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.
Why? Companies large ans small fail every day.
I think the latest drop for MOT is due to Kramer indorsing it in Dec and then reinforcing the Dec remarks in Jan...yesterday he said they suck,Kramer is an ass hole
It’s depressing because failing American compaines are being bought out by foreign companies, not other American companies.
You must be a big hit at parties. What’s a “mot” BTW?
The problem is not free competition.
Within America. That’s what made America great. What’s causing true damage to our country, is sending our jobs out of the country.
The longer term problem is, we are now truly, in the proverbial “race to the bottom”, as long as there are no limits to what will be outsourced.
Eventually, every American job will be exported. We’ll be broke. We’ll have forgotten how to make things. Our factories will all be in China. We’ll import what we need, as long as our money holds out, then we’re good and truly screwed.
Then what?
Will you smile, and think that’s what we needed all along?
Once that happens, you don’t actually think that China, and India, will send jobs BACK HERE, do you?
“Free trade” is a one-way street.
To nowhere.
actually they are mis-managed.......for instance LUCENT
mot is the nyse ticker symbol for motorola.
it's probably past your bedtime.
mot=motorola
T=att
q=quest
v=verizon
You can include Chrysler, Merrill Lynch, Wendy’s and Dell, imho.
Don’t be depressed. One economist (don’t recall his name) said that by the next decade, 80% of us will be buying things from companies that don’t even EXIST today.
I’d believe it. Ask any whale-oil lantern maker, or buggy whip manufacturer. ;)
Things are changing. They’ve always changed. But due to technology, they just change faster now. :)
Look at the Fifties if you want to see America on the fast-track to consumer spending on things we never thought we’d “need.”
Credit Cards
SuperGlue!!
Black Box recorders in airplanes
Oral Vaccines, versus shots
UPC Codes
Kevlar!!
Lego’s
Pantyhose!!
Home Smoke Alarms
Integrated Circuits!! (allowing Computers today, but you knew that)
Mr. Potato Head
McDonald’s!!
Hovercrafts (I’m still waiting for my Flying Car, d@mmit!)
Barbie Dolls
MicroChips!!
It’s also Thai for mosquito, guess it all depends on what you think is worth learning.
Free bit of advice:
You could probably persuade more readers, without the smarta$$ attitude.
We need AMDs competition and a Samsung-AMD merger would be great. I have high regard for both companies and their products I have used
say, you might be considered a bit more credible on a thread about big business if you knew what a freaking ticker symbol was, junior.
;)
May be a thread about big business to you.
I consider it, a thread about America.
Jeez, I miss the old Studebaker...
Firestone is now owned by Bridgestone and they still make Firestone tires.
Thanks. :)
What are you smoking? Those are two big companies that probably won’t survive the year...
You're quite correct. Companies that continually create shoddy products/services or those that run counter to or too far ahead or behind the market aren't all that difficult to predict. Another example was Digital Equipment Corporation, once the 2nd largest computer company and closing fast on IBM. When you saw them building water-cooled mainframes and telling customers they were stupid for not buying dumb terminals in an era when people were moving to PC's, predicting their demise was quite easy.
Looks to me like 24/7 Wall is a blog...aka, “opinions are like a holes..we all have one”
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Don’t worry about Firestone. Bridgestone bought them out 20 odd years ago and they are still in the business of making tires, among other things. In fact, there are MORE US jobs at Bridgestone/Firestone than ever.
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