Archive: May, 2010
"Huge tragedies have changed the trajectory of the energy business before, such as the partial core meltdown in a unit at Pennsylvania's Three Mile Island nuclear power plant in 1979," engineering giant Black & Veatch chief executive Len Rodman tells Reuters here.
"That disaster literally put a stop to nuclear power in the U.S.," Rodman said. "I'm not sure Three Mile Island was as big as what has happened" with BP's blown well that killed 11 and fouled the Gulf for hundreds of miles.
"What I worry about as an energy CEO is what effect this will have on energy policy," Rodman added. It aids electric-car advocates and other "alternative" energy interests, and undermines the "Drill Baby Drill" view of less-restricted domestic oil and gas production, and Obama's recent support for increased coastal drilling. Rodman: "This BP thing has tentacles."
Multinational oil giant Shell has agreed to pay nearly $5 billion for privately-held East Resources to "give it access to a swathe of the Marcellus Shale, the northeastern U.S. rock formation that is one of the crucial sources of future U.S. gas producti on." Follows Exxon's move to boost its Marcellus assets in Pennsylvania and other Appalachian states earlier this year. Reuters story here.
United Parcel Service is putting more of its quiet hybrid diesel/electric trucks in South Philly's Oregon Ave. depot than anywhere else in the U.S. 50 of its 200 new hybrids were scheduled to roll out here today, more than are going to Chicago, Washington, Minneapolis, Austin, Houston, or the New York area.
Why here? Because "the stop/start nature of Philly driving routes" makes Philadelphia the "most effective" place for the hybrids, according to UPS. We have the right mix of brake-tapping Center City crawl and expressway-exit snarl. The new trucks' "regenerative" brakes are hooked to reversing generators that are supposed to recharge the battery as the driver presses to slow down.
UPS delivery trucks burn roughly 2,500 gallons of diesel a year, Robert Hall, the company's director of maintenance and engineering, told me. The company figures it can chop that by one-third with the hybrids.
The trucks look like conventional brown UPS diesel delivery vans. They're built by Freightliner Custom Chassis Corp. in Gaffney, S.C., and assembled at Utilimaster Corp.'s Indiana Plant, with Eaton Corp. hybrid power systems and lithium-ion batteries.
The Southeastern Pennsylvania Transportation Authority this week sued BP Plc, the giant oil company, and its Gulf of Mexico drilling partners Halliburton Energy Services Inc., Transocean Ltd., and Cameron International Corp., and their affiliates, in Delaware Chancery Court, in an attempt to recover Septa's investment losses since BP's Deepwater Horizon rig blew up in the Gulf of Mexico on April 20.
"We took a big loss with BP," general counsel Nicholas Staffieri told me. He figures Septa's $700 million workers' pension fund lost "over $7.8 million" as BP shares fell from around $60 a share to around $42 following the blow-out, which has fouled the Gulf and 100 miles of Louisiana coastline and shrimp habitat so far.
The "double derivative lawsuit" alleges BP, Halliburton and Transocean "were all negligent" in building and running the Deepwater Horizon rig. "We have a fiduciary duty to protect the taxpayers," alongside workers and pensioners, Staffieri told me. Pennsylvania taxpayers help Septa workers fund their $700 million pension plan. The Wilmington law firm Tikellis Chimicles & Tikellis is representing Septa.
My colleague Paul Nussbaum wrote in January about a previous Delaware lawsuit by Septa against Goldman Sachs. Staffieri told me Septa has also sued at least seven other companies, including banking giant Wells Fargo & Co., Level III Communications, and bookseller Barnes & Noble, since the stock market collapsed in 2008. Some of the suits are in state courts, some in federal.
Septa has split the cases between the Tikellis firm and the Philadelphia firm Barroway Topaz Kessler Meltzer & Check LLP, Staffieri said. Why them? "These are very specialized cases, and these are two major firms in the area" that do shareholder suits, Staffieri said. "We give them access, at times, through my office," to the list of investments Septa holds. "And they come back with proposals" about whom to sue.
Septa has yet to make any money from these shareholder suits. But, Staffieri says, it hasn't cost any out-of-pocket expense, either, because the firms are working on commission. Eventually, "most of these cases are settled." So what's the law firms' cut? Depends on the settlement, the Septa counsel said: "We haven't negotiated any of these yet."
Joe Smith, founder of Bronx-based New York Bagel Cafe and Deli, which has four stores in the New York area and one in Newark, Del., has scheduled openings for six new shops in the tri-state area before July, in Glen Mills, West Chester and Wilmington; and in Brunswick, Brick, and Rockaway, NJ.
Smith likes Philly: the landlords are "much more negotiable here", because north-central New Jersey "is already fully saturated with mom-and-pop bagel stores." He's looking for franchisees with $100,000-200,000 to start, plus a flat $750/month royalty fee, going to $850 in year two, and $950 after that. The company's franchisees will hire around 50 managers and part-time counter help to staff those stores.
ALSO: John Wallace, franchisee of the first Delaware location: “I am a CPA by trade. I spent four and a half years at Ernst & Young and spent 18 years in management position" at a regional accounting firm, including opening new offices and scaring up new business. "I left in June of 2008. I wanted to do something on my own... I wanted to have more control of my own destiny." Classic.
Teleflex Inc., a Limerick manufacturing conglomerate that's increasingly focused on medical components, says it's agreed to sell its $80 million (yearly sales) Rigging Services business to Houston Wire & Cable Co. for $50 million.
Houston Wire says the deal includes two Teleflex units: Southwest Wire Rope, which fabricates wire rope, nylon and round slings, chains, shackles, thimbles, sockets and other "lifting products" at five locations in Texas, Louisiana, and Missouri; and Southern Wire, which supplies wire rope, aircraft cable "and related hardware" from three stores in Mississippi, Missouri and Nevada. The units employ around 150, said Teleflex spokesman Jake Elguicze.
"The decision to divest Rigging Services was made following a thorough review and evaluation of a number of strategic alternatives and is consistent with our strategy of divesting our non-medical assets," and "allows us to continue to focus on the development of our portfolio of quality medical products," said Teleflex CEO and chairman Jeffrey P. Black in his firm's statement.
Home loan rates have fallen and customers are pushing in the door to refinance their loans, says Joe Blaston, who runs Sovereign Bank's Villanova home loan office. "In the last two weeks we have picked up 30% to 35%," to around $10 million a week. Sovereign, based in Boston, is among the largest Philadelphia-area home lenders, according to federal Home Mortgage Disclosure Act data.
It's not like the mid-2000s, when homeowners borrowed against every buck of equity in hopes their home value would keep going up. Some would-be borrowers are surprised to see appraisals come in at "10% to 30% below" peak 2005-06 levels, leaving little or nothing more to borrow, Blaston said. Besides "low appraisals, the issues we're hitting are job loss, and declining income for people that are self-employed," added veteran lender Michael Kent. "We have to do verification of employment seven days before closing," and a surprising number of applicants have to be turned down, because they are still losing jobs.
But cheaper money keeps leading them in. Conforming loan rates have fallen to around 4.75%, from 5%+, over the past year. More significantly, "Jumbo" rates on the bigger loans Fannie Mae won't buy (above $417,000, in the Philadelphia area) have tumbled from just under 7%, to around 5.25%. "That's because of liquidity returning to that market," Kent told me. Adjustable-rate loans are starting close to 3%.
Who's funding the big-mortgage business this time? "Particularly the banks are coming back into the market," Blaston said. "There's a pretty strong need by a lot of institutions to grow their balance sheets." Businesses still aren't borrowing; the credit card industry is fenced in by tough new federal consumer protection laws. But, by contrast, home values "have stabilized," and so "Bank of America, (JPMorgan) Chase and Wells (Fargo) have been getting back into jumbos." Even new mortgage-backed sales deals are starting to pick up, with an initial deal by Redwood Trust in early May ending a long drought.
"Part of what has happened is all the issues with the sovereign debt in Europe," Blaston added. With government running out of money Greece, Portugal and Spain, and depressing the Euro's value, "you've seen a real flight to quality." Skittish investors are bidding down yields on U.S. Treasuries, and that's spilling over into U.S. mortgage finance, which investors still see as government-protected.
(Adds deal price, Gupta remarks) A year after he sold Rohm and Haas to Dow Chemical on orders from the Haas family and other leading shareholders, Raj Gupta, Rohm's last CEO, is advising New Mountain Capital, an $8.5 billion-asset New York private equity firm, as it reorganizes Mallinckrodt Baker Inc. (MBI)
New Mountain has agreed to buy MBI, a Phillipsburg, NJ pharma and electronic chemical-materials maker, from previous owner Covidien, for $280 million, all cash. Covidien says fiscal 2009 sales for Mallinckrodt Baker totalled $414 million. The company makes materials for solar panels, computer chips, and the stuff that dissolves in your gut when you swallow pills. MBI has 1,000 employees and plants in Kentucky, Mexico, Holland, plus contract manufacturers in Asia.
"For over a year, New Mountain has been working closely with Raj Gupta and other industry executives to find a (company) to build into a leader in high-growth, high-value-added niches of the special chemical and materials business," said Gupta's boss, New Mountain CEO Steve Klinsky, in a statement.
Mallinckrodt Baker "can be positioned as a leading global player in the pharmaceutical, laboratory and electronic segments of the speciality chemicals and materials business," Gupta said in the same statement. Gupta left Rohm with what my colleague Bob Fernandez reported was a total of $102 million in stock, severance and retirement, a respectable nest egg for entering the private-equity business.
UPDATE: Gupta speaks: "When I retired from Rohm and Haas in April 2009 I made a conscious decision not to join the boards of any of the chemical materials companies; I approached the private equity companies. I went with New Mountain," he told me. "They're invested in 17 or 18 companies since Steve founded it" in the 1990s. "They still have interests in about 14.
"They take a ten-year view. The first five years is investing in a very conservative financial structure. In this transaction we have no third-party debt."
BMI "serves three very attractive markets: pharmaceutical intermediates; lab supplies; process chemicals for the electronics industry. They have... a pretty good global presence. We see this as a great platform for New Mountain to build a larger business. With the right management team, this business has a lot of opportunities for growth.. We'll make organic investments, geographically expanding the portfolio, and looking for some tuck-in acquisitions, between $50 and $100 million, in related markets."
Covidien is the healthcare equipment company spun off by Tyco International, where Gupta is a director (he's also on the board of Vanguard Group, Hewlett-Packard, Delphi Automotive). "This was a business they acquired when they were spun off by Tyco. They've been trying to sell it for the last couple of years."