TOP STORIES -- July 27-Aug. 1
Economy Grows More
Strongly Than Expected
The U.S. economy grew at a 2.4% annual rate in the second quarter on the strength of shop-until-you-drop consumption, business investment and defense spending, the Commerce Department reported.
Growth of the gross domestic product, a measure of all goods and services produced in the U.S., was nearly twice what economists expected and substantially greater than the 1.4% pace of the prior two quarters.
Companies boosted purchases of equipment and software by 7.5%, Commerce Department figures showed. Federal spending rose 25.1% as defense spending surged 44.1%.
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Jobless Rate Drops,
but Payrolls Are Sliced
The government reported that the nation’s jobless rate dropped two-tenths of a percentage point to 6.2%, but only because more than half a million people quit looking for work and dropped out of the labor force.
Employers sliced payrolls by 44,000 in July, the sixth straight month of such losses, according to the Labor Department.
Optimists pointed to separate reports that showed manufacturing activity and consumer confidence edged up in July.
But even the optimists acknowledged that the employment numbers were worrisome. They were particularly disappointing because they followed news of the economy’s unexpected burst of growth this spring.
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MGM Withdraws From
Race for Vivendi Assets
The multibillion-dollar auction for Vivendi Universal’s film, television and theme park operations was upended when the suitor with the most cash on the table, Metro-Goldwyn-Mayer Inc., abruptly walked away.
MGM, controlled by mogul Kirk Kerkorian, had offered to pay $11.5 billion. But Vivendi executives said the bid was $2.5 billion too low, a potentially risky rebuff, according to some analysts and bidders.
Vivendi Universal declined to comment on MGM’s pullout.
In the next round, Liberty Media Corp. Chairman John Malone is expected to bid mostly cash. General Electric Co.’s NBC has proposed a merger of its NBC network, cable properties and Spanish-language Telemundo with Universal’s film, TV and theme park group.
NBC executives declined to comment on the proposal.
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Many Criticize Budget’s
Reliance on Borrowing
Analysts at credit-rating firm Standard & Poor’s in New York warned that the new budget passed by the Legislature and awaiting action by Gov. Gray Davis fails to bring spending into line with revenue and sets the stage for another financial crisis.
David Hitchcock, director of state and local government ratings at S&P;, criticized the nearly $100-billion spending plan for its reliance on “massive borrowing” and one-shot financial fixes that do not address the fundamental problem that the state continues to spend much more than it takes in.
Until California makes progress toward closing the finance gap, Hitchcock said, S&P; will maintain the state’s credit rating at two steps above “junk,” or non-investment-grade, status. S&P; cut the rating in July to BBB, the lowest of any state.
All told, $14.1 billion in longer-term borrowing under the budget plan would prolong and aggravate California’s fiscal crisis, many analysts say.
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Citigroup, J.P. Morgan
Settle in Enron Probe
Citigroup Inc. and J.P. Morgan Chase & Co. agreed to pay more than $300 million to settle government charges that they helped Enron Corp. and another energy firm defraud investors.
The Securities and Exchange Commission charged that the banks concocted complex transactions that masked Enron’s debt and inflated its reported cash flow. The banks agreed to pay $255 million to the SEC and $25 million each to the city and state of New York.
The banks said they were happy the probes were completed. Citigroup also said it has taken measures to prevent improper financial dealings.
Citigroup agreed to pay $101 million to settle with the SEC, while J.P. Morgan agreed to pay $135 million.
Citigroup is shelling out an additional $19 million to resolve a separate investigation into similar financing it did for Dynegy Inc.
The banks neither admitted nor denied guilt.
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Philip Morris Wins
Verdict in L.A. Case
After two legal defeats in Los Angeles, tobacco giant Philip Morris USA scored a victory when a jury found that the company was not responsible for the lung cancer of a longtime smoker of its Marlboro and Benson & Hedges brands.
Capping a seven-week trial, the Los Angeles County Superior Court jury rejected five of six claims by Fredric Reller, 64, of Marina del Rey, who had accused the company of fraud, negligence, failure to warn and marketing a defective product.
Reller’s attorney, Michael Piuze, said he felt “very bad for Mr. Reller.” Piuze had asked jurors to award Reller $17 million in compensatory damages and to find that Philip Morris had been guilty of malice.
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Chevron Plans to Sell
Up to $6 Billion in Assets
ChevronTexaco Corp. said it would sell as much as $6 billion in assets -- including oil fields, refineries and half its company-owned or leased gas stations in the U.S. to streamline the company and boost returns.
The San Ramon-based company sketched out its divestiture plans after reporting second-quarter profit quadrupled to $1.6 billion, or $1.50 a share, helped by high prices for gasoline in California, as well as increased crude oil and natural gas prices.
Profit is up from $407 million, or 39 cents a share, a year earlier. Excluding a charge of $117 million to write down the value of assets slated for sale, earnings were $1.61 a share, well above analysts’ estimate of $1.52. Sales rose 16% to $29 billion.
David J. O’Reilly, ChevronTexaco’s chairman and chief executive, said the company had labeled $5 billion to $6 billion in assets as “non-strategic” and probably would sell $1 billion to $2 billion worth in each of the next three years.
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FCC’s OK Is Expected
for Bid by Univision
The Federal Communications Commission’s staff has recommended the agency approve Univision Communications Inc.’s $2.3-billion purchase of Dallas-based Hispanic Broadcasting Corp., say people familiar with the situation.
Sources say the staff has concluded that the deal would pose no significant barriers to other broadcasters seeking to enter the Spanish-language market.
The recommendation is expected to be affirmed by commission members as early as this week. Agency approval is the final regulatory hurdle for the deal, which was approved by the Justice Department in March.
The FCC’s three Republicans are said to be leaning toward approval, while its two Democrats are opposed.
Univision, based in Los Angeles, has 53 stations along with the Univision, Telefutura and cable-based Galavision networks.
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Gap Aims to Add Edge
With Latest TV Spots
After a year of working to revive sales by stocking apparel basics, Gap Inc. added some edge to its strategy with television ads starring Madonna and hip-hop star Missy “Misdemeanor” Elliott.
The ads come at a pivotal time for the company that owns 4,200 Gap, Old Navy and Banana Republic stores. It has been 10 months since former Walt Disney Co. executive Paul Pressler took the top job at Gap, and the back-to-school season will give investors their first chance to measure his effect on the San Francisco-based company.
Gap has for more than a decade hired actors and musicians to appear in print and TV ads.
President Gary Muto said the company selected Madonna and Elliott for the campaign because it wanted to appeal to young consumers, particularly college students.
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Hong Kong Investor
Buys Bradbury Building
The Bradbury Building, a downtown Los Angeles landmark used as part of the apocalyptic backdrop for the film “Blade Runner,” has been sold to a Hong Kong investor with a taste for historic properties.
The principals wouldn’t discuss the sale price, but a knowledgeable source said the figure was about $6 million.
The brick edifice at 3rd Street and Broadway was built in 1893 and is on the National Register of Historic Places. The buyer is Downtown Properties Holdings, which owns several restored buildings in downtown L.A. Downtown Properties was one of several prospective buyers invited to bid on the property, said Bruce Stein of Shamrock Holdings of California Inc. Shamrock, the investment arm of the Roy E. Disney family, was the major investor in Bradbury Associates, seller of the building.
From Times Staff
For a preview of this week’s business news, please see Monday’s Business section.
