December 07, 2004
Merck Defense Team not Exactly Small
In an effort to avoid being stuck with liabilities that some say could reach $18 million, Merck has already hired a handful of lawfirms. This has come as a surprise to some as the company highly values its privacy, usually choosing to use its in-house lawyers.
Hughes Hubbard & Reed, a 300-lawyer New York law firm has been retained as the company's national counsel in the Vioxx suits. Reed Smith, Baker Botts, Dechert, and Venable have also been hired according to court documents. Merck could pay up to $100 million to these law firms in 2005 for litigation related to Vioxx, with as muc has $20 to $50 million going to the lead counsel. Although Hughes Hubbard & Reed look to be in the driver's seat right now for that lead counsel position, analysts warn that the makeup of Merck's legal team will likely change when all is said and done. Regardless of any changes, one thing is clear, Merck will not be suffering from a shortage of lawyers any time soon.
December 01, 2004
Companies Choosing to Settle More and More
The New York Law Journal reported on Tuesday that a pattern has emerged among companies with the recent crackdown on corporate misbehavior. They wish to settle.
Attorneys say that, unlike individuals accused of wrongdoing, companies believe that a quick settlement allows them to rebound from the allegations quicker than long, publicized court battle does. Even if lawyers think they have a strong case, companies are choosing to settle. Not only does the market view litigation adversly, regardless of the outcome, but due to the crackdown on short leash the government has given companies, companies are more likely to lose battles that they may have won in the past.
Not only are companies choosing to settle more frequently, but they are choosing to do so at the earliest possible chance, many times, immediately followowing the filing of a complaint. If a company chooses to not settle immediately, it risks indictment and certain bankruptcy.
Sarbanes Oxley Survives First Challenge
In the first court test of the Sarbanes Oxley Act U.S. District Judge Karen O. Bowdre rejected Richard Scrushy's argument that the act is unconstitutionally vague and should not be a part of the indictment accusing him of extensive fraud while he was cheif executive at HealthSouth.
Attorney's for Scrushy claimed that by using such phrases as "willfully certifies" and "fairly represents," the act makes it virtually impossible for corporate officers to tell if they are complying with the law and it is therefore unconstitutionally vague. In rejecting Scrushy's argument, Bowdre stated that jurors, not a judge should decide the key issues raised in Scrushy's case.
"If the jury finds that the reports did not fairly present, in all material aspects, the financial condition and results of operations of HealthSouth, the jury must then determine whether Mr. Scrushy willingly certified these reports knowing that the reports did not comport with the statute's accuracy requirements," she wrote.
Originally indicted last year, Scrushy became the first CEO charged under the Sarbanes Oxley Act. When asked to comment on Bowdre's ruling, the defense admitted that they were not surprised and stated that do not intend to appeal the ruling.
November 28, 2004
US Airways & GE Reach Financing Agreement
It was reported on Friday that US Airways and General Electric, the airline's largest creditor, have agreed on an aircraft leasing and financing deal that will free up $140 million in cash for US Airways in an effort to heal the struggling airline
The agreement will also reportedly save US Airways, which remains under bankruptcy court protection, more than $80 million per year in the future. As part of the deal, US Airways will also be able to lease up to 31 new 70 and 90-seat regional jets over the next three years from GE in an effort to jump start the airline's stalling strategy to expand its flight offerings to smaller markets.
In order for the deal to take effect, however, US Airways will have to jump a few hurdles. First off, it must acquire apprvoal for the deal from the bankruptcy court by December 17. Once approval is obtained, the airline then must then achieve certain cost cutting requirements by mid-January. This may be difficult considering much of the savings will need to come from concessions made by the airline's employees. Finally, the agreement requires the airline to step out of bankruptcy court protection by June 30.
November 23, 2004
Oracle Bid Once Again Rejected
Oracle's bid recieved support from from holders of nearly 61% of PeopleSoft's shares. Regardless of the support from the shareholders, Oracle was unable to take possession of the shares due to PeopleSoft's refusal to lift its poison pill provision. If Oracle were to take posession of the shares the provision would flood the market with newly issued shares, diluting Oracle's ownership stake and making acquisition of PeopleSoft pohibitively expensive. PeopleSoft has expressed a willingness to lift the poison pill, but only if the price is right.
In order to prevail now, Oracle must either raise its $24-a-share bid, proceed with what would likely be a lengthy proxy battle or get help from the Delaware judge ruling on the legality of PeopleSoft's poison-pill antitakeover defense. Of course, at the rate things have been going, Oracle is also probably seriously considering just walking away and seeking out other acquisitions. In an efffort to avoid that from becoming necessary, Oracle has extended its deadline for the $9.2 million offer to December 31.
November 19, 2004
CEO of SC Johnson & Sons to Lead Nike
The Milwaukee Journal Sentinel reports that William Perez, current president and CEO of Racine, Wis.-based S.C. Johnson & Sons, will become the new president and CEO of Nike, the world's dominant athletic shoe producer. He takes over for Phil Knight, the current president and CEO who co-founded the company in 1968 and sold shoes out of his car. Perez was a salesman for S.C. Johnson starting 34 years ago and worked his way up to the top positon in the company in 1997. S.C. Johnson will return to family leadership, with current chairman H. Fisk Johnson, son of former CEO C. Samuel Johnson, taking over the reins of the consumer products company. Perez's salary will be $1.35 million, with bonuses of up to 125 percent of his salary.
November 18, 2004
Wisconsin Statute Automatically Pierces Corporate Veil
On November 10, in the case of Rayner v. Reeves Custom Builders Inc., the Wisconsin Court of Appeals, held that the consumer protection provisions of Wis. Admin. Code sec. ATCP 110 autmotically pierced the corporate viel due to the way in which the code defines "seller."
In the case, Reeves Custom Builders, Inc had been hired by the plaintiffs to perform remodeling services on their house. The plaintiffs became dissatisfied with the work and eventually sued not only the company itself, but Arthur and Beth Reeves in their capacity as owners and officers of the company.
Arthur and Beth claimed that they were protected from being held personally liable under the theory of limited liability. The court, however, saw it differently. In making its decision, the court relied on the consumer protection provisions in the Wisconsin Administrative Code. The section the court relied on defined sellers as "persons engaged in the business of making or selling home improvements and includes corporations...and any other form of business organization or entity, and their officers, representatives, agents and employees." The section also made sellers personally liable for their actions. The court held that the definition of seller in the section specifically pierces the corporate veil and held Arthur and Beth personally liable due to the fact that they were officers of the company.
While the Reeves claimed this holding would abrogate centuries of corporation limited liability law and give plaintiffs carte blanche to sue even mere employees, the court disagreed. The court pointed out that its holding only made individuals liable as sellers when they commit violations of their own volition and not for any wrongdoing that can be imputed to the corporate entity.
While the case certainly weakens corporate veil, it is important to note that the court didn't come to its decision lightly. While the court held felt the legislature had intended to pierce the corporate veil with the statute, it seems as though it may not have come to the same decision if it didn't think it was making the right policy decision.
November 15, 2004
New Section of Sarbanes Oxley to Go Into Effect
Law.com reports that many public companies are racing to with setion 404 of the Sarbanes Oxley Act which goes into effect today. The section requires requires companies to set up and test internal financial financial controls for items such as cash balances and inventory in an effort to ensure accuracy.
In addition to the adopting internal controls, companies must also submit to regular financial audits and retain outside auditors to check and approve their internal controls. Essentially this means that companies must now submit to two audits, one for the numbers and one for the controls.
While the cost of compliance will likely become more reasonable as companies become more familiar with section 404, on average, public companies are expected to pay an average of $3.1 million to comply with section 404 this year.
November 10, 2004
Marsh & McLennan to Lay off 3,000 Workers
The associated press reported yesterday that the world's largest insurance brokerage business, Marsh & McLennan Cos., has announced that it will lay off 3,000 employees, about 5% of the company's global workforce.
The move comes as the company scrambles to deal with the fallout from civil charges filed last month by New York Attorney General Elliot Spitzer alleging improper conduct by the company. The claims allege that the company cheated its clients by rigging bids for insurance contracts and steering businesss to firms that paid Marsh contingent commissions, payments that Spitzer has compared to kickbacks.
Since Spitzer announced his investigation on October 14, the value of the Marsh's shares has fallen by more than 40%. Third-quarter profits of the company also fell to $21 million, down 94% from the $357 million profit the company reported in last year's third quarter. Earnings of the company also have fallen drastically as the result of a $232 million reserve that that was created to settle the Spitzer charges.
The company said most of the 3000 layoffs would come in its risk and insurance business, but addmitted that other areas of the company such as its Putnam asset management subsidiary and its Mercer human resources consulting businesses would be affected by the layoffs as well. The company also noted that, unfortunately, more layoffs may follow in the future.
November 08, 2004
News Corp. Protecting Against Takeover
Last week, Liberty Media began a transaction that could increase its voting share in News Corp from 9% to 17%. This move raised speculation that Liberty's chairman, John Malone, might be planning a takeover bid of News Corp.
In response to Liberty's actions last week, News Corp. announced on Monday that it would give its shareholders the right to buy one News Corp. share at half price for each share they own if any party buys a 15% interest in the company. This offer, known as a "poison pill" would make it much more expensive for Liberty to purchase the shares it would need to in order to be successful in a takeover effort.
A spokesman for News Corp. said it was too early to tell what Liberty's intentions were, but that the company was not treating them as friendly. The poison pill provision should help protect News Corp. if Liberty's intentions do turn out to be in conflict with News Corp.'s interest.