In part 4 we discuss areas of potential value for M&A.
Todd:
So, if there is no value in Ag, and no real value in the Petro- chemical sector now, where do you see value?
Andrew:
Well, great question. Firstly, the US economy, and the housing crisis leading to the credit issues leading to, if you like, the financial sector meltdown interestingly enough has not yet pitched profits in the economy in the main, apart from the banks and financial service companies. Main Street has survived the financial issues and the housing crisis pretty well. That means equity values have not come down so, one, equities are not at 52 week highs but they are roughly 80-85% of 52 week highs. Two, US dollar based companies with the US dollar , oil, interest rate issues, overseas properties become very expensive.
So, first you have Ag expensive, Petro-chemical it is not necessarily a question of price but of quality. Most of them are not high quality properties and are privatized and run for cash. The quality properties we are JV’ing with them, the previous point. So really, if you are on the acquisition trail, US equities have not come down a lot, and overseas properties are expensive.
So, you know where being incredibly, were scutinizing everything in mean I don’t quite have a NASA control room here but on my desk in my room I’ve got stacks and stacks of tracking mechanisms to see when good, quality properties may become afordable enough that we could make more money with them being part of Dow we could make more money with them than their being on their own. Now, whether they are friendly or hostile, that is another whole conversation. The fact that we haven’t done any big deal suggests those numbers aren’t in target right now. The financial discipline we’ve put in place here, Todd, is something I am real proud of .
I think, you know, money’s not burning a whole in oiur pocket and as I’ve to investors over and over were making all the deals we ned to make and if we get to the point wher we have too much cash, a great problem to have in this environment, we’ll for sure bump up the reward to shareholders and keep increasing our R&D spending so we can do more at Dow Ag and mimic their sucess. We got a ton of R&D projects that are very promising and than do small bolt on acquisitions, we’ve done 20 in the last 24 months.
At the right moment, maybe equities will come down and on our radar screen are a dozen or so properties than when the time is right, we’ll move on. But, you know, methodic, systemic, disciplined really paying a lot of attention to the criteria that matter for success. Creating a winning growth company. I’m really dedicated to putting down the earnings growth profile in a different place and doing it in a very methodical precise way. If I am blessed to have this job for as many years as I possibly could given my age I’ll see it through.
I’m not going to knee jerk around to people telling me to do short term things. That is easy to say when you’re on the outside. Trying to create long term earnings growth, that’s a different story and we’ll putting in place the discipline to do that.
Todd:
Yea, just from a personal standpoint I have not been able to understand the media’s infatuation with you having to do something. I’d rather do nothing than something stupid.
Andrew:
(Laughing) Unbelievable how the English language causes the media to go to strange places. If I could put your headline on every analyst report, I would.
Disclosure (“none” means no position):Long Dow
↑ Grab this Headline Animator
Visit the ValuePlays Bookstore for Great Investing Books