Bill O’Reilly is a popular Fox News show host and author, but he is really nothing more than a fleetingly entertaining demagogue. Case in point is the following exchange between O’Reilly and Neil Cavuto, another Fox News host:

CAVUTO: Okay. Gas prices are down a lot. Why do you think that is?
OíREILLY: Because theyíre afraid theyíll go to jail. And those C.E.O.s who manipulated themñ
CAVUTO: Why are you sure that they manipulated them?
OíREILLY: I have guys that are inside the five major oil companies – my father used to work for one of those oil companies, by the way – who have told me that in those meetings they look for every way to jack up oil prices after Katrina, every way. When they didnít have to. And they got scared because in my reporting and some other reporting, they said ñ

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Following on this post from last week regarding this year’s compromise over the dubious Wright Amendment, this Fort Worth Star-Telegram article reports that American Airlines will move some of its planes to Love Field to compete with Southwest Airlines’ new flights to St. Louis and Kansas City. Those are the two new interstate destinations that can now be flown to out of Love Field as a result of this year’s modification of the Wright Amendment.
According to the article, American rationalizes the move by noting that many of its best customers in Dallas prefer Loveís closer-in location. But how many of those Highland Park-types are going to be going to Kansas City and St. Louis? I could understand American’s move if Love Field had been opened up to fly into New York or Los Angeles, but not St. Louis and Kansas City. This appears to be a money-losing move for the indirect purpose of keeping the Wright Amendment in place and, from my vantage point, that is the type of decision that has had American tailing Southwest financially over the past several years.
Update: Virginia Postrel, who has written extensively on the folly of the Wright Amendment, weighs in here.

Boston Scientific Corp made a bid to become the largest heart device maker in the U.S. by making a $25 billion competing offer for Guidant Corp yesterday in an attempt to derail a troubled lower-price agreement between Guidant and Johnson & Johnson (earlier posts on the J&J bid for Guidant are here).
Boston Scientific’s offer consists of $12.5 billion in cash and $12.5 billion in stock, values Guidant stock at $72 per share and would have Boston Scientific’s shareholders owning 65% of the combined company. That represents a premium of 14% over the J&J offer, which values Guidant at $63.43 a share. The theory behind the Boston Scientific proposal is that a combined Boston Scientific and Guidant would become the leading U.S. company specializing in cardiac rhythm management (“CRM”) equipment, which includes pacemakers and heart defibrillators that control rapid and potentially deadly heartbeats. In so doing, the Boston Scientific-Guidant alliance would attempt to become the primary company that doctors would look to for equipment and products to treat a wide range of cardiovascular ailments. Guidant’s board is expected to evaluate in the next day or two whether Boston Scientific’s proposal could lead to an offer superior to J&J’s, which includes a $625 million breakup fee that Boston Scientific would have to pay J&J if Guidant accepts the Boston Scientific bid.

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Sometimes it’s hard to keep up with all the muddled thinking that is passed off as keen economic insight in much of the mainstream media.
My thoughts along these lines started last week with this David Ignatius/Washington Post op-ed in which Ignatius extols the virtues of undertaking a “fundamental national mission, equivalent to President John F. Kennedyís call to put a man on the moon” to solve everything from General Motors’ current problems to dependence on foreign oil, Americansí high living, and the decline of manufacturing in America. Ignatius’ enthusiasm is fueled by Amory Lovins recent book, Winning the Oil Endgame: Innovation for Profits, Jobs and Security (RM Institute 2004), which calls for a big government plan of higher taxes and government subsidies to facilitate fundamental change in the materials used to build such big things as automobiles and buildings. Although Ignatius admits that he knows nothing about the financial viability of Lovins’ big plan, that doesn’t stop him from endorsing it enthusiastically:

I’m no technologist, so I can’t evaluate the technical details of Lovins’s proposal. What I like is that it’s big, bold and visionary. It would shake an America that is sitting on its duff as foreign competitors clobber our industrial giants, and it would send a new message: Get moving, start innovating, turn this ship around before it really hits the rocks.

Of course, Ignatius ignores the little detail of what happens if those carbon-fiber composite automobiles that are created as a result of the government money don’t sell all that well. I guess we’ll just have to work around that later.

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Two large private equity funds — Carlyle/Riverstone and Goldman Sachs Capital Partners — announced yesterday that they are investing $500 million in Cobalt International Energy LP, a new Houston-based exploration company comprised mainly of former Unocal Corp. executives. Former Unocal president Joe Bryant orchestrated the deal and will be the CEO of Cobalt. The Chronicle article on the deal is here.
Although the investment is relatively small by oil and gas industry standards, the investment reflects an increasing trend of private equity funding a proven management team in a promising industry. Given the relatively small capitalization, Cobalt will identify new prospects and then hedge its risk by laying off a substantial portion of its interest in the prospect to investment partners who will share the risk of capital-intensive drilling and completion activities on the prospects, particularly in regard to the deepwater prospects in the Gulf of Mexico that will be one of the company’s target areas.

Well, this year’s Congressional machinations over the Wright Amendment are over and the outcome is about as satisfying as one of those hard-fought football games that used to end in a tie before the era of overtime. Rather than simply repeal the damn thing, Congress decided in a transportation bill to lift only the Wright Amendment restrictions on Southwest Airlines flights out of Dallas’ Love Field to Missouri. Thus, north Texans will now be able to fly direct from Love Field to St. Louis and Kansas City.
This Ft. Worth Star Telegram article notes an expert’s estimate that the result of the modification of the Wright Amendment will be that American Airlines — which controls most of the D/FW Airport — will lose up to $115 million in revenue because of new competition, Southwest Airlines will pick up about $80 million and consumers — often overlooked in the debate over the Wright Amendment — will save about 25 percent on fares. So, not a bad result overall, particularly given that an outright repeal of the Wright Amendment is not politically feasible, at least as of yet.

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General Motors’ seemingly intractable descent into chapter 11 has been a common subject here, so I took notice of this Sean Gregory/Time magazine article that explores the following question: why are the U.S. manufacturing plants of foreign automakers thriving while GM is shuttering nine of its plants?:

According to the Center for Automotive Research (CAR), the number of manufacturing jobs created by foreign-based automakers in the U.S. has risen 72% since 1993, to about 60,000. (The Big Three currently account for around 240,000 manufacturing jobs in the U.S., down from 340,000 in 1993.) The Asian companies have grown the fastest. Toyota, which plans to overtake GM soon as the world’s largest automaker, has 11 U.S. plants and expects to open a truck factory in San Antonio, Texas, in 2006. European brands, including BMW and Mercedes-Benz, are also growing. CAR estimates that foreign automakers operating in the U.S. add 1.8 million jobs to the American economy, including white-collar, dealership and supplier positions–from partsmakers to the bartenders at post-whistle watering holes.

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Carl Icahn has provided this blog with some interesting fodder for posts over the past couple of years, and it looks as if the hedge fund investor is primed to do it again with his announcement yesterday that he intends to field a slate of directors to seek a majority on Time-Warner‘s 14-member board while hiring Bruce Wasserstein and Lazard Ltd. to help him win the proxy fight.
Icahn and a group of supportive investors have accumulated nearly 3% of the $85 billion media company in recent months amidst a publicity campaign that has highlighted the mistakes of current Time Warner management, including selling Warner Music Group and a big stake in the Comedy Central cable channel at what Icahn called “fire sale prices” and failing to remove the directors who approved Time Warner’s disastrous merger with America Online in 2001. Ironically, Wasserstein lobbied to be named an adviser to the old Time Warner after the company hatched its ill-fated $140 billion deal with America Online Inc. in 2000.
The relationship between Icahn — who usually acts on his own — and Wasserstein and Lazard reflects the changing dynamics of such big deals, where hedge fund activists such as Icahn are taking increasingly aggressvie positions in public companies and investment banks are being attracted to serve the hedge fund’s interests as opposed to the traditional role of advising the target company. Keep an eye on this battle as Icahn’s activism will force Time Warner’s management to provide a clear vision for the company’s future, which is never a bad thing for investors.

This Reuters/NY Times article reports that Peter Cartwright, the 75-year-old founder and chief executive of Calpine Corp., and Robert Kelly, the company’s CFO, resigned under pressure from the Calpine board amidst widespread speculation that the company is going to commence a corporate reorganization under chapter 11 a week after an adverse Delaware court ruling restricted the company’s ability to use cash from some of its asset sales. Calpine stock — which traded as high as $56 a share in 2001 — was down 71 cents to 54 cents a share as of the close of New York Stock Exchange composite trading yesterday.
Mr. Cartwright’s departure is widely viewed as the end of his goal to create a massive national power wholesaler in deregulated markets that could sell electricity without being limited to serving a specific territory or utility. Cartwright began the strategy in the mid-1990s and racked up $17 billion in debt as the company built a huge fleet of gas-fired plants in an effort to become the biggest power generator to wholesale power markets that had been deregulated and utilities that were leaving plant development to others. However, the company’s strategy has been under pressure over the past several years from increasing natural-gas prices (which ratchet up the fuel cost of the company’s power plants) and lackluster profit margins on the sale of wholesale electricity. That set the stage for the company’s sale of assets and the shut-down of money-losing power plants, which in turn led to last week’s adverse court decision. That decision concluded that Calpine had improperly spent $313 million on fuel for its power plants that came from $852 million in proceeds from the sale of assets that were collateral for corporate notes.
Interestingly, a few years back, with Calpine’s stock trading around $40 a share, Cartwright refused to have the company sell shares to raise capital because he did not want the dilution that would result from the stock issues. So instead, he took on the $17 billion in debt. Now, natural gas prices have tripled, Calpine has lost almost $700 million so far this year, the company can’t pay interest on its debt, bankruptcy looms, Cartwright is gone and the stock is at 20 cents.
What was that about not wanting dilution?

The Wall Street Journal’s Holman Jenkins has this clever column ($) today in the form of a fictional letter from Toyota to owners of its popular hybrid vehicle, the Prius. The main point of Jenkins’ column is that hybrid technology is not really “green” technology at all. Rather, it’s really just an expensive option that generates large markups for Toyota and its dealers. In so doing, Jenkins notes the following about the notion that a hybrid’s supposed fuel efficiency makes up for its higher cost:

Let us assure you that the Prius remains one of the most fuel-efficient cars on the road. Toyota applauds your willingness to spend $9,500 over the price of any comparable vehicle for the privilege of saving, at current gasoline prices, approximately $580 a year.
And should the price of gasoline rise to $5, after 10 years and/or 130,000 miles of driving, you might even come close to breaking even on your investment in hybrid technology.