Cruel or Unusual?
Sirius surges despite mounting losses

Source: Janco Partners

1. Sirius Moonlight

This week's news that the

Securities and Exchange Commission

was investigating trading in

Sirius Satellite Radio

(SIRI) - Get Report

had us scratching our heads a bit.

The New York Post reported that the government was probing alleged insider trading in Sirius shares ahead of the company's Oct. 6 hiring of shock jock Howard Stern. Shares in Sirius surged 40% in the weeks leading up to the blockbuster announcement, before rising an additional 15% that day.

That's certainly quite a run-up. And of course, we roundly applaud the SEC for cracking down on any hanky-panky in the markets. An SEC spokesman, citing policy, didn't comment on the probe.

On the other hand, unusual trading in Sirius? That's hardly new.

After all, Sirius is the stock that has risen 600% over the last two years -- even as the company posted wider and wider quarterly losses and, on top of that, began signing big-name talent to costly long-term contracts.

The red ink has certainly been adding up. In 2004, Sirius posted a loss of $712.2 million on revenue of $66.9 million. New York-based Sirius managed to run up this record even as rival

XM Satellite

(XMSR)

piled up more than twice as many subscribers.

Yet investors have had a field day with Sirius stock, sending it as high as $9 and change from about $2 last year. Right around the time the stock crested late last fall, on separate days it traded 580 million, 421 million and 407 million shares -- setting

Nasdaq

records.

One other head-scratcher is that so far, the only person known to be subpoenaed is a frequent guest of Stern's show, journalist Chaunce Hayden. Hayden -- who has said he doesn't own the stock and has no knowledge of any improper trading -- is the editor of a New Jersey-based celebrity magazine.

What kind of a witness he'll make isn't clear. Hayden, who didn't return our call, is

described on his Web site as "a man who is always willing to sacrifice his dignity for the sake of entertainment."

Appearing on Fox News'

Your World with Neil Cavuto

Wednesday, he brushed off Thursday's scheduled chat with the feds as "a big waste of everybody's time."

Sounds like a promising lead.

2. Alderson Prison Blues

Believe it or not, some people won't be weeping tears of joy when Martha Stewart gets out of prison. No, they'll just be weeping.

Now, you may think of the founder of

Martha Stewart Living Omnimedia

(MSO)

as a prickly perfectionist who comes off as something short of lovable. But to listen to CEO Susan Lyne, you've got it all wrong.

Easy-Living Martha
Hard time ends soon

The question arises because Stewart is due to start the home-confinement phase of her sentence March 6. And if the domestic diva is cheered by the prospect of being reunited with her

"two beloved, fun-loving dogs" and her "seven lively cats," then Lyne is even more enthusiastic about next month's Martha moment.

"Yes, she's wonderful," Lyne told Fox's Stuart Varney on Wednesday. "I've spent a lot of time with her now in the last four months -- because I go down to visit her at Alderson," the West Virginia prison where Stewart has been incarcerated since October following her 2004 obstruction of justice conviction.

But there's no ignoring that this may hurt the less fortunate among us. Think first of stockholders, who have been

remarkably content with the company's former leader locked up. Can the stock keep it up with Martha on the loose?

And then there are the many close friends Martha will leave behind. Don't forget about them.

"I've spent hours alone with her, and she has -- she has great friends there," Lyne told Varney. "She is very comfortable. She is -- she's an easy person."

Easy does it.

I'm on Your Side
Qwest's Notebaert

Source: Qwest.com

3. Expert Testimony

We've all heard the argument that big mergers are bad.

They're bad for consumers, because they drive service prices up. They're bad for shareholders, because they drive stock prices down.

So it came as no surprise when we started hearing those criticisms of Verizon's (VZ) - Get Report agreement to buy long-distance telco MCI (MCIP) . But if the claim itself wasn't shocking, we were doing a bit of a double-take at one of the sources: Qwest (Q) CEO Dick Notebaert.

Qwest, of course, is the struggling Denver telco that set off the MCI frenzy by making a $7.3 billion cash-and-stock bid for the Ashburn, Va., data services specialist. It turned out that MCI's board was so bowled over by the offer that it failed to respond, and then doubled Qwest's embarrassment by accepting a lower offer from New York's Verizon.

Qwest has spent the last week complaining about the snub and threatening to increase its offer, presumably so MCI can ignore it again. Late Thursday, Qwest did up the ante, raising the cash portion of its offer, now valued at $24.60 a share, and adding a so-called collar to offset the risk of any decline in its shares.

But even before Thursday's developments, there were signs that Notebaert was ready to take out his frustration on his rivals -- judging by what he said in an interview Wednesday with

The Associated Press

.

"What's happening here before our eyes, depending on what the government does, is that we're not consolidating -- we are concentrating market power, potentially," Notebaert said, discussing the wave of telecom mergers since December. "My concern, and I think the concern that the policymakers should have, is that bigness does not equal better."

To his credit, Notebaert conceded that the argument had a funny ring coming from him. "Sure, it's self-serving for us from a certain degree," he told the

AP

. "But I really do worry ... if it goes down to two and they have 80% of market."

Of course, analysts point out that all the big telcos have been hit by falling prices and that there's little reason to believe that trend will reverse soon, mergers or not. And Notebaert seems to have taken a different stance on consolidation back when he was CEO of Ameritech, the Chicago-based Baby Bell taken over by

SBC

(SBC)

in 1999.

A Qwest representative didn't immediately return a call seeking comment on Notebaert's increasing interest in public telecom policy.

4. The Impossible Dream

Looks like

Fannie Mae

is finally ready to tend to her knitting.

See, the big mortgage company has been going through some tough times. In December, regulators told it to change its accounting and take a massive $9 billion writedown to make up for previous bookkeeping errors. The very next week, the company's longtime leaders, CEO Franklin Raines and finance chief Tim Howard, were shown the door.

If that weren't bad enough, this week the company admitted that its overseers at the Office of Federal Housing Enterprise Oversight had unearthed further evidence of accounting problems. Fannie said the issues could lead to additional restatements of previous years' earnings and added that it would continue cooperating with its regulators.

But what caught our eye was the company's plan, outlined Wednesday, to cut costs as it raises capital to get its finances back on a sound footing. Fannie said it would "sharply curtail its corporate advertising campaign and use of political consultants." A company spokesman said Thursday that Fannie couldn't comment on the matter beyond what it put in its press release.

In any case, a cutback on the publicity front could amount to a big change indeed. After all, last year

Bloomberg

and

The Washington Post

reported that Fannie ranked among the top 10 in U.S. corporate lobbying spending, forking over more than $5 million in the first half of 2004 alone.

Saving $5 million here and there may seem like a drop in the bucket when you've got to raise billions to shore up your balance sheet. But if it means fewer of those ads identifying Fannie Mae as the sponsor of the American Dream, we're all for it.

5. Sealed With a Kiss?

For years its name was synonymous with chocolate. Then it expanded its brief to include food.

Now, judging by a planned name change,

Hershey Foods

(HSY) - Get Report

has grander visions -- though we can't quite figure out what they are.

One thing's for sure. With the big

Procter & Gamble

(PG) - Get Report

-

Gillette

(G) - Get Report

merger threatening to reshape the consumer products sector, companies are feeling the pressure to make sure they're flexible enough to embrace any market opportunity. Jim Jubak

said as much last week on

TheStreet.com

.

Indeed, that kind of thinking is what seems to be behind Hershey's plan to change its name. The company said in an SEC filing this month that it would seek to take on a new corporate identity -- The Hershey Co. Shareholders are to vote on the proposal in April.

The new name is "on trend with today's marketplace, is easily identifiable and will provide flexibility should the company choose to expand into other market segments," Hershey said in its filing.

So what kind of other market segments might Hershey tackle? Nanotechnology? Wireless telephone service? Online travel publishing?

A Hershey representative didn't immediately return a call seeking comment. We can only assume the big opportunity will bring a sweet deal for shareholders.

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