American Express Scoops GE Money?

American Express (AXP) recently announced that they have entered into an agreement to purchase Corporate Payment Services, GE’s commercial card and corporate purchasing business unit, for $1.1 billion in cash. The press release was tagged with American Express stock symbol but did not carry GE’s stock symbol. The problem with this communiqué is that it’s so Teflon coated its really hard to critical evaluate or understand.

It sounds like American Express is bulking up in an area that they already operate in and are removing a major competitor who likes to be No 1 or 2 in a market area. So they pay $1.1 Billion but it’s hard to develop a valuation. You do not see bottom line numbers. Some overall metrics are provided but you can be assured that the number crunchers and the Board’s of Directors had more extensive information to deal with. Apparently it’s not important for the investors to be more fully informed.

From GE’s point of view my guess is that to take it to the next level required a big spend on capital and IT with a more uncertain future. So they decided to fold and sell. They clearly have other fish to fry.

None of these business decisions are bad. Quite frankly they all seem to make a great deal of sense. So why not say so and leave investors with the feeling that good management is in place and this seems to be the correct choice today. Smoke screen info about head count in Salt Lake City without any comments about integration costs and potential lay-offs just adds to the confusion.

Motorola Financial Engineering Does not Equal Product Success

Motorola (MOT) announced that they will split into two different units. One with the problem child handset products that is losing market share and does not seem to have anything to offer. The other with all the other stuff that seems to be going reasonably well. It would be a precursor step to selling off the handset division. Financial media is making much of the fact that this seems to be what Carl Icahn has been demanding. Apparently he has 6% and knows how to get a headline or two.
OK Icahn is correct in criticizing Motorola’s efforts in handsets. But what say the other 94% of investors who have been experiencing great financial pain. Is the tail wagging the dog?

Consider some of these points when assessing the future of Motorola.

1. Will someone out there actually want to buy the handset unit at a close to reasonable price?
2. Does Motorola have something to offer handset consumers that will be compelling in some fashion?
3. If the division is sold off will the remaining shareholders be penalized. After all they have taken the pain only to see someone else come in, take the asset and make a profit. There are those who would view such a move as a form of theft wrapped in corporate governance.

The easy shouting is over. The heavy lifting is about to begin.

Bear Stearns Rape, Loot and Pillage

JP Morgan (JPM) under the protective Teflon of a Fed Reserve Mandate makes a rescue bid for Bear Stearns (BSC). The psychology is so bad that they try a $2 @ share offer which only makes the psychology worse. The stock which traded north of $150 @ share within the last twelve months is now tantamount to a penny stock.

All this nonsense just so that the Fed and the market can say a major institution did not go down. This was to avoid the supposed domino effect of defaults caused by insolvency. At $2 @ share the Bear Board had the balls to go for more and actually got it. The $2 was raised to $10.

Where or when else in financial history have investors in a leaky lifeboat been able to negotiate a 500% increase in the terms and conditions of their rescue? Anyone? I do not believe that this has a precedent.

Some media commentators have speculated that the increase allows the existing Bear Board to say they have completed their fiduciary responsibility and exacted better terms. Given a twelve month high of approximately $159. Riding the roller coaster from $2 to $10 is not an adequate discharge of fiduciary responsibility.
There is still too much fog on this battlefield. JP Morgan is working to enhance their own shareholder valuation. Have they manipulated the psychology of fear to steal the asset? Only time will tell. The market is already trading at a 20% premium to the last ransom note from JP Morgan.

If the asset was bankrupt then say so and deal with the consequences. Trying to nuance your way out of a tar baby problem is not working. When investors sue please ensure you name the Fed Reserve as they are driving the bus that JP Morgan so willingly bought a ticket.

Will this problem become a major distraction for JP Morgan and take valuable management time away from their other responsibilities?