Santa Monica, Calif.
The BusinessWeek 50 long-term earnings growth rates detailed in "The ranking" averaged over 13%, weighted by earnings. Granted, the list is supposed to capture BusinessWeek's assessment of the top 10% of the S&P 500 universe, but only 3 of the 50 companies had long-term earnings growth rates less than 10%.
The BW50 list was composed of companies with an aggregate market value of $2.4 trillion, representing 20% of the total S&P 500. If one assumes that the long-term real growth rate of the U.S. economy is 3.5% and inflation really is 2.5% (yeah, no one believes the inflation figure but the government), then the aggregate long-term earnings growth rate of the S&P 500 would be 6%. (I won't mention that larger companies generally increase earnings more slowly than smaller companies.)
Given the above, the implied long-term earnings growth rate of the remaining 450 S&P 500 companies is 4.2%. Does BusinessWeek really believe that the BW50 companies will increase their earnings more than three times that of the remaining 450 companies over the long term? Just when Eliot Spitzer starts to clean up Wall Street research, BusinessWeek picks up the slack in the cheerleading section.
I notice with some dismay that missing completely from this year's 50 top performing companies are those that last year were Nos. 1, 3, 7, and 10. If performance is so fleeting, of what importance is such an annual listing?
Peter R. Lantos
Erdenheim, Pa. In "For Citi, 'No more excuses'" (Face Time, Apr. 3), Prince Alwaleed bin Tal Al-saud states that you can compare Hamas to the IRA in Ireland. Perhaps I missed it, but when did the IRA call for the elimination of Britain as a nation?
Harold B. Reisman
Carlsbad, Calif. Without commenting on the premise of "Biotech's boon or bane?" (Finance, Apr. 10) that hedge funds are increasingly a source of capital for biotech companies, I strongly object to your characterization of ValueAct Capital's role at Chiron Corp. (CHIR
) and my relationship with CEO Howard Pien. ValueAct Capital is a long-term investor with a track record of successful corporate governance. At Chiron, ValueAct Capital worked to defend all shareholders from a hostile takeover by the company's largest shareholder, Novartis (NVS
). ValueAct Capital's position was publicly supported by Citibank Asset Management (C
), the largest non-Novartis shareholder and a 20-year owner of the business, as well as independent corporate-governance watchdog Institutional Shareholder Services (ISS). As we stated many times in our letters to the Chiron board, Howard Pien's track record during our investment period has been one of success. We have tremendous respect for his accomplishments, but we strongly objected to his participation in a road show supporting a Novartis buyout at $45.
I would counter your assertion that "Chiron clearly isn't enthused about its dealings with ValueAct" with the observation that Novartis ultimately increased its buyout price from $45 to $48, which resulted in $335 million of additional value for non-Novartis shareholders and an estimated $65 million more in value for Chiron executives' and employees' stock and stock options.
G. Mason Morfit
Editor's note: Novartis increased its buyout offer after BusinessWeek went to press. Senator Richard G. Lugar (``Thinking outside the barrel,'' Outside Shot, Mar. 27) and President George W. Bush both miss the easiest and most effective way to help reduce America's addiction to oil: Increase the mandated fuel economy standards on cars and ``light'' trucks.
Estes Park, Colo.