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Vodafone Idea: Too Big To Fail?

 

Too big to fail describes a business or business sector deemed to be so deeply ingrained in a financial system or economy that its failure would be disastrous to the economy.

Here’s a look at some of the too big for their shoes companies which were touted by many as “too big to fail”:

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Enron

Remember Houston-based Enron? The energy company was seemingly a model workplace offering employees great pay, benefits and the possibility of a bright future. Before declaring bankruptcy on December 3, 2001, Enron had 29,000 employees and claimed to have revenues of $101 billion in 2000.

The game of fake reporting and false numbers meant the end of the road for Enron and it’s chief auditor Arthur Andersen. Today, Enron has become a running joke amongst investors and even has numerous derogatory references made to it in Hollywood. The Enron story remains an unnerving tale of caution.


Kodak

In the world of photography, Eastman Kodak was a pioneering star of the film and camera world in the 60’s and 70’s. The company however failed to anticipate how fast digital cameras became “commodities”. In 2001, Kodak was #2 in digital camera sales in the US, but shockingly lost $60 on each camera sold. By 2011, Kodak stock had fallen to $0.54 per share from the steep $90 levels of the 1990s. In January 2012, Kodak filed for bankruptcy protection and the company’s stock was delisted from the NYSE. 

Luckily for Kodak, Citigroup extended a $950 million line of credit that enabled it to stave off bankruptcy. Today Kodak is attempting to make a comeback, but it’s nowhere close to the company it once was.

Nokia


In the 2000s Nokia phones were the world’s most popular and the iconic Nokia ringtone could be heard everywhere. With a global market share of 50% in 2007, how did this iconic brand end up being near-obsolete? The resistance to moving to a touchscreen and it’s focus on hardware rather than software was the cause for Nokia’s ultimate undoing. Oh and yes, there was the launch of a completely unknown new product, the iPhone.

Luckily for Nokia, Microsoft swooped in to buy it’s mobile phone business for $7.2 billion in 2014. 


Lehman Brothers

The 2015 film The Big Short opened the world’s eyes to the dangers of financial leverage, with Lehman Brothers being a central part of the film set in the 2007-08 US subprime mortgage crisis. The company borrowed large amounts to fund its investing in real estate. Lehman’s investments were leveraged at 30.7 to 1 meaning Lehman had $1 in assets for every $30.70 invested. The drastic fall in housing prices led to the company’s ultimate failure. It’s filing remains the largest bankruptcy story in the history of the US, with Lehman’s assets at liquidation exceeding $600 billion.

The fall of Lehman sent shockwaves across the financial world, with the company’s auditor Ernst & Young also getting considerable flak for “approving of the accounting treatment leading to the massive accounting fraud”, said New York attorney general Andrew Cuomo.

Ludicrously, Richard Fuld, the head of Lehman Brothers got to walk away with a fat paycheck of $460 million.


Vodafone-Idea

The ailing telcos' journey may be coming to an end in India. Riddled with losses, a crumbling subscriber base and court-upheld dues of over INR 50,000 crores, Vodafone Idea’s survival hopes seem bleak at best. Could the influence of business scion Kumar Mangalam Birla and the millions of jobs at stake push the Government into bailing out the loss-making giant?

There are dire implications when a large corporation “fails” but the government needs to consider the implications bailouts have on taxpayers.

Bailouts cannot be random, with some companies getting the free pass whilst others being left to sink. The government in question must present a concrete plan highlighting the merits and risks of the bailout and taxpayers should have a right to vote on whether or not a bailout should be offered.

Ending with a Robert Kiyosaki quote on bailouts:

“If you or I fail at business, we fail. If we cheat and fail, we go to jail. But if you're rich and politically connected, your incompetence may be protected by a government bailout.”


Article By-
Ilan Bhatia 

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