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Industrial 

Dow Agrees to Buy Rohm & Haas for $18.8 Billion With Berkshire Investment Dow Chemical Co., the biggest U.S. chemical maker, agreed to buy Rohm & Haas Co. for about $18.8 billion, reducing its dependence on petroleum-based commodity chemicals and increasing sales of more profitable products. Rohm & Haas investors will receive $78 in cash for each share they hold, Midland, Michigan-based Dow Chemical said today in a statement. The price is 74 percent higher than Rohm & Haas's closing price yesterday. Financing for the deal includes equity investments of $3 billion by Berkshire Hathaway Inc. and $1 billion by the Kuwait Investment Authority, the company said. Chief Executive Officer Andrew Liveris has said he has been seeking a large acquisition that would reduce Dow's dependence on swings in the petroleum market and transform it into a more specialized, faster-growing company. Rohm & Haas, based in Philadelphia, is the world's largest producer of acrylic paint ingredients and also makes chemicals used in adhesives, packaging materials and personal-care products.

General Electric Pursues Spinoff, Sale of Consumer & Industrial Division General Electric Co., two months after placing its century-old appliance unit on the block, said it will pursue a plan to spin off its entire GE Consumer & Industrial segment to existing shareholders, speeding divestment of some of its oldest divisions. The strategy means GE may exit more of the most well-known divisions to consumers, including lighting and electrical switches. GE, co-founded by Thomas Edison in 1892, isn't ruling out a sale or other options for the group, which had $13.3 billion in sales last year. GE Consumer & Industrial was formed five years ago by combining those divisions and had 50,000 employees and $13.3 billion in sales last year. GE Consumer & Industrial accounts for about 15 percent of the Fairfield, Connecticut-based parent company's workforce. The group accounted for about 7.4 percent of GE's $172.7 billion in total sales last year. GE told employees in an e-mail this morning it's pursuing this strategy, though it's not ruling out options such as sales or partnerships.

GE Can't Shake Off Its Financial Stigma General Electric Co. is finally doing what it should have done years ago: It's breaking up into more- manageable parts. Jeffrey Immelt, GE's chief executive officer since 2001, plans to sell or spin off its ancient appliance and light-bulb businesses and to reduce the company's consumer lending by about half. He agreed last week to sell Japanese mortgage-loan and credit-card units to Shinsei Bank Ltd. for $5.4 billion. Immelt still may not have it right. Investors continue to treat General Electric as a financial stock. In the first half of this year, 52 percent of GE's net income came from its GE Capital financial-services business. Investors traditionally place less value on financial stocks than on the industrial businesses that comprise the rest of GE. Today, the subprime-mortgage debacle has made financial companies even more suspect. Other diversified companies without big financial arms embarrass GE. Shares of both 3M Co. and United Technologies Corp. generally rose while GE was slumping. The recent market decline has dragged down 3M from $97 in 2007 to $69.02. United Technologies has fallen from last year's $82.50 to $61.05. Financial assets give GE a higher return on investment than industrial endeavors such as jet engines, turbines, locomotives and medical- imaging equipment. But investors value financial earnings less. General Electric's industrial businesses in a separate company would be valued at 16 times earnings, while GE Capital's would fetch a price-earnings ratio of 8, says Hoedt.

$6.5 Billion in Losses Seen for Airline Industry Calyon Securities's Ray Neidl widened his second-quarter and 2008 loss estimates for some large U.S. carriers, and forecast an industry-wide loss of about $6.5 billion for the year, saying fuel costs had increased faster than expected. "Persistently ever higher fuel costs remain the industry's major threat at this time with economic softness, labor unrest and what seems to be government indifference over aviation infrastructure," Neidl said in a research note. Neidl expects an industry-wide loss of about $800 million for the second quarter. The analyst, who has a "neutral" rating on all the airline stocks that he covers, said though he expects the airlines to continue to take drastic actions, it was too early to determine if the planned capacity cuts for the slower post-summer travel season would be successful. Though most stocks are already trading near bankruptcy levels, Neidl said they could still make it at least into 2009 without filing for bankruptcy. "If oil prices stay high, we expect a vastly smaller industry for at least a few years until adjustments and restructuring can be completed, the analyst said.

Bombardier to battle titans Boeing and Airbus with bigger jet CANADA will today break into Boeing and Airbus’s long-running duopoly on large commercial aircraft with the launch of a new plane aimed at taking on the two industry titans. Montreal-based Bombardier, one of Canada’s largest manufacturing groups, is expected to announce the go-ahead for its long-awaited C-Series, which will carry 110-130 passengers. Bombardier, which made its name in trains, business planes and small regional jets, is expected to say the C-Series will burn 20% less fuel than competing planes from Boeing and Airbus. The announcement comes on the eve of this week’s Farnborough air show. The C-Series will cost about $3 billion (£1.5 billion) to build, two-thirds of which is likely to be borne by suppliers and the Canadian government. The Canadian group sees an opportunity in Boeing and Airbus’s reluctance to launch new small planes. Boeing chief executive Jim McNerney told The Sunday Times that a replacement for the company’s best-selling 737, an airline workhorse that flies on short-haul routes, would not come until “closer to the end of the next decade”. Airlines have asked for a 15% reduction in costs - chiefly fuel savings - before they will back a new model. Analysts had expected Boeing and Airbus to come up with new planes early in the next decade. McNerney said the technical difficulties were great.

Jet-Engine Makers Launch New War Once every 20 years or so, the companies that make jet engines battle it out for a chance to power the next generation of single-aisle airplanes. At the Farnborough International Air Show here Sunday, the next great engine war began, with fuel efficiency as the primary battleground and billions of dollars of business at stake. General Electric Co. unveiled plans to develop a new family of engine cores that it said would vault it ahead of United Technologies Corp.'s Pratt & Whitney, which has a two-year head start on a novel engine that promises to burn 12% less fuel than today's best engines. GE, which is working with French partner Safran SA, said its engine will have fewer moving parts than Pratt & Whitney's, and will deliver equal or better performance. "We've been pretty quiet for the last couple of years, but we've been doing plenty of work in secret," said GE Aviation President David Joyce, in an interview. "So be it. Game on." The GE partnership said its engine could be available for delivery in 2016. Pratt & Whitney, meanwhile, hopes to have its engine ready by 2013 and ran a test flight Friday.

Automotive

Honda's Flexible Plants Show Share-Performance Lead Over Toyota May Widen As the average U.S. price of regular gasoline has risen 39 percent in a year -- to $4.10 a gallon, according to the AAA motor club -- Honda's flexible North American factories have been running at full tilt. Japan's second-biggest automaker is shifting production from trucks to automobiles to keep up with surging demand for fuel-efficient vehicles, while larger Toyota is closing its San Antonio plant for 14 days between now and the end of October to reduce output of Tundra pickups.  It might take Toyota a year or more to convert the truck plant to auto production, said Michael Robinet, an analyst with automotive consulting firm CSM Worldwide Inc. in Northville, Michigan. Toyota's pickups, unlike Honda's, don't share basic design structures with its cars. Honda's assembly lines can switch models in as little as 10 days, spokesman Sakae Uruma said. That lets the company build fewer 20-mpg Ridgeline trucks in favor of Civic compacts. The company will move production of the Ridgeline truck to its Alabama factory in early 2009 from its Ontario assembly plant, allowing it to build more Civics in Canada, it said in March. Nimbleness and a longtime focus on small cars have made Honda the only one among the six biggest automakers in the U.S. to increase production in North America this year, according to data from each company. The company's adaptability will help Tokyo-based Honda expand a 14 percentage-point lead since Dec. 31 over Toyota, said Madelynn Matlock, who runs an international-equity fund within Huntington National Bank's $3.7 billion investment portfolio. Honda ``plants are so flexible, so capable of switching products to meet changes in the market,'' she said. ``Toyota has over-expanded. It was too focused on volume gains, on beating GM.''

Taking On Lexus In its new 7 Series sedan, BMW AG is abandoning some of the striking design elements that characterized the previous model -- and turned off some lovers of the luxury brand.The new model, which comes as the conservatively styled Lexus LS has outsold BMW in the top-end luxury-sedan segment, will hit showrooms in 2009. The launch of the 7 Series is a critical step for BMW as it seeks to boost sagging profit margins. The luxury sedan is one of the few vehicle categories where margins are robust, thanks to well-heeled, status-conscious buyers who tend to order vehicles with expensive options such as metallic paint, electric heated seats, navigation systems and entertainment systems. Although the current 7 Series is the most successful 7 Series ever in terms of unit sales, it hasn't kept pace with its main competitors. Sales of the current model, despite the 2005 reworking, never managed to overtake the market-leading Mercedes-Benz S-Class. Last year, Mercedes-Benz sold 85,500 S-Class cars, helped by the fact that it presented a new generation in 2005. In 2007, BMW sold fewer than 50,000 7 Series. Perhaps more troublesome for BMW, sales of the 7 Series were overtaken by the conservatively styled Lexus LS in 2007. Lexus boosted sales of its LS to 71,760 sedans in 2007 -- nearly double the previous year's 34,833 -- after introducing a new generation in 2006.

Siphoning General Motors' Future General Motors once manufactured half the cars on the American road, but now it sells barely 2 in 10. Bankruptcy is not unthinkable for Detroit’s former king. The immediate cause of G.M.’s distress, of course, is the surging price of oil, which has put a chill on the sale of gas-guzzling sport utility vehicles and trucks. The company’s failure to invest early enough in hybrids is another culprit. Years of poor car design is another. But none of G.M.’s management miscues was so damaging to its long-term fate as the rich pensions and health care that robbed General Motors of its financial flexibility and, ultimately, of its cash. By the 1980s, it was clear that the Big Three automakers faced a serious threat from Japan. But General Motors and the U.A.W. were locked in a mutually destructive embrace. G.M., fearing the short-term consequences of a strike, continued to grant large increases in benefits — creating an intolerable gap between its costs and those of its foreign competitors. Union officials feared to face the rank and file without a big contract. In the ’90s, the consequences of maintaining a corporate welfare state became too obvious to ignore. In that decade, General Motors poured tens of billions of dollars into its pension fund — an irretrievable loss of opportunity. What else might G.M. have accomplished with that money? It could have designed new cars or researched alternative fuels. Or it could have acquired half of Toyota — a company that the stock market now values at close to $150 billion. GM to Cut Salaried Workers, Production, Dividend, GM to cut jobs, raise liquidity by $15 billion

Retail

Saks Tailspin Foreshadows More Hurdles for Luxury Chains Neiman, Nordstrom One of the last holdouts in consumer spending -- luxury- goods purchases -- may be collapsing under the weight of a sluggish and potentially contracting U.S. economy. Sales at U.S. luxury stores open at least a year may decline as much as 2 percent in 2008, as wealthy consumers suffer ``angst'' over financial-industry job cuts and falling stock and housing values, Michael Niemira, chief economist at the International Council of Shopping Centers, projected July 1 for Bloomberg News. None of this has been welcome news for Saks shares. They have fallen 19 percent in the past two weeks and 52 percent since the start of the year. Neiman and Nordstrom, with better operating margins, are also showing signs of strain. Short sales as a percentage of trading volume on Nordstrom stock are the highest in almost three years. The yield on Neiman's most-traded bond is at the highest since mid-March. At the beginning of 2008, Niemira said he had expected luxury same-store sales to gain as much as 2 percent this year. That would have been below last year's 6.3 percent, yet still an increase. Instead, luxury sales have dropped 0.6 percent in the four months through May versus a 6.7 percent rise in the same 2007 period.

Smoothie time at Starbucks Starbucks Corp., grappling with a sluggish U.S. economy, is turning to protein smoothies and a sweet cold-iced beverage with Italian roots to help re-energize its business. The drinks will make a debut in some markets as early as next week. The move is part of a broader push to sell healthier drinks and food after Starbucks pulled the plug on its warm breakfast sandwiches. It also wants to find a sequel to its Frappuccino line of ice-blended drinks as it deals with slumping traffic in California and Florida, which together account for a third of its U.S. sales. "This allows them to differentiate themselves from fast-food outlets selling mostly soft drinks, with a premium brand positioning," said Richard Seesel, who runs consulting firm Retailing In Focus. "It also allows them to broaden their menu appeal to non-coffee drinkers and at off-peak hours." Starbucks isn't taking much risk by moving into a new beverage category, industry consultants said. "It's a great way to refresh their brand," said marketing strategist Patricia Martin, head of LitLamp Communications Group. "It puts the focus back on the drink." Since Howard Schultz returned as CEO in January, Starbucks has been taking steps to rejuvenate its operations to counter the slowdown in the U.S. economy. The retailer is in the process of closing 600 U.S. stores, revamping its reward-card program, installing new espresso machines, and overhauling its entertainment business. In April, Starbucks began selling a new coffee, Pike's Place Roast. Starbucks said its research showed 60% of customers polled would come to buy more nutritious beverages. The smoothie-like drink, a mix of protein and fruit, will pack 15 or more grams of protein, contain no artificial sweeteners, and consist of less than 270 calories, according to the company. It will be offered in chocolate-banana and orange-mango flavors. The cold-iced beverage, steeped in Italian heritage, will be a low-calorie drink offered in fruit, dairy or yogurt-based flavors. Southern California will be the first major market for the drink before a nationwide blitz later in the year.

Tesco’*s plot to counter Aldi effect TESCO is developing a new range of own-brand products to tackle the so-called Aldi effect which has seen thousands of hard-pressed families defect to the German discounter. The top-secret project, which is due to be unveiled in the autumn, aims to drive down prices of hundreds of items in the grocery giant’s standard own-brand range. Tesco chief executive Sir Terry Leahy ordered the review after becoming rattled by news that Aldi and rival discounters such as Lidl and Netto were expanding at a faster rate than the big four supermarkets. Aldi has reported sales for the last three months up 21% on the same period last year, as consumers grapple with the rising cost of the weekly shop. According to the Office for National Statistics, food bills have soared by 9% over the past year. Aldi, which promises to save customers £30 on a £100 weekly shop, bases its winning formula on no-frills stores which stock just 1,000 product lines, compared with 25,000 in a traditional supermarket. Most are own-brand, with only a handful of branded products. By concentrating on so few products, but buying in large quantities, discounters are able to offer lower prices.

Additional consolidation seen coming in office-supply sector Sozzi's experience with weak customer service illustrates one of the key problems facing Office Depot, the No. 2 U.S. office supplies retailer. At the same time, cutthroat pricing by such giant retailers as Wal-Mart is pressuring the entire sector, including No. 1 Staples Inc. and No. 3 OfficeMax Inc., analysts said. Office Depot shares plunged 32% on Tuesday, their steepest one-day loss in over 10 years, after providing a dismal second-quarter outlook that missed analysts' average estimate by about 22 cents a share. Its same-store sales in North American are down about 10% for the quarter, the company forecast. Office supply retailers have been hit hard by the sour U.S. economy, where both regular and business customers are delaying purchases, analysts said. Office Depot has also been especially hard hit by the housing market crisis in California and Florida, where it has a higher concentration of stores than its rivals. While Staples isn't immune from the economic downturn, investors said expansion and better store management could help it snatch market share from competitors. The U.S. office supply superstore retail market, made up of the three chains, is expected to see annual sales drop for the first time in at least four years, according to Perry James, director of office supplies at research firm NPD Group. The group witnessed a single-digit drop in the first half of the year. All three companies have been expanding in copy and print services, private-label offerings or technology support services as they face increased competition from the likes of Wal-Mart, which said it's converting an existing Sam's Club into a Sam's Club Business Center that targets small businesses and will include the wholesale club's first print and copy shop, along with offering delivery services.

Services

FedEx reportedly eyeing Dutch logistics specialists TNT Shares in delivery group TNT surged over 25% Monday following a report that FedEx Corp. is in preliminary talks over a bid for its smaller Dutch rival. FedEx operates the world's largest express-delivery business, but is focused mainly on the U.S. The acquisition of TNT would help strengthen its parcel delivery network across Europe, the Financial Times reported over the weekend. The newspaper said both FedEx and rival United Parcel Service Inc. have been interested in TNT's parcel business, but are less keen to take on its postal division, where growth is slower. The economic downturn and rising fuel costs have reduced demand for delivery services in recent months, helping reignite merger talks, the Financial Times added. Bakker said TNT's parcel business in Europe and Asia would be "highly attractive" to both U.S. firms, which have relatively limited positions in the regions, and added TNT's parcel operations are the only assets available that would give FedEx or UPS such a big step forward.The mail delivery business, on the other hand, could make an attractive asset for private equity, given its strong cash flow generation and limited capital expenditure requirements, he added.