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.
This is a case of Nokia being the far more thinking phone maker. Motorola is so unintuitive. Nokia actually thinks about use function.
IQ tests are set up so that the average IQ of the population under consideration is 100.
The hard fact is that there is a substantial number of people who want and need to do repetitive tasks not requiring a lot of decision making.
I'm not going to base our economy on the idea that some people are too stupid and/or lazy to work in high tech jobs. If you need to learn something to survive, my guess here is that people will do what it takes or starve to death. This whole classist thing that only certain classes of people get access to learning is going to hold our society from moving forward and not using all of our human capital appropriately.
Don’t forget the loewy coupe.
Cool.
5 bucks says it’s a ford mustang with different body panels.
Qwest and Motorola failures would hit Phoenix, Arizona hard. Darn!
“Gee the old LaSalle ran great...”
I didn't say business would cease to do what business has always done -- buy and sell.
LaSalle=Pontiac.
How is your scenario affected by unfunded pensions such as CALPers? That connection really makes me shudder.
Or several newspapers, but maybe that’s too close to home for reporters/writers.
There’s a local hardware chain, Orchard Supply Hardware, that sells Craftsman tools. Others could do the same. The brand name must be worth millions as an asset, if Sears falters or fails.
Wow, stack all that against California’s blythe acceptance of a 14 billion dollar deficit. Oh, we can always float a few more bonds or take money from them so we can go on until June of this year. Oh and in the meantime let’s have a do-over on term limits so 42 Dem legislators can stay in office for six more years.
Look, everybody and their uncle, grandmother, and pet rabbit owns these things. No exaggeration. You know the company MoneyGram, Inc? Sort of like Western Union, they remit money overseas, cross country, etc. Not very exciting, but obviously they handle a lot of dough. Any company like this accumulates a float of funds in their custody and tries to earn interest on same. You would too. Except, they put their float into (what else?) high-yield whatevers that were sold to them by some Wall St weasel and guess what? Stock lost 2/3rds its value in one day. Neat, huh? Look up a stock chart of MGI. Jan 15th. One day. Now they are very serious trouble with creditors and lenders...I don't know the details. The chart speaks for itself.
http://finance.yahoo.com/q/bc?s=MGI&t=3m
Today, Bristol Meyers BMY big drug company reported that it had a bunch of money stashed in (you guessed it) CDOs.
Reuters: "NEW YORK, Jan 31 (Reuters) - Bristol-Myers Squibb Co (BMY) reported a quarterly loss on Thursday due to special charges, including a $275 million write-down from securities that had subprime mortgages as a component."
So you'll pardon me but WTF is a drug company doing holding its money in (some bizarro instrument affected by the degradation in value of) subprime mortgages?? In what universe is this something we would imagine? So $275 million isn't quite so much money for a giant like BMY but you start to get the picture that crappy loans made to folks who had no biz taking out the loans in the first place are DESTROYING (too strong a word, I'll change that to ERODING) the capital foundations of giant companies who have NOTHING to do with stupid mortgages!!
It's not even worth wondering whether CALPers or the Harvard Endowment or the Butte, Montana Sewer District have this type of crap. It's a certainty.
You read about the state slosh fund of Florida that discovered it had all these toxic things in it, and when the various little and big towns all over FL found out about it, it produced effectively a bank run and the fund stopped withdrawals. Some towns could not make their payrolls. You must understand that in a bank run, whomever is left in the fund effectively insures everyone else, including those who escaped before the SHTF, which means the last little doggies in the pool can EASILY get nothing.
So what does it mean? Frankly, the effects are so frightening that they are inconceivable if you really analyze it. If you care. You'd HAVE to care to analyze it. But I believe that the consquences of a total bond insurance wipeout are so unfathomable that it just won't be allowed to happen, and what is going on, is that there is going to be massive forebearance in the much-dreaded day of M2M reckoning for these things and the losses will most likely be nationalized, like every other fiasco. Although again, if you actually figure the amounts of money involved, the US absolutely does not have it.
Yeah, crunch all you want, we’ll print more, right? Where does all this money come from? Into whose hands does it go when these things default or otherwise blow up?
Orchard, OSH, I believe is actually a wholly-owned subsidiary of Sears.
Well all of what you described is probably beyond anything our Dimwit legislators understand, and in addition to that, they think we taxpayers are an endless source of tax money. What a nightmare.
Maybe. I know that Great Indoors is, to the extent that they use the same cash register system. Hmmm. OSH used to be a small company from the Bay Area.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.