In Business This Week
Edited by Monica Roman
HEADLINER
Carly Fiorina: Catching the Big Mo
Just weeks ago, Hewlett-Packard's (HWP
) $24 billion acquisition of Compaq Computer (CPQ
) seemed to have no chance, given opposition from founding family stockholders and foundations. But HP CEO Carly Fiorina may now have momentum on her side. On Feb. 5, she claimed HP had "more than sufficient" votes to win. The next day, HP set the shareholder vote on the merger for Mar. 19.
What changed? HP has provided investors with a clearer picture of how the companies would fit together. And HP's Feb. 4 news that it would beat its quarterly earnings estimates has increased investor confidence in Fiorina. Then there are Fiorina's powers of persuasion. "Each time I've heard her, I've heard a stronger and better argument," says Ray Hirsch, an analyst with American Express Financial. What's more, Fiorina is winning support from those who fear the uncertainty if she loses and steps down. Says Kevin Rendino, a portfolio manager with Merrill Lynch: "Sometimes the devil you know is better than the devil you don't know."
By Peter Burrows
The SEC Slaps Critical Path
The aftershocks from one of the Internet's biggest accounting scandals are being felt. The Securities & Exchange Commission on Feb. 5 doled out fines and other reprimands to two former Critical Path (CPTH
) executives who helped orchestrate fictitious transactions for the onetime Internet highflier. BusinessWeek first detailed Critical Path's accounting violations (BW--Aug. 6), which included back-dating of contracts and booking revenues from fictitious contracts. The SEC levied a $110,000 fine on former President David Thatcher and banned him from serving as an officer or director in a public company for five years. Former sales exec Timothy Ganley was fined $105,900. The two men now face criminal charges from the U.S. Attorney's Office. The SEC says that it will not fine Critical Path but will continue to investigate other former executives.
Bush Scolds Fannie and Freddie
It's a catch-22 for Fannie Mae (FNM
) and Freddie Mac (FRE
), the government-sponsored entities created by Congress to assist in home financing. In response to criticism from the Housing & Urban Development Dept., the companies in recent years have reached out to low-income home buyers by financing subprime loans. But in its fiscal 2003 budget, the Bush Administration chastised Fannie and Freddie for their increasing exposure to subprime loans, which tend to be riskier than conventional mortgages. Fannie and Freddie officials say the concern is unfounded, since nearly all of their subprime loans are bought with credit guarantees from the lender.
Wireless Stocks Disconnect
Several wireless operators in the U.S. watched their shares plummet to near lows after reporting lackluster fourth-quarter growth and indicating that their new-subscriber growth will slow down considerably during the coming months. On Feb. 5, shares of Nextel Communications (NXTL
) tumbled 25%, while Sprint PCS (PCS
) lost 20% and AT&T Wireless (AWE
) fell 3%. Sprint, which had been signing up new customers at a sizzling pace, said on Feb. 4 that it expects 3 million new subscribers in 2002. That's down from an earlier forecast of at least 3.6 million. The number of new customers across the cellular industry sank 9% during 2001, according to Bear Stearns, and is expected to drop 11% this year to about 19 million.
America, Land of the Web Surfers
America, you're online. According to U.S. Census data released on Feb. 5, more than half of all households and more than half of all Americans are connected to the Internet. As of last September, 54% of the population, or 143 million Americans, were using the Net. Not surprisingly, kids had the highest rate of computer use--90% of children between the ages of 5 and 17 use computers at home and school. Web use is increasing fastest in single-parent households: Usage rate has gone from 15% to 45% in five years.
General Re Losses Buffet Berkshire
Warren Buffett's Berkshire Hathaway (BRK
) warned that its fourth-quarter earnings will take a hit, due to an underwriting loss of $1.27 billion from its reinsurance company, General Re. This is the second straight quarter that the Omaha conglomerate's earnings have been hurt by reinsurance losses. Last time, it was a $2.2 billion loss from September 11. Now, General Re has increased its losses from the World Trade Center disaster by $170 million. Still, there has been a move to improve insurance underwriting standards at General Re, which changed management on Oct. 1, when Joseph Brandon became CEO.
Et Cetera...
-- The Houston Astros want to end their stadium-naming agreement with Enron (ENE
).
-- Stock exchanges are proposing tighter disclosure and conflict rules for analysts.
-- JetBlue, one of the most successful startups in airline history, plans to go public.
CLOSING BELL
Doughboy Woes
General Mills' (GIS
) stock price sank 10.59% on Feb. 6, to 43.55, after it cut earnings estimates for its third quarter ended Feb. 28 and fiscal 2002. The culprit? Trouble integrating Pillsbury--purchased in November, 2001--is leading to an estimated 3% to 4% drop in volume in the current quarter.
CLOSING BELL
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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