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Microsoft is Yahoo!'s only lifeline

Tech Confidential — 2008-10-08T11:00:00+00:00

Throughout the tussle between Yahoo! Inc. and Microsoft Corp. earlier this year, Microsoft always had the trump card of pulling its offer, knowing that in all likelihood that shares of Yahoo! would drift back to the $19.18 level where they were trading on Jan. 31, just before Microsoft's $31 a share, $47.5 billion offer was made, and they could make another offer at an even lower price.

Well, the $19.18 support level held for a while, but since the rout on Wall Street, Yahoo!'s shares have traded to a five-year low, below $14, so guess what? There's talk that Microsoft could revive its bid, albeit at a lower price.

Some of the speculation is being attributed to a research note put out by American Technology Research Wednesday in which analyst Rob Sanderson slashed his financial estimates and price target for Yahoo! and speculates that Microsoft "may try again."

Continue reading at TechConfidential.com.

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MetLife (MET): Death by hedge funds

Tom Taulli — 2008-10-07T16:15:00+00:00

MetLife, Inc. (NYSE: MET), which is the largest life insurer in the U.S., got its start 140 years ago. But the recent couple weeks may have been the toughest as the stock price has plunged.

It seems MetLife's woes have just started, though, as the company announced Tuesday it has withdrawn its 2008 earnings estimates. As for Q3, the company expects operating profits of $600 million to $675 million.

At the same time, the company wants to sell 75 million shares to bolster its capital (obviously, this is something that's pretty dilutive in the current environment).

Interestingly enough, MetLife is feeling the pain from heavy investments in alternatives such as hedge funds and private equity. What's more, MetLife holds positions in losers such as Washington Mutual and Lehman Brothers.

Of course, MetLife is not alone. If anything, major insurers have been quite aggressive with alternative investments. Just take Hartford Financial Services Group Inc (NYSE: HIG), which recently pre-announced weak results and raised $2.5 billion from Allianz. This firm too has had to take charges for its alternative investments.

MetLife shares are trading down 6.4% in pre-market trade.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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International Rectifier bashes Vishay's $1.7 billion offer

Tech Confidential — 2008-09-30T14:00:00+00:00

Filed under: Deals

International Rectifier Corp. on Tuesday issued a scathing reply to Vishay Intertechnology Inc.'s $23 a share, $1.7 billion tender offer made on Monday, saying in a letter to its shareholders that Vishay does not have their best interests in mind, that it is trying to buy the company on the cheap and that the offer itself is highly conditional. It urged stockholders not to tender shares into the offer and to reject Vishay's three nominees to its board of directors.

In its letter, International Rectifier notes the opportunistic aspects of Vishay's offer, pointing out that it came right after IR had completed a restatement of its earnings, when its shares were trading at a five-year low and at a dip in the cycle of the semiconductor industry. It also notes that the offer is highly conditional, still requiring a financing commitment from Vishay's lenders.

After reviewing proxy solicitations from both companies, Friedman, Billings & Ramsey Inc. analyst Craig Berger sees "little chance" that International Rectifier will be sold to Vishay simply because the offer price is too low. In a research note published on Tuesday, Berger writes that he also doesn't expect IR shareholders to elect the Vishay candidates to the board of directors. Berger believes IR has an attractive risk-reward profile, noting that the downside in its shares should be limited to around $16 if arbitrage traders abandon their positions; the shares could potentially trade into the $40s if aggressive margin projections made by IR management are achieved. Berger maintains a $29 price target on the stock.

Continue reading at TechConfidential.com.

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Fortress ditches the dividend ... and doubles down on financials

Tom Taulli — 2008-09-26T10:00:00+00:00

Even with the huge federal government buyout, cash is still in short supply that the Federal Reserve recently loosened the restrictions on private equity firms in terms of investment stakes in banks.

In light of this, one of the top private equity operators, Fortress Investment Group LLC (NYSE: FIG), is eliminating its Q3 dividend payment of $0.225 per share. Basically, the firm wants as much capital as possible to capitalize on the opportunities. Fortress has about $300 million in cash. The CEO, Wesley Edens, said he wants to put money into banks, insurance companies and asset management operations.

In other words, this may be an attempt to reformulate the structure of Fortress's private equity structure, making it look more like a traditional financial services firm. It certainly helps that Fortress has a lot of capital to put to work.

However, such investments can be volatile and take several years to come to fruition. Then again, the purpose of private equity is to seek out long-term returns, right?

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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Digg scoops up $28.7 million

Tom Taulli — 2008-09-25T09:00:00+00:00

Filed under: Investments

Several years ago, I talked to Jay Adelson, the cofounder of Digg, a popular news rating service. We discussed the keys to successful ventures and the importance of building an enduring platform. I liked when he said that it is critical to have an "unfair advantage."

Well, so far, things seem to be working nicely. In fact, Digg has raised $28.7 million from a group of investors including Greylock Partners, Silicon Valley Bank, Highland Capital Partners and the Omidyar Network. In all, the firm has raised about $40 million.

The capital is meant to reinforce the Digg platform. This means doubling the staff, which now stands at 75 people, adding new features like publishing analytics, and moving into foreign markets.

Of course, there have been many rumors that Digg has been exploring sellout talks with biggies like Google (NASDAQ: GOOG). But with the current uncertainty in the financial markets, it probably makes sense to wait things out. Besides, Digg has a highly loyal user base who may not want to see a deal get done.

More importantly, the good news is that Digg is still showing lots of traction, with monthly unique visitors doubling over the past year to 30 million. Basically, it's a sign that Digg is moving out of its tech roots and into the mainstream.

According to Jay's blog this morning:

You've given us some great feedback on how we can make Digg better. As you've heard us say many times before, we feel that we've only implemented a fraction of the vision for what we believe Digg can achieve. The new features that will be a part of this program will incorporate much of your feedback, including personalizing the Digg experience, enhancing the recommendation system across other areas of the site, creating deeper category and topic content views and more ways to discover and organize content.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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Hedge funds run and hide

Douglas McIntyre — 2008-09-24T13:00:00+00:00

Filed under: Deals

Hedge funds have decided to curtail their risks. That means no reward. The reason for putting money into hedge funds, big upside for investors, may be going away.

According to the FT, "Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds." These large investment firms do not want to be crushed by the current credit crisis.

The hedge funds are making a mistake by turning away from their charters to use leverage and chancy tactics to make money, even it the odds have become extraordinarily higher.

Distressed assets could become the next great wave of money-making investments. Even the Treasury thinks so. It is telling Congress it can make money on the toxic assets it is buying from banks. Those financial instruments may come back with improvements in the housing and mortgage markets.

The banking market is also awash with corporate IPO debt which often sells for 80% of its face value. Some of these investments will fall apart, but most of the companies are likely to be fine coming out of a recession.

Hedge funds are turning their backs on what may make them extraordinary money machines during a time when potential rewards are reaching a peak.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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The Fed wants more private equity investments

Tom Taulli — 2008-09-23T10:00:00+00:00

Filed under: Private equity industry

While the government plans to write some big checks to stabilize the financial system, it's probably not enough. There are various sources of capital that can help out, such as private equity.

But there has been a big stumbling block: regulation. That is, if a private equity operator takes a 10% equity stake in a bank, the firm may be considered "controlling," which would trigger some onerous compliance requirements and may mean becoming a bank holding company.

Well, according to the Wall Street Journal [a paid publication], the Federal Reserve is now going to loosen things up. The trigger point is now a 33% equity stake (up to 15% can be voting stock). Something else: a private equity firm can even have as many as two board seats.

No doubt, this is a big deal for private equity firms. And it's a nice option for ailing banks.

According to Bloomberg, private equity firms raised $324.4 billion in the first half of this year, and as should be no surprise, the hot area is distressed investing. In other words, the private equity folks have something to be happy about.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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Buffett's $4.7 billion deal for Constellation Energy

Tom Taulli — 2008-09-22T14:00:00+00:00

Filed under: Deals

In the current market, it's certainly nice to be Warren Buffett. Many companies are looking for cash infusions, and of course, are making calls to the dealmaking guru.

So, recently Buffett reached a deal to purchase Constellation Energy Group (NYSE: CEG), which operates a variety of energy assets such as nuclear power plants, for $4.7 billion. To do this deal, Buffett used his MidAmerican Energy Holdings Co. vehicle, of which Berkshire Hathaway (NYSE: BRK.A) owns 80.5% of the common stock.

As should be no surprise, Buffett wasn't the only player interested in the deal. In fact, KKR, TPG and Electricité de France (EdF) made a bid for Constellation as well and were actually willing to offer 32% more.

But Constellation rejected the bid.

Not long ago this would have been an attractive bid, but in light of the credit crunch and botched deals, private equity firms have gotten a black eye.

Regulatory approval is also problematic, especially with the involvement of French based EdF. Although, Buffett has a track record as a long-term investor, which should allay fears.

Besides, Buffett quickly invested $1 billion into Constellation so as to stabilize things as the recent financial turmoil wreaked havoc on the company. In other words, he has a lot of leverage in this deal - even if rivals put together much higher bids.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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Did eBay bungle its StumbleUpon buy?

Tech Confidential — 2008-09-19T13:30:00+00:00

Has eBay Inc. stumbled with another acquisition? TechCrunch is reporting that the online auction giant has hired Deutsche Bank to shop StumbleUpon, the Web site recommendation service it acquired in 2007 for $75 million.

StumbleUpon helps users discover Web sites based on their interests. It tries to take the place of a traditional search engine by limiting the number of search results, making money by embedding sponsor sites in those results. Interestingly enough, there's no indication on the site that StumbleUpon is actually an eBay company.

Perhaps eBay had some grand plans for StumbleUpon that it never got around to implementing, though we were critical of eBay for not disclosing its intentions back when it made the acquisition. There was some talk that the service could be integrated into eBay's Skype phone service, but with that property under-performing and reportedly up for sale, eBay may no longer have a need for it.

Continue reading at TechConfidential.com.

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As Citigroup looks at buying Washington Mutual, 1+1=0

Douglas McIntyre — 2008-09-19T10:30:00+00:00

Filed under: Rumors

Citigroup (NYSE: C) is considering buying Washington Mutual (NYSE: WM), the nation's largest savings and loan. It sounds like Sandy Weill is back in charge and trying to create the kind of financial conglomerate he built in the 1990s and earlier this decade.

According to The Wall Street Journal, "Citigroup and several other banks are reviewing the Seattle thrift holding company's books, which are packed with shaky mortgages."

Just a few months ago, Citi CEO Vikram Pandit was talking about cutting the big bank's expenses by 20% and selling off "non-core" assets. Now he is thinking about buying the most troubled large financial company in America.

Pandit would be better off staying with his first plan. There is a reason WaMu's stock got down to under $2. If mortgage defaults move up and housing prices move down, the mortgage company's financial situation could get much worse.

Pandit is proving to be a "flavor-of-the-month" CEO. Investors never know what he plans to do tomorrow, let alone what he wants to do with Citi over the next year.

Douglas A. McIntyre is an editor at 247wallst.com

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As Nortel talks asset sales, break-up may be next

Tech Confidential — 2008-09-18T11:00:00+00:00

Filed under: Rumors

Nortel Networks Corp.'s (NT) surprise announcement that it plans to seek a buyer for its Metro Ethernet Networks business is a decisive, but risky, move that analysts say could presage an unraveling of the whole company. While some applaud the move as the sort of bold action that struggling Nortel has long required, they say it will be an extremely bitter pill for the company to swallow. As one of the company's stronger businesses, a sale of MEN could leave Nortel's remaining assets in jeopardy, says Lehman Bros. analyst Jeff Kvall.

Other analysts quoted by Business Week are viewing the planned sale as a harbinger of more sales. At least for now, however, Nortel is insisting that's not its intent. In this interview, Philippe Morin, who heads the MEN business, which makes technology to deliver broadband Internet access in urban environments, said the company had identified MEN for a sale precisely because of its relatively strong performance.

"It will help the balance sheet for Nortel but, at the same time, also help us to make some further investments around enterprise, around applications, and other areas around the core strategy direction that Nortel is focusing on," Morin says.

Continue reading at TechConfidential.com.

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TPG takes a hit on Wamu

Tom Taulli — 2008-09-17T13:00:00+00:00

Filed under: Deals, Texas Pacific Group, Investments

Back in the 1990s, the founder of TPG, David Bonderman, sold once-troubled American Savings Bank to Washington Mutual, Inc. (NYSE: WM) for a big profit. In addition to the big bucks, he was rewarded with a seat on the board. So when Bonderman structured a $7 billion capital raise for the company in April, it seemed like a sign that the smart money had some keen insight, right?

However, in today's wacky market, nothing seems to work out. TPG's investment price was $8.75 per share. Keep in mind that this was a 33% discount to the current market price (there were also warrants to purchase 57.1 million more shares at $10.06 each).

What's more, TPG was savvy enough to negotiate a juicy anti-dilution clause; that is, if Wamu's stock price fell, the fund would get more shares.

The problem: with the current plunge in Wamu's stock to $2.12 per share, there will be a deluge of more shares to hit the market.

Well, according to a piece in The New York Times, it looks like TPG is going to forgo the antidilution clause -- assuming the company needs to raise more capital, which seems like a good bet. Unfortunately, this is yet another sign of the rapid deterioration of the financial sector - and how the so-called "smart money" can get things very wrong.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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SanDisk rejects $5.85 billion offer from Samsung

Tech Confidential — 2008-09-17T09:00:00+00:00

Filed under: Deals

Flash memory maker SanDisk Corp. (SNDK) has rejected a $26 per share, $5.85 billion unsolicited takeover offer from Samsung Electronics Co. Ltd., calling the overture "opportunistic."

Talks between Samsung and SanDisk -- which have been rumored for weeks -- were revealed in a letter made public late Tuesday by Samsung. In the lengthy missive to SanDisk chairman and CEO Eli Harari and vice chairman Irwin Federman, Samsung vice chairman and CEO Yoon-Woo Lee said he was "deeply disappointed" that despite four months of discussions and meetings about a possible business combination, SanDisk "continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price."

"Notwithstanding the current market conditions, to stay competitive, SanDisk will need to fund critical investment and development over the next several months - cost cutting alone will not suffice," Lee wrote. "Our offer insulates your shareholders from the risk of market conditions that have severely deteriorated and are expected to remain challenging."

Continue reading at TechConfidential.com.

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Big increase in energy sector financing

Tech Confidential — 2008-09-16T13:00:00+00:00

Filed under: Venture capital industry, Investments

VentureDeal issued its second-quarter VC funding reports, and the sector drawing the biggest increase in private financing is, not surprisingly, energy.

During the period, 60 companies got $1.3 billion in backing. That represents a nearly 300% jump from the first quarter of 2008, and a 67% increase in the number of companies funded, the report said. Naturally, the numbers were skewed a bit by a few large deals in the alternative energy sector including solar service provider SunEdison's $131 million fundraising and BrightSource Energy Inc.'s $115 million Series C round.

The sector was also boosted by fundings for cutting-edge energy technologies, such as advanced batteries and wireless power transmission.

Continue reading at TechConfidential.com.

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AIG's big Blackstone stake

Tom Taulli — 2008-09-16T09:00:00+00:00

Filed under: The Blackstone Group, Investments

With global markets in turmoil - and as the credit crunch worsens - AIG (NYSE: AIG) has the miserable task of raising $75 billion to meet its capital requirements. The firm has talked to various private equity firms, who have basically wanted the keys to the operation. There were even talks with Warren Buffett.

No doubt, AIG is scrambling to assess its asset base as well. Which could fetch good values?

Interesting enough, there is one asset that hasn't received much attention: an equity stake in Blackstone Group LP (NYSE: BX).

About 10 ears ago, AIG invested roughly $150 million in the private-equity powerhouse. Now, the stock is worth about $700 billion. Moreover, AIG has investments in Blackstone funds that amount to about $1 billion.

So yes, AIG may dump these holdings on the market - and put pressure on Blackstone's shares, right?

Perhaps. Although, investors don't seem to be concerned (the stock price has held steady in the current financial storm). Then again, Blackstone doesn't have balance sheet issues. More importantly, the firm has been bulking up its abilities to capitalize on distressed investments - which seems spot-on right now.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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What's next for Take-Two?

Tech Confidential — 2008-09-15T13:00:00+00:00

Filed under: Deals, Value and lack thereof

Those who were banking on Electronic Arts Inc. doing whatever it took to get a deal with Take-Two Interactive Software Inc. are in pain Monday after negotiations between the two game makers ended over the weekend.

Analysts, meanwhile, were left trying to figure out why the deal didn't happen, and what's next for Take-Two. There weren't too many answers to the first question, other than the pretty obvious conclusion that Take-Two wanted more money than EA was willing to pay, but plenty of guesses about the second.

Wedbush Morgan Securities analyst Michael Pachter in a research note Monday said that despite strong third-quarter results, the company's balance sheet foreshadows a "reversal of fortune" in 2009. Specifically, the analyst said Take-Two's cash reserves are significantly lower than its peers, as a percentage of its trailing six months of publishing revenues.

Continue reading at TechConfidential.com.

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Best Buy nabs Napster

Tom Taulli — 2008-09-15T11:00:00+00:00

Filed under: Deals

Beleaguered Napster (NYSE: NAPS) shareholders got a nice surprise today. That is, Best Buy (NYSE: BBY) agreed to buy the online-music operator for $2.65 per share. On the news, the stock price surged 86%. Although, it's still a relatively small deal - amounting to about $121 million.

Something else: Napster already has about $67 million in the bank.

All in all, it looks like a good move for Best Buy. After all, the music CD market is evaporating.

For the most part, Napster has about 700,000 subscribers (there is a monthly fee), which should get a nice boost from the huge distribution of Best Buy. In fact, the platform could eventually allow for other digital offerings, such as videos.

Of course, there is tremendous competition in the space, such as from Amazon.com (NASDAQ: AMZN) and Apple (NASDAQ: AAPL). However, Best Buy can certainly find creative ways to bundle products and services -- making things compelling for its customers.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

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The new, now thing: A wave of startups is changing how we interact over the Web

Tech Confidential — 2008-09-12T11:00:00+00:00

Having invested in and led a handful of Internet startups, John Borthwick knows well that the tide of new Web 2.0 companies is changing how people interact with the Internet. But recently, the co-founder of Internet technology incubator and investment firm Betaworks has noticed something altogether different. Hundreds of technology startups are cropping up, many backed by venture capital, and coalescing to create a new experience for Internet users.

The hallmark of these companies is that they rely on or enable the near-instantaneous exchange of information and online content. Borthwick calls it the "Now Web."

"There is something new going on here," muses Borthwick, whose New York firm has invested in nearly 20 startups over the past year. "Somewhere in the past few months, the way that I experience the Internet, and specifically live information, changed. There is a 'Now Web' emerging out of an ecosystem of loosely coupled products.

Continue reading at TechConfidential.com.

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EA, Take-Two press pause button

Tech Confidential — 2008-09-11T11:00:00+00:00

Filed under: Deals

We keep picturing execs from Electronic Arts Inc. (NASDAQ: ERTS) and Take-Two Interactive Software Inc. (NASDAQ: TTWO) holed up in a basement somewhere duking it out in a winner-take-all battle of Madden NFL (Northern California-based EA a supreme underdog with either the San Francisco 49ers or Oakland Raiders to New York-based EA's Giants or Jets). Why else would it be taking so long for the two companies to either come to terms on a merger or announce that their talks have ended.

The two gaming companies entered a confidentiality agreement on Aug. 25 to discuss a deal. Under the agreement both sides are barred from publicly discussing the status of negotiations unless one of the companies notifies the other that it is terminating the talks. Hence the lack of information.

As usual, the longer it takes for a resolution, the more nervous investors get. Take-Two shares, which traded as high as $25.75 on the day the confidentiality agreement was signed, recently traded at $21.17. Part of the decline is attributable to weakness in the overall market, but uncertainty over whether EA might sweeten its $25.74 is also damping the stock. While some analysts don't think EA is willing to pay more than $26 to $28 a share, others think the price could top $30 a share.

Continue reading at Techconfidential.com.

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Feds right to scrutinize Google-Yahoo!

Tech Confidential — 2008-09-10T11:00:00+00:00

Filed under: Deals

Media critic Jeff Jarvis pleads Google Inc.'s (GOOG) case after the U.S. Department of Justice hired an outside attorney to examine the search company's advertising alliance with Yahoo! Inc. (YHOO]. Google's no monopoly, he says. So to what does Jarvis attribute the feds looking into the ad deal? Americans hate success. "It's the yin-yang of American business: we love success stories but we hate too much success," he says.

This is false on many levels. First, and apologies in advance for belaboring the obvious, but investigating big mergers and, in this case, contracts for their potential effect on competition is what antitrust enforcers do.

Or at least they're supposed to. The Justice department that Jarvis implicitly chides for presuming to scrutinize the Google-Yahoo! deal is one of the laxest antitrust regimes in recent history. The last time this DOJ challenged a commercial arrangement like this one on competition grounds was, well, never (That's right, they haven't opposed a single one.) And it's hardly any more aggressive in policing mergers. Under Assistant Attorney General for Antitrust Thomas Barnett, the agency has yet to challenge a merger, although it did retroactively move to block a small newspaper deal in West Virginia. Even the DOJ's antitrust brethren at the Federal Trade Commission are getting exasperated, firing off a statement on Tuesday attacking Justice for weakening antitrust law.

Continue reading at TechConfidential.com.

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