TOP STORIES -- July 7-11
Major Stock Indexes End the Week on Top
Despite a midweek swoon and continuing doubts about the health of the U.S. economy, stocks managed to pull off a second straight winning week.
The week began with a powerful rally, but subsequent reports about continuing softness in the job market spooked investors and erased much of the earlier gains. However, a modest rally Friday, buoyed by predictions of an uptick in technology spending, kept major indexes in the black for the week -- and kept alive hopes that Wall Street’s three-year bear market may be coming to an end.
For the week, the Dow Jones industrial average gained 0.5%, the Standard & Poor’s 500 index added 1.3%, and the Nasdaq composite index rose a robust 4.2%. Nasdaq is up 36% from its recent low on March 11.
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Microsoft Decides to Abandon Stock Options
Software giant Microsoft Corp. said it would no longer give employees stock options, abandoning a compensation system that came to symbolize the go-go economy of the 1990s and the excesses that critics say helped fuel the dot-com bubble and a rash of corporate financial scandals.
The company said it would shift in September to awarding employees outright grants of stock instead of options -- rights to buy shares in the future, often at a bargain price. Microsoft also said it would begin to formally count all stock-related compensation as a business expense.
The changes will “better align” the interests of employees and shareholders, Chief Executive Steve Ballmer said.
At Microsoft, all 55,000 full-time employees receive options. Under the new system, all employees except Ballmer and founder Bill Gates would be eligible to receive stock grants.
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California’s Jobless Rate Holds Steady
California’s jobless rate held steady at 6.7% in June, after a revision in the previous month. The Employment Development Department also said California gained 5,100 payroll jobs. .
California ran counter to the national trend, which saw its unemployment rate jump to a nine-year high of 6.4% and payrolls shrink by 30,000 jobs.
Although the increase in payroll jobs represented “a ray of hope” for California’s economy, said Tom Lieser, economist with the UCLA Anderson Forecast, voiced concern that the biggest gains were in financial services and government, industries likely to change directions in coming months. The state continues to lose manufacturing jobs, with 4,900 lost in June.
A survey of households issued with the EDD report shows the number of unemployed is 14,000 higher than a year earlier. Also, more than 524,000 Californians collected jobless benefits in June, up 36,000 from a year ago.
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Food Labels to Include ‘Trans Fat’ Entry
In the first major change to nutrition labels on packaged foods since they were established in 1993, the Food and Drug Administration said it would require food companies to list the amount of “trans fatty acids” in their products by 2006.
Health and Human Services Secretary Tommy G. Thompson said trans fatty acids, like saturated fat, raise levels of so-called bad cholesterol in the blood. In turn, bad cholesterol increases the risk of heart attacks, the leading cause of death in the U.S.
The food labels will not include a recommended maximum intake because regulators have not decided what that maximum should be.
Some of the industry’s largest players, such as Frito-Lay Inc. and Kraft Foods Inc., already have announced plans to trim trans fat from some products.
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Big Takeover Offers May Stoke Merger Revival
A flurry of takeover offers signaled corporate executives’ revived urge to merge.
Those include EMC Corp.’s $1.2-billion bid for Legato Systems Inc. in the tech arena, ArvinMeritor Inc.’s $2.2-billion overture for Dana Corp. in the auto-parts sector and Yellow Corp.’s $966-million proposal for Roadway Corp. in trucking.
The hostile takeover attempt also may be making a comeback, analysts said. ArvinMeritor’s offer follows recent hostile bids by software giant Oracle Corp. for PeopleSoft Inc. and aluminum maker Alcan Inc. for Pechiney.
Still, merger data have yet to confirm that a major wave of deals has begun, said Richard Peterson, market strategist at data tracker Thomson Financial. But with interest rates low and stock prices surging, executives may be sensing that there’s no reason to wait to make takeover plays, analysts say.
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DTS’ Trading Debut Signals Interest in IPOs
Theatrical surround-sound company Digital Theater Systems Inc. blasted onto Wall Street with the market’s strongest initial public offering in more than a year, jumping 47% in its first day of trading.
The performance by Agoura Hills-based DTS was another in a series of recent signs that the IPO market may be warming up.
The profitable company -- whose digital audio system is installed in more than 20,000 theaters worldwide -- sold 3.84 million shares at $17 each, raising $65.3 million in its IPO. Its shares soared $7.92 on Thursday to close at $24.92 on Nasdaq.
The IPO market has been slow to recover after crashing with the technology sector in 2001-02. But a few companies with solid sales and earnings records have been able to coax investors to buy their IPOs.
The underwriters for the DTS offering were led by investment firm SG Cowen.
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SEC Expands Probe of Tenet Healthcare
Stepping up its probe of Tenet Healthcare Corp., the Securities and Exchange Commission has launched a formal investigation and subpoenaed Medicare billing records and other documents, Tenet said.
A spokesman said a civil subpoena from the SEC was served Tuesday. “The inquiry has taken on a more formal tone,” Steve Campanini said. “They have expanded the scope. They are looking at a broader range of items and issues.”
The SEC began an informal inquiry in November, looking into Santa Barbara-based Tenet’s strategy of charging Medicare at rates well above the industry average in so-called outlier payments to cover costly hospital cases.
The nation’s second-largest for-profit hospital chain, Tenet also is under investigation by the Justice Department, which last fall started an inquiry into Tenet’s practice of boosting profit with outlier payments.
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Credit Lyonnais May Settle Over Acquisition
French bank Credit Lyonnais is negotiating with the Justice Department to pay as much as $600 million to avoid criminal indictment in connection with its allegedly fraudulent acquisition of California’s failed Executive Life Insurance Co., several sources close to the matter said.
Negotiations have been underway for some time, one government source said, but weren’t near conclusion.
California Insurance Commissioner John Garamendi seized Los Angeles-based Executive Life in 1991, declared it insolvent and sold it for $3.2 billion to what appeared to be a consortium of French investors. The U.S. attorney’s office in L.A. later launched a criminal inquiry after a whistle-blower claimed that front companies had concealed the true purchaser -- Credit Lyonnais. At the time, foreign banks were barred from owning insurance companies.
George Terwilliger, a lawyer in Washington representing Credit Lyonnais, couldn’t be reached for comment.
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Yahoo Profit More Than Doubles in 2nd Quarter
Yahoo Inc. said second-quarter profit more than doubled as revenue jumped 42%, powered by a boost in advertising, proceeds from companies paying to be highlighted in Web searches and fees from users for services such as online matchmaking and job listings.
Profit rose to $50.8 million from $21.4 million a year earlier. Revenue climbed to $321.4 million from $225.8 million.
Yahoo also raised projections for the year. It said it expected revenue to be as high as $1.31 billion, compared with its previous forecast of $1.28 billion.
Second-quarter earnings of 8 cents a share were generally in line with Wall Street estimates.
Yahoo’s costs and expenses rose 18% to $258.6 million.
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Shoe Giant Nike Plans to Purchase Converse
Athletic shoe giant Nike Inc. said it planned to buy Converse Inc. for about $305 million, a move that industry insiders said should benefit both companies. Nike said it would assume some of closely held Converse’s “working capital liabilities,” declining to elaborate.
The purchase would cap a two-year rebuilding period for Converse, which emerged from Chapter 11 bankruptcy protection in 2001 and gained traction as consumers became enamored of retro fashion.
Beaverton, Ore.-based Nike said it intended to use its experience to help Converse expand its footwear and apparel lines. Converse, based in North Andover, Mass., would continue to operate independently, Nike spokeswoman Joani Komlos said. “The beloved Chuck Taylor will not have a swoosh on it,” she said.
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or a preview of this week’s business news, please see Monday’s Business section.
