hief
executives of publicly traded companies know that in
addition to managing their companies, they must manage
their stock's price. And with so much executive pay
riding on a rising stock price, they have great
incentive to be especially skilled spin doctors in
today's dreary stock market.
No one has taken to the task more assiduously than
Gary C. Wendt, chairman, chief executive and head
cheerleader of Conseco Inc., the troubled
insurance and financial services concern. Mr. Wendt was
brought in from General Electric to redeem Conseco last
June after a disastrous acquisition made by the previous
management had practically leveled the company.
A few months after he arrived, Mr. Wendt outlined his
restoration plan for the company in a traditional press
release. Investors were unimpressed; the stock closed
down 11 percent the next day.
On Oct. 17, after the close of trading and with
Conseco's stock at $5, Mr. Wendt published
"Turnaround Memo No. 2," the first in a series
of such memos written in folksy style to shareholders.
The stock rose 15 percent the next day.
In the eight months since Mr. Wendt arrived, nine
memos have appeared. Most have been a tonic for battered
Conseco shares. On Tuesday, after the market had closed,
Mr. Wendt announced Conseco's full- year 2000 earnings
and fourth-quarter results in Memo No. 9. In spite of
posting a net loss of $378.7 million for the quarter and
taking $420 million in special charges, Mr. Wendt
accentuated the positive. "We did battle; we
survived; we're positioned to thrive; and we like what
we have to work with!" his memo exulted. The stock
rose 2 percent yesterday, to $14.18.
When Mr. Wendt arrived at Conseco, said Mark Lubbers,
a company spokesman, the company's reputation had hit
such a nadir that the chief executive decided he had to
take his plans for a new Conseco directly to
shareholders. "We're inventing something here that
may be an important nuance in the way business
communicates with shareholders and other
stakeholders," Mr. Lubbers said of Mr. Wendt's
memos.
It is to his credit that Mr. Wendt chose to
communicate directly with shareholders, shedding light
on his activities. But while his memos started out as
no-nonsense descriptions of how the company's turnaround
was progressing, the messages of late have had more of a
promotional tone.
For instance, early on Jan. 23, Mr. Wendt published
his sixth memo, in which he noted that Conseco's stock
had risen more than 60 percent in a month, fueled in
part by a market rumor that Warren E. Buffett was buying
Conseco bonds, reported in The Wall Street Journal on
Dec. 29. Mr. Wendt wrote that he did not know the extent
of any investment by Mr. Buffett in the bonds, but
"we do know that the value of Conseco's bonds has
risen significantly." The stock rose 8.3 percent
that day and hit a high of $18.50 less than a week
later.
Mr. Lubbers, the Conseco spokesman, said that Mr.
Wendt felt compelled to discuss the rumor of Mr.
Buffett's activities because it was rampant in the
market. "That was front-and-center news," he
said.
Since then, Conseco shares have drifted lower and Mr.
Wendt's memos have come to resemble damage control. On
Feb. 9, for example, after Fortune magazine reported
that Conseco bonds were in fact not among Mr. Buffett's
buys, Mr. Wendt hurried memo No. 7 into print. "The
important news about Conseco is not who owns our
bonds," he wrote, forgetting perhaps, that it had
indeed been important news a few weeks earlier.
Last week, The Wall Street Journal disclosed details
of an amended class action lawsuit filed against Conseco
in January. The suit contends that the company's former
executives cooked the books, and that this is what
forced the company to restate its earnings for 1999 in
the amount of $350 million.
Fifteen minutes after the market opened, Mr. Wendt
had memo No. 8 on the wires. In it, he said that the
lawsuit was old news, that he had known about it before
he joined Conseco last year.
But there was news aplenty in the amended complaint.
The suit, brought by two municipal pension funds that
lost $1.5 million in Conseco securities they owned when
the company restated its earnings, is filled with
detailed allegations of fraudulent actions taken by
employees of the company before Mr. Wendt's arrival.
In his recent memo, Mr. Wendt said that "the
fraud allegations made in this complaint are so wild as
to be, literally, fantastic." He added that the
data did not support the allegations.
But this time, Mr. Wendt's spin did not work as well.
The stock fell 5.3 percent the day the lawsuit was
reported.
Douglas M. McKeige, a lawyer at Bernstein Litowitz
Berger & Grossmann in New York, who represents
the pension funds that are the lead plaintiffs in the
case, said, "We stand on the allegations that are
in the complaint, and our clients look forward to
continuing to litigate the matter." The loss in the
value of Conseco stocks and bonds in the period covered
by the suit is in the billions of dollars.
The Conseco spokesman said that Mr. Wendt at times
played defense in his memos, a game plan he had to take
up because of the throngs of investors who had bet
against Conseco's turnaround by short-selling its
shares. "We wanted to be able to attack back very
swiftly," Mr. Lubbers said.
After digesting Tuesday's earnings report, Kathleen
Shanley, a corporate bond analyst at Gimme Credit, an
investment research concern in Chicago, said in a report
to clients, "It's no longer 2000, but it's still
winter and Conseco is still snowing investors under with
its creative spin on its latest financial results."
She advised her clients to avoid Conseco's long-maturity
bonds.
Investors should remember that, in contrast to
company financial filings, the enthusiastic words in Mr.
Wendt's memos and press releases are not regulated by
the Securities and Exchange Commission. Indeed,
regulators say, investors should be skeptical of
anything they read in corporate press releases today.
"I would have to give Gary Wendt credit for a
masterful public relations job after some initial false
steps, using the turnaround memos as a bully pulpit to
rally the troops," Ms. Shanley said. "But the
only things I would take to the bank on Conseco are what
they put in their S.E.C.
filings."
See IRG research reports
