MARKETS

OIL FUTURES PRICES HEAD TOWARD $54 A BARREL

Oil futures prices advanced to a new high yesterday as a strike began in Africa’s largest exporter of crude, exacerbating global supply concerns at a time of strong demand and reduced output in the hurricane-ravaged Gulf of Mexico.

Worries about Russian oil supplies also persist as oil giant Yukos, already struggling to repay a multibillion-dollar back-tax bill, got hit yesterday with $1.34 billion in fines.

Crude for November delivery rose 33 cents to $53.64, surpassing Friday’s record settlement price of $53.31 on the New York Mercantile Exchange.

On London’s International Petroleum Exchange, Brent crude futures for November delivery rose 95 cents to close at $50.66 per barrel.

While oil prices are about 80% higher than a year ago, they are more than $26 below the peak inflation-adjusted price reached in 1981.

Underlying market jitters is the fact that excess available output is scant, with global production capacity only about 1% above the daily supply of 82 million barrels. Demand rose faster than expected this year, particularly in China and India, catching many in the industry off guard.

In Nigeria, a nationwide strike to protest higher fuel prices began yesterday, shutting down most of Lagos, Nigeria’s commercial capital.

In Russia yesteday, a court ruled that Yukos must pay $1.34 billion in fines and penalties as part of a $4.1 billion back-tax claim for 2001, raising the company’s total liabilities to about $7.5 billion. The company has warned repeatedly that its production could suffer as a result of the government’s aggressive pursuit of the back taxes.

– Associated Press

NATIONAL

BOEING’S $4 BILLION C-130 WIN OVER LOCKHEED REVIEWED

Boeing Co.’s $4 billion contract to upgrade software on C-130 military transports will be reviewed after a former Air Force official admitted she improperly favored Boeing over Lockheed Martin Corp., the service said.

The Air Force said in a statement that it asked Pentagon Inspector General Joseph Schmitz to add the 2001 award to a list of others handled by former no. 2 Air Force acquisition official Darleen Druyun that are being scrutinized for possible favoritism. They include a $23 billion aerial-tanker award that lawmakers rejected last week and may be reopened to competitive bids.

While it probably won’t lose the C-130 work, Boeing could face penalties from the Air Force or legal challenges from Lockheed in the Federal Court of Claims or through the Government Accountability Office, said Richard Aboulafia, an aerospace defense analyst with the Teal Group in Washington.

“Given the amount of work that has already gone into this project over the last three years, it’s difficult to imagine the project being directly taken from Boeing,” he said. “There might be some penalties or a lawsuit but Boeing is likely to remain the prime contractor.”

– Bloomberg News

HEDGE FUNDS

PERMAL HEDGE FUND GROUP HIRES MERRILL TO FIND POSSIBLE BUYER

Permal Group, a hedge fund manager owned by France’s Worms & Cie, hired investment bankers from Merrill Lynch & Co. to explore a possible sale.

Permal, which oversees about $18 billion for clients, is evaluating all its options, said Christian D’Oleon, a spokesman for Worms & Cie in Paris. Permal, run from New York and London and led by executives including Isaac Souede, was founded in 1973 by Worms & Cie, which is now controlled by Italy’s Agnelli family.

Permal is considering a sale as financial institutions such as JPMorgan Chase & Co. show increased interest in expanding their offerings of hedge funds, the fastest-growing part of the money management industry. JPMorgan last month announced plans to buy High bridge Capital Management, a New York-based hedge fund group with about $7 billion of assets, for an undisclosed amount.

“Now is the ideal time to sell since everyone and his brother wants to be in the hedge fund business,” said Geoff Bobroff, an industry consultant in East Greenwich, R.I.

Permal may be betting that hedge fund returns – and therefore the fees managers collect – will fall from the 10.7% a year that they averaged since the beginning of 1994. With so many hedge funds in the market, returns have started coming down, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.

“The idea that hedge fund returns will outperform the market is probably over,” said Hintz.

A Merrill Lynch, spokeswoman, Jessica Oppenheim declined to comment.

– Bloomberg News

IN THE COURTS

ORACLE EXEC SAYS PEOPLESOFT DEAL PRICE COULD DROP

Oracle Corp.’s co-president, Safra Catz, said yesterday the company’s offer for PeopleSoft Inc. could drop by one-third to one-fourth. Ms. Catz cited PeopleSoft’s 2004 performance as the chief reason for what she said is likely to be a decline from the current $21-a-share offering price.

“The direction is down significantly,” she answered in response to questions from her own lawyers, who are attacking PeopleSoft’s anti-takeover defenses in a Delaware courtroom.

A lawyer for PeopleSoft suggested Ms. Catz statements and those from other Oracle executives were part of a continuing effort to use the Delaware trial as a platform to drive the deal price down.

Oracle’s chief executive, Lawrence Ellison, took advantage of his turn on the stand last week to warn to PeopleSoft shareholders that the offer on the table was likely to be replaced with a lower 51 2094 119 2106number.

Under cross-examination by PeopleSoft’s attorney, Ms. Catz admitted that prior to the trial Oracle had made no public statements about the dimensions of an offering price drop.

However, she said, in a press release a few weeks back, Oracle said it was taking into account specific liabilities that PeopleSoft was adding in evaluating the deal. Ms. Catz said new financial models are being run. The last models, done in January, expected PeopleSoft to earn about 85 cents a share in 2004.

At that time, the offering price was $26 per share. No new models were done when Oracle dropped its offer to $21 per share in May, according to Catz.

So far, she said, her sense is that PeopleSoft’s 2004 earnings will be “60, 59, 61” cents a share.

– Dow Jones Newswires

PEOPLE

RETAIL BILLIONAIRE HUANG TOPS LIST OF CHINA’S RICHEST PEOPLE

Gome Electrical Appliances Holdings Ltd. founder Huang Guangyu was named China’s richest man with a fortune of $1.3 billion, one of three billionaires in an annual ranking of the nation’s wealthiest business people.

The 35-year-old retail and real estate tycoon topped the 2004 China Rich List published by Euromoney China, after building his company into China’s biggest electrical appliance chain and securing a Hong Kong listing for the business in June. Chen Tianqiao, 31, founder of Shanghai-based Shanda Interactive Entertainment Ltd., and Larry Yung, 62, chairman of Hong Kong-listed Citic Pacific Ltd., were ranked after Mr. Huang, the first time three billionaires have been listed in a nation that had urban per-capita disposable income of $582 in the first half.

“The fact that China has produced three billionaires is a milestone in the nation’s economic development,” said Rupert Hoogewerf, who led the team that compiled the list. China’s economy grew 9.7% in the first half of this year, the fastest rate among the world’s 20 biggest economies.

– Bloomberg News

LEGG MASON’S MILLER DOUBLES NETFLIX STAKE TO 11.5%

Mutual fund manager Bill Miller, making another bet on an Internet company shunned by investors, doubled his stake in movie-rental service Netflix Inc. to 11.5% in the third quarter The Legg Mason Opportunity Trust, one of two mutual funds managed by Mr. Miller, held 6 million Netflix shares at September 30, an increase from 2.9 million on June 30, according to a U.S. Securities and Exchange Commission filing made late October 8.

Shares of Netflix, based in Los Gatos, Calif. plunged 57% in the third quarter as investors became concerned that the company’s mail-order DVD service may lose sales to Blockbuster Inc. Mr. Miller, known for besting the Standard & Poor’s 500 Index for a record 13 straight years, has used price declines at companies such as Amazon.com Inc. to increase his wager on the future of electronic commerce. Netflix subscribers, for a flat fee of $21.99 a month, order DVDs online that are sent through the mail.

Subscribers can rent an unlimited number of movies each month – as long as they don’t have more than three DVDs at any one time – and return them through pre-paid mailers that the company provides.

– Bloomberg News