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Topic # 201911 9-Sep-2016 10:17
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It's interesting to read some of the recent news items around the Dick Smith collapse.

 

One recent article reporting in the inquiry focused on what was effectively poor stock control http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11704206 

 

While there's no doubt this was an issue I cannot help but wonder that it's a smoke screen for the real issue, that is the asset stripping and share price pumping that took place under the stewardship of Anchorage Capital.

 

I might be a simpleton as far as economics go but I cannot comprehend how a business can be bought for $100 million and sold nine months later for around 500 million.  There has to be slight of hand somewhere in the mix.

 

Perhaps part of the answer is that it collapsed a sort time later owing 400 million. How could that happen I wonder?  It was only worth 100 million nine months earlier. That's a significant amount of debt to accumulate in nine months.

 

There seems to be a bit of finger pointing going on and I have to wonder that the private equity industry are doing their best to ensure the mud doesn't stick to them and are are looking for smoke screens and scapegoats.

 

I mentioned slight of hand earlier, only 10 million dollars of Anchorages capital was used to make the purchase, and they didn't borrow the balance. Have a read here; https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/ 

 

Then today this article appears which perhaps shows the true colours of some in the private equity business. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11703770 

 

This sort of financial slight of hand has been going on for years. The Money Machine by Sarah Bartlett make very interesting reading.





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  Reply # 1626426 9-Sep-2016 11:03
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Isn't the real reason that they were simply uncompetitive?








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  Reply # 1626434 9-Sep-2016 11:30
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Geektastic:

 

Isn't the real reason that they were simply uncompetitive?

 

 

Pretty hard to be competitive when you're over loaded with debt.





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  Reply # 1626437 9-Sep-2016 11:35
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Geektastic:

 

Isn't the real reason that they were simply uncompetitive?

 

 

 

 

They never made a successful transition from being a niche player to being a big brand reseller, they were never going to compete with the big boys and in the meantime Jaycar consumed their niche market leaving them with very little to work with


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  Reply # 1626446 9-Sep-2016 11:44
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Top hit in Google: https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

 

Very interesting reading, boggles the mind how this is legal. 

 

Edit: sorry, didn't realize you already linked to that article


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  Reply # 1626448 9-Sep-2016 11:48
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Geektastic:

 

Isn't the real reason that they were simply uncompetitive?

 

 

Being uncompetitive isn't a recipe for massive debts or 12 years stock of AA batteries on hand.'

 

Based on reports from the investigation in Australia over recent days it would seem the CEO was completely out of his depth according to other execs there, but none of this changes the fact that it loaded up with private equity debt.

 

 

 

 

 

 

 

 


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  Reply # 1626464 9-Sep-2016 12:09
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What happened may or may not be illegal but there has been some dodgy stuff done. For two years prior collapse they looked doomed and the stock in the stores was just weird.





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  Reply # 1626465 9-Sep-2016 12:10
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A combination of factors for sure -

 

 

 

Private Equity firm who used legal (most likely) but underhanded methods to cook the books of Dick Smiths to make its future earning potential attractive enough to investors to take a gamble at its exorbitant share price issue. When large scale shareholder investment decisions are based on ratios, its not difficult for knowledgeable firms to structure things in such a way that make those ratios look attractive, even though there may be underlying issues elsewhere in the books.

 

Management too focused on one particular aspect of the business (supplier rebates based on purchasing volumes) rather than customer demand. Trying to be a market leader by pushing stock onto the floors without fully realising the customer demand side of the equation.

 

Poor market strategy, being neither good enough to compete with the Harvey Normans of this world in terms of brand power / appeal (no high end audio, TVs etc) but not cheap enough to compete against JB Hi Fi / The Warehouse etc at the lower end of the market. Squeezed by both ends into a middle ground that doesn't survive.

 

I think the article in the NZ Herald this morning summed it up, another private equity firm who was not involved essentially saying they would do the same thing and not feel guilty about it. As much as I hate "rich people bashing", it would be difficult to argue against negative opinions on attitudes been displayed here.

 

 


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  Reply # 1626467 9-Sep-2016 12:13
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Technofreak:

 

... 

 

Then today this article appears which perhaps shows the true colours of some in the private equity business. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11703770 

 

...

 

 

What an arrogant banker.





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  Reply # 1626487 9-Sep-2016 12:31
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The Mom-and-Pop IPO investors got set-up and done-over by the private equity guys who walked away with mega-profits. May or may not be illegal - but sure as hell immoral. 


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  Reply # 1626499 9-Sep-2016 12:32
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  Reply # 1626502 9-Sep-2016 12:33
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It was all my fault. I never spent a cent at DS once they changed into a consumer electronics business. embarassed


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  Reply # 1626505 9-Sep-2016 12:40
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sbiddle:

 

Geektastic:

 

Isn't the real reason that they were simply uncompetitive?

 

 

Being uncompetitive isn't a recipe for massive debts or 12 years stock of AA batteries on hand.'

 

Based on reports from the investigation in Australia over recent days it would seem the CEO was completely out of his depth according to other execs there, but none of this changes the fact that it loaded up with private equity debt.

 

 

 

 

 

 

 

 

 

 

 

 

Competitiveness extends beyond merely the price you sell goods at. It includes the way you do business and all that entails from your property occupation costs to your facilities management systems to stock control to staff control to senior management etc.








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  Reply # 1626513 9-Sep-2016 12:45
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thinus:

 

Top hit in Google: https://foragerfunds.com/bristlemouth/dick-smith-is-the-greatest-private-equity-heist-of-all-time/

 

Very interesting reading, boggles the mind how this is legal. 

 

Edit: sorry, didn't realize you already linked to that article

 

 

 

 

Legal possibly, morally correct, that's another story. I guess a case of buyer beware so far as the share float goes, they're among the real losers in this story.





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  Reply # 1626551 9-Sep-2016 13:29
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Many companies don't try to act moral, they are simply trying to maximise their profits. If every company acted morally, they wouldn't try to minimize the tax they pay, and we would have more money for health and education, and we wouldn't have to rely so much on charities to soak up the deficiencies . But minimizing tax is legal. 

 

With new companies being floated on the share market, you really have to look at what they are needing the money for. Some use it as a payday for all the hardwork they put into the company, and the shareprice can often dive after a period of time when the returns don't stack up to the shareprice. While some companies use it to grow the company, and won't necessarily pay a dividend, although the share price should rise as the companies size grows. I know which one I would prefer to invest in.


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  Reply # 1627086 10-Sep-2016 17:27
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For at least the last three years of their miserable existence their stores looked run-down, poorly stocked, and generally crappy.


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