The story continues...Microsoft and Yahoo

From Bloomberg.com: U.S.:

"Microsoft Corp., the software maker that scrapped a $47.5 billion bid for Yahoo! Inc. this month, may forge a partnership with the Internet company on search advertising to challenge Google Inc.

Microsoft, which abandoned its takeover attempts May 3, said yesterday that it's exploring a transaction with Yahoo and may renew attempts to buy the entire company. The two may combine units that sell ads that run next to Internet search results, said Morningstar Inc. analyst Toan Tran.

Billionaire investor Carl Icahn is pressuring Yahoo to ally itself with Microsoft to compete with Google"

From a teaching perspective, this one just gets better and better. Stay tuned.

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

"CBS’s $11.50-per-share deal for CNET seems expensive by at least two measures. Its 45 percent premium is unusually high, and Mr. Bazinet of Citi calculates that the price is 18 times CNET’s projected 2008 Ebitda, above the multiples recently paid for Bankrate (12 times Ebitda) and WebMD (14 times)....And on the question of price, CBS said it believes that the deal will have an internal rate of return of 13 percent and will not have any effect on its dividend, which it just increased last quarter."

Given the weeks and weeks we spend on valuation and is close cousin capital budgeting, I thought my students might like to see some of the things are actually used ;)

Text of Icahn’s Letter to Yahoo Board - New York Times

This is good. Yet another case of "this will be used in at least some classes!"

Text of Icahn’s Letter to Yahoo Board - New York Times:

"It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company"

Does anyone know of anyone writing a case on this? I would like to but don't want to reinvent the wheel.

FT Alphaville » Blog Archive » More than you (may) need to know about commodities hedging

This one will definitely be used in class. From the Financial Times.

How will it be used in class? For instance, the story starts out saying more are hedging now after prices have risen (like closing the barn door after horses have escaped?). It also talks about how much and what type of hedging is currently being done.

FT Alphaville » Blog Archive » More than you (may) need to know about commodities hedging:

"Airlines and other transportation companies are much more active than other energy commodities consumers when it comes to hedging using financial instruments, with nearly 65 per cent of their total exposure hedged in this way. In comparison, the typical industrial company uses financial instruments to hedge just over 40 per cent of its exposure, and utilities hedge an average 48 per cent.

In carrying out their financial hedging strategies, slightly more than 70 per cent of the survey participants said they use OTC swaps. Just over half use OTC options and roughly a third use structured derivatives. Fifty-eight per cent of the companies also say they actively trade physical products with dealers.

Across all industries, hedging strategies vary widely in terms of sophistication and approach, notes Greenwich. Many participants in the 2008 survey said they have no actual hedging policies at all or carry out their hedging through a largely subjective process. Others, especially airlines and oil companies, use advanced formulaic strategies to hedge individual commodities exposures and make strategic decisions about hedging policy at the board level."

Foreclosures take an emotional toll on homeowners - USATODAY.com

We often talk about emotions affecting finance, this reminds us that the causation goes both ways. Folks it is just money. Definitely not worth killing yourself over as some in article have done.

Foreclosures take an emotional toll on homeowners - USATODAY.com:

"One in seven homeowners worry that they won't be able to make their mortgage payments on time over the next six months, according to an April Associated Press-AOL Money & Finance poll, and more than one-quarter fear their home will decline in value during the next two years.

ComPsych says financial concerns are now the top issue the firm's counselors are hearing in calls from clients. Calls about financial worries have surged 20% over last year; those related to mortgage problems have doubled.....

'The problem affects the whole spectrum, not just people losing their homes,' says LeslieBeth Wish, a psychologist and social worker in Sarasota, Fla. 'The stress exacerbates what is already there. It brings to the surface problems that were often already there, like marital problems.

Icahn Is Said to Weigh a Proxy Fight at Yahoo - New York Times

Maybe it is not over? Icahn is reported to own 50 million shares (over $1 Billion worth).

Icahn Is Said to Weigh a Proxy Fight at Yahoo - New York Times:

"Carl C. Icahn, the billionaire investor and activist shareholder, is considering a proxy fight for seats on the Yahoo board in hopes of pushing the company to restart talks to sell itself to Microsoft, people who have held discussions with him said on Tuesday"

Supposedly Microsoft is not interested.

"He has also inquired at Microsoft, through various friends, whether he could help bring that company back to the negotiating table, these people said. He has received little encouragement, these people said, because Microsoft has insisted that it has “moved on.”"

The stock is up quite a bit on the news, so it's either idle speculation or there may be something there.

Real estate market is also pretty tough to beat!

It appears beating the market in a risk adjusted basis may be almost as difficult in Real Estate as it is in the financial markets.

Penn State Live - Study: Only select group of property fund managers outperform market:

"...'Maintaining consistently high levels of alpha is incredibly difficult for most fund managers to achieve, however, one feature that we did note is that mangers using a value strategy appeared better placed to deliver high alpha in subsequent periods.'

Mitchell adds: 'Doing things differently from, instead of better than, your peers seems to be the key. It will be interesting to see how the 'beta' investors' strategies evolve in a world where market exposure can potentially be attained cheaply through property derivatives.'

While the researchers examined property funds in the U.K., Bond says he would expect the results to be similar in the United States."

The full paper is available here.

A look at the housing crisis

NPR's This American Life: : had a very interesting audio look at what caused the problems and how the problems spread to impact investment banks and other Wall Street investors.

This American Life:

"A special program about the housing crisis. We explain it all to you. What does the housing crisis have to do with the collapse of the investment bank Bear Stearns? Why did banks make half-million dollar loans to people without jobs or income?"

Thanks to Nate O for pointing this out to me.

Jeffrey Sachs on the credit crisis, climate change and overpopulation - Telegraph

Jeffrey Sachs on the credit crisis, climate change and overpopulation - Telegraph:

"Poverty and a billion starving people in Africa? Whisked away like dust. Overpopulation and water shortages? Waft, waft. Global warming and climate change? A little brush and they're gone.

It would all seem rather utopian did Sachs not share that Clinton/Blair-style knack of making almost anything seem completely do-able. Unlike so many economists, who tend dismally to explain why things will fail and why good intentions almost invariably go to waste; the Columbia man is Professor Optimism."

Long term readers will remember I have long been a fan Sach's ability to see the big picture. He has his detractors for sure, but he is one of the biggest players in the world economic forum.

Buybacks seem to deter takeovers.

Newswise Business News | Researcher Finds Good Management, Open Market Stock Buy-backs Deter Takeover Attempts:

"Firms that buy their stock back on the open market are seen as more efficient and more sensitive to shareholder interests,” said Matt Billett, professor of finance in the Tippie College of Business. “It’s a sign of shareholder-friendly management.”

Billett recently studied more than 23,000 U.S. companies to determine whether open market share repurchases deter takeovers. What he and his co-author found was evidence that, for the first time, verified the conventional wisdom that, indeed, they do.

“While tender offers have been shown to act as an effective defense in the midst of takeover battles, open market repurchases may deter unwanted bids, pre-empting would-be acquirers from bidding in the first place,” Billett said"

Very interesting. Will definitely find its was into class. A working paper version of the actual paper is here.

Is it over? Microsoft pulls bid

From the NY Times:

"Microsoft said Saturday that it was abandoning its blockbuster bid to
acquire Yahoo after it raised its offer by $5 billion but Yahoo rejected it as
still too low.....

“Despite our best efforts, including raising our bid by roughly $5 billion,
Yahoo has not moved toward accepting our offer,” Mr. Ballmer said in a
statement. “After careful consideration, we believe the economics demanded by
Yahoo do not make sense for us, and it is in the best interests of Microsoft
stockholders, employees and other stakeholders to withdraw our
proposal.”....The breakdown in the talks is likely to send Yahoo’s
shares plunging, and Mr. Yang and his team will have to decide how to placate
investors."

Stay Tuned

Higher Offer by Microsoft Brings Yahoo to Table - New York Times

Higher Offer by Microsoft Brings Yahoo to Table - New York Times:

"According to the people involved in the talks, Microsoft suggested it was willing to pay more than $33 a share. Yahoo is still holding out for at least $37 a share, these people said. These people were not authorized to speak publicly because the negotiations were confidential."

Will it work? Who knows, but the article does include this forecast:

"But a deal was still far from certain. A person involved in the discussions said the chances of a friendly deal being reached were “still no better than 50-50.”"

Junk Bonds, Mortgages and Milken - New York Times

There is almost no chance of me not posting an article on Milken. While far from perfect, the US economy still owes him a large debt for his role in the creation of active public debt markets for low and unrated firms. What it did was to help force management to look out for shareholders, else face the consequences of a possible takeover.

Junk Bonds, Mortgages and Milken - New York Times:

"Critics who compare the subprime debacle to the bubble in high-yield, high-risk corporate bonds that Drexel helped inflate two decades ago are “people who don’t understand markets very well,” Mr. Milken said. He suggests that “their rationale is that both types of financial instruments are risky.”

And he says junk bonds, or those rated below investment grade, “have little in common with mispriced subprime mortgages,” which he says are the real culprits."

Yeah I know, insider trading changed the way history will look at him, but we should not forget his contributions. (no one is all good or all bad.)

The Midas of Misery

Whether you call them value investors, or contrarians, vultures, or just good opportunists, some people do make money (and lots of it) in down times.

The Midas of Misery:

"Falcone is a Midas of Misery. With $19 billion—nearly 760 times the grubstake he started out with seven years ago—he is snapping up troubled assets in bankruptcy, shorting distressed bonds, and using huge stock positions to agitate for change at underperforming companies. His holdings read like a who's who of market castoffs: media companies, utilities, and steelmakers. Last year Harbinger netted $11 billion, thanks in large part to Falcone's gutsy bet against all things subprime. His personal windfall of $1.7 billion made him one of the highest-paid hedge fund managers in 2007."

Thanks to Carrie M for pointing this one out to me.