Magazine

Dismal Detroit


U.S. carmakers keep lurching from one disaster to another. Just as GM (GM) showed a small third-quarter operating profit of $529 million, about $450 million of which came from one-time tax gains, Ford ((F)) and Chrysler ((DCX)) reported hulking losses. Ford bled $5.8 billion, including some costs for its downsizing plan. Chrysler dropped $1.5 billion as its sales sank 26%.

Don't look for the curse to lift soon, either. Chrysler has production cuts coming that should clobber profits again. Analysts expect it to lose as much as $1 billion next year, probably bringing more job losses, or even a spin-off. Speaking to analysts on Oct. 25, DaimlerChrysler CFO Bodo Uebber didn't say Daimler is looking to carve out Chrysler, but he didn't deny that it's an option. Meanwhile, Ford faces such a cash crunch that it must secure financing with its factories to get better rates as it pays billions to buy out workers. All in all, a spooky Halloween in Motor City.

See "Crisis at Chrysler," "Ford: Q4 Will Be Even Worse," and "Mulally's Message"

Ouch. On Oct. 23, former Enron CEO Jeffrey Skilling was sentenced to 292 months in the slammer. That's eight months shy of the 25 years handed to ex-WorldCom chief Bernard Ebbers, a record in a white-collar case. Skilling maintains his innocence and plans to appeal, but Judge Simeon Lake III denied his request to stay out of the pen until the appeal is decided. And in New York, David Kreinberg, former CFO of Comverse Technology ((CMVT)), pleaded guilty to securities fraud for his role in backdating stock options. He's expected to provide evidence against former CEO Jacob "Kobi" Alexander, who's fighting extradition from Namibia.

See "Q&A: Skilling's Lawyer on the Appeal"

Something's cooking at a couple of top foodmakers, Kellogg ((K)) and Wrigley ((WWY)), which both named new CEOs on Oct. 23. There wasn't much snap, crackle, or pop over the news that heir apparent David Mackay, president and chief operating officer, nabbed the top spot at the cereal maker, effective Dec. 31. But the appointment of William Perez, ousted Nike ((NKE)) chief, at Wrigley marks the first time the gum purveyor has gone outside the family in the company's 115-year history. Also on the corner-office front, British mining behemoth Anglo American ((AAUK)) on Oct. 24 picked longtime Alcan ((AL)) executive Cynthia Carroll to take over as CEO next March. She's the first woman to hold such a high post in the macho world of natural resources.

See "Why Wrigley and Perez Need Each Other"

IBM ((IBM)) claims diplomacy didn't work, so it was forced to go to war. On Oct. 23, Big Blue sued Amazon.com over what it claims are violations of five basic e-commerce patents. IBM has the world's largest patent portfolio, collects $1 billion a year in royalties, and rarely sues, but says that after four years of talks it has run out of patience with Amazon. It pegs a possible judgment or settlement in the hundreds of millions. Amazon ((AMZN)), which reported lower earnings but dandy revenues on Oct. 24, declined comment.

See "IBM Takes on Amazon" and "Amazon Turns in a Smart Third Quarter"

Where there's trouble, the private equity pack can't be far behind. At least six groups are showing interest in Tribune Co. ((TRB)), owner of the Los Angeles Times, Chicago Tribune, Long Island-based Newsday, and the perennial hard-luck Chicago Cubs, according to the Tribune. The company, whose papers are losing readers fast, is expected to weigh all offers before even deciding whether to sell itself -- whole or in parts. Meanwhile, Ripplewood is kicking the tires at bankrupt auto parts maker Delphi ((DPHIQ)) and might pony up a bid to rival one led by Appaloosa Management and Cerberus Capital Management.

As everyone figured, the Fed sat tight on Oct. 25, leaving its benchmark rate at 5.25%.

Famed raider Carl Icahn refuses to give up on ImClone. After packing the board and forcing out the CEO, Icahn, ImClone's ((IMCL)) second-largest shareholder, was named chairman on Oct. 24 and says he's determined to figure out what's ailing the biotech. It's not the first time Icahn has paid a bedside visit to ImClone. A longtime friend and tennis partner of jailed founder Samuel Waksal, Icahn first invested in the company in the early 1990s when, as a startup, it was in danger of passing away.

Don't let the door hit you on the way out, John. That's the message from Rupert Murdoch to John Malone after News Corp. ((NWS)) shareholders on Oct. 20 approved a controversial poison pill defense that will keep Malone at bay after his Liberty Media had amassed a 19% chunk of the media giant. Murdoch's family voted its 31% stake for the plan, which passed 57% to 43% despite votes by large holders who had sued earlier to upend the plan. Still, Murdoch and Malone may yet kiss and make up. Within weeks, Malone is expected to swap his piece of News Corp. for its 38% of satellite operator DirecTV ((DTV)).

Wal-Mart's ((WMT)) hell-for-leather expansion has come at a price: a slump in sales growth at its 6,700 stores, and a stock down nearly 20% from its 2001 peak. So on Oct. 23 execs said Wal-Mart would trim back new-store openings in the U.S. next year and hinted that the savings could go toward stock buybacks. It worked: Shares hopped nearly 4% the next day. CEO Lee Scott Jr. also admitted to analysts that the chain had "moved too far too fast" with trendier clothing and promised to stock more of the "fashion basics" that are the chain's stock in trade.

When Google ((GOOG)) CEO Eric Schmidt told analysts on Oct. 19 that the search king's third-quarter results were "very, very good," he sure wasn't kidding. Google's net nearly doubled, to $733 million, on a 70% rise in sales, to $2.7 billion. The stock shot up and kept going to an all-time high of 480.78 on Oct. 23. Such strong numbers contrasted pleasantly with those of rival Yahoo! ((YHOO)), which earlier had reported pallid profits.

See "How Google's Garden Grows"

Long considered a superhero, Warren Buffett swooped in to save the day at Lloyd's. On Oct. 20, Buffett's Berkshire Hathaway ((BRK)) agreed to take on the liabilities of re- insurer Equitas, created by Lloyd's in 1996 to handle its asbestos and other massive claims. The deal, in which Berkshire will provide up to $7 billion in additional reinsurance protection to Equitas, puts to rest fears that it would run out of money. Berkshire also gains control of Equitas' $8.7 billion in reserves, which the Oracle of Omaha can use to invest, pursuing profits in excess of the claims. It looks like risky business: Asbestos lawsuits have been a nightmare for U.S. companies and their insurers. But Berkshire, with what Buffett calls its "Gibraltar-like [financial] strength," specializes in the riskiest risks. Berkshire bought the troubled North American business of Swiss reinsurer Converium a few days earlier. Investors don't seem fazed: Shares of Berkshire soared past $102,000, a record even for this notoriously pricey stock.


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