I am constantly amazed on how well IKEA stays out of the spotlight as a corporate entity. We complain about Apple and Google, while IKEA is playing at least in the same league.
Well I'm in The NL and it's been in the news here because their holding is registered here for tax reasons. I think they're one of nl's biggest tax payers.
Yes, but has it been in the news as much as Apple or Google? It's not like it's not a topic over here, but usually in the business part of the newspaper, somewhere down the page. It's not a secret, but rarely an issue people complain about. Which IKEA is probably quite okay with.
"In 1962, Warren Buffett began buying stock in Berkshire Hathaway after noticing a pattern in the price direction of its stock whenever the company closed a mill. Eventually, Buffett acknowledged that the textile business was waning and the company's financial situation was not going to improve. In 1964, Stanton made an oral tender offer of $11-1⁄2 per share for the company to buy back Buffett's shares. Buffett agreed to the deal. A few weeks later, Warren Buffett received the tender offer in writing, but the tender offer was for only $11-3⁄8. Buffett later admitted that this lower, undercutting offer made him angry.[7] Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton (which he did). However, this put Buffett in a situation where he was now majority owner of a textile business that was failing."
Yeah, but Buffett was a investor from the beginning, not a textile manager, he just used the company to keep doing what he was doing. He also calls it his worst purchase ever.
Berkshire fundamentally was not a good business, he invested in a textile firm right around the time the North American textile industry started to face really heightened global competition. If I recall correctly, in '64 Buffett took control and tried to keep the thing going and had the mill invest some of its cash flow into the business, but all those investments ended up worthless as the mill eventually had to shutter. He could have deployed the capital elsewhere and earned positive returns.
Eventually (circa '67)he realized it was a lost cause and stopped investing in the mill, instead he used its cash flow to go out and invest in other companies (insurance, etc) which remain there to this day.
The answer to your question is in Buffett’s 1985 letter to shareholders [1]. The extract below is great demonstration of his business acumen, clarity in writing, humour, and fairness.
-------------------------------
> The domestic textile industry operates in a commodity
business, competing in a world market in which substantial excess
capacity exists. Much of the trouble we experienced was
attributable, both directly and indirectly, to competition from
foreign countries whose workers are paid a small fraction of the
U.S. minimum wage. But that in no way means that our labor force
deserves any blame for our closing. In fact, in comparison with
employees of American industry generally, our workers were poorly
paid, as has been the case throughout the textile business. In
contract negotiations, union leaders and members were sensitive
to our disadvantageous cost position and did not push for
unrealistic wage increases or unproductive work practices. To
the contrary, they tried just as hard as we did to keep us
competitive. Even during our liquidation period they performed
superbly. (Ironically, we would have been better off financially
if our union had behaved unreasonably some years ago; we then
would have recognized the impossible future that we faced,
promptly closed down, and avoided significant future losses.)
> Over the years, we had the option of making large capital
expenditures in the textile operation that would have allowed us
to somewhat reduce variable costs. Each proposal to do so looked
like an immediate winner. Measured by standard return-on-
investment tests, in fact, these proposals usually promised
greater economic benefits than would have resulted from
comparable expenditures in our highly-profitable candy and
newspaper businesses.
> But the promised benefits from these textile investments
were illusory. Many of our competitors, both domestic and
foreign, were stepping up to the same kind of expenditures and,
once enough companies did so, their reduced costs became the
baseline for reduced prices industrywide. Viewed individually,
each company’s capital investment decision appeared cost-
effective and rational; viewed collectively, the decisions
neutralized each other and were irrational (just as happens when
each person watching a parade decides he can see a little better
if he stands on tiptoes). After each round of investment, all
the players had more money in the game and returns remained
anemic.
> Thus, we faced a miserable choice: huge capital investment
would have helped to keep our textile business alive, but would
have left us with terrible returns on ever-growing amounts of
capital. After the investment, moreover, the foreign competition
would still have retained a major, continuing advantage in labor
costs. A refusal to invest, however, would make us increasingly
non-competitive, even measured against domestic textile
manufacturers. I always thought myself in the position described
by Woody Allen in one of his movies: “More than any other time in
history, mankind faces a crossroads. One path leads to despair
and utter hopelessness, the other to total extinction. Let us
pray we have the wisdom to choose correctly.”
Can't help quoting a little more to give an insight into Buffett's character:
> Though 1979
was moderately profitable, the business thereafter consumed major
amounts of cash. By mid-1985 it became clear, even to me, that
this condition was almost sure to continue. Could we have found
a buyer who would continue operations, I would have certainly
preferred to sell the business rather than liquidate it, even if
that meant somewhat lower proceeds for us. But the economics
that were finally obvious to me were also obvious to others, and
interest was nil.
> I won’t close down businesses of sub-normal profitability
merely to add a fraction of a point to our corporate rate of
return. However, I also feel it inappropriate for even an
exceptionally profitable company to fund an operation once it
appears to have unending losses in prospect. Adam Smith would
disagree with my first proposition, and Karl Marx would disagree
with my second; the middle ground is the only position that
leaves me comfortable.
The quoted wikipedia article gives a decent general idea. Basically, he did it in part based on personal slight, and lost a lot of potential gains he could have had if he'd put it towards the insurance purchases he was making with a lot of the rest of his money at the time.
Another similar odd construct: WPP, Wire and Plastic Products. An ex-Saatchi advertising executive bought a 30% share for $600k in 1985 as apparently that was a good way to start a global company.
Don't feel bad about the joke, that's how we think of ourselves too (I work at Priceonomics). I think it's actually an interesting advantage versus a content site that just thinks of themselves as a content site.
By the way, blogging as a startup is one of the most difficult products to build. Seriously, imagine a product with users expecting new features weekly, daily, or sometimes hourly.
This is a must-read for automobile fans. Ferdinand Piech is as tech and business savvy as he is diabolical, and this article gives you a little perspective of that. I hope someone writes a book about him soon.
I mean, if you personally played a hand in creating the Audi Quattro (that dominated rallying) and the world's fastest car (Veyron, reviving a dead brand), which everyone deemed impossible, you've got to be in the history books of the automobile world.
Can't wait to see how they compete with electric upstarts and how they evolve their Ducati motorcycle brand.
> Can't wait to see how they compete with electric upstarts
I have great hopes for their engineering to continue to be excellent. Audi has continued to push the envelope in Le Mans, first with diesel and now with hybrids. They've always done a good job of trickling down race technology to consumer vehicles. (One of my fondest driving memories is driving home in 6 or so inches of snow with pickup trucks and SUVs sliding all around me all while my tiny sedan with quattro didn't slip a wheel applying power once.)
(By sheer coincidence,) I sat next to Mr. Piech in the same Bentley in Paris this year. We had a short conversation, and it took some time before I realized who he was. An old man - with a truly sharp mind. The shadow king of VW.
Seriously... that is the buried lede here: VW's widely shorted stock goes from $200 to $1000 over 2 days after the financial crash was already under way.
I note a couple of down votes but the market cap increased by approx $300bn in a couple of days to $370bn. Anyone know any short squeezes that beat that?
It's an interesting story but hard to understand why they are saying it's a hedge fund. The fact that Porsche made an investment in VW that affected the larger financial markets does in no way equate to Porsche being a hedge fund, especially since that investment was made to allow them to continue manufacturing cars, not as a switch to focusing on financial markets.
1) Porsche's investment did not impact the larger financial markets in any way. Porsche's investment impacted VW stock and nothing else (I believe Porsche was 100% privately owned at that time)
2) Porsche's actions were like a hedge fund because they designed a financial situation where they couldn't lose (up until the financial collapse cut off their liquidity). Had the markets not collapsed and Porsche had been able to borrow like it could in 2007 they would've owned VW, the issue is that the markets collapsed and massive lending restrictions were imposed requiring Porsche to payback loans instead of roll them over. In the end they turned to VW to pay back the loan. Had that external event not impacted the lending environment Porsche would've acquired VW and subsidized their cost through financial participants shorting VW stock.
I think they are putting a little too much of the blame on Wiedeking here. The CEO doesn't make huge stock purchases like this without board approval, and Piëch was on the board of both Porsche and VW. To me it sounds a lot more like a play by Piëch all along.
The article also understates the rivalry between Porsche and VW. They're saying it's just Wiedeking behind it since '93, but it's really been going on for a lot longer as far as I know.
anyone who took a quick look at this and didn't read the whole thing, i highly recommend it... i felt like i was reading Game of Thrones - Car Edition. What a fantastic story I never knew about!
I like how desperately this article tries to portray Ferdinand Piëch as a genius when he just got lucky. What if the "great Financial Crisis" of 2008 did not hit and a board member wasn't in bed with German Chancellor? These shenanigans would have blown into Piëch's face.
Porsche also required the VW Rule to be repealed, irregardless of the financial collapse that would have been a sticking point and could have dragged on indefinitely or not happened at all. Porsche would have the 75% it wanted but they couldn't have taken a full acquisition, and Piëch could play the game from that position.
It's a very dangerous gambit, because the more you buy, the more power you give to the company you're buying, because so much of your wealth is tied up in them, their actions directly affect your wealth without you having any control. It's the same reason the argument that China could crush the US economically by calling in its debt is so wrong. That would deflate the dollar to such a point that China would lose literally a trillion dollars of value. Porche simply forgot how much power they had given away.
The Krstic article is an explanation of the short squeeze that happened near the end. This is just a small part of the Priceonomics article. The Priceonomics article includes a lot more history about the companies and people involved as well as the German politics protecting VW. The Krstic article doesn't even include the twist ending where VW buys Porsche.
I'm curious, how much did Wiedeking personally profit from this scheme? How much would he have made had he continued "just focusing on making cars" as the article concludes he should have?
It's true, but it's also true that the Piëch and Porsche families have always been like the two guys duking it out over the island in LOST. This particular "business relationship" goes back multiple generations.
The good news for owners and fans of the cars is that Porsche's doing their best work ever under the Volkswagen AG umbrella.
I know nothing about cars, but I heard from someone who worked there that for some parts, they now have to send half of them back to Volkswagen because they don't meet specifications anymore, and that bureaucracy is on the rise.
I know nothing about cars, but I heard from someone who worked there that for some parts, they now have to send half of them back to Volkswagen because they don't meet specifications anymore
This is a good thing. In 1992, it was my job, as a Porsche customer, to find all of those bad parts. :-P These days the factory does a better job catching the problems before they escape the building.
