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JUNE 12, 2006
Edited by Harry Maurer A New Treasury Secretary The shakeup continues. President George W. Bush on May 30 announced the latest fresh face in his Administration, naming Goldman Sachs (GS ) CEO Henry "Hank" Paulson Jr. to replace John Snow as Treasury Secretary. Although Paulson, 60, has said little about the capital's policy wars, he is a powerful investment banker who will bring vast Street cred to Washington. Like most Wall Streeters, Paulson favors free trade and low taxes. Like Bush, he thinks deficits should be trimmed by cutting spending and through economic growth, not by raising taxes. He is also chairman of the Nature Conservancy, a nonprofit that acquires land to protect it from development. Paulson first turned the Treasury job down but changed his mind after Bush promised he would be the Administration's top economic honcho. A key ally will be Chief of Staff Joshua Bolten, another Goldman alum. See "Paulson to the Rescue?" 
Kinder Morgan Gets An Offer As his old boss at Enron, Kenneth Lay, ponders a stretch in the pen, Richard Kinder's Kinder Morgan (KMI ) is demonstrating how mighty a company Enron might have been. With the same kind of petroleum pipeline and distribution businesses that Lay found boring and often sold off, Kinder has built a gonzo energy player that made $554 million on sales of $1.6 billion last year. To underscore the point, Kinder and three fellow directors are offering to take Kinder Morgan private in a $22 billion leveraged buyout, one of the biggest ever. The directors would put up $2.8 billion and get $4.5 billion from Goldman Sachs, Carlyle Group, and other firms. But most of the money would come from debt -- some $14.5 billion worth. Not bad for an old-fashioned outfit with 43,000 miles of pipelines and 150 petroleum and CO2 terminals.   Enron: Guilty, Guilty, Guilty In the end, the "I-didn't-know" defense just didn't wash. On May 25, Enron ex-Chairman Kenneth Lay and ex-CEO Jeffrey Skilling were convicted on 6 and 19 conspiracy and fraud charges, respectively. And on May 31 ex-broadband unit finance boss Kevin Howard was found guilty on five counts. The Immigration Watch Now for the showdown in a conference room. The Senate passed a broad immigration bill on May 25 that would allow millions of undocumented aliens to gain legal status. It also would set up a guest worker program, an electronic work-status-verification system for new hires, and boost security at the border. Most of these provisions are poison to House hardliners, who earlier passed a bill focused on security. President Bush prefers the Senate version, but he may not get a bill this session. Vonage Will Pay Up No Good Deed Goes Unpunished Dept.: When Net phone outfit Vonage (VG ) set up its IPO, it let customers reserve shares and pay for them later. Nice gesture, since individuals often complain about being shut out of IPOs. But since hitting the market at 17 on May 23, the stock has cratered by 29%, to 12.02. That could cost Vonage since many customers are refusing to pay for shares at 17, and Vonage in its SEC filing pledged to reimburse its underwriters for any unclaimed orders. See "Trouble on the Line for Vonage?" Armor For Arcelor It seems there's little Arcelor won't do to fend off Mittal's unwanted attentions. On May 26 the Luxembourg steelmaker said it will acquire Russia's Severstal and other steel assets for $16.6 billion. In exchange for Alexey A. Mordashov's 89.6% stake, he will get 32% of an enlarged Arcelor and control 6 of 18 board seats. Under a four-year standstill agreement, Mordashov has to vote his shares as the Arcelor board instructs him, which creates a formidable bloc to thwart the No. 1 steel power, Mittal. See "Arcelor: Steeling Thunder?" Disney Needs Pixie Dust It may soon be a smaller world after all for Walt Disney (DIS ). The New York Times said on May 27 that the media giant is contemplating layoffs at its studio operations following a tough year in which earnings have fallen by 51% through the last two quarters. A Disney spokeswoman declined to comment, but under CEO Bob Iger the studio has been reining in expensive films to produce less pricey "branded" fare. The cuts come as Disney anticipates a hot summer with Cars, the latest animated film from newly acquired Pixar (DIS ), and the eagerly awaited sequel to its 2003 blockbuster Pirates of the Caribbean. A Bertelsmann Buyout To steer clear of an unwanted IPO, the German media behemoth has put itself in a financial corset. Bertelsmann, whose holdings include Random House, agreed on May 25 to pay $5.8 billion to buy out 25% shareholder Groupe Bruxelles Lambert. Family shareholders led by matriarch Liz Mohn now have total sway over their cherished company again but will have to sell BMG Music Publishing and use a fat slice of profits to pay down debt. Tech Blues Two former titans -- Sun Microsystems (SUNW ) and corporate software maker CA (CA ) -- made painful announcements. On May 30, CA said it will delay filing its annual SEC report, citing accounting woes. It's also restating earnings for the umpteenth time and forecasts a loss of 7 cents per share for the fourth quarter. New Sun CEO Jonathan Schwartz on May 31 unveiled a restructuring plan that will cost 4,000 to 5,000 staffers their jobs. He'll unload some real estate, too. Where There's Smoke, There's Ire Are astronomical punitive damages O.K. if a company's conduct was "highly reprehensible"? On May 30 the Supreme Court agreed to hear arguments in Philip Morris USA v. Williams, in which the Oregon Supreme Court let stand punitive damages of $79.5 million, nearly 100 times the $821,485 in compensatory damages awarded to the widow of a smoker. Needless to say, business is rooting for Big Tobacco. In 2003 the Court found that punitive damages exceeding compensatory ones by more than a 9-to-1 ratio were constitutionally suspect. Toughest Job Of The Week GM (GM ) has a new boss at the wheel of its struggling business at home, and his background tells all about what the company needs most. Chairman and CEO G. Richard Wagoner Jr. on May 30 tapped labor relations man Troy Clarke, 51, now president of GM-Asia Pacific, to become the new president of GM-North America, which leaks red ink like a shoddy transmission. Before taking over in Asia two years ago, Clarke was group vice-president for manufacturing and labor relations and a chief negotiator for GM when it hammered out its 2003 contract with the United Auto Workers. While Clarke has good relations with the union, that doesn't mean it will back off at the bargaining table next year. Wagoner has won concessions on health-care costs and job cuts, but Clarke will have to slash health outlays even more, and analysts say he may also need to trim or even eliminate pay for laid-off workers. See "GM's New Man in North America"
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