Not too long ago it seemed like every company wanted to go public and bask in the dollars and limelight of a big IPO. It’s funny how things can change in only a short period of time.
After a number of accounting scandals, the new reporting laws that followed and a flat stock market, many companies are wishing that they had never gone public. This is exactly what happened to Georgia Pacific (GP) Corp., which recently sold for $13.2 billion to Koch Industries Inc., a large private U.S. industrial conglomerate.
GP’s stock price had been hammered despite moves by the company to position itself to become more attractive to the financial markets. The forest product giant had struggled to impress public investors due to rising costs, sluggish paper and lumber prices, lawsuits and other market forces.
Pete Correll, GP’s chairman and CEO, told a major newspaper earlier this year, "We believe there’s tremendous value potential in Georgia-Pacific, and are frustrated that the market hasn’t recognized it yet."
Pete told reporters that GP had spent a lot of time and effort trying to build support with public investors. Now, the company can turn its attention to long term growth instead of quarterly results.
Valuations of other public forest products companies remain fairly low. Some stock analysts are predicting that the GP acquisition could be the first step in the next round of consolidation among major industry players. Other major forest products companies are trimming workforces and selling off units or timberland to boost profits.
The recent move by GP confirms what many in the forest products industry have known to be true, that it is hard for cyclical and long-term return businesses to keep Wall Street happy. Investors today are looking for high returns year after year, which forces companies to focus on the next quarter not years down the road. This strategy may cause some unforeseen problems as companies lose sight of the big picture. Executive compensation packages are routinely tied to quarterly earning performance, which encourages them to put off necessary expenditures and cut immediate costs even if it causes problems down the road.
Focusing on the next quarter may keep your business running in the short term and cause its demise in the long run. That’s the danger of trying to please investors, customers, management, employees, suppliers and business partners when they all have competing interests.
While most of our readers are not part of a public company, I wonder if the mindset of managing for the next quarter or even the next week has unduly influenced even the smallest company in the pallet and sawmill industries. Sure, we need to have enough cash to pay our bills. But at what point do we risk the future by getting barely what we need today. This is true when it comes to our pricing strategies, purchase of new equipment, coming to terms with new customers, developing business partners, managing employees and how we spend our day. Getting rid of the problem is not always the same as truly solving it. I know the allure of simply making the issue go away can sometimes lead managers to make decisions that they regret later.
The crisis of the urgent obscures the view of the long-term, important goal. Just look at the number of companies that buy solely on price when they don’t consider the system cost. This is definitely a very common factor in the pallet industry with customers.
It’s very similar to the kid who takes a small piece of cake now instead of a bigger piece later. You get the savings now or a better return later. That is the real decision when it comes to ROI. So which group do you fall in? Are you consumed by the immediate need or sidetracked by the urgent issue? Or are you free to deal with the future?
Did someone say, "Cake?"
