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Notes From the CFO Conference
2:12 PM MDT | June 17, 2009 | By VINCENT VALK
Some notes and thoughts on this morning's presentations at CW's CFO Conference in New York:
Matthew Arnold of PriceWaterhouseCoopers says that if cap-and-trade does not get through Congress, the EPA will regulate greenhouse gas emissions. Considering the EPA's ruling on the subject in April, this is unsurprising. Arnold also notes that EPA regulations may be tougher for industry to swallow then a cap-and-trade regime – perhaps this is why much of industry is starting line up behind cap-and-trade.
Praxair CFO James Sawyer made several salient points, including a discussion of deflation and the still-stagnant economy. One thing Sawyer brought up that I have heard in the past is that, according to forecasting models used by many economists, we are "four standard deviations from normalcy" which, theoretically, is supposed to occur once every two million years. Considering that this is, at worst, the worst economic crisis since the Great Depression, and the Great Depression was 80 years ago rather than two million, I can't help but think that models should make better use of historical data (seriously, is anybody surprised that models that only incorporate five years of data didn't see this coming? The world did not begin five years ago). I also can't help but think that statistical models, rational as they are, are frequently poor predictors of often-irrational human behavior – and the economy, after all, is guided by humans, regardless of our attempts to impose numerical order on it.
Georgia Gulf CEO Gregory Thompson says interest in M&A is up in the last several months, though the market is "still very weak." He also noted that potential buyers look at Georgia Gulf's leverage profile – the company narrowly escaped default today – and think they can get a cheap deal when the company sells assets. Well, in some sense the buyers have a point, because beggars can't be choosers. But everyone has a limit, which is probably a good thing to keep in mind if you are serious about M&A.
On the subject of M&A, PPG CFO William Hernandez recommends building earn-outs in to deals, in good times and bad.