The valuation of tax shields induced by asset step-ups in corporate acquisitions
September 22nd, 2009 | Posted by tax1. Executive Summary
Borrowing is not the only instrument that shields corporate income against taxes. Apart from interest payments, any other expense, but especially depreciation and amortization play a major role in determining the corporate tax liability. Asset step-up induced depreciation and amortization
tax shields are created in the framework of corporate mergers and acquisitions. (1) Asset step-ups allow the acquirer to increase (step-up) the pre-acquisition tax basis of acquired assets to the fair market value or the purchase price. The stepped up tax basis is fully depreciable/amortizable and thus provides additional tax shields and hence value, for the combined entity after the transaction.
In his empirical study of tax value in management buyouts, Kaplan (1989) estimates that for the companies in his sample, which chose to step-up the asset basis, the median value of the asset step-up is approximately 30 percent of the premium paid. (2) To derive these figures, Kaplan (1989) examines a sample of 76 management buyouts of publicly held companies completed in the period 1980 – 1986. However, the Tax Reform Act of 1986 has reduced tax benefits of asset step-ups in mergers and acquisitions. Nevertheless, asset step-up structured transactions still occur on a regular basis, in particular for acquisitions of corporate subsidiaries and S corporations.
Still, asset step-ups can contribute a significant amount of value in the context of corporate acquisitions. As Erickson and Wang (2000) note, Cox Communications could generate asset step-ups worth about $350 million when it acquired the cable television business of Gannett Company for $2.7 billion in 1999. (3) In their analysis, Erickson and Wang (2000) also find (at least) weak evidence that deal premiums in acquisitions of subsidiaries are higher in a case in which the deal is structured in a way that enables assets to be stepped up, thus indicating the additional value of asset step-ups. Moreover, Maydew et al. (1999) note that the value of asset step-ups is regularly evaluated by sellers in the context of divestitures of corporate subsidiaries in order to outline this information in the sales materials provided to potential buyers. (4) Accordingly, the valuation of asset step-up induced depreciation tax shields via appropriate discount rates is a fundamental issue in the context of mergers and acquisitions.
September 22nd, 2009 | Posted by innovYou’ve seen this movie: You are involved in an amazing new product-development program. Since you’re one of the brilliant ones, you are brought in early—top of the funnel.
You and the team deliver. You uncover a huge insight and hole in the marketplace that somehow your competitors have missed. The insight is so clear, the gap so big, that immediately product ideas to meet it begin to flow. You can even picture how this new product or service will look.
Your work is done. You leave the project glowing with pride.
Flash forward 12 months. You are sitting in a pipeline meeting where the new round of innovations to be launched are being presented. Your idea is presented, only it is not presented. It barely resembles the idea you helped conceive. What has happened to your beautiful baby?
What are we doing to our children?
Spend enough time around innovation and you become aware of a startling analogy: Ideas are just like children. Ideas need a loving set of parents to conceive them, encourage them, challenge them, and protect them until they are ready to stand on their own. Good parenting will produce ideas—born as simple insights—that literally change the world. The problem is, as a rule, we as corporate executives/parents abandon our nurturing role too early. And just like in any family (or company), once the core set of parents is gone, the child/insight suffers.
The abandonment isn’t deliberate—just a remnant of the way things used to be done. Despite all the talk about wanting to create “flat organizations,” companies still have the bad habit of creating silos when it comes to research, marketing, research and development, and sales. This habit extends to outside partners who service these divisions.
As a result, insights are passed from vendor to vendor, from department to department (from step-parent to step-parent to continue our analogy) and are influenced and modified along the way.
Thus, by the time your idea hits the market, it has been changed so much by so many people that your customer or consumer can no longer recognize the great insight they once gave you.
The solution? The best companies establish a small, core innovation team—made up of all the key departments necessary to take a product from idea to marketplace (so yes, finance and manufacturing people are on the team)—that stays with the insight all the way from discovery to launch, both internally and externally.
This team approach works for three reasons: It is small; it is focused, and it is empowered. The leadership of the company has created clear objectives, such as:
• You will bring us three ideas that we can launch in 12 months.
• These ideas can be a product, service, or business model as long as they deliver the incremental dollars.
• These ideas will live under brand X.
• Each idea will deliver $X million in incremental dollars.
The team is powerful: It has a budget, complete authority to make the project happen, and unlimited access to any part of the organization—including the executive leadership team. Note that while this type of parenting team may resemble internal teams that have lived in your organization in the past, those teams most likely were not given the direction and lacked the authority of the ones outlined above. Most importantly, they probably were disbanded long before the idea hit the market.
While turning an idea over to a step-parent gets less dangerous the closer you get to launch, having the original parents in place all the way to market ensures that the insight lives in the idea as well as the business, marketing, and sales strategies.
As parents, we imagine our children some day walking down the aisle. We will have been there for them every step of the way. We will have done everything that we could to encourage, protect, and challenge them to be the best they could be. And when they are successful, we’ll know that we’ve had more than a little to do with it.
Ideas are just like our kids. They deserve good parenting.
Corporate M&A war chest: cash & treasury shares
September 21st, 2009 | Posted by stockS&P Industrials (old) Cash
Increases in short-term investments drove the Cash & Equivalent accounts (cash, short term investments, and securities -> all in the current asset account) to a record high in Q2. Now that the Qs are in, it appears that the final values are even higher than the initial reports. A good deal of the money is due to situations, such as PFE’s $14.6B increase from an offering pending the WYE meager, or the WLP $14.8B ‘Investments available-for-sale, at fair value’. However, the values have climbed considerably over the quarter, with cost cutting adding to the nest egg. While the initial cash build-up was the result of a gun-shy management which needed to be able to ride the recession out, the levels now represent a large war chest for potential M&A activity.
PFE added $14.6B Short-term investments (ST)
WLP added $13.0B ST
MRK added $6.4B Cash & Equivalent (CE), with $2.1B coming from ST
T added $3.5B CE
Energy reduced CE $10.1B, while Health Care increased CE $10.4B and ST $35.2B
S&P 500 Treasury Stock
And then there are all those treasury shares, which few companies are adding to, with most not wishing to discuss their cost. At the current price level and the June share reporting, there is $1.39 Trillion of shares sitting in the S&P 500 equity accounts of companies to do with as they decide – a $304 billion increase since March. The market is up 33.9% since the end of March, with the value of Treasury shares up 28.1% from the March close.
Financials have been the big winner (just don’t compare it to their cost), increasing 65.2%, with Telecommunications only ahead 7.4% and Energy ahead 7.8%.
Using treasury shares, as well as some of that cash, could answer the question of when and how companies are going to increase sales, as well as justify all those buybacks.
Also -
EPS guidance up slightly, but slow period
Dividends also slow, with fewer cuts – a wait and see period; expect Q4 to be the test
Health Care bill is on the table, but far from a vote; lots of action in DC on this as the President visits NY again (three times in as many weeks – think he likes us?); massive shifts in expenditures & fees will effect the entire economy
NYY lead down to 5 – holding out for Torre back in NY (I still like him, but I’m also still upset at the 4 straight in ‘63; no Koufax this time).
Retail: A Flat Holiday Season?
September 21st, 2009 | Posted by stockFor retail companies and their investors, attention is turning to the prospects for the U.S. holiday season.
Last year’s holiday season arrived just months after an economic meltdown. Consumers panicked and holiday sales fell 2.4%, the first decline since 1967.
Deloitte issued a forecast today saying it expects holiday sales be flat in 2009. The firm forecasts total U.S. holiday sales of $810 billion. (That’s November to January sales, excluding motor vehicles and gasoline.)
Says Carl Steidtmann, Deloitte Research chief economist, in a statement:
Although there are signs that suggest the economy is nearing the end of its darkest days, many consumers remain burdened by restricted credit availability, high unemployment and foreclosures. Americans continue to save at historically high rates while also paying down debt, and these factors combined suggest another chilly holiday season for retailers.
Making predictions like this is always difficult. Bad news could sour Americans’ mood even further before Christmas. Or, the economy could improve more quickly than expected. Workers who fear for their jobs could be resting easier in two or three months, while millions of unemployed workers could start finding work.
For investors in retail-sensitive stocks, the biggest near-term danger may be that expectations for the holidays get too high. Deloitte’s flat forecast is hardly optimistic. But it does suggest that retail may be stopping its bleeding. Retail’s agenda for 2010 will be to begin the healing process.
Take a Chance on Experimenting
September 21st, 2009 | Posted by innovDisruptive innovation is often fraught with unknowns and assumptions. But that doesn’t mean it has to be risky business. By using an approach that systematically attacks the most critical unknowns with tailored, low-cost experiments, innovators can “de-risk” their strategies and thereby increase their chances of success—while lowering the associated costs.
When working in high-assumption, low-knowledge environments, it is prudent to take a disruptive path to market by systematically testing assumptions and shifting the path forward as necessary. The goal is to run early experiments to gain critical pieces of information that can enable flexibility and increase the odds of success at a lower price tag.
The further from the core an idea ventures, the more critical it becomes to follow an emergent strategy. “Test and learn” is the mantra. “Invest a little and learn a lot” is the approach.
Not sure of where to begin? A good first step involves detailing the inherent assumptions. The key question: “What would have to be true in order to make this innovation a success?” Think expansively about the different categories of assumptions involved—consumer, solution, profit system, channel. Be willing to get down to details, but don’t worry about perfection as this process will naturally involve iteration. If you get stuck, pull in others to get their perspectives.
Once you have a list of assumptions that you feel pretty good about, the second step is to prioritize. Ask three questions of each assumption:
• How important is it for this assumption to be true?
• How confident are we in this assumption?
• How easy would it be to test this assumption?
The goal in this exercise is to identify the top two to four “killer assumptions,” or the most critical assumptions to which both these statements apply: “This assumption would have to be true for success to happen” (a high-risk assumption) and “This is an assumption in which we have the least confidence” (a low-knowledge assumption).
In many ways, devising effective experiments is a matter of thinking like an entrepreneur. The goal is to come up with low-cost approaches to getting the needed information.
While experiments will clearly vary depending on the context, here are a few helpful guidelines:
• As with high school chemistry lab, the best experiments isolate the variables being tested. Without such control, it will be impossible to interpret which factors led to success or failure and to adapt accordingly. For example, a large consumer packaged goods company considering a new product concept while simultaneously toying with alternative distribution channels might be tempted to test both elements at once. However, such a test might lead to confusing results—was a lower-than-expected response due to inexperience with a new channel or to lackluster consumer reaction to the product? By splitting the experiments and testing each element separately, the company would be better able to systematize their testing process and improve the solution on both dimensions.
• Second, embrace scarcity. One of the biggest hurdles that large corporations encounter when innovating is actually the lack of constraints on resources (people, time, or money). Experiments should be low-cost, imperfect, and designed to get the maximum learning in the shortest time possible for the minimum investment.
A large electronics retailer used such an approach to test a new help desk. A typical corporate test-market process would have taken months, if not a year. Instead, the innovation team simply put up a folding table in one store and manned it with a knowledgeable floor salesperson. They then monitored who stopped by, at what time of day, and with what questions.
For just a few hundred dollars, they were able to test the demand for the concept and tweak it to increase the odds of success before rolling it out more broadly.
• Third, get into the real world. When working in large corporations, there is a natural tendency to spend a lot of time in conference rooms with data-rich spreadsheets and detailed market research reports. But there is often no substitute for interacting with customers directly. As A.G. Lafley has described, Procter & Gamble (PG) brings consumers into their offices: “We run nurseries in the baby care business, so right there in the research center every morning young mothers bring their sons and daughters, and so we have a chance to run ongoing labs, but we do it in virtually all the businesses. I just want to get our people in touch.”
After running the experiment, you have one of three immediate choices: double down and continue to the next assumption; adapt the experiment and reassess the killer assumptions involved; or determine that it is time to cut your losses and fold.
All three scenarios can be equally good. Option No. 1, doubling down, is what we are all seeking as innovators in the field—a small victory in an uphill battle. Option No. 2, reassessing, indicates that learning has provided the key to a different strategy. Option No. 3, folding, in essence curbs investment costs, thereby enabling future experiments for additional ideas. Of course, folding can at times be devastating, given the amount of nurturing, time, and emotional energy that are poured into new concepts. However, knowing when to move on vs. hold on is one of the most important disciplines to maintain as an innovator.
The lesson overall? When experimenting, all information is good information. It is the information—and the speed and capital efficiency that it can deliver—that we are seeking. As such, we celebrate the failures as much as the victories, and move on to the next assumption and experiment.
A Marketer Is a Terrible Thing To Waste
September 21st, 2009 | Posted by innovAt many companies, marketing has long been the fair-weather friend— highly visible when times are good, starved of attention and resources when things are tough.
As a result of the economic downturn, marketing budgets are being slashed and the stewards of many of the world’s largest and most prestigious brands have been forced into hibernation mode—waiting for the economy to turn around and the dollars to return to their function area.
But at GE (GE), where I work, we’re trying to increase the volume on marketing, even in the face of these tough times.
It wasn’t always this way at my company.
When we sought to reinvigorate marketing six years ago, we did so with the belief that marketing was a missing ingredient in our journey for more growth.
For decades we were so confident in our technology and the integrity of our products that we believed they could virtually market themselves. Then there was a collective awakening that we might have been leaving money on the table, and that seasoned marketers could push GE to go more places, organize technologies to accomplish new feats, and help point us in the direction to more sales. So we decided to harness the power of marketing to drive one key metric—organic revenue growth—to measure our success. (Clearly, marketing is not solely responsible for growth—sales, engineering, and product development play pivotal roles as well.)
In fact, once marketing was recognized and embraced as a potential growth driver at GE, we marketers were only too happy to hang our hats on good fortune—confident we could deliver for the company 8% or 10% growth year over year, more than double our historic rate.
But you know how this story ends; you’ve lived it, too. When you set yourself up to be the one who gets a halo when a business grows, what happens when the business slows?
My thesis is that in tough times marketers are more under fire than are those in other business functions. Marketing budgets and resources can be an easy target because they tend to be more flexible—they’re not tied to fixed costs or capital expenditures. Some may even see marketing budgets as a good-times luxury.
The reality, though, is that marketing serves as a hedge against economic crises. Good marketing minimizes negative impact and even slingshots the best ideas, innovations, and products forward.
The marketer is the one who understands implicitly that the question isn’t just “How do we make our year?” (or our quarter, or this month), but also, “How will we thrive in 2015?”
Marketers are for all seasons. We heed a crisis as a cue to leverage the moment while at the same time transcending it. We’re ambidextrous, with one hand optimizing today and the other hand building tomorrow. As Paul Romer, the Stanford economist, has said: “A crisis is a terrible thing to waste.”
In the current economic environment, those of us in marketing at GE have found that this framework—optimize today, build tomorrow—is incredibly useful to focus our efforts and to remind our colleagues of the vital role marketing plays in good times and bad. For most of GE’s businesses, our ambidextrous strategy unfolds as follows: 60% to 70% of our marketing efforts support today’s initiatives, with the remaining focus on building tomorrow’s initiatives. We think that’s a realistic alignment of energy and resources.
There are three core strategies we have adopted to help us Optimize Today:
• Understand the needs of customers like never before,
A wide body of research indicates that companies that spend more time understanding their customers in a downturn are better positioned to do business with them when the economy recovers. On one level, it’s counterintuitive. You know your customers aren’t buying, so why bother? The reality is that there is no better time than now—no matter the environment—to listen for clues, discern insights, and refine value. Customers remember the partners who picked up the phone and called when times were tough and they were not in a position to buy.
For example, at GE, our Oil & Gas Services team has spent the past two years, during a particularly volatile time in the energy industry, reexamining the needs of its customers. This has led to a new approach to serving customers, as our team has organized customers into three discrete segments, based exclusively on production needs. Our Oil & Gas Services team annually hosts an industry summit, bringing together competing oil companies to examine current best practices and identify emerging trends. Interestingly, even in this current environment, competitors are collaborating to understand how to solve some of the biggest industry challenges, and GE gets a front-row seat at these invaluable brainstorming sessions. We’re convinced that these efforts to connect with customers in bad times have helped grow our revenues in this segment; they have increased 20% over the past two years.
In a global marketplace that has in the past year not merely pushed the “pause” button but has actually triggered the “reset” button, what are you focused on? Do you have a core set of questions to challenge yourself to think differently in a reset world? Would different pricing models make an impact? Can you replace a product feature or look at whether costs are aligned to what’s critical for your customers?
At my company, we’re forcing ourselves to confront these tough questions every day. GE’s Healthcare team, for example, recently drove a very smart, customer-focused process to take cost out of a product. Using lean process design and marketing-led customer insights, they found the old 80-20 rule was in effect: Our health-care business had a product feature that only 20% of our customers wanted—in this case it was wheels that made an imaging accessory mobile. We redesigned the product without wheels, cut out millions of dollars of cost, and created savings. For the 20% who wanted wheels, we created a customized option for customers who see value in paying a little more for the feature. Everyone was happy.
Do you have “wheels” that can be redesigned?
In tough economic times, some companies will hunker down until the crisis passes. But winning organizations will take advantage of the opportunity presented to them, capture more share, and achieve lasting success.
I’ve been fascinated to watch the online travel reservation companies in this downturn. Priceline.com clearly recognizes the opportunity to gain share. It has increased advertising, introduced several new products, and generally seem to be outspending and outfoxing the competition. Despite particularly tough times in the travel industry, at the end of the first quarter 2009, Priceline reported an 82% increase in profits and an impressive gain in market share, with hotel room nights up 36%, rental car days up 15%, and airline ticket sales up 28%. They’re one to watch.
It seems that even in the worst of times, those companies that don’t blink and instead remain utterly confident in their future potential are the ones that fare best in the long term. David Chase, CMO of Altus Alliance, recently wrote in iMedia Connection: “Those companies that not only survived but also thrived during the Great Depression were those that continued to act as though there were nothing wrong and that the public had money to spend. These are industries that didn’t wait for public demand for their products to rise. They created that demand even during the most difficult of times.”
All you need to do is look at the financial reports of most media companies to see that businesses ranging from American carmakers to retailers have decreased advertising and marketing spending. Yet long-term thinkers—and winners—like Apple (AAPL) and IBM (IBM)—seem to be doubling down on their ad buys.
We’ve increased our promotions spending at GE, using the current climate as an opportunity to remind customers and investors that we’re an innovative technology company with staying power—and we’ll be here when the recession is over, emerging stronger and smarter from the experience, just like we always have.
Of course, we’re watching the dollars we spend very closely. It’s meant we’ve had to be very flexible, taking a quarter-by-quarter approach to everything from creative development to media buying. We’ve also spent a lot of time developing ways to tell our story directly to key stakeholders and creatively using new media outlets.
Once the economy recovers, it’s going to be a different game: The skeptical marketers forced to rely on new media in the downturn will discover themselves converts to it.
Here’s a view from the creative guru Benjamin Palmer of the Barbarian Group, an interactive design and branding agency: “Budgets are definitely getting slashed for brand managers, no doubt. But if your focus is on long-term brand building, there are tons of small communities you can tap into for not a lot of money, and build significant affinity, especially online. The great thing about this approach is your efforts will be even more well-received in a time of economic distress—you might in fact be saving their community while you are marketing to them, which seems to be the best of both worlds.”
Clearly, you can gain short-term success and long-term loyalty during a downturn simply by being engaged with your customers and partners.
That’s a view expressed by the World 50 thought leadership group, in a survey of members conducted in March 2009. Said one CEO: “We look at how our competitors are cutting marketing, and we plan to spend relatively more than they are. We believe we can increase engagement, increase share. We believe it will make a difference right now, and that it will have a lasting effect into the recovery.”
Research being conducted by Ranjay Gulati at Harvard Business School underscores this prediction. He’s finding that changes in market position as a result of a recession last an average of three to five years after recovery begins. There’s clearly a lot at stake for getting it right.
Ask your team the following questions: Is this the time to look at new or adjacent markets for existing products? Are you continuing to monitor the market and talk to customers to see who’s cutting back service or support, possibly giving you an opening to take advantage of?
A CMO in the financial-services industry told me that his team is contacting the customers of bank competitors that fared poorly in the U.S. Treasury “stress test,” to remind them of his company’s historic staying power and long-range pricing advantages. I bet even Darwin understood that nature could be a cruel marketer.
Maybe this is the time to evaluate alliances, where partners share risk and can build on the other’s respective strengths or shared vision. NBC Universal and Fox took the “frenemy” path to partnership when they created Hulu.com in 2007 in the midst of disruption in the digital media landscape. At the time, they shared a vision of creating a unique experience for aggregated professional video content. Hulu is now the second-most-watched video site on the Internet.
According to a recent study of CMOs conducted by executive recruiting firm Spencer Stuart, the top three measurements for success in a downturn are controlling expense budgets (cited by 60% of respondents), retaining high-value customers (49%), and demonstrating positive return on marketing investments (48%).
At GE, we’ve been particularly focused on understanding customer profitability. Do we understand the true cost of serving our customers? Which ones represent the highest value? Marketing can give you a laser focus on which customers are worth investing in—and which are destroying value for your company.
Despite so much effort, there’s still no Holy Grail of marketing metrics, because the goals of a given effort differ. But if there were one metric on which to hang a marketer’s hat, perhaps it is value—helping to define what something is worth in the context of the market and key trends, driving demand and capturing the highest possible return on a product offering. What is my product worth, and how much am I delivering of my entitlement? How can I increase the perceived value of my offering?
These types of questions are top of mind at GE Aviation, where our marketers have developed with customers a software-driven value calculator. Customers are invited to plug in their data, and the calculator outputs long-term savings vs. competitors along with key engine attributes, such as fuel burn.
This is the time to ask: How do your customers measure success? Are you still operating on old assumptions about the value you provide?
In a crisis, needs change for both you and your customers. Understanding these changes early allows better targeting and differentiating of what you have to offer.
For the ambidextrous marketer, the first task is to gain firm control over the marketing levers that optimize today with one hand while pulling a different set of levers to help build tomorrow with the other.
We have all seen recessions—and survived them. Yes, they’re tough. But inevitably they end. Yet the Spencer Stuart survey found that more than half of the marketers they interviewed said the economic downturn had led them to neglect long-term strategy. Moreover, the business research firm known as the Corporate Executive Board found that industry leaders committed to innovation during a downturn have twice the number of breakthrough projects in their pipeline as lagging companies.
For the past six years at GE, we’ve refocused our innovation pipeline through an initiative called Imagination Breakthroughs, which has created a disciplined approach to finding, funding, and nurturing ideas across GE. We’ve created a special class of 100 protected ideas, ensuring that they get a lifeline during tough times. Think of it as insurance against the question: “If I have to survive today, how can I invest in tomorrow?”
John Jacko, CMO of the global engineering supply company Kennametal, explains how his company is thinking similarly: “We have taken this economic downturn as an opportunity. The Kennametal CEO tasked a cross-functional team, led by marketing, to step back and build what we think the next generation structure of the company would look like in 2010, aligned to our corporate strategies, voice of the customer, and employee and shareholder aspirations. This has been an incredible opportunity for the team to zoom out, reexamine our vision, and use the economic crisis as our burning platform for change.”
Professor Gulati has been a great resource for GE as we evaluate how to define marketing success in a reset world. I find inspiration in these words of his: “Think of marketing as a beacon upon a cliff during the economic storm. It illuminates the landscape and shines a light on the best path ahead. The function works best when it provides key insights and helps lead strategy to meet customer needs and fend off challenges in the marketplace.”
If your marketing radar is tuned to leading indicators and trends, maybe you were able to see signs of the downturn early enough to be prepared. It’s this ability to see the world in panoramic view that makes marketing so vital to an enterprise’s long-term viability. No other function focuses on and can integrate these key elements:
• Intelligence: What’s going on in the market, and how is the crisis affecting it?
• Customer insights: What do my customers need, and how do I serve them best?
• Value proposition: How do I articulate the value of my product or service and create differentiation?
• Commercial activation: How do I deliver via channel, marketing communications, training, etc.?
Ultimately, marketing is the key to sustainability and vitality—in good markets or economic crises.
Ecomagination, the initiative we launched five years ago to introduce an array of environment-friendly product offerings, is an example of how we at GE heeded the trend that business needed more clean technology. We heard our customers asking for help—from consumers requiring more efficiency to power utilities, airlines, and railroads, determined to emit fewer greenhouse gases without going broke in the process. We connected the dots from very different vantage points and saw a coherent pattern, a strategy that has allowed us to build something new and paved the way for more than $20 billion in revenues that didn’t exist before.
Most CMOs agree that there are many good marketers looking for jobs right now. One CMO I know voluntarily cut her staff by almost 20%, using this slow environment as an opportunity to expand the roles of the most talented members of her team and recruit top talent for the future.
Marketing recruiter Greg Welch of Spencer Stuart believes that these are the times that make good marketers better. “Difficult business cycles actually make it easier for us at Spencer Stuart to identify the very best leaders,” he says. “They are the ones who are able to take flight while facing head winds. Obviously, it takes both courage and strength to lead when the chips are down. During tough times, we often see many weaker companies pull back on their spending, reducing investments in both media and innovation. Interestingly, however, we believe that the best companies and their CMOs are able to actually strengthen their positio—and grow market share.”
By nature, most marketers take a long-term view. And the ability to see into the future and motivate people to action is a marketing hallmark. So marketers have a role to play in creating a vision for the future, creating excitement about what’s possible, and building confidence today that there will be a better tomorrow.
At GE, we are facing the worst economy in a generation, yet we recently announced a $6 billion bet to improve the health-care system through new innovations that will help cut costs, improve access, and increase quality.
Jacko of Kennametal is equally optimistic. He believes that his company’s focused efforts “give our employees hope for the future. This has been an excellent opportunity to internally reestablish our brand identity, promise, structure, and processes that will drive the future growth of the company.”
Barbarian Group’s Palmer sums it up well: “An economic crisis, especially this one, is in most ways about fear and perception. Companies that panic and try for short-term effectiveness in campaigns end up hurting their brand because what people want in a panic, more than anything, is to know it’s O.K. Some of that needs to be brands reassuring their customers, and citizens at large, that they are solid and not going anywhere. In other ways, a brand needs to tell people that it is still O.K. to go buy some blue jeans. It is.”
A marketer is a terrible thing to waste. Why wait for a crisis to rebuild your marketing impact?
Animal shelter trudges on despite funding squeeze
September 20th, 2009 | Posted by taxBy David A. Farrell Picayune Item, Miss.
Publication: Picayune Item (Mississippi)
and asked for help. The SPCA board has yet to sign the county contract.
SPCA makes no money off the operation; actually, according to board members, it costs the organization additional moey to cover deficits. They say they are not complaining; they are in the business of helping animals. The board members told supervisors on Monday that 70 percent of the dogs and cats they receive come from outside the city limits of Picayune.
The five-member board met in the home of Cashion, who said the meeting was open to the public because the organization receives tax money from Picayune and supervisors to run the shelter.
Supervisors on Monday cut $11,396 out of the shelter’s $51,396 annual county appropriation, knocking the appropriations back to $40,000. Picayune, which also adopted its new budget this week, held the funding for the animal shelter at $39,900, the same as last year.
The $11,396 cut by supervisors, coupled with severe reductions in donations from the public and the drop in the price of recycled metal cans, has hit the SPCA shelter operation hard.
Donations fell from $22,425 last year to $6,256 this year, Cashion told supervisors on Monday. That reflected the impact of the recession on area giving. Also, the price of aluminum cans fell and revenue from recycling those cans fell from $7,643 last year to $3,203 this year.
Although the shelter has six employees, Maria Diamond, SPCA president, said the SPCA could not maintain the shelter operation right now without unpaid volunteers.
SPCA board members discussed alternate solutions to the funding problem, ranging from shortening the term of the contract with the county or charging fees to county residents who use the shelter.
They also said they will undertake various money-generating promotions to help fill their coffers.
Another development pertaining to animal control in the county occurred Monday when the supervisors adopted a budget line item in the new budget funding a full-time animal control officer.
While they cut the animal shelter, they raised a line item labelled only “animal control” from $28,500 to $68,440, an increase of $39,940. Both items are listed in the county’s new general fund budget adopted Monday under line items “animal control” and “animal control SPCA.”
The new budget takes effect on Oct. 1.
The line item “animal control” was raised because, said County Administrator Adrian Lumpkin, the county plans to hire a full-time animal control officer.
Said Lumpkin, “The idea is to hire a full-time officer to take some of the pressure off of the sheriff’s department in answering these calls. They have had a lot of these calls , which usually involve disputes between neighbors and are very time-consuming.”
He said that the officer would have law enforcement authority, capable of writing citations and handling law enforcement matters, which the current part-time person does not. “Right now our part-time persons handles mostly large animal problems, like with cows and horses, and maybe does a little work with dogs and cats, like rounding up stray animals.”
Lumpkin said the control officer would continue to use the shelter in Picayune. He said the county does not plan on opening an animal shelter.
To see more of the Picayune Item or to subscribe to the newspaper, go to http://www.picayuneitem.com/ . Copyright (c) 2009, Picayune Item, Miss. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550 , send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
September 16th, 2009 | Posted by stockJim Cramer went on CNBC last night, talked for several minutes in front of two apple-filled wheelbarrows, and created $5 billion in wealth for Apple (AAPL) shareholders.
Apple shares were up more than 3% this morning after Cramer touted the stock on his nightly show, Mad Money. This morning’s stock move added $5 billion to Apple’s now $162 billion market value.
Traders are used to the “Cramer Effect,” in which stocks spike after Cramer makes his pronouncements. An evening showing of Mad Money typically attracts less than 260,000 viewers, according to TV by the Numbers, but many traders keep an eye on his recommendations. He’s not necessarily watched for his wisdom as a market pundit, but because of the immediate effect he can have on a stock. (Often, those stocks give up their gains in subsequent days.)
Cramer, a former hedge fund manager, is a complicated figure. His shoot-from-the-hip trading style has been criticized for inspiring reckless investing. In March, he faced off with the Daily Show’s Jon Stewart, who faulted Cramer and CNBC for their coverage prior to the financial crisis.
But Cramer’s last book offered sober, responsible investing advice. “Trying to game short-term movements in stocks [is] almost impossible,” he admitted.
Wednesday’s price move is notable both because of Apple’s large size and the boldness of Cramer’s call: He raised his price target for Apple shares from $200 to $264, a 50% move from yesterday’s closing price.
Cramer’s rationale is offbeat, too. He is not more optimistic about the company’s fundamental prospects. Rather, he says, an “incredibly important accounting change” could allow Apple to recognize all iPhone sales up front, rather than over two years. This change could boost 2011 earnings at Apple by as much as 50%, he says. He used two wheelbarrows filled with apples to explain the effect of the accounting change on earnings.
Cramer admits this will have no effect on Apple’s actual cash flow, or even its long-term earnings potential. But, he insists:
The markets aren’t as efficient as you think. They are oftentimes dumber than we are.
Watch the video here.
I’m not so sure. But Cramer’s call comes at a time when tech stocks are hot. The Nasdaq has outperformed other major indexes by a wide margin this year.
And there are other reasons to be optimistic about Apple. On Sept. 15, Needham analyst Charlie Wolf raised his price target for Apple from $200 to $235, based on improving prospects for the firm’s iPhone driven by the “explosive growth of the iTunes App Store.”
The Cars You Won’t See in the U.S.
September 16th, 2009 | Posted by innovAutomobiles and apple pie: about as American as you can get, right? Well, no. The U.S. gave up the global car crown years ago. While Detroit cranked out gas-guzzling behemoths, carmakers elsewhere worked toward building smaller, more fuel-efficient models. When gas prices hit dizzying new heights in September of 2005, American consumers realized they could admire all sorts of vehicles they would never be able to buy. “Why can’t we get that car here?” has become a common refrain.
U.S. auto consumers may have only themselves to blame. Critics have been quick to decry the glut and poor planning of the Big Three automakers, but manufacturers have pointed the finger right back at consumers, charging that the huge vehicles they made were simply a response to demand. A Sept. 9, 2009, survey of 32,000 new car and light-truck buyers in the U.S. conducted by AutoPacific, a Tustin, (Calif.)research firm, concluded that American consumers still want cars that are “bigger, faster, and with more bells and whistles.” Why then, the automakers figured, should they bother with cars such as the tiny Ford Ka (F), now available in the U.K., Latin America, and Mexico but missing from U.S. lots?
Tough fuel economy and emissions standards in the U.S. also make it hard to import cars designed for less stringent markets. Fuel-efficient diesel vehicles designed for Europe used to spit out lots of greenhouse gases. In the U.S., states such as California cracked down on emissions because of smog problems, and so diesel was a nonstarter. Despite improvements in diesel technology, it’s still not a sought-after fuel supply, so Americans might not find the Mini Cooper D (BMWG.F) for sale near them any time soon. “Americans can’t figure out that diesel is more efficient, cleaner, and has better performance,” says Karl Brauer, editor-in-chief of Edmunds.com, a Web site that tracks the auto industry.
Safety standards are another reason European and Asian superminis don’t make it to U.S. shores. Vehicles in America have to reach a certain weight. The bare bones design of Tata’s Nano (TTM) would not likely meet the restrictions necessary to be considered roadworthy in the U.S.
Then there’s the bottom line. It’s neither practical nor profitable for companies to make all vehicles for all countries. Much of the time, it’s cheaper to make cars in countries such as China or India, where labor costs are low. Having to ship vehicles across oceans adds costs too high to pass on to U.S. consumers. For now, consumers will have to content themselves with looking but not driving.
Buybacks Down 86% As Companies Hold Tight To Their Security Blanket – Cash
September 15th, 2009 | Posted by stockI have just released the S&P 500 second quarter buyback numbers and, shock and dismay, fewer companies did buybacks and those that did spent a lot less. Basically, not many companies showed a willingness to give up their security blanket of cash to venture out into the storm of a recession, and the difficulties of financing. Specifically, S&P 500 companies did $24 billion in buybacks during the second quarter, the lowest reported amount since at least the first quarter of 1998 – when I began tracking the data. The $24 billion represented a 72% decline from the $88 billion spent during the second quarter of last year, and an 86% decline from the record $172 billion spent on stock buybacks during the third quarter of 2007. In general, buybacks have become few and far between, falling out of favor with most investors as corporations continue to build-up cash reserves to ride them through, and hopefully out of, the recession. One simple stat shows the dramatic change. At the height of the buybacks two years ago, companies spent 180% more on stock buybacks than they did on dividends. Now, even after dividends have decreased 22%, buyback spending is just half of dividends payments.
For the second quarter 169 of the 500 issues reported buybacks, compared to 288 during the Q2,’08 and 324 in Q2,’07. Additionally, the Q2 numbers were very top heavy, with the top 20 issues accounting for 78% of all buybacks, compared to 31% for the prior year. There are however companies that are still doing buybacks. Exxon Mobil spent the most during the quarter, with $5.2 billion in buybacks accounting for over a fifth of the index’s activity. Wal-Mart, which has increased its share repurchase program, ranked second with $1.9 billion in buybacks. Other notable’s increases, on a lower dollar scale, included Family Dollar Store, Staples and MedcoHealth Solutions.
On a sector basis, Materials, Telecommunications and Utilities made just token purchases. Energy remained the biggest player, accounting for 22.1%, followed by Information Technology with 19.7%, and Health Care with 19.4%.
I expect buybacks to remain weak for the foreseeable future, even as earnings are expected to improve. Until sales and profits improve, and for more than one quarter, buybacks will be for the few brave companies that are willing to put their cherished cash flow on the line. As far as the use of the existing treasury shares built up over the past few years,I continue to believe their eventual use will be M&A, whenever companies come to believe it is safe to come out and play again.
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