WEEK OF APRIL 8-14

Delaware Court Plans to Issue HP Ruling

A Delaware court Sunday said it would issue in the next few days a ruling on whether it will throw out a lawsuit filed against Hewlett-Packard Co. by dissident board member Walter Hewlett.

Hewlett, who is fighting HP’s acquisition of competitor Compaq Computer Corp., asked the Delaware Chancery Court at the end of March to stop the deal, alleging that HP management bought votes and misled a key advisor.

HP, which believes it won a March 19 shareholder vote on the deal, in turn on April 1 asked the Delaware court, which specializes in corporate law, to dismiss the suit.

A spokeswoman for Walter Hewlett, who owns an HP stake through the William R. Hewlett Revocable Trust said, “We’re grateful the court took up this issue on such short notice and we await a court ruling and in the meantime discovery on the complaints is ongoing.”

The spokeswoman said the court would issue a ruling in the coming days.

Chancellor William Chandler III considered the motion in a 2 1/2-hour court hearing.

The lawsuit is now due to go to trial in the Delaware court starting April 23. The judge has reserved three days for the trial, although it could go longer.

In addition to the lawsuit’s outcome, the companies are waiting for a final tally of HP shareholders votes, which should be ready in the next few weeks.

Reuters

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KirchMedia May Seek Bankruptcy Protection

KirchMedia’s expected filing for protection from creditors as early as today may spark a battle between banks and investors for the most valuable assets of Germany’s second-biggest media company, analysts said.

Kirch Holding, which has $5.7 billion in debt, may seek bankruptcy protection for its main film business today after talks about a rescue failed Friday, people familiar with the plans said. Kirch and the banks declined to comment.

The filing would end months of negotiations to bail out the company run by founder Leo Kirch, 75. KirchMedia owns a controlling stake in ProSiebenSat1 Media, Germany’s No.1 television broadcaster, as well as Europe’s biggest film library.

Commerzbank, Bayerische Landesbank Girozentrale and HVB Group, Kirch’s main creditors, may present a plan to take over KirchMedia, install different managers and find new investors for the business Monday, the people said. One of the investors may be Axel Springer Verlag, the country’s biggest publisher.

The Bavarian state government would support the banks’ proposals, the Welt am Sonntag newspaper said, citing unidentified bankers.

At least eight banks have more than $88 million at stake, according to BayernLB, the biggest creditor with $1 billion in loans to Kirch. HVB Group has about $400 million at stake, the Munich-based company has said.

One of the main obstacles to a restructuring is Kirch’s organization, where its own units are its main customers, analysts have said. Premiere, Kirch’s pay-television channel, is the only pay-TV customer of the film-rights business.

Kirch ran into financial difficulties after acquisitions, including the rights to Formula One racing and World Cup soccer, failed to add to earnings, and banks including Dresdner Bank started calling in their loans. Kirch needs $1 billion in April alone to pay back loans and buy out minority investors.

An insolvency filing can be avoided only if the banks agree to new talks with investors such as Rupert Murdoch and companies controlled by Italian Prime Minister Silvio Berlusconi over the weekend, people familiar with the company have said.

Bloomberg News

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Retail Sales Rising Along With Optimism

U.S. retail sales probably rose more in March than at any time in five months, bolstered by consumers who are becoming more optimistic, economic reports this week are likely to show.

Sales rose for the third month in the last four, the Commerce Department is expected to report Friday. Spending is likely to rise again this month because consumer confidence may have climbed to its highest level since December 2000, the closely watched University of Michigan survey is expected to show Thursday.

Meanwhile, higher energy prices are the reason behind a probable surge in the producer price index for March. The Labor Department’s producer price index is expected to show a 0.7% increase for the month. That would mark the biggest gain since January 2001 and follow a 0.2% increase in February.

The core producer price index, which excludes food and energy costs, probably rose 0.1% after showing no change a month earlier. That would put core inflation at the wholesale level up 0.5% over the last 12 months.

Forecasts suggest that retail sales last month rose 0.4%, which would be the largest gain since sales surged 6.4% in October. In that month, auto makers introduced interest-free financing on new purchases. Excluding automobiles, sales probably rose 0.5% in March, the sixth increase in a row.

Sales are higher as optimism about the economy increases. Thursday’s preliminary report of the University of Michigan consumer sentiment index for April is expected to show a rise to 96.8 from 95.7 in March, according to a Bloomberg survey. That would be the highest since December 2000 and compares with a low of 81.8 reached after September’s terrorist attacks.

Other economic data this week:

* Today, the Commerce Department reports on business inventories for February.

* Thursday, the Labor Department reports on import prices for March.

Bloomberg News

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Yahoo Is Expected to Report Results

U.S. companies begin reporting their quarterly earnings in earnest this week.

First-quarter earnings are expected to be down 9% year-over-year, slightly lower than last week’s forecast of 8.8% after a slew of profit warnings from tech firms.

Among the companies issuing results this week will be Internet media company Yahoo Inc., which is expected to report another quarter of ho-hum results Wednesday, reflecting the stubbornly weak Internet advertising market and limited progress in developing new sources of revenue.

But Wall Street analysts say there could be some upside over the official forecasts for a small operating profit, if any of the company’s new ad formats, or its new fee-based services, show strength.

Yahoo, which has reported five straight quarters of net losses, continues to depend on online advertising for the bulk of its revenue, although it has made some progress at widening its revenue base by adding fees for services ranging from personal ads to e-mail storage and games.

Analysts on average expect the company to show a first-quarter operating profit of 2 cents a share on revenue of $173.6 million.

Reuters

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Bush to Discuss Bill on Terrorism Insurance

In a meeting today with business and labor leaders, President Bush will emphasize the possibility that jobs could be lost if the Senate does not act on terrorism insurance legislation, a senior administration official said.

Bush plans to use the meeting to highlight the growing “drag on the economy” created by a lack of available terrorism insurance since Sept. 11, the official said.

The White House wants Congress to create a federal backup plan to help insurance companies pay future terrorism claims.

The House passed a bill last year that would lend insurers money to pay claims. The Senate has not acted on a competing proposal that would require insurers to pay part of claims resulting from a terrorism attack before the government would step in to cover the rest.

Teamsters leader James P. Hoffa and Edward Sullivan, president of the AFL-CIO construction trades department, are among the 125 people the White House expects to be at the meeting today. Homeland Security Director Tom Ridge and Bush’s chief economics advisor, Lawrence Lindsey, also are to attend the meeting.

The White House has collected evidence of cities and property owners that have not been able to obtain terrorism insurance.

Washington Post

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Debate Heats Up Over Energy Derivatives

A proposed amendment to the energy bill scheduled for debate in the U.S. Senate today could mean even less transparency in the secretive energy derivatives market, which some blame for the collapse of its biggest player, Enron Corp., market players say.

Several analysts welcomed California Democrat Sen. Dianne Feinstein’s push for price disclosure and capitalization requirements for participants in over-the-counter (OTC) markets, which are traded outside regulated exchanges.

But other traders, exchanges and members of the market--estimated at some $3 trillion in notional value--saw dire results if the amendment were passed into law.

“Frankly, it would probably make the players obfuscate more,” said Peter Fusaro, head of energy risk management consultancy Global Change Associates, adding it could drive the market offshore.

The legislators and some analysts allege manipulation of the highly secret over-the-counter market led to power price spikes and rolling blackouts last year and contributed to Enron’s collapse. Enron built up huge OTC positions on its Internet trading platform EnronOnline, in which the now-humbled energy giant was counterparty to every trade.

Feinstein’s bill, co-sponsored by other lawmakers from Western states hit by an electricity crisis last year, would give the U.S. Commodity Futures Trading Commission oversight of all OTC-traded energy and metals derivatives.

Legislators say the bill would allow regulators to better track trades and to respond faster to any illegal activity in the market.

Reuters

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Negotiators Want United Impasse Declared

Negotiators for 23,000 United Airlines employees want mediators to declare an impasse this week in their contract talks with the carrier so the union can start laying the groundwork for a possible strike by ramp, customer service and other workers, union officials said.

The company and negotiators for the International Assn. of Machinists will meet with the National Mediation Board Thursday in Washington for the first time since talks broke off three weeks ago after a deadlock over wages and other compensation.

The IAM will press the government to release it from meditation and begin a 30-day cooling-off period after which a strike date could be set. Union members have authorized their leadership to call a strike, if necessary.

The machinists say, however, that the two sides are close enough to an agreement that triggering a strike deadline could, in fact, be the key to reaching an agreement.

The federal Railway Labor Act, which governs airline contract talks, allows negotiations to continue open-ended, even in mediation, until threat of a strike brings the dispute to a head. If mediators do not declare an impasse, another round of talks could resume later this month, the union said. Nnegotiations between United and the IAM District 141 Lodge have been ongoing since 1999.

If an impasse is declared this week in the latest United dispute and the White House intervened after 30 days, a strike could not take place before July at the earliest. That is in the middle of the critical summer travel season.

Chicago-based United, a unit of UAL Corp. and the world’s second-biggest airline, says it has put an industry leading package on the table for its ramp workers, customer service agents, food service employees and security guards.

Reuters