Friday, March 23, 2007

Google Moritz Escape or Ejection

Google (NasdaqGS:GOOG) announced the resignation of Michael Moritz from its board. Mr. Moritz represented Sequoia Capital in what was probably their best score to date. Reports indicate that he also sits on the board of Sequoia’s other major score, Youtube. The current claims are that he had no significant hand in the two entities merging. So what was he doing? Who was doing it?

The original investment has been wildly successful and more than one venture capitalist would have been more than happy to ride off into the sunset and work on tax minimization strategies. Besides resigning shortly before the annual meeting before the public questions without another director to replace him does not look that suspicious does it?

The Youtube acquisition while strategically brilliant may become the mother of all legal battles in the copyright and intellectual property fields. As lawyers commence legal proceedings and delve into the rationale’s and intents of every single action, Mr. Moritz’s testimony may become the critical factor. Of the main contributions that venture capitalists bring to the table (in addition to critically needed funds) we include advice and connections.

Somewhere in the Google legal team a lawyer should be working on a possible defense strategy to mitigate any damage that the Moritz/Sequoia relationship may cause. If not get going on it. Somewhere on the Sequoia legal defense team should be a lawyer pondering the same information. Mr. Moritz may need a lawyer seeing as everyone else is probably retaining counsel.

Oh hey I almost forget “Do No Evil”

Thursday, March 22, 2007

Motorola Next Victim Please

Motorola (NYSE:MOT) still does not get it. They attempt to clear some of the decks with high level executive announcements. It should be noted that both the CEO and chairman position is held by the same individual, a Mr. Ed Zander.

The new COO is Mr. Greg Brown. The announcement includes the same story book spin that most high level announcements serve up.

"Greg brings a wealth of experience to Motorola and has demonstrated success in all facets of management," said Zander. "His keen understanding of Motorola's strategy and customer requirements will be invaluable as we execute our revitalized operating plan for the benefit of our customers, partners, employees and shareholders."

Blah Blah Blah I think the corporate communication’s guy’s just copy this phrase from each other and change the name of the new appointee.

The press release goes on to say "Motorola is a great company with tremendous assets and talented people," said Brown. "I look forward to continuing to work with Ed and other members of Motorola's leadership team to deliver the products, solutions and quality our customers demand."

Nothing about any changes which are desperately needed.

Basically the management strategy is “There’s a pony in here somewhere so keep digging” When in actual fact they are admiring a hand grenade after the pin has been pulled.

Wednesday, March 21, 2007

NY Times Domino Effect

New York Times (NYSE:NYT) issued its Feb numbers. The report reads like a requiem for the economy. Everything is down except electronic media. All national advertising categories were down except for books, booze and international fashion. The only retail categories that registered gains were fine art and department store ads. Classified ads tanked because real estate, cars and help wanted ads were off dramatically. No word on how well the personals section was doing.

Internet revenues grew dramatically. NY Times should be proud but will these properties grow quickly enough to offset traditional print media problems? Probably not. But they are showing enough promise to create strategic value and attract the attention on non traditional media. The strategic alliance with Monster (NasdaqGS:MNST) has been noticed.

The current market cap is approximately $3.43 Billion. There is a small increase in the holdings of approximately 292 institutional shareholders.

Shareholder activists are starting to demand change. The current price tag of $3.43 Billion seems cheap. Google (Nasdaq:GS) has the cash on hand to buy it out at a healthy premium. So does Microsoft (Nasdaq:MSFT).

If Google wants to dominate classified ads and leverage their outreach to local papers this would be a great acquisition. Traditional print media may question the “Do no evil” mantra if this were to come into being.

If Microsoft wants to stop Google this would be a great acquisition. They have a more enhanced news and information platform. Microsoft certainly has the cash.

If Yahoo (NasdaqGS:YHOO) wants to stay in the game they would need to buy the asset the most. But they would need to finance or do a partial share deal.

Yahoo needs to do the deal the most. This acquisition would vault it to top drawer status rather than the struggling almost ran status it has now.

In any event Monster may be side swiped with its strategic alliance as it becomes a bit player with an easily replaced business model.

Tuesday, March 20, 2007

Barclays ABN Investors Perception Several Years Behind Management

Barclays Bank (NYSE:BCS-P) is set to acquire ABN Amro (NYSE:ABN) Large mergers are problematic at best of times. ABN Amro is in a weakened state and has become a take over target with shareholder activists screaming for changes. This means that there is a lot to be fixed and the current ABN Amro management team could not convince the investing world that they had the right plan and vision.

Barclays is huge domestically in Britain and ABN Amro is huge internationally. On the face of it that appears to be a good fit. But one wonders if Barclays with its domestic smarts has the savvy to fix problems on an international basis.

Merger logic is frequently driven by short term cost cutting opportunities, which do not exist in this instance. If anything as management creates a new consolidated entity they will have enormous IT spends to consolidate reporting, accounting and controls.

American bankers are coveting the Chicago based ABN LaSalle entity recognizing that its acquisition will allow them to bulk up. Given that it’s such a good idea to buy why would the new entity want to sell a valuable asset and help a competitor. Normally you try and sell the bad stuff!

The only way the LaSalle operation should be disposed of is in a trade for another asset that will enhance the new Barclays ABN Amro entity. So interested bankers will have to open up their kimonos and show some stuff. Maybe something that fixes an ABN Amro problem somewhere in the world would be worth talking about. Compare this to sports teams trading players. Maybe even a three-way trade?

Banks crave bulk and size. They will eagerly abandon short-term earnings as they reach for what they believe is long term strategic growth. The newly merged entity will have indigestion for about two to three years. Investors will need a very long-term horizon so that investor expectations may catch up with management perspectives.

Monday, March 19, 2007

JP Morgan Chase & The Strange Case of Pakistan Steel

JP Morgan Chase (NYSE:JPM) may have found itself foolishly caught up in the latest of Pakistani political events. JP Morgan has been reported as acting as an advisor to the Pakistani government on privatization. They have also acted as an advisor to an investor group that is buying Pakistan Steel for approximately $362 million. The group consists of Al Tuwairqi of Saudi Arabia, MMK JSC of Russia and Arif Habib which is a well connected Pakistani financial concern.

Pakistan Steel Mills holds a virtual monopoly in Pakistan and many observers feel that its true value is approximately $5 billion; a far cry from the winning bid of $362 million. The auction process was clearly rigged for this group to win. Other steel makers found themselves disqualified for a variety of reasons.

The deal came to the scrutiny of Pakistan’s Chief Justice Iftikhar Mohammed Chaudhry who wanted to know why the long-suffering people of Pakistan are being cheated. The Chief Justice has also made many inquiries and negative comments about many other issues in the Government of President Pervez Musharraf. Being a military dictator Musharraf has orchestrated a judicial review regarding some charges which are still not clear.

The judicial review effectively removes the Chief Justice from office. The legal community has take to the streets and police are actually bashing in the heads of normally peaceful lawyers. Some feel the last straw for the Chief Justice was his open questioning about the legitimacy of the Pakistan Steel deal.

JP Morgan may find itself shut out of any financings in the steel business. Other steel companies must acquire assets at true market value. The current privatization is at seven cents on the dollar. You can only dream of that capital cost structure. As the steel business becomes increasing competitive and globalized that cost structure will be an enormous advantage.

If I was a steel company CEO/CFO JP Morgan would not be my friend. If I was a citizen of the world I would be very worried about a key partner in the war against terror who has managed to unnecessarily energize extreme Islamic parties with a legitimate cause of gross corruption.

I know JP Morgan probably has a very sanitized document trail about its own involvement. But when you help in attempting to create a powerful competitor with a ridiculously low capital cost as a result of political malfeasance you have got to believe a few lines in the sand have been drawn.