"Have another Bible script handy, because the studios are all going to want to do it now." -- Mel Gibson, joking about the impact of his controversial movie The Passion of the Christ In Italian, andiamo means "let's go." But for the 317 employees of a Cisco Systems (CSCO) unit by that name, it could mean "let's go shopping!" On Feb. 20, Cisco completed its so-called spin-in of the data-storage outfit by paying $750 million for the 56% of Andiamo Systems it did not own. Each Andiamo staffer received an average of $2.3 million in Cisco stock.
To many, the deal is an embarrassing reminder of bubble-era excess. In May, 2001, a group of Cisco employees were about to leave to start Andiamo. To keep them, Cisco offered to buy Andiamo at a later date. "These folks didn't have to take any risk," says one annoyed former Cisco executive.
All told, Cisco put more than $930 million into Andiamo, which is expected to bring in sales of $160 million this year and to grow about 30% annually. Craig Griffin, Cisco business-development manager, says changes to accounting regulations make more spin-ins unlikely. "[We hope] this is the last vestige of bubble economics inside Cisco," says JMP Securities analyst Sam Wilson. At least until the next bubble, anyway. California Governor Arnold Schwarzenegger has found a novel way to push a raft of propositions on the Mar. 2 primary ballot: He's getting businesses to pay for a blitz of TV commercials. The actor-turned-politician has raised over $5 million from such companies as Target (TGT), Dole Food, and Twentieth Century Fox. On Feb. 24, he collected another $1.5 million at New York and Washington (D.C.) fund-raisers.
The money is going toward ballot initiatives such as the hotly contested Proposition 57 to raise $15 billion in bonds. Until recently, only 38% of voters favored the measure because they feared it would force the state to raise taxes to pay the interest. But TV ads in the past week, along with growing Democratic support, now have 50% of the voters supporting the proposal.
Schwarzennegger has sidestepped potential conflicts by creating a special fund, California Recovery Team, just for bal-lot initiatives. But the effort is raising the hackles of consumer groups. "This is exactly the kind of soft-money abuse that cuts out the little guy," says Rachel Leon of Common Cause. The governor's team says he is raising the money to save the state from its budget crisis, not to hand out favors. One giant insurer is getting into banking. Starting this summer, UnitedHealth Group plans to issue patient identification cards that look a lot like MasterCards, logo and all. But the cards will be good only for health-care purchases such as prescriptions, eyeglasses, and visits to a doctor or physical therapist. MasterCard rules say that only banks are allowed to issue such plastic, and so UnitedHealth set one up, naming it Exante.
Cardholders will be able to make payments out of flexible spending accounts, medical savings accounts, and health-care savings accounts. "As a consumer, I'd find that hugely convenient," says Moshe Orenbuch, a credit-card analyst at Credit Suisse First Boston. Just like today's I.D. cards, the new cards will let doctors verify patient eligibility and provide information about copays.
UnitedHealth is certainly not planning on becoming a full-service bank. "No car loans," says Exante President Richard Holley. But get in a car accident, and the card just might come in handy. If airport guards hand you a comb someday soon, it won't be because you're having a bad hair day. Hair, it turns out, grabs particles that explosives give off -- the same ones bomb-sniffing dogs detect. Even repeated shampoos won't wash away the tattle-tale residue, says Jimmie Oxley, a chemist at the University of Rhode Island. A comb could be run through a passenger's hair, and a quick chemi-cal check would spot anyone who has handled explosives. Oxley isn't sure why hair does this, but figuring it out might lead to a more practical test. Would-be bombers could shave their heads, but young men with bald pates might be begging for unwanted attention. One more reason executive compensation continues to rise: A booming stock market means options that have been underwater for years are finally bubbling to the surface.
And there are plenty of them. Mellon Financial (MEL),which administers option programs for big companies, exercised 17 million shares for its clients in January, up from 8 million a year ago. It estimates that 71% of options held by its clients are in the money, up from 28% in 2002. For execs, happy days are here again. Jonathan Tisch, CEO of Loews Hotels, must have had severe déjà vu during his stint on Now Who's Boss?, a new reality-TV series. The show, which starts on Mar. 8, sends top execs into lower-level jobs within their companies.
Tisch, 50, has been there before. At age 7, he answered phones at Loews. At 16, his first paying job was at the front desk. This time, he spent five days in such jobs as cook, heating engineer, and pool boy.
His early experience didn't help much. At the front desk, he was chastised for pointing. As a housekeeper, he made a bed wrong. As a cook, he burned himself five times making huevos rancheros.
Still, Tisch thinks it was a great experience. "This shows the human side of business," he says. Indeed, he found the polyester room-service uniforms so uncomfortable that he decided to change them. One of the last telecom monopolies may be coming to an end: calls made by state prison inmates. Carriers pay rich commissions to prisons in exchange for exclusive contracts to provide collect calling. In most states, inmates are not allowed any other calls, so there's big money at stake. These contracts are worth an estimated $200 million yearly for the phone carriers.
This month, Oregon said it will join Nebraska and Colorado in allowing calls from prisons made with prepaid debit accounts, which can be 40% cheaper than collect calls. A petition before the Federal Communications Commission, filed in November, seeks to force debit calling into some private facilities. Prisoners' families hope that will lead to a broader ruling requiring state institutions to do the same. Another FCC petition, filed by long-distance reseller Outside Connection in Bellmore, N.Y., asks that Outside be allowed to offer its cut-rate long-distance service in New York prisons.
MCI, by far the largest player in this market, rakes in $100 million a year from such calls. In New York State alone, it takes in $33 million, then pays 57% of that to the Correctional Services Dept. MCI spokes-woman Natasha Haubold says the contracts are fair and awarded through competitive bids.
Prison authorities worry that inmates with rich debit accounts will be preyed upon by other inmates. They also say using resellers could be a security risk because officials won't be able to tell who the inmates are calling. But activists and prisoners' families say what they are really worried about is protecting their profits. In the midst of a Presidential campaign that is shining a spotlight on outsourcing, General Electric (GE) is warning investors that any move against outsourcing could pose a business risk for one of its subsidiaries. By June, GE plans to sell 30% of Genworth Financial, a group of insurance operations, in an initial public offering. Genworth employs customer service, data processing, and finance staff in India.
But in its list of investment risks, Genworth's Jan. 20 filing says: "The political climate in the U.S. also could change so that it would not be practical for us to use international operations centers.... This could adversely affect our ability to maintain or create low-cost operations."
In other words, in an election year, outsourcing may prove to be risky business.