Talking Business

Here’s why our industry won’t ever get a bailout

Here’s a message I think we’ll hear on our voicemail sometime in the next six months:
Greetings from the Federal Bailout Administration. We have taken the U.S. furniture industry’s request for a bailout under advisement.

In case you are unfamiliar with Washington-speak, that means we are sitting on it, buddy. Your chance of getting a bailout is about as good as the chance that your government will actually pay off the national debt someday.

Why don’t you qualify for a bailout, even though your industry consists of companies that have served the American manufacturing and retailing economy for decades, yet are in a pickle because of declining sales and rising costs? Glad you asked. The short answer is that you don’t have any companies that are too big to fail.

Instead of having hundreds of viable companies in one of the most competitive large industries in the U.S. economy, you might want to consider consolidating most of your assets into three or four big players, like the auto industry or aircraft manufacturing or banking. Take a lesson from Wall Street.

That way, if one of your companies were on the brink of failure, it might threaten to send the whole economy into a tailspin. For bailout purposes, it would be better if your industry were structured as a house of cards, not as a solid foundation with risks spread among many companies that can step into the breach if some of their competitors happen to go under.

Or maybe you could sell a whole bunch of furniture on credit and package all those loans into some exotic debt instruments that you could sell to the investment community. Then find a way to get enough furniture consumers to default on payments to devalue those instruments, and voila!

But take heart. Even without a bailout of its own, we think the furniture industry will indeed benefit from the federal rescue of other industries. A rising economy, after all, will lift all boats. Our bailout of Wall Street will trickle down to Main Street and then will leach sideways to irrigate the furniture industry.

Hold on, we’re getting a text message from our Subcommittee on Verbal Imagery. It seems the whole water metaphor is overdone and doesn’t quite capture the powerful effect of your government’s economic moves. Instead we are directed to refer to the bailouts as fertilizer that will enable American businesses to plant deep roots and bring our national prosperity to full flower in years to come.

Please excuse the smell.

What’s next for Furniture Brands International?

What’s next for Furniture Brands International?

If Sun Capital did indeed win three seats on the board as it claims, the answer could be turmoil.

Furniture Brands, the parent of Broyhill, Lane, Thomasville, Drexel Heritage, Henredon and Maitland-Smith, says it needs until May 20 to verify the results of the proxy election votes that were submitted at this week’s annual shareholders meeting. Sun says its proxy vote consulting firm has already counted enough votes to assure a victory for its three candidates.

(Incidentally, this proxy stuff is big business. In its first-quarter earnings report, Furniture Brands listed $587,000 in financial and legal “costs associated with proxy contest,” and you can bet Sun has spent a bundle, too.)

So what does Sun Capital win with its victory, assuming it gets verified? It will have three seats on an eight-member board, which constitutes a large presence but not a majority. It would seem like three people might influence a debate but not force a decision.

One thing Sun is almost certain to receive, should its candidates be seated, is information. Sun Capital proposed to acquire Furniture Brands in February but didn’t make a specific offer, partly because it didn’t have access to non-public information. FBI usually doesn’t break out the results of its various operating companies in its public reports, and that would be high on the list of what I’d want to know if I was thinking of buying the business.

The turmoil part would come if that information were to enable Sun Capital to make a firm offer, or if the new board members proposed selling off certain operations that are either poorly performing or would fetch a good price. (With a guaranteed three votes, could Sun somehow get around or overturn the “poison pill” anti-takeover provision at Furniture Brands?)

The new board members also might want to tinker with the restructuring plan that Chairman and CEO Ralph Scozzafava unveiled last year, aimed at transforming Furniture Brands from a holding company into an operating company with more of a unified approach to running its various brands.

With Mickey Holliman’s retirement as chairman, virtually all of the company’s top management has been replaced in the past 18 months. The new executives were already on the hot seat as they are charged with executing the company’s plan and achieving ambitious goals. With Sun Capital’s claimed victory, the seats will get a little hotter.

FBI’s ‘rejection’ of Sun Capital bid may be just a starting point

If you’ve surfed the Web looking for stories on Sun Capital’s bid to acquire Furniture Brands International, you may have read that FBI “rejected” the bid.

   
That’s not quite right. 
   

True, Furniture Brands executives expressed some disdain for the proposal last week from Sun Capital, which said the private equity group wants to acquire the big manufacturer and importer (parent of Broyhill, Lane, Thomasville, Drexel Heritage, Henredon and Maitland-Smith) for a “substantial premium” over its stock price.

   
But FBI officials didn’t reject the offer outright. They pointed out, quite correctly, that there was not enough information available to its board members for them to be able to assess it. Sun Capital didn’t even state a firm price. It just said it wants to buy the company.

 
Jason Bernzweig, vice president of Sun Capital Securities Group, wrote in the letter to FBI’s board, “We are prepared to move forward on an expedited basis to finalize our proposal based on due diligence and reach a definitive agreement and consummate a transaction.” 

 
That sounds like a firm offer could be coming soon, in which case Furniture Brands’ board could have something to accept or reject, and explain their reasons to shareholders.

 
FBI’s response to the proposed offer sounds a little like what you’d say if someone approached you and said he wants to buy your 1956 Chevrolet Bel-Air: “Why should I sell it? I just got it running fine, and if I keep fixing it up like I plan to, it’ll be worth a lot more later.” It’s not a rejection, just a reply.