May 2007 Archive
Blame it on Earth Day, Al Gore, or, more likely, rising energy costs and a desire to please customers. Whatever the reason/s, the retail industry appears to have contracted a serious case of greenitis — the sudden compelling desire to befriend the Earth and become a purveyor of all things eco-friendly.
Let’s begin with the world’s #1 retailer. Wal-Mart has pledged to reduce by a third the amount of energy it consumes by 2010 and is pushing its 60,000 suppliers to reduce the amount of packaging by 5% by 2013. Given its heft and outsized influence on the retail and consumer products industries, Wal-Mart is to be applauded.
The US’s #2 retailer, Home Depot, gave away 1 million compact fluorescent light bulbs in an Earth Day promotion, while Wal-Mart is urging shoppers to buy the energy efficient bulbs in its stores.
This is terrific news, but I suspect that many big-box retailers tout their environmental initiatives in part to deflect the criticism they encounter when they propose building sprawling superstores atop a field of poppies or the last breeding ground of some endangered species. After all, it’s the stores themselves that have the primary environmental impact on the land and communities in which they’re built.
So why build more stores? The last few years have demonstrated that consumers are embracing online retail for everything from books to groceries to apparel to prescription drugs. Who needs more bricks-and-mortar shops when just about every major retail chain has an online incarnation?
Certainly a system of central call centers and regional distribution facilities could take the place of individual stores in malls across America. And while the fuel and costs of shipping would be substantial, I doubt it would outweigh the environmental impact of the construction of shopping malls and their surrounding parking lots, the transportation and other supply chain costs to keep stores stocked, the electricity used to light malls and parking lots (often ALL NIGHT!), and the gas burned by shoppers on a round-trip to the local mall. A case study of the energy used by Amazon.com vs. book superstores conducted by the Center for Energy & Climate Solutions found that replacing buildings with Web sites saves energy and other natural resources and is a more efficient business model as well!
If a moratorium on new store construction sounds like a radical, half-baked idea, ask yourself: Does the world really need another GAP store when gap.com is there to serve you?
Normally I come to you as Hoover’s resident automotive guy, but I also cover companies in the aerospace and defense industries. With wars raging in Iraq and Afghanistan, and another potential one looming in Iran, defense is attracting a lot of attention — and a lot of money.
Now that President Bush has signed the latest war funding bill, I thought it might be terrifyingly fun to look at a couple of companies at which the US Department of Defense is spending your money. You’ve probably never heard of these companies, but once you have you may lose a little sleep, or invest a little money. I’m not here to judge.
Metal Storm is a cheekily named company out of Australia and they have invented a gun that makes a Thompson submachine gun look like a super soaker. With partners including Electro Optic Systems Pty Limited and ST Kinetics, Metal Storm is developing a fearsome technology. The Redback weapons system is designed to detect a threat, acquire the target, then pepper it with 40mm projectile fire — hence the storm of metal. The Redback utilizes Metal Storm’s electronically initiated (read: no firing pin) stacked projectile system. Aside from the projectiles spitting out the muzzle, the actual gun has no moving parts — and it shoots so quickly that it has a theoretical rate of fire approaching one million rounds per minute (dang, my shoulder hurts just thinking about it!). One practical use for the Redback would be to protect military vehicles from rocket propelled grenades. Other uses being tested are the weaponization of unmanned ground and aerial vehicles - think RoboCop without the hackneyed one-liners.
Ionatron is also working on making the weapon of the future. The company is developing a Laser Induced Plasma Channel directed-energy weapon, or put in layman’s terms — a ray gun. The company describes this weapon as shooting “man-made lightning” that is aimed by a laser beam similar to the laser sights used on conventional weapons. The intensity of the lighting bolt can be adjusted to either kill or merely stun an adversary (”He’s dead, Jim“). The weapon has been tested in the lab, but will not be fielded in battle for years, if at all — thank goodness.
The wonders never cease in the world of semiconductors. Consider these recent advances.
- Seven years ago, IBM created “self-assembling” magnetic materials with long-term applications in data storage. Now, IBM Research is building on that advance to create an airless vacuum insulator material (or “airgap”) for semiconductors which will automatically wrap itself around the tiny copper wiring that runs throughout a microchip. These airgap devices not only run faster, but they consume less electrical power, a very important consideration for environmental and technical concerns.
- Scientists at Rensselaer Polytechnic Institute have developed a “nanoglue” for putting together advanced nanotechnology devices. The stuff is stickier than conventional bonding materials, and — best of all — it’s not that expensive and highly heat-resistant. The RPI researchers put a very thin layer of the material between copper and silica, and found that it grew stronger in its bonding properties at high temperatures, up to 700 degrees C.
- Intel is retiring silicon dioxide, the stalwart insulator material of semiconductors for the past four decades, and substituting a hafnium alloy. The company’s next generation of process technology will make the leap to using the obscure element, which is also being used by IBM Microelectronics. The advanced insulator helps reduce or stop transistor gate leakage, which improves the performance of a microchip.
These are all significant advances, and not pie-in-the-sky research many years away from implementation. Richard Doherty of The Envisioneering Group told BusinessWeek that IBM’s airgap technology is “the most significant semiconductor technology innovation in a decade.” What makes it more impressive is that IBM is moving the technology “from the lab to the fab” in short order, saying it will use the process for volume production of microchips in 2009. Intel will begin making chips with the hafnium-based dielectric insulating material later this year.
Recently I wrote about how private equity is eyeing the ever-consolidating record label business. Well, the same can be said for telecoms. TPG and Goldman Sachs unit GS Capital will pony up $27.5 billion to acquire Alltel in the largest-ever buyout of a US wireless firm. The deal comes on the heels of Cerberus’ $7.4 billion offer to purchase Chrysler and signals an upward trend in leveraged buyouts (already totaling nearly $400 billion this year).
Why is private equity suddenly so hot on the acquisition trail? One need look no further than debt financing markets, which support enormous amounts of cheap debt for purchases such as this. In the Alltel deal, Goldman Sachs, Citigroup, Barclays, and RBS will provide acquisition financing. Goldman Sachs, Citigroup, and Morgan Stanley are financing the Cerberus-Chrysler deal. (Other major LBO targets presently include TXU, Dollar General, and Bausch & Lomb.)
All the activity certainly looks good for the US economy. Stockholders are happy with the record highs, but not everyone is thrilled. Bond investors are fed up with how private equity takes advantage of creative financing that essentially strips lenders of most of their rights in the event that buyers cannot make their debt payments. Fed chief Ben Bernanke has also voiced caution over the “significant risks” for banks, and he recently warned that the LBO rally could lead to a major US debt crisis.
Jeffrey Bronchick, a money manager at Reed Conner & Birdwell, puts the debate into perspective in a recent LA Times piece: What future returns do stockholders give up by selling out today? Private equity is interested in acquiring a company for the lowest price possible, Bronchick says, to make out like bandits a few months or years down the line. The potential problem, the piece goes on to say, is that private equity acquires the upside — or, what stockholders “might have earned if the company had remained public and prospered.”
For now, concerns aren’t cooling a hot private-equity market. Time will tell if buyers are throwing caution to the wind.
Source Interlink, a distributor of magazines, CDs, and DVDs, has announced [PDF] plans to acquire PRIMEDIA’s Enthusiast Media (EM) division for about $1.2 billion. The acquisition includes more than 70 specialty publications (including Hot Rod, Lowrider, Powder, Surfer, Soap Opera Digest, and Motor Trend) as well as about 90 Web site properties and more than 65 events.
Source Interlink estimates that it can generate about $2.4 billion in annual revenue by combining EM with its current media offerings, according to a press release. The company’s distribution channels include major bookstore chains like Barnes & Noble and Borders and retailers like Wal-Mart and Best Buy. While Source Interlink is capable of securing rack space in the largest retail locations in the US, I wonder if mainstream outlets are the best place to drive sales of specialty publications?
The problem with the specialty publication market is that a narrow focus on publication topics drastically decreases the number of potential readers and reduces the number of interested advertisers to a fraction of what a mainstream magazine would attract. PRIMEDIA’s original attempt to consolidate the fragmented industry ultimately resulted in its need to sell EM to pay off about $1.5 billion in debt. It took five years for PRIMEDIA to recover from its mistakes. I guess that, where PRIMEDIA has failed, Source Interlink feels it can succeed.
I would feel better if Source had strong ties to automotive parts retailers like Pep Boys or Autozone, or if the company were in bed with specialty sporting goods outlets that sell skis, surfboards, or canoes. It only make sense to sell auto magazines in the places where consumers shop for auto parts or ski magazines near the slopes. Soap Opera Digest will likely thrive as Source Interlink expands the title’s availability at grocery stores, but I doubt that it will generate the cash flow needed to pay back the $1.2 billion the company is borrowing from Citigroup Global Markets to fund the acquisition.