Finance Blog number 1

Covidien plc will spin off its Hazelwood-based drug business, turning it into an independent company that may restore the historic corporate name of Mallinckrodt.

Covidien, based in Dublin, makes medical devices and medical supplies in addition to drugs. The proposed spinoff also will have its legal headquarters in Ireland, largely for tax reasons, company executives said in a conference call.

But the spinoff’s U.S. operation will be based in Hazelwood, and its new CEO will work from here. Spokesman Steve Littlejohn said the company has not made a final decision on its name, “but chances are good that it will be Mallinckrodt.”

Covidien’s pharmaceutical business has $2 billion in sales, with two-thirds of that coming in the U.S. market. It turned an operating profit of $318 million this fiscal year.

The drug business is a large provider of acetaminophen, the ingredient in Tylenol, and the largest U.S. supplier of opioids; both are pain medicines. Other lines include contrast products used with medical imagery and nuclear medicine products.

The pharmaceutical operation currently employs about 2,500 people in metro St. Louis. A company spokesman said the move should have no immediate impact on jobs here. Some jobs might be added as the firm sets up its own administrative operation.

Analysts had speculated that Covidien might get rid of the drug operation. Although profitable, it is less lucrative than the rest of Covidien and demands a higher investment in research and development. The drug operation earns a 16 cent operating profit for every dollar of sales, compared with 28 cents for the rest of the company.

The drug operation has a “lumpy” revenue history, notes analyst Aaron Vaughn of Edward Jones in Des Peres. The division is largely a generic drugmaker, and that sector suffered through a price war in past years, he noted.

“We thought they would be getting the business right-sized so that they could spin it off and let it grow on its own,” he said.

Covidien Chief Executive Jose Almeida said the pharmaceutical drug division’s performance had improved in recent years.

“We’re confident the business can now stand on its own,” he said in a conference call Thursday morning.

He said the company had been thinking about shedding the business for several years, citing “major differences” between drugs and Covidien’s other medical products. The operations have different business models, sales channels, customers and capital requirements, and demand different talents, he said.

Separating the operations would allow both to focus on their own strategies, Almeida said. Shareholders also might get more value over the long term, he said.

The drug business “definitely needs some investment,” said analyst Jeff Jonas of Gabelli & Co. in an interview with Bloomberg News. “They need to find new products, invest in the pipeline. That’s a multiyear process.”

Research and development consumes 7 percent of revenue in the drug division, compared with 4 percent in the rest of Covidien.

The spinoff would be in the form of a stock distribution, tax-free to U.S. shareholders, the company said. That tax-free aspect made the option of a spinoff superior to the alternative of selling the unit, company officials said.

The spinoff could take 18 months to complete and would need approval of regulators.

Bloomberg News, citing unidentified sources, reported last summer that Covidien had tried to sell the unit, but talks broke down.

Almeida said he has picked a CEO for the new company, although he didn’t name the person. The person is a ’strong leader” with “broad pharmaceutical experience,” Almeida said, and will join the spinoff from another company.

The drug operation is now headed by Matt Harbaugh, the drug division’s chief financial officer serving as interim president. Based in Hazelwood, he has led the unit since the previous president left last year.

Besides its Hazelwood headquarters, the drug unit has a research operation in Webster Groves, a nuclear medicine facility in Maryland Heights and a plant just north of downtown St. Louis.

That plant sits on what was the Mallinckrodt family farm. G. Mallinckrodt & Co. was founded there in 1867 and grew up as a chemical and drug firm. It refined uranium for the Manhattan Project, which created the atomic bomb during World War II.

Avon Products acquired Mallinckrodt in 1982. Avon sold the company to International Minerals and Chemical Corp. in 1986, which later changed its own name to Mallinckrodt.

In 2000, Tyco bought the company. After Tyco went bankrupt amid scandals, its health care operations were spun off as Covidien in 2007.

Without the drug business, Covidien would have $9.6 billion in sales. Covidien’s remaining business makes trays, hypodermic needles, retractors, pumps for patient feeding and pain management, and other medical devices.

Covidien stock rose $1.39 to $43.55 on Thursday.

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The financial world initial rejoiced Friday when word came of a deal by most European countries _ including all 17 that use the euro _ to allow the European Commission to oversee national budgets and impose penalties if a country’s debt grows too much.

Since then questions have emerged about the willingness of each individual country to ratify the agreement, the lack of a short-term solution to high debt in Greece, Italy and Spain, and what the future monetary policy of the European Central Bank will be.

The Associated Press spoke with four experts Sunday about the deal and what implications it will have for the markets. Here are their thoughts, edited for clarity.

Peter Tchir, founder of TF Market Advisors: It has to go and be ratified. They’re talking about doing balanced budget amendments in each of the countries. It seems like this was done very last minute. I’m highly suspicious that there’s really a full buy in. I think some of these balanced budget acts are going to take a while to implement. There was also more document space talking about being able to waive penalties than what the penalties would be.

How serious are those punishments going to be and will they ever be enforced? If you look at monetary punishments, where there’s a fine, the country already believes it’s necessary to run a deficit in the current year because their economy is stagnating, are they going to get afraid because of the fine or just lump that into part of the cost? Will they get kicked out of the euro? Clearly at this point the EU has shown anything but a willingness to kick somebody out. They became so scared of that, that they cobbled out bailout after bailout.

On Monday and Tuesday the stock market is going to be looking for the ECB to come in and say, “We can buy as much sovereign debt as we want now.” I don’t think we are going to get that statement and that’s going to put downward pressure on the stock market. It’s going to finally hit home in the U.S. that the ECB does not believe in quantitative easing in the same way that the U.S. does and they’re not going to view this pact as a reason to change their view. That is going to disappoint the market.

Brian Gendreau, market strategist at Cetera Financial Group: There’s a long-term solution in place but there’s no solution to the current crisis. There’s still the prospect of default on Greek bonds and there’s still problems faced by Italy meeting the financing obligations moving forward. It is a welcome first step. I think there’s widespread recognition that it’s going to be a long process one way or another. There were compromises in the agreement.

There are a lot of questions that still remain. One of them is the role of the European Central Bank as a lender of last resort. The ECB has made it clear that they are willing to undertake the role of lender of last resort to banks but there’s a question of to what extent will the ECB be lender of last resort to countries.

This is going to set a better tone for the market going forward. There is a lot of repressed demand for stocks. There are a lot of people who have moved into CDs and Treasurys. People are going to be looking for the green light to move out of those funds. When they do, they’re going to move into stocks. Ultimately, the big beneficiary might be stock markets, including the U.S. stock market.

Paul Zemsky, chief investment officer for multi-asset strategies for ING Investment Management: Overall, it was a very positive step in the right direction but it wasn’t this grand bargain that I was hoping for and others were hoping for earlier last week. But some very good things did happen. The member states did agree to some legislation that would be more binding in terms of the deficits and debt. It would be overseen by the European courts.

I see two problems. One is that overall growth is slowing throughout the region. Germany is the bright spot. Most economists, including ourselves, have (forecast) a mild recession for next year. With slowing growth, it’s hard to get good budget numbers. Second, the agreement has been made but the laws haven’t been passed and signed.

There’s going to need to be pressure kept on these peripheral countries to go through with this. That means you are going to have to keep walking close to the edge in terms of the markets and the threat of the euro region breaking up if these guys don’t come through. We’re still not done with this dance with death. Until these laws are passed, there are going to be scares. There’s going to continue to be volatility coming from this region.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman: On the eve of the European summit, the ECB provided an incredible amount of liquidity to the market. I don’t know if the market fully appreciates that yet. They were willing to loan money to banks for three years. We’re not talking about a short-term, one-week loan. This is a three-year loan essentially. As much as they want, provided they have the collateral, which they also liberalized the definition of.

The take-away point is that the euro and eurozone survives without the ECB being a backstop for the sovereigns and without European bonds being issued. They live to fight another day. But it doesn’t change things. They’re still heading toward a recession. The ECB is still going to have to ease policy. They still have something on the magnitude of 1.8 trillion euros ($2.41 trillion) of bonds maturing, concentrated in the first half of next year.

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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.

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Ford Motor Co. said Thursday it will resume paying a dividend in March, more than five years after it halted payments because of its financial problems.

The company’s board approved a quarterly dividend of 5 cents per share. It will be paid on March 1 to shareholders of record as of Jan. 31.

“We have made tremendous progress in reducing debt and generating consistent positive earnings and cash flow,” Executive Chairman Bill Ford said in a statement. “The board believes it is important to share the benefits of our improved financial performance with our shareholders.”

Its stock pared its loss for the day after the announcement. Ford shares fell 4 cents to $11.04 per share in midday trading. Before the dividend was announced, it had traded as low as $9.84 earlier in the session.

The company stopped paying a dividend in September 2006, when it was deeply in debt. The company lost $12.7 billion that year fast cash advance.

But since then Ford has shed brands like Volvo and Mercury, closed factories, offered buyouts to thousands of employees and earned praise for new products like the Ford Explorer SUV and Ford Fiesta subcompact. Ford reported its tenth straight profitable quarter in the third quarter of this year, and it earned $6.6 billion in 2010.

“We have demonstrated our capability to finance our plans and we are confident that we can begin to pay a dividend that will be sustainable through economic cycles,” Chief Financial Officer Lewis Booth said in a statement.

Ford spokesman Todd Nissen said the New York Stock Exchange halted trading of Ford shares temporarily just before the noon announcement. Trading resumed about 10 minutes later.

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House Republicans intend to propose a gradual increase in Medicare premiums for wealthy seniors to help cover the cost of renewing Social Security payroll tax cuts and benefits for the long-term unemployed, officials said Wednesday.

The precise details remain to be worked out as the leadership consults with rank-and-file Republicans about the legislation, which has grown significantly in recent days and is expected on the House floor next week.

GOP officials described the plan on condition of anonymity because no final decision has been made.

In addition to the extension of payroll tax cuts and jobless benefits that are at the heart of President Barack Obama’s jobs program, House Republicans plan to include a provision to avert a 27 percent cut in payments to doctors who treat Medicare patients. All three face a Dec. 31 deadline for action.

In addition, GOP leaders eager to attract votes for the measure are likely to include conservative-backed provisions to speed the construction of a controversial oil pipeline from Canada to Texas and block a proposed Environmental Protection Agency rule restricting toxic emissions from industrial boilers.

Across the Capitol, Democrats set the stage for a second politically charged vote in the Senate later in the week on their proposed surtax on million-dollar earners to help pay for the renewal of the tax cuts and unemployment benefits.

Senate Republicans blocked an earlier bill along the same lines, and the Democrats’ decision to call for a second showdown comes as they seek to brand GOP lawmakers as protectors of the rich at the expense of the middle class.

The move is “nothing more than another bill that’s been designed to fail, so Democrats can have another week of fun and games on the Senate floor while tens of millions of working Americans go another week wondering whether they’re going to see a smaller paycheck at the end of the year,” said Senate Republican leader Mitch McConnell of Kentucky.

Republicans oppose higher taxes, and GOP aides in the House pointed out that the proposed higher Medicare premiums for the wealthy would fall on some of the same individuals whom Democrats want to tax.

Senate Republicans included higher premiums in their own alternative measure last week. It would have required seniors earning more than $750,000 to pay more for Medicare Part B, which covers doctor visits and other costs apart from the expense of hospitalization.

According to Medicare’s website, monthly Part B premiums will be $99.90 in 2012 for beneficiaries with individual income of $85,000 or less. The cost rises gradually, reaching $319.70 for anyone whose income exceeds $214,000.

The dispute over taxes is one of several that must be settled before legislation can reach Obama’s desk, and Democrats sought to put the onus on Republicans.

Republicans have said in recent days that to cover the cost of doctor fees under Medicare, they intend to cut funds from the year-old health care bill that is the president’s signature domestic achievement.

Sen. Max Baucus, D-Mont., who is chairman of the Senate Finance Committee, dismissed that approach during the day as “not a good idea. That’s going to cause more problems than it solves,” he said, and urged Republicans to concentrate on drafting legislation that can clear both houses.

Speaker John Boehner, R-Ohio, and other GOP leaders must contend not only with Senate Democrats, but also with disgruntled lawmakers inside their own party who are reluctant to extend a payroll tax cut that they claim has failed to produce any jobs. The proposal to take a piece out of the president’s health care bill is likely to be an attractive addition to these Republicans, as is the renewal of current reimbursement rates for doctors who treat Medicare patients.

Officials said the emerging House bill is also likely to extend several features of Medicare that would otherwise revert to lower payments for some hospitals as well as for ambulances in rural areas, some mental health services and therapy services from non-hospital providers.

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O’FALLON, ILL. 

Everyone dreams of striking it rich _ and what they would do with such a windfall. A new house? A fancy car? Maybe designer clothes selected by a personal shopper.

For some in Silicon Valley, those wishes may soon come true.

As restrictions on selling stock are lifted at a handful of sizzling startups, early investors and employees are preparing for big payouts.

What they do with their riches is anyone’s guess, but luxury retailers and wealth managers say they’re expecting a bump in business and have been preparing for this new crop of Internet millionaires.

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The Treasury Department has raised $12.2 million from the sale of warrants of 17 banks that received government support during the financial crisis. The sales are part of the government’s efforts to recoup the costs of the $700 billion financial bailout.

The Treasury said Friday that the largest amount raised in gross proceeds was $2.79 million from the sale of warrants of Eagle Bancorp Inc. of Bethesda, Maryland, followed by $1.75 million from warrants of Horizon Bancorp of Michigan City, Ind.

The warrants give buyers the right to buy common stock at a fixed price. Treasury is using direct sales of the warrants to institutional investors because the holdings were judged too small to justify the cost of holding public auctions.

The 17 banks received approximately $1 billion in support from the Troubled Asset Relief Program in 2008 and 2009. All 17 have repaid the money and the warrants represent their last link to the TARP program.

Banks, other financial firms and U.S. carmakers received $413.4 billion from the taxpayer-funded bailout. So far, the government has recovered $317.6 billion. Of that amount, $9.1 billion has come through the sale of warrants.

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A late rally pushed the Dow Jones industrial average back above 12,000 Monday as investors responded to the latest twists in Europe’s efforts to control its debt crisis.

U.S. indexes were down for much of the day on worries that Italy could become the next country to run into trouble. Stocks turned higher after 2 p.m. Eastern on news that Greece would receive the latest installment of emergency aid as long as the country’s two main parties commit to implementing economic reforms agreed to by the country’s previous government.

Investors again reacted to whatever was the latest headline out of Europe. The region’s problems have been offsetting optimism about strong corporate earnings in the U.S. and signs of improvement in the economy.

“Every day it seems like it’s the butting of heads between whatever the latest rumor is out of Europe with good economic data and corporate earnings,” said Karyn Cavanaugh, a market strategist with ING Investment Management. “It’s overshadowing the fact that earnings are on track to be the best year ever.”

The Dow rose 85.15 points, or 0.7 percent, to close at 12,068.39. The Dow closed near its highest point of the day and had been down as many as 102 points shortly after midday. Hewlett-Packard Co. rose 3.4 percent, the most of the 30 stocks in the Dow.

The Standard & Poor’s 500 index rose 7.89, or 0.6 percent, to 1,261.12. Last week the S&P had its first down week since September. The Nasdaq rose 9.10, or 0.3 percent, to 2,695.25.

Worries that Italy could become the next victim of Europe’s debt crisis kept investors uneasy.

Italy’s borrowing rates spiked Monday to the highest level since the country adopted the euro. Unlike Greece, Portugal or Ireland _ all of which received financial lifelines _ Italy has too much debt to be rescued by its European neighbors. Prime Minister Silvio Berlusconi has rejected suggestions that he resign to make way for more cost-cutting.

In Greece, the two main political parties agreed over the weekend to share power in a new government after George Papandreou said he would step aside as prime minister. European finance officials agreed to release the next slice of bailout money to Greece as long as leaders of the parties agree in writing to carry out austerity measures required by international lenders.

The payment has been delayed by two months and is needed to avoid a potentially disastrous default on the country’s debt, which would roil financial markets and cause losses for European banks.

The worries over Europe’s debt problems lifted the prices of assets seen as safe havens. The yield on the 10-year Treasury note fell to 2.01 percent from 2.04 percent late Friday. Bond yields fall when their prices rise, reflecting an increase in demand. Gold rose 2 percent.

In corporate news:

_ Amgen Inc. rose 5.9 percent to $58.43, the most in the S&P 500 index, after the biotech drugmaker said it would buy back up to $5 billion of its stock.

_ Dish Network Corp. rose 5 percent to $24.66 after the satellite TV provider announced a special $2 per share dividend and a 30 percent increase in net income.

_ Home Depot Inc. rose 2.6 percent to $37.34 after getting upgraded by analysts.

Rising stocks slightly outnumbered falling ones on the New York Stock Exchange. Volume was lighter than average at 3.4 billion shares.

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BJC Healthcare 24,815

SSM Health Care 14,686

Mercy Health 10,311

St. Anthony’s Medical Center

4,365

Express Scripts 4,154

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The number of Americans who signed contracts to buy homes fell for the third straight month in September after the spring-and-summer peak buying season failed to entice new buyers.

The National Association of Realtors says its index of sales agreements fell 4.6 percent last month to a reading of 84.5.

A reading of 100 is considered healthy. The last time the index reached that high was in April 2010, the final month that buyers could qualify for a federal tax credit that has since expired cash advance no fax.

Contract signings are usually a reliable indicator of where the housing market is headed. There’s typically a one- to two-month lag between a contract and a completed deal.

But the Realtors group said a growing number of buyers have canceled contracts.

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