As with so much in America lately, this is an artificial holiday. George Washington was born on February 22 (1732). Abraham Lincoln was born Feb. 12 (1809). I used to get two school days off, one to celebrate each man's birth. At some point, business prevailed upon government to consolidate the holidays, so most states now and the Federal Government name neither man and instead give a somewhat meaningless holiday called President's Day on the third Monday in February.
Both men lived through more perilous times than now, but we are in perilous times that require courage and imagination. Every day, I hear of imploding property values. One example is a luxury home on Fisher Island, an exclusive island near Miami. This 4 BR 2800 SF condo, ocean view, was not long ago valued at least at $3 M. Fair value now is said to be $1.4 M, and the current occupant, who rents it and who is highly experienced in real estate matters, believes it is likely to sell at the bottom of this cycle for under $1 M. Four months ago, yours truly sold his primary residence in Florida at a loss, such home having been purchased in 2001, long before real estate bubble talk surfaced. Values in that community are said to have plunged in only 4 months. One owner, for example, is on the Madoff victim list and is listing his house for sale. Between listed homes and known shadow inventory, the overhang of homes is huge. This situation is writ so large in luxury, middle-class and less than middle class communities to need no further repeating.
Another Madoff-type multi-billion dollar scam courtesy of "Sir" Allen Stanford, involving the isle of Antigua, cricket, and Texas is under active Federal investigation. Google him or Stanford Investment Bank to find different articles.
A family member who actually remembers the Great Depression and has successfully been in the retail business for decades states that we are in another Depression. He lived through the horrible economies of the mid-seventies and the LA mini-depression of the 1990 era, and states that the current economy is not just worse than that in either of those times, but now is far worse.
Globally, the headlines continue to be bad without precedent. Bloomberg reports that Russia and Japan are both showing record quarter-on-quarter drops in industrial production. RGE Monitor (Nouriel Roubini's organization) reports that Ireland is on the brink of default, and Germany is being asked by the EU to rescue it. Goldman Sachs reports that the International Monetary Fund is running out of money. Other countries on the brink include Ukraine, which is not a small country, and other Eastern European countries. Western European financial institutions are said to be levered 50 or more to 1 and to have major exposure to cross-border loans in troubled foreign countries.
Back in the U.S., Dr. Roubini has a somewhat triumphant post today in RGE Monitor titled: Republicans start to support the idea of nationalizing insolvent banks (no link; subscription required). Our opinion is that the Citis of the world are Establishment creations, recalling that the major opposition to TARP came from rural, populist small-business Republicans and the rest of the opposition came from the other side of the spectrum (think Socialist Bernard Sanders of Vermont).
In the meantime, markets continue to function, but where is the buying power for a new bull market in anything except distressed debt and the like?
Until the cost of fixing the financial system is known and this task is accomplished, and so long as the economy is either deteriorating or stable but weak, the supply-demand situation in all but the safest assets appears to be poor.
This is what both causes and happens in Depressions.
Copyright (C) Long Lake LLC 2009
Showing posts with label American Home Products. Show all posts
Showing posts with label American Home Products. Show all posts
Monday, February 16, 2009
Monday, January 26, 2009
Pfizer Buys Wyeth: Layoffs Financed by You and Me
I have spent the last two decades working in and around the pharmaceutical industry. Having now spent the last year focusing on the worsening financial and economic conditions in the U.S. and globally, it is fascinating to see the latest useless combination of one tired pharmaceutical giant with another dovetail unexpectedly with the financial crisis.
To wit, the leaks the last few days were correct: Pfizer has agreed to purchase the former American Home Products, now called Wyeth, which got smart years ago and saw that better living through chemistry would make its shareholders richer than pots and pans could. And so it came to pass. After all, purchasing products for the kitchen lacked a direct subsidy, but drug benefits provided by employers - now there's an opportunity to jack up profit margins. This mid-course corporate life change was brilliant and has now been definitely rewarded. While matters are less clear from Pfizer's standpoint, what appears likely is that the U.S. taxpayer is indirectly subsidizing future massive layoffs in one of the "green" knowledge-based industries that we need to encourage, having just subsidized the preservation of jobs in the U.S. auto industry that has fought greenness in every way it can.
Please see the press release, "PFIZER TO ACQUIRE WYETH, CREATING THE WORLD'S PREMIER BIOPHARMACEUTICAL COMPANY" for Pfizer's take on things.
Here's my take. I'll get to the tie-in to the financial mess and TARP in points 3, 4 and especially 5.
1. Buried in the press release is the fact that Pfizer is cutting its dividend in half.
2. It is well-known in the pharmaceutical industry that Pfizer functions like the military- with unbelievable rigidity; but without the operational flexibility that battlefield commanders in the military have; and with the same creativity of the French military in preparing for WW II; and without the capacity to learn from its mistakes. That said, Pfizer has the gall to trumpet the concept that this already-stultified company will become flexible- think pre-pubescent Chinese gymnasts:
"Unique and Flexible Business Model Features Focus and Agility of Smaller Enterprises Backed by Resources and Scale of Global Company".
Excuse me. I'm going to take a 5 minute break and decide whether to have a good belly laugh or vomit.
3. (I'm back. I'll keep you in suspense as to what I did.) The press release again:
"Combination Strengthens Platform for Improved, Consistent, and Stable Earnings Growth and Sustainable Shareholder Value"
However, here's Bloomberg's take on how Pfizer can struggle to keep earnings from declining, forget about growing earnings:
"The Wyeth transaction . . . could keep Pfizer’s earnings unchanged at $2.69 a share from 2010 to 2015, when patents expire on some of Pfizer’s biggest products, Anderson (a Sanford C. Bernstein analyst) said in his report. That compares to a 68 percent drop without the acquisition, to $1.40 in 2015."
"To achieve that, Pfizer would need to cut 70 percent of Wyeth’s research, marketing and administrative costs, Anderson said."
So Pfizer is going to put most of Wyeth out of business. Heck, Wyeth could have done that today on its own and basically become a free cash flow machine.
(My non-cynical take is that Big Pharma should cancel 100% of its research into new chemical entities. It should outsource all of it to those that really know how to do it, such as small companies; academia; and, surprisingly, government, which has a major public policy interest in success. Let Big Pharma stick to what it is good at, which is convincing doctors to prescribe expensive new drugs to patients, whether or not those new drugs have any advantage over others that are available for much less cost in generic form; and doing clinical trials of a drug that has already been discovered.)
4. Bloomberg again:
"Pfizer also will halve its quarterly dividend to 16 cents a share, fire 10 percent of the pre-merged workforce, or about 8,000 people, and close five factories."
In other words, Pfizer is shrinking along with cutting its dividend. Note the term "pre-merged" (I can't call it a word, as I can't find it in an on-line dictionary). The press release also ignores the fact that Pfizer has sunk so far in its own estimation of its own industry's growth prospects that has let it be known that it is now also a full-fledged generic drugs company.
5. Bloomberg once more:
"Among the banks advising Pfizer and arranging a loan package to finance part of the purchase price are Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co., said people with knowledge of those banks’ roles."
So here's the bottom line. The taxpayer has kept BofA, Citigroup, Goldman Sachs and JP Morgan alive with TARP money and other goodies. Now these same firms are going ahead and "arranging a loan package" that will keep Pfizer's earnings up (maybe) with mass layoffs in a transaction so large that it will of necessity be anti-competitive even if OK with Justice (which it will be).
These companies have no shame.
They will finance a mammoth deal such as this takeover that will destroy lots of jobs so that Pfizer can perhaps one day boast about raising its dividend (ignoring that it has been halved), but they won't get serious about keeping people who purchased toxic mortgage products from them or their brethren stay in the homes they never could afford.
These financial institutions deserve the death sentence if they can't support themselves absent government largesse.
Copyright (C) Long Lake LLC 2009
To wit, the leaks the last few days were correct: Pfizer has agreed to purchase the former American Home Products, now called Wyeth, which got smart years ago and saw that better living through chemistry would make its shareholders richer than pots and pans could. And so it came to pass. After all, purchasing products for the kitchen lacked a direct subsidy, but drug benefits provided by employers - now there's an opportunity to jack up profit margins. This mid-course corporate life change was brilliant and has now been definitely rewarded. While matters are less clear from Pfizer's standpoint, what appears likely is that the U.S. taxpayer is indirectly subsidizing future massive layoffs in one of the "green" knowledge-based industries that we need to encourage, having just subsidized the preservation of jobs in the U.S. auto industry that has fought greenness in every way it can.
Please see the press release, "PFIZER TO ACQUIRE WYETH, CREATING THE WORLD'S PREMIER BIOPHARMACEUTICAL COMPANY" for Pfizer's take on things.
Here's my take. I'll get to the tie-in to the financial mess and TARP in points 3, 4 and especially 5.
1. Buried in the press release is the fact that Pfizer is cutting its dividend in half.
2. It is well-known in the pharmaceutical industry that Pfizer functions like the military- with unbelievable rigidity; but without the operational flexibility that battlefield commanders in the military have; and with the same creativity of the French military in preparing for WW II; and without the capacity to learn from its mistakes. That said, Pfizer has the gall to trumpet the concept that this already-stultified company will become flexible- think pre-pubescent Chinese gymnasts:
"Unique and Flexible Business Model Features Focus and Agility of Smaller Enterprises Backed by Resources and Scale of Global Company".
Excuse me. I'm going to take a 5 minute break and decide whether to have a good belly laugh or vomit.
3. (I'm back. I'll keep you in suspense as to what I did.) The press release again:
"Combination Strengthens Platform for Improved, Consistent, and Stable Earnings Growth and Sustainable Shareholder Value"
However, here's Bloomberg's take on how Pfizer can struggle to keep earnings from declining, forget about growing earnings:
"The Wyeth transaction . . . could keep Pfizer’s earnings unchanged at $2.69 a share from 2010 to 2015, when patents expire on some of Pfizer’s biggest products, Anderson (a Sanford C. Bernstein analyst) said in his report. That compares to a 68 percent drop without the acquisition, to $1.40 in 2015."
"To achieve that, Pfizer would need to cut 70 percent of Wyeth’s research, marketing and administrative costs, Anderson said."
So Pfizer is going to put most of Wyeth out of business. Heck, Wyeth could have done that today on its own and basically become a free cash flow machine.
(My non-cynical take is that Big Pharma should cancel 100% of its research into new chemical entities. It should outsource all of it to those that really know how to do it, such as small companies; academia; and, surprisingly, government, which has a major public policy interest in success. Let Big Pharma stick to what it is good at, which is convincing doctors to prescribe expensive new drugs to patients, whether or not those new drugs have any advantage over others that are available for much less cost in generic form; and doing clinical trials of a drug that has already been discovered.)
4. Bloomberg again:
"Pfizer also will halve its quarterly dividend to 16 cents a share, fire 10 percent of the pre-merged workforce, or about 8,000 people, and close five factories."
In other words, Pfizer is shrinking along with cutting its dividend. Note the term "pre-merged" (I can't call it a word, as I can't find it in an on-line dictionary). The press release also ignores the fact that Pfizer has sunk so far in its own estimation of its own industry's growth prospects that has let it be known that it is now also a full-fledged generic drugs company.
5. Bloomberg once more:
"Among the banks advising Pfizer and arranging a loan package to finance part of the purchase price are Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co., said people with knowledge of those banks’ roles."
So here's the bottom line. The taxpayer has kept BofA, Citigroup, Goldman Sachs and JP Morgan alive with TARP money and other goodies. Now these same firms are going ahead and "arranging a loan package" that will keep Pfizer's earnings up (maybe) with mass layoffs in a transaction so large that it will of necessity be anti-competitive even if OK with Justice (which it will be).
These companies have no shame.
They will finance a mammoth deal such as this takeover that will destroy lots of jobs so that Pfizer can perhaps one day boast about raising its dividend (ignoring that it has been halved), but they won't get serious about keeping people who purchased toxic mortgage products from them or their brethren stay in the homes they never could afford.
These financial institutions deserve the death sentence if they can't support themselves absent government largesse.
Copyright (C) Long Lake LLC 2009
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