Tobacco Reaches $8 Billion Settlement (Updated)

Also: Two big acquisitions, online help with FAS 133, Corning's big convertible offering and much more.

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Lorillard Tobacco and Liggett Group have agreed to an $8 billion deal to settle punitive-damage claims against them in nearly a dozen lawsuits pending in Federal court in New York, according to The Wall Street Journal’s electronic edition.

Perhaps more significantly, the deal would insulate the companies from punitive-damage awards now pending against them in other courts, according to the report.

Under the deal, the $8 billion would be paid over 30 years. Lorillard, the nation’s fourth- largest tobacco company, would pay $7.5 billion of the bill.

Under the supposed deal, the money would be used to underwrite a national public health trust fund to pay for smoking-cessation programs, medical monitoring and treatment of smoking-related illnesses.

You’ve Got Settlement

Another settlement that is supposedly in the works is one between the antitrust enforcers and merger partners America Online and Time Warner.

In this pact, the two companies would agree to open high-speed cable lines to at least one Internet Service Provider in each city served by Time Warner, according to The Wall Street Journal.

This agreement would be the last hurdle for the Internet and media giant to vault in their bid to receive approval of their merger from the Federal Trade Commission.

Broadcom Makes $2 Billion Deal

Acquisitive high-speed communications semiconductor maker Broadcom Corp. said it will shell out $2.07 billion in stock to buy privately-held processor chip maker SiByte Inc.

Broadcom, which has made a number of deals of late, wants to be a one-stop source for equipment and semiconductors.

The company said that it would issue up to 9.3 million shares of its common stock for SiByte. It said 5.6 million shares will be issued at the closing of the deal, expected in about 60 days. Another 3.7 million shares will be reserved for SiByte stockholders and option- holders when some performance goals are met.

Finding Crude Abroad

Consolidation continues in the oil patch.

Today, Amerada Hess said it will buy British oil-and-gas exploration company Lasmo PLC for about $3.5 billion in cash and stock.

Hess is paying about $2.4 billion in cash, and about 17.1 million common shares for Lasmo. Based on Hess’ and Lasmo’s stocks price at the official close on Friday, Hess is paying a 28% premium to complete the deal.

Hess said the transaction will add “significantly” to its oil-and-gas reserves and production holdings, and will result in one of the world’s largest exploration and production companies.

The company said the integration of Lasmo will add to its internal 2001 estimate of earnings and cash flow per share by 2.5% and 17.8% respectively.

Have You Been Recalled by Ford, Lately?

It’s once more, with pickup trucks, for Ford Motor.

The automaker said on Friday that it is recalling 709,245 F-150 and F-250 full-size pickup trucks in the United States. It seems that the fuel line assembly could come into contact with nearby components, wearing it out and causing a leak.

But, customers should not fret. Although Ford said it has received 191 warranty claims reporting the problem, none resulted in a highway accident, fire or injury. Well, that’s a consolation.

Ford also recalled the new Ford Escape small sport utility vehicle for the fourth time. In this case, a cap that is part of the speed control cable unit could crack and prevent the throttle from returning to the idle position. About 800 Escapes are involved in this round of recalls.

Hey, Is Anyone in Charge?

United Airlines said it would send two senior managers to contract talks with the union representing its 15,000 mechanics, at the request of the National Mediation Board.

Andy Studdert, United’s chief operating officer, and Bill Hobgood, its senior vice president in charge of human resources, joined the talks on Saturday.

The International Association of Machinists and Aerospace Workers union suspended contract talks because it felt that negotiators for UAL did not appear to have the authority to sign off on wage provisions.

FAS 133.com

Need help meeting the requirements of FAS 133?

PricewaterhouseCoopers and Gifford Fong Associates have launched a web site aimed at helping companies sort through all of the details of the new standard, called “Accounting for Derivative Investments and Hedging Activities.”

FAS 133, which became effective last June, requires all companies preparing financial statements that meet Generally Accepted Accounting Principles to mark their derivative holdings to market.

The site includes tools that help companies calculate the fair value of their derivatives, test hedge effectiveness, load and store their derivatives and prepare FAS 133-compliant reports. The site also makes available all four FAS 133-related tests.

Reach Out and Ask Jeeves

Spending millions on live humans to speak with your customers?

Well, Ask Jeeves will soon be offering to save you millions.

The Web-based search engine known for finding, or at least trying to find the answer to your questions, is teaming up with Nuance Communications Inc. and General Magic to offer Web-based information available to callers over the telephone.

They are developing technology that will be able to respond to complete spoken sentences rather than just single-word prompts. Their service also would no longer require customers to frustratingly answer a series of questions using their keypads in order to get basic information.

Their service will be aimed at companies that have built up expensive teams of humans offering customer service or filling e- commerce orders.

Research firm International Data Corp. estimates that companies spent $23 billion on call-center services in 1998 and will spend $58.6 billion in 2003.

Bank of America to Empty the Vault

Bank of America said on Friday that it would pay $35 million, plus interest and administration costs, to settle a class action suit tied to allegedly excessive trustee fees.

The settlement stems from a seven year-old dispute claiming that Security Pacific National Bank, subsequently acquired by Bank of America overcharged on trustee fees. BofA also might have to shell out another $12.5 million or $40 million because the settlement also allows some beneficiaries of prior court rulings to appeal.

Security Pacific, which merged with Bank of America in 1992, allegedly overcharged on fees for administering about 2,600 trusts.

In 1993 and 1994 Bank of America said it cut fees and refunded $24 million, plus another $18 million in interest.

The trust beneficiaries alleged that the bank’s interest refunds were inadequate and they were owed more money.

The bank has been insisting that it made full refunds. Even so, it decided to settle since it figures further litigation would be expensive.

The settlement is still subject to final court approval.

Losing Altitude on the Bottom Line

U.S. airlines are expected to report a collective loss for the fourth quarter and much lower net profit margins for all of 2000 due to the recent, sharp increase in jet fuel prices, according to David Swierenga, the top economist of the Air Transport Association, the industry’s trade group.

Specifically, the margins are expected to fall by 2.7 percentage points to 1.8 percent. However, they will probably rebound sharply in 2001 as energy prices begin to fall again.

Specifically, Swierenga predicted the industry would report a net loss in the fourth quarter, mainly because of the rising fuel costs. For the full year, net profits are expected to come in between $2.5 billion and $3 billion, down about 50% from the prior year.

Corning Raises $4.1 Billion

  • Corning Inc. on Friday raised about $4.1 billion from offerings of stock and convertible bonds to help it buy most of Optical Technologies USA from Pirelli SpA.

Corning sold $2 billion of 15-year zero-coupon bonds, almost double the initial $1.2 billion size, tying a record for the largest convertible sale this year. The bonds yield 2%, the bottom end of the company’s anticipated range of 2% to 2.5%. The bonds convert to Corning common at $89.06, a 25% conversion premium.

Corning raised simultaneously raised $2.1 billion from its sale of 30 million shares of common stock at $71.25 a pop.

From the CFO.com Briefcase

  • The European Central Bank intervened to prop up the Euro again on Monday after buying the battered currency twice on Friday.
  • VeloCom Inc., a U.S.-based communications services provider operating in Latin America, on Friday withdrew a $300 million initial public offering because of Unfavorable U.S. market conditions.
  • Southern California Edison and parent company Edison International sold $1.35 billion in debt in the 144a private placement market. The sale was arranged by Chase Securities and Lehman Brothers.
  • Motorcycle maker American Quantum Cycles said on Friday it could not service its $10 million in debt and doesn’t have the cash to continue normal operations. As a result, it is expected to file for Chapter 11 bankruptcy protection from its creditors. The company said its three biggest creditors petitioned the U.S. Bankruptcy Court in Orlando to push the company involuntarily into a Chapter 11 filing.

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