Evelien: ‘Gartmore confirms plan for IPO’

In these times of crisis, financial institutions become more critical and anxious about giving loans and businesses need to search for alternative funding sources. One option is to launch an initial public offering, which seems to be the rescue for Gartmore, a respected independent fund manager.

After speculation of a frightening flotation, the asset management group Gartmore now officially announced its IPO in an attempt to cut their net debt to £ 150 million.

The executives believe that a stock market listing is the logical next step in the company’s development. They’re convinced that an IPO will raise the profile of the group and provide benefits for their clients, shareholders as well as for their employees.

There an exact amount has not been mentioned yet for the IPO but the company has made the commitment to reduce their debt to £ 150 million if the IPO succeeds.

Currently, the company is owned for 42 per cent by its staff. The remaining shares are owned by Hellman & Fried, a San Francisco private equity group.

To realize the IPO, Gartmore imposes some conditions on its present shareholders. Among others, the employees and directors of Gartmore are expected to sell approximately 20 per cent of their shares.

After the flotation, Hellman & Fried is expected to keep a stake in Gartmore, although it is not known how much.


Nowadays, getting a bank loan is not easy. Banks have tightened their conditions which caused many head troubles. People without financial difficulties or good running businesses are now the victims because of others who mismanaged their finances.

It makes no sense that it is so difficult to get a financial loan for business purposes, while on the other hand it’s so easy to get credit for luxury purposes like buying a car or washing machine.

I find it quit ridicules that people don’t get the chance to start up their business even though it will become a success without any doubt. I’m convinced that we have to stimulate new business plans to pass these bad times. You can only overcome economic downfall by increasing economic activity.


By Evelien Van Gaeveren

Source: O’Doherty, J., ‘Gartmore confirms plan for IPO’. Financial Times, November 20 2009, http://www.ft.com/.

Lien: "The Moral Hazard Economy"

A lot has already been said about the crisis in the American economy and also about how the situation is turning in the right direction thanks to, amongst other things, the help of the American government. This week, I read an article in “Harvard Business Magazine” that raises some very good questions about this. A lot of money has been poured in the economy by the government, but what will it look like after the crisis? Will the government be able to get out of its debts? Will the economic actors be aware of risks or will they become moral hazards?

After the huge collapse of the world’s economies in the fall of 2008, the U.S.-government, along with many other governments around the world, has poured huge amounts of money, taxpayers’ money, in large financial institutions, companies, etc., but the big question that opposes itself now is the fact whether in the future, the economic actors will abdicate from doing risky business or will the large bailouts have given them the idea that risks are okay, because when things go bad, the government is there any way to save them?

Another effect of the huge bailouts will be that, because of the recession, the government’s revenues aren’t that high, but the expenses on the other hand will only get bigger, not only in terms of the crisis, but also the regular expenses, when being a government, have to be dealt with. There is a lot of doubt on where the money will come from. Most likely, the government will do this by selling Treasury paper, but will there be enough buyers? In the past, the US government was mostly depended of foreign investors to buy these papers, but their interest is also questioned seeing the economic situation. If they don’t buy, money lend by the government could become very expensive as the government will be in search of a lot of money.

In the article, they also mention the transformation of the Federal Reserve System as a consequence of the government’s bailouts. Because of its input in the “financial rescue” these last few months, the Federal Reserve System is being seen as ‘the solution of the banking crisis’, putting the System’s normal function in question.

I found this article to be very interesting, because there had already been a lot of writing about the crisis and the government’s support to get out of the crisis, but this is the first article I read that really wonders about how the economy will look like after the crisis. Now the government is acting almost like a ‘superhero’ that will save all banks and companies, but few questions arise about their ‘corporate finance’. Will they still be able to get out of their debts? The financial situation of most governments isn’t very good at the moment.

Another thing that is really suitable in our corporate finance – blog is the question about whether in the future companies, etc will be more into risk or will they have learned a lesson now. This can be related to ‘financial risk management’. Maybe it will be like they say in the article. Maybe economic actors will take more risks in financing their business, because, the government will help when it all falls down. This being said, I find this a very sad preview of how the future may look like. When doing business, people used to want to have a healthy business. When this will be the new spirit, things good turnout bad, because I don’t believe for a minute that the government will be able to counter these kinds of debts again in the future.

Lien Vanneder

Source: http://hbr.harvardbusiness.org/2009/07/the-moral-hazard-economy/ar/1

Annelies: Asda and Tesco in £400m Christmas price war

Asda and Tesco in £400m Christmas price war
Within 6 weeks it’s Christmas. So it’s time to buy presents for family members and friends. Good news: the supermarkets Tesco and Asda in Great-Brittan have announced price reductions. It would be great if the supermarkets in Belgium would do the same.
Today my blog is about these two supermarkets who have a price-war. I find that this price-war is relevant for our corporate finance theme because it is about companies’ price reductions. However, supermarkets can’t continue to reduce their prices forever. Otherwise they will make severe losses and they will go bankrupt. Naturally, every company wants to make profit. Every year they have to draw up a budget. If they want to reduce their prices, they must consider if it is possible.

Summary
The price reductions of Asda for clients is £ 150 m worth. This year Asda will have the most aggressive price policy in a decade.

The companies clients can spread their costs of Christmas in a longer period with tailor made events and rollbacks on key items.

In the second quarter of 2009 Asda had a sales growth of 7.2%. The last three months there was a drop in sales up to 5.6%. This decrease is due to the declining food inflation.

Asda has already held various special events at its stores where customers could buy half-price toys, George clothing, or discounted music and video game products. Earlier this week the company also announced price cuts on 50 technology products, including a Philips Blu-ray DVD player for £97.

The other supermarket Tesco also announced that it was cutting the price of thousands of items around its stores, which it claims will save shoppers £250m. Tesco is offering an "essential turkey" for £6 and two frozen prawn rings for £5, as well as half-price offers on toys and bikes.
Retailer experts say that there will be more competition between the Big Four supermarkets in comparison to other years.

In Martin Lewis mind, the founder of Moneysavingexpert.com, the last week before Christmas will be the cheapest time to buy surprises.

My opinion

In my opinion it’s good that there are price reductions during Christmas time. Most people will buy presents, have a family diner, go on a trip with friends,... So most people spend a lot of money.

75 percent of all toys are sold in the last quarter of the year.
Christmas is an important time for everyone. There are a lot of poor people who can’t buy presents for their family because they don’t have enough money . Maybe when there are price reductions, they can buy something.

I think it’s nice to shop in Great Britain with these price reductions. The last week before Christmas is the cheapest time. So you know what you have to do: visit the UK shops. It’s a pity we have to study during this time.

Source: http://www.guardian.co.uk/business/2009/nov/12/asda-starts-christmas-price-war

Livine: Investors take a new 'pay cut' as dividends wither

I’ve chosen for an article about the companies who are affected by the economical crisis and who’ve chosen for the solution of decreasing the value of their dividends as a way of saving.

The bleu-ship companies usually have a reliable dividend. This could make a change because of the bad economical climate. A lot of companies have already cut down their dividends and also the bleu-ships can’t escape from this trend.

JPMorgan Chase & Co have already decreased there quarterly dividend with 87%.
This means for investors a small cut-back of their pays but they won’t feel it on short-term, certainly not in this chaotic environment. Dividends represent 43.8% of the total return of investors since 1926.

The good news is that experts think that this won’t mean the end of dividends but it will only be temporary. It gives another reason to pay closer attention to stocks during the recession.
As long as you have a diversified portfolio and you look for companies with a strong and stable balance sheet, you don’t have to worry that much. As you keep up this strategy, you’re doing well. The dividend isn’t going away across the market according to the experts.

The companies who had a record of increasing dividends over the past 25 years, are already looking for increasing their dividend again. Companies do everything to avoid an increasing dividend because that can be seen as a bad sign for the investors and the stock market will respond that in driving down their prices.

When companies want to preserve their cash, it’s acceptable that they cut down their dividends in times of recession. Investors should wondering why other companies haven’t done that during the crisis.

Some companies say that they are so strong that they can keep pay their dividends at the same price. This is a dangerous game and it should only been played by the strongest companies.

Experts say that this decrease of dividents won’t have a negative influence on long-term because they think from the point of view of the investors. Because, they pay currently 15% taxes on dividends and capital gains.

Everybody wants to know when the dividend is coming back, the answer is when the economy makes his comeback.

I think that the economical crisis has affected everyone, the increasing of the dividends isn’t good for the companies but also for the investors. I think they may lose their faith in the company and this is not good at all. I think that investors don’t know what’s safe anymore or what’s a good and stable investment. On the other hand, I understand the companies, they don’t have a chose, if they had, they won’t do this because it’s not good for their image. Investors will have a bad feeling over this decision and they can start to doubt at the company. One thing’s for sure, the economical crisis has a very big influence and I think, we will still feel the consequences for a while.

You can read the article on:
Bron: http://www.foxnews.com/wires/2009Feb24/0,4670,DividendCuts,00.html



Greet!
Livine

Evelien: ‘Nyrstar prepares itself for a new growth’

In times of economic downfall you can’t open a newspaper or magazine without reading heads about restructuring plans, rising unemployment and bankruptcies. Now I found an article in ‘Netto’ about a company called Nyrstar which has changed for the better thanks to the crisis.



The recent acquisition of a mine complex in Tennessee, America, illustrates the adjusted strategy of Nyrstar. A vertical integration has to make the Belgian-Australian zinc melter less dependent of its raw materials suppliers and the economic cycle.

Since last summer there has been a nice cash position on the balance sheet which can help to achieve this ambition. This good cash position is mainly due to the issue of convertible bonds with a total value of 120 million Euros.

Because the crisis is not definitely passed, the company keeps focussing on a structural saving of its costs.

The restarting of the production in Balen stimulates the confidence in Nyrstar. The temporary break in the production here, and at other places, probably weren't as bad as they look at first sight. During the past months the company managed, next to a big overhaul to work at a comprehensive restructuring, to make the site more flexible and dynamical. From now on the production will be better able to react on the demand, not only from the final consumers but also from the other branches. Such initiatives elevate the efficiency of Nyrstar.


I think it’s quit admirable that a company has the courage to take drastic decisions to reorganize its business structure in a way that the business is profitable again during times of economic downfall. There is often discussion about the fees for managers, but just like in the case of Nyrstar there are many other examples of higher managers that have to take their responsibility to lead their business to success instead of leaving them to crumble.

It must give a lot of satisfaction when you’re a higher manager in a company and success are only or mainly thanks to your leadership. On the other hand, those decisions don’t always turnout well. It is a pity that when it goes wrong, people always need someone to blame and most of the time the managers, responsible for the ‘wrong decisions’, get fired.



By Evelien Van Gaeveren

Source: De Ridder, A., ‘Nyrstar maakt van de nood een deugd’. Netto, 41 (2009): p. 30-31.