Last year, San Antonio-based SBC Communications swallowed the much smaller AT&T Corp., but then started using the venerable AT&T brand for the merged company. This year, SBC/AT&T is attempting to eat BellSouth Corp. in an estimated $67 billion deal, which is a much larger acquisition than the SBC-AT&T merger of last year.
The proposed merger continues a trend in the telecommunications industry over the past several years that really is a reaction to what happened in the industry after the court-ordered 1984 breakup of the old AT&T or “Ma Bell.” That break-up led to a restructuring of the entire industry and then the landmark 1996 Telecommunications Act enhanced head-to-head competition between phone companies for customers.
Since that time, long-distance phone rates have decreased substantially as consumers have many more options for such service. Meanwhile, cable companies are increasingly offering phone service as part of their consumer packages, declining prices on wireless calling plans have induced some consumers to forego traditional landlines entirely, and broadband connections are generating an entirely new new industry that allows calls to travel over the Internet.
Thus, in the wake of that competition, AT&T CEO Edward Whiteacre justified the new merger because AT&T needs “a bigger footprint. The world is changing. There is more competition.” Maybe so, but as with Hewlett-Packard’s acquisition of Compaq and Comcast’s failed bid for Disney, is the acquisition price for BellSouth so high that — as Professor Ribstein has observed — it takes a near-delusional synergy theory for AT&T management to justify it?

Warren Buffett’s annual letter to Berkshire Hathaway shareholders is always entertaining (previous letters here and here), but this year’s edition contains so much levity that Buffett could use it as the script for a guest stand-up routine on Leno, Letterman or Comedy Central. My favorite observation is the following one on the subject of picking good managers for Berkshire’s businesses:

The attitude of [Berkshire’s] managers vividly contrasts with that of the young man who married a tycoon’s only child, a decidedly homely and dull lass. Relieved, the father called in his new son-in-law after the wedding and began to discuss the future:

“Son, you’re the boy I always wanted and never had. Here’s a stock certificate for 50% of the company. You’re my equal partner from now on.”
“Thanks, dad.”
“Now, what would you like to run? How about sales?”
“I’m afraid I couldn’t sell water to a man crawling in the Sahara.”
“Well then, how about heading human relations?”
“I really don’t care for people.”
“No problem, we have lots of other spots in the business. What would you like to do?”
“Actually, nothing appeals to me. Why don’t you just buy me out?”

After a bad week, Ft. Worth-based RadioShack Corp. Chief Executive Dave Edmondson resigned yesterday by “mutual agreement” with the company’s board under which Edmundson will receive a severance package valued at about $1.5 million.
Public disclosure early last week of Edmundson’s resumÈ fluffing was bad enough, but the final straw in Edmundson’s fate was RadioShack’s announcement late last week that it is planning on closing as many as 700 stores and taking a large write-down. Although company revenue rose about 5% to $1.67 billion in the quarter ended Dec. 31, the company’s profit for the quarter dropped 62% to just under $50 million (or 36 cents a share) from about $130 million (81 cents a share) in the same quarter a year ago. Its shares lost over 8% of their value after the annoucement and hit a 52-week low of $18.80 in trading on the New York Stock Exchange during this past day.
Despite the distraction of Edmundson’s problems, his quick exit may actually help RadioShack. This is a company that is desperately in need of a new vision — or at least a plan — and it was clear that Edmundson no longer had the credibility with the board and employees to pull one together. It’s hard for a company to distinguish itself in the marketplace when all it seems to be doing is selling cellphones.
Meanwhile, the Wired GC points out that the Edmundson/Radio Shack affair actually reflects a simple lesson — effective leaders lead by example.

Most of the time, The New York Times does a reasonably good job of covering business matters, but there are still days when the paper resembles the People’s Daily of New York.
Yesterday was one of those days. First, Times business columnist Gretchen Morgenstern — who apparently believes that the model for corporate governance is Ben & Jerry’s — continued her campaign against excessive executive compensation with this Times Select ($) column in which she excoriates the compensation package paid to Analog Devices CEO, Jerald G. Fishman. While disassembling Morgenstern’s article, Larry Ribstein asks a decidedly more compelling question than the one Morgenstern addresses, namely “[t]o what extent do stories like this shape misguided public policy like the SECís recent compensation disclosure rule? What is the social cost of the useless reshuffling firms must do to minimize damage from sensationalist stories like this?

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A rather bizarre story is unfolding in Ft. Worth with regard to Radio Shack chief executive officer, Dave Edmondson.
It appears that Star-Telegram reporter Helen Landy has caught some, ahem, inaccuracies on Edmondson’s resumÈ and corporate biography. But Edmondsonís explanations for the errors are better than the best school child’s explanation of missing homework. His diploma was lost in a fire? He didnít monitor his Web site profile that claimed a psychology degree that his college — Pacific Coast Baptist College in San Dimas, CA. a/k/a Heartland Baptist in Oklahoma City — has never offered? The inaccuracy regarding the type of degree that he received doesn’t make any difference because no one knows the difference between a “Thg” degree and a “BS” degree, anyway?
And then there is the little detail about the multiple DWI incidents.
The Radio Shack board’s “no comment” reaction to all of this indicates that something may be brewing. Stay tuned.

As expected, Houston-based Integrated Electrical Services filed a chapter 11 case in Dallas yesterday and immediately submitted a debt-for-equity reorganization plan that is the culmination of months of pre-bankruptcy negotiations with the institutional debt holders of the highly-leveraged electrical contractor.
This is initial docket of the case, and the Houston Chronicle article on the filing is here. Dan Stewart of Vinson & Elkins’ Dallas office is taking the lead as debtor-in-possession counsel, and Sanford R. Edlein of Glass & Associates, Inc. is the company’s chief restructuring officer. The Creditors Committee has already been appointed and is comprised of institutional debt holders Tontine Capital Partners, L.P., Southpoint Capital Advisors, L.P., and Fidelity Management & Research Co., which were represented in pre-bankruptcy negotations by Marcia Goldstein of Weil, Gotshal & Manges’ New York office. The IES case has been assigned to the Bankruptcy Judge who has the best nickname of any judge in the United States Judiciary, Judge Harlin “Cooter” Hale.
IES is a roll-up that was incorporated in 1997 and, since that time, has used debt to finance an expansion of its operations through the acquisition of other electrical contracting companies. As of the most recent fiscal year, the company had revenues of a little over a billion and employed around 8,900 employees in 140 locations around the world. IES had a net loss of about $129.5 million for last year ($3.31 per share), which followed a net loss of almost $125 million for the previous fiscal year. The bankruptcy filing has been widely-anticipated since mid-December when the company announced that it was contemplating a chapter 11 case with a prepackaged reorganization plan. The NYSE suspended trading of IES stock at that time.
The IES plan is essentially to clean up its balance sheet by swapping around $175 million of its approximate $225 million in senior subordinated debt for an 82% equity stake in the reorganized company. Holders of existing stock in the company will be diluted to 15% of the reorganized company and management and employees will receive 3%. Meanwhile, Bank of America is stepping up to provide about $80 million in debtor-in-possession financing during the chapter 11 case, which IES hopes to conclude on a fast track by mid-to-late April of this year.

In this TCS Daily op-ed, the inimitable Professor Bainbridge takes up the lawsuit filed in Washington last week in which an activist think tank asserts that that the Sarbones-Oxley Act’s Public Company Accounting Oversight Board (nicknamed the “Peekaboo board”) is unconstitutional. The think tank’s lawsuit is based on this John Berlau/Hans Bader white paper for the Competitive Enterprise Institute that analyzes the consititutional issues arising from the Peekaboo board’s creation.
The core assertion in the lawsuit is that the Peekaboo board is vested with extensive governmental functions and powers, including the quasi-law enforcement investigatory power and a quasi-judicial power to impose substantial fines for violations of its rules. Inasmuch as the members of the Peekaboo board are appointed by the SEC rather than the President, the lawsuit contends that SOX’s provision providing for creation of the Peekaboo board violates, inter alia, the appointments clause of the U.S. Constitution. Moreover, since SOX lacks a severability clause, the potential defect in a part of the Act may mean that the entire Act must be declared unconstitutional.
Professor Bainbridge thinks that the lawsuit has legs:

There is also little oversight [of the Peekaboo board]. The only way the SEC can undo any of the [Peekaboo board’s] regulations is by proving that the rules are obviously inconsistent with the Sarbanes-Oxley statute — a nearly impossible task given its vague wording. The [Peekaboo board] is even largely independent of Congressional oversight because its budget is financed from the fees it levies on the companies it regulates. The Justice Department may well argue in response that the Board simply doesn’t rise to the level of a “real” agency. But that will surprise corporate America, given that the Peekaboo can fine accounting firms up to $2 million and individual accountants up to $100,000 for violations.
And, of course, familiar principles of agency capture by the industries it regulates suggest that interest group pressures and favoritism are potentially serious problems.

Read the entire piece, along with this analysis of the lawsuit by Constitutional scholar and Bainbridge colleague, Eugene Volokh.
As Professor Ribstein has long maintained, SOX is more than just a bad law:

SOX wasn’t just a bad law, but a uniquely bad law, passed under uniquely bad conditions without any of the safeguards that normally accompany major legislation.
And even if repeal or drastic shrinkage is impossible, it’s still necessary to make the case as a warning against future SOX’s. One way to do that is to establish SOX as a paradigm of bad law. In other words, to make Sarbanes and Oxley the Edsel Fords of corporate governance regulation.

These posts over the past year have chronicled General Motors’ Enronesque slide toward what is increasingly appearing to be an inevitable reorganization case under chapter 11 of the U.S. Bankruptcy Code. That probable fate was reinforced this past week when GM announced a band-aid restructuring plan that is akin to rearranging the deck chairs on the Titanic.
The newest GM plan really is pitiful under the circumstances. GM lost a staggering $8.6 billion last year, and that doesn’t even count another $12 billion of bankrupt Delphi (a part of GM until 1999) losses that GM might have to make up. In the face of this flood of red ink, GM announced that it will cut dividends by $565 million and cut another $900 million in costs through reducing executive salaries and health benefits. The biggest news was that GM CEO Rick Wagoner will take a 50% pay cut to $1.1 million, but there was precious little word on how the company is planning on bridging the rest of its $6 billion or so in losses. Conan O’Brien characterized the plan pretty well when he commented in a monologue that, since General Motors is cutting the salaries of its top executives, the executives will now be earning so little they will be forced to drive GM cars.
Moreover, it’s not as if GM has been a sterling investment over the years. As this Floyd Norris/NY Times article and accompanying chart notes, an investor who bought a share of GM stock at its price of $40.13 at the end of 1960 would have received $127.58 in dividends and received four distributions of stock worth $20.62 at the time those dividends were issued. If all of that had been reinvested in GM stock, then the investor would now own 11.6 shares, which is worth a bit more than $500. That amounts to a return of less than 6 percent compounded for those 45 years, which would be even less once brokerage fees and taxes are included in calculating a true net return.

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Following on earlier posts here, here and here addressed the mercurial career and current troubles of former University of Houston president and current Getty Trust president Barry J. Munitz, this NY Times article (LA Times article here) reports that Munitz resigned under pressure yesterday amid growing questions about his personal use of the trust’s money and resources.
As a part of his resignation deal with the trust, Munitz will not receive a severance package and he will be required to repay the trust $250,000, which is a ballpark estimate of the amount that the trust believes that Munitz improperly charged charged the trust for personal expenses during his eight-year tenure. However, Munitz’s resignation has no direct impact on the California attorney general’s investigation, which apparently is focusing on several instances in which Mr. Munitz used the trust’s money without proper authorization on pet projects that had nothing to do with the trust’s mission.
No word on whether Munitz will keep the lease on the Porsche Cayenne.

After wallowing over three years in chapter 11, United Airlines parent UAL Corp. finally emerged from bankruptcy this past Friday (previous posts here) amidst the usual wave of optimism that greets such achievements. Recent trading in bankruptcy claims and UAL’s unsecured bonds indicates that the reorganized UAL’s stock might perform better than anticipated, which would generate more for unsecured creditors than the estimated four to eight cents on the dollar dividend that UAL estimated during the disclosure and confirmation hearings in regard to its chapter 11 plan.
Count me as not so bullish on the reorganized UAL’s prospects.

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