Remaking Maytag

Maytag Co. (Newton, Iowa) has recently piled up debt nearly equal to its net worth. Borrowing helped finance the acquisition of Chicago Pacific Corp. as well as heavier-than-usual spending on new products and plant expansion and modernization. Maytag Chairman and Chief Executive Officer Daniel J. Krumm asserts that the company had no other choice if it was to survive as an independent manufacturer of household appliances. Maytag had to expand significantly to keep up with larger competitors and not be shut out of international markets. Most analysts believe that Maytag paid too much to acquire Chicago Pacific. The acquisition will dilute earnings, and pressure on profits could mount if demand for appliances declines. Krumm leaves the impression that, if faced with an unfriendly takeover attempt, Maytag would do whatever was required to enhance shareholder value. That could include a stock buyback or restructuring.
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Byrne, Harlan S.

Full text: [Barron's National Business and Financial Weekly] Aug 21, 1989

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Hibernia Corp.: Conservative Lending, Acquiring Spell Banking Success

Hibernia Corp. (New Orleans, Louisiana) could write the book on how to succeed in the banking business during the oil industry’s depression. Though appearing to be a play-it-safe bank, the company’s Hibernia National Bank has been a growth-minded institution since new management took over in 1973. Hibernia has grown to No. 1 in Louisiana by pursuing aggressive, but disciplined, banking practices and through recent acquisitions. Picking through the wreckage of the banking and savings and loan business, Hibernia’s executives see opportunities for corralling a lot of sound banking assets. However, Hibernia itself could be an inviting target for an out-of-state bank (Louisiana has a national interstate reciprocal law). Hibernia is not thriving by acquisitions alone. It is aggressive in promoting banking and related services. Hibernia’s performance numbers stack up nicely with peer banks nationally, usually equaling or bettering the average.
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Byrne, Harlan S.

Full text: [Barron's National Business and Financial Weekly] Aug 21, 1989

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A Viable Option: The Case for Writing Covered Calls

Options can be part of very conservative hedging strategies. One of the best is covered call writing, a favorite of investment professionals. A call is an option contract that gives its buyer the right to purchase 100 shares of the underlying stock at a specific price for a specific period. If the seller of the call owns the stock, that person is “covered.” There is risk in stock ownership, and covered call writing offers a way to minimize this exposure conservatively. The cash that the writer receives for selling an option offers protection against a slide in the underlying stock’s price. However, as an imperfect hedge, an option itself poses risks. A call writer wishing to retain underlying stock when its price is surging has 3 choices: rolling the options forward, rolling them up, or simply buying back the calls. Selling covered calls on a stock spiraling downward would be unwise. When a stock is rocketing skyward, writing covered calls would curb an investor’s upside potential.
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Moscovitz, Steven D.

Full text: [Barron's National Business and Financial Weekly] Aug 21, 1989

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Report Blasting First Liberty Has Bank Officials Fighting Back

A long-simmering feud between First Liberty Financial Corp. and its stockholders has exploded with the publication of a pointed research report by Robinson-Humphrey Co., the investment bank that helped take First Liberty public in 1983. The 10-page report, released to selected Robinson-Humphrey clients in late July, was sent to the Chronicle in an unmarked envelope the following week. Sources in the banking and investment communities were surprised by the overt negative tone of the report, which repeatedly characterizes the bank as having made poor management and investment decisions. (excerpt)
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Rubinger, David

Full text: [Atlanta Business Chronicle] Aug 21, 1989

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Shroff

The recent losses by investors when shares were listed exposed the Stock Exchange of Thailand for allowing Krung Thai Bank and Thanaphum into the market, which should only accept companies with a good history. The issue of offering bad stock is discussed.
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Handley, Paul

Full text: [Far Eastern Economic Review] Aug 24, 1989

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A power play

Analysts James Ashley and Colin Mills from W. I. Carr outlined how ten different themes might affect the performance of a single industry–electronics. The themes are discussed.
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Full text: [Far Eastern Economic Review] Aug 24, 1989

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5 Regional Banks Likely Takeover Candidates

Five Capital Region banks, including Falls Church-based First Virginia Banks Inc. and Crestar Financial Corp. of Richmond, have been picked as likely acquisition targets in the 1990s, according to a recent report by Smith Barney, Harris Upham & Co., a New York-based brokerage firm. Lacy M. Shockley, a banking analyst who wrote the report, not only sees First Virginia and Crestar as possible acquisitions in the upcoming years, but Richmond-based Signet Banking Corp., Mercantile Bankshares Corp. of Baltimore and Dominion Bankshares Corp. of Roanoke as well. (excerpt)
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Atkinson, Bill

Full text: [Washington Business Journal] Aug 28, 1989

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Thrift’s Values Moving Up as Banks Look for Takeovers

The passage of savings and loan industry legislation earlier this month has unleashed a torrent of speculation that a significant number of thrifts will be acquired in the next several years, with both healthy and ailing institutions changing hands. Indeed, a number of thrifts, including some in the Charlotte area, have seen their stock price hit recent highs. According to experts, several institutions are being packaged for acquisition. Although the Financial Institutions Reform, Recovery and Enforcement Act was designed as a vehicle to fund the bailout of failed S&Ls, a key provision allowing commercial banks to buy thrifts is sparking a takeover mania. (excerpt)
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Cranford, Steve

Full text: [The Business Journal] Aug 28, 1989

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3COM Introduces New Software; Company Struggles to Catch Novell

3Com Corp. today will bring out computer networking software, in an effort to get the Santa Clara-based networking company back on track. 3Com, which took out a full-page ad at the end of March to celebrate its first $100-million quarter, is now far from crowing. The company’s sales and earnings slid below analysts’ expectations in `its fourth quarter, ended May 31, causing 3Com’s stock to plunge 29 percent from $27.63 to $19.75 on June 5. The stock slide continued as 3Com’s fares worsened. Earlier this month, 3Com Chairman and Chief Executive Officer William Krause said the company’s orders had fallen off during June and July and may report a loss for the quarter. 3Com’s stock closed on Aug. 24 at $12.63 per share. (excerpt)
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Leone, Genevieve

Full text: [The Business Journal] Aug 28, 1989

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Brokerage Houses Still Feeling the Pinch

John Bachmann has been driving home the point that relatively few investors were hurt when the stock market plunged in October 1987. “It was a bloodless crash as far as the investors were concerned. Few were actually in the market and most of the (stock) prices were back near their 12-month highs by year-end,” said Bachmann, the managing partner at Edward D. Jones & Co. here. Investment houses like Jones can hardly make the same claim. Profits there nosedived 50 percent, from $35.1 million in 1987 to $17.8 million in 1988. Jones and other brokerages are thankful they have wounds to lick. Wall Street has played requiems for a number of former industry heavyweights in the last 21 months, and financial analysts predict the shakeout will continue, despite signs investors are getting back in the market. (excerpt)
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Desloge, Rick

Full text: [St. Louis Business Journal] Aug 28, 1989

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American Shared Buys Out Venture

SAN FRANCISCO — American Shared Hospital Services early this month bought out the remaining 50 percent of its CuraCare joint venture from Los Angeles-based National Medical Enterprises (NME), and at least two more acquisitions are planned this year. “We’re quite excited about what is happening to the company,” said Dr. Ernest Bates, American’s founder, chairman and president. “We have $20 million to make acquisitions. I thought we would be done in six months, but when we started doing these deals in a judicious fashion, we realized it would take longer.” (excerpt)
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Kling, Kirsten

Full text: [San Francisco Business Times] Aug 28, 1989

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Why Natural Gas Is Burning Brighter

Since April 1989, stock prices of the major independent producers of natural gas have jumped 29%, outpacing a 15% rise in the Dow Jones industrial average. Stocks of the major gas-pipeline companies have risen 32%. Several factors are working together to give the industry a boost, such as: 1. legislation passed in July that will remove all federal price controls on gas by 1993, 2. rapidly deteriorating air quality that is causing many states to pass legislation to limit gasoline and oil use in utilities and automobiles, and 3. President Bush’s environmental program, which calls for cities, industries, and utilities to start switching to cleaner burning fuels in cars and boilers by 1992. Gas claims only 11% of the electric power plant market, but nearly 50% of the new power facilities planned in the US will run on gas. Most major producers are playing it safe for now, buying proven reserves, but the outlook for gas is at least improved. Further expansion is needed, especially in the Northeast.
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Ivey, Mark

Full text: [Business Week] Aug 28, 1989

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Gaylord Aims to Win Paper Chase

For Marvin Pomerantz, success is in the bag as long as somebody somewhere is putting something in a box. Of course, it’s not quite that simple. The success of Pomerantz’s company, Gaylord Container Corp., is hitched to niche marketing its products, which include corrugated containers (boxes), containerboard, unbleached kraft paper (from which brown paper grocery bags are made) and multiwall bags. There’s no denying the challenge because Gaylord has rigorous competition — Stone Container Corp., International Paper Co. and Weyerhaeuser to name a few. On the other hand, there’s lots of opportunity considering 90 to 95 percent of everything grown and manufactured in this country ends up in a box at some point in its life, according to the Fibre Box Association. (excerpt)
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Buelt, Jamie Gottula

Full text: [Business Record] Aug 28, 1989

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Out of the Bear Cave: Short Sellers Are Back in Action

Short interest on the New York Stock Exchange in the month ended August 15, 1989, surged ahead 14.3% to 554,537,766 shares, from 484,818,847 shares a month earlier. On the American Stock Exchange, the number of shares sold short during the same period advanced by 6.4%, to 52,076,794 shares, an all-time record, from a revised 48,922,594 in the prior 30-day span. Short interest in all NASDAQ issues rose 4.2% in the latest month. Some of the gain in short interest is linked to takeover situations receiving heavy play from the arbitrage community. Prominent among these is Bristol-Myers. The short position in the pharmaceutical company’s stock rose to nearly 9.4 million shares from just 948,000 shares a month earlier. The big increase is a side effect of its agreement to merge with Squibb Corp. in a stock swap. Bears are also stalking Cineplex Odeon, the entertainment company, which has been losing money. In the 2nd quarter, the organization reported some $38.7 million worth of debt.
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Savitz, Eric J.

Full text: [Barron's National Business and Financial Weekly] Aug 28, 1989

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Happy Days in Store: Selected Retailers, Says this Analyst, Are Still Bargains

In an interview, stock analyst Thomas Tashjian discusses retailer securities that are still bargains, despite the string of good earnings reports from some major retailers that sent stock prices up.
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Welling, Kathryn M

Full text: [Barron's National Business and Financial Weekly] Aug 28, 1989

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End of an Era? Why the Great Takeover Frenzy of the ‘Eighties May Have Peaked

For takeovers, buyouts, and mergers and acquisitions (M&A), which have supplied so much fuel to the great bull market of the 1980s, this may be the last hurrah. In the past 9 years, merger mania has replaced every other part of US economic life in excitement and growth of volume. M&A activity has risen by more than 50% since 1983 on an annual basis. If M&A in the 1980s is considered to be an arbitrage between stock price and asset value, the opportunities were there largely because of macroeconomic conditions. In the waning years of the 1980s, those conditions largely disappeared. Real interest rates fell. Inflation continued to stay low. The disincentives for long-term earnings that had flowed from high real interest rates largely vanished. The factors that had driven up the replacement cost of assets and pulled down the price of stocks were gone. If the best days of M&A are over, except for special cases, takeover prices can no longer be counted on as a prop for the market. If the market is expected to go higher, some new rationale besides asset value or takeover value will have to be found.
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Stein, Benjamin J.

Full text: [Barron's National Business and Financial Weekly] Aug 28, 1989

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Acid Rain: What’s An Investor To Do?

In mid-June 1989, President Bush announced a proposal on clean air that addressed acid rain. The proposal has investors wondering about its possible effect on electric utility stocks, particularly the stocks of coal-burning utilities. The chances of an acid rain bill being passed by the 101st Congress is very high. Bush’s plan calls for reducing annual sulfur dioxide emissions by 10 million tons and nitrogen oxide emissions by 2 million tons by the year 2000. Many utilities will be affected. The President estimates that the plan will cost $700 million annually in the first phase and $3.8 billion annually in the 2nd phase. While some companies will have substantial expenditures, those expenditures will be spread over 10 years. Public opinion polls show that consumers are willing to pay higher electric rates for clean air. Investors should focus not on the acid rain issue as a reason to sell utility shares, but should judge utility stocks on the basis of their fundamental outlook for sales, earnings, and dividend growth.
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Skrainka, Alan
Burkhardt, Daniel A.

Full text: [Public Utilities Fortnightly] Aug 31, 1989

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Changing The Rules

Since the Time-Warner deal, corporate planners have warmly embraced the Delaware court’s decision that allowed Time to ignore the short-term interest of shareholders. By citing long-term goals, companies may avoid criticism of a lagging stock price and concentrate on their competitors who do long-range planning. The degree to which the quick-profit crowd’s interests have been shoved aside will be determined by the opinion written by the Delaware Supreme Court. A narrow opinion will strictly limit the effect of the case to the facts presented; an opinion with a wider scope will have an impact on the entire takeover arena. Overall, this latest decision seems to mean that directors will have a much easier time thwarting hostile takeover attempts. As long as directors and managers act in good faith and adhere to a minimum, if subjective, standard of reasonableness, their decisions will not be enjoined. Furthermore, boards of directors need not follow the demands of a majority of the shareholders. Instead, shareholders are left with the choice of voting the directors out of office or selling their stock.
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Anonymous

Full text: [The Corporate Growth Report] Sep/Oct 1989

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Strategic planning: managing for value: can banks make the transition?

Banks that do not manage to create value for their shareholders will suffer from low stock prices. To begin managing for value, a bank should conduct a “value audit” of all product lines and see which fall short of shareholders’ required rate of return. Then, the bank should focus on minimizing the low-profit operations and maximizing profit makers. Generally, it is best to compete solely in functions, such as commercial lending, that shareholders cannot perform profitably as individuals.
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Maddox, Jeffrey D.

Full text: [The Bankers Magazine] Sep/Oct 1989

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Weird Fundamentals?

In a recent interview, Tom Escott, a senior vice-president of Rauscher Pierce Refsnes (Dallas, Texas), where he watches US oil and gas stocks, discussed various aspects of the oil and gas industry. In the industry’s current climate, there is a growing confidence that a $17-$20 barrel of crude is the right range. The increase in prices caused by the wreck of the Exxon Valdez indicates that the current market is so tight that even losing 2 million barrels has an effect. This tight market is caused by the fact that US crude production is at a 28-year low and that, in 1989, it is possible that US demands for petroleum liquids will surpass the 1979 record high of 17.5 million barrels of oil per day. According to Escott, the entire oil business has become a mirror image of the boom of the late 1970s and early 1980s. While from 1979 to 1982, the industry was experiencing a 4-year peak, from 1986 to 1990, the industry is in a 4-year rolling bottom. Some instances of good news include the fact that the price of WTI oil was $19-$20 a barrel in the spring and summer of 1989.
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Anonymous

Full text: [Oil & Gas Investor] Sep 1989

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