Kroger sees hit, then gain, as pension plans merge

Kroger sees hit, then gain, as pension plans merge

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(Global Markets) - Kroger Co (KR.N) said on Thursday that four of the pension funds to which it contributes will merge into a new fund, a move that should ultimately trim its pension contribution costs after it takes a charge this year.

Kroger said it would borrow money at low interest rates to make a significant up-front pension contribution that will reduce future pension contribution related expenses. The fund merger also will lower administrative costs and investment fees.

Kroger said employees and retirees will gain because the pension plan will be more fully funded, which significantly reduces risk of decreased benefit payments. Kroger and the union also agreed to a set of calculations for retirement payments, which will be in effect for a decade.

The four United Food and Commercial Workers/multi-employer pension funds will merge into a new fund as of January 1, 2012, the company said.

Kroger, the largest traditional U.S. grocer, employs more than 338,000 workers. The company said the merged fund will secure pension benefits for more than 65,000 workers from 14 UFCW union locals. Eleven of those union locals have approved the deal. Kroger expects the remaining three locals to grant their approval by December 21.

The company plans to contribute about $650 million to the new fund in January. It now expects to incur a charge of about 73 cents per share in the fourth quarter of 2011 because of that contribution, though the exact effect on profit will depend on how much it actually contributes.

The new arrangement should lead to a lower 2012 pension expense and increase fiscal 2012 profit by 4 cents to 6 cents per share, Kroger said.

"This will establish funding certainty that benefits both participants and the company," Mike Schlotman, Kroger's chief financial officer, said on a conference call with analysts.

As of January 1, assets in the new fund will total about $2.5 billion. Kroger will be responsible for the investment and custody of all assets of the new plan. The assets previously were managed by the union and Kroger trustees.

The four funds involved in the merger represent roughly 30 percent of the current underfunding of all the multi-employer plans to which Kroger contributes.

Kroger has agreed to fund the unfunded obligation by March 2018. Underfunded pension plans don't have enough money readily available to cover current and future retirement obligations.

"Given the low interest rate environment, we believe it is prudent to fund a significant portion of this obligation now," Schlotman said.

"In a volatile financial environment, this plan represents a long term solution for a secure retirement," said UFCW International President Joseph Hansen. The union said the deal covers 170,000 retired and active Kroger workers in 15 states, primarily in the Midwest and South.

Defined pension benefit plans provide a pre-set monthly benefit, paid by the employer, upon retirement.

Many U.S. companies have replaced those plans with defined contribution plans such as 401(k)s, where employees contribute a portion of their salaries to investment accounts that do not promise a specific benefit.

Kroger and direct rivals like Safeway Inc (SWY.N) and Supervalu Inc (SVU.N) are squeezing costs as they compete with non-union discounter Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other U.S. retailer.

Shares in Kroger were up 1.1 percent at $23.80 in midday trading on the New York Stock Exchange.

(Reporting by Jessica Wohl in Chicago and Lisa Baertlein in Los Angeles, editing by Gerald E. McCormick and Gunna Dickson)

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Nintendo president puzzled by investor reaction to Wii U

Nintendo president puzzled by investor reaction to Wii U

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LOS ANGELES (Global Markets) - Nintendo President Satoru Iwata said he was surprised at the tumble in the company's share price following the unveiling of a successor to its smash hit Wii games console, adding that the new gadget had to be played to be understood.

Shares in Nintendo fell almost 10 percent in the two days following the company's splashy presentation of the Wii U, which features a tablet-style controller and high-definition graphics, and goes on sale next year.

"Honestly speaking, the reaction to (Tuesday's) presentation and what I heard from people I met and the mood of the convention did not chime at all with what happened in the stock market," Iwata said in an interview at the E3 games show in Los Angeles on Wednesday. "It's very strange."

But he added that the reaction reminded him of the mixed reaction to the original Wii in 2006 and that it showed that those who had not experienced the new gadget did not fully understand its potential.

"In the end, it is easy to get the mistaken impression that this is just a game console with a tablet," he said. "People who came to the presentation and tried it out have understood very well that it opens up a lot of new possibilities. But people who have not tried it will find it hard to believe that this controller will change things."

In the year following the launch of the first Wii in November 2006, shares in Nintendo tripled but have since given up all those gains. The stock was down 0.6 percent at 16,080 yen on Friday.

Nintendo is emphasizing its plans for the Wii U to bring together the casual gamers who bought the Wii and the more dedicated "core" gamers who tend to prefer rival Sony's Playstation or Microsoft's Xbox.

"At the moment, there is a barrier between the Wii, which is seen as for casual users and the other companies' consoles, which are seen as for core gamers. We are questioning whether that barrier needs to be there," said Iwata.

To that end, Nintendo worked hard on winning over the third-party game developers favored by serious gamers, who failed to back the Wii.

At E3 this week, both Electronic Arts Inc, known for its sports titles, and Activision Blizzard, the owners of the Call of duty shooter franchise, voiced strong support for the Wii U.

(Reporting by Liana Baker and Isabel Reynolds; Editing by Lincoln Feast)

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Murdoch and sons survive News Corp annual meeting

Murdoch and sons survive News Corp annual meeting

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LOS ANGELES (Global Markets) - Using contentious barbs and comedic relief, Rupert Murdoch deflected attempts by angry investors to remove him as chairman of his News Corp empire at the company's annual meeting on Friday.

The 80-year-old media baron survived what was effectively a no-confidence vote and also managed to get his sons James and Lachlan reelected as directors.

The octogenarian began the meeting with perfunctory comments about being personally determined to right News Corp's wrongs, saying it must be an ethical company and that it had been subject to fair criticism and unfair attack. But that was as conciliatory as he got.

Unlike his sons Lachlan and James, who sat quietly during the 75-minute meeting, Murdoch stood defiant in the face of tough questioning about News Corp's corporate governance, a proposal to strip him of the long-held chairman role that goes along with his CEO title, and fresh allegations of computer hacking that piggyback off the phone hacking charges responsible for putting Murdoch in his precarious position.

In addition to the roughly 150 people inside the Zanuck Theater on the Fox Studios lot in Hollywood, about 100 others stood outside, voicing opposition to the company and carrying signs that read, "Murdoch isn't above the law" and "Big Media, Big Money, Get Out."

Murdoch was feistier than he had been during questioning by a special committee of Parliament in July.

British member of parliament Tom Watson, Australian pension fund representative Stephen Mayne and Julie Tanner of the Christian Brothers Investment Service were among those who sparred with Murdoch. Mayne, a longtime News Corp antagonist, and Murdoch, who employed his familiar tactic of pounding the table to stress a point, circled each other like familiar opponents.

"It is time to get on the governance high road. You've been treating us like mushrooms," said Mayne, who has attended more than a decade's worth of these meetings.

Later, in response to Mayne's comment that he was not sure how he planned to vote his shares, Murdoch shot back, "I hate to call you a liar, but I don't believe you. I know how you're going to vote."

FIREWORKS

The real fireworks were supplied by Watson, who flew to Los Angeles to attend the meeting as the representative of 1,669 shares of nonvoting stock held by labor group AFL-CIO. At his first opportunity to speak, Watson noted the "deep irony" of News Corp using images of Prince William and Kate Middleton during its presentation since both were alleged phone hacking victims.

He said News Corp could face new investigations in the UK by the country's Serious Organised Crime Agency, stemming from the actions of at least three private investigators employed by News International, News Corp's UK newspaper publishing unit. Murdoch has failed to warn shareholders of the possibility of new civil lawsuits, Watson said.

"I promise you absolutely that we will stop at nothing to get to the bottom of this," Murdoch said in response to Watson.

Despite the animosity between the two, Murdoch jokingly defended News Corp's democratic voting process by pointing out that its Fox Business channel had featured Watson earlier in the day.

"We're fair and balanced," he said, referencing to the company's familiar slogan.

After the meeting, Watson told reporters that he was pleased to have had the opportunity to bring the issues to the attention of investors, even if board members "didn't choose to acknowledge the points I made."

"I made my serious points ... the board can choose to ignore me if they like," he said.

Watson said he was sure the issues brought up during the meeting would be put to James Murdoch when he returns to Parliament for more questioning next month.

CROWD SUPPORT

Murdoch had some supporters in the crowd, among them Haim Saban, the billionaire creator of the "Teenage Mutant Ninja Turtles" franchise. Saban said he was shocked at investors' focus on corporate governance and said they should instead be looking at News Corp's strong operating performance. He also asked Murdoch if he had plans to revisit the abandoned $12 billion BSkyB deal.

In the wake of the phone hacking scandal, a group called Avaaz campaigned against News Corp's bid to take full control of UK satellite operator BSkyB.

Murdoch said the company does not have plans to put the deal back on the table, but added "never say never, though."

Another independent investor thanked Murdoch for creating "thousands of jobs across the world."

Since Murdoch controls 40 percent of News Corp's voting B shares and is supported by the next largest holder, Saudi Prince Alwaleed bin Talal, there was little chance that Murdoch, his sons James and Lachlan or any other long-time serving director would have been voted off the board.

Shareholders reelected the media conglomerate's board of directors on Friday and failed to approve a proposal to oust Murdoch from his chairman post.

News Corp did not disclose the specific results, including how many investors withheld their shares from voting or how many voted against the directors, saying in a press statement that the company would file the numbers with the U.S. Securities and Exchange Commission early next week.

News Corp board chairman Viet Dinh took pains to defend the company's dual class stock structure by pointing out that Comcast, Warren Buffett's Berkshire Hathaway and others feature the same structure. He also noted that shareholders voted to approve the structure as recently as 2007. Dave Devoe, News Corp's chief financial officer, pointed out that the company has not bought a single Class B share with the $1.6 billion it has spent on stock buybacks.

News Corp shares closed up 2 percent to $17.20 on the Nasdaq on Friday.

"The News Corp recovery in line with the market at the close would indicate that the Street approves of this status quo," said Collins Stewart analyst Thomas Eagan.

Separately on Friday, News International, the News Corp division that housed the News of the World newspaper at the center of the phone hacking scandal, said it would pay the family of murdered British schoolgirl Milly Dowler 2 million pounds (US$3.17 million). Murdoch will personally donate another million pounds to charities chosen by the Dowler family.

Dowler was abducted in 2002 and found murdered six months later. News this year that the tabloid had hacked into her phone after she disappeared caused widespread revulsion in Britain and elevated the hacking to a national scandal.

Among the many concerns for Murdoch aides is the possibility of further reputation damage and embarrassment.

Former News Corp executive Les Hinton, who resigned this summer, is due to reappear before Parliament for additional questioning on Monday.

(Reporting by Lisa Richwine in Los Angeles and Yinka Adegoke in New York. Writing by Peter Lauria. Editing by Robert MacMillan)

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