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THE EVENING WRAP
February 14, 2005 -- 5:03 p.m. EST
The telecommunications industry continued its steady consolidation as MCI agreed to be purchased by Verizon for $6.75 billion.
More Wedding Bells
By MARK GONGLOFF
THE WALL STREET JOURNAL ONLINE
The telecommunications industry continued its steady consolidation as MCI agreed to be purchased by Verizon for $6.75 billion.
MCI, the long-distance provider formerly known as WorldCom, took Verizon's offer, even though it was lower than one previously made by Qwest, a smaller regional phone company. Qwest had offered more than $7 billion, but MCI shareholders considered Verizon's financial condition more solid. The deal is a sort of triumph for MCI, which not long ago emerged from bankruptcy after former executives committed some $11 billion in accounting fraud, the biggest in corporate history. But investors were disappointed that MCI didn't win a more lucrative merger deal, and its shares fell nearly 4%. Shares of spurned suitor Qwest fell nearly 4%.
The apparent winner in the deal was Verizon, which bought itself a passel of business customers, helping it keep pace with competitor SBC, which recently bought AT&T to bolster its own business portfolio. "It enables Verizon to more aggressively address the enterprise market, in which it had less traction than SBC," Prudential Equity analyst Christopher Larson wrote in a note. Other analysts, though, were less than enthused about buying into Verizon, some saying SBC still had an edge and others saying Verizon's shares weren't cheap. They fell slightly today.
Some indicated that customers will be the clear losers because of shrinking competition. "Pricing pressure in the enterprise market will likely increase as the carriers now control access in roughly two-thirds of the U.S.," UBS analyst John Hodulik wrote in a note -- good news for carriers, not so great news for businesses that need services. Independent long-distance service is now nonexistent, and there are suddenly just five large players in the industry, each offering the same broad array of services to both consumers and businesses. Of those three, Verizon, SBC and the company that will be formed by the Sprint-Nextel merger will dwarf the other two, BellSouth and Qwest, in annual sales. Ma Bell and her seven Babies, created with the break-up of AT&T in 1984, have re-coalesced into just four big firms: Verizon, SBC, BellSouth and Qwest. A wave of mergers in the wireless industry has resulted in a big three of Cingular (owned jointly by SBC and BellSouth), Verizon Wireless and Sprint-Nextel.
AIG Gets More Subpoenas
New York Attorney General Eliot Spitzer and the Securities and Exchange Commission served insurance giant American International Group with subpoenas last week, looking for information about "nontraditional insurance products and certain assumed reinsurance transactions and AIG's accounting for such transactions." The subpoenas were delivered just after AIG finished telling shareholders and analysts that an internal probe had revealed no wrongdoing in the company, aside from the alleged bid-rigging activity that led to guilty pleas by two former AIG executives last year. AIG was implicated, but not charged, in a wide-ranging probe by Mr. Spitzer and other regulators into industry practices, including allegations that insurance companies had paid insurance brokers kickbacks to steer clients their way. Without admitting or denying wrongdoing, AIG also settled a separate investigation last year into charges that it had helped two clients pretty up their earnings with some unusual insurance services that functioned more as loans. AIG's shares, which had grown back from a steep haircut last fall, lost more than 2% today.
Stocks Aimless
U.S. stocks struggled to find direction. The latest leg of the roller-coaster ride of Dow component AIG helped pull the Dow down some 5 points, with about 603 million shares trading on the Big Board. The S&P 500 rose less than a point. The technology-heavy Nasdaq rose about 6 points. Google shares jumped more than 2% on the last day of the post-IPO lock-up period for some 177 million shares owned by company insiders. Crude-oil futures edged higher on the New York Mercantile Exchange. Treasury bond prices inched up, keeping interest rates low. The dollar fell against the euro and the Japanese yen. Major European markets were mixed, while major Asian markets rose.
Former Lebanese Premier Dies in Blast
After years of relative calm, Beirut was shattered this morning by a massive explosion that took the life of Lebanon's former prime minister, Rafik Hariri, killed nine other people and wounded a hundred more. No one credibly claimed responsibility for the bombing, and it was not clear what anybody would have had to gain from it. Mr. Hariri had led Lebanon since the 1990 end of its 15-year civil war, but resigned last year after a dispute with Syria. He had since called for the removal from Lebanon of Syrian troops, which have occupied part of the country since 1976. But Syria's president called the blast a "criminal action," and its government argued that unknown groups were trying to worsen relations between Lebanon and Syria. The U.S. has condemned Syria's continuing influence in Lebanon.
Three explosions in the Philippines, including one that blew up a bus in Manila, killed 11 people and injured about 130 more. A militant rebel group associated with al Qaeda claimed responsibility for two of the attacks, and officials said they believed they the group was also responsible for the third.
More Pentagon Contracts Under Scrutiny
The Pentagon announced an investigation of eight more contracts between the Air Force and various firms, including Boeing, Lockheed Martin and Andersen Consulting. The Pentagon said the contracts, worth about $3 billion in total, were influenced in one way or another by Darleen Druyun, a former top Air Force weapons procurement official. Ms. Druyun was recently sentenced to prison after pleading guilty to charges that she'd awarded government work to Boeing, including a $23.5 billion order for aerial refueling tankers, while seeking work with the firm. Former Boeing executive Michael Sears is scheduled to be sentenced later this week for improperly giving Ms. Druyun a job. The Pentagon cautioned that it was still too early to tell whether there was really any wrongdoing involved in the new contracts under scrutiny. Boeing's shares were little changed.
OfficeMax CEO Resigns
OfficeMax said its CEO had resigned, and it announced the firing of two more employees amid an internal probe of its accounting. The office-products retailer also said it overstated earnings for the first quarter of fiscal 2004 by $5 million to $10 million and understated income in the second and third quarters. For good measure, the company also slashed its forecast for operating income for the full year. OfficeMax shares fell nearly 6%. Last month, the company's chief financial officer resigned after just two months on the job, and four other employees were fired. The internal probe involves a claim by an unknown vendor that OfficeMax employees had falsified bills of about $3.3 million. The company said it would end its investigation later this month.
Nokia, Microsoft in Sudden Thaw
Nokia and Microsoft said they were working together to develop a way for customers to transfer music, e-mail and address books from their computers to their Nokia phones. It was an abrupt truce to what had been a somewhat heated battle; Nokia, the world's biggest cell-phone maker, had long been a vocal agitator against Microsoft's efforts to apply its software to cellphones. Last year, Nokia competitor Motorola teamed up with Apple to let customers play iTunes on Motorola phones.
VW Profit Drops
Volkswagen AG said it earned 677 million euro ($871.2 million), or 1.75 euro a share, in 2004, down 31% from the prior year. Sales rose 4.9% to 88.96 billion euro. Europe's biggest auto maker had the weakening dollar to thank for its troubles, as the greenback fell sharply against the unified currency last year, hurting many European exporters. But VW said it would keep its dividend unchanged, a move that may please shareholders but will erase much of the company's profit. VW has been trying to cut costs amid tightening competition, and investors may be liking what they see; the company's shares have jumped some 14% so far this year.
Sullivan Cross-Exam Delayed
The judge in the fraud trial of former WorldCom CEO Bernard Ebbers delayed until Wednesday the defense's cross-examination of former CFO Scott Sullivan. Mr. Sullivan, who has pleaded guilty to participating in the biggest accounting fraud in U.S. corporate history, ended about four days of direct testimony today. Without explanation, the judge said cross-examination wouldn't begin until Wednesday. Mr. Sullivan has accused Mr. Ebbers of ordering the fraud to keep WorldCom's stock afloat, a charge that Mr. Ebbers has denied.
In the trial of former Tyco International executives, the company's former head of human resources testified that she was never asked to hide from the board details of compensation paid to former CEO Dennis Kozlowski and former CFO Mark Swartz. The two men are accused of using the manufacturing conglomerate as their personal piggy bank, charges they have denied.
Deadly Underwater Gnomes Return
Somewhere at the bottom of Wastwater, the deepest lake in the U.K.'s Lake District, is an underwater kingdom of garden gnomes. One rides an airplane, another pushes a lawnmower and a third has been nicknamed Gordon. "I've seen around 40 gnomes down there but there must be more," one diver told London's Daily Mirror. "They are all over Wastwater." Sounds amusing, but it's deadly, according to reports today by the Mirror and the BBC. The garden has apparently killed several unskilled divers, who stayed too deep for too long gawking at the goofy sight, in recent years. Police removed the garden, which was surrounded by a picket fence, but other divers have reportedly restored it in another location in the three-mile-long lake. A diver interviewed by the BBC warned underwater gnome-hunters to proceed with caution: "You have got to be experienced to go below that sort of depth, especially in Wastwater. It's a very risky thing."
http://online.wsj.com/articles/the_evening_wrap__________________________________
TODAY'S MARKETS
The Dow Jones industrials fell 4.88 points to 10791.13 as investors mulled the Verizon-MCI merger. AIG and Hewlett-Packard weighed on the blue chips. Trading in Google was heavy following a lock-up expiration of 177 million insider shares.
http://online.wsj.com/article/0,,SB1108382...tml?mod=djemTEWSince it was published four years ago, the "hockey stick" temperature graph has been used by hundreds of environmentalists, scientists and policy makers to make the case that the industrial era is the cause of global warming. Now, a semiretired Canadian mining executive is raising doubts about the graphic's veracity.
http://online.wsj.com/article/0,,SB1108340...tml?mod=djemTEWIt took the discovery of crude oil in Pennsylvania in 1859 to kill off the U.S. whaling industry. It may take something almost as momentous to kill off an $8.5 million federal program that celebrates it.
http://online.wsj.com/article/0,,SB1108340...tml?mod=djemTEWGM agreed to pay Fiat $1.99 billion to end an alliance between the two auto makers. Under the deal, GM will no longer be required to buy the 90% stake in Fiat's auto unit that it doesn't already own.
http://online.wsj.com/article/0,,SB1108294...tml?mod=djemTEW