One of India’s top film producers is interested in Metro-Goldwyn-Mayer, James Bond’s Hollywood studio. That may sound novel, but a purchase of MGM by Sahara India Pariwar would probably provoke only relief in Tinseltown — because it wouldn’t upset the industry’s status quo. That would require a more radical approach — something Google’s YouTube unit just might be capable of, if it dares.
There’s no deal yet between Sahara India Pariwar and the struggling MGM. But India’s biggest film production company, which also operates multiplex cinemas, understands the prevailing Hollywood business model. Films are released first in theaters and then eventually appear on DVD and Blu-ray, on pay television, and on the Internet. The basic idea is that customers pay extra to see movies sooner — especially during the theatrical “window.”
Are buyout barons becoming sellout barons? Private equity firms are on track this year to sell more assets than they buy for the first time ever. Buyout firm bosses say this reflects the need to realize cash for investors. That’s probably true to a point. But the prospect of tax hikes in the United States has also given the executives a rationale to sell now, even if it doesn’t much help their clients.
So far in 2010, private equity firms globally have sold $140 billion of assets from their portfolios, putting this year on a pace for the most disposals since 2007 and the second-biggest year in history, according to Thomson Reuters. Purchases this year stand at around $136 billion so far. Since at least 1994, sales have never exceeded purchases in a full year.
Oracle boss Larry Ellison may have given Hewlett-Packard some brilliant advice. Before snatching Mark Hurd to help run his software company this week, Ellison compared the board’s decision to part ways with the HP CEO as “the worst personnel decision since the idiots on the Apple board fired Steve Jobs.”
Extend Ellison’s logic, and Apple could provide a sort-of blueprint for getting HP back on track. After Jobs lost a power struggle at the company he founded, Apple brought him back about a decade later. It could be time for HP’s own Jobsian moment.
It’s easy to see why private equity firms might salivate at the prospect of another bite at Burger King. The fast-food chain has made a fortune for a trio of buyout barons who acquired the company in 2002 and flipped it onto public markets four years later. But Burger King won’t be another LBO whopper.
Back then, nobody wanted Burger King. The business was in the hands of Diageo, the booze behemoth desperate to divest itself of any assets that couldn’t be consumed at a cocktail party. Not only did it have to cut the price from $2.3 billion to $1.5 billion, it guaranteed all the buyout’s debt at advantageous rates.
Consumers may still be deleveraging, but at big corporations it’s liquidity galore. How else to explain the curious case of the bidding war over 3PAR, a data storage company coveted by Dell and Hewlett-Packard? There’s no sound mathematical rationale for the 3PAR frenzy, which has now reached $2 billion with HP’s third counter-offer to Dell.
Only a highly creative financier with a spreadsheet and a bong could justify the valuation on HP’s latest bid — the sixth for the company in three weeks. HP is offering $30 a share — more than three times 3PAR’s $9.65 undisturbed price as of Aug. 13. Plus, HP will pay a $72 million termination fee if it clinches the deal.
Conventional wisdom has it that bulging corporate cash balances will bring a spate of deal-making. Yet many companies announcing deals of late have gotten an old-fashioned ass-whupping from shareholders. That reflects a mood in which cash, caution and skepticism dominate, making expectations of an M&A boom look overdone.
Not that investors should be jumping for joy. Most of August’s big deals — from Intel’s $7.7 billion deal for security software group McAfee to BHP Billiton’s $39 billion hostile bid for Canadian fertilizer maker Potash Corp — are fraught with risk and don’t offer the cost-cutting opportunities investors usually prize.
Mark Hurd, the Hewlett-Packard chief executive, turned out to be a man of hearty appetites — including for deals. Before leaving HP earlier this month under a cloud, Hurd spearheaded an M&A tear that included the purchases of 3Com, Palm, and EDS. But any bankers worried that the tech group’s appetite for deals might wane after Hurd’s departure can breathe easier.
HP’s unsolicited bid for 3PAR, unveiled on Monday, could even be taken as a sign the company’s takeover libido has been given a boost. If that were to prove sustainably the case, though, shareholders might find it troubling.
Goldman Sachs has been at the vanguard of Wall Street firms in accepting the realities of the marketplace. During the crisis, Goldman chief Lloyd Blankfein noticeably stood out among his investment banking brethren arguing vociferously against an industry-wide push to relax mark-to-market accounting. But on matters relating to its image, Goldman has been stubbornly resistant. That may be about to change.
When it comes to public perception, Goldman has been to hell and back. Its financial success coming out of the 2008 panic and subsequent market rescue by governments made it a public whipping boy for all who detest Wall Street, and blame it for sinking America into an economic crisis. Goldman has been pilloried by politicians, labeled a blood-sucking cephalopod in the press and henpecked by regulators.
By Rob Cox and Robert Cyran
It’s easy to frame the debate over net neutrality as an ideological battle between forces who want unfettered Internet access and those who would prevent it. Actually, like most good fights, it’s largely a dispute over money. Some pretty basic numbers illustrate the point — and provide an idea of where the debate should logically wind up.
There are two broad constituencies facing off in this quarrel. On the one side are providers of Web access. Call them the Pipes. They include telecoms giants AT&T and Verizon, who have a combined 142 million wireless customers and provide fiber and DSL connections to more homes than anyone else. Alongside them are the cable operators, led by Comcast and Time Warner Cable, who together reach into 30 million American homes.
It stands to reason that the more money flowing to a particular investment strategy, the more likely returns will diminish. By logical extension, fund managers should therefore occasionally say no to new cash to keep from hurting performance. But in the money business, that’s easier said than done, especially when considering the growing number of alternative asset managers that are publicly traded.
For a fund manager with shareholders to please, this makes for a potential conflict of interest with investors in its funds. The more assets a firm gathers, the greater its earnings. That’s particularly true in more specialized arenas of the investment world, such as private equity, distressed debt, event-driven and convertible arbitrage, where the fees typically amount to 2 percent a year plus a 20 percent slice of any profit.