Top Stories--March 3-8
Improving Job Market Underscores Recovery
The U.S. economy added jobs in February for the first time in seven months, pushing the unemployment rate down to 5.5% and capping a week of signs the economy is snapping back from recession faster than anticipated.
The new hiring knocked a tenth of a point off the January jobless rate and pushed unemployment to its lowest level since October.
For those employed in California, personal income in the state shrunk 0.7% in the third quarter of 2001, the first quarterly decline since at least 1970.
The major culprit, analysts said, was a precipitous drop in income derived from employee stock options, which had fueled spectacular wealth creation in California in recent years.
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L.A. Firms May Bid for Global Crossing
Two Los Angeles-based turnaround companies took an interest in ailing Global Crossing Ltd., with sources saying formal bids for the telecommunications company could come this week.
Gores Technology Group, run by Alec Gores, and Platinum Equity, run by Alec’s brother Tom, are reviewing the books of Global Crossing, which filed for Bankruptcy Court protection Jan. 28.
The company’s creditors remain unimpressed by an offer from two Singapore firms to invest $750 million in Global Crossing for a 79% stake in a reorganized version of the company. Responding to pressure from creditors and bondholders, company officials announced further cost-cutting measures. It will lay off 1,600 employees and consider selling its European network and telecommunications conferencing business.
A Bankruptcy Court hearing this week will decide the fate of the Singapore firms’ offer and set up procedures for weighing other bids.
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Justice Department Steps Up Andersen Probe
Justice Department sources said they were focusing increased attention on Enron Corp.’s former accounting firm, Andersen, and its admitted practice of shredding documents in connection with its audit of the energy company.
Justice officials would not confirm, however, whether they have presented a grand jury in Houston with a request for an indictment, but current and former officials said such action had been contemplated for at least six weeks.
Andersen officials have discussed the company’s internal findings of document shredding at its Houston office with the Justice Department, other sources familiar with the investigation said.
Andersen fired the executive in charge of auditing Enron in January, saying partner David B. Duncan organized an effort at the firm’s Houston office to destroy thousands of documents after learning of an inquiry by the Securities and Exchange Commission.
Justice Department spokesman Bryan Sierra said he could not discuss anything related to the Enron-Andersen case, including whether any enforcement actions were pending. Andersen also refused to comment.
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HP Wins Key Support in Compaq Merger Fight
Hewlett-Packard Co. scored a major victory in its hard-fought campaign to take over Compaq Computer Corp., winning the endorsement of an influential advisor to big investors.
Institutional Shareholder Services said the $22-billion merger was a better bet than a plan by dissident HP director Walter Hewlett for the company to go it alone and reinvest in its profitable printing business.
With about 20% of HP shares committed to opposing the deal and a much smaller number publicly in favor, opposition by ISS could have left the merger’s prospects all but dead. Now, HP’s management may have a slight edge ahead of a March 19 vote.
About 23% of HP shares are held by ISS clients, some of whom automatically follow the firm’s recommendations.
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Boeing Wins Military Contract Worth Billions
Boeing Co. won a highly coveted contract to develop a network of new weapons, communication systems and intelligence-gathering sensors that the Pentagon hopes one day will revolutionize the way the Army fights wars.
In a major boost to Southern California’s defense industry, Boeing’s space and communications unit, headquartered in Seal Beach, upset two other top defense firms to win the contract, which has a potential value of at least $4 billion over the next five years.
Defense analysts said the overall value could top $10 billion as elements of Future Combat Systems are deployed over the next decade.
The Army for the first time is asking a single defense contractor to oversee development of new technologies that would bring the service into the digital age.
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Northrop Launches Hostile Bid for TRW
Northrop Grumman Corp. launched a hostile bid for TRW Inc. after TRW directors rejected as financially inadequate an initial proposal to purchase the automotive parts and aerospace company for $5.9 billion.
Escalating tensions, Northrop also filed lawsuits in Ohio challenging that state’s anti-takeover statutes as directors of Cleveland-based TRW asked shareholders to delay responding to Northrop’s proxy solicitation to purchase the company’s stock.
Los Angeles-based Northrop, which recently completed the acquisition of Newport News Shipbuilding Inc. to become the world’s largest military shipbuilder, wants TRW’s defense and aerospace business, and said it would sell the automotive unit if it was successful.
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President Calls for Investor Safeguards
In formally announcing a set of reforms designed to protect investors from the kinds of abuses seen in the Enron Corp. collapse, President Bush said corporate officers must be held to a higher standard.
He proposed that executives who mislead investors or sign off on inaccurate financial statements be required to return bonuses or be barred from serving at public companies.
But Bush declined to endorse a proposal advocated by Treasury Secretary Paul H. O’Neill that would have made it harder for executives to rely on company-paid insurance policies to pay the legal costs of defending them in shareholder lawsuits.
The president feared such a requirement might encourage investors to sue corporate officers.
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California Drivers to See Jump in Gas Prices
California drivers are bracing for a new surge in gasoline prices brought about by refinery problems, higher oil prices and increased demand.
Wholesale gasoline prices in Los Angeles and San Francisco have jumped about 25 cents in the last week, and that increase is expected to appear soon at the pump.
California gasoline prices have been rising steadily for weeks because of annual refinery maintenance, the yearly switch to summer-grade gasoline and a boomlet in gasoline demand sparked by the improving economy.
The state’s wholesale market is being roiled by outages at the Valero Energy Corp. refinery in Wilmington and the ChevronTexaco Corp. refinery in Richmond. And higher crude prices are contributing to the gas price increase.
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Justices to Decide on NextWave Licenses
The Supreme Court agreed to decide whether the government must pay billions of dollars to reclaim unused wireless spectrum space from NextWave Telecom Inc.
The high court’s action will further delay resolution of the long-running dispute over valuable spectrum that could provide better mobile phone service in several cities, but some analysts think it will prompt a settlement.
At stake is extra spectrum space for wireless transmissions in overcrowded markets such as Los Angeles, New York, Chicago, San Francisco, Seattle and Philadelphia.
The stake for the federal government is huge too. The Federal Communications Commission is on the hook for $16 billion after reclaiming the spectrum from NextWave when it filed for bankruptcy and holding a second auction. The appellate court ruled the new auction violated bankruptcy laws.
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Buying Spree Leads to Big Loss for Vivendi
Vivendi Universal reported an $11.8-billion loss for 2001, as it wrote down the costs of a string of acquisitions that built it into the world’s second-largest media company. The loss, contrasted with a profit of $2 billion in 2000, was the largest in French corporate history.
In the last 18 months, Vivendi Chief Executive Jean-Marie Messier has turned a sewage disposal and water company into a rival of AOL Time Warner Inc. by acquiring Universal and European cable TV giant Canal Plus. Vivendi is close to buying the TV and film assets of USA Networks Inc.
But as the 149-year-old Vivendi shifts to U.S. accounting rules this quarter to build its profile here, the company has faced growing scrutiny by analysts and investors who have grown impatient with its complex balance sheet and the French accounting methods it uses.
Messier downplayed the significance of the write-down, calling it a “bookkeeping concept.” The company’s books are “totally transparent,” he said.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
