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emerging legal and regulatory events,”says Richard Leggett, who succeededSchilit in 2005 as president and CEO ofCFRA. Schilit sold his controlling inter-est in the Rockville, Md., firm in 2003 tothe venture-finance firm TA Associates,but he remains an adviser to the com-pany.

Consider MasterCard (MA), the Pur-chase, N.Y.-based credit-card issuer,which faces not only antitrust suitsbrought by American Express (AXP)and Discover, seeking billions of dollarsin damages, but regulatory efforts to re-duce fees and encourage more competi-tion. In Rodelli’s view, none of the risksassociated with these issues is reflectedin MasterCard’s shares, which have al-most tripled since the company came pub-lic last May and now trade for 108, or22.5 times consensus 2007 estimates.

“The market has been mesmerizedby the great numbers posted by Master-Card since it went public, but is ignoringthe greater threat to its operations fromcurrent legal risks,” he says.

Rodelli expects these risks to gainmore attention in coming months as theantitrust suits move toward trial andregulatory scrutiny of the company’s fee

structure heats up. Not only could dam-ages be in the “tens of billions of dol-lars,” he says, but “the market fails toappreciate the strategic interest of bothAmerican Express and Discover in us-ing their strong antitrust claims to gainlong-term advantages in the market-place, as opposed to a one-time settle-ment payout.”

If MasterCard appears to be the loser,American Express conceivably will bene-

fit from the litigation, which focuses onthe so-called exclusionary rule by whichMasterCard effectively sought to preventbanks that issue its card from issuingAmEx or Discover cards. (The Depart-ment of Justice challenged this rule andwon; the American Express and Discoverlawsuits piggybacked off the DOJ action.)

Consequently, the two stocks mightmake for “an excellent pair trade,” saysRodelli, with an investor buying Ameri-

can Express at 16.5 times ’07 estimates,and shorting MasterCard. (Shares of Mas-terCard have fallen about 2% sinceCFRA issued its first report Feb. 1,while American Express is roughly flat.)

Paint maker Sherwin-Williams(SHW) also faces potentially significantrisks from litigation, says Rodelli. Thethreat to Sherwin-Williams comes from arecent ruling by a Rhode Island statejudge, upholding a jury verdict that

RecentCompany Ticker Price Business Legal Issue Comments

World Wrestling Ent. WWE $15.66 Consumer Racketeering, breach of contract suits. A win could boost earnings before interest and taxes by 14% to 22%.

American Express AXP 55.86 Finance Antitrust claims against A victory could open the door to more card issuance by AmEx.MasterCard.

Qualcomm QCOM 42.58 Electronics Patent and royalty disputes. Risks from Nokia contract dispute and other legal issues discountedin stock.

POTENTIAL LOSERSRecent

Company Ticker Price Business Legal Issue Comments

MasterCard MA $109.83 Finance Antitrust suits, regulatory scrutiny. Risks from AXP/Discover lawsuits and interchange-fee scrutiny likelywill reemerge in 2007.

Sherwin-Williams SHW 67.35 Paints Lead-paint litigation. Valuation implies minimal discount for potentially large paint-litigationliabilities.

Sources: Yahoo! Finance; CFRA

On the DocketHere’s how Legal Edge, a service of the Center for Financial Research and Analysis, sizes up the legal risks and opportunities facing various companies.

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A.G. LafleyProcter & Gamble, CEO since ’00

Why: Hasn’t let bigger get in theway of better

Lafley says he’s a big believer inkeeping one’s word, and he is

doing just that as he approachesthe second anniversary of his$57-billion merger of consumerproducts giants Procter & Gambleand Gillette.

Lafley, 59, has made good ona promise to trim $1 billion-plusannually from the new P&G. Hehas also presided over some bigmarketing splashes. With the in-troduction of such winners as theGillette Fusion razor and Tidewith Febreze “freshness,” P&Gwas responsible for five of 2006’stop 10 new packaged goods forconsumers, in the view of marketresearcher IRI. Such new productshave helped the company post solid, organic sales growth of5%-7%, despite the headwinds of higher commodity andand energy costs.

Lafley is now pushing hard into Asia, Central and Eastern Eu-rope and Africa. But for all his products and markets, his visionis strikingly simple: to be “one team with one dream.” For inves-tors, whose holdings already have nearly doubled in Lafley’s ten-ure, it’s a sweet dream. —Robin Goldwyn Blumenthal

Allan MossMacquarie, CEO since ’93

Why: The venturesome spirit tofollow the open road

No one will begrudge Moss ifhe becomes Australia’s best-

paid executive in 2007. For theyear ending March, his firm, Aus-tralia’s biggest investment bank,is set to post its 15th consecutiveyear of profit—A$1.3 billion, upmore than 50% from last year.

Under the 14-year reign of themild-mannered banker, Macquariehas snatched up tollroads, airports,and trophy properties around theworld, on the theory—correct, as itturned out— that steady-return in-frastructure investments will meldperfectly with pension funds’ long-dated obligations.

Macquarie, which controls theIndiana Tollroad and the ChicagoSkyway, is said to be eyeing the New Jersey Turnpike as well as arange of other assets. It’s at the forefront of a trend that sawsome $150 billion of infrastructure assets change hands lastyear. That activity can be intensely lucrative: When Macquarieadvises a privatization, it can provide financing to a buyer orperhaps lease the asset itself. Running a tollbooth has neverbeen so much fun. —L.P.N.

John MackeyWhole Foods, CEO since ’80

Why: Capturing the growth poten-tial in natural food

Mackey likes his job so muchthat he decided earlier this

year to eliminate virtually all ofhis compensation. For $1 a year,he’s adroitly guiding the pioneerof natural and organic grocerystores into a new era of growthand competition.

With everyone from Wal-Martto Safeway muscling in on natu-ral foods, Mackey is fighting backby offering a “whole lifestyle”—prepared gourmet meals, linens,music and food supplements. Hecontinues to expand the 190-storechain and has inked a smart dealto buy smaller rival Wild Oats.

Wall Street has pounded thestock by 25% over the past year,but don’t sell Mackey, 53, short. His insights allowed him to buildthe business he created in 1980. Not only was he early to naturalfoods but he was among the first to see the promise in “food-ies,” those affluent, well-educated people who crave good eats.

In giving up his pay, Mackey said Whole Foods already hasgiven him more money than he ever dreamed of. With anyluck, investors may soon be able to say the same. —R.G.B.

Lakshmi MittalArcelor Mittal, CEO since ’76

Why: Forging a global steel empire

Want to know how India be-came a leading incubator

of multinationals? Read the storyof Lakshmi Mittal. The 56-year-old tycoon took over Arcelor lastyear for Œ26.9 billion ($35.8 bil-lion), creating the world’s largeststeel company and greatly ex-panding an empire he started inthe 1970s.

Mittal, long a producer of low-cost steel, was an early advocateof industry consolidation andbought downtrodden plants inMexico and Kazakhstan. Then,when the world began demand-ing more steel, Mittal was off tothe races.

Today, he owns 44% of theRotterdam-based company, which has annual sales of about$89 billion and produces 120 million tons of steel a year, orabout 10% of global production. With a personal fortune esti-mated at $32 billion—Arcelor Mittal, after all, is busy returningcash to shareholders by paying out a big dividend and repur-chasing shares—Mittal is now investing in Indian refineries andscouting for energy assets overseas. —L.P.N.

Richard KovacevichWells Fargo, CEO since ’98

Why: King of the cross-sell.

In an industry with more thanits share of ups and downs, Ko-

vacevich has made Wells Fargo aparagon of predictability. The SanFrancisco-based banking gianthas increased its earnings at anannualized 12% over the past fiveyears and shows little sign ofslowing.

Kovacevich (pronounced Koe-VAH-suh-vich) shuns the big ac-quisitions fashionable amongother banks, preferring to groworganically. Nor is he keen onmassive share repurchases, opt-ing instead to husband capitalfor expansion.

His main mantra is cross-sell-ing. He wants to cement rela-tionships with customers by of-fering multiple banking products—deposits, credit cards,home mortgages, auto loans. The average retail customerhas over five products from Wells, far above the industrynorm.

True, Wells could get dinged in the subprime mortgagemess; it’s a big originator of the loans. But as Wells pointsout, it’s also a careful originator. Ultimately, the crisis may bea boon for Kovacevich, thinning out weak rivals. —A.B.

Terry LeahyTesco, CEO since ’97

Why: Best-of-breed grocer with glo-bal ambitions

If there’s no greater flatterythan the attentions of Warren

Buffett, Tesco, the big British su-permarket chain, had ample rea-son to blush earlier this year. TheOracle of Omaha revealed that hisBerkshire Hathaway had acquireda stake of nearly 3%.

It’s easy to see why. CEO TerryLeahy has Tesco expanding itsbest-in-class operations aroundthe world. Unlike most retailers, ithas not only managed to defenditself against U.S. giant Wal-Marton its home turf in the U.K., buthas thrived there. One of everythree British pounds goes throughTesco’s cash registers. Now, Leahyis about to execute a long-plannedinvasion of Wal-Mart’s backyard, opening stores in Los Ange-les, San Diego, Las Vegas and Phoenix. He’s also expanded intoChina and Turkey.

Leahy always has taken Tesco’s founding credo to heart:“Pile it high and sell it cheap.” Profits, too, have piled up,helping investors reap returns of 400% over Leahy’s tenure.Investors’ smiles may soon be greeted by the frowns of U.S.grocery store owners. —V.J.R.

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Annualized Price ChangeOne Year 8.1%While CEO 10.6%S&P 500 4.7%2007 P/E 12.75-Yr. Profit Growth 12%

Annualized Price ChangeOne Year 5.9%While CEO 15.3%S&P 500 1.2%2007 P/E 19.45-Yr. Profit Growth 10%

Annualized Price ChangeOne Year 27.8%While CEO 17.6%S&P 500 7.6%2007 P/E 195-Yr. Profit Growth 13.7%

Annualized Price ChangeOne Year -25.2%While CEO 20.8%S&P 500 10.7%2007 P/E 31.75-Yr. Profit Growth 18%

Annualized Price ChangeOne Year 37.3%While CEO 6.2%S&P 500 6.5%2007 P/E 6.15-Yr. Profit Growth NM

Annualized Price ChangeOne Year 23.0%While CEO 26.2%S&P 500 7.7%2007 P/E 15.15-Yr. Profit Growth 23.5%

44 B A R R O N ' S March 26, 2007