The Smartest Thing Yang Has Done So Far

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?

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

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

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

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

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

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

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

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?

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

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.