BusinessWeek: The 50 Best Performers - April 7, 2008

NEW YORK (Map) - THIS WEEK: -- Cover Story: The Best Performers of 2008 -- Where No Fed Has Gone Before -- Aftershocks at Bear Stearns -- Suite Scams For these stories and more, visit BusinessWeek.com (Photo: http://www.newscom.com/cgi-bin/prnh/20080328/NYF043 ) COVER STORY: THE BUSINESSWEEK 50 By Dean Foust

New York-based retailer Coach comes in at No.1 on the 12th annual BusinessWeek ranking of the best performing U.S. companies. Rounding out the top five are Gilead Sciences, Allegheny Technologies, Verizon, and Questar. Last year's No.1 company, Google, dropped to No.34 on the list -- shares are down almost 40% from their high of 747 last November. How Coach took the top ranking in the BusinessWeek 50 can be summed up in two percentages: the handbag maker and retailer posted average sales growth of 24% over the last three years while generating a 61% average return on invested capital. The results are a testament to Chief Executive Lew Frankfort's strategy of moving the brand more upscale, as well as the skillful way designer Reed Krakoff has increased the brand's sex appeal.

The Federal Reserve has stretched its mandate up, down, and sideways to prevent a financial market deluge. Now it appears to be stretching the English language a bit as well. What the Fed is calling a $29 billion "loan" to help finance JPMorgan Chase's purchase of Bear Stearns looks much more like a $29 billion investment in securities owned by Bear. Although the Fed insists that it isn't technically buying any assets, in practical terms it's doing exactly that. All this adds up to a big and unacknowledged step up in the central bank's financial intervention with Wall Street investment banks. The Fed, of course, is the only part of government with the speed, power, and flexibility to arrest a bout of market panic. By rapidly intervening in mid-March to keep Bear from filing for bankruptcy, it may well have prevented a series of cascading failures that could have severely damaged the financial system and the economy. Many economists and analysts are happy that the Fed stepped into the breach. Nevertheless, now that things have quieted down a bit, the Fed is likely to face some tough questions about the precise nature of its actions as well as the legal justification for them. http://www.businessweek.com/magazine/content/08_14/b4078000069548.htm?campaign _id=pr_newswire

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AFTERSHOCKS AT BEAR STEARNS

By Susan Berfield, Jessica Silver-Greenberg, and Paula Lehman

In a week it was all gone: Bear Stearns' reputation, culture, identity; the savings of many of its 14,000 employees; and possibly their jobs, too. "The speed of the collapse was traumatic," says one banker who has worked at Bear for a decade. "People aren't jumping out of windows," he says. "But we are all kind of anxious." A year ago Bear Stearns was worth about $20 billion. On Mar. 14 it was worth $3.6 billion and fighting for its survival. Two days later JPMorgan Chase, egged on by the Federal Reserve, agreed to buy the 85- year-old investment bank for $2 a share, or $236 million. On Mar. 24, JPMorgan, under fire for unseemly opportunism, quintupled the offer to $10 a share, or $1.2 billion. But whether the bank was sold for $2 or $10 a share hardly mattered to many of Bear Stearns' employees who were regularly given stock and owned about a third of the company http://www.businessweek.com/magazine/content/08_14/b4078035723176.htm? campaign_id=pr_newswire

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SUITE SCAMS

By Matthew Goldstein

A virtual office is merely a more elaborate version of an old-fashioned post office box. Tenants get access to a telephone answering service, a reception area, and conference rooms for meetings, along with a mailing address. In that way, the location is not unlike an executive suite, a collection of fully furnished offices shared by several companies or professionals. But most tenants of virtual offices use the space only occasionally, if at all. There are more than 8,000 such facilities worldwide, 11 clustered in downtown Manhattan, according to real estate brokerage Instant Offices Group. The overwhelming majority of businesses and individuals that use virtual offices are perfectly legitimate. But those dirt-cheap rents have also made virtual offices a breeding ground for fraud. Regulators and prosecutors have brought dozens of civil and criminal charges in recent years against defendants who used such spaces as their home bases. In the financial world, virtual offices are the new boiler rooms, the now infamous operations in which an army of young brokers hawk questionable stocks to naive investors. Virtual-office schemes have many of the same hallmarks. An outfit with a generic name and trumped up accomplishments develops an impressive Web site and adopts a prestigious address. The ringleaders then go to work raising money for supposed investment funds, real estate ventures, or other seemingly lucrative opportunities. http://www.businessweek.com/magazine/content/08_14/b4078044762786.htm? campaign_id=pr_newswire

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QUATTRONE'S WARM WELCOME BACK

By Aaron Ricadela

Perhaps there are some people who question whether the controversial banker Frank Quattrone will be able to drum up business for the boutique investment bank he unveiled on Mar. 18. But there aren't many of them in Silicon Valley. Quattrone has been out of the securities industry for five years, having resigned from Credit Suisse in 2003 under pressure from obstruction of justice charges. But since the federal government agreed to drop the charges against him, the tightly knit tech industry is welcoming him with open arms. His tech-focused firm, San Francisco-based Qatalyst Group, will provide advice on mergers and acquisitions, help with financing, and invest in promising deals, alongside venture capital and private equity firms. Tech executives are eager to send business Quattrone's way, as something of a protest vote against his prosecution. Supporters such as Google CEO Eric Schmidt and venture capitalist Jim Breyer have publicly pledged Quattrone business. Breyer, whose Accel Partners has invested in Facebook, says Qatalyst could help the social-networking site make acquisitions. http://www.businessweek.com/magazine/content/08_14/b4078088929670.htm?campaign _id=pr_newswire

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CHINA'S FACTORY BLUES

By Dexter Roberts, with Chi-Chu Tschang in Beijing

Entrepreneur Tim Hsu first started making lamps more than 20 years ago in Taiwan. And like tens of thousands of other factory owners in Taiwan, Hong Kong, and Macau, he later moved operations to the Pearl River Delta region of Guangdong in South China, setting up his Shan Hsing Lighting in a sleepy hamlet of rice fields and duck farms called Dongguan. Since then the region has grown into the largest manufacturing base in the world for a host of industries, including electronics, shoes, toys, furniture, and lighting. The combination of low wages, minimal regulation, and a cheap currency was unbeatable. Hsu was so confident of Guangdong's future as the world's workshop that he spent $7 million on a much larger factory, which opened earlier this year. Now many of China's manufacturers -- including Shan Hsing -- are undergoing the kind of restructuring that tore through America's heartland a generation ago. The U.S. housing market, which generated demand for everything from Chinese-made bedroom sets to bathroom fixtures, has plummeted. A new Chinese labor law that took effect on Jan. 1 has significantly raised costs in an already tight labor market. Soaring commodity and energy prices, as well as Beijing's cancellation of preferential policies for exporters, have hammered manufacturers. The appreciation of the Chinese currency has shrunk already razor-thin margins, pushed thousands of manufacturers to the edge of bankruptcy, and threatened China's role as the preeminent exporter of low- priced goods. http://www.businessweek.com/magazine/content/08_14/b4078078846220.htm?campaign _id=pr_newswire

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MOTOROLA SETS ITS PHONE UNIT FREE

By Roger O. Crockett

Motorola's mobile-phone business has turned from dynamo to disaster in a just few short years. With no hot products to follow its popular Razr, the onetime industry leader has rapidly lost market share and sales. The situation has grown so rocky that CEO Gregory Q. Brown has struggled to find a qualified executive to run the business-or any viable bid to acquire it. But Motorola's move on Mar. 26 to spin-off the mobile-phone unit could change the division's fortunes. The Schaumburg (Ill.) company plans to set up the business as a separately traded public entity, and the board has retained executive search firm Russell Reynolds Associates to recruit a new CEO for the company. Brown is now likely to find it much easier to attract a top-flight candidate, since the new chief will have a free hand. "That changes the dynamics of the search," says Peter D. Crist, head of executive recruiter Crist Associates in suburban Chicago. "Top execs at key players such as Nokia and other rivals would not have been interested [if the phone unit were not separate]. Suddenly they perk up and say: 'I can run that business.'" What looked like "a poisoned chalice," as one analyst called the phone unit, has suddenly become a golden fount of opportunity. http://www.businessweek.com/magazine/content/08_14/b4078036843730.htm?chan=top +news_top+news+index_businessweek+exclusives?campaign_id=pr_newswire

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BUSTING A ROGUE BLOGGER

By Michael Orey

Of the many blogs born last May, Patent Troll Tracker seemed as innocuous as any. Its focus: the obscure but controversial subject of "patent trolls," a derogatory term used to describe businesses that make money by purchasing patents and then suing big companies for infringement. The author was clearly no fan of the practice, but his or her identity was a mystery. The "about me" section of the blog noted that the writer was simply "a patent lawyer trying to gather and organize information about patent litigation." Through regular, copious posts, Troll Tracker quickly drew a devoted following in patent law circles, even among those who disagreed with its point of view. What readers didn't know, however, was that the blogger was Rick Frenkel, in-house patent counsel at Cisco Systems, the Internet infrastructure giant. Cisco didn't sanction the blog, but it, like other tech firms, has waged a long, public battle against so-called patent trolls. And in its pointed commentary, Troll Tracker advanced views squarely in line with the company's own agenda. Cisco General Counsel Mark Chandler even cited the blog as a good independent source of information while in Washington lobbying for changes to patent law that would rein in trolls, unaware he was plugging the work of a Cisco employee. Troll Tracker gained repute as a forum for information, not invective. But its more volatile content would eventually combine to blow up the blog and land its creator and Cisco in legal hot water. http://www.businessweek.com/magazine/content/08_14/b4078075822107.htm? campaign_id=pr_newswire

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