8 famous companies that may vanish this year
Posted
Feb 12 2008, 09:53 AM
by
Douglas McIntyre
Firestone. American Motors. Texaco. Pan Am. Worldcom. These large American companies were once at the top of their industries. Pan Am was the leading global airline for decades. All are gone: Some were sold off, others went bankrupt. Who could have predicted it?
There are several iconic U.S. companies that may well not exist at the end of 2008. Some may not even make it halfway through the year. Not all will go out of business. Some may simply be auctioned off in pieces. Others may be bought. These companies will not exist in their current forms as they are known to their shareholders and consumers now.
When a company ceases to exist as an independent entity, it is not necessarily bad for shareholders. Some may be worth more in parts. Often a bust-up or merger is what brings owners the most money. Here are the big ones that probably won't make it. (A more detailed assessment is available at 24/7 Wall St.)
Motorola was the No. 2 handset maker in the world a little more than two years ago. Its Razr took the wireless industry by storm. It did not follow that product up with another winner. Now its handset business is on the block and its telecom equipment unit may put put together with Nortel's.
Sears Holdings is billionaire Eddie Lampert's experiment at merging big retailers Sears and K-Mart. Unfortunately both were in bad shape at the outset. Putting them together did not help either business. Lampert has fired his CEO and is breaking the company into new divisions.
Citigroup is almost certainly not out of the woods. The bank has another $37 billion in CDOs on its balance sheet. It also has LBO loans which it cannot syndicate because of poor credit markets. A close look at the bank shows that it has some valuable businesses which could operate independent of the troubled part of the company. Citi's wealth management operation including Smith Barney grew 27% last quarter. The global wealth management business had $3.5 billion in revenue in Q4 and $523 million in net income. Citi's market cap is only $150 billion now. Its consumer units could be worth more than that on their own.
Ford is trading about where it did when there were rumors that the company would go bankrupt. This car company has a market cap of $14 billion against annual sales of $173 billion. Ford lost another $2.8 billion in Q4 and is planning to cut another 13,000 jobs.The company's share of the US market is down to about 15%. Even with cost cuts, its product line works against a recovery with its mix of pick-ups and SUVs. The auto maker is already auctioning Jaguar and Rover.The Ford family is going to have to consider selling the company to a Japanese or European car group unless 2008 is better than expected.
Yahoo was not going to make it as a standalone, especially after Q4 earnings. The company's shares were below $20 a month ago and now Microsoft has made a $31 a share offer. Recent analysis from Wall Street shows that about $10 billion of the company's market cap comes from the value its stakes in Yahoo Japan and China e-commerce company Alibaba. Microsoft could sell those off.
AMD is the second largest provider of chips and processors for servers and PC's. Its larger rival, Intel, has over three-quarters of the market. A price war has hurt AMD's gross margins badly. The firm also bought graphic chip company ATI and now has over $5 billion in debt. Shares were over $40 less than two years ago and now trade at a little over $8. AMD needs a larger owner with a wider global chip business. Look for Taiwan Semiconductor or Samsung to court AMD's board.
Sprint should never have merged with NexTel, but it is a little too late for that to be fixed now. It traded above $23 about a year ago and recently fell to close to $8. While AT&T and Verizon post enviable wireless numbers, Sprint struggles to keep current subscribers. SK Telecom, a big Korean operator, has already come to Sprint with a proposed investment. The board did not listen. With Sprint's recent troubles SK may well be back. The other potential buyer often mentioned is Comcast. After years of beating on the big U.S. phone companies, Comcast is now up against their fiber-to-the-home broadband and TV products. What the big cable company does not have is wireless products to offer consumers and businesses as part of a "bundle" of services.
Qwest is the last of the Baby Bells standing from the break-up of the old AT&T. It is the dominant phone company in 14 states. Its shares have fallen from a 52-week high of $10.45 to below $6. Qwest has two problems. The first is that it has no real wireless operations. Cellular service is what is driving the market valuation of rivals AT&T and Verizon. Qwest also does not have the balance sheet to upgrade all of its infrastructure to fiber like Verizon has.The company does have a very valuable customer and geographic base. Watch for Verizon to get in touch with Qwest's board. The larger company could use Qwest's base to push its wireless services in bundles. It could also build out fiber into Qwest's region to compete with cable there.
