Wall Street talks, companies respond -- by axing thousands of jobs
Today’s Times business page has a grim cast to it, related to reports of thousands of layoffs provoked not by a bad business climate but by Wall Street investors dissatisfied with their income.
If you’re looking for a mockery of the image of wealthy investors as “job creators,” you need go no further than Wednesday’s reports of workforce cuts at the biotech company Amgen (1,100 jobs, on top of about 2,900 announced earlier) and Time Warner’s HBO unit (150, as part of the parent company’s campaign to shed 2,600 employees). The carnage will come to about 20% of the workforce at Amgen and 10% at Time Warner.
If economic conditions were tough, it would be understandable to see top executives making wrenching Darwinian choices about which departments to axe, which family breadwinners to send home without a paycheck.
But no. Thousand Oaks-based Amgen on Monday reported adjusted net income for the third quarter ended Sept. 30 of $1.8 billion, up 19% from a year earlier, on revenue of $5 billion. Time Warner has done just as well: For its second quarter ended June 30, the big entertainment conglomerate reported adjusted operating income of $1.6 billion, up 17%, on revenue of $6.8 billion. Time Warner will report its third-quarter figures later this week, but here’s betting they’ll be glittering, too.
The reason these companies are squeezing themselves dry is pressure from Wall Street. Amgen has come under intense pressure from hedge funds. As my colleagues Dean Starkman, Andrew Khouri and Stuart Pfeifer have reported, hedge fund magnate Danel Loeb wants Amgen to engage in the kind of financial engineering that throws off cash to investors such as himself -- a company breakup, stock buybacks, cost cutting.
When the company announced its first wave of 2,900 layoff in July, Loeb groused that it “did not even scratch the potential opportunity” to cut costs. He was infuriated when Amgen suspended a stock buyback last year so it could invest in the purchase of Onyx Pharmaceuticals, a firm with a promising blood cancer drug, for $10 billion. This time around, Amgen announced that it will spend $2 billion through next year to repurchase shares.
Amgen’s layoffs mean a sharp contraction in its research and development efforts. The earlier wave involved the complete shuttering of its Seattle research campus, cutting more than 600 jobs.
Amgen’s R&D spending as a share of revenue was considered to be on the high side for a biotech firm. But its announcement that the job losses are the result of its “intensive review of its future structure in light of the company’s anticipated late-stage pipeline developments and expansion into biosimilars” sounds like garden-variety corporate balderdash. Loeb demanded cost cutting, and Amgen management delivered to keep him out of their hair. If the pipeline begins to go dry in a few years because the Seattle R&D staff is no more, Loeb and his fellow hedgers probably won’t care; they will have moved on.
A similar short-term calculation seems to undergird Time Warner’s bloodbath. There, the cost cutting appears to reflect an effort by CEO Jeff Bewkes to show he made the right decision in fending off an $80-billion takeover bid by Rupert Murdoch. That means fattening up the company’s short-term results, and the handiest tool for that is cutting personnel.
But is it responsible management? The Time Warner layoffs include about 1,475 employees at Turner Broadcasting, which includes CNN. The company said the layoffs were designed to “prioritize investment in programming, monetization and innovation as near- and long-term drivers of growth,” whatever all that means.
But as far as CNN is concerned, it reflects a systematic hollowing out of what was once a vigorous news-gathering operation. Raise your hand if you think CNN does a as creditable a job today as it did, say, 10 years ago. Anyone? About 1,000 positions will be gone, too, at Time Warner’s Burbank-based Warner Bros.
There, too, no one even pretends that the job cuts -- or as Warner Bros. Entertainment CEO Kevin Tsujihara put it in a memo last month, “this situation” -- are aimed at enhancing creativity or keeping the place from disappearing beneath the waves.
Not very long ago, economy watchers started to breath sighs of relief at signs that the recovery had picked up enough steam to end the relentless layoffs provoked by the recession. They were right; they just didn’t figure that investors would step in to demand their pounds of flesh from what was left.
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