Week in Review
Fed Decides Against Raising Interest Rates
Federal Reserve Chairman Alan Greenspan signaled that it probably will be a few months before the central bank considers raising short-term interest rates, despite the economy showing signs of a recovery that ordinarily would prompt inflation-dampening rate increases.
Greenspan’s willingness to permit rates to remain low, to continue performing their growth-spurring work, stems from a virtual absence of inflation and deep doubts about whether the economy’s recent revival is durable.
Although the country has done considerably better in recent months than most people had predicted, many economists wonder what will keep it growing. Consumers, who confounded forecasters by continuing to buy cars, clothes and houses during the recession, may be tapped out. Many executives are still hung over from the business investment binge of the late 1990s, and so are reluctant to expand hiring and production.
The result, according to Greenspan: “The strength of the economic expansion that is underway remains to be clarified.
CalPERS to Hike Health Insurance Premiums
The California Public Employees’ Retirement System approved a 25% increase in health insurance premiums for next year. CalPERS’ decision will be closely watched by health plans and health-care purchasers.
The premium increase would be the largest for the pension fund since at least the late 1980s. It was a stark acknowledgment that even a powerful buyer such as CalPERS--the nation’s second-largest purchaser of health insurance--was helpless in the face of spiraling health-care costs.
Nationally, health insurance premiums went up by more than double digits in the last two years, after relatively moderate increases or flat rates in preceding years.
Firing by Vivendi Exec Sparks French Protests
Jean-Marie Messier, chairman of Vivendi Universal, fired one of his key executives, touching off street protests in France, political sparring and potential strikes against the nation’s largest media conglomerate.
Even Prime Minister Lionel Jospin became involved and suggested that France’s broadcast regulatory agency yank Canal Plus’ right to broadcast in France because of Messier’s decision to sack Pierre Lescure as head of Europe’s largest pay TV broadcaster.
Jospin called into question Vivendi’s commitment to French cinema, alluding to growing criticism of Messier for betraying the nation’s culture by buying Los Angeles-based Universal Studios and moving his family to New York.
Some media watchers in France worry that Messier will turn the company’s pay-television service into a tool of American culture.
Messier’s ability to manage the company as well as its financial performance are expected to be on shareholders’ minds this week when Vivendi convenes its annual meeting in Paris.
Andersen Fails to Settle Obstruction Charge
Accounting firm Arthur Andersen failed to settle a criminal charge of obstruction of justice last week after negotiations broke down with the Justice Department.
Andersen now will go to trial May 6, facing one count of obstruction of justice for destroying documents sought in the federal investigation of bankrupt energy trader Enron Corp.
Efforts to settle a class-action lawsuit against the firm also failed, and attorneys involved in the case said they expect little movement on that front until late June or early July, when the U.S. district judge hearing the case is scheduled to make a key ruling concerning other defendants.
Meanwhile, Andersen continued to disintegrate, losing several dozen audit clients last week. The firm has lost at least 10% of its audit practice.
It plans to sell its tax practice, which generates more than $1 billion in revenue, to Deloitte & Touche. Individual offices and practices nationwide are negotiating their own mergers with rival firms.
GE Capital Slashing Costs, 7,000 Jobs
General Electric Co.’s huge financing arm is eliminating 7,000 jobs and slashing costs by $1 billion this year, raising more questions about the unit’s stalled growth and the potential effect on GE’s overall performance.
The job cuts, which equal 8% of the 90,000-person global work force of Stamford, Conn.-based GE Capital Services, also come as GE Capital is struggling to grow in the face of the weak U.S. economy, which has affected most of GE’s major businesses.
This month, GE said its overall first-quarter revenue was flat compared with a year earlier, which sparked a sell-off in GE.
GE Capital generates more than 40% of the revenue and profit for the conglomerate, providing financing for a broad range of industries, from automobiles to aircraft.
TRW Rejects Northrop Bid, but Will Share Data
Northrop Grumman Corp. enhanced its unsolicited offer to acquire TRW Inc. for $6.7 billion and TRW again rebuffed it. But for the first time, TRW left open the possibility of negotiating a deal with its defense rival.
In a move that some analysts believe bolsters prospects for a merger of the two companies, TRW directors agreed to share nonpublic financial documents with “interested parties,” including Northrop, subject to confidentiality agreements.
Analysts said the directors essentially put TRW up for sale, but because it appears that Northrop is the only bidder, the move mainly would benefit the Century City-based defense contractor. TRW directors had steadfastly refused to open the company’s books to Northrop.
Meanwhile, a federal court judge granted TRW’s request to delay a special shareholders meeting that Northrop planned for Monday. Northrop said it would challenge U.S. District Judge John Manos’ order that the meeting be delayed until May 3.
HP Nearer to Buying Compaq After Vote
Hewlett-Packard Co. inched closer to finalizing its controversial $19-billion bid to acquire Compaq Computer Corp. after it announced that 51.4% of voting shareholders cast their ballots in favor of the deal.
A preliminary tally of proxy votes showed 837.9 million shares in favor of the merger and 792.6 million against it.
The tallies, compiled by proxy certification firm IVS Associates, come less than a week before a Delaware judge is scheduled to hear arguments in a lawsuit filed dissident HP director Walter Hewlett, who is seeking to stop the merger.
Analysts and legal experts said Hewlett faces an uphill fight.
Meanwhile, HP disclosed that federal investigators opened inquiries into reports that it may have improperly pressured Deutsche Bank and Northern Trust Corp. to vote in favor of the merger.
Cosmetic Drug Botox Gains FDA Approval
Botox, the popular drug that temporarily removes “frown lines” and other facial wrinkles, was formally approved by the Food and Drug Administration for cosmetic use.
The ruling will allow its manufacturer, Irvine-based Allergan Inc., to start an advertising campaign to convince Americans they can look younger and less worried with a few small injections.
Not since the male sexual dysfunction drug Viagra was approved has a drug attracted as much attention.
More than 1.6 million Botox procedures were performed in the United States last year.
Botox, a sterile, purified form of the toxin that causes botulism, has been on the market since 1989 as a drug to treat several muscle disorders of the face. But in recent years, cosmetic surgeons have been using the drug to remove frown lines and wrinkle by temporarily paralyzing--and thereby relaxing--facial muscles.
U.S. Seeks to Revoke Lab License at Specialty
The federal government is seeking to revoke the laboratory license of Specialty Laboratories Inc., one of the nation’s largest providers of specialized medical testing, and has ceased payments under Medicare and Medicaid.
Permanent revocation of the license, scheduled to take effect Monday, could jeopardize the Santa Monica-based company’s survival. Specialty said it would appeal the revocation, which would not take effect until the appeal is completed.
Some Wall Street analysts said they expect Specialty to survive and come into compliance, but added that it is vital for the company to keep its license.
By week’s end, the company’s stock had finished at $9.50, up 19 cents on the New York Stock Exchange.
*
For a preview of this week’s business and economic news, please see Monday’s Business section
