TOP STORIES -- Nov. 7 - 12
Fed Raises Key Rate for 4th Time This Year
The Federal Reserve raised its benchmark short-term interest rate by a quarter-point, saying improving economic and job market conditions justified the move.
The widely expected increase in the so-called federal funds rate, to 2% from 1.75%, was the central bank’s fourth quarter-point hike since June and put the rate at its highest since the end of the last recession in 2001.
More increases are coming, the Fed suggested, reiterating that it would continue to remove its easy-money policy at a “measured” pace to ward off inflation.
“Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved,” the Fed’s policymaking Open Market Committee said.
That wording suggested that the Fed had become slightly more bullish on the economy since its last meeting, economists said. Many analysts expect another quarter-point hike at the Fed’s next meeting Dec. 14.
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California’s Garamendi Accepts WellPoint Deal
State Insurance Commissioner John Garamendi dropped his opposition to Anthem Inc.’s proposed $18.4-billion purchase of WellPoint Health Networks Inc., paving the way for the creation of the nation’s largest health insurer.
Garamendi, who four months ago called the transaction “one lousy deal for California healthcare consumers” and had used his authority to block it, said he changed his mind after Anthem agreed to make several major concessions. Among these was the company’s commitment to direct $265 million toward various state health projects -- more than double the amount it had committed to earlier.
Regulators in other states must still give their final blessing. Georgia’s insurance commissioner, John Oxendine, rejected the deal. Critics of the deal worry that Indianapolis-based Anthem may siphon money out of Thousand Oaks-based WellPoint to help fund the acquisition. Some also remain concerned about the size of the “change-in-control” payments that would go to WellPoint management.
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Franklin Resources May Pay $36 Million
Mutual fund giant Franklin Resources Inc. is expected to pay a total of $36 million to end state and federal probes into its marketing payments to brokers, regulators said.
California Atty. Gen. Bill Lockyer said his staff was nearing an $18-million deal with Franklin over the so-called shelf space payments. It would be the state’s second accord with a major mutual fund firm over the industry’s controversial practice of rewarding brokers who promote their funds.
The deal could come by Tuesday, according to a person familiar with the matter. Most of the money would be earmarked for fund shareholders.
Franklin also has tentatively agreed to pay slightly more than $18 million to resolve a parallel probe by the Securities and Exchange Commission, said another source. The deal with the SEC is expected to come within the next few weeks.
San Mateo, Calif.-based Franklin, which runs the Franklin and Templeton families of mutual funds, would neither confirm nor deny the pending settlements.
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Airbus in Hot Pursuit of U.S. Tanker Contract
Europe’s largest defense contractor is aggressively campaigning to wrest one of the Air Force’s biggest contracts from Chicago-based Boeing Co.
European Aeronautic Defense & Space Co., known as EADS, has launched a major public relations and lobbying campaign to persuade Congress and the Pentagon to buy its aerial refueling tankers instead of those built by scandal-plagued Boeing. The tanker contract is worth as much as $100 billion.
EADS, a Dutch-based consortium, owns 80% of Airbus.
The consortium has pledged to build a $600-million plant in the United States for final assembly work and to hire 1,000 U.S. workers if it wins the contract. EADS also would guarantee that at least 50% of the tankers, based on dollar value, would be made by American companies. EADS said further that it would try to team with a U.S. firm to compete for the contract.
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Blockbuster Sets Bid for Hollywood Video Stores
A bidding war appeared likely for Hollywood Entertainment Corp. as Blockbuster Inc., the biggest player in movie rentals, confirmed that it had offered $700 million for its largest rival.
The bid, which could combine the industry’s two main players, bested a pending offer from Los Angeles-based buyout firm Leonard Green & Partners, which agreed last month to join with the founder of Hollywood Entertainment, Mark J. Wattles, to take the Wilsonville, Ore.-based company private.
That agreement, however, allowed Hollywood Entertainment to solicit other offers. A source close to the bidding said that in recent weeks, a committee including representatives of Hollywood Entertainment investors approached Dallas-based Blockbuster, which offered $11.50 a share -- $1.25 more than Wattles and Leonard Green & Partners had agreed to pay. Wattles said he was not withdrawing his offer.
The deal would give Blockbuster, which has 8,900 outlets around the globe, more than 1,900 more video stores.
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Spitzer Sues California Broker Over Premiums
New York Atty. Gen. Eliot Spitzer accused a California insurance broker of illegally pushing up premiums for thousands of people who bought life and disability coverage through their employers.
Spitzer alleged that Universal Life Resources Inc. of Del Mar forced insurers to boost the prices of the policies and to pass the profits on to ULR.
Spitzer’s state court civil suit also accused ULR of taking payoffs from insurers to steer business to them, the same charge he leveled last month against brokerage behemoth Marsh & McLennan Cos.
However, unlike the Marsh case, in which the alleged victims were primarily large companies, the action against ULR says individuals were directly harmed by having to pay higher prices for life and disability policies.
According to the suit, the overpayments by each individual were small -- $10 for life insurance and $5 for disability insurance -- but the profit for ULR was huge. Of its $25.3 million in revenue last year, $5.6 million came from the extra life and disability fees, the suit said.
An attorney representing ULR said late Friday that he had not yet read the suit and couldn’t comment.
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Wet Seal in Deal With Investors to Stay Afloat
Wet Seal Inc. said it had struck a deal with investors to keep its troubled operations afloat and had hired the head of a Canadian teen retailer to lead a new turnaround effort.
The company, based in Foothill Ranch in Orange County, said the $55.9-million deal, which analysts said would stave off a bankruptcy filing, was with a group of investors led by S.A.C. Capital Associates.
Peter Whitford resigned as chairman and chief executive at a board meeting Monday “to provide the company the flexibility it needs to implement its business plan,” Wet Seal said. Anne Zehren resigned as a board member Tuesday.
Joseph Deckop, Wet Seal’s executive vice president, was named interim CEO. Henry Winterstern, a Wet Seal director, will become chairman.
Wet Seal had estimated earlier that it would have only $11 million in cash left by the end of its fiscal third quarter.
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Advanced Medical Optics to Acquire Visx
Santa Ana-based Advanced Medical Optics Inc. said that it had agreed to acquire Visx Inc. of Santa Clara, Calif., in a $1.27-billion deal that would allow Advanced Medical to expand its product line to include laser vision correction technologies.
The deal would bring together two companies that hope to capitalize on recent advances in eye care and the demands of an aging population.
Visx, the leading U.S. maker of laser eye surgery gear, won federal approval last year to sell a “wavefront-guided” system for correcting nearsightedness that some believe will fuel growth in the vision correction market. For its part, Advanced Medical Optics received federal approval in September for an implantable contact lens.
Under the terms of the deal, Visx shareholders would receive 0.552 share of Advanced Medical stock and $3.50 in cash for each of their shares. The terms value Visx at $26.93 a share.
The deal has been approved by the boards of both companies. It requires the further approval of both companies’ shareholders and federal antitrust regulators. The companies anticipate that the transaction will close in the first quarter of 2005.
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Top Union Leader Calls for Reform at AFL-CIO
The president of the nation’s largest union called for major reforms in the AFL-CIO and suggested that he would pull out of the federation if the changes weren’t quickly adopted.
“We have spent too much time writing too many reports with too many recommendations that in the end the leaders did not have the courage to adopt,” said Andrew Stern, president of the 1.7-million-member Service Employees International Union.
Stern, an outspoken proponent of a corporate-style consolidation in the labor movement, maintains that the number of national unions should be cut from about 60 to fewer than 20 and that each should be limited to members in its sector. That would make each union stronger, he argues, allowing it to bargain more effectively.
Stern’s threat came at a meeting of about 50 national union presidents, called by AFL-CIO President John J. Sweeney to review labor’s efforts during the presidential campaign.
For a preview of this week’s business news, please see Monday’s Business section.
