No fraud in $1.5B Genesco buyout: Judge

Rival retailer The Finish Line must complete buyout after its case, alleging Genesco fraud, is dismissed.

NASHVILLE, Tenn. (AP) -- A judge ruled Thursday that Genesco executives did not commit fraud during negotiations over a $1.5 billion acquisition and that fellow mall retailer The Finish Line must complete the purchase.
Nashville Chancellor Ellen Hobbs Lyle dismissed Finish Line's claims that Genesco withheld key financial information that could have signaled worse-than-expected earnings after the deal closed in June.
Lyle said Indianapolis-based Finish Line and investment bank UBS were sophisticated enough to know what they were getting into with the $54.50-per-share purchase.
The buyout was conducted by "teams of lawyers, advisers and handlers being paid enormous sums to orchestrate the procedure for obtaining information" she wrote.
"This milieu is UBS' home territory," Lyle said.
UBS has filed a separate federal lawsuit in New York asking that its commitment to finance most of the deal be declared void because the combined entity would go bankrupt and default on its debt payments.
That case is still pending, but Lyle disagreed that the combined company would be doomed.
"The merger has a reasonable chance of succeeding," she said.
UBS (UBS) issued a statement saying it disagrees with the court and believes "there are material issues in our client's and UBS' favor in this matter."
"We have consistently stood with our client in its position on this transaction and have been prepared to fund the transaction if the conditions of the financing are met."
Nashville-based Genesco operates 2,000 retail stores in the United States and Canada under brand names like Journeys, Johnston & Murphy and Hat Shack, and is about twice the size of Finish Line.
Genesco rejected a slightly less generous buyout offer from Foot Locker (FL, Fortune 500) in favor of the highly leveraged deal from Finish Line (FINL).
Lyle said making Finish Line simply pay damages to Genesco wouldn't have been enough to repair the harm done by the attempt to get out of the deal.
"Genesco's business has been irreparably harmed as a result of the stalled merger," Lyle said in the ruling. "Genesco's business is in a state of limbo."
Target 'first casualty of the holiday season'
The negative effects of the court battle included dwindling stock prices, damaged vendor relationships and low employee morale, she said.
Genesco's (GCO) earnings swung to a loss in the second quarter and dropped 65 percent in the third quarter, but Lyle declined to find that Genesco had suffered a specific financial flaw that prevents it from making money.
"Genesco's decline in performance in 2007 is due to general economic conditions such as higher gasoline, heating oil and food prices, housing and mortgage issues, and increased consumer debt loads," she said.

Why companies need owners

Today's CEOs are accountable to no one, says shareholder activist Bob Monks.
By Marc Gunther

NEW YORK (Fortune) -- "What this company needs is an owner," declared Sam Zell, after completing the $8.2 billion deal that put him in charge of the Tribune Co., which owns newspapers including the Chicago Tribune, the Los Angeles Times and Newsday. "It needs someone who accepts the responsibility for what this company does."
How true. Whether Zell, as a committed owner, will help save newspapers is an open question. But the fact that the real estate billionaire has a lot of skin in the game - $315 million of his money, plus the right to buy up to 40 percent of the company down the line - means that he, and his people, will be very focused on getting the job done.
All companies need owners who are engaged, committed and, ideally, thinking about long term. So argues Robert A.G. Monks, the shareholder activist, author, lawyer, entrepreneur and corporate director in a new book, called "Corpocracy: How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine - and How to Get It Back" (Wiley, 2007, $29.95).
Corporacy is not a pretty word, but this is not a pretty story. Shareholders of most Fortune 500 companies are so dispersed and unorganized and disempowered that CEOs are accountable to no one but themselves, Monks argues.
"A venture with one million shareholders ultimately has no real owner," he says.
The result, he argues, are the by-now familiar horror stories about excessive CEO pay, lavish severance payments for failed leaders, rejiggering of stock options and the like.
Monks writes: "History will look back on the 1990s and early 2000s as a time when the principal officers of public American corporations transferred from shareholders to themselves approximately $1 trillion - or 10 percent of the market value of public exchanges. This must be the largest peacetime movement of wealth ever recorded, and it was accomplished through stealth that amounted to theft and in a spirit of regulatory permissiveness that certainly rises near to the level of criminal neglect."
Such rhetoric aside, Bob Monks is no wild-eyed left-winger. He believes that capitalism and corporations "provide the best chance for humankind to improve its lot on earth." But like Franklin D. Roosevelt, whose administration created the Securities and Exchange Commission and modern-day securities law, Monks is a product of the world of the well born, the WASP establishment and Harvard University who wants to save capitalism from its own excesses. A biography of Monks published a few years back was called "A Traitor to His Class."
At 74, Monks has toiled for decades in the field dryly known as corporate governance, which, in fact, is all about power and accountability. He is a founder of Institutional Shareholder Services, a company formed to advise shareholders on proxy votes; of the LENS Fund, a successful activist investment fund; and of The Corporate Library, which analyzes corporate governance and ranks boards of directors. All these enterprises aim to shift the balance of power away from hired managers and toward active owners.
Surveying the landscape of corporate governance today, Monks is outraged. He skewers familiar targets - the Home Depot (XOM,Fortune 500) shareholder meeting where most of the directors didn't bother to show up, the imperial leadership of former ExxonMobil (XOM,Fortune 500) CEO Lee Raymond, the $198 million payout to former Pfizer (PFE, Fortune 500) CEO Hank McKinnell after five years of sub-par performance. Recent SEC rulings that make it all but impossible for shareholders to nominate their own candidates for corporate boards mean that shareholder democracy remains an oxymoron.
Monks finds a few heroes, as well. He's a fan of Warren Buffett, the model of an active owner, and of Jeff Immelt, the General Electric (GE,Fortune 500) CEO who works without an employment contract and for a modest wage, by today's standards. He praises institutional investors like Hermes Investment Management Co., a British pension fund, and the Norwegian Government Pension Fund because they make long-term capital investments and actively exercise their ownership rights. He calls on public-purpose organizations like Harvard and the Gates Foundation, which owns billions of dollars of equities, to do the same.
At the heart of his life's work is Monks' belief that engaged owners (as opposed to speculators or short-term shareholders) are more likely to guide corporations in ways that align with the common good. This, he says, is because owners who take a long-term view want more than a return on their investments; they want to live in a healthy, just and peaceful world, and so they want corporations to be a force for good.
This argument is hard, if not impossible, to prove, but there's logic to it. Homeowners, after all, are more apt than renters to take care of their property, invest in their neighborhoods and exercise their duty as citizens.
But even if corporations with engaged owners act no more responsibly than others, there's little doubt that CEOs, like the rest of us, benefit from strong oversight. Just the fact that Sam Zell is minding the store should bring new energy to Tribune.

Stock comeback seen

U.S. futures edge higher as talk of bank asset sales could help markets recover from selloff on Pakistan strife.

NEW YORK (CNNMoney.com) -- Wall Street is set to recover slightly Friday after a big selloff on the assassination of Pakistan's ex-prime minister, with talk of big bank asset sales helping to boost futures.
At 6:25 a.m. ET, Nasdaq and S&P futures were higher.
The Wall Street Journal reported Friday that major U.S. and European banks, including Citigroup (C, Fortune 500) and Britain's HSBC (HBC), are considering the sale of branches and various units. The sales would be an effort to recover from the hit the banks have taken in 2007 from the global credit crunch.
Asian markets tumbled in the first trading following the slaying of Benazir Bhutto. Japan's Nikkei index was down 1.7 percent in the final trading session of 2007, with the Nikkei ending the year 11.1 percent lower than a year earlier.
Oil was slightly higher. U.S. light crude gained 7 cents to $96.69 a barrel in electronic trading.
The dollar fell against the euro and yen.
After the opening bell, the government will issue its report on new home sales for November. Economists surveyed by Briefing.com expect a decline in the annual rate to 715,000 from 728,000 in October.
Among stocks in the news Friday: Berkshire Hathaway (BRK.A), Genesco (GCO) and GlaxoSmithKline (GSK).

Regulators step in at troubled ACA Capital

Bond insurer relinquishes authority to Maryland Insurance Administration; S&P earlier downgraded ACA.

NEW YORK (AP) -- The bond insurance unit of ACA Capital Holdings Inc. has agreed to turn over substantial control to Maryland insurance regulators, the company said in a Securities and Exchange Commission filing late Wednesday.
The agreement with the Maryland Insurance Administration gives regulators the authority to approve or reject any deals made by ACA to pledge assets, pay dividends or engage in "certain material transactions." ACA's bond unit also agreed not to object to any move by regulators to declare it delinquent on its obligations.
ACA has faced doubts over its future since Dec. 19, when Standard & Poor's downgraded ACA Financial Guaranty Corp. to the junk "CCC" rating from an investment-grade "A" rating. Like other bond insurers, ACA has substantial exposure to weakening credit markets, which has led to speculation it could have difficulty meeting its insurance obligations if defaults worsened.
In the SEC filing, ACA said that its insurance contracts typically include provisions that would have required it to post collateral in the event of a rating downgrade -- at least $1.7 billion in collateral based on its Sept. 30 obligations, ACA said. But, the company said it has received a waiver on those additional collateral requirements through Jan. 18.
ACA also said that it entered into the deal with Maryland regulators before the S&P downgrade.

Citi could cut dividend by 40%

Goldman Sachs analysts said the bank might write down billions more than expected and cut its dividend to preserve capital.

NEW YORK (AP) -- Citigroup could cut its dividend by 40 percent and write down billions of dollars more than expected in the fourth quarter, Goldman Sachs analysts said, forcing it to raise even more capital than it already has.
"Although we have seen many firms take the appropriate actions in recent weeks as they relate to write-downs and capital raises, we still believe it will be a couple of quarters before the current credit crisis is fully digested by the markets," wrote Goldman analysts William F. Tanona, Betsy Miller and Neil C. Sanyal in a note to investors late Wednesday.
The analysts said Citi could write off as much as $18.7 billion in the fourth quarter.
Goldman's projection estimates write-offs as much as 70 percent higher than the $8 billion to $11 billion Citi forecast in early November, when it ousted Chief Executive Charles Prince as the extent of its bad bets in mortgage-related debt became known.
They also suggested the bank could cut its dividend by 40 percent and may need to raise $5 billion to $10 billion more cash.
That would come on top of a $7.5 billion infusion Citi received when it sold a 4.9 percent stake to the Abu Dhabi Investment Authority in late November.
Goldman increased its estimate for a fourth-quarter loss to $1.33 per share, from 52 cents per share, based on the higher writedown prediction. Analysts polled by Thomson Financial, on average, predict a loss of 63 cents per share for the fourth quarter, which ends Monday.
Citi (C, Fortune 500) shares edged down 15 cents in premarket trading, from their close Wednesday at $30.45.
CIBC perdicts more losses for Merrill Lynch
The Goldman team also said they expect an additional $11.5 billion write-off from Merrill Lynch & Co., and increased their loss estimate for the broker to $7 per share for its fourth quarter, versus a prior forecast for a loss of $1.50 per share. Wall Street, on average, expects Merrill to report a loss of $2.78 per share, according to Thomson Financial.
Merrill (MER, Fortune 500) shares were trading flat in the premarket from their $54.54 close.
For JPMorgan, the Goldman analysts see a $3.4 billion writedown, and cut their profit estimate to 65 cents per share, from $1.04, noting in particular concerns about "higher charge-offs and provisions for the firm's consumer business, particularly credit cards and mortgage."
Analysts, on average, see JPMorgan (JPM, Fortune 500) posting a profit of $1.03 per share, according to Thomson Financial. JPMorgan shares closed at $44.94 Wednesday and were trading down slightly in very light trading early Thursday.

Pakistan violence could hurt stocks

Reports of death of Bhutto in suicide attack turns futures lower.

NEW YORK (CNNMoney.com) -- Stock futures turned lower early Thursday after former Pakistani Prime Minister Benazir Bhutto was killed in a suicide attack leaving a rally in Rawalpindi, Pakistan.
At 8:35 a.m. ET, Nasdaq futures were down after being up slightly before the first reports of her death shortly after 8 a.m., while S&P futures fell further into negative territory.
Trading had been expected to be light as many market participants continue their year-end holiday celebration, which could add to market volatility.

Oil was slightly higher ahead of the government's weekly inventory report, as prices rose from earlier lows following the report of Bhutto's dealth. U.S. light crude was up 8 cents to $96.05 a barrel in electronic trading.
Asian markets ended mostly higher, although Tokyo's Nikkei index lost 0.6 percent.European stocks gained ground, as London returned from an extended holiday, although those markets also fell off of earlier highs.
The dollar was flat against the euro and lower versus the yen.
Economic reports showed much weaker demand for durable goods than had been forecasts as November orders were up only 0.1 percent, rather than the 2.2 percent jump that had been forecast. Weekly initial jobless claims came in higher than forecasts.
The latest reading on consumer confidence for December will be released at 10 a.m. ET.
In corporate news, Internet search leader Google ( GOOG, Fortune 500) suffered a legal setback when a federal appeals court revived a patent infringement claim by HyperPhrase Technologies that had been dismissed earlier in the month.
Wal-Mart Stores (WMT, Fortune 500), the world's largest retailer, announced late Wednesday it is having problems processing gift cards due to what it described as an error in a third-party verifier's systems.
Hollywood had a good weekend ahead of Christmas, with a total box office of $160 million, up 34 percent from a year earlier. The leading movie was "National Treasure: Book of Secrets" from Walt Disney (DIS, Fortune 500), which sold $65.4 million in tickets over the extended five-day holiday.
Student lender Sallie Mae (SLM, Fortune 500) announced plans late Wednesday to sell common and mandatory convertible preferred stock in order to raise $2.5 billion. Shares lost nearly 6 percent in after-hours trading on the news.
The Wall Street Journal reported that News Corp. (NWS, Fortune 500) unit Twentieth Century Fox and Apple (AAPL, Fortune 500) are preparing to announce a deal in which Fox movies would be available for rent digitally through Apple's iTunes store.

Beware the dreaded R word

You don't know whether we're in a recession until months after it starts. But investing successfully requires looking forward, not backward.
By Allan Sloan , senior editor at large

(Fortune Magazine) -- Everyone and his brother seems to be talking about recession these days. It dominates every public investment discussion and is the topic 24/7 on cable TV. But let me tell you a little secret: When it comes to investing, the question of whether we're in a recession (or are heading for one) just doesn't matter.
How in the name of Alan Greenspan, Ben Bernanke and all the other economic saints and seers can I be so dismissive of something that's attracting so much attention? Because while the economy obviously matters a lot, both politically and economically, the "R" word is irrelevant to people who want to know how to place their bets on the markets.
Gather around the campfire, folks, and I'll tell you why.
It's actually elementary. Investing successfully is about looking ahead, while determining whether we're in a recession involves looking behind. Way behind. We won't know that a recession has started until months after it's begun. And by that time, things in the economy may well be getting better rather than worse - which might make it a good time to invest.
Now, exactly what is a recession? Opinions vary. Many people think that a recession is defined as two consecutive quarters in which "real" gross domestic product - GDP adjusted for inflation - declines. If you accept that definition, which I don't, you don't find out that a recession is underway until six months - two calendar quarters - after it has started. (Sorry, too late!) If you use what I consider the proper definition - a declaration by the National Bureau of Economic Research's business cycle dating committee that the economy has peaked - you may have to wait even longer. Nevertheless, I prefer the NBER version because it's the collective opinion of seven savvy people rather than a rote formula.
"We wait long enough so that the existence of a recession is not at all in doubt," Bob Hall, a Stanford business professor who chairs the cycle dating committee, told me in an e-mail. "We concentrate on finding the date of the peak in activity, usually at a time the press [has] lost interest in the question of whether we are in a downturn." Typically, Hall wrote, the committee makes its call six to 18 months after the downturn started - or economic activity peaked, depending on your point of view.
I won't bore you with all the grubby details, which you can find for yourself on nber.org. One thing that will leap out at you is the contrast between economic reality and what many people believe. For example, conventional wisdom is that the devastation wrought on Sept. 11, 2001, sent the U.S. economy into a tailspin. The reality, according to NBER, is that the economy was already in a recession, which had started in March 2001 (or, some committee members now feel, even earlier) and ended in November - two months after 9/11. The committee, however, didn't announce this until July 17, 2003. By then, the popular assumptions about the effects of 9/11 were set in stone.
I'm not naive, and I know that the question of whether there's a recession has enormous political implications for the 2008 elections, which is a major reason so many of my colleagues in the media are obsessed with it. But we're talking about investments here, not politics.
I have no idea if we're in a recession or heading for one. Nor do I know where the market is going over the next few months. If I did, would I tell you for $4.99 ($5.99 Canadian)? What I do know is that if you want to do well in the market, you've got to think ahead, not behind. The "R" word isn't helpful. What you need is the "F" word: foresight.