Research Watch

PORTFOLIO POINT: This is a sampling of the week's best research notes. In a world of too much information, we hope our selection helps you spot the market's key signals.
China on Wednesday rejected a $2.4 billion Coca-Cola deal that would have been the country’s biggest foreign takeover, stoking fears of protectionism and warnings the decision could scupper Beijing’s push to invest in overseas mining companies. China’s Ministry of Commerce ruled against Coke’s proposed acquisition of Huiyuan Juice, the country’s leading juice maker, on competition grounds, saying the move would hurt smaller domestic companies and limit consumer choice. Bankers and lawyers denounced the move as a protectionist measure that would also have negative implications for Chinese investment abroad, notably Chinalco’s proposed $19.5 billion tie-up with Rio Tinto, the Anglo-Australian miner. The Coke filing was the first big test case under China’s revamped antitrust laws, which were beefed up last August, and competition lawyers criticised the single-page ruling for being short on reason and explanation. “This decision will have a potentially adverse effect on China’s outbound investments,” said Lester Ross, head of the Beijing office of the WilmerHale law firm. Coke had offered $HK12.20 a share in cash, almost treble that of Huiyuan’s last closing price prior to the announcement of the deal in early September. Trading in its shares were suspended on Wednesday morning at $HK8.30, after falling 20% following the FT report. (Financial Times, March 18)

Fearless Fred hits trouble '¦ Meanwhile in the UK, Fred Goodwin is in more trouble. Older investors may remember at the peak of NAB's foreign exchange scandals in 2004 Goodwin was often cited in investment circles as “the one that got away” from NAB. Goodwin had been head of NAB's UK and Irish operations before the resignation of NAB supremo Don Argus. Faced with two up and coming executives at the bank – Frank Cicutto and Goodwin – the NAB board went with Cicutto. For some time the choice of Cicutto had been seen as incorrect, especially when he resigned in the wake of the forex scandal. Well, here's what “Sir Fred” has been up to in recent times.

Royal Bank of Scotland agreed to pay a £1.8 million tax bill on behalf of its disgraced chief executive Sir Fred Goodwin on top of his £16.9 million pension pot. The bank, which posted the biggest loss in British corporate history last year, also backdated Sir Fred’s pension to give him an additional 10 years’ worth of retirement contributions free, MPs were told. The tax break and additional pension payments are the latest evidence of the lavish perks afforded to Sir Fred. These arrangements were in place when the bank sought its £20 billion bailout last year. The taxpayer now has a 70% stake in RBS '¦ RBS said that Sir Fred would pay back the £2.7 million lump sum. It is believed that he agreed to do so on condition that he was not pursued for the tax bill and that he could keep his annual pension of £703,000. Last October, the RBS board doubled the value of Sir Fred’s pension pot even though they were not contractually required to do so. Lord Myners told the committee that the pension was “quite extraordinary” in several respects. He said that because Sir Fred’s pension benefits exceeded the cap set by Parliament, 97% of the pot was put into a personal trust called a funded unregistered benefit scheme (Fubs), which is not allowed to provide a tax-free lump sum. (The Times, March 18)

Paulson goes for gold '¦ Paulson & Co spent $US1.28 billion buying Anglo American’s stake in gold miner AngloGold Ashanti on Tuesday as the New York hedge fund moved from betting against banks to betting against governments. Paulson, founded by billionaire John Paulson, bought 11.3% of the Johannesburg miner as part of its bet that gold benefits as paper currencies suffer from the financial crisis and from governments printing money. Mr Paulson has become one of the most closely followed hedge fund managers after his bet against subprime mortgages became the most profitable trade in history in 2007, securing profits of more than $10 billion for his funds. The deal comes as a surprise as Anglo American said last month it intended to “remain a significant shareholder in AngloGold Ashanti in the medium term”. But on Tuesday Anglo American said disposal of the stake to Paulson was consistent with its stated intention to dispose of “this non-core holding”. Mark Cutifani, AngloGold chief executive, welcomed Paulson as an investor. “As the world deals with the global economic crisis the value of gold, as the only true 'hard currency’, is coming to the fore, as evidenced by the investment choices of some of the world’s most seasoned investors.” AngloGold was created in 2004 through the merger of Anglo American’s gold mining operations with Ashanti Goldfields Corp. (Financial Times, March 17)

Investors go for osso buco '¦ Victims of the admitted swindler Bernard L Madoff may never recoup their losses – collectively estimated at $US65 billion – but one New York restaurateur is offering them a salve of free pork osso buco. All this week, Nino Selimaj is promising free meals to victims of Mr Madoff at Nino’s 208, on East 58th Street, a few blocks from the Lipstick Building where Mr Madoff kept offices. To be entitled to the normally pricey grub – $US9 daily soups, $US19 spaghetti, $US25 osso buco – at no charge, people must mention their victimhood when making reservations, then discreetly show the restaurant’s manager a monthly statement from Madoff. Libations are extra. “I feel very bad for them,” said Mr Selimaj, who has been known, among other things, for his “Water Is Free” shtick and his appropriation of Chelsea Clinton’s image. Mr Selimaj, who came to the United States from Albania in 1978, started working in New York City as a dishwasher. He now owns six other Italian restaurants in Manhattan. He could personally relate to the Madoff fraud, he said, having lost $US2.8 million in bad investments after trusting a slick stockbroker in 2000. As far as Mr Selimaj knows, Mr Madoff never ate at Nino’s 208, which opened last October. (New York Times, March 18)

Jacko goes for the “stop” button '¦ In today’s economy, everyone is feeling the pinch '¦ and even the King of Pop is not immune. Known for his lavish and frivolous spending sprees, these habits may have come back to bite him. In order to get back on stable financial ground, Michael Jackson has decided to liquidate approximately 2000 of his personal possessions in a public auction. He has also recently announced a series of 10 concerts to be held in London this July. The auction, which will be conducted by Julien’s Auctions, is not without controversy. Recently Jackson’s company, MJJ Productions, has sued the auction house in order to stop the sale from moving forward. Although plans for the auction have been in place for about eight months, Jackson contends that the items are being sold without his permission. MJJ Productions could not be reached for comment. So, we decided to take a look at the highlights of the upcoming auction (held April 22–25, with a public exhibition April 14–21) which is expected to make $US1.5–3 million, according to the auction house. (CNBC, March 18)

And Jon Stewart goes for the throat '¦ Meanwhile, CNBC’s colourful investing adviser, Jim Cramer, got his comeuppance this week on Jon Stewart’s The Daily Show. The two have had an ongoing spat in the media after incorrect advice that Cramer gave on his show Mad Money was detailed on The Daily Show. Cramer claims his words were taken out of context but was successfully humiliated nonetheless.