JimPinto.com - Connections for Growth & Success
No. 48 : June 22, 2001
Business, marketing & futures commentary.
New attitudes, no platitudes.
- Invensys in trouble
- More about GE abandoning Honeywell
- David Bell - Patterns of decline
- Dick Morley Advice : Get out of components, or die !
- Newsweek : Technology & Health
- Did GE really dump Honeywell?
- Invensys Carm'n'gone. Shuffle goes on
- Freedom of the Internet
Invensys in trouble
Rockwell is in trouble and Honeywell is being abandoned by GE. Another big
Industrial Automation leader - Invensys - (the combination of Siebe and BTR
and their host of acquisitions) continues to slide downhill. Speculation is
rife regarding how long the company will last before it disintegrates.
A recent (6 June 2001) report by Peter Reilly and Mark Cusack of Deutsche Bank, summarizes the
"Full year results from Invensys were in line with the March trading
statement. The sharp fall in operating margin and the very poor cash flow
were disappointing in absolute terms. Some of the problems are due to the
macro environment, but it is hard to avoid the conclusion that the
restructuring program has had unanticipated adverse effects on the
underlying health of the company. With the shares now 30% above our revised
115p fair value target (previously 105p), we downgrade to Underperform."
Privately, other high-level financial analysts were more caustic:
that things are worse than people recognize. All these restructuring
charges make nonsense of reported profits. We hear regular news of turmoil,
unusual accounting, poor morale and so on. Another profit warning and a CEO
change are expected at some stage."
Another financial analyst:
"There have been so many "exceptional charges"
that no-one knows what the real underlying profitability is any more. Cash
flow has been horrible and observers are suspicious of the trends. Margins
have not improved, despite major workforce reductions. The unreasonable
push for year-end profits, reported by managers in all subsidiaries, was a
short-term palliative; there will be no more profit to be "squeezed" out in
the upcoming quarters. CEO, Allen Yurko, will inevitably exit, and his
replacement will inherit a mess!"
Invensys Power Systems had been the focus of much attention due to the
planned spin-off (a favorite tactic when the core is declining). The
postponement of the planned IPO was no surprise - problems of bookings
growth, margin decline and inventory write-offs showed projections that did
not favor the spin-off tactic.
No one seems to know or understand whether BTR courted Siebe or vice versa.
It seems that the deal was put together in just 10 days with little or no
due diligence. Allen Yurko was very keen for the deal to be announced on
the same day as Siebe's interim results, as the results were poor and
Emerson was considering making a bid (confirmed by a top-level Emerson
insider). Without the deal, Siebe shares would have fallen and Siebe would
have then have been vulnerable. The merger was indeed an effective poison
There seems to have been a similar story with Baan. The Baan deal was
announced on the day that Invensys' poor results were announced. With
hindsight both BTR and Siebe had urgent reasons to do a deal that were
nothing at all to do with the "compelling industrial logic" which Yurko
Reports have surfaced that KKR (KOHLBERG KRAVIS ROBERTS & CO. - the
heavy-weight acquisition-and-divestiture group) is attempting to buy
Invensys with the goal of splitting it up and selling the pieces. Whether
they do it (or someone else, like Emerson) this seems the most likely final
Invensys axes 3,500 more jobs and warns on profits
Invensys to shelve sale of Power Systems arm
For the Deutsche Bank report, contact
Peter Reilly at:
Mark Cusack at:
More on : GE dumps Honeywell
My analysis about how and why GE abandoned the Honeywell merger has clearly
been justified by reports and events that followed the news last week. GE
was having trouble with the European Commission regarding the avionics and
aircraft businesses they would need to divest before the merger could be
approved. My take was that GE was backing down because their due diligence
had shown that Honeywell was not as "clean" as they expected. The
rationale: If GE really wanted Honeywell, they could/would continue to
negotiate with the EC.
After digesting the news and events over the past weekend, Jeffrey Immelt,
the new GE CEO (after Jack Welch departs) felt that he had to confirm the
decision. People were saying that Jack Welch really-really wanted this
because he had committed himself in public and would lose face if it didn't
happen. And, others reported that GE would inevitably come back with
further offers, and political clout, to help the EC acquiesce. So, to quell
further speculation, Immelt came back with a resounding and emphatic "Zero
GE Immelt sees "Zero Chance" of Deal going through
The Honeywell Board of Directors came out with a strong statement of
support, saying that they would "do everything possible" to make the GE
merger go forward. They did this because they recognized that it was the
best hope for Honeywell at this time. After Immelt's "zero chance"
declaration, recognizing the futility of that direction, Honeywell followed
with a statement saying they were indeed looking at their alternatives as a
"stand alone" company.
Honeywell Board Pledges Commitment to GE deal
A European observer close to the cacophony, reported:
"Big deals are often done for reasons of weakness rather than strength.
Examples: BTR/Siebe, Honeywell/Allied Signal, Daimler Chrysler. Can you
name a big industrial deal that has gone well? GE itself does not stand up
well to a close scrutiny. I suspect that Jack Welch wanted to do a big deal
to muddy the water. 9% of GE's income came from its pension fund; this
profit source is going to be small and maybe even negative in 2001. GE was
planning to take a $6 b provision for integrating Honeywell - that gives a
lot of scope for meeting earnings targets for a couple of years. When they
found that the provisions may be more, they had to find a way to exit
The GE/Honeywell merger has a "zero chance" of going forward. Jack Welch
will retire with grace - he gets a lot of credit (and forgiveness) for the
good things he has done to build GE over the past decades.
United Technologies will come back, with a bid that is lower than their
previous one that started this whole affair. TYCO, Emerson and others are
calculating whether or not they should probe the possibilities. The
Europeans (Schneider and Siemens) will try to pick up the pieces they want,
and sell off the pieces they don't understand. The Japanese are watching
anxiously, but are too slow to run the race. Honeywell cannot "stand alone"
and is looking for anything that makes sense. CEO Michael Bonsignore will
inevitably be booted for causing this mess.
Honeywell Third Party Hopes
As we go to ePress on Thursday (21 June 01) night, the two stocks that had
been at approximately equal prices before the storm, ended significantly
apart. Honeywell stock has been downgraded by several analysts and closed
at $36.75, down from the previous week. GE went up to $51.25, indicating
support for the "zero chance" result.
David Bell : Patterns of Decline
Rockwell in trouble.
Honeywell in Trouble.
Invensys in Trouble.
Is there a pattern here?
David Bell, author of the eBook Cannibal Economics insists that the
patterns of decline in Industrial Automation - the meltdowns, mergers, low
margins, lost direction, etc. are not specific to that business. They're
much broader problems that are also surfacing in dozens of other sectors
including home construction, home appliances, consumer electronics,
telecoms, medical technologies, electrical power generation and
distribution, computers etc., etc.
The people in each of these sectors have no experience outside the sector.
So, they assume that the problems they're confronting are unique to the
sector and don't look outside for solutions. They call it "focus" - but it
really is "myopia". Sadly, the solutions will not be found inside the
David Bell exclaims: "Read some history!" He insists that what is needed is
vision to see the broader patterns which apply to industrial automation and
everything else. Those who look inwardly will simply spin their wheels.
Those who see the broader patterns that are emerging will emerge as the
You might like to email David Bell at:
Get your copy of David Bell's eBook - Cannibal Economics
Dick Morley Advice : Get out of Components - or Die!
The PLC inventor, manufacturing guru and technology visionary was keynote
speaker at the Toronto, Canada ISA Show, 29 May 2001.
Dick Morley was disturbed by the insular thinking in the instrumentation
business : "I didn't see many computers on the show floor here today - no
wireless, no remote intelligence, no Blue tooth. I see valves and meters -
mostly components, and not many systems. All plants, processes and tools
are just peripherals to the computer. If you're in the components business,
you're going to die. I tell you now: get out of the components business;
make things that hook together and do something!"
As he usually does, in lateral-thinking jumps that keep the audience
thinking to keep up, Dick covered a vast range of subjects - from the
alteration of social behavior, to mini-factories at the point of
consumption, to Chaos-driven systems, to genetic scheduling, to using
"breeding" instead of any lines of code - all with practical examples of
systems already in use.
Dick's talk, entitled The Bleeding Edge is a delightful extension of his
Distorted Realities column in each issue of Manufacturing Automation,
says Heather Angus, the editor. According to Morley's industrial intelligence continuum
we are right now somewhere between Human Mind/Machine Sweat and Human Mind/Robot Sweat.
Heather Angus' complete report on Dick Morley's speech
Visit Dick Morley at his "Barn" in New Hampshire
Get yourself a copy of Dick Morley's book
The Technology Machine: Manufacturing in the year 2020
Newsweek : Technology & health - what the future means
The most dramatic and profound impact of the technological revolution will
be on your health. Sophisticated new imaging techniques, bionic body
parts, computerized surgery are enabling doctors to diagnose and treat many
diseases more effectively. In the past few years, the wealth of information
on the web has given patients unprecedented power over their health-care
choices. Where will this lead?
Newsweek (June 25, 2001) looks ahead at innovations in health and medicine.
A new self-contained artificial heart provides new hope. The new field of
pharmacogenetics uses the discoveries of the Human Genome Project to
develop personalized drugs - made-to-order medicines that can be tailored
to treat not just generic diseases, but the precise variation of disease
suffered by particular individuals. And robotic surgery will soon allow a
doctor to operate remotely, across the world.
These astonishing leaps are changing medical understanding and practice in
ways that could hardly be imagined. The result for millions: longer,
Read the Newsweek Report on the web
I received a storm of protest regarding my predictions about GE abandoning
Honeywell. Last week, a GE-Fanuc insider was somewhat more supportive:
"Off the record - seems like you were right on about GE/Honeywell from the
beginning. I actually showed your original prediction to several people in
GE-Fanuc management and received a resounding: What does he know?! Good
Pinto's Point: Interesting how many (including some pretty senior people)
are misled by the press. My own simple advantage is the objectivity of
eSpeaking about objectivity from afar, someone from Invensys-Australia (who
gets the Invensys weekly NewsFlash) sent me this :
"Who's on first? What’s on next? It's the Invensys comedy hour! Have you
heard of Mike Carman? Well how about Mike come-an-gone. Carmen was
ex-Allied/Honeywell. And he lasted 3 months as the savior (President) of
Invensys Process Systems, the merger of Foxboro, APV, Walsh Automation,
Esscor and Simsci. They ran Carmen up the flagpole and no one saluted. No
one could figure out how Carmen and Henderson (the chief of Process Systems
and Software Systems) were going to split their duties.
Tony Bowker [TonyBowker@aol.com] seems to want the last word on the
discussion about the "free Internet" :
"Now Bruce Henderson is having a turn at running the business. He has
published 3 more "newsflash" memos over the past 3 weeks, showing the
changes to the changes. One wonders how long he himself will last. It makes
coming to work lots of fun!"
"Who cares about folks who believe everything they read on the Internet?
I don't want to pay for their training and I'm sure you don't either.
No, the Internet and the data it contains is purely "buyer beware"
and those who fall for bad data will never learn. So why try?"
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