American Airlines’ parent company AMR Corporation filed for Chapter 11 bankruptcy protection last Monday. The company currently faces $29.6 billion in debt that continues to grow as a result of operating losses. During reorganization, the airline company will likely aim to reduce labor costs, leaving many worried that wage-cuts and layoffs may come in the near future. AMR stated that American Airlines expects to continue normal business operations throughout the reconstruction process. Specifically, American and American Eagle assured customers that they would fly normal schedules, honor tickets and reservations, maintain frequent flyer miles, and continue to pay employee wages as well as provide health benefits.
According to the Financial Times, this marks the end of company’s decade-long attempt to avoid Chapter 11. In 2003, American chose to avoid bankruptcy, while many of its peers chose to use Chapter 11 to reduce structural costs and cut pension plans, putting American at comparative disadvantage. For example, the company claims that it is currently paying at least $600 million more for labor contracts than other airlines such as Delta and United who were able to eliminate existing contracts after filing chapter 11. Federal bankruptcy rules allows a company filing for Chapter 11 the ability to reject contracts. As such, AMR will be able to take a stronger stance when it renegotiates with labor unions. This will be one of the first steps AMR will take in its attempt to use reorganization to become more efficient, competitive, and financially secure.
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Editorial Staff
Wednesday, November 30, 2011
Thursday, November 17, 2011
Interview with David Cutcliffe
Duke Football Coach David Cutcliffe discusses the financial aspects of the team and team management.
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Editorial Staff
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Editorial Staff
Tuesday, November 15, 2011
Corporate Finance Activity Review
Starbucks Acquires Juice Company
Starbucks bought Evolution Fresh, a juice company, for $30 million. The recent purchase represents a shift for the company in seeking juice profits. Starbucks main competitors in the juice industry will be Odwalla, owned by Coca-Cola, and Naked Juice, owned by PepsiCo. In purchasing Evolution Fresh, Starbucks is looking to expand its menu and entice a different sort of customers.
Energy BP Fails to Sell Argentinian Oil Company Stake
Energy BP plans to sell its majority stake in Pan American Energy, an Argentinean oil producer, for an estimated $7.1 billion. However, the potential deal ended after the buyer, Bridas Corporation backed out.
TransCanada Pipeline
The approval process for the Keystone XL pipeline has been delayed; the pipeline would cross the international border with Canada and new possible alternate routes are being discussed. Initial estimates on the cost of the project have reached $1.9 billio.
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Editorial Staff
Starbucks bought Evolution Fresh, a juice company, for $30 million. The recent purchase represents a shift for the company in seeking juice profits. Starbucks main competitors in the juice industry will be Odwalla, owned by Coca-Cola, and Naked Juice, owned by PepsiCo. In purchasing Evolution Fresh, Starbucks is looking to expand its menu and entice a different sort of customers.
Energy BP Fails to Sell Argentinian Oil Company Stake
Energy BP plans to sell its majority stake in Pan American Energy, an Argentinean oil producer, for an estimated $7.1 billion. However, the potential deal ended after the buyer, Bridas Corporation backed out.
TransCanada Pipeline
The approval process for the Keystone XL pipeline has been delayed; the pipeline would cross the international border with Canada and new possible alternate routes are being discussed. Initial estimates on the cost of the project have reached $1.9 billio.
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Editorial Staff
Monday, November 14, 2011
Market Recap (Nov. 14)
After opening the week strong, the Dow Jones Industrial Average (DJIA) sustained severe losses at the opening bell on Wednesday, finishing the day down 3.2%. This overnight drop was caused predominantly by the news that Italy’s borrowing costs would continue to rise. Investors acted on concerns about the credit status of Italy and instability in the Eurozone in general. The market bounced back on Friday as plans for an interim government after the imminent resignation of Prime Minister Silvio Berlusconi began to emerge. As expected, Berlusconi resigned on Saturday as the lower chamber of Italy’s parliament approved new austerity measures in a revised budget bill. Mario Monti, an economist and former European commissioner, was announced as Berlusconi’s successor effective Sunday night. Investors will likely react favorably to this decision by parliament given the extremely negative perception that the international community at large held with respect to Berlusconi’s leadership.
Europe’s debt crisis remains one of the most significant roadblocks to sustainable increases in the markets. On the whole, the economy is slowly recovering as is reflected in generally fair valuations and better-than-expected quarterly earnings reports. Eurostat will release reports on industrial production and inflation within the Eurozone on November 14 and November 16 respectively. These reports will provide important insight into the overall economic health of the countries that investors have been so focused on. Investors are also worried about the increasing spreads in yield premiums between Germany and other large Eurozone countries such as France, Austria, and Belgium. If these spreads do not tighten over the next week, the market will likely fall off the gains it made late this past week.
Earnings reports from Walt Disney Corp. (DIS +0.95%) were released this week. Disney announced a rise in fourth-quarter earnings Thursday afternoon, giving investors a pleasant surprise. Bond markets were closed for Veteran’s Day on Friday but positive developments over the weekend in Europe (specifically in Italy) should promulgate a bond selloff on Monday that could push equities even higher. Of course, this increase will likely not be sustainable unless regulators can come up with a viable plan to keep Italy’s and other struggling countries’ borrowing costs low.
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Editorial Staff
Europe’s debt crisis remains one of the most significant roadblocks to sustainable increases in the markets. On the whole, the economy is slowly recovering as is reflected in generally fair valuations and better-than-expected quarterly earnings reports. Eurostat will release reports on industrial production and inflation within the Eurozone on November 14 and November 16 respectively. These reports will provide important insight into the overall economic health of the countries that investors have been so focused on. Investors are also worried about the increasing spreads in yield premiums between Germany and other large Eurozone countries such as France, Austria, and Belgium. If these spreads do not tighten over the next week, the market will likely fall off the gains it made late this past week.
Earnings reports from Walt Disney Corp. (DIS +0.95%) were released this week. Disney announced a rise in fourth-quarter earnings Thursday afternoon, giving investors a pleasant surprise. Bond markets were closed for Veteran’s Day on Friday but positive developments over the weekend in Europe (specifically in Italy) should promulgate a bond selloff on Monday that could push equities even higher. Of course, this increase will likely not be sustainable unless regulators can come up with a viable plan to keep Italy’s and other struggling countries’ borrowing costs low.
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Editorial Staff
Wednesday, November 2, 2011
MF Global Winds Up
The liquidation of MF Global resulted in 1,066 layoffs this past week. After MF Global filled for bankruptcy on October 31st of this year, the court appointed trustee has been overseeing the brokerage firm. FBI investigators are investigating the company and searching for $600 million missing in customer money. The CME group pledged $300 million to aid MF Global’s current customers. However, the recent lay-offs will not make up for the missing money.
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Editorial Staff
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Editorial Staff
Monday, October 24, 2011
Market Recap (Oct. 24)
Dow industrials bounced back from a rocky start to ride a Friday rally to a 1.4% gain for the week. This week is the fourth straight that the DJIA has seen overall returns, a mark not matched since January of this year. The S&P 500 rose by 1.1% while the NASDAQ 100 dropped by the same amount. Trading opened down this week as investor confidence was shaken following pessimistic comments made by German Chancellor Angela Merkel’s spokesperson Steffen Seibert. Seibert indicated that an agreement on a solution for the European sovereign debt crisis would likely not be reached at the EU summit planned for October 23. Markets remained volatile over the course of the week as new information was leaked on prospects for the summit. The euro recouped the losses it sustained earlier in the week on Friday as German finance minister Wolfgang Schaeuble contradicted Merkel and said that he hoped for a resolution.
A number of S&P 500 companies released third quarter earnings reports this week. The tech sector as a whole generally reported losses and missed earnings targets while a recent spate of mergers and acquisitions in the energy industry has boosted that sector. Bank of America (BAC) reported a profit of $6.2 billion while Goldman Sachs (GS) reported only their second quarterly net loss since the company went public in 1999. The market reaction to BofA’s report was mixed, however, as much of those profits were due to accounting methods and a one time sale of China Construction Bank stock.
McDonald’s (MCD) stock price rose to record heights following third-quarter earnings gains of 8.6% on the back of same-stores sales growth. By and large, big corporations returned healthy profits and are maintaining healthy balance books. Demand is still sluggish in the US market where the economy is still stagnating but many S&P 500 companies are offsetting this by increasing their exposure to overseas markets. Ultimately, while this is good for the S&P, small business owners are left at a huge disadvantage moving forward.
Bottom Line: the markets are currently in flux, waiting for any potential resolutions from this weekend’s summit. Investors are seeking clarity on recapitalization for European banks and how much Greek bondholders’ losses will affect those banks.
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Editorial Staff
A number of S&P 500 companies released third quarter earnings reports this week. The tech sector as a whole generally reported losses and missed earnings targets while a recent spate of mergers and acquisitions in the energy industry has boosted that sector. Bank of America (BAC) reported a profit of $6.2 billion while Goldman Sachs (GS) reported only their second quarterly net loss since the company went public in 1999. The market reaction to BofA’s report was mixed, however, as much of those profits were due to accounting methods and a one time sale of China Construction Bank stock.
McDonald’s (MCD) stock price rose to record heights following third-quarter earnings gains of 8.6% on the back of same-stores sales growth. By and large, big corporations returned healthy profits and are maintaining healthy balance books. Demand is still sluggish in the US market where the economy is still stagnating but many S&P 500 companies are offsetting this by increasing their exposure to overseas markets. Ultimately, while this is good for the S&P, small business owners are left at a huge disadvantage moving forward.
Bottom Line: the markets are currently in flux, waiting for any potential resolutions from this weekend’s summit. Investors are seeking clarity on recapitalization for European banks and how much Greek bondholders’ losses will affect those banks.
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Editorial Staff
Sunday, October 16, 2011
M&A Activity Review
Kinder Morgan Acquires Rival
Pipeline giant Kinder Morgan announced that it will buy rival company El Paso Corp. for $21.1 billion in cash and stock. With the acquisition, Kinder Morgan will become the largest operator of nature-gas pipelines in the United States. This deal puts increased faith in the future of natural gas a potential energy source and will catapult Kinder Morgan to the fourth largest energy company in America. Kinder Morgan recently became a public company this year and raised $2.9 Billion in its February IPO.
Groupon Strides Toward I.P.O.
Groupon, which is heading towards its public offering, expects to sell 30 million shares at about $16 to $18 a share, valuing the company at as much as $11.4 billion. Groupon hopes to break even before their public offering around November 3rd. Groupon is an internet start up that finds discounts at local restaurants and stores, and now is approaching 150 millions subscribers.
Carlyle and Blackstone Compete for Merger Market
The Carlyle Group and Blackstone were active in the merger market during the first three quarters this year, with Carlyle group completing 20 deals assessed at $4.1 billion and Blackstone signed 11 deals approximately valued at $16.9 billion. Overall data from Q3 from 2011 was up 7.4% from Q3 2010, and private equity firms completed $76.4 billion worth of deals internationally.
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Editorial Staff
Pipeline giant Kinder Morgan announced that it will buy rival company El Paso Corp. for $21.1 billion in cash and stock. With the acquisition, Kinder Morgan will become the largest operator of nature-gas pipelines in the United States. This deal puts increased faith in the future of natural gas a potential energy source and will catapult Kinder Morgan to the fourth largest energy company in America. Kinder Morgan recently became a public company this year and raised $2.9 Billion in its February IPO.
Groupon Strides Toward I.P.O.
Groupon, which is heading towards its public offering, expects to sell 30 million shares at about $16 to $18 a share, valuing the company at as much as $11.4 billion. Groupon hopes to break even before their public offering around November 3rd. Groupon is an internet start up that finds discounts at local restaurants and stores, and now is approaching 150 millions subscribers.
Carlyle and Blackstone Compete for Merger Market
The Carlyle Group and Blackstone were active in the merger market during the first three quarters this year, with Carlyle group completing 20 deals assessed at $4.1 billion and Blackstone signed 11 deals approximately valued at $16.9 billion. Overall data from Q3 from 2011 was up 7.4% from Q3 2010, and private equity firms completed $76.4 billion worth of deals internationally.
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Editorial Staff
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