Archives of “conglomerate” tag

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Dubai gets $10 billion injection

  
Analysis, Economy, Education, LINKS
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burj-al-arab-dubai-hotel-sail-arab-emirates

DUBAI — Dubai said Monday that it has received $10 billion in financing from Abu Dhabi, which will pay part of the debt held by conglomerate Dubai World and its property unit Nakheel.

Out of this, $4.1 billion will be used to repay Nakheel’s Islamic bond, or sukuk, that matures Monday. The remainder of the funds will be used to finance Dubai World’s needs up until the end of April 2010.

“We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices,” Sheikh Ahmed bin Saaed al-Maktoum said in a statement.

Dubai rocked world markets in late November when it requested a freeze on debt payments by Dubai World in order to restructure the conglomerate. Nakheel’s bond had been seen by many as a litmus test for Dubai’s ability to repay more than $80 billion of government and corporate debt.

“I think Abu Dhabi saw the adverse market reaction to Nakheel debt restructuring news play out over several days and perhaps decided they had seen enough,” said Saud Masud, senior real estate analyst at UBS AG.

Expectations that Nakheel could reach a positive outcome helped boost shares in Dubai on Sunday. The Dubai Financial Market’s main index closed up 3.3% at 1695.35, extending Thursday’s 7% rally. However, the benchmark is still down about 19% since Dubai World requested the debt freeze.

“This is very positive news, and will be welcomed relief to bondholders in particular. We are expecting a strong positive reaction to U.A.E. and regional markets,” said Ali Khan, managing director at Arqaam Capital. “Details yet to emerge, however headline is very positive.”

In its statement, Dubai said it will focus on addressing the concerns of Dubai World’s creditors and will start discussions with creditors and contractors shortly.

Great Reply from Warren Buffett

  
Analysis, Education
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This week is the annual shareholder meeting for Berkshire Hathaway, the gigantic conglomerate run by billionaire Warren Buffett.

 Buffett has a way of explaining complicated finance topics so that they’re fun and understandable.

Carleton English of Belus Capital Advisors points us to this gem of a quote from 2008 where he takes a jab at private equity.

Someone had asked the Oracle of Omaha why people sell their companies to him instead of private equity firms.  This is the type of question that you might hear later this week.  Here’s Buffett’s response:

“You can sell it to Berkshire, and we’ll put it in the Metropolitan Museum; it’ll have a wing all by itself; it’ll be there forever. Or you can sell it to some porn shop operator, and he’ll take the painting and he’ll make the boobs a little bigger and he’ll stick it up in the window, and some other guy will come along in a raincoat, and he’ll buy it.” (more…)

Berkshire Hathaway’s Willingness to Kill

  
Analysis, Education
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I’m poring over the just-release 2014 annual letter to Berkshire Hathaway shareholders today and, as usual, I’m finding nuggets of wisdom on every single page.

One really interesting bit I wanted to pass on concerns a crucial benefit that their conglomerate structure offers. In countering the idea that Berkshire should break itself up or spin off some businesses to “unlock shareholder value”, Warren Buffett explains a key advantage that his collection of companies offers – beyond the obvious ability to self-fund.

He reminds his shareholders that being able to channel capital across opportunities and be willing to walk away from a dying industry is critical to the corporation’s longevity. He laments the twenty years between 1965 and 1985 that he allowed the legacy New England textile assets to decay before finally pulling the plug. He talks about the conflicts that a more singularly-focused corporation might have when its central line of business goes into secular decline.

One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative. Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our obsolete textile mills for far too long. A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job even if he or she was inclined to undertake it…

…At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.
 
 

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