Shift to seeing systems LO5712

Rol Fessenden (76234.3636@compuserve.com)
18 Feb 96 17:42:20 EST

Replying to LO5699 --

Roxanne asks why stock values would be enhanced when wassive layoffs
occur. There are two circumstances I can envision, and others may add to
the list.

The more constructive one is that the company is not making constructive
use of its resources. I would hypothesize AT&T as an example. Ever since
the breakup of the monopoly, AT&T has ben struggling to be productive in
comparison to its competitors. I don't know what their measure may be,
return on sales, return on payroll dollar, return on equity, return on
assets, but it does not matter too much. They are all interrelated. It
boils down to unproductive resources -- read people -- as compared to
their competitors. This means they have higher fixed costs, and therefore
higher risks, in the case of a loss of business.

To go to a more extreme example, there may be no work. The garment maker
I discussed previously can keep people on the payroll, but in the absence
of any possible change in business -- eg factories are going off-shore --
then there is simply no work. Opening a new factory off-shore can
preserve the company, but not the domestic jobs.

Someone previously discussed Unisys. They had no more productive work for
their mechanical engineers. After lots of notification, jobs were
eliminated.

The second -- more cynical -- reason stocks go up in the face of
downsizing is that, as someone said, the most profitable time for a
company is just before it goes out of business. The stock market is known
for its shortsightedness. This is the same reason stocks go up when a
company sells off its assets. The physical assets are worth more in sales
than they are generating in revenues, so let's sell them and make a few
bucks. Sell them to someone who can use them more productively.

I think the latter is far less common than the former. However, if there
are facts out there that show a different pattern, I would love to see
them. 

--
 Rol Fessenden
 LL Bean
 76234.3636@compuserve.com
 


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