s because RIM still has about US$1.2 billion in the bank and a booming order book for its devices.

Commodities and Canada

NEW YORK CITY - Commodities in general and Canada in particular have been the darlings of the world's stock markets.
That's why tomorrow's (march 5) opening of the Prospectors and Developers Association annual convention in Toronto is expected to enjoy another record attendance.

Commodity prices have soared 91% in the last four years as measured by the Reuters Jefferies Commodity price index. Prices represent the highest level in 26 years. The index tracks metals, energy and agricultural commodity prices.

But like all booms, there is a constant guessing game as to whether this is, or will be, a stock market bubble or a looming bust or merely a slowdown.

"Prices were unsustainably low with gold and oil in the late 1990s at 20 year lows," said Fred Sturm, Ivy Global Natural Resources Fund manager in a report. "This forced mergers."

Mergers created stock market gains, then price increases did. He expects a third rally.

"The last will be a true scarcity rally," he said based on projected global and Asian economic growth figures.
Gil Knight, senior portfolio manager at money manager Gartmore US, is convinced that the rally will be robust enough to invest significantly in mining stocks this year.

Others are more targeted.

John Hill, Citigroup analyst, recommends gold due to Chinese, Indian and petrodollar purchases and Newmont Mining and Barrick Corp. as vehicles.

Still others are cautious.

By contrast, Stuart Schwaitzer, global markets strategist at JP Morgan Asset Management believes this year will be lackluster.
"I'd be surprised if the commodity-type stocks are a top-performing group in 2006," he told the New York Times last month.
Helping hoist the market for commodities is the fact that pension funds and money managers moved into commodities last year and plan to do so this year in order to diversify from stocks and bonds.

This can be either bullish or bearish, depending upon your viewpoint. Institutional demand puts upward pressure on prices while, historically speaking, their group participation often marks the end of the rally as their participation gives others a chance to cash in.

Barclays Capital estimates that in 2006 another US$40 billion will be invested by institutions in commodity indexed markets in addition to the US$70 billion which had been invested by the end of 2005. This is up from only US$15 billion invested by the end of 2003.

The commodity price boom in markets is only part of the story.

Prices, at record highs for several years, have led to expanded corporate exploration budgets, capital projects and profits.
The boom has secured Canada pre-eminence in mining financings. In 2005, an estimated C$3 billion was raised in Canada compared to C$1.75 billion raised throughout the rest of the world. This continues the dominance of Canadian investment bankers in this critical sector.

In 2004, some C$3.75 billion was raised compared with C$2.2 billion throughout the world and in 2003 Canadians raised C$2.75 billion compared with C$1.75 billion worldwide.

This year's PDA convention is expected to attract a record 13,000 attendees from 35 countries. This reflects the fact that 700 Canadian exploration companies work abroad on 3,500 exploration projects. Canadians dominate the action and are credited with opening up activity in both resource-rich Chile in the past and Mongolia more recently.

An estimated 50% of the venture capital for exploration and mining projects around the world is raised on the TSX or the TSX-Venture.

But the nagging question for those outside the industry is whether commodity prices will continue to rise.
My bet is that they will.

China is cited as the reason for price hikes. But that's only part of the story. India grew by 8% last year, South Korea by 5% and the world overall by 3.5%.

Barring unforeseen events, these trends should continue.

There are also other important, overlooked, factors. These include the return to respectable economic growth in Japan and Germany; the continuing growth of the United States (at an estimated 3.5% this year) plus the massive windfall of petrodollars to OPEC and others which is being increasingly invested in gold and other commodities.

China is the biggest buyer now of base metals going from 5% of the worldwide total in the 1980s to 22% in 2005. It also is running out of oil and doubled oil imports in five years.

Interestingly, commodity prices may increase due to another factor: U.S. political pressure on China to revalue its currency higher. China has already increased the Yuan slightly and an agreement to raise it more will give it greater purchasing power with which to buy commodities, thus driving demand.