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Gut feeling: How Google CEO valued YouTube deal
Let the second-guessing, the mock horror, the disbelief, the crowing begin.
Google CEO Eric Schmidt has acknowledged he realized upfront that he was overpaying to acquire YouTube, to the tune of $1 billion, judged by any conventional measures.
The many critics of Google’s $1.65 billion deal to acquire the video-sharing site three years ago will claim this confirms everything they have always said about the deal. Not quite.
In fact, not really at all.
Schmidt came clean in a deposition by lawyers in the Viacom copyright lawsuit that there was very little revenue coming into YouTube to justify the price his company paid.
No surprises here. There were intangibles to consider:
1. YouTube’s popularity was sky-rocketing, making it the runaway market leader among video-sharing sites. 2. It was crushing his company’s own site, Google Video. 3. YouTube was up for auction and would be sold to a competitor unless Google jumped first. 4. Google overbid to ensure YouTube didn’t fall into rival hands.
The finite value of a T-Mobile UK merger
– Eric Auchard is a Reuters columnist. The opinions expressed are his own –
By Eric Auchard
LONDON, Sept 4 (Reuters) – Deja vu, all over and over again. The news is that T-Mobile UK is for sale. Still.
The Financial Times, citing unnamed sources, says Deutsche Telekom is in “preliminary stage” talks with Vodafone, France Telecom, and Telefonica to sell T-Mobile UK.
The logic of such a deal seems to be compelling. DT needs to sell out because T-Mobile lacks the scale to gain an edge over its multiple competitors.
A combination would create substantial value, both for the buyer, and in terms of raising prices in what is one of Europe’s most competitive mobile markets. Sanford Bernstein estimates that it could create up to 6 billion euros of value for Vodafone and Telefonica’s O2, and up to 5 billion for FT’s Orange mobile unit.
But there’s a rub. Although the deal creates a lot of value for the winner, it’s also worth a lot just being a free-rider and benefiting from improved industry pricing that flows from consolidation. So the marginal advantage of winning shrinks. Unlike a conventional bid battle, where rivals try to thwart the other guy from stealing the prize, everyone is saying “after you, Didier” or “No please Julio, after you. I insist.”
With all that in mind would Vodafone have a crack @ 3 if T-Mobile is taken by o2 or Orange.Making it 2nd country where 3 has been swallowed by Vodafone.If this does happen is this the end of the 3 Brand with HW having major stakes in Vodafone’s operation in Australia & UK.
Can we see another carrier from Asia Pacific jumping into the UK market or even a US Carrier buying T-Mobile’s UK & US businesses AT&T or Verizon going GSM LTE next year.
mavenglobal@gmail.com
Bracing for bar brawl in mobile phone emerging markets
The last thing that the complex negotiations between India’s Bharti and South Africa’s MTN Group to create the world’s third largest mobile phone company needed is more complexity. The existing deal involving an intricate mix of cash and stock is further complicated by currency fluctuations and diverging growth rates between the maturing Indian market and the wide-open African one.
But if a third company, Zain of Kuwait, succeeds in starting up a full-scale bidding war for itself, the Bharti-MTN deal could come off the rails and fall apart. Zain’s CEO told Kuwaiti daily Al-Rai on Monday that it is in talks with three major, but so-far unnamed telecom firms, including one from India. Last month, Zain said it was reviewing the possible sale of its far-flung African operations after French conglomerate Vivendi called off talks to buy a majority of Zain’s African business. A Vivendi spokesman says nothing has changed since then. There’s no word yet from other obvious suspects — France Telecom or Vodafone — on whether they are interested.
The most likely Indian bidder for Zain looks like Reliance Communications, India’s distant No. 2 mobile operator to Bharti. There’s history here, as Reliance tried to nab MTN a year ago. That move came after Bharti’s first try to strike a deal with MTN, South Africa’s second largest operator, fell apart over which company’s management would end up controlling the combined entity.
At least temporarily, the only two parties we can rule out as bidders for Zain are Bharti and MTN. The two would be entirely likely candidates, except that they remain locked in exclusive talks with one another until the end of August. Zain’s assets make it an obvious alternative should Bharti and MTN fail to make their belaboured third effort to strike a deal work after more than a year of trying.
There may be too much sheer complexity in merging India’s most successful company with the diverse strengths of MTN, a big player from South Africa to Nigeria to Iran and Afghanistan. Both companies have corporate egos to match their roughly US$30 billion market capitalizations.
The outright acquisition of Zain’s comparable assets looks a whole lot simpler. Clearly Zain, valued at around $20 billion on the Kuwaiti exchange, is trying to stoke a bidding war for itself by talking up mystery bidders. Coming just weeks ahead of the Bharti-MTN deadline, the Zain CEO’s comments suggest he is trying to entice either Bharti or MTN or both into bidding for it.
Until recently, the two merger speculations appeared to be two separate events that happened to be taking place over some of the same battleground — mobile phone markets across Africa and the Middle East. Maybe a good old fashioned frontier bar brawl is the easiest way of working this all out.
Cash M&A still lifeless
Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles — Blackstone alone has $29 billion — and banks are lending to each other again.
The ingredients should all be there for a resurgence of cash-driven mergers and acquisitions. But instead, the market is in hibernation.
So far the value of all M&A deals completed this year totals $990 billion. You have to go back to 2003 — when the total for the year was $1.23 trillion — to find a figure this low, according to Thomson Reuters data.
Of this, some $364 billion — just 37 percent — were cash deals, marking a dramatic shift in the mix of recent years when cash has dominated.
The main spanner in the works is the still dire state of banks’ balance sheets and the crippled syndicated loan market. This has kept a tight lid on cash bids of any size, with the mega merger or takeover a distant memory.
Most banks are doing all they can to shrink their balance sheets, guard against problem exposures and to lend to their best clients. As a result, global syndicated loan volumes hit their lowest monthly volume since 1993 in July.
True, corporate bond issuance is booming and companies are raising equity, but this is not going to be enough to fill the void. And even if companies are confident of being able to fund their purchases with bonds, they first need to find a bank to give them a bridge loan.
Porsche prepares to enter Auto Union with VW
It’s been a tortuous road, but Porsche looks as though it might finally have struck a deal with VW and Qatar to sort out its debt problems.
A Reuters report says that details of a deal between Volkswagen and Porsche have been broadly agreed, with VW set to buy a stake of up to 49 percent in the sportscar maker. The Porsche marque will then enter into a new “Auto Union” as the 10th brand, under the leadership of VW CEO Martin Winterkorn.
The crucial point here is that the family-owned holding company Porsche Automobil Holding SE will get a much-needed cash injection from the sale – anywhere between 4 and 5.5 billion euros – as well as an additional 5 billion euros from selling a package of options on VW shares to the Gulf state of Qatar.
The Porsche clan has already agreed to sell shares to raise at least 5 billion euros, so it should finally be in a position to pay off debts of more than 10 billion euros it stacked up building up a stake of just over 50 percent in VW.
That’s good news for the banks involved and eases the way towards a full merger, but minority shareholders in both companies will want to see all the details before they can really tell what their holdings are worth.
After all, VW shares are still trading at above 220 euros, when many analysts give them a fair value of less than half that — in a range of between 70 and 100 euros per share.
The end game for both Porsche and VW is to merge the two companies. And while arguments over valuation have apparently been settled, we’re not quite there yet.
Tech Links: Phones, more phones and communion wafers
Better luck next year for Android Taiwanese smartphone maker HTC has warned of a revenue shortfall, saying it has too many new phone models chasing too little revenue. Revenue growth will turn negative in 2009, instead of growing 10 percent, as the company had previously forecast.
Chief Executive Peter Chou says: “Momentum on both the Windows Mobile and Android platforms are also turning out to be weaker than expected.”
HTC said it is boosting its marketing spending to more than 15 percent of revenue from 13.5 percent to fend off market leader Nokia and the Apple iPhone juggernaut.
My favorite line: ”Investors have been relatively bearish on the company this year, with HTC’s shares having risen about 36 percent so far, far lagging the 54 percent advance on the TAIEX share index.”
Bharti looks ready to raise price for MTN Bharti Airtel and MTN have agreed to a month-long extension to merger talks to seal a deal that would create the world’s third largest mobile phone company in subscriber terms.
This looks like the prelude to Bharti raising its bid for MTN, answering resistance to the deal by investors in the South African company. It all follows weeks of jockeying by Bharti to line up funding with banks and key shareholders.
The merger appears to be moving ahead despite signs of growing worker unrest in MTN’s homeland. Over the weekend, South Africa’s Communication Workers Union said workers at the fixed-line operations of Telkom SA will hold a two-day strike this week.
What I wish these phone maker companies would start working on is an Internet Cell Phone. One that uses the internet to communicate voice thru. They will compete against Cell Based Systems and this will force the Cell Companies to Lower their Prices to Decent Levels.. This current Contract/subscriber system is old and Monopolistic. If Google or Sony or or Somebody could develop this phone that worked as tranparently as the current cell system then the next wave of Telecommunications could begin and Give these Cell Companies LOTS of Competition. Thus Lower Prices to the end user. Right now My next phone will be an Internet Based Phone NOT a Cell Phone.
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The Wall
Yet, the author fails to mention perhaps the most important reason Google bought YouTube– to defend online content.
If Google’s objective is eyeballs– and we can all agree that it is– then it would benefit Google to have Internet users across the world being able to infringe copyright, i.e. upload copyrighted movies, tv shows, and clips.
At the time of Google’s purchase, the number one threat to YouTube’s success were lawsuits from copyright holders.
Without having the resources and clout of a serious parent company (i.e. Google, Microsoft, Newscorp, or maybe Yahoo at the time) YouTube would have been sued, and subsequently lost in the courts, therefore, setting a precedent that would have been much more detrimental to online video, and Google’s business, than overpaying for YouTube. Even at a price of more than $1.5 billion.
Don’t be fooled, Google knew exactly what it was doing when it agreed to pay more than 1 billion extra than it had “valued” YouTube, which was, reducing a threat to its business- which isn’t search, but rather attention. skh