The Wreckage in Constellation’s Orbit The ever unfolding financial disaster is like the US and Russian satellites that recently collided in outer space. Their wreckage is expected to orbit the earth for thousands of years, posing a hazard to other satellites that we have come to rely on.

Like the detritus from these satellites, the current financial wreckage is going to cause long term damage to the economy. As if the short term hasn't been bad enough.

One of Baltimore’s most prominent companies, Constellation Energy narrowly avoided disaster but still gets most of the heat from the press. The press loves it because it’s a story that combines all key attributes of an exciting drama: a stodgy business is turned into a high flying company by a charismatic youthful king with a sexy cheerleader wife. The company narrowly avoids disaster when it is rescued by a famous financial knight. But the knight wants control of the kingdom so the youthful king finds another less demanding suitor and pays a tribute to make the financial knight go away. Chastened, the youthful king vows to mend his ways. The people (or at least Jay Hancock of the Baltimore Sun) want the king’s head but the king’s knights of the rectangular table believe the guy who almost killed the company also saved it.

Compared to what has happened to some of Baltimore’s other famous companies, they may be right.

For all the drama, at least Constellation has solid assets that create real heat and light; and its shares, while down substantially from their high, still have value.

Barely visible in Constellation’s penumbra are far bigger corporate disasters in Baltimore. Like MuniMae, which has become a black hole that has sucked out almost all of its shareholder’s equity.

At the beginning of February, MuniMae announced that it had finally completed its 2006 financial audit. That audit showed shareholder equity of about $668 million. Today, the company is in default under its loan agreements; its stock price is 25 cents a share and its market capitalization is less than $10 million. MuniMae’s liquidity problems resulted in its auditors issuing a “going concern” opinion that casts substantial doubt on the company’s ability to survive.

It is likely that MuniMae’s failures are a result of the financial and real estate vortex that has mercilessly sucked otherwise good companies into near oblivion. Like Constellation, management took risks with leverage that have now come home to roost. But unlike Constellation, management hasn’t yet found a way to salvage the company. It is trying to sell assets to raise cash, but its assets are hard to value since many are securities that are collateralized by real estate. In this market, whatever they are able to sell may be too little and too late to save the company.

Another company that has been orbiting in never never land is NexCen Brands. NexCen has become very adept at reincarnation, so much so that it is unrecognizable from what it was at birth. For those with a short memory, NexCen used to be Aether Systems, which became a dotcom disaster (but not before that private equity that fueled its rocket stock price got a great return). With not so exquisite timing, it then transmogrified into a mortgage company before jettisoning that identity and acquiring a variety of lesser known retail brands that include ice cream, pretzels, cookies and shoes. NexCen’s stock is currently 7 cents a share, down from its 52 week high of $4.31 and light years from Aether’s stock price that was inflated to several hundred dollars a share in the dotcom craziness.

Others have tried to make these individual brands work in far less challenging economic climate and have failed. The track record of companies that own multiple, disparate brands has not been good especially ones as different as shoes and pretzels.

If nothing else, NextCen has demonstrated an instinct for survival. But at its current stock price, it would take about 1500 shares to buy a pair of Nike’s and a pretzel.

Stockholders might want to take that deal.  8:37 PM •  0 Comments • Links to this post

Apology Schmology - Michael Phelps and Tom Daschle Michael Phelps and Tom Daschle have a lot in common. They are both in the public eye by virtue of their significant accomplishments. They both suffer the conceit of entitlement. They both got caught. And, they both gave what is now becoming a ritual apology for their indiscretions.

In the process, if anyone has noticed, the notion of an apology has lost all meaning.

That Michael Phelps had his head in clouds of marijuana smoke shouldn’t be surprising for a kid (yes, 23 is still a kid), who almost literally, has had his head underwater for the past decade. Michael’s training prepared him to win 8 gold medals in Beijing but there was little that prepared him for the adulation and endorsement millions that he received after winning those medals. That he smokes marijuana shouldn’t be surprising. The reality is that many young men and women use marijuana recreationally. Hey, two of our past three presidents have admitted to drug use - all three if you count alcohol abuse.

Phelps’ apology obviously was written by his advisors. It smacked of insincerity, but it was enough to provide cover for companies like Speedo and Omega who pay Michael millions. They have a big investment in his image, and the image has to be protected. So, the kid needed to apologize!

Most everyone, especially those of his generation who smoke weed and drink regularly, won’t be persuaded that Phelps’ apology is real. It’s the adults who make a living off Michael who needed his “apology’ to protect the wholesome image of their product.

Michael Phelps was perfect in the pool, but like every other young adult, he is learning the consequences of his actions in the real world. As a 23 year old, he didn’t understand that image is everything and that his life now belongs to the companies that pay him the endorsement dollars. His Faustian bargain is that in return for fame, he has to give up being who he is.

Which brings us to Tom Daschle. What we know is that he (and Tim Geithner) knew they owed taxes and didn’t pay it until they were forced to. We all know the tax code is complicated; many of us make mistakes. Probably some people cut corners knowingly. Some get caught; most don’t.

Daschle did. So he apologized.

As a man in the public eye, and an adult, Tom Daschle at the least should have paid more attention to his tax situation. He knows full well that people in public life come under more scrutiny than the rest of us. A man of Daschle’s experience should’ve known better.

No one questions that Daschle competence; he knows the challenges that the country faces in the health care arena better than most. But Daschle’s competence isn’t the question; his judgment is.

If anything, Daschle’s bigger error in judgment was in not telling President Obama of his tax problem until after Mr. Obama nominated him.

Even if one is to forgive his tax “error”, it is hard to explain his hiding knowledge of these “errors” from his boss. As a veteran politician, Daschle knew that this would put the President on the defensive once the information was disclosed, as he knew it would be eventually.

It was unrealistic to expect that a young and inexperienced Michael Phelps would be able to live up to the image of a super hero outside the venue that made him one. The lesson of Phelps is that he is young and naive and made a mistake. His handler-drafted apology sounded insincere, but Phelps deserves some slack.

But we had a right to expect more from Tom Daschle.

At least he finally recognized that his self serving apology wasn’t good enough.

For that, we can thank him.


  1:18 PM •  0 Comments • Links to this post