Re: HOMESTEAD: Ray Carey's Democratic Capitalism: value of a business

["Michael Wood, Cincinnati" <michaelwood@fuse.net>]

Going back to Norman G. Kurland's statement.
There's always a question of how to value a business--the only answer is 
the practical one: "What the owner will sell for and the buyer will buy 
for". Not very scientific <grin>, but it does work.

Remember, there are other currencies besides the dollars. In many cases 
these other currencies are much more important to the buyer and seller 
of a business than the dollar figure. The US taxation structure further 
affects the relative values of the different exchanges and currencies. I 
have seen an employer sell a business to an employee with the demand 
that the name not be changed or be kept in certain forms. To be sure, he 
paid a certain amount for this request when we evaluate the sale from a 
distance.

The hypothetical "Chicago School" concept works only when ALL the 
currencies and exchanges involved in the change of ownership are figured 
in. Surplus profits are one measure of one of the exchanges that are 
usually ignored. There are a multitude of other exchanges involved in 
the transfer of a business besides the cash: influence in a community, 
future success, property values, school taxes, pension values and costs, 
health insurance, pollution, family ties--the list goes on and on.

Mike Wood, Cincinnati



Keith Wilde wrote:

> Thanks for this perspective, Shann. I don't recall that Carey mentions 
> this figure of 15% but stock options are a principal topic in his 
> withering attack on "ultra-capitalism" in the latter part of the book 
> that I have not covered adequately in the review.
> Keith
>
>     ----- Original Message -----
>     *From:* sturnbull@mba1963.hbs.edu <mailto:sturnbull@mba1963.hbs.edu>
>     *To:* homestead@cog.kent.edu <mailto:homestead@cog.kent.edu>
>     *Sent:* Thursday, July 28, 2005 2:31 AM
>     *Subject:* RE: HOMESTEAD: Ray Carey's Democratic Capitalism
>
>     In reference to the comment by John Médaille about CEO's, they
>     have acquired 15% of all shares of corporations traded on the NYSE
>     according to BusinessWeek, 2002, Online Special Report, 15 April,
>     as posted at
>     http://www.businessweek.com/magazine/content/02_15/b3778012.htm
>
>     This was quoted in my paper presented at the Australian Stock
>     Exchange last year that can be downloaded from:
>     http://papers.ssrn.com/sol3/papers.cfm?abstract_id=546942 and
>     contained the following:
>
>     ----------------------------------------------------------
>
>     While economists may concern themselves with “excessive” profits,
>     the concept of surplus profit will not be found in economic
>     textbooks. Economists are not aware of surplus profits, because
>     unlike excessive profits, accountants are not required to report
>     them. Excess profits are reported in a given accounting period but
>     surplus profits typically require consideration of a number of
>     accounting periods. Surplus profits can exist with or without any
>     excessive profits and could possibly arise with the investor
>     reporting an accounting loss! .
>
>     The result is that investors get overpaid with surplus profits
>     without them being measured, reported and so without anyone
>     knowing! The extent of corporate investors getting overpaid is
>     indicated by the degree to which corporate profits can be siphoned
>     off from publicly traded companies to Executives. BusinessWeek
>     (2002) reported that CEOs had allocated to themselves options that
>     represented 15% of all the shares issued on the New York Stock
>     Exchange. In 2004, the value of all NYSE companies was $US12.9
>     trillion, so the average value obtained by the 2,800 or so CEOs
>     was around $US640 million each . NYSE companies have become what I
>     describe in Section 6 as “Ownership Transfer Corporations”.
>
>     -------------------------------
>
>     Regards
>
>     //Shann Turnbull PhD// http://www.aprim.net/associates/turnbull.htm
>
>     Principal, International Institute for Self-governance
>
>     PO Box 266 Woollahra, Sydney, Australia 1350
>
>     Ph+612 9328 7466 Mobile 0418 222 378, Papers at:
>
>     http://ssrn.com/author=26239
>
>     -----Original Message-----
>     From: owner-homestead@cog.kent.edu
>     [mailto:owner-homestead@cog.kent.edu] On Behalf Of John Médaille
>     Sent: Thursday, 28 July 2005 9:33 AM
>     To: homestead@cog.kent.edu; homestead@cog.kent.edu
>     Subject: Re: HOMESTEAD: Ray Carey's Democratic Capitalism
>
>     At 06:21 PM 7/27/2005 -0400, Norman G. Kurland wrote:
>
>>As I will point out, your analysis does not square with the facts.
>     The
>
>>original owner was a hard-nosed businessman and his price was at
>     the high
>
>>end of what constituted a fair market price. He got his money out
>     of the
>
>>business and invested it in other securities. Market forces were at
>
>>work. Management, which was and still is first-rate, did not
>     change at
>
>>the time of sale.
>
>     So then, the stock was priced at seven times earnings. If you know
>     of any
>
>     other stocks at that price, let me know.
>
>> The CEO retired several years ago with a nice ESOP distribution, and
>
>> the former VP has been CEO for about 10 years. The company had no
>
>> pension plan at the time of sale. With the company growing
>     dynamically
>
>> and a work force ten times the original team, the average 10-year
>
>> employee has an ESOP account in the 6 figures. What was key to the
>
>> buyout was the application of Kelso's pure credit concept. This
>
>> company's history proves that, in the hands of good management,
>     synergy
>
>> is at work between the productiveness of capital and the
>     productiveness
>
>> of labor and capital pays for itself.
>
>     Yet, in 29 years, the price only tripled. That doesn't sound like
>     good
>
>     results. It is certainly not 14%/annum.
>
>>You can sneer at the model,
>
>     I sneer at nothing. I point at that tripling in value over the
>     course of 29
>
>     years does not sound like good results. Does it sound good to you?
>
>>but it works in the real world, as long as capital credit is
>     accessible to
>
>>workers with no reduction in their take-home incomes. (In fact,
>     the labor
>
>>incomes of Mid-South workers are at the high-end of their
>     industry.) No
>
>>magic was involved. Only the power of capital finance. Had
>     no-interest
>
>>(i.e., service charge only) capital credit been available under
>     section 13
>
>>of the Federal Reserve Act, as advocated in our book Capital
>     Homesteading
>
>>for Every Citizen
>
>>(http://www.cesj.org/publications/capitalhomesteading/whatif-flyer.pdf)
>
>
>>and supported by Rodney Shakespeare, the loan would have been paid
>     off
>
>>much sooner.
>
>     Right, with taxpayer help.
>
>     John C. Médaille
>
>     "A dead thing can go with the stream...
>
>     but only a living thing can go against it."
>
>     -G. K. Chesterton
>
>     http://www.medaille.com/distributivism.htm
>
>     john@medaille.com
>
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