VC Views

The Smartest Thing Yang Has Done So Far

2008-07-21T04:27:00.000-07:00

As excited as I was about the potential buyout of Yahoo! by someone, even I became a little bored of all the back and forth between Yahoo! and Microsoft. In injection of Google into the mix certainly added some spice to the story, but I honestly thought that Carl Icahn's battle to replace the board at Yahoo! would be the critical next milestone to move the story forward. With Steve Ballmer's outright statement that he would speak with Yahoo!, but only after a new board was installed, that seemed to be the obvious conclusions. Today's announcement, however, that Carl Icahn, himself, will join Jerry Yang on the existing board leaves me scratching my head again.

I'm not along in my head-scratching, of course. In the morning batter on CNBC, everyone seems to be wondering how this ultimately works to the advantage of Yahoo! All can agree, however, that this is the smartest thing that Yang has done thus far and I would have to concur. If you can't beat 'em, join 'em ...or in this case, invite them to join you.

Over the weekend I spotted an article that announced that Legg Mason, a major shareholder in Yahoo!, would support the existing board along with Jerry Yang. There were previous reports that there were meetings between Yahoo and Legg Mason at the Sun Valley lodge and that's likely where the seeds were planted for the announcements made over the past few days. While I'm certainly a little more confident it Jerry Yang's ability to strategize, I'm still wondering where this leaves Yahoo!'s independence or lack thereof.

Lehman's Fuld Director of New York Fed?

2008-07-16T06:33:00.000-07:00

This little known fact was stated only in passing in this article, but it's really hard to believe - especially in the way it's used in this particular article. How can and investment bank's chief serve as a director of the New York Fed? Isn't that a conflict of interest?

Yes, I can appreciate that the Fed should seek insights from industry leaders, but the way Mr. Fuld's position with the NY Fed is used in this particular article, suggests that that position would help support Lehman Brothers and keep it from a Bears-like demise. That, I have to say, is very much an indication that such a position could be abused. My point is that Mr. Fuld's position should not have any materially different affect on Lehman than Mr. Alan Schwartz's lack of such a role hurt Bears Stearn. Wouldn't you agree?

Dow buys Rohm & Haas with Berkshire & Kuwait Investors

2008-07-10T05:28:00.000-07:00

It's the breaking news on CNBC this morning: Dow Chemical is buying Rohm & Haas with the aid of Berkshire Hathaway and the Kuwaity Investment Authority (KIA) for a whopping $18.8 billion. What's most amazing about this deal are some of the ancillary statistics. Mr. Warren Buffett has only been in Sun Valley for one day and already helps close a multi-billion dollar deal. Moreover, the deal places an incredible 60% premium on Rohm & Haas, which only goes to support Mr. Buffett's age-old-saying that when he has the opportunity to make a good investment, he does it ...apparently, at any price.

The Lodge at Sun Valley 2008 has become the focus of all the world's financial media and there are more deals cooking, to be sure. While no one would be surprised if Mr. Buffett surfaces with an involvement in yet another deal, another hot topic is the discussions on-going between Larry Page of Google, Sue Ducker of Yahoo!, Bill Miller of Legg Mason (one of the largest investors in Yahoo! via various investment funds) and even Terry Semel, the ousted former chief of Yahoo!. To be a fly on that wall!

Barriers to Entry for Hedge Funds

2008-07-09T06:06:00.000-07:00

While the top five hedge funds were able to raise $13.7 billion in new capital in the first half of 2008, the number of new funds introduced fell by a whopping 50% over the same period. Personally, I think that this may be a good thing.

Yes, of course more competition is usually better, but the current state of the capital markets may suggest that experience may be needed more than anything else at this particular moment. While I certainly agree that the big boys on Wall Street haven't exactly proven that they're able to leverage their years of experience over the past year, newcomers to this ultra-risky segment may spell even greater doom for investors unprepared for what this economy may still hold for us all.

Goldman Sachs appears to be the market favourite, having raised an incredible 40% of the total among raised. Given that Goldman is among the few firms that has been able to keep its brand out of the headlines lately, it might be interesting to see a correlation between a firms ability to raise capital and its lack of press these days!

Private Equity Not Showing Signs of Weakness

2008-07-09T05:51:00.000-07:00

In raising only 3% short of its figure for the first half of 2007, private equity firms are proving that there is still plenty of liquidity available for the right deals. Savvy investors, no doubt, are preparing to take advantage of the down-cycle with a spate of buyouts, mergers and IPOs in time for when the economy rebounds.

$132.7 billion; that's the figure American private equity firms raised in the first half of this year - just 3% shy of the figure for last year, which, by the way, was a record year. The news gets even better when you focus in on venture capital specifically. VC firms raised $11.5 billion in the first half of '08 - a full 15% improvement over the $10 billion they raised last year. All this points to a great deal of future deals. While IPO numbers are down to historic lows, the money being raised among the alternative financing segment of the capital markets suggests that that slowdown will be short-lived, which, of course, points to a stronger outlook for the economy as a whole. Timing, of course, is anyone's guess.

Anheuser-Busch, InBev and the Credit Crunch

2008-07-09T05:37:00.000-07:00

I haven't written yet on the Anheuser-Busch buyout, but with its apparent readiness to fight for its life (or, more accurately, the life of its board), I can't resist any longer. Anheuser has filed a lawsuit against InBev, its unwanted suitor, alleging almost anything and everything to undermine its attempted ousting of its board. What I find most interesting, however, about its arguments against InBev's offer is the use of the credit crunch/crisis in its favour.

Specifically, Anheuser-Bush is arguing that InBev's claimed committment from a group of international banks on the $40 billion needed to finance the deal is questionable at the least. With the current state of the economy and weariness among financial institutions to commit to anything without significant caveats, Anheuser is suggesting that InBev couldn't possibly have a fully-committed issue without a variety of holes through which any number of the so-called committed banks could slip through and away from the deal. All this, of course, to play on the fears of shareholders that walking down the isle with InBev is by no means a worry-free walk towards the marital alter.

It's almost funny how Anheuser has gone so far as to allege links between InBev and Cuba in an attempt to really hit home among Americans resisting any foreign ownership in an icon as notable as the company behind Bud, but it goes to show how completely irrelevant matters can potentially affect the success of a proposed deal. The reality is, of course, if Anheuser appears attractive to InBev, then it's more than likely that it will appear attractive to others as well ...eventually. If Anheuser wants to really protect itself, it's got to look at its business, and not the courts, to strengthen its position and independence.

Rumours & Wall Street

2008-07-08T07:16:00.000-07:00

It's not exactly a news flash to say that rumours can affect markets, but the latest spate of rumours have had such a dramatic and immediate affect on a couple of stocks that it really makes you think twice about being in the market at all. Two such stocks are Yahoo! and Lehman Brothers.

As some of you may know, Yahoo! stock has been on a roller-coaster ever since talks began with Microsoft over its buyout and subsequent possible advertising deal. The on-again-off-again deal has left many investors speculating and that eagerness to stay ahead of the pack has meant that many are possibly more willing than usual to put their ear to the ground - listening for any hint of what may be coming. Early last week, a mention by a blogger about the resumption of talks between Yahoo and MS sent the stock skyrocketing almost 8% in a matter of minutes. Almost as quickly as it hit the wires, CNBC killed the rumour by speaking to Microsoft directly and stating that no such talks were taking place or had been planned. Before the CNBC report was through, Yahoo! stock had dived to +2% on the day; that's a loss of 5% in less than a minute.

Lehman Brothers, of course, has been in very much a similar situation. Ever since the collapse of Bears Stearn, the market has appeared to be looking for the next possible victim and the work of short seller David Einhorn sealed the deal - placing Lehman at the top of this particular watch list. Just as with Yahoo!, the market was hungry for any news - regardless, almost, of how credible that news was. On rumours of a possible Bears-like collapse and later on rumours of a buyout by Merrill Lynch, Lehman's stock has been sent reeling - down more than 10% on the day after each rumour surfaced. Mr. Einhorn, of course, would argue that the declines are warranted given the uncertainty in the company's financial reports, but these sorts of stock price moves on rumour alone are scary - pure and simple.

Conclusions? I'm not sure that I have any to offer. I suppose that one lesson that I've taken to heart is to be weary of any stock that is given a disproportionate amount of attention relative to its industry. In today's technological age, communication is instantaneous and rumours spread in seconds worldwide. Before anyone has a chance to affirm or deny a particular rumour, its affects on a stock's price are already fully felt by investors. I do believe that the markets do, eventually, work, but if you're tempted to take advantage of such swings in a particular stock, be prepared to take significant losses as often as you may benefit.

Japanese Banks Use Their Recessionary Experience

2008-07-08T07:04:00.000-07:00

Anyone who's taken a few economics classes has at least read a little about the Japanese economy and the pain that its felt over the past couple of decades. What makes this interesting in light of today's economic woes is that Japan may be in an excellent position to take advantage of the opportunities in troubled Western economies while its own market begins to show signs of life.

Home of the rising sun may be home to many more investors than there are in domestic western markets. With relatively little growth potential at home, Japanese banks are looking elsewhere to place their bets. The Japanese, long known for their high savings rates, make their big banking institutions flush with cash and with the domestic economy now appearing to require less of their attention, these banks are preparing for a return to their buying spree of the 1980s with a $1.2 billion investment in Merrill earlier this year and another $1 billion investment in Barclays.

According to the author of this article, the housing troubles and credit crunch in the U.S pales in comparison to what the Japanese have had to deal with over the last 20-years. Consequently, there's some support to the notion that they are now better prepared than anyone to spot the opportunities in such down-markets and now also have the cash and investing flexibility to reap those opportunities as others wait for a rebound that may still be years away.

How Lehman lost its way

2008-07-07T13:04:00.000-07:00

I recommend this article to anyone interested in the mounting woes of Lehman Brothers. The article covers everything from the company's history to its current troubles and where they came from. As I write this, Lehman is closing down another 10% on the day and it seems as though this is just more of what we'll continue to see as the financial sector, as a whole, continues to slip off its highs.

Probably the most interesting differentiating characteristic of Lehman Brothers compared to its investment banking cohorts, is its willingness to place significant bets (it's own capital) in real estate. The success that Lehman's CEO, Fuld, had with investments in real estate earlier this decade gave the firm a sense of proprietary knowledge in the sector and, consequently, gave it the confidence to make investments in new property developments that other banks would never have made. Of course, as we all know, the real estate market has been hit hard and this has only worked to worsen Lehman's struggles with the on-going credit crunch.

The author of the article seems fairly adamant that Lehman will remain independent and will manage to survive this latest episode in its history as it has in the past, but there's no doubt that every last dollar of its market value is at-risk. Investors in the firm are on shaky ground with value at risk far greater than what the entire firm is worth. Lehman has been issuing capital like made over the last few months and I'm sure that this will continue. Adding the fact that the Fed has promised both Lehman and its investment banking neighbors that it would stand by them in times of trouble, the likelihood of a Bears-like collapse is slim; that said, you've really got to be risk-loving to invest your own money in the firm with all the uncertainty that still exists.

Does Anyone Understand The MS-Y! Saga Anymore?

2008-07-02T03:01:00.000-07:00

I've been following this continuing saga since it began in February, but even I'm a little confused as to where this will ultimately go. In today's news it appears that Microsoft is, once again, expressing an interest in acquiring Yahoo!'s search business. It's no longer interested in bidding for the whole company and is in talks with others about acquiring the non-search parts of their business. Personally, this just comes across as indecisiveness on the part of Steve Ballmer and Microsoft, doesn't it?

When Microsoft walked away from the table last month, it seemed as though it was a classic M&A move - letting Yahoo! swing in the wind. It worked too, with Carl Icahn and other shareholders storming the doors at Yahoo! and challenging Yang and the rest of the Board on their decision not to sell. As you know, Yahoo! has been back-peddling ever since to appease those same shareholders, but Microsoft seemed adamant that it was no longer interested in an outright acquisition, but may be interested in a cooperative search-based relationship.

The next chapter, of course, brought Google into the story-line with Yahoo! announcing that they would work with Google on Search. That, honestly, seemed to be the final nail in the proverbial coffin since the deal with Google involved substantial penalties should Yahoo! walk away from the deal thereafter. Today's talk of Microsoft's renewed interest is just weird; what is it that they want? They have the cash to buy them; if they want them, why not just buy them?

Slowest IPO Quarter In Recorded History

2008-07-01T06:29:00.000-07:00

First, I'll be clear that recorded history, as far as VC-backed IPOs are concerned, goes back only about 30-years. That said, June 2008 will go down as the slowest month with zero, that right, zero, IPOs backed by private equity firms. Compared to the same quarter last year, there were 101 IPOs; this quarter that number is 49 in the U.S. Of course, Wall Street is trying to read between the lines and come to some sort of conclusion about the viability of the private equity industry as a whole, which I feel is simply unjustified.

Of course, I shouldn't be too surprised. The media is only doing what it always does: take a story and sensationalize it to grab viewers' attention and sell a few more ads. The reality is that the private equity business is a business like any another and responds to market conditions like any other. The slow-down in IPOs does not necessarily mean that there are fewer firms prepared to go public, but rather that there are few firms that VC firms are prepared to sell in this particular market. The folks behind these firms are pretty smart; they'll exit their investments when they believe they can get the greatest return on their buck. This market, not surprisingly, does not appear to offer the kind of deals that they're looking for. End of story.

No Choice But To Issue Stock

2008-06-26T14:30:00.000-07:00

I found this article interesting due to what it suggests about the capital markets in the persisting credit crunch. Nucor, one of the largest steel producers in the U.S. was looking to raise $3 billion to finance its future acquisitions and expansions, but it couldn't; why?

Nucor currently has an investment-grade rating from both Moody's and S&P; a downgrade by either agency would cost Nucor hundreds of millions of dollars in additional financing costs, which is exactly what would happen if it issued $3 billion in debt. As an alternate course of action, the management at Nucor issued only $1 billion and will seek the balance via its first equity issue in a century.

We're talking, here, about a company that is both profitable and stable. A company in an industry with a growing demand for its product. A company that has survived the great depression for goodness sake! Do the rating agencies really believe that the extra debt will result in a default or worse? The truth is more likely that they are reeling from their comedy of errors over the past year and are now more cautious than ever in issuing their credit ratings. Is that fair to the companies that have had no role in the credit crisis and, moreover, have absolutely no exposure to its consequences? ...well, I suppose we just proved that they do have 'some' exposure.

Berkshire Will Not Grow At Rates Previously Seen

2008-06-26T13:59:00.000-07:00

According to the man himself, Warren Buffett, you should sell your stock in Berkshire Hathaway if your expectation is to see the kinds of rates of growth that the stock has seen in the past. It's not that he believes it's a bad investment, of course, but rather that it is just so big that it's difficult to make acquisitions that would result in "needle moving" events for the holding company.

Buffett has been circling the globe of late with $35.6 billion in cash looking for deals. When you have that kind of money to spend, only truly sizable deals even show-up on the radar. Moreover, imagine how large a deal would have to be to result in significant move in the stock of Berkshire; these two forces 1) looking for large companies to buy, and 2) the fact that large companies are unlikely to offer significant growth rates, lead to Mr. Buffett's statement and it makes a lot of sense (as do most things that Mr. Buffett says).

If Bear, Then GMAC?

2008-06-26T07:31:00.001-07:00

Citigroup, General Motors, Cerberus, JP Morgan Chase... what do they all have in common? GMAC, the lending arm of GM that's suffering from the combination of a credit crisis and spiraling home values. GMAC has come home looking for fresh cash injections twice already this year and nothing seems to help its solvency and, consequently, the faith of the markets in its long-term viability.

The yields on GMAC bonds are currently at about 19%; with the U.S. Treasury rate in the low single-digits, that speaks volumes about the risk investors associate with a stake in the firm. With 27,000 employees and $250 billion in assets, GMAC dwarfs Bear Stearns and that's even bigger than the largest mortgage lender, Countrywide Financial Corp. For the most part, however, we've heard relatively little about the firm or its troubles. With JP Morgan predicting a 100% chance of default on its bonds within the next 5-years, you really do have to have a strong will to invest your nest egg with the management at GMAC. More importantly, however, what sorts of risks does this represent for the financial markets if the Fed was concerned enough to step-in to support JP Morgan's buyout of Bear Stearns?

GM and Cerberus have been doing everything within their power to support the lender, but at some point you have to begin to question when it becomes throwing good money after bad. Then the question becomes what is the potential hazard for the broader economy. Mr. Bernanke and the Fed made it clear that the financial markets could not withstand the collapse of an institution as large as Bear Stearns; what does that suggest about the degrading status of GMAC?

Battle Between Hexion & Huntsman

2008-06-23T07:25:00.000-07:00

I've been trying to get my head around the on-going battle between Hexion Specialty Chemicals, owned by Apollo Global Management, and Huntsman Corporation over the apparent failure of the proposed merger between the two. Not surprisingly, a legal battle has emerged from the remains of the deal that was once considered a match made in heaven.

It comes down to financing - there is none. The banks that were signed-on to provide the money for the deal have backed-out as a result of Hexion's inability to meet the solvency requirements stipulated in the deal. While Huntsman has waived those requirements as part of the merger agreement, the banks still require them and are not willing to put-up the money that's needed for the deal to go through. As a result, Huntsman is now suing Hexion for damages. What makes this interesting, however, is that Hexion is claiming (and I have to admit that I'm tempted to agree) that they have not breached the agreement and are therefore not liable for any damages.

The story isn't that simple, of course. The agreement further stipulates that Hexion has to make a best effort to find alternative financing, but how can it realistically do so if it can't meet solvency requirements as defined here:

... (a) the combined entity’s assets will be less than its liabilities; (b) the combined entity will not have the ability to pay its total debts as they become due; and (c) the combined entity will have an unreasonably small amount of capital with which to conduct its business.

Put yourself in the shoes of the banks considering this deal; would you invest? Yeah, me neither. If that's the case, then, how can Hutsman persist with its claims for damages?

Guy Hands on EMI and Leveraged Buyouts

2008-06-16T08:18:00.001-07:00

Guy Hands, the British financier and founder of the private equity firm Terra Firma, admits to having his hands full with the turnaround of EMI (the music giant). Having made his fortune in real estate deals across the UK and German and coming from a polished Oxford-educated background, his ideals tend to clash with those in the music business, but business is business and Mr. Hands appears to be resolute in his mission to make his leveraged buyout of EMI, in cooperation with Citigroup, a success.

What I found interesting about this article was Mr. Hands' description of the relationship with Citigroup and how that plays into the future of EMI. "...it's a partnership..." he says; Citigroup has not been able to syndicate the debt used to buy EMI and consequently has to ride-out the rough times experienced by EMI all by its lonesome. Mr Hands adds that he has been working closely with the bank to try and syndicate the loan both to reduce the risk to Citigroup as well as loosen its leverage over EMI.

EMI's business has suffered a great deal over the past decade and Mr. Hands' purchase only helped to reveal how bad it had actually been. From reporting old music (like that of the Beatles) as new music sales, it was successful in hiding its mounting losses in new music business and this is weighing heavily on the shoulders of Terra Firma investors. Mr. Hands purchased the business for its cash flows from old music and those, apparently, are fabulous; unfortunately, its new music business is pulling everything else down.

The music business as a whole is in a tough position with digital music sales from Apple's music store surpassing all others and online music exchanges through illegal file-sharing sites continuing to growth (albeit at slower rates). Mr. Hand, and Terra Firma, has proven his ability to make profits for his investors in the past, but he certainly has his hands full with this project and it will be interesting to see how he pulls this rabbit out of his hat.

Lehman in trouble - $2.8 Billion Loss... and it's UP!

2008-06-16T07:59:00.001-07:00

Well it happened, Lehman Brothers released their quarterly earnings report and it did report the big loss that Wall Street was expecting: $2.8 Billion to be exact. What's funny, however, is that it's up by as much as 2% in early trading after the announcement.

Yes, I know that it's all about expectations and not about the absolute numbers, but Lehman didn't announce lower losses than what were expected, it announced exactly what it had suggested earlier and exactly what the Street was expecting. How can its stock price rise so much on news that it did what it said it would do and did what everyone expected it would do?

Lehman in trouble - to post first quarterly loss?

2008-06-03T05:22:00.000-07:00

Wall Street is now brimming with rumours about Lehman Brothers' possible issue of new common stock to help it meet its obligations following what many believe will be its first quarterly loss since going public.

It won't be a small loss either; those in the know are suggesting that it may top as much as $4 billion; with a market capitalization of $18.7 billion, that's a staggering sum of money. Already down about 50% this year, the stock fell another 8% in trading yesterday as these rumours swirled the Street.

From the perspective of an investor on the side lines, I have to say that this is great news - my apologies to the current shareholders. I'm waiting for the opportunity to pounce on the financials, yes - along with millions of others, and news like this along with the downgrades issued by credit ratings agencies this week, things are looking rosy. The question is, of course, when is the right time to buy?

M&As and the Perceived Requirement to Integrate Swiftly

2008-06-02T05:24:00.000-07:00

As a MBA you more than likely take one or more strategy classes that address the various aspects of mergers and acquisitions and the logic behind such deals. More than likely, you learn to recite synergy, synergy, synergy. I know I did and that's why I found this article especially interesting.

Of course, we did hear about the many failed M&A deals in the past, but their failure was always accounted for by the lack of synergies, or more generally, other incompatibilities between the two joining companies. This brief case study of the success of Disney's acquisition of Pixar never uses the term synergy - not even once. Instead, it actually goes-on to speak of the importance of communication between company management teams as well as throughout the ranks of employees on both sides of the deal.

Bob Iger, the successor to Michael Eisner, was credited for the success of the deal along with Steve Jobs and summarizes his point of view on M&A deals as follows:

“There is an assumption in the corporate world that you need to integrate swiftly,” Mr. Iger told The Times. “My philosophy is exactly the opposite. You need to be respectful and patient.”

Respectful and patient is exactly what both Disney and Pixar teams were. The letterheads didn't change, nor did the signs on the front of Pixar's buildings. The employee benefit plans didn't change at Pixar and neither were the two companies' email systems integrated. Such tactics, usually taken within weeks, if not days, of the signing of a deal were never done. Instead, the management teams at both companies looked to learn from each other and strengthen each others' businesses.

Pixar has benefited from Disney's marketing and distribution strength while Disney has most notably benefited from the technological strength of Pixar in using computer-generated animation techniques in the latest blockbuster films released since the deal. So much so that while most such deal see the combined value of the companies fall, Disney's stock has grown by as much as 28% in the past year alone. This result is not only interesting for as an exemplar of what a successful deal looks like, but also how it challenges the popular consensus still taught in business schools. I, for one, will be looking closely at the relationship between management teams of a possible deal when making a decision whether or not to invest in the combined entity.

Mergers & Acquisitions Are Up! Really!

2008-05-31T04:12:00.000-07:00

The media is quoting a decline in mergers & acquisitions of about 35% in the past year, but the numbers can be deceiving. The total value of the deals is down, but the number of deals is actually up - up by 11% in fact. Does this represent a sign of life in the markets?

What makes this even more interesting is the size of the premiums - they're not only higher than the same period a year ago, but they're at the highest levels in nearly 6-years. With premiums of as much as 25% above the market price four-weeks prior to the deal. The question is, what does this information mean? In 1999, the number of deals, and deal premiums, were at all-time highs as well and we all know what followed.

Financials are down; when will they tick up?

2008-05-29T04:34:00.000-07:00

Everyone and their brother has been talking about the declining stock prices of the major financial firms following the credit 'crisis' and continuing write-downs. One has to ask themselves, then, as an investor, when do you bet on the up-tick in the sector? TPG (The Financial Group) Financial Partners is apparently indicating that that time is now with, what it hopes will be, a $7 billion bet.

With $100 million already raised, TPG says that it will seek both minority and controlling stakes in financial firms that have been hurt by the latest woes in the financials sector. With many still expecting things to get a lot worse, their timing may be flawed, but the strategy does make sense on the whole.

Another interesting tidbit in this story is where the money is coming from. One of its investors is the Government of Singapore Investment Corp.'s private equity arm - it's a little concerning to see foreign dollars flowing into such deals; is foreign ownership of America's banks a good long term prospect for Americans. Unfortunately, with Americans' debt levels at all-time peaks and savings rates and all-time lows, it doesn't seem as though the money is going to come from home. America's appetite for consumption may result in a very expensive bill at the end of the day with the rest of the world cashing-in.

Yahoo to MS: Buy us or we'll go with Google

2008-05-28T04:32:00.000-07:00

That's right, it seems as though Mr. Carl Icahn's pressure-play on Yang-and-Board has worked; Yahoo! now seems to be willing to hear all offers. Moreover, it appears as though that Yahoo! will make one deal or another and, funny enough, the pressure now seems to be on Microsoft to close the deal or risk losing-out on any possible relationship with its target.

Microsoft's initial bid at $31 was quickly sweetened to $33 per share before being withdrawn in spectacular fashion a few weeks ago. The media, including lowly bloggers such as yours truly, have been talking about it (and scratching their heads) ever since. The deal seemed to be a smart move for everyone involved and the price seemed to be good enough to have all the major shareholders nodding up-and-down like mad. Much of the reason for the failure of the deal the first time around has been credited to the egos of the co-founders at Yahoo including Jerry Yang, it's current CEO. With pressure building from the likes of Carl Icahn, the activist investor, have shed such a big spot light on the deal that it seems as though Yahoo!'s Board has been left with no other option that look for any deal that will get them off their backs.

Microsoft re-approached Yahoo! shortly after the failure of the buyout offer with a complex partnership proposal that would see them working together on advertising - this came quickly after news surfaced that Google was working with Yahoo! on a very similar deal. It now seems that Yahoo! prefers the partnership proposal offered by Google, but would ultimately seek a satisfactory buyout offer from Microsoft. At the end of the day, Microsoft may get what it always wanted in the form of an acquisition, but it seems to be that if their next attempt doesn't work, they won't have another bite at the apple.

Ok, Deal. But which one of us will be the boss?

2008-05-26T05:14:00.000-07:00

What would have been the biggest M&A deal in the emerging markets, the union between Bharti Airtel of India and MTN Group of South Africa, has fallen apart. The deal that was worth approximately $50 billion deteriorated after the management of both companies had already agreed to a MTN-led entity; Airtel surprised everyone by changing their minds and suggesting that they would purchase MTN instead - making MTN Group the subsidiary of the new-to-be company rather than vice versa.

One can't help but look at this and think of the continuing saga between Microsoft and Yahoo! Don't see the similarity? Think about it this way: are the decisions being made with the interests of shareholders in mind or with egos and personal ambitions as the priority? Exactly. As with the MS-Yahoo! deal, the stocks of both companies will be punished following this decision and the chairmen of both companies, like Mr. Yang, are likely to have a blow to their egos far greater than that that they were attempting to avoid.

Google Isn't Done with Yahoo! Just Yet.

2008-05-23T04:04:00.001-07:00

As much as Microsoft would like this saga to end, I don't think that there's anyone who believes that we're anywhere near the last chapter in this story. While Microsoft has re initiated discussions with Yahoo! in hopes of forming some kind of partnership after the failure of its initial buyout bid, Google is holding strong on its own deal with Yahoo!. With as much as $1 billion on the table for Yahoo!, it may be difficult to exclude Google's proposed advertising collaboration from the picture.

Not surprisingly, of course, antitrust concerns have surfaced with talk of the possibility that the two largest online advertising giants could unite, but Google is adamant that it can work out a model that would not threaten the competitive landscape. To their credit, there is a fair bit of precedent on which to lean on. Canon, for example, supplies 80% of the laser printer market ...including its #1 competitor Hewlett-Packard or Toyota selling its hybrid technology to its competition. Similarly, Google foresees a partnership that would leave Yahoo! independent, but allow it to leverage its superior advertising technology and broader advertiser base to help its bottom line.

With Yahoo!'s board announcing that it has postponed its annual meeting once again, there's no doubt that Jerry Yang, its CEO, have a lot to consider. The likes of Carl Icahn and Boone Pickens, with 10 million shares each and calling for a new board, aren't making things any easier for them either. From an outsider's (and investor's) perspective, however, it's hard to see how Yahoo! will not win in the end regardless of the outcome. Is this not the time to buy?

BCE Buyout Dead; Is Telus its Only Hope?

2008-05-22T04:43:00.000-07:00

The biggest proposed buyout is dead after a ruling by the Canadian courts. Bond holders in Bell Canada Enterprises (BCE) appear to have won against the syndicate of private equity firms that were looking to buy the monolith for a total of $51.8 billion dollars - making it the largest LBO ever - at least it would have been. With the 5% decline in it's stock price following the request of financing banks to renegotiate the terms of the loans, the market appeared to have seen what lay ahead, but now what?

The fact that BCE is in dire straights has not changed. Almost as soon as the PE deal collapsed, talk of Telus, the largest telecommunications provider in Western Canada, may step-in to save the day. Telus had considered BCE about a year-back, but walked away when it wasn't granted access to internal financial records. Even if it does choose to give this deal a second look, there's no doubt that there would be competition concerns with the entire Canadian market being essentially divided between only these two firms and Rogers Communications.

Bell has said that it will appeal the decision to the nation's Supreme Court, but there's no way of knowing whether the court will even hear the case - the decision, at least according to the appeals court - is consistent with previous decisions. Bond holders, for the time being, appear to have won their case and have kept the company from assuming even greater debt and increasing its financial risk, but will their interests be ultimately served if the company can't meet those existing obligations?