In Business This Week
Edited by Monica Roman
HEADLINER
Chuck Conaway: Blue Light Blues
When he was hired in June, 2000, as Kmart's (KM
) CEO, Chuck Conaway said he would need two years to turn the ailing discount chain around. Now, after a disappointing holiday season, some Kmart investors aren't waiting to see whether he will succeed. Kmart shares fell 13.19%, to $4.74, on Jan. 2, after Prudential Securities analyst Wayne Hood downgraded his rating on the stock from "hold" to "sell" and suggested that a bankruptcy filing could come later in this year.
That's certainly not what Conaway, 41, envisioned when he joined Kmart from the CVS drugstore chain, where he was president. An operations whiz with a finance background, Conaway has been trying to fix long-standing inventory-management woes. But he admits Kmart paid dearly for its decision to cut back on Sunday supplements in favor of TV ads promoting "Blue Light Always" pricing. The retailer says it has sufficient cash and lines of credit for Conaway to pursue his strategy. The possibility of bankruptcy is Hood's "opinion," a Kmart spokesman said.
By Joann Muller
Long Distance on the Rise
The big three long-distance companies rang in the new year by hiking some rates and fees to start off 2002, but don't expect the moves to reverse the declines in the traditional long-distance business in recent years. AT&T (T
), Sprint (FON
), and MCI Group (MCIT
) all increased their "basic" telephone rates, which they charge customers who are not on discount plans. AT&T, for example, will raise the daytime rate it charges for long-distance calls to 35 cents from 30 cents. With SBC Communications (SBC
), Verizon Communications (VZ
), and other Bells all gaining approval to offer long distance in their regions, however, competition is rising. In addition, wireless companies are offering deals on lots of minutes that include long-distance service. VoiceStream Wireless offers a $40-a-month plan that works out to 8 cents a minute for long distance during the week--and includes unlimited calling on weekends for no additional charge.
The FDA Gives Imclone a Headache
One of the hottest new drugs of 2002 was supposed to be ImClone Systems' (IMCL
) Erbitux for cancer--until the Food & Drug Administration rejected the company's approval filing on Dec. 31. The FDA wants more data to back up ImClone's claims for the drug. CEO Samuel Waksal says the requested information will be pulled together in a matter of weeks. But the delay raises concerns that the FDA may demand more clinical trials, delaying the drug's launch until 2003. That would also hurt Bristol-Myers Squibb (BMY
), which paid $1 billion to ImClone in September for 40% of Erbitux' profits.
Is Allstate Covered for This?
The federal government has accused Allstate (ALL
), the second-largest auto- and home-insurance company, of violating federal labor law by forcing 6,400 agents to give up their right to sue it for age discrimination or other issues. Under a 1999 reorganization plan, the Northbrook (Ill.) company had converted its insurance agents into private contractors. However, the employees-turned-contractors were required to sign a waiver giving up their right to sue the company over job issues. After a year of negotiations, the Equal Employment Opportunity Commission says it had no other option but to sue to block Allstate from enforcing the waivers. All told, payment for lost wages, job-search expenses, attorneys' fees, and pain and suffering could cost the company $2 billion, say analysts.
Why Visionics Is Flying Higher
The war on terrorism has been a growth engine for Visionics (page 75). On Jan. 2, it announced that seven airports--from Burbank, Calif., to Cincinnati--have placed orders totaling $350,000 for Visionics' fingerprint scanning system, which allows users to scan prints into the system and transmit them directly to the FBI. Installation is expected to be completed by the end of the month. In the wake of September 11, all airline employees are required to undergo fingerprint background checks.
The Mouse That Sued Echostar
Walt Disney (DIS
) won a temporary restraining order that prevents satellite-TV company EchoStar Communications (DISH
) from yanking Disney's newly acquired ABC Family Channel off its service. The tussle is crucial to Disney, which paid $5.2 billion to acquire the Family Channel from Fox (FOX
). EchoStar says it needs to drop cable channels to make room for local TV stations it's required to carry and has charged that Disney threatened to lobby against EchoStar's proposed merger with DirecTV if the Family Channel was dropped. Disney says it won't oppose the merger unless EchoStar blocks its TV properties from consumers.
Et Cetera...
-- U.S. District Judge Colleen Kollar-Kotelly set a Jan. 7 meeting date with Microsoft (MSFT
).
-- Hynix Semiconductor (HXSCF
) raised chip prices for the third time in less than a month.
-- Insurer ACE named PricewaterhouseCoopers partner Phil Bancroft as CFO.
CLOSING BELL
Chemical Runoff
Monsanto (MON
) shares fell 3%, to $32.80, after The Washington Post detailed PCB dumping in Alabama by one of the company's chemical units. Monsanto and Solutia--as the unit was named following a 1997 spin-off--deny the action caused any illness or injury and will defend themselves in a trial beginning Jan. 7.
CLOSING BELL
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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