Investing

Ten Huge Global Brands The Chinese May Buy

Douglas A. McIntyre
1. Harley Davidson – HOG
> Value of Brand: $3.281 Billion (Interbrand Valuation)
> Market Cap: $9.56 Billion
> Stock 5 Year Performance: 18% below S&P
> 5 Year High: $74.93
> 2010 Revenue: $4.859 Billion
> Sales Outside of US: 35%Harley has a brand value which is nearly as large as its revenue and many times its earnings. The company enjoyed a renaissance a decade ago under new management which improved the notoriously poor quality of its motorcycles. Harley’s turnaround was undermined by high gas prices in 2008 and global competition from much better financed brands like Honda. The HOG brand is known throughout Asia and Europe, but a complete renaissance of the company would involve a large investment in marketing and an accompanying increase in relatively inexpensive manufacturing. Buyers in China would include car manufacturers Geely and Shanghai Automotive Industry Corporation. Geely already has a motorcycle division
2. Xerox – XRX

> Value of Brand: $6.109 Billion (Interbrand)
> Market Cap: $14.43 Billion
> Stock 5 Year Performance: 30% Below S&P
> 5 Year High: $19.90
> 2010 Revenue: $21.633 Billion
> Sales Outside of US: 36%

Xerox management has staged an impressive recovery over the last decade, but its remains a second tier presence in the printer, copier, business services, and IT sourcing business. These businesses are still dominated by companies which include tech giant Hewlett-Packard and several Asia-based companies. The Xerox brand has existed since 1959. PC and server giant Lenovo would be a logical buyer. It purchased the IBM PC operations in 2004.

3. Nokia – NOK
> Value of Brand: $29.495 Billion (Interbrand)
> Market Cap: $31.14 Billion
> Stock 5 Year Performance: 59% Below S&P
> 5 Year High: $39.71
> 2010 Revenue: $58.459 Billion
> Sales Outside of US: 97%

Nokia is the largest company on this list and has over one-third of all handset sales in the world. It has faltered badly in the smartphone market in which its prospects have been overwhelmed by Apple, Research-In-Motion, and a number of companies.which have adopted the stunningly successful Google Android operating system. Nokia recently closed a business partnership with Microsoft to use the mobile OS of the world’s largest software company in its smartphones. The first products based on this partnership are over a year away from release. Opposition from the government of Finland where Nokia is based could kill a deal to buy Nokia, and the cost of a deal, which would be above $50 billion would make this a challenge. Chinese telecom equipment and handset company ZTE would be the logical buyer

4. Avon – AVP
> Value of Brand: $7.293 Billion (Brandz)
> Market Cap: $11.71 Billion
> Stock 5 Year Performance: 8% Below S&P
> 5 Year High: $44.35
> 2010 Revenue: $10.862.8 Billion
> Sales Outside of US: 84%

Avon’s sales were down 45% in China in the fourth quarter, primarily as it  moved away from a hybrid model to one which focuses on direct selling. Avon’s global revenue is flat and the company’s margins are under pressure. Avon’s potential prospects in China are still considerable. Only $55 million of the company’s $3.2 billion fourth quarter revenue originate in the People’s Republic. But, the brand is well known there. Avon may be struggling, but the brand is over 80 years old. Apparel and retail clothing supplier Youngor is the most likely buyer of Avon

5. eBay – EBAY
> Value of Brand: $9.328 Billion (Brandz)
> Market Cap: $40.63 Billion
> Stock 5 Year Performance: 20% Below S&P
> 5 Year High: $39.90
> 2010 Revenue: $9.156 Billion
> Sales Outside of US: 54%

A buyer of eBay might not have to pay much more than one times revenues for the company, but a sales of the entire company is unlikely. eBay’s value is probably more in the sum of its parts. It global payment system, PayPal, does well. It online auction business does not. eBay is by far the better know of the two brands. The eBay auction operation has 90 million users. But, it is growing at only 4% based on fourth quarter 2010 numbers. Paypal’s growth rate is 24%. PayPal would want to keep its relationship with the eBay auction business intact if that operation was sold. The relationship accounts for an important part of PayPal’s income. There are several Chinese companies which could buy the eBay auction business. The most likely is Alibaba, which is partially owned by Yahoo!. China search engine company Baidu might also be a buyer.