As if the fatal blast at its Texas City plant earlier this year (for which it has already admitted liability) and the listing of its huge Thunder Horse drilling platform was not enough, British Petroleum executives wake up today to a front page Wall Street Journal ($) article that reports that the OSHA investigation into the blast has discovered that it was only the latest in a series of major “incidents” at the Texas City plant over the past 16 months, including a September 2004 accident in which two BP employees were scalded to death while removing a valve from a hot-water line and a big March 2004 fire that did not result in any deaths.
Behind the motto “Beyond Petroleum,” BP has been one of the corporate leaders in promoting an image of social responsibility, a topic on which Professor Ribstein has written and commented extensively. For example, BP CEO John Browne has been a mainstream media darling for advocating reduction of global warming by lowering carbon-dioxide emissions at BP facilities. Now, against a backdrop of cost cuts and old equipment at its Texas City refinery, plaintiffs’ attorneys in the wrongful death and personal injury lawsuits resulting from the Texas City blast are planning on portraying BP’s social responsibility agenda as merely a public relations ruse to cover-up its business practice of exposing refinery workers to grave danger. BP announced a $700 million charge against earnings earlier this week to cover its projected liability related to the lawsuits.
Isn’t it interesting how even seemingly innocuous corporate policies have a way of backfiring when they stray too far afield from the basic corporate purpose of maximizing shareholder value?
In what cannot be construed as an endorsment of the oversight abilities of some of the most prominent business executives in the country, this Wall Street Journal ($) article reports that nine of the 12 New York Stock Exchange directors who served on the board’s compensation committee in 2001-2002 admit in Eliot Spitzer’s lawsuit against former NYSE Chairman and Chief Executive Officer Dick Grasso that they did not understand until later the extent to which the big pay raises awarded to Mr. Grasso would cause his retirement benefits to increase to the extent that they did.
Which begs the question: Why is Mr. Grasso the one being sued here rather than the admittedly negligent NYSE board members?
This free Newsweek article addresses essentially the same subject matter, and here are the previous posts on Mr. Spitzer’s lawsuit against Mr. Grasso.
At any rate, Mr. Spitzer’s lawsuit against Mr. Grasso is really just a publicity vehicle for his gubernatorial campaign and not likely to lead to a solution for the real problem, which is the NYSE’s failed corporate governance. For competing views on what it will take to address that problem, see these earlier posts from Professor Bainbridge and Professor Ribstein.
Chevron Corp. has increased its acquisition offer for Unocal to about $63 a share and Unocal’s board is supporting that offer over the competing bid of the China National Offshore Oil Corp. Here are the previous posts on the bidding for Unocal.
Inasmuch as Chevron’s initial offer was valued yesterday at about $60.51 a share, Chevron increased its offer before a Unocal board meeting yesterday by about $2.50 a share in cash, bringing its total offer for Unocal to about $17.5 billion. Chevron increased the cash portion of the bid to 40% from 25% and raised the per-share value of the cash to $69 from $65, besting Cnooc’s offer of $67 a share. The ratio of Chevron stock to Unocal stock in the bid has not changed. Chevron can afford to toss in the extra cash into the bid as it currently has about $11 billion in cash reserves and is adding to that amount by about $1 billion a quarter as a result of high energy prices.
Meanwhile, Cnooc’s board has already authorized an increased offer by as much as two dollars a share, but it remains unclear whether Cnooc will make that play. Given the Unocal board’s endorsement of the modified Chevron bid, and the political and regulatory obstacles confronting its bid, Cnooc may elect to fold at this point.
Interestingly, investors did not react all that well when Chevron announced that it had won the bidding for Unocal in April as the price of Chevron’s stock declined out of out of concern that Chevron was buying at a peak price was ignoring financial returns in favor of increasing oil and gas reserves. However, since that time, energy prices have continued to climb and there is now greater market consensus that such prices are likely to be sustained over the long term.
This U.S.A. Today article does a nice job of reporting on the opening later this week of Dallas/Fort Worth International Airport’s massive new international Terminal D, a $1.4 billion, 28-gate terminal that includes a Grand Hyatt Hotel and the latest features designed to move passengers with comfortable efficiency.
However, as the article points out, whether the new terminal is actually needed is far from a settled issue. The Terminal D project is part of a massive $2.7 billion airport expansion that is the biggest Texas airport construction project ever, and the tenant airlines’ cost per passenger will nearly double when the terminal opens. Although that’s about an average increase in comparison with other increases resulting from recent terminal construction projects at major airports, it’s still no bargain.
If that’s not enough, the new terminal is opening at a time in which DFW has an excess-capacity problem. When construction started five years ago, but now 19 of 37 gates in DFW’s terminal E are empty, and more will be emptied when some remaining carriers there move into the new Terminal D. Even though airlines will use nearly all of terminal D’s gates when it opens, the terminal will initially operate at only about 50% of capacity.
All of which makes me very appreciative of Houston’s relatively efficient and far less costly airports.
With Enron and other business scandals, it’s been a bit difficult to keep up with the ongoing grand jury investigation in Boston into whether mutual fund employees improperly accepted gifts or entertainment from brokers. Fidelity Investments has already disciplined 16 traders over matters relating to the investigation and five employees have left the company.
But even a grand jury investigation is merely a prelude for this Wall Street Journal ($) article that reports on the grand jury’s investigation into the details of the bachelor party of former Fidelity star trader Thomas Bruderman, who happened to be marrying the daughter of former Tyco International CEO Dennis Kozlowski. Small world, eh?
Awhile back, this post made the point that, rather than focusing on CNOOC’s bid to overpay for a second tier U.S. oil & gas company such as Unocal, the real issue that needs to be addressed is that American society is currently impoverishing future generations of Americans by accumulating more debt.
Picking up on that issue, James D. Hamilton provides this insightful analysis that explains why the issue is not the amount of debt that foreigners hold, but the low U.S. saving rate. As noted earlier, the effect of Unocal’s bid on Chevron and Unocal is a much narrower issue.
The late Corbin Robertson, Sr. was a bright business mind when he came to Texas as a young man from Minnesota in the 1940’s. After marrying Wilhelmina Cullen — the daughter of famous Houston wildcatter Hugh Roy Cullen — Mr. Robertson ultimately became the brains behind the investment of the Cullen Family oil and gas fortune, a role that Richard Rainwater successfully emulated decades later for Ft. Worth’s Bass Family. Houston benefitted greatly from Mr. Robertson’s business acumen as both the Cullen and Robertson families became among Houston’s greatest philanthropists, contributing huge amounts to institutions such as the University of Houston and the Texas Medical Center.
In this WSJ ($) op-ed, Chevron Corporation CEO David O’Reilly makes the case to Unocal Corp. shareholders for choosing Chevron’s lower bid for the company over the China National Offshore Oil Corp.’s higher bid (here are the previous posts on the Chevron and CNOOC battle over Unocal).
Mr. O’Reilly does a reasonably good job in making his case. His main point is that Chevron’s bid is a sure thing that is much further along in the approval process than the CNOOC bid. In short, he advises Unocal shareholders to take the slightly smaller Chevron bird in the hand rather than the bigger CNOOC one in the bush.
But in making his case, Mr. O’Reilly veers off course with his second argument:
The second critical issue is in the arena of public policy. For the U.S. government, the proposal by Cnooc presents fundamental questions about fair trade that have profound implications for all U.S. businesses. Contrary to claims by Cnooc, the company’s offer is simply not a commercial transaction. The company is 70% owned by the Chinese government and is relying on large subsidies in the form of government loans at below-market rates to finance its $18.5 billion offer. A conservative analysis shows that the value of these subsidies is at least $2.6 billion or $10 per Unocal share. These terms are simply not available to commercial companies operating in the open market. If Cnooc were to finance its offer on truly commercial terms available to most non-government owned corporations, as Chevron is, it simply couldn’t make a competitive bid.
Stated another way, Mr. O’Reilly reasons that Unocal shareholders should reject the higher CNOOC bid because CNOOC’s bank (i.e., the Chinese government) is willing to loan the company too much money.
My sense is that this argument might work on U.S. Congressmen, many of whom tend to gravitate toward dubious mercantilist policies. However, arguing to Unocal shareholders that they should reject the CNOOC bid because CNOOC’s bank is willing to loan CNOOC so much money that the company can overpay the Unocal shareholders strikes me as a reason for Unocal shareholders to embrace the CNOOC bid, not reject it.
Jury selection begins today in Angleton, Texas in the first personal injury/wrongful death trial against Merck & Co. for alleged non-disclosure of the risks of taking the pain relieving drug Vioxx. Angleton is a small town in a plaintiff-friendly county about an hour south of downtown Houston. Talented Houston-based personal injury trial lawyer Mark Lanier has been receiving quite a bit of free publicity about the upcoming trial (here is the NY Times article and an earlier WSJ ($) article is here), and here are several previous posts on Merck and Vioxx.
Mr. Lanier’s effectiveness as a trial lawyer is in no small part attributable to the fact that he is a devout Christian who regularly teaches a Bible Study class at his church in Houston. Such familiarity with the Bible typically resonates with jurors in small Texas towns, who often rationalize tenuous liability and damage issues through Biblical associations.
Curiously, as Professor Ribstein has pointed out, Mr. Lanier’s case against Merck is based largely on the very un-Biblical concept of resentment and not the truth. Merck pulled Vioxx from the market in October, 2004 after a study showed that it increased the risk of heart attack or stoke, but not necessarily the risk of death. That move prompted Cleveland Clinic cardiologist Eric Topol to go postal over Merck’s handling of the drug, contending that Vioxx resulted in 15 cases of heart attack or stroke per 1,000 patients.
