Week in Review
Stocks Falter as Dollar Falls, Oil Prices Rise
Stocks suffered their worst weekly losses in several months as investors were spooked by a sharp jump in oil prices, a falling dollar and further hints that the U.S. economy may not be rebounding as quickly as expected.
The Standard & Poor’s 500 index fell 3.8% and the Dow Jones industrial average lost 3.4% -- their steepest drops since January and March, respectively. The tech-laden Nasdaq composite index lost 6% for its biggest weekly decline since April 2002.
Oil prices rose more than 4% after OPEC said it would cut production. Investors fretted that higher energy prices could crimp economic growth. The dollar fell against the yen and euro on signs the Bush administration favors a weaker buck. And reports on durable goods orders and consumer confidence were disappointing. The downbeat economic news helped revive bond prices, sending Treasury yields to their lowest levels in more than two months.
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NYSE Names Interim Chief to Replace Grasso
Directors of the New York Stock Exchange named former Citigroup Inc. executive John S. Reed interim chairman and chief executive, counting on the veteran banker and stock exchange outsider to steer the Big Board through its troubles until a permanent leader is found.
Reed, 64, replaces Richard Grasso, who was forced out of office amid outrage over his $139.5-million compensation package.
Reed said he would work for a token payment of $1. He said he wasn’t interested in becoming the NYSE’s permanent leader.
Also, H. Carl McCall unexpectedly resigned from the NYSE board, saying he wanted to let Reed “move forward without being encumbered by the past.” McCall is the first board member to step down since Grasso resigned under pressure.
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Judges Deliver Blows to ‘Do-Not-Call’ Registry
A federal judge ruled that a popular “do-not-call” registry violated telemarketers’ 1st Amendment rights, handing the telemarketing industry its second legal victory in a week.
The ruling by U.S. District Judge Edward W. Nottingham in Denver put in doubt the future of the Federal Trade Commission’s national registry.
Although Nottingham’s ruling is certain to be appealed, legal experts said that it would delay implementation of the program, scheduled to start Wednesday. The judge ruled that the registry violated the free-speech rights of telemarketers because it barred them but not charities, pollsters or political campaigns from making unsolicited calls.
Nottingham’s ruling came shortly after the House and Senate voted overwhelmingly for a bill that made clear that the Federal Trade Commission had the power to establish and maintain its do-not-call list. The legislation was in reaction to a decision by U.S. District Judge Lee R. West in Oklahoma City, who ruled the FTC exceeded its authority in setting up the registry.
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Levi Strauss to Shutter Its Last U.S. Plants
Levi Strauss & Co., maker of a jeans brand so all-American that it became ingrained in the nation’s identity, said it would close the last of its North American manufacturing plants, laying off almost 2,000 workers.
The announcement came just two weeks after the San Francisco-based company, which is struggling to cut costs and stay competitive, said it would lay off 7% of its U.S. workforce.
Levi now says it will shutter two plants in San Antonio by the year’s end, displacing 800 workers there and marking the end of its U.S. manufacturing operations. It will discontinue its Canadian operations in March, erasing 1,190 jobs at three plants in Alberta and Ontario.
The jobs lost at Levi plants in North America are likely to shift to Latin America and Asia, the company said.
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FCC Clears Univision’s Radio Acquisition
The Federal Communications Commission voted 3 to 2 along partisan lines to allow Univision Communications Inc.’s $3.25-billion acquisition of radio chain Hispanic Broadcasting Corp., which owns more than 55 stations, including four in L.A.
The FCC’s decision ratified an earlier ruling by the Justice Department that Univision would not be a monopoly because Spanish-language media are part of the general media market. But the commission’s Democrats argued that the merger gave a dominant company excessive power inside a discrete market.
The Dallas-based radio chain, renamed Univision Radio, will round out Univision’s portfolio of properties that includes three television networks, 53 television stations, an Internet business and a music division that boasts three record labels.
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Slow Upturn Forecast for California Economy
The state’s economic growth is likely to be sluggish until 2005, when California is projected to begin a five-year spurt that will outpace the nation in job and income gains, a forecast says.
In their widely followed quarterly report, analysts at the UCLA Anderson Forecast say that despite a recent flurry of upbeat indicators, the economic quickening is coming too late to lift California’s performance any sooner than two years out. The UCLA economists, who downgraded projections for the state’s weak economy in their midyear report, lowered their estimates even more for 2003 and 2004.
They now expect the state to end this year with 42,000 fewer nonfarm payroll jobs than it had in 2002 -- a 0.3% decline contrasted with the 0.4% gain projected in June. They also said employment, taxable sales and personal income, all key revenue sources for the state, probably would register smaller gains in 2004 than previously expected.
That’s bad news for California lawmakers, who have been counting on a healthier economy to help pull the state out of its deep fiscal hole.
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Two Plead Guilty to Fraud in AOL Ad Deals
Two former executives of PurchasePro.com, a defunct Las Vegas software firm, pleaded guilty to criminal charges stemming from advertising deals involving AOL Time Warner Inc.
The plea agreements refer only to a “major media company.” Sources confirmed it was AOL. An AOL spokeswoman declined to comment.
Former Senior Vice President Jeffrey R. Anderson, 36, pleaded guilty to conspiracy to commit wire fraud. According to his plea, Anderson and other executives cut secret side deals with an unnamed employee of the media company to provide that company with $30 million in warrants in return for help in enabling PurchasePro to artificially inflate its revenue in 2000 and 2001. An attorney for Anderson declined to comment.
Last year, AOL Time Warner said it would restate $190 million in advertising revenue related to the America Online unit but did not identify specific deals.
Former Controller Scott Miller, 44, pleaded guilty to destroying PurchasePro documents sought by government investigators. “He realized it was an awful thing to do and then stopped and disclosed it to the government,” said Robert Luskin, an attorney for Miller.
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Indian Motorcycle Calls It Quits, Again
Indian Motorcycle Corp., after trying to revive the nation’s oldest and once most popular motorcycle brand, said it had halted production and fired 380 employees.
The move came after a decision by the main investor, Audax Group in Boston, to pull out after pumping more than $45 million into the Gilroy, Calif., company in the last two years. Others had put in $100 million-plus. “The board had been out fund-raising,” Indian Motorcycle Chairman Frank O’Connell said, “but it was looking difficult.”
The original manufacturer went out of business in 1953. Enthusiasts were convinced that the brand could stage a comeback. In 1998, a group bought the rights to the Indian name and started building a modern line of Indian motorcycles.
But “to build your own manufacturing system and do your own product research and development takes tremendous amounts of cash,” O’Connell said, “and the process always needs more.”
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Beckman Coulter Wins $934-Million Verdict
An Orange County jury has hit Flextronics International Ltd. with a $934-million verdict after finding that the Singapore-based electronics manufacturer engaged in fraud and broke its contract to provide circuit boards to Beckman Coulter Inc., a biomedical testing firm.
The award to Fullerton-based Beckman Coulter consisted of $931 million in punitive damages on top of $3 million in actual damages.
The jury’s decision in a trial that began in July was unsealed last week in Superior Court in Santa Ana.
Beckman Coulter sued Flextronics two years ago, alleging that the electronics firm reneged on a contract to make circuit boards for Beckman’s blood chemistry analyzer.
Flextronics vowed to appeal, saying the judgment was “unsupported by either the law or the facts.”
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Kazaa Suit Turns Tables on Music Firms, Studios
Accused by the major record labels and movie studios of enabling rampant global copyright infringement, the company behind the world’s most popular file-sharing network has sued the labels and studios, alleging copyright infringement.
A federal countersuit filed by Sharman Networks Ltd., which distributes the Kazaa file-sharing software, claims that the entertainment companies hooked up to the Kazaa network with unauthorized versions of its software, violating Sharman’s copyright. The countersuit also revives Sharman’s allegation that the entertainment companies violated antitrust laws by stopping Sharman and its partner, Altnet Inc. of Woodland Hills, from distributing authorized copies of music and movies through Kazaa.
A spokesman for the Recording Industry Assn. of America said Sharman’s “newfound admiration for the importance of copyright law is ironic to say the least.”
For a preview of this week’s business news, please see Monday’s Business section.
