Thursday was René Obermann’s big day. Presenting Deutsche Telekom’s long-awaited new strategy, the new chief executive put on a brave show, admitting that he had a mountain of domestic problems. But this did not prevent him from seeing opportunities to grow internationally.
DT’s domestic problems are well known. It has a bloated cost base. It is facing fierce competition from smaller rivals and pressure from regulators to cut prices. Unions frustrate attempts to reduce headcount and outsource at least 45,000 employees to lower-paying subsidiaries. And so on.
But instead of dwelling on domestic troubles – which ultimately cost his predecessor his job – Mr Obermann sought to give a positive global spin to his first big strategic presentation. His idea is to expand internationally and sell non-core assets to focus on mobile businesses.
He is also looking for growth opportunities outside the company’s current footprint. He did not specify where, but one suspects he is thinking of emerging markets such as India and China.
After all, his own expertise is in mobile phones, and the mobile sector’s leader – Vodafone – has signalled the way forward with its big acquisition for control of India’s fourth-largest mobile company.
Industry revenues are expected to grow in emerging markets at an annual rate of 12 per cent versus a third of that in the handset-saturated Europe.
It would not be surprising if Mr Obermann were also tempted to take a passage to India. email@example.com
So what have the directors who have sat all these years on the EADS board – among them the current Airbus chief executive Louis Gallois – been doing all this time?
Mr Gallois this week acknowledged in so many words that, like everybody else involved with Airbus, they were dreaming. After all, the group’s political masters were going round boasting that Airbus was “Europe working at its best”. A false sense of euphoria prevailed. Boeing was in trouble. The US dollar was strong. Airbus was selling aircraft like hot cakes, overtaking its American rival in the number one slot and developing the world’s biggest airliner.
He also admitted that Airbus, in retrospect, should have been restructured years ago. And now with the weak dollar and a revived Boeing, there was no more room for bickering between core shareholders and their governments or for delaying long overdue restructuring.
However, putting much of the blame for the group’s current difficulties on the dollar is a red herring. Currency fluctuations have been a constant problem for aerospace companies. Most have learnt to live with them.
For example, how do you explain the fact that Rolls-Royce still manages to make money by selling engines in US dollars with production costs in UK pounds – a currency that has strengthened even more than the euro against the dollar? If the dollar was such a big issue the UK group should have been broke long ago.
Rationalising the complex Airbus multination production system and cutting costs is obviously necessary. But it is not the overriding issue to make Airbus more efficient. Years of mismanagement have taken their toll, and overhauling the EADS and Airbus leadership and shareholding structure has become even more pressing than closing plants, streamlining production and cutting headcount. From the beginning, the root problem has been the question of leadership. EADS’s double-headed Franco-German system of joint ownership and management has never worked. It may have been politically expedient but it has proved a significant handicap.
The obvious, albeit politically difficult, way forward is to give Airbus and EADS a mainstream ownership and management structure where one shareholder is in clear control. At this stage, it no longer matters whether the controlling shareholder is French or German.
Sure, the French can argue that they originally brought much more to the joint EADS table than the Germans. But this is neither here nor there. The urgency is to transform both EADS and Airbus into normal companies with, at long last, someone in outright control. All the more so because life for Airbus is likely to become even more difficult in coming months if, as many aviation analysts now predict, the current boom cycle in the civil aircraft and airline sectors is about to turn once again.
A cyclical downturn is bad news for both Boeing and Airbus. But Airbus risks being hit hardest because airlines traditionally cut back or postpone orders of more expensive widebody aircraft. This could further delay development of the new A350, designed to counter Boeing’s 787 Dreamliner. It could also induce airlines to revise plans for the A380 superjumbo, delaying further the programme’s break-even.
Under the circumstances it is difficult not to sympathise with the Airbus workforce, which is now being called to bear the brunt of seven years of mismanagement and political muddling. Management is urging it to act responsibly. It would have been easier if the Franco-German management had been more responsible in the first place. firstname.lastname@example.org
Temasek, the Singapore state investment company, may be criticised for overspending in acquiring some of its overseas assets, such as its troubled investment in Thailand’s Shin Corp. But it shows a more deft hand on its home ground, with its proposed takeover of STATS ChipPac a case in point.
It is taking private the listed affiliate by buying the shares in the microchip packager it does not already own.
What appears to be driving the deal is Temasek’s insatiable appetite for more dividend payments from its Singapore-based companies that it can then use to fund purchases abroad.
Temasek appears to have timed its move well, since the outlook for Stats is improving, Although no cash cow like other Temasek companies such as SingTel, Stats is in a better position to deliver cash returns to shareholders, since it has largely completed capital expenditures for the next few years.
Taking the business private would allow Temasek to reap the fruitof its investment in Stats after years of losses. But whether it is fair to long-suffering minority shareholders, who have also waited to benefit from the recovery of Stats, is another matter.
That should give minority shareholders pause on whether to sell out to Temasek now. Instead, they stand to share in any dividend increase and additional gains if Stats is eventually sold to another strategic investor. So it looks unlikely that Temasek will succeed in its bid unless it raises its offer. email@example.com
Blessings of bondage
The penal vocabulary of high finance – lock-ups, golden handcuffs – makes it sound as though bankers stay put only because they are expensively shackled to their desks and that, once released, they will instantly flee across the road to a competitor’s gilded cage. That would explain the reckless speculation about a potential “exodus” of top executives from Cazenove, the London stockbroker that two years ago linked up with JPMorgan’s UK investment banking arm.
As of Thursday, partners who were around when the broker was incorporated in 2001 are free to go without having to sacrifice their increasingly valuable stakes in the group. The dreaded exodus might happen. But it is a tribute to the success of the incorporation and the JPMorgan Cazenove joint venture that there is really no greater likelihood of it happening at Caz than at other firms.
In 2004, when the JPMorgan deal was first announced, there was much concern that the “blue-blooded broker to the Queen” would lose its cachet, its culture and its clients. Some of Caz’s customers have walked, as have some senior executives. But the predicted disintegration has not come to pass. New bankers have come on board, new incentives have been handed out.
Of the 120 partners who donned the handcuffs in 2001, only 51 are still at the firm. Some may have been yearning for liberty. But to assume that they stayed only because nobody had yet handed them the key is to discount old-fashioned intangible perks such as job satisfaction and employer reputation.
A bigger padlock is attached to the joint venture itself, which will stay frozen until 2010, when Cazenove and JPMorgan have, respectively, a put and a call on Caz’s 50 per cent stake. Neither the Americans nor the British have much reason to bring forward that discussion. Business is buoyant, as yesterday’s full-year figures show.
Incarceration has its benefits. firstname.lastname@example.org