Say Goodbye and Good Riddance to 2008…

From WSJ 12/28/2009

It was a year when the most dire financial predictions finally came true.

After years when the housing bubble inflated, American credit-card debt soared and global stock markets set record highs, everything was brought back to earth in 2008.

The Dow Jones Industrial Average, off 36% year to date, is on pace for its worst return in 77 years. European stocks have done even worse, and once-high-flying emerging markets lost nearly half their value over one four-month period this year.

That left panicky investors with few secure options, other than retreating to the safety of U.S. government debt, where one-month notes sold in December yielded essentially nothing. Also this month, the National Bureau of Economic Research declared what many business executives and consumers already felt intuitively: The U.S. is mired in a recession, which the NBER says began in December 2007.

Over the Brink

Has there ever been a year when so many once blue-chip financial companies were pushed to the brink, and in some cases over it?

Shortly after Labor Day, the federal government seized mortgage giants Fannie Mae and Freddie Mac, sticking the American taxpayer with billions of dollars in losses from bad home loans.

The 158-year-old brokerage firm Lehman Brothers Holdings received no such help when it couldn't raise cash, and was forced to file for bankruptcy protection. Insurance giant American International Group narrowly avoided the same fate by agreeing to hand over control in exchange for an $85 billion loan from Washington.

While AIG survived to live another day (and borrow even more taxpayer money), the net effect of these meltdowns was to cause the credit markets to freeze up further, preventing businesses across the country from borrowing money to meet even basic operating needs, like payroll.

Economists now fear that financial-industry disasters could splash across the industrial sector. Already, the auto industry has required government loans to stay afloat. These loans can be recalled if General Motors and Chrysler don't demonstrate by March 31 that they are financially viable.

Several forecasters are now suggesting the U.S. is in the midst of the worst economic downturn since the Great Depression. But even if the overall prognosis is for more belt-tightening, job losses and bankruptcies, there's at least some reason for hope buried underneath much of the obvious gloom.

Start with the U.S. economy. In November, the U.S. lost more than half a million jobs -- the largest one-month drop since 1974, which brought total job losses this year to nearly two million.

Economists say with near certainty that the U.S. is in the most protracted recession since the end of World War II. The country also faces the worst housing market in generations. One out of every 10 mortgage holders is in arrears or has had his or her home repossessed.

Washington Rescue

Don't expect the Federal Reserve to ride to the rescue by cutting interest rates, as it did during the emerging-market crises in the late 1990s and earlier this decade. With the Fed's target interest rate between zero and a quarter percentage point, it can hardly do much more.

So whatever help Washington can bring will likely be on the fiscal side, through more spending or tax relief. President-elect Obama has pledged a $1 trillion stimulus package. To put it in perspective, that sum would exceed, in inflation-adjusted dollars, government spending on the New Deal, the savings-and-loan crisis and the Marshall Plan combined, according to Bianco Research.

Questions abound about how effective Mr. Obama's strategy will be in reviving the economy.

But there is already popular sentiment that the new president's plan to jump-start growth by rebuilding crumbling bridges and roads, extending the nation's broadband reach and increasing energy efficiency could have positive long-term effects, even if these projects don't shorten the recession. At least, more so than modest tax-refund checks sent earlier this year.

If there's been any obvious benefit to the economic slowdown, it has been the collapse in the price of oil, which has made filling up the gas tank less painful and even led some airlines to recently cut their fuel surcharges.

Oil bulls saw triple-digit prices as here to stay, arguing that demand from the expanding middle class in China and India alone would maintain price pressure. A Goldman Sachs analyst famously predicted $200-a-barrel oil. Crude peaked at $147 a barrel in July. Now even OPEC output cuts can't seem to stem the price declines.

Other commodities, like copper and grain, have also fallen hard, victims of a global recession that economists now believe will envelop even the fast-growing economies of the developing world.

The downside? Low fuel costs will likely blunt any sense of urgency to develop alternative energy sources, and many analysts see oil prices shooting back up as the world economy grows again.

No Quick Rebound

Most equity strategists don't foresee a powerful rebound in the stock market in 2009. But for investors with a longer-term horizon of a decade or more, there's unusual agreement -- ranging from legendary investor Warren Buffett to perpetual bears like Jeremy Grantham, chairman of money-management firm GMO -- that stocks look attractively priced and now is a good time to buy.

U.S. investors have shown an even greater aversion in recent months to foreign stocks: Mutual funds that invest overseas suffered their worst outflows in more than a decade in October, reversing record inflows from previous years. Even so, returns for emerging markets are expected to surpass those in the U.S. over the next couple of decades, making them solid candidates for long-term holdings.

For weeks, the U.S. dollar shrugged off the financial crisis and rebounded powerfully against the euro and many emerging-market currencies. It turns out traders still look to the dollar in crisis periods, even ones of America's own making, especially at a time when the rest of the world looks troubled, too.

A stronger dollar has a wide range of implications for financial markets, from making foreign stock and bond returns lower when translated into dollars to boosting American purchasing power of foreign goods.

Borrowing Hurts Dollar

But the dollar's sudden strength is now being put to the test. Washington's stepped-up borrowing spree and rock-bottom U.S. interest rates, which give investors little incentive to hold dollar securities, have led to a recent selloff.

Much of the stimulus package will be financed by Treasury debt sold to foreign investors. With economic growth slowing dramatically in China -- which in September became the largest holder of U.S. Treasurys, with securities valued at $585 billion -- will there be enough foreign demand for U.S. government debt? If not, the dollar could continue its tailspin just as other U.S. assets start to stabilize.

How Private Equity Strangled Mervyns

Cerberus, Sun Capital, and Lubert-Adler stripped the 59-year-old retailer of its assets and threw 30,000 people out of work

Business Week Article - By Emily Thornton

On the morning of Oct. 23, Mervin G. Morris went to the Hayward (Calif.) headquarters of Mervyns department stores one last time. As the retail chain's founder walked into the rust-colored concrete building, scores of shell-shocked employees were shuffling out with boxes full of their personal effects. Dozens rushed up to tell Morris, 88, how much they had enjoyed working at Mervyns. One woman told him she had been there 42 years. "It was a horrible scene," he says. As Morris walked past a lunch room, some 70 workers rose to give him a standing ovation. He later walked out in tears.

The grief is understandable. Mervyns, the chain that Morris founded six decades ago with $25,000 and two employees, is about to disappear. Its 149 remaining stores are being liquidated. More than 18,000 people have been thrown out of work—without severance and, in many cases, weeks of vacation pay—amid the toughest job market in a generation.
It didn't have to be this way. Mervyns, a midrange seller of apparel, housewares, and other department-store fare, might have weathered the economic storm that's battering so many of its rivals. Much of the blame for its demise lies with three private equity titans: Cerberus Capital Management, Sun Capital Partners, and Lubert-Adler.

When those firms bought Mervyns from Target for $1.2 billion in 2004, they promised to revive the limping West Coast retailer. Then they stripped it of real estate assets, nearly doubled its rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves, according to the company. The moves left Mervyns so weak it couldn't survive.
Mervyns' collapse reveals dangerous flaws in the private equity playbook. It shows how investors with risky business plans, unrealistic financial assumptions, and competing agendas can deliver a death blow to companies that otherwise could have survived. And it offers a glimpse into the human suffering wrought by owners looking to turn a quick profit above all else.

BUYOUT SHOPS GONE WILD

Private equity firms buy companies with the goal of improving them and then selling them for a profit. To pay for their deals, they often take on debt, hence the term leveraged buyout. In recent years the buyout shops went wild, taking advantage of unusually low interest rates and easy borrowing terms. At their peak in 2006 they acquired 667 companies worth $372 billion. But debt levels soared: From 2005 through the third quarter of 2008, private equity firms loaded a staggering $741 billion of debt onto their companies' balance sheets, according to Standard & Poor's/LCD Group, which, like BusinessWeek, is owned by The McGraw-Hill Companies.

When the credit crunch hit, lenders pulled back and dealmaking ground to a halt. Debt-heavy companies were left unable to refinance just as the economy was slowing. The optimism and confidence of the buyout boom gave way to fear—and massive layoffs.

What's happening at Mervyns is happening elsewhere at an alarming rate. While private equity firms control just a tiny fraction of U.S. corporations, their companies are disproportionately troubled. Of the 105 big U.S. companies that have filed for bankruptcy this year, 66 have been owned by buyout shops or been spun off by them, according to Capital IQ, another unit of McGraw-Hill. Investors, meanwhile, remain skeptical of many of the recent buyouts that haven't yet blown up but soon could. Loans made for those deals are now trading for as little as 33 cents on the dollar.

Mervyns, to be sure, had been in decline for years. Founded by Morris in San Lorenzo, Calif., in 1949, the company grew over the next several decades into a midsize chain with more than 50 stores in three states. In 1978, Morris sold the company to Dayton Hudson (now Target) for $300 million. Retail analysts say Dayton neglected the brand as it focused on building the Target franchise (funded, in part, by Mervyns' earnings). Over time it opened fewer new Mervyns stores; existing ones took on a shabby look. By the time Target sold the chain in August 2004, the company, with 257 stores and some 30,000 employees, appeared ripe for improvement. "At first, there was total excitement," says Kathi Finley, a former information systems specialist and 34-year veteran laid off in October. "It was like, 'Yahoo! We're on our own!' "  But while the buyout firms wanted to fix up Mervyns, an obsession with real estate got in the way. Mervyns' new owners were eager to turn the company's real estate into gold. When the acquisition closed, they split the company into two main pieces—the retail operation and a much more valuable entity that held the real estate. Over time the owners would shut down 90 underperforming stores and close two of its four distribution centers in order to sell some of the land they owned. They also sold the decades-old property leases on many other stores to outside companies—and then turned around and rented the property back at current market rates. The owners kept the proceeds from the land and lease sales for themselves.  But the real estate strategy had a glitch: According to court documents, the rent payments to the new landlords were practically double what the old payments were, since many of the original leases had been negotiated back in the 1980s. To prevent big losses, Mervyns' new owners had to cut other costs—drastically.

"WE CAN'T EVEN HAVE WATER?"

Slashing expenses, it seems, was always baked into the plan. Soon after Mervyns' new owners took control, they laid off scores of people at company headquarters. They canceled some charity efforts and training programs and outsourced some human resources and marketing services. Even though sales were solid, the owners told managers to clamp down on spending for supplies, and they downsized the annual Christmas party. At headquarters, they took away water coolers. For recently laid-off employee Cindy Fajardo, that was a signal of doom: "People thought, 'we can't even have water?' "

It appeared to some outsiders that the real estate plan, rather than a desire to revive the brand, was driving the restructuring. One executive approached by Cerberus to run Mervyns says he declined the job because the buyout firms seemed "more focused on closing the first 50 to 75 stores than anything else."

But former J.C. Penney executive Vanessa Castagna, recruited to be Mervyns' first chief after the buyout and given an equity stake, believed the owners wanted to turn Mervyns around. She was comfortable with the real estate strategy. "The owners," she says, "wanted to maximize the value of the transaction and to monetize the real estate value."

Early on, there were some positive signs. Even amid the closures, Mervyns opened 11 stores in Hispanic neighborhoods to tap what it saw as an underserved market. It invested $200 million in a new information technology system—a necessity to separate the chain from Target's system—and held a barbecue in its headquarters' parking lot to celebrate the launch. Morris, who kept close ties at the company over the years, made an appearance at the event.

But Mervyns' operating income slipped right away, from $160 million in 2003 (the last full year of results at Target) to around $100 million in 2005 and the same in 2006. During those years, the private equity firms took a total of $137 million in "distributions" directly from company coffers, according to people familiar with the finances.

The higher lease costs and distribution fees came back to bite. As the California economy softened, Castagna found it more difficult to maneuver financially. She says she tried to persuade the owners to renegotiate lease payments but was told "those were the going market rates." In February 2007, when her two-year contract ended, Castagna left. Now she's a director at Levi Strauss.

Mervyns' owners replaced Castagna with Richard B. Leto, a former Kohl's executive who had been brought in as Mervyns' president after the buyout. Leto says he promptly advised his bosses to sell the chain to another retailer. "Because of the age of the company, the age of our stores, and the condition of our physical plants [as well as] the intrusion in the West by Kohl's and Penney's," Leto says, "I felt the best thing to do, given the appropriate opportunity, was to sell the business."

But the owners were rarely on the same page, many insiders say. The messy structure of their deal created competing agendas from the start. Cerberus, the $27 billion private equity behemoth that owns Chrysler and many other corporations, had equal stakes in both the Mervyns chain and the separate real estate company. Lubert-Adler, a Philadelphia firm specializing in real estate, had a larger stake in the real estate entity. Sun Capital, a $10 billion owner of 90 companies, held a bigger stake in Mervyns' department store operation. "I could never figure out how they planned on running the company when there was this natural fight built into the structure," says a former Mervyns executive. "And the answer is, it didn't work very well."

In late 2007, having soured on the prospect of further profits, Cerberus sold its stake to Sun, which assumed majority control. Sun in turn promised to buy out Lubert-Adler, too, for an additional $20 million.

Mervyns' 2006 profit turned into a $64 million loss for 2007 as sales fell by 7.4%. Leto says Sun executives fired him shortly before Christmas. He was replaced on an interim basis by Vice-President Chuck Kurth. Then, in March 2008, Sun brought in the fourth CEO in 12 months: John Goodman, a highly regarded former president of the Dockers brand at Levi Strauss.
Just weeks into the job, Goodman found himself in crisis. Mervyns relied heavily on CIT Group, the big corporate lender, to guarantee transactions with vendors. By March, CIT grew so worried about Mervyns' creditworthiness that it started cutting back on new deals. That sparked fears among other creditors and vendors that Mervyns couldn't pay its bills. Suppliers began refusing to ship merchandise unless Mervyns agreed to tougher payment terms. Stores posted signs announcing they didn't have advertised merchandise. Out of desperation, Goodman started circulating Mervyns' balance sheet to vendors and some of his own managers to show that the retailer had ample financing. "That scared me even more," says former Mervyns manager Yasmin Zialcita.

Sun, meanwhile, reneged on its promise to buy the Lubert-Adler stake, a sign that it, too, might not have been interested in sticking with Mervyns for the long term. It didn't offer to make further investments to stabilize the company, either—a disappointment to some creditors. One of them charges that "the Sun people acted like the classic short-term-oriented Wall Street guys: 'I want to get my money and run.' "

PEP TALK

With losses mounting, Sun and Lubert-Adler decided to take Mervyns into bankruptcy. On July 29, 59 years to the day after the company was founded, Goodman addressed the troops at headquarters. Although the owners were closing 26 more stores, Goodman said, Mervyns could pull through as a leaner retailer or as part of another company. "He told us to hang in there. Be strong. We're going to make it," recalls former employee-relations representative Michelle Diaz.
Creditors soon approached Goodman with an odd idea: On behalf of Mervyns he should sue the private equity owners who had seemingly run the company into the ground. As the CEO, they reminded him, it was his fiduciary responsibility to preserve as much of the company's value as possible. Normally creditors do the litigating in such situations, but the four-year statute of limitations to bring suit against the buyout was about to expire, and they couldn't get organized in time to file a complaint of their own. Goodman was being asked to sue the very people who had hired him five months earlier.

On Sept. 2, Goodman announced in a memo to staff that the company was planning to file suit. In the memo he alleged that the buyout firms had used financial engineering to acquire Mervyns' "considerable real estate holdings, and then leased back properties to the company at substantially increased rates," moves that helped force the company into Chapter 11. The complaint, filed in Delaware bankruptcy court, alleges that Mervyns' private equity owners deliberately rendered the company insolvent.

About 1,000 employees at headquarters were summoned to separate rooms at 10 a.m. on Oct. 7. Most were told they had been selected to "take the company to a higher level." At least 100 were told they had to be out of the building by noon. They would be paid for the day, but that was it—no severance. "There were a lot of people in tears," recalls 19-year vet Steve Sunyog. He says the treatment "was a slap in the face." Loretta Robinson, a former merchandise coordinator with 32 years at the company, was fortunate to find another job at an office-furnishings store. But the new job is a 50-mile commute and pays less. She says she's borrowing money from her parents and adding ham and beans to pots of soup to stretch them further. "I need every dime," she says.

At the time of the firings, Goodman was furiously shopping Mervyns to potential buyers. But there was a deal-breaker: the new rent payments. Mervyns' landlords wouldn't agree to lower them enough to attract a buyer. Absent cheaper rents, no suitor thought the chain could survive the recession.

Soon rumors began to circulate that no deal would transpire. Executives started packing up their things and walking out. As fears of liquidation spread, "there was mass panic," says Zialcita, 37, the former manager. Employees lined up to hand in their resignations on the belief that it would give them a better chance of getting paid for unused vacation days. "There weren't enough hands in human resources to handle all of the people," says a former executive.

Their worst fears were realized days later when Sun and Lubert-Adler, unable to dig themselves out of their mess, decided that liquidation was the only option. Says Sun Capital Partners in a written statement to BusinessWeek: "When it was acquired, Mervyns was struggling. Significant improvements were achieved, but financial headwinds and the challenging retail environment proved insurmountable." (Lubert-Adler didn't return phone calls or e-mails seeking comment.)
The move rippled through Mervyns' supplier network. Ben Coons, CEO of Advanced Wireless in Lakeville, Minn., is out a major customer and as much as $30,000 for unpaid services: "That's about a third of the biweekly payroll. That stings."

Goodman, for one, has landed on his feet, starting a new job as CEO of mall-based specialty retailer Charlotte Russe in November. But most of the thousands thrown out of work are faring much worse. A bankruptcy court recently ruled that some creditors must be paid before employees, meaning many former workers may not receive vacation pay.

"THERE IS NO MONEY"

Those people are scrambling. Former communications analyst Jeff Rainey, a 28-year veteran, says he feels "powerless" and may have to file for bankruptcy. Numerous others say they're asking their families for help—from single mother Barbara Durden, who's leaning on her brothers, to marketing veteran Katherine Begley, who may have to move herself and her husband (who suffers from Alzheimer's) into the home of her 93-year-old father. David Magallon, a former security manager and father of three girls, says he has cut off his family's cable TV and turned off the heat. "There is no money," he laments. Christmas this year will be "stuff that we make, and cards."

On Nov. 20, employees filed a suit against Mervyns seeking class action status, alleging the company violated the law by not giving them 60 days notice that they would be terminated. Mervyns declined to comment on pending litigation.
The collapse has prompted many Mervyns lifers to rue the day the company was sold to private equity. "I feel like we were robbed," says Zialcita. Private equity "is so nasty." Devastated by her experience, she vows never to work for a company again. Zialcita now hopes to start a wedding floral business.

Morris, meanwhile, is heartbroken to see the chain he built crumble. "There was no way it could survive," he says. On Oct. 23, having gotten a call from Goodman's assistant asking if he wanted to pick up some old pictures, he stumbled into the company's final day of existence before liquidation. "I couldn't believe it," he says. His wife, he says, had one thought when she heard about the bankruptcy: "Maybe you shouldn't have sold the company."

Cleantech Group picks winners and losers in concentrated solar thermal

By Emma Ritch 

Sub-sectors of the concentrated solar thermal (CST) market still offer ample opportunities for venture-stage capital investment, according to a report released today by the Cleantech Group.

In addition to high-profile emerging CST technologies, many of the high-growth areas lie outside traditional solar investing, including innovations to components such as steel, coating material and heat-transfer fluid, the report says.

The Cleantech Group’s Concentrated Solar Thermal report predicts trough-based CST systems will be most prevalent until 2012 or 2013 but then could be displaced by power towers, compact linear Fresnel reflectors (CLFR) and dish-engine developers if the technology advances more quickly. Still, the report says, additional investment opportunities exist in follow-on rounds for all the technologies.

"Troughs will dominate the first generation of CST. It's project financeable today because we know the costs, we know the technologies, and there are no technology risks. Developers have a roadmap to bring down the cost," said Brian Fan, senior director of research for the Cleantech Group.

"But if the power-tower concept is proven in the field in test operations, because of higher thermodynamic efficiency and higher scalability, I believe power tower will be the next generation of CST plants past 2012," he said.

The Cleantech Group has been tracking the sector since 1999 and provides cleantech market information, financial services and networking events around the world. The group also publishes this Web site.

Growth in the sector is projected despite the recent economic downturn, which could freeze funds for large-scale solar projects. That’s because CST has the potential to reach grid parity in the next five to ten years, Fan said.

Additionally, CST has one major advantage over other grid-scale renewable energy: the ability to store generated power, he said.

"The biggest promise for concentrated solar thermal is the ability to generate and store power in the form of heat," Fan said.

According to the report, molten salt for thermal storage costs $40 to $50 per kilowatt-hour with an energy return rate of more than 90 percent, while storage for wind or photovoltaic systems cost $1,000 to $3,000 per kWh of capacity. Andasol I and Solar Tres, the first commercial plants to use molten-salt extended storage, are expected to come online later this year in Spain.

Oil-based HTFs and steam have storage potential but offer more challenges than molten salt, the report concluded.

CST has drawn $745 million in venture capital investment and acquisitions through early October 2008—five times the investment for all of 2007, according to the report. That funding has drawn many new components suppliers to the market, Fan said.  

Among those identified in the report:

• Stirling Energy Systems has licensed a kinematic engine from Swedish firm Kockums AB and contracted with Detroit’s Linamar for an engine by 2011 or 2012.
• Sopogy plans to use Alanod’s polished aluminum reflectors as a collector material. That market has been dominated by Flabeg’s parabolic mirrors, but other approaches are being pursued bySkyFuel and possibly 3M.
• Heat-transfer fluids are also evolving. Traditional oil-based HTFs from Dow Chemical and Solutia are giving way to engineered fluids that can improve heat retention, cycling capacity, viscosity, temperature ranges and cost. Ausra and Solar Power Group have opted for steam, while Sener is looking to molten salt for its Solar Tres plant in Spain.

Growth in the CST sector will likely be inhibited by the constrained supply chain and bureaucratic hurdles for permitting the projects, the analysts wrote.

Trough developers have announced projects worth $23.5 billion. The report says that pipeline is reliant on technological improvements, such as work being done with direct-drive steam utilization by Solar Millennium and Solel. Micro-trough systems are being designed for smaller scale industrial and distributed uses by companies including Sopogy. The industrial applications of CST are likely to create a $50 billion global market as technologies evolve and sales channels are developed, analysts wrote.

The report says the growth of CFLR depends upon companies such as Ausra, Solar Power Group and Novatec Biosol providing tangible evidence to back up their assertions that the technology can generate energy generation for between 8 cents and 10 cents a kilowatt-hour by 2011. Ausra recently opened its first CFLR plant in North America.

And the report notes that tower developers such as Abengoa Solar, Sener, BrightSource Energy, eSolar and SolarReserve are taking vastly different approaches to heliostat sizes and heat-transfer fluids. Analysts say it’s too early to tell which approach will succeed but predict the advantages of cost and operation will allow tower technology to compete very strongly with CST troughs.

Dish-engine CST systems will likely overcome reliability concerns and offer opportunities for small- and mid-scale generation, the report says. The average efficiency of 24 percent to 27 percent has prompted interest in companies including Stirling Energy Systems and Infinia.

Ricoh Completes Acquisition of IKON Office Solutions

Ricoh has closed the IKON acquisition which creates an undoubtedly formidable $26B competitor at a time of economic uncertainty and difficulty.  Through this acquisition, Ricoh strengthens its business infrastructure in the U.S., Canada and Europe by combining with IKON’s strong sales and service network. The firm also will gain access to IKON’s extensive customer base, which includes major and national account customers particularly in the middle market America, as well as government and public sector customers. This acquisition represents another significant step in Ricoh’s integrated global growth strategy putting them at par with the industry heavy-belts - HP, Xerox and Canon. Now Ricoh needs to stabilize the struggling once-largest independent office equipment dealer while integrating both front and back offices into its US subsidiary. The biggest challenge Ricoh will still face has more to do with the major account segment in the US where a strong services-led value proposition is to be delivered via consulting and cost-cutting outsourcing engagements with guaranteed savings and improvement in service level agreements. To better compete against HP and Xerox Global Services, they must get this right as the next step of becoming a services-led global company. Ricoh Completes Acquisition of IKON Office Solutions West Caldwell, NJ – October 31, 2008 – Ricoh Company, Ltd. (TSE: 7752, “RICOH” President & CEO: Shiro Kondo) today announced that it has completed its previously announced $1.6 billion acquisition of IKON Office Solutions, Inc. through RICOH’s wholly owned U.S. distribution subsidiary, Ricoh Americas Corporation. As a result of the merger, IKON is now a wholly owned subsidiary of Ricoh Americas Corporation. The transaction was approved by IKON shareholders at a special meeting held today. Pursuant to the merger agreement, former shareholders of IKON will receive $17.25 in cash for each share of IKON common stock. IKON stock will cease to trade on the New York Stock Exchange as of market open November 3, 2008. Through this acquisition, RICOH will strengthen its business infrastructure in the U.S., Canada and Europe by combining with IKON’s strong sales and service network. RICOH also will gain access to IKON’s extensive customer base, which includes major and national account customers, as well as government and public sector customers. This acquisition represents another significant step in RICOH’s integrated global growth strategy. Background Ricoh Company, Ltd. is a global leader in imaging solutions that has brought to the market innovations such as digitalization, network solutions and colorization. In the rapidly growing printing and document solution areas, RICOH continues to strengthen its channels for assessing customers’ potential needs and making appropriate proposals based on a customer-driven approach. In the extremely competitive U.S. market, Ricoh is committed to further strengthening its sales and support channels, and delivering real enhanced value to all its customers. IKON, a Ricoh company, sells and services a wide range of Ricoh office equipment, such as multifunction products (MFPs), fax machines and printers, in the U.S., Canada and the Western European markets. With more than 400 sales and service locations worldwide, IKON has a long track record with Fortune 500 companies among its many customers. In addition, IKON provides professional services and document outsourcing services to a wide variety of customers across numerous markets and industries. RICOH has been a key supplier to IKON for many years, and the relationship between the two companies has a long and successful history. Additional Shareholder Information The paying agent, Computershare Trust Company, N.A., will distribute a Letter of Transmittal to IKON shareholders who hold certificates with instructions on how they may receive the merger consideration. Questions regarding how to surrender stock certificate(s), or to request additional copies of the Letter of Transmittal, should be directed to the Paying Agent by phone at (800) 546-5141 (toll free) or 781-575-3120, or by mail at Computershare Trust Company N.A., Attn Corporate Actions, P.O. Box 43014, Providence, RI 02940-3014. About Ricoh Americas Corporation Ricoh Americas Corporation, headquartered in West Caldwell, N.J., is a subsidiary of Ricoh Company, Ltd., a leading supplier of office automation equipment and electronics, with fiscal year 2007 sales in excess of $22 billion, a 7.3 percent increase over the previous year. Ricoh Americas Corporation is a leading provider of document solutions. Ricoh’s fully integrated hardware and software products help businesses share information efficiently and effectively by enabling customers to control the input, management and output of documents. Ricoh has been manufacturing products and supplies in the United States for more than 35 years at facilities in California and Georgia. Ricoh Americas Corporation directly or through its network of authorized dealers markets and distributes products in North, Central and South America. Information about Ricoh's complete range of products and services can be accessed on the World Wide Web at www.ricoh-usa.com. About IKON IKON Office Solutions, Inc. (www.ikon.com), a Ricoh company, is a leading provider of innovative document management systems and services, enabling customers to improve document workflow and increase efficiency. IKON integrates copiers, printers and MFP technologies, and document management software and systems, to deliver tailored, high-value solutions, implemented and supported by its team of services professionals. IKON leverages the manufacturing and engineering expertise of Ricoh, a $22 billion global technology innovator, with the experience and reach of its locally based sales and services teams, to provide end-to-end solutions and one of the industry’s broadest portfolios of document management services, including on-site and off-site managed services, technical service and support, and customized workflow design and implementation.

Winds Shift for Renewable Energy As Oil Price Sinks, Money Gets Tight

By TOM WRIGHT

The prospects of renewable-energy companies soared with oil prices, but the global credit crunch and the easing of energy costs have brought them back to earth with a thud. With banks reluctant to lend and their stock prices tumbling, many green-energy concerns are struggling to find the long-term funding they need to expand in a capital-intensive industry. In the past three months, global renewable-energy stocks tracked by New Energy Finance, a London-based consultancy, have dropped about 45%, compared with a 23% decline in the Dow Jones Industrial Average over the same period.

 

The sector's problems have been compounded by the skid in oil prices to below $70 a barrel last week from more than $147 in July. The sudden reversal in crude prices has removed -- at least temporarily -- a key rationale for investors to pump billions of dollars into alternative fuels, industry analysts say.

The result: At least in the short term, a slew of projects from palm-oil-based biodiesel plants in Indonesia and Malaysia to wind farms and solar projects across the U.S. and Europe may not be able to get funding.

Some companies are shelving plans for IPOs as long as stock markets remain weak and volatile. German solar-power company Schott Solar AG, for example, called off a $900 million initial public offering earlier this month, citing poor market conditions.

 

But some listed companies have little choice but to issue more shares given the difficulty of getting bank loans. Indian wind-turbine producer Suzlon Energy Ltd.'s stock has fallen more than 40% since late September, when it announced plans for a $380 million rights issue later this year to raise capital. Earlier, the company had told analysts it had lined up euro-denominated bank financing to fund its expansion plans.

U.S. wind-farm developers, which have commitments to build a record number of projects in 2009, are also scrambling for alternative sources of credit after the troubles of Lehman Brothers Holdings Inc. and American International Group Inc., both of which were big lenders to the green-energy sector, says Eric Silverman, a partner at law firm Milbank, Tweed, Hadley & McCloy LLP in New York.

"The credit crunch deals a negative blow to the whole [wind] sector because it's heavily dependent on debt financing," he says.

 

General Electric Co.'s GE Energy Financial Services, another major investor in U.S. wind-farm development, is cutting back outlays because the credit crisis has made it difficult to price investments. "This is a very tough market for any investor," says Andrew Katell, a spokesman for GE Energy Financial Services. "Everyone is impacted."

 

To be sure, many investors, including GE, still see renewable energy as a long-term opportunity to make money because of the apparent political will in the U.S. and Europe to reduce dependence on Middle Eastern oil and cut greenhouse-gas emissions. For example, the financial-bailout package approved by Congress this month also included provisions to extend federal tax breaks for wind energy by one year and solar by eight years.

For now, though, many analysts say tight credit is likely to force further consolidation in the sector, with large state-owned utilities and private-equity firms that can still access bank credit or are sitting on cash reserves buying up renewable projects from cash-strapped developers.  That would accelerate a trend seen recently in the U.S. in which big European players such as Iberdrola Renovables SA of Spain, the world's largest wind-farm developer, and Energias de Portugal SA purchased smaller U.S. wind companies.

 

"Over the next 12 months, large utilities have a competitive advantage," says Jonathan Johns, head of renewable-energy research at Ernst & Young in London.

Last month, German power-giant RWE AG agreed to pay $50 million to the British company Helius Energy PLC for a controlling stake in a 65-megawatt biomass-power plant in northern England. RWE will invest a total of $380 million in the wood-pulp-fueled plant, which is due to start operating in 2011.

Hudson Clean Energy Partners, a private-equity firm based in New York, announced last month that it was buying Helium Energy, a small Spanish wind and solar developer, for up to €100 million, or $134.5 million. Hudson, which was formed in 2006 by a former head of Goldman Sachs Group Inc.'s green-energy investment-banking team in the U.S., is buying the assets from Hemeretik S.L., a Spanish construction and property company that decided to ditch its renewable-energy business amid the economic downturn.  Some global-infrastructure funds are also dumping clean-energy assets to strengthen their balance sheets. Australian investment firm Babcock & Brown, whose shares have been pummeled amid concerns over its heavy debt, is planning to sell 2,000 megawatts of wind-farm assets in Europe this year, with large European utilities the likely buyers.

 

Investors are also likely to become more selective about which green projects they back, with those that don't depend on government subsidies likely to attract the most funding in the short term, industry analysts say.  That could slow development of cutting-edge alternative-energy technologies like celullosic biofuels, which have received private-equity funding but are still far from commercially viable. They will now have to compete with wind and solar for financing, says Angus McCrone, chief editor of research at New Energy Finance.

Private-equity firms "will now also have many companies from many sectors knocking on their doors," he adds, "especially while IPOs on the stock market are out of the question."

 

 

Hot, Flat, and Crowded - Why We Need a Green Revolution

I have read Thomas Friedman’s new best-seller Hot, Flat, and Crowded which has helped me put the financial crisis and economic recession that we are undergoing in a crystal clear context.  His book is a much-needed wake up call for every nation in the world – we desperately need authentic leadership supported by collaboration and innovation. I would strongly recommend it for anyone who has enjoyed The World is Flat and is ready to cross-pollinate the “green revolution” around the world….Here’s what he says about the new book in his blog:

“Thomas L. Friedman's no. 1 bestseller The World Is Flat has helped millions of readers to see globalization in a new way. Now Friedman brings a fresh outlook to the crises of destabilizing climate change and rising competition for energy—both of which could poison our world if we do not act quickly and collectively. His argument speaks to all of us who are concerned about the state of America in the global future.

Friedman proposes that an ambitious national strategy—which he calls "Geo-Greenism"—is not only what we need to save the planet from overheating; it is what we need to make America healthier, richer, more innovative, more productive, and more secure.

As in The World Is Flat, he explains a new era—the Energy-Climate era—through an illuminating account of recent events. He shows how 9/11, Hurricane Katrina, and the flattening of the world by the Internet (which brought 3 billion new consumers onto the world stage) have combined to bring climate and energy issues to Main Street. But they have not gone very far down Main Street; the much-touted "green revolution" has hardly begun. With all that in mind, Friedman sets out the clean-technology breakthroughs we, and the world, will need; he shows that the ET (Energy Technology) revolution will be both transformative and disruptive; and he explains why America must lead this revolution—with the first Green President and a Green New Deal, spurred by the Greenest Generation.

Hot, Flat, and Crowded is classic Thomas L. Friedman—fearless, incisive, forward-looking, and rich in surprising common sense about the world we live in today.”

Private Equity Market Drying up Even in the Middle East

I came across an interesting FT article about the demise of the Private Equity market in the Middle East which has been flushed with petro-dollars.  The "L" in the LBO market has disappeared while the strategic buyers with strong balance sheets can simply cherrypick among distressed assets or struggling leveraged firms in the region:

"....Until recently, the Middle East had hoped to sidestep the worst of the financial storm thanks to abundant Gulf oil money. Now even the region's buy-out kings are in a more sombre mood.

"There are new realities in the world," says Ahmed Heikal, chairman of Citadel Capital of Egypt. "People are taking a long, serious look at their portfolios, reassessing their business plans, and delaying exits and fund raising."

Though bankers say leverage is less used in the Middle East than in the west, debt is still a central part of most private equity players' strategy. Typically, a transaction would be leveraged four or five times the target company's earnings before interest, taxes, depreciations and amortisations, according to experts. But international banks that could previously be relied on to supply the needed debt are now rapidly deleveraging.

Local houses are suffering from a domestic cash crunch that economists expect will curtail lending, despite recent liquidity injections. The little credit that remains is much dearer, making deals less profitable. The cost of leverage has doubled in recent months, says Karim El Solh, chief executive of Gulf Capital, an Abu Dhabi-based firm.

"Some people are still in denial," he says. "We are looking at an LBO [leveraged buy-out] industry without the L for a while now."

Private equity has been a fashionable industry in the Middle East in recent years, but the momentum is slowing. Last year 10 funds managed to raise $3.5bn, but so far this year only three funds have been announced and only $1bn committed, according to Preqin, a private equity data provider Preqin estimates that 25 funds are still actively trying to raise approximately $12bn. Private equity insiders say they may face difficulties reaching their targets.

Over 100 funds have been raised in the Gulf in recent years, but not all have performed as expected. The next time investors are approached "they might be less keen on parting with their money," says Mr El Solh.

"In a storm, even turkeys can fly . . . [but] we will now see a consolidation in the region."

The firms that do have cash to spend may still find the Gulf a challenging place to invest.

Most companies are owned by families who have little interest in relinquishing control, and many private equity firms have headed into the wider Middle East to countries such as Egypt, Jordan and Turkey more receptive to investment.

Even more than the rest of the Middle East, the Gulf thrives on personal relationships, and to do deals "you have to drink a lot of coffee with the owners", admits Mr El Solh.  Thus, most deals in the Gulf are minority stakes, such as Bahrain-based Investcorp's $98m purchase of a 36 per cent stake in Redington Gulf, a unit of the Indian IT distributor Redington India.

Given market turbulence and poor investor sentiment, firms sitting on mature investment portfolios may also have to sit tight a little longer before exiting. The MSCI Arabian Markets has plummeted 32 per cent this year. And for the foreseeable future "there are no exits. Period", says Mr Heikal....."

 

The World is at Severe Risk of a Global Systemic Financial Meltdown and a Severe Global Depression

The G7 countries - the U.S., Japan, Canada, the U.K., Italy, France and Germany - agreed Friday on guidelines to address the world financial crisis but balked at crafting a joint plan, an outcome that forced me to post the following analysis by “Mr. Doom”.  I was hoping for a dramatic agreement such as to guarantee bank debt to prevent further market chaos this week, which could end up worse than last.

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By Nouriel Roubini - Oct 9,2008

The US and advanced economies’ financial system is now headed towards a near-systematic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.

On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.

There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.

At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.

And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.

At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.

This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6^th and October 9^th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today.

When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.

At this point severe damage is done and one cannot rule out a systematic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

- massive and unlimited provision of liquidity to solvent financial institutions;

- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

At this point anything short of these radical and coordinated actions may lead to a market crash, a global systematic financial meltdown and to a global depression. At this stage central banks that are usually supposed to be the "lenders of last resort" need to become the "lenders of first and only resort" as, under conditions of panic and total loss of confidence, no one in the private sector is lending to anyone else since counterparty risk is extreme. And fiscal authorities that usually are spenders and insurers of last resort need to temporarily become the spenders and insurers of first resort. The fiscal costs of these actions will be large but the economic and fiscal costs of inaction would be of a much larger and severe magnitude. Thus, the time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.

Cleantech Funding at Record $2.6B in Q3

Clean technology investments in North America, Europe, China and India increased 17 percent between the second and third quarters of this year to a record $2.6 billion, according to a report released Wednesday.  The money invested in 158 companies increased 37 percent compared to the same quarter last year, the report by the Cleantech Group said. The $6.6 billion total for such venture investments through the third quarter already exceeds the full-year 2007 total of $6 billion.

U.S. companies received a record $1.75 billion in 77 financing rounds, accounting for 67 percent of the global total. California-based companies received about 42 percent of the global total, with a record $1.1 billion in 35 investments.  “Cleantech venture investing has continued to show strong growth despite the unprecedented turmoil in the credit markets during the quarter,” said Michael Goguen, managing partner, Sequoia Capital and co-chair of the North American advisory board of the Cleantech Group’s Cleantech Network.

Cleantech sectors which posted all-time highs in the quarter were: 

-- THIN-FILM SOLAR: Solar energy companies using thin-film technology raised $620 million. CIGS (copper-indium-gallium-selenide) startups raised the most capital, including San Jose-based SoloPower Inc. at $200 million; Hayward-based OptiSolar Inc. at $78 million; and Santa Clara-based Miasole Inc. at $35 million. German CIS (copper-indium-sulfide) provider Sulfurcell Solartechnik raised $134 million.  AVA Solar in Colorado, which uses cadmium telluride technology, raised $104 million. UK-based G24 Innovations raised $30 million for its flexible organic dye thin film technology.

 -- SMART GRID: Companies that are developing ways to use advanced sensing, communication and control technology to generate and control electricity raised a record $202 million in 3Q08. Leading in this sector were Virginia-based Gridpoint Inc., which raised $120 million; Redwood City-based Trilliant Inc. at $40 million; Pennsylvania-based BPL Global Ltd. at $23 million; and Maryland-based Eka Systems Inc. at $18.5 million.

 -- ALGAE: Third quarter investments in ways to produce energy from algae of $95 million topped a record $84 million in the second quarter. Sonoma-based Sapphire Energy Inc. raised at least another $50 million while Solazyme Inc. in South San Francisco raised over $45 million.

Rockport Capital Partners, with offices in Boston and Menlo Park, made the most investments in the quarter with six. Mountain View-based Google Inc. was next with five. Making four each were Kleiner Perkins Caufield & Byers and Khosla Ventures of Menlo Park and Advanced Technology Ventures with offices in Palo Alto and Waltham, Mass.