What’s going on at Brinker International?

Another high-ranking executive at Dallas-based restaurant company Brinker International, Inc. resigned earlier this week. The resignation was the third of a high-ranking Brinker executive in the past month.
The latest Brinker executive to go was Wilson Craft, a 20 year veteran with Brinker who was most recently president of Brinker’s Chili’s Grill & Bar, which is Brinker’s flagship restaurant chain. Chili’s chief operating officer and the president of Romano’s Macaroni Grill, Brinker’s second-largest restaurant chain, resigned last month.
Brinker has long been one of the most successful restaurant companies in Texas, but the competitive pressures in that industry are absolutely brutal at this time. Other Brinker’s chains — none of which are close to as popular as Chili’s or Macaroni Grill — are Maggiano’s Little Italy, On The Border Mexican Grill & Cantina, Corner Bakery Cafe, Big Bowl Asian Kitchen and Rockfish Seafood Grill.

Continental wins right to fly non-stop to China

The U.S. Transportation Department announced yesterday that Houston-based Continental Airlines and Dallas-based AMR Corp.’s American Airlines have won a lively contest within the U.S. airline industry to offer additional non-stop flights to China.
Continental will offer a daily, 13-hour nonstop flight to Beijing from Newark Liberty International Airport later this year while American will offer daily nonstop flights from Chicago to Shanghai beginning in April, 2006. Northwest Airlines Corp. and UAL Corp.’s United Airlines are the other U.S. airlines that are authorized to fly routes to the country.
Cargo shipments carrying goods from China to the U.S. have been leading the increase in air service between the two countries over the past several years. However, according to the DOT, passenger traffic between the U.S. and China rose over 35% from 2003 through November 2004. So, the new flights are consistent with Continental’s business strategy of emphasizing profitable international flights over less profitable domestic routes.

NY Times on candidates to replace Chief Justice Rehnquist

This NY Times article does a good job of summarizing the situation surrounding the increasingly likely retirement of U.S. Supreme Court Chief Justice William Rehnquist, who is suffering from thyroid cancer and the effects of the treatment for the condition. The Times article reports that a consensus is developing within the Bush Administration that Justice Rehnquist will step down at the end of the Supreme Court’s term in June. According to the Times article, the five names on the Administration’s short list are as follows:

1) Michael W. McConnell of the United States Court of Appeals for the 10th Circuit,
2) John G. Roberts of the United States Court of Appeals for the District of Columbia,
3) J. Harvie Wilkinson III of the United States Court of Appeals for the Fourth Circuit, and
4) J. Michael Luttig of the United States Court of Appeals for the Fourth Circuit, and
5) Samuel A. Alito of the United States Court of Appeals for the Third Circuit, who is mentioned as “another possible candidate.”

This is a high caliber list of intellectual heavyweights who, I believe with the exception of Judge Alito, are all former Supreme Court clerks. My personal favorite for the appointment is Judge Roberts, who I have found to be an absolutely superb thinker and writer in the opinions that he has penned while on the D.C. Court of Appeals.

Ebbers criminal trial winding down?

In a somewhat shocking development to a world conditioned to prolonged white collar criminal prosecutions, the prosecution in the criminal trial of former WorldCom CEO Bernard Ebbers announced yesterday that it will not be calling any further witnesses from the company and that it expects to conclude its case-in-chief either today or tomorrow. The government’s statement came after U.S. District Judge Barbara Jones declined to grant the government’s request to call a former WorldCom employee who lost her entire retirement savings when the company collapsed,
Thus, the importance of former WorldCom CFO Scott Sullivan‘s testimony to the government’s case against Ebbers has come into clear focus. The government used Sullivan as the principal witness to connect Ebbers’ involvement in the accounting fraud at WorldCom, and the cross-examination hammered on Sullivan’s lies and misstatements, including a protracted discussion about whether what Sullivan said in a particular conference call constituted the universally understood concept of “B.S.”
Nevertheless, after three weeks of testimony, the government has essentially conceded that there is no paper trail to link Ebbers directly to the fraud. Sullivan’s testimony is that he falsified WorldCom’s accounts on numerous occasions and repeatedly lied about the company’s trading position because Ebbers urged in private conversations that “We have to hit our numbers.”
On cross-examination of Sullivan, the Ebbers defense promoted the “honest idiot defense” theory that Ebbers was the visionary who delegated the details of the company’s accounts to the more sophisticated and better educated Sullivan. Now, with the prosecution’s case winding down, the Ebbers defense team faces the key strategic decision in the case — whether to put Ebbers on the stand or even whether to put on any witnesses other than character witnesses to attest to Ebbers’ good ol’ boy nature. Inasmuch as juries in white collar cases expect to hear what the defendant has to say, they generally hold not testifying against the defendant even though they are not supposed to do so. However, with the WorldCom prosecution’s case relying heavily on Sullivan’s credibility, the Ebbers defense team may decide that Ebbers’ testimony could only hurt their defense and, thus, it’s worth the risk of not putting him on the stand.
Stay tuned on this one, folks. This case may go to the jury be early next week.

Novartis rocks medical community with $8.4 billion expansion of generic drug empire

Swiss pharmaceuticals giant Novartis AG announced over the weekend an $8.4 billion expansion of its generic drug holdings in a move that is widely viewed in the drug and medical communities as the continuation of trend toward consolidation in the generic drug sector. As a result of the deal, Novartis will become the world’s largest seller of generic drugs at a time when it is already the top seller of branded drugs. Novartis had total world-wide sales last year of just under $30 billion.
Novartis will pay $7.4 billion to buy Hexal AG of Germany and 68% of Eon Labs Inc., which are two generic-drug makers that are controlled by Germany’s wealthy Str¸ngmann family. As a part of the deal, Novartis will also launch a tender offer to acquire the balance of Eon shares for about another billion.
The generic drug industry has exploded in growth since the 1980s when U.S. law was modified to make it easier for drug companies to copy successful branded drugs. As a result, the generic drug industry became increasingly aggressive at challenging the legality of branded drug patents in court, which has often resulted in patents being overturned years ahead of the normal term.
Nevertheless, the sector has always been highly fragmented and now its profits are being squeezed by brutal price competition. Thus, these difficult market conditions are prompting consolidations in the generics business, and the Novartis deal reflects that the branded drug companies are going to be involved in the consolidation in a big way.

Boston Herald tagged with big defamation jury verdict

In a case that is being followed closely by free speech advocates and lawyers who specialize in defamation cases, Massachusetts Superior Court Ernest B. Murphy hammered The Boston Herald and one of its reporters with a $2.1 million jury verdict for libeling him in a series of articles that portrayed him as being overly lenient toward criminal defendants.
The Herald reported in February 2002 that prosecutors were criticizing Judge Murphy privately for giving overly lenient sentences to criminal defendants, and used as an example a sentence of eight years’ probation for a 17-year-old convicted of two rapes and an armed robbery. In a particularly inflammatory part of one article, the newspaper quoted Judge Murphy as telling prosecutors involved in the case to tell the teenage rape victim: “Tell her to get over it.” The story was picked up by media outlets across the country and Judge Murphy became a target of right wing talk radio shows that tabbed him as “Easy Ernie” and “Evil Ernie.” The Herald’s lead reporter on the story then appeared on Fox’s “The O’Reilly Factor” after his first story ran and confirmed that Judge Murphy had made the comment to three lawyers involved in the case.
In his suit against the newspaper, Judge Murphy’s essentially accused the Herald of fabricating a sensational story to sell papers. Based on about a dozen articles, Judge Murphy asserted that the Herald had misquoted him in connection with the above particular quote, and that it took other of his remarks out of context. The lawsuit also alleged that the judge was bombarded with hate mail, death threats and calls for his removal from the bench as a result of the Herald’s articles on the judge. The newspaper stood by its reporting of the particular quote and the series of articles in general.
The case is particularly noteworthy because Judge Murphy is a public figure, which means that Judge Murphy had to persuade the jury that either the Herald knew it was reporting false information or that it acted with a reckless disregard for the truth. That is a considerably higher standard than what a normal citizen must fulfill to win a defamation lawsuit.

Winn-Dixie tanks

Jacksonville, Fla.-based Winn-Dixie Stores Inc., the venerable Southern grocery retainler, announced early Tuesday that it had filed a chapter 11 case in New York City. The company operates 920 stores and employs about 80,000 workers in eight states and the Bahamas.
Winn-Dixie is one of the largest food retailers in the U.S., but the company reported earlier this month that it had posted a loss of almost $400 million for its most recent fiscal quarter on revenue of just above $3 billion. This result compared with an $80 million loss on almost $3.25 billion in revenue for the year earlier period. Lower revenues combined with considerably higher losses is usually a sign that that it’s high time to reorganize.
As is typical in such big retail reorganizations, the main purpose of the chapter 11 is to reject the leases on about 150 stores that were the result of an ill-timed expansion effort. The company projects that those closings, along with the termination of leases on a couple of warehouses, will result in annual cash savings of at least $60 million. The company has also obtained an $800 million DIP (i.e., “debtor-in-possession”) credit facility from Wachovia Bank N.A. to fund its operations during the chapter 11 case.
In early December, Winn-Dixie had the dubious distinction of being dropped from the Standard & Poor’s 500 index after recording the worst performance in 2003 in the select stock index. Consequently, the company’s management has its work cut out for it in this reorganization. Absent a white knight appearing to buy the company at a premium — which is highly unlikely in the brutally competitive retail grocery business — look for a debt-to-equity reorganization plan that will carve out a healthy piece of new equity to incentivize a new management team to turn Winn-Dixie around.

The new kid on the Supreme Court block

This Washington Monthly article profiles Tommy Goldstein, the Washington D.C. lawyer who, though still in his 20s, has elbowed his way into the select group of lawyers who regularly appear before the U.S. Supreme Court. What makes Mr. Goldstein’s story most interesting is that he has accomplished this feat while starting and operating his three-lawyer firm out of his house:

He had never clerked for a justice or worked in the SG’s office. He earned his law degree at plebian American University, not Harvard or Yale. Yet Goldstein is already renowned among his peers and has begun to make a lot of money, too. This year, his firm, Goldstein & Howe– Howe is his wife and partner, Amy–will bill close to $1.5 million in fees. “His knowledge of the court is breathtaking,” says Ronald Collins, a First Amendment scholar at the Freedom Forum and former court clerk. “One cannot speak about Supreme Court litigation without breathing Tom’s name. And he has only just begun.”

Hat tip to On Appeal for the link to this interesting story.

Black markets are in everything

Alex Tabarrok over at Marginal Revolution points out that students at at Austin High School in Austin have given school administrators a lesson in the economics of “candy” prohibition:

When Austin High School administrators removed candy from campus vending machines last year, the move was hailed as a step toward fighting obesity. What happened next shows how hard it can be for schools to control what students eat on campus.
The candy removal plan, according to students at Austin High, was thwarted by classmates who created an underground candy market, turning the hallways of the high school into Willy-Wonka-meets-Casablanca. . .
During the prohibition, one student, who asked not to be identified, said that he sold candy at the school and made as much as $50 in a day.
“It’s all about supply and demand,” said Austin junior Scott Roudebush. “We’ve got some entrepreneurs around here.”
The Austin High administration, which won’t elaborate on how much or little it knew about the candy black market, has since replenished the vending machines with some types of candy.

The historic Medical Center divorce

Todd Ackerman is the Houston Chronicle reporter who has been doing an outstanding job covering the termination of the Methodist Hospital‘s 50 year primary teaching hospital relationship with Baylor College of Medicine that occurred last year. Here are the earlier posts on this historic split.
In this Sunday Chronicle article, Mr. Ackerman begins a series of articles that will explore the demise of the Baylor-Methodist relationship. Inasmuch as the Baylor-Methodist relationship was one of the many reasons that the Texas Medical Center grew over the past 30 years into one of the world’s premier medical and primary research centers, the termination of the Baylor-Methodist relationship is an important part of Houston’s history.
However, the divorce is also a reflection of the difficulties involved in sustaining even long-term business and professional relationships during this tumultuous period in the American health care industry. When those pressures overwhelm a productive relationship such as the one that Baylor and Methodist developed, the risk increases that a decline in the quality of medical care will be the ultimate result. That is an issue for which all of us should be concerned.
Update: Here is second article in the series.
And the third, which closes with this anecdote:

[A]s the squabbling between Baylor and Methodist shows no signs of abating, the best view might be the last line in a thank you note received by Dr. Richard Stasney, a Methodist ear, nose and throat specialist. It said,

“Let’s pray for peace in the Middle East ? and the Texas Medical Center.”