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Big Blue's Big Switch


Just in time for boomers to start heading for the rocking chair, old-style retirement took another grievous blow. On Jan. 5, IBM (IBM) said that in 2008 it will close its guaranteed pension plan for its 117,000 U.S. employees (CEO Sam Palmisano, photo). Since last year new staff had only been offered 401(k)s. Now veterans will have their defined-benefit pensions frozen and will be escorted into an enhanced 401(k). Current retirees will continue to collect.

The company cited competitive issues (rivals don't have these costly relics) and employee desires (no one was joining Big Blue for the pension, it says), but the pressing reason is cost. While IBM is highly profitable, its pension plans have a $7 billion shortfall. Employee groups attacked the move, concerned that many companies would join the parade led by such outfits as Hewlett-Packard (HPQ) and Verizon (VZ). Investors bid up the stock 3% the next day.

See "The Rush to Shut Down Pensions"

The biggest news at the Detroit Auto Show, which opened on Jan. 8, wasn't sleek cars but clunky carmakers. GM (GM) cut prices on many models, hoping a little realism would end the boom-and-bust incentive cycles. On Jan. 10, Jerome York, a turnaround artist and top deputy of GM shareholder Kirk Kerkorian, made a speech urging the company to ditch some brands, chop the dividend, and set clear financial goals. And Ford (F), nearing its restructuring announcement on Jan. 23, saw its debt downgraded by Standard & Poor's to BB- just before the show. Meanwhile, on Jan. 10 the EPA made the road even bumpier by proposing new testing methods that will result in sharply lower mileage-per-gallon estimates.

See the new "Autos Channel

The December number reported by the Labor Dept. on Jan. 6 was a shocker: just 108,000 jobs gained. But the November figure was revised upward nicely. The economy's underwhelming but steady pace of job creation looks set to roll on -- or even pick up -- in 2006.

On beyond the big orange box: That's where Home Depot (HD) is headed. On Jan. 10 the nation's largest home-improvement retailer said it will buy Hughes Supply (HUG), an Orlando construction-supply company, for $3.5 billion. Home Depot hopes a series of recent acquisitions in the professional supply business will lay the foundation for more growth as the landscape gets crowded with its retail stores and those of archrival Lowe's (LOW).

Now we see why justices get a lifetime seat. Judiciary Committee senators hammered Supreme Court nominee Samuel Alito on topics ranging from domestic spying to discrimination during hearings that began on Jan 9. Did the solons learn anything new? Not likely. But the posturing could move poll numbers back home as senators figure out which way to vote later this month (Alito is expected to win confirmation). Big Business has made up its mind: The U.S. Chamber of Commerce and the National Association of Manufacturers say Alito is A-O.K.

What to do? Dear me, what to do? Take Johnson & Johnson's (JNJ) sweetened offer of stock worth $30.80 a share, more or less, plus $37.25 in cash? Or stock in Boston Scientific (BSX) guaranteed at $36 a share plus $36 in cash? Guidant's (GDT) board is urging shareholders to go with J&J, partly to escape a $625 million breakup fee, but now that Bos-Sci has formalized its bid, it may yet triumph. Not only is its price healthier but it has lined up Abbott Laboratories (ABT) to buy Guidant's stent business, thereby avoiding antitrust issues and raising quick bucks. Guidant stockholders will decide for themselves at a special meeting on Jan. 31.

Netizens, get ready for another portal. News Corp. (NWS) Chairman Rupert Murdoch rang the warning bell for Google (GOOG), Yahoo! (YHOO), and MSN (MSFT) on Jan. 9 by saying that his newly acquired social networking site, MySpace.com, will add search, e-mail, and even telephone service. Fast-growing MySpace now has 47 million unique users a month, compared with Yahoo's 127 million. But never underestimate the media baron, who has a history of thrashing bigger rivals like CNN (TWX) and the Big Three TV networks.

Two frightening numbers could start appearing in annual reports in 2007, and executives are running scared. The SEC said on Jan. 10 it will propose requiring companies to add up the total value of annual pay and benefits for top brass, while also assigning a dollar value to retirement and severance bennies.

It has a nice ring, but can the Dow go much above this high reached on Jan. 9 and last hit in 2001? Forces boosting the Dow are "more psychological than technical," says Jeffrey Hirsch, editor of the Stock Trader's Almanac. The market's 200-day moving average has been stuck at the 10,500 level for a year. Still, market rallies are often born of animal spirits, and the UBS/Gallup Index of Investor Optimism is at its highest level in 10 months.

Edward Breen, CEO of Tyco International (TYC), has apparently come to the same conclusion that his jailed predecessor, Dennis Kozlowski, reached four years ago: Division is the best way to multiply the stock price. The Wall Street Journal reported on Jan. 9 that Tyco's board would vote on a plan to split the $40 billion conglomerate into three pieces at its Jan. 12 meeting. Breen declined comment before the confab.

See "Breaking Up Isn't Always the Answer" and Tyco: The Case Against a Breakup"

Not on my site, you don't. Microsoft (MSFT) on Dec. 30 barred a blog from its Chinese MSN service because it rankled Beijing. When the blogosphere got wind of it, the debate over companies that help China sanitize the Net flared anew.

Steve Jobs wowed 'em at Macworld Expo in San Francisco on Jan. 10, kicking off the MacIntel era, pulling a few product surprises out of his hat, and boasting of boffo iPod sales. Investors drove up the stock 6% that day, to an all-time high of 80.86.

See "Should Apple Open Up?"

Michael Eisner has a new happiest place on earth: Rockefeller Center, where the former Disney (DIS) chief will be taping a bimonthly talk show for cable channel CNBC (GE). Eisner, who quit under pressure last year, tried his hand as guest host for the Charlie Rose Show, yucking it up with friends John Travolta and Barry Diller. CNBC intends to draw on his star power to line up top-flight executives. "There is not going to be screaming or jumping up and down on the show," Eisner told the Los Angeles Times. Guess that means we won't be seeing Dreamworks (DWA) CEO Jeffrey Katzenberg or ex-superagent Michael Ovitz, both of whose tenures at Disney ended after feuds with Eisner. And certainly not board member Roy Disney, whose highly public unhappiness helped usher Eisner from the house that Mickey built.


Tim Cook's Reboot
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