In Business This Week
Edited by Monica Roman
HEADLINER
Gary Forsee: Breaking into a Sprint
In the midst of a bitter dispute between telecom rivals, an arbitrator gave Gary Forsee the green light on Mar. 18 to leave his No. 2 post at BellSouth (BLS
) and step into the top job at Sprint (FON
). Forsee, 52, replaces William Esrey, who was forced out over his participation in a controversial tax shelter.
Forsee says he wants to "take Sprint to new heights." But the flight won't be easy. Sprint agreed on Mar. 19 to enhance its oft-criticized board as part of a $50 million settlement with shareholder Amalgamated Bank. So Forsee will not immediately serve as chairman and will be under heavy scrutiny by an independent lead director with authority to call some meetings without him.
The arbitrator who appointed Forsee also barred him from key activities for the next year, including merger talks and certain types of marketing and lobbying. That will make life tough as Forsee tries to keep Sprint's long-distance and wireless businesses competitive. Analysts say pricing pressure and overcapacity in those markets make merger talks and marketing routine -- if not indispensable.
By Roger O. Crockett
HealthSouth: Lots to Feel Sick About
On Mar. 19, The Securities & Exchange Commission accused HealthSouth (HRC
), the biggest U.S. operator of rehabilitation hospitals, and CEO Richard Scrushy with engaging in accounting fraud. The SEC contends that since 1999, HealthSouth has artificially inflated earnings by at least $1.4 billion at Scrushy's insistence to meet Wall Street earnings targets.
HealthSouth's legal troubles don't end there: On Mar. 19, the Justice Dept. disclosed that former HealthSouth CFO Weston Smith agreed to plead guilty to conspiring with Scrushy and others to inflate profits and sign off on false certifications. It's the first such charge levied under a provision in the Sarbanes-Oxley Act that penalizes execs who falsely certify corporate financial statements. HealthSouth said that it is cooperating "fully with the authorities." Scrushy couldn't be reached for comment.
Diller: Au Revoir, Vivendi--for Now
Barry Diller is on the move again. The USA Interactive (USAI
) chairman is stepping down from his position as nonpaid CEO of Vivendi Universal Entertainment. Diller said he will concentrate on running USA Interactive, which agreed on Mar. 19 to buy the 46% of travel site Expedia that it doesn't already own for $3.3 billion in stock. Diller's exit also raises speculation that he will try to buy the film studio and cable-channel unit from its French parent. Diller, whose company owns a 5.4% stake in those assets, says he "has no ambition" to buy more, but "if there is some opportunity somewhere that translates those assets into greater value, we'll look into it."
A Quid Pro Quo at Commercial Banks?
Bank regulators insist it isn't happening, but CFOs beg to differ: 56% of large companies say they've been denied loans or faced tougher credit terms after they refused to buy other services from their commercial banks. The findings, in a survey by the Association for Financial Professionals, add fuel to the debate over "tying" -- the illegal practice of requiring borrowers to buy other services as a condition for credit. Corporate-finance experts surveyed by AFP say banks are pushing investment-banking services, and 56% say pressure to buy more has increased over the past year. The Federal Reserve and other bank regulators say they've seen no evidence of tying, but new SEC Chairman William Donaldson says he'll make it a top priority.
A Setback in Fighting Cancer
A closely watched experimental cancer drug failed a key clinical trial, throwing doubt on the technology behind it. Isis Pharmaceuticals (ISIS
) and development partner Eli Lilly (LLY
) reported on Mar. 17 that lung-cancer patients taking Affinitak did not live significantly longer than those on chemotherapy. The news was a blow to developers of similar so-called antisense drugs, designed to interrupt the malfunctioning genes that cause tumors. None has yet been successful, though scientists say the reason may be that they haven't chosen the correct genetic target.
P&G Gets a Hair Extension
While proving a turnaround artist as Procter & Gamble's (PG
) CEO, A.G. Lafley is also becoming a master of the acquisition. Seeking to raise its profile in European hair care, P&G will buy German hair-care company Wella for $5.8 billion plus debt. That's P&G's biggest acquisition ever, topping Lafley's $5 billion purchase of Clairol in 2001. "Hair care is a core business that we have been delivering strong results in," Lafley said. But integrating Wella could be challenging, since most of its products are sold in hair salons rather than retailers, P&G's usual customer base.
Et Cetera...
-- 3Com (COMS
) formed a joint venture with Huawei Technologies, which is being sued by Cisco Systems (CSCO
).
-- Apple (AAPL
) has named former Vice-President Al Gore to its board of directors.
-- Gateway (GTW
) announced its third major restructuring in two years.
CLOSING BELL
Bad Omen
Shares of database giant Oracle (ORCL
) dropped 7.67%, to $11.31, on Mar. 19 after execs said sales in the last month of the third quarter, ended Feb. 28, slipped because of business clients' war anxieties. Those fears, and a glum forecast for the current quarter, overshadowed a long-awaited pickup in total quarterly sales.
CLOSING BELL
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Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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