Bharti-MTN marriage talks fail again!!

The MTN - Bharti deal that was revived in May 2009, has been called off again. The deal was supposed to be finalized by mid Sep2009 but it has failed yet again.

Theories on what caused the deal to break again?

• Demand for dual listing which means that the merged company will have a unified business operation structure but have their own set of shareholders. Indian laws don't allow dual listing but the government was ready to give its backing to the deal.
• South African government's stand that post merger firm should be a a South African firm. Many analysts may infer that the interference of governments cause the deal to fail.

(It's a case of how government interests over-rule business interests so that the nationality of the firm can be preserved. Ratan Tata during his acquisition of Corus too, faced similar hurdles from the respective government. Also, when Ranbaxy was taken over by the Japanese company Daiichi, there was a huge disappointment in the political circles about hurting the Indian pride, but there was no government opposition to the deal. Earlier too, South Africa has tried to block takeover deals by UK mining conglomerate Xtrata. India, too is often chided for its tight regulations which stem foriegn investment in many of its industries)

The two companies had an exculsivity clause that ended in September. This meant that they could not engage in merger talks with any other company during this period.

Other Losers

• Banks have also lost out on approx. $50 million merger & acquisition fees.(source:Reuters)
• Bank of America Merrill Lynch and Deutsche Bank, were advising MTN.
• Standard Chartered and Barclays, were advising Bharti

Going forward

• MTN and Bharti may seek to resolve the regulatory hurdles and once again restart the merger talks.
• The deal had to be ended because the exclusivity period ended but can be brought back on tack.

The back ground of the MTN Bharti deal was discussed in an earlier blog.

http://businessnewsmadeeasy.blogspot.com/2009/08/bharti-mtn-deal.html

One year after Lehman collapse are we back on our feet?

We just celebrated or should we say wept our hearts out on the ocassion of the anniversary of Lehman Brothers collapse, the trigger to the now omnipotent sub prime crisis and economic downturn. The word, subprime, should have been the word of the year as it was now understood by even the young and carefree amongst us who never cared about economics. Right from children, to housewives to your neighborhood 'kiranawala', everyone had to say something about it. Its surprising that one year back the newspapers were so full of gloom and today they are back with hopeful news of recovery, banks are back to paying obscene amount of bonuses and capitalism is back on its foot. Each G-8 country is trying different mechanisms to keep the banking greed in check but nothing substantial has been done to regulate the mammoth financial empires. All proposals for banking regulation are just that, 'proposals'.

What happened back then?

• The US banks had lend home loans to all and sundry without bothering for their credit worthiness. The Banks had taken short term loans to fund these long term loans that went bad when the borrowers could not pay them back. Hence the short terms loans too went bad triggering a circle of events.
• The black September as it is called, started with the Lehman Brother collapse, which was the biggest in the US corporate history.
• It was followed by a sharp fall in US house prices that wiped off the value of mortgage based securities ( the securities which had the houses as collateral. As the price of houses fell, the value of these securities fell.)
• A chain reaction was triggered as the big financial giants had bet highly on these MBS and had further insured them against complex financial instruments. The economy went into a spiral downfall with one big wall falling after another and share prices taking a beating.
• Merill Lynch was bought by Bank of America, Goldman Sachs and Morgan Stanley were turned into a commercial bank. Insurance major AIG was given big bailout packages.
• All of this unfolded in a matter of just 2-3 weeks.
• In the following months, big corporations like the US auto majors GM and Chrysler bowed down to bankruptcy. Many banks including the world major Citibank had to be rescued by the US government.
• The world was flooded with companies going to the government with a begging bowl and government playing the knight in shining armour, rescuing them one after another.
• There was no liquidity in the market, companies were going bust and people were losing jobs and their homes. It looked like the end of the era of capitalism.

What seemed to have restored the economy back on track?

• Governments of major economies, led by USA, drilled out huge stimulus packages to push money back into the system. The fiscal deficit of countries was hit as countering recession took prime stage.
• The money from the government is flowing into world markets with the major indices showing a recovery.
• Big financial instiutions like JP Morgan Chase, Goldman Sachs are rising high on billions of dollars received by the US fed and are again seen gambling on bonds and exotic financial instruments.

So, with ample of money back in the system, are we on our way back to road of recovery or to another cycle of banking greed taking over fiscal prudence and a bubble waiting to be burst?

Top Deals of the week

Ebay to sell Skype

Internet auction house EBay Inc plans to sell a majority stake of 65% in its online phone unit Skype for $1.9 billion to private investors including Silver Lake, Netscape co-founder Marc Andreessen venture firm, London based Index Ventures, etc.

Valuation

The deal valued Skype
at $2.75 billion but it was below the $3.1 billion eBay spent in acquiring Skype. Shares in eBay fell more than 2 percent after the news.

Why is eBay selling?

• EBay want to focus on its auction service and its electronic payment service (PayPal). EBay's chief executive, John Donahoe, has stated that,"Skype is a strong stand-alone business, but it does not have synergies with our e-commerce and online payments business."
  
• Skype's core business is to offer free Internet phone calls between two PCs or from PC to handset and it has a subscriber base approaching half a billion users. But, most of the calls are free and doesn't generate profit for the company. (This has been seen as a cause of worry for the new buyers too. They need to figure out how they can convert the huge subscriber base in revenues by using avenues such as Internet advertising.)
  
• The buyout of Skype by eBay had puzzled the investors when it was bought in 2005 as both the companies had a different profile.
  
• It plans an IPO for PayPal in 2010 and wants to limit its risk by bringing in other investors.
  

Walt Disney to buy Marvel Entertainment

Marvel Entertainment is the parent company of Marvel Comics which is the owner of famous characters like Spiderman, X-men, Fantastic four, Captain America.

Valuation

The deal is valued at $4billion. Marvel shareholders will get $30 per share in cash plus 0.745 Disney shares for every Marvel share owned.Marvel shares rose 25% and Walt Disney shares fell 3% in the trading on 31-Aug after the news.

(Generally, the shares of the firm acquiring falls and the firm being acquired raises after the deal announcement. This is because of the perceived burden the finances of the acquiring firm will take because of the acquisition.)

The Synergy

(As Marvel is the owner of characters like Spiderman and X-men and Disney of Donald Duck and Mickey Mouse, I came across this funny site which list mash ups of the characters owned by both of them. Check it out.)

For Walt Disney's channel

• Marvel mainly has superhero like characters that have large young male following and Disney which is perceived to have more female following will win over the young male audience by its current acquisition. It will try to attract boy focused advertising of video games and action toys on its channel. Disney has recently branded its Toon Disney channel as Disney XD to make it more attractive to boys.
  
• Disney XD's main rival is Time Warner's Cartoon Network whose audience is more than 70% of boys and Viacom's Nickelodeon.
  

For Walt Disney Company

• Disney will increases it exposure in the DVD market but the DVD market is on decline
  
• Disney will look forward to using Marvel characters in its theme parks but Marvel already has a tie up with other theme parks like Universal studios, merchandisers and movie studios which will take some time to unwind. Like, Paramount Pictures has the right to distribute the next five Marvel superhero films.
  
• Disney will also gain from the merchandising rights of Marvel characters like Spider Man and Iron man.
  
• There are worries that Disney acquisition may affect the creativity freedom of Marvel as Disney has done in its previous acquisitions.