5. Avon Gets DingedCome on Avon ( AVP). Open up the door and let Uncle Sam in already. Hiding behind a legal curtain is clearly not helping you. The cosmetics seller saw its credit rating placed on review for downgrade by Moody's last Friday as a result of the company's settlement discussions with the SEC and DOJ over a foreign bribery probe. Regulators want Avon to pony up more than $100 million for its misbehavior, according to a WSJ report, while Avon CEO Sheri McCoy said this summer she's looking to settle for around $12 million. Yes, you can drive a truck through that difference. More than that, actually. A fleet of trucks with its own private fleet on the side. Moody's pending decision affects $2.4 billion worth of Avon debt, which is already rated a far less-than-pristine Baa2. Avon saw its bonds sink in value this week as a result of the uncertainty, while the cost of insuring its debt rose by half a percent. The selloff in Avon's bonds followed last Thursday's shellacking in the stock, which dropped 20% after the beauty products purveyor posted a third-quarter loss of $5.5 million compared with a $31.6 million profit last year. "The third quarter was tough," McCoy said. "However, overall, Avon is headed in the right direction, parts of our business are stabilizing, and we are making progress toward our three-year financial goals." Get real, McCoy. We know your predecessor Andrea Jung left you in a tough spot, but unless you mean "down," you are definitely not heading in the right direction. Avon's North American sales fell about 19% in Q3, while its China division posted a 67% decline in revenue. And it's not just down, its "out," too. The company is exiting emerging markets such as South Korea and Vietnam when the rest of the world is piling in. "We have cash balances. And obviously, we also have a revolving credit facility that we have in place for backup liquidity needs," said McCoy. See here, Sheri. You have $800 million in cash on hand and access to more. We highly suggest you tap into it to get the government off your back so you can get back to business. We're not sure what your lawyers are telling you, but after spending $340 million in legal fees in the past five years, it's clear to us that they are the only ones benefitting from this silly standoff. Put simply: Find a reasonable sum and be done with it. Otherwise, your bonds will be downgraded to junk, your borrowing costs will skyrocket and all the make-up in the world won't cover up whatever ugliness comes next.
4. Endo's Irish EyesThe long way to Tipperary just keeps getting shorter and shorter. Endo Health Solutions ( ENDP) became the latest American company to relocate its headquarters to Ireland this Tuesday when it announced its grand plan to acquire Canada's Paladin Labs for $1.6 billion in stock, cash and shares of a newly formed spinoff. As part of the deal, both Endo and Paladin will formally be acquired by a new holding company called New Endo, which will be domiciled in Ireland and therefore will be subject to lower tax rates. Shares of old Endo spiked 20% on the news. Montreal-based Paladin is a marketer of more than 60 drugs that treat ADHD, pain, urology issues and allergies. Malvern, Pa.-based Endo's maneuver bolsters its pipeline and gives it a strong platform in Canada to help offset sales pressure on its core painkiller drugs from generic competition. Endo's pronouncement dulled the pain of its third-quarter results, which saw net income fall 25% as a result of charges related to product liability claims and business impairment charges. Leerink Swann's analysts estimate the tax and operational synergies of the deal will lead to $75 million in savings for the combined company. You read it right folks. It's simple mix of math and geography. Malvern plus Montreal equals Ireland. Or at least it does when business is bad and you need the tax breaks. Endo's relocation to the Emerald Isle follows similar moves by fellow medicine-makers Perrigo and Actavis. Perrigo's end around this summer with its Elan acquisition reduced its effective tax rate to 17% from 23% and is expected to save it $150 million in annual tax and expense savings. Actavis made the move when it bought Warner Chilcott and as a result will see its rate drop to 17% from 28%. And it's not just pill purveyors re-domiciling in Dublin. Cleveland-based industrial giant Eaton ( ETN) did the same thing when it bought Cooper Industries last year. And tech giant Apple ( AAPL) has taken heat on Capitol Hill for stashing billions of its profits offshore in Ireland. You know the old adage that everybody is Irish on St. Patrick's day? Well, if Uncle Sam doesn't lower America's tax rates or close some loopholes pretty soon then every day is going to be St. Patrick's day for corporate America. Hmmm. Upon further thought. That does sound like a lot of fun. At least until the hangover hits.
3. Piper Pipes DownWith all due respect, Dumbest fans, did we or did we not predict last week's sparks between short-seller Carson Block and NQ Mobile ( NQ) would soon rage into a bonfire of stupidity? You bet your Muddy Waters we did! The Chinese mobile-services provider saw its shares get smacked Tuesday, after investment bank Piper Jaffray suspended its rating on the stock until it gets more information regarding the accounting allegations Block, aka Muddy Waters, made against it. NQ's stock plummeted 20% to $9.50 on Piper's decision to yank its coverage, causing it to give back all the gains it recouped since Block's claims fishy cash balances first knocked it from $22 a share into single digits two weeks ago. "We are suspending our rating, price target and estimates for NQ Mobile until we have more deeply investigated various allegations against the company made by third parties," wrote Piper analyst Mark Murphy, who previously had an overweight rating and a $27 price target on NQ. We are quite sure it didn't take Murphy almost two weeks to figure out that the "third parties" he is referring to is Block, who at last check was a single party. It did surprise us, however, that it took Murphy this long to seriously respond to Block's charges. On Oct. 25, the day after Block lowered the boom, Murphy published a note defending NQ, citing three fundamental claims he found "inconsistent with research we and a reputable third-party have conducted." (Apparently Piper loves parties, especially third ones.) Murphy also said that Block's "report is 81 pages long and will require considerable time to digest it." Seriously, Murph! We know China is far, far away but it should not have taken you 12 days to "digest" an 81-page report on a company Piper took public in 2011. Be honest. Is your metabolism really that slow or are the investment banking fees that big?
2. Bye-Bye BlackBerryBlackBerry ( BBRY) shareholders were singing the blues this week after Fairfax Financial said Monday it won't purchase the struggling smartphone company for $9 a share, or $4.7 billion. BlackBerry stock sank 15% to $6.60 on that news, as well as the announcement that CEO Thorsten Heins is stepping down and will temporarily be replaced by the company's Chairman John Chen. To soothe the company and its investors during these tough times, we here at the Dumbest offer BlackBerry a song of our own. (Sung to the tune of Bye-Bye, Blackbird by Henderson/Dixon)
Pack up all your things and go,
Thorsten Heins, don't be slow
Bye-bye, BlackBerry Now we'll have to wait and see
If you avert a bankruptcy
Bye-bye, BlackBerry No one except Prem Watsa can love or understand you
Now what the hell will poor, poor Johnny Chen do?
So cover your short, or let it ride, the last one out switch off the light,
BlackBerry, Bye-Bye Fairfax was going to buy the company,
Looks like Prem couldn't find the money,
Pretty soon he can get it free
Bye, BlackBerry Every private equity shop has peeked and passed on you
The Government should have let the Chinese in, it's true.
You made your bed
Now die in it, Walt Mossberg say goodbye to it.
BlackBerry, bye-bye, goodbye So long BlackBerry, bye-bye