Evelien: ‘Borders goes into administration’

After many success stories of companies who found a solution for their financial problems, mainly caused by the economic downfall, I’d now like to highlight that even big companies with a fixed value can fail their corporate finance.

The Borders bookshop chain in the UK, which employs 1,150 people, has lost the battle. The company suffered from increased competition from online retailers and supermarkets. Further, they faced severe cash flow pressures.

Due to several credit insurers who had reduced their cover to Borders, some of their suppliers became less willing to trade with them and stopped or reduced its credit.

This all made it really difficult for Borders to fill up its stock levels, which decreased its customer service and lead to declining revenues.

Borders tried to survive by seeking for a buyer for all or some of their outlets, but they couldn’t reach their goal.

Borders is a typical example to say that credit insurance is a symptom of a business in jeopardy, in a dangerous situation.


I believe that Borders failed their corporate finance because they hadn’t enough reserve to bridge periods of less credit. They had to foresee that this could happen, definitely when you’re in a branch with growing competition.

Of course not everything is due to the decreasing credit insurance. When the traditional bookshop became less popular and cheaper alternatives like supermarkets got more attention from the customers, Borders had to intervene.

Borders’ marketing department should have used their creativity to come up with new ideas and strategies to attract their customers by new or better services.

As a business you always have to create value for your customers or they will turn their back on you. The bankruptcy of Borders is due to a mix of human miscalculations.

Nowadays, innovation is the key to a long and successful story. Consumers are more demanding than twenty years ago. They expect to buy the latest cell phone and one month later, they want to find a more updated version. The most expensive television or car isn’t as exclusive after a while than it was at the time of purchase.


By Evelien Van Gaeveren

Source: BBC NEWS, ‘Borders goes into administration’. BBC News, November 26 2009, www.bbc.co.uk.

Livine: Businesses in U.S. Brace for New Rules on Emissions

I’ve chosen for an article about the reducing of the emissions that cause the global warming. I think that’s a very interesting article because it’s important for our future, health and the planet. It’s also a very active topic.

The companies have waited a long time for the day that they would be obligated to reduce their emissions who cause the global warming. Wednesday 25/11/2009, President Obama has proposed a national goal for such reductions.

A lot of American companies have already thought what they should do to achieve these standards. Many have made their conclusion years ago that it’s unavoidable that they must do something and they wanted to know what exact rules there are. Many companies have registered their emissions to analyze their results. Some of them have already made notable progress.

Big companies as General Electric, Ford Motor Company and PepsiCo have worked with environmental groups to found the United States Climate Action Partnership, an association where they can look for solutions to decrease the emissions in the whole economy.

Mal-Mart, the biggest retailer, has outlined strict targets to rebate the energy consumption in his stores and he has given thousands of his suppliers the instruction to report their energy consumption and their carbon dioxide emissions.

Duke Energy, a power company says that clear rules are necessary to make sure that all the companies who are familiar with coal-fired power plants can finance their transition to lower carbon fuels, natural gases or nuclear energy.

The leadership of the White House is required and the only way to get a bill by the Senate. A bill means certainty and clarity and this is what the companies need.

Until now, the U.S is the only industrialized economy who fairs the targets for reducing the greenhouse. Limiting the greenhouse means the anguish of the energy-intensive companies like petroleum refineries and coal-fired power plants and elucidating the development of alternative energy like sun and wind. The U.S claims that this will lead to higher energy costs and petroleum accounts, less domestic production and an increase of fuel import and a slower growing economy.
Luckily, their are still some companies like Apple and Nike who contradict this and support the reduction of the emissions. They think that its urgent time for changes and that the companies have to take control and should invest in sustainable business and have to look for innovative solutions.

There are many projects but there’s still no agreement that can ensure that the targets of the President will be pursued.

I agree with Apple and Nike, it’s in the hands of the companies and they need to do something before it’s too late and it’s in the interests of everyone. So the companies have a great responsibility. We just live ones so we have to take care for our planet and think at our children and their future.


You can read the article on: http://www.nytimes.com/2009/11/26/business/energy-environment/26emissions.html?scp=5&sq=corporate%20finance&st=cse


Greet!
Livine

Lien: "Stagecoach books its seat as Spanish Group raises bid for National Express"

For my final blog on corporate finance, I have read an article dealing with a part of corporate finance that hasn’t yet been talked about that much; namely ‘takeovers’.

The British transport operator, ‘National Express’, is thinking about selling its business after having to endure some difficult times with poor financial results, losses etc. which have pulled down the value of its shares.

Amongst the investors, is the company’s biggest shareholder, a Spanish group, which has already made an offer, but which has now raised its final offer after first being rejected. Their plan is to buy the company and then again sell a part of it to National Express’ competitor, Stagecoach.

National Express however still doubts and is also considering another option. It would try to get out of (a part of) its debts by issuing rights worth £ 350 million. This might be a more difficult option because of for instance its low share prices.

Opinions about the takeover are still very diversified and the company just wants to have time to consider all of its options.

For my last blog, I found this article to be again very interesting. It shows how a company can get in such big financial troubles that they are unable to get out of these problems themselves, so they have to seek help in more desperate measures. One of those measures can be selling (a part of) your company. Then again, this might be the only way to insure that your company will survive and to still wake away with some money yourself.

In the case of National Express, I suppose it would be the right thing to do. The rights issue that they are considering would be too dangerous. Maybe the shareholders would consider buying new shares to save the company. Then again, not all of the money can come from existing shareholders and that is where the biggest problem would be, I suppose. Maybe the price of the shares is too low to attract enough new investors. Overall, in my opinion, the takeover is the best way to save the company from its debts.

I find this article to be a good last article about corporate finance, because you don’t only have the aspect about how a company gets a part of its capital, by issuing shares, but also the part in which they describe what a company’s options are when its financing gets into trouble. For instance by selling the company or issuing new rights.

Thank you for reading this blog the last couple of weeks!

Greetings,

Lien

Article: “Stagecoach books its seat as Spanish Group raises bid for National Express”

Source: http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6820976.ece Date: 4th September 2009

Annelies: Lending Declines as Bank Jitters Persist

Lending Declines as Bank Jitters Persist

Summary
U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.

The total balance of the loans was 210.4 milliard dollars of the third quarter. It was the greatest decrease since 1984 according to the Federal Deposit Insurance Corp (FDIC).
It’s the second time that there are a lot of bank failures.

Despite the large sums of money the banks get from the government to avoid bankruptcy, they are reluctant to lend.

The large banks, which account for 56% of industry assets and received a large share of the government’s bailout funds, accounted for 75% of the decline.

Credit availability plays an important role in the recovery of the economy. Therefore the banks must give loans especially to business clients.

James Chessen, chief economist at the American Bankers Association, said that there are less credit loans because the lenders run the risk of losing their money. They are reluctant to take the risk. They are more prudent to lend.

FDIC officials don’t disclose the names of banks on the list, in part because it could lead to bank runs.

In spite of the balance financing is negative, they had a reserve of cash. With this cash money they would save their failures.

FDIC officials recently agreed to require banks to prepay three years' worth of government insurance fees, which is expected to bring in an additional $45 billion by the end of the year.

Ms Bair, chairman of the FDIC, said that there wouldn’t be a profit for the fourth quarter because there are more write offs and bad loans before the year-end.

My opinion
Everyone knows there is a financial crisis. Many banks have lost money. Some of them went bankrupt. I find it normal that the remaining banks are reluctant to lend because they have become more prudent. However, the lack of credit availability is bad for the economic recovery. So it is important that this situation doesn’t last.

I think it is a good thing that governments in the US and in other countries have spent hundreds of billions of dollars to help the banks. This creates stability and more security for the banks. I can also understand that despite this financial help, the banks remain prudent to lend money to companies as long as the economic crisis continues. However, there are signs that the economy is stabilizing. In previous articles I learned that there are signs that the crisis is past its peak. Still the banks are not inclined to give more loans. I find that the banks should take up their responsibility as key agents in the economy. If they are not prepared to do so, the economic crisis will go on for a long time. I find that in that case governments must take measures to oblige banks to give more loans to companies.

Greet Annelies

Source: http://online.wsj.com/article/SB125907631604662501.html

Annelies: Workers act to avoid business closures

Workers act to avoid business closures

Summary
During the financial crisis a lot of companies have to close. Employers and employees work together to prevent their company from closure. On the one hand employers act to avoid business closures. On the other hand one in three workers has worked longer hours without extra pay.
A survey commissioned by the insolvency trade body R3 has shown that about 15% of the employees have accepted a pay freeze or they haven’t requested a pay rise.

During the financial crisis many companies have tried to save jobs. Employers pay lower salaries. In return they try to limit personnel reductions. It is the first time that employers are aware of the negative effects of massive compulsory reductions. They realize that when you want to keep your workforce happy, you don’t try to dismiss as many people as possible.

In spite of the workers acting to avoid business closures, there still are a lot of discharges. Some companies just don’t have enough money to pay all their employees.
Last week's unemployment figures showed the smallest rise since spring 2008. This result indicates that the worst of the recession may be over. However, the CBI said nearly two-thirds of the employers installed a recruitment freeze. 45% had introduced more flexible working.

Perhaps surprisingly, given the public outcry over bonus payments, the R3 survey has shown that only 10% of eligible workers were not paid a bonus that they would otherwise have expected to receive.

My opinion
I think it is very good that employers and workers work together to avoid business closures. I believe it is good news that especially employers try to limit compulsory reductions as much as possible. This was not the case during the 1990s recession. Employers realize more and more that they must prevent massive staff reductions as much as possible to keep their work force happy. During the financial crisis workers also realize that they have to do overtime and they must accept a pay freeze so that their employer is not forced to dismiss them.

It’s a pity that there still are a lot of employers who have to discharge some of their employees.

I find it odd that some workers still receive bonuses, while at the same time there are people who are discharged because their company can’t pay these people. Bonuses cost money also, don’t they?

Many companies have to be closed because their financial means are insufficient. I think that the companies will learn from this crisis. For some of them it is too late. But other companies will be more careful in the future. They will also try to maintain their workforce as much as possible. At least I hope so.

Great Annelies

Source: http://www.guardian.co.uk/money/2009/nov/19/workers-avoid-business-closures

Livine: Accounting irregularities may be on the rise in U.S.

I’ve chosen for an article about the accounting fraud in companies because of the economic crisis.

There come more and more accounting irregularities to the surface in the U.S because of the persistent recession.

The shares of Apollo Group Inc are decreased with 18% after they had announced an informal investigation concerning their revenue recognition. Apollo is just one of many big companies who have published that they have accounting issues lately.
The Internet retailer Overstock.com have also noted that they were investigated by the government regulators related some expenses. The company changed their results in 2006 and 2008.

Statistically, you can see that there is a recession and that there is a higher financial pressure on companies. The employees are also motivated to exaggerate and fiddle with the accounting or to fraud to achieve some objectives, certainly in these difficult economic times.
Almost a third of the corporate executives expects that fraud and misbehavior will increase in companies this year. The most financial adjustments are related to costs, expenses and revenue recognition problems.

Investors usually don’t know that there is something wrong because the information is often vague. Because of this, it has a minimum impact on the share prices until the investors really know what’s going on.

A reason whereby there are more and more accounting irregularities who come to the surface is that it’s almost the end of the year and companies should close their books.
Regulators at het SEC and other government audit institutions can cause an increase of the detection of fraud because they focus on investigating tips.

Unfortunately, there is still too much latitude in the universally accepted accounting principles and companies because there is so much at stake whereby they grip what they can to fix their figures.

I think that the people and companies are so discouraged that they would do anything to ‘safe’ the situation. If you had a company and the figures are suddenly increasing a lot because of the economic crisis, I think that many would be dismayed and would be able to do such stupid things like fiddle with the bookkeeping. This is a normal reaction of many people but not the smartest one and certainly not without consequences.

These things will definitely happen all the time, also in better economic times but there is off cause more and stringent investigation when it goes economically worse and auditors will faster have questions with some figures whereby they double check it and in this way fraud gets detected.

You can read the article on: http://www.reuters.com/article/ousiv/idUSTRE59S01I20091029?pageNumber=2&virtualBrandChannel=0



Greet!
Livine

Lien:"Companies' share buybacks may hit a wall"

When I was browsing the web in search of a topic for this week’s blog, I came across an Indian site: economictimes.indiatimes.com. It’s an economic site, mostly covering the Indian and global economic events. I read an article about a very interesting phenomenon that is progressing in the Indian economy. Many listed Indian companies are trying to buy back the shares they’d initially offered on the share market.

As a cause of the bad financial time the economy has had to endure the last few months, the share prices on the Indian stock market have also dropped a lot. By buying a part of these shares back, the companies want to diminish the number of shares on the market and keep control of the majority of the shares.

Another reason for this buyback may also be that the company isn’t interested in the shares at all, but that they just want to bring up the share prices by announcing that they will buy back shares. Because of the announcement and people’s reaction to it, share prices might go up.

The buybacks are mostly not a success at all, because the price that the companies offer to buy back the shares, lays mostly lower than the price of the shares on the market at that time. India Inc for instance had announced 62 buybacks, of which 40 have already been dismissed because of a lack of success.

I was actually surprised to read such an article, because you might think that in a time of crisis, or especially in a recovery period, companies are looking for fresh capital to bring into their businesses and to re-launch their business practices to the fullest. In one of my first blogs, I already wrote about a capital increase by which the company planned to raise more money to invest in new ideas, but here, it is just the other way around.

I do understand that when share prices are low that companies might do such a thing as described in the article, because otherwise another company might step in a buy a majority of the shares at a cheap price. A company doesn’t want to lose its independence. Again, a very interesting article, because I hadn’t yet considered the risks of the share prices being so low.

It was also kind of nice to read for once about another country’s economy instead of the large economies, like the American economy, that mostly dominate the news.

Bye!

Lien Vanneder

Article: “Companies’ share buybacks may hit a wall”

Source: economictimes.indiatimes.com

http://economictimes.indiatimes.com/markets/stocks/market-news/Companies-share-buybacks-may-hit-a-wall/articleshow/5248931.cms

Date: 20th November 2009