Marketplace - American Public Media

Who is Carl Icahn and what does he do?

Thu, 2014-10-09 11:21

If you follow business news, you've probably heard about "activist investor Carl Icahn."

He pushed Family Dollar to sell itself. (Eventually it did.) He pushed eBay to spin off PayPal. (Eventually it did.) And now he's pushing Apple to buy back more of its stock. (So far, it hasn't.)

But who is Carl Icahn? 

He's a 78-year-old man worth $23 billion, whose favorite sport seems to be arguing with CEOs. 

"Activism in general draws a person who does not shy away from the limelight or shy away from a fight," says Scott Galloway, professor of marketing at NYU's Stern School of Business.  

Icahn has been fighting for decades. 

"Oh, gee, he goes way back," says Donald Margotta, associate professor of finance at Northeastern University. 

In the 1980s, Icahn was known not as an activist, but as a corporate raider, using debt to acquire companies, often to break them up. 

"The corporate raiders were a little bit different [than today's activist investors] in that usually their objective was to acquire the company," says Margotta. "Whereas now people don’t really want to acquire the company, although they do want to break it up."

Instead of acquiring entire companies, today's activist investors acquire large portions, and then leverage that portion through the media. 

"Since activist investors are only taking an ownership position and a portion of the company they also are reliant on other stockholders to have their viewpoint," says Don Steinbrugge, managing partner of hedge-fund consultant Agecroft Partners. "The more media attention they can get the more they can educate the other stockholders in what their position is."

The position could be to buy back stock, to split up the company, to seek an acquisition or a number of other strategies, but the underlying plan is to rally shareholders to force the CEOs hand, and then profit off any resulting increase in the stock price.

But for Icahn it seems to be about more than making money. He seems to want to set things right — as he sees it.

"He basically believes that corporate managers are, by and large, inept and self-serving," Margotta says. 

Apple CEO Tim Cook may be the exception. In his open letter, Icahn called Cook "the ideal CEO" and insisted "this letter is in no way intended as a criticism of you as CEO, nor is it intended to be critical of anything you or your team are doing from an operational perspective at Apple."

Except for that share buyback thing, of course.

Ben Bernanke used an alias during the financial crisis

Thu, 2014-10-09 11:00

What's in a name? A lot, apparently, if you happen to be one of the most powerful men in money.

Back during the financial crisis, then-Chairman of the Federal Reserve Ben Bernanke used an alias while planning the rescue of the global economy. Evidence in the AIG lawsuit introduced Thursday revealed Bernanke emailed with colleagues and others using the name "Edward Quince."

According to the Wall Street Journal, it's still unclear where Bernanke got his pseudonym, or why it was even used.

Everything is branding: Four more weird partnerships

Thu, 2014-10-09 10:44

Lego announced Thursday it will cut ties with oil giant Royal Dutch Shell today following pressure from Greenpeace, which released a viral video and gathered signatures to protest the partnership. Shell-branded Legos aren't as common as "Star Wars" or superhero themed kits, but the agreement dates back decades and it's reportedly worth at least $110 million.

Inspired by those strange bedfellows, we found a few more examples of corporate incongruity.

McDonald's and Play-Doh

Thanks to brand licensing, children can pretend to do chores with their own Dyson vacuum or Home Depot leaf blower, and plenty of other toys. But fewer products let kids turn processed, salty, artificially colored goop into McDonald's food.

The discontinued Play-Doh McDonald's Restaurant playset molded fries, burgers and milkshakes, using plenty of the best Play-Doh color: brown.

For what it's worth, McDonald's has a partnership with Lego too; the company produced Happy Meal toys and a miniature restaurant.

Electronic Arts Games and various weapon manufacturers

A screenshot of the \"Medal of Honor\" website, via Eurogamer.

Blockbuster video games trade on their realism: in settings, character models, physics, anything. That's especially true for war-related titles, some of which depict weapons and equipment specifically modeled after commercial firearms and real military gear.

Electronic Arts took the idea a step further in promoting "Medal of Honor: Warfighter" in 2012. The game's website featured links to buy the real-world weapons and equipment included in the game. One developer blogged about using the advertised gear. A knife company sold a "Medal of Honor"-branded tomahawk, with proceeds going to EA's program to aid the Navy SEAL Foundation and the Special Operations Warrior Foundation.

Critics bashed EA for advertising and licensing weapons, and the company rolled back the promotion. EA claimed none of their marketing partners paid for product placement, but were merely trying to give back to service members.

Susan G. Komen and KFC

We've told you about oilfield services company Baker Hughes making pink drill bits for Breast Cancer Awareness Month. Not quite as strange, but certainly more ironic: KFC's 2010 "Buckets for the Cure" campaign.

The fast food chain donated 50 cents of each pink bucket sold to Susan G. Komen for the Cure, and raised $2 million in the first week. But the idea of selling fried food to fight cancer was criticized by activists and roundly mocked. ABC called the effort "Eat a Breast to Save a Breast," and Stephen Colbert described it as "hypo-crispy."

'The Sims' and various record labels

The life simulation video game series "The Sims" theoretically offers limitless possibilities for product placement, but EA — the company of the branded weapons for charity — have kept the games marketing partnerships both restrained and deeply strange. Sims can wear clothes by H&M and Diesel, sure, but far weirder is the "Sims 3: Katy Perry's Sweet Treats."

The expansion pack adds outfits, decorations and locations inspired by Perry's album "Teenage Dream," and Perry recorded a version of her song "Last Friday Night (T.G.I.F)" in the game's made-up Simlish language.

Perry isn't the only artist to rerecord a song for "The Sims" either. High-profile acts like Matt & Kim, My Chemical Romance, Soulja Boy, Depeche Mode and many more have had songs "translated."

The boom-and-bust story of a crop called guar

Thu, 2014-10-09 10:14

A little-known plant that has been an ingredient in foods for decades has taken on outsize importance in the fracking world over the past few years - and it has created huge swings in its commodity price and in the fortunes of farmers. 

Ever since the 1950s, the guar plant has been the source of the guar gum additive the food industry uses to thicken foods or keep various ingredients smoothly mixed together. It’s in everything from frozen pizza to ice cream, egg white substitutes and baked goods.

“Guar is what we call an emulsifier,” says Calvin Trostle, a professor of agriculture at Texas A&M and a guar expert.  “Guar is somewhat like a soybean plant. It has pods up and down the main stem."

Guar gum is not only a common food additive, but also an important ingredient in the fracking process (the hydraulic fracturing of underground rock to release oil and gas deposits). 

Crop specialist Calvin Trostle, Texas A&M University, adjust branches on a guar plant that contain maturing seed pods.

Courtesy of Calvin Trostle

In the last 40 years, multiple companies including Halliburton, Baker Hughes, FTS International and others have tried to create a synthetic substitute for guar gum, but they’ve failed to develop anything as effective for hydraulic fracturing, according to Trostle. 

With guar gum as its only option, the  industry has demanded more and more of the stuff. 

“The demand for guar exploded, literally mulitiplied by five, ten times, caught the suppliers’ side by surprise, and basically created a drastic shortage,” says Dennis Seisun, a guar market analyst and the publisher of The Quarterly Review of Food Hydrocolloids. (Hydrocolloids are substances that form a gel when mixed with water.)

As fracking and the demand for guar boomed, so did the price of the commodity, 98 percent of which comes from India and Pakistan. A couple of years ago, the price peaked at about 35 times what the cost of the plant product was just a few years earlier. 

Seisun, who regularly visits India and the region where guar is produced, says that’s been an economic boon for farmers there. There is now a futures market set up for guar, and farmers are able to hold back part of their crop yield to wait for a better price. 

Some farmers in the U.S. wanted to get into the guar business, too. 

“Last year, it was kind of like a revolution,” says Curtis Erickson, a north Texas farmer who was one of many spurred to plant guar because of its exploding price. “We knew we could plant it and farm it and make money at the end of the day. And we were very excited.”

Texas farmers grew about $20 million worth of the plant, based on what a Texas-based raw guar processor had contracted to pay them. The processor was the only one in the U.S. that could handle raw guar. 

But as demand soared, India and Pakistan guar suppliers managed to catch up with increased supply. And oil companies, which were paying high prices, stopped hoarding guar. 

The price plummeted. 

The Texas-based guar processor, which had promised the farmers a set price for their guar, could not pay. And the farmers are now stuck with a crop they can’t reclaim, and which they couldn’t sell anywhere else in the U.S. even if it was returned to them. 

“There’s a lot of farmers that I’m aware of that borrowed money last year to farm the guar on,” Erickson says “And since they didn’t get paid back, they in turn couldn’t pay their banks back.”

“And then the bank will come looking to collect somehow,” Erickson says. 

The farmers have taken their case to court, and the Texas guar plant is now bankrupt. 

While the price of guar has declined, it’s still about three times higher than it used to be. But since the U.S. historically has had little to no supply chain for processing raw guar, Seisun says India and Pakistan will remain the major suppliers. 

“Competing with costs of production in low-cost areas like India and Pakistan have always presented a problem. And I don’t see that source of supply is going to be very different in the near future,” Seisun says. 

Meanwhile a few Texas farmers, including Erickson, have planted a small quantity of guar again this year. Erickson says he wants to be ready, in case the guar market in the U.S. bounces back. 

The numbers for October 9, 2014

Thu, 2014-10-09 07:47

The same hackers who stole contact information from 83 million JPMorgan Chase account holders last month also targeted a dozen more financial institutions. The Obama administration has been getting briefings on the breach since this summer, the New York Times reported, and national security officials and banks have been conferring over several IP addresses attributed to the attackers.

ETrade, Fidelity, ADP, Bank of the West, HSBC, Citigroup and Regions Financial are some of the institutions targeted by the addresses. The government is reportedly troubled by the lack of an apparent motivation for the hacks.

As we look out for more breaches, here's what we're reading — and numbers we're watching — Thursday.

4206

The number of words in activist investor Carl Icahn's open letter to Apple CEO Tim Cook. In short: Icahn praises Cook and several new products but (still) believes the company is undervalued and wants it to buy back more stock. Apple stock should be trading at $203, Icahn wrote, double its current value. So far, the letter has helped: at about noon eastern time shares were up 1 percent.

$16,353

The average pay gap between Hispanic and non-Hispanic employees in the high-tech sector, USA Today reported. Similarly, blacks and Asians in the industry earn $3,656 and $8,146 less than whites, respectively. 

1 million

How many signatures Greenpeace nabbed in a petition for Lego to end its long-standing promotional agreement with oil company Royal Dutch Shell. Lego bowed to pressure from Greenpeace — which also made a viral video showing a cute Lego arctic community ravaged by oil — and agreed not to renew the partnership, the Wall Street Journal reported.

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