Tale of Two Parent Companies
[Note: see, “Realogy Bankruptcy Filing Imminent?” (2/12/09) for an update to this post]
One of the most popular quotes making the rounds these days is Warren Buffett’s observation about risk: “You don’t know who’s swimming naked until the tide goes out.”
Latest addition to the list of naked swmmers? Realogy, Coldwell Banker Burnet’s parent company (and Edina Realty’s biggest rival in the Twin Cities market; Buffett is chairman and CEO of Berkshire Hathaway, Edina Realty’s corporate parent).
According to the new Barron’s (Sept. 1, 2008), one of the most troubled private equity deals in the last few years is Apollo’s late 2006 purchase of Realogy for $7 billion (“Look out Below! More disasters could hit debt-laden companies owned by private equity shops Apollo, Blackstone, & KKR”).
The Barron’s article notes that Realogy’s bonds are trading for 50 cents on the dollar. For those who don’t know finance, that qualifies as somewhere between intensive care and life support.
By contrast, Berkshire Hathaway, Edina Realty’s parent company (via MidAmerican Energy), is flush with cash and in acquisition mode. In just the last six months, Berkshire financed Mars’ acquisition of Wrigley, launched a new municipal bond insurance company, and expanded its transportation sector investments. Oh, yes, and it’s stock price is holding up well at $117,000 a share.
So how will the prospect of Realogy going bankrupt affect Coldwell Banker Burnet? To tweak that old line about chicken soup,”can’t help, might hurt.”