Week in Review / TOP STORIES -- June 29-July 4
U.S. Jobless Rate Jumps to 6.4%, a 9-Year High
The nation’s unemployment rate shot to a nine-year high of 6.4% in June and payrolls shrank by 30,000 jobs, the Labor Department said. The payroll decline extended the economy’s job losing streak to five months.
Employers have cut a net 394,000 workers since February and 2.6 million since the March 2001 start of the recession.
The jump in the unemployment rate to 6.4% in June from May’s 6.1% was the biggest monthly increase since the September 2001 terrorist attacks and took analysts, who had predicted little or no change, by surprise. The last time the rate was higher was in April 1994.
The figures diminished hopes that tax cuts and the Federal Reserve’s interest rate reductions would propel the economy to a quick comeback. The June figures did include some hints of improvement. The number of people looking for work increased last month, sometimes an early indicator of a rebound.
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State Risks Depleting Jobless Funds Next Year
California’s unemployment insurance program will run out of funds to pay jobless workers by early next year, state officials said, making it likely that employers will have to pony up more money to keep the system afloat.
The Employment Development Department said it would form a special panel to discuss overhauling the cash-strapped system, fast being drained by a crush of jobless claims.
The state agency’s main options include borrowing from the federal government or raising unemployment insurance taxes for employers. At the end of May, the unemployment trust fund stood at $3.2 billion. State officials project that the fund will fall into the red by January and could be $1.1 billion in the hole by the end of 2004 if steps aren’t taken to inject more money into the system.
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Davis’ Bid for Vivendi Reportedly Rejected
Vivendi Universal narrowed the field of competitors for its Hollywood empire. The French media giant dismissed its first suitor, Los Angeles billionaire Marvin Davis, telling his investment group to pony up more cash if it expects to stay in the hunt, sources said.
Also, Vivendi’s board decided to hold on to Universal Music Group, at least for now, because it believes the music industry is ripe for a turnaround.
Vivendi said “in-depth negotiations will now be pursued with selected bidders.” Those are Liberty Media Corp., General Electric Co.’s NBC, Metro-Goldwyn-Mayer Inc., Viacom Inc. and an investor group led by Vivendi Vice Chairman Edgar Bronfman Jr., but the door also remains open for Davis. Competitors were asked to restructure their offers by mid-July.
The board also set a minimum threshold bid of $11.5 billion for the assets, excluding music, sources said.
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Gilead Wins OK for Its Second Anti-HIV Drug
An HIV medication made by Gilead Sciences Inc. received regulatory approval, positioning the Foster City, Calif.-based firm to become a formidable competitor in the multibillion-dollar AIDS drug business.
It was the second potentially lucrative HIV medication from Gilead to win approval from the Food and Drug Administration in less than two years. The drug, called Emtriva, is a once-daily pill similar to GlaxoSmithKline’s widely used Epivir. Analysts expect Emtriva to grab significant sales from the Glaxo drug, which is taken twice daily.
Sales of Gilead’s first HIV drug, Viread, are expected to be $500 million in 2003, its second year on the market. The wholesale cost of Emtriva will be $253 a month, or $3,036 a year. Gilead expects to begin shipping Emtriva this week.
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Malone to Buy Control of QVC for $7.9 Billion
Cable magnate John Malone agreed to spend $7.9 billion for control of home shopping channel QVC from Comcast Corp.
The deal’s timing caught many by surprise because Malone’s Liberty Media Corp. is seen as a front-runner in the bidding for Vivendi’s entertainment assets, including the USA and Sci Fi cable channels and Universal film and TV studios. Analysts say Liberty has the resources for both purchases.
The acquisition of the world’s largest home shopping channel bolsters Malone’s goal of converting Liberty into an operating entity rather than a portfolio manager. Liberty can pay a combination of stock, cash or a three-year note, Comcast said. The stock portion is capped at 7.5% of Liberty’s shares outstanding, or about $2.56 billion in stock. The sale is expected to close by year’s end.
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Arbitrators Uphold Messier’s Severance Pay
Vivendi Universal was ordered to pay $23.5 million in severance and bonuses to former Chief Executive Jean-Marie Messier. A New York arbitration panel rejected Vivendi’s claim that a severance deal worked out July 1, 2002 -- the day Messier was forced out in a boardroom coup -- was invalid because it wasn’t approved by all directors.
The panel found that Messier was entitled to the compensation because the arrangement was in a “termination agreement” negotiated between Messier and two leading directors: Vice Chairman Edgar Bronfman Jr. and Marc Vienot, a former banking executive who has since resigned from the board.
The American Arbitration Assn. panel also said the company “had no legal basis” for withholding a bonus to Messier for the first half of 2002.
Vivendi said it would appeal the decision.
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Probe of Oracle’s Bid for PeopleSoft Launched
The Justice Department signaled that it has launched a full investigation into the antitrust ramifications of Oracle Corp.’s proposed $6.3-billion hostile takeover of PeopleSoft Inc.
The inquiry could hamper Oracle’s ability to execute its unsolicited cash tender offer of $19.50 a share. It also could make it more difficult for Redwood City, Calif.-based Oracle to persuade PeopleSoft’s board, which has twice rebuffed its overtures, to consider a friendly bid.
Executives of Pleasanton, Calif.-based PeopleSoft said the Justice Department’s request for more information from Oracle about its bid validated their belief that regulators would quash a deal. But PeopleSoft is facing antitrust scrutiny of its own, concerning the company’s planned $1.7-billion merger with J.D. Edwards & Co.
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Boom-Era Investors Lose Again in Court
A federal judge threw out another investor lawsuit against Merrill Lynch & Co., dealing a further blow to individuals who are suing Wall Street in hopes of recouping bear market losses.
U.S. District Judge Milton Pollack dismissed a class-action suit that alleged conflicts of interest at a Merrill tech fund, saying there was so much media coverage of such problems that investors should have known about them. Pollack also threw out two suits claiming that biased research by former Merrill stock analyst Henry Blodget caused investors steep losses on two Internet stocks. His rulings show how difficult it will be for many investors to recover losses through lawsuits, experts said.
Daniel Krasner, an attorney representing the plaintiffs, said he was considering an appeal.
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MGM Selling Cable Assets to Cablevision
Stymied in trying to bulk up in cable investments, Metro-Goldwyn-Mayer Inc. said it was selling its 20% stake in three Rainbow cable networks -- AMC, Independent Film Channel and WE: Women’s Entertainment -- to partner Cablevision Systems Corp. for $500 million.
MGM would get $250 million in cash and a note worth another $250 million, which may be paid in Cablevision stock, that matures in five months. The deal is expected to close in the third quarter. Proceeds would boost the company’s balance sheet as it competes for Vivendi Universal’s entertainment assets.
Cablevision would consolidate ownership of its three national cable channels at what analysts consider a good price in the current market. And the deal smooths the way for its participation in Edgar Bronfman Jr.’s bid for the Universal assets.
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Callaway to Buy Rival Golf Firm Top-Flite
Callaway Golf Co. agreed to buy club and ball maker Top-Flite Golf Co. for about $125 million. Callaway, the Carlsbad, Calif.-based maker of Big Bertha drivers and other high-end clubs, said the proposed deal was part of a Chapter 11 bankruptcy filing by privately held Top-Flite, of Chicopee, Mass.
The deal would give Callaway access to a broader range of golfers, as Top-Flite, which owns the Ben Hogan and Strata brands, makes gear not only for the high-end market but also for value-conscious shoppers.
Callaway executives couldn’t be reached to say whether the company would make the purchase with cash or a combination of cash and securities.
