Microsoft no longer keen to merge: Yahoo

Yahoo Inc Chief Executive Jerry Yang said on Wednesday a potential deal with Microsoft has tremendous power, but the software giant appears no longer interested in a full merger. In his most public comments to date about his thinking on the four-month-old, on-again, off-again Microsoft merger saga, Yang signaled his company remained open to a potential deal, but said Microsoft had ruled out a merger for now.

Earlier this month, Microsoft walked away from a proposal to acquire Yahoo for $47.5 billion, or $33 per share, after Yahoo rebuffed its offer, saying it would only settle for $37 a share."We did not walk away from that proposal. Microsoft did," Yang said during an on-stage interview at the D: All Things Digital conference taking place near San Diego on Wednesday. He said he had felt a combination with Microsoft would have had a "tremendous amount of power."

In mid-May the two Companies said they had begun discussions on an unspecified deal that is short of a merger."Microsoft is no longer interested in buying the company, and we are talking about other things. We definitely have to understand what they’re proposing...they clearly have an interest in Yahoo, and we need to understand more," Yang said.

Last week, a source familiar with the latest round of discussions said Microsoft has proposed buying Yahoo’s search business and taking a minority stake in the Web pioneer, but has stopped stopping short of reinitiating full merger negotiations. As part of such a deal, Yahoo would sell its Asian assets including significant minority stakes in Yahoo Japan and China’s Alibaba Group, while Microsoft would buy a chunk of what remains of the company, the source said.

In an on-stage interview at the "D" conference on Tuesday, Microsoft Chief Executive Steve Ballmer suggested discussions had broken down largely over price. "It became clear there was a difference between the bid and ask," he said, using stock trader terms.In its original unsolicited takeover offer in late January, Microsoft offered $31 a share in a half-cash, half-stock bid, to buy Yahoo, which valued it at $44.6 billion. Yahoo responded by saying it was open to a deal but the offer was too low.

Ballmer repeated on Tuesday that Microsoft had "moved on" but stopped short of saying the mating dance between Microsoft and Yahoo was over. "We are not rebidding for the company," he said, but added: "We reserve the right to do so."

In the Wednesday interview conducted by Wall Street Journal technology columnist Walt Mossberg, Yang said a merger with Microsoft would involve a variety of issues beyond price. He said discussions between the two had never thoroughly explored such non-price hurdles, including regulatory issues.

Yahoo President Susan Decker, appearing alongside Yang on stage, said price had always been the biggest barrier to reaching agreement on a deal with Microsoft."We never got through the price door ... once we could have gone through it, then other issues could have been discussed."

Yang argued a competing deal between Yahoo and Google made sense but no deal had been reached. Last month, the Companies conducted a two-week test where Yahoo hired Google to run advertising sales alongside Yahoo search results.

"It makes a lot of sense, but if we do something, we will talk about it," Yang said, adding the "level at which Yahoo can fully partner with Google has not been fully appreciated by the marketplace." In the wake of the breakdown of the Microsoft takeover talks, Yang defended his one year on the job as CEO and said he believed he was the right person to lead Yahoo into a new era of growth, even if the company must invest heavily to do so.

"I do think I am the best person to lead Yahoo," Yang said. He compared conflicting media reports about who was responsible for the failure to reach a deal to a romance gone bad: "It’s like you break up with your girlfriend in high school ... it pretty quickly becomes ’he said, she said’."

Yang reiterated what the company has been saying over the past year: that it "has a lot of work to do" and needs to make investments to reach management’s vision of a new Yahoo.

Its strategy involves tapping the underlying social connections of its roughly 500 million monthly visitors to become a "must buy" for advertisers.

One audience member complained to Yang she was having a hard time finding Yahoo mobile services on US smartphones. She was apologetic for drifting off the topic of Microsoft.

Yang was only too happy to answer: "Of all the questions I have been getting for the past four months, I am glad to get a technical question."

Impose tax on private oil cos: Left to Govt

Opposing any move to hike petrol prices, the CPI(M) on Wednesday asked the government to impose a ’windfall profit tax’ on private and JV oil firms as well as private refineries and not burden the common people.

"In no case can the UPA government pamper the private oil Companies to make windfall profits and, at the same time, increase the price of petrol and diesel and burden the people further when they are suffering from steep price rise of essential commodities," CPI(M) Politburo said in a statement.

It recommended the imposition of ’windfall profit tax’ on private and joint venture oil producing firms as well as private standalone refineries ‘earning huge profits through import parity policy of pricing’.

“With crude prices exceeding 100 USD per barrel, it is necessary that windfall gains be recovered from all private and joint venture oil producing Companies like M/S Cairns, Reliance, Essar etc. extracting oil and gas in India," the statement said.

It added that when these contractors participated in the New Exploration Licensing Policy, "none of them could have envisaged crude prices beyond 30 USD a barrel."

"It would be a failure on government’s part to allow upstream contractors additional gain of 70-80 USD per barrel without any extra work," the party said, adding that many other countries had "renegotiated their contracts with a threat of imposing windfall taxes on such profits."

"It is time that the government takes charge and recovers unintended gains from upstream contractors," it said.

IndianOil can afford crude only up to Sept

State-run refiner and retailer Indian Oil Corp will only be able to afford to buy crude at the current sky-high rates up until the end of September, company chairman S. Behuria said on Wednesday.

Oil firms are losing millions of dollars each day as they must sell their fuel at discounted rates set by the government and far below oil’s surge to around $130 a barrel on the world market. They have appealed for price hikes and duty cuts.

Rel Money eyes 50% revenues from overseas

India’s Reliance Money, which on Wednesday announced its foray into China and Hong Kong, expects to generate 50 per cent of its revenues from overseas Markets in the next five years.

The financial products distribution firm has embarked on its plans for global expansion with an aim to set shop in about half a dozen locations overseas by the end of the current fiscal.

"Over the next five years, 50 per cent of our revenues will come from overseas Markets," Reliance Money Director and CEO Sudip Bandyopadhyay said in Hong Kong.

The company on Wednesday, launched its bouquet of financial services for retail investors in Hong Kong and China and has also tied up with leading broking firm in the region, Goldride Securities.

"Hong Kong will be our base for the East Asian region and going forward we will like to expand our presence in London and some neighbouring countries of India," Bandyopadhyay said.

"We will utilise the partnership with Goldride to expand our presence in countries such as Philippines and Kazakhstan," he added.

The company’s foray would also help Indian investors to invest in Hong Kong and Chinese Markets in addition to reaching out to the large base of Non-Resident Indians and Persons of Indian origin in the region to transact in Indian financial instruments.

Reliance Money now has a presence in UAE, Oman, Hong Kong and Singapore.

Fed looks ahead to rate increases

Two Federal Reserve policy makers warned on Wednesday that interest rate increases might be needed before too long to curb inflation, even as the United States struggles with a weak Economy.

The remarks solidified expectations that the Federal Open Market Committee has ended an aggressive rate-cutting campaign and could start to reverse its policy course late this year. Dallas Fed President Richard Fisher and Minneapolis Fed President Gary Stern, both voting members of the FOMC in 2008, said they are keeping a close eye on inflation expectations being dialled into financial Markets.

"If inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, Fisher said in San Francisco. Rate increases could be made "even in the face of an anemic economic scenario," Fisher told the Commonwealth Club of California, adding that he did not expect a recession.

Fisher said it would be "unacceptable" for the Fed to be viewed as resigned to higher levels of inflation.That is a particular risk as the lagged impact of the Fed’s interest rate cuts starts to kick in, boosting economic growth at a time inflation is already "too high" and commodity prices are being pushed up by strong global demand. Earlier, Stern vowed that the Fed would act in an "appropriate and timely" way.

"The key to maintaining low inflation and inflation expectations is likely to be the timeliness and magnitude of decisions we make to reverse course" on interest rates, Stern told a local business group in Altoona, Wisconsin.

SO FAR SO GOOD?

The Fed monitors inflation expectations as a test of what assumptions are priced into Markets and, by implication, consumer behavior. Central bank officials have expressed concern the United States may face early signs of stagflation, the damaging combination of weak growth and wage-price spiral that hit the world’s biggest Economy in the late 1970s and early 1980s.

Stern suggested the Fed had been able to hold the line. "Inflation expectations have remained reasonably well anchored so far, which is encouraging," he said.

Headline inflation, which includes food and energy prices, "is clearly too rapid for comfort," he said, adding that core measures "have been better behaved."The Fed lowered its federal funds rate to 2.0 percent in April, the latest in a string of cuts started in mid-September, when the rate was at 5.25 percent, to shield the US Economy from the fallout of a housing and credit crisis.

Fisher has been one of the Fed’s most vocal policy hawks this year, and on Wednesday termed inflation "a sinister beast" and the "enemy of capitalism." He has tallied three straight dissents against the FOMC’s decisions to lower interest rates.

"Growth cannot be sustained if Markets are undermined by inflation," Fisher said. "Stable prices go hand in hand with achieving sustainable economic growth."But Stern said the Fed was still walking a policy tightrope given the combination of weak growth and rising inflation pressures, that demands delicate action.

"We are seeing challenges on both sides of that (dual mandate) and I think we are simply going to have to navigate the minefield," he said.In particular, Stern said it was unclear if federal tax rebate checks now being mailed to millions of Americans would have an impact beyond one or two quarters.

Some forecasters fear that the United States faces a "double-dip" slowdown, with growth likely to pick up in the next few quarters on the back of the stimulus package, before fading again in late 2008 or early 2009.

Fisher said figures like Wednesday’s stronger-than-expected April durable goods orders, while hard to view in isolation, were a sign that the most disastrous outcomes predicted for the Economy have not played out.

"We’ll have anemic growth for a while, but to me, inflation is the bigger risk," he said.

ANOTHER ONE BITES THE DUST

Separately, the FOMC will lose a voter with the departure of Frederic Mishkin, effective Aug. 31. The Fed’s usual line-up of seven governors, including the chairman and vice chairman, will dwindle to four because of two vacancies that have been unfilled for months.

"This will mean the departure of an influential dove," said David Sloan, analyst at 4CAST Ltd in New York.Mishkin, seen as an ally to Fed Chairman Ben Bernanke in his support of formal inflation targets, will return to his teaching post at Columbia University’s Graduate School of Business.

Rupee too high but RBI will prop it up

The Indian rupee is overvalued and should fall by 10 percent to about 48 per dollar but the central bank will support it to help state-run oil importers, a member of India’s convertibility panel said on Wednesday.

A.V. Rajwade, member of a 2006 central bank-appointed panel on capital account convertibility, said there was little historical evidence that a stronger rupee was effective in curbing inflation and many exporters were not strong enough to shield themselves from sharp currency gains.

The rupee rose more than 12 percent against the dollar in 2007 and touched its highest level in nearly 10 years at 39.16 per dollar in November.

But it has fallen nearly 9 percent so far in 2008 because of portfolio outflows and higher oil import costs, and hit a 13-month low of 43.21 last week. It stood at 42.85 on Wednesday. "The rupee had become absurdly overvalued in my view, probably around 15 to 18 percent, but the central bank will intervene by selling dollars to arrest the rupee’s fall to help oil Companies," Rajwade said. "They will have to keep intervening if they want to keep the rupee around 43 level or it will keep slipping," he said.

State-run oil retailers are losing millions of dollars a day selling fuel at discounted rates set by the government. The falling rupee has also increased import costs and with oil prices rising, India’s trade and current account deficits are widening. Economists estimate the trade deficit was $90 billion in 2007/08.

"You cannot have the rupee going up when the trade deficit is at $100 billion," Rajwade said.

Traders say the central bank intervened last week to slow the rupee’s fall, but analysts have been surprised that it did not step in sooner while inflation is running at 3-½ year high.

Other central banks in South Korea, Taiwan, Philippines and Indonesia have been propping up their currencies to temper the inflationary impact of rising oil prices. But Rajwade said China’s yuan and Brazil’s real had risen in the past few years and Brazil’s inflation was still 5 percent. "The yuan has appreciated about 15-18 percent and the inflation rate is very similar to India’s, so currency appreciation does not necessarily lead to lower inflation," he said.

The Reserve Bank of India bought $20.3 billion in the first quarter of 2008 to keep the rupee down and has been a net buyer of dollars in the currency market for more than two years. Rajwade said dollar selling by the central bank may drain rupee liquidity from the money Markets at a time when cash is already tight, eventually pushing bond yields higher.

The government gives bonds to oil retailers to compensate them for their losses, but Rajwade said this was inflationary in the long term as it did little to check demand-side pressures. Furthermore, monetary steps would do little to check high commodity prices as this was a supply-driven problem, he said. "None of these are very susceptible to monetary policy as you do not eat less because interest rates go up."

Giving incentives to farmers to produce more would help bridge the supply-demand gap rather than using price controls and subsidies, he said.

India's Economy Probably Grew at Slowest Pace in 2 1/2 Years

India’s economy probably grew last quarter at the slowest pace in 2 1/2 years as the highest interest rates since 2002 restrained consumer spending.

Asia’s third-largest economy expanded 8.1 percent in the three months to March 31 from a year earlier, less than the previous quarter’s 8.4 percent gain, according to the median forecast of 20 analysts in a Bloomberg News survey. The figures are due tomorrow around noon in New Delhi.

Reserve Bank of India Governor Yaga Venugopal Reddy twice last month unexpectedly ordered lenders to set aside more funds amid concern surging global oil and commodity prices may further stoke inflation. Finance Minister Palaniappan Chidambaram says India can afford a moderation in growth and that fighting inflation is now his top priority.

``The government and the central bank will use all possible tools to keep inflation in check,’’ said D. H. Pai Panandiker, president at RPG Foundation, an economic policy group in New Delhi. ``They won’t take a chance with inflation now.’’

Reddy has raised the central bank’s cash reserve ratio seven times since December 2006 and increased its key overnight lending rate seven times in the past 2 1/2 years. That’s yet to put a dent in India’s inflation rate, which climbed to more than 8 percent in March, the highest in almost four years.

Higher borrowing costs are discouraging consumers in the South Asian nation from taking out loans to purchase motor vehicles produced by Maruti Suzuki India Ltd., the maker of half the cars in India, and refrigerators made by Samsung India Electronics Ltd. and other companies.

Rice, Lentils

The 52 percent of the Indian population of 1.1 billion people that survive on less than $2 a day also have less to spend on consumer goods because of the higher prices they are paying for food staples such as rice and lentils.

India’s consumer-goods production fell 0.1 percent in March from a year earlier, after increasing an average 7.2 percent in the previous 12 months. Industrial output gained 3 percent in March, the slowest pace since 2002.

``The biggest drag on growth is industry,’’ said Sujan Hajra, chief economist at Anand Rathi Securities Ltd. in Mumbai.

Still, the slowest economic growth since 2005 may not be enough to prompt the central bank from reducing borrowing costs. India is unwilling to risk an inflation flare-up from lower interest rates at a time when the government is bracing to face elections due by May 2009, analysts said.

Rising prices have already hurt the government’s popularity. Prime Minister Manmohan Singh’s Indian National Congress party this week lost elections in the southern state of Karnataka to rival Bharatiya Janata Party, its ninth setback in the 11 provincial polls held since January 2007.

India’s GDP Forecasts

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GDP YoY%
Company Jan-March
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Median 8.1%
Average 8.1%
High 8.6%
Low 7.4%
Number of Estimates 20
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Anand Rathi Securities 7.8%
Citi 8.3%
DBS Group 8.1%
Dun & Bradstreet Info. 8.1%
Edelweiss Securities 8.1%
Forecast Singapore 8.1%
Goldman Sachs 8.6%
HSBC Singapore 7.5%
ICICI Bank 8.2%
ICICI Securities 8.3%
IDBI Gilts Ltd. 8.2%
JPMorgan Chase Bank 8.2%
Kotak Mahindra Bank 7.9%
Kotak Securities Ltd. 7.4%
Lehman Brothers 8.2%
Securities Trading Corp. Of India 8.0%
Standard Chartered Bank 8.1%
Thomson IFR 8.1%
UBS 7.9%
Yes Bank 8.5%
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