Enron Files Chapter 11, Sues Ex-Suitor Dynegy

Enron Corp. filed a widely expected Chapter 11 bankruptcy petition--the biggest in American business history--and for good measure slapped a $10-billion lawsuit against onetime rescuer Dynegy Inc. for alleged breach of contract in terminating their proposed merger.

Enron, the once-mighty Houston energy trader, had been on the ropes for seven weeks as its stock and bond prices tumbled amid concerns about murky accounting and controversial partnerships believed to be shielding huge losses.

Analysts and industry executives questioned whether Enron could avoid an outright liquidation, as its core trading business continued to decline during the week.

The company, which immediately fired 4,500 Houston-area workers, vowed it would continue to operate under the Bankruptcy Court’s protection and with the help of its banks, which pledged $1.5 billion in interim debtor financing.

Unemployment Surges to 6-Year High

The recession deepened and widened in November as unemployment surged to 5.7%, a six-year high. The nation’s employers shed 331,000 jobs across a broad swath of industries.

The damage was much greater than expected by economists, and squelched recent speculation that a recovery might be imminent.

The splash of cold water could increase pressure on the Federal Reserve to continue cutting interest rates, and on Congress to pass a new package of stimulative tax and spending provisions.

UCLA Forecasters See Midyear Rebound

Business analysts at UCLA, credited as the first forecasters in the country to predict the current U.S. recession, now say moderate economic rebounds will begin nationally and in California by midyear. Still, the analysis is more pessimistic than recent projections by other leading forecasters, many of whom predict a robust recovery in the second half of 2002.

UCLA forecasters believe the recovery will be sluggish because the global recession is hurting the nation’s trading partners. In addition, the UCLA analysts say companies, after spending heavily on equipment and software in recent years, will be reluctant to quickly resume investing heavily in those areas.

On the other hand, the forecasters said the overall economy will be lifted by the interest rate cuts engineered by the Federal Reserve over the last year.

Levin, Bronfman Exit Entertainment Jobs

Two heavyweights of the entertainment world announced plans to exit the business.

Gerald Levin, the chief executive who helped create the world’s largest media company, AOL Time Warner Inc., said he will retire in May.

Levin chose his longtime deputy, Richard Parsons, to succeed him, passing over former America Online President Robert Pittman. The men shared the job of chief operating officer. Pittman will become the company’s sole COO.

Levin’s resignation was a surprise to Wall Street, to top executives within AOL Time Warner and to other media moguls, coming only a year after he orchestrated the $99-billion merger

The other major executive departure involved Edgar Bronfman Jr., the spirits scion who bet his family’s Seagram liquor fortune buying Universal Studios Inc. before selling it last year to France’s Vivendi.

Bronfman formally cut his day-to-day ties to the entertainment business, hinting that he wants to run his own company again.

Bronfman will remain vice chairman of Vivendi Universal but will give up his operational role as executive vice president. In doing so, Bronfman, 46, is exercising a lucrative contractual escape clause that would have expired in January, something he acknowledged had determined the timing of his announcement.

FTC Says Ads for Mature Material Aimed at Kids

Federal regulators, in a long-awaited report on the marketing of violent entertainment to children, chastised the record industry for advertising explicit albums in media outlets with large youth audiences.

An examination by the Federal Trade Commission found the movie and video-game industries had cut back their advertising of mature-rated material to kids. But the FTC found that children still had easy access to such material when they visited movie theaters or retailers.

Representatives for entertainment companies said they already were doing enough. Since the FTC first delved into the companies’ practices in a harsh report last year, however, the issue nearly has vanished from political radar screens. A bill sponsored by Sen. Joseph I. Lieberman (D-Conn.) to penalize companies that violate their own marketing guidelines has languished on Capitol Hill.

Steelmakers Consider Sweeping Consolidation

Crippled by bankruptcies and battered by foreign competition, the fragmented U.S. steel industry is seeking to consolidate by merging several major players into a single company, while shifting much of the burden for retiree costs onto taxpayers.

USX-U.S. Steel Group, Bethlehem Steel Corp. and Wheeling-Pittsburgh Steel Corp. said they’ve been holding discussions about forming a U.S. steel behemoth capable of competing with recently merged rivals in Europe and Asia.

U.S. consolidation has been hampered by so-called legacy costs--the billions in pension and health-care liabilities that are weighing on steelmakers’ balance sheets, and which have contributed to 25 bankruptcy protection filings since 1998.

Big Steel is urging the Bush administration and Capitol Hill lawmakers to transfer that load to the federal government to ensure that America retains a viable steel industry. But some critics smell a bailout that will motivate other industries to ask Uncle Sam for a handout.

AFL-CIO Says Gains Offset by Job Losses

In contrast to the exuberant optimism of two years ago, the AFL-CIO’s biennial convention was a somber accounting of losses and missed opportunities.

During the Las Vegas meeting, President John J. Sweeney openly confronted labor’s failure to sustain a comeback under his watch.

The economy created millions of new jobs since he was elected in 1995, but most of them were nonunion.

Although aggressive efforts by some unions have added 2.5 million members since Sweeney’s election, the gains were offset by job losses in manufacturing and other heavily unionized sectors.

Still, the dominant mood at this four-day pep rally was not defeat but anger. Several union leaders said the anger will translate into bold, aggressive action that finally could turn around the movement.

Excite to Pull Plug on Internet Services

AT&T; Corp. withdrew its $307-million offer for the assets of Excite@Home Corp., forcing the once-highflying provider of high-speed Internet service to say it will cease operations Feb. 28.

AT&T;, which is developing its own broadband network, had been the only bidder for the assets of Excite@Home, also known as AtHome Corp., since the Redwood City, Calif.-based firm filed for Chapter 11 bankruptcy protection Oct. 1.

A bankruptcy judge ruled that AtHome could shut off its high-speed service if it could not reach a resolution with its cable partners.

AtHome terminated high-speed Internet service to AT&T; customers last weekend.

Most of the company’s other cable partners--including Comcast Corp., Cox Communications Inc., Insight Communications Co. and Mediacom Communications Corp.--agreed to pay AtHome $335 million to avoid a similar cutoff and keep the Internet service provider running for three more months.

PacBell to Settle Overtime Lawsuit

Pacific Bell agreed to pay $35 million to end a lawsuit by 1,500 engineers who alleged the company paid them for 40 hours a week when they averaged 50.

In what is believed to be the largest settlement of a white-collar overtime case in California, the engineers will receive at least $107 for every week they worked since June 1993.

The company admitted no wrongdoing in the proposed settlement, which is subject to a final hearing set for March 15 in federal court in Oakland.

The suit is one of hundreds of class-action cases alleging California employers cheated white-collar workers out of overtime. Most settle, but a jury awarded $90 million to 2,400 Farmers Insurance adjusters in a July. Farmers is appealing.

Ford Sets Stage for First Yearly Loss Since ’92

Ailing Ford Motor Co. looked both forward and back last week, warning of depressed prospects as the year comes to an end, and working to close a controversial chapter in its hallowed history.

The world’s No. 2 auto maker set the stage for its first yearly loss since 1992, forecasting a fourth-quarter loss about three times earlier estimates.

Ford set aside several hundred million dollars in reserves to cover bad loans to consumers and blamed its diminished forecast on the high costs associated with no-interest financing offers and the continuing Firestone tire mess.

The company also released a study saying it did not profit during World War II from a German subsidiary that employed slave and forced labor after its takeover by the Nazis.

Ford said it will donate $4 million to human rights studies, including $2 million to an international fund to compensate surviving laborers.

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For a preview of this week’s business and economic events, please see Monday’s Business section.