When Enron CEO Jeffrey Skilling resigned abruptly in August after six months on the job, longtime Chairman Kenneth Lay assured investors that "there's no other shoe to fall." So much for the warning. On Oct. 16, the Houston-based energy giant reported its first quarterly loss in more than four years after taking $1.01 billion in write-offs. It also disclosed a surprising $1.2 billion charge to shareholder equity to help unravel complex transactions between Enron and partnerships that until recently had been overseen by former Chief Financial Officer Andrew Fastow. Then, on Oct. 22, Enron revealed that the Securities & Exchange Commission is probing those Fastow-related transactions. Two days later, Enron (ENE) promoted Jeff McMahon to CFO and announced that Fastow will take a leave of absence. The setbacks have Lay, who has reclaimed the CEO post, scrambling. He must get operations back on track, fend off shareholder lawsuits, and, above all, rebuild credibility with investors. Sears Roebuck (S) said on Oct. 24 that it would cut 4,900 salaried jobs, or 15% of its workforce, by 2003. The cuts are part of a reorganization that aims to move Sears away from its department-store heritage and double retail profits. CEO Alan Lacy wants to capture the higher operating efficiencies enjoyed by rivals by offering more self-service and centralized checkout in its 860 full-line stores. Also in the works: plans to narrow Sears' apparel assortment, while building on its strength in home appliances, electronics, and tools. The Federal Trade Commission on Oct. 23 decided to block Diageo and Pernod in their effort to buy Vivendi's wine and liquor division. The issue: rum. Vivendi's Seagram unit and Diageo are the No. 2 and No. 3 makers of rum, respectively. The FTC decided that the combo would make a potent, anticompetitive cocktail, even though their joint production would still trail industry leader Bacardi. The FTC has a long history of rejecting mergers when also-rans take on the leader. Last year, the agency rejected a merger between H.J. Heinz (HNZ) and Beech-Nut, the second- and third-largest makers of baby food, after Gerber. While nixing the Seagram (SGCYP) deal, the FTC let through General Mills' (GIS) purchase of Vivendi's Pillsbury unit.
Corrections and Clarifications
Body "The FTC Refuses a Potent Cocktail" (In Business This Week, Nov. 5) incorrectly stated that General Mills Inc. bought the Pillsbury unit of Vivendi Universal. It purchased Pillsbury from Diageo PLC.
Amid the din of quarterly losses and bankruptcies, the U.S. steel industry got some good news from the government. The International Trade Commission, acting on a request from President Bush, ruled on Oct. 22 that imports are hurting U.S. steelmakers. The move clears the way for Bush to impose quotas or duties on foreign steel in early 2002. But steel buyers warned they'll be the next to suffer. The Consuming Industries Trade Action Coalition claimed quotas could cost U.S. manufacturers nine jobs for every one saved in the steel industry. Foreign producers also complained they are losing market access and may appeal to the World Trade Organization. Former Maytag (MYG) Chairman Lloyd Ward, 52, was named chief executive of the U.S. Olympic Committee on Oct. 21. The former Michigan State basketball captain fell from the Olympian heights at Maytag in 1999. He later became the chief electronic-car salesman at iMotors.com, which went out of business earlier this year. USOC President Sandy Baldwin said the national organization, with a $100 million annual budget, needs a marketer like Ward. After the 2002 Winter Olympics in Salt Lake City, there won't be another U.S.-based games until at least 2012. That means tough sledding for U.S. Olympic sports fund-raising and corporate sponsorships. So, this ex-Maytag repairman won't be idle. Was the September 11 attack on the World Trade Center one incident or two? The answer to that question could be worth billions of dollars to insurers or WTC leaseholder Larry Silverstein. On Oct. 22, Swiss Reinsurance filed suit in Manhattan Federal Court, claiming the attacks were one orchestrated event that carries maximum insurance coverage of $3.5 billion. Silverstein counters that each plane crash was a separate event, each carrying coverage, for a total of $7 billion. As the largest insurer of the Twin Towers, Swiss Re is on the hook for 22% of the final amount. Its suit also claims Silverstein didn't purchase adequate insurance to replace the buildings and lost rental income. -- The Defense Dept. backed Northrop Grumman's (NOC) bid to acquire Newport News Shipbuilding (NNS).
-- Former GE (GE) head Jack Welch will advise J.P. Morgan Chase (JPM) on leadership and other issues.
-- Amazon.com (AMZN) cut holiday sales forecasts and lowered fourth-quarter sales estimates. Pharmacia's (PHA) shares tumbled 10%, to $38.39, on Oct. 23 after the drugmaker said next year's results would be hurt by the loss of U.S. marketing rights to the insomnia drug Ambien. Weak farm economies in the U.S. and Latin America will also be a drag on the company's 85%-owned Monsanto agricultural unit.