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Out of Joint
No so fast on discounts, Zimmer tells HCA

1. Hospital Cornered


(HCA) - Get Free Report

is hip to the importance of telling the truth.

Execs at the cost-cutting hospital chain trumpeted Feb. 1 that they had "met our targets" on an important orthopedic implant contract. The deal promises manufacturers like Zimmer (ZMH) and Stryker (SYK) - Get Free Report joint-replacement sales volume in exchange for price cuts.

On an earnings conference call, HCA execs conceded that they were several percentage points short of satisfying the contract as of year-end. But "the good news is that we have now met our targets" and discounts will continue, execs added.

The bad news, they might have added, was that the story they were telling wasn't true. Wall Street learned of this disconnect Monday, when Zimmer sent HCA a scathing letter and disclosed the whole mess in a regulatory filing.

Zimmer says HCA tried three times to ease the contract terms, without gaining Zimmer's consent. HCA even made its third request to Zimmer the day


last week's conference call,'s

Melissa Davis

points out. By then, Zimmer had actually started to increase its prices, after HCA failed to meet its compliance targets last fall. "You acknowledged these September-announced price increases by paying numerous invoices thereafter based on the revised pricing," Zimmer notes in its letter to HCA.

Confronted with the actual workings of the discount contract, HCA discarded its version of the story and sat down to dine on some crow.

"At the time of the conference call, HCA was in active negotiations with representatives of Zimmer to reduce its compliance commitment from 95% to 90%, and HCA believed it would be able to obtain that change," the company said in a Tuesday afternoon response to Zimmer's letter. "Having reviewed the letter from Zimmer filed with the Form 8-K, we conclude we were wrong in this belief."

Better late than never.

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Dumb-o-Meter score: 95. Adds HCA chief Jack Bovender, "I regret any incorrect statements we have inadvertently made." Sure, now you do.

To view Colin Barr's video take on Motorola's entry in Five Dumbest this week, click here


Motorola's 'Flakr'
This one sends a message to analysts


2. Gams-Handed


( MOT) had some sharp words for investors this week.

The Schaumburg, Ill., wireless company has enjoyed a revival under CEO Ed Zander, driven by red-hot sales of some fashionable if oddly named cell phones. The ultrathin Razr continues to fly off shelves, goosing earnings and pushing the once-flagging stock up nearly 50% off last spring's lows.

But apparently that's not good enough for Motorola's chief flack. Ed Gams, officially the vice president for investor relations, wasn't happy with the selloff that accompanied Motorola's latest earnings blowout. So he had a few choice words this Monday for his analyst friends.

"Given the price pressure MOT has experienced in the last 2 trading days, in the absence of any negative news, it would be great to see you reiterate your 'Buy' recommendation on the stock!" Gams wrote in a Monday morning email to 41 analysts covering the company. There was also a second email laying out 17 points showing Motorola's superiority to rivals


(NOK) - Get Free Report


Sony Ericsson

. "In light of the stock price pressure on MOT last week, the management team wants to communicate the following to you and through you to your clients," it begins.

Of course, it's not exactly unheard of for a PR guy to seek better coverage of his stock. But given the sound and fury over conflicts of interest in the stock market, Gams' effort comes off as a little ham-handed. "On a spectrum where you have stupid on one end, this falls beyond stupid," one email recipient told's

Scott Moritz. Only one firm took Gams' advice and reiterated its buy rating.

Motorola didn't comment on the email, but what's most puzzling is Zander's stance. "I have given up trying to predict the stock a long time ago," Zander told


after the post-earnings selloff. "It must have been a bad hair day on Wall Street or something."

After this debacle, Motorola's looking none too comely either.

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Dumb-o-Meter score: 93. "There seems to be more and more of a focus on short-term results," Zander lamented to


last fall, "which makes investing for the longer term that much harder." Yes, go figure.

3. Lemon Tree


answered Wall Street's call this week.

The New Jersey Internet phone company filed Wednesday for a $250 million initial public offering. No date has been set, but an IPO would give Vonage even greater visibility as it faces off with big companies ranging from


(T) - Get Free Report



(CMCSA) - Get Free Report



(VZ) - Get Free Report

in the expanding phone-by-computer market.

Vonage, which bills itself as "leading the Internet phone revolution," also said Wednesday that Mike Snyder will take the CEO job from founder and principal shareholder Jeffrey Citron.

The new setup, with Snyder overseeing day-to-day operations, will let chief strategist Citron "get back to working on what I love: the go to market strategy for products, technical vision and core values of the company I founded over five years ago with four engineers and a folding table," Citron said in a Wednesday press release.

Citron's core values are certainly worth considering. He is best known for heading online trading firm Datek during the 1990s bull market. Under his guidance the firm emerged as one of the so-called SOES Bandits that minted money using Nasdaq's Small Order Execution System (SOES). Citron sold Datek years ago, but in 2003 he agreed to pay $22.5 million to settle charges that he illegally manipulated SOES for personal gain. Former Datek trader and shareholder Sheldon Maschler agreed to pay out $29 million to settle similar charges.

Neither man admitted to any wrongdoing, but Vonage concedes in its IPO prospectus that Citron's record hasn't exactly been a selling point. "We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters," Vonage says in its prospectus. "Other institutions and potential business associates may not be able to do business with us because of internal policies that restrict associations with individuals who have entered into SEC and NASD settlements."

Vonage may be the phone company of the future, but obviously some people still have hangups with Citron's past.

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Dumb-o-Meter score: 88. "In the past, we projected that we would generate net income during future periods," Vonage's prospectus notes, "but then generated a net loss." Sounds like a good practice.

4. Value Added

The feud over

Time Warner's


future is turning into a study in contrasts.

Hedge fund activist Carl Icahn wants a regime change at the New York media giant and has spent the better part of a year making noise to that effect. Bringing the bluster this week was chief aide Bruce Wasserstein, who completed a months-long examination of Time Warner's management and business situation.

Surprising no one, Wasserstein "concludes that Time Warner has been managed for the short-term," the Lazard chief explains in a Tuesday afternoon summary of his 350-page findings. "The board's decisions have cost shareholders at least $40 billion in value."

That's certainly a lot of value, and Wasserstein concludes that the sum can be reclaimed only by adopting Icahn's plan to split the company in four and buy back lots of stock. "Time has not been friendly to Time Warner, and the need to implement change is urgent," a Lazard press release warns.

But if the idea is to pick a fight, Time Warner isn't having it. The company has studiously ignored Icahn for most of the affair, preferring to emphasize its confidence in its own course (CEO Dick Parsons'

ice cream scoop notwithstanding). And though Time Warner has spent nine long months being harangued by Icahn, certainly no one can accuse the company of acting hastily or presumptuously.

"You may have recently heard something about Carl Icahn, who is leading a handful of hedge funds, and his proposal to break up Time Warner," a Tuesday letter to shareholders begins. "You also may know that Mr. Icahn is paying an investment banking firm, Lazard Ltd., led by Bruce Wasserstein, and a one-time media company executive, Frank Biondi, to promote his proposal for your company."

Yes, targeting investors who haven't heard of Icahn is sure to be a winning strategy.

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Dumb-o-Meter score: 85. It would be sad to think that Icahn's many appeals have fallen on deaf ears.

5. Byrne Unit


(OSTK) - Get Free Report

spent another week in the sick ward.

The Salt Lake City-based online discount retailer

posted weak 2005 results Tuesday, missing analysts' estimates by a wide margin. CEO Patrick Byrne blamed internal systems problems and said the issues would take two or three quarters to fix, and warned that Overstock's growth would slow for 2006. The company even declined to announce its fourth-quarter bottom line, saying it was discussing some accounting questions with its auditors.

It seems only natural that the setback should have spelled selloff for Overstock shares. But instead, the heavily shorted stock rose 5%, confounding observers. "It is certainly possible that there is short-covering," says Rebecca Jones Kujawa, an analyst with Stanford Group in Boca Raton, Fla., told's

Jonathan Berr.

Of course, there's some irony there. Last summer, Byrne stirred things up on Wall Street by claiming Overstock shares were the victim of a short-selling conspiracy. Byrne alleged that the setup was orchestrated by "one of the master criminals of the 1980s" who was "supposed to end up with our company." He declined to name the figure but likened him to the "Sith Lord" of

Star Wars


This time around, there was less talk of Jedi knights and light sabers. "I am terribly sorry, and disappointed -- as are my colleagues," Byrne said in his letter to shareholders. "While we have staunched the bleeding, I anticipate it will take six to nine months to rehabilitate the patient and get him running again."

Rehab sounds like something the folks at Overstock should be familiar with.

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Dumb-o-Meter score: 79. Byrne, baby, Byrne.

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