Booz Allen Hamilton Directors are Compromised $BAH Who Else is Screwed?

Booz Allen Hamilton (NYSE:BAH) is enmeshed in one big political scandal. but that goes with the terrain when you are a very huge government defense contractor. So basically an underling of Booz Allen was working with the NSA and had insights into the power of the technology being used.

Did Booz Allen Hamilton as a corporation have the same insights. Me thinks the Board of Directors will be tainted. Maybe they did not know all the details but other companies where they serve or might serve will find it difficult to accept these guys. They helped compromise telecommunications records on behalf of Uncle Sam. Patriotism aside what about the legal liability of having or bringing on board directors who oversaw a company involved in “Black Ops”. We’ll le the lawyers  argue over the legal niceties.

Anyway if I was shopping for a director I would steer clear of these guys for a while. Lets take a look at some of them and she which pies they have fingers in.

Philip Odeen 76; Was chairman and lead director of AES. Was chairman and director of Convergys. director of QinitiQ North America and ASC Signal. Former chairman of Avaya and former director of both Reynolds & Reynolds as well as Northrop Gruman. The man retired as chairman and CEO of TRW in Dec 2002. This guy is not getting on but he definitely understood the technology and what was being exploited.

Ralph Shrader 68; President, chairman and CEO since 2008. corporate governance experts cringe at the concentration of authority. Past chairman of Armed forces Communications and Electronics Association. Hmm!

Samuel Strickland 62; Executive Vice President,  Chief Financial Officer, Chief Administrative Officer and board director know a lot about the operational issues of BAH. Did he keep silent when attending board meetings.  He would have been the boards best link to internal operations. Samuel Strickland also sits on the board for Inova Health Services.

Charles Rossotti 71; Senior Advisor to Carlyle Group, Former Commissioner of IRS from 1997 to 2002, co-founder of American Management Systems, Director of Primatics Financial, Quorum Management Solutions, Bank of America, Apollo Global, AES Corporation, Merrill Lynch 2004-2008 and Compusearch Software 2005-2010

Mark Gaumond 61; retired from Ernst Young as Senior Vice chair for America’s. 27 year partner Arthur Anderson. On the board of Rayonier and fisher Island Developments.

Arthur Johnson 65; retired as SVP for Corporate Strategic Developments Lockheed Martin Corp in 2009. extensive IT experience with IBM, Loral Corporation. director of ACC Resources, Eaton Corp, independent trustee of Fidelity Investments was director of Delta Airlines and Ikon Solutions.

Ian Fujiyama has been with Carlyle Group since 1997. He is a managing director there and also on board of ARINC.

Peter Clare 47 is a managing director of Carlyle Group and has been there since 1992. he is the co-head of US Buy Out Group. he has been a director of Wesco from 2006-2012. currently a director of Commscope and ARINC.

Alan Holt 60; with Carlyle since 1992 and currently is a partner and managing director. Co-head of US Buy Out Group focusing on several sectors including technology and telcom/media. Was a director of Fairchild imaging from 2001-2011 and HD supply from 2007-2012.

So lots of director with excellent knowledge of technology. Lots of directors well plugged into the Washington Power Grid. As a group did or did they not know how their client the US Government was using the technology. Because a very young 20 something whistle-blower figured it out.

Humpty Dumty is having a big fall

How many horses and how many of the King’s men will it take to put Humpty Dumpty together again.

George Gutowski writes from a caveat emptor perspective. I assume this blog post will be picked up in this massive surveillance thing.

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$IBM Dividend Sustainable or Engineered? Trend Lines no Work Good.

IBM (NYSE:IBM) the tech stock everyone wants to like has some worrisome trends. But they just raised the dividend what could be the problem.

Top line growth over the past three years is relatively flat. For tech this is the sign of death. You are milking the legacy aspects. Eventually a disruptor comes and takes it all away. BTW there is next to no research and development. They just buy and hope o catch the wave.

Earnings are up modestly but because of decreases in shares outstanding the EPS looks great. This is financial engineering straight from a quantitative computer model. This is not a compelling product proposition. They have cut costs and squeezed operations. Eventually this gambit runs its course.

A company is only as good as its customers. IBM customers are all in the cost cutting austerity business. Not one name is turning the world on its head. No world-beating disruptor is using IBM. Think about it. No fuel for the fire.

George Gutowski writes from a caveat emptor perspective.

 

IBM Board of Directors CEO Driven One Employer Focus

IBM (NYSE:IBM) has a very unique board of directors. Not only are most of them either serving or retired CEO’s but they did not job hop as they climbed the rungs of corporate power. Most of the job changes were from one CEO position to another.

Several are still serving and much has been made if a serving CEO has the time to be a good director somewhere else. Be that as it may lets take a look at the current team:

Sidney Taurel 64 a career Eli Lilly executive culminating as CEO and Chair before retiring.

Ken Chenault 61 a career American Express executive culminating in CEO and Chair before retiring.

David Farr 58 a career Emerson Electric executive culminating in CEO and Chair before retiring.

James Owens 67 career Caterpillar executive culminating in CEO and chair before retiring.

Joan Spero 68 Former Ambassador to the United Nations for Economic and Social Affairs. Started off as a career American Express executive and was the US Under-Secretary of State for Economic, Business and Agricultural Affairs. clearly brings a geo-political slant which IBM finds valuable.

Andrew Liveris 58 career Dow Chemical and now Chair, President and CEO of Dow. does he have the quality time.

W James McNerney 63  career General Electric executive heading up GE Aircraft Engines. Was Chair and CEO of 3M before he snagged the big job at Boeing where he is now Chair, President and CEO.

Shirley Ann Jackson 66 Theoretical Physicist. Formerly at AT&T Bell Labs and former Chair of US Nuclear Regulatory Commission.  Provides a perspective on technology and how it can be regulated.

Alain JP Belda 69 career Alcoa executive until 2010 retirement as chairman. currently a managing director of Warburg Pincus.

William Brody 69 scientist, radiologist, professor of bio-medical engineering. President of Salk Institute. Second prominent scientist on board.

Michael Eskew 63 career executive with United Parcel Services retiring as Chair and CEO.

Lorenzo H Zambrano 68 a career executive with CEMEX and currently the Chair and CEO.

So have we made it clear. Big Blue board of directors is all about the guys who clawed their way to the top as CEO’s. They may understand what it takes to win at the CEO game but do they understand the process of shareholder wealth creation. The perspective while very powerful is very narrow.

George Gutowski writes from a caveat emptor perspective.

Home Depot Becomes Debt Junkie. Board of Directors Propensity for Debt $HD

Home Depot (NYSE:HD) recently announced $2 Billion dollar indebtedness. They told the shareholders and market in general that they could raise more and still be comfortable financially. The finds are predominantly earmarked for share redemption. This creates the very temporary illusion or delusion of increasing earnings per share because you buy  and cancel stock. You have not done anything clever its just financial engineering.

One tranche for ten years and the second billion dollars for thirty years. If you believe interest rates are low lock in as long as you can get. If you believe your business plan is not respected borrow tons of money and buy out stupid shareholders who are looking for a way out.

$2 Billion is a lot of debt. What board of directors would approve of the leverage? Do they have a propensity to borrow? Are they debt junkies? Some directors cannot stand borrowing a nickel but not these guys.

Lets take a look at the profiles and see what characteristics can be spotted.

The average age of the directors is approximately 58. Average tenure is 6.5 years. Only nine directors so independents are a little small. Two women at this point.

Gregory Brenneman 50 currently a private capital guy. Was the President of Continental Airlines. Turned around Quiznos and Burger King. Became President of PwC Consulting prior to its sale to IBM. Always a series of very short assignments. Quick fixes in turnarounds and airlines borrow lots of money.

Armando Codina 65. Strong roots as a real estate developer. These guys may be very astute but they operate in a leverage driven environment.

Karen Katen 62 Career Pfizer Executive since 1974. Learning the ropes as a director of a publicly traded company. While she probably has done well in positions of increasing importance she is green when it comes to directing public companies and huge debt loads.

Mark Vadon 42. Founder and chief of everything at Blue Nile an online diamond and jewelry retailer. Prior to that was a consultant at Bain. While I’m sure Blue Nile is a bone fide success story its growth was driven by organic reasons. New technology taping into the age-old penchant for jewelry. So why do you want to borrow a lot of money? You have no experience base in leveraged grind em out and fight like hell companies.

Bonnie Guiton Hill 70 and lead director. Consultant. Was the SVP Communication and Public Affairs for LA Times, a Tribune asset.

F Duane Ackerman 69 Retired President and CEO of Bell South. All experiences are with a telco utility that had huge monopoly power and could borrow against future revenue streams. When a retail operating company borrows it’s very different. not sure he has the perspective to get that.

S Frank Brown 55 Audit committee financial expert as per SEC guidelines. Just finished his term as dean of Insead. 26 years at PricewaterhouseCooper. Bio says he is an author but does not say what he wrote. Very cruel. Authors hate that.

Albert Cary 60 Career Frito-Lay and Pepsi Executive. Started off with seven years at Proctor and Gamble. Packaged consumer goods and foods. Not exactly building materials. Do marketing guys ever understand numbers like the finance guys? No.

No one on this board understand a two by four. No one on this board understand the economic and  housing cycle. So they all bought into a story to borrow two billion and maybe more because the power point looked very good.

Given a 6.5 year average tenure most of these guys will not be around when the first tranche for $1 Billion has to be repaid or rolled forward. Good luck with that.

George Gutowski writes from a caveat emptor perspective.

 

Dell Tries a Big Gulp Acquisition. Is Quest a Snack or Big Meal? $DELL $QSFT $HPQ $IBM

English: Dell Logo

English: Dell Logo (Photo credit: Wikipedia)

Dell (Nasdaq:DELL) tries to turn itself into a services firm like IBM (NYSE:IBM) or Hewlett-Packard (NYSE:HPQ) by acquiring Quest Software (Nasdaq:QSFT) . Winning the price war is not always the best way to create shareholder value but that’s just what they did.

No word from Dell about when the deal will be accretive so investors are just expected to hang onto their hats.

The $2.4 Billion price tag is about 20% of Dell’s cash balance. So excuse investors who want to see something come of this. One cannot but be haunted by Morningstars Take on Quest “…operates in an environment that is investment intensive and fiercely competitive, making it unlikely the firm can sustain its profitable growth in the long-term.”

Dell you need to provide a lot more colour on this one. And we don’t mean red ink.

George Gutowski writes from a caveat emptor perspective.

$Dell Curious Dividend Strategy. True Religion, Just Another Magic Trick or Incredibly Good Strategy. $IBM $HPQ

Image representing Dell as depicted in CrunchBase

Image via CrunchBase

Dell (Nasdaq:DELL) announced the birth of their dividend strategy. Something like $0.08 @ share quarterly beginning in Q3. Year end Jan 31 just like all retailers. The dividend yield comes in at around 2.7% is designed to attract a new classification of investors. Those of the yield and income persuasion are being targeted. Of course the dividend yield is based on a 52 week low.

So the question becomes is this true religion or just a magic trick from a Board of Directors desperate to appear relevant.

Companies which see themselves as dividend yield vehicles execute business models designed to produce stable predictable earnings and cash flow. This usually means being dominant in your markets, offering compelling product offerings which are relevant to customer needs and having control over your cost inputs and supply chain. Dell does not score very high in these categories.

Dell sources two-thirds of revenues from end point devices such as lap tops and desk tops. It is nowhere in tablets and hand-held devices, which as we all know is where the action resides. Also as we all know the field is dominated by huge giants who also have execution problems.

Dell does have big ambitions in the enterprise solutions business. Hewlett Packard (NYSE:HPQ) and IBM (NYSE:IBM) are already there and probably will not roll over anytime soon. So lets look at a few of the challenges Dell will encounter.

Dell market cap is $21 billion with a stock at a 52 week low. If they are successful in increasing the share valuation will the cash flow move in tandem allowing dividend increases to reward investors.

Hewlett-Packard market cap is $43 billion also near its 52 week lows and with a similar dividend yield. However its seasoned and hopefully past a lot of drama. Meg Whitman still needs to bring home the bacon but holds better cards than Michael Dell.

IBM market cap is $227 Billion and the stock is at the upper range of its 52 week pattern. The yield is 1.75%. Admittedly much lower than the others but you have to admit creating a 1.75% on $227 Billion is more impressive qualitatively.

IBM total cash clocks in around $12.3 Billion, HP cash registers around $8.3 Billion and Dell clocks in at just under $14 Billion. Dell clearly has a larger cash stash for now.

So why the conversion to dividend yield. Yes it seems to be the trend. Investor relations departments have finally figured out that the buy and hold investor is the preferred shareholder base. Buy and hold is motivated by dividends.

Dell will need to make acquisitions to meet its ambitions in enterprise solutions. Cash is always nice but most companies would prefer to use their own stock as a currency. Enterprises looking to sell to Dell will be concerned about the long-term strength of a volatile stock. Putting in the dividend stabilizes the beta. It also makes your stock comparable to others and keeps you in the game of buying others.

The problem dividend investors will have will be dilution and a radically changing business model. Will the dividend be safe and sustainable. Time will tell. But Michael Dell is playing a big, very big poker hand.

George Gutowski writes from a caveat emptor perspective.

Apple Declares Golden Apple Dividend But it’s Not a Dividend Stock $AAPL

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

The long-awaited dividend announcement came down from the Apple Tree. Apple (Nasdaq:AAPL) will skim a little bit of cash and line the pockets of investors. The dividend yield at the currently stratospheric price point is just under 2%. If you are a true dividend oriented investor this will not turn your head. Yield hounds who must surely know rising interest rates and probably inflation are just around the corner will not be truly impressed with a 2% yield.

Coupled with the cash dividend will be a share buy back to fund employee share purchase plans. A nice touch of financial engineering. Can you blame them everyone else is doing it? This allows them the flexibility of manufacturing EPS.

The market is applauding for now. But this is not the Golden Apple as everyone contemplates. True dividend paying stocks return capital to their shareholders in a defined and systemic manner.   Dividend levels while not contractual obligations become matters of trust. When dividends are reduced or cancelled share values erode deeply reflecting the drastically eroded business model. Dividend payout ratios are usually established in advance. Apple has done of these things. The dividend is being justified as something that will not erode the pile of cash that Apple has accumulated. No one is looking at dividend coverage ratio’s and assessing business risk. So therefore Apple is still not a dividend stock.

You would not set your stock selection screens for a 2% dividend  yield and then hit the buy button.

Microsoft (Nasdaq:MSFT) with 50% of Apple’s market cap has a dividend yield of approximately 2.5%. Microsoft’s cash balance is around $52 Billion. Yet Microsoft is starting to be viewed as a senior with an established cash flow base from its Office Product and enterprises services. There is real pressure on Microsoft to act more like a utility and pay up. Microsoft has made a few acquisitions and is probably glad the Yahoo thing (Nasdaq:YHOO) didn’t real work.

Apple has had to eat its own babies to develop new compelling products. Microsoft has eaten the neighbours children several times over and can point to a more entrenched product line. Apple is one marketing failure away from disturbing their slavish clientale. Microsoft can launch Vista and shrug off the problem.

The real comparison is IBM (NYSE:IBM) Big Blue currently has a dividend of under 1.5%. The market cap is just behind Microsoft and the cash balances are nowhere near what Apple or Microsoft have to offer. In short they are a dividend stock. The CFO   needs to watch earnings and cash flow to ensure he can cover the dividend. Apple simply is not in that category.

Which is why Apple has Golden Apples but not Golden Dividends.

George Gutowski writes from a caveat emptor perspective.