1. Sony Pictures
Sony has a studio production arm which has nothing to do with its core businesses of consumer electronics and gaming. Sony bought what was Columbia Tri-Star Picture in 1989 for $3.4 billion. This entertainment operation has done poorly recently. Sony's fiscal year ends in March, and for the period, revenue for the group dropped 15% to $7.2 billion and operating income fell by 10% to $466 million. Sony is in trouble. It lost $3.1 billion in its latest fiscal year on revenue of $86.5 billion. Sony's gaming system group is under siege by Microsoft (NASDAQ:
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News) and Nintendo. Its consumer electronics group faces an overwhelming challenge from Apple. The company's future prospects have been further damaged by the Japan earthquake and the hack of its large PlayStation Network. CEO Howard Stringer is under pressure to do something to increase the value of Sony's shares. The only valuable asset with which he can easily part is Columbia which would attract interest from a number of large media operations. Sony Entertainment will disappear with the sale of its assets.
2. A&W
A&W Restaurants is owned by fast food holding company giant Yum! Brands (NYSE:
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News) which has had the firm for sale since January. There have been no buyers. The chain was founded in 1919. The size of the company grew rapidly, and immediately after WWII 450 franchises were opened. The firm pioneered the "drive in" fast food format. A&W began to sell canned versions of its sodas in 1971 — the part of the business that will survive as a container beverage business which is now owned by Dr. Pepper/Snapple. The A&W Restaurant business is too small to be viable now. It had 322 outlets in the U.S and 317 outside the U.S at the end of last year. All were operated by franchisees. By contrast, Yum!'s flagship KFC had 5,055 stores in the U.S. and 11,798 overseas. Two massive global fast food chains are even larger. Subway has 35,000 locations worldwide, and McDonald's has nearly as many. A&W does not have the ability to market itself against these chains and at least a dozen other fast food operators like Burger King. And, A&W does not have the size to efficiently handle food purchases, logistics, and transportation costs compared to competitors many times as large.
3. Saab
The first Saab car was launched in 1949 by Swedish industrial firm Svenska Aeroplan. The firm produced a series of sedans and coups, the flagship of which was the 900 series, released in 1978. About one million of these would eventually be sold. Saab's engineering reputation and the rise in its international sales attracted GM to buy half the company in 1989 and the balance in 2000. Saab's problem, which grew under the management of the world's No.1 automobile manufacturer, was that it was never more than a niche brand in an industry dominated by very large players such as Ford and Chevrolet. It did not build very inexpensive cars like VW did, or expensive sports cars as Porsche did. Saab's models were, in price and features, up against models from the world's largest car companies that sold hundreds of thousands of units each year. Saab also did not have a wide number of models to suit different budgets and driver tastes. GM decided to jettison the brand in late 2008, and the small company quickly became insolvent. Saab finally found a buyer in high-end car maker Spyker which took control of the company last year. Spyker quickly ran low on money because only 32,000 Saabs were sold in 2010. Spyker turned to Chinese industrial investors for money. Pang Da Automobile agreed to take an equity stake in the company. But, the agreement is not binding, and with a potential of global sales which are still below 50,000 a year based on manufacturing and marketing operations, and demand, Saab is no longer a financially viable brand.
4. American Apparel
The once-hip retailer reached the brink of bankruptcy earlier this year, and there is no indication that it has gained anything more than a little time with its latest financing. It currently trades as a penny stock. The company had three stores and $82 million in revenue in 2003. Those numbers reached 260 stores and $545 million in 2008. For the first quarter of this year, the retailer had net sales for the quarter of $116.1 million, a 4.7% decline over sales of $121.8 million in the same period a year ago. Comparable store sales declined 8% on a constant currency basis. American Apparel posted a net loss for the period of $21 million. Comparable store sales have flattened, which means the firm likely will continue to post losses. American Apparel is also almost certainly under gross margin pressure because of the rise in cotton prices. The retailer raised $14.9 million in April by selling shares at a discount of 43% to a group of private investors led by Canadian financier Michael Serruya and Delavaco Capital. According to Reuters, the 15.8 million shares sold represented 20.3 percent of the company's outstanding stock on March 31. That sum is not nearly enough to keep American Apparel from going the way of Borders. It is a small, under-funded player in a market with very large competitors with healthy balance sheets. It does not help matters that the company's founder and CEO, Dov Charney, has been a defendant in several lawsuits filed by former employees alleging sexual harassment.
5. Sears
The parent of Sears and Kmart — Sears Holdings — is in a lot of trouble. Total revenue dropped $341 million to $9.7 billion for the quarter which closed April 30, 2011. The company had a net loss of $170 million. Sears Holdings was created by a merger of the parents of the two chains on March 24, 2005. The operation has been a disaster ever since. The company has tried to run 4,000 stores which operate across the US and Canada. Neither Sears nor Kmart have done well recently, but Sears' domestic locations same store numbers were off 5.2% in the first quarter and Kmart's were down 1.6%. Last year domestic comparable store sales declined 1.6% in the total, with an increase at Kmart of .7% and a decline at Sears Domestic of 3.6%. New CEO Lou D'Ambrosio recently said of the last quarter that, "we also fell short on executing with excellence. We cannot control the weather or economy or government spending. But we can control how we execute and leverage the potent set of assets we have." D'Ambrosio needs to pull a rabbit out of his hat soon. Sharex are down 55% during the last five years. D'Ambrosio's only reasonable solution to the firm's financial problems is to stop supporting two brands which compete with one another and larger rivals such as Walmart (NYSE:
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News) and Target (NYSE:
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News). The cost to market two brands and maintain stores which overlap one another geographically must be in the hundreds of millions of dollars each year. Employee and supply chain costs are also gigantic. The path D'Ambrosio is likely to take is to consolidate two brand into one — keeping the better performing Kmart and shuttering Sears.
6. Sony Ericsson
Sony Ericsson was formed by the two large consumer electronics companies to market the handset offerings each had handled separately. The venture started in 2001, before the rise of the smartphone. Early in its history, it was one of the biggest handset manufacturers along with Nokia (NYSE:
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News), Samsung, LG, and Motorola. Sales of Sony Ericsson phones were originally helped by the popularity of other Sony portable devices like the Walkman. Sony Ericsson's product development lagged behind those of companies like Apple (NYSE:
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News) and Research In Motion (NASDAQ:
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News) which dominated the high end smartphone industry early. Sony Ericsson also relied on the Symbian operating system which was championed by market leader Nokia, but which it has abandoned in favor of Microsoft's Windows mobile operating system because of license costs and difficulty with programmers. In a period when smartphone sales worldwide are rising in the double digits and sales of the iPhone double year over year, Sony Ericsson's unit sales dropped from 97 million in 2008 to 43 million last year. New competitors like HTC now outsell Sony Ericsson by widening numbers. Sony Ericsson management expects several more quarters of falling sales and the company has laid off thousands of people. There have been rumors, backed by logic, that Sony will take over the operation, rebrand the handsets with its name, and market them in tandem with its PS3 consoles and VAIO PCs.
7. Kellogg's Corn Pops
The cereal business is not what is used to be, at least for products that are not considered "healthy." Among those is Kellogg's Corn Pops ready-to-eat cereal. Sales of the brand dropped 18% over the year that ended in April, down to $74 million. That puts it well behind brands like Cheerios and Frosted Flakes, each which have sales of over $200 million a year. Private label sales have also hurt sales of branded cereals. Revenues in this category were $637 million over the same April-end period. There is also profit margin pressure on Corn Pops because of the sharp increase in corn prices. Kellogg's describes the product as being "crispy, glazed, crunchy, sweet." Corn Pops also contain mono- and diglycerides, used to bind saturated fat, and BHT for freshness, which is also used in embalming fluid. None of these are likely to be what mothers want to serve their children in an age in which a healthy breakfast is more likely to be egg whites and a bowl of fresh fruit.
8. MySpace
MySpace, once the world's largest social network, died a long time ago. It will get buried soon. News Corp (NYSE:
NWS -
News) bought MySpace and its parent in 2005 for $580 million, which was considered inexpensive at the time based on the web property's size. MySpace held the top spot among social networks based on visitors from mid-2006 until mid-2008, according to several online research services. It was overtaken by Facebook at that point. Facebook has 700 million members worldwide now and recently passed Yahoo! (NYSE:
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News) as the largest website for display advertising based on revenue. News Corp was able to get an exclusive advertising deal worth $900 million shortly after it bought the property, but that was its sales high-water mark. Its audience is currently estimated to be less that 20 million visitors in the US. Why did MySpace fall so far behind Facebook? No one knows for certain. It may be that Facebook had more attractive features for people who wanted to share their identities online. It may have been that it appealed to a younger audience which tends to spend more time online. News Corp announced in February that it would sell MySpace. There were no serious bids. Rumors surfaced recently that a buyer may take the website for $100 million. The brand is worth little if anything. A buyer is likely to kill the name and fold the subscriber base into another brand. News Corp has hinted it will close MySpace if it does not find a buyer.
9. Soap Opera Digest
The magazine's future has been ruined by two trends. The first is the number of cancellations of soap operas. Long-lived shows which include "All My Children" and "One Life to Live" have been canceled and replaced by talk shows, which are less expensive to air. The other insurmountable challenge is the wide availability of details on soap operas online. Some of the shows even have their own fan sites. News about the industry, in other words, is now distributed and no longer in one place. Soap Opera Digest's first quarter advertising pages fell 21% in the first quarter and revenue was down 18% to $4 million. In 2000, the magazine's circulation was in excess of 1.1 million readers. By 2005 it fell below 500,000 where it has remained for the last 5 years. Source Interlink Media, the magazine's parent, which also owns automotive, truck, and motorcycle publications, has little reason to support a product based on a dying industry.
10. Nokia
Nokia is dead. Shareholders are just waiting for an undertaker. The world's largest handset company has one asset. Nokia sold 25% of the global total of 428 million units sold in the first quarter. Its problem is that in the industry the company is viewed as a falling knife. Its market share in the same quarter of 2010 was nearly 31%. The arguments that Nokia will not stay independent are numerous. It has a very modest presence in the rapidly growing smartphone industry which is dominated by Apple, Research In Motion's Blackberry, HTC, and Samsung. Nokia runs the outdated Symbian operating system and is in the process of changing to Microsoft's Windows mobile OS, which has a tiny share of the market.
Nokia would be an attractive takeover target to a large extent because the cost to "buy" 25% of the global handset market would only be $22 billion based on Nokia's current market cap. Obviously, a buyer would need to pay a premium, but even $30 billion is within reach of several companies. Potential buyers would start with HTC, the fourth largest smartphone maker in the world. Its sales have doubled in both the last quarter and the last year. HTC will sell as many as 80 million handsets in 2011. The Taiwan-based company's challenge would be whether it could finance such a large deal. The other three likely bidders do not have that problem. Microsoft, which is Nokia's primary software partner, could easily buy the company and is often mentioned as a suitor. The world's largest software company recently moved further into the telecom industry though its purchase of VoIP giant Skype, which has 170 million active customers. Two other large firms have many reasons to buy Nokia. Samsung, part of one of the largest conglomerates in Korea, has publicly set a goal to be the No.1 handset company in the world by 2014. The parent company is the largest in South Korea with revenue in 2010 of $134 billion. A buyout of Nokia would launch Samsung into the position as the world's handset leader. LG Electronics, the 7th largest company in South Korea, with sales of $48 billion, is by most measures the third largest smartphone company. It has the scale and balance sheet to takeover Nokia. The only question about the Finland-based company is whether a buyer would maintain the Microsoft relationship or change to the popular Android OS to power Nokia phones
