VideoNext up in the post-Enron corporate cleanup effort: credit-rating agencies.
On Friday the Securities and Exchange Commission announced it is considering new rules for credit-rating agencies, including the possible elimination of the NRSRO (nationally recognized statistical ratings organization) designation.
According to Dow Jones Newswires, the commission began looking into the credit agencies at the behest of House Capital Markets Subcommittee chairman Richard Baker (R-La.). That request came after questions arose about the agencies' effectiveness in the wake of scandals at Enron and WorldCom.
Critics argued that the ratings agencies didn't alert investors to deteriorating corporate credit worth. Indeed, both Standard & Poor's and Moody's maintained an investment-grade rating for Enron a few weeks before the energy giant collapsed.
Critics also claim that ratings agencies might have conflicts of interest, since corporate borrowers pay the agencies to rate their debt.
But the issue that could bring the biggest change is industry competition—or lack thereof. Since 1975, when the SEC first came up with the NRSRO designation, only four firms have earned that badge: Dominion Bond Rating Service, Fitch, Moody's Investors Service, and Standard & Poor's.
That's almost a monopoly in some critics' eyes, says Dow Jones. Some also claim the SEC has been to slow to approve new market entrants.
So what to do about NRSROs? One possibility: get rid of them altogether. Not all approaches are as severe, however. According to a memo attached to SEC chairman William Donaldson's letter from SEC official Annette Nazareth, other proposals include clarifying NRSRO requirements and seeking public comment for the applications.
In a letter to Baker, Donaldson said the agency is "working diligently" to review credit-rating agencies, focusing on the level of competition in the industry, potential conflicts, and recent performance.
The SEC will put out a "concept release" to solicit public comment on the proposed changes.
Conway to Ellison: No Shotgun Wedding
Apparently Oracle Corp.'s surprise offer to acquire rival PeopleSoft Inc. has not being warmly received by PeopleSoft's management team.
Or at least that would seem to be the case, based on a interview given by PeopleSoft chief executive Craig Conway to Dow Jones.
In the conversation, Conway, a former Oracle employee, described the $5.1 billion hostile bid from Oracle as a desperate act to block PeopleSoft's recently proposed merger with J.D. Edwards & Co.
It's "atrocious bad behavior from an atrociously bad company," stated Conway. He also said PeopleSoft's directors were appalled by Oracle's action.
"It's like having a wedding and [Oracle CEO] Larry [Ellison] showing up with a shotgun trying to get someone to marry him," he continued.
But in a conference call on Friday, Ellison claimed Conway first approached him about melding the two companies' business-software operations into a third company. That company, he said, would be better positioned to take on industry rivals like SAP and Microsoft.
Still, Conway didn't hold back any punches in the interview. At one point, he told Dow Jones that "people will see through this for what it is: a ludicrous concept with malicious intent."
Of course, ludicrous is in the eye of the beholder. While Conway may not think much of Oracle's $16 a share offer, PeopleSoft's owners might—particularly if a combined Oracle-PeopleSoft was a stronger competitor in the enterprise-application sector.
PeopleSoft's board will review Oracle's offer and provide an official response as soon as possible, according to Dow Jones. Conway told the wire service he was concerned Oracle's hostile bid could confuse customers and result in a protracted dispute.
He also pointed out that the Oracle offer of $16 a share didn't offer much of a premium for PeopleSoft shareholders. Of course, if Ellison and Co. come back with a sweetened bid—say, more than $20 a share—PeopleSoft's management might have a hard time convincing the company's shareholders that the proposal should be rejected out of hand.
Indeed, the offer already has bumped up PeopleSoft's stock price. On Friday, after Oracle management announced its intention to buy its rival, the share price of PeopleSoft closed at $17.82. That's a nearly 18 percent increase.
Nevertheless, Conway vowed not to let Oracle's bid "distract or disrupt" PeopleSoft's proposed $1.7 billion acquisition of J.D. Edwards.
This is a long way from over.
Blotter: Ex-Xerox CFO Settles, Ex-Rite Aid CFO Pleads Guilty
Six former officials at Xerox Corp., including former finance chief Barry D. Romeril and three of his finance managers, agreed last week to pay $22 million to settle SEC charges that they inflated revenue at the photocopy giant by billions of dollars in the late 1990s.
SEC lawyers argued that Romeril, along with onetime chief executives Paul A. Allaire and G. Richard Thoman, set an improper "tone at the top" of the company, pushing subordinates to meet earnings targets each quarter between 1997 and 2000 through accounting trickery.
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