Doom and Voom
1. Flipping the Bird at Cablevision
Well, you can say a lot about Chuck Dolan, but you can't accusehim of wishy-washiness. Once he fixates on a bad idea, he holds on toit for dear life.
Dolan, to remind you, is chairman of Cablevision (CVC) , the mostlysuccessful cable TV operator behind the ill-fated high-definitiontelevision satellite service called Voom.
As was widely reported last week, Cablevision's board gave up onVoom, and the company sold off its key satellite assets.
But what wasn't so widely reported was Dolan's assessment of whyVoom went down the tubes.
It had nothing to do with the obvious reasons whyVoom was near-doomed from the start. Voom, for example, faced intensecompetition from the comfortably established
. Voom's much-vaunted high-definition programming waspadded with lame, exclusive-for-a-good-reason programming such asEuroleague basketball and views of a tropical fish tank.
No, that wasn't the problem, according to Dolan. Instead, it wasOur Litigious Society, which apparently makes it impossible forcompany directors to Be Brave and Do the Right Thing.
a memo that leaked out of Cablevision (atleast one analyst believes it authentic, but the company declined to comment on the authencity of the memo), Dolan and one of his sons -- also an executive at Cablevision -- wrote that they believed the board'sdecision "has to do with today's post Enron regulatory climate, whichplaces great emphasis on the potential legal liability of directorswho sit on the boards of corporations involved with newenterprises."
Dolan can scapegoat lawyers and regulators if he wants to. But wesuspect the blame lies with the guppies.
2. Commerce, Cool and Collected
Now that Wall Street has rid itself of research-investment bankingconflicts, what's stopping analysts from doing honest, well-informedassessments of the companies they cover?
The companies, evidently.
That's the case, at least, with
, the NewJersey-based bank caught up in allegations of two executives'involvement in municipal influence peddling in Philadelphia.
As we learned from
The Philadelphia Inquirer
last Friday,Commerce has a delightfully straightforward method for silencing itscritics in the analyst community. It silences them.
Specifically, when it came time for the question-and-answersession on the company's recent fourth-quarter earnings call -- thetime when companies must depart from their scripted presentation toanswer occasionally difficult questions from analysts -- Commercesimply refused to take questions from analysts who had unfavorable ratingson the company, according to the
Four analysts -- including one from Legg Mason and another fromfinancial services specialist Keefe Bruyette & Woods -- told the
that they didn't get a chance to question management, nomatter how many times they pressed the buttons on their phone thatshould have put them in the queue.
Meanwhile, more favored analysts from Merrill Lynch and A.G.Edwards were able to ask not just one question, but
. (Andno, it wasn't simply two-part questions or quick follow-ups theyasked, but clearly distinct questions at separate times during thecall.)
A Commerce spokesman was both evasive and blunt in addressing theissue. "We try to accommodate all the calls, supporters ornon-supporters," he told the
Well, that doesn't make sense. How can he say that he'saccommodating nonsupporters if friendlier analysts get to cut back inthe question line before skeptics get to ask one call?
"But in the interest of time," continued the spokesman, "a lowerpriority is given to callers who have a history of beingdisruptive. ... Some people really don't like us."
Hmmm. If a company suggested to us that being critical was the same thing as being disruptive, maybe we really wouldn't like the company, either.
3. An Allocation for Taking Stock
Remember back in the olden days of the dot-com boom, when hot,newly public stocks would shoot skyward on their first day of tradingin a spontaneous frenzy of demand?
Well, it turns out that the frenzy was not so spontaneous.
On Tuesday, the
Securities and Exchange Commission
settledcivil complaints with
oncharges that the investment banks violated securities laws in 1999 and2000 in their handling of initial public offerings of various techcompanies.
According to the complaints, the two banks -- not, apparently, inconcert -- came up with the same method for improving the odds thatshares in companies they brought public would jump in price once theystarted trading on the open market.
How they did it was to ask for a quid pro quo: If certaininvestors wanted the privilege of being allocated IPO shares at theoffering price -- stock that, at the time, was virtually guaranteed tojump in value -- those investors had to commit to buying a certainnumber of shares, at a certain higher-than-offering price, once thestock started trading.
These efforts to pump up aftermarket demand, says the SEC, wereillegal. But they worked. (Goldman and Morgan Stanley, which neitheradmit nor deny the charges, are paying $40 million apiece to settlethem.) One of Morgan Stanley's key IPO marketing objectives was to create the "perception of scarcity," reports the SEC. As we recall, it sure looked like scarcity to us.
What's depressing about the complaints is how systematic andorganized the inappropriate practice was. Salespeople suggested tocustomers how high they should bid in the aftermarket. They wroteinternal memos reporting the commitments they collected. They verifiedwhether customers followed through on their commitments. They even hadshorthand language for the illegal linkage: "3 for 1," for example,meant a customer would buy three shares in the aftermarket for eachshare he was allocated at the IPO price.
So was it the dot-com bubble that we all lived through, or theperception of the dot-com bubble? Maybe investors should count uptheir perceived losses and let us know.
4. Hour Mutual Friend
Last week we were shocked to learn that
paying one of its executives on an hourly basis -- as if he were, say,a part-time employee at a doughnut shop.
Well, it turns out that one of America's most famous doughnut shopsworks pretty much the same way.
Krispy Kreme Doughnuts
announced the pay scalefor the two turnaround specialists brought in to run the companyafter the departure of CEO Scott Livengood.
For the services of new CEO Stephen Cooper, Krispy Kreme will bepaying his employer, Kroll Zolfo Cooper, $760 an hour. President andChief Operating Officer Steven Panagos, also on the payroll of KZC,will cost $695 an hour.
So, let's get this straight. The two new Steves atop Krispy Kremearen't simply hourly wage workers, they're also temps. Is this agreat country, or what? Makes us want to run out and sign up with Kelly Services (KELYA) .
Just to make sure that this time-clocked-executive thing is as oddas we think it is, we called someone who knows a little bit more aboutexecutive pay practices than we do: Dave Swinford, a managing directorat the compensation consultancy Pearl Meyer & Partners.
"The hourly rate is very unusual, no question," says Swinford. Heguesses that the hourly arrangement, instead of the typicalmonthly retainer for these turnaround situations, is designed toaddress possible concerns that CEO Cooper might split his Krispy Kremeduties with other KZC work.
Of course, says Swinford, the real payoff is theyet-to-be-negotiated success fee that Cooper might earn in his tenureat Krispy Kreme. "While 760 bucks is a pretty good hourly wage," saysSwinford, "I'm sure he's in it for more than that."
5. The Knauss that Roared
At Donald Trump's wedding last weekend, evidence of inflationwasn't limited to the developer's well-nourished ego.
For starters, the published prices of some key marital commoditieswent through the roof. Trump's bride, Melania Knauss, wore a weddingdress valued at $100,000 and an engagement ring valued at $1.5million. Given that Donald is chairman of the bankrupt
Trump Hotelsand Casino Resorts
, we're shocked he can keep up with thisinflationary spiral.
But the most alarming sign of runaway inflation lies in the presscoverage of the new Mrs. Trump -- a woman who, before she hooked upwith the Donald, apparently made a decent living as a fashion model.
See, for about as long as Trump has been romantically linked toKnauss, the press has identified her as what she was: a model. But inthe run-up to the wedding, as well as in the subsequent coverage,Knauss was increasingly referred to not as a "model," but as a"supermodel."
Title inflation, we suspected, was afoot. So we did a littleresearch to see if we could verify the trend. We could.
Back in April and May 2004 -- when Trump and Knauss'engagement became public -- we found 104 press mentions of Knauss thatmentioned her occupation. In 101 of them, she was described as amodel. In three, a supermodel.
Fast forward to this month, when we found 212 mentions of Knauss'job. She was identified as a supermodel in 33 of them. In other words,a model who was rated a supermodel 3% of the time eight months ago gotbumped up to being a supermodel 16% of the time today.
So there you go. You've got the same person -- the same basket ofgoods, so to speak -- who for no particular reason is valued 1,300basis points higher today than she was eight months ago. Now, if thatdoesn't embody inflation, what does?
Forget about the consumer price index or whatever inflation modeleconomists usually employ. We'll stick with our new MelaniaKnauss Supermodel Inflation Model. And, boy, is it scary.
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