Death of the Keiretsu?

[Parsad]

With the announcements of GE and Johnson & Johnson breaking up, we now have the announcement of Toshiba breaking up.  Is the long-waited end of the Japanese keiretsu that global value investors have been pushing for finally here? 

 

Alot of unrealized shareholder value in these holdings!  Cheers!

[JRM]

Is Westinghouse going to be a standalone company again?  I would say Westinghouse would be a good bet on the nuclear trend, but I'm not so sure.  Areva\Siemens is big in France and Europe.  People I know who consulted at nuclear plants under construction in China said their impression was China was using Westinghouse to build 6-12 reactors with plans to steal the designs and build 10x that amount.  I would bet that is the case with China's recent announcement of its nuclear plans.

 

If nothing else Westinghouse might make good money servicing the existing reactors from the 1970's and 1980's.

[Spekulatius]

You kind of wonder what will happen to one of our most beloved conglomerates here at some point.

 

Conglomerates have been shrinking in the US since the 1980’s. Think of ITT, Gulf & Western, Teledyne, LTV, United Technologies, or Tenneco. Those are all gone in their initial form. GE was the last survivor really.

The Japanese Keiretsu are conglomerates of a different sort where one mother company owns stakes of other companies (often publicly traded) that function to serve the mother company in a sort of corporate feudalisms. the chaebols are the Korean flavor of it and I believe they work similar, but with strong family influence. The Keiretsu’s have been simplifying for quite some time (10-15 years) and slowly whittling down the number of subsidies, especially publicly traded ones. Toshiba, Hitachi and Panasonic are the most famous industrial ones and then there are the trading houses like Mitsui, Sumitomo, Mitsubishi, Sanwa, Itochu etc. All those have been simplifying but you won’t notice unless you are looking closely for a long time. They have been resisting more dramatically restructurings so the Toshiba news is pretty interesting.

[Xerxes]

The pace has been different in Japan for sure.

Social employment for all trumps maximizing shareholder value in Japan. And I imagine same is for Korea.

 

Incidentally, great piece on Samsung, not related to break-up, but what it looks to be next chapter.

Samsung Electronics wants to dominate cutting-edge chipmaking | The Economist

 

I would argue that Alphabet, Amazon and the rest of them are also conglomerate. But that is because that combination adds value (at least for now). And that is not only exclusive to Big Tech, David Sokol is building an old-school conglomerate.

 

What are going away are the legacy conglomerates where clearly they were past their time and relics of the past. (cough Berkshire ? cough Fairfax ? cough)

 

[Parsad]

On 11/13/2021 at 4:54 PM, Xerxes said:

 

What are going away are the legacy conglomerates where clearly they were past their time and relics of the past. (cough Berkshire ? cough Fairfax ? cough)

 

 

Berkshire continues to churn out boatloads of cash...I don't think the model is the problem.  Impatient investors wanting to maximize shareholder value for short-term gains, rather than growing something long-term and durable are at war with one another. 

 

In other words, owning the work of art as a long-term asset versus selling the work of art for short-term liquidity.  Cheers!

[Xerxes]

I am certainly not comparing Berkshire with the likes of General Electric, but I bet in the late 90s, owning General Electric was seen as "owning work of art", in beautiful canvas if you will, autographed by Jack Welch himself. As if it was a trophy.

 

In the early 2007, i was going to an investment club (physically, pre Meetup days), and i recall some of the Elders in those meeting, took a lot of pride of their ownership of General Electric and their inheritance of those shares from their parents. And that was in 2007, already about a decade from the Jack Welch days and already one leg down on the long term stock chart. Yet the Faithful continued to believe the magic of General Electric even as the mighty conglomerate unraveled in an ever glacial pace, as it died by a thousand cuts over the long term.

 

 

[Spekulatius]

1 hour ago, Xerxes said:

I am certainly not comparing Berkshire with the likes of General Electric, but I bet in the late 90s, owning General Electric was seen as "owning work of art", in beautiful canvas if you will, autographed by Jack Welch himself. As if it was a trophy.

 

In the early 2007, i was going to an investment club (physically, pre Meetup days), and i recall some of the Elders in those meeting, took a lot of pride of their ownership of General Electric and their inheritance of those shares from their parents. And that was in 2007, already about a decade from the Jack Welch days and already one leg down on the long term stock chart. Yet the Faithful continued to believe the magic of General Electric even as the mighty conglomerate unraveled in an ever glacial pace, as it died by a thousand cuts over the long term.

 

 

Yes, that's one of the neversells that needed to be sold at some point. I got sucked in GE as well by Immelt's GDP+ model of how GE will evolve and later before the bottom fell out in 2018. It's good example of how a great sounding narrative patches over an incapable leadership and issues with the business

[gokou3]

On 11/13/2021 at 6:58 AM, JRM said:

Is Westinghouse going to be a standalone company again?  I would say Westinghouse would be a good bet on the nuclear trend, but I'm not so sure.  Areva\Siemens is big in France and Europe.  People I know who consulted at nuclear plants under construction in China said their impression was China was using Westinghouse to build 6-12 reactors with plans to steal the designs and build 10x that amount.  I would bet that is the case with China's recent announcement of its nuclear plans.

 

If nothing else Westinghouse might make good money servicing the existing reactors from the 1970's and 1980's.

You mean this Westinghouse?

https://www.reuters.com/business/energy/exclusive-brookfield-explores-sale-stake-nuclear-firm-westinghouse-sources-2021-04-23/

 

 

Seems to me that PE shops are the new conglomerates! 

[Xerxes]

50 minutes ago, Spekulatius said:

Yes, that's one of the neversells that needed to be sold at some point. I got sucked in GE as well by Immelt's GDP+ model of how GE will evolve and later before the bottom fell out in 2018. It's good example of how a great sounding narrative patches over an incapable leadership and issues with the business

 

My friends & contacts when they were buying GE like 10 years ago, were saying "dude, this is GE" .... kind of the same way today I tell my new contacts and friends when i was buying lots of Berkshire in 2020-21, "dude this is Berkshire". Again not comparing, as they are world' apart, but just to say all that glitters is not gold and General Electric outshone the 1990s so much that it had 10 years of inertia past Jack Welch cooking-jarring days.

 

 

 

[JRM]

38 minutes ago, gokou3 said:

You mean this Westinghouse?

https://www.reuters.com/business/energy/exclusive-brookfield-explores-sale-stake-nuclear-firm-westinghouse-sources-2021-04-23/

 

 

Seems to me that PE shops are the new conglomerates! 

 

Damn, I totally forgot about that.  Been out of the industry for a while.