1. Checks and Balances at America OnlineA big shoutout this week to Time Warner's ( TWX) America Online unit, for reminding us how fun -- and how fictional -- the dot-com bubble could be. We're referring, of course, to Wednesday's announcement of a settlement between Time Warner and the Justice Department -- an agreement that puts some closure on an accounting investigation that has dogged AOL and Time Warner for more than two years. As part of the settlement, which leads to a penalty and litigation fund totaling $210 million, the Justice Department included a fascinating chronology it calls a Statement of Facts. This addendum outlines the case against AOL and its executives, and it looks like the backbone of a fraud case that Justice would have pursued in the absence of Wednesday's settlement. That fraud case revolves around AOL's relationship with the now-defunct business-to-business software company PurchasePro, which the feds allege inflated its revenue in 2000 and 2001 with the help of AOL executives. In return for their assistance, says Justice, AOL cut deals that inflated its own advertising revenue. What we particularly like about the PurchasePro timeline is the spotlight it casts on the nitty-gritty details necessary for implementing an alleged accounting fraud. For example, on or about March 31, 2001 -- just as the first quarter was closing -- Justice says three AOL employees demanded PurchasePro pay AOL $12.2 million in commissions supposedly due for AOL's sales of a PurchasePro product -- even though AOL was actually owed $6.7 million at most. Because the money had to be received by midnight on March 31 to be recognized for the first quarter, says Justice, "a senior executive at PurchasePro personally delivered to AOL a hand written check for $12.2 million." Not only that, but somebody fixed it so AOL's April sales of PurchasePro product could be backdated into PurchasePro's first quarter. Or, as someone at AOL explained in an email back then, "This is the scoop. During the week of 4/5
2. A Whole Mess of GoogleBoy, that was quick.
|Early Knockout |
Geico couldn't be a contender
Still at issue is whether Google should let Geico rivals use the insurance company's name in the text of the ads that show up. Geico says no. Google says that it doesn't want advertisers to do that. Coincidentally, Berkshire said Tuesday that Microsoft's ( MSFT) Bill Gates was joining Berkshire's board. Too bad for Geico that Gates didn't show up earlier, since the Master of Microsoft knows a little bit about courtroom warfare. A day late, a few billion dollars short.
The deal, they claimed, was that elusive creature known as a "merger of equals." By our calculations, however, it isn't: One the eve of the deal, Sprint's $37 billion market capitalization was about 11% larger than Nextel's, and Sprint's $50 billion enterprise value was 21% larger. But nobody asked us. Shareholders from each company will end up owning roughly 50% of the merged company. The board will contain an equal number of representatives from Sprint and Nextel. There will be two co-lead independent directors -- one from each company. The company will have two headquarters -- one the former Sprint headquarters, the other, formerly Nextel's. Now, we're sure the companies intend this arrangement to be a sign of how darn equal they are. But we look at it another way: Can't anybody around there make a decision? It's like asking a true/false question on a quiz and getting back the answer "All of the above."
3. We 'Half' Ways of Making You TalkWhat's the true value of a merger of Sprint ( FON) and Nextel ( NXTL)? We have no clue. And we believe that Sprint and Nextel don't have too good an idea, either. Let us explain: Back when we first got into the financial reporting racket, a kindly man once sat us down to tell us a little secret. The secret, he said, would come in handy anytime we learned that two companies had embarked on a venture in which they said they were splitting the proceeds on a 50/50 basis. What's wrong with going in on something 50/50, we asked? Nothing, really, he said. But when partners end up with a 50/50 split, he said, it's probably because they have no clear idea as to what the relative value of their contributions are to the joint venture. So they just split the take down the middle. As a counter-example, he offered the situation of an actor and his agent. When an actor gets paid, his agent gets 10% of the money -- a reflection of the educated guess that when the agent negotiates a job and the actor takes it, the actor himself is contributing 90% of the value to the actor/agent partnership. But 50/50? That means that neither party really knows what's worth what. Which brings us back to Sprint Nextel. In announcing their "surprise" merger Wednesday, the parties were scrupulously even-handed in their description and execution of the deal.
|Right Down the Middle |
Sprint and Nextel go halfsies
4. DoubleClick Your Money BackIn corporate America, there's nothing like a little hardship to evoke a lot of hard cash -- for people in the executive suite. Two weeks ago, for example, the folks at Merck ( MRK) took time out from their Vioxx-induced pain to implement what the company called a "
5. Signoff of the TimesAfter nine years of trying to catch up with CNBC, Time Warner's CNNfn went off the air Wednesday. But while the folks on the financial news channel tried to be all cheerylike as the end approached, we can't exactly describe CNNfn's shutdown as death with dignity. See, one would think that if you're a financial news channel, you would make some sort of effort to structure your day -- even your last day -- around the opening and the closing of the financial markets. After all, the kickoff of trading at 9:30 a.m. Eastern time and the closing bell at 4 p.m. marks the cycle that defines the financial journalist's day -- something akin to the morning and evening milking that define the life of a dairy farmer. So how did CNNfn acknowledge the markets' inexorable cycle Wednesday?
|Good Afternoon, America |
CNNfn calls it a day