If prayer is the last refuge of a scoundrel, then our good friends at Ebix ( EBIX) are nice enough to remind us what comes next to last. Pledging a stock buyback, of course! The insurance technology provider told the world of its plan to repurchase up to $100 million worth of its shares -- over the next two years -- last Friday. The proclamation came a day after the company's stock was cut in half on news that its sale to Goldman Sachs ( GS) for $20 per share was cancelled as a result of a Securities and Exhange Commission investigation into "intentional misconduct" and allegations that the company engaged in accounting fraud. "The Company believes that recent allegations published in the media and elsewhere are without merit, and that a share repurchase program represents an attractive use of its cash resources. The Board of Directors is confident that the Company is executing on an effective business strategy, which is generating both strong free cash flow and a robust contract pipeline," announced Ebix, adding that it will fund the repurchases through the $35.5 million in cash it has on hand as well as future cash flow from operations. Really, guys? Your company is under attack for its accounting and that's your first response? Did you ever think that hiring a big-time, Big Four auditor might be a better use of your reserves at this critical juncture? Not that we have anything against Cherry Bekaert, which has been signing off on all those acquisitions you've been doing at home -- and especially abroad -- since 2008. Nor do we have much to say about Cherry's predecessor, Habif, Arogeti & Wynne, which reviewed Ebix's books from 2004 to 2007 before quietly resigning. The same neutral sentiment goes out to Habif precursor BDO LLP, which identified deficiencies in Ebix's internal controls to the SEC prior to its departure. Ebix hired BDO in 2004 to replace Big Four mainstay KPMG as a cost-cutting move. Put it all together and it seems like Ebix could have saved itself a whole lot of trouble over the past decade had it simply stuck with KPMG as its auditor. Certainly it could have saved the money it is supposedly spending on its own stock. (Remember, just because a company announces a buyback program doesn't mean it is required to go through with it.) Of course, KPMG did report "internal control matters" and "inadequate documentation for certain unusual transactions" before being shown the door. So maybe Ebix should consider giving one of the other Big Four members a shot at its books before going back to the well. If one of the remaining three will take the job, that is.
4. Dim and Zimmer
Whew! Much to our relief the feud at Men's Wearhouse ( MW) has gone from dim and Zimmer to dumb and dumber. When Men's Wearhouse fired its founder and executive chairman George Zimmer last week, the company went out of its way to offer as little information as possible regarding his ouster. We here at the Dumbest Lab voiced our perplexity over the information blackout, as well as the "absolutely chilling sendoff" for the guy that started the specialty retailer that now counts 1,143 locations. At the time, we said the whole episode smacked of Zim Zam, thank you ma'am!. Well, perhaps due to our puzzlement and that of others, not to mention the selloff in the company's shares, the company's board finally came clean Tuesday and revealed why it gave George the boot. And boy, oh boy, did they zetz Zim, but good! "Mr. Zimmer had difficulty accepting the fact that Men's Wearhouse is a public company with an independent Board of Directors and that he has not been the Chief Executive Officer for two years. He advocated for significant changes that would enable him to regain control, but ultimately he was unable to convince any of the Board members or senior executives that his positions were in the best interests of employees, shareholders or the company's future," stated the company in a press release. Ouch! We guarantee Zimmer is not going to like the way he looks after that public undressing. And that was just the preamble. After first informing the world that its founder and face is anything but a team player, the company then went into detail about Zimmer's spotlight-hogging, showboating ways, including his feud with his own hand-picked CEO Doug Ewert and his push to take the company private in a sale the board vehemently did not want. Zimmer gave a snippet of his side of the story last week, stating that he expressed his concerns about the direction of the company but "the Board has inappropriately chosen to silence" him through termination. Zimmer owns 3.5% of Men's Wearhouse stock, which surged 6% Tuesday on reports that he is talking to advisers about a potential buyout bid or activist campaign. "Mr. Zimmer presented the Board with the choice of either a) continuing to support our CEO and the management team on the successful path they had been taking, or b) effectively re-instating Mr. Zimmer as the sole decision maker," stated the board. Well, now we know why Men's Wearhouse selected option a. The next question, of course, is, what will be Zimmer's plan b?
Thank you, Wall Street Journal, for your detailed reporting on McKesson ( MCK) CEO John Hammergren's record-setting pension. Try as we might, there was no way we here at the Dumbest Lab could have made those calculations. We simply can't count that high. Hammergren, who started at the drug distributor back in 1996 and became co-CEO in 1999, would have pocketed $159 million had he voluntarily retired from the company on March 31, according to the WSJ. The Journal's compensation consultants proclaimed it the largest pension kitty on file for current CEOs, and undoubtedly the biggest retirement plan in corporate history. Take that, Dick Grasso! You thought your $126 million parting gift from the NYSE was hairy, but Hammergren's deal totally hammers your pissant package. To be fair, Grasso was a quasi-civil servant who was forced to scratch by on his salary during lean years like 2001 when he pulled in $25.6 million, so he needed the big nest egg. Not so for Hammergren, who ranks atop Forbes CEO salary list with a six-year average compensation of $50.79 million. Over the past five years, he's been paid $285 million dollars, which makes us think that his pension plan may be a wee bit over the top. Of course, McKesson investors may argue that their own 401(k) accounts have been sufficiently plumped by the stock's growth during Hammergren's reign. McKesson's stock price has more than tripled in his 14 years atop the company, outperforming the S&P 500 along the way. That said, the vast majority of that outperformance vs. the index has been since 2006, when the Medicare Prescription Drug, Improvement, and Modernization Act officially kicked in. Familiarly known as the prescription drug act, it expanded coverage nationwide and introduced an entitlement benefit for well-known drugs through tax breaks and subsidies. It also seems to have given McKesson a sense of entitlement as well. The drug wholesaler paid the federal government $190 million in 2012, and tens of millions more to the states on top of that, to settle lawsuits that it illegally inflated drug prices. If you look at it that way, Hammergren owes a lot of his success -- and retirement riches -- not just to McKesson's boorish board and cockeyed compensation consultants, but to George W. Bush for signing that act into law. Maybe he should buy one of W's paintings or donate some of his pension pile to his presidential library to show his appreciation. As for McKesson shareholders, though, maybe they should ask for some of their money back. Or at least press the board for answers as to why Hammergren is seeing all that green that should be going to them.
What Ben Bernanke taketh away, his buddies at the Fed giveth back. Meanwhile, we just wish everybody would shutteth up. Bond yields blew out last week after the Federal Reserve informed market-watchers that it is eyeing mid-2014 as an end for its bond-buying program. The Fed's forecast triggered a selloff of more than 45 basis points that brought 10-year yields as high as 2.667% on Monday, the highest level in two years. Brief pit stop here, Dumbest fans. Because fixed income can be kind of tricky with the whole yield goes up, price goes down thing, we'd like to quickly break down what happened for bond market novices. Put simply, CNBC showed Ben Bernanke chattering on TV, which caused everybody on Wall Street to freak out and sell their bonds. Hope that clears things up for you. In the same vein, Bernanke's friends at the Fed felt the need to clear a few things up in the wake of the bond market's bloodletting. As pointed out in a Tuesday research note from CRT Capital Group's David Ader, it took comments on Monday from regional Fed presidents William Dudley, Narayana Kocherlakota and Richard Fisher to soften the impact of Bernanke's statements and stabilize the market. "What we are hearing is that the Fed is not happy with the violence or magnitude of the rate increase and ancillary action in other markets and is attempting to offer some caution and clarification to what the Federal Open Markets Committee's message should have been," wrote Ader, pointing out that 10-year Treasuries started rebounding (prices up, yields down) once Ben's backing band took turns at the microphone. Of the three Fed-heads that attempted to walk back Bernanke's comments, we most enjoyed Dallas Fed President Richard Fisher telling the Financial Times, "I do believe that big money does organize itself somewhat like feral hogs. If they detect weakness or a bad scent, they'll go after it." You ain't foolin', Fisher! And despite his best efforts, Bernanke let off a stink that sent bond traders screaming for the exits. In fact, Ben's message was so nose-turning that Minnesota's Fed chief Kocherlakota said that the committee's communications "have provided insufficient detail about how its policy strategy will play out when the recovery is more advanced." He then vowed to provide "this missing clarity" in future public statements. You know what, old buddy? Save it. We appreciate your effort to explain yourselves, as well as the Fed's overall move toward transparency, but right now all this Bernanke blather has us missing Greenspan's gobbledygook. If you know what we mean.
Holy cow, dudes! Pink Floyd is harshing Pandora's ( P) mellow, and Pandora is harshing right back. The three remaining original members of the classic rock band put aside their differences to stick it to the online music provider in a USA Today op/ed last Sunday titled "Pandora's Internet radio royalty ripoff." The musicians behind The Dark Side of the Moon are pissed off about Pandora's compensation policies for artists and its campaign to equalize royalty rates. "For almost all working musicians, it's also a question of economic survival. Nearly 90% of the artists who get a check for digital play receive less than $5,000 a year. They cannot afford the 85% pay cut Pandora asked Congress to impose on the music community," wrote Roger Waters, David Gilmour and Nick Mason. Not that the trio has to work anymore of course. They've made so much money they won't have to work again until pigs fly. Still, it's nice to see them stick up for up-and-coming bands, even if we have no idea where that 85% figure is coming from. For that matter, neither does Pandora, which said as much in its reply to the fuming Floyd. "They have been given badly misleading information -- the result of a well-orchestrated campaign by the RIAA and their lobbying arm to mislead and agitate artists. A glaring example is the assertion that Pandora supports an '85% artist pay cut.' That is simply not true," stated Pandora, which has come under constant fire from artists claiming its royalty rates are miniscule. As to which side really is the dark one, we're not sure. We're just comfortably numb from the dumbness of it all. We do know that shares of Pandora sparked up 7% Wednesday on the heels of a Cowen upgrade. Analyst John Blackledge raised his rating on the company to outperform from market perform, saying he expects the company's audio advertising revenue to grow from $293 million in 2014 to $1.8 billion in 2019 as people listen to its stations longer and the number of advertisements it serves increases. Maybe if that happens, Pandora can raise its royalty rates and finally make peace with Pink Floyd. Then again, we highly doubt it. Judging from the four decades long feud between Waters and the rest of the band, these guys are pretty good at holding a grudge. -- Written by Gregg Greenberg in New YorkFollow @5gsonthestreet