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Show The Salt Lake Tribune BUSINESS Sunday, December 27, 1998 A Review of How Big Industries Did in 1998 Mega-mergers changedtheface of business during a year of global economic crisis. Banking industry mutates THE ASSOCIATED PRESS It was a hard year for many U.S. companies and manyoftheir workers. Consumers in this coun- try were buying goods and paying for services, but overseas business becametenuous,and in some cases nonexistent, as economic problems spread from Asia to Russia to Latin America. Manufacturing industries be- gan laying off thousands of workers. Retailers could report good sales only if their prices were right. Onebusiness flourished above all others — mergers and acquisitions. It was a great year for the dealmakers as huge companies bought other huge companies to make themselves more competitive in an increasingly tough busi- ness world. It was a hard year for organized labor, which saw several high- same reimbursement crunch from Medicare and Medicaid. Big pharmaceutical companies continued to post record profits, but some warned that 1999 would bedifferent. Driven by pricy new products and increased demand from consumer advertising, Pfizer, Schering-Plough and Warner Lambert earned big profits. Pfizer can mostly thank its anti-impotence pill Viagrafor its successful year. Morethan 6.2 million prescriptions were written for Viagra since the drug hit the market in early April, making it the most successful product launch ever. But Johnson & Johnson saidit had to eliminate 4,000 jobs. Merck said it would not meet 1999 earnings estimates. Banking The news in banking could be profile watkouts, mostnotably the summed up in one word: Citi- group. The $70 billion merger of consumers from spending in 1998. They just became morepar- ticular about wherethey did their buying. Increasingly, people voted for convenience, quality service and affordable prices when deciding where to shop. They favored dis- count and specialty chains over the big departmentstores. Stores like Wal-Mart and Tar- get thrived as people curbed their spendingatotherstores. Specialty stores also were strong, rebounding from sagging sales in the recent past. Thanks to the great housing market, home furnishingsretail- efs Crate & Barrel, Restoration Hardware and Pottery Barn excelled. Many people fixed up their homes, boosting sales at Lowe's and HomeDepot. Consumerelectronics retailers like Best Buy and CircuitCity en- joyed a solid year, thanks to low prices for computers, DVD playets and digital cameras. Internet retailers also did well as more consumers took advantageof the convenience andselection offered opline. ing financialservices. The combination of a big bank and a big insurance company, which together do business with 100 million customers worldwide, shook the financial services industry. Companies of all stripes — including brokerages and commercial banks — were forced to operate in Citigroup’s new paradigm. The new model offers a wide variety of financial products and services at bulk-rate prices and markets them like soft drinks. Citigroup could also shake up Depression-era laws that separate banking from other financial businesses, Citigroup, as a bank holding company, has two yearsto get rid of Travelers’ insurance underwrit- ing business. Federal regulators couldallow Citigroup to keepselling insurance for up to three yearsafterthat Citigroup wasthe boldest merger announced in 1998, but it wasn’t even the biggest. Deutsche Bank AG agreed to buy Bankers is buying Prudential Health Care. United Healthcare's purchase of Humanafell apart. Byitain’s Zeneca Pharmaceuticals ig acquiring Swedish drug maker Astra, America Home Products, maker of Anvil and Robitussin, failed to merge with Monsanto and SmithKline Beecham. Health-care companies under- took these deals and would-be deals as they tried to cope with the financial difficulties that plagued every industry sector in 1998. . ‘Cost containmentpressuresfinally permeated everyone's in- come statement,’’ said Ken Abramowitz, a health analyst with Sanford Bernstein in New York. “It was a disappointing year for the health service companies.” Health maintenance organiza. tions saw lossesescalate, a result largely of rising drug costs and declining Medicare reimbursement. Kaiser Permanente, the nation’s largest HMO with 8.5 million members, lost $126 million in the first nine monthsof the year. Prudential lost hundreds of mil- lions onits health business before tract talks next summer. The union gained a temporary reprieve for some parts plants that eventually may be sold or closed, and it retained some work rules that GM wantedto trash. “They ended up restoring the status quo,” Brickner said. “All is economic loss was for nothing.” Bricknersaid the futility of the GM strikes reflects Big Labor's continuing frustration with the long-term decline in high-paying manufacturing jobs that used to be its foundation. Most of the the lower-paying service industries, health care and govern- Microsoft's stock roughly doubled in 1998,its profits were up it down and reshape the industry. Government lawyers repeated- ly scored points in their continuing U.S. antitrust trial, which ac- cuses Microsoft of using its software dominanceto squeezerivals and consumers. The judge chuckled at Bill Gates’s memory lapses in his videotaped deposition and curbed Microsoft’s lawyers cross-examination of key government witnesses. The court's seeming sympathy with the allegations increased speculation it might eventually order Microsoft to alter its mar- ment. ket behavior, with potentially Mergers technologyindustry develops and sells products. wide ramifications for how the The five-year marathon of mergers leading up to 1998 was just a warmup. Anotherfederal judgein trial in San Jose, Calif., came out This past year saw an explosion against Microsoft, ordering the company to rewrite parts of Win- of deals that shattered 1997’salltime record within just six months, as financial, oil and telecommunications companies led the rush to create new corporate trillion in mergers involving U.S. companies were announced, a 77 anti-Microsoft camp redoubledits percentjump from 1997's total of resolve to chip away at Micro. soft's dominance with a spree of deals andinitiatives. America Online, the largest online and Internet service, emerged as a newly formidable competitor to Microsoft with a $906 billion, according to Securities Data Co. As U.S. companies lookedto expand at home and abroad, a num- ber of once-unimaginable marriages arose most notably $4.2 billion dealto buy Netscape. Oracle and Sun Microsystems Exxon’s $73.7 billion planned purchase of Mobil in the richest takeoverin history, and the $32.8 billion merger of Chrysler and launched a fresh assault on Mi- Germany's Daimler-Benz. Othermilestones werereached: NationsBank and BankAmerica combined to create the nation’s first bank with coast-to-coast branches. about16 percentfor 1998 by mid- @ Continued from E-1 Sincetheclassic definition of a bearis a dropof20 percent, some observers termed the downturn a near-miss and declared Wall Street’s 8-year-old bull alive and well. But the calculation of 19.3 per- cent is based on end-of-day fig- ures. The Dow tumbled 512 points on Aug. 31 to 7,539.07, the lowest close of 1998, but actually slid even farther the next day before reversing course at 7,400 — a drop of 21 percent from the July peak. “Every criteria for a bear mar- ket was fulfilled. These people whosay it wasn’t a bear because the Dowfell 19.3 percent instead of 20 percent? That's nuts,” said RalphBloch, chief market analyst at Raymond James & Associates of St. Petersburg, Fla., also re- December — well on the way to a fourth straight year of double digit gains. Even better, the S&P 500 was posting at least a 20 percent gain for the fourth year in a row, as was the Nasdaq composite index with a gain of 37 percent by mid: December. But the Russell 2000 index of small companies headed forits first losing year since 1994. “The gap between the haves and the have-nots was a lot wider than I can recall in tracking the market over the last 30 years, said BankBoston’s Riley. In reality, then, there were two different markets in 1998. “I would certainlycallit a bear. market sized correction, and for everythingelse but the large-cap market, I would call it a bear, said RobertStreed, senior investment adviser at Northern Trust in jecting arguments that a bear Chicago. “A couple of years fram companya recession. see if this wasn't the first shot across the bow to end the bull market. You never know until after the fact.” market needstolast longeror ac- Either way, the debate over whether the Dow escaped the bear's clutch in 1998 misses the now, we'll have to look back ard New Internet Stocks Likely to Stay Popular in ’99 DOW JONES NEWSSERVI technology is bringing with it wholesale changes to the new is. NEW YORK — There'slittle doubt that the Internet's impact on the 1998 initial public offering sues market. market extended far beyond its Onethingis certain: new Internetstocks are expected to remain status as the most successful sec- enormously popular through edr- new issues. At the very least, Internet offerings have created a new stan- professionals are predicting — tor in an otherwise off year for dard for what passes as a successful deal. ly 1999. But many Wall Street and hoping — that some semblance of balance will return to the IPOsector. " “The question for the first business computer that doesn’t But more importantly, the unprecedented demand generated quarter is whether the demand require full operating systems such asthose sold by Microsoft. by a string ofspeculative Internet Joseph Bartlett, a partner with deals late in 1998 gave rise to a the law firm of Morrison & Foerster, which specializes in technol Even Microsoft's long-timeally, never-before-seen trading dy- chip maker Intel, supported ini- ful Wall Street bankers helpless to the whims of novice individual tiatives such as advanced video ing Baby Bells are joining up in folks would be squeezed by reduced competition. fy just about any definition of a bear market. While the Dowpulled back af. ter reaching a new high of 9,374.27 on Nov. 23, it was still up crosoft with a new simplified software and the Linux upstart operating system that rival Microsoft products. In addition, four of the remain- banks. And while it remains to be seen how successful Citigroup's cross-breedingwill be, it forced to point: There's no question that most garden-variety stocks en dured a mauling that would satis dows 98 containing an altered version of the Java programming language that is incompatible with software made byits rivals. Outside the courtroom, the giants. By mid-December. $1.6 pairs — SBC-Ameritech and Bell Atlantic-GTE — with hopesof one day providing all-in-one packages of long distance, wireless services and Internet access. The massive mergers, of course, had their dark side. Big layoffs were a frequent consequence of companies paringtheir overlapping operations to save money, and consumer groups of- Morebroadly, speculation intensified that several infant technologies such as new Web-surfing gadgets could one day change the method of computing made famous by Microsoft's Windowsoperating system, which runs up to 90 namic that essentially left power- investors. The question now facing investors and IPO underwriters, however, is whether these unforeseen consequenceswill be short-lived, or if the nascent world of online broadens out. I think it will,” said ogy IPOs Bartlett said broad-based d@; mand for new stockswill be trig- gered primarily by three factors the continued flow of huge amounts of cash into mutual funds,the frenetic pace of merg. ers and acquisitions, and corpo rate stock buybacks. percent of the world’s personal computers. For its part, Microsoft seized on the developments for ammunition in its antitrust battle, noting that ten expressed fear that regular competition is robust and governmentintervention isn’t needed. a newlevel a decade-old debate about how financial products are sold. Labor The General Motors strikes of 1998 were reminiscent of ugly battles decades ago between the United Auto Workers and the world’s largest automaker. But when the twosides finally came together to end last summer’s 54- dayfight, neitherside could claim victo: “The GM strike was probably the biggest labor relations disasterof the last half of the 20th century,” said Dale Brickner, a retired Michigan State University labor professor. Other strikes made headlinesat Northwest Airlines, US West and Bell Atlantic. All were the by- product of deregulation and restructuringin theairline and tele- communications industries and lasted 15 days or less. The walkouts at two GM parts plants were the year's most damaging. Theyvirtually shut down GM's cember. North American production, costing the corporation about $2 billion even after taking into account Hospitals and nursing homes dd little better as they faced the er in the year. They idled nearly deciding to sell to Aetna in De- 50 percent and demand surged for its new operating software. But beneath the rosy image, the not-so-gentle giant of computing for the first time was on the defensive in a battle that could slow Trust Corp., a deal that would create the world’s largest bank, with more than $843 billionin assets. And while Citigroup stole the headlines, there were other big mergers: NationsBank with Bank of America, Banc One with First Chicago NBD, and Norwest with Wells Fargo. But these were mergers of Health Care ‘Aetna Citicorp and Travelers Group created a new standard for deliver- Washington. According to High-Tech concessions from the UAW, only a vague promise of temporary labor peace pending national con- growth in union jobs today is in long United Auto Workers strike at General Motors. Andthe hightech industry saw a possible shift in the balance of power as Microsoft founditself on the defensive. A look at how some majorindustries and their workers fared this past year: Retailing Stock marketvolatility and economic uncertainty didn’t stop 200,000 GM employeesand thou- sandsofothers at GM suppliers. And for what? GMgotno major _E7 Bear CameOutto Sniff Groundin 1998 production that was recoupedlat apa YForo" MADDOX RESTAURANT 450 Mhz. Intel™ Pentium®ll Processor 11.9 Gig Nard Drive eT Te UO eS CMUNhaeKe Facilities Available For: ¢ Annual Planning Meetings e Award Banquets e Seminars dr, Tower Case 128 Megs Sdram 8 Meg Intel™ AGP Video Card DVD Il! Hitachi" CDRom Stereo Speakers/subwoofer Creative Labs™ PCi128 Sound Card Chicony™ Multimedia Keyboard Logitech® First Mouse™ Plus Creative Labs” ModemBlaster® veo Pentiume|] Windows™98 e Kick-off Luncheons Corel™ WordPerfect™ Suite 8 (WordPertect™, Quato Pro™, Presentations™ and More!) 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