Wednesday, July 1, 2009

Quote of the day, and Lear's assault on shareholders(LEA)

AlphaNinja - The auto sector could provide me with "quote of the day" material for years. Today we have a tie between GM and Lear Corp.

From General Motors, new ticker symbol (GMGMQ.PK). That new fancy mess of a stock symbol is because GM is in bankruptcy and was delisted from the New York Stock Exchange on June 2nd. Anyway, GM today reminded investors that its stock is worthless, and they shouldn't be trading it:

That would've been great information many months ago....

In an example of why "stocks for the long run" may be an antiquated notion, Lear Corp (LEA) announced a few minutes ago that it had agreed to bankruptcy financing with its lenders, and effectively has waltzed into Ch. 11....

From the release:

  • Debt Restructuring Agreement Supported by Steering Committees of Secured Lenders and Bondholders
  • Lear Anticipates Implementing Restructuring Through an Expedited Chapter 11 Plan Process Involving the Company and Certain of its U.S. and Canadian Subsidiaries
  • Company Obtains $500 Million in New Money Debtor-In-Possession Financing That Will Convert to Exit Financing Upon Lear's Exit From Chapter 11
  • Restructuring Provides Protection for Customers and Suppliers, Including Paying Vast Majority of Trade Creditors In Full
  • Global Operations to Continue Without Disruption
  • Deleveraged Capital Structure Will Strengthen Long-Term Competitiveness
About the only thing missing from this press release was any mention of STOCKHOLDERS. You know, that silly piece of the capital structure that constitutes most Americans' retirement savings? Readers of AlphaNinja should not be surprised, as I wrote about this back in May.

On the phone with Mr. Stephens from Lear, I suggested they follow Alcoa's example and sell stock, even though the price was low. After being told that was unlikely, I asked him to reassure me that they were still operating with shareholders in mind. The response (and I'll NEVER forget it):

"the management and board's first responsibility is to the shareholder. But when we get in a potentially bad situation, our lawyers tell us that we have to take steps to protect the whole enterprise value, including debt holders and employees."

I have no interest in seeing a company have to liquidate and cut thousands of jobs. But actions like this put the entire concept of common stock ownership at risk. How can you evaluate a company when you're not sure at what point management says "that's enough" and throws in the towel in terms of "increasing shareholder value."?

Stay FAR away from companies like this.

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