1. Needham Like a Hole in the Head
What's wrong with sell-side research on Wall Street nowadays? You'll get an idea from Monday's conference call with analysts held by the pharmaceutical companies
Some words of explanation. As
we reported last week, though Regulation FD stopped companies from doling out information selectively to favored analysts, corporate America still has a surefire way to play favorites with Wall Street: deciding who, and in what order, gets to ask questions on company conference calls.
Meanwhile, what with the New York attorney general and the
Securities and Exchange Commission
investigating every poor soul who's ever issued a buy rating, sell-side analysts appear to have finally convinced the few remaining holdouts in America that their job isn't to study companies, but simply to fawn over them.
This all came together Monday on the
phone call Genta and Aventis used to discuss their new partnership. It took Needham analyst Mark Monane a few seconds to shout to the world that (a) companies are in charge of the analysts who cover them and (b) analysts are grateful just for the opportunity to sit in the same virtual room as the companies they cover.
Here's how Monane responded once the conference call operator announced he'd be going first in the question-and-answer portion of the call.
"Oh, wow. Thank you. I get to go first. I feel like it was quite a win. Thank you. I wish I'd won the Big Game last week, though. Congratulations on your terrific, terrific announcement today." After a pause for the company's thank you, Monane asked a few softballs, including one puzzler about the economic implications of Genta and Aventis sitting down the road from one another. Then, in a stunning demonstration of his professional objectivity, Monane closed with, "Thanks very much for the clarification and for the privilege of allowing me to be the first to congratulate you."
No. Let us thank you for devising a comment with about 90 times the suck-up value as the traditional greeting of, "Congratulations, guys, on a great quarter."
Monane demurs from commenting on our perception of his speech. But, he says, his conference call hello and goodbye were consistent with his rating on the stock, which is a strong buy.
"It's one of my favorites in the cancer space right now," he says. Neither he nor any family member owns the stock, he says, and though Needham worked on an offering for the company in December 2001, he was bullish on the stock back in December 2000, when he was the first analyst in recent times to pick up the stock. "My enthusiasm was pretty strong then, and it's pretty strong now," he says.
Of that, there can be no doubt.
2. Crazy Little Thing Called DOV
Speaking of pharmacological wackiness, how about that
. Here's a company that has been trading barely a week and already it's been targeted with five different suits seeking class-action status; surely it deserves at least a certificate of merit for the
speed with which it has enraged investors.
And what did DOV do to deserve such ill will? Why, it had the temerity to fall in price once it hit the public market. After going public at $13, DOV swooned, closing at $8.15 on Thursday.
Of course, the lawyers who have filed suit paint a more sinister picture. The stock dived, they say, because without fair warning to investors and, in a sneaky, last-minute maneuver designed to be overlooked, DOV fessed up to some financial hanky-panky. (DOV says it hasn't been served with any complaints but has "meritorious defenses" to any claims and will "vigorously defend" itself in court.)
Ooh! Numbers! Revised numbers! Shades of
! Call in the SEC! Get Harvey Pitt on the line!
Now, what exactly was this Enron-esque numerology? As far as we can tell, this is it: According to DOV's original IPO filings, in 1999 a joint venture between DOV and fellow pharma
incurred an expense of $8.3 million for purchased in-process research and development. But in a last-minute revision to those statements, DOV now says the 1999 expense for in-process R&D should be $10 million.
What's the explanation for the difference? Originally, DOV says, the joint venture "recorded the contributions made based on the carry-over bases of the investors, rather than the cash contributed." But then, apparently at the suggestion of the SEC, it recorded the investment "based on the cash contributions made by the investors."
Oh, the humanity! Yes, we're sure you're absolutely livid about this numerological chicanery. We would be too, if only we had a clue about what any of this means.
See, we think somebody's just looking for a molehill to make a mountain out of. Try as hard as we can, we can't figure out why the new numbers are supposed to get us upset -- especially because the SEC-suggested restatement has the effect of increasing DOV's reported 1999 revenue, not puncturing it.
We suspect that the litigious investors simply had the bad luck of investing in a horse that stumbled out of the gate. Sometimes stocks just lose momentum; DOV was one of them, dropping from a forecast $15-$17 pricing range earlier in the month to $14-$16, then going out at $13.
You don't have to head to a courtroom to find reasons why investors might lose their nerve here. Just look in the prospectus: No product revenue (in fact, no revenue at all in 1999 and 2000), just lots of expenses and $5.7 million in license fees and milestone payments in 2000. As Mark Monane already knows, not everyone who takes a gamble wins the Big Game.
3. The Truck Stops Here
Now that Bernie Ebbers this week publicly abdicated his throne as emperor of
, we figure he's just like every other out-of-work stiff who happens to owe money on his phone bill. It's just that in his case, he made an awful lot of phone calls on the company's dime.
Bernie Lose Himself a Convoy?
As you may recall, Ebbers owes about $366.5 million to WorldCom, which was kind enough to lend him that dough after he kept on forgetting to go to the bank machine on his way to work.
So we started wondering about what would happen if Bernie isn't able to make good on his debts. WorldCom is a little vague on what assets are backing up the loans, but we understand they include a huge cattle-ranching operation in British Columbia, plus a trucking company named KLLM, conveniently located in WorldCom's hometown of Jackson, Miss. (The company actually lists Clinton, Miss., as its headquarters, but a look at the map shows that Clinton is a suburb of Jackson.)
We haven't quite worked out the strategy with the Canadian cattle, but in the event that WorldCom has to foreclose on Bernie's trucking company, we're bursting with Dumb ideas for trucking/telecom synergies. Need to transport cotton to California? WorldCom could be your one-stop shop for long-haul fiber.
But what really intrigues us is a KLLM help-wanted ad we found online. "In addition to providing competitive pay and benefits, our goal at KLLM is to set ourselves apart from other trucking companies by improving the quality of life for our drivers. We do that by asking drivers what they need and then doing whatever we can to meet those needs."
Whoa. That's sweet. Sounds worlds away from WorldCom, where employees have complained about numerous indignities endured over the past few months -- pay cuts, revoked long-distance credits, office plant deforestation and, of course, down payments for the morning coffee.
So maybe the real value in a KLLM-WorldCom merger would be for the Ebbers-owned KLLM to do some serious nurturing and rebuild WorldCom's devastated employee morale. Sort of makes sense. After all, WorldCom employees, we hear, have come to regard Bernie as a real mother trucker.
4. Money for Nothing
CEO Christos Cotsakos earned about $80 million last year. Pretty sweet deal for a guy who led his company from a $28 million profit in 2000 to a $241 million loss in 2001.
Actually, he could have done better. If only E*Trade had lost $300 million last year, we're sure the compensation committee would have bumped his pay up past $100 million.
As you might guess, there's outrage all over the place, because the pay is eye-popping, no matter how you slice it. According to
The Wall Street Journal's
numbers, for $80 million E*Trade could have hired Goldman Sachs CEO Henry Paulson Jr. and Merrill Lynch CEO David Komansky, and still have enough money left over for ... another Henry Paulson Jr. and another David Komansky.
The E*Trade board must have been bracing for the firestorm, judging from the amount of ink that the compensation committee spills in this week's proxy filing to justify Cotsakos' windfall. Our favorite part: "Dr. Cotsakos is considered to be one of the visionaries, architects and leading founders of e-commerce and e-finance, as well as the Company's architect and leader of its Guiding Principles, strategic matrix and operating model."
You know, that's sort of the way they talk about us here at theResearch Lab. We're putting in for a raise.
5. Spare a Dime for a Phone Call?
Back to the conference call thing. It's unfair to say that all companies walk over analysts on their calls; at least one of them, we learned this week, begs from them.
Yes, as beleaguered telco
discussed its difficulty in collecting receivables this week, financial chief Tom Lord sounded pretty desperate.
"We still have problems with the large, monopoly, high-quality, high-credit regional Bell operating companies being slow to get their bills in the mail or have their problems with the Postal Service in paying us," he said.
For the record, he said, more than a third of the company's 82.9 days' sales outstanding of receivables were in the hands of
"For you analysts who have buy recommendations on those stocks," Lord said, "I would plead with you to encourage those managements to honor those bills and send us our checks as quickly as possible."
And we thought we had a rough life.