1995-96 REVIEW AND OUTLOOK : TOP 10 BUSINESS STORIES OF 1995
In a year of enormous changes that altered the world’s business and economic landscape, these 10 events dominated 1995:
1. A Rally for the Books
That’s a bull market! Propelled by falling interest rates, higher corporate earnings and low inflation, stocks posted one of their best showings in history. The Dow Jones industrial average soared 33.45% to 5,117.12--its biggest gain on a percentage basis since 1975--after setting a record-high 5,216.12 on Dec. 13. The Nasdaq composite index, fueled by its technology listings, skyrocketed 34.9% during the year despite giving back a chunk of its gains in December.
The rally shocked everyone. The Dow reached 4,000 last February and then passed 5,000 only nine months later. As a result, the savings of millions of Americans swelled dramatically, especially for those who have retirement cash invested in mutual funds. Also, new issuers rushed to take advantage of the rally. About $29 billion in initial public offerings was floated, second only to the record $34 billion issued in 1993, according to Securities Data Co.
Fixed-income investors didn’t do badly, either, because the drop in rates lifted bond prices. Mutual funds invested in long-term corporate debt, for instance, chalked up a total return of 17%, according to Lipper Analytical Services. The gains were especially welcome after the drubbing the bond market took in 1994.
2. Mergers, Breakups
Few industries were untouched by the record number of mergers that swept through corporate America. Banks, railroads, entertainment firms, hospital chains, utilities, paper companies and insurers were just a few of those caught in the wave. In all, deals worth more than $450 billion were announced, easily breaking the record of $347 billion set in 1994, Securities Data said.
The buyouts largely reflected companies’ efforts to grow quickly in their own areas of expertise, and many used their rapidly appreciating stocks as currency to swing the deals. Hence, Wells Fargo & Co. launched its $10-billion bid for First Interstate Bancorp, Travelers Inc. agreed to buy Aetna’s property and casualty lines for $4 billion, and Kimberly-Clark Corp. plans to buy Scott Paper Co. for $9.4 billion.
Yet amid the merger frenzy, huge companies also were being torn asunder. AT&T; Corp., having once been broken up by federal pressure in 1984, voluntarily chose to split again, this time into three parts. ITT Corp., once the quintessential conglomerate, likewise broke itself into three companies to compete more effectively.
3. Media Play Musical Chairs
By year’s end you needed a scorecard because huge entertainment properties had changed hands so fast.
The blockbuster was Walt Disney Co.'s plan to buy Capital Cities/ABC Inc. for $19 billion, but there were plenty of others. Westinghouse Electric Corp. swallowed CBS Inc. for $5.4 billion--creating the nation’s largest television and radio broadcaster--and Time Warner Inc. agreed to acquire Turner Broadcasting System Inc. for $7.5 billion. Seagram Co. bought 80% of MCA Inc., the parent of Universal Studios.
A driving force behind many of these deals: marrying creators of programming with broadcasters and other distributors of those programs to build global media powerhouses that create and send out their products from under one roof.
Another factor was the relaxing of federal rules surrounding such mergers. Until recently, Disney would have been unable to buy Capital Cities/ABC because of rules barring most movie studios from owning a major TV network. But those rules were erased or will be.
4. California’s Slow Recovery
The state economy’s crawl out of its severe recession of the early 1990s managed to continue, no thanks to its still-depressed real estate market. Home sales, home building and other construction remained anemic, keeping a drag on the economy’s effort to expand and create new jobs.
California’s unemployment rate of 8.8% in November remained 3 points above the national rate, though the state rate tends to fluctuate widely from month to month. Regardless, more military base closures statewide and government layoffs in Los Angeles County and elsewhere didn’t help. Even for those employed, annual raises in the state averaged less than 4%, the lowest gain in a quarter of a century.
More than 132,000 jobs were created during the year in California, and several sectors of the economy showed strength: entertainment and the media, tourism, agriculture, technology and professional trades such as engineering and computer services. Even the state’s huge but battered aerospace industry has stabilized recently.
Bank of America’s chief economist, John O. Wilson, said the U.S. economy also should grow enough next year to give California “the breathing room it needs” to keep recovering, especially after the Federal Reserve Board trimmed short-term interest rates in December.
5. Turmoil in Health-Care
Frenzied deal making dominated the industry in California and elsewhere, as drug companies, health insurers, hospital chains and medical groups merged to slash costs and exploit the growing influence of the managed health-care business.
British drug maker Glaxo bought Wellcome for $14.3 billion, and, among U.S. health insurers, United HealthCare and MetraHealth agreed to merge to create the nation’s largest publicly traded managed-care company.
One big California deal collapsed: WellPoint Health Networks’ $1.6-billion offer for Woodland Hills rival Health Systems International. Yet nearly every large health maintenance organization in the state was reportedly seeking a merger partner--activity that is likely to continue in 1996.
HMOs also drew increasing scrutiny from legislators, regulators and employers, along with intense media attention regarding the quality of medical care, cost cutting and high salaries of some industry executives.
6. Organized Labor
Labor unions underwent historic changes in a bid to halt the slide in their share of the U.S. work force--now down to 15.5%. Unions also suffered embarrassing setbacks.
Unions for auto workers, steelworkers and machinists agreed to a phased merger over the next five years, a marriage that will create a union with more than 2 million members. Officials hope the deal will bolster organizing and political clout and save money.
Lane Kirkland, president of the AFL-CIO for 16 years, was forced out and eventually succeeded by John J. Sweeney, whose victory came in the first contested election since the AFL and CIO merged four decades ago. The election also produced the federation’s first minority executive, Linda Chavez-Thompson, a Latina who was elected executive vice president.
Worker strikes flared amid contract disputes at Detroit’s two daily newspapers and at Boeing Co. in Seattle. But the United Auto Workers suffered what was viewed as a capitulation for organized labor when it called off its 17-month strike against Caterpillar Inc.--even though the 8,700 strikers rejected the company’s latest contract proposal.
7. Japan, Mexico Woes
Japan’s economy, struggling since its “bubble” of easy credit and soaring land values began collapsing in 1991, weakened further as its unemployment rate hit a record high of 3.2%. Tokyo banks remained saddled with billions of dollars in bad loans, and several government attempts to quick-start the economy failed.
Mexico fared far worse. Since the peso devaluation a year ago that plunged the country into crisis, Mexico’s economy has been battling recession and inflation. Late in the year, some political leaders said the economy appeared to be mending, but then evidence appeared that Mexico’s banks were still being hammered by the bad loans on their books.
Both nations’ currencies plunged in value against the U.S. dollar, enabling the greenback to bounce back from postwar lows against the Japanese yen. Late in the year, the dollar was trading above 100 yen, compared with 83 yen eight months earlier. And it took 7.5 Mexican pesos to buy one U.S. dollar, compared with less than 6 pesos a year earlier.
8. Aerospace Comeback
After years of painful downsizing and massive layoffs, California’s aerospace-defense industry finally had something to cheer about as once-endangered programs stayed alive.
McDonnell Douglas Corp.'s C-17 transport program in Long Beach, which employs nearly 18,000 people directly and indirectly in Southern California, got a new lease on life when the Pentagon boosted its original order of 40 planes to 120, an $18-billion increase.
The plant’s next-door neighbor, McDonnell’s Douglas Aircraft commercial airliner division, got a boost when ValuJet Airlines ordered 50 of its new MD-95 jetliners for $1 billion, enabling Douglas to formally launch production of the plane. Douglas, which employs 9,000, also finally got a formal order to build 33 larger jetliners for Saudi Arabia’s national airline.
The B-2 bomber program, meanwhile, also pushed ahead by getting a fiscal 1996 appropriation of $493 million, for what the stealth bomber’s proponents hope will be the initial production of 20 more planes in addition to the 20 already completed or being built. Northrop Grumman Corp.'s B-2 supports 25,000 jobs, directly and indirectly, in California.
9. Technology Marches On
It was computer software giant Microsoft Corp., not surprisingly, that made the two announcements in 1995 that illustrated high technology’s relentless penetration into the daily lives of businesses and households.
The first was Microsoft’s much-hyped Windows 95, which the company hopes will be the standard operating system for the ever-expanding population of personal computers. Second, Microsoft finally unveiled software devoted to the Internet, thus validating the impact of a computer network audience that’s 30 million strong and growing.
And as the Internet flourished, so did young firms that supply products for maneuvering through the service. Netscape Communications, which makes gear for “browsing” the Internet, sold its first stock to the public and watched its shares skyrocket in price. Shares of other “Internet” stocks also soared amid forecasts that the Net would encompass a $10-billion industry by decade’s end.
Finally, Congress came close to passing a bill for overhauling the U.S. telecommunications industry. The changes would, in many cases, enable telephone companies, cable operators, broadcasters and others to compete head-on for providing those services to consumers--and, its proponents hope, lead to newer services and lower prices.
10. Scandals, Collapses
Most of the world may not have heard of Barings before 1995, but Nicholas Leeson changed that.
Leeson, a 28-year-old trader in Barings’ Singapore office, was blamed for forcing London’s oldest investment bank into bankruptcy by making massive trading bets that backfired and caused $1 billion in losses. Leeson later pleaded guilty to fraud and forgery charges.
Another scandal produced a like amount in losses, only the loss took longer to develop. Daiwa Bank Ltd., one of Japan’s largest, was ordered to leave the United States amid charges it hid from regulators about $1.1 billion in trading losses over 11 years. The bank also faces a 24-count U.S. indictment on charges of fraud and conspiracy, and the former manager of its New York branch was indicted last week on fraud charges related to the losses.
A garment factory in El Monte, meanwhile, held a scandal for Southern California. A raid by government agents uncovered more than 60 Thai-born workers who, authorities said, had been detained and forced to labor up to 17 hours a day sewing apparel. Several suspects were arraigned on charges of harboring illegal immigrants.