Dividends and Sources say fate of management at Toshiba a cause of friction for bidders and banks

All around the globe, investors look for value or hidden values that with some changes will unlock the value. One of the areas where people see value is in large conglomerates. The companies grew larger for a variety of reasons including the government ensuring one or more divisions had readily sales due to the government calling it a national security. At some point, investors begin to examine conglomerates and wonder if the company was broken up, would the parts be worth more than the existing?

In an article by Mayu Sakoda, Makiko Yamazaki, and Takaya Yamaguchi of Reuters, the company known as Toshiba is a prime example of the conglomerate to be broken up. Toshiba has over 116,000 employees involved in chip making, nuclear energy and what most of us their retail electronics. In 2015 there was a accounting scandal and ever since the company has lurched from crisis to crisis. One of the many concerns is major shareholders and management do not agree on the direction the company is taking.

A solution was devised of a potential buyout by Japan Industrial Partners (a private equity firm) and Japan Investment Corp (a state backed fund). The plan was going well until the issue of do we retain the existing management team? The private equity firm said yes, the state back fund said no and departed as a partner. The issue of retaining or letting go the existing management team is not an easy one because there are advantages and disadvantages to both sides. However, if you believe many changes must be carried out, something the Japanese banks believe, do the banks want to risk their money if many changes are not done?

Japan Industrial Partners which has previously bought out Olympus Corp’s camera business and Sony Group’s laptop business is trying to find partners to secure equity and financing commitments.

Japan Investment Corp is in talks with Bain Capital and north Asia fund MBK Partners to form a competing bid.

Linking to dividend paying stocks, companies that grow often have the government as a wonderful partner-either direct or indirectly. This partnership is the government backing the company to grow and some of what it is doing is in the national interests of the government. The national interest can be such as Toshiba chip making and nuclear energy, as a government you would not want to have competing nuclear energy firms so they back one over the other. It could be the research and development the company is involved with, there are multiple avenues where it could work. The issue is at some point the economy changes, government changes and they are not long the government’s interest. Many companies have a balancing act. If you have investments in a company which is protected by national interest of the government, how secure is it?

There are more questions than answers, till the next time – to raising questions.

Dividends and Investor backs Philip Morris’s $16 billion offer for Swedish Match

Today is Black Friday and around the shopping malls and retail stores, people are searching for values for their holiday shopping. In the corporate world, company’s strategic planning team does what individuals due.

One company that was searching for an undervalued company is Phillip Morris International (PMI) one of the largest makers of cigarettes. PMI found a company in Sweden called Swedish Match which controls half the world’s market for snus – a moist, smokefree snuff.

In an article by Reuters, PMI bid $9.73 a share which was a premium to where the shares were trading. Companies including Elliot Management Corp believed the offering should be higher. In this case, Elliot Management bought more shares and in October reached 10% holding.

PMI raised the bid to $10.58 a share because although they own 80% of the shares, they needed 90% to reach the threshold for forced redemption of the remaining minority shareholding. Once the price was raised Elliot agreed to tend and PMI will own Swedish Match. You can expect to see Snus in the tobacco section soon.

Linking to dividend paying stocks, all companies look for undervalued competitors or add on their companies or similar to individual shoppers they are looking for value. The difference is the number of 0s at the end of the cheque. In every market there is value or opportunity, if you similar to a corporation you take your time to find it and buy it at the right price for the future.

There are more questions than answers, till the next time – to raising questions.

Dividends and Glencore ordered to pay $314 million in Africa bribe case

In all industries but it is easier to see in the commodities business, brides or payments are paid to the ruling head of government or their associates. The developed countries often pretend that people do not bride in their countries, but to do business in a non developed countries is normal practice to pay brides. A number of years ago, the ruling family of Indonesia – the Suharto President was known as Mr. 10%. A country doing business in the country had to give either the President or family members 10% of their business in order for the business to operate profitably. If the country said no, then the President would use government regulations to hamper the business.

One of the biggest global commodity companies is known as Glencore with operations in London and Baar,Switzerland. The operations in London are centered around the London commodity exchanges where the price of commodities are traded everyday. In England, the West Africa desk, bought and sold crude oil from countries across Africa, paid brides of $29 million to secure preferential access to oil from Nigeria, Cameroon, South Sudan, Equitorial Guinea and the Ivory Coast.

In an article written by Geoffrey York, British Judge Peter Fraser, ruled Glencore to pay $314 million in financial penalties in its plan to bribe 5 African countries. The fine includes a massive fine, an order to confiscate profits that it obtained from bribery and legal costs – is the largest ever awarded in a corporate criminal conviction in Britain, according to the government’s Serious Fraud Office (SFO) which launched the Glencore investigation in 2019.

In the company’s financial reports, the bribes were often disguised as service fees, signing bonuses, success fees or office expenses. The SFO said its investigation of the Glencore traders found a trail of text messages, large cash withdrawls and deliberately concealed payments. The SFO is still pursuing an investigation of 2 people in the Business Ethics Officers in Glencore’s London office. Of the 17 people at Glencore, 11 are former employees.

Glencore Chairman Kalidas Madhavpeddi, said the conduct that took place was inexcusable and has no place in Glencore.

Linking to dividend paying stocks, there are ample opportunities to use bribery in the business world and many are former employees because the company lets them go for the greater good of the company. If you see a high turnover of senior employees, you have to wonder why? Are short term profits worth it? Is the lifestyle worth it? In the case of Glencore, did they make excessive profits that allows them to stretch out the court proceedings and pay a partial fine? When you purchase dividend paying stocks, you understand bribes are paid to increase profits, but you want companies that can pay profits for a long period of time.

There are more questions than answers, till the next time – to raising questions.

Dividends and Dark Commerce

For a long time in human history, there has been a system operating outside the normal legal side. Many people know about it, some use it and generally most end up within the violence of the system. For the system there is relatively easy money, but often it comes at a cost which is people do not live to old age retirement. Some people spend most of their lives in the other system, some people rarely ever venture in. It used to be that it was considered 10% of the economy and was loosely described as the underground economy.

In the last 20 years, it might have grown and the book Dark Commerce – How a new illicit economy is threatening our future by Louise I Shelley published by Princeton University Press, Princeton, NJ, 2018 is a good book to read if you wish to understand the economy. The book is very well researched.

There always has been a dark economy or the criminal element, but it seems to have grown more mainstream or main street and no one really knows.

One of the greatest companies during Victorian Times or when England essentially was the world leader was the East India Company. The company started out as a trading company which brought spices and teas to England in exchange for manufactured goods from England. Spices are the prime reason why Europeans were open to see the world and claim parts for itself. Eventually the company evolved to selling opium from India into China and causing a silver shortage in China and balance of trade payments overwhelming to England. A number of wars were fought, and Hong Kong became British territory.

In the Sherlock Holmes novels, Sherlock is addicted to cocaine, but drug use was not common throughout the population of England. They drank beer and alcohol.

The drug cartels which come from Columbia, Afghanistan, and a host of other companies have resulted in wealthy people who move their money into legitimate areas of the economy including real estate, stocks, bonds, etc.

Whether it is North Korea selling illegal cigarettes or other countries or groups destroying the environment, the growth of dark commerce leads to many issues about government policies.

The internet is wonderful to gather information, but it can also cause fraud, deception and if you are looking for a deal, it is buyer beware as counterfeit, poor quality and a host of other concerns are found in goods. In addition, there is place called the dark web where non legal actions are the norm.

Linking to dividend paying stocks, many times people looking at the dark commerce see the returns made in dark commerce. The returns can be very high, there is a reason why many people involved spend most of their money on lifestyle. It generally does not last. If you believe you want to live to retirement with a reasonably comfortable life, then the steady consistent aspect of dividend paying stocks over a long period of time is an excellent choice.

There are more questions than answers, till the next time – to raising questions.

Dividends and Saudi Arabia, UAE back OPEC production cuts at conference

Every industry in the economy has at least one conference where the leaders of the industry gather together. In most cases, there is more than one, but over the years one conference tends to come up with more decisions than others. Whatever you investments are in, all industries have magazines reporting on them and if you desire you can follow the trends.

Similar to most industries, the governments of the world play an interest and often they like to believe the interests of the government and the generally agreed interests of the industry are more or less in tune with each other.

In an article by Jon Gambrell of the Associated Press, the oil industry met at the Adu Dhabi International Petroleum Exhibition and Conference. The energy ministers of oil producing countries were there to make decisions and reward contacts to the oil industry.

All major lenders are discussing a possible recession next year, and it would be prudent, if a company was a supplier to ensure inventories do not build up too much or to cut production. The statement is from the supplier point of view, for the oil industry the government has a different point of view. The government of the US wants OPEC to pump more oil to increase supply and prices to fall.

The Energy Ministers of OPEC said no, it is prudent to consider and do cuts in production. The Saudi Energy Minister said we owe it to the the upcoming United Nations climate change conference to be held in Egypt to help save the environment.

In early October, OPEC agreed to cut its production by 2 million barrels a day beginning in November.

Amos Hochstein, the US envoy for energy affairs, said energy prices have to be priced in a way that allows for economic growth. Prices cannot be too high that will accelerate an economic downturn.

The US wanted prices to fall for gasoline prices to stop a talking point of the opposition for the midterm elections.

Linking to dividend paying stocks, all companies and all governments have interests that vary from time to time. During election season, a government has a point of view; during economic cycles companies have a point of view; they will not be the same as profits fluctuate. For your investments, do you have a reasonable grasp of the viewpoints?

There are more questions than answers, till the next time – to raising questions.

Dividends and Chinese iPhone production might fall because of COVID-19 curbs: source

Every year a new iPhone comes forth with exciting new features and many people around the world will both upgrade and buy new phones. After they buy the phones, Apple is wonderful company to keep people in their ecosystem of other services, products and subscriptions which helps Apple stock.

In an article by Yimou Lee of Reuters, the iPhone are made by Foxconn in a plant which over 200,000 people work at. The plant is the world’s biggest factory and is located in Zhengzhou which is located in central China. In China the government is trying to isolate and stamp out COVID by imposing very strict shutdowns.

Foxconn is Apple’s biggest iPhone maker, producing 70% of the iPhones shipments globally. The iPhone contract makes up 45% of the Taiwanese firm’s revenue said Taipei based Fubon Research.

Foxconn has plants in Shenzhen and in India, but the majority of the work is done in Zhengzhou.

In China, if the government sees any outbreaks of COVID 19, localities must act swiftly to quell outbreaks including full scale lockdowns. Factories are only allowed to stay open if the people live and work on-site. During the industrial revolution is was not uncommon to see towns have one employer, it is rare in the times we live in.

Linking to dividend paying stocks, all companies are dependent on government and outside suppliers to produce their goods and services. It is a system which has developed over the decades. Generally, governments encourage the company to maintain production and outputs, although in China they have very strict standards. Apple may have a problem with the company delivering supply, when demand is and remains high. As you look at your investments, how does your company manage the supply system?

There are more questions than answers, till the next time – to raising questions.

Dividends and Germany needs billions, but its bonds go unsold

In the world of business, business runs on credit. If there is no credit, business has to shut down operations or preserve cash and opportunities will go by. When that happens competitors who are flush with cash will seriously take advantage of opportunities and the business will have limited choices. The same principle happens in governments. Governments have the advantage of raising taxes to pay for financing, but if the world is headed to recession, to do the same thing rates have to rise.

In Europe, the powerhouse country has been Germany, for many years it could and did use its clout in the European Union, but something is happening. In an article by Samuel Indyk and Harry Robertson of Reuters, Germany is having trouble selling its bonds.

At an auction in late September, Germany offered $4 billion in bonds at auction and only $2.4 billion was taken. This 0.47 bid to offer ratio was the lowest of any 7-year German bond sale and the 2nd lowest of its auctions going back to 1999.

Analysts point to 2 factors: one an expected surge in German bond issuance as governments tackle the energy crisis (the move from Russian oil and gas to something else) and the cental bank’s aggressive rate hikes and their plans to gradually back out of the bond markets.

Euro zone governments and the European Union are expected to issue a record $535 billions of net debt in 2023, according to Bank of America.

France issued $10 billion euros or $11.34 billion in dollars of medium-term notes to strong demand.

In Germany, the increasing rates from Central Banks tend to mean investors do not want to buy long term bonds, even though there is demand for short term bonds. Another factor is December is year end and some buyers may not want to hold too much risk going into year end.

Linking to dividend paying stocks, when you purchase these stocks, you expect them to be profitable and pay dividends or do stock buybacks which increases the value of the stock. These stocks are the ones with access to credit no matter the economy and as long as they have access to credit or have AA ratings there is little you have to do but collect the dividends.

There are more questions than answers, till the next time – to raising questions.

Dividends and How do conflicts of interests impact investments?

When you invest in the stock market, which is a good thing to do to increase your wealth over time, which stock(s) you choose has some bias towards it. Where you live means you often interact with different stores which means almost every portfolio has some level of residency bias towards in it and that is ok. There are other biases in the market and as long as you are aware of them, some of them are possible to avoid. Often you have to find a reasonably independent person, such as an university professor to highlight the possible biases or conflict of interests.

In an article by George Athanassakos, a professor of finance who holds the Ben Graham Chair in Value Investing at the University of Western Ontario, wrote about conflicts of interests.

80% plus of the trading on a daily basis is institutional investors, even though many are well paid and could be rational investors, they fall into herding or what is popular? In many respects, institutional investors need to hold popular stocks similar to retail investors.

Another aspect of institutional investing is portfolio rebalancing. The issue is portfolio managers have a benchmark, index plus something, and if they do well a bonus comes along in December. To receive the bonus, they generally buy risker stocks in January and by September or October sell them, which allows for the reports on the portfolio to only have good quality stocks. Over the year this will cause some divergence which value investors can take advantage of.

If you own a stock, then an analyst(s) has written something about the stock. We all can do some of own analysis, but we also read or dependent on the views of others. Understand analyst tends to generate trading profits for their firms, which means most people want the stock to go up and recommend buys. If an analyst writes a negative story, the folks on the corporate financing team will receive no or very little business from the company when it needs financing for the business.

Rating agencies are needed, but sometimes they are part of a business which consults with the clients on raising money.

The media posts stories, depending on the source, depends on the information.

Broadly speaking, the whole stock market is a marketing machine, that just happens to sell stocks, as opposed to pills or groceries. When they want to sell stocks, they tend to write nice or positive stories.

Linking to dividend producing stocks, one of the ways to avoid many of the conflicts involved in the stock market is to buy good quality stocks and hold them. The length of time to hold them depends on their profitability to generate healthy profits to pay dividends. The business of the markets is to generate trading profits or people buying and selling. The business for you is to generate compound interest from the dividends and over time the value of the stock increases. It does not necessary mean selling, let others do that so if the company cannot generate profits you can sell into a healthy market.

There are more questions than answers, till the next time – to raising questions.

Dividends and Backable – winning pitches

In the technology world, and almost everywhere else people are pitching ideas to be acted upon. Everyone has ideas, some make life better, some easier, some make companies better and some change the world. The ideas that people have are similar to sowing seeds – some get eaten by birds, some grow a little and some become a crop. The question is which is which, recently read a book called Backable by Suneel Gupta, published by Little, Brown and Company, NY, 2021.

Mr. Gupta teaches at Harvard University, prior to that he founded an app (Rise) that was bought by a larger company and sits on a venture capital board which means he has given and listens to many pitches. Why are some successful and some not? In his capacity as a Professor, Mr. Gupta wrote the book Backable. There are many stories in the book, things to learn and some are list below.

One story is about breakfast cereal. Imagine if you own shares in the big cereal companies, for years there was steady predictable dependable profits which translated into dividends. Then over a few years, the industry changed and profits were lower. The issue is why? There were many ideas and theories, including size of families (from 5 plus kids to 1.5 child); changing tastes as nutritional values; and the list went on. After much research, the answer came to the cellphone. When people wake up in the morning, one of the things they do is pick up the cellphone and begin to check it for information of all sorts. When they are reading the cellphone, they are using one hand, which means they have one hand free to do breakfast. Cereal bars are more popular because they can be eaten with one hand, the other solution for the cereal companies is cereals became snack food.

Mr. Gupta has 7 points to make successful pitches.

  1. Take the idea and allow yourself to consider the pluses and minuses of the idea and at the end of the process you need to be convinced of the merits. People need to see your sincerity and conviction or being the champion of the idea.
  1. Who benefits from your idea? Establish a central character who uses the idea, is willing to pay for it and show their life is better for the implementation.
  1. Great ideas tend to stem from an earned secret – a hidden insight you learned through firsthand experience. What research have you done shows you are an expert and you had a break through the process of how you came to this solution. What was your Eureka movement?
  1. A backable idea communicates the idea is inevitable. The world is moving to this place and the idea allows you to come along for the ride. If you invest in the idea your vehicle is at the front of the line.
  1. When you are pitching, do not give a neat tidy wrapped up picture, allow the listeners and those with access to resources to join in the process. You are pitching to show them how they will succeed with you. The listener who understands the idea, will bring his/her perspective into play allowing for questions. If they are looking at their phones, you have a problem.
  1. Prior to pitching for big money, practice and try to find people that will object, in order to address the elephants in the room and use the rule of 21. Practice 21 times for it allows you to have a recovery muscle when according to the Peter Principle if something could go wrong, it will. You need to show all sides of your character. Understand reinvention is an essential part of the backable process. Your presentation likely will evolve over time.
  1. Show what you do or how your idea will be implemented. People are more compelling when they are being shown than describe to. Remember the idea is the most important thing, not you. Also note, just because you pitch someone, not everyone will like it or want to do something with the idea. You need to find someone who shares the same space as you and is willing to work with you.

Linking to dividend paying stocks, the executives who run profitable companies will hear many pitches because they have money to invest, the group which does this is corporate strategy and the Mergers and Acquistions group. The group will often say no, but when ideas fit the company, positions or the whole company can be purchased for talent. In your investments, how is the internal M&A group doing?

There are more questions than answers, till the next time – to raising questions.