The Economy

Good Week/Bad Week: The Lord Alps Those…

Merger means Swiss army will continue to get knives from Swiss company; Swiss navy left to fend for itself. Plus: Peterbilts go a-begging, and Merc...
John GoffApril 29, 2005

Disclaimer: This column, such as it is, does not in any way, shape or form, purport to adhere to traditional journalistic concepts. In addition, it does not meet the high literary standards set by James Joyce, Joyce Brothers, the Brothers Johnson, Johnson & Johnson, Russell Johnson, and Russell Stover. Further, it has not been approved by the Hays Commission, the Treadway Commission, the Comics Code Authority, the Tennessee Valley Authority, the Diet of Worms (blech!), or any regulatory or standards-setting body associated with the Federal Communications Commission.

While the items in this column are based on real events, most everything else is fictitious. And unlike Dave Barry, I made some of the quotes up. This helps cut down on my phone bill.

Please, no lawsuits.

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1. Victorinox

Earlier this week, Victorinox, the Delmont, Switzerland-based manufacturer of Swiss Army knives, acquired Wenger, a small German company. What does Victorinox make? Swiss Army knives. And Wenger’s main product? Yup, Swiss Army knives.

The deal, valued at about $60 million, means Swiss Army knives will remain Swiss, a fact that set off spontaneous, wild celebrations in parts of the mountainous Alpine country. According to some reports, roving bands of fondue-toting revelers had to be hosed down by riot police. In addition, the Swiss Ministry of Information reported several cows were turned over and set ablaze.

“Keeping the Swiss cross in Swiss hands is the best way to move forward,” said Victorinox director Carl Elsener. Victorinox and Wenger currently split the rights to provide the Swiss military with knives. Between them, they make about 26 million knives a year, which are exported to 150 countries.

When asked for details about the integration of the two operations, Victorinox marketing manager Hans Henchoz paused, smiled, and said: “Wenger will be folded into Victorinox.” He went on to add he’d been “waiting years to use that one. Years.”

Prodded to offer tangible benefits of the acquisition, Henchoz claimed that the combining of manufacturing operations and supply chains would generate considerable cost savings. He also said the merger positioned the maker of Swiss Army knives “to better compete against other sovereign-branded products, like Wedgwood China or Chile Rellenos.”

2. Securities and Exchange Commission

In what some observers have described as a landmark case — others think it’s merely fair to middling — on Tuesday the Securities and Exchange Commission reached an agreement with Deloitte & Touche regarding the accounting firm’s alleged role in the fraud at scandal-plagued cable company Adelphia Communications Corp.

To settle the case, Deloitte agreed to pay $50 million, half of which was a penalty — the largest ever levied on an accounting firm by the commission. The entire $50 million will go to a fund for Adelphia’s shareholders and debtholders. “What is especially troubling here is that Deloitte recognized the risk of fraud posed by this client at the outset,” said Mark Schonfeld, director of the SEC’s northeast regional office.

As part of the consent decree with the SEC, Deloitte management agreed to neither admit nor deny guilt in the case. But the day after the agreement was announced, the company issued a revised press statement about the settlement. Why? The Big Four firm’s initial statement included a paragraph from CEO James Quigley which claimed that the Adelphia case (and others) “raise a larger issue facing the auditing profession. Among our most significant challenges is the early detection of fraud, particularly when the client, its management and others collude specifically to deceive a company’s external auditors.”

This little bit of buck-passing did not sit well with officials at the SEC, who apparently saw it as a backhanded attempt by Deloitte to deny guilt in the Adelphia case. That day, the SEC forced Deloitte to remove Quigley’s assertion about the difficulties facing the audit profession and issue a revised statement. “Deloitte’s characterization of the case is simply wrong. Deloitte was not deceived,” the SEC’s Schonfeld told the paper. “They didn’t just miss red flags, they pulled the flag over their head and then claimed they couldn’t see.”

When asked to comment about Schonfeld’s statement, one Deloitte partner privately told GW/BW: “To tell you the truth, I’m a bit confused by the whole flag metaphor. If red flags are warnings signs, then how do you pull a warning sign over your head? And even if you could, you’d definitely be able to see it since it would be over your head and all. It’d be almost impossible not to see it.”

Deloitte’s second version of the press release did not include the paragraph from Quigley that had angered the SEC. Instead, the firm wrote: “This settlement is not an indication of guilt or INNOCENCE. We always try to make the right decisions for our clients — whether they be a cable company, a bank, or a RAILROAD operator. But in this case, management’s desire to maintain good relations with members of the commission FRAMED our thinking in choosing to consent to the decree.

As of press time, Deloitte was working on revising the revised edition of its statement.


1.Transport Corp. of America

The share price of Transport Corp. of America Inc. plummeted Tuesday after the company reported that first-quarter sales declined from the same three-month period the previous year. The trucking company also indicated that revenues for the next quarter might be down, or level, with Q2 revenues in 2004. On the bright side, Transport Corp. management noted that the company’s Q1 sales in 2005 were higher than its Q1 sales in 2003, and far outpaced IBM’s sales during the first quarter of 1953.

Net income came in at $94,000, while Ebitda for the quarter was $123,000. (Ebitda is earnings before interest, taxes, depreciation, and amortization. It is not, as erroneously reported last week in GW/BW, “a swell sculpture in the Vatican.”)

Shares of Transport Corp. fell sharply once investors heard about the whole Ebitda/Pieta confusion. At the end of the trading day on Thursday, the share price was down to $1.50, well off its 52-week high of $10, and not even close to $1,000, which is how much money I think of when I’m asked to think of a lot of money.

In discussing the laggardly performance of the company, chief executive officer Michael Paxton blamed a slackening freight market, as well as problems in recruiting drivers. “Like many of our peers,” Paxton noted in a statement, “we continue to experience the effects of a very difficult recruiting market, particularly as it relates to independent contractors.”

When pressed to give reasons for the current shortage of truck drivers, a company spokesperson cited increased hiring by UPS, stricter OSHA rules governing mullets in the workplace, and continuing confusion over which was BJ and which was the bear.


Things turned ugly at Merck’s annual meeting this week as shareholders packed the auditorium of a junior college in Whitehouse Station, New Jersey. The attendees, mostly widows and orphans, seemed eager for the chance to browbeat chief executive officer Raymond Gilmartin and the rest of the company’s brass. William Steiner, a shareholder from Piermont, New York, told Merck’s management they should be replaced. “I don’t blame you for the Vioxx situation,” he said, “but in America you get paid for success and not for trying.” Another shareholder inquired about Merck’s position on genetically engineered food, noting that he “had eaten an apple the other day, and I swear, it tasted just like pot roast.”

You can’t blame Merck’s owners for being a bit upset. In September, Merck withdrew Vioxx, the company’s $10-a-pill pain medicine, after a clinical trial showed that a number of subjects who used the drug for long periods of time displayed an increased risk of heart attacks and personal bankruptcy. At the time Merck pulled Vioxx off the shelves, the so-called wonder drug accounted for 11 percent of the company’s sales. Analysts estimate Merck’s future liability for Vioxx ranges from $4 billion to $30 billion.

That future may be fast coming. According to a recent survey of personal injury lawyers conducted by the American Law Journal, fully a third of the respondents said its likely — or very likely — they’ll be able to finish out their basements off the billable hours generated by Vioxx lawsuits.

A visibly upset Gilmartin told the 900 or so shareholders at the meeting that he was hearing from former Vioxx users who wanted the drug back on the market because it was extremely effective. The chief executive then tried to impress his audience by conjugating several verbs in Latin and offering to wrestle anyone in the crowd for five bucks.

Shareholders were having none of it. Said one irate elderly attendee: “I’ve been coming to these meetings since 1952, and every year, it’s always been the same thing. Proxy vote, dividend announcement, cake. This year? Proxy vote, dividend announcement. You gentleman are supposed to be leading this company, so I ask you: Where’s the damned cake?