While looking at the hostile bid from Microsoft, you can’t help but look at the potential upside of the takeover, which is to force Yahoo to look at its strategic direction, and Microsoft’s intent. While it is understood that Yahoo and Microsoft in its current form can’t really compete with Google on the same scale (although they both really want to…), Yahoo is missing the boat on what its strategic goal should be…the better alternative to Google, in all its glory. Now, already having search, ads, and portal content, the one thing that Yahoo needs, is to build credibility in the the world of Web 2.0, by getting companies to buy into it, as a social/corporate/educational landscape, where the Internet becomes an essential tool in the working environment, by utilizing “collaboration” applications, similar to Google Documents & Spreadsheets. By becoming part of Microsoft, these online applications would instantly put the Yahoo faithful to the forefront of Web 2.0, and give Microsoft the added punch needed to shore up its businesses, outside of boxed software. Application-rich content is the direction Yahoo needs to go, and it can only compete if it ties up with Microsoft. No doubt the majority of Yahoo shareholders will see the light, and pony up to Microsoft’s offer. Microsoft could go another $5 per share (offer $36/share) to secure the confidence of senior management, and still come out a winner in the deal.
Microsoft will be better off by upping the ante for Yahoo, and take it under its wing, and give them both a leg up in the battle with Google. A year after this acquisition will probably see Gates take over the top spot as richest in the world.
11 February 2008
16 October 2007
31 August 2007
How to Read a Company Balance Sheet
Informative video here, courtesy of AOL Videos & TheStreet.com.
Update - 1 Jan 09 - fixed broken link
Update - 1 Jan 09 - fixed broken link
04 August 2007
Top 10 High-Yield Dividend Stocks
A good summary of the top 10 dividend stocks to be holding. Courtesy of TheStreet.com.
13 July 2007
More on the Blackstone IPO Saga...Tax Issue
With the recent news of Blackstone's teflon coating, here is a great summary, courtesy of Bloomberg.com;
Reading Fine Print
Tax experts say the strategy used by Blackstone is commonly employed and is fair because the founders of the firm are effectively being reimbursed for the decline in value of their intangible assets that results from the sale.
The fact that new shareholders are ultimately bearing the burden should have been reflected in Blackstone's initial purchase price, said Victor Fleischer, a University of Illinois law professor who is advising Congress on the tax treatment of hedge funds and buyout firms.
``In a fully efficient market, one would expect Blackstone investors to read the fine print of the prospectus and discount the pricing of the IPO shares and aftermarket shares accordingly,'' Fleischer said. ``Whether that actually happened, of course, is hard to say.''
With the onslaught of IPOs in these kinds of companies coming up (e.g. KKR, etc.), read the fine print, and figure the price you are willing to pay, based on sound financial information. It will save you some headaches when you look at popping with IPOs.
Reading Fine Print
Tax experts say the strategy used by Blackstone is commonly employed and is fair because the founders of the firm are effectively being reimbursed for the decline in value of their intangible assets that results from the sale.
The fact that new shareholders are ultimately bearing the burden should have been reflected in Blackstone's initial purchase price, said Victor Fleischer, a University of Illinois law professor who is advising Congress on the tax treatment of hedge funds and buyout firms.
``In a fully efficient market, one would expect Blackstone investors to read the fine print of the prospectus and discount the pricing of the IPO shares and aftermarket shares accordingly,'' Fleischer said. ``Whether that actually happened, of course, is hard to say.''
With the onslaught of IPOs in these kinds of companies coming up (e.g. KKR, etc.), read the fine print, and figure the price you are willing to pay, based on sound financial information. It will save you some headaches when you look at popping with IPOs.
26 June 2007
To Blackstone or Not to Blackstone...That's the Question
With all the hype around Blackstone's IPO, I had mentioned before the offering that it wasn't as good as a deal as it looked. The limited nature of the shares in the overall structure and expected returns, were not going to be there. Now with the potential looming increased tax rates, Blackstone will just become another stock that sucked the shareholders dry, not unlike what happened to the Vonage IPO...shareholders left holding the bag will wonder.
More reading here, courtesy of the Financial Times.
BX Chart since the IPO;
More reading here, courtesy of the Financial Times.
BX Chart since the IPO;
23 June 2007
6 Signs of a Bad Acquisition
Interesting article over at TheStreet.com, noting that not all takeovers work, and six points to look at when evaluating takeovers.
12 June 2007
Index Funds or Actively Managed Funds?
Interesting reading, courtesy of CNN Money;
The joy of index funds
What's the better investment: an index fund or an actively managed fund? Walter Updegrave tells you where to put your money.
By Walter Updegrave, Money Magazine senior editor
NEW YORK (Money) -- Question: I'm interested in mutual funds as a long-term investment and have noticed that index funds tend to have much lower annual expenses than actively managed funds. So my question is why would I ever want to buy the more expensive actively managed funds? Don't index funds perform better after taking expenses into account? And if I'm sticking to index funds, am I better off in ETFs than regular index mutual funds? - John
Answer: You won't get any argument from me about the virtues of investing in mutual funds. Indeed, I consider myself one of indexing's biggest boosters. Like you, I'm a fan of index funds' razor-thin fees.
Many charge 0.2 percent a year or so, and some have expenses that are even lower, sometimes as low as 0.07 percent. That's a pittance compared with the 1 percent to 1.5 percent or more than most actively managed funds collect from investors.
There's no guarantee, of course, that a particular fund will outperform just because it has low fees. But whenever I've compared the performance of high-fee funds vs. that of low-fee funds over long periods, I've found that as a group the funds with lower charges typically do generate higher returns.
But there's plenty to rave about even beyond index funds' easy-on-the-wallet fees. Like certainty. Index funds slavishly follow an index or benchmark, so you always know what you're getting. You don't have to worry about your large-company fund manager poaching in small caps to juice his returns, or a value manager picking up a few growth stocks to boost performance when value stocks are on the outs.
Index funds' consistency makes them ideal building blocks for creating a diversified portfolio that contains all sizes of stocks, styles of investing and different types of bonds as well. As if that's not enough, index funds tend to be tax-efficient, which is a fancy way of saying they generally give up less of their gains to taxes.
Unlike actively managed funds whose trading can generate realized gains that must be passed on to shareholders and then taxed (assuming the fund isn't held in an IRA, 401(k) or other tax-advantaged account), index funds' buy-and-hold approach results in less trading and triggers fewer taxable distributions.
But as much as I love index funds - and think most people would improve their prospects by taking an index-funds-only approach - I'm not such a purist that I think you would be sabotaging your financial future by deciding to put a bit of your money into actively managed funds.
There are some managers who have special insights in some areas and have a chance to add value beyond what they charge in fees. Granted, I think it's a small minority of managers who can do this over long periods of time. I also think it's extremely difficult to identify those managers in advance. I can understand that some people want a shot at market-beating performance with a portion of their savings.
My advice, though, would be to keep that portion relatively small and make index funds your core holdings. If you do invest in actively managed funds, I'd also recommend that you stick with ones with relatively low expenses. And while past success certainly doesn't guarantee more of the same in the future, I'd still prefer managers with a solid record of achievement over a variety of different market cycles.
For actively managed funds worth a look, I suggest you go to our MONEY 70 list of recommended funds. Of course, we've also included index portfolios and ETFs on our list, and you can check out those offerings by clicking here and here.
As for exchange traded funds versus index funds, ETFs can have a small theoretical advantage as far as tax-efficiency is concerned because of the way shares are created and redeemed. (For more on the nuts and bolts of how they work, click here.)
I wouldn't make too much of this difference, though, especially since some of the big index funds are very good at using a variety of techniques to minimize their taxable distributions. One difference that really does matter is that you've got to buy ETFs through a broker and thus pay brokerage commissions. If you're dollar-cost averaging or investing small amounts of money, this can significantly increase the cost of investing in ETFs.
So unless you're investing a decent chunk of cash - say, $20,000 to $30,000 or more - you're probably better off just sticking to regular old index funds. The other thing you've got to be careful about with ETFs is that companies are churning out versions aimed at increasingly narrow niches of the market. Some, like the Emerging Cancer ETF (I kid you not), strike me more as marketing gimmicks than bona fide investment strategies.
Now, far be it from me to suggest that the purveyors of ETFs would want people to engage in speculation or rapid trading. Nonetheless, I think the temptation is there with many of these ETFs. And I recommend resisting that temptation, and using ETFs as buy-and-hold investments that can give you exposure to the broad market, or to specific areas of the market that you may need in order to build a more diverse portfolio.
Overall, though, I'd say I agree with your view of investing. Index funds, whether in their conventional form or ETFs, can be great low-cost ways to invest. And if you use them the right way - that is, to build wealth over the long term rather than for frequent trading or speculation - I think you can do just fine with either version.
The joy of index funds
What's the better investment: an index fund or an actively managed fund? Walter Updegrave tells you where to put your money.
By Walter Updegrave, Money Magazine senior editor
NEW YORK (Money) -- Question: I'm interested in mutual funds as a long-term investment and have noticed that index funds tend to have much lower annual expenses than actively managed funds. So my question is why would I ever want to buy the more expensive actively managed funds? Don't index funds perform better after taking expenses into account? And if I'm sticking to index funds, am I better off in ETFs than regular index mutual funds? - John
Answer: You won't get any argument from me about the virtues of investing in mutual funds. Indeed, I consider myself one of indexing's biggest boosters. Like you, I'm a fan of index funds' razor-thin fees.
Many charge 0.2 percent a year or so, and some have expenses that are even lower, sometimes as low as 0.07 percent. That's a pittance compared with the 1 percent to 1.5 percent or more than most actively managed funds collect from investors.
There's no guarantee, of course, that a particular fund will outperform just because it has low fees. But whenever I've compared the performance of high-fee funds vs. that of low-fee funds over long periods, I've found that as a group the funds with lower charges typically do generate higher returns.
But there's plenty to rave about even beyond index funds' easy-on-the-wallet fees. Like certainty. Index funds slavishly follow an index or benchmark, so you always know what you're getting. You don't have to worry about your large-company fund manager poaching in small caps to juice his returns, or a value manager picking up a few growth stocks to boost performance when value stocks are on the outs.
Index funds' consistency makes them ideal building blocks for creating a diversified portfolio that contains all sizes of stocks, styles of investing and different types of bonds as well. As if that's not enough, index funds tend to be tax-efficient, which is a fancy way of saying they generally give up less of their gains to taxes.
Unlike actively managed funds whose trading can generate realized gains that must be passed on to shareholders and then taxed (assuming the fund isn't held in an IRA, 401(k) or other tax-advantaged account), index funds' buy-and-hold approach results in less trading and triggers fewer taxable distributions.
But as much as I love index funds - and think most people would improve their prospects by taking an index-funds-only approach - I'm not such a purist that I think you would be sabotaging your financial future by deciding to put a bit of your money into actively managed funds.
There are some managers who have special insights in some areas and have a chance to add value beyond what they charge in fees. Granted, I think it's a small minority of managers who can do this over long periods of time. I also think it's extremely difficult to identify those managers in advance. I can understand that some people want a shot at market-beating performance with a portion of their savings.
My advice, though, would be to keep that portion relatively small and make index funds your core holdings. If you do invest in actively managed funds, I'd also recommend that you stick with ones with relatively low expenses. And while past success certainly doesn't guarantee more of the same in the future, I'd still prefer managers with a solid record of achievement over a variety of different market cycles.
For actively managed funds worth a look, I suggest you go to our MONEY 70 list of recommended funds. Of course, we've also included index portfolios and ETFs on our list, and you can check out those offerings by clicking here and here.
As for exchange traded funds versus index funds, ETFs can have a small theoretical advantage as far as tax-efficiency is concerned because of the way shares are created and redeemed. (For more on the nuts and bolts of how they work, click here.)
I wouldn't make too much of this difference, though, especially since some of the big index funds are very good at using a variety of techniques to minimize their taxable distributions. One difference that really does matter is that you've got to buy ETFs through a broker and thus pay brokerage commissions. If you're dollar-cost averaging or investing small amounts of money, this can significantly increase the cost of investing in ETFs.
So unless you're investing a decent chunk of cash - say, $20,000 to $30,000 or more - you're probably better off just sticking to regular old index funds. The other thing you've got to be careful about with ETFs is that companies are churning out versions aimed at increasingly narrow niches of the market. Some, like the Emerging Cancer ETF (I kid you not), strike me more as marketing gimmicks than bona fide investment strategies.
Now, far be it from me to suggest that the purveyors of ETFs would want people to engage in speculation or rapid trading. Nonetheless, I think the temptation is there with many of these ETFs. And I recommend resisting that temptation, and using ETFs as buy-and-hold investments that can give you exposure to the broad market, or to specific areas of the market that you may need in order to build a more diverse portfolio.
Overall, though, I'd say I agree with your view of investing. Index funds, whether in their conventional form or ETFs, can be great low-cost ways to invest. And if you use them the right way - that is, to build wealth over the long term rather than for frequent trading or speculation - I think you can do just fine with either version.
24 May 2007
Cashing in on Oil
Here is a good article over at CNN Money giving a rundown on some opportunities for oil investors. Check it out.
31 March 2007
Considering IPOs? Read This First
Came across an interesting article at TheStreet.com. Remember that when an IPO is issued these days, it's a way for the company to raise cash when other methods have dried up, or, the principals are looking for ways to increase capital to maintain growth. Going public has its disadvantages, such as creating pressure to outperform in their respective sectors. Be aware that usually IPOs carry an expectation of longer term growth, as opposed to short term gains, unless you can get in on the initial offering action.
Private Equity Cheat Sheet
Want to better understand private equity deals? Here is an article, courtesy of CNN Money that gives a primer on some terms.
26 March 2007
Interested in the Blackstone IPO? Think Again...
It's interesting to note the fanfare over the IPO offering of Blackstone, however, reading through the S-1 SEC filing, there are a few red flags to potential investors. Although there has been an improvement in their management fees in the past few years, this may not be sustainable, and essentially the offering does not give control to shareholders. This is in the management only, not the funds. Refer to this CNN Money article for details. Blackstone is trying to get the best of both worlds, without having the liability of having to perform for the investors.
Of course, the hype will run the price up, however, if you don't get in on that action, look for holding on to the stock for the long term.
Of course, the hype will run the price up, however, if you don't get in on that action, look for holding on to the stock for the long term.
24 March 2007
Self-Directed Investing – Common Mistakes
This interesting information courtesy of Fisher Investments;
1. Underestimating time horizon for your assets – How long do you think you will live? How about your spouse? Most people are far too conservative in estimating the length of their lives, and that can be a problem when planning your future.
2. Misaligning investment objectives and portfolio strategy – Aligning your portfolio strategy with your objectives is a critical factor in determining long-term investing success. This may sound obvious, but many investors employ strategies that work against their objectives.
3. Confusing income needs with cash flow needs – Income and cash flow are not the same thing, although many investors think they are. In fact, the two different concepts and distinctions between them are extremely important.
4. Overlooking unintended risk factors – Managing a diversified portfolio of assets can be fraught with hidden risks many investors aren’t aware of. Too often, we find that portfolios are over-exposed to certain risk factors that were never recognized.
5. Ignoring foreign securities markets – The US isn’t the only country worth investing in. In fact, it only accounts for about half of the value of world equities in terms of market capitalization. As a result of globalization, there are a great number of innovative companies and investing opportunities available to take advantage.
6. Forgetting the fundamental importance of supply and demand – The fundamentals of supply and demand of securities are easy to overlook. Analysts and pundits cite an endless list of theories about what mechanisms drive stock prices. But the simple fact remains: supply and demand of securities will always be the fundamental driver of share prices.
7. Making investment bets based only on widely known information – What sources of information do you use when considering an investment? With the possible exception of the “hot tip” that you pick up at a dinner party, your information probably comes from sources that are widely available.
8. Experiencing overconfidence in your investing skills – When investing your personal assets, it’s natural to experience a lot of emotion as you watch the ups and downs of the markets each day. After all, it’s your financial future you’re dealing with. But, for that reason, a slew of cognitive biases come into play, clouding people’s judgment and hampering their ability to make rational, impartial decisions.
Check out the site, and read up further. There is some good information available.
1. Underestimating time horizon for your assets – How long do you think you will live? How about your spouse? Most people are far too conservative in estimating the length of their lives, and that can be a problem when planning your future.
2. Misaligning investment objectives and portfolio strategy – Aligning your portfolio strategy with your objectives is a critical factor in determining long-term investing success. This may sound obvious, but many investors employ strategies that work against their objectives.
3. Confusing income needs with cash flow needs – Income and cash flow are not the same thing, although many investors think they are. In fact, the two different concepts and distinctions between them are extremely important.
4. Overlooking unintended risk factors – Managing a diversified portfolio of assets can be fraught with hidden risks many investors aren’t aware of. Too often, we find that portfolios are over-exposed to certain risk factors that were never recognized.
5. Ignoring foreign securities markets – The US isn’t the only country worth investing in. In fact, it only accounts for about half of the value of world equities in terms of market capitalization. As a result of globalization, there are a great number of innovative companies and investing opportunities available to take advantage.
6. Forgetting the fundamental importance of supply and demand – The fundamentals of supply and demand of securities are easy to overlook. Analysts and pundits cite an endless list of theories about what mechanisms drive stock prices. But the simple fact remains: supply and demand of securities will always be the fundamental driver of share prices.
7. Making investment bets based only on widely known information – What sources of information do you use when considering an investment? With the possible exception of the “hot tip” that you pick up at a dinner party, your information probably comes from sources that are widely available.
8. Experiencing overconfidence in your investing skills – When investing your personal assets, it’s natural to experience a lot of emotion as you watch the ups and downs of the markets each day. After all, it’s your financial future you’re dealing with. But, for that reason, a slew of cognitive biases come into play, clouding people’s judgment and hampering their ability to make rational, impartial decisions.
Check out the site, and read up further. There is some good information available.
11 March 2007
New Link Added
Here is an interesting site that will give some insight into India as an emerging market, and gives relevant stock/share info. Given the move to a global market, this is a good link to have.
Check it out.
Check it out.
02 March 2007
What Happened with the DJ This Week?
Doing my weekly review of articles, I came across this one, which explains the technical glitch in the DJ computers and what really happened. Interesting read...you would think that this kind of thing would have been taken into account already!!
Airbus Problems – Can a Change at the Top be far Behind?
UPS cancelled its order for the freight version of the Airbus A380 today, a year after competitor FedEx did. Parent company EADS has had its problems, but you can’t help but think about a possible solution to their problems, with the infighting going on.
Thinking back to a certain North American automaker, there is a person at the top that most certainly could offer something to EADs/Airbus, to help improve things over the next few years. Although Mullaly has only been at Ford for a few months, it is possible that since his entrance to the top job at Ford, that he may have second thoughts with the ability to turn the company around in the next year or 2, given the latest sales results, mortgaging the company, etc. Ford has said that it expects to turn around to profitability in 2009…if Mullaly can pull that off, wouldn’t a move to EADs/Airbus be the next logical solution, to moving up the corporate or industry ladder, especially given his background in aviation?
Ford had made the big step by bringing an outsider…could they continue on, if Mullaly left for bigger and better things at Airbus, his former company’s nemesis? Anti-competition issues aside, I am sure that Airbus would love to have Mullaly at its helm, and I am sure that Mullaly himself would seriously consider abandoning Ford, given the recent developments at Airbus/EADs.
Thinking back to a certain North American automaker, there is a person at the top that most certainly could offer something to EADs/Airbus, to help improve things over the next few years. Although Mullaly has only been at Ford for a few months, it is possible that since his entrance to the top job at Ford, that he may have second thoughts with the ability to turn the company around in the next year or 2, given the latest sales results, mortgaging the company, etc. Ford has said that it expects to turn around to profitability in 2009…if Mullaly can pull that off, wouldn’t a move to EADs/Airbus be the next logical solution, to moving up the corporate or industry ladder, especially given his background in aviation?
Ford had made the big step by bringing an outsider…could they continue on, if Mullaly left for bigger and better things at Airbus, his former company’s nemesis? Anti-competition issues aside, I am sure that Airbus would love to have Mullaly at its helm, and I am sure that Mullaly himself would seriously consider abandoning Ford, given the recent developments at Airbus/EADs.
25 February 2007
Is the XM/Sirius Merger Going to Happen?
This has been the best news, by far, for both companies. With falling stock prices, there is no room for 2 providers, in order to sustain the cash flows and returns that shareholders want. With the expense of programming contracts (Oprah, Howard Stern, etc.), satellite launches, the industry needs something. So, a possible merger is good news. But, will it happen? That all depends on the FCC and their interpretation on the service provided by XM and Sirius. A while back, Dish Network and Direct TV wanted to merge, but that was struck down, due to anti-trust concerns. This is a similar situation, however, it will all depend on the FCC’s interpretation how digital media is perceived. The stock has reacted accordingly with the “good news”, however, I don’t know if the FCC will let it happen. My gut feel is that this will play out for awhile, and the FCC won’t allow it. Even if the FCC changed its rules and allowed it, there would be anti-trust concerns, which I don’t think either provider could satisfy. Time will tell.
24 February 2007
What can happen with Chrysler?
With all the gossip and speculation about the fate of Chrysler, I thought I would wrap up the various options available and give some insight as to what might make sense;
1) GM buying Chrysler – Under better times, this might not be such a bad idea, however, with GM bleeding cash, and still running their plants and dealer network inefficiently, the value of Chrysler would degrade to the point that the brand won’t be worth much when all is said and done. All you have to do is look what GM has done with the Buick brand, and eventually Chrysler will follow the same fate. I can’t see this deal happening. Odds – 10 to 1
2) Chinese buying Chrysler – With the deals being done overseas with the Big 3, this isn’t such a big stretch as one might think. With Buick being one of the top brands in China, Chrysler is a comparable line that would give Buick a run for the money, and immediately give Chrysler a presence in a developing market. However, given the Chinese reputation on manufacturing, the perception of quality will suffer, and will more than likely give Chrysler a big stumbling block in getting back to profitability, at least in the lucrative North American market. Chrysler might have to sacrifice more at home, in order to come back to life, under Chinese ownership. Odds – 3 to 1
3) Private Equity buying Chrysler – There are a few schools of thought on this one. PE firms have a knack for picking value, and can move in to make operations more efficient. However, the stumbling block with PE firms getting in on the action will be the reaction from the unions. Unions will find it hard pressed to concede on their contracts when they know that a PE firm is interested, with PE firms having deep pockets. Depending on the current contract, and vetoing power of the union on any sale, this might prove a more difficult task. It sounds like this would be the best option for Chrysler, but the union will be a big hurdle in letting this kind of deal go through. Odds – 12 to 1
4) Magna International buying Chrysler – Speculation around Magna buying Chrysler is dependent on how the industry perceives Magna’s current role. Magna is currently contracted to build cars for competitors, and its low cost structure is not conducive to the current union at Chrysler. Also, Magna has not been in the habit of making large gambles in the auto industry, or take on debt loads of this magnitude. Although speculation is that Bernhard would head up a Magna-purchased Chrysler, he would have a tough time with the union, in order to cut the costs required to get Chrysler back in the black. Odds – 7 to 1
5) Renault-Nissan buying Chrysler – Nissan has run into a rough spot the last 6 months, and isn’t in a position to take on Chrysler within its organization to make it work. Although a North American presence for Nissan would be a benefit, integrating Chrysler would be too great a risk at this time. Ghosn has worked miracles before, but this wouldn’t be one that he could pull off. Fix the problems within, before you go out on a buying spree. The logistics of integrating Chrysler with Nissan wouldn’t produce the needed synergies within a respectable time frame to make it financially feasible on Nissan’s balance sheet. Odds – 10 to 1
6) Management buyout of Chrysler – With Chrysler’s balance sheet and debt, this is one of the long shots of the bunch. It won’t happen. Even if management could get the financing, it’s a high risk investment that even the most renegade funds wouldn’t want to underwrite. Union concessions on healthcare liabilities and other costs would be required. Again, financing backed by equity funds would prove hard to get concessions with their deep pockets. Odds – 30 to 1
7) Hyundai buying Chrysler – What better way to improve an existing weak presence in North America than to vault a few spaces with the purchase of a competitor? Hyundai has the structure that mirrors Toyota, and has gotten a raw deal with their cars in the past. However, Hyundai has made progress in quality and styling, along the same lines as Chrysler (check out the Sonata or the Elantra). With Hyundai poised to gain greater acceptance in the marketplace, it may be cheaper for them to pick up Chrysler, and avoid some of the headaches and costs associated with building capacity in North America. Its current cost structure would give it a good bargaining position against the union later this year, and stand the best chance of gaining concessions from the union. Odds – 2 to 1
8) Status Quo – DaimlerChrysler has to do something to stop the bleeding. Could things be turned around within the company? I doubt it. Although Zetsche has maintained that he is a “Chrysler guy at heart”, continuing to lose money is not in the grand plan. Something has to be done, and although there is speculation that Daimler would get almost nothing for Chrysler, due to liabilities, a spin-off would be in the best interests for the other divisions. Odds – 20 to 1
9) Field – Any other options available to Chrysler will depend on the union’s interest in conceding on their contract, and what else Chrysler can do to stimulate waning interest in their cars. I can’t see the union making the first step to turn the division around; so much will depend on what the union will want. Given previous contracts and past negotiations, the union would have to step up to the plate and lead the concessions. This is a long shot at best. Odds – 50 to 1
My money would be on the Chinese or Hyundai.
1) GM buying Chrysler – Under better times, this might not be such a bad idea, however, with GM bleeding cash, and still running their plants and dealer network inefficiently, the value of Chrysler would degrade to the point that the brand won’t be worth much when all is said and done. All you have to do is look what GM has done with the Buick brand, and eventually Chrysler will follow the same fate. I can’t see this deal happening. Odds – 10 to 1
2) Chinese buying Chrysler – With the deals being done overseas with the Big 3, this isn’t such a big stretch as one might think. With Buick being one of the top brands in China, Chrysler is a comparable line that would give Buick a run for the money, and immediately give Chrysler a presence in a developing market. However, given the Chinese reputation on manufacturing, the perception of quality will suffer, and will more than likely give Chrysler a big stumbling block in getting back to profitability, at least in the lucrative North American market. Chrysler might have to sacrifice more at home, in order to come back to life, under Chinese ownership. Odds – 3 to 1
3) Private Equity buying Chrysler – There are a few schools of thought on this one. PE firms have a knack for picking value, and can move in to make operations more efficient. However, the stumbling block with PE firms getting in on the action will be the reaction from the unions. Unions will find it hard pressed to concede on their contracts when they know that a PE firm is interested, with PE firms having deep pockets. Depending on the current contract, and vetoing power of the union on any sale, this might prove a more difficult task. It sounds like this would be the best option for Chrysler, but the union will be a big hurdle in letting this kind of deal go through. Odds – 12 to 1
4) Magna International buying Chrysler – Speculation around Magna buying Chrysler is dependent on how the industry perceives Magna’s current role. Magna is currently contracted to build cars for competitors, and its low cost structure is not conducive to the current union at Chrysler. Also, Magna has not been in the habit of making large gambles in the auto industry, or take on debt loads of this magnitude. Although speculation is that Bernhard would head up a Magna-purchased Chrysler, he would have a tough time with the union, in order to cut the costs required to get Chrysler back in the black. Odds – 7 to 1
5) Renault-Nissan buying Chrysler – Nissan has run into a rough spot the last 6 months, and isn’t in a position to take on Chrysler within its organization to make it work. Although a North American presence for Nissan would be a benefit, integrating Chrysler would be too great a risk at this time. Ghosn has worked miracles before, but this wouldn’t be one that he could pull off. Fix the problems within, before you go out on a buying spree. The logistics of integrating Chrysler with Nissan wouldn’t produce the needed synergies within a respectable time frame to make it financially feasible on Nissan’s balance sheet. Odds – 10 to 1
6) Management buyout of Chrysler – With Chrysler’s balance sheet and debt, this is one of the long shots of the bunch. It won’t happen. Even if management could get the financing, it’s a high risk investment that even the most renegade funds wouldn’t want to underwrite. Union concessions on healthcare liabilities and other costs would be required. Again, financing backed by equity funds would prove hard to get concessions with their deep pockets. Odds – 30 to 1
7) Hyundai buying Chrysler – What better way to improve an existing weak presence in North America than to vault a few spaces with the purchase of a competitor? Hyundai has the structure that mirrors Toyota, and has gotten a raw deal with their cars in the past. However, Hyundai has made progress in quality and styling, along the same lines as Chrysler (check out the Sonata or the Elantra). With Hyundai poised to gain greater acceptance in the marketplace, it may be cheaper for them to pick up Chrysler, and avoid some of the headaches and costs associated with building capacity in North America. Its current cost structure would give it a good bargaining position against the union later this year, and stand the best chance of gaining concessions from the union. Odds – 2 to 1
8) Status Quo – DaimlerChrysler has to do something to stop the bleeding. Could things be turned around within the company? I doubt it. Although Zetsche has maintained that he is a “Chrysler guy at heart”, continuing to lose money is not in the grand plan. Something has to be done, and although there is speculation that Daimler would get almost nothing for Chrysler, due to liabilities, a spin-off would be in the best interests for the other divisions. Odds – 20 to 1
9) Field – Any other options available to Chrysler will depend on the union’s interest in conceding on their contract, and what else Chrysler can do to stimulate waning interest in their cars. I can’t see the union making the first step to turn the division around; so much will depend on what the union will want. Given previous contracts and past negotiations, the union would have to step up to the plate and lead the concessions. This is a long shot at best. Odds – 50 to 1
My money would be on the Chinese or Hyundai.
13 February 2007
Yahoo Finance Tool
As you can see, Yahoo Finance has a great little feature (see sidebar) where you can add your stocks and news items related to the stocks. Excellent little add-in for blogs! Yahoo might be worth looking at in the future if Panama works out...
New Link Added
Doing some reading, I came across an interesting site, sharesleuth.com. Interesting reading and the background information they obtained about Xethanol, and the scam there.
Link has been added to "Links".
Link has been added to "Links".
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