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Are Japanese Businesses Worth More Dead Than Alive?

Sep. 25, 2011 10:31 AM ETDFJ, EWJ, EZJ, DXJ, SCJ, RSUN99 Comments
Jacob L. Taylor profile picture
Jacob L. Taylor

Benjamin Graham travels 79 years and 6,700 miles.

Part 1: Selling Businesses for 50 Cents on the Dollar

In 1932, in the midst of a more than an 80% decline in the U.S. stock market, Benjamin Graham wrote an article for Forbes magazine titled, “Is American Business Worth More Dead Than Alive?” In his 3-part series, Graham examined several important issues facing investors at the time, including market sentiment, dividend policies, and company liquidations.

Benjamin Graham, net nets, The following article is a humble ode to Graham’s original work and includes several Japanese and U.S stock comparisons in the Grahamian tradition, which may be found in the appendix. A link to Graham’s original works and brief synopses of his 3-part series are also included in the appendix.

Deal of a Lifetime?
Suppose you are the owner of a manufacturing company in 3 divergent business segments. Despite a world wide recession, you have shown positive profit each of the previous 10 years, earning $109m before interest and taxes last year. In fact, the average of the past 5 years’ earnings (2006-2010) is triple the average of the 5 years prior (2001-2005), indicating a still-growing business. A prospective purchaser approaches you and asks to see your financial statements. You show him a very healthy balance sheet, indeed:

JP:8066 MITANI CORP. hedge fund, high net worth, Buffett partnership, value investing, accredited investor

  • Cash & equivalents $600,000,000
  • Receivables & inventory 858,000,000
  • Factories, real estate, etc 333,000,000
  • $1,791,000,000
  • Less owing for current accounts$1,081,000,000
  • Less any debt $165,000,000
  • Net worth $545,000,000
  • Last Year’s EBIT $109,000,000

The purchaser looks over your statements and offers you a bid of $406 million for your business-- the cash, receivables, inventory, real estate, all the assets that have produced on average $82 million of profit over the past 10 years. For the offering price of $406 million, would you sell? Even after the company has bought back shares and returned $34 million in dividends to shareholders over

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Jacob L. Taylor profile picture

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