GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 11

[TCO]

Originally posted by Colon
GP, I was particularly thinking about spin-offs in which a division is floated on the stock market or sold to private-equity firms.
It seems to me that financially troubled corps selling of a loss-making bit are actually outsourcing the work of fixing its profitability, pointing to a weak or unimaginative management.

Yes, that is certainly sometimes the case. Another way to think of it is like Sten said. (Differences in expertise.) Management (in some cases very candidly) will say we don't know how to run this business best.* Somebody else will do it better. A good example is a cash business that needs some drastic layoffs, etc. to be most profitable. It may be easier to give that problem to an LBO firm, than to fix it within the conglomerate.

It's not always the crappy parts of companies that are sold off, though. Sometimes it is the nice pieces. American Ski Corporation is hovering near bankruptcy. They just sold their crown jewel, Heavenly resort in California. The reason was that they needed some serious cash...and only the crown jewel would bring in enough... You will often see spinoffs of attractive businesses which were grown out of R/D or out of core businesses, but which can (now) stand on their own legs. Some companies will be pretty up front, even with middle management, that a new business unit is being "grown to spin".

Traditionally, there was some stigma associated with becoming smaller and this was much behind a lot of the conglomerate rage in the 70's. But lately the fashion has been more towards focus. It's not a perfect trend and it's not by any means settled.** It probably hit a little earlier and deeper in the US than in Europe and in Europe than in Asia.

*Or they may say, we can concentrate our efforts more towards the core business and grow it better. Really, the key thing is what is worth more, disseperate pieces, or a conglomerate.

**For each individual circumstance, you have to look at the particulars to make a decision on divestitures.

[TCO]

Originally posted by Sten Sture
or busy, or lacking specialty expertise, or lacking the necessary time horizon.... From a consultancy standpoint I would assume that GP will say there are an almost infinite number of solutions to address a business deficiency.

GP - Morton Salt?

Sten,

A. Agreed on the different "spins" of management expertise.

B. There are probably a near infinite set of deficiencies and solutions. But from a top management perspective, you should put together a clear framework to help bring order to the universe of choices. That was always the way I was taught to look at problems. Attempt to categorize things, so that you can more easily troubleshoot and explain proposed solutions.

In light of our discussion, here, we might say that for a troubled business unit, the options are three-fold:*

1. Major turn-around effort.

2. Divestiture

3. Continue to operate "normally"

Underneath each of these there are other various options. For instance under divestiture, you might have spin-out, MBO, sale to competitor. Under spin-out, you might have partial or full spin. Rather than have a global framework for addressing all troubled companies, it would be better to construct this framework (or at least refine it) for a given engagement, since the best categorization scheme would vary from case to case.

C. Don't remember much about Morton Salt. Seem to remember when I was still in grad school, hearing that it go bought. By Rohm and Haas? What are you alluding to?


*This is a magic number. It's always good if your thought heirarchy is organized into groups of 3. Sorry being cute...but they really do love the number 3.

[TCO]

Colon, a good framework for assessing some of these decisions on portfolio re-alignment is the "pentagon" (no Satan jokes please) in the second edition of Valuation by Tom Copeland, et. al. Essentially what you are doing is looking at your company the way a raider would do so...

[DanS]

Does anybody here know of an accessible comparative look at the components of GDP. For instance, the US produces x% food, y% energy, z% autos. Same for Germany, etc.

I'm especially interested in seeing a proportional services breakdown, if it is available.

[TCO]

Anybody know a good board where people talk about finace/econ/business at a high level?

[moomin]

What, the Motley Fool dosn't do it for ya anymore, GP?

[TCO]

haha

looking for something that is more MBA oriented than individual investor oriented.

[pchang]

Advanced Sites

Originally posted by GP
Anybody know a good board where people talk about finace/econ/business at a high level?

I thought this was it

[TCO]

want some more action...

[el freako]

What's happened to america's jobs machine?

I've been looking more closely at the data for employment and unemployment in the US and EU.

US unemployment has risen from a low of 3.9% in mid 2000 to 6.0% now - historically a small rise for a recession.
The EU, by contrast, has seen a small fall in unemployment during that period from 8.2% to 7.6%

However something weird has been going on in the US job market over the last 3 years - namely the first large fall in the activity rate (proportion of the working age population that is either working or looking for work) which has greatly mitigated the rise in unemployment.

In the 1979-82 recession activity rose from 70.5% to 71.4%
During the 1990-92 recession it was pretty static going from 76.3% to 76.1%
But since 1999 when it was 75.7% it has fallen to 74.3% now.

Conversely the EU has seen it's largest rise in activity for a generation.

During 1979-85 it fell from 67.8% to 66.5%
During 1990-95 it fell from 68.0% to 67.5%
During 1999-02 it rose from 69.2% to 70.2%

Indeed if activity rates had stayed where they were 5 years ago in 1997 (when US unemployment was 4.9% and the EU's 10.6%) then their current unemployment rates would be 8.3% for the US and 5.0% for the EU!

It seems that the US economy has become more 'european' with faster productivity growth but slower employment growth whilst the EU has moved towards the US with the opposite effect.

[moomin]

Originally posted by GP
looking for something that is more MBA oriented than individual investor oriented.

Hey, if all those glowing speaches about how this or that CEO really thinks it's woth sacrificing his kids and selling his mother over shareholder value are true, the best MBA orientation you ever gonna get is the investor point of view

[TCO]

Originally posted by moominparatrooper


Hey, if all those glowing speaches about how this or that CEO really thinks it's woth sacrificing his kids and selling his mother over shareholder value are true,

no reaction

the best MBA orientation you ever gonna get is the investor point of view

Individual investor point of view can be interesting. Much of the press is pretty vapid, though. I'm more interested in the actors than the audience...

[Colon™]

Dan, what you describe is the production approach towards the components of GDP (aka gross-value added by industry), rather than the expenditures approach. I think you’ll have to do some digging if you want to compare them and the classification is not always the same or as detailed. (if it’s available at all) I don’t think many offer a breakdown as detailed as that of the BEA for instance.

I’ll give a couple of link to national offices from the biggest economies that release GDP data to get you started

http://europa.eu.int/comm/eurostat/P...logue=Eurostat (eurostat - EU)
http://www.destatis.de/ (Germany)
http://www.istat.it/homeing.html (Italy)
http://www.insee.fr/en/home/home_page.asp (France)
http://www.stat.go.jp/english/index.htm (Japan)
http://www.statistics.gov.uk (UK)

[Adam Smith]

Sten's research department said 9000 was bottom. Looks like we just arrived. Where are the buyers? (Or where is Sten's research department? )

[TCO]

They said 9000 was bottom or was fair value? Not differentiating the two is part of the problem...