Archive: May, 2009
The stage appears set for General Motors Corp. — or “Old GM,” as it called itself in a regulatory filing yesterday — to file for bankruptcy on Monday.
And where will that leave the widows and orphans?
Depends on whose widows and orphans you mean.
More than in the bankruptcy of privately held Chrysler, a GM endgame pits one group of individual retirees (many of the public bondholders) against another (retired members of the United Auto Workers).
In preparation for selling itself to the U.S. Treasury to become “New GM,” the company says its bondholders, including institutional investors along with individual retirees, widows and such, would lose their current holdings. In return, they would get a 10 percent ownership stake up front, plus warrants for future discount purchases of up to 15 percent more of the reconstituted company.
Meanwhile, a 17.5 percent stake in New GM would go to a health care trust serving the needs of GM retirees.
Washington, which now calls the shots in this matter, would own a 72.5 percent share of the century-old car maker. Thus the jokes about Government Motors.
Heretofore, GM bonds were a gold standard for reliable investment income from interest — an attraction for people on fixed income.
The bondholders have contended they deserve as much as a 58 percent stake, based on their holding $27 billion in GM debt. About 35 percent of the holders support the latest offer.
Others were still screaming foul yesterday.
“There’s no conceivable reason for every group at the table to get a better deal than the small bondholders,” investor Mark Mondica, business manager of a Saturn dealership in Chalfont, said on behalf of a bondholder group. “This deal is being financed on the back of public bondholders,” he said.
A lawyer trying to organize GM bondholders to make a stand in bankruptcy court told Bloomberg News yesterday that the losers in a GM bankruptcy would be Main Street, not Wall Street.
“Whereas the ‘bad guys’ in Chrysler were hedge funds, who Obama called ‘speculators,’ here they’re Main Street — individual retirees who bought bonds when they were like gold bullion,” said the lawyer, Thomas Lauria.
Guy LeBas, chief fixed income strategist at Janney Montgomery Scott L.L.C. in Philadelphia, said it’s a “reasonable assessment” that politics is putting an excess of eggs into the UAW’s basket.
“Many bondholders still hope that bankruptcy will take politics out of the whole process,” he said.
GM says the bondholders have until 5 p.m. tomorrow to decide if they’ll take the proposed deal.
Without their support, Old GM told the Securities and Exchange Commission yesterday, the amount of equity and warrants for bondholders will be “substantially reduced or eliminated.”
Stand by.
Wherever I turn lately, all I hear is that to climb out of the mess it’s in, the United States will have to invent its way out.
In the next breath, the think tanks and technology gurus often talk of the need to get ideas out of the labs on college campuses and into the commercial marketplace.
Implicit in that call to innovation seems to be the thought that somehow we’ve stopped inventing and that colleges aren’t producing practical inventions.
Well, I just saw the prototype of a machine dreamed up by two industrial design school graduates of Philadelphia University that shows me not only what’s possible with a small amount of funding but that good ideas can come from anywhere.
Called the Benson rower, the machine is piece of a training equipment that simulates rowing on open water. It takes it’s name from the former governor of New Hampshire, Craig R. Benson, who puts his money where his mouth is. An avid rower, Benson wanted a rowing machine that would provide more than just a cardio workout.
Benson’s challenge found its way to Philadelphia because the co-founder of Cabletron Systems Inc. and Stephen Spinelli Jr., president of Philadelphia University, are friends.
Could the university’s industrial design school develop a machine that would provide the sensation of rowing against water and the rocking of the boat? Benson agreed to put up $26,000 to fund the development.
Philadelphia University associate professor Michael J. Leonard, who has spent 30 years practicing and teaching industrial design, believed he had two students, Dan Tafe and Tim Poiesz, who had the chops to accept the challenge.
Of course, neither of them are rowers. But they tapped rowing coach Chris O’Brien’s expertise and some MBA students helped with the business plan and market research.
Tafe and Poiesz even climbed into a shell on the Schuylkill River. That day on the water is when Tafe and Poiesz had their “a-ha” moment when they felt firsthand the forces they were trying to simulate and realized how they might do just that.
The answer came from applying pneumatic parts called “fluidic muscles” to enable their device to move smoothly. Made by a German company called Festo, the parts are used in industrial machinery. Tafe and Poiesz wanted to put them in a consumer device, and they got help doing so from Rankin Automation Co., a Broomall-based manufacturer’s representative for Festo.
The machine that I saw in the Gallagher Center earlier this week is actually prototype No. 3. And it’s about 95 percent of where Tafe, Poiesz and Leonard believe it needs to be before it could go into production. That’s exactly what they hope to do six months from now, if they can raise the money. The money ball is back in Benson’s court now.
Indoor rowing machines emerged from entrepreneurial companies. A Vermont company called Concept2 invented the first air-resistance indoor rower in 1981. Its line of machines are probably the most widely used today, selling for $900 to $1,300.
What would the Benson rower sell for? The base model could be priced at $1,500, Poiesz said. Other models that could be programmed for specific water conditions or incorporate a videoscreen and Internet connectivity could cost five to 10 times that amount.
You and I might not spring for such an exercise machine. But there are boathouses and gyms that would if they decide it’s better than what they use for training.
Does that make this invention impractical? No, because the process of developing this machine led to several technical breakthroughs that Philadelphia University hopes to patent and apply to other design challenges, Leonard said.
We’re not going to row our way out of the recession. But by nurturing creativity on campus, we might just invent the next expansion.
People may continue to debate whether or not the Philadelphia region is a place where information technology companies want to be.
In the meantime, the Ben Franklin Technology Center of Southeastern Pennsylvania seems to keep finding small tech companies in which to invest its money.
Or rather taxpayer money, because the center is one of four in Pennsylvania that receives funding from a 26-year-old state program.
Yesterday, the Ben Franklin center announced investments in eight early-stage companies, totaling $1.59 million. Three received the $250,000 maximum:
* ClickEquations Inc., a Conshohocken software developer focused on the paid Internet search advertising market. The company was started in 2004 by Craig Danuloff, who’d founded iCat Corp., which was acquired by Intel Corp. in 1998. Its CEO is Lucinda Holt, who started TurnTide and Destiny WebSolutions, both of which received Ben Franklin funding.
* ColdLight Solutions L.L.C., a Wayne developer of software-as-a-service applications to help businesses evaluate strategies. It previously received $250,000 from Ben Franklin.
* TicketLeap Inc., a Philadelphia provider of an online ticketing and event management service used by more than 8,000 venues and event organizers. TicketLeap also had gotten another $250,000 from Ben Franklin.
Technology is often about building bridges, and one Bucks County company is trying to make sure the bridges and highways that we build stay built. Smart Structures Inc., which got $230,000, makes a wireless sensor that is designed to be put into wet concrete during construction and monitor any changes.
Ben Franklin also invested $87,500 into a company that has been trying to take the paper out of what was supposed to be the paperless society. Based in West Philadelphia, the Neat Co. has several products that enable people to scan their receipts, bills and business cards and organize them. The Ben Franklin center had previously put $600,000 into it.
Other companies to obtain funding were: CoreDial L.L.C., of Plymouth Meeting, $100,000; Sage Technologies Ltd., of Warminster, $200,000; and Hybrid Integration L.L.C., of Yardley, $225,000.
Like many central bankers, Federal Reserve Bank of Philadelphia CEO Charles I. Plosser never feels safe from the threat of inflation.
Never mind that consumer prices were unchanged in April, and that some economists worry that it’s deflation that could bedevil the U.S. economy.
“The current circumstances pose an eerily similar set of conditions to those in the mid-1970s,” Plosser said in a speech to the Money Marketeers in New York May 21. He was talking about a rapid monetary expansion by the Federal Reserve and a large “output gap.”
The second condition is the difference between actual economic output (or gross domestic product) and the potential output. That’s the output the economy could reach when it hits full capacity.
When the output gap is perceived to be large, economists and policymakers often forecast that inflation will remain tame even as economic growth accelerates.
But, Plosser said in his speech, “potential output is inherently unobservable.”
That’s especially true now because the economic bar has most likely been lowered as a result of the shock that precipitated the recession. But how low did full capacity go?
When the nation was mired in a severe recession in the mid-’70s, triggered by high oil prices, estimates of the output gap “were poor and the gaps turned out to be much smaller than thought,” Plosser said.
As with the oil shock in 1970s, the credit crisis that set off the current recession is leading to real adjustments in the overall economy. To Plosser, those citing the “large current output gap” as reason for the absence of inflation are likely overestimating the size once again.
“I, for one, do not want to repeat the unpleasant experience of the late 1970s,” he said.
I, for two, don’t either.
And while he may be an inflation hawk, Plosser is no Chicken Little. There’s no rampant inflation present in his short-term outlook.
He forecasts inflation running at 1.2 percent for 2009 and rising to 2.5 percent in 2011.
Mayor Nutter’s aspiration to make Philadelphia the greenest city in America has evolved from campaign slogan to what is now the Greenworks Philadelphia plan.
Like any business plan, its success is largely about execution and adapting to the unexpected, such as the resignation of the city’s director of sustainability, Mark Alan Hughes.
Sustainability - acting for the good of the planet, people and prosperity - has long had vocal advocates among environmentalists and do-gooder groups. Outright advocacy by the business community remains rare beyond the ubiquitous “green” image advertising campaigns.
Some in our region’s business community say they will no longer sit silently. Jeff Westphal, CEO of Vertex Inc., a Berwyn tax software firm, wants to agitate for change. That’s why he and Neil Greenberg, of Greenberg Advertising, are launching the Philadelphia chapter of a policy advocacy group called New Voice of Business.
The organization promises it’s not a me-too group. “We’re not going to help businesses become greener,” Westphal said.
Rather, New Voice of Business will advocate for smarter policies on sustainability at the federal, state and local levels.
Based in San Francisco, the organization was founded by dessert entrepreneur Elliot Hoffman and had success bringing together like-minded businesspeople to apply pressure to make sure sunny California committed deeply to solar power.
New Voice of Business rallied support for the Million Solar Roofs initiative by meeting with chambers of commerce and talking their language. It collected signatures on petitions and generated thousands of e-mails to California’s Public Utility Commission, which wound up implementing a 10-year, $3.35 billion program to subsidize solar installations.
Westphal has known Hoffman for several years and agreed to join the board of New Voice of Business. To him, the group serves a constituency that hasn’t been represented by the myriad business groups. Not the CEOs or executive vice presidents, but department heads, accountants, senior engineers and other managers inside businesses of all shapes.
“These are people who really care about the future of the environment and their business. It’s not an ‘either-or’ to them. It’s got to be an ‘and,' ” Westphal said.
To that end, the group is supporting the federal energy and climate change bill that was shepherded by U.S. Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) out of committee on Thursday. Locally, Westphal said he hopes to rally support for Philadelphia’s Greenworks efforts.
“This is not merely a granola effort to save the polar bear,” Greenberg said. “Environmental sustainability is equivalent to economic sustainability.”
Can such a California idea gain traction among an East Coast business community?
We’ll see. About 150 businesspeople have registered for its kickoff at the Academy of Natural Sciences Tuesday at 6 p.m. Speakers will include Nutter and Hunter Lovins, a well-known consultant on climate change and sustainability from Colorado.
For those who plan to attend, Westphal asks that you to register online at the New Voice of Business Web site by no later than noon tomorrow.
Phraseology
Several readers answered the challenge of trying to brand the Philadelphia region in light of its strength in the life sciences.
I wouldn’t say we’ve got a “Motor City” or “Silicon Valley” yet. But from the voice-mail, e-mail and blog comments, people are trying.
Here are some that I liked:
“America’s Medicine Chest.” (We’d have to wrest that away from New Jersey.)
“Philadelphia deals, the world heals.” (The reader suggests we pull a Trenton and put it in neon on a bridge.)
“Pilladelphia.” (That was a headline from a Philadelphia magazine article more than a decade ago.)
“PhillyRx - The World’s Cure-io-City.”
No keepers, right? This is why companies hold brainstorming sessions.
So loosen your brains a little; let’s see if we can’t produce a slogan that’ll help the region sell the world on the action that goes on at the pharmaceutical and biotechnology companies, medical schools, hospitals and research institutions around here.
As fragile as glass is, the “glass ceiling” has shown distressing durability since the term was coined in the mid-’80s.
Most surveys reflect the glacial pace of change for women attaining the upper ranks of management in the nation’s biggest corporations. Only 15 of the CEOs of the Fortune 500 are women.
But the picture is changing in the boardroom.
Directors & Boards magazine, published in Philadelphia, has been tracking appointments to boards of directors for 15 years. In the last two years, one-quarter of the new board members have been women, according to editor James Kristie.
And for the first quarter of 2009? Thirty-eight percent of new independent directors were women - the highest percentage the magazine’s quarterly survey has seen.
In fact, the annual average tended to be in the teens until the passage of the Sarbanes-Oxley corporate-governance law in 2002, according to Kristie.
That was when the stock exchanges began requiring their listed companies to add more independent directors. Is there any bigger pool of potential directors than women executives?
In the first three months of 2009, women were named to fill 38 of the 101 seats on the corporate boards tracked by Directors & Boards. Those companies range from huge (Microsoft Corp., which added Maria Klawe, president of Harvey Mudd College) to tiny (Met-Pro Corp., which tapped Judith Spires, president of Acme Markets Inc.).
Quotable
If we just look at the offer, we have the Treasury and the UAW forgiving $20 billion of debt and getting 89 percent of ownership, and the bondholders are forgiving $27 billion and getting 10 percent ownership. If anyone thinks that’s fair, they’re not a GM bondholder.
- Mark Modica, a business manager at a Saturn dealership in Chalfont and General Motors bondholder, during a Bloomberg Television interview about the terms of the U.S. government’s reorganization plan for the automaker.
A spokesman for Quigley Corp. said Thursday afternoon that shareholders had voted in favor of a "change in control" of the Doylestown maker of Cold-Eeze lozenges.
Carl Hymans, of G.S. Schwartz & Co., which provides investor relations services for Quigley, said the results of the voting from Wednesday's annual meeting were preliminary and still needed to be certified.
If the preliminary results hold up, it would mark the start of a significant shakeup for the small health-care company that's been trying to diversify beyond its cold remedies.
In April, New York investor Ted Karkus launched a proxy fight, seeking to replace all of Quigley's current board member. He sought shareholder votes for seven board nominees, including himself. One of those nominees is a local executive, Mark Frank, president of GSW Worldwide in Newtown, Bucks County.
Karkus, who owns 4.8 percent of Quigley shares, and the company's management have sparred in a press release duel, hoping to win shareholders votes.
Quigley has not been profitable for the last three years. In 2008, the company lost $5.5 million, or 43 cents per share, on net sales of $20.5 million. As of Dec. 31, it had 86 full-time employees with most of them at its manufacturing facilities in Elizabethtown and Lebanon, both in Pennsylvania.
Shares of Quigley closed Thursday at $6.50 per share, up 25 cents. Based on that closing price, its market capitalization was only $83.9 million.
In the world of Web-based software — think browsers, online maps, YouTube and Facebook — forgive the surprise at seeing the product of a Philadelphia nonprofit on a short list of exceptional examples that also includes cool stuff from Google and Microsoft.
That’s what The Reinvestment Fund, a neighborhood revitalization group, has managed with its wonkish PolicyMap.com.
The free service, with 10,000 registered users, creates maps that display block-by-block statistics on household incomes, foreclosures, employment and the like.
It’s a rich mess of details for research by students, real estate developers, government agencies and advocacy groups. The site has paying customers, too, such as Comcast Corp., the Federal Reserve and the MacArthur Foundation, which get access to extra data for their pricey subscriptions.
The year-old PolicyMap site won a place this week among the “Webware 100,” in a competition run by the tech-oriented CNET Web network owned by CBS Interactive Inc.
PolicyMap placed among top 10 “location-based services” with Google Maps, Google Earth and Microsoft’s Live Search Maps. It was the only winner in the category from a nonprofit company, and the only one from the East Coast, says TRF spokeswoman Margaret Berger Bradley.
Bidding war
Bio-Imaging Technologies Inc., of Newtown, which two weeks ago agreed to purchase North Carolina-based etrials Worldwide Inc. for $10 million, yesterday found itself in a bidding war for etrials.
An unsolicited third-party offer dropped onto the table to surprise both Bio-Imaging, which is changing its name to BioClinica, and etrials. The companies declined to name the new bidder.
So, yesterday, Bio-Imaging made a fresh offer — $14.4 million. That’s a 44 percent premium on the old bid.
Etrials CEO Denis Connaghan declared the transaction “on path” for a June closing. But, stay tuned.
Is swearing in the workplace a healthy way to blow off recessional anxiety? A study in Leadership and Organization Development Journal says so.
But a contrary survey released today says small business owners are one group that doesn’t appreciate a potty mouth in the office.
Only 11 percent of business owners in the survey by payroll service SurePayroll said profanity on the job constituted a morale booster.
Eighty percent cursed swearing as a downer and said it had nothing to do with the recession.
Many owners also look like hypocrites. Fourty percent admitted reverting, at least ocassionally, to their four-letter vocabs.
How do you market a region like Philadelphia that probably has lost more types of industry than most American cities can cultivate?
Sure, we lean a little heavy on the health-care and education sectors. But many regions count those institutions among their biggest employers. Slogans like “Phila-health-ia” or “City of Brainiacs” won’t cut it.
But the pharmaceutical industry has persisted and grown locally, and it’s a big reason why the region is identified with medical innovation.
A study released yesterday will give the economic development spin-sters new reasons to tout Philadelphia’s status in the life sciences. Researchers with the Milken Institute determined that the nation’s leading area for life sciences was, well, Boston. But Philadelphia was No. 2, ahead of San Francisco. (Here's a link to my story on Philly.com.)
Between 2003 and 2007, the number of people working in a 12-county Philadelphia cluster of pharmaceutical, biotech, medical-device and R&D institutions rose from 53,500 to 56,300. Only New York, with 68,062 jobs, had a bigger labor base among the 11 areas studied.
Many of those local employees work for “mature” drug companies, such as Merck, GlaxoSmithKline and Wyeth. They’re a source of strength because drug companies have big supply chains and engage in a wide range of activities, said Ross C. DeVol, Milken’s director of regional economics.
Those medicine mills also face challenges as Big Pharma consolidates, tiptoes along the “patent cliff,” and braces for changes to a health-care system we all know and dislike.
The study also points out a vulnerability: Philadelphia ranked ninth out of 11 metro areas in terms of the number and growth of life-sciences businesses under 20 workers.
Philip Hopkins, vice president of research for Select Greater Philadelphia, said his group and the seven other sponsors of the study wanted to know how the region had held up over the last four years. To him, the results validate their emphasis on marketing the region to attract new life-sciences employers.
I’m sure they’ll try to dazzle with the 114 pages of data, but wouldn’t it be great to have a catch-phrase?
The City of Brotherly Life Sciences? The Cradle of Medicine? Cure-adelphia?
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