TOP STORIES -- Nov. 14-19
Kmart to Acquire Sears in Record Retailing Deal
The owner of the Kmart chain, which came out of bankruptcy protection just 18 months ago, is buying Sears, Roebuck & Co. in an $11-billion deal that would create the nation’s third-largest retail operation.
Under terms of the deal, the combined company would be headed by Kmart Chairman Edward Lampert, a 42-year-old billionaire who also is Sears’ largest single shareholder. The new company would be called Sears Holdings Corp., and Sears Chief Executive Alan J. Lacy would be the CEO.
Several hundred Kmart stores around the United States would be given the Sears name, and shoppers might be able to buy Kenmore appliances and Craftsman tools at Kmart and pick up Martha Stewart sheets and Jaclyn Smith shirts at Sears.
With $58 billion in annual revenue, Sears Holdings would have vast purchasing power to stock more than 3,500 stores.
The acquisition must be approved by antitrust authorities and shareholders.
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California Job Growth Shows Momentum
California employers added more jobs in October than in any month since the technology boom peaked four years ago, the government reported, in a sign that the pace of hiring may finally be matching the state’s improving economic growth.
The state added a net 43,500 nonfarm jobs last month, and the unemployment rate fell to 5.7% from 6% in September, the Employment Development Department said.
Analysts have been expecting California’s employment rolls to rise for months amid improvement in such diverse economic indicators as exports, personal income and taxable sales.
Employment growth was slightly better in more economically diverse Southern California than in Northern California.
According to the payroll survey, business and professional services showed the biggest gain, 16,300. The manufacturing industry grew by 1,500 jobs. But in the government category, payrolls fell by 10,300.
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Disney CEO Eisner Details Firing of Ovitz
Walt Disney Co. Chief Executive Michael Eisner testified in a shareholder lawsuit that former company President Michael Ovitz’s departure came with demands for expensive perks, face-saving statements to the press and double-crosses.
“He would not accept being fired,” Eisner said, later adding: “Nobody has been fired as many times from one job as Mr. Ovitz.”
The lawsuit accuses the company’s board of directors of improperly paying Ovitz a severance package valued at $140 million. Disney directors contend that Ovitz was entitled to the severance because he did not engage in gross negligence or malfeasance.
Both Eisner and Ovitz say the severance package was proper.
Eisner said he was powerless to deprive Ovitz of the cash and stock severance package. The company’s chief lawyer, Sanford Litvack, had concluded Disney could not legally deny Ovitz his severance.
Eisner also testified that he had not been upfront during an appearance on “Larry King Live” in 1996. When King asked Eisner whether he would hire Ovitz again, Eisner answered yes. But on the day that he appeared on the show, Eisner testified, he had told Disney directors that his problems with Ovitz were so dire that he was trying to trade him to rival Sony Pictures Entertainment.
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Mall Owner Proposes Santa Monica Face-Lift
A makeover of the commercial heart of Santa Monica was unveiled last week. The plans would effectively extend the Third Street Promenade while adding a mix of high-rise residential quarters, offices and parkland.
The proposed development by Macerich Co. would change the face of two city blocks now occupied by Santa Monica Place. Macerich believes that if it razed the mall and replaced it with 560,000 square feet of new retail space, it would be much better positioned to soak up some of the Promenade’s popularity.
Santa Monica-based Macerich, one of the biggest shopping center owners in the country, hopes to break ground in 2006. But whether the company can win approval for the project, and how long that process might take, was not clear.
Randy Brant, who is in charge of the development for Macerich, declined to disclose how much the undertaking would cost. Experts said it would clearly run into the hundreds of millions of dollars.
Macerich, which expects to fund the development without public assistance, is scheduled to present its plans to the Santa Monica City Council on Dec. 14.
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Ex- Boeing CFO Pleads Guilty in Pentagon Case
Former Boeing Co. Chief Financial Officer Michael M. Sears pleaded guilty to illegally offering a job to a former top Air Force acquisition official while she was negotiating a military contract with the aerospace giant.
Sears, 57, admitted in a statement that he improperly offered Darleen Druyun a position at Boeing while she was concluding negotiations on a $23-billion Air Force deal to buy 100 aerial refueling tankers from the company.
Sears is scheduled to be sentenced Jan. 21.
Sears pleaded guilty to one count of aiding and abetting illicit employment negotiations in a violation of conflict-of-interest laws. Under his plea agreement, he pledged to cooperate with investigators as they continued their investigation.
Prosecutors have been trying to persuade Sears to agree to a broader plea that the talks he had with Druyun tainted Boeing’s defense contracts and hurt taxpayers. That, in turn, could lead to the cancellation of a number of Boeing projects.
But Sears has balked at making that admission, according to sources familiar with the case.
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Producer Price Index Surges 1.7% in October
Wholesale prices rose in October at their fastest clip in nearly 15 years, the Labor Department said, raising concerns that businesses might finally be gaining the power to pass along increases to consumers.
Paced by soaring food and energy inflation, the producer price index, which measures the cost of goods before they reach store shelves, moved up 1.7% last month. That was nearly three times the 0.6% increase expected by economists and the largest jump since January 1990. The index rose 0.1% in September.
The core rate, excluding volatile energy and food prices, rose 0.3% in October, also much more than the 0.1% that was expected.
The size and scope of the PPI increase sparked worries about whether swelling producer prices soon would translate into higher consumer inflation. That could push up interest rates and possibly throttle an economic recovery that is beginning to regain steam.
In fact, the PPI jump boosted the likelihood that the Federal Reserve would raise its benchmark short-term interest rate another quarter-point, to 2.25%, at its next policy meeting Dec. 14, economists said.
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Gas Co. Owes Huge Refund, Judge Says
Southern California Gas Co. manipulated the natural gas market during California’s 2000-01 energy crisis and should refund more than $28.8 million to customers, a state regulatory judge said.
The California Public Utilities Commission said it turned the findings over to state Atty. Gen. Bill Lockyer, who is investigating Southern California Gas, the nation’s biggest gas utility, and its San Diego-based parent, Sempra Energy. Lockyer spokesman Tom Dresslar said his office planned to “carefully evaluate” the findings, written by PUC Administrative Law Judge Charlotte TerKeurst.
Southern California Gas denied wrongdoing, blasting the so-called proposed decision, which is subject to approval by the five PUC commissioners. The company said that high prices were caused by a “perfect storm” of conditions, including an explosion on a major pipeline bringing gas to California.
The PUC is scheduled to take up the matter Dec. 16.
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Mel Karmazin Follows Howard Stern to Sirius
One month after Sirius Satellite Radio Inc. stole Howard Stern from Viacom Inc.’s Infinity Broadcasting, the company said that it had hired the shock jock’s biggest ally.
Mel Karmazin, Viacom’s former president, is replacing consumer electronics veteran Joseph P. Clayton as chief executive of the nation’s second-ranked satellite radio provider.
Clayton will remain Sirius’ chairman.
The move will reunite Stern with his former boss, who left Viacom in June after a power struggle with Sumner Redstone, the 81-year-old CEO of the nation’s third-largest entertainment giant.
It also puts Karmazin, 61, a widely regarded radio executive, in direct competition with one of his former lieutenants, Leslie Moonves, who became co-president of Viacom after Karmazin’s departure. Moonves is now charged with turning around Infinity, the struggling radio group Karmazin built.
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Hollywood PR Whiz Fired in Power Struggle
Two of Hollywood’s reigning queens of spin, both experts at shielding A-list clients from negative publicity, have found themselves at the center of their own public relations nightmare.
Pat Kingsley, chairwoman and chief executive of publicity firm PMK/HBH, and Leslee Dart, the firm’s New York-based president and a partner, jointly announced in a news release that Dart had been fired.
Dart’s ouster came after the 50-year-old lost an internal power struggle to take control of the agency from Kingsley, 72, who for decades has been considered Hollywood’s most powerful publicist. The firing capped years of tensions between the two, who have worked together since 1983.
“I think Leslee is capable and ready to run a company -- I was just not ready for it to be this one,” Kingsley said in a phone interview.
Some observers said that Dart’s firing signaled that PMK/HBH was increasingly turning away from the movie business in favor of more lucrative corporate clients.
For a preview of this week’s business news, please see Monday’s Business section.
