Abbott Laboratories (GSK) Chairman and Chief Executive Officer Miles White is on the hot seat. On June 11, the health-care company announced that it was lowering its earnings guidance for 2002 by 7.5%. The news sent Abbott's stock down 18.9% over the course of two days. The main problems: continued manufacturing headaches with a diagnostics plant that the Food & Drug Administration shut down in 1999 and weaker than expected sales of the diet drug Meridia.
The bad news comes as the 47-year-old White continues to struggle to revive the company. Analysts say that for years, the drugmaker underinvested in research and development, a factor that has resulted in an alarmingly thin pipeline of new products. White has upped research spending and made a series of acquisitions aimed at filling that gap. But the company has failed to convince Wall Street that it is on the right track, particularly regarding its long-standing manufacturing woes. White calls the latest news "a short-term setback" that doesn't affect Abbott's strong underlying fundamentals. The german media giant Bertelsmann didn't win much praise for investing in the now-defunct music file-sharing service Napster, but it may have redeemed itself by snapping up one of the hottest independent record labels. On June 11, Bertelsmann's BMG Entertainment, the world's fifth-largest music company, announced it was buying Zomba. The label, majority-owned by Clive Calder, is home to artists such as Britney Spears, and 'NSYNC. The price tag? An estimated $3 billion. Now all Bertelsmann needs is a reversal in the worldwide music slump. Thomson Corp. of Canada, best known in the U.S. for its First Call earnings data, received a cool reception from investors on June 12 for its first U.S. stock offering. The company, already traded in Toronto, managed to sell only 32 million shares, down from the 38 million it intended to offer just a month ago. But it still raised $1 billion, leaving Thomson CEO Richard Harrington "quite pleased." The shares, priced at $31.20, fell 1%, to close at $30.90 in their first day of trading on the New York Stock Exchange. Nearly half of the shares belonged to the Thomson family, which still owns 68% of the company. Harrington sought the U.S. listing to raise the profile of the legal and financial publisher. After struggling with increased competition, electronic trading company Instinet Group bought archrival Island ECN for $508 million in stock on June 10. The combined entity will be the largest electronic market trading Nasdaq shares, with 25% of total Nasdaq volume. It also will be well positioned to fight Nasdaq's upgraded electronic trading system, called SuperMontage, set to launch in July. Island's low-cost strategy helped it establish a lead among alternative electronic markets that trade Nasdaq shares. Instinet, owned by Reuters, had to slash prices earlier this year, leading to a first-quarter loss and the resignation of CEO Douglas Atkins soon thereafter. Island Chairman Ed Nicoll will become Instinet's new CEO. British drug giant Glaxo-SmithKline (GSK) may face a protracted, multibillion-dollar legal battle in the U.S. The Internal Revenue Service alleges that Glaxo intentionally underreported the money it made from U.S. drug sales, including blockbuster ulcer treatment Zantac. Glaxo has not been charged, but the IRS claims the company's U.S. division overpaid its British parent for drugs in order to artificially lower its U.S. profits and cut its tax bill. Glaxo maintains it fairly reported U.S. profits. Britain's Inland Revenue Service agrees, saying that Glaxo's profit has already been taxed in Britain and any IRS attempts to recover alleged back taxes would amount to double taxation. On June 10, a Los Angeles jury ordered that biotech giant Genentech (DNA) give $300 million in unpaid royalties to City of Hope, a Duarte (Calif.) cancer center. The dispute revolved around a patented method for making protein-based drugs that City of Hope developed and licensed to Genentech. The jury ruled that Genentech violated the agreement by licensing the patented technology to others without properly sharing royalties with City of Hope. The fine won't be a burden to Genentech--which has $1 billion in cash--but punitive damages, resulting from the jury's ruling that Genentech acted with malice or fraud, could be steep. -- Procter & Gamble (PG) expects fourth-quarter earnings to grow in the high teens.
-- One-year returns for venture capital sank 27.8% in the
last quarter of 2001.
-- The Chicago Mercantile Exchange filed for an IPO, the first U.S. exchange to do so. Safeway (SWY) shares plunged 12.2%, to $31.76, on June 12, after the grocery chain said its second-quarter earnings will be as much as 8% below earlier forecasts. Safeway also said it would close as many as 14 of its 1,782 stores and take a second-quarter charge of at least $60 million to cover the closings and other costs.