In Business This Week
Edited by Monica Roman
HEADLINER
Stephen Wolf: Piloting US Airways...Again
US Airways (U
) Chairman Stephen Wolf has piloted several financially turbulent airlines to profitability. But now he's facing his biggest challenge yet. On Nov. 27, US Airways Group announced that CEO Rakesh Gangwal was leaving to pursue a career in venture capital. Wolf will step back into the top job, which he gave up to Gangwal in 1998. Some analysts speculate that Wolf's new post might be temporary, since he has long left most day-to-day operations to Gangwal.
Under the pair, US Airways agreed to be acquired by United Airlines (UAL
), but the $4.3 billion deal was shelved in July after it failed to pass muster with regulators. After September 11, US Airways laid off 11,000 employees, and it's not clear how much maneuvering room Wolf has. He has arranged a sale at each of the three airlines that he has run in the past, but finding another buyer could be tough. US Airways claims to be financially sound and will end the year with $1 billion in cash. With the industry's highest operating costs and mounting losses--it lost $766 million in the third quarter--that money may not last long.
By Lorraine Woellert
Microsoft to Europe: Let's Talk
Microsoft (MSFT
) is hoping that its successful strategy of negotiating with the government can be replicated in Europe. On the heels of its deal with the Justice Dept., the company signaled a desire to settle an antitrust case brought by the European Union. Microsoft said on Nov. 28 that it no longer wants a hearing to present its arguments. And company lawyer Bill Neukom has been crisscrossing the Continent, making the argument that the U.S. settlement provides the blueprint for a deal in Europe. Microsoft rivals remain confident the strategy won't work. They argue the company canceled because it wasn't prepared for the hostile questions it would face.
Back in the U.S., nine state attorneys general have decided to press their own case for tough restrictions on Microsoft, rather than directly challenge Justice's settlement. That job will be left to Microsoft competitors.
Pharmacia Farms Out Monsanto
Pharmacia (PHA
) is looking to streamline. On Nov. 28, the drugmaker announced that it would spin off to shareholders the roughly 85% stake it still holds in agricultural company Monsanto (MON
) in the second half of next year. Pharmacia, based in Peapack, N.J., bought Monsanto in 2000 in order to nab the company's drug unit. The deal paid off with the success of Celebrex, the blockbuster arthritis drug developed by Monsanto. But Pharmacia has had little interest in the agriculture business, selling a 15% stake in Monsanto's ag operation in an initial public offering shortly after the 2000 deal.
The Burden Grows Heavier at Lloyd's
The September 11 terrorist attacks are expected to cost Lloyd's of London some $2.7 billion, 45% more than initially reported. Lloyd's attributes the increase to new property claims and smaller-than-expected recoveries from reinsurers. Although September 11 represents the single biggest loss in the 300-year history of Lloyd's, the world's largest insurance market is adamant that it can manage. Lloyd's is "turning the corner rapidly," according to Chairman Saxon Riley. Lloyd's net premium income underwritten through October is up by $1.3 billion, to $4.3 billion. Lloyd's has called for nearly $1.5 billion in cash from its corporate investors and members, who are known as "names," and it plans another cash call in February. Lloyd's says it doesn't expect to raise this estimate "substantially."
AOL's Sprint into Long Distance
Sprint (FON
) and America Online (AOL
) announced on Nov. 27 a new strategic relationship that will offer AOL members a variety of Sprint long-distance plans. Under the multiyear, multimillion-dollar exclusive deal, the online giant will promote Sprint's long-distance phone service on its Web site. The service plans, branded "AOL Long Distance provided by Sprint," will be available for as little as $5.95 a month. The pact gives Sprint, whose third-ranked long-distance business faces emerging competition from regional bells, an opportunity to reach millions of new customers.
Providian's New Prince of Plastic
Hoping to salvage their troubled credit-card giant, directors of Providian Financial (PVN
) on Nov. 26 tapped Joseph Saunders, 56, to succeed Shailesh Mehta as CEO of the nation's fifth-largest card company. Saunders, CEO of the credit-card unit at FleetBoston Financial (FBF
) since 1997, faces a tough job. Providian, whose stock has fallen 94% since July, to under $4 a share, said federal regulators have prohibited it from issuing credit cards to consumers with poor credit histories. Saunders said he will sell $3 billion in high-risk receivables, cut expenses, and focus on higher-return businesses.
Et Cetera...
-- Andreas Schmidt, the head of Bertelsmann's e-commerce arm, is leaving the company.
-- CSFBdirect, the online brokerage service, was sold to Bank of Montreal (BMO
).
-- IBM (IBM
) is firing about 1,000 U.S. workers in its semiconductor business.
CLOSING BELL
Holiday Rush
Reports of better-than-expected computer sales over Thanksgiving left Gateway (GTW
) with something to be thankful for: Its shares jumped 11.2%, to $9.25, on Nov. 28. But the holiday cheer may prove short-lived. After undergoing a major restructuring, Gateway is still struggling to return to profitability.
CLOSING BELL
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Copyright 2001, by The McGraw-Hill Companies Inc. All rights reserved.
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