Wednesday June 19, 2013
Columnist Lee Schafer provides short takes on economic incentives and choices, business strategy and performance, market moves, what business leaders are saying and doing and other topics that pique his interest.
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Judging by who joined with Cerberus Capital Management to fund the purchase of 877 stores from Supervalu along with buying up to 30 percent of its stock, this won’t be a corporate finance deal, but a real estate deal.
Or maybe it’s part two of a real estate deal that has so far generated outstanding returns.
Cerberus is a private equity fund manager, but the main business of three of its partners in Albertson’s LLC is real estate. These are firms Kimco Realty Corp., Chicago's Klaff Realty LP, and Philadelphia's Lubert-Adler Partners.
It’s the group that paid about $1.1 billion for the 661 stores of Albertson’s Inc. that no one else seemed to want in 2006, part of the same set of transactions that brought more than 1,100 stores to Supervalu.
Kimco is a publicly held real estate investment trust that owns interests in more than 135 million square feet of neighborhood and community shopping centers, a mostly unspectacular line of business.
And it has collected $245 million in distributions so far from its $51 million investment in the 2006 deal.
REITs don’t usually do that well on their deals.
Kimco told its investors’ Thursday that it's “excited about adding to our successful investment in Albertson’s.”
To real estate people, dying retailers that have some good underlying real estate are opportunities.
Investors call it “unlocking the value,” as the same site can be worth a lot more if you could only clear away the tired and failing grocery store that occupies it.
Once in control of a retailer, you can boot yourself and sublet or sell a given site for a more profitable use. Other avenues to wring out cash include refinancing the stores that sit on owned sites and renegotiating terms on leased sites.
That’s what happened after the 2006 deal for the 661 Albertson’s stores. The investors, through a company known as Albertson's LLC, closed some stores, sold stores to other operators and worked to improve operations and refinance those they kept. Some sites even became locations for retailers like Kohl’s.
Today Albertson’s LLC owns 192 grocery stores.
About 540 of the 877 stores in the new deal are on owned or ground-leased locations. According to a report on Kimco Realty by Stifel Nicolaus analyst Nathan Isbee, some of these sites will be sold, as retailer demand is strongest in urban or dense suburban locations where there are barriers to new shopping centers being built close by.
Isbee said that the investor group will also look to improve the performance of the acquired stores.
In 2006 Cerberus did recruit a good operator to run stores that it kept, CEO Bob Miller, a longtime retail executive. Miller will continue to serve in that role and take over leadership of the store chains that are to be acquired from Supervalu, and will chair’s Supervalu’s board.
The auditors have been dragged into the contentious dispute between the Minnesota Orchestra’s management and its musicians. The musicians, who have been locked out since Oct. 1, are casting the annual audit as some sort of partisan act, in league with management.
The orchestra this week released financial results from its August 2012 fiscal year that included a $5.97 million deficit. That caused the musicians to say they "cannot and will not trust any audit directed by the same management and board leadership that stated that they would consult a PR firm on 'which deficit to report,'" an allusion to the board’s deliberations one year over how much to tap endowment funds to cover expenses.
The musicians may have legitimate gripes about management of the orchestra, but complaining about the accuracy of the numbers isn’t one of them.
To state the obvious, management and the board do not “direct” an audit.
The auditor directs the audit.
The 2012 audit was performed by LarsonAllen LLP, a firm that vaulted into the top 10 firms nationally thanks to a merger.
The orchestra’s financial statements are the responsibility of management, and what an auditor does is test the validity of those statements, looking for errors and misstatements.
The orchestra financially really isn’t that complex. LarsonAllen’s rawest auditing intern would certainly catch anything that involved moving money inappropriately between endowment and operating accounts, which is about the only thing I can think of that anyone would question.
And if the Minnesota Orchestra is like nonprofits I have served, LarsonAllen would also be heavily involved in reviewing the Form 990, a kind of federal tax return that is also publicly available.
There’s a better chance of winning the Powerball jackpot than there is of someday finding out the orchestra’s 2012 financial statements were materially incorrect.
It’s unclear how suggesting otherwise can possibly help the musicians union, once talks resume with management or in the public relations battle now underway.
The Hewlett-Packard Co. just wrote down more than $5 billion of the roughly $11 billion it paid last year for the software company Autonomy due to what it said were accounting irregularities and plain misrepresentations. Autonomy founder Mike Lynch shot back that HP bungled the integration.
The public spat hasn’t distracted bloggers and other critics enough to keep them from concluding that this is just another failed merger, the garden variety of strategic blunder.
And, it’s another object lesson for the leaders of mature companies tempted to pay dearly for acquisitions as a way to grab a technology platform for growth.
Wrong lesson.
Autonomy had developed pattern-seeking algorithms incorporated into software tools to help organizations analyze data, search an entire organization’s data files, fine-tune marketing pitches, and other applications. While Autonomy had lots of customers, this deal represented a toehold in the “Big Data” future for HP.
HP was founded by innovators to be an innovative company. Many bright engineers surely work there today, but in an organization that now strikes most outsiders as bureaucratic, cautious, and focused mostly on projects to support current customers and product lines.
HP may have chosen poorly or overpaid for the Autonomy deal, but acquiring a technology platform is not an inherently flawed strategy. Management teams of mature companies need to think of acquisitions like this as “catch up” research and development spending. And thus there is risk, lots of risk.
But if the lesson is to avoid the risk, critics need to understand that management’s job is managing risk, not avoiding it. And, the greater risk is doing nothing.
MentorMate, eager for a mobile tech conference, invented its own
Posted by: Lee Schafer Updated: October 31, 2012 - 2:28 PM
MentorMate is a Minneapolis technology services firm that is growing rapidly along with a booming market for mobile software.
MentorMate’s principals thought a conference with a mobile technology focus would be good for the technology ecosystem in the Twin Cities, good for senior executives struggling with figuring out a mobile strategy for their businesses, and not bad for MentorMate if the firm had a prominent role.
The result is MobCon, November 13 and 14 at the Hilton Minneapolis hotel.
This isn’t a software user conference or MentorMate captive event. Anyone can just buy a ticket and attend, and, judging by the list of speakers, learn a few things.
MentorMate created a separate company for the conference, and worked hard to make it an independent venture.
MentorMate President James Williams said in an email that the firm invested in excess of $150,000 in MobCon and also will provide $20,000 in services as part of the $25,000 prize for the winner of a mobile product demonstration contest, an expected highlight.
Yet the company is listed as just one of several sponsors, and a couple of other sponsors – while billed lower in the program – are more or less direct competitors.
MentorMate founder and CEO Björn Stansvik is a keynote speaker on the second day of the conference and will serve as host. But, given the company’s fast growth and position in the mobile technology market in Minnesota, Stansvik seems to be worth hearing even if the conference hadn’t been his venture.
Is it still bad judgment in retirement planning if millions do it?
Posted by: Lee Schafer Updated: October 8, 2012 - 4:23 PMFolks like John Greene seem common in stories that question retirement savings policies and 401(k) plans, like one that ran in this weekend’s paper. Greene worked 30 years in a Wisconsin meat processing plant, and now at 77 his retirement savings have dropped to fraction of the $60,000 balance he had at retirement.
And what’s shocking is how many people are willing to jump into the comments section to blast Greene for his own predicament.
Yes, he probably could have saved more, as $60,000 was not nearly enough. Yes, he probably could have invested his savings more effectively, by, say, rolling his investments into cash just before the Great Recession.
Yet the data shows that there are millions of people like Greene. The typical 401(k) balance for people 55 to 64 years old was $54,000 in 2010, according to a recent study produced by Boston College. Fewer than half of the nation’s private-sector workers are in 401(k) plans.
Whether folks should have saved more or invested more shrewdly doesn't alter the fact that millions have not. Greene is no better than just getting by and he behaved exactly the same way many millions of other Americans have.
It seems roughly akin to having a dangerous curve on the highway where a dozen drive off to their deaths each year. Would we routinely blame the dead for their own driving carelessness?
Or put up a guardrail?
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