Before the keiretsu washed over California, there was...
Thermo Electron.
See Keiretsu West, this week's UP & DOWN WALL STREET column in Barron's.
Part 2 gives the views of value investor J. Dennis Jean-Jacques, an analyst at a temple of value investing - the Franklin Templeton Mutual Series - on TMO. Even after the recent run up to about $26, he likes the shares, and sees the new, more focused instruments company reaching the same valuation relative to cash flow (20-25 times) as other instruments companies. Using $350 million cash flow and a multiple of 20, he arrives at $33, not including another $5 for the medical and paper spinoffs (two new public entities to be spun off subsequent to the spin-ins}.
The new Thermo will better conform to Jean-Jacques' philosophical ideal:
In the philosophy of Jean-Jacques, a company should be a resource-conversion mechanism - converting all the company's resources into shareholder value. Under Thermo's historical structure, it wasn't able to shift resources from cash-rich units with no prospects to cash-poor units with good ones.
Chief Executive Dick Syron agrees. Thermo's industrial-controls business generates loads of cash, but its growth is tied to heavy industry. After consolidation, Thermo can reinvest some of that cash into growth areas like instrumentation for the life sciences. "We were a portfolio, not a business," admits Syron. "But at the end of this, we'll have an instruments company with cash for growth."
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