So, the board of Hewlett-Packard Co. has discussed breaking up the company three different times, but decided to keep it intact, according to CEO Carly Fiorina. Asked at an analysts’ conference in Boston yesterday how the company’s board viewed a breakup, Ms. Fiorina said that each time the HP board discussed a potential breakup, it came to “the same unanimous conclusion” to remain one entity.
If you are interested in why this questions keeps coming up for HP, then read here and here.

The Securities and Exchange Commission is expected to fine at least three former executives of Global Crossing Ltd., the fiber-optic company that went bust in the business downtown earlier this decade.
The fine on the executives — including the company’s founder and former chairman, Gary Winnick — stems from alleged accounting fraud at the company that spiraled into an Enron-like bankruptcy three years ago under $12.4 billion of debt. Although Global Crossing was also accused of fraud, the reorganized company is currently struggling to obtain financing from key shareholders to remain solvent, so it will not be fined in the settlement.
However, what is most remarkable about all of this is that Global Crossing was forced into its chapter 11 case only a month after Enron and under similar circumstances as Enron. For example, Mr. Winnick sold $734 million in stock as the company plummeted into bankruptcy protection. Nevertheless, as analyzed in more detail in this earlier post, no one associated with Global Crossing has ever been indicted in a criminal case.
So long as we allow government to criminalize business behavior, such arbitrary results will be common. Not only does such governmental action dilute the moral force of law, it will eventually discourage beneficial risk taking that generates economic development and job creation.
Remember that, New York voters, as you decide whether to vote for Eliot Spitzer.

This NY Times article reports on the growing concern within the lending industry regarding the long-term ability of several of the legacy airline companies to service their existing financing. This follows the move last week reported on here of one of United’s lenders taking steps to repossess a portion of United’s fleet during the busy Thanksgiving travel season. The article notes:

Where once the idea of losing an airline was unthinkable, both the government and lenders now seem perfectly willing to let that happen. The mood swing was foretold in June, when a federal loan board turned down an application by United Airlines that the airline had thought was a sure bet. Since then, lenders have sat on their hands, watching the company take a chainsaw to its operations, refusing to commit until the airline’s final shape is known.
Aircraft lenders, who did their part after the attacks by loosening the terms of some deals, are tightening up again.
What is different now, experts say, is the growth of markets outside the United States, like Europe and Asia, where new airlines are forming, attracting passengers and expanding, making them far more attractive to lenders and airplane leaseholders.

This is a positive development for the airline industry, where allowing a couple of legacy airlines to go belly up would do wonders for the long term health of the industry. Now will the politicians allow it to happen?

Following up on this earlier post, Virginia Postrel disassembles the Wright Amendment in this NY Times piece.
As noted in my earlier post, the Wright Amendment is so clearly obsolescent and contrary to the interests of the public that the controversy over its proposed repeal provides a useful barometer to measure a politician’s true motivations. Be wary of any politician who contends that the Wright Amendment serves a useful public interest. That’s another way of saying that “the supporters of the Wright Amendment contribute more to my campaign war chest than the folks who overpay for airline tickets.”

This NY Times article reports on an interesting twist to the current takeover battle involving Mylan Laboratories‘ bid for the generic drug maker, King Pharmaceuticals and legendary takeover expert Carl C. Icahn‘s typical strategy to extract some ransom from Mylan’s takeover bid. Mr. Icahn owns about 10% of Mylan and, of course, opposes the bid for King.
Turns out that a New York-based hedge fund called the Perry Corporation owns seven million shares of King and is attempting to profit from the spread between the price Mylan offered for King shares ($16.49) and King’s actual share price (closed yesterday at $12.42). If Mylan’s bid is successful, then Perry would make a cool $28 million on the deal.
However, in making its play, Perry appears to have set up an elaborate swap trade with Bear Stearns and Goldman Sachs so that Perry now controls about 10 percent of Mylan‘s votes with limited or no exposure to fluctuations in Mylan’s share price. Perry appears to have accomplished this by buying 26.6 million shares of Mylan while having Bear Stearns and Goldman Sachs “short“ the same number of shares. The result of the transaction is that it removes any risk of price fluctuations for either side.
The move leaves Perry as the largest, albeit indirect, shareholder of Mylan and most likely means that Mylan will receive enough shareholder votes to approve the deal for King. As a high school football coach once told me while describing the reaction of his booster club to a failed trick play, “that went over like a turn in a punchbowl” with Mr. Icahn, who the Times quotes with self-righteous fury:

“If this is true, in our opinion, this maneuver is rigging an election, plain and simple, and robbing shareholders of the right to have a meaningful vote – one of the few rights they have left. If hedge funds or any other investors are permitted to dictate the outcome of corporate elections without having economic interest in the companies, then any semblance of corporate democracy we still have in our country would become a travesty.”

Translation of the above quote from Mr. Icahn:

“I sure wish I had thought of that!”

The political activism in business affairs of the California Public Employees’ Retirement System (“Calpers”) — one of the nation’s most powerful institutional investor — is leading to a nasty public fight over its leadership.
Sean Harrigan, the president of the Calpers, is expected to be fired today. The move comes amid a growing controversy over Calpers’ boardroom-governance crusades in regard to companies in which it invests and its interference in operational affairs not directly related to protecting its investments.
I’m betting that the primary source of the problem with Mr. Harrigan is his advocacy of a new conflicts-of-interest policy for corporate boards’ outside auditors that prompted Calpers to cast proxy votes against even popular company directors, such as Warren Buffett. Mr. Harrigan also pushed for such out-of-place causes as aggressive investigations into the prisoner-abuse scandal in Iraq and rationalized that move because of Calpers’ small stake in a company that was involved in providing support services in Iraq. Finally, Calpers led the effort to oust Richard Grasso as head of the New York Stock Exchange and campaigned for Walt Disney Co. Chief Executive Officer Michael Eisner‘s resignation as chairman earlier this year.
Despite the rather odd approach to corporate governance issues, Calpers posted solid investment returns for the year ended June 30. It reported a 16.7% one-year return on its global investments and a 20.8% return on its U.S. stock holding, which is better than its benchmark index (the Wilshire 2500).
Nevertheless, Mr. Harrigan’s legacy will be of attempting to micromanage the affairs of several companies in which Calpers invested. Such a policy gets a lot of press in the short run, but does not make many friends in the business world in the long run.

Merck’s board has approved golden parachutes from 230 of its top executives.
On the heels of the problems noted in earlier posts here and here, my sense is that Merck’s board did not have particularly good timing in approving these parachutes.

Dallas Mavericks owner Mark Cuban is fed up with the what he thinks is the roulette nature of the stock market. He has concluded that stock investing is not much different than gambling in Vegas, so for those who like to wager, he has come up with a better idea — a hedge fund that bets on sporting events.

“The goal of the fund would be to make money and to prove that the current equity markets are more Ponzi scheme than efficient markets,” Mr. Cuban said in his blog post announcing the hedge fund. “There is far more hypocrisy in equity markets than there is in non-traditional markets and that impacts those markets’ ability to be fair.”
“I’ve decided to start a new hedge fund. However, this hedge fund won’t invest in stocks or bonds. It’s going to be a fund that only places bets ? a gambling hedge fund.”

Mr. Cuban reasons that stock investing is generally unfair and that most gamblers have better information about their local sports team than investors do about a company. Inasmuch as the media reports on every hangnail suffered by a member of a local sports teams, Mr. Cuban contends that the media releases much more and better information than publicly traded companies.
Mr. Cuban has not yet provided many details about the venture, such as when the fund will be up and running, which sports the fund will bet on or what it will be called. He does say he will not pick the bets and that professionals will run the fund.
While a hedge fund run by professional gamblers may sound a bit far-fetched, the hedge fund industry has a long history of engaging in rather unusual trading strategies. Until recently, hedge funds were lightly regulated on the theory that people participating in them were sophisticated investors and able to take care of themselves. But in recent years, there has been an substantial increase in the number of hedge funds and the SEC has adopted more stringent rules. Accordingly, if Mr. Cuban’s fund raises more than $30 million in assets and has at least 15 investors, the advisers of the fund will have to register with the SEC by February 2006. This means that the advisers would have to disclose to the SEC their identities, the amount of money that they are managing, and the identiay of the fund’s compliance officer. Mr. Cuban will probably set up his fund so that it is open only to accredited investors, which normally have at least $1 million in assets.
Mr. Cuban concludes his blog post with his real purpose in starting the fund:

“By showing that gambling in the traditional sense is less of a gamble than gambling in the stock market, traditional markets will hopefully have to change to the benefit of investors.”

My sense is that this fund is going to be a bit more sophisticated — although no more competitive — than the traditional Kirkendall Family Bowl Game Pool that takes place each holiday season. ;^)

U.S. prosecutors charged five former natural gas traders for allegedly supplying fake trade data to publishers that produce indexes used to value natural gas contracts. This post and this post refer to earlier indictments of the same nature against other El Paso Corp. traders.
Prosecutors alleged that two of the traders – Donald E. Burwell and James P. Phillips – operated as part of a conspiracy at El Paso Merchant Energy run that the government alleges was run by the head of gas trading. The executive who allegedly ran the conspiracy was not identified in the indictments.
Messrs. Burwell and Phillips, along with former El Paso trader Greg Singleton and former Dynegy Inc trader Michelle Marie Valencia were all charged with conspiracy, wire fraud and false reporting. A fifth trader — Jerry A. Futch Jr. — formerly of Reliant Energy Corp, was charged with four counts of reporting false transaction data. All five defendants pleaded innocent at an arraignment Monday and were released on $50,000 bond.
In an interesting twist, all the defendants except Mr. Futch were allowed to turn themselves in to the U.S. Marshal’s Office Monday morning, as is typical in white collar criminal cases. However, for some reason, Mr. Futch was not allowed to do so and was arrested at his home as he was getting ready to take his two children to school. No word yet on the reason for the government’s heavy handed handling of Mr. Futch.
The indictments follow a lengthy investigation into alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular trader cases, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.
Moreover, in an earlier case involving Ms. Valencia in which she was charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad and vague. That ruling is currently on appeal at the Fifth Circuit Court of Appeals in New Orleans, which has already conducted oral argument in the case and is currently preparing its decision.