Tuesday, February 19, 2008

Hostile Takeover Attempts "I'm Going to Disneyland!"



I think it's a good idea to own stock in the Walt Disney Company if you have children in your household. It teaches them how a corporation is run, how to read the financial statements, how to invest their money, and learn about new movies and rides that are coming out before the general public does. Kids can easily identify with the movies, T.V. and theme parks that are run by Disney.

I remember sitting in the theater when the first Pirates of The Carribean movie came out. When it was over, my oldest son who was eight or nine at the time turned to me and goes, "we are going to make so much money off of this!" Here, I was just thinking about where I could put a tattoo of Captain Jack's name on my body! Anyone who can take a drunk, slightly effeminate pirate with bad teeth and make him that appealing deserves an Acadamy Award!

Growing up my parents kept stock in Disney and we would go to the annual stockholders meeting at the Anaheim Convention Center. This is how I became interested in Corporate Finance and Investments. Children were welcome to stand up and ask questions of the Board of Directors or make suggestions. At the time they would always show a movie that was "in the works" and give shareholders free passes to Disneyland across the road there. They don't do this anymore, I think the shareholder's meeting is in New Mexico this year--I'm sure Alburquerque will be just as much fun as going to Disneyland.

One year at the annual shareholders meeting for the Disney Company, A group of Corporate Raiders had been buying up shares of the company and tried to take it over. The word was that they were going to buy up Disney and then dismantle it, selling off it's various attributes. At that time The Walt Disney Company lacked vision and innovation in it's leadership, especially in it's movie making capacity. It became a target for a hostile takeover attempt.

When a company wants to grow either in a new direction or expand in the same capacity it will look to a another company that has the attributes that are desirable for it's expansion and try to buy it. The buyer can go directly to the management and make an offer or it can bypass the management and make a tender offer to it's shareholders. This becomes a hostile takeover attempt. They will make a statement offering to buy each share of stock for a certain amount of money--usually a great deal more than it's worth. The aquisition company will attempt to buy up as much of the target company's stock as to have a controlling share of the company and take it over.
Can the target company prevent a hostile takeover from occuring? If a company is the target of an aquisition there are measures that they can take to prevent the action.

  • Pac-Man: This is where the targeted company turns around and attacks the company by buying up it's shares in an attempt to take control of the attacking company.

  • The White knight: At the request of the company being targeted for takeover another company can come in and buy up shares at a higher value than the aquisition company coming to the rescue of the target company.

  • Poison Pill: The target can issue stock to it's investors (except the aquiring firm) at a discount so that there are more shares that are out there for the aquiring firm to have to purchase making the buyout more expensive.

  • Golden Parachute: This is a provision where the aquiring firm will have to pay the management of the target company large sums of money if a takeover happens.

  • Suicide Pill: The target company will ruin the company rather than let it be bought out.

At the end of the day The Bass Brother from Texas came in to Disney and bought a controling interest saving Disney from a hostile takeover. The new management team of Micheal Eisner, Jeffery Katzenberg, and Frank Wells was introduced. Over the following years the company was revitalized with the new leadership and vision.









Monday, February 11, 2008

Should You Invest In a Franchise?


My brother-in-law came to the United States from Damascus, Syria. There, as a young man in his early twenties he was trained and worked as a Chef in the Sheraton Hotel in Damascus . It was his American dream to come to the United States and open a restaurant of his own. After many years of saving, he and my sister had the money to invest. They chose to go with a franchise instead of creating a resturaunt of their own. With a franchise they would be able to have a turnkey business that has been established in the area and receive support and training. Most importantly, with a franchise they would have brand recognition and customers that were familiar with the restaurant. They chose an upscale hamburger franchise in Southern Californa. They met and liked the owners and talked with other franchisees in the franchise network so they would know what to expect. They were able to watch the restaurant being built from raw land and into a brand new establishment with a fabulous kitchen! They have been very successful and happy with their decision.

A franchise will typically offer the prospective franchisee:


  • An established business name, trademark, customer recognition

  • Business support (business plans, help with location, training)

  • Help with financing

  • Proven track record

  • Product

The downside of opening a franchise over an independent small business:



  • Monthly franchise fees of around 6% to 10% of gross sales

  • Loss of freedom in product or services

  • Reliance on the performance of other franchisees in the system.

  • The franchise can terminate your agreement at the end of your contract term.

  • You are leasing the trademark name you do not own it.

If you are considering investing in a franchise:



  • Evaluate the amount of money you have to invest in the venture.

  • Go to Franchise trade shows and talk to the various franchisors and determine what kind of work you would like to do.

  • Have the franchisor back up any financial claims with tangible written documentation. The Federal Trade Commision requires all franchisors to provide prospective franchisees with a complete disclosure statement so that the franchisee can make an informed decision.

  • Look at franchises that have been in existence for a long period of time--they have a higher rate of success and profitability.

  • Talk to other franchisees in the franchise system to find out what you can expect in terms of operation and profit.

  • Look at the annual sales and make sure they are increasing and not declining. Do the same with net profit.

  • Don't rush into anything. If you feel pressured --walk away.

Check any prospective franchise opportunity for complaints with the Better Business Bureau at


http://welcome.bbb.org/


If you would like any further information to evaluate if a franchise is right for you, The Small Business Administration is an excellent place to start. They have great resources and people trained in helping you to start up a small business including financing options and research materials.


http://www.sba.gov/