Qwest for the Bottom Line
1. Qwest for Firings
Sometimes, when we hear people describe the investing world as heartless and unfeeling, we think Wall Street is getting a bad rap.
You'll recall that some MCI shareholders were disappointed last month when the Ashburn, Va., telco's board accepted a merger offer from Verizon (VZ) - Get Report -- even though Verizon's bid was worth some 15% less than Qwest's. Qwest even promised a faster closing and less regulatory scrutiny.
The snub -- and Qwest's
weak attempt at a sweetener -- set off a slide in Qwest's shares, which had surged late last month as fans feasted their eyes on MCI's lush balance sheet.
But Tuesday, Qwest turned things around. It sent CEO Dick Notebaert out to talk with analysts and investors about why its bid for MCI is better than Verizon's. He and finance chief Oren Shaffer
rounded up all the usual suspects about faster closings and regulatory advantages.
Oh, and right, one other thing: Qwest promised greater "synergies."
Well, that was like throwing meat into the lion's den. When investors saw Qwest was promising to cut twice as many jobs as Verizon is -- 12,000 to 15,000, or up to 18% of the combined workforce -- they suddenly rediscovered their appreciation of Qwest's deal. They sent its stock up 4%, putting it back over the $4-a-share mark -- making the stock portion of Qwest's latest bid more valuable.
Now, we're not denying that cost-cutting is a fact of life in the cutthroat telecom business. And there's no doubt that management has a duty to try to make money for shareholders.
But it's rare that Wall Street's bloodthirsty side is so clearly in plain view. To any casual observer of last week's events, the reaction to Qwest's presentation -- fairly or not -- confirmed that the best thing a company can do in the eyes of the market is to fire its staff. A Qwest rep didn't immediately return a call seeking comment.
It's not that we blame Qwest for trying to sell its offer -- just as we can't criticize investors for wanting to get the most money.
All the same, we also can't fault people who think the whole spectacle's just a little bit unnerving.
2. Bernie Appleseed
Bernie Ebbers drew some snickers this week with a courtroom strategy that skeptical prosecutors mockingly labeled the "aw shucks" defense. But the accused ex-WorldCom CEO wasn't the only one trying to strike a down-home note in this trial.
Bernie's Fruit Loop
It turns out that WorldCom, in the estimation of federal prosecutor William Johnson, is just like an apple orchard. And while Ebbers has been accused of some serious crimes tied to the spectacular 2002 flameout of his telecom titan -- the U.S. government has alleged that the former CEO masterminded an $11 billion accounting fraud in an effort to keep the company's stock up and safeguard his teetering personal fortune -- there was one claim we weren't ready for.
Yes, that's right. Under Ebbers' direction, the long-distance and Internet service provider -- get ready for this -- mixed apples with oranges.
So Johnson said Wednesday in his closing arguments. He pointed to serious slowdowns in WorldCom's revenue growth and efforts by the company to hide the deterioration from its many boosters on Wall Street.
In this example, Johnson told jurors in U.S. District Court in Lower Manhattan, the apple orchard is hit by storms, reducing the quality and quantity of the apples. How does the orchard react? Not by telling its many applesauce-coveting customers, Johnson says. No, instead:
When there aren't enough shiny, fresh apples to fill all the bushels, the orchard makes up the difference with apples with worms, and even adds in some oranges. They never counted oranges before. And some of those oranges aren't even in the basket yet. For those, the orchard claims to have a contract with a nearby farm where they can go get the oranges, and they say they have very good lawyers, and they will collect on that contract some day.
Regardless of how the jury finds on Bernie Ebbers' securities fraud charges, hopefully this trial will remind everyone of the dangers of fruit-mixing.
3. Titans of Industry
Business and politics clearly don't mix. If you want to see why, take a look at this week's developments at
The San Diego-based defense contractor
pleaded guilty Tuesday to violating provisions of the Foreign Corrupt Practices Act, a federal law that bars U.S. companies from bribing foreign officials. Titan agreed to pay $28 million in fines to federal prosecutors and securities regulators to settle charges stemming from its actions in the African nation of Benin.
The U.S. government claims that in 2001, Titan funneled $2 million through an intermediary toward the election campaign of Benin's then-incumbent president. The company did so "to assist the company in its development of a telecommunications project in Benin and to obtain the Benin government's consent to an increase in the percentage of Titan's project management fees for that project," the
Securities and Exchange Commission
The SEC says Titan didn't know what it was getting into when it hired the agent. "Titan failed to conduct any meaningful due diligence into the background of its agent either before his retention or thereafter," the SEC says. "Titan also failed to ensure that the services alleged to be performed by the agent, and described in his invoices, were in fact provided to Titan."
For its part, Titan was eager to put the episode behind it. "We are relieved that this chapter in the company's history is drawing to a close," Titan's vice president for compliance and ethics, David W. Danjczek, said of the settlement. "Titan will not tolerate ethical breaches or violations of the law."
But wait a minute. So what did Titan eventually get for the millions the SEC says it paid its agent in Benin? Well, the agency says, "some of the monies were used to reimburse the Titan Benin Agent's purchase of T-shirts adorned with the President's picture and instructions to vote for him in the upcoming election." The complaint doesn't allege that the then-incumbent president knew of the payments, though.
So let's get this straight. Titan paid $2 million for, among other things, T-shirts emblazoned with the president's face -- and the president didn't even know it?
That's no way to influence foreign corrupt practices.
4. What's in a Name
You've got to hand it to the Food and Drug Administration.
Even in a week that has Bernie Ebbers putting oranges in his apple bushel and Qwest promising it can fire more people than Verizon, the agency manages to look pretty hapless.
Yes, this week's announcement that
were pulling their promising immune-system treatment Tysabri was a tragedy for thousands of seriously ill patients -- particularly two who developed a rare disease while taking the drug -- as well as a serious blow to the two companies.
But just as troubling was that the event amounted to another setback for the FDA's fast-track approval process.
No question there's a large measure of bad luck at work here. There's no indication that either the FDA or the two companies were in any way remiss in their review of the drug. All parties moved promptly when news emerged of illness linked to Tysabri.
And there's also no criticizing efforts to get Tysabri on the market. The drug promises relief for thousands of sufferers of multiple sclerosis, Crohn's disease and rheumatoid arthritis. All are deeply debilitating conditions that so far have eluded a completely successful treatment.
That said, last year's Vioxx debacle at
suggested to some skeptics that the FDA had grown lax in giving drugs the fast-track treatment. And heightening the unfortunate irony this week was the fact that in November, when the FDA granted marketing approval for Tysabri, it did so with one condition -- that the drug's name be changed.
Last Nov. 23, the agency gave the companies the go-ahead to sell the drug as a stand-alone therapy or in combination with Avonex, Biogen Idec's big-selling MS drug. But, as
The Boston Globe
reported last December, there was one thing the regulators didn't like about the new drug: the name.
After Biogen Idec and Elan spent a year calling the drug Antegren, the FDA forced them to change to avoid confusion with existing drugs.
No question, having doctors and pharmacists confuse two different drugs for each another could have drastic consequences. Unfortunately, as investors and patients found this week, putting the drug on the market did, too.
5. Voom and Gloom
Say what you will about
Chairman Charles Dolan, but he's not timid.
Especially not when it comes to his pet project, the Voom high-definition satellite television venture that Cablevision has spent the last month trying to extricate itself from. That effort has left Dolan embroiled in a widely reported family feud with his son James -- the company's CEO -- and the rest of the Cablevision board.
That feud manifested itself in bizarre fashion earlier this week when Charles and James Dolan sent conflicting memos to the staff of Voom regarding the service's future. Charles Dolan and Tom, another of his sons, have since resumed efforts to buy Voom, keeping its doors open for at least this week.
But that was nothing compared with Charles Dolan's bold move Wednesday night, when he unilaterally moved to replace several directors and served notice that he plans to populate the board with his supporters in May. For now, Dolan will be content to replace three directors and fill one vacancy with new board members Rand Araskog, Frank Biondi, John Malone and Leonard Tow.
If that move had corporate governance gadflies buzzing about the dangers of supervoting stock and family control, at least all the directors Dolan named are highly respected corporate chieftains. Cablevision representatives didn't return a call seeking comment Thursday.
It's unlikely, however, that anyone would offer the same description of another new director to be nominated in May by Dolan, one Brian Sweeney.
Who's he? Oh, Dolan says in a press release and related SEC filing, he's "the Senior Vice President for eMedia for the Company and is a son-in-law of Charles F. Dolan."
Say what you will about related parties and all the rest. No one can claim Chuck Dolan fails to disclose.
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