U.S. Editor, Commentary
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Oct 5, 2010
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Sirius investors should heed the Pandora challenge

Sirius XM Radio boss Mel Karmazin doesn’t seem too concerned about the surge in online radio. At least he doesn’t think it represents an immediate threat to the U.S. satellite radio monopoly he runs. He may be right. But he should keep a close eye on upstarts like Pandora and Slacker.

The mojo is back at Sirius. Shares have more than doubled in price this year, giving Sirius a robust $5 billion market cap. The rebound in U.S. car sales — to an annualized rate of more than 11 million — will swell subscriber ranks to more than 20 million this year.

Sep 29, 2010
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D. E. Shaw cuts only hint at hedge fund pain

It’s rare for a Wall Street firm to sack a tenth of its workforce in one go. In finance, the compact between employers and their bankers and traders is simple: work hard and get paid well. But any employee is also a flexible cost that can be removed the moment business halts.

Hedge funds have a similar approach. But it’s an industry yet to experience a sustained down cycle and its concomitant job cuts. Until now. D.E. Shaw, the veteran alternative asset management shop that once employed Larry Summers, President Obama’s outgoing economic adviser, reveals the shift in fortunes.

Sep 28, 2010
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Wal-Mart sounds pricy vuvuzela on African growth

Wal-Mart <WMT.N> has finally sounded the vuvuzela on African expansion. After months of speculation about how it would try to capitalize on the continent’s growth, the U.S. retailer is offering $4.2 billion to acquire South Africa’s Massmart Holdings <MSMJ.J>. The price could grate on shareholders’ ears. But the deal gives Wal-Mart a local vehicle — and local knowledge — to help it gain access to a market with a profile that should suit it well.

If the deal is accepted by Massmart, Wal-Mart will be paying close to 13 times the Johannesburg-based retailer’s EBITDA. For a company that trades at closer to 7 times, that’s a big premium, albeit a drop in the bucket against Wal-Mart’s nearly $200 billion market capitalization.

Sep 27, 2010
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Mongolia may benefit from being late to party

The Mongol conqueror Genghis Khan may have been an ardent proponent of an early form of globalization. But Mongolia has taken its time embracing international capital markets. Now this “Mortar Economy” — the country is wedged between two BRICs, Russia and China — may be set for rapid growth.

Mongolia is on the verge of opening a stock exchange. The market will finally plug the landlocked nation into the grid of global finance, facilitating privatizations, investment, and the flow of capital to would-be entrepreneurs among its 3 million people.

Sep 22, 2010
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Petrobras deal fees not as paltry as they appear

Brazil’s massive sale of about $79 billion of Petrobras stock looks set for a string of financial superlatives. One of them, however, won’t be loudly crowed about by investment bankers. The underwriting fee on the deal, which is expected to close this week, looks to be among the lowest yet in a global stock offering of this kind.

According to the Brazilian prospectus for the offering, Petrobras is paying just 0.21 percent of the total size of the offering to its coalition of bankers. To put that in context, even the increasingly indebted U.S. government is paying the underwriters in the planned sale of the state’s shares in General Motors a fee three-and-a-half times larger.

Sep 20, 2010
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Could Google revolutionize James Bond franchise?

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.”

Sep 13, 2010
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Tax changes drive private equity’s great selloff

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.

Sep 8, 2010
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Walter Hewlett could give HP its Steve Jobs moment

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.

Sep 1, 2010
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Reheating Burger King won’t be another LBO whopper

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.

Aug 27, 2010
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3PAR battle is case of undisciplined cash vs. cash

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.

    • About Rob

      "Rob Cox helped establish Breakingviews in 2000 in London. From 2004 he spearheaded the firm's expansion in the United States and edited its American edition, including the daily Breakingviews columns in the New York Times and Wall Street Journal. Rob has worked as a financial journalist in London, Milan, New York, Washington, Chicago and Tokyo. Rob graduated from Columbia University’s Journalism School and the University of Vermont. Follow Rob on Twitter @rob1cox"
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