Ducati & Texas Pacific Group – a ”Wild Ride” Leveraged Buyout

What is the nature of the opportunity? Could the Ducati brand be expanded beyond motorcycles? Why or why not? TPG strategy is to invest in undervalued firms’ that usually have been poorly managed. The investments are made in privately hold firms that are either unlisted from the beginning or that is being delisted from the stock exchange under the LBO process. TPG wants to invest in firms with a “healthy” basis but that are experience some problems that TPG believes’ that they can fix.

Does Ducati live up to this? TGP has the opportunity, if the deal goes through, to purchase a controlling stake in Ducati Meccanico, producer of the best motorcycles in the world. The article describes that Ducati was in a great position of becoming for street bikes as what Harley-Davidson was for cruisers. They have a recognized brand, in spite of limited marketing, associated with high performance, i. e. high quality and high technology. Their bikes crushed the competition and won the World Superbike championships for several years in a row; 1990, 1991, 1992, 1994 and 1995.

Their racing performance indicated on technical brilliance which is just what street bike customers’ prefer and therefore they had customers on the wait lists to buy their bikes. The core business possible growth was considered as high when comparing their number of sales to Harley-Davidson sales. In addition, to this the market didn’t foresee any new entrants of street bikes which also work in their favor. The manufacturing fundamentals were strong with low fixed costs due to high levels of outsourcing, 85 %. They offered the customers 15 models of bikes in four families founded on seven various engines.

Furthermore, the most expensive part of an engine is the crank cases and cylinders but Ducati can keep these costs low since they have high levels of standardization of their engines and therefore only need two crank cases and three cylinders because. All these factors’ make Ducati look like an attractive brand that should have a prosperous economy. But they were under great financial pressure and faced severe problems in both manufacturing and financing. They had no money and weren’t allowed to borrow any either which caused extreme delays on payments to key suppliers.

Therefore their factor was full of unfinished/almost-finished bikes. This affected their sales and extended their customer wait lists but it also affected suppliers and some of them went bankrupt. Ducati were short on working capital and the business was so entangled with Cagiva Group, which Ducati was a part of, that the detail’s on Ducati’s performance was not transparent at all. In the time p from 1993 to 1995 there was only a reliable balance sheet from 1995. TPG managed to assemble the profit and losses for the other years. All this together indicates a really poorly handled management.

The forecasted EBIT for 1996 was negative and there was an imminent chance that Ducati went bankrupt since they couldn’t meet there payments. This lack of transparency has made it hard to find financing. TPG can succeed if they manage to build a model that captures their payback goal times three in three to five years. They need to find out what the Ducati should be earning and around these assets construct an international company. TPG can expect to take over a mismanaged company under financial pressure/distress but that have great potential in their strong brand and manufacturing fundamentals.

To make this work they need to use a capable management team that can build up both the brand and the company. They need arrange the financing to be able to recover from the distress and to start making some money. But as they state in the article they will have to write at least a thousands of checks on their first day. Ducati brand could and should probably be extended beyond motorcycles even though a first step is to close the deal, take control over and built up the company. There for it might not be a good idea, at least not the first thing to start with.

As I already pointed out Ducati is in a great position to imitate, for street bikes, what cruisers are for Harley-Davidson. Harley-Davidson has succeeded in creating a life-style brand with as much as 15% of its sales, with a growth potential, coming from just clothing and mechanical accessories. Ducati could look at the products Harley-Davidson is selling and how their selling them. They could also compare with a car company, like Ferrari, that has a lot of clothing and accessories that they sell. Ducati has a great potential to extend beyond motorcycles with motorcycle clothing and accessories and mechanical accessories.

There are probably a lot of motorcycle stores that would want to sell their products and they could also sell them through their own shops and from online shops. It is just the imagination, costs and the combination of a balanced brand expansion that sets the limits. 2. How does this deal differ from a typical deal in the US? In terms of deal flow generation, due diligence process, negotiations and context? Deal flow generation The deal flow is the ability used by equity firms to identify attractive potential investment candidates, i. e. the ability to generate deal flow.

This flow is generated from a wide range sources’, from for instance the experience and network built up by working in specific businesses to the network of senior corporate executives and it is this flow that discover opportunities that otherwise would have gone by unnoticed. Now days’ investment banks generally works as agents that sells the opportunity to invest for a fee paid by the seller in a sale process akin to an auction. To help Cagiva through its financial distress the Castiglioni brothers wanted to get a bridge loan from DMG so they contacted Razzano but he wasn’t interested in signing them a loan agreement.

Instead he saw the potential of an investment and contacted Halpern since they were looking for a joint investment. Due diligence Due diligence is the valuation process undertaken before the parties sign the deal to identify the future of the potential investment but also to estimate the proper price for the investment. Equity firms’ usually creates a model on several hypotheses that captures the payback of the investment. Due diligence is a vital process in investigating the financial health, technology, the market, and the current management.

A lot of different sources are used and in connection to this the investing firm usually signs a confidential agreement. The due diligence process generally starts after the parties have signed a Letter of Intent and paves the path to further negotiations between them. TPG have signed a Letter of Intent with the Castiglioni brothers and are trying to build a model that captures their payback. The problem for them is to separate the intertwined Ducati from Cagiva to find out what the Ducati should be earning to be able construct an international company around these assets.

Negotiation If the sale is conducted through an auction by an investment bank intermediate the due diligence process often leads to a final proposal by the bidders’ and this is where the negotiation phase starts with chosen bidders. The negotiations then lead to an agreement between the parties. According to the article the negotiations in the US are done more in a linear path but the negotiations with Cagiva can best be described as a circular path. TPG has been negotiated with Ducati for almost a year. This is probably were the cultural difference is most prominent.

Americans chose to discuss every issue separately step by step and after every discussion they want to include this in the contract between the parties. Italians see the whole picture in every discussion so when the Americans have decided something new in the next step of the precoess the Italians want to go back to the previous steps and re discuss them. Furthermore, Italians don’t like do business if they can’t trust the other part in America you don’t have to feel the trust since you include every little detail in the arrangement otherwise you can get sued.

Maybe that is why the Castiglioni brothers might not trust TPG if they are not willing to re discuss everything again. Maybe that is why they are trying to shop the deal to others even though they have signed a Letter of Intent with TPG. This would never happen in America. But they have not participated in any meetings and in America it would probably not be hard to sign a contract under an LBO situation. TPG believed that their behavior replicated an act of trying to back out of the deal. Context LBO’s in U. S. eems much more organized than in Italy but at the same time this might make it harder to find interesting targets that have the same growth potential or at least the competition of acquire them might be harder. The development of the high-yield markets in Europe compared to US differ since the markets in Europe was not as developed as the US market. This made it harder for TPG to accomplish the same level of leverage as in the US. Halpern compare the debt-to-equity ratio as 2:1 in Italy compared to 3:1 in the U. S.

On the other hand TGP were looking for companies that had grown hastily but still was arranged as small company and in Italy companies aspired to be small because of the fact that they then paid less tax. In order to pay even less tax it wasn’t uncommon, according to Halpern, to find relatively small companies with as much as 50 subsidiaries. This is usually not the case in the U. S. To overcome the aim to stay small and to not go public “Tremonti Law” allowed companies that went public in 1996 a two years tax relief. 3. What is the value of Ducati at the time of the deal?

How much should TPG be willing to pay for 51 percent of the equity? Please assume that the target return is 35 percent (annualized). Observe that you are required to value the firm. For the valuation of Ducati, observe that since this is a leveraged buyout, the debt-to-equity ratio will change drastically, and you need to handle this in the appraisal model you use. Furthermore, you need to think about the inputs you shall use in the valuation. How do you determine return on assets? Which risk free rate of interest should be used? Which risk premium should be used?

Etc. To value Ducati we can use the APV-model. APV treats the firm as it is all equity financed. A suitable unleveraged beta for the estimation is a beta in the same industry that is all equity financed and the article states that Harley-Davidson don’t have any long-term debt which means that their beta is unleveraged. I will therefore use their beta of 1. 09. We will use CAPM to discount the cash flows and a rule of thumb to know which rate to use is to match the risk free rate with the country that we are going to invest in. The 10-year government bond is 6. 4% in both the US and Italy so this wouldn’t have caused any trouble here. Since the 10-year bond is 6. 74% in both countries we will not add any extra country risk for the investment. Should Halpern consider applying a country risk premium in determining the appropriate discount rate for Ducati? They should not consider applying a country risk premium since the Italian the long government bond of Italy and the US are the same, i.. . 6. 74%. 5. Should Halpern walk away from this deal? Why or why not? Ducati has a lot of problems that I already covered under the first question. But as a summery are under great financial pressure and have faced severe problems in both manufacturing and financing. The reporting of their financial performance is not transparent at all instead it is entangled with the Cagiva Group. This has made it hard for TPG to hunt financing to the LBO. It is perhaps not a surprise but they have a problem with their working capital and the payment delays leave them with a lot of unfinished bikes.

This has lead to a decrease of their sales and enlarged wait lists. Then we have a badly manage management by the Castiglioni brothers who continues to shop around for other deals even though they signed the Letter of Intent. There is also the risk of insolvency of Ducati and bankruptcy of Cagiva which have made TPG worried about the Italian legacy. A bankruptcy of Cagiva after a closed deal could lead to a delay of the deal for up to four years and this would be cost them a lot of money. The deal also has a lot of benefits.

Ducati is the world leading manufacturer of motorcycles and if managed well they could probably be profitable very soon. They already believe that this want be a problem with Minoli as CEO. The brand is well-known and easy for investors to understand. This opens up the opportunity for IPO which could in fact obtain higher sales compared to trading. TPG has worked with the deal for one year so they have really had time have to plan for the changes in the Ducati. If TPG pursues the deal and purchases a stake in Ducati, what are the critical steps that TPG needs to take in order to make the deal successful?

Please be specific in your answer! First of all they need to get the Castiglioni brothers to stop shopping around for other deals. They have “signed” the deal through the Letter of Intent and it is the brothers and Cagiva responsibility to follow the contract. Maybe easier said than done be the negotiations must continue in order to get a deal. TPG also need to finish their due diligence model so to that they can identify the future of the potential investment but also to estimate the proper price for the investment. It is hard to close a deal otherwise.

The due diligence is also important in investigating the financial health, technology, the market, and the current management. If they sign the deal TPG can expect to take over a mismanaged company under financial distress that has great potential through its strong brand and manufacturing fundamentals. To make this work they need to use a capable management team that can build up both the brand and the company. They also need to start up and arrange the NewCO establishment, the senior debt and write at least thousands of checks on their first day.

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Ducati and Texas Pacific Group

Due to Ducati’s strong turnaround potential and other revenue opportunities under new management, proposed deal structure, and Italy’s developing public equity market, we recommend that the Texas Pacific Group go through with the purchase of Ducati, at a price between 400 – 500 billion Lira. Strong Turnaround Potential and Other. Ducati has long been associated with the street bike market segment. Like Harley Davidson with cruisers, Ducati’s domination of street bike racing has elevated its name to the very top of the;500cc market. Despite the great name, Ducati has lousy management.

Ducati’s parent company, Cagiva, had diversified into too many areas, decreasing the value by intertwining businesses’ financial statements and presenting a lack of visibility into divisional profits. As a result, Ducati had 180 billion in debt by 1995 and negative retained earnings. In 1996 Ducati had a disproportional world market share given its success in World Superbike Championships, a reputation for having top tier motorcycles and incredible engines, and a long waitlist for its products. From a financial perspective, Ducati had an ROIC of 5% in 1996. With a WACC of 8%, Ducati earned an EVA of negative 14 billion Lira, delivered an EBITDA margin of 12% (the prior year was 20%), and had SG; A expenses of 23.1%.


Motorcycle volume growth decreased 32.7% from the prior year to 13,480 in 1996, with outstanding orders in Europe of 5,600 units. By March 1996, a countless number of bikes missing one part were sitting in the shop because Ducati’s suppliers either stopped providing the part or were bankrupt because they were not getting paid. Better management of working capital requirements was in dire need of Ducati to avoid bankruptcy. Yet Ducati has very strong manufacturing fundamentals and a high level of standardization of its engines. Injections of working capital would to a great extent help turn the operations around. Working capital additions decreased in 1996 by 0.9 Billion Lira.


A steady increase of 13% in 1998 and 1999 and 20% from 2000 through 2003 in net working capital requirements will allow production to increase and will reduce the inventory, allowing for more bikes to leave the shop. The forecasted increase in Net Working Capital for 1997 was 1.2 Billion, with additional requirements of 52 billion by 2003. Inventory days sales will see a reduction to 67 by 2003, from 113 in 1995. In addition, Ducati can capitalize on its brand by selling replacement parts, motor clothes, and mechanical accessories. We assumed a conservative gradual ramp-up of “Other Revenues” to 3% of motorcycle revenue, which adds an additional 22 billion to revenue in 2003. Proposed Deal Structure and Valuation To fund the increase in net working capital and allow for solid management to take over Ducati, the deal was structured as an asset sale. TPG estimated the Ducati trademark to be worth around 200 billion Lira, with the remaining assets on the books for 175 billion Lira in 1995. They estimated that they would need to pay off the outstanding accounts payable of 10 billion and increase production capacity by 4.6 billion and other expenditures by 8.3 billion in 1996.


Capital expenditure requirements for 1997 through 2003 are shown in the same exhibit. [c1] They propose a 2:1 Debt/Equity structure, with D/E ratios gradually declining as senior debt is expected to be all paid back by 2003. In valuing what the firm is worth, we first discounted back its future cash flows from 1997 through 2003 and included a terminal growth of 4% (in line with motorcycle market growth and Italy GDP growth). We discounted Free Cash Flow to the Firm at a weighted average cost of capital reflective of the firm’s future capital structure on an annual basis.


Our assumptions are a risk-free rate equal to Italy’s 10-year bond rate of 6.74%, Beta equal to comparative pure motorcycle company (Harley Davidson) of 1.09, and a market risk premium for Italy of 6% (Damodaran Online). We got a PV of 557.9 billion. From the value-creation perspective, return on invested capital is forecasted to surpass 30% by Y2K and EVA turns positive in 1997 and accelerates from thereon. We also looked at the seven sources of growth for the new company to back up our valuation. Based on growth estimates and breakdown.


We estimate sustainable growth of 6%, mostly attributed to volume increases as production becomes more efficient. In detail, volume growth stabilizes around 5.5% by 2003 and seems sustainable, pricing growth is nonexistent, and revenue from potential new products contributes another 0.5% growth. Although the company envisions cost-cutting, we do not believe it is a sustainable source of growth in the long run. Using the PEG Hurdle Rule, we derived a purchase price of 620 billion Lira EXHIBIT 5[c2].

Italy’s Developing Public Equity Market

The recent flood of IPO activity, coupled with a 10-year CAGR in Italy’s Domestic GDP growth of 8% (compared to 7.1% in the US), provides favorable economic conditions for Ducati. Italian Lira has been strengthening against the dollar and the Italian Equity Market Index has seen a 15% increase during the period from 1990 to 1996. In addition, favorable tax treatment for firms listing in 1994 and 1995 might extend to future years. Halpern and TPG have three options here: They could Buy, Sell, or Hold. By selling (passing up the deal), TPG would give up a Return on Invested Capital less Cost of Capital of 23% by 2003. It would truly be a missed opportunity for them because they have the right experience in turnaround buyouts to make it happen. By Holding (waiting to do the deal), the company could go into bankruptcy. If this happens, it could get held up in Italian courts for up to four years, and TPG would have a lost opportunity to invest at the right time. By waiting, they would also run the risk of other groups’ courting the Castiglioni family, which would drive price up. In our opinion, Buying is their best option.


Despite problems with the Castiglioni family and their elusive negotiation practices, TCG should buy Ducati. The company is worth between 500 and 600 billion Lira, 100 billion above the proposed purchase price[c3]. Due to Federico Minoli’s experience with turnaround companies, we felt that he is able to institute great management. Provided operational efficiency is achieved through an increase of net working capital and other nonbike revenue, EVA will increase to 112 Billion by 2003, and EBITDA per motorcycle will see 100% growth from 1.9 billion in 1997 to 3.8 billion in 2003. The deal structure allows for 2:1 Debt/Equity breakout, with the debt level gradually declining and all senior debt financing paid back by 2003. L[c4]astly, Italy’s equity market is ripe for IPOs and an IPO of Ducati will further increase value for TPG.

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Case Texas Instrument

RAISA AYU LESTARI 1091002047 Case 13. 4: Texas Instruments 1. Summarize the major features of Texas Instruments’ management systems. 2. How does Texas Instruments ensure that its operating managers appropriately allocate their time between short term and long term? 3. the OST System worked so effectively for TI in the 70s? why was not working effectively for company in the mid-to-late 80s? 4.

Would systems like these be appropriate in other organizations, such as Harvey-Hudson Electronics? What implementation problems would you foresee? ANSWERS: NO. 1 Texas Instruments (TI) is considered to be the pioneer of the American electronics industry. TI was first established in 1951 as an electronics company serving the American defense industry. In 1958, TI developed the first semiconductor integrated circuit.

TI has three main lines of business in 1984: components, which included semiconductor integrated circuits, semiconductor subassemblies, and electronic control devices; digital products, which included mini computers, personal computers, scientific instruments, and calculators; and government electronics, which included radar system, missile guidance and control systems, and infrared surveillance systems. The major management system of TI is OST System, which is Objective, Strategies, and Tactics System. OST System is a system for managing change and innovation.

The system was employed to define the strategies the company intended to follow for further growth and development and to identify the tactics required to successfully implement such strategies. The OST System can be more easily understood if viewed in three strategies: 1. Presentation of the hierarchy goals 2. Dual responsibility of line management 3. Impact of matrix organization composed of strategic and operating modes The other main management system of TI is resource allocation system. This system included planning cycle, strategic fund, operating fund, and timing f planning cycle. The next major management system of TI is incentive compensation system, which is included the Key Personnel Analysis and stock-option plan. Planning and control system on TI encourage the development of new product. Strategic planning systems are more critical to survive the uncertain environment. Budgeting systems are used as short term planning tools that are flexible to adapt to a fast-changing environment. Reporting system are concentrated on policy issues. Performance evaluation system highlight the uncertainty in the environment. NO. 2

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Case Analysis Texas V. Johnson

Table of contents

This case analysis of Texas v. Gregory Lee Johnson was a Supreme Court case that overthrew bans on damaging the American flag in 48 of the 50 states. Gregory Lee Johnson participated in a political demonstration during the 1984 Republican National Convention in Dallas, Texas, where he burned the American flag.

Consequently, Johnson was charged with violating the Texas law that bans vandalizing valued objects. However, Johnson appealed his conviction, and his case eventually went to the Supreme Court. Facts And Procedural History In 1984, the Republican Party convened in Dallas, Texas for their national convention. President Ronald Regan, seeking a second term in office, was to be officially delegated as the GOP (Grand Old Party) candidate for President. Scores of individuals organized a political protest in Dallas, which voiced opposition to Reagan administration policies, and those of some Dallas-based corporations.

Among these protesters was a man by the name of Gregory Lee Johnson, who participated in a political demonstration, called the “Republican War Chest Tour. ” As the demonstrators marched through the streets, chanting their message, a fellow protestor handed Johnson an American flag that had been taken from a flag pole at one of their protest locations. Upon reaching the Dallas City Hall, Johnson doused the flag with kerosene and set it on fire. In addition, Johnson and his fellow demonstrators circled the burning flag and shouted “America, the red, white, and blue, we spit on you. No one was hurt or threatened with injury by the act, but many who witnessed it were deeply offended. Therefore, Johnson was arrested, charged and convicted under Texas “desecration of a venerated object” statue, sentenced to one year prison, and fined $2000. Moreover, Texas was not the only state to have anti-flag burning laws on the books, 47 other states also criminalized flag desecration (Joel, 2011. ) Principles to the case A principle to the case is mens rea accompanying “Symbolic expression “which is a phrase often used to describe expression that is mixed with elements of conduct (Cline, 2011. The issues argued were the 1st Amendment, and protest demonstrations. The Supreme Court has made clear in a series of cases that symbolic expression (or expressive conduct) may be protected by the First Amendment (Cline, 2011. ) However, of the approximately 100 demonstrators, Johnson alone was charged with a crime. Johnson appealed his conviction and his case eventually went to the Supreme Court. The principle to the case is burning a U. S. flag in protest was expressive conduct protected by the First Amendment.

In determining the case, the court first considered the question of whether the First Amendment reached non-speech acts, since Johnson was convicted of flag desecration rather than verbal communication, and, if so, whether Johnson’s burning of the flag constituted expressive conduct, which would permit him to invoke the First Amendment in challenging his conviction. The First Amendment literally forbids the abridgment only of ‘speech,’ but has long recognized that its protection does not end at the spoken or written word.

If there is a bedrock principle underlying the First Amendment, it is that the government may not prohibit the expression of an idea; simply because society finds the idea itself offensive or disagreeable (Find Law, 2011. ) In addition, Johnson argued that the Texas flag desecration statute violated the First Amendment, which says “Congress shall make no law … abridging the freedom of speech … or the right of the people peaceably to assemble, and to petition the government for a redress of grievances. ” Consequently, the state of Texas argued that it had an interest in preserving the flag as a symbol of national unity.

Analysis Of The Court Findings

I agree to some extent with the ruling, since it claims that its interest in preventing breaches of the peace justifies Johnson’s conviction for flag desecration. However, no disturbance of the peace actually occurred, or threatened to occur because of Johnson’s burning of the flag. Johnson deliberately chose to burn the American flag in order to demonstrate his deep distress over the nation’s policies. His gesture was an attempt to cry out to the government for a redress of grievances, and not to commit an act of juvenile vandalism.

The 1st and 14th amendments protect Johnson’s symbolic protest. Also, the only evidence offered by the state at trial to show the reaction to Johnson’s actions was the testimony of several persons who had been seriously offended by the flag burning. This case sparked years of debate over the meaning of the flag, including efforts to amend the Constitution to allow for a prohibition of the “physical desecration” of the flag. The only evidence offered by the State at trial to show the reaction to Johnson’s actions was the testimony of several persons who had been seriously offended by the flag burning.

They rejected the claim that the ban was necessary to protect breaches of the peace due to the offense that burning a flag would cause. Burning a U. S. flag in protest was expressive conduct protected by the First Amendment. “The First Amendment literally forbids the abridgment only of ‘speech,’ but we have long recognized that its protection does not end at the spoken or written word…. If there is a bedrock principle underlying the First Amendment, it is that the government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable. (Find Law, 2011. ) Another fact I find interesting is that Johnson was prosecuted because he knew that his politically charged expression would cause a “serious offense. ” If he had burned the flag as a means of disposing of it because it was dirty or torn, he would not have been convicted of flag desecration under this Texas law; however, federal law designates burning as the preferred means of disposing of a flag “when it is in such condition that it is no longer a fitting emblem for display,” 36 U. S. C. § 176(k), and Texas has no quarrel with this means of disposal (ACLU, 2011. Johnson was convicted for engaging in expressive conduct. The State’s interest in preventing breaches of the peace does not support his conviction, because Johnson’s conduct did not threaten to disturb the peace; nor does the State’s interest in preserving the flag as a symbol of nationhood and national unity justify his criminal conviction for engaging in political expression. Therefore, the judgment of the Texas Court of Criminal Appeals was affirmed. Conclusion To put it briefly, grunts and howls do not inspire laws banning them; owever, a person who grunts in public is looked at as being strange, but laws do not punish them for grunting instead of communicating in whole sentences. If people are irritated by desecration of the American flag, it is because of what they believe is being communicated by such acts. Thus, amending the Constitution to permit bans on flag burning is not just a solution in search of a problem. Instead, I believe it is also a “solution” which will likely serve to create the problem it is trying to solve in the first place.


  1. ACLU (2011. Burn the Flag or Burn the Constitution? Retrieved September 1, 2011 from http://www. aclu. org/blog/tag/flag-burning. Cline, A. (2011)
  2. Can Flag Burning Send a Political Message Be Made a Crime? Retrieved September11,2011fromhttp://atheism. about. com/od/flagburningcourtcases/a/TexasJohnson. html.
  3. Find Law (2011. ) Cases and Codes. Retrieved September 1, 2011 from http://caselaw. findlaw. com/wa-supreme-court/1102265. html. Joel, S. (2011. ) Texas v. Johnson. Retrieved September 1, 2011 from book Criminal Law, tenth Edition, Page47.

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How Are the 5 Principles of Politics Manifested?

How are the 5 Principles of Politics manifested in the documentary Last Man Standing: Politics, Texas Style? The documentary: ‘Last Man Standing: Politics, Texas Style’ tells the story of two sets of elections in Texas in the year of 2002. The main election shown is the race for State Representative, between the incumbent, Rick Green and his opponent, Patrick Rose. As well as this, the election for state Governor between Perry and Sanchez is also shown.

Throughout the film, the five principles of politics: The History Principle, The Rationality Principle, The Institution Principle, The Collective-Action Principle and The Policy Principle, manifest themselves in many different ways. The first aspect of The 5 Principles is The History Principle. This principle is concerned with how everything to do with politics got to be like it is today. This includes: Why institutions are the way they are, why certain groups of voters choose to vote for certain candidates and how past events can affect politics and elections particularly. This principle is demonstrated very clearly in the documentary.

Firstly, Texas was historically a democratic state but this has changed in recent times and it is clear that in recent history, republicans have a better record in elections in Texas. The documentary explains that during the ‘technological boom’ in Austin, a lot of new voters moved into this area and into Texas in general. The people were predominantly white but the minority groups were also growing which meant that Texas good very easily swing towards the democrat or republican side. One political commentator in the documentary said when talking about voters in Texas, ‘They go out there, find a Republican and they vote for them’.

This shows that at the time of the election this election, the Republican Party were favorites and so therefore was Rick Greene. In this particular case, of the Republican rise, it is clear that religion and more specifically the activity of churches has also had a significant impact on this rise and therefore on the shaping of politics. Furthermore, in the other election followed by the documentary, Tony Sanchez, a Hipic man, was running. We learn that it was going to be very difficult for Sanchez to win votes because historically, Hipic politicians have found it very difficult to do so in Texas.

These points also show that historical activity in an area, in this case Texas, can influence politics. Perhaps the most significant way that the History Principle manifests itself in the documentary is through the accusations towards Rick Green that arose one month before the Election Day. He was accused by media of having worked for a supplement business and this was seen as unethical activity by the much of the public of Texas and this indeed showed in the results of the election. This story shows that past events can influence and effect the decision of voters and is a clear demonstration of the History Principle.

The second principle is The Rationality Principle. This principle explains that all political behavior has a purpose. This behavior can range from a simple conversation between friends about the current political situation to The President of the USA making political but it always has a reason and a purpose. In the documentary, this principle is highlighted in several ways. The political behavior of voters is demonstrated when they are interviewed and asked who they are going to vote for.

Some voters were very blunt in saying that they were going to vote Republican, simply because they believed that Texas should be a Republican state and that is what they had always voted Republican. On two occasions, voters implied that they were planning to vote for Patrick Rose simply because of his looks. These two examples show how different factors can influence the political behavior of voters. Furthermore, the behavior of the politicians themselves is shown throughout the documentary because most of everything that the politicians do is politically orientated.

Firstly, it is clear that throughout their campaigns, both Green and Rose talk negatively about each other. When planning and giving their political speeches they attempt to take negative aspects of each other and present these to the voters to try to better their own chance in the election. An example of this was when Rose was talking to voters and explained to them that the other candidate, Green was not from Texas where as he was, clearly an attempt to down his opponent.

Another clear example of this was when Rose attempted to take advantage of the stories that came out about Green by going to for support and producing a television commercial. Exactly the same technique was used by Perry towards Sanchez in the race for state Governor, again an attempt to down his opponent by releasing the story. This is the first significant aspect of behavior shown by both politicians. Other aspects of politician behavior were shown throughout the documentary including: constantly expressing their own views, visiting households to talk to voters. All of hese factors explain the fact that the politicians have a clear reason behind their behavior, whether it is attempting to down their opponent or talking about themselves, the majority of their behavior is concerned with simply winning votes, which is called electoral connection. The third principle is the Collective Action Principle. This is the idea that all politics is collective action. In theory, political leaders should act on behalf of voters and act as a voice. However conflict is always likely due to self-interest of the politician as well as the activity of bargaining between politicians and political parties.

This principle is shown in the documentary. Firstly, both politicians engage a lot with voters and one reason that they do this is to try to understand what the voters want from their representative. This demonstrates the theory that politics is collective action and that agendas set by politicians can be a direct result of the opinions and demands of the voters. However, the ideology that political leaders should echo their voters is not realistic and conflict between the voter’s opinion and the individual needs of the politician can be seen throughout the documentary.

Often during the campaign, both Green and Rose made public speeches in which they would mention their plans or agendas if they were to be elected. These statements were often met with applause or cheering from the audience and this shows that that the politician may in fact be saying these things to simply please that particular group and therefore win votes, meeting his individual needs and not necessarily the needs of the other voters.

The fourth Principle is the Institution Principle which explains the rules and procedures that provide incentives for political behavior, thereby shaping politics. These institutions provide authority for politicians and also highlight the areas in which they can govern this authority. This principle is mainly concerned with the rules and procedures for Politicians once they are in office and active so it does not arise a lot. However, the rules of this particular election were illustrated during the documentary.

Although the politicians are able to use almost any technique they want to win votes and minimize votes for their opponent, there were some procedures that had to be followed. During debated between the politicians and the final debate before the election between Green and Rose particularly, there was a concise structure to be followed through giving speaking and then answering questions. Another way in which this principle is apparent in the documentary is during the final Election Day when the political parties are shown counting the votes from different areas in the state.

The aspect of delegation within political parties is also one that is mainly seen after elections, but is shown in minor ways during the election campaign. We see that politicians would delegate responsibility in the campaign to other individuals to within their party. The final principle is the Policy Principle. This explains that political outcomes are the products of individual preferences and institutional procedures. Again, this principle is demonstrated mainly after the elections and during the time when the politicians are actually in office.

This would be demonstrated when agendas are produced by the politicians, whether these agendas are as a result of the individual preferences of the voters or of the politicians themselves. The History Principle, the Rationality Principle, and Collective action principle are illustrated in several ways throughout the documentary. On the other hand, both the Institution Principle and the Policy Principle are not highlighted as much by the documentary, simply because these principles become more apparent after the elections and during the politicians actual reign in Government.

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Differences between US government and Texas State government

The United States of America is a country consisting of many states, including Texas state, and various outlying areas. Although Texas is one of the states of U. S. , to some degree, it has difference in terms of its governance. This paper scrutinizes the difference between the government of US and Texas State government in terms of its constitution and economy. The United States is a democratic federal republic under the Constitution of 1787 and its amendments.

There are three levels of government: (1) national, or federal; (2) state, consisting of 50 separate governments; and (3) local, consisting of thousands of county, township, city, and other local units within the states (Ferguson, 2001). The U. S. Constitution, the oldest written constitution among the great nations, has served as a model for a number of other countries. The presidential system of government, with separation of powers between the executive, legislative, and judicial branches, is one of the two leading forms of democratic government is use today (Bender, 2006).

The emphasis on freedom in the Declaration of Independence, the Constitution, and the Bill of Rights has been an important world influence. The United States form of government is based on these principles: 1. Popular Sovereignty. Supreme power is in the hand of the people. Government is based on the consent of the governed, as expressed through the United States Constitution, elections, and public opinion (Bender, 2006). 2. Constitutionalism, or Limited Government. The U. S. Constitution is the supreme law. Every government—national, state, and local—and every citizen must abide by its provisions.

The national and state constitutions have bills of rights that guarantee certain basic rights to the individual (Bender, 2006). 3. Federalism. Governmental powers are divided between the national government and the states. Whatever powers are not granted to the national government by the Constitution are reserved to the states or to the people (Bender, 2006). 4. Representative Government. As a republic and representative democracy, the government is run by the voters to express and enforce their will. 5. Separation of Powers.

Governmental powers are divided among three generally coordinate (equal-ranking) branches: legislative, executive, and judicial. To prevent any one branch from taking over the functions of another, the power of each branch is checked and balanced by the powers of the other two. The President, as chief executive, has the power to veto, or refuse to give consent to, legislation. Laws must be approved by both houses of Congress, the legislative body. (Ferguson, 2001). Through the power of judicial view, the courts can invalidate laws and actions that are contrary to the Constitution.

In addition, in terms of its economy, the United States is a leading agricultural nation even though the relative importance of agriculture in the economy has declined steadily over the years. Farming now accounts for less than 3 percent of the nation’s labor force and a similar percentage of the gross national product (Baumol, 2005). Nevertheless, it makes the nation virtually self-sufficient in food and, by value, provides about one-seventh of the nation’s exports. On the other hand, Texas is a state in the south-central United States.

It extends from the Gulf of México and the Rio Grande Valley into a heart of the Great Plains. Texas, with an area of 266, 807 square miles, ranked as the largest state in the Union for more than a century, and now is second only to Alaska in size. More than 7 percent of the total area of the United States is occupied by Texas. To many people, the name Texas brings to mind dry, barren plains dotted by occasional cattle herds and oil wells. In reality, there is great scenic variety, ranging from thick pine forests and long sandy beaches to beautiful mountains and canyons.

There is as much variety in the state’s economy as in its scenery (Jordan, 2003). Cattle and oil are still very important in Texas, but they are now only part of a highly diversified economy that is dominated by manufacturing. Texas cities that had long been primarily market and oil-refining centers are now industrial and financial capitals of a multistate area. Despite the many changes that have taken place, Texans maintain a traditional pride in their state and its colorful history. They sometimes tend to think of Texas as a separate country.

This feeling is at least partly due to the vastness and diversity of Texas, its numerous resources, and a spirit of independence that goes back to the days of the republic of Texas (Ridgeway, 2002). Texas is governed under its fifth constitution, adopted in 1876 and frequently amended. The chief executive of the state is the governor. He is elected for a four-year term and may be reelected an unlimited number of times. The lieutenant governor, the attorney general, the comptroller of public accounts, the treasurer, the commissioner of agriculture, and the commissioner of the general land office are elected for four years.

The secretary of state is appointed by the governor for a four-year term (Whisenhunt, 2004). The state legislature meets in odd-numbered years. It consists of a Senate elected for fours and a House of Representatives that are elected for two years. The judicial branch of the government is made up of a supreme court and several lower courts. The judges of all state courts are elected. Texas has 254 counties. It is represented in Congress by 2 senators and 27 representatives. Moreover, until the beginning of the 20th century the economy of Texas was based on farming, ranching, and lumbering.

Then, in 1901, large-scale production of petroleum began following discovery of the Spindletop oil field near Beaumont. Since then, the economy of Texas has become closely bound to the production and distribution of petroleum, petroleum products, and natural gas and to such related industries as petroleum refining and the making of petrochemicals. Since roughly mid-century, diverse manufacturing industries have been established in the state especially notable are those in the electronic and aerospace fields (McDonald, 2003). Today, about 20 percent of the nonagricultural labor force is engaged in manufacturing.

Wholesale and retail trade, the service industries, and government also employ large numbers of persons. These changes in the Texas economy reflect the demand, both from within and from outside the state, for an ever-widening variety of products. Abundant resources, especially petroleum and natural gas, a large labor force, relatively low wages, and large amounts of investment capital have helped bring about these changes (Adams, 2003). Furthermore, Texas has the largest network of primary and secondary roads in the United States.

The primary system, which connects all major Texas cities, includes seven Interstate routes and many miles of other multilane divided highways. Railway mileage is also the largest of any state, but, as in most other states, has declined for many years. Dallas-Fort Worth and Houston are the chief railway hubs. Six major poets serve Texas. Houston, connected to the gulf by the 50-mile Houston Ship Channel, is the state’s largest port and ranks among the busiest ports in the country. Beaumont, Corpus Christi, Texas City, Port Arthur, and Freeport also handle heavy cargo tonnages.

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American Government Exit-polls

As per exit polls in Texas are concerned, there were some interesting results that are worth noting regarding the trend of voting. The Democrat beat the Republicans by a substantial margin of close to one million votes with McCain garnering 4, 479, 328 or 55%, and Obama 3, 528, 633, or 44%. Voting in terms of age. Exit polls in Texas for President showed that of the 47% male voters, Obama got 39% while McCain had 59%, and of the 53% female voters Obama had 47% while McCain got 52%. What was interesting in this exit poll result was the trend in voting by age.

Texas exit poll revealed that among ages 18-29 comprising 16% of the total votes, Obama earned 54% votes and McCain 45%. Among ages 30-44 (31% of the total votes), Obama had 46% and McCain 52%. Of ages 45-64 (39% of the total votes), Obama got 41% While McCain earned 58%. Finally, at 65 and older (14%) Obama had the lowest 32% votes while McCain got a high 66% of the total votes from this age group. The exit polls in Texas reveal important things.

  1. That most men in general in this state favored and voted for McCain giving him 59% over Obama with only 39%.
  2. That, women in general in this state only slightly favoring McCain giving him a slight edge over Obama at 52% compared to 47%.
  3. Among voters ages 18-29 comprising 16% of the total votes, Obama gets the upper hand with 54% compared to McCain’s 45 %
  4. But among ages 30-44 which comprised 54%, McCain was the stronger candidate.
  5. The trend in the voting by age shows that McCain was the top choice among the older voters. Ages 45-64 comprising 39% shows McCain widening his lead over Obama at 58% to 41%
  6. Exit poll among ages 65 and older shows Obama further down at 32% compared to McCain’s 66%.
  7. That this voting trend favored McCain considering the age bracket of the voters getting older.
  8. That obviously this voting trend in the age bracket point to the direction of racial prejudice.
  9. The younger generation was more open to accepting societal change through conventional leadership styles.
  10. That voting by race reveals that voters in Texas vote based on racial preferences.

II. A Letter to the President

Dear Mr. President: In view of the exit polls in Texas, apparently younger generations voted for you in view of their being open-mindedness on the issues affecting our society. However, the same exit poll reveals that Texas voters in general are partisan voters voting merely based on racial preference. I, therefore, urge that you give particular attention to this observation by showing considerable fairness among the people of Texas despite you lose by a margin of almost a million votes for future reference. I hope for your favorable response on the matter by paying a visit and extend the atmosphere of reconciliation.

Sincerely: III.

Question on the election trends I believed that the trends in the general election have changed dramatically from previous trends. The change that took place according to CREST (The Centre for Research into Elections and Social Trends) has to do with voters’ attitudes that influenced their preferences for the kind of leaders they wanted for their country. In that report, voters chose the leader/s, who could deal with personal issues such as healthcare, economy, social security, gas prices, the war in Iraq, political corruption lobbyist, terrorism, taxes, immigration, and environment (Hardy). The voting attitude was greatly influenced by the current issues that affected their country. The new trend I believe will pass on history and will be seen in future presidential elections especially if Obama proves himself as the right president who could correct the inaccuracies in society. This period is very crucial in the history of the United States and while the new trend in the USA election brings remedy to their crisis, the trend will become the basis in choosing government leaders.


  1. Hardy, F. W. (9 Jan 2008).
  2. http://us-elections. suite101. com/article. cfm/election_issues_excel_in_america President Texas.
  3. http://edition. cnn. com/ELECTION/2008/results/individual/#TXP00
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