• Invensys - anatomy of a breakup
• Yokogawa - loss grows, major restructuring continues
• Wi-Fi goes mainstream
• Lessons from The Great Depression
• The reasons for war
• eFeedback:
  • Patriotism is more than just waving the flag
  • The futility of working in large companies
  • The best way to beat e-mail Spam

Invensys - anatomy of a breakup

Here's the math: Invensys debt is £1.6bn, average interest 5%, adding up to £85m annually. The banking covenants require earnings (ebitda) to be 3.5 times this, or £300m. Last week, Invensys said its operating profits would be £250m this year, implying ebitda of £350m - that's very little headroom.

In addition to debt, Invensys has pensions deficits of £300m (maybe more, see below). Under the current distressed status, the conservative valuation of assets is about £2.8bn. This leaves little more than the current low £500m market-cap. So, what to do with a bag of barely profitable businesses?

Holding till "recovery" would generate higher value; businesses like Invensys are valued at about 10 times operating profit. But, the small cadre of possible buyers (GE, Siemens, Schneider, Emerson) would be shopping for good deals on the pieces - not the whole mess. A "recovered" Invensys, with £4bn revenue, might generate £3bn, which would leave only £1bn for shareholders - not a big enough bump to be worth the risk. And, with a lousy track record, Haythorn-weight would be out of a job.

So, with the banks breathing down his neck, Haythornthwaite hedged. He has decided to sell off the most profitable two-thirds60% of Invensys, keeping just Production Management, plus Rail Systems (to maintain the glitter of the recent big contract). The spin on the story is this: Production Management is further advanced in the turn-around process, has higher cash flow and more resilience to economic cycles, a larger installed base and future growth prospects. All this is just fluff, to explain a very transparent strategy.

The companies for sale include Baan, APV Baker (which has links with asbestos), Appliance Controls, Climate Controls, Metering Systems, Powerware, Lambda, Teccor, and Hansen Transmissions. This is £2.8bn of revenue, with margins of 8.7% (compared with only 3.2% for the remaining companies). The sellofs will fetch a good price and Haythornthwaite will prove yet again that he is more a company-seller than a turnaround manager.

Baan, once touted as a key asset, is now on the block. Suitors include a venture group that might take the company private. Chief Executing Officer Allen Yurko paid £470m for Baan in May 2000; even at that time this seemed bizarre. Invensys may not get even 25% of that now. Actually, experts agree that it would be good if Baan can be disposed of for nothing. That's a good cue for vulture-capitalist Yurko to do what he has done with Eurotherm Drives.

Invensys could raise £2.2bn from the disposals, which will pay down £1.6bn debt and the pension deficit (£300m, but maybe more). That leaves the company with around £100-300m of cash. Post disposals, the "new" Invensys will have revenues of around £1.5bn and, assuming that profitability can be raised to 8-10%, an EBIT of £120-150m. It will be debt free, and (hopefully) without a pension issue. Any extra cash can be reinvested in the businesses that remain.

The "new" Invensys will be Foxboro, Wonderware, Eurotherm, APV Solutions & Services and Rail Signaling. Wonderware (and the others) lost no time in telling their sales partners and customers: "Invensys is now the only player focused solely on providing solutions for production management to the process, hybrid and discrete industries. Now it will have the financial strength to assure healthy long-term relationships." (See Invensys weblog).

But, as one weblog put it: "The really sad part is that Invensys is now a worse company than before Haythornthwaite arrived. Maybe it's time for the man, with his consultants and his friends, to save shareholders millions of dollars in salaries and perks by just resigning." But Haythornthwaite is staying as CEO of both the group and Production Management. He insists that he is "excited about running the new Invensys" which has "the same strategy, but with a narrower focus". Some people never learn who they really are...

Under these depressed circumstances, the Invensys board of directors canceled this years final dividend, and (hooray!) finally gave the Lord the boot. Lord Marshall of Knightsbridge, who conspired with Allen Yurko to merge BTR and Siebe, who then made Yurko the fall guy, and who then hired Haythornthwaite to take his place, has finally departed with (as one observer put it) "a bad odour in the air".

Late-breaking news (Sun. 20 Apr. 03): Haythornthwaite's latest plans could be pre-empted. News has surfaced that Invensys may have a pension shortfall of more than £700m (the conservative HSBC estimate is £1bn). In addition, the banks fear that the latest planned disposals are likely to involve staggered payments, with warranties about future earnings for the businesses sold off. If too much earnings are sold for too little cash-money early on, that might force the banks to act. This would lead to restructuring, or even bankruptcy administration.

At the close of this past week, the stock price was at 16.75p, which could move up or down depending on whether or not the banks threaten to foreclose. The stock price on Mon. 21 April 03 will be the barometer.

In any case, with only the process automation and rail systems businesses remaining, Invensys will clearly be a potential takeover target for Siemens or GE (which both have similar businesses). But, will they pay a price that merits Haythorn-waiting a while longer?

UK Guardian - Invensys forced into fire sale

UK Independent (20 April 2003)
Administration threat as Invensys is hit for £700m

Invensys Weblog - Review the latest news & comments

Yokogawa loss grows - major restructuring continues

For 2003, Yokogawa's consolidated revenues are $2.8bn, slim growth over $ 2.6bn last year, but includes Ando consolidation. Note that 5-year cumulative sales are about $13.5bn, with 5-year cumulative net loss of about $0.5bn. This includes profit of $300m reported in 2001, which reflects Yokogawa's sale of their interest in HP-Japan. This long-term performance is dismal. If Yokogawa were a US company, its stock would be in the tank.

About 70% of Yokogawa's total revenues are from Japan. Market segments are 50% industrial automation, 20% test & measurement (incl. the recent acquisition of Ando), 10% information processing and 20% miscellaneous. Yokogawa's announced strategy is to be the low cost producer of control instrumentation. But the company is struggling with successful execution in the midst of low demand for its major product lines, plus poor absorption of Ando.

I have mentioned in the past that Japanese companies don't do acquisitions because of a cultural bias: acquisition is akin to defeat; the acquired company feels like a loser, and is treated accordingly. Ando is an example of this syndrome.

Yokogawa earnings growth must be driven by implementation of cost reductions, which includes the planned closing down 15 of 19 domestic plants and shifting production overseas without affecting quality or supply. Some measuring instrument production will be shifted to Korea, and control systems and instrumentation to Singapore and China. The intent is to raise overseas production from 10% to 50% by March 2005.

Job cuts and shutdowns are not easy for an established Japanese company to achieve in the face of a culture where lifetime employment is the norm. Yokogawa has yet to reveal how it will dispose of displaced employees, or what it plans to do with the remaining fixed assets after restructuring.

In the past strong domestic business, plus Japanese Government support and Keiretsu funding propped up Yokogawa's foreign forays. Now, like other world markets, Japanese domestic projects and maintenance & repair business have declined, limiting funding for international investment.

For survival, Yokogawa must do two things: 1/ Cut costs, employees and facilities (not easy in the Japanese culture); and 2/ Go after export opportunities with good marketing savvy (selecting key target customers), without using the old price-cutting ploy.

We wish them luck!

Yokogawa Electric now expects deeper fiscal year group net loss

Yokogawa strategy: Good products + low price

Weblog: The Japanese automation players

Wi-Fi goes mainstream

After 4 years as a plaything for techno-geeks and home hobbyists, Wi-Fi (previously known as IEEE 802.11b) is beginning to beam its way into business. Superfast Wi-Fi Web connections bring major new business applications in factories, trucks, stores, and hospitals. Many people believe that Wi-Fi could be at the "tipping point" for a whole new surge of growth.

Wi-Fi is a radio signal that beams Internet connections about 300 feet. Attach it to a broadband modem and any nearby computers equipped with Wi-Fi receptors can log on to the Net, whether they're in the cubicle across the hall, the apartment next door, or the hammock out back. Up to now, Wi-Fi has grown on the fringes of the networked world, sharing unregulated radio spectrum with a variety of wireless gadgets like cordless phones and baby monitors.

Thousands of Wi-Fi networks, known as "hot spots", have already popped up all over. Do-it-yourselfers worldwide have rigged antennas to create their own hot spots, which have also joined together to form networks so that users send e-mails and surf the web from street corners or mountaintops. There are now some 5,000 free hot spots in the US. More than 18 million people worldwide have logged on, and the numbers are growing daily.

A sure sign of success is that the technology giants are now investing in Wi-Fi to take it mainstream. Intel is spending $300m to market its Centrino laptop chips, which come equipped for Wi-Fi. Last month, Cisco bought LinkSys for $500m, putting it in competition with Microsoft that entered the same market last year. Phone companies, including Verizon, SBC and T-Mobile are already offering Wi-Fi services.

The challenge is to transform this unruly phenomenon into a global business. That involves transforming scattered hot spots into coherent, dependable networks. It means coming up with billing systems, roaming agreements, and technical standards - jobs the phone companies are busy tackling.

A large pattern of dependable Wi-Fi hot spots could dramatically extend the Web, changing its very nature. The potential productivity gains are so compelling that many businesses are already investing in custom-built systems. UPS is equipping its worldwide distribution centers with wireless networks at a cost of $120m. As loaders and packers scan packages, the information zips instantly to the UPS network, with an expected 35% productivity gain. IBM is designing Wi-Fi systems to monitor machines, from potato fryers in restaurants to freezers in supermarkets.

There is some overlap between Wi-Fi and 3G high-speed cellular. 3G promises a wireless Internet and provides broader coverage than Wi-Fi hot spots. But Wi-Fi targets places where mobile Net surfers are swarming - hotels, airports, and shopping centers. Phone companies are plowing ahead with Wi-Fi deployment anyway, hoping to bill for a menu of wireless services, including both Wi-Fi and 3G.

Business Week - Wi-Fi Means Business

Waiting for Wi-Fi

MIT Tech Review - Wi-Fi goes Hi-Fi

Lessons from The Great Depression

There are many similarities with the late '90's up to the present time. In both periods, Americans enjoyed astonishing prosperity, new technologies generated a boom, there was faith that the economic system had permanently changed things for the better, and the stock market rose to unanticipated heights before it crashed. The SEC itself was formed in response to the excesses that caused market-crash of 1929. The new, stiffened post-Enron SEC rules are still playing out.

The Great Depression caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation's banks, businesses and farms. It transformed national politics by vastly expanding government. Social Security, unemployment insurance and federal family assistance all began in the thirties.

Globalism too was born in the pre-depression era. Cheap foreign labor lowered costs and improved profits, which drove imports of foreign made products and pushed labor offshore. This caused a decline in domestic employment and eventually exacerbated depression problems to the extent that there was a significant backlash, prompting the start of labor-union protectionism.

Now, in the US in February 2003, total non-farm payroll employment fell by about 300,000, with unemployment at 5.8%. Job losses were widespread; 8.5 million people were unemployed and nearly 1.9 million people had been out of work for 27 weeks. There is no doubt that some of this domestic upheaval was caused by job-shifts to lower-cost countries.

There is yet another eerie similarity between the two periods. The 9/11 attacks and the subsequent fear of terrorism have deepened the parallels. In the early '20s, Americans also felt assaulted by alien forces-radicalism and Bolshevism imported mainly by immigrants. There was fear of terrorism then too, though its impact was perhaps less pervasive.

We know what happened to the 20s - the depression lasted 10 years; the '90s endgame is still unfolding.

Read my new article: Lessons from The Great Depression

Pinto Point - the reasons for war

In his column in the NY Times, Tom Friedman points out the good side of this conflict - the world (and the terrorists) now know that the US and its allies are determined to go to any lengths to root out terrorism.

The question of dissent still bothers me. This quote was sent to me by a supportive eNews reader; please read it completely, before you notice the origin.

"Of course the people don't want war. But after all, it's the leaders of the country who determine the policy, and it's always a simple matter to drag the people along whether it's a democracy, a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to greater danger."
-- Herman Goering at the Nuremberg trials, 1946

Check the background and authenticity of the Goering quote

Newsweek (21 April 2003) - 8 questions about the war

eFeedback

"Webster’s dictionary basically defines patriotism as love of ones country. Speaking out against the policies of an administration it just as patriotic as waving the flag, if not more so. Freedom of speech is not a part-time notion; it does not end when the bullets fly. How some in our society feel that one should not speak up now that the conflict has begun is beyond me. They are the ones who are oppressing freedom in our very own land while claiming to free others through this war. I find this very disturbing and it seems to be perpetuated by the current administration.

"I have always thought of myself as being extremely patriotic, and perhaps more so today. From the time I got out of high school in 1965 when I joined the Air Force at 18, and throughout my entire life, the things I did were often done with the intent of adding my bit help the economy, or to help improve the country. However, I disagree with the administration in its current war with Iraq. I feel I can find little justification and it saddens me we could find no solution other than force. I could go on forever....

"Your observation of the media is on target. I got same impression that this is one giant sports event with blow-by-blow details. If you ever succumb and watch some of the political talk shows on TV, particularly the Fox network or MSNBC, it gets worse. You would be disturbed at the lack of meaningful dialogue or debate. The main tactic is to talk over some one and ridicule; a display of verbal force.

"From reading your newsletter I get the feeling that at times you may feel not many may agree with you. That's okay. Remember always what a lone dissenting senator said to escalating the war in Vietnam: 'you don't have to be in the majority to be right'."

"I read Bill Bentley's letter with understanding about the way I see large companies in the automation business treating their employees. I run the automation group of a small, about 35 people Design/Build engineering company. I am always looking for ways to trickle down the business to subcontractors and suppliers where I know the principals. Only in small business can I trust that the management (usually owners) is in it for the long run, to support their customers.

"We do process control systems for the plants we build. But, HVAC and Security are always subcontracted. I have worked with all the majors, and have given up on trying to get high quality work and responsive support from any multi-national, Fortune 500 Company in the business. The only success we have is with small (less than 50 people), locally owned businesses. Our projects are valued, and the engineers who work for them are valued. I have found that the way large companies treat their employees, the Brain Drain, or "flushing", is very evident.

"We all have to use products from Emerson/Honeywell/AB/Invensys/GE/ Microsoft. But, at the configuration and support level, local and small is the only way to go."

"Jim, nice try on your "The Battle Against SPAM E-Mails" article, but you are being way too naive. Don't be fooled by techno-solutions.

"Everyone in the industry knows how to stop junk email/Spam cold. You don't need any fancy filters. You don't need any high tech software. E-mail servers simply reject as UNDELIVERABLE (not accept and delete) all e-mails whose sender is not in the receiver's email address list. It is really that simple. If people modified their email servers to provide this function, junk email would end overnight. Literally.

"And please, please don't propose the "problem" that email recipients won't receive email from persons not on their address list. Everyone, even the most junior email user, knows that this is an insignificant issue. It is the argument made by people who are either a/ too lazy to address the problem, or b/ don’t really want to solve the problem (perhaps because they profit from it.)

"Regarding this second point: As you probably know, junk email and pornography represent a very large percentage of the money that is spent on the Internet. ISPs have a vested interest in encouraging lots and lots of IP messages across the Internet. (The US Postal Service loves junk snail mail, too!. It's one of their big profit sources.)

"Of all the email I (and I think most people) receive, about 66% is Spam, 33% is from people already on my email list, and maybe, just maybe, 1% is from people I know who are not on my email list. If that 1-in-100 gets their email to me bounced, and they have to call to have me add them to my list, that is a small price to pay.

"So please stop saying that there doesn't seem to be a foolproof way to eliminate unwanted e-mail. All e-mail service providers should AT LEAST offer the option to reject email from senders that are not recognized."

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