Houston-based Lyondell Chemical Co. on Monday announced that it is acquiring Hunt Valley, Maryland-based Millennium Chemicals in a $1 billion all-stock deal that includes assumption of $1.3 billion in debt. The transaction will make Lyondell the third-largest publicly traded U.S. chemical production company.
The deal combines two struggling commodity chemical producers that have combined revenue of over $11 billion. The theory behind the deal is that the larger company is necessary to compete in the increasingly difficult chemicals industry. High prices of natural gas — which producers use as a key raw material — have rocked the chemicals industry at the same time as it has been dealing with the dual problems of overcapacity and large debt acquired during the better days of the 1990’s. Although the industry has rebounded moderately, the consensus is that the industry will not return to the glory days of the mid-1990s anytime soon.
Lyondell reported a loss of $302 million last year while Millennium had a net loss of $184 million, and Lyondell expects the deal to save the combined company $50 million. The combined company will keep the Lyondell name, maintain its headquarters in Houston, and employ about 10,000 people world-wide. Lyondell Chief Executive and President Dan F. Smith will keep that role in the combined company, while William T. Butler will remain chairman.

To those who know about his business affairs, Donald Trump has always been more successful as a self-promoter than as a businessman, particularly for those who invest in his projects. This NY Times article reports on the ongoing negotiations between Mr. Trump and the bondholders on his lagging Atlantic City casino properties. Unless Mr. Trump gives up control of the properties, it appears that they are headed for bankruptcy, which would almost assure that Mr. Trump would lose control.

Things have not been going well lately for Houston-based El Paso Corp., as noted earlier here, here and here. Accordingly, yesterday’s announcement that the U.S. Securities and Exchange Commission has launched an investigation into El Paso’s downward restatement in natural gas reserves earlier this year comes as no surprise.
El Paso’s share price has slumped 23 percent since the company last month slashed its proven natural gas reserves by 41% and announced that a financial restatement going back to 2001 was likely. El Paso has already taken a $1 billion write-down with the possibility of an additional $1.5 billion looming. The audit committee of the company’s board has launched an investigation by an outside law firm into the reserves cutback, and the outside investigation prompted El Paso two weeks ago to delay indefinitely the release of its fourth quarter results and annual report.

Royal/Dutch Shell finally was able to enjoy some good news yesterday with this announcement of a breakthrough deal with Libya’s state oil company to explore for oil and natural gas that could give Shell access to as much as $1 billion worth of oil and gas in North Africa. The deal establishes guidelines for oil and gas exploration projects, including onshore exploration and the export of liquefied natural gas. It was the first time in 30 years that Shell had been invited to operate in Libya.
Libya, which is a member of the Organization of the Petroleum Exporting Countries, has production capacity of about 1.6 million barrels a day. However, Libya’s reserve potential is far larger. Those reserves have been largely untapped because Libya’s infrastructure suffered from a chronic lack of investment over the past decade after economic sanctions were imposed in 1992 as a result of the Libya’s role in the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland.

When it blew up in late 2001, Enron was paying Arthur Andersen at a rate of about $1 million per week for various professional services, including audit services. Although the final chapter is yet to be written, a good case can currently be made that one of the primary reasons for the demise of Andersen in the wake of the Enron scandal was the firm’s compromising of its auditing integrity for the benefit of Enron as a key customer of Andersen’s other professional services.
Now, this interesting CFO Magazine story relates how the California Public Employees’ Retirement System (Calpers) is opposing Freddie Mac’s reappointment of auditor PricewaterhouseCoopers because the company has used PwC for non-audit services. This is a result of a new Calpers policy of withholding votes from audit committee members at companies that allow auditors to perform non-audit work.
The pension fund is also withholding its votes from director Michelle Engler, wife of former Michigan governor John Engler. The former Governor Engler is an executive at Electronic Data Systems Corp., which is a large vendor of Freddie Mac. The pension fund asserts that this business relationship between Freddie Mac and EDS could impair Mrs. Engler’s objectivity.
In the small world department, I hired Mrs. Engler in her first job as an attorney out of law school when I was running a downtown Houston law firm back in the 1980’s. Michelle was a fine lawyer and is a great person, and Calpers would be well-advised to adopt a more flexible position to keep conscientious and bright people such as Michelle on the boards of companies in which Calpers invests. Knowing Michelle, she would recuse herself from any action that the Freddie Mac board might take in regard to EDS, anyway.
Thanks to the BusinessPundit for the link to this article.

In my view, Floyd Norris is the best business writer for the NY Times. Today, Mr. Norris has this column in which he analyzes the dilemma confronting anti-trust regulators in dealing with Microsoft’s bundling policies. Mr. Norris notes:

For antitrust regulators, the heart of the problem is the changing nature of the personal computer market. Consumers do want new features, as Microsoft says, and they do want them bundled in. Any nonexpert who has ever tried to download and install a program would much rather have it done by someone else.
But Microsoft’s pattern has been to wait for others to pioneer a computer application and then to put out its own program. If that program is eventually bundled as part of the operating system in all new Windows computers, the first arrival screams foul, but in the end Microsoft wins.
Netscape pioneered Internet browsers but was left in the dust. RealNetworks, which led the way in music software, could face a similar fate. It is not easy to make money off a product that consumers must install themselves when the consumers already own Microsoft’s version, which comes already installed.

In short, the issue is between simplicity and innovation. The public demands simplicity, which Microsoft provides for a generally reasonable price. But in doing so, Microsoft may deter innovation through its policy of bundling every concept into Windows and then, might we say gently, throttling threats to its dominant position.
Microsoft and others are pursuing the market for the “Multimedia PC” that integrates television, DVD player, stereo system, and other entertainment equipment. Microsoft is huge, so it’s obviously a serious player in this competition. But proper application of antitrust law should neither prejudice Microsoft’s development of the technology nor allow Microsoft to undermine its competitors, as it has shown that it is willing to do. Striking the right balance in that application is a formidable challenge.
Mr. Norris also makes another interesting observation:

. . . the risk is that Microsoft is becoming the functional equivalent of an old-style utility, with extensive government regulation that could even extend into determining what products it sells and at what prices.
There are worse fates than running a regulated monopoly. But such stocks are not the type that appeal to traditional technology investors, and the prospect of such an outcome may be one thing that has been weighing on Microsoft’s share price, which has underperformed the market badly over the last 18 months.

Thanks to The Sports Economist for the link to Mr. Norris’ article.

This NY Times article details the troubled development of Walt Disney Company‘s new movie, “The Alamo.”
Although not mentioned in this article, I believe that the movie is based on the Stephen Harrigan’s 2001 historical novel, “Gates of the Alamo,” which is an enjoyable read. However, the best book on the Battle of the Alamo in the context of the Texas Revolution is “Texian Iliad,” a 1996 masterpiece written by Stephen L. Hardin, a professor of history at Victoria College in southeast Texas.

The Chronicle leads with this Reuters News Service story today that Royal/Dutch Shell may face a Justice Department criminal investigation in connection with its oil and gas reserve writedowns over the past two months.
The Chronicle does not exactly have a scoop on this story. The Justice Department announced that it had opened inquiry on the matter on March 16.

Welsh, Carson, Anderson & Stowe, a New York-based leveraged buyout firm, announced Monday that it will pay $1.7 billion to acquire and take private Houston-based U.S. Oncology, a publicly-owned manager of cancer treatment centers across the country. U.S. Oncology treats approximately 15 percent of newly diagnosed cancer patients each year through a network of 875 physicians in 32 states.

This Chronicle article reports on the annual Forbes Top 500 business list..