The Irreversible Damage Of Rumors
April 29, 04It’s a fact that an excellent reputation earned by companies over a number of generations can be destroyed through irresponsible trade journalism. Suggesting, for example, that a company has gone bankrupt normally leads to an immediate cessation of payments by clients and it triggers reactions by both suppliers and customers who are naturally concerned.
This week was not a good week for the diamond industry trade press.
When word first reached us about problems in a particular partnership that was heralded just a few months ago as a “marriage of love” rather than one of the many “marriages of convenience”, the first thing we learned is that there is absolutely no financial issue involved.
Even at the company’s bank, which may have taken some rather dramatic steps, there was not even a remote suggestion that there was a financial problem. What actually happened is of great relevancy to all major diamond players.
The pressure on major companies to show total and complete vertical integration in the value chain leads to mergers, acquisitions and consolidations and, in general, the pooling of complementary skills is tremendous. Unfortunately, some marriages are made without the prerequisite consideration of many operational and technical factors. What is vital is that banks get involved.
In some cases, and we prefer to talk in general rather than specifics, banks may have claims on the account receivables of one of the parties. When the new structure starts operating through a third joint venture entity some of the payments that come in may inadvertently be credited to the new company and not to the old company, where banks may have a claim to the money.
Call it sloppiness. Call it thoughtlessness. Call it oversight. It doesn’t matter. The net result is that the banks may be concerned that their rights are being infringed. In such cases, banks may take action to protect their interests.
If it is not always wise, or if it couldn’t have been done in a different way, is not relevant here. What is relevant is that these things can only happen when a “marriage of love” turns out to have been blind love. That may be great in personal relationships but it’s not an optimum corporate model to base a merger on.
Love can cool off, and some love cools off faster than others. But to jump to conclusions of bankruptcy, defaults and things of that nature is both alarming and shocking, and certainly unfair to the principal parties involved, and that includes the banking side.
There are undoubtedly more consolidations and mergers that have taken place in the last few years where difficulties may arise between the parties. It could be a lack of chemistry. It could be many things. It is even possible that one party decides it wants to exit the diamond industry and devote energy and financial resources to different activities.
These things have happened and will continue to happen. But reporting on those developments – valid and certainly interesting as they are – has absolutely nothing to do with bankruptcies or insolvencies.
We refrained from reporting on the subject this week, as we refused to see a drama where there was none.
Let’s hope that the parties involved have not been damaged by the media hype and let’s simply wish them well.
Have a nice weekend.