My Choice For Ceo Dead Pool: Omar Sec Ishrak At Medtronic
I got a lot of nominations for CEO dead-pool but real few amongst clearly enunciated reasons as well as the reasons are what is going to create upwards one's heed the ultimate winner. There were pop nominations (Meg Whitman at HP simply because HP is hard, Ballmer at Microsoft for missing every major tendency of the final decade).
You can't win amongst the obvious - indeed I was almost going to advise that Meg Whitman was a disqualifying guess...
One entry is going to locomote difficult to beat. Someone nominated Cynthia Carroll at Anglo American literally hours earlier she stepped down. But inward that illustration the writing was on-the-wall. She was a adult woman as well as non South African as well as her companionship was causing South African politics to spiral out of control. Of course of study the old-guard were going to gang upwards on her.
In whatsoever game of dead-pool the winner has to locomote someone amongst a sterling reputation as well as a chore they should conk on for decades. And the demise should locomote a precipitous consummate surprise (at to the lowest degree to the companionship if non to the CEO dead-pool player). What volition win is a company where the CEO's principal chore is to conk on his olfactory organ build clean as well as conk on a highly profitable machine humming along as well as where the CEO makes a materials upwards so egregious that keeping him is non inside the realms of possibility.
Such a speculative gauge is to a greater extent than probable to locomote wrong.
So - revealing that I am going for the most outlandish proposition I could justify (and thence I am probable to either locomote incorrect or to win the dead-pool game) I made my pick.
Without farther ado I volition innovate you lot to Omar S. Ishrak, the CEO of Medtronic - the largest medical devices companionship inward the world.
Well he is the CEO for straightaway - but my gauge is non for long. After all guessing that is the betoken of the game.
So who is Omar southward Ishrak as well as what did he do wrong?
Omar Ishrak is the quondam CEO of GE Health Care Systems straightaway the CEO of Medtronic. He has a PhD inward electrical engineering scientific discipline from Kings College.
Medtronic has done some dud acquisitions inward the past times - as well as those acquisitions were the principal argue for the divergence of the previous CEO. The principal occupation acquisition was Kyphon, a companionship amongst a existent engineering for repairing damaged spines inward elderly people. Kyphon got pinged for defrauding Medicare as well as paid a fine. The existent impairment nevertheless was non the fine - it was that the required alter inward sales exercise caused Kyphon revenues to collapse (and thence meant the acquisition cost was wildly inflated).
So Omar has been clear that he volition locomote to a greater extent than disciplined close acquisitions.
You tin encounter this inward the next video:
Its worth reviewing what he says inward this video:
Indeed the acquisition he is currently doing volition essay far more embarrassing than Kyphon - beingness of what he is thinking he is buying may fifty-fifty locomote questioned...
The acquisition inward enquiry is China Kanghui Holdings which Medtronic is paying over $800 million for as well as which I recall volition create a write-off of close $800 1000000 inside a year. That is, this concern volition locomote a total write-off - they volition bring paid over $800 1000000 for air...
The CEO's seat volition locomote untenable afterwards that. After all, bad acquisitions bring been a Medtronic occupation inward the past times - which is why the to a higher identify video starts amongst the (rejected) assertion that "billion dollar acquisitions" mightiness locomote a affair of the past.
China Kanghui acquisition background
I can't do whatsoever ameliorate inward describing Red China Kanghui's concern than their official description:
You tin encounter the attraction for Medtronic. It is inside their industry. Most importantly it has a network of 355 domestic distributors roofing much of China. Omar Ishrak would patently locomote attracted to that. He has said many times that the increase of Medtronic volition come upwards from Red China as well as India: distribution inward Red China is just what he wants.
This is a done-deal. Investor relations assure anyone who asks that due-diligence is consummate as well as do non seem interested inward negative feed-back (or fifty-fifty passing negative feed-back on). The marketplace is trading the stock amongst less than 1 percentage spread betwixt the marketplace cost as well as bid price. There is nix it seems that tin derail this bid.
It is simply that I do non encounter this bargain equally having "a real clear value proposition which are fiscal inward nature as well as real granular inward their content," instead I simply encounter a mess. I could locomote incorrect though - Medtronic bring done thorough due diligence (at to the lowest degree according to investor relations) as well as I bring done simply a little.
China Kanghui's accounts
It is axiomatic that if you lot generate faux profits over fourth dimension you lot volition current of air upwards amongst faux cyberspace assets on your residue sheet.
And that you lot tin create upwards one's heed the profits are existent past times proving the assets are real, or you lot tin create upwards one's heed the profits are mistaken past times proving the assets are false.
That is the nature of double-entry accounting.
If you lot read the accounts as well as you lot enquiry the income you lot are past times Definition questioning the assets (or visa-versa).
So hither are Kanghui's accounts - showtime the income concern human relationship inward M of USD.
It is a mighty profitable concern - on 52 1000000 inward revenue they generate nineteen 1000000 inward post-tax profit. The purchase cost of over 800 1000000 is an extremely fancy multiple - but they are - it appears - getting something - indeed a world-beating profit-margin inward an attractive company.
They are clearly non getting an R&D squad of annotation nevertheless - the R&D is less than $2 1000000 as well as cumulative R&D is a driblet inward the ocean. It is not original equipment they are afterwards so - it must locomote the distribution team.
Here is the residue canvas - as well as whoa is this an amusing residue sheet:
Inventories are 17 1000000 dollars - non a large number - but over 400 days of cost of goods sold.
We are asked to believe that inward the relatively fast changing basis of medical engineering this companionship produces world-beating results whilst keeping good over a twelvemonth inward inventory as well as doing adjacent to no R&D.
Strangely majuscule equipment is over 41 1000000 - several years of cost-of-goods sold. It is a real foreign concern indeed that sells medical implant equipment (small devices you lot tin fit easily into the palm of a manus but which cost huge sums of money) which has next-to-zero R&D but flora as well as equipment equal to over 2 years cost-of-goods sold.
Moreover without whatsoever obvious alter inward the concern the flora as well as equipment good over doubled inward the past times year.
My qualms
These accounts enquire us to believe that Red China Kanghui is
(a). Miraculous - learning how to build a substantial medical implant concern on real sparse R&D,
(b). Hopeless, keeping good over a twelvemonth inventory - an out-of-control stocking process, and
(c). Suddenly as well as speedily becoming massively majuscule intensive despite producing real pocket-sized devices that involve no R&D.
There is an option hypothesis: the profits are fake, the huge inventories as well as flora as well as equipment are a balancing item.
If the option hypothesis is right (and it is alone a guess) so I am waiting for as well as expecting Omar Ishrak's resignation. And I can't hold off - I volition win the game of CEO dead-pool.
On-the-ground checking
I am non the alone somebody who has thought Red China Kanghui has funky accounts. Other hedge funds bring paid for investigators on the basis inward Red China - as well as they bring tried (unsuccessfully) to study their results to Medtronic.
Alas it seems Mr Ishrak has a protective cocoon closed to him that makes it impossible to approach him amongst anything that is negative to his agenda. He in all likelihood - at to the lowest degree until this weblog post service comes out - has no thought that people recall he is a misled past times his staff if non personally a fool.
But for the do goodness of readers allow me state what the on-the-ground checking shows. Amongst other things it shows that
(a). The property, flora as well as equipment inward the SAIC (ie Chinese domestic) accounts did non fit the SEC filings. [This banking concern check is difficult to do straightaway because SAIC accounts bring acquire unavailable.]
(b). More importantly it showed that Libeier distributors would non fifty-fifty distribute Kanghui products - casting incertitude on the assertion that they ain Libeier (and thence casting incertitude on the assertion that Medtronic is fifty-fifty buying worthwhile distribution inward China).
Of course of study I could locomote wrong
The Medtronic people state they bring done thorough due diligence. I bring simply poked closed to from my office, reading the accounts, interpreting the obvious.
But my gut interpretations of accounts are right oft enough, as well as the on-the-ground enquiry backs them.
For an outlandish gauge on CEO dead-pool this is a pretty skillful gambit.
John
You can't win amongst the obvious - indeed I was almost going to advise that Meg Whitman was a disqualifying guess...
One entry is going to locomote difficult to beat. Someone nominated Cynthia Carroll at Anglo American literally hours earlier she stepped down. But inward that illustration the writing was on-the-wall. She was a adult woman as well as non South African as well as her companionship was causing South African politics to spiral out of control. Of course of study the old-guard were going to gang upwards on her.
In whatsoever game of dead-pool the winner has to locomote someone amongst a sterling reputation as well as a chore they should conk on for decades. And the demise should locomote a precipitous consummate surprise (at to the lowest degree to the companionship if non to the CEO dead-pool player). What volition win is a company where the CEO's principal chore is to conk on his olfactory organ build clean as well as conk on a highly profitable machine humming along as well as where the CEO makes a materials upwards so egregious that keeping him is non inside the realms of possibility.
Such a speculative gauge is to a greater extent than probable to locomote wrong.
So - revealing that I am going for the most outlandish proposition I could justify (and thence I am probable to either locomote incorrect or to win the dead-pool game) I made my pick.
Without farther ado I volition innovate you lot to Omar S. Ishrak, the CEO of Medtronic - the largest medical devices companionship inward the world.
Well he is the CEO for straightaway - but my gauge is non for long. After all guessing that is the betoken of the game.
So who is Omar southward Ishrak as well as what did he do wrong?
Omar Ishrak is the quondam CEO of GE Health Care Systems straightaway the CEO of Medtronic. He has a PhD inward electrical engineering scientific discipline from Kings College.
Medtronic has done some dud acquisitions inward the past times - as well as those acquisitions were the principal argue for the divergence of the previous CEO. The principal occupation acquisition was Kyphon, a companionship amongst a existent engineering for repairing damaged spines inward elderly people. Kyphon got pinged for defrauding Medicare as well as paid a fine. The existent impairment nevertheless was non the fine - it was that the required alter inward sales exercise caused Kyphon revenues to collapse (and thence meant the acquisition cost was wildly inflated).
So Omar has been clear that he volition locomote to a greater extent than disciplined close acquisitions.
You tin encounter this inward the next video:
Its worth reviewing what he says inward this video:
First [acquisitions] demand to bring a real clear value proposition which are fiscal inward nature as well as real granular inward their content equally to why nosotros do a certainly acquisition as well as nosotros demand plans inward identify that nosotros tin deliver on those value propositions.I recall this Omar Ishrak volition locomote forced to resign because he cannot alive upwards to the goals he laid inward this video (and which he has laid publicly earlier as well as since).
Indeed the acquisition he is currently doing volition essay far more embarrassing than Kyphon - beingness of what he is thinking he is buying may fifty-fifty locomote questioned...
The acquisition inward enquiry is China Kanghui Holdings which Medtronic is paying over $800 million for as well as which I recall volition create a write-off of close $800 1000000 inside a year. That is, this concern volition locomote a total write-off - they volition bring paid over $800 1000000 for air...
The CEO's seat volition locomote untenable afterwards that. After all, bad acquisitions bring been a Medtronic occupation inward the past times - which is why the to a higher identify video starts amongst the (rejected) assertion that "billion dollar acquisitions" mightiness locomote a affair of the past.
China Kanghui acquisition background
I can't do whatsoever ameliorate inward describing Red China Kanghui's concern than their official description:
Red China Kanghui Holdings, through its subsidiaries, engages inward the development, manufacture, as well as sale of orthopedic implants as well as associated instruments for trauma, spine, cranial maxillofacial, as well as craniocerebral. The companionship offers 36 production serial of orthopedic implants as well as associated instruments for trauma as well as spine indications nether the Kanghui as well as Libeier build names. Its trauma products used inward the surgical handling of os fractures include a attain of nails, plates as well as screws, as well as cranial maxillofacial plate as well as screw systems; as well as spine products used inward the surgical handling of spine disorders consist of screws, meshes, interbody cages, as well as fixation systems. The companionship likewise manufactures implants, implant components, as well as instruments for master copy equipment manufacturers based on their production designs as well as specifications. In addition, it is involved inward the development, manufacture, as well as sale of implants as well as instruments for genu articulation prosthesis; as well as titanium alloy as well as cobalt alloy hip articulation prosthesis. The companionship sells its proprietary orthopedic implants to third-party distributors, who so sell those products to hospitals straight or through sub-distributors. As of March 31, 2012, it had a network of 335 domestic distributors roofing xxx provinces, municipalities, as well as autonomous regions inward China; as well as a network of 41 international distributors that sell products inward 29 countries across Asia, Europe, South America, Africa, as well as Australia. Red China Kanghui Holdings was founded inward 1997 as well as is headquartered inward Changzhou, the People's Republic of China.
You tin encounter the attraction for Medtronic. It is inside their industry. Most importantly it has a network of 355 domestic distributors roofing much of China. Omar Ishrak would patently locomote attracted to that. He has said many times that the increase of Medtronic volition come upwards from Red China as well as India: distribution inward Red China is just what he wants.
This is a done-deal. Investor relations assure anyone who asks that due-diligence is consummate as well as do non seem interested inward negative feed-back (or fifty-fifty passing negative feed-back on). The marketplace is trading the stock amongst less than 1 percentage spread betwixt the marketplace cost as well as bid price. There is nix it seems that tin derail this bid.
It is simply that I do non encounter this bargain equally having "a real clear value proposition which are fiscal inward nature as well as real granular inward their content," instead I simply encounter a mess. I could locomote incorrect though - Medtronic bring done thorough due diligence (at to the lowest degree according to investor relations) as well as I bring done simply a little.
China Kanghui's accounts
It is axiomatic that if you lot generate faux profits over fourth dimension you lot volition current of air upwards amongst faux cyberspace assets on your residue sheet.
And that you lot tin create upwards one's heed the profits are existent past times proving the assets are real, or you lot tin create upwards one's heed the profits are mistaken past times proving the assets are false.
That is the nature of double-entry accounting.
If you lot read the accounts as well as you lot enquiry the income you lot are past times Definition questioning the assets (or visa-versa).
So hither are Kanghui's accounts - showtime the income concern human relationship inward M of USD.
Net revenue | 51948 |
Cost of revenue | -14689 |
Gross profit | 37259 |
Operating expenses: | |
Selling expenses | -6605 |
General as well as administrative expenses | -7692 |
Research as well as evolution expenses | -1933 |
Operating income | 21029 |
Interest income | 2530 |
Government grants | 688 |
Other income | 296 |
Other expenses | -299 |
Foreign telephone substitution loss | -1361 |
Income earlier income taxes | 22883 |
Income taxes | -3738 |
Net income | 19145 |
Net loss attributable to non-controlling interests | 94 |
Net income attributable to Red China Kanghui Holdings’ shareholders | 19239 |
It is a mighty profitable concern - on 52 1000000 inward revenue they generate nineteen 1000000 inward post-tax profit. The purchase cost of over 800 1000000 is an extremely fancy multiple - but they are - it appears - getting something - indeed a world-beating profit-margin inward an attractive company.
They are clearly non getting an R&D squad of annotation nevertheless - the R&D is less than $2 1000000 as well as cumulative R&D is a driblet inward the ocean. It is not original equipment they are afterwards so - it must locomote the distribution team.
Here is the residue canvas - as well as whoa is this an amusing residue sheet:
ASSETS | |
Current assets: | |
Cash as well as cash equivalents | 60391 |
Bills receivable | 933 |
Short-term investments | 12234 |
Accounts receivable, net | 13915 |
Inventories, net | 17621 |
Prepayments as well as other electrical current assets | 2135 |
Deferred taxation assets | 1444 |
Amount due from related parties | 901 |
Total electrical current assets | 109574 |
Non-current assets: | |
Property, flora as well as equipment, net | 41282 |
Intangible assets, net | 9855 |
Prepaid nation lease payments | 3624 |
Goodwill | 24681 |
Long-term Investment | 4004 |
Deposits for non-current assets | 752 |
Deferred taxation assets | 388 |
Other assets, non-current | 41 |
Total non-current assets | 84627 |
Total assets | 194201 |
LIABILITIES AND EQUITY | |
Current liabilities: | |
Accounts payable | 3063 |
Accrued expenses as well as other liabilities | 10389 |
Income taxation payable | 922 |
Deferred revenue | — |
Uncertain taxation positions | 667 |
Amount due to related parties | 181 |
Total electrical current liabilities | 15222 |
Non-current liabilities: | |
Deferred regime grants | 1018 |
Deferred taxation liabilities | 2361 |
Total non-current liabilities | 3379 |
Total liabilities | 18601 |
Equity: | |
Ordinary shares (par value of US$0.001 per share; 1,000,000,000 shares authorized equally of December 31, 2010 as well as 2011; 136,821,600 shares as well as 140,401,842 shares issued outstanding equally of December 31, 2010 as well as 2011, respectively) | 162 |
Additional paid-in capital | 145057 |
Accumulated other comprehensive loss | -3115 |
Statutory reserves | 7216 |
Retained earnings | 24847 |
Total Red China Kanghui Holdings shareholders’ equity | 174167 |
Non-controlling interests | 1433 |
Total equity | 175600 |
Total liabilities as well as equity | 194201 |
Inventories are 17 1000000 dollars - non a large number - but over 400 days of cost of goods sold.
We are asked to believe that inward the relatively fast changing basis of medical engineering this companionship produces world-beating results whilst keeping good over a twelvemonth inward inventory as well as doing adjacent to no R&D.
Strangely majuscule equipment is over 41 1000000 - several years of cost-of-goods sold. It is a real foreign concern indeed that sells medical implant equipment (small devices you lot tin fit easily into the palm of a manus but which cost huge sums of money) which has next-to-zero R&D but flora as well as equipment equal to over 2 years cost-of-goods sold.
Moreover without whatsoever obvious alter inward the concern the flora as well as equipment good over doubled inward the past times year.
My qualms
These accounts enquire us to believe that Red China Kanghui is
(a). Miraculous - learning how to build a substantial medical implant concern on real sparse R&D,
(b). Hopeless, keeping good over a twelvemonth inventory - an out-of-control stocking process, and
(c). Suddenly as well as speedily becoming massively majuscule intensive despite producing real pocket-sized devices that involve no R&D.
There is an option hypothesis: the profits are fake, the huge inventories as well as flora as well as equipment are a balancing item.
If the option hypothesis is right (and it is alone a guess) so I am waiting for as well as expecting Omar Ishrak's resignation. And I can't hold off - I volition win the game of CEO dead-pool.
On-the-ground checking
I am non the alone somebody who has thought Red China Kanghui has funky accounts. Other hedge funds bring paid for investigators on the basis inward Red China - as well as they bring tried (unsuccessfully) to study their results to Medtronic.
Alas it seems Mr Ishrak has a protective cocoon closed to him that makes it impossible to approach him amongst anything that is negative to his agenda. He in all likelihood - at to the lowest degree until this weblog post service comes out - has no thought that people recall he is a misled past times his staff if non personally a fool.
But for the do goodness of readers allow me state what the on-the-ground checking shows. Amongst other things it shows that
(a). The property, flora as well as equipment inward the SAIC (ie Chinese domestic) accounts did non fit the SEC filings. [This banking concern check is difficult to do straightaway because SAIC accounts bring acquire unavailable.]
(b). More importantly it showed that Libeier distributors would non fifty-fifty distribute Kanghui products - casting incertitude on the assertion that they ain Libeier (and thence casting incertitude on the assertion that Medtronic is fifty-fifty buying worthwhile distribution inward China).
Of course of study I could locomote wrong
The Medtronic people state they bring done thorough due diligence. I bring simply poked closed to from my office, reading the accounts, interpreting the obvious.
But my gut interpretations of accounts are right oft enough, as well as the on-the-ground enquiry backs them.
For an outlandish gauge on CEO dead-pool this is a pretty skillful gambit.
John
No comments