Tag Archives: Company Coverage
by Liz Hester
Bloomberg Businessweek was out Thursday with an excellent profile of Disney and the acquisition of Lucasfilm and Star Wars. The big takeaway for nerds everywhere is that key members of the original cast are likely to return (maybe):
Here’s creator George Lucas’s slip up:
Asked whether members of the original Star Wars cast will appear in Episode VIIand if he called them before the deal closed to keep them informed, Lucas says, “We had already signed Mark and Carrie and Harrison—or we were pretty much in final stages of negotiation. So I called them to say, ‘Look, this is what’s going on.’ ” He pauses. “Maybe I’m not supposed to say that. I think they want to announce that with some big whoop-de-do, but we were negotiating with them.” Then he adds: “I won’t say whether the negotiations were successful or not.”
Besides the revelation, business reporters should take note of the profile. It’s a well-written analysis of the deal and Disney’s recent success at acquiring iconic businesses and integrating them. The lead anecdote chronicled talks between Lucas and Disney CEO Robert Iger. Here’s Iger’s strategy in a nutshell:
The clandestine talks eventually led to the announcement last October that Disney would pay $4 billion for Lucasfilm, thus putting the Star Wars heroes and villains into the same trove of iconic characters as Iron Man, Buzz Lightyear, and Mickey Mouse. Disney sent excitable Star Wars fans into a frenzy by unveiling a plan to release the long-promised final trilogy starting in 2015. Their enthusiasm reached a crescendo in January when J.J. Abrams, director of the acclaimed 2009 rebooting ofStar Trek, signed on to oversee the first film. “It’s like a dream come true,” gushes Jason Swank, co-host of RebelForce Radio, a weekly podcast.
The deal fit perfectly into Iger’s plan for Disney. He wants to secure the company’s creative and competitive future at a time when consumers are inundated with choices, thanks to a proliferation of cable television networks and the ubiquity of the Internet. “It’s a less forgiving world than it’s ever been,” he says. “Things have to be really great to do well.” Part of Iger’s strategy is to acquire companies that could be described as mini-Disneys such as Pixar and Marvel—reservoirs of franchise-worthy characters that can drive all of Disney’s businesses, from movies and television shows to theme parks, toys, and beyond. Lucas’s needs were more emotional. At 68, he was ready to retire and escape from the imaginary world he created—but he didn’t want anybody to desecrate it.
And it’s Iger’s vision of keeping other acquisitions intact, but expanding their characters and other intellectual property within Disney’s empire that have made him such a success at the helm of Disney.
Iger, however, proved to have a very clear vision. He understood that Disney’s success rested on developing enduring characters. This was a strategy Walt Disney pioneered with Mickey Mouse and Grimm’s Fairy Tales heroines Snow White and Cinderella. More recently, Disney translated The Lion King, a hit animated movie, into a long-running Broadway show. Pirates of the Caribbean, a theme park ride, became a movie series and drove sales of related books and video games.
Iger accelerated that process by making acquisitions. The first was the $7.4 billion purchase of Pixar Animation Studios in 2006. Iger personally negotiated the deal with Steve Jobs, who was then Pixar’s CEO. As part of the deal, Iger kept the creative team, led by John Lasseter, in place and allowed them to continue to operate with a minimum of interference in their headquarters near San Francisco. “Steve and I spent more time negotiating the social issues than we did the economic issues,” Iger says. “He thought maintaining the culture of Pixar was a major ingredient of their creative success. He was right.”
The transaction gave Disney a new source of hit movies. Jobs also became a Disney board member and its largest shareholder. Periodically he would call Iger to say, “Hey, Bob, I saw the movie you just released last night, and it sucked,” Iger recalls. Nevertheless, the Disney CEO says that having Jobs as a friend and adviser was “additive rather than the other way around.”
In 2009, Iger negotiated a similar deal for Disney to buy Marvel Entertainment for $4 billion. Once again, Iger kept the leadership intact: Marvel CEO Isaac Perlmutter and Marvel studio chief Kevin Feige. He thought Disney would profit from their deep knowledge of the superhero movie genre. While the Marvel acquisition didn’t involve a celebrity like Jobs or Lucas, it’s paid off handsomely. Last year, Disney releasedThe Avengers, the first Marvel film it distributed and marketed. The movie grossed $1.5 billion globally, making it the third-most lucrative movie in history. “It was successful beyond belief,” says Jessica Reif Cohen, a media analyst at Bank of America Merrill Lynch (BAC).
The piece is an interesting read full of great stories and details. It’s a great example of a company profile pegged to the latest industry news. Kudos.
by Liz Hester
The New York Times had a piece today by Mary Williams Walsh and Louise Story about companies using tax-exempt bonds to finance projects.
The timing was excellent giving the current debate over corporate tax rates. Here are some of the details.
The last time the nation’s tax code was overhauled, in 1986, Congress tried to end a big corporate giveaway.
But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.
A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of both the Goldman Sachs Group and Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.
In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which last year reported a profit of $26 billion.
At a time when Washington is rent by the politics of taxes and deficits, select companies are enjoying a tax break normally reserved for public works. This style of financing, called “qualified private activity bonds,” saves businesses money, because they can borrow at relatively low interest rates. But those savings come at the expense of American taxpayers, because the interest paid to bondholders is exempt from taxes. What is more, the projects are often structured so companies can avoid paying state sales taxes on new equipment and, at times, avoid local property taxes.
But not all of these projects are bad. The story does point out that American Airlines is using this type of financing to build a new terminal at JFK International Airport.
Some of the subsidized business projects are almost indistinguishable from public works. American Airlines, for instance, another big user of tax-exempt bonds over the last decade, used $1.3 billion of these securities to finance a new terminal at Kennedy International Airport. That terminal is owned by the City of New York; American is the builder, the borrower and a tenant.
The story then goes through some useful background and history of the bonds, how they’ve been used and some of the criticism they’ve received. Here is an example of recent uses of the bonds.
In the years since 1986, Congress had lifted the caps on some states’ or cities’ allotments, often in response to natural disasters and other emergencies.
After the terrorist attacks on the World Trade Center in 2001, for example, Congress approved $8 billion worth of tax-exempt Liberty Bonds, which were in addition to New York State’s normal allotment and could be used to keep companies from moving out of the neighborhood near ground zero. Goldman Sachs used around $1.6 billion of tax-exempt bonds under the program to help pay for its headquarters in Lower Manhattan. In a related program, Goldman agreed to a goal to keep 8,900 jobs in the city but has not met that level for the last three years, according to public records.
A spokesman for Goldman Sachs did not dispute that its jobs levels have been below 8,900 but said the bank was meeting its obligations.
The Liberty Bond program allowed for a limited amount of tax-exempt financing for projects beyond Lower Manhattan. That’s how One Bryant Park L.L.C. was able to use $650 million of tax-exempt bonds to build the Bank of America Tower in Midtown.
The story ends with examples of several overseas companies getting financing through this measure. I think it could have been slightly more balanced, possibly pulling out more than one example of a bond deal that was used to benefit the public like the new terminal at JFK.
But in the end, the story serves an important purpose by pointing out the public another way large companies and sophisticated investors are benefiting from government programs.
What the story could have used is someone pointing out the jobs created, the economic boost these projects bring and some of the other benefits that come with new construction projects. With the nation’s unemployment rate still fairly high and government spending taking a drastic cut, we just may need more of these types of public/private deals.
by Liz Hester
When Yahoo’s new CEO Marissa Mayer banned working from home at the company, everyone from working moms to Richard Branson piled on saying the decision was a terrible one. The resulting debate and coverage from news organizations around the country makes for interesting reading.
It seems that nearly everyone has an opinion on the matter, so let’s look at a few.
First, there was the New York Times columnist Maureen Dowd, who writes that while Mayer had to make a tough decision, her money and ability to build a nursery next to her office made life easier for her.
It flies in the face of tech companies’ success in creating a cloud office rather than a conventional one. Mayer’s friend Sheryl Sandberg of Facebook wrote in her new feminist manifesto, “Lean In: Women, Work, and the Will to Lead,” that technology could revolutionize women’s lives by “changing the emphasis on strict office hours since so much work can be conducted online.”
She added that “the traditional practice of judging employees by face time rather than results unfortunately persists” when it would be more efficient to focus on results.
Many women were appalled at the Yahoo news, noting that Mayer, with her penthouse atop the San Francisco Four Seasons, her Oscar de la Rentas and her $117 million five-year contract, seems oblivious to the fact that for many of her less-privileged sisters with young children, telecommuting is a lifeline to a manageable life.
The dictatorial decree to work “side by side” had some dubbing Mayer not “the Steinem of Silicon Valley” but “the Stalin of Silicon Valley.”
Mayer and Sandberg are in an elite cocoon and in USA Today, Joanne Bamberger fretted that they are “setting back the cause of working mothers.” She wrote that Sandberg’s exhortation for “women to pull themselves up by the Louboutin straps” is damaging, as is “Mayer’s office-only work proclamation that sends us back to the pre-Internet era of power suits with floppy bow ties.”
Counter to that point was a CBS commentator:
CBS News contributor and analyst Mellody Hobson said Yahoo CEO Marissa Mayer has “a real turnaround on her hands,” and said the new edict is “smart,” not “ruthless.”
“She’s looking at the situation saying ‘I need innovation to change this company.’ And ones of the things that drives innovation is collaboration. People working next to each other, shoulder to shoulder, coming up with ideas,” Hobson explained Tuesday on “CBS This Morning.”
“She’s saying you can’t build a culture via email,” Hobson said of Mayer’s effort to bolster the Yahoo community. “She needs these people in the office.”
Hobson went on to address common misconceptions about telecommuters, saying “The average person who telecommutes is a 40-year-old male. We think of it as a stay-at-home mom,” she said, but added that that is only one type of telecommuter.
A Boston Globe piece by Deborah Kotz invoked a new study showing that working from home increased productivity, but may ultimately hamper your ability to be promoted.
The Stanford University study of 249 call center workers at a Chinese travel agency found that those who were randomly selected to work from home four days a week for nine months — after they volunteered to do so — experienced a 13 percent increase in their work performance.
The improvement came mainly from a 9 percent increase in the number of minutes worked during their shifts due to a reduction in breaks and sick-days taken. The remaining 4 percent came from an increase in the number of calls home workers took per minute worked, compared with those in the control group who weren’t selected to work at home.
Home workers also had more job satisfaction and were also less likely to quit their positions during the study. And the company saved about $2,000 per year for each employee who worked at home. (Reduced costs is one of the reasons federal agencies such as the National Institutes of Health have strongly encouraged employees to work at home at least one day each week.)
Despite all of these work gains, however, the study also found an important downside to working at home: It reduced rates of promotion by 50 percent when measured against job performance. While those who worked at home had about the same number of promotions as those who worked on site, they should have had more considering how much extra work they performed.
No matter how you feel about the situation, Businessweek points out that Mayer’s decision is getting more attention because she’s the female head of a technology company, many of which are known for flexible work policies.
The tiny sisterhood of women CEOs who have made it to the top of technology companies (and non-tech companies for that matter) can attest to the difficulty of running a huge corporation when even the most banal strategic move is picked apart so obsessively. Carol Bartz, the former head of Yahoo and Autodesk (ADSK), enjoyed similar treatment while she was CEO of Yahoo, most notably inviting ridicule for her un-ladylike habit of dropping the f-bomb. Carly Fiorina, the chief executive of Hewlett-Packard (HPQ) from 1999 to 2005, confronted constant peanut-gallery analysis of her hair and her mannerisms by a business press that both glorified her and tore her down. Like Mayer, these women were trying to turn around complicated companies badly in need of new ideas.
No one knows whether the decision to require all Yahoo employees to work in an office will prove to be positive or negative for the company; it may be personally disastrous for some of the individuals affected and the best thing that ever happened to others. But if one of the hundreds of men running American companies had made a similar move, it’s unlikely that anyone would have even noticed.
by Liz Hester
Wednesday wasn’t the best day for tech darlings Apple Inc. and Groupon Inc. Apple was hammered by investors, and Groupon was hammered by investors.
Here’s the story from Reuters:
Apple Inc CEO Tim Cook on Wednesday acknowledged widespread disappointment in the company’s sagging share price but shared few details about its secretive product pipeline and touched only briefly on a raging debate about how best to reward shareholders.
The world’s most valuable technology company headed into its annual shareholders’ meeting at its headquarters on shakier ground than it has been accustomed to in years, since the iPhone and iPad helped vault the company to premier investment status.
A declining share price has lent weight to Wall Street’s demand that it share more of its $137 billion in cash and securities pile – equivalent to Hungary’s Gross Domestic Product, and growing – a debate now spearheaded by outspoken hedge fund manager David Einhorn.
Einhorn was not spotted at the meeting at the company’s headquarters at 1 Infinite Loop in Cupertino. Cook repeated that the company’s board remained in “very very active” discussions about options for cash sharing, and said he shared investors’ dissatisfaction over the stock price.
“I don’t like it either. The board doesn’t like it. The management team doesn’t like it,” Cook told investors.
“What we are focused on is the long term. This has always been a secret of Apple.”
By focusing on the long term, revenue and profit will follow, he said.
Here are a few more examples from the Wall Street Journal:
There was little discussion about the issue that had emerged as a particularly hot topic before the meeting: Apple’s $137 billion cash hoard.
Hedge fund manager David Einhorn had been rallying Apple shareholders to vote against a company proposal related to how it could issue preferred stock. He opposed the proposal because he argued it would make it harder for the company to implement an idea he has been pushing for returning cash to shareholders.
Apple pulled that measure after a judge sided with Mr. Einhorn, who sued to stop it on grounds the proposal was improperly bundled with other items. Apple’s general counsel, Bruce Sewell, said Wednesday the company was “committed” to reviving the issue.
Mr. Cook volunteered that the company was in “very, very active discussions” about what to do about its growing stockpile, similar to remarks made earlier this month.
That wasn’t enough to satisfy some shareholders. New York State Comptroller Thomas DiNapoli, who oversees the New York State Common Retirement Fund, said “we were disappointed” that Apple didn’t offer a plan to deliver cash to shareholders. The fund owns about $1.3 billion worth of Apple stock.
At the annual meeting, Mark Zuercher, a retired transportation executive from Orinda, Calif., said he was “disappointed” and expected Mr. Cook might say more. “It was more of the same,” Mr. Zuercher said. He plans to hold onto his shares for now, declining to comment on the size of his stake.
Bloomberg also led with investors taking Cook to task for his use of company cash piles:
Apple shares slipped after Cook ended the company’s annual shareholder meeting without giving any additional insight on what he’ll do with $137.1 billion in cash and investments. Shareholders re-elected the board, approved Ernst & Young LLP as accountant and passed a non-binding measure on executive pay.
Cook is under growing pressure to use higher dividends, stock buybacks or a new class of preferred shares to compensate investors after Apple’s stock tumbled by more than a third from a September peak. The calls grew louder amid signs of slowing sales and profit growth and increasingly acute competition fromSamsung Electronics Co. (005930) and Google Inc. (GOOG)
Groupon also had a tough day in the stock market after disappointing outlook. Here’s the Reuters story:
Groupon Inc lost almost a quarter of its market value on Wednesday after the company began to take a smaller cut of revenue on daily deals, sacrificing revenue and profits to attract and keep merchants.
“This raises questions about how these guys are going to be able to scale the business,” said Tom White, an analyst at Macquarie. “The forecast is underwhelming.”
Groupon shares fell 22 percent to $4.65 in after hours trading on Wednesday.
The Chicago-based company started sharing more money from its deals with merchants early in the fourth quarter to persuade them to run an offer for the first time or work on another offer.
That dented revenue and profit in the fourth quarter, Chief Financial Officer Jason Child said in an interview.
“We are focused on driving growth,” he said. “We will make the investments we feel we need to optimize for growth and merchant profitability.”
Looks like investors in both of these companies will have to wait a little longer to see returns.
by Liz Hester
I’ve been a fan of Adam Davidson of NPR’s Planet Money for a long time. His work is smart and I always enjoy reading his column in the New York Times magazine. And this week’s column is no exception.
It’s all about how Justice Department economists are using game theory to contest Anheuser-Busch InBev’s purchase of the rest of Grupo Modelo. Here are some details:
So I was surprised to learn that the Justice Department is worried that Anheuser-Busch InBev, the conglomerate that owns Bud, is on the cusp of becoming an abusive monopoly. In January, the department sued AB InBev to prevent it from buying the rest of Mexico’s Grupo Modelo, a company in which it already carries a 50 percent stake. The case is not built on any leaked documents about some secret plan to abuse market power and raise prices. Instead, it’s based on the work of Justice Department economists who, using game theory and complex forecasting models, are able to predict what an even bigger AB InBev will do. Their analysis suggests that the firm, regardless of who is running it, will inevitably break the law.
For decades, they argue, Anheuser-Busch has been employing what game theorists call a “trigger strategy,” something like the beer equivalent of the Mutually Assured Destruction Doctrine. Anheuser-Busch signals to its competitors that if they lower their prices, it will start a vicious retail war. In 1988, Miller and Coors lowered prices on their flagship beers, which led Anheuser-Busch to slash the price of Bud and its other brands in key markets.
And, as Davidson writes, this is completely legal.
Since that dust-up in the late ’80s, the huge American beer makers have moved in tandem to keep prices well above what classical economics would predict. (According to the logic of supply and demand, competing beer makers should pursue market share by lowering prices to just above the cost of production, or a few cents per bottle.) Budweiser’s trigger strategy has been thwarted, though, by what game theorists call a “rogue player.” When Bud and Coors raise their prices, Grupo Modelo’s Corona does not. (As an imported beer, Corona is also considered to have a higher value.) And so, according to the Justice Department, AB InBev wants to buy Grupo Modelo not because it thinks the company makes great beer, or because it covets Corona’s 7 percent U.S. market share, but because owning Corona would allow AB InBev to raise prices across all of its brands. And if the company could raise prices by, say, 3 percent, it would earn around $1 billion more in profit every year. Imagine the possibilities. The Justice Department already has.
This column is smart for many reasons, especially because Davidson found a new way to analyze these big mergers that have recently been announced. Companies from airlines to office supply retailers are announcing mergers and will have to be scrutinized by the Justice Department. But Davidson says it better:
These firms are among the many preparing for a global market several times larger than any that has ever existed. This helps explain why we have seen so many mergers in the past few months. The Justice Department recently approved the marriage of Penguin and Random House, and is expected to do the same with American Airlines and US Airways. Office Depot and OfficeMax are planning a merger of their own. These megamergers, however, do not inevitably create destructive monopolies. Carl Shapiro, the former chief economist at the Justice Department, told me that large mergers improve competition. Together, Penguin and Random House may be able to better stave off Amazon; American Airlines and US Airways can contend with Delta. Similarly, Office Depot and OfficeMax, once merged, may finally be large enough to really scare Staples. Fear, Shapiro says, is the key. Markets work best, he says, when “everyone has to watch their back.”
Either way, other reporters should take note of Davidson’s observations. Economists at the Justice Department might make great sources and they could hold the key to many mergers going forward.
Although, Davidson’s final argument is that the Justice Department might not hold sway for long. Some countries could be making moves to block competition.
China’s National People’s Congress approved its first antimonopoly law in 2008, which, many economists fear, could be used to block foreign competitors and to promote local giants. India’s version, which went into effect in 2009, is even less clear. It’s quite possible that the true monopolistic battles of the 21st century will not be among massive corporations but among the self-interested governments. We can only hope that they don’t engage in a trigger strategy of their own.
Either way, it’s an interesting take on the new round of merger news.
by Liz Hester
The New York Times ran an interesting story Monday about the merger of Time Inc. and Meredith Corp. The basic premise of the story is that Meredith is the good, frugal, honest Midwest firm while Time is the greedy, bloated and wasteful New York publishing giant.
Without actually coming out and saying it, the prediction is that the culture clashes will be too great for the combined firm to succeed.
Here are a few excerpts from the story:
Meredith’s headquarters in Des Moines have an open floor plan; the executives have their offices on the first floor and favor early-morning meetings. A recent lunch at one of Meredith’s magazines featured kale salad and rosemary-infused cucumber lemonade. Time executives tend toward lunches at Michael’s, where the dry-aged steak is a highlight, and after-work cocktails at the Lamb’s Club.
And then there are the postrecessionary approaches to travel: Meredith’s chief executive turned its corporate jets into shuttles with open seating, while Time still allows staff members to expense hotel rooms at the Four Seasons.
“It’s like the Yankees’ farm team taking over the Yankees,” according to a current Time Inc. executive who, like many who talked about the merger, declined to be identified while criticizing bosses or potential bosses.
The merger news appears to be more troubling to employees at the long revered Time Inc., whose lucrative titles like People and InStyle have been essentially sold off by Time Warner and are likely to be overseen by Meredith’s chief executive, Stephen M. Lacy. Time Inc. employees have made cracks about Des Moines and shared more sobering fears about the merger.
While Time executives privately characterized Meredith executives in the past week as being cheap on everything from compensation to their magazines’ spending on paper stock, former Meredith executives say the company merely spends wisely.
While public filings do not reveal the salary of Time Inc.’s chief executive, Laura Lang, Mr. Lacy makes an annual base salary of $950,000 as Meredith’s chief and has total compensation of $5.8 million including stock awards. Mr. Griffin said that when he worked at Meredith, the company focused aggressively on spending judiciously and weathering the recession.
“There’s a difference between spending and investing, and Meredith has aggressively invested,” Mr. Griffin said. “There really is a sense we’re all in this together.”
Time, which its former executive Ed McCarrick described as “the Harvard of the publishing business,” has followed a very different trajectory. Nancy Williamson, who worked for the company from 1959 to 1989 at Sports Illustrated, Time and People, described how the company evolved from a news organization investing in serious journalism to a much fatter company.
“Greed came to the company in the ’90s,” she said. “It was just a huge company: huge bonuses, huge salaries, stock shares for the big guy, not the little guy.”
Jim Kelly, a former Time Inc. executive, stressed that the company had tried to address its costs for years and added that “Time has had more restructurings than Angelina Jolie has tattoos.”
There were some parts of the story that were critical of Meredith, such as this one, but it still shifted back to a positive spin.
In recent years, Meredith has actually fared worse than Time in terms of advertising pages for its monthly titles. Craig Huber, an independent research analyst with Huber Research Partners, noted that Meredith performed better during the recession, then dropped off relative to its competition as the economy improved. But he added that Meredith has continued to expand its magazine business while Time Warner shifted its focus elsewhere.
“Meredith has been willing to invest in small acquisitions that Time Warner has been trying to get out of,” he said. “Time Warner is focused on the rest of their business, all of their entertainment business, whereas Meredith only has magazines and TV stations.”
Meredith has also focused on bringing in new sources of revenue from events and custom publishing around their magazine titles, according to Reed Phillips, a managing partner for DeSilva & Phillips, a media banking firm. He said that Mr. Bewkes believed that “under Meredith’s management, with their ability to monetize marketing services for the Time Inc. magazines,” the magazines would be “better off and more profitable.”
While I appreciate the idea and the sentiment behind the story, I think it could have been a little more balanced.
The deal is happening, and it seems that there must be something good about Time Inc. I just had a hard time finding it in this story.
by Liz Hester
The Standard & Poor’s story just keeps on giving. Just when you think it’s about to wind down, there are more twists and turns to be reported.
Here’s the Wall Street Journal story from Jeannette Neumann:
As ammunition against Standard & Poor’s Ratings Services, the Justice Department packed its fraud lawsuit with vivid details about more than 25 employees who allegedly put triple-A ratings on shaky bundles of subprime mortgages—or dithered on downgrading the securities as the housing market was collapsing.
David Tesher, an S&P managing director in charge of one of the firm’s two collateralized-debt-obligation groups, let analysts who reported to him put the highest possible ratings on deals S&P “knew did not accurately reflect the true credit risks,” the U.S. government alleged in the suit filed Feb. 4.
When a different group of analysts warned that more and more borrowers were falling behind on their payments, Mr. Tesher didn’t tell his analysts, federal prosecutors claim. They put his name in the 128-page lawsuit a total of 59 times.
Mr. Tesher, who couldn’t be reached for comment, now is a managing director in the part of S&P that analyzes the ability of companies to repay their debts.
The Justice Department identified five S&P executives, including Mr. Tesher, in the lawsuit, as it seeks to make S&P, a unit of McGraw-Hill Cos. pay more than $5 billion for giving its seal of approval from 2004 to 2007 on deals that caused steep losses at federally insured banks and credit unions that bought securities rated by the firm.
Yep, that’s right. The guy named nearly 60 times in a lawsuit now works in the division that rates companies for safety and soundness. And there’s more.
The suit also refers to 17 unnamed employees, ranging from “Senior Executive A” to “Analyst F.” There also are several people referred to simply as “analysts.” One of them, Shannon Mooney, wrote in a 2007 instant message to another analyst that a CDO “could be structured by cows and we would rate it.”
The “cows” message appears in both the lawsuit and in a 2011 Senate report about the financial crisis in which Senate investigators identify Ms. Mooney as the sender.
Ms. Mooney now rates different kinds of structured-finance deals, and her name appears on recent S&P research reports. She couldn’t be reached for comment.
An S&P spokesman wouldn’t confirm or deny specifics, saying the firm doesn’t publicly discuss personnel matters.
The spokesman reiterated S&P’s previous denial of the government’s allegations. S&P has said prosecutors “cherry picked” emails and other documents, while ignoring millions of records that counter the accusations.
“Cherry picked” or not, it still doesn’t look great for the agency. It also brings up questions about why the rating agencies are around and why people continue to rely on their opinions. Here’s more:
Of the more than 25 employees included in the U.S.’s lawsuit, at least 10 remain at S&P, though their duties have changed since the financial crisis.
The Wall Street Journal determined their identities and job status by reviewing S&P research reports, court filings and the Senate report, and through interviews with former and current employees.
No individuals have been named as defendants by federal prosecutors or 16 state attorneys general who have filed suits against S&P. In other crisis-related lawsuits, regulators seldom have brought charges against executives or other employees at companies accused of wrongdoing.
S&P says it has spent about $400 million since 2007 to strengthen compliance, train analysts and revamp its rating standards. Those moves have made it harder for bond issuers to get triple-A ratings from S&P, the spokesman added.
“We have taken to heart the lessons learned from the financial crisis and made extensive changes that reinforce the integrity, independence and performance of our ratings,” S&P President Doug Peterson told analysts and investors earlier this month. He took over as S&P’s top executive in September 2011.
It might be harder for companies to get the highest rating, but apparently it’s not that hard to keep your job at S&P. This story is an excellent piece of journalism. It also continues to call into question the level of trust people should put into their work.
by Chris Roush
Pendola writes, “I never agree. In fact, I argue pretty much the opposite. CNBC — and TheStreet, for that matter — don’t really care one way or the other, as collective organizations, if Apple succeeds or fails. We just want them — and others as well — to be around forever and always.
“As individuals within these organizations, we all have our opinions. Some express them on the air and in print more than others, but they are opinions. And if we didn’t have them and our employers prohibited us from expressing them, all of our lives — including yours — would be a heck of a lot more boring.
“The ‘CNBC hates Apple’ conspiracy theorists have probably never worked in the media; have never talked to a television producer, an anchor, reporter or financial writer; have never done much beyond what we all have done vis-a-vis professional sports … screamed from the stands about what a wuss Ron Duguay was, or what a pretty boy Tom Brady is. (For the record, I like both men quite a bit.)
“And that’s not a slight, but when you call somebody’s integrity into question, you better darn well have either been in their shoes or talked to them about what it means, day-to-day, to walk their miles.
“I visited the CNBC ‘Squawk on the Street’ set last week on the floor of the New York Stock Exchange. During the breaks, Carl Quintanilla and Melissa Lee were not hatching another component of Melissa’s grand plan to take Apple down … because she doesn’t have one!“
Read more here.
by Adam Levy
The gloves came off last week after the New York Times hammered Tesla Motors’ Model S car in an article.
Tesla Chairman and CEO Elon Musk used data logged by the car to conduct a point-to-point rebuttal of the negative review.
The donnybrook was, if not enjoyable, unusual. Rarely does a CEO go to such lengths to rebut an article. But, this isn’t the first time for Musk who sued the UK TV show “Top Gear” after a segment a couple of years ago.
A couple of lessons for companies and their PR people jumped out at me.
First, do your homework before agreeing to an interview/meeting.
Here’s a snippet from Musk’s response. “We assumed that the reporter would be fair and impartial, as has been our experience with The New York Times, an organization that prides itself on journalistic integrity. As a result, we did not think to read his past articles and were unaware of his outright disdain for electric cars.”
I get the swipe at the reporter, but why would a company not do basic research? How complicated is it to search for clips to see what this reporter has covered in the past and whether there is a putative bias? If a reporter has even the whiff of an agenda I would advise any of my clients to avoid siting down to chat with him or her, whether on- or off-the-record. And I wouldn’t go out of my way to provide access to the product to him or her either.
Second, reporters should never have an agenda. I’m not suggesting that John Broder had one. He is, in years of reading him, a terrific journalist. But the lesson here is broader than who is right in this circumstance. If you cover a company, you need to have an open mind, and keep it through the course of your coverage.
I recognize that columnists need to opine – that’s what they do. When I read a car review I want to know if the ride is stiff, or if the motor purrs like a kitten (or whatever cars are supposed to do). But it’s a real disservice to readers if that review is biased by a bad experience in the past or a predetermined opinion. I don’t want your bias to become my bias; I want your informed opinion to set the stage for mine.
Finally, pick your battles. If you do have an agenda, or are you’re a litigious company, you need to check out your target before you engage in battle. I don’t see how either side “wins” here. Musk’s posting appeared pretty damning and then the Times responded methodically to each of his detailed assertions.
I think they both lose. A few months (weeks) from now, I won’t remember the details of the argument – but I’ll think a little less of each side.
by Liz Hester
My first thought when I heard the news that Marker’s Mark was planning to reduce the alcohol content of it’s famous bourbon was, “If I wanted to dilute my bourbon, I’d put ice in it myself.”
My second thought was, “Now I have to find another go-to bourbon to order when I’m out.”
I wouldn’t call myself a bourbon nerd, but I do know a thing or two about bourbon and how it’s made. And I’ve always liked Maker’s Mark. Most bars stock it and it makes a nice Manhattan. I’ve got some more obscure labels at home, but that’s the one I order when I’m not trying to think too hard.
The Washington Post blogged about the rise in demand for Maker’s Mark and how it happened.
One of the tricky things about making and selling good whiskey is that it takes time; Maker’s is a blend that is around six years old. Which means that the fine people at the Maker’s Mark distillery in Loretto, Ky., and their corporate overlords at what is now called Beam Inc. were having to make decisions back in 2007 that determined how much Maker’s Mark they have to sell now.
And, it would seem, they guessed wrong. They didn’t properly foresee the booming worldwide demand for the supple, nectar-like perfection of Maker’s. Sales of the bourbon rose 14 percent in 2011 and 15 percent in 2012. This is part of a broader trend: Some 16.9 million cases of Kentucky and Tennessee whiskey were shipped in 2012, according to the Distilled Spirits Council, up from 14.9 million cases in 2007; the revenue earned on that whiskey soared more than 28 percent in that span.
That is normally a problem — too much demand for a product — that a company loves to have. The simple answer to that problem would be to raise prices to whatever level will make the market clear. Maker’s didn’t do that, and the result was predictable: Shortages of the bourbon in some markets.
The problem is that Beam Inc., the parent company of Maker’s Mark, has crafted a role for Maker’s as one of its “power brands,” along with the likes of Jim Beam bourbon, Sauza tequila and Courvoisier cognac. It is supposed to be one of the major drivers of the company’s sales, a standard that can be found at every decent bar in the world (or, as Beam Inc. puts it in its annual report, the power brands are “our core brand equities, with global reach in premium categories and large annual sales volume”).
Here was the reasoning behind the decision from the Associated Press.
The change in recipe started with a shortage of the bourbon amid an ongoing expansion of the company’s operations that cost tens of millions of dollars.
Maker’s Mark Chairman Emeritus Bill Samuels, the founder’s son, said the company focused almost exclusively on not altering the taste of the bourbon while stretching the available product and didn’t consider the emotional attachment that customers have to the brand and its composition.
Bill Samuels said the company tinkered with how much water to add and keep the taste the same for about three months before making the announcement about the change last week. It marked the first time the bourbon brand, more than a half-century old, had altered its proof or alcohol volume.
“Our focus was on the supply problem. That led to us focusing on a solution,” Bill Samuels said. “We got it totally wrong.”
Apparently, I’m not the only one who was upset. The backlash after the Kentucky distiller announced it was going to cut its alcohol content to meet increased demand was swift. The AP again:
Both Bill and Rob Samuels said customer reaction was immediate. Company officials heard from “thousands and thousands of consumers” that a bourbon shortage was preferable to a change in how the spirits were made, Bill Samuels said.
But many in the PR industry are now calling Maker’s Mark’s reaction to the backlash a lesson in how to handle a bad decision. They issued an apology via Facebook, Twitter and their website. A Forbes commentator had this to say:
Of course the reversal was primarily a business decision, but this apology is heartfelt and nicely done. Maker’s Mark’s leaders are human, they made a bad decision, and they’re going to make it right. It’s that simple. They didn’t defend their motives or sneak in any excessive marketing. They didn’t even try compromising to cut the difference. Instead, they acknowledged that they let down their customers and promised to return to the original recipe—even if that means more shortages. The letter reminds fans that Maker’s Mark is still a family business, and including their direct email addresses is a meaningful gesture in itself.
We can’t always predict our customers’ feelings, and when we get something wrong, they have every right to tell us they’re mad. The way we respond to angry customers says a lot about our brand, and Maker’s Mark was listening. This sort of transparency goes a long way with customers.
But it still doesn’t solve the underlying problem, according to the Washington Post.
Most companies would simply raise the price of Maker’s until the market cleared. But Beam Inc. depends on Maker’s Mark to be one of its mainstay products — and if it raised the price too quickly, it could lose that status. Many higher-end bars now use Maker’s Mark as their standard go-to bourbon for mixed drinks, and at many mid-tier places it is their standard premium option. If the price of Maker’s gets too out of whack with other bourbons of similar quality, they might rethink that practice and turn to less pricey options. I’ve already noticed a growing number of bars in D.C. using Bulleit bourbon, a bit cheaper and rougher on the finish than Maker’s, as their standard bourbon when making a Manhattan or Old Fashioned.
And if that kind of change happened on a large enough scale, it could cost Maker’s its status as that go-to powerhouse brand that helps underpin a company that sold $3.1 billion worth of liquor last year.
So you can see why it might have been a little wary about raising prices further. It also doesn’t do if you have a “power brand” that people can’t get hold of. Hence, the decision last week, now reversed, to reduce Maker’s Mark from 90 proof to 84 proof (or 45 percent alcohol to 42 percent alcohol). It would stretch the company’s existing supply of bourbon further without either increasing prices or having shortages.
So what now? The underlying problem is still there. And now it’s decision time for Maker’s Mark and Beam Inc. Are they really going to allow there to be shortages of Maker’s at times, meaning that they would be essentially charging a below-market price? Are they going to hike price and risk Maker’s status as a go-to mass market bourbon brand? Or are they going to find other, sneakier ways to get more supply of whiskey that is less blatant than diluting it, such as introducing even younger whiskey into the blend
Either way, I for one, am happy they’re going to leave a time-tested product alone so that I can continue to enjoy a proper Manhattan.