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MAY 28, 2007
Edited by Harry Maurer Take My Carmaker—Please Germany's Daimler, which paid $36 billion for Chrysler in 1998, on May 14 agreed to a complex deal that in effect will cost it $650 million to offload about 80% of the banged-up unit onto Cerberus Capital Management. Cerberus gave Daimler $7.4 billion, which will be pumped into the new company. The linchpin of the deal is that the private equity firm will absorb $18 billion in pension and health-care commitments. Daimler aims to go back to its roots as a producer of trucks and Mercedes luxury autos, putting an end to former CEO Jürgen Schrempp's dream of building a global carmaker to rival the likes of Toyota (TM ). For Cerberus, success may hinge on crafting a novel agreement with the United Auto Workers to get the benefits liabilities off the books. With contract talks approaching this summer, Detroit's remaining Big Two, Ford (F ) and General Motors (GM ), will be riveted on how the Chrysler drama turns out. See "Cerberus Nabs Chrysler" Shaking Hands On Trade Organized labor scored a rare win on May 10 when the Bush Administration agreed to include "core" standards in future free-trade pacts. The standards sound unobjectionable—abolition of child labor, for example—but business groups worry that some, like a ban on employment discrimination, could call into question current U.S. practices. The accord is intended to buy support from Democrats suspicious of free trade. Meanwhile, the trade deficit jumped in March, with oil prices the main culprit, though economists note that swelling exports may narrow the gap by yearend.   Thomson Buys And Sells Canadian financial data giant Thomson (TOC ) confirmed on May 15 that it has a deal to buy Reuters (RTRSY ) for about $17.2 billion. That came four days after Thomson sold its textbook division to a private equity group for a rich $7.75 billion. See "The Rise Of A Financial Data Powerhouse" Biotech Blues Amgen (AMGN ) took a hit on May 14: Medicare said it wants to stop paying for Amgen's lucrative anemia remedies, Aranesp and Epogen, when they're used to treat certain cancer patients. A week earlier, an FDA panel raised safety concerns about the multibillion-dollar drugs. Analysts say private insurers are likely to follow Medicare's lead. The stock has sunk more than 15% since the FDA news. Executive Shuffle At P&G Is Procter & Gamble (PPG ) finally limning a plan for a successor to CEO A.G. Lafley? On May 14 it shifted several executives into new roles. Health-and-beauty head Susan Arnold becomes president, overseeing all global units. Robert McDonald, global operations chief, moves to the newly created post of COO. In addition to grooming the two for the top job, the move aims to free Lafley from day-to-day concerns so he can focus on the big picture. At 59, though, Lafley isn't likely to step aside until the mandatory retirement age of 65. OxyContin Side Effects Now who needs pain relief? On May 10, OxyContin maker Purdue Frederick and three of its top brass pled guilty to falsely marketing the narcotic painkiller as a less addictive alternative to competing drugs. The privately held company will pay one of the biggest criminal fines ever to hit the pharma industry —$634.5 million—to settle charges brought by the U.S. Attorney in the Western District of Virginia. JetBlue Changes Pilots Less than three months after JetBlue Airways (JBLU ) storm-fueled service snarls, which cost the airline $41 million, Chairman and CEO David Neeleman was asked to give up the joystick. On May 10, JetBlue's board replaced the charismatic founder with longtime deputy Dave Barger, naming Neeleman non-executive chairman. The move was praised by analysts as a shift to more operational expertise at the helm. See "Fliers' Rights Need a Big Lift" Out Of The Public Eye Bausch & Lomb (BOL ) sees a brighter future as a private company. Still stinging from last year's recall of its ReNu with MoistureLoc contact lens solution, Bausch agreed on May 16 to be taken private by Warburg Pincus in a $4.5 billion deal. Bausch faces more than 340 lawsuits over ReNu, which was linked to eye infections. News of the deal pushed Bausch's shares up 10%, prompting speculation that other buyers might focus in. Lampert Likes Citi What's billionaire Edward "Eddie" Lampert up to now? The manager of hedge fund ESL Investments, who bought Kmart (SHLD ) and then merged it with Sears (SHLD ), has purchased a 0.3% stake in Citigroup (C ), according to May 15 filings with the SEC. Through spokespeople, Citi and Lampert declined to comment. But shareholders pushed Citi stock up 4%. Mylan's New Muscle Mylan Laboratories (MYL ), the Pennsylvania generic-drug giant, is bulking up even more. On May 14 it said it will pay a steep $6.7 billion for the generics business of its bigger rival, Germany's Merck (no relation to the U.S. Merck). Already a leader in the U.S., Mylan will now gain strength in Europe and Japan as well as access to many new drugs. Earlier this year, Mylan bought Matrix Laboratories, the Indian maker of pharma ingredients. Tyco Pays Up Dennis Kozlowski has cost Tyco (TY ) a lot more than that $6,000 shower curtain. On May 15 the company said it will put aside $3 billion to settle suits stemming from shenanigans during his reign as CEO. The payout, apparently the largest by a single defendant in a securities suit, also allows shareholders to pursue Tyco's accounting-malpractice claims against PricewaterhouseCoopers. Kozlowski is in jail, appealing his 2005 conviction for looting the company. Wipeout Of The Week Who would have guessed that video games could be so bad for Sony's (SNE ) health? On May 16 the Tokyo company said its games division's $1.9 billion loss was mostly to blame for a 68% drop in overall operating earnings last fiscal year. Sony cited the PlayStation 3's monster production and marketing costs, which it warned investors about before the machine's debut last November. But Sony also fell 500,000 consoles short of its production target. The 5.5 million PS3s shipped globally through March left the onetime king of the industry trailing both its main rivals, Nintendo (NTDOY ) and Microsoft (MSFT ). Worse, the actual number of PS3s in stores was closer to 3.6 million, with the remaining 1.9 million either sitting in warehouses or en route to retailers. New games chief Kazuo Hirai is under the gun to boost sales by discounting consoles once he takes over for PlayStation inventor Ken Kutaragi next month. Since Sony is already losing money on every console, a price cut would hurt. Then again, games won't be profitable for at least another year, so the company might as well take the hit now. See "Sony's PS3 Problems Cast a Long Shadow"
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