Friday, June 06, 2008

Bank of America Gets Permission from Fed Reserve To Acquire Countrywide

Bank of America (BAC) has finally received approval from the Board of Governors of the Federal Reserve to acquire Countrywide (CFC). Investors do not know whether to laugh or cry over that one. As the sub-prime mortgage debacle got worse the initial rationale that Bank of America used began to look weaker. The acquisition still has to be approved by Countrywide shareholders.

In a short press release this comment was attributed to the chairman and CEO Kenneth D Lewis “This transaction represents a rare opportunity for Bank of America to significantly gain market share in the mortgage business, allowing it to expand in a cornerstone financial product,"

The buy in that is now required to accept this transaction is a very strategic approach where the very long term synergies if they develop outweigh the financial pain that is being currently experienced. The dice are still rolling on this one and will continue rolling for quite some time.

Thursday, June 05, 2008

Focus Media Fast Growth But What About The Cash

Focus Media (FMCN) who brands itself as China's leading multi-platform digital media company reported Q1 2008 operating cash flow at $7.6 million. Day sales outstanding ("DSO") was 127 days in the first quarter mainly due to the consolidation of $40.7 million accounts receivables from CGEN at the end of Q1 2008 and longer receivable cycles of our Internet advertising business. As of March 31, 2008, the Company had cash and cash equivalents of $283.0 million.

The company is clearly growing at exponential rates but an Achilles heel may be developing with the accounts receivable list growing and days sales outstanding heading the wrong way. A quarter is 90 days. So basically on March 31 they still had not been paid for sales from the last week of November 07.

I don’t care what you may say about cultural differences of operating in PR China all business cultures understand cash. This company may have a big problem.

Wednesday, June 04, 2008

Duff & Phelps Goes To China

Duff & Phelps (DUF) announced the opening of three offices in China with locations in Shanghai, Hong Kong and Beijing, as part of its continued global expansion. Of course the market is huge and visions of financial sugar plum fairies dance in the minds of executives and shareholders.

But wait a second the market is huge and growing. The Chinese Stock markets have a great many companies which are relatively unknown outside of their domestic markets. They have assigned nine professionals to be resident in three offices. The firm has 1,100 employees worldwide and only nine are earmarked for the Chinese offices.

The coverage is light to the point of being laughable. Expansion into China provides a conundrum . The market is huge. You do not know what your client will need. They will expect expertise and depth of knowledge across many companies. How do you generate that overnight.

Expanding into China in this industry is like expanding into the US opening an office in Manhattan, Chicago and maybe Silicon Valley and then claiming expertise in US business. There’s just a lot more to it.

Tuesday, June 03, 2008

Washington Mutual Closes The Barn Door

Washington Mutual (WAMU) closed the proverbial barn door after shareholders voted 51%plus to install a non employee as Chairman. WAMU announced on Monday it will replace Chief Executive Kerry Killinger as chairman of the board and take other steps to improve corporate governance.

After billions of dollars in losses the shareholders finally got it. Keep the positions of chairman and CEO/president separate. Kerry Killinger will remain on the board supposedly to keep explaining stuff.

While they may have seen the vote coming in the 11th hour the board probably did not see this as a blessed event. While most investors look at the company as a financial disaster story, it really is a corporate governance disaster story. Perhaps if even more so.

The press release also documented many other changes and Kerry Kilgour had the gall to offer this quote “"These actions underscore the board's long-standing commitment to good corporate governance and my personal commitment to improving the company's financial performance and delivering value to our shareholders,"

This company is floundering around and until a permanent CEO is put in and builds up his executive team the future will be uncertain. Of course there can be a sale to stronger hands but the shareholders will only see a fraction of the franchise value.

Monday, June 02, 2008

Ford Unloads Jaguar and Land Rover

Ford (F) just unloaded jaguar and Land Rover to the Tata Group. Almost everyone expected the deal to close. Ford of course took a big hit and lost billions of dollars. The precious little cash that they sourced was partially earmarked to top up a pension plan that they have been neglecting. But at least they can say that the have partially staunched the flow of financial blood.

In the press release there is a line that says “As part of the overall deal, Ford said it will continue to supply Jaguar and Land Rover with engines, stampings and technology.” No financial numbers have been provided to support this statement. But it is highly unlikely that Ford will not feel some very intense pressure in this area and may be found lacking. Tata Group is not about to put up with Fords nonsense.

Look for adjustments to the purchase price as Tata drives this one around the block and comes back on warranties and representations.