U.S. is becoming a branch-plant nation -- Today's Star

David Olive

In an planned auction revealed last week, General Electric Co. will shed its venerable appliance business. The buyer is likely to be foreign.

An outside world flush with cash is going to continue snapping up iconic U.S. industrial assets. GE's chemical business went to Saudi Basic Industries Corp. (Sabic) in a sale last year. And the likely suspects to relieve GE of its appliance operations includes competing appliance makers Bosch AG and Siemens AG of Germany; China's Haier Group; Sweden's Electrolux AB, which makes the Kenmore line for Sears Holdings Corp.; South Korean conglomerates Samsung Group and LG Electronics Inc.; and a GE joint-venture firm in Mexico.

Why no U.S. buyer for a 101-year-old firm that pioneered refrigerators, room air conditioners and toaster ovens in America? Because U.S. buyout firms are largely tapped out. And the sole remaining major U.S. appliance maker, Whirlpool Corp., is still digesting its acquisition of rival Maytag Corp. two years ago.

As China's Lenovo Group Ltd. did in buying IBM Corp.'s faltering PC business in 2004, foreign firms are looking for a toehold in the world's biggest consumer market by purchasing familiar, trustworthy brand names. Just as Lenovo's deal permitted it to continue using the venerable IBM name while establishing its own in the U.S. market, GE will lend the goodwill of its brand name to the purchaser of its appliance division.

The collateral damage of America's massive, decades-long trade deficit and more recent string of fiscal deficits, culminating in the global credit crunch, is that in manufacturing sectors, from cars to appliances to computers, the U.S. is becoming a branch-plant nation not unlike Canada.

Apocalypse Now II

The U.S. Federal Reserve Board's stage-managed bailout of failing brokerage Bear Stearns Cos. signalled in the minds of many Street mavens the passing of the worst of the current corporate malaise. But all it did, usefully, was indicate that Washington had imposed a tacit "Too-big-to-fail" policy on the nation's largest banks and investment houses, in order to stave off a global financial meltdown.

It's another story for the thousands of local and regional U.S. banks, many of them stuffed with the same junk mortgages that triggered multibillion-dollar writeoffs at the so-called money centre giants. With U.S. house prices looking to stagnate for another year after a deep drop, a 1980s-style savings-and-loan crisis is brewing at First Federated Bank of Broken Arm, Ark. and its thinly capitalized counterparts. If state regulators conclude that enough of these local lenders are ill-fated, the Fed likely will have to mount a second and more complex bailout campaign to spare the heartland of an even more severe credit drought than already exists.

No such luck, though, for corporations sucked into the leveraged-buyout maw in 2005-07. There won't be government bailouts of these overleveraged manufacturers, retailers and chicken-takeout chains acquired in deals with no margin for error, and thus in poor shape to withstand the deepening U.S. economic downturn. And it likely won't be banks pulling the plug, as in the past, but creditors who abruptly withhold vendor-financed goods from corporate clients whose solvency they've come to doubt. The initial burst of such failures over the past two weeks has involved mostly unfamiliar corporate names. But the sheer number and speed of the recent failures suggests a new and much wider wave of losses for stock and bond holders before the year is out. And banks being in the rough shape they are, the usual remedy of seeking their assistance in refinancing troubled firms just won't be there.

Phantom of the courts

We're not enjoying the spectacle of Garth Drabinsky's day in court, on fraud charges connected to his long-defunct Livent Corp. The Toronto impresario, with more energy than most, never mind those like him hobbled with permanent damage from polio, put Toronto at or near the centre of the world of English-language theatre. He restored historic showplaces and built others from scratch in Manhattan, Vancouver, Chicago, Toronto and elsewhere, and mounted not only lucrative productions like Phantom of the Opera and Show Boat but Kiss of the Spider Woman and other intellectually challenging works – a theatre euphemism for certain money-losers.

Drabinsky utterly lacks a capacity for self-examination, notwithstanding his 520-page memoir, the aptly named Closer to the Sun (1995). The latter did in print what characterized Drabinsky in person, finding fault for setbacks entirely with others, and was so oozing in cocky self-congratulation that any sense of humanity in the entrepreneur was only faintly visible.

Yet the New York and Toronto theatre scene, or that part of it catering to mass audiences, has been uninspired since Drabinsky's last curtain call (yes, he often was up there on the stage with the players to take the last bow). Putting the man's insufferable personality aside – not easy to do – a fair-minded assessment would find that Drabinsky's downfall was to no one's gain, and indeed a significant cultural loss for a Toronto lacking in bold dreamers.

Ediface pox

Why shouldn't a corporation celebrate itself with an impressive new home?

We don't want to discourage the practice. But it wasn't long after Nortel Networks Corp. moved into a retrofitted former plant in Brampton, winning a slew of design awards for the street-scheme layout of the new head office, that the wheels fell off Canada's biggest R&D spender. A complacent Xerox Corp.'s loss of market share to Asian rivals began not long after its relocation from its Rochester, N.Y.-birthplace to what its then-CEO considered the more fashionable Stamford, Conn., far from company's pioneering roots.

Enron Corp. wins the prize for premature erections. The topping-off ceremony for Enron's soaring new Houston office tower was accompanied by the flameout of America's seventh-largest company.

So we'll be watching with interest as the New York Times settles into its new Manhattan head-office tower, after a lengthy sojourn in one of the city's most historically notable buildings. Top editorial management has boasted that the designers, as requested, conceived "a newsroom that doesn't look like a newsroom." Which is fair enough, since an epidemic of editorial scandals this decade has rendered the Times a newspaper of record that often hasn't looked like one.

Closer to home, the decision by EnCana Corp., so soon after its creation with the merger of Alberta Energy Co. and the energy assets of the defunct Canadian Pacific Ltd., to split up into separate oil and gas companies follows the commissioning of Britain's Sir Norman Foster to design a new EnCana head office tower. Perhaps the new building will house both new companies. But likely not for long, since as much smaller firms the EnCana split-offs already are described as takeover bait for foreign buyers.

This date in history

Born in New York City this day in 1941, she wrote the screenplays for Silkwood, Heartburn, When Harry Met Sally and You've Got Mail.

(Answer, reverse: Norhpe Aron.)

Quotable tycoon

"Just in terms of allocation of time resources, religion is not very efficient. There's a lot more I could be doing on a Sunday morning."

–A youthful Bill Gates, cofounder of Microsoft Corp., now among the world's leading philanthropists.

James Morton
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