Re: Gentex vs. Donnelly
Gentex has 0 debt, and DON $115M debt , more than their equity.
That's not right. The equity is what's left over after the liabilities are taken into account. Donnelly has $112m debt and $176m in plant and equipment, whereas Gentex has $59m in P&E. Donnelly also has 4x as much revenue and employees as Gentex, so the debt has allowed them to become a much bigger company. If capital spending were important, Donnelly would be crushing Gentex. Being first to market with new technology is more important.
With their current weak operational earnings and debt it may be a struggle for them to compete aggressively. Is that possibly why they are selling divisions?
If Donnelly splits itself into 8 different companies, the combination will have double or triple the valuation of the former old-fashioned conglomerate. The stock market values modern focused companies like Gentex much more highly than conglomerates like Donnelly. Maybe that's because it's easier to understand the business story of a simpler company. It's also easier for shareholders to keep pressure on the management performance of 8 companies than one. Also, we can invest in only 1 company if we don't like the prospects of the remaining 7.
As an independent company, AFCO is also able to pursue previously unavailable opportunities. They could never have sold coated glass and coating machines to Gentex as a division of Donnelly.
Donnelly also believed that the IPO market overvalues companies. They sold their entire 50% stake of AFCO. None of the other shareholders sold, so there was a big difference of opinion. Spinning out the company was a perfect resolution of the conflict. So far, it appears that Donnelly was right. They received 8 ½ for their shares and the price is now 2 ½, although you could argue that the stock is undervalued. Gentex bought their shares at around 5 last summer, so there's a wide difference of opinion about the value of AFCO. |
