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Strategies & Market Trends : Value Investing
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To: TimbaBear who wrote (12010)2/14/2001 1:19:26 AM
From: Mark Adams  Read Replies (1) of 78487
 
Personal experience suggest mergers destroy mucho shareholder value in some cases.

I agree with the idea that rushing out to buy something because of cash on hand would be ill advised. Culture clashes and mergers of equal size represent risk factors. If a big company takes over a little company, there is far less chance for value destruction. It's a personal pet peeve that wall street sometimes sanctions ill advised shotgun weddings.

It's also likely that downturns present the greatest opportunity. So NPK may find itself positioned to make an offer for another company below book and accretive to earnings, with patience. If that happened to be managements strategy, I wouldn't argue with them. It's just unusual for a company to have that much cash on hand. Might have to back interest income out of earnings to get a true feeling for the operational performance.

Salton has a bit more debt, after glancing at the profile. But their ROA and ROE are in a different ballpark, compared to NPK. Leverage can improve financial performance or become the lead weight around one's neck in rough seas.

I would prefer to see a return to dividends- despite the positioning of sharebuy backs as a more tax efficient mechanism to distribute earnings. Dividends discourage shorts, and provide an increasing yeild as the company grows, for the longer term stockholder. One of these days I may be able to tame my trading instincts enough to qualify as one of those. <g>
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