Dvorak almost says something clever

[Christopher Browne]

On Tue, May 6, 2008 at 8:50 PM, Evan Leibovitch <evan-ieNeDk6JonTYtjvyW6yDsg at public.gmane.org> wrote:
> I usually gloss over stuff by John Dvorak, but his analysis of the
>  Yahoo-MS non-deal was close to clever.
>
>  http://www.pcmag.com/article2/0,2817,2293341,00.asp
>
>  You don't need to read the whole thing, just skip to the end. In fact
>  I'll save you the bother. After spending a whole column calling MS idiot
>  for even thinking of the aquisition, (and saying that MS should
>  concenrtate on its strengths rather than foolishly going after Google),
>  he ends with:
>
>  > And what is it with all the geniuses who think this was a good plan?
>  > Do the math. Forty four billion and you were considering spending
>  > more!? For what? Earth to Microsoft: Yahoo! is not worth $44 billion.
>  > You could buy General Motors lock, stock, and barrel for $14 billion,
>  > name all the cars "Google Sucks," and get more bang for the buck.
>  > Heck, you'd have enough left over to buy Ford for around $16 billion,
>  > and you could name all those cars "Google Sucks More" and still have
>  > $14 billion left over for a big party.
>  >
>  > Does anyone ever look at the market cap of these multinational firms
>  > for a reality check?

All *seems* well and good, but I don't think it's nearly that simple.

There obviously must be *something* wrong with GM, otherwise its
market cap *would* be better.

I think that is that the likes of GM have a mighty difficult time
actually making money for their shareholders.

There's a LOT of layers that take money out before anything can get to
the shareholders, between the "sales layer" (e.g. - the sleazy guys
that try to charge you too much for a car), and the fact that any time
they *do* look profitable the UAW drops in for benefits enhancement.

I saw much the same when I worked at American Airlines; they had a
similarly "adversarial" relationship with various of their unions, and
after generations of such, everyone involved seems to regard the eggs
being laid by the golden goose as theirs for the taking, whether we're
talking about high levels of management or high levels of union.
With two sets of vultures *directly* picking over profits, there's not
much left for the shareholders.

Another factor for any of these large, multigenerational organizations
is that they tend to transform into appendages, virtual "pimples" on
the "body" that is the corporate pension plan.  If there are 50,000
retired employees, that requires a pension fund with on the order of
$0.5M apiece, so the pension fund (which isn't the "operational
organization") needs to have $25B in it to support them.  Eventually,
that becomes the tail wagging the dog, and after a couple generations,
the airline or the auto maker are irrelevant in comparison, which
makes these organizations mighty difficult to steer in anything
resembling a direction.

This is why interesting things only tend to happen around companies
that are young enough NOT to have any retired employees.

It's worth noting that in the US market, the "mature" airlines all
have market caps near $2B (as does AMR); the one worth $5.5B is
SouthWest, the one that isn't old enough to have retirees.

I haven't been putting any *known* portions of my portfolio into GM or
AMR; I'd buy overpriced bits of Yahoo! first, and that's presumably
why Yahoo!'s market cap is twice that of GM and Ford.
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