The Five Dumbest Things on Wall Street This Week

1. Return to Spender

Here at the Five Dumbest Things Research Laboratory, we like to make fun of rich people. Yes, we know, it's childish and immature. But it is an inexpensive form of entertainment.

That is why we were so happy to read that May 22 story in The Wall Street Journal about Edgar Bronfman Jr., the one that assessed the chances of his possible bid for Vivendi Universal's ( V) U.S. entertainment assets.

What we most enjoyed were the efforts of Bronfman's camp to portray him as a hard-hitting player in the entertainment biz -- a guy who can make things happen. Which may be true, except for the nagging perception that Bronfman is little more than a patsy, a guy whose prior attempts to be a hard-hitting player in the entertainment business helped blow much of his family's fortune.

Thus, we were treated to the spectacle of a Bronfman spokesman defending his boss' record at the helm of beverages giant Seagram -- his management, that is, until just before he made the unwise decision to team up with Jean-Marie Messier, the financial hole noir of Vivendi Universal.


Seagram's Lite
Bronfman's Watered-Down Returns

As the spokesman explained to the Journal, "Seagram's market capitalization more than doubled between 1994, when Mr. Bronfman became CEO, and 2000, when he sold the company."

To which we say, big whup.

After all, market-cap growth is a meaningless measure of stewardship. Shareholders hold shares, not market caps. And as market caps grow, individual shares don't necessarily come along for the ride.

Let's say, to use a simplified example, you own 50% of Company X, which has a market cap of $10. Company X merges with Company Y, worth $90, to form Company Z. Gosh, you think to yourself, my company's market cap is 10 times what it used to be! But don't get too excited: Your stake is still worth just 5 bucks. And if you paid a premium for Company Y, your shares are worth even less.

So back to Bronfman at Vivendi Universal. It occurred to us that a more enlightening measure of his performance at Seagram might be to see what would have happened if we had bought $1,000 worth of Seagram stock when he took the CEO post, then sold it when Messier came along. (We called Vivendi Universal, where Bronfman is vice chairman, to find his spokesman, but no one called us back.)

According to the magic Bloomberg box, $1,000 worth of Seagram bought in June 1994 -- assuming reinvestment of all dividends -- would end up as $1,786 in December 2000.

Not bad. Except for the little detail that if you had thrown that $1,000 into the S&P 500 instead, you would have ended up with about $3,250.

But hey. That's show biz.

2. A Man's White House Is His White Castle

The IPO market appears to be making a comeback.

That's good. Until, that is, you take a close look at the companies behind the IPOs.

Of the companies that have filed for initial public offerings of common stock in recent weeks, the one that's got us scratching a deep crevice in our head is a retail clothing chain called The White House.


White House Tour
In black and white

And what do they sell at The White House? Why, clothes that are white. And black. Plus some "related shades," whatever they are.

Yup. That's it. White clothes. Black clothes. You want your white clothes or your black clothes, you just head on over to The White House. They'll have the white clothes and the black clothes you're looking for.

Now, we're awful partial to white and black here at the lab. We've got our black socks. Our black ties. And our white lab coats, which look especially spiffy when we wear them to Lab Technicians' Night at Yankee Stadium.

But a whole store of black and white stuff? It seems, um, limiting. Unless Marcel Marceau and his merry band of mimes enjoy a revival.

"The market for apparel is subject to change based upon shifting consumer tastes," the company points out in its prospectus. "Among the consumer preferences that change are those for color. Because we offer only white and black merchandise, our ability to exploit consumer trends in favor of colorful styles is limited. Therefore, a rise in the popularity of colorful styles would harm our market share and revenues and could adversely affect our results of operations."

Aw, heck. What do we know about fashion, anyway? The White House's prospectus says the chain has 96 stores open in the U.S., Puerto Rico and the Virgin Islands. It reported $67 million in sales last year, and a $1.9 million profit. Same-store sales rose 16.7%.

And speaking of white places, the White Castle burger chain last week inducted 10 new members into its Columbus, Ohio, Hall of Fame.

You don't have to hit 500 homers to make it into this Hall of Fame. For example, Marilyn Kloncz, of Eagan, Minn., gained entry for sneaking White Castle hamburgers into a movie theater sometime in the 1950s. Pete Rose, eat your heart out.

What is this mystical allure of white-themed, limited-selection retail establishments, anyway? If you've got a clue, email us at the research lab.

3. Mommy Dearest

Meanwhile, over at The First Years ( KIDD), Mom has a few years left to go on the board of directors.

We're referring to the proxy battle at the Massachusetts-based baby and toddler product company, of course.

See, back in April, a shareholder of The First Years, an investment manager named Phillip Goldstein, raised several objections ahead of this year's annual meeting -- notably, what was Evelyn Sidman, the 89-year-old mother of CEO Ronald Sidman, doing on the company's board?


Golden Years
Mother?

"I don't think anyone can expect the CEO's mom to critically monitor his performance," Goldstein wrote in his proxy statement.

(Any of you in the audience who believe that your mother would gleefully criticize your performance as a CEO, please join the line forming in the aisle.)

Anyhoo, we noticed that the only news to come out of the May 15 shareholder meeting was that it had been adjourned to this Thursday. So we called up The First Years to see whether Mom had been re-elected to the board.

Neither a company senior VP nor its outside counsel got back to us. So we called Goldstein to see what happened.

Well, apparently the meeting wasn't adjourned to May 29 after all. Following "some misunderstanding," says Goldstein, all sides have agreed there was a quorum at the May 15 shareholder meeting. Though he believes Evelyn Sidman was re-elected to the board, and though he wasn't able to get The First Years' antitakeover provision dismantled, Goldstein says the votes indicate there's strong support for dismantling the poison pill. "We made a good showing," he says.

Goldstein also says the problem isn't just Sidman's mother. Also on the nine-member board are his brother and his brother-in-law. "One family member," he says, "is enough."

4. Hello, Young Lovers

Sometimes a fellow needs a friend. Or maybe just a good lawyer.

We're talking here about Phua Young, the former Merrill Lynch ( MER) analyst whom the National Association of Securities Dealers accused this week of numerous research violations.

Specifically, the NASD takes a dim view of Young's past coverage of scandal-plagued Tyco International ( TYC). In an entertaining complaint issued Wednesday, NASD accuses him of a variety of misdeeds, such as improperly giving advance notice of research and ratings, disseminating material nonpublic information and publishing research he knew to be false.

Moreover, the NASD alleges Young's objectivity to be suspect. "I am indirectly paid by Tyco," he wrote in one email to a Tyco employee. "LOYAL TYCO EMPLOYEE!" Young signed another.

Now, the research lab's ability to forecast the outcome of such cases isn't too reliable -- exhibit A being our earlier forecast that fellow Merrill Lynch analyst Henry Blodget's emails would be explained away easily.

But Young's attorney, Edward Little, dismisses the NASD's disciplinary action. "If it didn't have the Tyco label on it, they never would have brought it. They've made a lot of petty allegations we don't think have any substance to them."

What about the "loyal employee" reference? "That was a joke," says Little. "He was being sarcastic."

Well, isn't Young guilty, at least, of poor judgment? "I wouldn't even call it poor judgment," says Little. "If Young's comments were sent out on Merrill letterhead or sent out to other people, that would be poor judgment. ... Jocular emails that were never intended for public view should not be distorted like this."

Sounds reasonable to us. But we're the same folks who thought Henry Blodget would still be a guest on Wall Street Week.

5. Moral History

Finally, we got a shock this week when we read ace foreign correspondent Ronna Abramson's dispatch on Spanish telco Telefonica's ( TEF) bid to buy back the shares of Internet portal Terra Lycos ( TRLY) that it sold in a 1999 IPO.

What knocked us over was a comment from one Juan Carlos Asitorres, an analyst at Ahorro Corp. in Madrid, who pointed out that the money Telefonica is offering for Terra Lycos shares is less than it charged the public for shares in 1999.

"The problem is you offer something to the market and you want to buy it back at a lower price," said Asitorres. "I think it's something legal but not very moral to do. ... Telefonica is taking advantage of the current situation, but they have ignored the rights of the shareholders that four years ago bought the shares."

Moral? Moral?!? When was the last time you heard an analyst talking about morality in a research report? We started looking for examples, but all we came up with was a misspelling of "employee morale."

Our provisional theory is that the rise of morality in the markets is linked to the euro. We'll keep you posted.

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