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Indiana CEOs are cautious during financial mayhem

November 10, 2008
CEOs don't come more hard-charging than David Simon, whose Type A personality has helped him make bundles of money for shareholders through the years.

This is a guy who once reopened negotiations and sealed an acquisition in the middle of the night — after the chairman of a competing company went to bed, thinking he had prevailed.

So it's understandable that Simon, 47, doesn't sound like himself these days, as the Indianapolis company reins in spending and conserves cash to ensure that it maintains the financial firepower to ride out whatever financial chaos lies ahead.

"Now, my instinct is to be aggressive and opportunistic," he told analysts on a Nov. 3 conference call.

At the same time, he said, "We're adding a bit more caution to our approach. ... The last thing we want to do is absolutely make a mistake or take undue risk in today's environment."

That means Simon — like many other Indiana CEOs — is forcing himself to pry his foot off the gas pedal at a time when opportunities to expand and to capitalize on competitors' weakness abound.

For example, David Simon said he is all but ruling out the purchase of Chicago-based General Growth Properties Inc., an ailing, debt-laden competitor that owns some of the best malls in the country.

"I will tell you that in the current environment, I can't envision a set of circumstances that would result in such a transaction," he said on the call. He deflected questions about whether his company might pursue such a deal if it reduced risk by bringing in partners.

Executives who lead other Hoosier firms also are sounding uncharacteristically restrained.

Another Indianapolis developer, Duke Realty Corp., has virtually halted committing to new development. That includes build-to-suits, a far less risky sector than speculative development.

"I won't say ... that we will turn away everything we see," Duke CEO Dennis Oklak, 54 said on an Oct. 30 conference call. "But we are going to evaluate every one of those build-to-suit opportunities very closely in the near term."

The end game, of course, is to stay strong while competitors falter — a strategy executives ultimately believe will reward shareholders.

That's the playbook CEO Don Brown is using at Interactive Intelligence Inc., the locally based maker of business-communications software.

Interactive's recent results are unimpressive. In the third quarter, operating profit was $1.4 million, off 44 percent from the same quarter a year earlier. Quarterly revenue rose an anemic 3 percent.

But analysts say Interactive remains positioned well longer term, which isn't the case for some of its debt-laden competitors. Interactive has $49 million in cash and no debt. It's also continuing to make robust investments in R&D, including $16 million so far this year.

"Some of the old guard [Interactive's competition] is really suffering through a number of problems that are making them weaker," Brown, 52, said on an Oct. 27 conference call.

"And so we want to remain profitable. But our real focus is being in a position over the next year or two or three to vault into the leadership position for this whole industry."

Trolling for dividends

Here's a promising way to make a few bucks on Hoosier stocks even if the market languishes: Scoop up shares of companies with high dividend yields.

The bear market has pushed yields way up. Twenty Hoosier companies, for instance, now have dividend yields (the annual dividend divided by the stock price) of more than 5 percent. The yield for both Indianapolis-based Eli Lilly and Co. and Evansville-based Vectren Corp., for instance, is 5.5 percent.

Other companies have dividend yields in the stratosphere. Near the top of the heap: Locally based Calumet Specialty Products Partners, whose yield is 13.5 percent.

It's high for a reason, however: Investors are skeptical the struggling oil refiner will be able to maintain payouts at current levels.

Yet some lofty dividends appear safe. Deutsche Bank North America analyst Lou Taylor puts Duke Realty's $2.32-a-share annual dividend in that category. Duke shares have plummeted 50 percent this year, swelling the yield.

Taylor recently upgraded the stock from "hold" to "buy," noting he is comfortable with the company's liquidity and funding position.

"With a 14.7-percent dividend [yield] that is covered by operations and no funding issues through 2010, we can't ignore the valuation discrepancy," Taylor wrote in a note.

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