Monday, Nov. 11, 1996
BIZ WATCH
By BERNARD BAUMOHL, JERRY HANNIFIN AND STACY PERMAN
MCI'S COLLECT CALL FROM LONDON
Although MCI has thrived on its status as underdog to mammoth AT&T, that shoe may no longer fit. MCI shook up the telecommunications industry last week--and just about everyone else too--by acknowledging it was in talks to merge with giant British Telecom. The deal, expected to be announced over this past weekend, is likely to be worth about $22 billion.
The companies are not strangers. BT (1995 revenues: $22 billion) bought a 20% stake in MCI (1995 revenues: $15.3 billion) for $4.3 billion in 1994 and earlier this year said the two would combine their Internet networks.
The merger would be just the latest deal in a telecommunications free-for-all that was triggered by the February deregulation of the U.S. industry. A sequence of megadeals quickly followed, including Bell Atlantic's tying the knot with NYNEX and SBC Communications' purchasing Pacific Telesis.
An MCI-BT combo spells trouble for one company. "The merger doesn't bode well for AT&T," says Kevin Gooley, an analyst with Standard & Poor's. "It is going to make it much more difficult for them to compete internationally." Consumers could benefit because the merger will probably lower prices for international calls.
IS THE ECONOMY IN GEAR?
Only in an election year can a standard report on U.S. economic growth turn into a Rorschach test. Moments after the government said last week that economic activity slowed to a 2.2% annual growth rate in the July-through-September quarter--following a 4.7% pace in the previous three months--the candidates grabbed the nearest microphone and gave wildly diverse interpretations of what the number meant. For Dole, it showed an economy teetering on disaster; for Clinton, it was a welcome business-activity downshift that would keep alive the 5 1/2-year expansion without reawakening inflation.
As usual, most Americans were left wondering what to make of the data. Answer: nothing. It is just one quarter's report, and it must be viewed in the context of the previous quarters (see chart). That means both candidates may be wrong. Consider: 210,000 new jobs were created in October. Is the economy then speeding up again? The answer may become clearer in the months ahead, as new data come out, minus the political spin.
BOEING'S 737S TO GET THE ONCE-OVER
With travelers already leery following the crashes of TWA Flight 800 and a ValuJet plane, the FAA has gone out of its way to show its safety-mindedness. The latest step: last week the agency ordered emergency inspections of Boeing's venerable 737 jets. Reason: tests detected that rudder power control units (PCUS) might jam when extremely hot hydraulic fluid reaches a very cold "slide" (it's like a valve), although such a jam has never been reported in some 69 million flights of 737s worldwide. The rudder affects a jet's orientation. Each of the 2,700 737s in service were to be checked within 10 days. No travel delays are expected.
The Boeing 737 is a stalwart in many fleets. But two crashes--in Pittsburgh, Pennsylvania, in 1994 and in Colorado Springs, Colorado, in 1991--remain a mystery. Although there has been speculation about rudder failure, the PCUS on both jets were tested and found to be working properly. Still, the independent National Transportation Safety Board has been pressing the FAA to require all 737 operators to monitor certain rudder-control functions on flight-data recorders.
TOTO VS. KOHLER: ATTACK OF THE JAPANESE TOILETS
The latest industry to be targeted by Japan is toilets, and the American king of porcelain is sitting uneasily on its throne. TOTO, world leader in plumbing and toilets, with $5 billion in sales, says Kohler is playing dirty. TOTO says the Wisconsin-based company (estimated sales: $1.8 billion) is trying to keep TOTO's line out of plumbing distributorships. Not all distributors are complaining, but Jay Katz of Morrison Supply of Dallas, which has 24 stores across the state, says he was advised by Kohler not to sell TOTO products: "They are trying to press upon us that they will look at our distributorship in a different light." Kohler declined comment.
Last year some 9 million toilets were sold in the U.S. TOTO, which makes a high- performing one-piece model, is trying to benefit from revised building codes that require low-water-flow units. Its U.S. subsidiary has sales of $100 million. TOTO also makes the world's most high-tech toilets, which it is introducing into the U.S. Features include built-in deodorizers and control panels that spritz cleansing jet sprays and warm, drying blasts of air.
--BY BERNARD BAUMOHL, JERRY HANNIFIN AND STACY PERMAN