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.
Sprint? Good riddance.
RCA Victor was the name of RCA’s record label. AFAIK they are unrelated to JVC. I have no idea who bought the music division from GE or whether the brand is still used.
Your American economy, trading the assets of once great American companies for cheap consumer imports.
This bond insurer thing is beyond unthinkable. To me.
The thing is....if these bad boys go, it won't be calm and collected. It will be an historic implosion.
^^^^^^^^^^^^^^^^^^^^^^^^^
Nevada, Georgetown Univ say muni auctions failed
NEW YORK, Jan 30 (Reuters) - Washington, D.C.'s Georgetown University and a Nevada utility on Wednesday confirmed that a couple of their auction-rate municipal bonds had failed at auction, which experts said was believed to be the first time that this had ever happened.
Auction-rate debt is an instrument whose rates are reset periodically, and if an auction fails, the issuer must pay a higher penalty interest rate. An auction fails when no buyer can be found and the dealer does not take the paper back.
The confidence-rattling problems gripping bond insurers have sliced demand for the paper they guaranteed as well as other floating-rate securities. This has forced states, cities and towns around the nation to pay much higher rates than the 2-3 percent levels they had been paying.
Tax-free issuers have sold a total of $250 billion of muni auction-rate debt and many are now reviewing whether to switch to a different kind of floating rate debt, such as variable rate demand obligations, which can be more liquid.
Lehman Brothers was the dealer for both of the debt issues whose auctions failed.
Other states and utilities that also used Lehman got hit with failed auctions of their muni floaters on Jan. 22, according to a market source. "It was a bad Tuesday," said the source, who requested anonymity.
Jan. 22 was the first day traders had a chance to react to a decision by Fitch Ratings to cut the credit rating for one of the biggest and most troubled bond insurers, Ambac Financial Group's insurer, by two notches to "AA" from "AAA".
Fitch announced its decision on Friday, just before the start of the three-day U.S. Martin Luther King holiday.
A Lehman spokeswoman had no immediate comment.
Ambac insured the Nevada issue that failed at auction, according to William Rogers, the chief financial officer for the utility's holding company, which is called Sierra Pacific Resources.
Rogers explained that Nevada Power, one of his company's two utilities, was forced to pay the default interest rate of 6.75 percent after the auction failed for $115 million of tax-exempt debt sold on its behalf by a Nevada issuer.
However, the securities were auctioned successfully on Jan. 29, he added. While Rogers did not reveal the new rate, he said it was "considerably" less than the default interest rate.
The Nevada muni auction-rate program totals around $560 million and all of it is guaranteed by bond insurers, Rogers said. The guarantors include two other embattled bond insurers, MBIA Inc. and FGIC Corp.
After Georgetown University's taxable auction-rate securities failed at auction, it too was hit with a stiff penalty rate, but a spokeswoman could not say whether the paper was still in the so-called failure mode.
Andrea Fereshteh, a Georgetown University spokeswoman, said only: "I can confirm that the January 22, 2008 taxable auction failed and the current interest rate is 6.6 percent."
Several insurers, including Ambac, MBIA and FGIC, are all struggling to raise capital because their subprime mortgage plays have turned into profit-eating monsters. Their potential losses are so staggering that credit agencies have told them they risk losing the "AAA" ratings their business requires.
Fitch on Wednesday cut FGIC's credit rating two notches to "AA."
FGIC is owned by a group including mortgage insurer PMI Group Inc and private equity firms Blackstone Group, Cypress Group and CIVC Partners LP.
http://www.reuters.com/article/etfNews/i....
LOL.
I was also just consulting Wikipedia.
http://en.wikipedia.org/wiki/JVC
Evidently the dog in named “Nipper” (no jokes please), and is a widely used logo for JVC (Japan Victor Corp), which was formerly a subsidiary of RCA Victor, but now owned by Mitsubishi.
By agreement however, JVC Victor can only use the dog logo within Japan. The logo rights belong to “HMV” music worldwide.
According to wiki, JVC uses the logo a lot.
bump
I can't believe I'm reading an idiotic comment like this on a conservative website. You want to put an aggressive tax on people making more than a million a year, in essence putting a cap on personal earning? Egads, you sound like a filthy leeching Democrat of the lowest order. Wrap up your belongings in your handkerchief, tie it on the end of a stick, and take that loser talk somewhere else.
Let me guess: you make nowhere close to a million a year, so you'll of course be untouched by such a tax. Typical.
Hey, don’t dispair - this is good news.
None of these companies have a clue as to whether they are:
1. Operationally Excellent (price leaders)
2. Customer intimate (selling products to a certain type of person (not a market segment - think Volkswagen Bugs))
or
3. Product Leaders (make the best product in a class/segment)
All of these tried to fight a three front war, when a one front war takes all your resources.
Motorola’s defense business will spin off into something. The Koreans will get the handsets.
Sears will just go away, and that truly is said. Somebody might get their tool business, but who knows.
Ford deserves to die. That simple. Their logo is next to the word ‘mismanagement’ in the dictionary. The unions will cry in their subsidized beer. Someone might get the truck business, but who knows.
This is the market doing what it should be doing.
I’m sorry, but this guy is an idiot. Anyone that thinks Ford will disappear is smoking ganja.
OK, you know there’s a bond market, right? There’s a bond market, stock market, commodities market, and currency foreign exchange markets (”forex”).
The bond/credit markets are far larger (in terms of money) than the stock and commodities markets.
Here’s some background on the muni bond market and the place in that market for the monolines:
http://www.directaccessbonds.com/insured-municipal-bonds.asp
Now, at some point in the recent past, some regulator decided it would be a suave idea to allow these monoline insurers to insure “structured investments” — things like CDO’s, CMO’s, CDO-squared, etc. And this they did, because there was a lot of money in it.
Well, as the CDO’s that contain tranches of sub-prime debt have started (NB: “Started” - meaning, we are nowhere near the end of this) have taken huge downgrades in creditworthiness and as a result, big decreases in their value, the monolines are being asked to make good on the insurance as well as having to mark down the CDO crap that is in their own portfolios.
Without the monolines, a lot of property taxpayers are going to be paying more whenever your state/county/city issues municipal bond debt - because you’re likely going to have a lower credit rating than “AAA” and as the credit rating of the issuer goes down, the interest they have to pay to attract buyers of the bond goes up.
So, let me net:net it for you, cutting to the chase:
The default of sub-prime mortgage borrowers is causing the monoline insurers to lose their AAA rating, which makes them almost useless to the muni bond market, which means you, as a property taxpayer, will be paying more property taxes when you want to issue a bond to build schools, bridges, roads, stadiums, etc. That’s a longer term issue.
The shorter term issue is that as posted above, these downgrades from AAA to AA will cause further write-downs at banks. This causes banks to further pull cash out of their lending stream to put into their reserves, which removes yet more liquidity from the credit markets.
Ahh, Cringing News Network, same old song, Companies that reach a certain launch size where they have the management to handle massive competition or they do not.
If you look at those companies (Some need CPR some don’t IMO) they failed to make that jump and secure stockholders and employees futures.
Pan Am? Am Motors?
Ford is a good case in point, they are constantly behid the curve, they built huge SUV’s and when the market shifted ( a blind monkey could see it coming) they were caught flat footed.
Now we both have chatted with the Free Trade troika before, arrogant, and dismissive, they could care less, is it any wonder that the Dems are at our throats now?
I would suggest that you jettison as much debt as possible, and remain flexible enough to change careers.
THANK YOU.
I’d like to put your posting in front of everyone who keeps spouting macro-economic twaddle of the sort that Larry Kudlow is spouting.
This is not pretend stuff here, folks. This is serious, serious stuff.
People who don’t understand what a cascading constriction of credit in the banking system can do should really go back and learn the REAL history of what happened from 1930 to 1932 - and the real estate market back then.
Deflations are vicious things that central banks cannot fix. They can be averted, but once started, a deflation is nearly unstoppable.
A muni bond auction that fails should cause everyone to sit up and say “WTF?!”
Two that fail demands real attention.
This is what the Fed is paying attention to. All this silly nonsense about macro-econ numbers that Kudlow like to spout — utterly fatuous noise.
When income was more aggressively taxed, American companies prospered, and by extension so did American workers.
Let me guess: you make nowhere close to a million a year, so you'll of course be untouched by such a tax. Typical.
I don't, but I do awfully well.
I probably could break the million if I decided to do overtime and weekends.
But more than a certain amount, and the extra money is just to soothe one's defective ego.
It's vanity wealth.
Vanity wealth is relative.
Once the amount of personal income is more limited, people's vanity will adjust to a lower level of expectation, just as the aborigine is proud of an especially nice bone through his nose.
Plus as a fringe benefit, such a tax system would encourage people to satisfy their need for attention in ways other than money--ways beneficial to society.
The time may thereby come again, when it's not how much money one has that makes one special, but how much good one does for his community, how much honesty and integrity one has, how well one runs a business with the needs of his workers, customers, and community always uppermost in his mind.
Just like in the old days, when higher personal incomes were severely taxed.
I thought Elvis bought RCA for $35,000 back in 1956?
Or was it the other way around?
Are you being serious? Calm down the sky isn't falling. You fail to understand that new jobs are being created while old ones are being lost. This is good thing if you can take advantage of it.
So bottom line, the downgrade of creditworthiness means that Entities will have to pay higher interest rates then they had budgeted for, so taxes will increase to cover the unexpected expense?
For me the question then becomes, why are municipalities paying for insurance for basically an enterprise that can always raise revenues?
Are the new jobs paying higher wages and maintaining the same level of benefits and things like 401k’s?
Hey, I worked on that project too (though not for Motorola) :)
Kudlow knows better - but he's a hired cheerleader. He doesn't get paid to tell the truth.
This is going to end up being at least a 2 to 3 trillion dollar loss for the financial industry - not the 200 billion dollar number being bandied about. Secretary of Inflation Bernanke has a big and delicate job ahead.
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