No Fries With That
1. Lunchpail Guy
mess is giving Carl Icahn heartburn.
Icahn has lined up some hedge fund pals to rouse the torpid media titan out of a long share-price slumber, but their calls for a huge buyback and complete cable spinoff don't seem to be ringing any bells at Time Warner. The company justifies its course by noting that in just three and a half years, CEO Dick Parsons has managed to settle some lawsuits and reduce debt.
So this week Icahn turned up the heat. His latest denunciation of the New York company, issued Tuesday, ticks off a long list of perceived management missteps. Topping the list are the subscriber hemorrhage at AOL, the "fire sale" prices fetched in various asset dispositions, and Time Warner's "bloated cost structure."
This last issue seems closest to the corporate-raider-turned-shareholder-activist's heart. Take the recently constructed Time Warner Center in midtown Manhattan, "which cost the company $800 million to construct and offers such lavish features as a grand employee cafeteria with two-story windows overlooking Central Park," Icahn thundered. "We question how such an extravagant building, which houses only a small fraction of Time Warner's employees, enhances shareholder value (and cannot help but wonder where the shareholders get to eat lunch)."
Yes, we ache to know where down-and-outers like Icahn take their midday sustenance. Luckily, a July 1996 profile of Robin Leach -- the man behind
Lifestyles of the Rich and Famous
-- sheds more light on Icahn's power-lunching ways.
Leach "says he was once invited to lunch in New York by two Wall Street heavies, Carl Icahn and Ivan Boesky," London's
reports. "He not only ended up paying the tab but gave Icahn $20 for a cab."
Beyond sticking someone else with the check, Icahn seeks a more sweeping answer to lunchroom profligacy. "Given this extravagance and the failure to cut costs at businesses like Warner Music described above," Icahn wrote Tuesday, "we intend to hire, in the next few weeks, an industry consultant to analyze and compare Time Warner's costs to its peers on a number of different levels."
Sounds enlightening. With any luck the consultants will agree to brown-bag it.
Dumb-o-Meter score: 91. Everyone knows the best way to cut costs is to hire lots of consultants.
Sending a Message
2. Shooting the Messenger
The giants of the tech world have been sending out some mixed messages lately.
Yahoo! (YHOO) and Microsoft (MSFT) - Get Free Report had Wall Street chattering Wednesday with their "landmark" agreement to share instant-messaging systems. The path-breaking move came just days after red-hot Google (GOOG) - Get Free Report and Sun (SUNW) - Get Free Report unveiled their earth-shattering plan to try to give away more free software.
The moment was so meaningful that, like Google and Sun before them, Yahoo! and Microsoft held a press conference to explain. "Being able to instant message between IM communities is one of the features most requested by MSN Messenger and Yahoo! Messenger users," the companies said in an accompanying press release. "In addition to exchanging instant messages, consumers from both communities will be able to see their friends' online presence, share select emoticons, and easily add new contacts from either service to their friends' list."
Of course, there's a reason that MSN Messenger and Yahoo! Messenger users are so busy requesting interoperability. Though the companies claim to have a staggering 275 million users between them, it's clear that their services remain distant also-rans to AOL's Instant Messenger, which has long resisted interconnection. So even as Yahoo! and Microsoft were rolling out their big plans, skeptics were emerging.
"Now if indeed anybody actually used Microsoft and Yahoo!'s Instant Message service, this might be big news," hedge fund manager and former
columnist Jeff Matthews wrote on his
blog. "The fact is, however, I know exactly one person" who uses MSN Messenger.
Yes, but think of all the emoticons at his disposal now.
Dumb-o-Meter score: 88.We can't wait to see what the hard hitters in Silicon Valley will cook up next week.
To view Colin Barr's humorous video take on IM messages, click here
3. Zeal Parmesan
chief Phil Bennett may not have much going for him right now, but he can certainly count on his lawyer to zealously represent him.
Bennett was arrested this week and charged with
defrauding investors in the commodity futures broker of more than $500 million by, among other things, failing to disclose a bizarre side arrangement in which a firm he controlled took over hundreds of millions of dollars worth of Refco's bad loans.
Shares in the New York-based company have plunged, dropping 72% and wiping out $2.5 billion in shareholder value. Refco said Thursday that it would shut down its capital markets arm for insufficient liquidity and seek a buyer. Bennett was free on $5 million in bail after prosecutors described him as a flight risk. "We have a straightforward and extraordinarily powerful case," prosecutor David Esseks said.
The charges come just two months after Refco raised $583 million in an initial public offering that lined the pockets of Bennett and Refco's big shareholder, private equity firm Thomas H. Lee Partners.
Refco has done little to clarify the scandal, making it difficult to avoid the conclusion that Bennett's debt transference was a scheme to burnish the company's balance sheet ahead of its IPO. Bennett, of course, pocketed more than $118 million in that offering and also raked in tens of millions of dollars extra from a
special post-IPO dividend paid by Refco.
But try telling that to Bennett's lawyer, Gary Naftalis.
He said prosecutors "jumped the gun" in arresting his client just a day after the scandal came to light. "There has been no meaningful investigation," Naftalis said. "We want to face these charges."
On that score, at least, it sounds like everyone wants the same thing.
Dumb-o-Meter score: 82. Perhaps the toughest break came when prosecutors heartlessly canceled Bennett's well-deserved wine-tasting vacation in Europe.
Parts and Labor
4. Vision Thing
It's easy to see
chief Steve Miller's competitive fire.
Delphi, the Troy, Mich., auto parts maker, filed Saturday for Chapter 11 bankruptcy protection in a bid to slash costs. The company has said it wants to cut rank-and-file workers' pay and benefits by more than half. Miller, a longtime turnaround CEO with experience in Detroit as well as at the airlines, has been outspoken on the subject of how Ford (F) - Get Free Report and GM (GM) - Get Free Report need to follow Delphi's lead in bringing compensation down to market levels.
Miller is correct, of course, that Delphi can't go on forking over $65 an hour in pay and benefits when the market rate is more like $25. But it's harder to explain Miller's decision to bolster management severance packages just ahead of the bankruptcy filing.
Delphi beefed up the severance agreements for 21 of its top executives on Friday, the day before it filed for bankruptcy, The Washington Post reported. Executives will be eligible for 18 months of pay and at least part of their bonuses if Delphi lays them off or they leave voluntarily. Previously severance packages were capped at 12 months. In exchange, the executives signed 18-month noncompete agreements.
United Auto Workers chief Ronald A. Gettelfinger spoke Saturday of a "disgusting spectacle" in which management got raises while workers were getting hammered. Miller defends the agreement as keeping the struggling company from losing qualified execs. "They can't quit," Miller emphasized. "We blocked the exit doors."
Given that these are the same brilliant strategists who led Delphi to a $4.87 billion 2004 loss, Delphi might have been better off chaining the doors after they left.
Dumb-o-Meter score: 80. This week Miller also enjoyed 20 minutes on the phone with Sen. Hillary Clinton (D., N.Y.) discussing, of all things, health care reform. That sounds like time well spent.
5. Fine and Dandy
South Korean electronics giant
pleaded guilty this week in what has to be the sorriest price-fixing conspiracy ever.
The Justice Department said the company would pay a $300 million fine to settle claims that it conspired to boost prices for memory chips. Samsung joins Seoul-based
and German rival
in paying big fines to settle the charges, which center on dynamic random access memory chips, or DRAM. The government says prominent victims included
, and their customers.
"Today's guilty plea is evidence of the department's ongoing commitment to protect consumers from corporations that engage in illegal conduct," Attorney General Alberto Gonzales said. "Price-fixing threatens our free market system, stifles innovation and robs American consumers of the benefit of competitive prices."
What's odd is that the allegations came during a period of low prices and razor-thin margins for memory chips. Michael Dell, chief of the dominant PC maker, brought the matter to the feds' attention with his 2002 comment that the planned acquisition of Hynix by
could lead to "cartel-like behavior." Some observers were duly mystified.
"It is madness to look for price-fixing when prices are so low," a U.K. semiconductor analyst told the
in June 2002. "If there was price fixing, the prices would be 10 times higher."
Next time around, maybe these guys should get themselves some price-fixing consultants.
Dumb-o-Meter score: 79. "Samsung strongly supports fair competition and ethical practices and forbids anti-competitive behavior," the company declared in its settlement press release. Well, that's good to know.
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