Friday, October 10, 2008

Credit Crunch in the Non-Financial Sector? Chew on This

The William Wrigley Jr, Company is a Chicago-based gum and confection company. It has lots of growing earnings, new products, and new locations. Back in April when stocks were very high (by today's standards), the Mars Corporation arranged to purchase the Wrigley Company for $23 billion in cash. The deal was set to close 6-12 months later.

By this fall, with the market down and people crying "credit crunch", it would seem that Mars might be tempted to back out of the deal -- perhaps to complain about credit even if were not really a problem. But Mars made no excuses: this Monday (October 6), Mars showed up on time with the $23 billion in cash. Much of that cash was borrowed. Mars now owns the Wrigley Company.

The lesson is that opportunities exist in the non-financial sector, and at least some of those opportunities are being realized despite the so-called credit crunch.

I am still digesting this, but the Executive Board seems to find that major corporations are NOT suffering from a credit crunch. Mr. John Haskell wrote me that his surveys show that "Most large companies are still in an extremely safe liquidity position; they have long-term credit facilities and large cash holdings." I have not reviewed those surveys myself, but will update if and when I do.

[Added Oct 13: Mr. Haskell elaborated further: "The Corporate Executive Board finds that large multinationals are using good times of past to buy themselves time – they have long-term credit facilities and large cash holdings. One of their recent polls found that more than 70% were not planning on proactively drawing down on their credit facilities, and that they believed they could still access 80-90% of their credit lines. Obviously the experience for the lowest rated CP issuers may be different, but most major corporations are not currently suffering from a credit crunch."]


Donald Pretari said...

Where To Invest In A Meltdown
I'm glad that someone's prospering:

"The implosion of the financial markets seems to mark the twilight of the second gilded age. History may look back with scorn at $30,000 couches, $600-an-hour therapists, $25,000 hot chocolates and super Sweet 16 parties.

The Wall Street folks, you’d think, seem to be saying goodbye to all that.

Except, apparently, in one area: strip clubs (or “gentlemen’s clubs,” as they like to brand themselves).

“Since the market has been going down, our business has been going up — it’s unbelievable,” said Sam Zherka, the owner of the V.I.P. Club in Chelsea, who estimates that about 80 percent of his clients are Wall Street types. (You’d think the lawsuits would have dampened that, but it seems fine as long as they’re not entertaining clients on their work-related expense accounts.)

Mr. Zherka added, “A lot of guys are losing their shirts in the market, and they are coming in droves.”

Sounds like a great investment opportunity.

However, truthfully, you are correct, a lot of business is being done.

Don the libertarian Democrat

Vivek said...

I read your article in New York Times. It is good to hear a sane voice in these crazy times. I totally agree that the economy probably isn't in as bad a state as being purported. However, what worries me most is whether, the volatile reactions in Wall St. and other markets around the world might soon wipe away any positives we might have right now, if they persist. What do you think?

Donald Pretari said...

Who Says Capitalism Is Dying?
Some good news:

"BEIJING — Chinese leaders are expected to allow peasants to buy or sell land-use rights for the first time, a step that could draw hundreds of millions of farmers more firmly into the city-centered market economy.
The new policy, which is being discussed this weekend by Communist Party leaders and could be announced within days, would be the biggest economic reform in many years and would mark another significant departure from the system of collective ownership and state control that China built after the 1949 revolution."

Read on.

Who says capitalism is dying?