Risk & Compliance

Andersen: Staying Alive?

Auditor working on a settlement with Enron. Money would likely go to trading company's creditors, however. Plus: Another defense IPO, and which con...
Stephen TaubFebruary 25, 2002

One by one, Andersen is seeking to settle claims in an attempt to survive the Enron disaster.

The embattled auditor is currently negotiating with the bankrupt energy company to settle claims that Andersen mishandled Enron’s books, according to Saturday’s New York Times. The Times cited a voice-mail message issued to employees by Enron interim CEO Stephen Cooper. In it, Cooper reportedly said the possible settlement with Andersen is intended to be “global, universal, and so we can at least get that behind us.”

Don’t expect Enron to pocket the dough, however. Any money it receives in a settlement would probably go to its creditors, the article noted.

Management at the bankrupt Enron fired Andersen last month after the auditor admitted destroying documents related to the Enron audit. As CFO.com reported last week, Andersen is attempting to cap its potential liability to Enron shareholders, former workers, and creditors. Andersen management apparently upped its offer to that group, from $600 million to upward of $800 million, according to The Wall Street Journal. Of that $600 million figure, $340 million was said to come from Andersen’s insurers.

Reportedly, Andersen management’s goal is to hammer out deals that would enable it to remain in business. According to the Times, total Enron-related claims against the auditor could amount to as much as $1 billion.

Ultimately, Andersen would need to reach a settlement with the Houston-based company’s creditors, plaintiffs in the securities law cases, plaintiffs in pension-fund cases involving Enron’s 401(k) plan, with government regulators, and Enron itself. Andersen’s lawyers are said to have made a presentation to a committee of Enron’s creditors last Tuesday.

Last week, a federal judge named the University of California as the lead plaintiff in the securities cases. The Golden Bears will be represented by the law firm of Milberg Weiss Bershad Hynes & Lerach.

The Best Defense? An IPO

War may be all hell, but it’s almost always good business.

Back in December, United Defense Industries Inc., which makes combat vehicles, artillery, and missile launchers, raised $400 million in an initial public offering. The IPO came barely three months after the terrorist attacks of 9/11. Since then, with the Bush Administration declaring a global war on terror—and promising to up the defense budget considerably—United Defense’s share price has jumped about 43 percent. Bear in mind that during that same time frame, the S&P 500 Index slipped 2.6 percent.

This week, another defense industry specialist is going to test investor appetite for military stuff. Management at Integrated Defense Technologies Inc. expects to raise $136.5 million in that company’s initial stock offering, scheduled for Tuesday. The defense electronics firm, which makes surface-threat electronic warfare systems and command destruct transmitters, reported revenues of $264 million in 2001. That’s more than the revenues Integrated Defense racked up in 1999.

Credit Suisse First Boston is the lead underwriter on the deal.

Coupons and Files and Shelves, Oh My

Amgen Inc., which is buying rival Immunex Corp. for about $16 billion, Friday issued $2.5 billion of 30-year, zero-coupon senior convertible bonds in the private placement market. The company expects to use $650 million of the proceeds to repurchase its own stock. The remainder of the money will be used for general corporate purposes, including acquisitions, additional share repurchases, capital expenditures, and working capital.

The bonds carry a 1.125 percent yield to maturity and are convertible into Amgen’s shares at $80.61. That works out to about a 40 percent premium over the closing price of the shares last Thursday.

Boeing Capital Corp. filed on Friday a shelf registration to periodically sell up to $5 billion in debt securities. The captive finance company plans to use the proceeds to fund acquisitions, purchase equipment for leases, and to make loans. Management also plans to use the money for other corporate purposes, such as cutting debt, including debt the company may owe to parent Boeing or other affiliates.

Centex Corp. filed a shelf registration to issue up to $1.5 billion worth of debt securities, common and preferred stock, warrants and stock purchase contracts and units. Management at the homebuilder said it plans to use the proceeds for general corporate purposes, including refinancing or repaying debt, working capital, capital expenditures, acquisitions, and securities buybacks.

Short Takes

Kmart Corp. asked bankruptcy court for permission to retain Ernst & Young Corporate Finance LLC as the company’s financial adviser, replacing PricewaterhouseCoopers. PwC will continue to serve as Kmart’s independent auditors and tax advisers.

E&Y will provide Kmart with a number of financial advisory services related to its pending reorganization cases, including assistance in the preparation of financial disclosures required by the court, such as monthly operating reports; assistance with the identification of executory contracts and leases, and performance of cost/benefit evaluations with respect to the affirmation or rejection of each; and assistance regarding the evaluation of the present level of operations and identification of areas of potential cost savings.

“The decision to retain Ernst & Young Corporate Finance as the company’s financial advisor was unanimously approved by the Kmart Board,” said James Adamson, Kmart’s chairman of the board, in a statement. “The Board believes that in today’s corporate environment it was prudent to make this change. This change certainly does not reflect upon the quality of the services and advice they (PwC) have provided to us.”

Speaking of E&Y: Accountants at the firm have cast doubts about Genetronics Biomedical’s ability to continue as a going concern, according to Genetronics’s recent 8-K filing. E&Y auditors say the electroporation company’s lack of sufficient working capital to fund operations for all of 2002 raises substantial doubt about the company’s prospects. Genetronics has enough cash to fund operations through May and is “aggressively seeking further funding.”

Oh yes, electroporation: the application of pulsed, rotating electric fields to a cell membrane, enabling pharmaceuticals or genes to gain access to the inner membrane of that cell. We thought you’d want to know.