1. So Much for 20-20 Hindsight
CEO William McGuire had his moment of truth this week.
The Minnetonka, Minn., health insurer is saying farewell to its longtime chief. McGuire steered UnitedHealth from the brink of bankruptcy in the early 1990s to industry leadership, driving shares up an eye-popping 8,500% along the way. But the company conceded Sunday that it
found evidence of widespread stock-option backdating under his reign.
"The board expressed its appreciation," UnitedHealth said Sunday, "for the extraordinary contributions made by Dr. McGuire over the past 15 years."
Of course, UnitedHealth has made
extraordinary contributions to McGuire, too. This past spring, it came to light that McGuire was sitting on some $1.6 billion in unexercised stock options -- padded by grants made with the stock at annual lows. He is due to collect some $1.1 billion in pay and perks when he departs Dec. 1.
UnitedHealth initially claimed in April that its pay practices were "appropriate." But lawyers at Wilmer Cutler Pickering concluded after a six-month study that "senior management failed to ensure that the option-granting practices were appropriate."
In one case, the Wilmer Cutler report says, UnitedHealth effectively repriced a 750,000-share option grant to McGuire. The move triggered "substantial and onerous reporting obligations," with which UnitedHealth blithely "did not comply."
The report also cites a September 1999 announcement that McGuire and operating chief Stephen Hemsley had signed long-term employment contracts. The lawyers found that those deals, with the obligatory backdated-option sweeteners, weren't finalized till almost three months later.
The report says McGuire told investigators that he believes the grant dates "were selected without the benefit of hindsight." But, Wilmer Cutler concluded, "certain facts run contrary to this assertion."
Nothing new there.
Dumb-o-Meter score: 95. McGuire described the company in 1998 as "entrepreneurial in spirit, principled in thinking and innovative in action." Some principles.
To watch Colin Barr's video take of this column, click here
2. Platinum Parachute
and former CEO Tom Freston mumbled their sad goodbyes this week.
Viacom Chairman Sumner Redstone
fired Freston last month, citing the company's digital-media shortcomings and its sagging stock price. But Redstone emphasized that the decision didn't come easy. He referred repeatedly to Freston's good character and many accomplishments, such as building MTV.
"It was one of the most difficult meetings I've ever had," Redstone told Charlie Rose on PBS earlier this month. "You can understand why. I was, like, almost in tears."
That reaction wasn't unique. Employees "loudly applauded and cheered as Freston made his way from the elevator to his car," the
recounted, "with many in tears and others hugging him."
On Monday, though, all handkerchiefs were put aside as Viacom settled up with Freston. And what did Freston get for watching as Viacom shares dropped this year while those of former sibling
Why, Viacom agreed to write him a $59 million termination check and to fork over some $26 million in other compensation, according to a Wednesday afternoon
"The separation agreement confirms Mr. Freston's resignation from service as Viacom's president and chief executive officer," the filing reads, "and as a member of Viacom's board of directors, for 'good reason.'"
As if an $85 million payday isn't a good enough reason on its own.
Dumb-o-Meter score: 91. "More people have gotten rich saying goodbye to me than I have," Redstone whimpered to Rose back on Oct. 4.
3. Terry Semel's Gut Check
keeps giving Wall Street what it doesn't want.
The Sunnyvale, Calif., Net giant unveiled another
earnings disappointment Tuesday afternoon. Yahoo! posted a soft third quarter, citing "unexpected challenges" and said the fourth quarter will bring more of the same. It also set plans for a huge stock buyback.
"While we are tremendously excited about many things happening at Yahoo!," CEO Terry Semel said, "we are not satisfied with our third- quarter financial performance."
Investors haven't been satisfied with much of anything at Yahoo! this year. The stock is down 41% as growth slows and rivals push into lucrative new markets. Yahoo! seems to have fallen hopelessly behind in the fast-growing social-networking category that advertisers covet.
has signed an
alliance with MySpace owner
and agreed to buy
In response, Yahoo! has mouthed some bold platitudes. "Yahoo! has been a pioneer in social media," Semel said Tuesday, according to a
seekingalpha.com transcript. "We are not standing still," added finance chief Sue Decker.
Yet shares resumed their plunge Wednesday, hitting a new 52-week low.
Now standing still doesn't sound so bad, actually.
Dumb-o-Meter score: 88. Douglas McIntyre writes on bloggingstocks.com that Yahoo!'s $3 billion stock buyback "is a gutless way out of a tough situation."
4. Kiss of Death
suffered a meltdown this week.
Shares dropped 5% Thursday after the cocoa cooker
missed third-quarter earnings and sales estimates. It seems the company isn't selling enough chocolate bars, though CEO Richard Lenny has his own view.
"We experienced a slowdown in consumer takeaway and thus, a loss of market share," Lenny said in a press release. "Within chocolate, the shift from line extensions with lower incrementality to more sustainable value-added platforms has taken longer than anticipated."
Luckily, Hershey has located other sustainable value-added platforms. The Hershey, Pa., company plans to buy Dagoba Organic Chocolate of Ashland, Ore.
"Organic chocolate products are experiencing dramatic growth, as consumers continue to trade up for indulgent, high-quality products," Lenny said. "Dagoba will extend our reach to those consumers and customers who are seeking a superior chocolate experience."
Obviously, Hershey's already has the inferior chocolate experience covered.
Dumb-o-Meter score: 82. Shareholders can console themselves that "seasonal performance continues to be strong with Halloween off to a good start."
5. Bell Ringer
is naming names again.
The big New York telco is spinning its yellow pages business off into a new publicly traded company. Shareholders next month will get a dividend of shares in the new concern. Verizon gets to focus on its core telecom business.
You may not find the yellow pages terribly exciting, but Verizon begs to differ. Profoundly, it has dubbed the spinoff company Idearc.
Pronounced "EYE'-dee-ark," the name will help "differentiate it from other publishers in the industry," Verizon says of Idearc.
Of course, Verizon knows all about being different. It was just six short years ago that the former Bell Atlantic decided that its name just wasn't cutting it. So it changed to one that was widely derided at the time for its utter strangeness.
"Verizon," the company said back in April 2000, "signifies a company that will provide customers with both stability and a forward-looking vision."
Now, that bold vision has expanded to encompass even more made-up words.
"A combination of the words 'idea' and 'arc,'" Verizon explained Wednesday, "Idearc symbolizes how the company connects buyers and sellers through robust content available across multiple media."
That's one way to describe big lists of phone numbers.
Dumb-o-Meter score: 75. Here's how Verizon explains Idearc's tri-color logo: "Gray links with its print product design, green to its industry-leading SuperPages.com service and blue to the future.
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