It doesn’t take an auto repair shop in an old Circuit City building or a "for lease" sign over the QuickDrop slot in an old Blockbuster storefront to remind consumers that even the strongest companies can be bowed by bankruptcy.
Blockbuster’s video empire and A&P’s nearly 150-year-old food retail business were among the businesses that declared bankruptcy this year, but were far from the only ones in financial peril. The Street took a look at some companies’ recent struggles and identified 10 for whom bankruptcy may be beckoning, either next year or the not-so-distant future. Some balance sheets and share prices hide the pain better than others, but all of the following have fundamental flaws in either their business plan or management that lead to situations like A&P and Blockbuster’s – where what was unthinkable even five years ago seems inevitable soon enough.
Yahoo
AOL went out and bought itself TechCrunch and blew out its Patch network of hyperlocal news sites. Google watched monthly sales of smartphones with its Android OS soar past Apple and Research In Motion and acquired 25 companies this year alone. Yahoo? Well, CEO Carol Bartz told a TechCrunch editor to "f— off" when he questioned her progress since replacing Jerry Yang last year. And they’ve got Associated Content now. That’s something.
Forget just for a moment about Yang’s egomaniacal gaffe two years ago when he got a huge offer from Microsoft and told the folks in Redmond, Washington, to take it walking. Forget that Yahoo has lost more than 55% of its share value in five years. Yahoo’s every move this year – making only four acquisitions; launching a Local Offers service with Groupon and other services long after the launch of competitors such as AOL’s Patch and Facebook’s Deals; and entering into an IM deal with smartphone market share-losing Nokia – is several steps behind everyone else. Yahoo has some great holdings, such as Chinese e-commerce site Alibaba, but it’s shown no desire or ability to do anything with them. A sale of the entire company still isn’t out of the question, as shareholders have to be weary of Yahoo being unable to adequately monetize its best commodities and mismanaging its company into the grave.
Borders
So let us get this straight: Your company’s trading at just over a dollar a share on a good day, former CEO Ron Marshall found a gig at bankrupt A&P more promising and Borders as a whole has struggled through recent rounds of layoffs and at least 180 Waldenbooks store closures – and shareholder William Ackman still thinks it would be a great idea to buy Barnes & Noble? That kind of ink-sniffing logic, and Borders’ management’s support of it, makes even the most patient reader want to flip to the end of this sad chapter. In multimillion-dollar debt, facing increasing e-book competition from Amazon, Apple and Google and watching its Kobo e-reader mire itself in fourth place or worse among competitors such as the iPad and Kindle, Borders and its shareholders can’t honestly expect this literary mega-merger to reach a promising conclusion when their company can’t even read the writing on the wall.
Rite-Aid
Walgreens just took over Duane Reade and grabbed a huge foothold in New York, ever-expanding CVS Caremark sits at No. 18 on the Fortune 500 and Walmart and its discount prescriptions continue to elbow their way into traditional health, beauty and pharmacy strongholds. How does primarily East Coast Rite-Aid respond? By cutting guidance, continuing losses that extend back to its 2007 purchase of Brooks Eckerd, giving up South Carolina locations to SuperValu’s Sav-A-Lot stores and shuffling the deck chairs by moving Chief Operating Officer John Standey to chief executive and keeping former CEO Mary Sammons on as chairman. Though stock prices have rebounded from last year’s low of 20 cents, Rite-Aid is still trading under a dollar as the company deals with crushing debt. Rite-Aid says it will fill fewer prescriptions than previously expected in fiscal 2011, which is just as well – there doesn’t seem to be any cure for what’s ailing this company.
Cablevision
There are three words you never want to hear from your cable company: "Buy an antenna." At the height of its standoff with News Corp’s Fox holdings this October, that’s exactly the advice Cablevision gave customers who wanted to watch the World Series. It was just the latest in a series of spats that pit the Cablevision-owning Dolan family against the world, yet Cablevision’s share price just hit a 52-week-high this month after climbing more than 34% this year. It matters little that Cablevision’s Optimum Lightpath communication services are adding subscribers and revenue, though, while the cable service loses subscribers and squeezes the ones that remain for more money. With the mercurial Dolans at the helm, shareholders can expect more of the erratic conditions that dropped stock prices like disgruntled subscribers last year – when shares cratered at just above $10 after peaking just above $38 two years before. Stability isn’t something Cablevision’s known for, either in its service or on its books, and investors saddled with such loose-cannon ownership should have bankruptcy in the back of their heads at all times.
Time Warner
Time Warner may finally be atoning for the past after its split with AOL last year, but AOL’s upward trajectory compared with Time Warner’s uncertain and somewhat stagnant path has to be troubling for even the staunchest supporters of this media titan. DVD sales continue to suffer, streaming is cutting into Time Warner’s take and while viewers wait for that HBO streaming venture, properties such as General Electric-owned NBC, Fox and Disney-owned ABC’s Hulu joint venture, and Netflix continue to take turkey off Time Warner’s plate. Regardless of the might of current holdings such as HBO, Turner Broadcasting and Warner Entertainment, Time Warner still has billions worth of debt and that little Time portion that’s turning into a big, paper-weighted drain. Bankruptcy? Improbable, but not out of the question.
December 18, 2010
