China Says Western Digital Buying Hitachi Unit Hurts Competition

December 27, 2011, 2:14 AM EST By Bloomberg News

Dec. 27 (Bloomberg) -- China said Western Digital Corp. must address concerns that its proposed acquisition of Hitachi Ltd.’s storage business will hurt competition before regulators approve the purchase.

Western Digital’s acquisition will hurt competition in the market for computer hard-disk drives “to a certain extent,” Shang Ming, head of the Ministry of Commerce’s antimonopoly bureau, said in Beijing today. The ministry will seek “appropriate solutions” to address its concerns, he said.

“China is the world’s biggest computer consumer and so naturally the deal will exert a negative impact on Chinese consumers,” Ming said at a briefing held to review the bureau’s activity in 2011.

The importance of Chinese approval for acquisitions has increased as economic growth averaging 10 percent in the past three decades transformed the nation into the world’s biggest consumer of products including computers, automobiles, and mobile phones. China’s Ministry of Commerce said it received 43 percent more antitrust review applications from January to mid- December of this year than it did in 2010.

The ministry is also reviewing Google Inc.’s acquisition of Motorola Mobility Holdings, Shang told reporters after the briefing, without giving more details.

Western Digital won European Union approval for its purchase of Hitachi’s unit last month after agreeing to sell off some disk-drive production. The sale of “essential production assets” for 3.5-inch hard disk drives eliminates concerns that Western Digital would only face Seagate Technology Plc as a rival supplier, the European Commission said.

Seagate Acquisition

Seagate won EU approval to buy Samsung Electronics Co.’s computer hard-disk drive operations in October. That purchase, combined with Western Digital’s proposed acquisition, would reduce the number of large manufacturers of mechanical hard-disk drives for computers to three from five. Western Digital would have a 50 percent share of the market, Seagate would have 40 percent and Toshiba would have 10 percent, according to research by IHS Inc.’s iSuppli.

China approved Seagate’s acquisition earlier this month after the ministry and the companies reached an agreement aimed at protecting competition, Shang said. China may “make a similar ruling based on the law” if Western Digital addresses the ministry’s concerns, he said.

Shang said he expected the ministry to receive more antitrust applications next year.

--Victoria Ruan. Editors: Bloomberg News, Nicholas Wadhams

To contact Bloomberg News staff for this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Webcam Measurements for Buying Clothes Online

Holding a CD helps the computer know your distance from the webcam. The process takes about 5 minutes Illustration by L Dopa

By Caroline Winter

For Asaf Moses, the most embarrassing part about buying clothing online is wearing ill-fitting purchases out of a sense of guilt. “You’re not satisfied, and you don’t look right, but you try and make the clothes work because you paid for them,” says the 29-year-old Israeli, who estimates only 1 in 10 online purchases fit the way he expects. A few years ago, Moses piled his hallway full of failed acquisitions, free for the taking. “My friends left looking stylish and happy,” he says. “But I felt very frustrated.”

Moses, who graduated from the economics program at Germany’s Humboldt University of Berlin in 2009, decided something needed to be done. Together with his graduate school buddy Sebastian Schulze, he founded UPcload, a Berlin startup that allows shoppers to take precise body measurements using a webcam. “The measurements are on average more accurate than those taken by a professional tailor,” says Moses, who plans to launch the service early next year.

UPcload—the name is a mashup of the words “upload” and “clothes”—is part of a wave of companies trying to help online shoppers find flattering clothes without using a dressing room. Potentially it’s an enormous market. U.S. online retail sales last year increased by 12.6 percent, and the industry is expected to grow to $279 billion by 2015 from $176 billion in 2010, according to Forrester Research. Customer reluctance, however, remains an impediment. Of those who don’t buy clothes online, 72 percent say they’re afraid they won’t get a good fit, according to market research firm YouGov. About 20 percent of clothing bought online is returned, usually because of size issues.

In pursuit of the perfect fit, some companies such as eyewear manufacturer Warby Parker allow customers to upload photos and virtually try on merchandise. Clothes Horse, a New York startup, assists users by correlating sizing across retailers. “If you’re shopping for Bonobos and you know your favorite size in J.Crew, you can give us that information and we’ll tell you what Bonobos size will be best,” says Clothes Horse co-founder David Whittemore. “We’re solving for the fact that a size 6 is not a size 6 across brands.”

UPcload’s solution is more high-tech. To use the software, would-be shoppers dress in tight dark clothing and pose for four photos in front of a white wall, holding a CD. The standard size of the CD allows UPcload’s photo recognition software to determine the person’s distance from the webcam and make calculations accordingly. One problem: Normal webcam software isn’t sophisticated enough to distinguish between subtle differences in shading. “Much of the Western world has lighter skin than me, and the majority of walls are also light,” says Moses. UPcload uses image-analysis algorithms developed for the military and semiconductor industries by the Israeli company Imagu, which traded its technology for a quarter of UPcload’s shares. Imagu analyzes images at the subpixel level, making it more precise than standard object recognition software. UPcload has raised €200,000 ($268,000), half from the German government.

To tailor the software, the 14-person startup collected body statistics from 500 Berliners. “One advantage of Berlin is that you have a lot of people who aren’t rich and need to make money,” says Schulze, 24, who took charge of the data collection. The company paid subjects €20 an hour to get measured using UPcload’s algorithm, a 3D scanner, and a professional tailor, then calibrated the software until the difference between the three was negligible. In Bloomberg Businessweek’s own test, the results were spot-on: UPcload’s measurements were within 1.5 centimeters of a professional tailor’s.

The next step is striking deals with major brands. Users will discover UPcload through retailers’ websites, where they’ll be able to click a button, go through the measurement process, and then receive sizing recommendations. They’ll be able to apply their profiles across all brands that use UPcload. A handful of companies have signed on, including The North Face, which will begin testing the software before the end of the year. “No one else in the world is doing what UPcload is doing,” says Greg Pulsifier, general manager of e-commerce at the outdoor apparel brand. The North Face plans to use the software to help customers buy online and also to find out if the company’s sizing models need to be adjusted. Both companies stress they don’t keep the webcam pictures, which are deleted after generating measurements.

Some industry insiders are skeptical. “Fit isn’t a matter of what objectively fits you but what you like and are comfortable in,” says retail analyst Sucharita Mulpuru of Forrester Research. “[UPcload] doesn’t tell you how an item looks on someone—nothing does yet.” Moses counters that UPcload could be combined with virtual fitting-room technology from companies such as Fits.me to provide effective representations.

The startup plans to charge e-tailers a few cents each time a shopper uses UPcload measurements and is also cooperating with companies that specialize in custom-fit clothing ordered online. “For them, it’s the perfect solution,” says Schulze. “Normally, people have to measure themselves.”

Moses and Schulze hope to eventually expand their service to measuring feet as well. Moses says he once used EBay to buy a pair of the same Nikes worn by George Costanza, a character from Seinfeld, one of his favorite sitcoms. They were so small they gave him leg pains. “The doctor told me to stop wearing them,” he says.

The bottom line: Retailers including The North Face plan to use UPcload’s webcam measurements to make shoppers comfortable buying online.

Winter is a reporter for Bloomberg Businessweek.

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Hewlett-Packard Cuts Forecasts as Consumers Curb PC Buying

May 17, 2011, 3:11 PM EDT By Aaron Ricadela and Dina Bass

(Updates with an investor’s comment in fourth paragraph.)

May 17 (Bloomberg) -- Hewlett-Packard Co., the biggest personal-computer maker, cut a billion dollars from its sales forecast for the year and missed analysts’ profit projections as consumers shunned PCs and services margins narrowed.

Full-year sales will be $129 billion to $130 billion and earnings excluding some items will be at least $5 a share, Palo Alto, California-based Hewlett-Packard said in a statement today. Analysts estimated sales of $130.3 billion and earnings of $5.24, the average projections in a Bloomberg survey. Third- quarter forecasts from HP also missed analysts’ estimates.

The projections came a day after Bloomberg News reported Chief Executive Officer Leo Apotheker sent a memo warning of “another tough quarter” in the July period. The CEO’s second- straight disappointing forecast reflects rivalry from tablets such as Apple Inc.’s iPad and lower margins in services. Apotheker may be hard pressed to find savings after his predecessor, Mark Hurd, eliminated more than 48,000 jobs.

“The Street was willing to give Apotheker a get-out-of- jail-free card the first time,” said Pat Becker Jr., principal of Portland, Oregon-based Becker Capital Management Inc., which holds Hewlett-Packard as part of its $2.5 billion in assets. “There was a belief on the Street that Hurd had pulled the expense-cutting string about as taut as you could pull it and the next guy had to come in with some vision and strategy.”

‘Watch Every Penny’

Hewlett-Packard dropped $2.95, or 7.4 percent, to $36.85 at 2:12 p.m. in New York Stock Exchange composite trading, after falling as much as 9.5 percent.

In February, HP predicted full-year sales of $130 billion to $131.5 billion and earnings of at least $5.20 a share.

In his May 4 message, Apotheker urged deputies to “watch every penny and minimize all hiring.” Following news of the missive sent via e-mail, Hewlett-Packard moved up its earnings report to this morning, rather than tomorrow afternoon.

For this quarter, earnings excluding some items will be $1.08 a share, the company said. That missed the $1.23-a-share average projection, the second straight quarter the company’s forecasts fell short. Revenue will be $31.1 billion to $31.3 billion, compared with analysts’ $31.8 billion average estimate.

Purchases of smartphones and tablets are crimping demand for PCs, said Brent Bracelin, an analyst at Pacific Crest Securities in Portland, Oregon.

PC Substitution

The industry’s shipments declined 3.2 percent last quarter, research firm IDC reported in April. Tablet sales will almost triple this year, IDC projected in January.

Hewlett-Packard also needs to prove that its technology- services business can tackle companies’ transition to cloud computing, the delivery of applications and data through the Internet, said Bracelin, who rates the stock “sector perform.”

The pressures facing Hewlett-Packard “aren’t going away soon,” he said.

Earnings at the services business fell to $1.36 billion in the quarter that ended April 30 from $1.4 billion a year earlier. Sales increased 1.5 percent to $8.98 billion.

“They need to fix the services business,” said Abhey Lamba, an analyst at International Strategy & Investment Group in New York. “The issue in services, where Apple is not really hurting them, that’s kind of isolated to HP.”

The company plans to hire a new executive to manage its enterprise-services unit, reporting to the CEO, Apotheker said.

Push for Margins

Hewlett-Packard is also speeding efforts to offer customers more profitable technology services. The company has been signing information-technology outsourcing deals that hurt profit margins because the projects are labor-intensive. It needs to bulk up in services that help customers create software applications or outsource customer service, he said.

“We have overinvested operationally and underinvested strategically,” he said. “It is my top focus going forward.”

Sales in the personal systems group fell 5.4 percent to $9.42 billion as revenue from consumer PCs dropped 23 percent.

Second-quarter earnings, excluding some items, were $1.24 a share, while revenue was $31.6 billion. Analysts had estimated $1.21 a share and sales of $31.5 billion.

Net income rose to $2.3 billion, or $1.05 a share, from $2.2 billion, or 91 cents, the year earlier.

Apotheker, who joined as CEO on Nov. 1, gave his initial quarterly report in February, which was marred by a forecast that missed estimates. The shares fell 9.6 percent the next day.

“HP is a large company and for Leo to kind of make changes very quickly is going to be tough,” Lamba said.

Dell Inc., the second-largest U.S. PC maker, also reports its earnings later today, after the close of regular trading.

(The company held a conference call today to discuss results. For a replay, go to {LIVE }.)

--With assistance from Alex Sherman and Erik Schatzker in New York. Editors: Nick Turner, Ville Heiskanen

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Hedge Funds Target Australia REITs Buying Before Bust: Real M&A

May 11, 2011, 9:32 PM EDT By Jonathan Keehner and Nichola Saminather

May 12 (Bloomberg) -- What’s a Park Avenue office building really worth? Almost 25 percent less to shareholders in Australia, where hedge funds are agitating for the nation’s property trusts to sell their U.S. assets.

Australian real estate investment trusts are trading at an average of 92 cents per dollar of net asset value, while U.S. property trusts are valued at a 20 percent premium, according to data compiled by UBS AG and Green Street Advisors Inc. The valuation gap has prompted hedge funds from Orange Capital LLC to Artis Capital Partners to push for sales of $3.1 billion in U.S. office buildings and shopping centers owned by two Australian REITs. One of them, EDT Retail Trust, is trading at a 15 percent discount to the value of its underlying assets.

Hedge funds are targeting property trusts in Australia after U.S.-traded REITs surged 92 percent since slumping to a record low in 2009, as commercial property prices rebounded, according to data compiled by Bloomberg. With Australian trusts that bought more than $23 billion of U.S. properties still trading at a discount, investors are betting they can turn a profit by forcing the REITs to sell at market prices. Blackstone Group LP offered $9.4 billion in March for U.S. shopping centers owned by Australia’s Centro Properties Group, the private equity firm’s largest deal since 2007.

“Some smart investors have picked up on this disparity, built positions in these stocks and educated others in the market about the opportunity,” said David Lazarus, senior managing director at boutique investment bank EdgeRock Realty Advisors LLC in New York. “This has put pressure on management teams of the A-REITs and will lead to mergers or asset sales.”

Trading Below Assets

REITs in the U.S. traded at an average premium of 20 percent to their net asset values as of May 2, according to data from Newport Beach, California-based Green Street.

Australian REITs, which haven’t traded at a premium since January 2010, were valued 7.8 percent below their net assets on average as of April 30, UBS data show. Investors are valuing the nation’s trusts at 23 percent less than those in the U.S.

“Australian REITs are trading at substantial discounts to net asset backing, and are better off selling than buying,” said Simon Garing, a real estate analyst at Bank of America Corp.’s Merrill Lynch unit in Sydney.

The Bloomberg REIT index of 124 U.S.-listed property trusts has rallied 16 percent in the past 12 months. During the same time, 22 so-called A-REITs in the S&P/ASX 300 REIT Index are down 1.4 percent in local currency terms.

Property Price Rebound

U.S. commercial property values increased about 42 percent through April since a low in May 2009, erasing about two-thirds of the decline that occurred during the worst U.S. recession since the Great Depression, according to Green Street’s weighted price index. The price rebound was driven in part by improving capital and financial markets, according to the May 5 report.

While companies in the A-REIT index have cut debt and many have sold assets abroad in the past two years, investors are actively pushing them to divest more U.S. real estate holdings. Many A-REITs are run by external managers responsible for the operation of the trust in exchange for a fee. Such managers can be removed by a special vote if a majority of investors present support the move.

“Externally managed REITs are the norm in Australia and some of these structures cost shareholders money,” EdgeRock’s Lazarus said. “Incentives of external managers and shareholders aren’t aligned and they benefit from different outcomes.”

Blackstone Deal

Blackstone, the biggest private-equity firm, plans to complete its $9.4 billion purchase of Melbourne-based Centro’s 588 U.S. shopping centers and malls around mid-year. The deal is New York-based Blackstone’s biggest since 2007, when it paid $26 billion including net debt for Beverly Hills, California-based hotel chain Hilton Hotels Corp.

The Centro acquisition, at a 1.3 percent discount to the malls’ value as of Dec. 31 according to Centro, signals that Blackstone is betting on a continued recovery in U.S. commercial property after the subprime crisis derailed Centro’s U.S. acquisition spree as debt costs soared.

Australian property companies bought $23.5 billion in U.S. real-estate assets in the four years through Dec. 2008, according to data compiled by Bloomberg. The buying spree backfired when the financial crisis froze credit markets. Centro, which had A$16.5 billion of assets and A$16 billion of debt before the agreement with Blackstone, was among the biggest Australian casualties of the credit crunch.

‘Peak of Bubble’

“No one has accused the Australians of being the smartest guys in the room when it comes to buying U.S. real estate at the peak of the bubble,” said Mike Kirby, director of research at Green Street. “A lot of those deals didn’t create shareholder value and may be unwound.”

Independent directors of Sydney-based EDT Retail, which trades at a 15 percent discount to its net tangible asset value, urged investors on May 3 to reject a takeover bid by its biggest shareholder, EPN EDT Holdings II LLC, saying it undervalued the company.

Investors including Artis Capital and PSQ Capital called for EDT, which has interests in 48 U.S. shopping centers valued at almost $1.4 billion as of December, to consider a sale instead. The firms said in a letter to EDT that there was a “large gap” between where EDT was trading and the value of the assets.

“EDT’s assets are similar to Centro’s, of better quality and are a more bite-sized portfolio for some of the buyers,” Peter Kennan, managing partner at Artis Capital in Hong Kong, said in an interview. “We’ve got a window here to sell.”

Interest in EDT

Area Property Partners, a New York-based private-equity firm that also bid on Centro’s assets, is among companies that expressed interest in EDT’s portfolio, according to a person familiar with the firm’s discussions, who declined to be named because the plans are private. National Australia Bank Ltd., the nation’s fourth-largest lender, bought a 35 percent stake in Area in March.

Mitchell Breindel, an outside spokesman for Area, declined to comment.

EDT Retail, which owns Shoppers’ World in a Boston suburb and Woodfield Village Green in a suburb of Chicago, received a sweetened bid from EPN for 9 Australian cents a share on May 11, up from the initial 7.8 cents-a-share offer.

John Martin, EDT’s Sydney-based chief accounting officer, said the trust’s independent directors are reviewing EPN’s revised offer and will release their response to the bid soon.

Outright Sale

Orange Capital in New York has pushed Sydney-based Charter Hall to consider an outright sale of its portfolio, which has a book value of about $1.7 billion, instead of pursuing a U.S. joint venture for the office REIT.

Shares of Charter Hall, which owns office buildings in Los Angeles and Tampa, Florida, have risen 17 percent since Jan. 12, the day before Orange Capital disclosed a stake and said it hired advisers to evaluate options for the company. The REIT closed at A$3.50 a share on May 11, a 12 percent discount to its assets.

“We’ve always thought that the value of Charter Hall’s assets, especially in the U.S., was far in excess of where they were trading,” Orange Capital managing partner Daniel Lewis said in an interview.

Orange Capital is cooperating with Luxor Capital Group LP and Point Lobos Capital LLC on its initiatives to maximize shareholder value, according to Australian regulatory filings. The three hedge funds own shares amounting to 18.15 percent of the voting rights of Charter, according to a May 9 filing.

Seeking Offers

Charter Hall is seeking offers for its entire U.S. portfolio, people familiar with the plan said last month.

Blackstone, Toronto-based Brookfield Asset Management Inc. and Highwoods Properties Inc. in Raleigh, North Carolina, are among firms that have expressed interest in some or all of Charter Hall’s 14 U.S. properties, which may fetch more than book value, the people said last month.

Bids for Charter Hall were due last week, according to a person familiar with the process, who declined to be identified because the matter is private. Kylie Ramsden, a spokeswoman for Charter Hall, declined to comment.

Tishman Speyer Office Fund, an Australian REIT started by Tishman Speyer Properties LP in 2004, has a portfolio consisting entirely of U.S. office buildings in such locations as Beverly Hills, California; Greenwich, Connecticut; and 300 Park Avenue in Manhattan. The property trust traded at 65 Australian cents as of May 11, or a 4.4 percent discount to its asset value.

The future of Australian-listed trusts that own primarily U.S. assets, such as Tishman’s fund, “is very limited,” as Australian investors remain wary of REITs focused overseas, said Stuart Cartledge, managing director at boutique investment management firm Phoenix Portfolios in Melbourne.

“Those trusts that are trading at significant discounts to NTA would certainly be of interest to external parties, be they their own managers or private equity groups,” said Scott Courtney, head of REIT research at Morningstar Australasia Pty in Sydney. “The margin between the underlying value of their assets and their current trading prices makes them attractive, particularly as conditions improve in the U.S.”

--With assistance from Jason Kelly, Kara Wetzel and Jennifer Sondag in New York and Daniel Hauck and Katherine Snyder in Berlin. Editors: Sarah Rabil, Michael Tsang.

To contact the reporters on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; David Scheer at dscheer@bloomberg.net; Andreea Papuc at apapuc1@bloomberg.net.

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