Magazine

State Of The Union


His ratings are scraping the floor. The Democrats have grabbed control of Congress. And he spent much of his Jan. 23 State of the Union address defending the unpopular war in Iraq. But President George W. Bush still mounted a hard sell on an agenda that will affect business, including reducing American consumption of gasoline by 20% over 10 years.

Bush broke new ground by proposing higher fuel economy standards for cars. He called for a sharp jump in the supply of renewable and alternative fuels. And he highlighted a health-care plan that would offer new tax deductions for insurance costs but for the first time treat employer contributions to health benefit plans as taxable income. While many proposals met with skepticism, his commitment to a comprehensive immigration bill garnered long applause from both parties.

See "Salesman in Chief"

"Fundamental change is imperative." So said new Pfizer (PFE) CEO Jeffrey Kindler on Jan. 23, describing a leaner company that will require 7,800 layoffs on top of the 2,200 announced in December. Another troubled company, Motorola (MOT), chopped 3,500 jobs on Jan. 19.

See "Pfizer Swallows the Medicine"

Newly empowered Democrats and reform-minded Republicans are spraying disinfectant around Congress. On Jan. 18 the Senate passed an ethics bill that tightens regulations on some of the practices that featured in the Jack Abramoff lobbying scandal. Among other changes, the bill bars gifts to senators from lobbyists, forces senators to pay full price for sports tickets and corporate jet travel, and largely ends congressional travel paid for by Corporate America. The House has already enacted such reforms as rules changes.

For once, bitter rivals Morgan Stanley (MS) and Goldman Sachs (GS) are lining up on the same side of the scrimmage line. A source close to the deal said on Jan. 24 that they're part of a bidding group, along with private equity heavies, hunting the oil and gas production assets of Dominion Resources (D), a utility based in Richmond, Va. Analyst Daniele Seitz of Dahlman Rose figures the price could go as high as $18 billion. That would make it the biggest private equity energy play ever.

Apparently running out of patience with the unit's sky-high expenses, Citigroup (C) CEO Charles "Chuck" Prince on Jan. 23 fired wealth management chief Todd Thompson and replaced him with CFO Sallie Krawchek. Prince will look for a new cfo. The move was viewed on Wall Street as a demotion for ex-golden girl Krawchek, who has held the wealth management post before.

Apple (AAPL) did its best to clear co-founder Steve Jobs of stock option backdating blame. Not so at chipmaker Broadcom (BRCM). The company's audit committee said in an sec filing on Jan. 23 that founder and former CEO Henry Nichols III "bears significant responsibility for the lack of adequate controls...due to the tone and style of doing business he set." The company added $2.24 billion in expenses because of alleged backdating from 1998 through 2003. Nichols' lawyer says Nichols didn't benefit from the backdating and sought advice from professionals.

New telecom equipment giant Alcatel-Lucent (ALU) acknowledged on Jan. 23 that it would badly miss 2006 sales and earnings targets, and shares sagged by as much as 12%. The company said profits would fall 26%, to $1.3 billion, with sales flat at $24 billion. CEO Patricia Russo said fourth-quarter revenues tanked as customers delayed placing orders because of merger uncertainty. But analysts noted more alarming trends: The Paris company is losing share to wireless equipment rivals such as Ericsson (ERIC) and Huawei. Its once-dominant broadband and fiber-optics units are looking vulnerable, too.

See "The Reasons for Alcatel's 'Shocking' Miss"

On Jan. 22, after all of four months in the job, Sears (SHLD) CFO Craig T. Monaghan stepped down for the ever-popular "family reasons." He joined a growing number of short-timers with departures announced in the past two months. They include: Michael Wolf, coo of MTV Networks (14 months), Wal-Mart (WMT) marketing executive Julie Roehm (10 months), and J.C. Penney (JCP) COO Catherine West (6 months). The slew of fast flameouts may be a fluke, but there's no denying that heightened competition, increasingly vigilant investors, and demanding consumers have left stressed-out CEOs quick to pull the trigger.

The latest billionaire to enter the bidding for Tribune Co. (TRB): Rupert Murdoch. The News Corp. (NWS) magnate is joining Los Angeles' Chandler family in making an offer for the Chicago-based media giant, a source close to the deal said on Jan. 24. The plan involves combining the operations of Murdoch's New York Post with Tribune's New York Newsday. Los Angeles moguls Eli Broad and Ron Burkle have also made overtures, putting $500 million down. A third bid from buyout firm Carlyle Group involves just Tribune's stations. The board is mulling; a decision is expected by the end of March.

Feeling lucky? Then Illinois Governor Rod Blagojevich has the deal for you. The recently reelected Democrat has given private investors until Feb. 20 to submit bids to buy the state lottery. Begun in 1974, the lottery generates some $650 million a year, which the state spends on education. But by privatizing, Illinois could hit the jackpot: Blagojevich figures the sale could raise $10 billion. He seems to be taking a nod from Chicago Mayor Richard Daley, who has sold off a series of city assets, including a 7.8-mile tollway for $1.83 billion in late 2004. Other states are pondering similar measures, including Indiana, which may unload its lottery, too.

Ultimately, he just didn't fit. On Jan. 22, Gap (GPS), operator of the Gap, Old Navy, and Banana Republic chains, said CEO Paul Pressler and the board "mutually agreed" that he would bow out after a tumultuous four years. A veteran cost-cutter who ran Walt Disney's (DIS) theme parks, Pressler from the start acknowledged that he was a fashion neophyte. He threw himself into sprucing up Gap's balance sheet and putting the brakes on store expansion. But the creative side of the business didn't fare so well, resulting in merchandise and marketing that fizzled and declining performance that included dismal sales during the recent holiday season. Gap's board says it's shopping for a successor "who has deep retailing and merchandising experience, ideally in apparel" and who "understands the creative process."

See "CEO Wanted: Gap's Search for a Savior"


Steve Ballmer, Power Forward
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