Saturday, April 21, 2007

Bad investment in a hostile takeover, and a proposed exit plan

For years I’ve been investing a huge percentage of my income into a single stock. It hasn’t been going well. Some years ago the 9-person board appointed a new CEO, over the complaints of a majority of activist shareholders, and that CEO has turned out to be a major idiot. There have been an amazing number of missed investment opportunities, squandered chances at strategic partnerships, overspending; I could go on and on but all of those problems are overwhelmed by a single humongous error: Early in his term this new CEO initiated a hostile takeover of a smaller organization that he had convinced his top staff was a threat, and they in turn initiated a PR campaign to convince most of the shareholders of this threat, and that the only solution was a hostile takeover.

The hostile takeover was expensive, but at first it went well. The stock price of both organizations rose in the first few weeks. United Storage Associates (symbol: USA), in whom I invest about 1/3 of my money, was at a new high for the decade, and the stock price for International Rocks And Quarries (symbol: IRAQ), the takeover target, was through the roof.

That bubble didn’t last long. Fortunes of USA and IRAQ (now a wholly owned subsidiary of USA) have plummeted. The whole thing has been a money pit, and personnel have been lost in the hundreds of thousands.

It’s not unusual for a hostile takeover to go badly. So we shouldn’t be surprised. And we shouldn’t waste time complaining about the past. This is business. We need only look at the future and ask, How do we take this bad investment and turn it into an opportunity? We need to explore strategic alternatives. To anyone with an iota of wall-street savvy, “explore strategic alternatives” translates into: time to broker an acquisition for this failed investment. In other words, USA needs to sell IRAQ, cut its losses, and run.

But who would want to acquire IRAQ from USA?

It’s worth noting that the stock value of International Rocks And Nuggets (symbol: IRAN) has been rising lately, as they’ve recently been showing results of their innovation programs in the field of energy research. IRAN has recently been a tempting takeover target for USA, but IRAN has made it clear that they will violently fight any such attempts. Due to past hostilities between the two organizations (IRAN was aligning with USA’s competitors, USA forced a CEO on IRAN, IRAN was overly aggressive in recruiting and maintaining some of USA’s top workers, USA locked assets and broke contracts, and so on….), USA has stated that it is not willing to negotiate with IRAN.

But I say that it’s a terrible mistake for the USA not to negotiate with IRAN in this matter. Over the years IRAN has often expressed interest in acquiring IRAQ, and their interest has not waned. It’s in USA’s interest to get rid of the entire IRAQ division, and admit that sometimes hostile takeovers just don’t work. Negotiate already! Let’s make this deal happen.

OK, by now the more astute among have you realized that I’m not really talking about corporations, and that USA, IRAN, & IRAQ are not really NYSE stock symbols but are really the names of countries.

The less astute (symbol: DUMB) may now re-read the above and marvel at how clever I was at using the powers of metaphor to recast a familiar enigma in a new light, thus making the solution obvious. And what is that solution? The USA should sell Iraq to Iran. This gets rid of USA’s problems, transfers those problems to Iran, which will keep Iran busy for so long that they won’t give USA any more problems for years. The USA can also benefit by getting some of its hundreds of billions dollars back on this deal if they can get Iraq to pay enough--hint, skip the United Nations (symbol:UN) and go directly to Ebay, with England and Australia entering fake bids to drive the price up.

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