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10 To Watch in '08

People and issues as selected by Inquirer business editors

Michael Nutter, Philadelphia's new mayor.
Michael Nutter, Philadelphia's new mayor.Read moreAssociated Press

“This city is going to turn itself around,” Michael Nutter said, “whether it wants to or not.”

The crowd of professionals and Center City boosters gathered 51 floors above Center City gave the mayor-elect a standing ovation at that Dec. 12 peroration, sponsored by the Central Philadelphia Development Corp.

The surprise victory of the wonkish councilman, who represented the city neighborhoods nearest the Main Line, over more traditional politicians in last spring’s Democratic primary delighted business leaders who wanted relative youth, energy and polish in the city’s most public face.

“Nutter is a mayor we can put in front of people. The business community is just giddy over him, and he’s being very well-received,” Hugh Long, head of Wachovia Corp.’s Philadelphia-based northern region, said just before Nutter won the general election by a wide margin.

Long meant people in the suburbs, among others, whose hostility has cost Philadelphia plenty over the years. Nutter, said Long, “understands it and gets it that if a company locates in Camden or Malvern or Wilmington, Philadelphia benefits. Some of their people will live in the city. Some of their children will go to Philadelphia colleges.”

It is not that companies had so much to complain about under Nutter’s predecessor, Mayor Street. Business and wage taxes declined on Street’s watch, and condos and hotels rose. The most common complaint concerned the man’s distant style. Lincoln National Corp. might not have left Philadelphia for Radnor, critics said, if Street had shown more tact with Lincoln chief executive officer Jon Boscia’s attempts to be taken seriously as a corporate citizen.

Not all businesspeople are expecting miracles. Nutter faces gun violence, huge bills for pension and retirement care, and contract negotiations. His background is in government, not business. The national economy is faltering.

But among the lawyers, investors and corporate executives, just across the street from the newly completed Comcast Center, Nutter could afford high expectations before the heavy lifting started.

Pennsylvania’s $700 million expansion of the Convention Center in Philadelphia, which should begin in 2008 after design disputes and demolition are wrapped up, is not just the biggest capital investment in its history. It also will raise the financial risk for the state and city, as authorities link a larger share of Philadelphia’s economy to the volatile convention and hospitality industry.

The expansion has strong political and business support. Still, the big question in 2008: Does the Convention Center Authority have the resources and skills to compete against ever-growing facilities elsewhere?

Buck Riley, the authority chairman, said the board knew it must “do better than others.”

Jack Ferguson, executive vice president and chief salesman at the Philadelphia Convention and Visitors Bureau, said the city had booked 20 major conventions starting in 2011, representing more than $1 billion in visitor spending. But the bureau still may need to expand its “sales and marketing to larger customers with greater space needs.”

To do that, Philadelphia may need to boost its spending. Its current sales-and-marketing budget is $5.9 million, roughly half the amount Boston said it spent last year to market its two centers.

If the planned sale of Commerce Bancorp Inc. to TD Bank Financial Group, of Toronto, goes through as expected in February or March, thousands of Commerce customers will have eagle eyes for changes at the bank, which is known for its customer service.

TD Bank agreed to buy Commerce in an $8.5 billion deal in October.

The Cherry Hill bank more than tripled its deposits over the last five years to $46.5 billion by building branches and using low fees, long hours and other conveniences to draw customers.

TD Bank officials said they planned to make Commerce even better, but the historical norm in banking is to use cost-cutting to help pay for acquisitions. Commerce, which had 457 branches as of Sept. 30, has a notoriously high-cost business model.

Another question is what TD will do with the Commerce brand. TD BankNorth already has 41 branches in the eight-county Philadelphia area. How will the brands’ colors — Commerce red and TD green — mix?

Commerce’s founder, Vernon W. Hill II, who was ousted as chief executive officer last summer, has turned his attention to Hill-Townsend Capital, a private investment group in Chevy Case, Md.

The plan for Hill-Townsend, which Hill formed with former Friedman Billings Ramsey stock analyst Gary B. Townsend, is to make long-term investments in beaten-down mid-cap bank stocks.

What else might Hill do with his estimated $200 million-plus in gross proceeds from the sale of Commerce?

The possibilities abound; his business interests include a golf course, a real estate development company, and a fast-food restaurant company.

Even if the machinations of giant insurers do not produce much in the way of drama, it will be interesting to watch Harrisburg politicians angle for power, influence and a chance to control $1 billion as they look into the pending merger of Independence Blue Cross and Highmark Inc.

In March, the two Blues, one in Philadelphia and the other in Pittsburgh, announced an intention to merge. The Insurance Department says it could reach a final decision by the end of 2008.

The new company would become the largest health insurer in the state and among the biggest in the nation. The Blues say they need the deal to compete with their for-profit counterparts, both in Pennsylvania and nationally.

Those counterparts and others say that in Pennsylvania, the combined company will drown smaller players and bully doctors and hospitals into contracts that are unreasonable.

Joseph A. Frick, chief executive of Independence Blue Cross, and Kenneth R. Melani, his Highmark counterpart, have said their combined company would produce more than $1 billion in savings. That is what started everyone’s eyes glistening. Regardless of whether the combined company can actually produce those savings, lots of people have opinions on how the money can be spent.

Not since the early ’90s has there been such interest in fixing the U.S. health-care system.

What to do about health care is a hot topic for presidential candidates, and polls say it is the top domestic issue among voters.

Does that mean politicians finally will overcome the ideological divisions and powerful special interests that have so far doomed major changes?

“The stars are much more aligned … than they’ve ever been to have change occur,” said Jon Cohen, a doctor and managing director of U.S. health-care advisory services for PricewaterhouseCoopers L.L.P. Ultimately, the fate of changes rides on the next president’s leadership abilities and the makeup of the next Congress, he said.

Drew Altman, president of the Kaiser Family Foundation, said the debate would heat up once Democratic and Republican candidates faced each other. There are “fundamental, profound differences” in their approaches, he said. “They’re the reason we’ve had paralysis on health reform for these many years.”

Democrats are more likely to seek universal insurance coverage. Some candidates would require everyone to get insurance, and several would make employers contribute.

Republican proposals are more focused on tax changes aimed at making insurance more affordable and the health system more efficient.

Paul Ginsburg, president of the Center for Studying Health System Change, said many special interests were open to change. The biggest stumbling block — how to pay for the changes — will not be addressed until legislation reaches Congress.

Andrew Witty openly vied with two colleagues for two years to be chosen as chief executive of drugmaker GlaxoSmithKline P.L.C. Some likened the public contest to a corporate version of the reality show


But will

turn out to be a more apt comparison?

Witty, an Englishman who takes over GlaxoSmithKline in May, faces a medicine chest full of challenges. A top-selling drug has been under attack, the best hope for a blockbuster has been delayed, and time is ticking on the current list of top sellers.

Witty, 44, who served in China for the drugmaker, is probably aware that the Chinese character for crisis includes the symbol of opportunity, at least as self-help books see it.

He will need such optimism to get over the sliding sales of GlaxoSmithKline’s second-best-seller, the diabetes drug Avandia, which has been battered by allegations that it increases risk of heart attack. A potentially bigger shock is the delay in Cervarix, the cervical-cancer vaccine and potential blockbuster. The company expected U.S. approval in early 2008, but now will not say how long Cervarix will be delayed. Estimates run from six months to two years. Any delay is a boon to Merck’s rival product, Gardasil.

GlaxoSmithKline has been adept at repackaging its drugs in new formulations. But getting drugs that advance care may be Witty’s biggest challenge.

The 27-year GlaxoSmithKline veteran will need to show the entrepreneurial chops to buy or discover new drugs.

Other concerns include how he will reshape the expensive sales force and whether the company will keep growing its consumer products division or become a pure-play prescription drug firm.

There is also the question of the firm’s two U.S. headquarters: Research Triangle Park, N.C., and Philadelphia. Other drug firms have been whacking facilities. Will Witty be a cutter or a builder?

The two casinos planned for Philadelphia remain just that — plans — after a year of legal and political wrangling.

SugarHouse Gaming and Foxwoods Development Co. L.L.C. were awarded the two coveted city slots licenses Dec. 20, 2006, by the Pennsylvania Gaming Control Board.

While six slots parlors are now open across Pennsylvania, lingering neighborhood opposition  has delayed work on the ones planned for the Delaware River waterfront. The Pennsylvania Supreme Court ordered City Council on Dec. 3 to give SugarHouse all the necessary permits and approvals to begin construction immediately.

Groundbreaking for the casino, planned for North Delaware Avenue at Shackamaxon Street, could be as early as next month. And SugarHouse plans to open its interim facility, with 1,500 slot machines, by July 2009, according to its chief executive.

SugarHouse does face another hurdle: the issue of riverbed building rights. Last week, a group of state lawmakers whose legislative districts abut the Delaware River announced they were suing the city for granting riparian rights to SugarHouse to build its casino. The lawmakers contend that right belongs to the state, not a city agency. The lawsuit is a direct challenge to the state Supreme Court’s ruling Dec. 3.

Foxwoods had sought similar relief from the state’s highest court for its planned casino at Columbus Boulevard between Tasker Avenue and Reed Street in South Philadelphia. But the Supreme Court refused to speed up Foxwoods’ request for city approval to enable it to begin construction.

The slumping U.S. housing market will remain at center stage of an economy that is weakened but expected to skirt recession.

Some economists say they expect the worst to be over before the end of 2008, but that does not mean it is time to cheer. Housing is unlikely to regain strength in this decade.

Locally, the “housing market is soft, but it is one of the best big markets in the country,” said Mark Zandi, chief economist at Moody’s, of West Chester.

Zandi predicted that average house prices in the Philadelphia region would fall 5 percent from peak to trough, compared with a 15 percent drop nationwide.

A major threat to home prices is the flood of foreclosures expected as adjustable-rate mortgages begin resetting, forcing borrowers who cannot afford the new payments into foreclosure.

The housing slump is not the only headwind buffeting economic growth. Others include higher energy prices, tighter credit, declining automobile sales, and a weakening job market.

Still, economists at three of the nation’s biggest banks, Bank of America Corp., Wachovia Corp. and PNC Financial Services Group, predicted that the U.S. economy would not slip into recession in 2008, saying job growth would be just enough to keep incomes rising.

Bank of America put the chances of recession at one in three, cautioning that the probability would increase if companies cut more jobs than expected and it became harder to borrow money.

Headlines across the globe tell the story of nuclear power’s nascent resurgence: China, India, France, the United States — all witnessed efforts in 2007 to expand their nuclear resources.

But the trend is also illustrated by the dollars and deeds of Exelon Corp., which not only owns Philadelphia-based Peco Energy, but is the nation’s largest producer of nuclear energy as well.

The Illinois company, whose nuclear division owns five of the nine functioning nuclear plants in Pennsylvania and one in New Jersey, has made preliminary strides toward building a new plant in Texas.

Earlier this year, Exelon chief executive John Rowe said 20 to 30 new plants would be needed by 2030 to meet the nation’s growing demand for electricity. Nuclear power now provides about 20 percent of U.S. electricity.

Exelon is among a number of energy companies that have proposed more than 20 sites nationwide as potential locations for new nuclear plants, according to data compiled by the Nuclear Energy Institute, an industry group.

As Exelon presses toward expanded nuclear capacity, its share price has soared during the last year, from $61.89 in early December 2006 to $85.64 the same time this year. The stock-price surge, however, was due largely to the end of a nine-year rate freeze in Illinois.

Kevin Martin, the 41-year-old Republican chairman of the Federal Communications Commission, is expected to produce more heartburn for the cable television industry in 2008.

Martin has said that cable rates are too high and that the cable industry should adopt a pay-per-channel economic model, which would allow customers to pick and choose what channels they want to buy and view.

Social conservatives, who are political supporters of Martin, do not like being forced to pay for what they consider smutty entertainment, such as MTV and FX. Those channels are many times part of the bundles that cable companies sell to consumers.

Cable companies say the pay-per-channel model will boost prices and lead to fewer channels. They say consumers can block channels they do not wish to view.

Martin is not buying the industry’s position. And in what many view as punishment, he is pushing a platform of new regulations.

This month, Martin allied himself with the two Democrats on the five-member FCC to pass a rule limiting Comcast Corp.’s size to 30 percent of the pay-TV market. Comcast, the nation’s largest cable company, says it will seek to void the new limit in federal court.

In early January, Martin is scheduled to speak at the huge Consumer Electronics Show in Las Vegas, on the same day Comcast chief executive Brian L. Roberts is speaking.

Everyone in the consumer electronics and cable industries will be listening. The two industries are developing competing technologies for embedding set-top boxes into TV sets.

The cable industry has worked for a decade on its technology. Martin may use the trade show to make a proposal that would complicate the industry’s plans, some believe.