In Business This Week
Edited by Monica Roman
HEADLINER
Patrick Ryan: Hitting a Rough Patch
Aon (AOC
) CEO Patrick Ryan has transformed the little-known Chicago company into the world's second-largest insurance broker. But Ryan's legacy may be in danger. On Aug. 7, Aon said it only broke even in the second quarter because of charges, lower margins, and reduced investment income. "It was an absolutely abominable quarter," Ryan admitted in a conference call.
Worse, Aon said it may have to restate four years of financial reporting after being questioned by the Securities & Exchange Commission. Wall Street punished the stock, sending it down 30%, to $14.77. Aon looks weak vs. its archrival, Marsh & McLennan, which is flush because of soaring insurance premiums post-September 11. Aon has also lost staff to competitors and has had trouble integrating acquisitions. "Pat kind of reminds you of the slugger who stayed on two years too long, wrecking a great career," says Bear Stearns analyst Michael A. Smith. Indeed, the bad news is putting pressure on the 65-year-old Ryan to consider an exit before things get worse.
by Pallavi Gogoi
VCs to Investors: Thanks Anyway
Venture capitalists have set a dubious record. For the first time, VCs sent back more money in a single quarter to their investors than they raised from them. According to researcher Venture Economics, seven firms cut the size of their funds by a total of $2.7 billion in the second quarter of 2002, while 30 firms collectively raised $1.8 billion. The $2.7 billion can't really be considered a refund, since venture capitalists only collect money when they need it. Rather, VCs are releasing their investors from $2.7 billion in commitments. The trend is more evidence of how overheated--and overfunded--the venture-capital industry became during the heady '90s. And it also demonstrates how even top-tier venture-capital firms are struggling in today's tough business environment. The $2.7 billion was returned by such veteran VCs as Accel Partners and Charles River Ventures.
Business Fliers Rejoice--Price War!
In the face of weak demand, American Airlines (AMR
) quietly tried to cut business fares by 10% by offering discounts through certain travel agencies. But the move prompted an aggressive response by Northwest (NWAC
), which fired back with published business-fare cuts on Aug. 2. Since then, the cuts have escalated to 40% off the highest unrestricted fares in some markets. Other airlines have joined the fray on certain routes for travel ending next June. Even before the price war, airlines were expected to lose $5.4 billion this year.
Cisco Can't Save Tech
What's good for Cisco Systems (CSCO
) isn't necessarily good for industry prospects. Shares of the networking giant inched up 8%, to $12.99, on Aug. 7, one day after it reported better-than-expected fourth-quarter profits of $772 million on a 12% sales gain, to $4.8 billion. But Cisco's ability to wring out profits doesn't signal a thawing in the tech industry. Cisco beat estimates with help from increased efficiencies, a slightly reduced workforce, and cheaper component costs. While CEO John Chambers predicts flat or slight seasonal growth in the upcoming fiscal first quarter, "we're a little bit more cautious" than in the last quarter about market conditions.
Nestlé Expands Its Frozen Zone
Less than two months after announcing a $2.6 billion merger with Dreyer's Grand Ice Cream, Nestlé (NSRGY
) is expanding its freezer section again. On Aug. 6, the Swiss food giant said that it will acquire frozen-food maker Chef America for $2.6 billion in cash. The deal will add the Hot Pockets, Lean Pockets, and Croissant Pockets brands to Nestlé's frozen-meal lineup, which includes Stouffer's and Lean Cuisine. Privately held Chef America, based in Denver, is expected to generate sales of $720 million this year. Although some analysts saw the deal as pricey, Nestlé CEO Peter Brabeck-Letmathe defended it as key to raising the company's share of the U.S. frozen-food market.
Iressa Gets a Step Closer to Market
Astrazeneca (AZN
) Pharmaceuticals' cancer drug, Iressa, cleared an important hurdle on Aug. 7 when the Food & Drug Administration scheduled it for assessment by a panel of experts on Sept. 24. If the panel recommends Iressa, one of the first of a new wave of targeted cancer therapies, it is possible the drug will be approved for marketing by yearend. Some have speculated that the FDA may delay the drug, a potential blockbuster, until it can review results from late-stage clinical trials to be released in December. But analyst Catherine Arnold of Sanford C. Bernstein says the interim data are strong enough to support Iressa's approval.
Et Cetera...
-- Ex-ImClone Systems (IMCL
) CEO Samuel Waksal was indicted on federal insider trading charges.
-- The Milton Hershey School asked Pennsylvania legislators to stop Hershey Foods' (HSY
) sale.
-- Penn National Gaming (PENN
) agreed to buy Hollywood Casino (HWD
) for about $780 million.
CLOSING BELL
Ad Games?
Interpublic Group (IPG
) shares fell 32%, to $13.40, in the two trading days ended Aug. 6, after the advertising and marketing holding company said it would postpone its second-quarter earnings release by a week, to Aug. 13. Questions are being raised about the accounting of client billings.
CLOSING BELL
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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