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"We're coming after you, buddy."

---Apple Computer's acting chief, Steve Jobs, announcing a direct-sales scheme that will challenge Michael DellEDITED BY LARRY LIGHT & ROBERT MCNATTReturn to top

A NEW SPIN ON TAX-FREE SPIN-OFFS

LAST SUMMER, CONGRESS banned one of Corporate America's favorite dealmaking methods, condemning it as a tax dodge. Called a Morris Trust, this practice allowed a parent company to avoid the IRS when it sold an unwanted division. The parent's shareholders got the acquirer's stock as payment. Since no cash changed hands, the transaction was tax-free.

Turns out the ban has a loophole, which at least two companies are now using. The buyer has to grant the divesting company's shareholders so much stock that they end up controlling more than 50% of the acquiring company.

Consider nursing-home operator Beverly Enterprises' planned transfer of its Pharmacy Corporation of America to Capstone Pharmacy Services. Beverly shareholders will own 57% of Capstone. And once W.R. Grace spins off its packaging operation to Sealed Air, maker of Bubble Wrap, Grace shareholders will control 63% of Sealed Air.

Tax experts such as Lehman Brothers' Robert Willens expect more of these deals as word gets around. The downside for the buyer's shareholders is their stakes are diluted. The upside: They own stock in a presumably more valuable company.Return to top

MORE THAN ONE WAY TO SKIN BIG TOBACCO

THE TWO MAIN FACTIONS IN the tobacco-control community have come out into the open. Hard-liners are setting up a lobbying group to balance a powerful alliance of public-health organizations that favors a national settlement with the tobacco industry.

The hard-line group opposes a central element of the deal: legal immunity for tobacco companies. The rival alliance only wants to toughen some of the deal's provisions. But both concede that they risk diminishing the antitobacco movement's clout. Antitobacco lawmakers such as Representative Henry Waxman (D-Calif.) worry that the activists' split is counterproductive as Congress begins considering the deal. Both sides aim to lobby members of Congress at home during the upcoming holiday recess.

The hard-line group, which calls itself the National Tobacco Control Coalition, thinks that antitobacco forces should not make compromises with Big Tobacco. The coalition is being set up by Minnesota Attorney General Hubert Humphrey III, the American Lung Assn., and a host of other antismoking organizations such as SmokeFree Pennsylvania.

Their rivals, called Effective National Action to Control Tobacco (ENACT), set up shop in October to push Congress into--well, enacting a deal. Under ENACT's banner are the American Medical Assn., the American Cancer Society, and the Campaign for Tobacco-Free Kids. The ENACT crowd feels the other side is well-meaning but unrealistic.John CareyReturn to top

JEEZ, BILL, YOU CAN'T LIVE ON THAT

MICROSOFT CHAIRMAN BILL Gates may be the world's richest person--but he's still not the best-paid guy at his own company. According to the latest proxy, Chief Operating Officer Robert Herbold banked $1.2 million a year in salary and bonus, while Bernard Vergnes, president of Microsoft Europe, pulled down $714,000. Gates, by contrast, pocketed just $591,000 in salary and bonus.

The boss, in fact, hasn't been the highest-paid employee there for a while. In 1994, Microsoft paid big money to lure Herbold away from Procter & Gamble--after 25 years there. His fiscal 1997 paycheck included $250,000 of his signing bonus. His full bonus totaled $673,000. And Vergnes, valued for building the European operation, outearned Gates as far back as 1992, when he made 40% more than his boss.

But with his Microsoft stock worth $35 billion, Chairman Bill needn't suffer from pay envy. "Each year, Bill approves all the executive salary increases," says Mike Murray, Microsoft's vice-president for human resources. "The only person he has ever said no to was himself."Steve HammReturn to top


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