Magazine

Budget Battles Ahead


President George W. Bush dropped his record $2.9 trillion fiscal year 2008 budget on Capitol Hill with a thud on Feb. 5. The plan proposes to steer more funds to defense contractors like Northrop Grumman (NOC) and General Dynamics (GD) while cutting subsidies to farmers and higher-education lenders like Sallie Mae (SLM).

Like all Presidential budgets, this one is a political document no one expects to play out in its current form. It eliminates the deficit by 2012, in part by banking $499 billion in Alternative Minimum Tax revenue, which may or may not materialize. Congress has tinkered with the amt, which was originally aimed at the wealthiest Americans but now hits the middle class and small businesses, with one-year patches that shield some taxpayers. The budget assumes that Congress won't extend the fixes past 2007, and that 26.5 million taxpayers will pay the amt next year—up from 3.5 million last year.

See "A Budget with Rose-Colored Glasses"

Paper beats rock. And cash trumps stock. Shareholders of Equity Office Properties (EOP) approved on Feb. 7 an all-cash takeover by the Blackstone Group valued at $39 billion including debt: the biggest private-equity purchase ever. The deal for the nation's No. 1 office landlord was cinched after Vornado Realty Trust (VWO) gave up on its $56-a-share cash-and-stock bid. Although Vornado's offer was higher than Blackstone's $55.50-a-share proposal, Equity Office preferred the sure thing of cash on the barrelhead.

Longtime Hewlett-Packard (HPQ) executive Antonio Perez lost out in the CEO sweepstakes to Carly Fiorina in 1999. Now, as boss of Eastman Kodak (EK), he's trying to create a facsimile of HP's profitable printing and imaging group. On Feb. 6 he plunged Kodak into the consumer inkjet printing business with a new wrinkle that could shake up the $50 billion industry: Replacement ink cartridges that retail at half the price consumers typically pay. Revenge? Perez says it's just good business.

See "Kodak Launches a Printer Offensive"

Are some Wall Street firms giving hedge fund customers a leg up? The New York Times reported on Feb. 6 that the SEC wants to know whether brokers are improperly tipping off hedge funds about block trades by institutional investors. A hedge fund with advance word can make hay because big trades can move a stock's price. Regulators at the agency have asked 10 Wall Street houses to turn over trading information and other data, but the sec says it's too soon to say whether the inquiry will lead to any action.

Frank Blake's extreme makeover of Home Depot (HD) continues. In early February the new CEO ushered out a cadre of executives aligned with ousted boss Bob Nardelli. And, on Feb. 5, Blake defused a potential proxy battle with Relational Investors, an activist investment firm, by inviting Relational exec David Batchelder to join the Home Depot board. The question remains whether Blake will follow Relational's other suggestions, which include selling the $12 billion wholesale supply division.

See "Attention Shoppers: Quit Whining"

The wunderkind has reached the top. To no one's surprise, Jeff Zucker, who became executive producer of the Today show at age 26, was named head of NBC Universal on Feb. 6.

MTV parent Viacom (VIA) became the first media giant to order online sensation YouTube to take down its content, so on Feb. 2 the freebie site said it would yank more than 100,000 snippets of Viacom-owned TV fare. Sources say YouTube, acquired by Google (GOOG) last year for $1.65 billion, has been offering media companies $100 million a year for such rights. Viacom says it isn't close to a deal and until one is signed, it doesn't want YouTube profiting from Viacom-made programs.

See "Viacom's High-Stakes Duel with Google"

On Feb. 5, Hyundai Motor Chairman Chung Mong Koo was hit with a three-year prison sentence for illegally raising some $75 million for kickbacks, and for costing the company more than $200 million by transacting intragroup deals through affiliates. But even if he loses on appeal, he may not do any jail time because of South Korea's leniency with convicted corporate bosses. His conviction and planned appeal are sure to further distract already bogged-down top managers: In the past year, Hyundai suffered a production loss of $2 billion because of labor strife, a 0.2% fall in revenues, and a 34% profit plunge because of Korea's strong currency.

See "Hyundai's True Trial: Better Performance"

En garde, Steve: In a move aimed squarely at Apple's (AAPL) iTunes service, Wal-Mart (WMT) launched a test version of a video-downloading service on Feb. 6, becoming the first major retailer to have the backing of all Hollywood's big studios; iTunes (see related story below) is backed by only two. Wal-Mart's smorgasbord offers more than 3,000 movie and TV titles. In other Wal-Mart news, on Feb. 6, a federal appeals panel in San Francisco ruled that a sex discrimination suit against the company that involves at least 1.5 million women could proceed as a class action. Wal-Mart says it'll appeal.

See "Wal-Mart Enters the Movie Download Wars"

Chrysler (DCX) has chopped 42,000 jobs since 2001, and it's not done yet. On Feb. 14 the carmaker is expected to announce cuts of 10,000 jobs and at least two plant closures to deal with its red ink and falling market share. Juggernaut Toyota (TM), on the other hand, reported a record $3.54 billion profit in the quarter ended Dec. 31, and figures to earn $12.8 billion for the year ending in March.

See "Chrysler: After the Cuts, What Next?" and "Toyota's Engine Vrooms On"

There's a Beatles song for every occasion. Take 1965's We Can Work It Out: perfect for settling lawsuits, which is what the Fab Four's London company, Apple Corps, did with Apple Inc. of Cupertino, Calif. The Feb. 5 accord ends the third in a series of spats over the rights to the word "Apple" and related logos. Having agreed to share the rights in 1980, they ended up in a London court in 2003 after the launch of the iTunes store. Cupertino now controls the Apple name, while Apple Corps will have licensing rights. It's still unclear when Beatles music will bow on iTunes. One thing that could delay it: On Feb. 6, Apple CEO Steve Jobs published a 1,800-word essay arguing that record companies should stop requiring copyright protection technology attached to songs sold online.

See "Steve Jobs's Music Manifesto" and "The Apples Come Together"


Toyota's Hydrogen Man
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