Chuz,
Your point is well taken about the perversity of letting management rewards be dependent on total profit when two firms are merged. Sorry I misread you earlier. I left San Jose by car late Thurs. and have been driving long hours. When I read that post I think my eyes had glazed over.
Returning to the issue of CPQ, I think we need more facts. What I would like to know is, who controls this company? We know who manages it, but who controls it? Is it controlled by its owners -the shareholders, or is it controlled by its managers? Is shareholder ownership concentrated (large block ownership, e.g., Dell) or is it fragmented? If shareholder ownership is concentrated, that bodes ill for my hypothesis that CPQ is management controlled. Also, how much stock do the top managers own, and how much do the directors own? Are the directors genuine outsiders, or are they cosy with management? Unfortunately, some of this info is hard to come by unless you follow the company closely, and have access to proxy statements and annual reports.
I believe the answers to these questions would help shed light on CPQ's growth strategy. In connection with DEC, even the optimists must concede the merger is a big-time roll of the dice. But the real question is, is DEC a calculated risk with a favorable risk/return tradeoff, and therefore in the interests of shareholders? Or is CPQ merely gambling large stakes with shareholder funds, with the only likely payoff being that managers will receive greater immunity from takeover. The possibility that CPQ's management is interested in making the company too big for takeover, in order to obtain for itself lifetime job tenure, cannot be ruled out.
Geoff
El Paso TX
P.S. Regarding the heat, it's quite a change from San Jose, where Feb-Mar seem to extend into June. Last week, from what I heard, some residents were using their furnaces and wearing sweaters.
P.S. You made a reference to the fact that GAAP accounting differs from accounting used for tax purposes. Please explain why the difference exists. Does it bother you that firms keep "two sets of books"? It's my impression that accounting required for tax purposes may better depict actual cash flow. Is this true? |
