Fate Of Fortune Brands Should Be Known In A Month

According to the Financial Times, "activist" hedge funder William Ackman has been given a month to propose changes to the board and therefore, the possible breakup of conglomerate Fortune Brands and its Acushnet golf division.

Comments

[Del the Funk]

This story sure lost the head of steam on this site pretty quick.

FYI, additional value accruing to shareholders since Ackman's strategy hit the tape = $900,000,000.

Put that in your pipe and smoke it.

[Ky Laffoon's Ghost]

That's very nice, Del. Who are the shareholders and what percentage increase is that and how does this increase in paper value improve the genuine economy where real products and services are manufactured and/or provided by real employees to real people who buy said products and services. Who was it who just said that "trickle-down" doesn't work? Oh, right. Warren Buffet. Never mind.

[Del the Funk]

Ky, if in fact you have any money invested with a mutual fund or index fund there's a pretty good chance you are a shareholder! How about you answer your own question and explain how an additional $900,000,000 of shareholder value somehow impairs people, products and the economy.

PS...you are aware that not long ago Fortune/Acushnet/FootJoy fired every worker at their Brockton shoe plant and those jobs went to China? FootJoy now has 100% of their manufacturing outside of the United States. How's that fit into your thesis?

[Ky Laffoon's Ghost]

I'm aware of all that, Del. Including about the Brockton plant. Just askin' is all. As for removing the jobs from the US, I do see the utility from management's perspective. And I do have a damn hard time finding anything to buy that is produced in the US. Could be that my next set of irons will be made by Scratch Golf, right up I-75 from here. Where we differ is that I sympathize with those who lost their jobs in Brockton so that management and shareholders could realize a few more percentage points of erstwhile profit for the time being. That would be where I see the rise in shareholder value impairing the lives of people, who make up the (productive) economy. I'd be happy with my portfolio, as it were, making a point less over the long term and those workers keeping their livelihoods. Multiply that by millions and we would have a much healthier society, even if it were a little poorer by Wall Street standards (sic). By the way, I have not noticed that consumers of these Acushnet products (that would be you and me and most of the other denizens of ShackLand) have particularly benefited from offshoring these production jobs. When labor unit costs went down to, what, ~10% of their former level, I don't remember seeing a commensurate drop in the retail price of my DryJoys, my Vokey wedges, or my 695MB irons. Where did that extra money go? And are we better off? Cheers!

[Del the Funk]

I agree with you that the company should have kept Brockton open, and the Classics line intact, operating results be damned. I doubt that closing that plant even moved the stock a nickel in one way or the other...it was rounding error. Matter of fact I'd argue that the Classics line was accretive when you take into account the "prestige" factor and the history of the line.

The crux of the issue/problem is Job 1 for management at publicly traded companies...which is the same as Job 2, Job 3, Job 4 and Job 5. Which are the same as Job 6, Job 7, Job 8, Job 9 and Job 10. Only after those jobs do the employees and other constituencies get even a little bit of consideration, other than the usual jobbing they take (like the lack of a price drop on your purchases).

My friend is a life insurance analyst and his advice is "never buy your insurance from a publicly traded company, you'll always get a better deal from a mutual".

I'm proud to say I don't have a single Titleist/FootJoy product whatsoever in my bag other than a few second hand ProV1's that I found along the way in the rough! Haven't bought any of their stuff since they really p*ssed me off in 1996, which is a whole story unto itself.

But none of that is related to Ackman's move here in the short run. He's got a seat at the poker table and has played a big bluff that might make him, his investors, and all the other shareholders a little bit of money -- or maybe not. I'm hard pressed to see him staying involved in any sort of operating role in the long run. But I know for a fact he'll play a bunch of other hands and over time he'll probably do ok. Will his efforts produce significant societal benefits? Probably not. Is he doing anything wrong or illegal? Don't think so. (fingers crossed given today's developments!)

Here's a copy of Ackman's Q3 letter if anyone wants to read it: http://cache.dealbreaker.com/uploads/2010/11/Pershing-Q3-2010-Letter-BL.pdf

And here's an interesting quote about Stuytown...

"We weighed the relative merits of settling the litigation versus pursuing our claims, and concluded that the return-on invested-brain-damage calculation weighed strongly in favor of a settlement. We subsequently negotiated the sale of our loans to the first mortgage lender at our partnership’s original purchase price of $45 million (our share was 77.5% of this amount) and we folded the tent.

I have learned from prior experience that sometimes the better part of valor in an investment
situation is to move on. Onward."

(he failed to mention that the fund spent a lot of money on lawyers so they really didn't get all their money back)