Week in Review
Adelphia Moves to Stave Off Bankruptcy Filing
For Adelphia Communications Corp., the chances of a bankruptcy filing increased when Nasdaq announced plans to delist the stock this week. Adelphia had missed several deadlines to file an annual financial report.
The delisting would give bondholders the right to force Adelphia to buy back $1.4 billion in convertible debt, which could cause the company to file for bankruptcy protection, analysts have said.
At the same time, in an attempt to stave off a bankruptcy filing, Adelphia was in negotiations with billionaire Paul Allen to secure a loan of as much as $2 billion, sources said. In exchange, Allen would buy cable systems from Adelphia, including its lucrative franchises in Southern California.
But Adelphia shareholder Leonard Tow, who joined the company’s board Tuesday, is attempting to block any quick sale.
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Memo Points to Earlier Warning for Enron
Enron Corp. was aware of possible criminal liability for its trading ploys in the deregulated California energy market in late October 2000, more than a month earlier than previously disclosed, according to a newly obtained memo.
The document, written by outside lawyers for Enron, is far more specific than previously released memos about the kinds of state and federal laws Enron could have violated. Enron apparently continued to use some of the questionable practices for several weeks after receiving the legal advice.
The previously undisclosed Oct. 30, 2000, memo explored concerns that Enron’s trading strategies could result in charges of wire fraud, markets fraud and racketeering.
Enron spokeswoman Karen Denne said the Oct. 30 memo, which was turned over to federal and state investigators, was a broad discussion of legal issues and not a commentary on specific trading practices.
The revelations about how Enron and possibly others conducted themselves in the shadowy and lucrative world that was California’s power market during the depths of its energy crisis have intensified since May 6, when the Federal Energy Regulatory Commission released memos that discussed how Enron’s traders boosted profit in California.
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Dynegy CEO Resigns
as Probe Intensifies
Amid increasing questions about Dynegy Inc.’s finances, Chief Executive Chuck Watson resigned.
No reason was cited, but analysts said it probably was related to disclosures of sham transactions in energy trading and to the fact that Dynegy faces downgrading of its credit rating unless it can reduce its large debt.
Watson, who was replaced on an interim basis by two directors, is set to receive at least $33million more in severance payments than he would have earned had he served out his contract.
Houston-based Dynegy, which owns power plants in California and other states plus natural-gas pipelines and processing facilities, was once considered a leading player in energy trading and marketing.
The company is under investigation by the Securities and Exchange Commission and the Justice Department for its reporting of a natural-gas transaction.
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ICN Board Majority
Goes to Dissidents
A record first quarter for ICN Pharmaceuticals Inc. apparently was not enough to preserve the influence of mercurial Chief Executive Milan Panic as dissident shareholders gave Panic’s opponents a clear majority on the company’s board of directors.
The ICN board, which is being downsized from 12 to nine members, will include six members who have strongly questioned Panic’s stewardship of the Costa Mesa company he founded 42 years ago. The new board is expected to move quickly to oust Panic as CEO.
Although ICN will not release the results of the proxy fight until they have been certified, the company all but conceded at a shareholder meeting that Panic had lost what probably was his last battle to maintain control of the company.
Oversight Committee
to Monitor Vivendi CEO
Vivendi Universal’s board of directors appointed key shareholder and Vice Chairman Edgar Bronfman Jr. to a corporate governance committee that will oversee Chief Executive Jean-Marie Messier.
The Bronfman family owns 5.3% of Vivendi and has been unhappy about a significant falloff in its holdings as Vivendi’s stock has dropped 45% this year amid investor concerns about the company’s strategy and high debt load.
Bronfman’s heightened role comes six months after he cut his day-to-day ties to Vivendi Universal. Bronfman headed Universal when it was owned by his family’s Seagram Co.
A source close to the board said a key task of the committee will be to monitor Messier’s management of the company as it attempts to regain investor confidence.
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Shareholders Use
Resolutions to Sound Off
Angered by two years of bear market losses in stocks and a surge in corporate scandals, investors are voting in favor of shareholder-sponsored resolutions at a record pace this year.
The nonbinding resolutions, which give shareholders a chance to sound off on such issues as stock option plans, executive severance packages and the separation of auditing and consulting contracts, have gotten a majority of votes in 39% of this year’s elections at annual meetings, according to a proxy advisory service that tracks the measures.
The results so far exceed the previous record 25% approval rate of two years ago, according to the Investor Responsibility Research Center in Washington, which covers resolutions related to corporate governance issues at 2,000 of the largest U.S. companies.
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Global Execs Offer
Plan to Save Firm
Global Crossing Ltd. said it will propose a bankruptcy reorganization plan that would revive the company without selling it.
The announcement came just days after two key bidders for the telecommunications company balked at substantially raising their initial bid of $750 million for a 79% ownership stake. Other bidders are expected to file offers by a June 20 deadline, with an auction set for early July.
John Legere, Global Crossing’s chief executive, said the company’s creditors will consider the stand-alone proposal from Global Crossing executives. Under that plan, the company’s reemergence from bankruptcy would be funded by a small equity investment and the proceeds from the expected sale of three operations.
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Supreme Court Bolsters
Protections for Patents
The U.S. Supreme Court gave inventors wider latitude to sue makers of competing products that don’t exactly copy the original.
The unanimous decision overturned an appeals court ruling and was heralded by inventors and lawyers as the most important concerning patents in decades.
The decision affects about 1 million of the 1.2 million patents in effect.
Justice Anthony Kennedy wrote that allowing the appeals court ruling to stand would “risk destroying the legitimate expectations of inventors in their property.”
Several technology and biotech firms, including Sun Microsystems Inc., Verizon Communications Inc., Pfizer Inc. and Dow Chemical Co., had urged the reversal of the appeals court decision.
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State Seeks to Fine
Online Pharmacy
California regulators have proposed an $88.7-million fine against a Los Angeles pharmacy for selling medications directly to consumers over the Internet without requiring a doctor’s examination.
The state Board of Pharmacy’s sanction against Los Angeles-based Total Remedy & Prescription Center II, pharmacist-in-charge and co-owner Barry Irvin and pharmacist William Packer must be approved by the 11-member state medical board. The fine amounts to the maximum $25,000 for each of about 3,500 prescriptions allegedly filled illegally.
The case represents the first use of a law passed in 2000 that requires a “good faith prior medical examination” by a doctor licensed in California before a prescription can be filled.
Irvin, who called the charges “crazy,” has 30 days to appeal.
From Times Staff
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For a preview of this week’s business and economic news, please see Monday’s Business section.
