UTI Bailout: Will it be the last?

-- D Satish

Recently the Government has come up with a bailout package for UTI. This is not the first time that a bailout of UTI has been announced. However what differentiates it from the previous bailouts is the size of the bailout and the restructuring package that came with it. Would this comprehensive package cure all the problems of UTI permanently? What does this package mean to millions of investors and what is the effect on the economy? When would UTI disassociate itself from the Government and survive on market-driven terms? Does the package give any clue as to the future direction of UTI and most importantly would the bailout be the last or would history repeat itself?

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Spotlight

AOL Time Warner : Hype all along?

In early 2000, many saw a promise in the AOL and Time Warner merger. However, both companies appear to have made their decision to marry in haste for AOL that was supposed to take the combined entity to new heights, is pulling down Time Warner.

Time Warner's merger with AOL(American Online Limited) looked perfect"a smart combination" of copyrighted content and distribution muscle. AOL had online skills, massive market share, distribution and growth. Time Warner had content, assets and revenues. Together AOL and Time Warner had or presumed that they had the potential to cross-exploit and cross-promote their assets to create a media behemoth. Time Warner agreed to the merger with the expectation that AOL would take it to even greater heights. But the expectations have been belied. With revenues of $8.7 bn comprising just 23% of the group's total in 2001, AOL has turned out instead to be just another distribution channelhandy to have but not revolutionary in itself. At the time of merger, AOL, however, was not just an addition of a new-media distribution channel to a vast group of old-media assets, but held a potential to bring about a redefinition of media itself. AOL was supposed to inject new-media dynamism into what was seen as lackluster old businessTV shows or music.

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Case Study

Sears Roebuck & Co. :Back to the future

-- C S V Ratna

Diversification had cost Sears its profits and took the company away from its core business of merchandising. But beginning from the 1990s and through two turnarounds, the company is making every effort to go back to its roots. Its first attempt at the turnaround was a major success while the second one is showing promising signs.

For most of the past century, Sears Roebuck and Company was the darling of American households. It used to be the largest retailer in the United States, with sales representing one to two percent of the United States gross national product for almost 40 years after World War II. Then during the 1980s, Sears diversified into other businesses, hoping to provide middle-class consumers with banking, investment, and real estate services in addition to its traditional retail business. At the same time, it shifted its focus inward, to the interests and needs of its huge bureaucracy, all at the expense of the customers who found themselves in declining, dismal stores. The diversifications carried Sears away from its roots in retailing, giving way to rivals to fill the top spots. Sears steadily lost ground, moving from the Number 1 position to Number 3 behind discounters Wal-Mart Stores, Inc. and Kmart Corporation. The company completely lost its way but only to find it again under Arthur Martinez, who was brought in from Saks Fifth Avenue. He led the company through two transformations that saw the American retailing idol of yore return to its long forgotten roots. The first turnaround happened in 1994 and the second one in 2000. Today, Martinez's successor, Alan J Lacy is trying to sustain the turnaround.

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Debate

Globalization: Challenging Times?

-- The debate was co-ordinated by Ms. Prabhavati Rao,
Faculty Associate, IBS, Bangalore.

In the recent past, globalization has acquired considerable attention across the globe. Some view it as a process that is beneficiala key to future world economic development that is inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and thwarts social progress.

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Business Environment

US Economy: Defying the double-dip?

-- Debasis Mallik

Though the recessions of early 1970s and 1980s have witnessed multiple dips due to weak economic fundamentals, the present recession is destined to avoid it. Though business confidence is yet to accrue, the buoyant household sector seems to drive the recovery.

The current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time.

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Financial Markets

Inverse Floaters : Wooing investors?

--D G Prasuna

Inverse floaters or inverse floating bonds have entered the Indian market. This instrument whose return is inversely related to the interest rate has a checkered history in the US. Nonetheless, they charm the investors with an opportunity to earn high returns in a low interest rate regime.

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Accounting

US Accounting Standards : The "Principles" question

-- Amit Singh Sisodiya

Accounting shenanigans at Enron and WorldCom make a case for revisiting the US GAAP. Is a switchover to principles-based accounting standards desired?

"The more detailed the rules are, the easier it is to get around them."

-Baruch Lev, Professor, Accounting, Stern New York University

Who knows it better than Enron? Before its disgraced collapse, who had thought that cooking-the-book (inflating accounting numbers) could be perfected to such an extent that it no longer remained just that plain vanilla accounting. Instead it had taken the form of an art. Malicious executives fudged accounting numbers, fooled shareholders, markets, and perhaps everybody else including regulators. Innumerable cases of accounting shenanigans have literally inundated Wall Street in a short span in recent times. Enron cooked its books by exploiting the loopholes in the existing accounting statements on SPEs; Qwest Communications got around by channel stuffing its revenues by recognizing its future sales as current year revenues. WorldCom willfully misstated earnings by capitalizing operating expenses. At Adelphia Communications, it was a case of concealing huge sums of loans given to the company's promoters. While at Tyco, it was a case of the company bearing the million dollar lavish lifestyles of its chief executive.

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Industry

Coffee Retailing : The cafe way

--Phani Madhav

Coffee retailing in India is undergoing a sea change. New generation coffee retailers have arrived armed with wide variety of flavors and a superior experience. Riding on their initial success and with prospects looking bright these chains are expanding fast to increase their presence and become a part of the Indian consumers' life.

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Corporate Strategy

HLL : Sourcing - The latest growth lever

-- C S V Ratna, Team Analyst

At times when its sales have soured and nimble competitors are biting into its share, India's biggest FMCG Company, HLL, is out to make the most of `sourcing' out to global companies, especially to its parent, Unilever.

What does a giant 10 times bigger than its nearest competitor do to beat the protracted slump in its sales? More so, when the scope for increasing market shares in most of its product categories is next to nothing? And, when the Goliath is attacked by not one or two but several nimble footed Davids?

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Global Media :Labyrinth of expansions and mergers

--T Aparna

Media companies, which went on an expanding spree -- buying companies and making merger deals, are facing rough weather. The promised synergies have been elusive, hard and slow to come by.

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Technology

Open-Source Software : Freewheeling growth?

--C S V Ratna

With opponents like Microsoft and supporters such as IBM and HP, the open source software movement seems to have an exciting future ahead.

It was in the 1990s, at the height of the technology boom that open-source software became a rage. Programmers across the world contributed to the movement by writing free programs; venture funds were poured into the open approach; open-source firms mushroomed and their IPOs broke all records. Today with the burst of the dotcom bubble and the economic downturn, many open-source firms have died an early death. But the open-source movement continues to survive and is also gaining favor with budget-conscious companies buoyed by performance improvements. It is emerging as a threat to the proprietary interests of big names like Microsoft and Apple who have for long controlled the operating system arena.

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Corporate

Union Bank of India : A new dawn

--A Sowdeepthi

As the 83-year-old Union Bank of India dangles the IPO bait and decides to give thrust on retail banking, it is making all efforts to strengthen its position in the rapidly changing banking industry.

A profusion of long-awaited IPOs is hitting the Indian primary market as many companies have queued up to go public. In particular, the banking sector is on an IPO spree, following pressure from regulatory authorities. While the RBI has pressed private banks like IDBI, UTI Bank and Lord Krishna Bank to reduce promoters' equity to 40%, SEBI has held talks with major public sector banks to hasten their public offers as part of efforts to boost the capital market.

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