"When costs are reduced, there are headcount reductions"
 By Mark ForsytheThe Kansas City Post Years ago Kansas City threw millions of dollars at Gateway Computers as economic development officials were dazzled by claims of hundreds of new employees and the always promised but rarely delivered "Phase II" of a project in the West Bottoms. If you're interested in the gory details you can read about them here, here, and finally here. The short story is Gateway left town and Kansas City never realized the dividends of our investment. Now flash forward to 2005. The city of Lenexa and the state of Kansas granted millions of dollars in tax incentives to lure Applebee's headquarters away from the city of Overland Park and the state of Kansas. The governor of Kansas released a self-congratulatory statement about what a significant victory the state of Kansas had just won over... uh, itself. Now enter Breeden Capital Management. BCM's principal, Richard Breeden is a former SEC chairman and specializes in buying a significant portion of a company's stock that he considers to be under performing. He then pressures the company's management into policy changes, compensation adjustments, or in the case of Applebee's accepting an outright purchase by IHOP Inc. IHOP's business model is a complete 180 from Applebee's. Rather than own and operate hundreds of restaurants (known as corporate stores), IHOP sells its franchises to private owners. Let the individual owners deal with the day to day headaches of purchasing, maintenance, staffing and every other detail involved in running a restaurant. IHOP sets policy and provides modest levels of administrative support for a periodic franchise fee. IHOP has wasted no time in expressing its intent to sell off Applebee's corporate stores to franchisees. This of course means Glendale, California based IHOP will probably have little need for two corporate headquarters. Even Applebee's CEO Dave Goebel could not hide the impending doom for the Overland Park/Lenexa based employees in a letter to the associates. After the usual vague pronunciations of "reductions in head count" and promising to "share info as soon as we're allowed" he goes on to make a very chilling, yet candid statement. "First and foremost, you will be focused on making the best decision for continuing to support yourself and your loved ones over the long-term. I encourage you to spend the time and energy necessary on this." That's about the most nicely worded "look for another job" statement I've ever read, and believe me, working in the technology sector in the 80's and 90's I've read a few. Now a not yet completed $44 million headquarters in Lenexa, Kansas is in jeopardy of not even opening its doors. The promise of all that economic activity that officials were so excited about is fading on the horizon. Yet all the new streets, sewers, utilities and reams of procedural red tape involved with any new development must still be paid for. So I've asked and answered before, why should we on the Missouri side care about a potential financial catastrophe in Kansas? First and foremost because the repercussions of unemployment in the Kansas suburbs will be felt on both sides of the state line. Because the city of Kansas City, Missouri cannot thrive if its surrounding municipalities are floundering. And finally, because it can happen here too. Richard Breeden, the man who buys his way into companies and for better or worse forces a turnaround or an outright sale, has a new project. He owns 6 million shares in H&R Block. |
posted by Mark at 9:57 AM
Comments on ""When costs are reduced, there are headcount reductions""
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idan said ... (12:07 PM) :
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Mark said ... (12:40 PM) :
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mainstream said ... (3:39 PM) :
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missspider said ... (4:35 PM) :
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the wife said ... (4:52 PM) :
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Mark said ... (4:59 PM) :
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Mark said ... (5:04 PM) :
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Anonymous said ... (9:57 AM) :
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mainstream said ... (3:42 PM) :
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Anonymous said ... (4:27 PM) :
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idan said ... (5:09 PM) :
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KC Sponge said ... (10:52 PM) :
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mainstream said ... (1:48 PM) :
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mainstream said ... (1:49 PM) :
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mainstream said ... (2:09 PM) :
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Mark said ... (3:33 PM) :
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Scott said ... (1:49 AM) :
post a commentApplebee's has over 1,900 restaurants, of which just over 500 are corporate owned according the KCBJ. So, I am assuming 75% of existing Applebee's are already franchised.
IHOP states that 99% of their 1,300 restaurants are franchised.
Honestly, that doesn't seem like a drastically different approach between the two companies. Yes, different but only slightly.
I think Applebee's well-documented financial and operational difficulties the last year or two made them susceptible to this buyout... notice the low premium paid for the stock. I don't see H&R Block being in a susceptible position.
The Kansas tax breaks for the new HQ have puzzled me since announced. Doesn't make much sense.
Applebee's has 500 corporate stores and IHOP has 13? That seems pretty different to me, but who's counting? :-)
I certainly don't blame Breeden in all of this. He came in and increased the value for the shareholders which is the ultimate goal for any publicly held company. I'm confident he'll do the same for H&R Block but the results may not be as immediate. Block is hemorrhaging money right now and selling off under performing divisions may stem that flow but they certainly won't get much value if any for losing revenue centers.
Is Block vulnerable to a takeover? I wouldn't speculate either way but I'm tempted to buy a couple of shares just so I can attend what I anticipate to be a pretty dramatic annual meeting this September.
H&R Bloch is in trouble. Their strategy was to branch out into a complimentary market - financial services. From what I understand that has not been successful.
They have also run into trouble, with lawsuits concerning financial products that have extraordinaily high "fees" - targeted at lower income individuals. They settled last year (I think) a high profile case brought by the NY AG.
They also have huge competition in tax services, as we all as know.
I do agree with Idan, both Applebees and IHOP have franchising strategies, and there isn't that big a difference between 75% and 99%, in terms of the business model and operation.
However, it is improtant if you are one of the people classified as "corporate overhead".
I wouldn't be surprised if Intuit (trading almost $10/share higher than H & R Bloch) made an offer for H&R Bloch after they unload all of their underperforming low-income financial services divisions. I seriously doubt Intuit would consider moving their CA headquarters to downtown KC. Then we'd be in the same position as Olathe.
Why do people eat all the corporate BS these companies hand out? Did everyone forget about Enron already? I don't trust people OR corporations that won't pay their fair share.
I used to wait tables at an Applebee's in Kansas. OMG – working at that restaurant was HELL! I hope all those a-hole VPs and middle management types who used to torment me with their “is it good for the company” attitude suffer – BIG TIME. Nothing sucked worse than having a low paid night shift assistant-manager up your ass b/c he/she's worried about what some guy from corporate thinks of their (discounted) dining experience at Applebee’s. The corporate people would run your ass off and then nit-pik the service you gave to your manager so that you'd get a "talk" and extra cleaning duties at the end of the night. It seems, if corporate didn’t get a raise or their expected bonus it was the fault of the wait staff not pushing enough desserts/fries/baby-back-ribs down the throats of the already morbidly obese customers. If I wasn’t getting a 15% tip from a corporate customer I was getting stiffed by some bible-beater on his way back from church. Congratulations corporate Applebee’s stores – franchising might be the only way to save yourselves.
AlllllRightyThen!
Now I remember why we don't eat at Applebee's.
By the way I saw that Breeden Capital Management made a visit to my humble little corner of the blogosphere today.
Mr. Breeden? Let me know if you need any corporate board types to be voted in with your slate. I am available. Resume and references available upon request!
H&R Block has far more to offer than low-end financial services. Retail tax is on the decline - and in no way are they losing market share to their competitors, Jackson Hewitt with fraudulent lawsuits out the ying yang and IRS audits of the entire company and Liberty holding only 2% of the market - everyone goes online now. And yes, Turbo Tax is the leader there, but H&R Block is growing faster in that market than Intuit. Their Express IRA that got them sued last year was a good product that no one else was offering to the clients that were opening them - and instead of letting their efforts to help people save for their future die with this bunk lawsuit, they came out with an even better product for their clients, and now with their bank open - 2 million un-banked people opened checking accounts last year - and saved millions of dollars in check-cashing fees and avoided predatory lending.
I am in no way a cheerleader for corporate America, but this is one company I can put some confidence in. They don't do enough for this city in my opinion - but damn, do those Marching Cobras look hot! - but they're a corporation who has a noble mission and put a lot of time and effort into achieving it.
Anon at 10:57, you forgot to sign your post "H&R Bloch Public Relations Department".
lol
I know - didn't I?! I should apply for a job. . .
There's good things happening in Kansas City and I don't think it's responsible for the people trying to make it a better place to always dog everything that's going on. Just saw this as an opportunity to shed some light on a company that we should be proud to call Home Grown.
According to the NY attorney general H&R Block was charging more in maintenance fees than they were paying in interest to the Express IRA accounts... meaning the account value was decreasing over time. On the surface it seems like an undesirable product likely sold to people that don't understand basic investing. The NY AG even cited internal Block memo's advising that, in so many words, the product was not a good deal for customers.
I looked for a prospectus or detailed description of the Express IRA on the Block website and there is no detailed info on how the product works, what are the fees, or how your money is invested.
And checking accounts don't create money so they won't fight predatory lending. But they are a good thing... if the fees are fair and people have the basic skills to manage it.
Well idan -
That's what made the Express IRA such an easy target - because on paper, at first glance for the clients that were involved in the lawsuit - it was a bad investment choice. These clients removed their money from the accounts 1-3 years after they opened them at the tax desk. Without education or first-time mortgage or medical expenses. They were retirement accounts used as emergency cash - not a good option for anyone. But for the clients that did keep them in - the ones that get the tax advantage, some getting paid by the government to invest for their future - H&R Block was providing a tremendous opportunity for these clients that noone else in the industry would even consider. $300 minimun investment - 3-5% return on a money-market ira- very low fees (when matched to the low investments, they tend to look high) . . . Please show me anyone else who is doing that and I will hold them to the same regard. And Express IRA's don't exist anymore - the Easy IRA's - with NO fees, 5.25% interest, still the low $300 minimum investment - have replaced them to provide even more incentive for lower-income, high refund tax payers to put away money and become financially secure. Not encourage disinvestment so that you can look like a good guy and be elected into the governor's mansion.
And these 2 million checking accounts give clients the option to direct deposit their pay checks into their accounts and get money off of a debit card for $1.50 instead of paying 3-10% every two weeks to cash their check. Because Block had control of their card, they could reduce the apr of refund anticipation loans and put more money in the pockets of their clients - that's the predatory lending that is being squalched . . . along with 5.25% savings accounts offered to Block clients that could be used for emergency situations instead of payday loan store fronts . . . What other bank in the country offers 5.25% savings accounts - with no balance limitations. People, this company is doing good things . . .
. . . or overdosing on really bad pancakes.
I would propose a city-wide referendum that all TIFs over a certain amount have to be approved by a vote of the people. Yes, it is a pain...and it should be!
Kinda funny (in a not very funny way). Read an article on Barnes in a local mag last week. She said she thought TIF would be less beneficial from here on out, and should be used less. She has got to be the biggest hypocrite around.
Ok, Mark. I think TIFs have been abused. So do you. And so does Funk.
But, is it appropriate for the Mayor to refer to developers as "the forces of evil" in our city? (as he did last night?)
If I was Oklahoma City competing with Kansas City for a major league team, I would show that team (I was trying to lure):
- all of the quotes from Funk about "the arena deal stinks" in governing magazine, calling developers pigs at the trough in TV commercials, calling them the forces of evil
- I would highlight the controversy surrounding Gloria and all of the Gaffs as indicative of lack of basic judgement
- how some of these moves are jepoardizing the renewal of the infrastruicture tax (Semler, and her unpopularity in the north; eliminating the Northland from the City Plan commission, and the subsequent threat from the Northland)
- I would highlight his inordinate focus on a regional transportation solution without any focus on a fast start, promising a potential quagmire in mass transit for quite some time
and a few others things, maybe some choice quotes from Joe Miller.
And I would be successful in convincing a major league team that Kansas City is Bush league, pun intended, btw. Led by someone who doesn't take any advice, and who is single-mindedly persuing a vendetta against those who he perceived as wronging him over the past 18 years as a city bureaurocrat.
The Brookside Hillbillies are in city hall.
and I can't type correctly to save my life.
And Mark, I beg your pardon but I'm going to continue my rant here, because I'm so mad at Funk's comment last night that I can hardly see straight - I'd be ranting over at gonemild.com but THAT BLOGGER seems to be focused on doing his best Julia Childs imitation. I'm picturing Jim Glover in drag, and that ain't a pretty pic.
All of us part-time or rabid TIF critics otta stop calling developer's names, and focus on something they can ACTUALLY CHANGE.
Is everybody listening? Good.
The people in charge of approving a TIF deal, on behalf of the city, make a 5% commission on the deal.
Now, I'm going to keep this brief, but how do we expect people to make the decisions in the interests of the city when they are essentially a paid commission agent of the developer?
If I'm wrong on that, never mind. If I'm right with my facts, maybe we should start there.
mainstream,
You are correct in that the EDC gets an administration fee that is a percentage of the entire TIF amount. I don't think it's 5% but I could be wrong. It's been a while.
As for your other points? I feel your pain...
As far as H&R Block's Express IRA goes, it's not the only product in that class. T. Rowe Price offers a standard Traditional IRA, but with an automatic-debit funding feature, minimum $50/month. If you can afford $300 at once to start an IRA, you could probably do the $50 monthly automatic. The difference is that TRP also offers a series of target-date retirement funds with really low maintenance, these days less than 1% (0.76%, I think). Low maintenance and low barrier to investment is why I put my meager funds there as opposed to somewhere else.
Also, H&R Block's savings rate is now at 2.95%. HSBC and ING offer online-only savings at around 5% or so. ING's online checking also pays interest at around 4%.