Economic turmoil and suspicious actions at corporate level
We understand well at the time of Turn-around strategy that is at worse time of business, some fats are needed to be off loaded. The issue is the liquidity, we don’t forget, to solve. In doing the problem solved companies have basically two options: one – to increase the earnings, two- cutting the expenditures or costs that is unnecessary or non-essential. Well, mistakes could be happen or it could be a wrong doing. Whenever buying-selling incidents occur, stakeholders become watchful, sometimes, they see it and feel it but can’t prove it, sometime can. Well in this article we would see how in old days companies incurred losses by doing wrong planning.
-Corporate managers are not always the coolheaded profit maximizes their stockholders might like them to be. This is most apparent that when considering the outcomes of some spectacular deals corporate managers have made in divesting businesses:
In 1987, The Chemical Industry was suffering from its 4th year of continued poor performance. Industry giants Dow, PPG, Corpus Christi Petrochemicals, and ICI all sold petrochemical businesses to an investor group led by Gordon Cain. With $23million of its own money + $1billion debt the Cain Chemical Company purchased the businesses, held them for 9 months, and then sold the group to Occidental Petroleum for a product of $1.2billion.
As part of the ‘de-conglomerizing’ US Industries went through in the 1980s, RCA sold Gibson Greetings, Inc., to a group of investors known as Wesary Capital Corporation. RCA sold the business for $80million, but only 16months later the investor group took Gibson public with a market value of around $290 million.
Merck & Co. sold its Calgon Carbon Corporation, a producer of filtering agents used in pollution controls, in a deal masterminded by Calgon’s general manager, Thomas McConomy. McConomy put up just $325,000 to purchase 13.4% of the company as part of a $110 million total purchase price. Five years later, when he took the company public, his stake was worth $80million.
As of 1983, Atlantic Richfield had lost $100million in the previous 6years of operating its 100 year old Anaconda Copper mine. It shut down the mine completely and 2 years later, began to look for a purchaser. Dennis Washington, a Montana construction Magnate, considered buying the business for scrap, but Anaconda managers convinced him that the mine could once again be operated profitably.
Washington offered $13.5million for the mine, 38,000 acres of wilderness, another 12,000 acres of mining land, and the $4.1million in revenues Butte Water Company. Within months, he had already recouped $8 million of his investment form selling fractions of the land. Meanwhile, the price of copper more than doubled to a level almost 3 times the mine’s new BEP price.
-Not all the divestments turnout to be such apparently poor decisions. Many are made for sound reasons and at nice profits.
-The important point to note is that corporate managers are capable of making grievous blunders if they do not work diligently to ensure that a sound, carefully reasoned approach to divestment is followed.