This strategic alliance is one that shares the financing and background of investors and real estate developers while MGM adds its brand name and expertise in design, construction and operations. The structure of the arrangement is through a series of joint ventures between MGM's newly created subsidiary, MGM Mirage Hospitality and a series of developers/investors such as Kirk Kerkorian and Dubai World.

This strategic alliance differerentiates itself from its competitors such as Harrah's Entertainment, Wynn Resorts and Las Vegas Sands, who borrow large sums for expansion. I believe it is a good idea for MGM to enter into this arrangement because is lowers the amount of debt and interest expense that it needs to carry on its balance sheet. The article suggests that the extra money saved can be used to upgrade its current casino and property locations.

However, the risk I see in this joint venture is that a conflict of interest over money may ultimately arise in this kind of arrangement. My suggestion is that each party have a clear understanding of the control, profit percentages and potential break-up plans in case things do not go well. With amounts that range in the billions of dollars, the stakes are very high and could make for a very messy divorce.

Attached is the article from Forbes in case the upload does not work correctly.

Title: Beyond Blackjack. By: Miller, Matthew, Forbes, 00156914, 2/25/2008, Vol. 181, Issue 4
Database: Business Source Premier
Beyond Blackjack
Contents

A Worldwide Gamble

Terry Lanni is transitioning MGM Mirage from a debt-heavy casino builder into a diversified real estate developer--using other people's money

On a brisk December evening in Macau, China, J. Terrence Lanni was all smiles. Cameras flashed as Lanni, chief executive of MGM Mirage, the second-largest casino firm in the world with $8.2 billion in estimated 2007 revenue, arrived on a red carpet to attend the black-tie opening of MGM Grand Macau. He greeted Pansy Ho, his partner in the project and daughter of Macau casino mogul Stanley Ho, with a kiss on each cheek.

After participating in several ceremonies for good luck--including one involving bowing in front of a roasted pig and then slicing into its back with a large butcher knife--Lanni retreated to a private dinner where 400 guests, including Stanley Ho and rival Steve Wynn, enjoyed shark fin soup and Kobe beef. Opera singer Sarah Brightman sang "Con Te Partiro," backed by the Hong Kong Philharmonic Orchestra. When the casino doors opened an hour before midnight, masses of eager Chinese gamblers rushed in to face their destinies at one of the joint's baccarat tables.
For Lanni the celebration marked more than the opening of MGM Mirage's first casino in China: The party capped off a stellar year for the company and its majority shareholder, billionaire investor Kirk Kerkorian, the seventh-richest man on The Forbes 400. Earnings were expected to rise 14% to $740 million for 2007; despite a post-October crash the stock ended the year ahead 46%.

But now Lanni has embarked on a new strategy that is aimed at remaking MGM Mirage from a debt-heavy casino builder into a diversified real estate developer that uses other people's money for expansion. That expansion will include not only more casinos but also hotels, condos and other noncasino properties.

The traditional casino model goes like this: borrow billions, build casino, operate casino, minimize losses at the tables, borrow against first casino, design new casino, repeat. Instead Lanni is partnering with deep-pocketed firms in joint ventures. The strategy is not defensive, he insists, but it will allow MGM to expand more rapidly and diversify revenue while keeping a lid on debt. The plan puts Lanni in sharp contrast to his counterparts at Harrah's Entertainment, Wynn Resorts and Las Vegas Sands, who borrow large sums for expansion. The downside: MGM will have to share profits and lose some control over projects.

To push the noncasino projects, Lanni created a subsidiary, MGM Mirage Hospitality. Its first deal will develop a $3 billion condo/hotel project in Abu Dhabi, part of a joint venture with Mubadala Development. MGM Mirage will invest no cash but will be paid licensing, branding and development fees in exchange for the use of the MGM name and design, construction and operational expertise. This development will provide $20 million to $22 million in annual fees to MGM, Lanni says.

MGM Mirage Hospitality will also soon be developing boutique hotels in China with partner Diaoyutai State Guesthouse--a move that will bring licensing income and the opportunity to sell the MGM name to Asian high rollers. The subsidiary is also developing a casino under the MGM Grand name at Foxwoods for the Mashentucket Pequot Indians in Connecticut; that partnership with the Pequots will also explore opportunities to develop other casinos across the U.S.

Last year Lanni finalized a multibillion-dollar joint venture with Kerzner International and Istithmar Hotels to develop a new casino resort at the north end of the Las Vegas Strip. In this off-balance-sheet move MGM Mirage will provide an $800 million, 40-acre plot of land to the project. Kerzner and Istithmar will throw in $600 million cash, then all three partners will finance the resort's construction, and split the operational costs and income the casino brings in when completed in 2012. In October MGM announced it would build a $5 billion casino complex in Atlantic City, a project Lanni says could be done with partners once construction begins.

Lanni also says that by roughly 2010 he can foresee MGM Mirage Hospitality being involved in as many as 15 noncasino real estate projects around the world, several in the Middle East and Far East with Dubai World. Last year, for $3.7 billion, Dubai World bought a 50% stake in MGM's $8 billion multiresort project CityCenter, currently the largest privately funded construction project in the world (see FORBES, Oct. 3, 2005), along with 4.5% of MGM's stock.

Lanni says it is too early to tell how much money this noncasino business will generate, but he volunteers that some analysts have speculated the licensing and development fees could bring in $300 million to $500 million annually within a few years. Based on the Abu Dhabi project numbers the company would need to license and develop 15 projects worth $45 billion to yield the $300 million estimate--an ambitious target, especially given the stalling of development around the world amid the credit crunch.

The deal with Dubai World was the finest example, Lanni says, of how he wants to partner on new projects. The sale of shares and part of CityCenter allowed MGM Mirage to take $3.7 billion in debt off its balance sheet and put the company in a position to partner with Dubai World on real estate developments it has planned around the world.
"Had we not done the sale to Dubai World and gone along with all of the other projects we plan to build, we would have $18 billion in debt on our balance sheet in 2010," he says. "Instead we will have $11 billion. That's nearly $650 million in interest we won't have to pay each year, which can go towards capital projects, paying down debt, dividends or buying back stock."

When the company purchased Mandalay Resort Group in 2005 for $7.9 billion, it bought some of the older themed properties on the Strip, including Luxor and Excalibur. Those need upgrades. MGM could also do something more with the 850 acres it owns on the Strip, a quarter of which are undeveloped or underdeveloped. Or it could pick up a few shares of its own stock, which, at $73, is off 27% from its fall high.

Lanni says MGM's main rival, Harrah's Entertainment, the largest casino operator in the world with $10.5 billion in revenues, will spend the next few years paying down debt, while MGM Mirage pours its cash into refurbishing its existing casinos. Harrah's was recently bought by private equity firms Texas Pacific Group and Apollo Group for $27.8 billion in cash and assumed debt. "We partnered with a bank," says Lanni, when speaking of Dubai World. "They married a mortgage company."

A Worldwide Gamble

Here are some of the casino--and noncasino--projects MGM Mirage is building with partners.

Legend for chart:

A: PROJECT
B: PARTNER
C: COST
D: LOCATION
E: OPENING

A: MGM GRAND CASINO AT FOXWOODS
B: Mashentucket Pequot Indians
C: $700 million
D: Connecticut
E: June 2008

A: CITYCENTER--MULTICASINO, HOTEL, CONDO COMPLEX
B: Dubai World
C: $8 billion
D: Las Vegas Strip
E: 2009

A: MGM-BRANDED BOUTIQUE HOTELS
B: Diaoyutai State Guesthouse
C: Unknown
D: China
E: Unknown

A: CONDO AND HOTEL RESORT
B: Mubadala Development
C: $3 billion
D: Abu Dhabi
E: 2012

A: CASINO RESORT
B: Undetermined
C: $5 billion
D: Atlantic City
E: 2012

A: CASINO RESORT
B: Kerzner International and Istithmar Hotels
C: $5 billion
D: Las Vegas Strip
E: 2012
PHOTO (COLOR)
PHOTO (BLACK & WHITE)
~~~~~~~~
By Matthew Miller
________________________________________
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NEW DELHI -- Many of India's back-office businesses -- the industry that propelled this nation onto the front lines of global commerce -- may soon be changing hands.

Some of the largest outsourcing units are still those belonging to Western companies, including Wall Street's biggest banks, which set them up here in recent years to take advantage of India's low-cost, educated labor force. Now, many of the big companies could soon be looking to get out of part or all of the business by selling either to Indian companies that specialize in outsourcing services, to private-equity firms or through initial public offerings.

The reason: The costs for big companies of having their own Indian units are rising sharply -- India's skilled-labor wages are shooting up -- and many, particularly financial-service companies, are looking to cut their overhead as the U.S. economy slows and the credit crunch takes its toll. The dollar's weakness, which makes doing business in India comparatively more expensive, is another incentive for Western companies to leave the sector.

Moreover, a study by consultants McKinsey & Co. and Nasscom, the Indian tech and outsourcing industry group, found that, on average, company back offices -- or "captives," as they are referred to in the tech and outsourcing industry -- were less efficient than companies run by outsourcing firms that specialize in the business. For some types of back-office work, captives' costs are 30% higher. The survey found that the higher costs didn't lead to lower staff turnover or better-quality work.

The scale of many of these individual deals is expected to be small, mostly in the range of $50 million to $100 million. But together they could total sizable numbers at a time when deals elsewhere are expected to become scarce because of the economic slowdown in the U.S. and elsewhere.

"As U.S. companies come under pressure, in a recessionary environment, I think this will be a good way to cut their costs -- and also get some money," said Amitabh Chaudry, CEO of Infosys Technologies Ltd.'s fully owned business-process outsourcing arm, Infosys BPO Ltd.

India's tech and business-process outsourcing industry is growing fast and has been a big factor in boosting economic development here. Nasscom says sales for the industry totaled more than $47.8 billion in the year to March 31, 2007, up almost 10 times over the past decade. The Indian tech sector was 5.4% of the nation's gross domestic product in fiscal 2007, up from 1.2% in fiscal 1998.

Four or five years ago, setting up a unit in India made sense: Shift the accounts, tech department or customer-care center to India and cut costs by 45%. Many American and European companies rushed to do it. Swiss bank UBS AG has a back office employing about 2,000 in tech hub Hyderabad. Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and HSBC Holdings PLC have their own, too.

For some companies, such offices have now become a headache. Once the initial benefit was felt, companies found it hard to keep on top of their costs. Salaries and the cost of office space jumped. Staff turnover has been high, and companies are having to spend on headhunting fees and training.

India, however, remains a low-cost destination that offers a large quantity of people with the often-special skills required to make such businesses work, says Pankaj Kapoor, an analyst at ABN Amro Asia Equities in Mumbai. Although costs have risen, they remain substantially lower than in the U.S. or Europe. While some companies have begun to move their back-office operations to lower-cost countries such as Vietnam, Mr. Kapoor says he thinks many -- particularly the more complex back-office functions -- will remain in India. But at the same time, Western companies are still likely to look for ways of getting those functions off their balance sheets, he adds.

Not all back-office operations are suitable for sale or for operation by another company. Functions that are very central to a business or are too sensitive to be outsourced are likely to stay owned by the parent company, says Viju George, an analyst at Edelweiss Securities, a financial-services firm in Mumbai. Companies that market themselves as having an India presence, often as a low-cost benefit to clients, are also unlikely to sell, Mr. George says.

But already, sales are happening. Genpact Ltd., a business-process outsourcing concern, was spun out of General Electric Co. and listed on the New York Stock Exchange in August. GE and private-equity concerns General Atlantic LLC and Oak Hill Capital Partners remain big shareholders.

Travelport Group, a U.K. travel-services company that is owned by private-equity concern Blackstone Group LP, in December sold Travelport ISO, its Indian back-office operation, to Mumbai-based Intelenet Global Services Pvt. Ltd., a company 80%-owned by Blackstone. At the same time, Intelenet unveiled a deal to buy Upstream, an international outsourcing company, from its major shareholders based in Fargo, N.D. Together, the deals were valued at $75 million.

Back offices also have changed hands as part of bigger outsourcing deals. As part of a $250 million outsourcing contract last July, Infosys bought three back offices in India, Thailand and Poland from its client Philips Electronics NV of Amsterdam for $28 million.

Citigroup Inc. has eyed a sale of its Indian back-office unit, Citigroup Global Services Ltd., people familiar with the matter say. Citigroup declined to comment. And United Kingdom insurance giant Aviva PLC said a strategic review of its Indian offshore business, Aviva Global Shared Services Pvt. Ltd., had come to the early conclusion that partnership, in a variety of forms, could be a better alternative to its current back-office set up. Aviva is now in talks with "a very small number of parties before reaching a final conclusion," the company said in a statement.

Franklin Resources, which operates under the Franklin Templeton Investments corporate name, has bought a 49% stake in Vietcombank Fund Management (VCFB), an asset management firm focused on private equity investments in Vietnam.

Franklin Templeton bought the stake from Singapore-based investment company Viet Capital Holding. The remaining 51% of VCBF will continue to be owned by Vietcombank, the state-owned commercial bank. The value of the acquisition was not disclosed.

The acquisition is in line with Franklin Templeton's approach of entering new markets by building the business on the ground.

"In building Franklin Templeton's global business, a key approach we have employed has been to make strategic investments in local companies around the world in order to leverage the expertise of well-qualified investment and financial services professionals who have first-hand knowledge of their domestic markets," says Greg Johnson, president and chief executive officer of Franklin Resources. "We see tremendous opportunity to grow our business by extending our local asset management network to Vietnam."

Franklin Templeton's strategic relationship with VCBF marks its first joint venture in Vietnam and while the focus for now is private equity investments, this provides an opportunity for the firm to build a local asset management presence.

Although Vietnam's funds industry is still small and in its early stages, fund management companies that have been among the early movers have held an advantage in terms of fund raising and building a performance track record. So far, there are only three retail mutual funds in Vietnam, the first having been launched in 2004. There are around 100 so-called member funds, but these are not widely available to the public and are mainly offered to private individuals or certain companies that may want to invest in these portfolios.

Franklin Templeton intends to partner with Vietcombank to make its investment funds available, in time, to Vietnamese investors. Vietcombank is one of the big four state-owned commercial banks in Vietnam that make up a combined 65% of the banking system, so the partnership will likely open many doors for Franklin Templeton.

"We see great opportunity in Vietnam with rising income levels among Vietnamese investors and a low penetration rate for mutual fund investments," says Mark Browning, co-CEO of Templeton Asset Management and managing director for Asia at Franklin Templeton International. "With Vietnam's average growth rate of approximately 7% over the last 10 years, we see a bright future for expanding our pan-Asia business to serve investors in Vietnam."

Browing and Dennis Lim, co-CEO and portfolio manager of Templeton Asset Management, have been named members of VCBF's board of directors.

Approximately 9% of Franklin Templeton's assets under management are currently from investors in the Asia-Pacific region. It has no investments in Vietnam shares at the moment but the market will be a key area of focus in expanding the company's penetration in Asia.

Mark Mobius, who heads Templeton Asset Management's global emerging markets team from Singapore, has been cautious about Vietnam in recent years, which is understandable because he's been burned by that market once before.

In September 1994, Mobius started the Templeton Vietnam Opportunities Fund, then the first US-listed Vietnam fund. That was just months after the US lifted its trade and investment embargo on Vietnam and Mobius expected the local stock exchange would be up and running within two years. He had no problems convincing investors and was able to raise $105 million, double his target. But after almost four years passed and no exchange appeared, the fund was restructured and renamed Templeton Vietnam and Southeast Asia Fund with a broader investment mandate. Templeton Asset Management's exposure in Vietnam has since then mainly been in the form of private equity investments.

VCBF was initially set up in 2005. Earlier this month, VCBF debuted its Vietcombank 3 portfolio, a closed fund with a registered capital of Vnd455 billion ($28.4 million), bringing to three the roster of private equity funds launched by the company.

Franklin Templeton established its presence in the Asia-Pacific region in the late 1980s and today has offices in China, Hong Kong, India, Japan, Korea, Singapore and Australia.

Special Report February 21, 2008, 5:00PM EST text size: TT
Sprint's Wake-Up Call
Reversing a miserable service reputation after the Nextel merger will be key to the company's turnaround

by Spencer E. Ante

When Daniel R. Hesse was named chief executive of Sprint Nextel in December, he figured that customer service was going to be one of his biggest challenges, given how poorly the wireless service provider had performed on that count in recent years. He quickly found out precisely how big. The lanky 54-year-old walked into his first operations meeting at Sprint headquarters in Overland Park, Kan., and found that customer service wasn't on the agenda at all. He changed course right away. Customer service is now the first item discussed at every one of the weekly meetings. "We weren't talking about the customer when I first joined," says Hesse. "Now this is the No. 1 priority of the company."

With good reason. Since Sprint and Nextel merged three years ago, the deal has turned into something of a fiasco, with the company's stock down 66% since the agreement was struck. Poor service is a central reason. After the merger, unhappy customers defected in droves, and profits evaporated. On Jan. 31, Sprint Nextel (S) said it would take merger-related charges of as much as $31 billion, wiping out nearly all of the deal's value. In addition, two lawsuits have been filed against the company for allegedly extending customers' service contracts without their consent.

Employees like Paula Pryor saw the merger's impact firsthand. The 38-year-old, who worked in a call center in Temple, Tex., says the numbers-driven management approach implemented after the combination led to poor morale and deteriorating customer service. Even bathroom trips were monitored. "They would micromanage us like children," says Pryor, who was fired last year after taking time off when her father died.

The toll on Sprint's reputation has been dear. The company has ranked last among the country's five major wireless carriers in customer service every year since the merger in 2005, according to annual surveys by J.D. Power & Associates (MHP).

Now, two months into his job, industry veteran Hesse is disclosing for the first time detailed plans for turning around customer service. He's increasing investments in customer care, adding service technicians in retail stores, and reversing many management practices in customer call centers. Hesse is convinced that restoring Sprint's reputation with customers is the key to its future. "You will see progress," he says. "We have the right people in place. We will get it done."

For the combined Sprint Nextel to be criticized for quality issues is a remarkable reversal. During the 1980s and '90s, when Sprint was the nation's third-largest long-distance company, it distinguished itself by advertising a fiber-optic network so high-quality you could "hear a pin drop." Nextel was known for its "push-to-talk" technology and the best rate of customer retention in the industry.

When the two unveiled plans to merge in December, 2004, there was a certain logic to the deal. Separately, they were much smaller than AT&T (T) and Verizon Wireless, but together they would nearly rival the two wireless leaders in size. The theory was that, combined, they would have the bulk to get the latest phones, best prices on equipment, and most complete network for wireless customers. "The combination of Sprint and Nextel builds strength on strength," Gary D. Forsee, CEO of Sprint and later the combined companies, said then.

But as the two formally combined in August, 2005, it became clear this deal would be even more complex than the typical megamerger. At the same time Forsee and Executive Chairman Timothy M. Donahue were piecing the two companies together, they laid out an aggressive strategy for the combined entity to become a leader in wireless broadband services and content. That led to plans to spin off Sprint's local telephone business, form partnerships with the cable industry, and develop a wireless technology known as WiMAX. "There was so much going on after the merger that there was a lack of focus," says one former senior-level insider.

In September, 2005, the month after the merger closed, Forsee told Wall Street that the deal was going more smoothly than expected. He raised the projection for expected "synergies," or cost savings, to $14.5 billion, up from the original $12 billion estimate at the time of the merger announcement.

That boosted pressures to find cost savings throughout the company, say former employees and executives. An important component of the effort was importing the quantitative management approach of Sprint to Nextel. While some of the new metrics worked well, others had detrimental effects, former employees and executives say. In particular, call centers began to be measured and viewed primarily as cost centers, rather than opportunities for strategic advantage. Customer service ended up a secondary priority, say former executives. Forsee, now the president of the University of Missouri, declined to comment for this story.

In the fall of 2005, as board members gathered for their first meetings as a combined company, the directors from Nextel noticed another key change, according to the former senior-level insider. Before the merger, Nextel directors talked at every board meeting about "churn," the industry term for the percentage of existing customers who leave each month. The directors felt churn was a good shorthand way to understand the quality of customer service, and they prided themselves on Nextel having the lowest in the industry. But after the merger closed, the combined board paid little attention to churn, concentrating instead on the progress with synergies and strategic initiatives. "From the very beginning there was a philosophical difference on churn," says the former insider.

In the trenches, meanwhile, workers were dealing with fallout from the merger. Pryor remembers the conditions in her Texas call center, originally a Nextel facility, shifting dramatically in the first months after the merger closed in late 2005. Managers began tracking what she was doing on her computer. Overtime pay became much harder to get. Most puzzling for her was the pressure to keep customer calls short. At Nextel, she was judged only on the number of customer problems she solved each month, however long they took, and she would occasionally spend 30 minutes to resolve a thorny issue. But after the merger, speed was the priority, she says. "They would say, Your calls need to be shortened,'" she says.
`LIKE NOAH'S ARK'

Other employees say they felt similar pressure. Gayle R. Romero, who worked in Sprint Nextel call centers for six years, says that at one team meeting after the merger, a manager said, "if you don't think you can handle this, I hear McDonald's is hiring." Says Romero: "Everyone was scared."

Customer service issues began to surface later that year. In January, 2006, Sprint unveiled plans to merge the two billing and customer care systems from the combined companies. But employees say there was little evidence of any progress in the following months. Service reps had to toggle back and forth between systems, and at times couldn't get access to billing or technical information for customers. "It was like Noah's Ark," says one former insider. "We had two of everything."

Churn rose quickly, hitting 2.4% in the third quarter of 2006. That was the highest among the country's major carriers and far above the 1.4% rate Nextel reported before the merger. At the same time, Sprint reported softer-than-expected earnings, punishing its stock.

As Sprint came under financial pressure in 2006, it began to ask call-center workers to engage more in sales. Whereas Nextel service reps had no sales quotas, workers at the combined companies were required to hit targets for renewing contracts or retaining customers who wanted to cancel accounts. One call-center employee says she was supposed to renew 600 to 900 contracts per month, and sometimes the target exceeded 1,000. In the customer retention unit, workers were given cash bonuses of $2,000 to $3,000 per month if they met monthly quotas. "They wanted those big bonuses," says Romero.

Allegations in the two lawsuits against Sprint raise questions about how far Sprint workers went in meeting those sales quotas. Selena L. Hayslett, a realtor from Apple Valley, Minn., says she called Sprint Nextel four times in late 2006 to dispute charges on her bill. Then she realized that each time she called, Sprint was extending her contract, without her consent, according to an affidavit filed in one of the suits. "I felt tricked," said Hayslett.

Her complaint is included in a lawsuit filed by the Minnesota attorney general, alleging that Sprint extended contracts when customers made small changes to their service. "It's kind of like the Hotel California," says Lori Swanson, the attorney general, "where you can check in and never leave." Sprint declined to comment in detail on the lawsuit. However, a spokesman says there are "discrepancies between our rec-ords and the lawsuit's portrayal of customer interactions."

Paula Appleby, a plaintiff in the other lawsuit, claims she tried to cancel her Sprint contract a number of times. But "each time she has attempted to cancel her service she has been told that her contract had been previously extended," according to the complaint, a federal lawsuit filed earlier this month seeking class action status. Sprint said it is still reviewing the Appleby lawsuit and declined to comment on specific claims.

In early 2007, as its financials deteriorated, Sprint cracked down on the freebies that call-center workers could give to keep customers happy, say current and former employees. One current manager in customer retention says that in the first half of 2007, Sprint cut back on virtually all the free minutes, service credits, and free phones that his workers used to be able to dole out. "One hundred minutes is it," says the manager, who asked for anonymity because he does not have authorization to speak to the press.
NO STOPWATCHES

The new policies hurt Sprint's ability to build its customer base. In the third quarter of 2007, churn stayed high, and Sprint saw its subscriber numbers remain flat, at 54 million, while rivals AT&T and Verizon added millions. In October, Forsee stepped down as CEO under board pressure. Today, Hesse is reversing course on several fronts, hoping to salvage what he can from the troubled merger. He and his lieutenants aren't eliminating the quantitative approach entirely, but they're changing many of the old metrics to now emphasize service over efficiency.

Bob Johnson, Sprint's new chief service officer, has eliminated limits on the amount of time service reps spend on the phone with customers. Instead, he'll track how frequently reps resolve customers' problems on the first call. Employees who don't solve a minimum percentage on the first call won't be eligible for sales bonuses. He'll also track how quickly customer calls are answered, to ensure they're getting prompt attention. "My incentives and policies are all driven around improving the experience," says Johnson. He says the long-delayed combined billing system will be done by May.

Hesse is also returning to the Nextel philosophy in a number of areas. Churn, for example, is once again a top priority, discussed at every operations meeting. The figure remained stubbornly high, at 2.3% in the fourth quarter of 2007.

As for the allegations in the two lawsuits, Johnson says Sprint has implemented a zero tolerance policy for shoddy customer service, which includes a new focus on extending contracts only with detailed approvals from customers. Among other things, Sprint sends a letter to customers outlining any changes to their account, and customers have 30 days to cancel the changes.

Hesse knows he has a long, hard road ahead of him. Still, he's convinced Sprint is at last moving in the right direction. "We're beginning to improve customer service already," he says. "There will be a lag between when it improves and when the world knows that Sprint's customer service has improved. There's always a perception lag."

News that Electronic Arts wants to buy game developer Take-Two Interactive should be the beginning of even more mergers and acquisitions in the video game publishing business.

With the production cost of a major video game soaring, and competition increasing between video game consoles and the computer gaming market, industry analysts said consolidation in the video game publishing industry is sorely needed.

Electronic Arts (ERTS: 47.94, +0.01, +0.02%), publisher of the Madden NFL series and The Sims, made an unsolicited $2 billion bid on Monday for Grand Theft Auto publisher Take-Two Interactive (TTWO: 26.54, -0.31, -1.15%). The bid valued shares of Take-Two at a 62% premium from the company’s closing price on Feb. 15--sending the company's stock soaring through the roof.

The proposed merger of EA and Take-Two is the second merger announced within the video game industry in the past three months. In December, video game publisher Activision (ATVI: 27.17, -0.08, -0.29%) said it would merge with software developer Blizzard, a subsidiary of Vivendi (VIV: 6.73, +0.08, +1.20%).

Take-Two's Board of Directors said in a statement Monday they rejected EA's bid, saying the offer undervalued the company.

Like the airline industry, the $9.6 billion video game industry has been ripe for consolidation for some time, analysts and experts said. The costs of producing a major title for a console like Nintendo's Wii, Sony's Playstation, or Microsoft's Xbox, are now so high that if a title does poorly, it can take out the entire game publisher.

“For the small-time publishing houses, it’s a huge financial gamble to put all your cards in one title,� said Edward Williams, a video game industry analyst with BMO Capital Markets.

There are two sides to the video game software business: development and publishing. Development houses create the games, while publishing houses get the game ready for consoles and computers. Think of developers as authors and publishers as book publishers.

EA is one of the largest third-party video game publishers and developers. The company makes games and distributes them. While Take-Two is also a developer and publisher, it's primary business is to develop titles. Take-Two makes nearly all their money from the company's hit series Grand Theft Auto. While it does have some other major titles, the company's entire financial future is staked on GTA.

EA can afford to take Take-Two under its wing because it has multiple franchises working under the company's umbrella. Plus, EA needs Take-Two, analysts said.

“Take-Two has one of the best development teams in the industry,� said Doug Creutz, a video game analyst with Cowen and Co. "It should bring some fresh ideas to EA, which for most people has become pretty stagnant when it comes to ideas.�

A key issue in the video game industry is scale, analysts said. Video game publishers need the infrastructure and talent to produce blockbuster titles across multiple platforms like PlayStation, Wii and Xbox--on top of producing titles for computers. If a company is a single-title video game developer, the business can go months, even years, without making a profit.

That's a huge financial gamble. According to industry experts, a big-name franchise can cost a publishing house upward of $20 million to $40 million per title for development and publishing.

The costs are mainly related to the scale and vastness that games now require. Game publishing companies are not making titles like PacMan or Pong anymore. Instead games often have multiple levels and intricate graphics that require millions of lines of code and teams of 50-100 game developers.

As the barriers to entry grows, the industry may start looking more like its media cousins in a few years, where conglomerates will control the bulk of the creative content being produced, analysts said.

"It's turning into the movie business," said Cruetz. "You'll have smaller players like Lions Gate Films who are the exception to the rule, but the bulk of the content is in the hands of companies like Sony Pictures of Warner Bros."

While most analysts believe consolidation will continue in the industry, they disagree on where it will come from.

There are very few major U.S.-based video game publishing houses that haven't been acquired or made into giants themselves. One of the last ones is game publisher THQ (THQI: 19.04, +0.01, +0.05%), whose shares soared more than 10% in trading Monday on takeover speculation. There are also smaller game development houses like id Software or Epic Software, both privately held and both seen as potentially lucrative takeover targets.

Williams said he believes consolidation will come from overseas: most likely in Japan and Europe. Japan is the world's largest market for video games, and has some notable video game publishing houses that could merge with an American counterpart like Square-Enix (SQNXF), maker of the Final Fantasy series, or Capcom (CCOEF). There is also Ubisoft (UBI) in Europe.

Cruetz, meanwhile, said he does not believe there will be a joint Japan-U.S. game publishing merger because of the cultural differences. "Japanese video game publishers are not as popular in the U.S. as they are at home and visa versa," he said.

Instead, Cruetz said he sees consolidation coming from big publishing houses buying up start ups.

Mackey, Whole Foods CEO, was outed this week as "Rahodeb," a frequent visitor to Yahoo chat rooms dedicated to stock trading. In his comments, Rahodeb was unstintingly bullish on the prospects of Whole Foods' continuing growth, and frequently critical of a rival company, Wild Oats.

TD
It's not clear whether he violated any securities laws in his pseudonymous postings, but his comments could end up hurting Whole Foods shareholders in another way. The Federal Trade Commission is using some of his remarks to bolster its contention that Whole Foods' planned acquisition of Wild Oats, announced in February, would be anti-competitive.

In a court filing Tuesday, the FTC referred to Mackey's anonymous postings to back up its position.

Corporate governance experts and image consultants say that Mackey's exposure as an anonymous commentator could cause the company's board to question his leadership abilities.

"This evidence raises more doubts about his sanity than his criminality," says Jack Coffee, a securities law expert at Columbia Law School. "The merger is a major business strategy, and he's undercut it with reckless, self-destructive behavior. It's a little weird, like catching him as a Peeping Tom."

"It's more of an embarrassment than an issue of profound ethical and legal consequence," says Eric Dezenhall, a crisis communications consultant. "It shows a degree of obsessiveness that's a little disturbing."

Wednesday, after The Wall Street Journal identified Mackey as Rahodeb, Whole Foods acknowledged that the CEO had posted anonymous comments from 1999 through 2006 using the handle, an anagram of his wife's name, Deborah.

For the curious, Yahoo on Thursday put up a link from its Finance page to all 1,394 postings with Mackey's screen name on all its message boards, going back to 1999. Some days, Mackey was a heavy poster. On Sept. 5, 2005, for instance, he posted 17 times from 12:03 a.m. until 11:09 p.m. On Nov. 11, 2005, he posted 17 times from 12:04 a.m. to 5:25 p.m.

The postings

While some of Mackey's postings sound like press releases from Whole Foods, citing same-store sales and compound annual growth, others convey the sarcastic, overheated atmosphere that often pervades Internet message boards.

"If you don't like my posts, put me on 'ignore,'" writes Rahodeb on May 6, 2005. "No one is forcing you to read my posts. If you think I'm an 'autistic dyslexic parrot' then simply stop reading my posts. Do you know how the 'ignore' feature works? Maybe you aren't as clever as you think you are?"

In other posts, Rahodeb bashes Wild Oats, criticizing former CEO Perry Odak for an alleged lack of vision, and noting that in all its years as a public company, Wild Oats hasn't turned a profit. In February 2005, Rahodeb gleefully noted that Wild Oats was going to have to restate its earnings.

"In my book this means that OATS has been misleading its investors for years now and is almost bound to result in shareholder litigation," he writes. "It also means that OATS leadership lacks either competence or integrity and probably both."

Despite Rahodeb's oft-stated opinion that Wild Oats stock was worth around $5 per share (or less), Whole Foods offered $18.50 per share in February to acquire the smaller company, then selling for $15.72.

That bid, which threatened to reduce competition in the natural foods grocery business, captured the FTC's attention. In seeking to block the merger, the FTC argues that Whole Foods, the No.1 natural and organic grocery chain, wants to destroy its leading competitor and monopolize the market in many cities. That would lead to higher prices and poorer service for customers, the FTC says in a court filing.

The agency cites Mackey's presentation to Whole Foods' board in which he says the deal would let the company "avoid nasty price wars." Mackey also told the board the merger would "eliminate forever the possibility" that chains such as Safeway and Kroger could use Wild Oats as a "springboard" to launch a rival organic food chain, according to the FTC. It contends natural and organic supermarkets don't face direct competition from mainstream groceries because of the quantity and quality of their perishables and organic products.

Mackey disputes that in a blog on the company's website, saying that Whole Foods faces "vigorous competition" from chains such as Safeway, Giant and Trader Joe's, and that Wild Oats is "only a relatively small part."

He further maintains that Whole Foods would not raise prices if it bought Wild Oats, noting its prices are no higher in markets where Wild Oats has no stores. In fact, he says, prices would be cut and service improved because Whole Foods is larger and benefits from greater buying efficiencies.

James Rill, a former antitrust chief at the Justice Department and now with the Howrey law firm, doesn't think Mackey's postings help the FTC.

"It's certainly imprudent for him to have done that, but it doesn't tell much about the real competitive consequences of Wild Oats and Whole Foods," he says.

But Steve Newborn, head of the antitrust practice for Weil Gotshal & Manges, says that any assertion by Mackey that some of his postings were not truthful could hurt his credibility in court.

---

Contributing: Brad Heath, Barbara Hansen

Examples of his postings

Whole Foods CEO John Mackey often posted to a Yahoo investor bulletin board for his company under the pseudonymous Rahodeb. Some postings bashed a rival company, Wild Oats, that Whole Foods is now trying to buy. A timeline with examples of Rahodeb's postings:

1 March 28, 2006: "Whole Foods says they will open 25 stores in OATS territories in the next 2 years ... The writing is on the wall. The end game is now underway for OATS ... Whole Foods is systematically destroying their viability as a business -- market by market, city by city."

2 April 11, 2006: "What I did say about OATS back when it was at $6 a share was that it was a poorly managed company that has lost $81 million over its 18 year history and over $60 million the past 5 years. ... These are facts and not subject to dispute. The company has been very poorly managed and I don't believe it has a sustainable business model. I can't deny that the stock has traded up over the last year, entirely due I believe to buyout speculation by Ron Burkle. ... However, if Burkle sells his 15% share and nobody else buys the company, OATS stock price will return to its intrinsic value -- below $6 a share."

April 11, 2006: "... Whole Foods has a hugely successful business model by all objective financial measurements there are. OATS does not."

3 May 6, 2006: "... If selling organic foods is the key to success, then answer one simple question: why has Wild Oats lost over $80 million in its 19 years of existence? OATS sells the same product line that Whole Foods does, but they've lost money big time. How is this possible?"

4 June 21, 2006: "Invest in OATS only as a speculation of a takeover by Burkle. Invest in Whole Foods if you are willing to hold for 5+ years and to risk the stock significantly falling at some point. Over the long-term its strong growth will bail out the long- term buy & hold investors, but it may require commitment and patience."

5 Aug. 12, 2006: "This will be my final message on this bulletin board as I have lost my bet with hubris12000. ... Mr. Market hit the panic button and the stock has crashed, down almost 40% from its high of just a few months ago. Whole Foods itself has a very bright future and I will continue to hold my stock for a very long time -- until the growth begins to significantly slow. I've enjoyed my 8 years on this Board, but all things must come to an end. ... Surgeon General and Boston Cowboy -- you were both right about my true identity all along. Congratulations on your cleverness."

ART
GRAPHIC, B/W, Julie Snider, USA TODAY, Source: CSI, USA TODAY research (LINE GRAPH); PHOTO, B/W, Whole Foods Market

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iint : Internet/Online Services

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c181 : Acquisitions/Mergers/Takeovers | c41 : Management Issues | c411 : Management Moves | ccat : Corporate/Industrial News | gfod : Food/Cooking | c18 : Ownership Changes | gcat : Political/General News | glife : Living/Lifestyle | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter

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usa : United States | namz : North American Countries/Regions

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FOOD & COOKING CORPORATE OFFICERS MANAGEMENT ISSUES ACQUISITIONS, MERGERS & TAKEOVERS BUSINESS/FINANCE/ECONOMY GROCERY STORE ORGANIC FOOD EXECUTIVE INTERNET ETHICS SECURITIES MERGER Federal Trade Commission Mackey, John Burkle, Ron

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Electronic Arts, the video gaming giant, made an unsolicited $2 billion bid on Sunday for rival Take-Two Interactive, publisher of the Grand Theft Auto franchise, a deal that would further a wave of consolidation in the rapidly growing industry.

Electronic Arts, which publishes hit games like the Madden N.F.L. and Need for Speed series, offered to pay $26 a share for Take-Two, a 50 percent premium over its share price of $17.36 on Friday. The offer was made publicly after a series of private offers to Take-Two were rejected by its board.

Electronic Arts approached Take Two with a $26-a-share offer on Feb. 19, up from $25 share it initially offered on Feb. 15.

The timing of the bid appears to be an attempt to acquire Take-Two before it releases what is widely expected to be the top-selling game of 2008, the fourth installment of the crime thriller Grand Theft Auto. The Grand Theft Auto franchise, Take-Two’s crown jewel, has sold more than 60 million copies since Grand Theft Auto III took the game industry by storm in 2001.

Through its Rockstar subsidiary, Take-Two is scheduled to release the game on April 29 for Microsoft’s Xbox 360 and Sony’s PlayStation 3 consoles. If it lives up to consumers’ expectations, the game is expected to sell 10 million copies or more by the end of the year, which would almost certainly make Take-Two more expensive.

Electronic Arts’s dominance has been strongly challenged by Activision. Not only has Activision had a recent string of hits, notably Guitar Hero, it also recently agreed to buy Vivendi’s game division to form a company called Activision Blizzard.

At the same time, E.A. has endured a growing chorus of criticism from some investors who say the company has lost its creative and innovative edge.

There is little doubt that E.A. remains the juggernaut of the video game industry. But it has come to rely heavily on sequels.

A merger with Take-Two would be a union of two vastly different companies. E.A. has a reputation for steady growth and fiscal discipline, while Take-Two is known as a mercurial one-hit wonder.

Electronic Arts said it was making its offer public to “bring its proposal to the attention of all Take-Two shareholders.� In a telephone interview on Sunday, Electronic Arts’ chief executive, John Riccitiello, said, “It is an enormous premium,� suggesting that rather than consider the offer hostile, “We think of ourselves as a ‘white knight.’ �

Take-Two was far less generous. In a statement, Strauss Zelnick, the company’s chairman, said, “Electronic Arts’ proposal provides insufficient value to our shareholders and comes at absolutely the wrong time given the crucial initiatives under way at the company,� referring to the new Grand Theft Auto and other products.

Mr. Riccitiello said, however, he believed that Take-Two’s stock price already reflected an expectation among investors that Grand Theft Auto IV would be a success, and that Take-Two would become less valuable to E.A. after the game’s introduction than it was now.

Mr. Riccitiello said his offer’s timing reflected a desire to integrate Take-Two’s operations with E.A.’s before the all-important holiday shopping season. He said he had formed a relationship in recent years with Sam Houser, one of Rockstar’s founders, but added that he had avoided contacting Mr. Houser while pursuing his negotiations with Mr. Zelnick.

Mr. Zelnick said that Take-Two had offered to initiate discussions with Electronic Arts on April 30, the the day after Grand Theft Auto IV was scheduled for release. “We believe this offer demonstrated our commitment to pursuing all avenues to maximize stockholder value, while we believe that E.A.’s refusal to entertain this path is evidence of their desire to acquire Take-Two at a significant discount,� he said.Mr. Riccitiello refused to speculate about what steps he would take next, but it is possible that Electronic Arts could pursue a proxy contest to oust the board.

Over the next several weeks, Mr. Riccitiello’s main challenge will be to persuade investors to accept the deal and convince employees that Electronic Arts will respect the creative autonomy of Take-Two’s various development teams. Over the last decade, E.A. has acquired many high-profile game studios, including Westwood (the Command & Conquer series), Bullfrog Productions (Populous) and Origin Systems (Ultima), which essentially dissolved after Electronic Arts tried to direct and homogenize their creative output.

Any deal for Take-Two would be largely empty if Take-Two teams like Rockstar and Ken Levine’s group at 2K Boston, which recently released the acclaimed game BioShock, were to depart rather than work for E.A.

Mr. Riccitiello seems aware of the danger and is taking steps to convince the game industry of E.A.’s newfound respect for creative talent. At a well-received speech at an industry conference in Las Vegas earlier this month Mr. Riccitiello promised that in future deals, Electronic Arts would avoid killing the creative golden goose as it has in the past.

NEW YORK (MarketWatch) -- About 30 years after deciding to develop its jewelry line over its watch business, Tiffany & Co. said it's finally paying attention to the long-neglected segment. The luxury retailer announced this past weekend it will partner with Swatch Group, its biggest partnership in its 170-year history.
The Swiss watchmaker will help the retailer produce and sell a line of Tiffany & Co. (TIF:
Tiffany & Co. TIF40.75, +0.29, +0.7%) branded watches to help significantly catapult watch sales, which represented about 2% to 3% of the company's $2.6 billion in total revenue last year, Tiffany Chief Executive Michael Kowalski said in an interview on Wednesday. That compares to 20% to 40% of sales for some of the other larger luxury brand companies, he said.
"There's a potential to grow significantly above that" of where Tiffany's watch business is, said Kowalski. "Watch has always been an underdeveloped business at Tiffany. It can be a substantial business for Tiffany. We expect it to grow dramatically."
The first line of watches may be unveiled as early as the second half of 2008 with a full collection expected to be introduced in 2009, according to the companies. They will sell for prices similar to Tiffany's existing collections, which range from $1,600 to $10,000, Tiffany spokesman Mark Aaron said.
The deal is equally significant for Swatch, the Swiss watchmaker (CH:001225515: news, chart, profile) said. Swatch, with about $5 billion in sales, will add Tiffany to its 18-brand portfolio that includes luxury lines Omega, Longines or Breguet.
The business can eventually grow to "several hundred million" in sales and be as large as Tiffany rivals Bulgari or Cartier's watch businesses, said Nick Hayek Jr., chief executive of the Swatch Group, in a separate interview on Wednesday.
Swatch will create a new subsidiary in Switzerland devoted to making Tiffany-branded watches, headed by Nayla Hayek, daughter of Swatch founder Nick Hayek Sr.
"This is a clear signal that it's important to us," said Nick Hayek Jr. at a news conference at Tiffany's flagship store in New York on Wednesday.
Swatch and Tiffany's 20-year partnership will help Tiffany devote more resources to "significant" advertising of its watches, Kowalski said.
The agreement also will help Tiffany tap into Swatch's "substantially larger" network to expand its namesake watches to where Swatch sells its luxury lines or where Tiffany rivals Bulgari and Cartier sell their timepieces, executives said at the news conference.
Tiffany's watches are sold in its 180 stores, on its Web site and about 100 independently operated locations that represent a "very small" percentage of sales, Tiffany spokesman Aaron said. The two companies also will collaborate on marketing and design. Tiffany first began making watches in 1846.
"This is better than anything than we could have achieved on our own," Kowalski said in the interview. "Fundamental economics of this partnership is certainly very attractive. Vertical integration ultimately is margin accretive."
Tiffany will get an undisclosed percentage of pre-tax profit from Swatch. Swatch also will take over production of the existing collections including Atlas, Tiffany Grand and Tiffany Mark. Swatch said it'll significantly ramp up capacity to meet the production demands of Tiffany watches.
Tiffany announced Monday it will take about $20 million in pre-tax charge to discontinue some of the watches and related inventory.
Andria Cheng is a MarketWatch reporter based in New York.

IN the summer of 2005, Miles Gilburne and Nina Zolt had long talks over dinner in their Washington home about what to do next. For more than six years, Mr. Gilburne, a former AOL executive, and his wife, Ms. Zolt, a former lawyer, had supported a philanthropy that used books and online tools to enhance skills of inner-city students.

The program, which Ms. Zolt directed, had been moderately successful. Students liked writing online about books and sharing their ideas with Internet pen pals, including adult mentors. Many teachers embraced the project, called In2Books, and participating students outscored their peers in standardized tests.

Still, the costly venture grew only gradually, classroom by classroom. The couple had put $10 million into the charity, a “meaningful portion� of the family wealth, Mr. Gilburne says. “It was enough money that I did lie awake at night thinking about the size of the checks,� he recalls.

As philanthropy, the couple’s efforts, however worthwhile, weren’t sustainable. But their vision of using the Internet for communication and collaboration to improve education has taken on a new life — as a business.

Today, the once-struggling venture has morphed into a primarily for-profit enterprise. And the striking transformation of In2Books is emblematic of a larger trend: charities are changing their spots and making use of some of capitalism’s virtues.

The process is being pushed forward by a new breed of social entrepreneurs who are administering increasing doses of bottom-line thinking to traditional philanthropy in order to make charity more effective.

To make a fresh start, Mr. Gilburne attracted like-minded angel investors, and at the end of 2006 the group bought a for-profit company, ePals Inc., to expand on the original mission and support the foundation. The ePals company has grown and now offers classroom e-mail, blogs, online literacy tools and Web-based collaborative projects on subjects like global warming and habitats.

EPals says 125,000 classrooms around the world are using at least some of its free tools, reaching 13 million students, and its ambition is to become a global “learning social network.�

National Geographic is to announce this week that it is investing in ePals, based in Herndon, Va., and will supply educational content for the ePals learning projects. Worldwide distribution should get a lift from Intel, which will soon ship its Classmate laptops, designed for students in developing nations, with the ePals icon on the screens. And ePals is also offered for use on the low-cost computers from One Laptop Per Child, a nonprofit group trying to bring the content and experience of the Internet to children in developing countries worldwide.

Various versions of efforts like this are appearing across the philanthropic landscape as business-minded donors, epitomized by Bill and Melinda Gates and their foundation, have treated their charitable contributions more like venture capital investments. They seek programs that can be catalysts for broad changes in fields like health, education and the environment, they measure performance and results, and they encourage nonprofits to become more self-sustaining.

Yet to have the greatest possible impact, a further step down the capitalist road is sometimes needed, analysts and others in the field say. Muhammad Yunus, the microfinance pioneer and Nobel laureate, calls this next step the “social business.� The goal, according to Mr. Yunus, is to create ventures that more than pay for themselves — in other words, turn a profit.

Social business entrepreneurs, he writes, can help “make the market work for social goals as efficiently as it does for personal goals.�

PHILANTHROPIES are discovering that for-profit status and financing can be a useful tool. For example, many microfinance lenders, modeled after Mr. Yunus’s project, the Grameen Bank in Bangladesh, aim to make the crossover to profit-making institutions.

Mozilla, the nonprofit foundation that developed the open-source Web browser Firefox, decided that it needed a for-profit unit to accelerate its business activities and gain market share against Microsoft’s Internet Explorer. The business unit is freer to spend on marketing, charge for software service and technical support, and pay to compete for engineering talent in Silicon Valley.

Likewise, Google.org, the search giant’s corporate foundation, chose for-profit status to be able to easily make investments in for-profit companies including alternative energy start-ups like eSolar and Makani Power.

“Capitalism is a very mutable, flexible beast, and what we’re seeing is social entrepreneurs addressing some of these social challenges in profoundly different ways than traditional nonprofit organizations,� said John Elkington, co-author with Pamela Hartigan of “The Power of Unreasonable People: How Social Entrepreneurs Create Markets that Change the World,� a new book that was handed out last month to attendees at the World Economic Forum in Davos, Switzerland.

Even among its hybrid peers, ePals has evolved into an unusual combination of a business and a social venture. When Mr. Gilburne and Ms. Zolt established the for-profit arm in 2006, they attracted like-minded investors, acquired ePals Inc. and began hiring talented staff. They gave the original education foundation a 15 percent stake in the ePals company, and its endowment will grow if the business prospers. The nonprofit division is focusing on educational research and bringing technology into classrooms.

But the company is where the action is. “This needs to be a large business to have a really significant social impact,� Mr. Gilburne said. “We couldn’t do what we’re doing as a nonprofit.�

Very few nonprofits get big. Only 144 of the more than 200,000 nonprofits established since 1970 had grown to $50 million or more in revenue by 2003, according to a study published last year by the Bridgespan Group, a nonprofit consulting firm that advises philanthropies.

With the rising influence of social entrepreneurs in philanthropy, many nonprofits have sought to generate revenue to become more self-sustaining. But it is still rare for a nonprofit to cross the chasm to become mainly a profit-seeking business, as in the ePals experience.

“It’s tricky, but it makes sense when the business is highly aligned with the mission of the social entrepreneurs,� said Jeffrey L. Bradach, a managing partner of Bridgespan.

As a for-profit business, ePals can more easily attract financing for growth. But outside investors raise the risk that the original social ideals will be lost in a single-minded pursuit of profit. Mr. Gilburne has tried to avoid that pitfall by gathering a stable of angel investors among his longtime business friends, who bring not only money but also a shared belief in the promise of the Internet to improve education.

The group includes Stephen M. Case, the former chief executive of AOL; Mitchell Kapor, the founder of the early spreadsheet maker Lotus Development and an open-source software supporter; and Yossi Vardi, an Israeli Internet entrepreneur.

“None of our investors are interested just in making another financial score,� Mr. Gilburne said.

AFTER pooling their money, the angel investors bought the ePals company in December 2006 for an undisclosed price. Mr. Gilburne had watched ePals for years, starting when he was at AOL in the 1990s, and he saw it as the foundation on which to build an educational social network.

EPals started as a Web-based electronic pen-pal service in 1996, offering point-and-click tools that teachers could use to control how students use e-mail. A teacher in California, for example, set the controls so her class could communicate online only with a class in China that was engaged in a joint cultural exchange project.

Since the angel investors came aboard in 2006, the ePals work force has more than doubled, to 43, and the company continues to hire. It has improved the e-mail and blogging software and added links to outside resources, like National Geographic’s digital library, to its Web-based software for online projects.

“We were a small company with little capital,� said Tim DiScipio, a founder of the original ePals, who is the chief marketing officer of the revamped company under its new ownership. “But now we have the resources to really pursue the vision of social learning over the Internet.�

Until last fall, ePals charged $3 to $5 a year for each student e-mail account, but the service is now free. The effect of free distribution was immediate and dramatic. The number of registered users has nearly doubled, to 13 million, since September.

The growth and ambition of ePals have impressed National Geographic enough to make an investment and forge a partnership.

“We’re looking at them as a global network to distribute National Geographic content,� explained Edward M. Prince, the chief operating officer of the venture arm of the nonprofit scientific and educational organization.

The ePals team is betting that it can build a worldwide social network in education — a serious, controlled version of Facebook, for students in kindergarten through 12th grade. “When markets go digital, they go collaborative and sharing,� said Edmund Fish, the chief executive of ePals and a former executive of AOL, where he oversaw online education offerings. “That can happen in education, too. A learning social network is not an oxymoron.�

Even the basic social networking of ePals e-mail exchanges, teachers say, helps improve writing skills and stirs curiosity about other cultures. Mirjana Milovic, a teacher in Kragujevac, Serbia, says ePals has helped the 120 students in her school with their English-language skills. Their correspondents in Alabama and Kansas have also learned that jeans and Nike shoes are popular in Kragujevac but that the McDonald’s in town closed for lack of business.

“We usually prefer our domestic food,� wrote Marija, an 18-year-old.

Candace Pauchnick, who teaches English and sociology at Patrick Henry High School in San Diego, has been using ePals for what she calls “virtual field trips.� In their online exchanges with students in Italy, China and the Czech Republic, her students have learned about family life and political systems in foreign lands and improved their writing skills.

“If they were just writing for me, they wouldn’t be as careful,� Ms. Pauchnick said. “But they’re writing for a student in another country. It’s not drudgery for them. They buy in and they enjoy it.�

Ms. Zolt, the chief program architect of ePals, endorsed the for-profit route but insisted that the digital network also provide a free searchable database for educational research.

“The promise here is to be able to study, with vast amounts of real-time data, how children learn,� she said.

Scholars are enthusiastic. “Its potential is very exciting,� said Linda B. Gambrell, a professor of education at Clemson University, who is one of the academic advisers of ePals. “This should help us quicken the pace of translating innovative research into best practices in the classroom.�

Like many start-up companies, the revamped ePals is still working on its business model. Mr. Gilburne, the chairman, says it will pursue corporate sponsors for certain project areas. These could be part of a company’s community and social responsibility activities, providing approved adult experts to help students online. For example, General Electric might sponsor ePals’ global warming section by providing environmental experts as online mentors, Mr. Gilburne said, or perhaps Intel or I.B.M. would help in engineering projects.

There are commerce opportunities, Mr. Gilburne added, for education publishers who might want to market books or curriculum materials for home-school students over ePals.

Eventually, Mr. Gilburne said, advertising will be part of the mix. “But we’ll go gingerly to figure out what is appropriate and doesn’t impose on the classroom,� he said.

The failure rate for entrepreneurs — whether social or purely capitalist — is high. Still, ePals’ backers are betting that it is worth the risk. “These kinds of opportunities to do well and do good at the same time don’t grow on trees,� said Mr. Kapor, the ePals investor and a philanthropist. “But I do think that ePals could be one of them.�

http://www.nytimes.com/2008/02/24/business/24social.html

Starbucks Corp. is eliminating 600 jobs as part of an effort to revive the struggling coffee giant.

The Seattle company said that 220 people lost their jobs as part of its restructuring. The remaining 380 jobs are open positions that won't be filled. The cuts are happening in Starbucks' so-called field operations, or offices that support Starbucks cafes, and won't result in job losses at the retail stores. Nearly all of the jobs are based in the U.S. Starbucks employs about 170,000 people.

"We have to step up to the challenge of being strategic as well as nimble as our business evolves," Chairman and Chief Executive Howard Schultz said in an email to employees. The company also increased by two the number of regional divisions it has in the U.S., for a total of four.

In returning to the chief executive position last month, Mr. Schultz said the company's rapid growth had led to bureaucracy. Starbucks shares lost almost half their value last year as price increases and a weak economy slowed traffic at its U.S. locations, and a lack of appealing new products dulled demand.

A few days after his return, Mr. Schultz announced he had shuffled a handful of top management positions. This latest round of cuts doesn't reach into the executive level.

Since his return, Mr. Schultz has said he plans to close weak stores and slow the number of store openings in the U.S. as well as refocus the chain on coffee. He says he will release more details of his plans at the company's annual meeting next month. On Tuesday, Starbucks plans to close all of its company-operated stores in the U.S. from 5:30 p.m. to 9 p.m. local time to retrain 135,000 store workers, in part to teach them how to better make espresso drinks.

Mr. Schultz has indicated that, among other things, he plans to make better use of the Starbucks payment card, emphasize the company's expertise in coffee roasting and possibly create a new segment for Starbucks that would allow customers with lower incomes to try its products.

Of those who lost their jobs, about one-third worked at Starbucks headquarters in Seattle, and about two-thirds worked at other Starbucks field operations outside headquarters

For 18 months, Google has been working to come up with a product offering and a strategy in the promising field of consumer health information. Until now, the search giant hasn’t had anything to show for its labors other than bumps along the way — delays and a management change.

But on Thursday, Google’s technology for personal health records, which is still in development, is getting a big endorsement from the Cleveland Clinic. The big medical center is beginning a pilot project to link the health information for some of its patients with Google personal health records.

Cleveland Clinic is at the cutting edge of health information technology, and its more than 100,000 patients each has a personal health record. But a sizable portion of those patients are retirees, notes Dr. C. Martin Harris, the clinic’s chief information officer. Many of them, he said, spend about five months elsewhere, typically in Florida or Arizona, and the clinic’s sophisticated electronic health records don’t follow them there.

“It forces the patient to become his or her own medical historian,� Dr. Harris said.

The Google personal health record, he said, is a solution to that problem, among others. A person can approve the transfer of information on, say, medical conditions, allergies, medications and laboratory results from the clinic’s computers to a Google personal health record — a series of secure Web pages.

The pilot project will last six to eight weeks, and involve less than 10,000 patients. The project with Cleveland Clinic is “a milestone� for Google, said Marissa Mayer, a vice president, who took over management of the health team six months ago.

Google’s personal health record is still in development, and it will be introduced publicly and made widely available, after the pilot project is concluded, Ms. Mayer said.

To be sure, Google is only one of several companies trying to make a business from Web-based personal health records. Microsoft, for example, brought out its entry, called HealthVault, last October, and it has commitments from medical centers including New York-Presbyterian Hospital and the Mayo Clinic. WebMD, Revolution Health and others also offer personal health records.

While it’s still not entirely clear what Google’s personal health record will be like, its approach seems to be ambitious and comprehensive. Google has its own user interface, while Microsoft, for example, appears to be focusing on back-end storage. Google is offering automated data links, so the patient does not have to type in personal data, as is required with some personal health records. And Google, along with Microsoft, has the deep pockets and technological knowhow to offer personal health records free to millions.

Other medical centers are ready to sign up. “This is truly a patient-controlled health record, and that’s a very significant step in the drive toward a more consumer-oriented system of health care,� said Dr. John D. Halamka, chief information officer of the Harvard Medical School.

Dr. Halamka is also chief information officer at Beth Israel Deaconess Medical Center in Boston, which plans to link its electronic patient records with Google personal health pages. He is also a member of
Google’s Health Advisory Council.

http://bits.blogs.nytimes.com/2008/02/21/google-health-begins-its-preseason-at-cleveland-clinic/

TOKYO (Reuters) - Sony Corp said it would take a one-third stake in Sharp Corp's $3.5 billion LCD panel plant set for completion by March 2010, in an effort to meet fast-growing demand for flat televisions.

The move is the latest in a wave of alliances among Japanese flat TV makers as they try to secure enough panels while keeping initial investments in check to fight steep price declines.

Sharp, which offers Aquos LCD TVs, plans to turn the liquid crystal display factory, which would be the world's largest, into a joint venture, with the Osaka-based company owning 66 percent and Sony taking the remainder.

Besides LCD panels, the joint venture will also produce LCD modules, which are display panels equipped with components such as a backlight unit and LCD driver chips.

Sony and Sharp are the world's second- and third-largest LCD TV makers, behind South Korea's Samsung Electronics Co Ltd

The two Japanese companies plan to hold a joint news conference at 7 p.m. (1000 GMT), where Sony President Ryoji Chubachi and Sharp President Mikio Katayama will speak.

"For Sharp, this is a positive step since it means a major buyer that would keep the 10th-generation factory busy," Daiwa Institute of Research analyst Kazuharu Miura said.

Sharp's new factory would use so-called 10th-generation glass substrates, which can yield more panels than earlier-generation, smaller glass substrates, improving production efficiency and helping both firms offer attractively priced flat TVs.

Global LCD TV sales are likely to more than double to 155 million units by 2012, according to the Japan Electronics and Information Technology Association.

"Sony needed an extra source of panels because the large-size LCD TV market is growing faster than it had expected. As Sony expands TV production, it is natural to seek to diversify panel sources," said Park Hyun, an analyst at Prudential Investment & Securities.

"Sony is likely to continue the partnership with Samsung.... Therefore Sony's diversification strategy won't have a negative implication for the alliance with Samsung."

Sony, which aims to sell 10 million units of its Bravia LCD TVs in the current business year to March 31, runs another LCD joint venture, S-LCD, with Samsung.

The announcement follows Toshiba Corp's decision late last year to buy LCD panels from Sharp, while Panasonic maker Matsushita Electric Industrial Co Ltd said earlier this month it would spend 300 billion yen ($2.8 billion) to build an LCD plant in the face of robust LCD TV demand and tight panel supplies.

Aggressive investments in panel capacity, however, have raised investor concerns about a potential supply glut.

"The problem will be 2010 and 2011. Just when TV demand is likely peaking, Sharp's 10th-generation plant will come onstream, and so will Matsushita's new factory," Shinko Securities analyst Hideki Watanabe said.

"Today's deal gives Sharp good risk hedging."

Shares in Sony closed up 1.2 percent at 5,200 yen, while Sharp was flat at 2,100 yen. The Tokyo stock market's electrical machinery index IELEC.rose 0.3 percent.

($1=107.94 Yen)

(Additional reporting by Edwina Gibbs in Tokyo, Rhee So-eui in Seoul; Editing by Mike Miller)

http://www.reuters.com/article/technologyNews/idUSTFA00300220080227?pageNumber=3&virtualBrandChannel=0&sp=true

The strategic rationale, business and growth profile of a combined Boston Scientific/Guidant should be compelling to shareholders of both companies. As a highly diversified company with leading positions in growth markets, Boston Scientific/Guidant will be one of the world's preeminent medical device companies, with total revenue in 2006 of nearly $9 billion.

"Guidant and Boston Scientific share an entrepreneurial spirit, highly talented employees, strong customer relationships and an ability to pioneer lifesaving therapies for patients around the world," said Pete Nicholas, Chairman of Boston Scientific. "Shareholders will benefit from the significant upside potential of the combined company, while doctors and their patients will continue to receive the most technologically advanced and highest quality medical devices and therapies. The resources and capabilities of the combined company will allow us to make further investments in our current businesses as well as pursue new revenue opportunities."

"We believe the transaction and the strategic rationale for this combination are in the best interests of our patients, employees, customers and shareholders -- reflecting the full value of our firm," said Jim Cornelius, Chairman and Chief Executive Officer of Guidant. "The combination of these two companies provides faster, more consistent revenue growth opportunities to shareholders. We want to express our appreciation to our employees who have been dedicated to building this great company, and we all look forward to the future."

"We are excited about combining the talent and experience of Boston Scientific and Guidant employees," said Jim Tobin, President and Chief Executive Officer of Boston Scientific. "We look forward to working with Guidant to complete the transaction quickly and to creating a global leader in cardiovascular devices."

The transaction is subject to customary closing conditions, including clearances under the Hart-Scott-Rodino Antitrust Improvements Act and the European Union merger control regulation, as well as approval of Boston Scientific and Guidant shareholders. The transaction is not subject to any financing condition. Boston Scientific expects to complete the transaction by the end of the first quarter of 2006.

As previously announced, Boston Scientific has entered into an agreement with Abbott (NYSE: ABT - News) under which Boston Scientific has agreed to divest Guidant's vascular intervention and endovascular businesses, while agreeing to share rights to Guidant's drug-eluting stent program. Under its agreement with Abbott, Boston Scientific will receive $6.4 billion in cash from Abbott on or around the closing date of the Guidant transaction. This amount consists of $4.1 billion in purchase price for the Guidant assets, a loan of $900 million, and Abbott's agreement to acquire $1.4 billion of Boston Scientific common stock. Boston Scientific and Guidant believe that Boston Scientific's agreement with Abbott will enable Boston Scientific and Guidant to rapidly secure antitrust approvals for the proposed transaction.

Under the terms of the merger agreement between Boston Scientific and Guidant, each share of Guidant common stock will be exchanged for $42.00 in cash and $38.00 in Boston Scientific common stock, based on the average closing price of Boston Scientific common stock during the 20 consecutive trading day period ending three days prior to the closing date. If the average closing price of Boston Scientific common stock during this period is less than $22.62, Guidant shareholders will receive 1.6799 Boston Scientific shares for each share of Guidant common stock, and if the average closing price of Boston Scientific common stock during this period is greater than $28.86, Guidant shareholders will receive 1.3167 Boston Scientific shares for each share of Guidant common stock. Guidant shareholders will own approximately 36 percent of the combined company.

Boston Scientific has received commitment letters from Bank of America, N.A. and Merrill Lynch & Co. for the financing of the transaction. Bear, Stearns & Co. Inc., Deutsche Bank AG New York Branch and Wachovia Bank, National Association have also committed to participate in the financing.

Shearman & Sterling LLP is acting as legal counsel, and Merrill Lynch & Co., Bear, Stearns & Co. Inc., and Banc of America Securities LLC are acting as financial advisors, to Boston Scientific.

Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel, and J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated are acting as financial advisors, to Guidant.

Boston Scientific Corporation
Boston Scientific is a worldwide developer, manufacturer and marketer of medical devices whose products are used in a broad range of interventional medical specialties. For more information, please visit: http://www.bostonscientific.com .

Guidant Corporation
Guidant Corporation pioneers lifesaving technology, giving an opportunity for better life today to millions of cardiac and vascular patients worldwide. Guidant develops, manufactures and markets a broad array of products and services that enable less invasive care for some of life's most threatening medical conditions. For more information, visit http://www.guidant.com .

Forward Looking Statements
This press release contains "forward-looking statements," including, among other statements, statements regarding the proposed business combination between Boston Scientific Corporation and Guidant Corporation, and the anticipated consequences and benefits of such transaction. Statements made in the future tense, and words such as "anticipate," "expect," "project," "believe," "plan," "estimate," "intend," "will," "may" and similar expressions are intended to identify forward-looking statements. These statements are based on current expectations, but are subject to certain risks and uncertainties, many of which are difficult to predict and are beyond the control of Boston Scientific or Guidant. Relevant risks and uncertainties include those referenced in Boston Scientific's and Guidant's filings with the Securities and Exchange Commission ("SEC") (which can be obtained as described in "Additional Information" below), and include: general industry conditions and competition; economic conditions, such as interest rate and currency exchange rate fluctuations; technological advances and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approvals; domestic and foreign health care reforms and governmental laws and regulations; and trends toward health care cost containment. Risks and uncertainties relating to the proposed transaction include: required regulatory approvals will not be obtained in a timely manner, if at all; the proposed transaction will not be consummated; the anticipated benefits of the proposed transaction will not be realized; and the integration of Guidant's operations with Boston Scientific will be materially delayed or will be more costly or difficult than expected. These risks and uncertainties could cause actual results to differ materially from those expressed in or implied by the forward-looking statements, and therefore should be carefully considered. Neither Boston Scientific nor Guidant assumes any obligation to update any forward-looking statements as a result of new information or future events or developments.

Additional Information
This material is not a substitute for the prospectus/proxy statement and any other documents Boston Scientific and Guidant intend to file with the SEC. Investors and security holders are urged to read such prospectus/proxy statement and any other such documents, when available, which will contain important information about the proposed transaction. The prospectus/proxy statement will be, and other documents filed or to be filed by Boston Scientific and Guidant with the SEC are or will be, available free of charge at the SEC's Web site (http://www.sec.gov ) or from Boston Scientific by directing a request to Boston Scientific Corporation, One Boston Scientific Place, Natick, Massachusetts 01760-1537, Attention: Milan Kofol, Investor Relations, or from Guidant by directing a request to Guidant Corporation, 111 Monument Circle, 29th Floor, Indianapolis, Indiana 46204, Attention: Investor Relations.

Neither Boston Scientific nor Guidant is currently engaged in a solicitation of proxies from the security holders of Boston Scientific or Guidant in connection with Boston Scientific's proposed acquisition of Guidant. If a proxy solicitation commences, Boston Scientific, Guidant and their respective directors, executive officers and other employees may be deemed to be participants in such solicitation. Information about Boston Scientific's directors and executive officers is available in Boston Scientific's proxy statement, dated April 4, 2005, for its 2005 annual meeting of stockholders, and information about Guidant's directors and executive officers is available in Guidant's most recent filing on Form 10-K. Additional information about the interests of potential participants will be included in the prospectus/proxy statement when it becomes available.

Contacts -- Boston Scientific
Milan Kofol (508-650-8569) (cell: 617-834-8595)
Investor Relations, Boston Scientific Corporation

Paul Donovan (508-650-8541) (cell: 508-667-5165)
Media Relations, Boston Scientific Corporation

Steve Frankel / Steve Silva (212-355-4449)
Joele Frank, Wilkinson Brimmer Katcher

Contacts -- Guidant
Steven Tragash (317-971-2031)
Corporate Communications, Guidant Corporation

Andy Rieth (317-971-2061)
Investor Relations, Guidant Corporation

Doug Hughes (317-971-2039)
Investor Relations, Guidant Corporation

Source: Boston Scientific Corporation

Wal-Mart Stores Inc. plans to open 10 to 15 large cash-and-carry stores in India in the next seven years, hoping to crack the booming retail market without angering the tiny mom-and-pop retailers and small middlemen that dominate the industry.

The world's largest retailer by sales says its wholesale joint venture with India's Bharti Enterprises Ltd. will employ about 5,000 people over that period after opening its first store this year. The stores will be 50,000 to 100,000 square feet and offer items ranging from fruit to footwear for sale to retailers, hotels, hospital and other businesses. Indian rules don't allow foreign retailers such as Wal-Mart to sell directly to consumers. They are, however, allowed to run wholesale operations and provide back-end support to Indian retailers.

Meanwhile, Wal-Mart's wholly owned subsidiary, British retailer Asda Group Ltd., unveiled a GBP 400 million ($779 million) expansion program that will involve opening as many as 22 stories and extending 12 existing outlets. The expansion will create more than 9,000 jobs this year, the company said.

In India, Wal-Mart is one of many international and local retailers with plans to invest billions to modernize India's retail industry and supply chains. They are hoping to carve out their own share of India's retail market, which is already valued at more than $300 billion but has until recently been dominated by millions of small family-run stores. German retailer Metro AG, the world's fourth-largest retailer in terms of sales, already has wholesale stores in Bangalore and Hyderabad and plans to open more in India. India's Reliance Industries Ltd. has opened more than 100 grocery stores in the past year. It plans to open thousands more, hoping to get the jump on the international competition.

The surge in interest in the sector has sparked protests by mom-and- pop store owners and the middlemen that supply them across the country. As it announced the outlines of its India plans yesterday, Wal-Mart said its arrival wouldn't hurt the small players in the industry. "Our goal is to work with India's existing supply-chain infrastructure and improve efficiency to minimize wastage and maximize value for farmers and manufacturers as well as retailers," Wal-Mart Vice Chairman Michael Duke said. "We can help cut the waste, not the middlemen who can play a very important part in the entire supply chain."

As it increases its ties with India, Wal-Mart said it is also looking to outsource some of its information-technology work to Indian companies. It didn't say which companies it plans to use. "As we deepen our relationship with India, it only made sense that we take advantage of the 24-hour development cycle that India offers," Mr. Duke said.

Separately, Bharti Enterprises Joint Managing Director Rajan Mittal told reporters the cash-and-carry joint venture with Wal-Mart hopes to open its first wholesale store by December, followed by a couple of more stores next year.