Earlier this month I wrote about the CEO change at Walgreens (see blog).  Now comes news that Cadence Design CDNS (NASDAQ), the electronic-design automation company, underwent a major management shakeout today that included the resignation of its CEO, Michael Fister, a former Intel Corp. executive.  In addition to Fister’s resignation according to the company’s press release,

The company also announced other executive resignations: Kevin Bushby resigned as executive vice president, worldwide field operations; James S. Miller, Jr. as executive vice president, products and technologies organization; William Porter as executive vice president and chief administrative officer; and R.L. Smith McKeithen as executive vice president, corporate affairs. 

The major management shuffle comes as the company continues to face a difficult business and financial environment.  The company has experienced a number of consecutive weak quarters.  The company, according to a story by Shirleen Dorman in the Wall Street Journal,

… reiterated its lowered July outlook for a third-quarter per-share loss of 27 cents to 25 cents with revenue of $235 million to $245 million. Third-quarter results are due on Oct. 22.Cadence – which has the largest revenue among companies that sell software for making chips and other electronic products – and rivals have seen their customers’ purchasing budgets squeezed by a number of factors, including severe price pressure on memory chips and other products. New production processes that put more transistors on a chip – allowing more complex products – have also led to rising design costs, which deters some companies from developing new chips. 

From my perspective the real issue that forced Fister out was his failed effort to acquire Mentor Graphics.   Back in June of this year, Fister embarked on an hostile effort to purchase its competitor, Mentor Graphics for $1.6 billion as a way, according to Marketwatch,

… to cut costs and boost market share. 

Cadence was forced to rescind its offer in August due to its deteriorating position and the difficulty it was facing as regards to obtaining attractive financing terms.  Fisker and his top associates failure in the Mentor Graphics acquisition is very similar to the failure of the hostile acquisition attempt by former CEO of Walgreens, Jeffrey Reins.  Both have paid with their jobs.  Cadence failed to give a reason for Fister’s resignation.  According to the press release,

Mr. Fister, who took over as CEO in 2004, had resigned by “mutual agreement” with the board. 

To temporarily deal with the management changes Cadence’s board set up what they called an “interim office of the chief executive” that includes John Shaven, the company’s chairman, Lip-Bu-Ton, a director, and chief financial officer Kevin Palatnik.  Cadence faces some very difficult challenges going forward.  Hopefully they will be able to put together a top new team capable of guiding the company through what can only be considered extremely difficult times.Stay tuned.For more:EDN  Reuters  San Jose Business Journal  Financial Week  

Of everyone that’s been effected by the current financial crisis, you’d think one group that’d be hit worst of all would be the asset managers- the people who manage all of that money people seem to keep losing.

However, in TWST’s special focus on Financial Services this week, analyst Michael Kim of Sandler O’Neil + Partners gives two reasons to be bullish about Asset Managers in the long term:

1. “The first is certainly the non-US opportunity. I believe asset growth will continue to be meaningfully higher across several overseas markets, namely in Asia, Australia and parts of Continental Europe. So that obviously bodes well for the companies that have well-established local operations in those markets.”
2. “The second longer-term growth driver is the alternative side of the business. Certainly we’ve seen some volatility around performance and flows in the near term. That said, longer term, I still think investors, particularly on the institutional side, will continue to allocate more money to hedge funds, private equity and real estate portfolios, given the fact that the public markets remain volatile. So from a performance standpoint, you could make the case that alternative investments offer a better risk/reward profile.”

For the full interview with Mr. Kim, including a complete overview of this space and stock picks, click here.

John Mase, an economist and blogger, writes the Mase: Economics and Finance blog.  Today’s post focuses on executive management and why it is key to a company’s long term success.  According to Mase,

“Good management” is what one should look for to invest in at all times. 

Good management must first create an organization that has some kind of competitive advantage, something that differentiates it from other organizations, within the marketplace. This competitive advantage is generally built upon something the firm has, some core competencies that others don’t possess. And, these core competencies are enhanced by the team that management builds to enhance and sustain these core competencies. 

In judging a company, I have gotten away from just looking at the head of the organization, the top dog. What has become crucial in my appraisal of any organization is the people the head person brings in to support and enhance the firm.

Anyone interested in management as a key component to a company’s success should read Mase’s post.

Back in late August (see blog post) I placed Sir Fred Goodwin, the CEO of the Royal Bank of Scotland, on my CEO watch list.  It took a bank bailout from the government of the United Kingdom to get Sir Goodwin’s head.  According to a story by Jon Menon in Bloomberg, in exchange for the U.K. government bailout,

..RBS will get 20 billion pounds, while HBOS and Lloyds will raise 17 billion pounds between them, the companies said in separate statements today. RBS Chief Executive Officer Fred Goodwin and HBOS CEO Andy Hornby will also step down    

The Bank has appointed Stephen Hester as Sir Fred Goodwin’s replacement as CEO.  Hester has been the CEO of British Land one of the largest real estate firms in the U.K.  He is expected to institute a number of radical changes at the bank in light of the financial crisis. According to a different story in Bloomberg Hester,

may get rid of securities trading and consumer banking in the U.S. and corporate lending in Europe. He also may sell assets that outgoing CEO Fred Goodwin bought last year from Amsterdam-based ABN Amro Holding NV.”There are no sacred cows,” Hester, 47, said on a conference call with reporters today. “We will make material changes to strategy.”    

One can assume the executive change at RBS and the U.K. investment in the bank will make for a more certain situation going forward.  We will just have to wait and see.  Stay tuned.For more:ReutersMarketWatchSeeking AlphaFin Facts Ireland

Ford Motor Company F (NYSE), the struggling American car manufacturer, has turned to its 59 year old European executive Lewis Booth.  On November 1, Booth will replace Chief Financial Officer Don Leclair who has been the firm’s CFO since 2003.  Booth is often slated as a potential successor to Alan Mullahy, Ford’s current CEO.  As American car firms seek a way out of their current serious financial and sales predicament, Booth comes to his new position at a propitious moment.  According to theFree Press Booth has been considered to have,

played a leading role in the successful transformation of Ford of Europe and Mazda during the past decade. 

Can Ford and General Motors find a way out of their circumstances? Stay tuned.For more:NY Times DealBook  Reuters  International Herald Tribune  MarketWatch

Walgreens CEO and chairman Jeffrey A. Reins today announced his immediate resignation as CEO, chairman and director of the firm.  Reins, who headed up Walgreen’s latest failed attempt to acquire Longs Drug Store Corp. was the company’s CEO since 2006.  He had worked at Walgreens since 1982 when he began as an assistant store manager.  He then worked his way up the corporate ladder.  The company has insisted that Rein’s departure had nothing to do with the firm’s failed acquisition attempt of Longs.  According to a story in Reuters,

“This is not related to the Longs proposal,” a company spokesman said. He declined to comment further on Rein’s departure, which is effective immediately.

It is easy to conclude that Rein’s has been forced to fall on his sword over his failed acquisition attempt and the fact that CVS, Walgreen’s main competitor, has succeeded in going forward with the acquisition of Longs.  CVS’s offer appears to have succeeded despite the fact it was lower than that of Walgreens.  Walgreen’s was forced to withdraw its cash offer Wednesday when it became clear they would not succeed in their efforts.  Longs originally rejected Walgreens’ offer back in September.  According to the GlobeSt.com a commercial real estate firm,

Longs rejected Walgreen’s higher offer on Sept. 17, more than one month after accepting the $2.7-billion offer from CVS, saying the regulatory risk was too great. Walgreenbresponded later that month disagreeing with the assessment. A few days after that, Longs reported that the Federal Trade Commission was investigating whether a Walgreen acquisition would reduce competition among retail pharmacies in parts of California, Nevada and Hawaii, where Longs has most of its stores and where there is significant overlap with Walgreen stores.

It appears Reins’ failed to handle the acquisition attempt properly or should not have done it all.  There still remains a question as to Walgreen’s ultimate motive in the acquisition attempt.  Were they only trying to prevent CVS from getting Longs or was Walgreens really interested in the chain?  Whatever the reason, Reins has been forced to give up the reins.  The company named lead director Alan G. McNally as Rein’s interim replacement as both CEO and chairman.  McNally has been a member of the board since 1999 and was previously the CEO and chairman of Harris Bancorp.Keep a close eye on what Walgreens does over the next few months and who they ultimately choose as the permanent replacement for Reins.For more:Pacific Business NewsWall Street JournalBloombergChicago TribuneBriefing.com

This week our top picks come from Portfolio managers Carl Lytollis and Andrew Cox of Phillips, Hager & North Investment Managment. As Large-Cap value investors, they talked to us a little about what stocks they’re looking at in this difficult economic climate.

1. Wal-Mart (WMT)- “Wal-Mart…has grown into a very attractive investment, through a combination of two things: a price that peaked at $70 and pretty well troughed near $40, and earnings that grew consistently over that period.”
2. General Electric (GE)- “We look for the company that does something special and I think it implies overseas operations. Let’s take the case of General Electric, which went from basically nowhere in the alternative energy area to roughly $7 billion in sales in that area this year.”
3. Zebra Technologies (ZBRA)- “We’ve held Zebra Technologies for several years; it’s a manufacturer of barcode label printers and also has a smaller but rapidly growing business in providing software that enables RFID (radio frequency identification) tracking of items around industrial work sites, ports, airports and that sort of thing….They hae a wonderful balance sheet, very healthy returns on equity, and excellent competitive positions that we expect will make them a very attractive long-term holding for us.”

For the complete interview with Mr. Lytollis and Mr. Cox, including a complete overview of their investment philosophy, the current market climate and more stock picks, click here.

In our TWST issue this week, we talked with analyst William Bremer of the Maxim Group. Mr. Bremer covers the alternative energy space, and gave a very insightful overview of the current state of alternative energy in the U.S., and how the financial crisis could set back advancements in alternative energy.

Mr. Bremer’s primary concern is on the federal government renewing tax credits to the alternative energy industry. Without them, he fears that progress in this space will grind to a halt- as it did in 1999, 2001 and 2003. Unfortunately, as this industry is still in its infancy, these tax credits are necessary “until these newer alternatives are in large scale applications.”

However, as a result of the current economic problems, Mr. Bremer is worried that Congress- both the House and the Senate- might put this issue on the back burner until the current financial crisis is handled.

The worse case scenario, according to Mr. Bremer, would be that the combination of the tax credits not being renewed, in addition to the difficultly in obtaining financing in the current economy, would result in the space being faced with major pullback on many large scale projects.

For the full interview with Mr. Bremer, including a complete outlook for the space and stock picks, click here.

Unisys, the struggling computer services and hardware firm, which recently pushed out its CEO (see blog) after increasing pressure from activist shareholder MMI Investments, today announced the selection of J. Edward Coleman as the firm’s CEO and new Chairman.  Coleman, who Unisys has slated as a turnaround specialist, will take his position immediately. He has indicated he will be available at the firm’s earnings call October 30th at which time he is expected to give his views on the firm.  Unisys has sung the praises of Coleman for his efforts to turnaround Gateway Computer which he took over as CEO back in 2006.  Coleman was supposedly repsonsible for the sale of the firm to Acer, Inc. Upon the sale he left the firm.  Prior to his work with Gateway, he worked for Compu Com, Computer Sciences Corporation and IBM.  According to today’s Wall Street Journal which quoted Unisys’ press release,

… he “successfully restructured the company (Gateway) through a series of strategic initiatives and tightly focused the business on its core markets, culminating in its acquisition by Acer Inc.,” 

I am not certain MMI Investments which holds over 9% of the company shares will be satisfied with the Coleman pick, we will just have to wait and see.  Coleman’s task ahead is monumental, we will just have to watch his moves, his talent picks and his overall strategy to get a real sense of what he plans to do and whether he can succeed in his plans.For more:Orange County Business JournalWashington Technology

AMD’s AMD (NYSE) new CEO, Dirk Meyer, who took over the position back in July (see blog), has succeeded in coming up with a new way for re-structuring the struggling chip maker.  Today the company announced it would be spinning off its manufacturing arm into a new business and giving away its debt.  The new business will initially be called the The Foundry Company.  The original company will continue focusing on the design of computer chips and will be run by Dirk Meyer.  According to aCNET story by Brooke Crothers,

The newly created Foundry Company was described by AMD Chief Executive Dirk Meyer on Tuesday as a “brand-new and leading-edge semiconductor manufacturing company.” It will be run by Doug Grose, who will relinquish his current role as AMD’s senior vice president of manufacturing operations to become CEO of The Foundry Company.

… Hector Ruiz–the current AMD chairman–will relinquish his role as AMD’s executive chairman to become chairman of The Foundry Company. 

As part of the change, AMD managed to succeed in bringing about this shift through a major additional investment of approximately $6 billion from Advanced Technology Investment Company (ATIC) and Mubadala Development both of whom are investment arms of the Abu Dhabi government and already own a large share of the firm.  It still remains uncertain how much in the end the latest dramatic changes will make for the firm in relation to its major competitor and remaining industry behemoth, Intel, but at least the company appears to be making some significant changes.  Maybe Meyer has more up his sleeve.  Stay tuned.For more:Bloombergbit-tech netPortfolio.comUK RegisterGulfnewsBarron’s BlogBusiness Week blog