Recognizing Value Situations - Turning the Ship Around

Recognizing Value Situations - Turning the Ship Around

Many companies go through restructuring, downsizing, and spinning off businesses deemed not vital to the core business. There is usually a "back-to-basics" and "focus" theme to these events, and they usually occur after extended periods of poor business results.

U.S. automakers (particularly Chrysler) went through this years ago and are obviously doing it again, exemplified by Ford's "Way Forward" campaign. Airlines have done it, albeit with mixed results, and it's likely that the banking and lending industrywill have to do the same.

Do turnarounds works? According to Buffett and many other professionals, generally not.

A few do succeed, and when they do, there's usually a big impact on shareholder value. It happened with Chrysler, and again with Hewlett-Packard (whose problems, notably, were not as severe).

Determining worthy value investments in these situations is difficult. Probably the best approach is to try to place a value on the core remaining business, as many did with HP's core printing business; then try to imagine how other units would fare either in a sale or with a successful turnaround. Again here, the work of professionals shouldn't be ignored.


Also read:
Recognizing Value Situations
Recognizing Value Situations - Growth at a Reasonable Price
Recognizing Value Situations - The Fire Sale
Recognizing Value Situations - The Asset Play
Recognizing Value Situations - Growth Kickers
Recognizing Value Situations - Turning the Ship Around
Recognizing Value Situations - Cyclical Plays
Recognizing Value Situations - Smoke and Mirrors