Batesville Spinoff

I read the latest Funeral Service Insider with interest this week, wondering what the pundits would have to say about the potential outcomes of a Batesville Casket spin-off. Most of it made reasonable sense to me but ??!!LOWER CASKET PRICES!!?? what’s up with that idea?

Let’s think about this a little bit.

1. Hillenbrand will have lots of control over how the casket company gets spun off. They have shareholders who want a STRONGER company after the transaction goes through. Often that means the smaller entity gets saddled with extra debts and other liabilities to help the bigger company clean up its balance sheet.
2. Batesville will be sitting on a bunch of manufacturing equipment in a shrinking business. It won’t be a “sexy” sell on Wall Street. This could cost Batesville through increased borrowing costs or could hinder its ability to issue additional stock later when it needs to fund the restructuring costs suggested in the Insider article.
3. The uncertainty involved with a change in Batesville ownership will cause some shifts in loyalty among the independent funeral directors. Shrinking market share (even just a little bit) will hurt Batesville’s bottom line. [Of course this could lead to higher discounts and temporarily lower prices in the short term.]
4. If Batesville ever moves to outsource their manufacturing (which would go over very poorly with this funeral director), they will REALLY lose market share. They have had enough trouble getting quality back on par with the move out of Nashua, never mind moving the work out of the country. Much like a funeral home, losing market share only lowers your profit, it does very little to lower your underlying costs.

Now Ken Camp and company know how to make smart decisions and get things done. If the business spins off, they will do a great job making it work. Just don’t expect them to stand up at the first shareholder’s meeting and announce a price cut. I expect their new shareholders will want to hear about profits on the rise just like Hillenbrand expects Batesville to perform right now.

Anyone care to comment???

Comments

[DeeDee]

Could you tell me where I could find this article to read for myself? I may then have a comment or two.
Thanks

[BT]

This link takes you to an AP story about the proposal. Not too many details there. http://www.fortwayne.com/mld/newssentinel/15038320.htm

I have also read a piece in an industry newsletter "The Funeral Service Insider". They do not publish their material online to the best of my knowledge and I do not have permission to re-post the story here (as much as I would like to).

BT

[Jonathan]

Greetings,

I'm glad see to your Blog! Do you know of any others that deal with funeral issues?

Anyway, concerning Batevilles: Do you really think outsourcing would be a bad move? And, I was a little surprised to find that you would be against that. You do have a link on your Blog to Friedman's "The World is Flat".

I should note since 'tone' is always misread in text. I respect your view and I only want to understand your position more clearly.

Having said that, I have a company that helps funeral homes in America purchase caskets from China. www.onesourcechina.com. From my clients' point of view, this is a logical option for them because they have to compete with casket stores. It doesn't make sense that they should pay 70% more for the same casket from batesvilles. Some of them do prefer 'Made in the USA'. But, caskets 70% cheaper!!!

I do understand the camp that wants manufacturing to stay in the USA. I've spoken with enough funeral directors to have a good understanding and respect for this position. But, I should point out that what I find fueling the "made in the USA' position is not economic sense, but emotions.

Friedman suggests in "The World is Flat" that America's future is not in manufacturing, but in innovation. And, that during this transition we'll feel a little pinch as some manufacturing jobs move abroad. This 'pinch' is felt hard in the short-term as the economic base of some towns collapse due to manufacturing going abroad. This causes 'real' problems. However, he (and I) believe that this can be good for the long-term as The US frees itself of the manufacturing burden and starts to focus its collective intellect on innovation.

You know... China might beat us to the next great energy innovation. Why? Because necessity is the mother of invention, and they 'really' need energy now. The US has become complacent. We don't 'need' anything here. We've got it all. This is the mentality. I think as manufacturing moves abroad, the US will feel the 'need' for something to replace it. If this need is strong enough, then it will spur our innovation and we will push the envelope once again and be on the vanguard of the world's next great innovations.

Thank you for your time.

Jonathan
jonathan@onesourcechina.com

[BT]

Hello Jonathan,

To the best of my knowlege, this is the first and only funeral industry blog. I have seen a couple funeral directors with personal blogs but they do not address industry issues. Please pass my link along to others. The more activity and energy gathered here, the better for everyone.

As for Batesville outsourcing its manufacture of caskets, no doubt they could try to do that as a purely financial decision. However, the decision would destroy the brand. Batesville, whether it wants to recognize it or or not, has a "moral" (you could almost say morale) responsibility to its funeral director customers, to produce their product as close to home as possible. Take away the manufacturing and you end up with a name without a soul.

Perhaps the world's caskets will all come from overseas in the years ahead. (I tend to doubt it though. A consumer can always wait for the next shipment of iPods to hit the docks. They can't wait for the next shipment of caskets to come across the Pacific though. A funeral needs to happen when a funeral needs to happen. No excuses or delays allowed.) If so, then it will take some entity besides Batesville (and a higher quality finished product by the way) to drive that market transition.

If we ever see the Batesville name attached to "outsourced" manufacturing, I suspect it will be some third tier overseas manufacturer who purchases the name to paste on their own product. We have seen this with the RCA name brand in consumer electronics for instance. Apparently this arrangement works for someone out there, though RCA will never have the leadership position or true American brand power it once had in the middle of the 20th century. The same will happen to Batesville should it give away its edge in manufacturing and farm out that work to someone else.

Perhaps we need to ask a bigger question: What product alternative will come along to displace the stamped metal or furniture grade wood box altogether???? If/when THAT innovation comes along, then we will have something interesting to talk about. In the mean time, a Batesville spin-off is just financial maneuvering which will mean little for innovation or change in our business.

BT