Wednesday, December 12, 2012

MERGERS & ACQUISITIONS: TWO BIGGEST FAILURES

Two biggest M&As. Who lost? The shareholders. Who won? Mmmm...

Then comes the next biggest from the M&A record book – the $167.4 billion merger between AOL & Time Warner in 2001, making the combine worth a gargantuan $260 billion in terms of Mcap, and the largest media & entertainment company in the world. As per the agreement, AOL shareholders held 55% of the merged entity, while the rest belonged to Time Warner shareholders. (Translation: the tuna had gobbled up the whale!) Getting straight down to statistics, today, the combine’s Mcap has fallen to a lamentable $26.7 billion – an appalling fall of 90% since the merger happened! So what really went wrong? Well, the biggest mistake with the merger was its very ‘timing’. It came just months before the Internet bubble burst in mid-2000, post which there was a huge decline in subscriber growth for AOL. First, it’s ad-revenues water-hole dried-up faster than water from a bottle cap in Sahara, and consequently, it underwent a massive goodwill write-off, due to which the company reported net losses of $99 billion for 2002 alone! Thanks to the merger, the entity can today boast of $132.6 billion in accumulated losses since the deal. God bless Time Warner!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Monday, December 10, 2012

Warming up to reality

Fighting doomsday prophecies with Earth Hour

Remember being taught in school about global warming, greenhouse effect and how the melting snow-caps of mountains like Everest and Kanchenjunga will one day submerge our entire world? Most of us would have thought that this would not happen in our lifetime and it was equal to a scary innovative piece of fiction, but then, reality is stranger than fiction! What most of us chose to ignore was the fact that Mother Earth would not be able to carry our increasing burden for long. We have already started witnessing longer summers and shorter winters as opposed to what we might have had during our childhood. The effects of global warming are not just restricted to climatic and geographical changes, like glaciers retreating, rise in sea levels or ocean acidification, but would also affect our health and spread infectious diseases, adversely affect our ecosystem and also lead to natural disasters. So, are we doing enough to save our planet? Or, are we just going to sit back as complacent fools and wait to see when the end comes?

As individuals, and denizens of this planet, we must wake up and contribute to save our Mother Earth. ‘Earth Hour’ is one such example where people from all over the world turn-off their non-essential lights and electrical appliances for one hour on the last Saturday of March every year.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Saturday, December 08, 2012

JET AIRWAYS: RAVI CHATURVEDI

Stability at the top management level is the need of the hour for Jet Airways in the financial slump

However, if we consider the way things have been going on at Jet, it seems difficult to believe that Chaturvedi’s exit was due to personal reasons. In July 2008, the chief executive of its low cost arm JetLite, Maunuv on Lueders had also packed his bags and bid adieu. In the last couple of years, Goyal has witnessed exits of several top management personnel including its CFO Carl Saldanah, thus throwing the management of the company in shambles. “Chaturvedi took on a newly created role and was there for only four months before the announcement of his resignation. His departure will return the company to the experienced management structure that existed prior to his arrival. Thus the current resignation is unlikely to have much impact,” states Binit Somaia, Regional Director, CAPA.

By leaving early, Chaturvedi has done what many leaders would fail to do; he has left little scope to judge his performance! Losses increased by 135% yoy for the quarter ending December 2008, despite revenues increasing by 24.6% during the same period. But this can be attributed to increase in employee remunerations, fuel expenses et al. And Aggarwal did not stay long enough to judge whether he was good or bad for Jet. Problems for Goyal, meanwhile, have only compounded. Goyal also plans to lay off employees from different verticals in the name of cost cutting. Despite the failed experience in October 2008, Jet Airways plans to discharge the services of 50 foreign pilots and maintenance engineers over the next six months. “Stability in the top management is important at this time due to the need to ensure continuity of strategy,” avers Somaia of CAPA. And the current financial cyclone that has hit the sector hard is here to stay; thus the aviation major should hold on to its management team. It has been aptly said that all vision is futile if you do not have, or are unable to retain the right people on board. It’s time that Goyal pays heed to this advice, and soon!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Friday, December 07, 2012

RELIANCE RETAIL: RATIONALISATION

Reliance needs to engage with a global partner for its back end

“Reliance Fresh failed because it was too aggressive with its strategies and wanted to capture the entire market without leaving any space for the middlemen and local retailers,” points out a Mumbai-based retail specialist. Reliance had planned to establish its C&C business (which has attracted international big wigs like Walmart, Tesco, Carrefour, Metro AG, et al) in Tier-II cities. However, tough economic conditions demanded conservation of cash reserves, so that business was scrapped.

Winston Churchill had once said, “If you are going through hell, then keep going.” Indeed, Reliance must keep going, but wthout repeating the mistakes of its past. Quite logically, Reliance will have to cut the flab that it developed in such a short amount of time. The company is also mulling over international tie-ups for back-end support. That is a prudent strategy, which has served players like Bharti & Tata well. Outsourcing supply chain management is more cost effective and feasible, especially for a geographically scattered country like India.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Thursday, December 06, 2012

Wyzer or Pfyeth? (Whatever...)

Pfizer’s bid for Wyeth makes sense; but it suffers from the fundamental problem with M&As – high risk!

Abuyout offer? Nothing new about it... Recession? Again, not a new occurence... Now, combine the two and there you have your eyes opened, and wide! And here’s Pfizer proving why both can coexist, through its $68 billion bid for Wyeth. In the name of cost synergies, Pfizer hopes to save $4 billion annually in operational costs via streamlining of activities. But as researches over time have proven, most big-ticket M&As have failed to generate any synergy! So here’s the question – is the deal logical?

Pfizer faces a major challenge of new drug development as its patent for Lipitor (that contributed to $6 billion in FY2008) will expire in November 2011. And that gives a ‘real’ reason for the merger – revenue generation! Wyeth’s core competence is in R&D. About 350 scientists in its labs are solely working on the much-awaited drug formulae for treating Alzheimer’s disease that can become the next drug wonder for Pfizer (generating revenues up to $20 billion annually). Currently, every major drug company is working on a drug to treat Alzheimer’s, and Wyeth having already invested more than $1 billion in the same, naturally gives Pfizer an automatic lead. Then there are other drugs that would fall into Pfizer’s basket through the deal, like Enbrel (an arthritis drug) that earned $3.8 billion in revenues for Wyeth during 2008, Prevnar (pediatric vaccine) that generated $3 billion in 2008, Xyntha (a hemophilia treating drug) that could help garner $1 billion in 2009. Naturally, it is revenues that entices Pfizer more! Commenting on the deal, David Lugg, Credit Analyst, S&P, quotes, “The company will reap the benefits of scale and be able to reduce costs. But revenues look more appealing a reason...” Credit Suisse also upgraded Pfizer’s stock status from “Neutral” to “Outperform” based on the merits of the deal. (In fact, Credit Suisse had long recommended a deal between the two.)


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Tuesday, December 04, 2012

Where do you think you are going honey?!

As if the problems with global fuel prices weren’t enough, Kingfisher has gone ahead and undertaken strategies that only seem a do ‘and’ die effort. How is Mallya even sustaining the unbelievable losses quarter after quarter? B&E’s Shashank Tripathi and Angshuman Paul meet Vijay Mallya and other top Kingfisher executives and investigate...

We know why you stopped by this page [Surely, not because of your killing enthusiasm to understand complicated structural factors affecting the Indian aviation industry, huh!]. We call it the 3G of aviation. Glamour, girls and gizmos! Mallya was counting on the same three factors to ensure that passengers ‘stop by’ his airline. Well, passengers, like yours truly, did stop by in the thousands, but unfortunately, rather than striking the metaphoric gold, all that Mallya struck were three pathetic more Gs! Global fuel prices, government regulations and gadzillion godforsaken losses! Check the figures out! While the global aviation industry is expected to cross the $6.2 billion mark this year, the Indian aviation industry is expected to cross a loss of Rs.9,000 crore at the minimum, more than 33% of global losses. Forget forecasts, for the last financial year (FY07-08), the Centre for Asia Pacific Aviation (CAPA) has estimated the Kingfisher Airlines losses to be at a killing $500 million, or Rs.2,100 crore! If you add Air Deccan’s FY07-08 losses of Rs.834 crore to that, the combined loss comes to close to Rs.3,000 crore! That’s more than 33% of the Indian aviation industry’s losses!

When we met Vijay Mallya just a handful of months back, and had asked him the logic of such a business, Mallya had confidently parried, “I think other business leaders think of many strategies before investing into certain businesses; but for me, it’s just passion that drives me.” But really, can just passion make any group withstand such humongous and gut wrenching losses? Kingfisher’s Executive Vice President, Hitesh Patel, confesses to us, “We are just looking for survival first, and everything rest would follow.” It’s a serious question we ask now – Can Kingfisher Airlines really be sustained? Can it, in short, survive?

It’s not that such a situation suddenly crept up on Mallya. Various reports estimate that Kingfisher posted Rs.240 crore of losses in FY05-06, Rs.577 crore losses in FY06-07; and Air Deccan – India’s largest publicly listed loss making company – was never a profitable company in the near past!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Monday, December 03, 2012

In Defence of Capitalism

 Many of you might think I have gone bonkers for defending Capitalism at a time when financial cataclysm is creating mayhem across the world. After all, America symbolised Capitalism and it does appear as if Uncle Sam is being destroyed by Capitalism. You could say that it is de facto 'nationalisation' – the ultimate symbol of socialism – that is saving America from financial destruction and ruin. There is no doubt that without the Federal Reserve and the Treasury Department – both arms of the US government – the American economy would have collapsed by now. The titans of Capitalism – General Motors, Ford, AIG, Citi... – have gone to the American government with a begging bowl, pleading to be saved from the very beasts of Capitalism that they used to flaunt so proudly till recently. For all practical purposes, America has turned decisively socialist. Similar things are happening in Europe, Japan and other so called citadels of Capitalism. With all this as the factual backdrop, how can I claim that Capitalism is still the best option for economic growth, poverty reduction and overall prosperity? How can I make such a seemingly foolhardy statement when even drum beaters of Capitalism like Alan Greenspan are suffering from a spasmodic bout of Mea Culpa?

The answer is simple. In the rush to denounce 'Capitalism' and its wild excesses that have created this crisis, there is fundamental confusion over all important terms like Capitalism, Market, State and Regulation. What we have seen in America over the last two decades or so is not Capitalism in the classical sense; you could call it Crony Capitalism or 'Financialism'. American capitalism was triumphant when General Motors, General Electric, General Mills, to name just a few, were the standard bearers. America manufactured the best products, provided the best services and hence ruled the world economy. But then, it turned into 'financialism' where Wall Street rocket scientists kept creating bubbles and hoodwinking the world.

They were joined in the farce by credit rating agencies. And they deliberately fostered a lie that ''markets'' are always perfect and that the State and Regulation are relics of an old era. The problem was that vast swathes of the world bought this hideous lie. Regulation in America had become a joke over the last two decades, with the State and regulators brazenly siding with the fat cats. If regulation is absent or biased, then Capitalism loses its core essence. Imagine a game of cricket between India and Australia where Andrew Symonds is the Umpire. Something similar happened in America. And we are all paying the price. But please, do not denounce Capitalism and the market as the twin evils. They are far from perfect; but they still deliver the best results and will continue to deliver the best results as long as the players in the game of Capitalism are supervised by an unbiased referee who blows the whistle when there is a foul.


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

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Saturday, December 01, 2012

MARGARET ALVA: RESIGNATION

Alva's statement and resignation may start series of apprehensions

Following her charges, veteran Congressman and President of the party’s Scheduled Castes Cell, Yogendra Makwana said that the party should not sit idle over the issue and should look into the matter.

What was first looked at as an 'emotional outburst' has, after the remarks, from Makwana taken a different turn altogether. It shows clearly that there is apprehension within the Congress circle and if the leaders don't take the matter seriously, then it may set off a series of chain reactions. At this point of time, Congress is not ready for any such problem as the crucial Assembly Elections are nearby.

Many Congressmen may be saying that Alva's statements and her consequent resignation will not make any difference to the party, but it is worth noting that it has been a long time since a senior Congress leader has come against the party and taken some stand.


Source : IIPM Editorial, 2012.

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Friday, November 30, 2012

IRAQ: US IRAQ SECURITY AGREEMENT

To be able to maintain peace and security in Iraq, al-Maliki would need approval from the opposition

However, he can only bank on the endorsement of his own Dawa party and Kurdish bloc that have 27 and 58 seats respectively. Faction of rebellious Shia cleric, Muqtada al-Sadr, with 32 seats, resists the deal, whereas al-Maliki's Shia coalition partner, the Supreme Iraqi Islamic Council (SIIC), with 30 seats, is still sceptical of lending its support.

Talking to B&E on the withdrawal, noted Iraqi expert at Centre for American Progress, Sean E. Duggan said, “An indefinite US military presence will reverse the calculations of Iraqi opposition groups – most notably the Sunni Awakening forces and the Sadr movement – that have been critical in bringing about short-term security improvements. Therefore it is extremely important for al-Maliki to assure its approval.”

Muqtada al-Sadr also opposes any accord that would maintain US military in Iraq. And Shiite-dominated Iran, which exercises substantial sway among some Shiite parties, also opposes the accord. The support of other parties will also depend on Baghdad’s demand of getting authority to arrest and try Americans accused of crimes unrelated to official military operations. Looks like tough times ahead.


Source : IIPM Editorial, 2012.

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Wednesday, November 28, 2012

Livni affronts thorns

There are tremendous expectations from the new Kadima Chief; will she be a hawk or a dove?

In an election that may well decide what kind of news will we be reporting from west Asia in days to come, Tzipi Livni, Israel's outgoing Foreign Minister won the election for the head of Kadima Party and has started political manoeuvres to set pieces for the coalition government that she will lead as a Prime Minister. As final results were announced this weekend, Livni narrowly edged out her closest rival, Shaul Mofaz, the hawkish Transport Minister in Olmert’s government, by 431 votes. While Livni polled 43.1% of the popular vote, Mofaz had to contend with 42%. Nearly all the Exit Polls predicting a sweep for Livni proved wide of the mark.

A wafer thin margin is only first of several problems that Livni confronts. Her party, Kadima, has merely 29 seats in the 120-seat Knesset and in all probability, will need support from Labour Party that has 19 seats as well as other marginal parties, including the ultra-orthodox Shas, and the left-wing Meretz. Needless to say, even by the standards of the bedlam that Israel’s internal politics is, it will be a tough deal for Livni, whose own allegiance & ideology has changed several times during her brief career as a politician.

“It is a rather complex game for her,” says Reuven Pedhatzur, Political Analyst. “Each party will try to extract their pound of flesh for their support. It will particularly be interesting to see the role of Shas.” On the peace front, things will not be any easier for her. She shall have to deal with the thorny question of the status of East Jerusalem and a road map for the creation of a separate state for Palestinians – both anathema for Shas.


Source : IIPM Editorial, 2012.

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Tuesday, November 27, 2012

The dragon strikes gold again

China's oil deal with Iraq is opening doors for a future where it can sign deals on its own terms

While the outgoing government in US tries hard to make the world believe that it has done a world of wonders for Iraq and its people, China silently signed an oil deal with the Iraqi government, thus making new inroads to suffice its thirst for oil and providing doors for foreign investment in the region. The deal is an extension of the oil deal signed in 1997 during Saddam's rule and is the first international deal signed by the post-Saddam government. The $3 billion deal would provide China with oil for the next 22 years, who would then use it to generate electricity. The size of the deal can be estimated from the fact that it has been signed for the Adhab oil field in Wasit province and is expected to produce 90,000 barrels a day, renegotiated by the Chinese state-run oil company, China National Petroleum Corporation (CNPC).

The contract signed in 1997 was on a production-sharing basis but the present one is a service contract, under which China will not be a partner in profits and instead will be paid for its work. The revised deal seems to be on worse terms than the original one signed with Saddam but the CNPC is ready to take more risk than any other giant oil firm. This, says an energy security analyst, would be the ‘game changer’.


Source : IIPM Editorial, 2012.

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Monday, November 26, 2012

Screeeechhhh!!!

Interest rate hike and mounting inflation has put the brakes on the speeding auto financing industry in the country. Bad times be damned!

im O’Neill, Sandra Lawson and Roopa Purushothaman who had concluded (in their paper titled, ‘The BRICs and Global Markets: Car, Crude and Capital’) that India’s market growth will be rapid with the potential for a threefold increase in car ownership over the next 10 years, might once again have to redo their work and radically change their conclusion. Well, the reason for the reconsideration being the rising raw material cost, slowing credit & signs of economic slowdown. All of these have cast a dark spell on the sector which now seems to be bearing the brunt of the economic slowdown, as well as interest rates that are rising by the day.

Certainly, the last five months have been a bit wary for auto loan consumers. The interest rates on auto loans have been hiked four times in a row. This has forced the banks to cut down on their retail lending by about 15-20%. Further, given the tight monetary stance by the central bank and its advice to the banks not to overstretch themselves and keep lending in consonance with their sources of funds (limit credit growth up to 20%), the banks’ margins have squeezed. Hence to maintain their profitability, they are left with no option but to revise their lending rates. With inflation (currently pegged at 12.44%) continuing to surge, a cut in the interest rate is unlikely in the near term and volumes are likely to remain under pressure. So much so that the current interest rates on auto loans which hover around 15.5% have had a direct impact on the buying behaviour of consumers. Sadly, these high interest rates (on the part of the financers) and lower buying sentiments (on the part of the consumers) will continue to negatively impact the demand for vehicles.


Source : IIPM Editorial, 2012.

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Friday, November 23, 2012

EU PRESIDENCY: FRENCH CANDIDATURE

Sarkozy seems to be more of loose cannon than one bargained for

With such chaos, Sarkozy will have tough times ahead. Talking to B&E on the issue, Philip Whyte, an expert on EU politics at Centre for European Reform, said, “He continues with the French tradition of finding scapegoats. He has accused the ‘Polish plumber’, the Chinese currency, Anglo-Saxons – all external scapegoats – for the misery of EU. He is on the verge of being dismissed as a cynic by sensible European leaders.” Tough luck. It is in all probability expected that other EU governments will make sure that the ever more protectionist and populist propositions from Sarkozy are resisted.

An added French objective is to forbid coverlet protection for unlawful immigrants. Italy and Spain have legally recognised hundreds of thousands of black workforce in recent years, effectively changing the black economy into dynamic taxpayers. Even if France is triumphant in forbidding immunity, the migrants will keep pouring in – only they’ll stay put in the black economy, where they are more probably to be subjugated. Sarkozy had hoped that at least one day he could be in the news devoid of Bruni! Voila, his wish seems to have been granted!


Source : IIPM Editorial, 2012.

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Thursday, November 22, 2012

Green to the gills?

Here’s B&E’s lowdown on how to walk the ‘green mile’ without losing your way!

Nothing in the last few years has gained so much prominence the world over as much as global warming and climate change have, so much so, that from the food we eat to the clothes we wear, and from the cars we drive to the houses we live in, everything has been re-engineered and redesigned to make it more environment friendly.

But all this noise has also led to confusion in the minds of many. Just the other day I caught up with a friend who is ever so determined to reduce her carbon footprint. She drives 20 kms to this shop that sells organic food when she could easily buy inorganic food from the neighbourhood store, or better still, order it over the telephone just so she could do her bit for the environment. Usually the one to have all the answers, she asked, “Should one buy organic vegetables produced in far away places or inorganic stuff grown nearby?” Now that’s probably getting too deep into the matter, I thought. But if you belong to the school of thought that thinks that the whole deal gets a little confusing at times, there are simple things that could make a difference. Information overdose has had the most conscious of people confused. That said, we do have a problem at hand and a little thought is all it’ll take for us to make a difference.

So, how much is enough and what should be an individual’s contribution to achieve a meaningful result? According to Greenpeace, Reduce: The next time you buy something ask yourself whether you actually need it. Reuse: Unfortunately, we’re all part of a consumerist society. We go for a new and improved version of a product even if the one we already have works just as fine.


Source : IIPM Editorial, 2012.

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Wednesday, November 21, 2012

BARACK OBAMA: PRESIDENTIAL CANDIDATURE WIN

Barack Obama has won the battle. Will he also be able to win the war?

The mad last-minute rush of Democratic super delegates and results from the final primaries in Montana and South Dakota, handed Obama the 2,118 delegates victory.

Son of a black Kenyan father and white Kansan mother, Obama has made history by breaching America''s mightiest barrier – that of race. And thus naturally, the word "respect", found deep resonance in almost all of his moving speeches – plus the fact that Americans weren''t nearly as dumb as the world believes them to be.

Most observers feel Obama will easily overcome the conservative challenge from McCain – the general perception being that the latter will simply carry on the policies of Bush. No matter how vigorously McCain attempts to trash this by distancing himself from Bush – and, yes, by emphasising his own breadth of experience and Obama''s lack of it – it is clear where the die is cast. Said McCain in one of his scores of vapid, colourless speeches, "The American people didn''t get to know me yesterday as they are just getting to know Senator Obama." But maybe the American people just didn''t want to ''get to know'' McCain; and as they were "getting to know Obama", they liked what they saw and heard: a sane voice after two seemingly interminable spells of self-destructive Republican paranoia under President Bush!


Source : IIPM Editorial, 2012.

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Tuesday, November 20, 2012

Kemal’s secular fundamentalists

Turkey is increasingly being pushed towards a new kind of extremism

When Mustafa Kemal Ataturk established modern Turkey, he envisioned a nation free from all kinds of fundamentalism, including “Islamism” and “Turkishness”. Perhaps he never knew 90 years hence, some of his followers will push it towards a completely different kind of fundamentalism, best described as militant secularism. In what may seriously damage political stability in West Asia, secularists or Kemalists, as they are called, are in the advance stages of banning the ruling party!

The ruling party's decision to lift a ban on female students wearing the Muslim headscarf at universities was seen as a catalyst for the closure case, the indictment for which is packed with references to the headscarf. A couple of months ago, the Constitutional Court had accepted a case by the Court of Appeals’ Chief Prosecutor, who sought closure of the AK Party.Appeal’s chief prosecutor also wants as many as 71 members of the AK party banned–that includes President Abdullah Gül and Prime Minister Tayyip Erdogan–over charges of “breaching Turkey's constitution by supporting Islamist activities.”


Source : IIPM Editorial, 2012.

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