TOP STORIES -- April 6-11
Despite Gains in Iraq, Market Indexes Drop
It’s the economy, stupid.
That’s what the stock market was telling investors last week as major market indexes tumbled despite dramatic gains by U.S.-led forces in the war against Iraq. Shrugging off TV images of toppled statues of Saddam Hussein, investors focused instead on the uncertain outlook for corporate earnings and the U.S. economy.
This week is one of the busiest of the first-quarter earnings season, and the prospects are less than bright. The number of companies lowering profit estimates for the quarter have outnumbered those raising estimates by 3 to 1, and earnings overall are expected to rise 8.5% for the quarter -- down from earlier projections of an 11.7% gain.
For the week, the Standard & Poor’s 500 index fell 1.2%, the Dow Jones industrial average lost 0.9% and the Nasdaq composite index dropped 1.8%.
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High Court’s Decision Limits Damage Awards
In a major victory for U.S. corporations, the Supreme Court sharply limited the power of juries to punish companies with huge damage awards, a decision that could spare the tobacco industry, insurers and automakers from paying pending verdicts.
The 6-3 ruling sends a stern warning to state judges and juries to curb excessive awards. In general, they may not seek to punish an entire industry or an “unsavory business” in the guise of doing justice in a single case, the court said.
Big companies should not be hit with enormous verdicts just because they are large and wealthy, the justices added. Juries in civil cases are supposed to compensate victims for their actual losses, not mete out punishment, said Justice Anthony M. Kennedy for the court.
Kennedy also said punitive damages should not greatly exceed the compensatory award.
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News Corp. Wraps Up Deal for DirecTV
Capping a decadelong quest to dominate satellite-TV service in the U.S., News Corp. agreed to pay $6.6 billion in stock and cash to grab control of DirecTV’s parent company, giving the cable industry a dreaded new adversary.
The transaction would fill a void in News Corp.’s worldwide satellite empire. General Motors Corp., which controls DirecTV parent Hughes Electronics Corp., would get the cash it needs to offset a massive deficit in its pension fund. The deal would hand News Corp. 34% of El Segundo-based Hughes.
In the U.S., DirecTV would become the first satellite-TV provider backed by a major Hollywood studio, giving News Corp. Chairman Rupert Murdoch a nationwide pipeline for television programs produced by his Fox entertainment factory.
Murdoch would become chairman of Hughes.
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California Ruling Offers Investors a New Weapon
Investors may sue a company in California when inaccurate corporate reporting induces them to hold on to a stock instead of unloading it, the California Supreme Court ruled.
The sort of lawsuit sanctioned by the decision is barred in federal court and generally has been dismissed by California courts.
To sue in federal court, an investor must have taken action and suffered -- actually selling shares and losing money -- based on a company’s misrepresentations.
The ruling last week said that in California, suits can be brought by investors who sat tight because of a company’s erroneous claims about its financial health.
“We conclude that California law should allow a holder’s action for fraud or negligent misrepresentation,” Justice Joyce L. Kennard wrote.
The court said stockholders must prove they relied on a company’s misrepresentations in deciding against selling a stock.
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Apple Said to Be in Talks to Buy Universal Music
In a pairing that would alter the architecture of the music business, Apple Computer Inc. is in talks with Vivendi Universal to buy Universal Music Group, the world’s largest record company, for as much as $6 billion, sources said.
Such a seemingly unlikely combination would instantly make technology guru Steve Jobs, Apple’s co-founder and chief executive, the most powerful player in the record industry.
The discussions, a closely held secret for several months, could founder over unresolved issues. Cupertino, Calif.-based Apple hasn’t made a bid but may offer $5 billion to $6 billion for the music firm before Vivendi’s April 29 board meeting, sources said.
Jobs and other Apple representatives declined to comment, as did representatives of Universal Music Group and Vivendi.
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Tenet Healthcare CEO Gives Up Chairman Post
Hospital chain Tenet Healthcare Corp. said Jeffrey C. Barbakow will resign as chairman and director in a move that might clear the way for Tenet to reach financial settlements in more than half a dozen government probes of the company’s past practices. Barbakow will remain chief executive of the Santa Barbara-based hospital chain.
The company’s board plans to hire a chairman who isn’t a Tenet executive and name outside directors to replace three other longtime directors.
Since fall, Tenet has been under fire as federal investigators have examined the hospital chain for allegedly collecting excessive Medicare payments. The company has denied breaking Medicare rules.
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Lawmakers Seek Probe Into Postwar Contracts
Lawmakers called for investigations into the awarding of reconstruction contracts for postwar Iraq and whether Halliburton Co. got a hand from the Bush administration.
Reps. Henry A. Waxman (D-Los Angeles) and John D. Dingell (D-Mich.) singled out the Texas energy giant in a letter to the General Accounting Office, Congress’ investigative arm. The letter suggested that Halliburton’s ties to Vice President Dick Cheney may have afforded it “special treatment.”
Cheney served as Halliburton chief executive for five years before he resigned in August 2000 to be George W. Bush’s running mate. A Halliburton spokeswoman said the firm has not benefited from former ties to Cheney or any connections to the Bush administration.
The two legislators asked the GAO to investigate eight contracts being awarded by the U.S. Agency for International Development to rebuild and run key institutions in Iraq after the war.
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Reports Signal a Flat California Economy
California’s economy has settled into stasis, neither growing nor shrinking significantly, according to several economic reports. The state’s unemployment rate dipped to 6.6% in March from a revised 6.7% in February, the Employment Development Department said.
A separate survey of company payrolls found the state lost 4,100 jobs in March, the government said. For the first three months of the year, nonfarm employment in the Golden State increased by 9,200 jobs, thanks to a big gain in January.
Revenue collected by the state in the form of personal income tax withholding payments has climbed by more than 5% in each of the last two months compared with a year earlier, said Howard Roth, chief economist for the California Department of Finance. “But for the most part what I am seeing is a flat economy,” Roth said.
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Clear Channel Planning to Cut Promoter Ties
Clear Channel Communications Inc. plans to sever ties to music industry middlemen who have paid millions of dollars to the radio giant while seeking to influence airplay.
The move by the nation’s biggest radio conglomerate follows criticism from lawmakers who said Clear Channel’s deals with independent record promoters ran afoul of payola laws.
The decision marks an abrupt reversal for the company. Radio division chief John Hogan said the company decided to terminate the deals “to eliminate even the appearance of impropriety.” Hogan said the radio operation would not renew its 10 or so contracts with various promoters when the deals expire this summer.
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Sales of GameCube Disappoint Nintendo
Nintendo Co. said global sales of its GameCube video game consoles fell 44% short of its 10-million-unit goal for fiscal 2003, ended March 31.
As a result, the Japanese game maker said profit fell 38% to $550 million from a year earlier. Revenue fell 10% to $4.2 billion. Until this year, Nintendo was a comfortable second behind Sony Corp., whose PlayStation accounts for about two-thirds of global console sales.
Microsoft expects to sell 9 million Xbox consoles in its fiscal year ending June 30. Nintendo sold about 5.6 million GameCubes in its fiscal year. Sony has sold more than 50 million Play- Station 2s since the console debuted in late 2000.
From Times Staff and Wire Reports
For a preview of this week’s business news, please see Monday’s Business section.
