10 Companies That Could Go Bankrupt

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It doesn’t
take an auto repair shop in an old Circuit City building or a "for
lease" sign over the QuickDrop slot in an old Blockbuster storefront
to remind consumers that even the strongest companies can be bowed
by bankruptcy.

Blockbuster’s
video empire and A&P’s nearly 150-year-old food retail business
were among the businesses that declared bankruptcy this year, but
were far from the only ones in financial peril. The Street
took a look at some companies’ recent struggles and identified 10
for whom bankruptcy may be beckoning, either next year or the not-so-distant
future. Some balance sheets and share prices hide the pain better
than others, but all of the following have fundamental flaws in
either their business plan or management that lead to situations
like A&P and Blockbuster’s – where what was unthinkable even
five years ago seems inevitable soon enough.

Yahoo

AOL went out
and bought itself TechCrunch and blew out its Patch network of hyperlocal
news sites. Google watched monthly sales of smartphones with its
Android OS soar past Apple and Research In Motion and acquired 25
companies this year alone. Yahoo? Well, CEO Carol Bartz told a TechCrunch
editor to "f— off" when he questioned her progress since
replacing Jerry Yang last year. And they’ve got Associated
Content
now. That’s something.

Forget just
for a moment about Yang’s egomaniacal gaffe two years ago when he
got a huge offer from Microsoft and told the folks in Redmond, Washington,
to take it walking. Forget that Yahoo has lost more than 55% of
its share value in five years. Yahoo’s every move this year –
making only four acquisitions; launching a Local Offers service
with Groupon and other services long after the launch of competitors
such as AOL’s Patch and Facebook’s Deals; and entering into an IM
deal with smartphone market share-losing Nokia – is several
steps behind everyone else. Yahoo has some great holdings, such
as Chinese e-commerce site Alibaba, but it’s shown no desire or
ability to do anything with them. A sale of the entire company still
isn’t out of the question, as shareholders have to be weary of Yahoo
being unable to adequately monetize its best commodities and mismanaging
its company into the grave.

Borders

So let us get
this straight: Your company’s trading at just over a dollar a share
on a good day, former CEO Ron Marshall found a gig at bankrupt A&P
more promising and Borders as a whole has struggled through recent
rounds of layoffs and at least 180 Waldenbooks store closures –
and shareholder William Ackman still thinks it would be a great
idea to buy Barnes & Noble? That kind of ink-sniffing logic,
and Borders’ management’s support of it, makes even the most patient
reader want to flip to the end of this sad chapter. In multimillion-dollar
debt, facing increasing e-book competition from Amazon, Apple and
Google and watching its Kobo e-reader mire itself in fourth place
or worse among competitors such as the iPad and Kindle, Borders
and its shareholders can’t honestly expect this literary mega-merger
to reach a promising conclusion when their company can’t even read
the writing on the wall.

Rite-Aid

Walgreens just
took over Duane Reade and grabbed a huge foothold in New York, ever-expanding
CVS Caremark sits at No. 18 on the Fortune 500 and Walmart and its
discount prescriptions continue to elbow their way into traditional
health, beauty and pharmacy strongholds. How does primarily East
Coast Rite-Aid respond? By cutting guidance, continuing losses that
extend back to its 2007 purchase of Brooks Eckerd, giving up South
Carolina locations to SuperValu’s Sav-A-Lot stores and shuffling
the deck chairs by moving Chief Operating Officer John Standey to
chief executive and keeping former CEO Mary Sammons on as chairman.
Though stock prices have rebounded from last year’s low of 20 cents,
Rite-Aid is still trading under a dollar as the company deals with
crushing debt. Rite-Aid says it will fill fewer prescriptions than
previously expected in fiscal 2011, which is just as well –
there doesn’t seem to be any cure for what’s ailing this company.

Cablevision

There are three
words you never want to hear from your cable company: "Buy
an antenna." At the height of its standoff with News Corp’s
Fox holdings this October, that’s exactly the advice Cablevision
gave customers who wanted to watch the World Series. It was just
the latest in a series of spats that pit the Cablevision-owning
Dolan family against the world, yet Cablevision’s share price just
hit a 52-week-high this month after climbing more than 34% this
year. It matters little that Cablevision’s Optimum Lightpath communication
services are adding subscribers and revenue, though, while the cable
service loses subscribers and squeezes the ones that remain for
more money. With the mercurial Dolans at the helm, shareholders
can expect more of the erratic conditions that dropped stock prices
like disgruntled subscribers last year – when shares cratered
at just above $10 after peaking just above $38 two years before.
Stability isn’t something Cablevision’s known for, either in its
service or on its books, and investors saddled with such loose-cannon
ownership should have bankruptcy in the back of their heads at all
times.

Time Warner

Time Warner
may finally be atoning for the past after its split with AOL last
year, but AOL’s upward trajectory compared with Time Warner’s uncertain
and somewhat stagnant path has to be troubling for even the staunchest
supporters of this media titan. DVD sales continue to suffer, streaming
is cutting into Time Warner’s take and while viewers wait for that
HBO streaming venture, properties such as General Electric-owned
NBC, Fox and Disney-owned ABC’s Hulu joint venture, and Netflix
continue to take turkey off Time Warner’s plate. Regardless of the
might of current holdings such as HBO, Turner Broadcasting and Warner
Entertainment, Time Warner still has billions worth of debt and
that little Time portion that’s turning into a big, paper-weighted
drain. Bankruptcy? Improbable, but not out of the question.

Read
the rest of the article

December
18, 2010

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