A Great Leap Forward for Executive Pay — Stock Options Propelled Gains By CEOs in ’88

In an analysis of compensation at 40 of the top 100 U.S. companies, Towers Perrin, a consulting company, found that salaries and bonuses in general (not counting stock options or other long-term incentives), were up sharply in 1988. Chief executives at 26 out of the 40 surveyed companies had salaries and bonuses in excess of $1 million. The median annual salary and bonus payment for chief executive officers in the 40-company study was $1.2 million, up 14.4% from 1987. The really big gains in compensation, however, came from the exercise of stock options. Towers Perrin found that the median gain from the exercise of stock options for chief executives was $916,936, up 40% from $653,592 the year before. And the trend is likely to continue. Big stock-option grants don’t automatically mean big profits for executives, because the gain is realized only if and when the stock price rises and the executive exercises his or her option by buying the shares. But many stock-option grants these days are so large that even a small increase in stock price could yield sizable payouts. Last year Ralston Purina gave some top executives options for stock valued at more than 10 times annual salary and bonus.
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By Amanda Bennett

Full text: [Wall Street Journal] Apr 24, 1989

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Preventing Another S&L Disaster

It leads to another flaw in the Senate’s bill. What if an S&L doesn’t have enough capital? A good regulatory system orders it not to try to expand until it gets into compliance. The Senate’s bill, in contrast, would let it continue to expand even while remaining short of capital. Some of the S&L operators apparently fought the no-growth rule furiously; they play financial games that depend on quick growth to raise stock prices. The trouble with those games is that they are played with the public’s money-customers’ deposits backed by federal deposit insurance.
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Full text: [The Washington Post (pre-1997 Fulltext)] Apr 24, 1989

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Stock market doldrums frustrate options traders

If the stock price remains below the exercise price of the option _ as it likely will in a flat market _ they pocket the premium, thereby increasing their yield. If the stock price drops, the premium has the effect of lowering the original cost per share, thereby reducing losses. The only risk is that the stock price will rise above the exercise price _ and the shares will be called. But investors keep the premium. For the Polaroid combination, with the recent stock price at $37.50 U.S., you’d sell the July $40 calls and the July $35 puts, for a total premium of about $2. Although this strategy has some risk on the downside _ if, for example, the underlying stock declines dramatically during the period of the put option _ it’s protected on the upside because the call option is covered by the stock you bought. [Richard Croft] recommends three stocks for this strategy: PWA, trading at $15.50; the October $15 call option is about $1.75; General Motors (US) at $39.75; the September $40 call option is about $2.25; and Salomon Brothers (US) at $24.38; the July $25 call option is about $1.50.
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Deborah Read

Full text: [The Ottawa Citizen] Apr 24, 1989

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Occupational Urgent Care Turns Into a Cash Cow

A $10,000 investment a year ago in the stock of Occupational Urgent Care Health Systems Inc. would have been worth about $25,240 by last week when shares were trading at a bit more than $13. That run-up in value for 7-year-old OUCH, as the company is called, reflects its growing credibility in the medical cost-containment industry. It also reflects a subsequent ebb in what had been rampant short-selling — an investment strategy that profits when a stock’s price goes down. But the increased price of the stock also reflects a balance sheet and profit margin that makes the company look like it has a license to print money. That is remarkable in light of the company’s expansion into Texas and New Mexico late last year. (excerpt)
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Davis, Kurt

Full text: [The Business Journal; Sacramento] Apr 24, 1989

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McClatchy’s Death Could Presage Massive Changes

The death last week of C.K. McClatchy could mark the end of an era for McClatchy Newspapers Inc.-an era of more than 130 years of closely orchestrated family control. It also may coincide with the end of a shorter, five-year era at The Sacramento Bee if persistent rumors prove correct that executive editor Gregory Favre is pondering a return to the Atlanta Journal and Constitution, where he worked earlier in his career. Favre and Atlanta Journal editor Arnold Rosenfeld both declined comment on the rumors last week. But in Atlanta, a radio station last Tuesday expounded on earlier reports that Favre is one of three candidates for the post. Sources inside the paper insist that Favre is viewed as “the golden boy” among the three, said an Atlanta newspaper publisher who asked not to be named. (excerpt)
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Larson, Mark

Full text: [The Business Journal; Sacramento] Apr 24, 1989

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Campbell Soup Expects Drop in Earnings

President R. Gordon McGovern said Cambell earnings for its fiscal 1989 third quarter are expected to be hurt by unfavorable currency translations in Argentina and the effect of the recent run-up in Campbell’s stock price on expense accruals for the management-incentive program.
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Full text: [Omaha World - Herald] Apr 24, 1989

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U.S. holds its own vs. world Japanese, Germans look on with respect, envy Series: Vanishing borders: Trade in the 1990s.This is the second in a series of articles on the global economy and how it is changing the course of nations.

For the Advanced Micro Devices (AMD) executives who made the decision to build the $113 million plant, it was close to a bet-the-company move. It was invest or die. Rocked by Japanese competition, the Silicon Valley firm lost money in two of the last three years, and its stock price has languished at half its 1980s’ high. Chipmakers are among the pioneers in global competition, so AMD has had a head start in learning how to deal with the rough play of the global marketplace. As the global economy inexorably expands, reaching into the workings of more and more industries and into the lives of more and more workers, many businesses like AMD are learning that the forces that have seemed so threatening also hold out great opportunity. Tribune correspondents assessing economic globalization in the three countries found that many companies abroad view their American competitors with deep respect, even envy. And it turns out that America hardly has an exclusive franchise on hand-wringing-worries about the advantages of competitors abroad, including American companies, are global.
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Merrill Goozner, Chicago Tribune.

Full text: [Chicago Tribune (pre-1997 Fulltext)] Apr 24, 1989

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AT&T Wins Back Some Old Friends on Wall Street

AT&T stock prices are increasing, after decades at a stable, unchanged price. The fluctuation is discussed.
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Full text: [Chicago Tribune] Apr 24, 1989

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Eastern Utilites Associates Launches Tender Offers for UNITIL and Fitchburg Gas and Electric Light Co.

Eastern Utilities Associates (EUA) announced Monday that it has commenced cash tender offers to shareholders of UNITIL Corp. in New Hampshire and Fitchburg Gas and Electric Light Co. in Massachusetts. EUA’s offer for UNITIL is for all outstanding common shares at a price of $40 per share net. EUA’s offer for Fitchburg is for all outstanding common shares at a price of $36 per share net. The offers and withdrawal rights expire at midnight, EDT on Friday, May 19, 1989, unless extended. Commenting on the tender offers, John F.G. Eichorn Jr., chairman of EUA said, “It would be in the best interests of the companies’ respective customers, shareholders and employees, and the New England region if UNITIL and Fitchburg were to become part of the EUA System. “Benefits should be reflected in the ability of the larger, combined system to be more competitive in energy markets and operating economies to the advantage of customers, broader professional growth opportunities for employees, and greater access at more favorable terms to capital markets,” he concluded. (excerpt)
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Pardus, Donald G.

Full text: [Business Wire] Apr 24, 1989

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Dell Computer Hits the Drawing Board

Dell Computer Corp. is enhancing its technical skills in order to become an innovator. The new strategy is not surprising, given the sophisticated customers Dell is attracting. Nearly half of its 1988 sales came from high-end personal computers (PC) based on Intel Corp.’s 80386 microprocessor. Glenn Henry, senior vice-president of product development, plans to file applications for 9 patents and may produce a clone of the IBM Personal System/2 in 1989. Henry wants Dell PCs to incorporate advances such as video-quality graphics and natural language programming before IBM does. With a $7-million research and development budget, Dell is going up against the several hundred million dollars that IBM spends. Dell still has to deal with its financial situation. In October 1988, the company had no cash, due to investment in plant and inventory. The answer may be found in overseas expansion. Dell expects its 1989 sales in the UK to double from 1988′s $40 million.
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Kelly, Kevin

Full text: [Business Week] Apr 24, 1989

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Cummins Engine On The Fast Track

Cummins Engine is the world’s largest independent maker of diesel engines, and its stock price has jumped rapidly. A British investment group wants to buy Cummins, but the management intends to keep the company independent.
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Full text: [Business Week] Apr 24, 1989

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Super Valu Stores Inc.

Super Valu Stores Inc. is seeing earnings revive following a lull during 1987 and 1988. In fiscal 1989, which ended late in February 1989, net income rose by 21% to $135.4 million, or $1.81 per share, and sales rose 9.9% to a record $10.3 billion. Return on equity rose to 18.6%, while return on capital employed grew to 10.4%. Super Valu’s exit from a money-losing food retailing venture in Atlanta contributed to the earnings rebound. The firm hopes to sustain the favorable earnings trend with its version of the hypermarket. Called Twin Valu, it combines the best of Super Valu’s outsized Cub Foods stores and its Shopko general merchandise discount chain. The hypermarkets, the first of which has opened in Cleveland, will have 180,000 square feet of space and be less intimidating than other giant stores. Meanwhile, Cub Foods, the equivalent of a major food chain, will add 16 new stores in 1990, and Shopko aims to become the Northwest’s dominant discount retailer by 1992.
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Byrne, Harlan S.

Full text: [Barron's National Business and Financial Weekly] Apr 24, 1989

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Signal Recovery Analogic’s Profits

Following 2 difficult years of losses (excluding revenue from the sale of its share in the joint venture with Siemens’ Medical Electronics Laboratories) Analogic Corp. (Peabody, Massachusetts) seems ready to return to profitability. Management has approached the firm’s problems logically. Analogic has spent steadily on new product development, installed a major cost reduction plan, and streamlined operations by consolidating production operations and reducing staff. The company has also made strategic investments in such high-technology firms as New England Digital, Crystal Semiconductor, and Imatron, and it is considering acquisitions in the test and measurement equipment business. However, further work needs to be done in repairing damage at its 2 key businesses – industrial products and analog-to-digital converters. Without extraordinary gains, earnings for fiscal 1989 could reach 70 cents a share on revenue of $140 million, and the firm’s balance sheet is in good shape.
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Savitz, Eric J.

Full text: [Barron's National Business and Financial Weekly] Apr 24, 1989

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Center Folds An Underwriter Of Penny

By the time the brokerage firm of Investors Center (Hauppauge, New York) was placed under the control of a temporary court-appointed receiver at the request of the Securities Investor Protection Corp. in February 1989, as many as 100,000 investors may have been victimized by the underwriter of penny stocks. After a 5-year rise in which its staff expanded to an aggressive 850-person salesforce, Investors Center was forced out of business when customers, en masse, began demanding that stocks be sold, and a stream of brokers left the firm. In a few days, several hundred million dollars of paper value was extinguished when bids on almost all the firm’s stocks collapsed. Although it is too soon to know, the firm may have engaged in the practice of secretly controlling the public float of the company’s stocks as part of a Ponzi scheme. However, even if fraud can be proven, investors, while entitled to compensation, probably will not receive anything.
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Schiff, David

Full text: [Barron's National Business and Financial Weekly] Apr 24, 1989

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Bit By Bit Bloody But Unbowed Oil-Service Companies

The US oil industry will spend less this year – $10.9 billion – on drilling, exploration, and production than it has in any year since 1973. However, oil service companies may be seeing the end of the hard times that have characterized the 1980s. Firmer oil prices, greatly reduced drilling costs, and new techniques enhance the prospect of a recovery. This recovery will be shared by the relatively few oil service companies that remain in decent financial condition after the shakeout. Baker Hughes Inc. has shed a number of businesses and is now focusing on areas where it has a technological edge, including innovative cased hole-testing tools and horizontal drilling. After massive downsizing, Halliburton Co. is emphasizing horizontal drilling and completion technologies, and it has made some acquisitions. Schlumberger Ltd. is concentrating on its core energy businesses, and Dresser Industries remains a diversified and profitable energy presence.
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Samghabadi, Raji

Full text: [Barron's National Business and Financial Weekly] Apr 24, 1989

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Ahead Of The News Buy When It’s Bad, Sell

The key to profitable investing is to keep news in its proper perspective. When an extreme is reached, it should be regarded as an opportunity to profit by acting counter to the headlines and the mood on Wall Street. In this regard, the old Wall Street adage “Buy on the bad news” is correct, but with the following caveat: Shares should only be bought in companies that have been investigated. Conversely, good news may present an excellent opportunity to sell. Often, the better the news about a comnpany is, the closer its stock is to a high. For example, General Motors recently reported all-time high earnings, boosted its dividend, and split its stock. The good news bulls ignored the firm’s negatives and rushed in to buy stock, boosting the stock to 94 5/8 per share. Within a few weeks, however, GM’s shares were down by 10%. In short, whereas the average investor usually tries to think logically and act rationally based on the news of the day, the market is anticipating events that will occur tomorrow.
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Fadem, Rod

Full text: [Barron's National Business and Financial Weekly] Apr 24, 1989

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Sought-After Airline Has Lock on Markets

The takeover battle for Northwest Airlines isn’t just another raider vs. hometown saga. Analysts say that no matter who wins, it is proof that the most profitable airlines are those with monopolies in their markets. Late last week, Northwest, which is being pursued by oil millionaire Marvin Davis and other investors, reported record first-quarter profits after posting a big loss during the same quarter last year. Northwest’s emergence as a sought-after company stretches back to 1986, when Chairman Steven G. Rothmeier launched a takeover of his main competitor Republic Airlines. (excerpt)
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Field, David

Full text: [Washington Times] Apr 25, 1989

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Wall Street’s Great White Shark Is Back

A year and a half after Black Monday, increasing numbers of individual investors once again are testing the waters of the stock market. But just when they thought it was safe to go back into the water, they are hearing reports that the great white shark of Wall Street — program trading — is back. Some recent sightings: The Dow surged 72.40 points last week as program traders sold futures on the market indexes and bought the underlying stocks. (Stock prices drifted lower yesterday as traders cashed in on the recent gains in the market.) Indeed, hardly a week goes by without new reports of market swings caused by program traders taking advantage of minuscule differences between stock and stock index futures prices by buying one and selling the other. The term program trading used to be associated with the fairly benign maneuvering of large stock portfolios, undertaken by Wall Street trading desks to quickly liquidate a client’s trust, or to rearrange institutional stock portfolios to minimize risk. But since the advent of stock index futures and options in the early 1980s, it has come to refer to the sudden sales or purchases of market baskets containing many hundreds of thousands of shares of blue-chip stocks, occasioned purely by price changes in the futures pits.
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By Charles R. Schwab

Full text: [Wall Street Journal] Apr 25, 1989

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Face-off: Paying business’s top brass;Big executive salaries are out of hand

Those whose weekly paychecks dwarf the median income of a family of four say they’re charging what the market will bear. The market will bear anything, like the killer drugs that flood our cities. There’s nothing magic about a market, but there’s something fishy and outrageous about boards of directors that offer huge sums as compensation; stockholders are being taken to the cleaners! Some executives who earn megabucks preside over companies where income, stock prices and dividends are falling. Others cashed hefty paychecks even as they laid off hundreds or asked thousands to take pay cuts.
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Julianne Malveaux

Full text: [USA TODAY (pre-1997 Fulltext)] Apr 25, 1989

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Apple adopts poison-pill plan to fend off takeover attempts

Analysts said the move indicated that Apple believes its stock price does not reflect the company’s value or its potential growth, and a statement by chairman John Sculley supported this view. ”In the present market environment, shareholders can be at risk of being forced to give up their ownership with too little time to maximize the full potential of their investment,” Sculley said. ”The Apple shareholder rights plan adds a substantial amount of protection for our shareholders.” The plan also permits shareholders under certain circumstances to buy additional Apple shares at a substantial discount, perhaps by as much as half the stock’s market price. Shareholders would gain the right to make such a purchase 10 days after any entity acquires 20 per cent of Apple’s stock or announces a tender offer for at least 30 per cent of the company.
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Paul Freiberger

Full text: [The Ottawa Citizen] Apr 25, 1989

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