CFO Blog: Commentary and Opinion

"Cooperation" has been much in the news recently, as I blogged about here. That post regarded Judge Lewis Kaplan's recent rebuke of Federal prosecutors for pushing KPMG to cut off legal support to former employees embroiled in a tax shelter case. In the interests of "cooperating," KPMG complied, a move that Kaplan said constituted a violation of the ex-employees' Constitutional rights

That got lots of headlines. I just came across yet another blow to the government's efforts to encourage cooperation, this one by the Tenth Circuit Federal Court of Appeals. About a month ago (this slipped under my radar), the court denied Qwest Communications its request for a "selective waiver."

What's a selective waiver? Under the various enforcement agency cooperation doctrines (the DoJ's is the "Thomson memo," the SEC's is the "Seaboard" doctrine), companies get credit for waiving their attorney-client privilege and providing the government with the results of their internal investigations (which are usually conducted by outside attorneys). The problem: Waiving that privilege means plaintiff's lawyers can get their hands on the stuff too. A "selective waiver," which doesn't seem to actually exist in legal-land, would allow companies to provide the documents to government agencies, but not to plaintiff's attorneys. I wrote an article about this Catch-22 situation about a year ago, noting that the SEC was lobbying hard to get "selective waivers" approved.

More recently, some observers thought new SEC chairman Christopher Cox, a former Congressman, would help push this through Congress, but so far, no dice.

Tesoro, Spanish for treasure.

Last week, Reuters reported that Tesoro Petroleum was in talks with Lyondell-Citgo Refining to buy a Houston oil refinery. The deal is unofficially valued at $4 billion for a plant that generated $5.4 billion in revenues in 2004.

Nobody involved in the deal is commenting on the negotiations, but I had a chance to talk with Tesoro CFO Greg Wright a few weeks before news of the Houston deal broke. Among other things, Wright noted that since 2002, when Tesoro was in the middle of a refinery buying spree, the company’s debt-to-capitalization ratio has swung from a high of 69 percent to its current 36 percent.

Acquisition-related debt problems have plagued this independent refiner in the past, but Wright and company have always seemed to work their way out of trouble. During our conversation, he said he would be comfortable with a 50 percent debt-to-capitalization ratio if the company was in a buying mode. With net earnings at $507 million for 2005, up 55 percent over the previous year, it makes me think that Wright wouldn't be wrong to snatch up the Texas plant.

Seems that the real treasure at Tesoro is juggling debt, rather than black gold.