NYSE Euronext merger with Deutsche Boerse blocked by EU (BBC News)

This is a very appropriate news item, for us at least. On the agenda for tomorrow (Friday) is a discussion of economic and legal systems.

Today's business climate is one of mergers and acquisitions, though those mergers don't always meet with the approval of governments interested in enforcing antitrust laws (see here for a brief refresher on antitrust).

In class, we'll take a look at Microsoft and their troubles in the EU.

The BBC article deals with a proposed merger that's been going on for a while now. Like a lot of these, it goes beyond the merely complex.

NYSE Euronext is a merger (dating back to 2007 or so) of the New York Stock Exchange and Euronext, which was itself a merger of a number of European exchanges (not, however, including either London or Frankfort).

At one point, Deutsche Börse (Germany, based in Frankfort) wanted to buy Euronext, but was beaten out by the NYSE.

So, in early 2011, Deutsche Börse decided that they were going to acquire NYSE Euronext. At the time, the expectation was that the merger would happen fairly quickly. Per a Wall Street Journal article from a year ago:

A deal could be announced as early as next week, according to people familiar with the situation, though a host of regulatory challenges await on both sides of the Atlantic, according to competition experts.

Well, the deal isn't going to go through. The European Commission announced yesterday that the merger would violate EU antitrust provisions.

But, the US didn't have a problem with the merger, approving it in December of 2011.

The difference between the EU and the US is that EU regulators appear to be somewhat more aggressive in their enforcement of antitrust. For example:

The day after blocking the merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1), the European Union’s antitrust chief vowed to veto other deals that hamper competition. The EU will continue to block deals “whenever necessary,”
Joaquin Almunia said in prepared remarks for a speech in Brussels today.

So, what does this all mean? There will most likely be additional consolidations in the world's markets; the London Metal Exchange is looking to be bought out soon. It does mean that, as a company looking to raise money in the equities market, that there'll be less choice as to where to list one's stock. Does that matter? In reading through the EU's press release on the NYSE Euronext / Deutsche Börse merger, they keep saying "competition is good," but it's not clear just why competition among financial marketplaces is a good thing.

Ok. Having nothing else to do, I decided to see if I could find out why. What I found was a very long and complex paper written by academic economists in 1998. I ran out of steam on about page 6 (out of 50), but if I'm reading this right, there's no good economic reason for a lot of competition. Also, prior to a single European currency and increased cross-border ownership of securtities, most world exchanges were already monopolies within their countries:

The presence of many exchanges in reality is not incompatible with this view, as exchanges were not competing with one another, at least in Europe, until a decade ago, due to different regulations and currencies that let them be monopolist in their relevant markets. In fact, in each country, either only one exchange existed or only one was dominant and absorbed the small regional ones (as in France, Italy, Spain, and Germany).

Today's story has been widely reported, but the more I think about it, the impact on businesses in general will most likely be a limited one. It's still an interesting story, especially when you look at the history behind it.

Some Sources for Your Expatriate Paper

Just links, no commentary

General
http://www.kpmg.com/global/en/issuesandinsights/articlespublications/pages/the-expatriate-administrator.aspx

http://travel.state.gov/

http://www.telegraph.co.uk/expat/expatlife/

http://www.talesmag.com/

http://online.wsj.com/article/SB123926101221104491.html

http://www.economist.com/blogs/gulliver

Asia
http://www.chinalawblog.com/2010/03/expat_health_insurance_in_chin.html

Europe
http://www.telegraph.co.uk/health/expathealth/7499053/Expat-guide-to-Spain-health-care.html

Aging Japan

According to an article in yesterday's Washington Post, Japan is undergoing a demographic crisis:

Japan’s population of 128 million will shrink by one-third and seniors will account for 40 percent of people by 2060, placing a greater burden on a smaller working-age population to support the social security and tax systems.

The article goes on to say that, by 2060, the retired (that is, not working) proportion of the population will reach 40%. The Japanese government is proposing tax increases to fund these looming pension liabilities, but faces parlimentary opposition in doing so. And, the standard retirement age is 60.

It isn't just an issue of money, though. The number of nursing homes and the avialability of caretakers are an issue as well. It's to the point where the Japanese are developing robots that can move patients, help the elderly dress, and, most frighteningly of all, provide companionship:

Scientists have invented therapeutic robotic babies that are intended to make life easier for nursing home residents. These Babyloids are being tested in facilities across Japan. During the tests, residents interact with the robots in eight-minute intervals for a total of 90 minutes each day. Designed to resemble infants, these robots simulate human emotions such as crying. This in turn tends to trigger a response among actual people. So far, the Babyloids are showing early promise at reducing depression and despair among residents.

And, this is in a retiree population that, having lost the personal ties from work, is already lonely.

There is, though an argument that the falling birthrate in Japan is an unintended consequence of a deliberate and rational decision on the part of the Japanese. To quote at length from the New York Times:

Take, for instance, how Western observers have viewed Japan’s demographics. The population is getting older because of a low birthrate, a characteristic Japan shares with many of the world’s richest nations. Yet this is presented not only as a critical problem but as a policy failure. It never seems to occur to Western commentators that the Japanese both individually and collectively have chosen their demographic fate — and have good reasons for doing so.

The story begins in the terrible winter of 1945-6, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day.

Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than 20 years in life expectancy since 1950.

The demographic trends in the EU and the US are not dissimilar. However, the participation of women in the paid labor force in the EU has room to increase, and in both the US and the EU, immigration (documented or otherwise) is another safety valve.

Despite the problems of issues in Japan, I'd rather be old in Japan than in China, where for all but the very rich, "nursing home" translates as "snake pit" or "hellhole."

Russia's Future (or at least guesses about it)

Russia. Over the last few weeks, we've seen a fair amount of discussion as to Vladimir Putin's political future.

A brief recap. Mr. Putin served two terms as President of Russia (2000-2008). In the Russian system, the President is the one with the power and the Prime Minister is a figurehead. However, when Mr. Putin finished his second term in 2008, he was not eligible for re-election, so the new President was Dmitry Medvedev. Mr. Putin moved to the office of Prime Minister, but it's been pretty generally accepted that it's Mr. Medvedev who is the true figurehead here.

The current Russian constitution prohibits two consecutive terms, but additional non-consecutive terms are fine. So, Mr. Putin is running for re-election as President this year. Mr. Medvedev's future is unknown but not likely to be a glowing one. According to the Moscow Times,

As for Medvedev — who at one point was branded with the tag "pitiful" on Twitter — analysts said his political future is anything but certain. "President Dmitry Medvedev is worse than a lame duck, he's a dead duck," said Nikolai Petrov, an analyst with the Carnegie Moscow Center.

Ok. Back to Mr. Putin. At one point, he looked like a sure thing for re-election. However, he's lost a lot of popularity recently. This week-end there were protests in Moscow (the symbol appears to be white ribbons or balloons). But, this sentiment in Moscow and among the bloggers does not appear to be universal. Mr. Putin doesn't have any credible opposition, and he's at least a known quantity. Per the New York Times,

“Tell Putin to fulfill all of his promises, not just half of them,” said Sergei V. Verkhososov, 34, a mechanic from the nearby industrial town of Nizhny Tagil, who was bused in for the afternoon by his employer. “He needs to think about the future, and those people who fought for him. Take these words to him.”

.......

“In Moscow they insulted me, they insulted everyone who works honestly for the sake of the motherland,” Igor Kholmansky, a worker at a plant that makes train cars and tanks, said from the stage. “We came here today to say that the workers of the Urals are for stability, for Putin and for Russia.”

There does seem to be little question (right now, at least) that Mr. Putin will win re-election, though he's unlikely to regain the popularity from his first two terms. Bear in mind two things. First, Russia has a tradition of autocratic leadership. As an autocrat, Mr. Putin is following right in the footsteps of Ivan the Terrible and Josef Stalin. Second. It may be an urban legend, but the same Josef Stalin is popularly quoted as saying "It's not the people who vote that count, it's the people who count the votes."

As a commentator for Forbes put it, Mr. Putin will be re-elected, but let's not mistake this for democracy:

His December 15 response to charges of corruption displays his chutzpah. The Russian people do not need democracy, he assured viewers. He (purportedly among the world’s richest men) personally will ferret out and punish those who are corrupt. As an example, he accused a former cabinet member – now a lonely member of the opposition — of corruption.

In a remarkable display of double-talk, Putin dismissed bloggers and demonstrators: “If the people show their trust in me with the highest office of president, I will conditionally work in their interests. Whether I have this trust or not is not revealed on internet sites or demonstrations. In a democratic society, trust is shown only in voting. If I see that there is not such support I would not stay one day longer in office (polite applause).”

Mr. Putin faces a number of challeneges in his third term (assuming that you, too, read "challlenge" as "a big problem that nobody knows how to solve, so it's dumped on your lap"). First, there's Russia's economic future. Recently, Mr. Putin announced that he believes that Russia's economic future depends on taking the currency earned from oil and gas exports and using that to build a modern economy. In an article, written by Mr Putin and published this past weekend (and much commented on), he says:

Noting that “more than a quarter of Russia’s GDP is a result of the sale of gas, oil, metals, timber and other natural resources or primary commodities,” Putin admitted that “Russia depends on the world economy…more than most other countries do.”

..........

“Having an economy that does not guarantee stability, sovereignty, or decent prosperity is unacceptable for Russia,” Putin wrote. “We need a new economy with a competitive industrial sector and infrastructure, with a developed service industry and with an effective agricultural sector – an economy, operating on a modern technological base.”

The second issue, perhaps not as urgent, is the nationalities question. Russia contains a large number of people who are not ethnically Russian and not necessarily happy at being part of Russia (such as the Chechens). The Russians aren't always absolutely delighted, either.

Ok. Enough for now.

Renault sells $4.2B stake in truck maker Volvo - Yahoo! News

Renault sells $4.2B stake in truck maker Volvo - Yahoo! News

Ok. This is where we need a handy laminated chart to figure out what's going on.

First, what Renault owned was not the automotive part of Volvo. The Chinese own that now; Ford did own it and recently sold it to the Chinese automaker Geely.

What Renault sold what their ownership in the still-Swedish-owned Volvo Truck.

Straighforward enough, you might say. Not really, because that's just the beginning of Renault's complex ownership structure.

Renault also owns 44% of Nissan. At the same time, Nissan owns 15% of Renault.

Let's bring in the Germans. I quote here directly from Renault:

"On April 17, 2010 the Renault-Nissan Alliance and Daimler AG announced a broad strategic cooperation that will enable both groups to already realize benefits quickly from a range of concrete projects as well as sharing of best practices. The two groups also announced an equity exchange that will give the Renault-Nissan Alliance a 3.1% stake in Daimler and Daimler a 3.1% in Renault and a 3.1% stake in Nissan."

Next. I'd never heard of AvtoVAZ before, but seems that they are the top Russian auto manufacturer. Renault owns 20% of AvtoVAZ.

Last but not least -- Fiat owns 35% of Chrysler.

I did find this, a chart of auto company/brand ownership, but it's from 2008, so the interest is primarily historical. It does give a nice feel for the complexity of it, though; the only problem is that it doesn't seem to pick up the 378 different auto companies in developing countries that are owned in part by one or the other of the EU-US-China-Japan-Korea cartel.

Checking with our in-house auto industry expert, Dr. Jeff Schultz -- his take is that the player to watch is Renault/Nissan, followed by Ford. He sees these two compnaies as having the best management of any of the major auto firms.