Not so long ago I published here an article And so the battle of The Dow begins describing then upcoming takeover of one of the America’s business crown jewels by media magnate Rupert Murdoch. As the wheels of the business world hardly spin in direction Mr. Murdoch would not anticipate, it is now almost certain, that he will be soon counting this excellent media franchise amongst his very own.

As has been reported few days back, the US$5 billion takeover of Dow Jones & Co has been approved by the company’s board and its future now rest in hands of controlling shareholders, the Bancroft family.

The Bancroft’s, who hold around 64% of the voting stock initially rebuffed the Murdoch’s offer stating their concerns about editorial independence should the takeover go ahead. Lately, however, Bancroft’s appear much less united in their opinion as some of the family members are reportedly changing their minds.

One thing I would like to point out here is Murdoch’s negotiating approach to this deal. At first he seemingly stunned the company owners (and most of the investing world) with an $60 per share offer ie. offering a hefty premium to The Dow’s share price at the time. Since than, however, he dug in and stubbornly resisted all the pressure asking him to raise his offer.

Obviously some lessons to be learnt here from this mega successful and ultra experienced business icon: The big guys know the fair purchase price of a business they understand and are willing to pay it regardless of external conditions. They offer once, they offer big and you won’t see them haggling for “coins�? the way you are used to from market stall owners in Egypt or Persia.

In other words the majority of big guns’ offers are the “take it or leave�? kind. Perhaps you have read about similar tactics employed by the World’s savviest investor Mr. Warren Buffett and now The Dow’s takeover is a prime example, that the super successful media magnate Mr. Rupert Murdoch has been going around his business in this manner for who knows how long. Maybe we should think about this next time we miss out on a great investment just because the price was few cents higher than we intended to pay for it.

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Lately I have been re-reading some sections of the “motivational bible�? by Napoleon Hill called “Think and grow rich�?. I must say, that it never seizes to amaze me how this book written at the beginning of 20th century still 100% holds the relevance until this very day. Talk about timeless principles!

The section which caught my eye this time was the one describing The 30 Major Causes of Failure – How many of these are holding You back? I am yet to find a similar list so competently and entirely summing up the reasons behind failures of so many enterprising individuals. Few of my “favorites�? from the list:

• Lack of a well-defined purpose in life
  There is no hope for success for the person who does not have a central purpose, or definite goal, at which to aim. Ninety-eight out of every hundred [people] has no such aim! Perhaps this was the major cause of failure.
• Lack of ambition to aim above mediocrity
  We offer no hope for the person who is so indifferent as not to want to get ahead in life, and is not willing to pay the price.
• Lack of persistence
  Most of us are good “starters�? but bad “finishers�? of everything we begin. Moreover people are prone to give up at the first sign of defeat. There is no substitute for persistence. The persistent person discovers that “Old Man Failure�? finally becomes tired and goes away. Failure cannot cope with persistence.
• Negative personality
  There is no hope of success for the person who repels people through a negative personality. Success comes through the application of power, and power is attained through the cooperative effort of other people. A negative personality will not induce cooperation.
• Over-caution
  The person who takes no chances generally hat to take whatever is left when others have finished choosing. Over-caution is as bad as under-caution. Both are extremes to be guarded against. Life itself is filled with the element of chance.
• Intentional dishonesty
  There is no substitute for honesty. One may be temporarily dishonest by force of circumstances over which one has no control, without permanent damage. But there is no hope for people who are dishonest by choice. Sooner or later, their deeds will catch up with them, and they will pay by loss of reputation, and perhaps even loss of liberty.

And the list goes on, as I said it includes 30 items after all. Needless to say that I for one, while not considering myself a failure, can certainly on the list see number of causes posing the biggest threats to my future business success. What about you?

For those who haven’t yet done so, visit your closest book shop or public library and try to get a hold of the source of above mentioned ideas, the book “Think And Grow Rich�? by Napoleon Hill.

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Founded: 1914, ASX code: WES, homepage: www.wesfarmers.com.au

Overview:
Over its long and successful history Wesfarmers evolved into one of the Australia’s prime capital management conglomerates. Based in WA, it owns, operates and manages large number of quality businesses across the range of industries such as retailing (eg. Bunnings), coal and energy (eg. Curragh), insurance (eg. OAMPS), property, chemicals and more.

Analysis of latest annual report (June 2006):

• Market Cap: Depending on the daily stock price the market cap of this company is about $15.5bil in approx. 378mil of outstanding shares.
• Shareholders Equity: $3.3bil making the stock’s book value approx. $8.80 per share (7.9% growth on June 2005). From that about $555mil. ($1.47 per share) is available working capital.
• Earnings per share (excl. abnormals): $2.30 making the average EPS growth in last 3 years about 22.3%
• Return on Equity: 26%, averaging around 21% in last 3 years
• Balance Sheet: Working capital of $555mil versus total debt of $1.1bil

Sharemarket’s view:
Average WES Price to Earnings ratio of 20 suggests the share price around $46 ($2.3 EPS x 20 P/E).

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 15%
• Share price in 10 years time: about $186 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $235.4 (share price of $186 plus $49.4 of all the dividends if current payout ratio of 92% persists)
• Rate of Return in next 10 years based on the beginning of July 2007 price of about $41 per share: 19.1%pa

PROS AND CONS:
+++ High Return on Equity
+++ Stringent approach to new share issues
— Decrease in book value in both 2004 and 2005
— With ever increasing size sustaining the current ROE levels may prove difficult
— Uncertainties related to upcoming Coles takeover* (ie. significant increase in debt levels and number or marketable shares may somehow distort the value)

*During the August 2007 Wesfarmers is to take control of the second biggest Australian retailing corporation, the Coles Group. This acquisition (to be funded by $8.1 billion of new debt and issue of about 350 million new shares) will ultimately decrease the yearly EPS deep into sub $2 levels.

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