JimPinto.com - Connections for Growth & Success
No. 117 : 20 April 2003
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
Well, automation-mavens, we have some heavy stuff for you in this
issue of eNews. If you're not interested in automation business,
please fast-scroll down a bit.
- Invensys - anatomy of a breakup
- Yokogawa - loss grows, major restructuring continues
- Wi-Fi goes mainstream
- Lessons from The Great Depression
- The reasons for war
- 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
Rick Haythornthwaite is in a tight spot. Invensys is close to
breaking banking covenants. But breakup in a bear-market will
bring a pitiful valuation for shareholders. So what's a guy with
a penchant for selling companies to do?
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
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
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
Yokogawa's results for the year ended 31 Mar. 03 have not yet been
formally announced, but sources suggest that profits are much worse
than the initial estimated net loss of $110m - perhaps $ 200-250m.
This includes a special loss of $100m for restructuring costs at Ando
Electric (Yokogawa controlling stake last year) plus $75m on reduced
value of shareholdings. This on top of last year's net loss of $196bn.
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
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
Hey, how would you like to have a high-speed Internet connection on
your next flight to Chicago, or London? Boeing is already preparing
for flying cyber cafés, with more than 100 Boeing jets to be equipped
with Wi-Fi by early next year. For $25 per flight, laptop-luggers will
be able to log on to the Net while flying at 40,000 ft. Boeing is so
gung-ho on this new technology that they expect to outfit 4,000 planes
with Wi-Fi service over the next few years.
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
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
During 2002, the S&P 500 index dipped by 22.1%, completing a third
consecutive year of negative returns (-9.1% in 2000, -11.9% in 2001).
If the S&P also dips in 2003, for the fourth year in a row, this will
be the first time this has happened since "The Great Depression"
- the last great deflationary event in America (1929-1932).
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
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
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
So, coalition forces have occupied Iraq and Saddam is gone. That was
expected. But was it right? Sorry, while I am happy that war is over,
I still have a bad feeling. Why were we there? Where are the weapons
of mass destruction? If nothing is found, it's not merely a matter
of whether the world will be outraged. What will the families of our
fallen soldiers feel?
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
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."
Check the background and authenticity of the Goering quote
-- Herman Goering at the Nuremberg trials, 1946
Newsweek (21 April 2003) - 8 questions about the war
My old friend John Finnegan [email@example.com] wrote about
our continued discussions about the war in Iraq:
"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.
Steven Landau [firstname.lastname@example.org] wrote more about the futility
of working in large companies:
"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
"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.
Tom Barker [email@example.com] is passionate about the best
way to eliminate email Spam:
"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
"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
"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
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