Felix Salmon

Nasdaq’s clever stupid bid for NYSE

Felix Salmon
Apr 4, 2011 19:56 UTC

In the immortal words of David St Hubbins, it’s such a fine line between stupid and clever, and Nasdaq’s Robert Greifeld is walking that very line with his $11.3 billion bid, with ICE, for NYSE Euronext.

Why is the bid stupid? For one thing, it will be very hard to get past antitrust regulators. Even in a world where it looks as though AT&T is going to be allowed to buy T-Mobile USA, regulators are likely to look askance at a single exchange controlling substantially the entire market in US stock listings. And if Greifeld is denied his merger, the setback will be enormous. On top of that, as Antony Currie notes, the bid dilutes the Nasdaq’s current shareholders, and involves taking on a lot more debt to boot.

Aaron Elstein adds a few more reasons to the mix today. For one thing, there’s the touchy subject of the NYSE trading floor, which has stubbornly survived a series of CEOs philosophically inclined to abolish it. Greifeld seems to be doomed to be the latest name on that list: an electronic-trading enthusiast who’s lumbered with an enormous building on the corner of Wall and Broad for the sake of a huge trading floor he neither wants nor needs.

Greifeld’s also, of course, getting the commoditized, low-margin part of the NYSE Euronext business: the stock exchanges. The really profitable bit, the derivatives exchanges, is going to ICE. Here’s Elstein:

The stock exchange business, simply put, is lousy stuff these days. Profits have been squeezed for years, due to technological and competitive pressures, and the reason NYSE wanted to merge with Deutsche Börse in the first place was to turbo-boost its options-trading business.

And politically it’s far from clear that a Nasdaq takeover of NYSE is significantly better than a German takeover. Deutsche Börse promises $400 million in synergies, largely in Europe, while Nasdaq sees $610 million — and for “synergies”, here, read “layoffs”: Elstein thinks that a good 25% of the combined US employees of Nasdaq and NYSE could end up losing their jobs.

But in the final analysis, Greifeld had no choice here. Even a bad merger with the NYSE is better than being left out in the cold, a small, low-margin, marginalized exchange in a world of giants. His best-case outcome now is to become a large, low-margin utility — and that’s not a bad business to be in. Because the only thing dumber than overpaying for an acquisition is losing your relevance and market power altogether.


You need to US Equities exchanges from other businesses.

Maybe the former are truly becoming “large, low-margin utilities” but if you are going to be the leader in such, is it bad? As a hypothetical shareholder, why is this so obviously, unacceptably, worse than having the CEO undertake (your words) “bad mergers”. It’s not _me_ that gets invited to White House dinners after all – the glamor does not pay my retirement – so why do I care? US equity exchanges may or may not be an interesting business, a profitable business, but if things turn out well it’s clearly NASDAQ in the lead at this point. Why is it rational for a shareholder to ask NASDAQ to risk it all for (media?) prominence in other areas?

With respect to the “world of giants” claim: NYSE is dying in the equities business and it’s unclear how that could change. To fix NYSE would be to gut it from to bottom while somehow retaining – its only live equity-related asset – the brand equity and its consequent listings … but this would be hugely expensive. You comment around the status of the NYSE trading floor shows you have some recognition of this. And there are no other likely U.S. equity exchange giants beyond this zombie and NASDAQ. Yay, competition! :-)

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Perfidious Goldman

Felix Salmon
Mar 28, 2011 13:43 UTC

betrayal.tiffThe WSJ has a great article today about that most fickle and capricious of creatures, the Goldman Sachs investment banker. He’ll sidle smoothly up to you, buy you a drink at the bar, even get in to bed with you — but it’s not you he wants, he’s really only in it for the money. And if your rich uncle raises his eyebrow in a suggestive enough manner, your paramour is suited up and out the door faster than you can say “secrets of the boudoir.”

A few months ago, the spurned lover was J Crew. Goldman was dating J Crew if not quite going steady: “from time to time over the past several years,” the proxy statement says slightly wistfully, Goldman had “prepared various illustrative financial analyses for the Company.” Ah, those were the days. But sadly they came to an end: a commitment to J Crew would never last long, seeing as how the company was about to be sold. An engagement with the mighty Texas Pacific Group, by contrast, was likely to be a much more lucrative union over the long term. Especially when TPG didn’t just want Goldman’s confidential advice, but also wanted to delve deep into its debt-finance facilities.

But that was just a warm-up for Goldman’s latest show of caddishness. Last summer wireless networking company Clearwire tied the knot with Goldman in a formal ceremony which involved paying a substantial dowry. Yet mere months later, having gotten to know the most private and confidential secrets of Clearwire’s special board committee, Goldman formally transferred its affections to Clearwire’s more buxom step-sister, Sprint Nextel. Oh, the betrayal!

Clearwire’s directors, report Anupreeta Das and Gina Chon, are “upset” — and you can see why! Clearwire was what’s known as a “sell-side client” — one where investment-banking fees are pretty much guaranteed. No matter who ends up buying the company, its financial advisers end up getting paid. Buy-side mandates, by contrast, are much less certain affairs: if you lose the bidding, your client won’t pay you much. Or even anything at all, in many cases.

And like good-for-nothing scoundrels, Goldman’s has decided to go very quiet when called on its behavior. It declined to comment to the WSJ, but did let it be known that “Goldman lawyers reviewed the relationships” before signing off on the treachery.

As if that’s likely to make the Clearwire directors feel any better. And of course they can’t even get their own back. Goldman’s cunning that way: he’ll get you to confide all your deepest and most private secrets. But he’ll never reveal any of his own.


Are there any Goldman or Sachs family members still involved with the company? Any close relation to Jeffrey Sachs of the Earth Institute (Columbia?)

This is vaguely interesting: Samuel Sachs and Philip Lehman were buddies.

Stray factoids: Jamie Dimon (Papademetriou)’s family and Peter Peterson (Petropoulos) were/are very close to the Rockefeller family. Both have poor immigrant ancestor stories too — Dimon’s grandfather Panos was supposedly a disgruntled busboy who got a job at a branch of the Bank of Athens. Peterson’s father is said to have had a diner.

The Dimon family’s choice of americanized name is curious. There was a prominent Dimon family in the States at the time of the Civil war.

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Duncan Niederauer’s English-German phrasebook

Felix Salmon
Feb 15, 2011 20:59 UTC

NYSE CEO Duncan Niederauer doesn’t speak German, despite the fact that he was a Grand Marshal in the 2008 German-American Steuben Parade of New York. So we at Reuters (with many thanks a certain very senior editor who shall remain nameless) thought we’d help him out with a few phrases which might come in handy:

English: Dick Grasso? Before my time, sorry.
German: Dick Grasso? Sorry, der war vor meiner Zeit.

English: Daimler-Chrysler? I don’t see any comparisons there.
German: Daimler Chrysler? Also den Vergleich kann ich wirklich nicht verstehen.

English: The New York Stock Exchange is the cradle of American capitalism. It is a national treasure.
German: Die New Yorker Börse ist die Wiege des amerikanischen Kapitalismus — ein nationales Heiligtum.

English: Just because we’re German doesn’t mean we’re intent on world domination.
German: Nur weil wir deutsch sind, heisst das noch lange nicht, dass wir die Welt dominieren wollen!

English: I, for one, welcome my new overlords.
German: Also ich, fuer meinen Teil, heisse meine neuen Chefs herzlich willkommen!

Further phrases are left as an exercise for the reader. A few to get you started: “This is a merger of equals, not a takeover”, “Chuck Schumer? He’s just a passing acquaintance”, “Flying commercial hurts productivity and is a major security risk”, “Greed, for lack of a better word, is good”, “Co-located algorithmic high-frequency traders are important liquidity providers and are fundamental to the efficient allocation of capital on modern electronic exchanges”.


NYSE Euronext & Deutsche Borse are already tied up in multiple ways. http://goo.gl/KpI5f

Also, Duncan Niederauer’s relationship map. http://goo.gl/aKj8f

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HuffPo’s future

Felix Salmon
Feb 7, 2011 06:13 UTC

The $315 million that AOL is paying for the Huffington Post is roughly 3X the valuation seen at its last capital raise two years ago, is 10X its 2010 revenues and is roughly 5X estimated forward 2011 revenues. Those are all big numbers, but not insanely so, for what is clearly a big strategic move on the part of AOL. After all, AOL has a market cap of $2.3 billion: right now it still dwarfs HuffPo. That might not be true in a few years’ time, if HuffPo continues growing at its current rate and AOL continues to lose subscribers and revenues.

My feeling, then, is that this deal is a good one for both sides. AOL gets something it desperately needs: a voice and a clear editorial vision. It’s smart, and bold, to put Arianna in charge of all AOL’s editorial content, since she is one of the precious few people who has managed to create a mass-market general-interest online publication which isn’t bland and which has an instantly identifiable personality. That’s a rare skill and one which AOL desperately needs to apply to its broad yet inchoate suite of websites.

As for HuffPo, it gets lots of money, great tech content from Engadget and TechCrunch, hugely valuable video-production abilities, a local infrastructure in Patch, lots of money, a public stock-market listing with which to make fill-in acquisitions and incentivize employees with options, a massive leg up in terms of reaching the older and more conservative Web 1.0 audience and did I mention the lots of money? Last year at SXSW I was talking about how ambitious New York entrepreneurs in the dot-com space have often done very well for themselves in the tech space, but have signally failed to engineer massive exits in the content space. With this sale, Jonah Peretti changes all that; his minority stake in HuffPo is probably worth more than the amount of money Jason Calacanis got when he sold Weblogs Inc to AOL.

And then, of course, there’s Arianna, who is now officially the Empress of the Internet with both power and her own self-made dynastic wealth. She’s already started raiding big names from mainstream media, like Howard Fineman and Tim O’Brien; expect that trend to accelerate now that she’s on a much firmer financial footing.

Most interestingly of all, however, is the way that AOL is creating a new entity, the Huffington Post Media Group, to run all of its content business. Given that AOL CEO Tim Armstrong has repeatedly talked about how he wants to be a content company, one has to wonder what that means for the rest of AOL — a group of businesses which still throw off the vast majority of the company’s revenues but are strategically non-core. The question now has to be asked: is AOL really the right parent for the unique and very valuable HPMG? My guess is that as AOL continues to divest itself of non-core assets, HPMG will make it increasingly attractive as a takeover target itself. HuffPo was definitively sold off today. But it might wind up getting sold again in the none too distant future.


I am curious whether it will still be as interesting, diverse and rebellious, or it will become more corporate and edited mainstream. After all, isn’t a new take on news what attracted people to read there?

As attractive as it is monetarily to the parties, i think the readers see oil and water. I’m getting old, but even I envision it changing into white haired, straight backed talking heads spewing same ole same ole.

And, being my popup blocker didn’t work this morning and I got 3 popups, the site was slow, and the pop ups wouldn’t x out until the 3rd click, I am outta there. (That’s an AOL dejavu!)

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Canadian banking: The year in headlines

Felix Salmon
Dec 21, 2010 15:37 UTC

January 14: Cash-rich Canada banks shy away from acquisitions

September 15: Canada banks eye growth as capital shackles drop

December 17: Canada’s BMO buying U.S. M&I bank for $4.1 billion

December 21: TD Bank to buy Chrysler Financial for $6.3 billion


Bank regulations and sound banking practices are what keep our banks solvent but not sure this is the time to be doing this kind of acquisition.

I see the name Cerberus and run, myself, but being it is a separate entity to the auto industry, perhaps it has merit. I wonder what the carrot was to buy?

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Don’t buy that internet company

Felix Salmon
Dec 14, 2010 17:20 UTC

“The history of the Internet is, in part, a series of opportunities missed,” says Jim Surowiecki in this week’s New Yorker. Blockbuster could have bought Netflix for $50 million dollars; Excite turned down the chance to buy Google for less than $1 million.

But how valuable were those opportunities, really? If Blockbuster had spent $50 million on Netflix, then it would just have run out of money that much more quickly. There’s no chance that Blockbuster’s management would have let Netflix grow, unencumbered, in the way that it did independently. Similarly, Google would have been stifled as part of Excite: it would have been nothing more than one of many search algorithms competing on the internet.

Buying internet companies is very, very hard: even if they are set to be very successful on their own, that’s no reason to believe that they will have similar success in-house. Google bought Foursquare back in 2005, when it was called Dodgeball, but then closed it down; only when its founders left Google and recreated the company as Foursquare on their own were they able to succeed.

And so I’m suspicious that Surowiecki’s employer, Conde Nast, is going to do well with its new $500 million warchest. Conde is rich, and can buy companies, but at that point the problems start: it’s always much easier to spend money on acquisitions than it is on internal growth, with the result that those acquisitions can end up starved of money. Conde is a particular case in point: it bought Reddit and neglected it so badly that the site ended up having to run a pledge drive to raise needed funds.

Big established companies with their own revenue streams simply don’t have the skillset needed to be the next Y Combinator or Softbank, and they probably shouldn’t try. If Conde is smart, it’ll restrict itself to taking minority stakes in companies where it can be strategically helpful. Otherwise, it’s liable to end up looking like News Corp with MySpace.


You missed two of my all-time favorite internet acquisitions: Netscape, by AOL, and broadcast.com, by Yahoo.

But I suspect there are dozens of small companies we’ve never heard of that large companies buy to quickly fill gaps in a development project or to hasten a strategic goal, because buying is faster than building. They aren’t sexy but they are also unsung.

I agree that the big company buying the not-quite-as-big company is often doomed. There’s AOL again — buying Time Warner …

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Why Google’s Groupon buy makes sense

Felix Salmon
Dec 3, 2010 14:03 UTC

Vinicius Vacanti has a very smart analysis of the economics of Groupon, which also helps explain why companies like OpenTable are trading at such stratospheric valuations. The real value of Groupon lies in its email list. But Groupon’s list is a list of bargain-hunters. Companies with large lists of people who have already demonstrated their ability and willingness to pay full price—companies like OpenTable—can present an even more attractive proposition to would-be advertisers.

This doesn’t mean that Google’s overpaying for Groupon at $6 billion. No one else has cracked the local-advertising-online conundrum nearly as well as Groupon has, and, as Evelyn Rusli points out, the multiples involved are significantly lower than Google has paid for other acquisitions. Besides, shareholders want Google to put its enormous cash pile to good use and try to get a decent return on it, rather than letting it just sit there gathering dust or returning it to shareholders who wouldn’t know what to do with it either.

There’s also something a little snobbish about the criticism of the deal:

Despite Groupon having some social media trappings, and being profitable, it feels oddly old-fashioned.

Groupon amasses groups of users to take part in mass one-off discounting programmes by retailers – hence the name. In the US, where coupon-clipping is still popular, despite the power of Wal-Mart’s “every day low prices”, it grown very rapidly…

Buying an electronic coupon company? Is this the way to revolutionise the world?

No, it’s not a way to revolutionize the world: Google’s good at growing those in-house. Instead, it’s just a natural way for Google to expand its ad revenues: it started with simple text ads, moved into display with the acquisition of DoubleClick, got into mobile with AdMob, and is now doing coupons.

Sure, there’s defensive strategy involved here: Google doesn’t want Groupon ending up in the hands of Facebook or Yahoo. But Jon Fortt, when he says that Google would be better off buying Gannett, does a good job of presenting Google’s dilemma. Local advertising dollars have historically flowed into local media companies, and Google has no desire whatsoever to be in the business of producing local media. It wants to be a pure advertising play, with no editorial content of its own. And it also wants to be online: its attempt at selling print ads was a disaster.

Groupon gives Google access to a whole new market segment it otherwise would have great difficulty reaching. Maybe the acquisition will turn out to be overpriced. But Google can afford to make a $6 billion mistake. So the risk is worth taking.


I find your take intriguing, especially as someone in the biz. I can tell you as a user of these sites (I have also bought “deals” from OpenTable) I have noticed the competition heating up, and have had a strong negative reaction. The more “offers” that appear in my inbox, the less I will buy of ANY of them. This, plus the inevitable “buyers’ remorse” (what was I thinking when I bought THAT one) make longterm usage of these sites questionable. I bought my first deal about 6 months ago. As I sit here I have two unused (pricey) groupons staring at me from my bulletin board. I feel oppressed by the prospect of HAVING to use them.

I tell you, as an early adopter, this thing will not fly longterm. Now, offer me a special deal on something I was going to buy anyway??? That’s the ticket. Sort of the Lending Tree model, where “banks compete for your business.” Do that and you will win.

Groupon should have cut the deal with Google. They will later regret their greed. My prediction.

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Report report report, Potash edition

Felix Salmon
Oct 5, 2010 14:00 UTC

If you want to hone your financial-media reading skills — if you want to be an active, critical reader of the financial press — then here’s an exercise for you: find an important study of some kind which has been reported in many different places. Read the study, and then read the different stories reporting on it. Then, ask yourself about the degree to which the reports accurately sum up the contents of the study. The result is what I like to call a report report report, and it’s a great way of keeping readers alert.

There’s a great example right now: the Canadian conference board’s report on the effects of a takeover of Potash Corp. It’s been widely covered, and a look at that coverage is if anything even more illuminating than the report itself.

The first thing that jumps out at you is that no one actually bothers to link to the report. (Very honorable exception: The Canadian Press.) The NYT does provide a link where it talks about “the Conference Board of Canada”, but hilariously the link leads to a page of NYT stories about the Conference Board of the US. It’s not that the link is exactly hard to find: it’s splashed across the top of the board’s home page. But for some reason the place where readers can find the report on the internet is not considered important information by anybody covering it.

But how’s the journalism itself? I think the Canadians have acquitted themselves best on this front. The Canadian Press report, out of Regina, does I think the best job of summarizing the study, as well as being the only place with a link to the study itself. Here’s how it begins:

A successful takeover of Saskatoon-based PotashCorp could slash the province’s revenues by at least $2 billion over the next decade while having little or no net effect on employment, according to a report commissioned by the province.

Rob Gillies of the AP in Toronto also produces a good straight-down-the-line summary:

BHP Billiton’s potential hostile takeover of Potash Corp. would have few negative effects on the province of Saskatchewan but could reduce the government’s revenues by at least $2 billion over the next 10 years, a Saskatchewan government-commissioned report released Monday said.

But the minute that you start looking at the foreign press, things start getting messy. The WSJ throws three reporters at the story, and manages to produce a lede which is simply wrong:

BHP Billiton Ltd.’s bid for Potash Corp. of Saskatchewan Inc. could be beneficial to the province, especially in the long term, while a potential offer for the fertilizer giant from a state-owned Chinese company would pose a bigger threat to the local economy, according to a report commissioned by the provincial government.

Well, the “bigger threat” bit is right — but the thing about bigger threats is that they tend to be compared to smaller threats. While the WSJ makes it sound like the BHP bid isn’t a threat at all, and in fact “could be beneficial to the province, especially in the long term”.

I have no idea where the WSJ finds that conclusion in the report: I certainly can’t find it. The word “beneficial” appears nowhere in the report, which explicitly comes with an end point of 2020, ten years away. Over the course of those ten years, the report finds that a takeover by BHP would reduce tax revenues by $2 billion; beyond those ten years, it can’t really say. It’s possible that BHP investment in something called the Jansen Lake project will pay off for the government in terms of new economic activity — but that won’t happen until 2026 at the earliest. That’s very long term. And there’s nothing at all in the report, that I can see, that stresses any long-term benefits of a BHP takeover over a non-takeover option. All of these bars point downwards:


I don’t know about you, but my reading of this chart says that tax revenues will decline over the short, medium, and long term if BHP buys Potash Corp. (That’s the blue bars.) And they could decline even further if BHP becomes desperate for revenue and starts running Potash at full production. (That’s the red bars.) BHP promises it wouldn’t do that, but as the Globe and Mail points out, promises from big foreign miners are often broken.

Yet somehow the WSJ concludes, in the words of its picture caption, that “a report found that BHP’s bid for the company could be beneficial for Saskatchewan”. Very odd. Yes, there are silver linings — a BHP takeover would prevent an even worse Chinese takeover, for instance, and being open to foreign takeover bids “would ensure that Saskatchewan’s turn in the spotlight encourages the sustained investment in the province that is vital to Saskatchewan’s long-term economic prosperity”. But there’s little if anything which says that the takeover itself would help the province.

I think that the problem here is that the financial press is looking at this as a deal story, and from that perspective the report makes a deal slightly more likely than it was before the report was released. Ergo, the report must be positive!

The Reuters story makes this connection very explicit, saying that the report favors a BHP deal over a Chinese deal, and highlighting the effect of the report’s release on the Potash share price. Meanwhile, Marketwatch comes up with the dreadful headline “BHP’s bid for Potash has ‘few negatives’: study”. That headline clearly implies that it’s quoting the report on the “few negatives” front, but that phrase never appears in the report, and I have no idea where it came from.

It’s instructive to compare these finance-based stories with the much more downbeat NYT story, which leads with the potential revenue losses for Saskatchewan, and which I think does a better job of conveying the report’s substance.

Of course, very few people have the time or inclination to read the original study, let alone all the stories reporting on it. But once you start reading these things critically, red flags start appearing. The WSJ lede about the study’s upbeat conclusions, for instance, conspicuously fails to be backed up by any quotes from the report or even any paraphrase of what the long-term benefits of a takeover might be. That’s a giveaway, really. Journalists hate leaving opinions unsupported, and when you see an opinion unsupported like that, it’s often a sign that it’s unsupportable.

Which raises the question of what it’s doing in the paper at all. But that’s a bigger story, which has something to do, I think, with the constant pressure on journalists to “add value” in the form of analysis and conclusions. Sometimes, you won’t be surprised to hear, they’re not very good at that.


This is a hostile bid… as far as I know no substanstial portion of shareholders have or will tender to this lowball offer. BHP has had it’s eye on Potash Corp since the silly season of 2008 when potash price were stratospheric and Kloppers is trying desperately to make a big deal after he got embarassed in the Rio Tinto fiasco.

Furthermore, I don’t really think that the CDN govt will allow the bid to go through even if it had support – they killed a big takeover of an aerospace firm earlier this year.

And lastly… what a shock that the WSJ is doing shite reporting – good ol Rupert out selling sensational headlines. Woe is me WSJ, outshone by the G&M and CDN AP.

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The FSA’s foolproof method for preventing M&A leaks

Felix Salmon
Sep 23, 2010 16:38 UTC

The UK’s FSA has conducted an investigation into the way that big M&A transactions can get leaked before they are formally announced. Its conclusion might shock you, so make sure you’re sitting down for this:

Our enquiries revealed that media reports containing leaks were often closely preceded by telephone conversations between insiders occupying senior roles on a corporate transaction, and the journalists who published those media reports. Due to their position as insiders, these senior individuals held detailed knowledge of the transaction. The calls between the insiders and journalists lasted up to 20 minutes in length and in some cases took place with journalists the afternoon or evening before the leak was first published.

The FSA is unhappy about this: “leaks ahead of announcements pose a threat to market integrity”, they write. But never fear, they’ve worked out how firms should deal with this problem:

Regulated firms should have a robust and detailed media policy…

Internal policies should require all initial media enquiries received by a regulated firm’s staff to be immediately directed to the firm’s media relations team…

Internal policies should also require that once an initial media enquiry has been passed to a regulated firm’s media relations team, the media relations personnel should review the enquiry to decide if it potentially relates to inside information…

If the enquiry potentially relates to inside information, [and] if it is necessary to involve non-media relations personnel, the media relations team must only grant authorisation to other staff members to communicate with the media… where the conversation between the other staff member and the journalist is held on a recorded telephone line.

There, that should do the trick. I’m sure that from here on in, there will be no more M&A leaks in UK newspapers. I only wonder why the SEC hasn’t figured this out yet.



“I am shocked, shocked to find that gambling is going on in here.”

“Your winnings, sir.”

“Oh, thank you very much”

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