30 March 2009

Deja Vu All Over Again?

This is a reflection of the Chemed building (I'm fairly sure) downtown. I've never known what exactly what Chemed does. The only clue I had was the wooden tennis racket I used as a kid which was painted "CHEMED." I can only assume this was a red herringal coincidence, since it makes as much sense as having a Johnson & Johnson or PNC Bank racket.

It turns out that Chemed is two companies. One is a hospice and the other (and I am not making this up) is Roto-Rooter. If this seems like an incongruent partnership, you're not alone. The suits over at MMI Investments (which owns 3.6% of Chemed stock) are having a hissy fit over the Chemed Board's recent decision not to split the company. Check it out (this is from MMI's SEC filing):

...the Chemed Board has decided to maintain Chemed's absurd conglomerate structure indefinitely, using the current market environment as an excuse to avoid taking this long-term step...

Absurd? I'll bet they had to argue with the lawyers to keep that bit of trash talk in there. MMI is done asking nicely. Now they want to replace 5 of 11 board members with outside ("independent") people.

The rationale for all this is that two companies are better for shareholder returns than one company. And MMI, a key shareholder, wants mo' money.

What gives pause in this situation is the fact that MMI is coming from the same perspective that has largely screwed up the free market; the perspective that the bottom line is the only line, and nothing can be more important than maximizing shareholder returns in time for the next quarterly report.

MMI is basically accusing the Chemed board of doing what MMI wants to do for itself: make its board wealthier. And MMI's rationale, at least based on what is written on its SEC filing, seems suspect. MMI lists some problems it has with Chemed but doesn't explain why they are problems. Indeed, pointing out that a company has former employees on the board seems like criticism for something positive.

Nevertheless, it is their company and they have to fight it out. The point I am making is that the same Wall Street tunnel vision that resulted in economic adversity is still there. And as long as it is, I know that at least I will be very wary of calls for de-regulation as I can now draw a straight line from tunnel vision to de-regulation to market failure.

1 comment:

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