TPG & GS Capital Groups nab Alltel

Why wouldn't they? Alltel had an excellent balancesheet for last three years and built a huge customer base at the same time. Alltel price tag is $27.5bil. That is a very good price for the current investors, as they had a very good run in last five months (> 25%).

Current Market conditions are like 'Merging of the Titans'. Or for lack of better term 'Clash of clouds', creating unbelievable amount of wealth and value propositions. Texas Pacific Group (TPG) and Goldman Sachs (GS) are the two private Capital groups participating in the acquisition of Alltel Wireless @ $71.50/share over 385 million shares amouting to a whopping $27.5 bil.

One must ask, "Now why would they do that?". The answer is two-fold. One being that these capital groups built enough cash reserves over last 4 years (2002-2007) of, Dow Jones running from 9000 to 13000+. TCB, made up of Oil wigs from Texas with over $30 bil capital and god knows how much GS Capital is sitting on, definately few tens of billions of dollars. Now with this much cash under belly, what would be that best place to invest, that can give (a) A Tangible asset that grows in the future and (b) An investment that can give sustainable returns or ROI.

Second part of the puzzle is to do with Alltel Wireless. If you observe the Alltel income statements from last three years, you will see that They have delivered a steady $4 (Total $1.2bil) per year on a $50 stock (Total 385 million shares). Now that is 8% year over year returns, let alone the increase in stock price. That is about dividends.
Assets went from $16bil in 2004 to $24 bil in 2005 to $18 bil in 2006. The fluctuations in these numbers are due to the fact that Alltel significantly decreased its inventories during fiscal 2006. You know what it means, don't you? Alltel is a wireless company. Decrease in inventories amounts to deployed network equipment and sold wireless units. What does that mean? Money, Money, Money. Means more people signed up for Alltel service and Alltel is going to bump up its revenues/profits.

Last but not least, outstanding debt. Alltel debt has gone down from $10bil in 2004/2005 to $5bil in 2006 and as low as $2.6bil in last 3 quarters. What tells is Alltel has significantly increased its margins to a level where it can deliver same dividents while reducing debt dramatically.

I think TCB and GC capital groups made the right decision. Based on the reports they are making $23bil debt to made this deal. Means they are investing a mere one billion dollars. The rapid rate at which Alltel is wiping off its debt, it might just be 5 to 8 years before all the $23bil is paid off. So for the TCB & GC what else can make this kind of money? Definately not wobbling Dow Jones ballon.

Cheers...

Can Microsoft beat Google with aQuantive?

Vs.





The answer is NO.

There is a saying in ancient indian culture. Cat saw tiger and burned itself with a hot iron rod to look like Tiger with stripes. Microsoft is trying to do the same with Google.

Google is a true champion. It follows the philosophy of, get good at one and you can follow the same in other areas. When Google entered Search market, it was not alone. MSN, Yahoo, Altavista and many more. Google's motto was KISS, Keep It Simple Stupid. It got into consumer good books and anything and everything that Google does is looked at carefully and respectfully.
The key to consumer facing product is Simplicity and End User Perception. Google got both of them right in its first attempt. Google search was the best. It is simple and it has got reputation. I started using google when a friend of mine told me about it. Once it beefed up revenues in Advertising, Google knew what to chase after next, Microsoft's Market in a service oriented model. (Desktop Apps, Email, Messenger)

Microsoft is a different beast. It is kind of legacy compared to Modern day jewels like Google. Microsoft made all its money by selling products, unike Google. Now with world wide adoption of its products, it is still expanding its market. But with increasing competion from MAC & Linux and pressure to enter into new markets before its competition does, have been constantly bothering Microsoft, forcing it to make the decisions like TellMe and aQuantive acquisitions.

I Agree that aQuantive has built up a good business model and cash flow positive. Its advertising technologies are really cool. Biggest problem is the adoption. I do think there is atleast a window of year to two years before anyone starts adopting these technologies. That gives Google the time they need to come out strong in that area.

I think it is long ways from here for Microsoft to beat Google in online advertising market with this acquisition. Here is why: For the Quarter ended March 31'2007, MSFT online services business lost $200 million on $623 million revenues. For the same time Google gained $1 billion on $3.7 billion revenues. aQuantive made $14.2 million on $143 million revenues. A drop in a lake.

So in conclusion, i think Microsoft is trying to create/build a Market base for Service oriented products for itself. Time will be the judge on the outcome.

Cheers...

Cerberus buys Chrysler & Dolans buy Cablevision

Cerberus Steals One from Magna

It is been reported that Cerberus bought Chrysler from DaimlerChrysler. Cerberus, a Capital management firm, known for its cost cutting measures is going to work with Chrysler Group to bring it to next level of auto makers. Inheriting a whopping $17bil in employee retirement packages might seem little odd on top of sized price tag of $7.4bil for the Chrysler assets. But looking at the $36billion deal made a decade ago by Daimler for buying Chrysler, $24.4bil (17+7.4) is not too bad a deal. Especially considering where chrysler brand is now comparing to a decade ago.

Chrysler has created a rich lineup of branded cars like Town & Country, Sebring, PT Cruiser, Pacifica and Aspen. Leave alone its convertible types. I must say there is a profound effect of Daimler and its well known brands like Mercedez in Chrysler lineup. I have no doubt in my mind that Cerberus made a very good deal and is going to reap the benefits in times to come.

For poor Magna International, Chrysler had become a dream that never turned true. Magna was the leading/lone suitor for Chrysler. Magna founder Frank Stronach had a long term ambition to become a bigger player in the global automotive business. His first bid was Chrysler. Intentions were right, timing not.

This reminds me of Cablevision acquivision by Dolans family (Jim Dolan is the CEO of Cablevision that owns MSG, Knicks, NHL Rangers and cable infrastructure in NYC). In 2006, the Dolans offered $27 a share for Cablevision, whose shares were then trading for around $24. The offer was rebuffed, resulting in a $30 offer in January. By this time stock climbed up to $27. Finally Dolans understood the classic mistake they were doing. When it looks right, sounds right go for it. Having so much interest and confidence in Cablevision, Dolans should have made a leap forward and offered $30/share that Cablevision board was demanding in 2006. That would have saved them $4bil ($22bil @ $36/share vs. $18bil @ $30/share). Dolans paid 17% premium for a decision made few months late.

Cerberus did it right first time beating Magna from getting into Dolans scenario.

At the end of the day, i give 10 out of 10 to both the Cerberus and Dolans on their deals as far as correct first step is concerned. As far as their success is concerned, time will tell.

Cheers...