Strategy Muse

How they boost income: 14-August-08

Strauss Group, an Israeli coffee outfit:
1. It has boosted income in the past through cooperation (with Danone in yogurt; with Unilever in ice cream).
2. It ventured into the larger and fragmented wholesale roast and ground coffee market instead of the instant coffee market dominated by Nestle and Kraft Foods.
3. It made acquisitions in countries where coffee drinking is either strongly entrenched or taking off in popularity with newly affluent consumers.
4. It formed a joint 50-50 venture with Lima Brothers in Brazil, established its own local coffee production and marketing facilities in Eastern Europe and acquired Cosant Enterprises in Russia for $93 million. It is trying to be the first on the ground in the potentially huge market in China
5. It diversified in the U.S. into hummus, a traditional Middle Eastern chickpea spread that has had rapidly increasing popularity. It has allowed Pepsico a 50% stake in the hummus subsidiary to expand in the U.S.
6. It is looking to expand its "Max Brenner" chocolate bars concept in the U.S. market after success in Israel, Australia, Singapore, and the Philippines.

[Click here for full story at Businessweek.com]

Diversification + cooperation/partnership + entry into stable markets + entry into emerging markets + entering fragmented markets = scope for more income

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CSL Ltd., Australian health-care company, which is the world's second-largest maker of blood plasma products:
1. It will buy U.S.-based Talecris Biotherapeutics Holding Corp. (whose products are in the fastest-growing segments of the $15 billion global plasma-product market) to boost sales by more than a third and gain additional scale, breadth of products, geographical presence, low cost base and capacity to increase output to enhance its position in the global plasma products market
2. It will pay $3.1 billion in cash for Talecris. (And it will pay $75 million if regulators block the deal.)
3. It will raise $1.5 billion in a share sale and fund the rest of the acquisition with cash and a loan from Merrill Lynch & Co.

[Plasma is the watery liquid in which blood cells are suspended. Doctors are increasingly using plasma-based products to treat diseases in which immune cells attack the nervous system, such as MS and Guillain-Barre syndrome. The treatment is also being studied for Alzheimer's disease.]

[Click here for full story at Bloomberg.com]

Acquisitions with synergic advantages = scope for great income growth

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Ebay, e-commerce giant:
1. It is on the lookout for and will acquire stakes in companies that can expand its core shopping business to new markets
2. It is stepping up overseas expansion efforts and increasing its presence in Asia where local competitors have strong ties to users, to counter competition for Asian e-commerce from Yahoo!
3. It will acquire a 36.4% stake in Korean e-commerce giant Gmarket. (It has used minority stakes in the past as a precursor to acquisition or attempted takeover) 
4. It will use its growing cash pile to fuel this growth

[Click here for full story at Businessweek.com]

Expanding in the core competence zone + expanding in growing markets = scope for healthy income growth

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CSM NV, the world's largest supplier of ingredients to bakeries:
It raised prices by more than 10 percent as wheat and palm-oil rose to records even price increases are likely to hurt sales in the U.S.

[Click here for full story at Bloomberg.com]

Raising prices for rising costs = income imperative

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United Airlines, beleaguered U.S. airline with a $2.7 billion quarterly loss, which analysts believe should be liquidated:
It sued to block the pilots' union from continuing work slowdowns and sickouts that prompted 330 flight cancellations affecting 36,000 travelers.

[Click here for full story at Businessweek.com]

Removing business obstacles = increased scope for income

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American International Group Inc., the biggest U.S. insurer by assets:
It may raise $20 billion to cushion against writedowns tied to subprime loans

[It had raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors.]

[Click here for full story at Bloomberg.com]

Replacing funds lost abnormally in the course of business = scope to continue operations = scope for income

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Lehman Brothers Holdings Inc., financial firm with exposure to the mortgage market collapse:
1. It raised $14 billion of capital
2. It has reduced its reliance on short-term funding to create a buffer against a possible bank run.

[Click here for full story at Bloomberg.com]

Arranging funds for business + avoiding a run on the bank (rush of withdrawals) = assuring continuity of operations = scope of income