ESOPs Seen In Different Light
Leveraged employee stock ownership plans (ESOP) are useful as antitakeover devices and employee motivators, but the perception of their apparent economic usefulness is misleading. Corporations benefit from a tax deduction on principal repayments, lower borrowing costs, and a tax deduction for dividends paid on ESOP stock. In a world of increasing stock prices, a leveraged ESOP receives a significantly smaller tax deduction for providing an equal amount of employee benefit. For a leveraged ESOP, the tax deduction is limited to the price of the stock at the establishment of the ESOP. Eligible ESOP lenders can exclude half of the interest income on the ESOP loans. The resulting lower interest rates for ESOP borrowings are a cash flow savings, but a corporation could replicate this saving by borrowing through an unleveraged ESOP. In addition, the dividend payment deduction of a leveraged ESOP does not always have cost advantages over the benefits of an unleveraged ESOP.
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Freiman, Howard A.
Full text: [Pensions & Investment Age] Jul 24, 1989
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Record Earnings Spur SciMed Plans for Acquisitions, R&D
OFFICIALS AT SciMed Life Systems Inc., where record first quarter results have helped drive the company’s stock price up more than 75 percent, said they plan to invest $3 million in product development and to look for possible acquisitions. “We’re intent on investing in new technology,” said Dale Spencer, the company’s president and CEO. SciMed, based in Maple Grove, is a manufacturer of angioplasty catheters and other cardiac-assist products. SciMed plans to double its research and development budget in fiscal 1990, which ends next Feb. 28, said Spencer. (excerpt)
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Nissen, Todd
Full text: [Minneapolis / St. Paul CityBusiness] Jul 24, 1989
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Turnaround With No Respect
Three years ago AmBase Corp. lost $197 million, and investors, certain of a turnaround, bid the stock of the insurance company up to $31 a share. Today, with AmBase diversified into financial services and stock brokerage and expecting to earn more than $100 million this year, the stock is languishing around $13 a share, $1 higher than its all-time low. “Obviously, we’re very disappointed with the Street’s reaction,” says Marshall Manley, chief executive of the company, which recently changed its name from Home Group Inc. “We believe this stock is grossly undervalued.” (excerpt)
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Belsky, Gary
Full text: [Crain's New York Business] Jul 24, 1989
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High Noon for Sun
Scott McNealy, chief executive officer (CEO) at Sun Microsystems Inc., rose to a preeminent position in the computer industry when Sun became the dominant player in engineering workstations, the high-powered personal computers used mostly for technical work. His seemingly flawless management made Sun the talk of Wall Street and Silicon Valley. In Spring 1989, Sun finally stumbled. The firm is likely to report a loss for its 4th quarter, ended June 30, 1989. Suddenly, Sun’s CEO has to prove that he can manage in a crisis. Knowing that he would eventually face more competition, McNealy’s aim has been to grab market share fast. So far, the strategy’s success remains in question. Sun’s hasty grab for market share has created numerous problems. For now, McNealy says that his priority has to be raising profits to boost Sun’s stock price and raise additional capital. If McNealy’s message of discipline is received by Sun personnel, the company has every chance of emerging healthy from its recent troubles.
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Levine, Jonathan B.
Full text: [Business Week] Jul 24, 1989
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E.I.L. Board OKs Insider Buyout Offer
A management-led group has won the approval of a special committee of directors to buy out E.I.L. Instruments Inc. for about $15.1 million, beating out offers made by a Dallas investment company. The special committee, made up of E.I.L.’s five outside directors, decided that management’s $9.75 a share offer was the best and most likely to be completed, according to Peter J. Vogelberger Jr., an outside director. “Certainly we felt that all things considered, as far as the price and the most likely deal to be concluded, we felt that management people knew the company a hell of a lot better than the people in Dallas, and the likelihood of closing the deal . . . was much more likely,” Vogelberger said. (excerpt)
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Kleiner, Kurt
Full text: [Baltimore Business Journal] Jul 24, 1989
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Acetic Acid Gets Back On Track
Acetic acid supplies were stretched to the breaking point in 1988 following an accident at Hoechst Celanese’s Pampa, Texas, plant in late 1987. Demand for derivatives was booming, and tight ethylene supplies squeezed availability of ethylene-based acetic acid. Competitors are commending Hoechst Celanese and its parent Hoechst for managing to maintain supplies to customers after the Pampa accident and then bringing the rebuilt plant’s production back without disrupting the market. The more relaxed market conditions are now showing up in stock prices. Impact has yet to be felt from the June 1989 start-up of BP Chemicals’ new unit at Hull, UK. BP has modified the original Monsanto methanol carbonylation process to coproduce acetic acid and acetic anhydride. Acetic acid demand growth has been as high as 5% per year in recent years. Eastman Chemical will start up new acetic anhydride capacity based on coal gas at Kingsport, Tennessee, by the first quarter of 1992. Sources say that the continuing operation of ethylene-route plants keeps a useful floor on prices, to the advantage of methanol-based producers.
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Hunter, David
Chynoweth, Emma
Full text: [Chemical Week] Jul 26, 1989
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Electronic Data Pact Triggers an OUCH-Stock Buying Spree
With the stock of Occupational-Urgent Care Health Systems Inc. trading at a dizzying multiple of earnings, management and analysts are frequently pausing to explain why the stock isn’t about to start back down. What’s propelled the stock, insiders believe, is a deal Occupational-Urgent Care cut with Electronic Data Systems Corp. on May 30. Some investors might be betting that Electronic Data Systems may eventually acquire OUCH, one analyst said, although that’s not seen as an immediate likelihood by close followers of the company. (excerpt)
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Davis, Kurt
Full text: [The Business Journal; Sacramento] Jul 31, 1989
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Analyst Praise Fails to Raise Investor Interest in Moscom
Despite high praise from stock market analysts, Moscom Corp. has been plagued by investor uncertainty over the last several months. Moscom is touted by local investment analysts as one of the brightest stars in the corporate firmament, but you would not guess it from its stock performance. Moscom’s stock price has been locked in an almost uninterrupted downward slide for the last six months, falling from $6.88 a share in early February to $3.88 last week. Despite the company’s record-breaking performance through the end of 1988 and highly regarded acquisitions and contracts in the last 12 months, Moscom’s stock is trading at the same level at which it stood a year ago. (excerpt)
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Johnston, Phil
Full text: [Rochester Business Journal] Jul 31, 1989
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Alaska Air’s Six-Month Income Soars
Another record year is expected for Alaska Air Group Inc., whose net profits doubled in the first half of 1989. But analysts say the carrier’s second-quarter numbers, announced this month, aren’t quite as red hot as its first-quarter performance. For the first half of the year, Alaska Air Group earned $16.9 million on $423 million in revenues, more than twice the net income of $8 million on $376 million in revenues for the first half of 1988. Analysts expressed some disappointment, however, in a drop in the company’s earnings per passenger seat-mile, a key measure that indicates how much money an airline makes on each passenger it flies. For the second quarter, the figure was 19.6 cents, down from the 20.6-cent level in the first quarter, although above last year’s 18.6 cents. (excerpt)
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Wilhelm, Steve
Full text: [Puget Sound Business Journal] Jul 31, 1989
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Multi-Lines Lead Way in 2nd Quarter
The first half of 1989 produced good results for insurance stocks. This was a timely reward considering that insurance had been out of phase with the market and out of favor with investors since the 2nd quarter of 1986. Multilines led the way and were up 8.2% for the 2nd quarter and 20.5% for the first half of 1989. Kemper was the biggest winner with a surge that started at 24 and ended at 37 3/4 on June 30. CNA Financial was the largest 2nd quarter gainer after a 21.3% move to 74. The Life & Health group rose 8.5% for the quarter and 16.2% for the half. The shares of smaller or lesser known companies were the biggest movers among the life and health issues, but some majors also performed well. The Property & Casualty group advanced 6.7% in the 2nd quarter, 15.1% over the first half. Reinsurers did well, with a 7.8% increase in the quarter and 22.3% for the half.
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Meakin, Thomas K.
Full text: [National Underwriter] Jul 31, 1989
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Time-Warner: This Close to Victory
On July 14, 1989, Delaware’s Chancery Court stopped Paramount Communications Inc.’s attempt to destroy Time Inc. and Warner Communications Inc.’s merger plans. After the merger is settled, it is likely that prospective co-chief executives Steven J. Ross and J. Richard Munro, along with President Nicholas J. Nicholas, Jr., will begin selling assets to make 1990′s payments on the company’s debt of up to $15 billion. The payments total an estimated $1.6 billion. Some investors in Time, who are disappointed in Chancellor William Allen’s ruling to stop the Paramount bid, hope that Paramount Chairman Martin S. Davis might make a bid for the newly formed Time-Warner. Most likely, Davis will wait until the price of Time-Warner stock subsides and then possibly try a joint venture with a company such as Tribune, MCA, Columbia Pictures, or Dun & Bradstreet.
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Lieberman, David
Full text: [Business Week] Jul 31, 1989
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The Limits of the Fraud on the Market Doctrine
An examination is made of the economic reasoning that is implicit in the adoption of the fraud-on-the-market doctrine for open and developed markets. There are legal rules for 10b-5 cases. Rule 10b-5 plaintiffs must demonstrate that: 1. they relied on a fraudulent statement or omission, and 2. their reliance was not unreasonable. The courts have faced evidentiary difficulties in examining the issues of causation in impersonal markets, including the development of the fraud-on-the-market doctrine. Economic theory can be used in formulating evidentiary presumptions. The fraud-on-undeveloped-market cases are consistent in pleading that the fraud did not involve markets but, instead, involved the substitutes for markets used by issuers in initial offerings. The reliance of plaintiffs is not on market forces, but on the incentives that face some, but not all, market professionals.
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Carney, William J.
Full text: [The Business Lawyer] Aug 1989
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Doing Good Pays Off for Some Investors
Can nice guys finish first? In their quest to maximize the profit to their shareholders, companies may feel caught between a rock and a hard place. Top management may want to take the ethically pure and socially responsible approach, but feel less scrupulous competitors will pass them by if they do. Given the choice between lofty morals and a high stock price, many an executive is all too inclined to go with the latter. But dubious ethics and business success needn’t go hand-in-hand, as a handful of mutual funds and other investment vehicles are proving. Such funds take into account factors beyond mere profitability, such as a firm’s position on nuclear armament, whether it does business in South Africa, or its sensitivity to the environment. (excerpt)
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Price, Caroline
Full text: [Michigan Business] Aug 1989
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Which Banks in Europe Can Be Bought?
While most analysts do not foresee a wave of bank takeovers and mergers across borders in Europe, the full acquisition route is beginning to look more attractive. Increasingly, merchant banks will want to link up with retail branch networks, securities houses with deposit-takers, and the small with the large. The most severe restrictions on major banking acquisitions across Europe as a whole will probably be the BIS’ capital-adequacy requirements, which could promote consolidations. Assuming that capital is not a problem, UK houses are the most open to bids. This is largely because they are, on paper, the cheapest to buy in what is overwhelmingly a seller’s market. UK retail bank earnings are high, and stock prices are low. Nowhere is the subject of bank takeovers more politicized in Europe than in France, where the only possible takeover target among the major French banks is Credit Commercial de France (CCF). CCF not only has 62 branches, but a strong corporate finance business. Deutsche Bank has made overtures to CCF in the past and would be the prime candidate as purchaser should French government policy change.
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Crabbe, Matthew
Full text: [Euromoney] Aug 1989
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Money, Credit, and Security Markets: Common Stock Prices and Yields
Statistics from 1981 through Aug 26, 1989.
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Anonymous
Full text: [Economic Indicators] Aug 1989
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The New IBM
During the period from 1985 to 1987, IBM’s stock prices repeatedly reached all-time high levels, despite the many underlying weaknesses in the firm’s fundamentals. After the greatest restructuring in IBM’s history, the stock market is trading the stock within 3 points of the lowest price of 1989. Over the next 5 years, IBM should show an 11% growth in compound annual revenue, a 12% rise in gross margin per year, and a 14% increase in yearly earnings. IBM has undergone a cultural revolution. There is no more arrogance, no more disparity in architectures, and no more optimism at any cost. The 3 major cultural changes at IBM involve teamwork, continuity, and globalization. Not only is decision making faster and more informal, but, early in the process, consideration is given to what is best for the customer. IBM has been, and still may be, a US firm, but it is trying to become more international, both at the product design and at the executive-marketing level.
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Djurdjevic, Bob
Full text: [Computer Data] Aug 1989
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Investment Update
If Congress follows through in its proposed requirement that thrifts liquidate their junk bond holdings, the price of those investments will fall. Citicorp’s credit card debt bond offering is hardly a bargain.
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Frailey, Fred W
Goldwasser, Joan
Full text: [Changing Times] Aug 1989
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NCNB Strikes Gold in Texas
Since summer 1988, when its deal to acquire Texas’ largest bank was announced, the price of NCNB’s stock has doubled. Total dollar earnings in Texas can increase at an annual rate of 15% or more over the next 5 years, supporting growth of at least 13% for normalized parent company earnings per share. A definite speculative element is attached to NCNB’s shares; however, the long-term Texas outlook involves enough positive factors to tilt the balance decisively in favor of NCNB. One compelling reason for concentrating on Texas, beyond NCNB’s existing opportunity, is the possibility of even greater market penetration. It appears almost inevitable that the company, by bidding on attractive but ailing Texas banks or thrift institutions, can end up with a meaningful percentage of the tens of billions of dollars in Texas deposits now available. NCNB Texas has been attracting many deposits because of its recognized position as a strong bank in a state with more than its share of weak ones.
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Stillinger, Richard I.
Full text: [Bankers Monthly] Aug 1989
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A Decade Of Dividend Reinvestment
Dividend reinvestment plans were introduced in Australia in the early 1980s. These plans were devised by firms wishing to attract further equity investment from their present shareholders. The role of dividend reinvestment plans in raising equity capital is one of their major advantages. Under dividend reinvestment plans, the recipient of shares does not pay stamp duty, a brokerage fee, or any other costs relating to the transaction. A study was conducted to assess whether dividend reinvestment plans have been successful in raising equity capital and conserving cash. Data were derived from companies’ annual reports during the period 1982-1987. The study concluded that companies that want to both retain profits for reinvestment and satisfy those shareholders who require dividend income can expect to achieve these seemingly conflicting goals by using dividend reinvestment plans.
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Wills, Ann
Full text: [Australian Accountant] Aug 1989
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On The Stock And Debt Approach To Valuation Of Utility Prop
For the vast majority of ad valorem tax valuations, the values of the stock and debt claims are unknown and must be estimated. However, even if the values of the stock and debt claims are known, the use of these values to estimate the value of the taxable assets may lead to significant errors. Substantial evidence suggests that the prices of paper claims may not be an accurate or unbiased estimate of the taxable value of the underlying assets. The difficulties involved in using the stock and debt approach when the stock price is not known, which is almost always the case, are considerably greater than when the stock price is known. Substantial guesswork and uncertainty are involved. Although one might use stock market data as a reference, when there is a great deal of uncertainty involved, one should both use multiple approaches to valuation and insist that the fundamental approach of discounted cash flow be used.
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Heaton, Hal B.
Full text: [Public Utilities Fortnightly] Aug 3, 1989
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