Most everyone is shell shocked at the way Bear Stearns’s stock fared in the last few days and with how quickly (if not cruelly) the decision to buy it at $2 a stock was reached. The blogosphere as one would imagine has been lit up with emphatic posts. A few are questioning the competence of the senior executives at the firm, a few are questioning the merits of the decision to buy it out right and a few are lamenting their misfortunes or loss of savings.
Comments here suggest that it would not be a stretch to try the CEO and the Board of Directors for gross negligence or willful misconduct. Angry allegations are being hurled back and forth regarding failure to disclose the gravity of the situation.
That brings us to the something called communication. In such situations, rumors cannot be contained, especially with all the wonderful technology we have at our disposal. How do you quash rumors even when they are the most bizarre? How do you communicate confidence to your employees? How do you communicate in a sincere and honest manner as opposed to a preference for keeping everything hushed till a rumor is no longer a rumor and turns into a veritable fact? How do you navigate such choppy waters? A lesson might be drawn from WSJ’s account of how Lehman handled this at their firm.
1. Open and honest communication along with acceptance of facts
2. All Hands on Deck (even if it was a weekend)
3. Communication even if someone is in-flight
4. Asking for help before your life depends on it or it is too late
5. Communication with all employees regardless of their title
6. Coordination with other agencies
7. Act in a manner that inspires confidence
That there are angry investors just reaffirms that there is something to be said about investor activism. It pays to be vigilant. At least, that way when fortune swings such as these happen, one can sleep easy knowing one did the right thing.
Thursday, March 27, 2008
Penny Wise and Pound Foolish
We have all heard the expression, Penny Wise and Pound Foolish. Yesterday, I received a not so subtle reminder of the same. Wal-Mart, the big mighty retailer sued a former employee for the amount of $470,000 because she received $417,000 as damages from the trucking company she lost her short-term memory to. According to Wal-Mart’s policy, if the employees receive damages then Wal-Mart is well within rights to ask for the money they spent on an employee. Their spokesperson said they are doing this to be fair to all of their associates.
So, then why do I think it is penny wise and pound foolish? I do because when we make laws such as these we do so to protect the shareholders and to be fair. The amount of negative press that Wal-Mart has received on this alone would be any Corporate Relations’ nightmare. Given that Wal-Mart already was not being portrayed in the best light exacerbates the situation. Negativity is a big value stealer. People don’t want to work for such companies and where there is employee strife, how does one perceive shareholder value is being created. It can be based on profits alone but is that sustainable? And, for how long? Are people not the biggest asset in the retail business and does that not include employees?
So, then why do I think it is penny wise and pound foolish? I do because when we make laws such as these we do so to protect the shareholders and to be fair. The amount of negative press that Wal-Mart has received on this alone would be any Corporate Relations’ nightmare. Given that Wal-Mart already was not being portrayed in the best light exacerbates the situation. Negativity is a big value stealer. People don’t want to work for such companies and where there is employee strife, how does one perceive shareholder value is being created. It can be based on profits alone but is that sustainable? And, for how long? Are people not the biggest asset in the retail business and does that not include employees?
Wednesday, March 12, 2008
Money Speaks
Today I was greeted by a great piece of news in the WSJ, at least from an investor activism result perspective. On one hand there is the mandate to maximize shareholder return and the on the other, there is to invest responsibly. Both sides have their arguments. Fidelity calls it an attempt to micro manage and too prescriptive. The human rights activists are calling the investments as being substantially contributive to genocide.
I think both those arguments are valid and if someone were to look closely, maybe we could come up with a system to prevent any such future tarnished investments. For now, I am happy to report that the ground level investors can make a difference if they so choose. That I believe is the real victory here. Money speaks...and it can be a beautiful language.
I think both those arguments are valid and if someone were to look closely, maybe we could come up with a system to prevent any such future tarnished investments. For now, I am happy to report that the ground level investors can make a difference if they so choose. That I believe is the real victory here. Money speaks...and it can be a beautiful language.
Saturday, March 1, 2008
Cross-Border Mergers - SPAC or Spin Off?
Neptune Orient Lines is in talks with TUI AG to merge to form the world’s third largest container shipping enterprise. Neptune is Singapore based and TUI is a German company.
In order to limit its exposure to TUI’s leisure lines of businesses, Neptune’s parent company Temasek Holdings Pte. Ltd, which is a Singapore state-owned investment company, would prefer to limit its investment to Hapag-Lloyd. This would call for Hapag-Lloyd to be spun off as a separate entity. TUI’s management has so far restricted such demands from TUI shareholders but this might be right impetus for them to spin off Hapag-Lloyd.
What might be another way to achieve what a spin off would provide to the acquiring company? A Special Purpose Acquisition Company (SPAC) that limits the parent company’s exposure to litigation and other risk might be one way to go but that is the perspective from the acquirer. SPACs, also known as blank check companies, allow for an easier way to raise funds for an acquisition, based on the reputation of its founders. It is also considered a back door way to go public, especially in volatile markets. They can be structured so that founders get the majority of the stake in the company. Another way is to spin off the merged entity and have focused and autonomous management. A spin off would be more ideal if the time table is longer than what a SPAC can afford, which is typically 24 months. A spin off would be successful if the spun off entity is diverse enough from the parent companies and is able to get higher valuations as a stand alone entity. How the value in unlocked of often key to the success of a spin off. A spin off is a suitable option when it gives the incumbent management the opportunity to focus on the core business.
Given that this is a cross border merger, would there be other cultural issues that would have to be dealt with in order to spin off or create a SPAC. Since 70% of the mergers fail because of cultural issues, I sure would like to see this as a Case Study of what to do rather than what not to do, which we have seen quite a few.
In order to limit its exposure to TUI’s leisure lines of businesses, Neptune’s parent company Temasek Holdings Pte. Ltd, which is a Singapore state-owned investment company, would prefer to limit its investment to Hapag-Lloyd. This would call for Hapag-Lloyd to be spun off as a separate entity. TUI’s management has so far restricted such demands from TUI shareholders but this might be right impetus for them to spin off Hapag-Lloyd.
What might be another way to achieve what a spin off would provide to the acquiring company? A Special Purpose Acquisition Company (SPAC) that limits the parent company’s exposure to litigation and other risk might be one way to go but that is the perspective from the acquirer. SPACs, also known as blank check companies, allow for an easier way to raise funds for an acquisition, based on the reputation of its founders. It is also considered a back door way to go public, especially in volatile markets. They can be structured so that founders get the majority of the stake in the company. Another way is to spin off the merged entity and have focused and autonomous management. A spin off would be more ideal if the time table is longer than what a SPAC can afford, which is typically 24 months. A spin off would be successful if the spun off entity is diverse enough from the parent companies and is able to get higher valuations as a stand alone entity. How the value in unlocked of often key to the success of a spin off. A spin off is a suitable option when it gives the incumbent management the opportunity to focus on the core business.
Given that this is a cross border merger, would there be other cultural issues that would have to be dealt with in order to spin off or create a SPAC. Since 70% of the mergers fail because of cultural issues, I sure would like to see this as a Case Study of what to do rather than what not to do, which we have seen quite a few.
Lifestyle Banking
I read a very interesting albeit a not so new article about highly personalized banking. They claim and I quote, “Citizens Financial Group (CFG) offers enhanced online banking tools to enable you to personalize your accounts and Internet banking preferences to "fit" your lifestyle. Based on your unique priorities and financial goals, choose high interest savings account rates, customizable banking services and other internet bank account options that will allow for greater banking ease and increase your savings potential.”
A few months ago, I had responded to a question on LinkedIn about future trends in personal financial services. My answer was, “I would think with the New Capitalists in the play, companies that manage money will become much more active and will be able to dictate companies' behaviours. I would highly recommend a book. The New Capitalists: How Citizen Investors Are Reshaping the Corporate Agenda The other trend I see in Financial Services is integrating the global phenomenon in everything. Financial Services will need to cater to global citizens, global companies, etc. New services that might evolve would be highly individualized financial/life management. Let me explain this a little better. Someone who likes to travel once every quarter for leisure, like to drink coffee, spends on golf, wants to pursue advanced education, etc. will have a personalized financial plan as opposed to another person with different goals in life. Though I think that this is more futuristic than the next five years.”
This is a simplisic version of what Citizens Financial Group seems to be offering. It feels good to be able to accurately predict trends, which is a key skill for strategy consulting.
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