Posted on 01/30/2008 5:09:23 PM PST by Snickering Hound
Firestone. American Motors. Texaco. Pan Am. Worldcom. At one point or another these large American companies were at the top of their industries. Pan Am was the leading global airline for decades. All are gone. Some were sold off. Others went bankrupt. Who could have predicted it?
There are several iconic US companies that may well not exist at the end of 2008. Some may not even make it halfway through the year. Not all will go out of business. Some may simply be auctioned off in pieces. Others may be bought. These companies will not exist in their current forms as they are known to their shareholders and consumers now.
When a company ceases to exist as an independent entity, it is not necessarily bad for shareholders. Some may be worth more in parts. Often a bust-up or merger is what brings owners the most money.
Here are the big ones that probably won't make it.
Motorola (MOT) was the No.2 handset maker in the world a little more than two years ago. Its Razr took the wireless industry by storm. It did not follow that product up with another winner and its larger rival, Nokia (NOK) began to take up market share. Smaller competitors Samsung and Sony Ericsson came out with popular phones and Motorola was under siege. Carl Icahn took a stake and tried to get the company to improve its pay-out or sell-off some of its divisions. The board sent him away. Since then things have gotten worse. Motorola's share price was over $25 in late 2006. It is now below $12. The company's handset business may well be bought by Samsung and its enterprise telecom and home set-top business to companies could be acquired by Cisco (CSCO) and Nortel (NT). A tech-oriented private equity firm might also buy the set-top box unit. As an independent company, MOT has no future.
Sears Holdings (SHLD) is billionaire Eddie Lampert's experiment at merging big retailers Sears and K-Mart. Unfortunately both were in bad shape at the outset. Putting them together did not help either business. The company has a 52-week high of $195 and now trades at $103. Sears has now reported a string of bad earnings. Last week reports began to appear that Lampert may spin-off the company's real estate and break the firm into several operating units, each of which would have more operating autonomy. The CEO has been pushed out in favor of a "temp". That sounds like the prelude to an auction.
Citigroup (C) is almost certainly not out of the woods. A recent report in the Financial Times said that US financial company write-offs for the entire sector could total $300 billion this year. Fortune magazine has written that Citi has another $37 billion in CDOs on its balance sheet. It also has LBO loans which it cannot syndicate because of poor credit markets. Shares of JP Morgan (JPM) and Bank of America (BAC) have recovered a good deal from their sell-offs. Citi has not. Wall St. is worried that the level of risk in owning the shares is just too great. A close look at the bank shows that it has some valuable businesses which operate independent of the troubled part of the company. Citi's wealth management operation grew 27% last quarter. This division includes Smith Barney. The firm's international consumer revenue rose 45%. It is Citi's securities and banking operations which is dragging the company down. With a recession and more financial company write-offs coming, Citi will have to get smaller by selling one or two of its valuable businesses. The global wealth management business had $3.5 billion in revenue in Q4 and $523 million in net income. Citi's market cap is only $140 billion now. Its consumer units could be worth more than that on their own.
Ford (F) is trading about where it did when there were rumors that the company would go bankrupt. This car company has a market cap of $13 billion against annual sales of $173 billion. Ford lost another $2.8 billion in Q4 and is planning to cut another 13,000 jobs. It has a credit unit which made $775 million last year. Ford is already in the process of selling some small units including Jaguar and Rover. Volvo might be next. The company's share of the US market is down to about 15%. Even with cost cuts, its product line works against a recovery. The firm's pick-ups and SUVs have good margins, but high fuel prices have cut into sales. Ford's new fuel-efficient cars compete directly with companies that have much stronger balance sheet like Toyota (TM) and Honda (HMC). Ford is highly unlikely to stage a unit sales recovery in North America this year. If sales fall further, cuts won't make up the difference forever. The Ford family, which has de facto control of the company, will have to look at selling the car operations to a large Asian or European auto company. That would allow for a consolidation of production, product development, R&D, and marketing. Bottom line--billions of dollars in annual savings.
Yahoo! (YHOO) won't make it through the first half as a standalone. There has been speculation that the company might be sold to Microsoft (MSFT) in the press for months. It may take an outside investor coming in and buying a large stake to push the board's hand. Recent analysis from Wall St. shows that about half of the company's $28 billion market cap comes from the value its stake in Yahoo! Japan and China e-commerce company Alibaba. That leaves $14 billion for the core portal and search business which has a revenue run rate of about $6.8 billion a year. This has to be attractive to companies like Microsoft and News Corp (NWS). Weak Q4 2007 earnings and a shaky forecast for 2008 has hurt the shares more. The company has said it will lay-off several hundred people.
AMD (AMD) is the second largest provider of chips and processors for servers and PC's. Its larger rival, Intel (INTC), has over three-quarters of the market. A price war has hurt AMD's gross margins badly. The firm also bought graphic chip company ATI and now has over $5 billion in debt. Shares were over $40 less than two years ago and now trade at a little over $7. For AMD to hope to compete, it needs a larger owner with a wider global chip business and better balance sheet. Intel has close to $13 billion in cash and short-term investments and 20% operating income margins on nearly $40 billion in revenue. Where would AMD fit? Somewhere with chip R&D expertise, a broad line of semiconductors, and a mammoth global customer base. Look for Taiwan Semiconductor (TSM) or Samsung to court AMD's board.
Sprint (S) should never have merged with NexTel, but it is a little too late for that to be fixed now. It traded above $23 about a year ago and recently fell to close to $8. While AT&T (T) and Verizon (VZ) post enviable wireless numbers, Sprint struggles to keep current subscribers. Sprint is cutting bodies but Wall St. has no confidence that fewer people and these modest savings will turn around the company. Its issues of being an independent wireless company with angry customers are simply too great. SK Telecom, a big Korean operator, has already come to Sprint with a proposed investment. The board did not listen. But, the company's shares were not at $10 then. SK may well be back. The other potential buyer often mentioned is Comcast (CMCSA). After years of beating on the big US phone companies, Comcast is now up against their fiber-to-the-home broadband and TV products. And, it is losing customers to them. What Comcast does not have is a wireless service to offer consumers and businesses as part of a "bundle" of services. At $6 or $7 Sprint could look very attractive.
Qwest (Q) is the last of the Baby Bells standing from the break-up of the old AT&T. It is the dominant phone company in 14 states. Its shares have fallen from a 52-week high of $10.45 to just below $6. Qwest has two problems which it cannot solve. The first is that it has no real wireless operations. That is what is driving the market valuation of rivals AT&T (T) and Verizon (VZ). Qwest also does not have the balance sheet to upgrade all of its infrastructure to fiber like Verizon is doing. AT&T has started the fiber build-out process. There are rumors that it will get into the TV business by buying one of the satellite TV companies. Either way, Qwest does not have the balance sheet to run fiber across its service area. Qwest does have a very valuable customer and geographic base. Watch for Verizon to get in touch with Qwest's board. The larger company could use Qwest's customer base to push its wireless services in bundles. It could also build out fiber into Qwest's region if the return-on-investment for the current project is good.
Maybe some CEO's have enough money just the way things are.
None of the above.
Make them work for their own money
Best thing you can do for them is let them struggle.
If they are worth it and healthy, they will make all they need, and probably all they want.
Your post assume a stable economic environment.
This is depressing. And there’s no reason to expect that things will change soon.
I would hardly say depressing. These companies can’t keep up. There are new businesses that are replacing them that are better. I only hope that Yahoo does in fact go to Microsoft and make it even better. If you want companies to continue and not allow for better companies, we would still be shopping at Woolworths and that is about it.
I’m in the same boat. They’re where I buy my clip-on suits and cheap ties.
Most of the parts you mention are produced by Freescale, which is now privately held.
Some of us want to ensure a better future for our children and grandchildren by giving them every advantage that comes with wealth: the best schools, the best health care, the opportunity to travel, the works...
Are you serious? Could you be the problem?
How would Bird Jenkins be the problem? Isn’t that what most people want?
Send some...No sh*t...I Don’t watch Lamer...
The liquidity situation has changed.
First, on the bonds: if I know that the insurer on a bond is gone, and the muni bond isn’t a “GO” (general obligation) bond, I’m likely going to want to sell it. And other bond buyers are likely to want to pay a discount for it, which means that I’m likely to lose money. The initial yield is NOT paying me to take on the risk of holding the bond without the insurer.
Second, banks, funds, companies in general that are holding these bonds will have to mark the bond to market and for banks and lenders who hold these bonds, the write-down goes against their reserve cash.
Let me give you a little taste of the scale of the problem. Most people here on FR seem completely unaware of how much money we’re talking about in the bond market. They look at the stock market and think the bond market is smaller because it is less talked about by/for the retail investor. Not so.
Bond insurers (not just the two we’re discussed, but the whole bunch) are insuring about $2.5 Trillion in assets (NB: “T”). About $800 to $900 billion of that is structured finance products (like CDO’s) and about $1.2 Trillion is muni’s.
Here’s a good explanation from a pro on what the downgrades of these monolines does:
http://www.ft.com/cms/s/0/486fb178-c2b9-11dc-b617-0000779fd2ac.html
Motorola, originally named Galvin Manufacturing, was always an independent company.
In 1930, every car radio installation was custom, complex, and expensive. Paul Galvin and his associates got the idea to produce a car radio that would be much easier to install. It was to involve the creation of a network of dealers and installers.
One morning, when thinking about their new product, Galvin reportedly coined the word “Motorola” after the idea of the “Victrola.”
Interestingly, one of Galvin’s early associates was Bill Lear, the man who went on to develop the LearJet and its infamous 8-track tape player. Lear claimed to have invented the term “Motorola,” but this is disputed by Paul Galvin’s son Bob, who remembers the development of the product from his boyhood.
Galvin Mfg changed its corporate name to Motorola in 1948, IIRC.
[On a personal note...
That is the year I became aware of the company, when my older brother won a Motorola table radio-phonograph in a Boy Scout raffle. The eventual hacking of that machine was my first act in a long life of technical sin.
My relationship with the company went on to become somewhat more personal in 1968, and would continue, on and off, for about 30 more years.]
I worked on the Az/El control systems for the ground-based control systems.
Well, in your case, not much it seems. The Thai for mosquito is yung. So if you are wrong on such a simple word, what are you wrong on otherwise, like free trade? And your are accusing another FReeper of what, being a smarta$$? Hmmm.
I see, sounds similar IBM spinning off their manufacturing operation to Celestica. Does Motorola still do the R&D?
Why do you consider this to be depressing? It's the natural order of things. You don't see dinosaurs or sabre tooth tigers or giant sloths (well maybe the latter if you look at the welfare rolls) walking around today. In 1900 United Leather (made harnesses) was one of the biggest corporations in the US. You probably never heard of it before now. Corporations come and go and their survival depends on how their executive management steers the company. Ford, by getting in bed with the unions over the last 40 years guaranteed its long term demise. Likewise the other companies failed to keep up with what was desired in the marketplace. I could go on about how top down management and central planning fail proportionately to how much top down control there is, but that would be getting off subject.
I was recommending Ford stock at $8. Now its $6...
I think the upside is that those snivelinng American workers get put out of a job. Seems to be something to be applauded, for some reason.
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