Yahoo’s resistance to selling its Asian business is futile. The Internet company lacks direction. Its stock now trades at half the spurned $31-a-share offer from Microsoft two years ago. Revenue has stagnated. It isn’t paying a dividend. And there’s friction with its partner in China. Yahoo would be worth more carved up and refocused.
For Yahoo, there’s Asia and everything else. Its 34 percent of Yahoo Japan is worth $7.1 billion at current market values. It also has a 40 percent chunk of Alibaba, a group that owns Taobao and Alipay, China’s high-growth answers to eBay and PayPal. It’s hard to pin down Alibaba’s value because most of its subsidiaries aren’t listed, but the mid-point of analysts’ estimates is about $7.5 billion. At nearly $15 billion, the Asian businesses are about equal to Yahoo’s enterprise value.
Genzyme is showing how it can pressure Sanofi-Aventis. The U.S. biotech takeover target moved to unload its genetic-testing arm to Laboratory Corp on Monday for $925 million. The more Genzyme can do to fix itself up, the more likely it can squeeze its French suitor to sweeten its $18.5 billion takeover bid. Firms in the sector, once in play, almost always sell. A higher bid seems likely.
House-cleaning plans for the maker of rare-disease drugs are moving ahead. If Genzyme can fetch the same reasonable 2.5 times sales multiple for two other businesses it is shopping as it did from its genetic testing division, Genzyme will reap a total of about $1.3 billion. That’s small beer, but all three units have been a management distraction. Last year, their combined operating margin was slightly negative.
Larry Ellison has launched another phase of his long-standing battle with Silicon Valley. A Sun Tzu admirer, the Oracle boss roundly mocked the board of rival Hewlett-Packard when it forced out Chief Executive Mark Hurd last month. By hiring Hurd, Ellison backed up his words. He not only gains a well-regarded operations guru, he follows the Chinese general’s sixth-century BC dictum “Know your enemy.”
Hurd should slot in nicely as a lieutenant. He’ll serve as co-president alongside Oracle veteran Safra Catz, who will continue to manage legal affairs, finance and acquisitions. Sales, marketing and client support will be Hurd’s mandate. Ellison will still chart the ship’s course — and presumably assume any other tasks that suit him.
When should investors sell Apple shares? The group’s push overseas and into the business market still holds promise, as does the steady stream of fresh gadgets such as Apple TV, unveiled by chief executive Steve Jobs last week. Apple’s trajectory should continue for some time, so its stock — which has gained more than 40 percent each year for the past five — looks attractive at 15 times estimated 2011 earnings.
But no company can grow sales at that pace forever. While it may sound premature or even churlish to do so, Breakingviews offers up some strategic cues that could act as warning signs for investors that Apple’s growth is slowing:
Are Dell’s shareholders on Xanax? The company has finally bowed out of its mad bidding war for 3PAR. Yet its investors displayed neither much concern about overpayment nor relief about the deal being dropped. After a decade of scandals, missed opportunities and dismal performance, they may have stopped caring.
They had reason to worry. Dell appeared desperate to win storage company 3PAR. It raised its offer multiple times to match bids from Hewlett-Packard. HP’s $2.1 billion winning bid, which Dell came close to matching, was more than three times 3PAR’s undisturbed market capitalization and values the company at almost 10 times estimated sales. Based on a typical tech premium of around 40 percent, HP appears to have overpaid by more than $1 billion.
At Apple the gadget, not content, is still king. Nearly every day brings a new contestant in the emerging battle for the attention of the American couch potato. Netflix, Amazon, Hulu and YouTube all want to serve up content. While Apple also rents out video, its new TV device allows users to stream rival services. Unlike the other players in the fast-moving video web arena, Apple’s still all about the hardware.
Apple used to call its TV efforts a hobby. That’s no longer the case. It latest gadget, which allows Internet video to stream on television screens, is smaller and appears easier to control than Apple’s first entry to the field. And the increased content available — ranging from Netflix’s film library to Hulu’s collection of television shows — makes it far more useful. By chopping the price to $99 the device is also far more affordable.
Sometimes an ounce of prevention is worth a pound of cure. Case in point: Hewlett-Packard. Like many tech concerns, it is sitting on a large cash pile. But the company’s bidding war with Dell for control of 3PAR raises fears it may squander its $15 billion hoard on overpriced baubles. Promising to repurchase $10 billion of stock soothes investors. Refraining from such battles would be more effective.
HP’s investors were already shaken by the surprise booting of chief executive Mark Hurd from the company. Making three bids in one week for 3PAR made them feel queasier. The stock lost another 5 percent of its value last week, bringing its total losses since the start of the year to about 25 percent. HP may fear the strategic implications of a Dell victory, but agreeing to pay $2 billion net of cash — or more than three times the undisturbed price — for 3PAR appears undisciplined.
Promising investors to return some of their cash is a sensible move. It reminds them that HP has a good record in rewarding despite a steady history of acquisitions. Since the existing buyback program is running low, it was natural to replenish the fund — especially if the company feels its stock is priced at bargain levels.
Intel’s $7.7 billion deal to buy security firm McAfee isn’t only a surprise, it’s also a gamble. Mobile gadgets are the chip industry’s future, and Intel has fallen behind. It is betting that combining McAfee’s security software with its hardware will give it a leg up. Perhaps so. But investors who knocked down Intel’s shares are rightly skeptical the chipmaker can pull it off.
Theoretically, devices should be safer if a chip company worries about security from the start. Instead of papering over holes with software, the idea is to eliminate more of them at the source. Intel thinks McAfee’s expertise will allow this. Another potential benefit — running the software closer to the silicon, as the jargon goes — could mean it works faster and uses less power. Both are important factors for mobile devices.
BHP Billiton’s huge $39 billion offer for Potash Corp could be the first of several battles to control the market for the fertilizer. Demand for potash fell off a cliff in 2009. But it looks likely to recover strongly. And high entry costs favor acquisitions over digging new mines.
Potash sales in 2009 were close to 30 million tonnes, which is about half the amount sold in 2007, according to Scotia Capital. Farmers affected by a weak economy can delay application for a season or two and other fertilizers act as imperfect substitutes. But eventually plants yield less and sicken more.
The for-profit colleges have just been enrolled in the school of hard knocks. Many of these educators spent the past decade feeding happily on federal loans to students — many of which default. New data released on Monday suggest just how tough the future may be for the sector, sending many shares down 10-20 percent. More regulation and higher costs are coming.
The government is now cracking down. The U.S. Education Department has proposed restricting admissions growth or cutting federal funding if not enough students can repay their loans. This would partly be based on starting salaries following graduation. The significance of these new schoolyard rules can’t be understated: federal aid makes up at least three-quarters of revenue at many for-profit educators.