VideoThe SEC has scheduled an open meeting for Wednesday to consider proposing new rules on pro forma financials.
Stewart Retires, Cigna Warns
Is there any connection between Cigna Corp.'s announcement that the company's CFO will retire and the insurer's subsequent earnings warnings?
If nothing else, the timing of the three announcements was a bit peculiar. As CFO.com reported, last Wednesday the insurance giant announced that James G. Stewart is retiring as the company's CFO. Stewart has spent the last 36 years with Cigna -- nineteen as chief financial officer.
The very next day, Cigna warned that earnings for the third quarter and all of 2002 will come in lower than previous company guidance.
Then, on Friday, Cigna dropped another bombshell. It warned that operating income for 2003 will be below forecasts.
As a result, on Friday the stock price of Cigna plunged more than $24 to $39.39 a share, a drop of more than 38 percent in one day.
According to Cigna, Stewart's retirement was reportedly in the works for some time. It is somewhat curious, however, that the company dropped two earnings-related bombshells in the two days immediately following the announcement of Stewart's retirement.
Not surprising, law firm Milberg Weiss Bershad Hynes & Lerach LLP immediately filed a class action suit against Cigna, Chairman H. Edward Hanway, Chief Accounting Officer James A. Sears, and Stewart. The suit alleges they Cigna officers issued "a series of materially false and misleading statements" May 2, 2001 and Oct. 24, 2002.
According to the complaint, Cigna issued numerous press releases, and filed financial reports with the SEC, regarding its performance which "were materially false and misleading because they failed to disclose that Cigna had been under-reserving for its reinsurance obligations, particularly for its reinsurance of guaranteed minimum death benefits by (at least) hundreds of millions of dollars."
The complaint also alleges they issued materially false and misleading statements regarding its Employee Health Care, life and Disability segment.
The suit also charges that the defendants engaged in this conduct because the company was planning to issue $250 million of 6 3/8 percent notes on Oct. 16.
Aetna Scraps Poison Pill
Late last week, management at Aetna said it changed its corporate governance practices, including the scrapping of the company's anti-takeover provision.
The ditching of the poison pill could set the stage for an acquisition of the insurance company.
"We believe that the changes properly align our corporate governance practices with shareholder interests at this time," said Dr. John W. Rowe, chairman and chief executive officer.
Aetna's board also voted to:
- Reduce the vote required for shareholders to approve mergers, consolidations and similar transactions from two-thirds of outstanding shares to a simple majority of outstanding shares.
- Grant shareholders the right to call a special meeting with the support of two-thirds of the outstanding shares.
- Reduce the vote required for shareholders to amend certain portions of the company's by-laws from 80 percent of outstanding shares to two-thirds of outstanding shares, making it consistent with the level of shareholder support necessary to call a special meeting.
Pension Worries Abound
The IUE-CWA/GE Conference Board unanimously voted to authorize a national strike if General Electric sticks to its plan to increase health care costs for workers and retirees. GE's plan would become effective Jan. 1.
Meanwhile, Lockheed Martin Corp. Friday warned that 2003 earnings could come in below forecasts unless pension fund investments produce good returns. It said its 2003 earnings estimate of $2.75 to $2.85 a share assumes the company will achieve its long-term target of a 9.5 percent return on its pension fund investments. Lockheed has a ways to go to hit that target. Through the first nine months of 2002, the company actually lost money on its pension investments.
Also last week: industrial services company Harsco Corp. indicated its British pension plan was underfunded by about $98 million as of Sept. 30 because of the lousy U.K. stock market. The company added it expects a $135 million noncash adjustment for the British pension plan. The company also said its U.S. pension plans may be underfunded as of Oct. 31. It added its 2003 pretax pension expense will probably increase by about $20 million.
Financing News
- After several false attempts earlier in the week, Wynn Resorts Friday finally priced its IPO, selling 34.6 million common shares at $13 apiece. The company's management had originally expected to sell 20.5 million shares at $21 to $23 each.
- Fannie Mae issued $5 billion of 3-year notes and $250 million in a reopening of its 30-year 6.625 percent bonds due Nov. 15, 2030. The three-year notes were priced to yield 2.906 percent, 74.5 basis points over comparable Treasurys. The 30-year bonds were priced to yield 5.912 percent, or 71 basis points over Treasurys.
- U.S. junk bond mutual funds pulled in $425.2 million in net cash in the week ended Wednesday, the second straight week of inflows, according to AMG Data Services.
- Standard & Poor's on Friday cut its long-term debt rating for Ford Motor Co. and its finance arm to two notches above "junk" status. S&P said it's worried about the possibility of an impending restructuring at the automaker. S&P's outlook for Ford is "negative."
"Ford has to improve its cost position and beef up its product offerings," Scott Sprinzen, an S&P auto analyst, told Reuters. "The reality of the marketplace is that it has to stay competitive on pricing, which is a moving target."
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