company fidelity insurance southern

Oligopoly Watch
The latest maneuvers of the new oligopolies and what they mean

• 
  

  Broken China
  
  In December 2004 we reported

  Ireland-based Waterford Wedgwood the world's leader maker of fine china and crystal announced it will buy competitor Royal Doulton, based in the UK. These leaders in the luxury tableware market have both been suffering due to the shrinkage of the dollar, a major market for their products.

  Now news comes that Waterford Wedgwood has gone into receivership, a victim of the decline in purchasing luxury goods. The company has been losing money for five years, and clearly the Royal Doulton acquisition made their situation even worse. The company has been looking for a buyer, but with no luck so far.
  
  UK-based Wedgwood has origins that go back to 1759, while Irish-based Waterford has been making crystal since 1783. Waterford bought Wedgwood in 1986.
  
  The failure is attributed to the increasing competition from good dinnerware made in Asia.  An article in The Independent (1/6/09, "The rise and fall of Wedgwood") quotes on analysts as saying "There are a lot of lower-priced alternatives so Waterford Wedgwood's products became more and more niche. They have become more and more sidelined into gifts and Upmarket and they have been overtaken by the mass production market." In addition, the brands have become obsolete, targeted at a very old audience who trotted them out when company came.
  
  In retrospect, the Royal Doulton acquisition was one of many eager acquisitions that have turned out to be ineffectual and ill-advised. We'll see many more such deals exposed
  
  I suspect the brands will survive, but much diminished and the operations will all be moved away from the UK and Ireland.

• 
  

  Panasonic buys Sanyo
  
  Mergers between Japanese consumer electronics giants have been few and far between, even though you would think hat these companies would want to reduce competition by buying out rivals. These wide-ranging companies (including Hirtachi, Canon, Konica Minolta, Epson, Sony, and many others) have long pursued parallel lines of business, only with reluctance leaving even the ones in which they are minor competitors.
  
  But now Panasonic (formerly Matsushita), the world's biggest consumer electronics firm, has announced it will buy Japanese rival Sanyo Electric in a $9 billion deal.
  
  Sanyo makes, among other products, televisions, home appliances, audio and video systems, biomedical equipment, food preparation equipment, digital cameras, solar panels, semiconductors, and batteries.
  
  The move, among other things, will make Panasonic the #1 company globally in rechargeable batteries, with a 38% market share. It will also make the company a player in solar technology, an area in which Sanyo has had some success. Both of these areas are likely to do well in the near future.
  
  Panasonic is suffering in terms of income, having cut its projected income for the year by 90%. Sanyo had even more problems looming, and had been bailed out by investment banks in 2006. The buy price was less than half of what it had been earlier this year.
  
  Every indication is that even more reluctant acquisition activity is in store in this sector
  

• 
  

  LCD price fixers "sorry"
  
  Three giants of the LCD (liquid crystal display) industry will soon plead guilty to price fixing, Korean-based LG Display Co. will pay $400 million, Taiwan-based Chunghwa Picture Tubes $65 million, and Japan-based Sharp $120 million.
  
  A Bloomberg News article (LG Display, Sharp Shares Fall on Price-Fixing Fine, 11/13/08) quotes a US official as saying: "LG Display, Chunghwa and others met several times from 2001 to 2006 in so-called 'crystal meetings' to set prices on desktop computer, laptop and television screens." Other devices affected are iPods, calculators, and cell phones.

  The three all supply displays to Apple Computer, Sharp also sells to Motorola and Dell.
  The Bloomberg story notes the ironyof bad timing. "The fines will further undermine the LCD makers' earnings at a time when a glut in the $82 billion industry is driving down prices and forcing manufacturers to scale back production plans."
  
  Bravo to the US DOJ that has been less than great on antitrust issues. These are not easy cases to win. LG's fine is the second-largest criminal fine in US history (after Swiss vitamin maker Hoffmann La Roche). There is also a consumer lawsuit still ongoing.

  LCD screens are $8 billion industry worldwide. Japanese, EU, and South Korean government is still investigating price-fixing by these companies in its jurisdiction.

• 
  

  More medical deals
  
  While the current crisis has put an end to deals in many areas, there are still some areas where the chance of bargains and a belief in the long range have allowed the pace of acquisitions I to keep on track. The health area is a key one.
  
  In recent weeks, there have been a number of reasonably significant deals.
  
  Johnson & Johnson has made two purchases. First, it agreed to buy US-based breast implant maker Mentor for about $1.1 billion. Mentor is the leading makers of breast implants. #2 in that area is Allergan, the maker of Botox, and of a variety of cosmetic surgery, eye care, and specialty drugs. (Mentor, by the way, has a drug in the pipeline which will compete with Botox.)
  
  J&J also agreed for over $500 million to buy Omrix Pharmaceuticals, which specializes in of hemostasis products, which control blood loss. That's a good fit with the company's wide variety of wound treatment products.
  
  US generic maker King Pharmaceuticals agreed to buy US-based Alpharma, which makes pain medicines. THE deal is for $1.6 billion.

  Swiss-based Roche agreed to buy US-based Memory Pharmaceuticals, which does Alzheimer's research, a $50 million deal. Roche is already working on possible Alzheimer's cures. Roche is still persisting in its offer to buy US biotech company Genentech. Over $43 billion is on the table.

  Meanwhile, the acquisition of Barr Pharmaceuticals by generic drugmaker Teva is being completed. The deal was for 7.5 billion. Teva is selling seventeen duplicate drugs to competitor Watson Pharmaceuticals, in an attempt to avoid antitrust actions.

  Other big deals that have finally closed are Eli Lilly's $6.5 billion takeover of ImClone and Daiichi Sankyo's $4.1 billion purchase of Ranbaxy.
  
  Key drug/healthcare companies are sitting on a lot of cash and are looking for bargains. It's likely that the buying will continue.
  

• 
  

  Brands and the (incredible shrinking) Big Three

  "Just how serious are they about shrinking their vast lineups of different brands and models to match the current harsh reality of the market?" That’s the key question asked in the New York Times t "Big Three May Need to Trim Number of Brands," 12/1/08).

  The article points out that Ford, GM, and Chrysler together have 112 different car and truck models using 15 brands (makes) in the US. By contrast, the big three Japanese companies (Toyota, Honda, Nissan) have only 58 models.

  A confusing array of reports are out on whether Ford will sell off its Volvo division, Both Ford and GM are in talks with the Swedish government, but it is clear that EU competition rules would make it hard for Sweden to just step in and "rescue" the companies. Beside, the fall in Volvo sales is even more catastrophic than that of the other failing GM brands. Who in their right mind would pay anything for these brands?

  GM has been trying all year with no success to sell its Hummer brands. It also has been thinking about selling both the Saab and Saturn brands. Pontiac may also be on the chopping block. But who wants them?

  But dropping brands is not so easy, even if you despair of selling them. In 2000, GM dropped its Oldsmobile brands, but it took four years and two billion dollars to make good with employees and dealers.