June 2008 Archive
The American Express card has always seemed to possess an aura of exclusivity. The perception was fomented by the credit card’s ties to its parent company’s jet-setting travel business, as well as a long-standing requirement (since loosened, but still offered) that cardholders pay off their balances at the end of each month. Banks generally did not issue AmEx cards, as they do MasterCard and Visa cards. Well, there apparently was a reason for that: The two competitors imposed restrictions on member banks against issuing rival cards, such as Discover and American Express. In 1998, the US Department of Justice sued MasterCard and Visa on such grounds and, three years later, a court ordered the companies to eliminate the rules.
In the most recent turn of events, AmEx announced this week that MasterCard will pay the company $1.8 billion to dismiss the antitrust claims against them. The settlement comes on the heels of a similar $2.25 billion agreement that AmEx reached with Visa near the end of last year. Together, the $4 billion-plus MasterCard and Visa payouts to AmEx represent the largest antitrust settlements to one company in US history.
Beginning in the third quarter, MasterCard will pay AmEx $150 million per quarter over the next three years. Visa already paid about half of its settlement in the fourth quarter of last year and is making payments of up to $70 million per quarter through 2011. The combined payments will add some $880 million annually, to AmEx’s coffers until then.
The settlements come at a fortuitous time for AmEx. They not only provide the company with a windfall of cash, which will help AmEx, besieged by credit card account defaults and write-offs, to weather the current credit crunch. They should also allow AmEx, which has already inked card-issuing agreements with big banks such as Citigroup and Bank of America, to further expand its client base by making its products available through even more channels.
News item: Novellus Systems agreed to pay $168,000 to an African-American assembly technician who claimed he was fired after he repeatedly complained to management about a Vietnamese-American co-worker. The co-worker played rap music on the factory floor and rapped along with the music’s lyrics, which included language that the African-American employee considered racially offensive. Management apparently took no action on the issue, which led to the US Equal Employment Opportunity Commission (EEOC) suing the semiconductor production equipment manufacturer last September for racial harassment.
The company settled the case without admitting any wrongdoing and agreed to amend its anti-harassment policy to prohibit the playing of music with offensive lyrics, with specific examples to be provided in the policy.
Seems pretty cut-and-dried for a case in employment law — a colorful example, you could say. What the news coverage doesn’t tell, and it’s unlikely that Novellus will either, is exactly how the company’s managers treated this case. On the face of it, the case indicates managerial indifference and possibly incompetence — failures that cost Novellus $168,000. That’s not much money for a company that last year posted net income of $213.7 million on sales of $1.57 billion. Still, I bet that $168K is more than the salary of the manager who told the unhappy employee to “Just ignore him” or “Get over it.” And I bet that manager didn’t inform his or her bosses of the problem until the situation escalated, when HR and legal executives had to respond to inquiries from EEOC investigators. I bet that manager is now an ex-manager of Novellus Systems, so the company saved that person’s salary toward paying the judgment. Of course, the whole episode cost Novellus a lot more than $168,000, factoring in the legal fees, distraction of management time, and extra work for HR. Maybe a few people got fired as a result. So, there’s a ripple effect of consequences.
I feel personally disappointed in Novellus, because I’ve covered the company since its founding in 1984 and interviewed its senior executives on many occasions. Brad Mattson was among the founders of Novellus, and he went on to establish Mattson Technology and other firms. Bob Graham convinced his employer at the time, Applied Materials, to buy Novellus in 1986; the deal was called off, however, as a corporate turf war broke out. When management decided to go with Applied’s internally developed deposition system over the Novellus design, Graham quit the company and joined Novellus as its president and CEO. He retired in 1996 and died in 1998; his achievements are annually commemorated by the Semiconductor Equipment and Materials International trade group with the Bob Graham Award, which goes to an executive who has shown distinctive marketing and sales acumen, something Graham had in abundance. Rick Hill, the current chairman and CEO of Novellus, is a tremendously talented executive whose experience was forged in the fires of Tektronix, the perpetually embattled instrument maker.
The resolution of this episode comes in an election year that features the first African-American presidential nominee of a major party. We’re going to have a national dialogue on the racist history of the US as a result, although many would prefer to look forward, rather than backward. Bigotry is being linguistically recast as “lower racial sensitivity,” a term that puts a genteel front on racial resentment and hatred. Maybe we should first lighten up on the language, which does carry emotional baggage. The comedian Mike Birbiglia jokes that only white people are allowed to call each other “crackers” — as in “Cracker, please!” or “Cracker what!?” A smile is a good place to start. Then, we can move on to the more important work of achieving mutual respect in the workplace, and everywhere else in the US.
The numbers are in and it’s official — pharmaceutical firms outspent everyone, including themselves, on lobbying US senators and representatives in 2007. Pharma companies shelled out $168 million last year, a 32% increase over 2006, to influence politicians to take their side on issues including prescription drug ads and drug importation. And they were largely successful, according to an analysis from watchdog journalism group Center for Public Integrity. The organization’s figure jumps to $189 million when you add in medical equipment and other health-related product makers that commiserate with big pharma on issues such as patent laws and CMS reimbursement.
The drugmaking industry already held the top position among lobbying industries, outshining big spenders such as energy firms and industrial manufacturers. The top 5 big corporate spenders were Amgen, Pfizer, Roche, Sanofi-Aventis, and GlaxoSmithKline, all of which are working ardently to hang onto their leading market positions. Many of the companies on the watchdog group’s list are represented by trade organizations who support common pharma interests, such as the #1 overall spender, Pharmaceutical Research and Manufacturers of America (PhRMA).
The Center for Public Integrity points to a large slate of medical-related legislation and the Democrats’ takeover of Congress as possible causes for the sharp increase in spending. When you consider the problems drug companies have been running into recently, such as questions about Amgen’s anemia drugs and Pfizer’s smoking cessation drug, as well as general industry issues such as patent litigation and generic competition, it’s not terribly surprising that these drugmakers are clamoring for political support.
Likewise, looking at the amount of money the companies are forking over, it’s not a shock that they usually get their way.
Remember what your mother always said? “If you can’t say something nice, don’t say anything at all?”
Short sellers live to mock that quaint old adage.
It’s no wonder that they dredge up all sorts of emotions. CEOs loathe them, whether they have been targeted by short sellers or just live in fear of catching their attention. Pundits question their motives or outright accuse them of spreading negative rumors about companies to drive the stock prices down. Internet chat rooms are full of short sellers (and their counterparts, the touts), trying, usually clumsily, to push stock one way or the other in hopes of making a buck or two. In short (sorry), short sellers, if not the spawn of the devil, are at least considered to be rather impolite society.
And then there’s David Einhorn of Greenlight Capital.
Einhorn first came to the attention of most investors in 2002 when he gave a talk at the Ira Sohn investor conference and in a 20-minute speech shorted the stock of Allied Capital. Allied retaliated, going after Einhorn with a vengeance. You can follow the sequence of volleys here — it’s fascinating reading. Einhorn also wrote a book about the experience, You Can Fool Some of the People All of the Time.
Now Einhorn is shorting Lehman Brothers. Same deal — he gave a speech at the same conference, explaining his analysis, and once again, he’s getting the same response. Either he’s a selfish fearmonger driving down the stock of an innocent company for his own greedy ends, or he’s performing a necessary function to put poorly performing companies out of their misery. Forget bull or bear — we’re talking noble hawk or filthy vulture.
Einhorn has been all over the news channels of late (check out his appearances on CNBC, catalogued here) maintaining his position. And he makes an excellent point. Critics are all over him for selling companies short (and as he points out, he mostly holds long positions; selling short is just part of his strategy). Yet analysts puff up investments all the time, investments that turn out to be real dogs. How often do we point fingers and cry, “Hey! That’s just mean!” the way we do with short sellers? Short selling goes against the grain.
Einhorn isn’t totally altruistic. (And by the way, how cool is it that his name means unicorn? It’s pretty cool.) The man is holding a short position after all. But neither is he evil incarnate. But maybe, even if Lehman doesn’t see it that way, he is a necessary evil. Remember, we know what the market looks like without short sellers. Yep, the tech bubble.
Sure would have been nice to have a skeptic’s eye back then too.
Like the Britney Spears of the business world, the Chinese drugmaking industry seems to be in the news quite a bit, but rarely for anything good. The country’s domestic prescription drug market has had numerous issues with counterfeit products, and the government executed its pharmaceutical regulatory chief for taking bribes last year. This year, tainted batches of the blood thinner heparin caused a number of deaths in the US; that heparin came from China, where the regulatory framework for monitoring the production of active pharmaceutical ingredients is shaky. Problems with FDA oversight of drug imports haven’t helped matters.
The concerns over Chinese drug manufacturing don’t seem to have stopped major international drug firms from investing heavily in the region, and, as the New Jersey Star-Ledger reported on Sunday, the country’s own generic drugmakers are looking to break into the enormous US market for generic drugs, where around two-thirds of prescriptions are filled with generic equivalents.
Though it will be at least three years before Chinese products start appearing in the US in large quantities, the onslaught of Chinese generics seems all but inevitable. In order to protect US consumers, the FDA would do well to use the intervening time to beef up its oversight of Chinese factories and to pressure the Chinese government to get its own act together. But drug users aren’t the only ones who ought to be worried about Chinese generics on the horizon. With their vastly lower labor costs, Chinese generic products would likely cost less even than their Indian counterparts, so the world’s big generic makers — Teva, Sandoz, Barr, Watson, and Mylan, among others — have plenty to keep them up nights too.