Tuesday, July 12, 2005

William Galvin - Poster Child for Economic Illiteracy

William Galvin is the perfect poster child for economic illiteracy.

He is hellbent on holding up the Gillette/Proctor & Gamble merger. He was just on CNBC today trying to justify his meddling and it would have been laughable if not so infuriating.


Procter & Gamble and Gillette have agreed to a merger, with near unanimous shareholder approval on both sides. Yet, the politically aspiring Secretary of State William Galvin has made it his personal crusade to interfere with this deal.

Gillette is based in Massachusetts and the dim-witted Galvin claims he is looking out for the best interests of Gillette employees and stockholders. First of all, there is no audience for this tired rhetoric denouncing any and all forms of layoffs, even the imaginary ones yet to take place. What these fossilized politicians need to realize is that it is 2005, not 1932. The economy is more dynamic, as is the labor force. People today will have on average seven jobs in their careers.

Never mind that layoffs are the essence of a flexible and innovative economy. Galvin needs to go look at the French and German economies to see what overly protective job legislation does to an economy. Furthermore, the buyouts and unemployment benefits in Massachusetts are so generous they approximate hitting a scratch ticket. (I have detailed this in a previous blog on the Fleet merger.)

But this layoff talk is just a ruse, Galvin is not protecting the “little people” as he purports. He is hiding behind them or more accurately exploiting them to springboard clich├ęd business bashing and his own political aspirations.

The CNBC crew really shredded him today. Paraphrasing:

Galvin: “Procter and Gamble is just going to cut and run (Gillette)….”
Becky Quick: “But isn’t Warren Buffet for the merger? He has never been a cut-and-run guy….”
Galvin: “Well, he is conflicted…”
Becky Quick: “Yeah, but he is the largest shareholder of Gillette and very excited about the merger…”

Apparently Galvin knows better than Buffet what he should do with HIS Gillette shares !!

CNBC Guest: “If I have a house and want to sell it for $2 million, are you going to step in and say, no – that house is worth $2.3 million, you have to sell it for that?”
Galvin: “In that case I would look out for the seller..."
Galvin: “eerrr…..ahhhh….. (stammering)”

David Faber: “Why are you blocking this deal when all the shareholders want it?”
Galvin: “Because the price is too low for Gillette….”
David Faber: “No offense, but you aren’t an analyst, you are a politician. How do you know what Gillette is worth?”
Galvin: “We have done an independent study that shows Gillette is worth $22 billion more. Gillette is selling out too cheap…”

This is it; Galvin’s last statement gets him automatic induction into the Economic Illiteracy Hall of Shame.

At the time of the initial merger announcement, investors from all over the world were valuing Gillette at $45 billion. Proctor & Gamble will end up paying $57 billion for the company. Yet Thomas Galvin alone has the perspicacity to see the true value of Gillette at $79 billion. There is a multiple choice of modifiers to describe such thinking: intellectual arrogance, bullshit, sophistry, ..etc.

About Galvin’s statement, “…selling out too cheap…”

David Faber: “But they are not selling out. Gillette is getting .975 shares of P&G. Won’t Gillette shareholders participate in the continued growth of P&G?”
Galvin: “….errr…ahhh….too cheap….selling out….$22 billion….the reputation of my office…blah….blah….(continued stammering).”

Let me illustrate the kink in Galvin’s $22 billion argument.

Consider that maybe P&G is “undervalued” as well. If undervalued by more than $23 billion, then maybe Gillette is being overpaid. Hey Galvin, did you do an “independent” valuation of Proctor & Gamble? See, one could throw the fanciful valuation game right back in your face, IDIOT.

The only little guy Thomas Galvin is looking out for is himself. He is an Eliot Spitzer wannabe. That pic above is from his own site and pretty much encapsulates all there is to know about him and his "conflicted" ambitions.

Unfortunately, Galvin’s economic illiteracy is representative of way too much of Massachusetts. A virulent anti-business climate and graying population don’t bode well for the state’s future. I can’t believe I have to move back there.

1 comment:

Anonymous said...

This posting is RIGHT ON.

Gillette Board HIRED Kilts (not vice versa!).

Company hit the wall 6 years before he joined (missed all their key #'s; stock down 50+%, etc.) before he joined. Company had 35-40% EXCESS EMPLOYEES (so the 6.5k that were packaged out, many of whom were there 1-15+ years too long, were only a part of the 10-12+k employees that he should have/could have removed to 'right-size' the firm that prior managements over-invested in...got their people plan WAY AHEAD of the business plan!). Kilts made very difficult decisions but in the end they WERE in best interest of the employees and shareholders. A LOT more could have lost their jobs based on the size of Gillette. Of the 6500 total employees P&G said would be exited after acquiring Gillette, the total was actually 5k AND that came from BOTH Gillette and P&G! Interestingly,

in the end it was STEVE BAILEY of the GLOBE (and NYS Gov Spitzer!) who got canned recently, who bad mouthed Kilts from the moment he arrived and rarely let the facts get in the way of his uninformed opinions. He and Sec of State Galvin were the ONLY 2 people globally who even thought the Gillette sale 'deal' was bad for the shareholders (Galvin NEVER DID issue a Report after he leaded stuff left and right and spent $300-400+k of the State's money duplicating what the federal government was doing just to get political coverage, til he finished #4 and dropped out of the Governors race!). Galvin hired an assoc professor from U of Virginia to help on the Gillette valuation (the professor never got tenure there and went to same position at Minnesota!). Their valuation said that P&G shareholders should pay 100% of its current valuation at purchase (which it DID pay for!), pay 100% of the upside of 100% of the integration synergies (which it DID pay for!) and, here's the kicker, it should have paid for 100% of the upside of the GROWTH after the sale (which would mean IF P&G achieved all of the integration savings AND the upside growth in future years it should have PAID for all this upfront... thereby passing 100% of FUTURE VALUATION to G shareholders, the acquiree, at time of sale... giving P&G invesotrs a ZERO ROI!!... as it turned out they DID pay for about 20-25% of future growth too!).