Monday, August 30, 2010

Cisco rumored to acquire pre-IPO Skype for $5 billion in cash

Cisco is rumored to have made an offer to acquire Skype before they complete their IPO process. Skype has filed for an initial public offering early this month, setting up what could be one of the biggest technology IPOs of the year.

Having launched its own Google Talk service to compete with Skype last week, Google is also rumored to be sniffing around Skype, but antitrust would be a big hurdle to overcome. Skype’s IPO documents say it plans to raise up to $100 million in the offering but the resulting equity value could be in the billions of dollars. To intercept an IPO Cisco would have to pay up a significant premium.

Last year Ebay sold Skype after a series of legal disputes between Skype’s management, its founders and Ebay. In the end, Ebay received $1.9 billion for the company and retained a minority stake, much less than the $2.6 billion it paid for the company in 2005.

Skype has registered users rose to 560 million but mostly it has been a free service with about 8 million using the service and paying for about $100 a year. I have been a paying member of the service for 10 years recommending it to all my friends. It is one of those tools that makes the world even more flat. Skype, which last year became the largest carrier of international calls, generated in the first half of this year about $400 million in sales and net income of just $13 million.

Stagnant hardware titan Cisco is flushed with cash but it needs more acquisitions to beef up higher margin services business.  The Akbas Post has signaled a new wave of services M&A activity back in April this year. Cisco already offers telephony services branded Webex but it does not have the global reach of Skype. However this move would put Cisco in direct competition with its own corporate customers.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Saturday, August 28, 2010

3Par bidding madness between HP and Dell: Six lessons from two emotional dealmakers

HP on Friday topped Dell’s offer for 3Par for the third time in a week, offering $30 a share in a bidding mania prompted by strategic ambitions that pushed the price well beyond ordinary valuations.

The latest proposal came hours after California-based 3Par had accepted a sweetened offer of $27 from Dell, matching HP’s previous bid made on Thursday.  Dell had no immediate reaction on Friday to HP’s last bid as it weighed whether to match it yet again. 3Par shares closed up 24.7% in New York to $32.46 as speculators bet that the battle would continue.

So regardless of who the ultimate winner will be, there are already some painful lessons for both vendors as well as dealmakers of the high-tech world:

1. Never bid out of emotion, you make it a winner by buying low. The latest offer valued 3Par, which is unprofitable, at $2 billion reflected both longtime rivals' irrational dealmaking approach to keep each other from winning 3Par. The bid equates to 95 times 3Par’s forecast EBITDA and about 9 times forecast sales for 2010. The bidding war for 3PAR is the most recent competition between the Dell and H-P, which have long battled over personal computer sales. Look at Oracle and IBM who are both disciplined buyers. Oracle paid about 0.6 times sale for Sun last year in down market. If a deal feels irrationally expensive, it must be. Walk away. Don't drag it out too far.

2. Always have a long shopping list full of alternatives. 3Par might be the golden jewel in the enterprise cloud storage segment but there are other alternatives such as Compellent Technologies and CommVault. Ideally approach targets and ask for exclusivity up front. In case you are not granted, pursue multiple targets in parallel and let them know you are doing so. No should be irreplaceable in good dealmaking.

3. Start and close the deal quickly, run as fast as you can. It is my understanding that there were initially at least four vendors in the sale process including Oracle, NetApp, HP and Dell which kicked off a few months ago. Given the small size of the target, M&A teams should be able to negotiate to sign a Share Purchasing Agreement (SHA) in 45 days or less.

4. Insisting on inorganic growth against bigger, deep-pocketed competitiors is expensive. Have a robust scalability strategy that includes organic growth through commercialization of home grown technologies too. Always keep your development and engineering teams in competition with M&A opportunities to accelerate your time-to-market performance. HP is ahead of Dell as both race to become another IBM, offering enterprise services and a wide range of hardware and software that make it an effective “one-stop shop” for technology buyers overwhelmed by the process of assembling everything themselves. Both hope to make storage a bigger part of their suites desperately beefing up their higher margin services business. In 2008, HP bought outsourcing firm Electronic Data Systems to expand its services business. A year later, Dell acquired Perot Systems so it too could get into services. Both have also poached one another's executives and looked to the same markets for future growth.

5. Partnerships and alliances can work just as well as acquisitions. If you have a robust growth strategy, teaming up with strategic vendors that have complementary technologies, products, distribution channels and customer base may work more effectively and affordably depending on your goals and desired time frame for the agreement. I have made deals where we started off with a strategic alliance and two years into the agreement, we ended up buying the firm, uncontested of course. For example, both Dell and HP may be nervous about Cisco Systems’ aspirations in the enterprise market. Instead of buying firms, Cisco has formed a joint venture with EMC, the leading, independent storage company. Dell currently OEMs high-end storage area networks (SAN) from EMC and hopes to own its own rather than helping its arch rival.

6. Make sure you have a convincing story for your shareholders. Everything you do must make economic sense to your board and ultimately to the shareholders. Whoever ends up winning 3Par would have tough time coming up with a synergy justification of the deal with heavy cross-selling and upselling of 3Par technology in the big house in a relatively short period of time.  Regardless of who ends up acquiring 3Par,  the winners are 3Par employees and shareholders as well as the bankers and lawyers involved.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Friday, August 27, 2010

Dell matches HP’s $1.8 billion bid for 3Par

Dell, in the rapidly escalating bidding war over 3Par, has sweetened its bid for the data storage company to $1.8 billion matching last night’s rival offer from Hewlett-Packard. In my opinion bidding war for company that has yet to deliver profits has become such irrational maddness that neither vendors are acting on the best interests of their respective shareholders.

According to media, Dell said 3Par had accepted its new bid of $27 per share, which is up 10 per cent from its last offer. The new Dell deal comes hot on the heels of HP’s tender offer on Thursday to buy all outstanding shares of 3Par for $27 per share in cash. Last week, Dell had offered $18 a share for 3Par, which makes high-end storage systems and data management products used in “cloud computing”.

3Par shares rose 9.4 per cent in premarket trading on Friday to $28.50 in anticipation that the bidding war for control of the computer group has further to go. The latest salvos value 3Par, which has yet to turn a profit, at $1.8 billion, net of the company’s cash.
HP is more than four times the size of Dell by market value, but both companies have ample cash to keep bidding. The competition over 3Par underscores the importance of data storage and analysis as big businesses shift towards “cloud computing”, where information is housed remotely rather than on users’ computers. This is an attractive and emerging part of the services market and both hardware vendors are desparate to scale up a services franchise.  Dell Services is far behind HP and IBM in terms of scale anbd breadth of its portfolio of offerings. There are not too many firms available in the enterprise storeage space particularly with cloud computing capabilities.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Thursday, August 26, 2010

Dell comes back with higher bid for 3Par. Is bidding war over?

As reported by this blog yesterday, Dell increased its offer by 35 per cent for 3Par, escalating the bidding war with Hewlett-Packard for the data storage company.

Dell said that 3Par had accepted its new cash offer of $24.30 a share, which values 3Par at $1.6 billion. Dell made its initial $18 a share offer earlier this month but was trumped by a higher bid from rival HP. Dell maintained on Thursday that data storage was at the forefront of its strategy to provide better and cheaper offerings to its data centre customers. Dell is far behind HP and IBM in enterprise services and has been acquiring companies with significant premiums. Dell should have difficulty however justifying such premiums to its own shareholder that should look beyond this deal into the sustainability of Dell Services.

Global dealmaking in the sector has risen by 60 per cent this year, according to Dealogic data, even as market volatility and ailing confidence in the economy has helped stifle an M&A recovery in some sectors.

That resurgence has been led by the US, where deal volumes have almost doubled relative to 2009 because of big transactions, including Intel’s move last week to buy McAfee for $8 billion.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Wednesday, August 25, 2010

Dell to increase its bid in battle for 3Par as early as tomorrow

According to Financial Times article today, Dell is preparing to make an improved bid within days for data storage company 3Par that is “competitive” with Hewlett-Packard’s rival $1.6 billion offer, according to people with knowledge of Dell’s plans.

Dell’s new offer is not expected to be dramatically higher than HP’s bid, which topped Dell’s initial $1.15 billion approach a week earlier; HP said it would pay $1.6 billion, or $24 a share, for 3PAR, which makes high-end storage systems and data management products that help reduce power and energy costs for companies storing information. The offer represents a 33% premium above the $1.15 billion bid that Dell made the other week. HP said the acquisition of 3Par would accelerate its “converged infrastructure” strategy, which helps its customers organize their servers, data storage and networks on one platform. Dell on the other had has been late to the enterprise services, desparately overpaying for obvious acquisition targets to catch up with IBM and HP

In a regulatory filing on Tuesday, 3Par said that HP’s $24-a-share bid was “reasonably likely” to be deemed superior by its board to the previous Dell bid. The data storage company is expected to meet HP today and provide it with confidential information as the two sides explore a possible deal.

Only after such a deal is reached would 3Par formally tell Dell that it had been trumped, giving the Texas-based computer- maker three days to respond to the move.  A person working with another party in the bidding war said that he was surprised that Dell was moving so quickly, because 3Par’s filing did not by itself start the clock on the three-day period. But one person with direct knowledge of Dell’s plans said the company did not plan to wait for the triggering event. “The clock is running,” the source said, adding that Dell could counter by Thursday.

HP has more cash and cash equivalents than Dell but with $15 billion and $11 billion, respectively, both could easily afford to buy 3Par.

Dell is following HP’s expansion into services and is increasing its foray into smartphones. Although HP is a better fit for 3Par, with a broader set of offerings for big business customers and a larger sales force. I tend to believe Dell might need 3Par more than HP would. HP has lost its chief dealmaker which could hamper their ability to keep bidding up and move swiftly. Similarly, last year EMC and NetApp went back and forth several times for storage software maker Data Domain, which EMC - the orginal bidder - eventually acquired.

3Par is seen as a leader in data storage and management tools, which are increasingly in demand as large companies turn to cloud computing. The new architecture is moving data away from desktop PCs and local servers to remote locations.

Customers need access to that data from a variety of places and devices. They also want to perform more analysis on the information and do so without spending a great deal on power consumption and other operating costs.

Dell has already completed one big deal in data storage with the acquisition of EqualLogic. HP’s purchases in the sector are not on the same scale.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Symantec: Intel-McAfee merger may force to sell

Symantec, a security and storage software vendor in Mountain View, California, may feel pressure to sell following Intel’s announcement that it would purchase McAfee. Intel, a chipmaker with a monopoly on processors for the PC industry, announced that it would enter a new business by purchasing the a security software provider for $ 7.7 billion.

This is now leading to widespread speculation that others in the security space could find buyers in unexpected places. Symantec’s stock has been going up on merger speculation.

The company is rumored to be considering a split of its storage and security businesses, may be especially vulnerable to a takeout as it competes with the much larger McAfee following the Intel integration. Symantec buyers could emerge from the likes of IBM, Microsoft, or Hewlett-Packard as they experience a shifting technology landscape and a squeeze on the PC sector.

Intel agreed to purchase McAfee, though the chipmaker “knows nothing about the security business,” because the world is moving from personal computers to mobile devices, which require simpler processing than Intel’s famous x86 chips. Intel was squeezed, and it has a ton of cash. Dell, a maker of laptops, is also squeezed, and the banker noted that it agreed to purchase 3Par, a developer of virtualized storage arrays, for $1.15 billion last week to diversify. Only to find out few days later, HP offered 33% premium to Dell's bid.

Symantec is in the early phases of considering a split of its storage and security businesses because the two divisions lack synergies, and storage drags down Symantec’s trading multiple compared to peers. If Symantec should decide to sell, it’s easier if the storage and security become separate companies, unlocking the hidden shareholdr value from both businesses.

Symantec’s market capitalization is $10.6 billion. It recorded flat revenue of $1.4 billion for the quarter ended 2 July 2011 compared to the same quarter last year. Net income more than doubled to $161 million per share from $74 million the prior year.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Open Text could find fewer acquisition opportunities. Are they a takeover target?

Open Text, the Waterloo, Ontario-based software company, could find it harder to locate suitable takeover candidates, reported the National Post.

Mike Abramsky, an analyst with RBC Capital Markets, said in a research note cited in the newspaper's Report on Business section that Open Text could during fiscal 2011 find fewer acquisition opportunities available, which could hamper efforts to grow value.

Open Text is one of two largest independent Enterprise Search and Content Management companies along with Autonomy. Both have been struggling organically given the worst economic cycles in enterprise software spending but also aggressively growing through acquisitions to consolidate the sector while also reaching critical size to become a meaningful takeover candidate. It is rumored that Oracle, EMC and SAP would be interested in OTEX. However, industry insiders surprisingly talk about Autonomy, the UK-based enterprise software group announcing a large acquisition soon, citing Open Text, the listed Canadian software company, as a possible target.

Given the firm’s rich valuation, Autonomy’s buying OTEX would make sense. Autonomy’s own story on paper sounds great: Class-leading IDOL technology with multiple vertical applications; defensive end-markets such as government, very high margins, impressive earnings growth and a strong balance sheet. However, I believe there are plenty of reasons to believe that the reality may not live up to the spin from the management. If Autonomy ends up acquiring OTEX (which is an acquisition machine itself with about the same size), I would stay away from the stock until the dust settles….because this would be just too big to swallow…almost two drunk men trying to stand still by leaning against each other.
Tell your colleagues your first heard it on and follow @TheAkbasPost

Tuesday, August 24, 2010

Intel acquired McAfee. Could Symantec be next?

Last thursday, Intel Corporation has entered into a definitive agreement to acquire McAfee, through the purchase of all of the company's common stock at $48 per share in cash, for approximately $7.68 billion.
Symantec the Mountain View, California-based security company that has been facing speculation it could be a target, can add Cisco Systems to its list of potential suitors, the San Jose Mercury News reported. The report cited Brent Thill, an analyst at UBS Investment Research, who said some of the big tech companies including Cisco could move to try and buy Symantec in light of Intel’s bid for McAfee. A previous report named Oracle, HP and IBM as potential suitors for Symantec. Symantec has a market capitalization of $ 10.9 billion.

We believe the McAfee acquisition should drive interest back into other software acquisitions targets in addition to many software deals you have been reading on The Akbas Post. For security software specifically, the Intel-McAfee deal does not necessarily spark renewed interest in the group. Intel is not

immediately competitive with others building out data center footprints, like HP, IBM, Oracle. Hence, we’d expect these companies to prefer a partnership route with larger vendors such as Symantec, rather than an acquisition. If they were to become more interested in security, Check Point Software would have to be on the list. However we’d expect the Intel move is more focused on system security, where Check Point Software does not have a strong position.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Monday, August 23, 2010

Bidding War - HP to Counterbid $1.6 billion for 3PAR, 33% More Than Dell

Today, HP said it would pay $1.6 billion, or $24 a share, for 3PAR, which makes high-end storage systems and data management products that help reduce power and energy costs for companies storing information. The offer represents a 33% premium above the $1.15 billion bid that Dell made last Monday. HP said the acquisition of 3Par would accelerate its “converged infrastructure” strategy, which helps its customers organize their servers, data storage and networks on one platform. Dell on the other had has been late to the enterprise services, desparately overpaying for obvious acquisition targets to catch up with IBM and HP. In fact, back in April, I wrote a blog post: "Gold rush to services - Is it too many too late?" about stagnant hardware companies jockeying for leadership position in the enterprise services space.

Bidding wars in the high-technology sector are rare, but not uncommon in the storage space; Last year, EMC and NetApp went back and forth several times for storage software maker Data Domain, which EMC eventually acquired. Data Domain, like 3PAR, is represented by Qatalyst Partners, the boutique investment bank run by longtime industry insider Frank Quattrone, another great dealmaker I have been following over the years.

I believe HP was about to close 3PAR deal but distracted by the dismissal of Mark Hurd, HP's "Chief Dealmaker".  On August 10, I wrote a post on how Hurd's firing could hurt HP's M&A momentum and cited 3PAR as a clear target for the company. HP folks I know say that Mark Hurd had to sign off on each deal before a bid was put in and followed M&A pipeline closely.  Given Hurd's track record of big deals such as EDS, Palm and HP's product gap in the high-end storage segment, this counter bid did not come as a surprise. In fact, in my blog post of last Monday, I did mention Hewlett-Packard, EMC, Oracle and NetApp as likely rival-bidders in this deal. As of now 3PAR's stock was up about 45% in anticipation of an escalating bidding war between two deep pocketed high-tech titans:  HP has $15 billion and Dell has $13 billion in cash. It is like the July 4th fireworks - you buy the stock and watch the biding war.....

The following is the full text of the letter HP sent to the 3PAR board regarding its offer:

August 23, 2010

Mr. David Scott
President and Chief Executive Officer
3PAR, Inc.

4209 Technology Drive
Fremont, CA 94538

Dear David:

We are pleased to submit to you and your Board of Directors a proposal to acquire 3PAR, Inc., (“3PAR”) which is substantially superior to the Dell Inc. (“Dell”) transaction. We are very enthusiastic about the prospect of entering into a strategic transaction with 3PAR and believe that a business combination with HP will deliver significant benefits to your stockholders, customers, employees and partners.

We propose to increase our offer to acquire all of 3PAR outstanding common stock to $24.00 per share in cash. This offer represents a 33.3% premium to Dell’s offer price and is a “Superior Proposal” as defined in your merger agreement with Dell. HP’s proposal is not subject to any financing contingency. HP’s Board of Directors has approved this proposal, which is not subject to any additional internal approvals. If approved by your Board of Directors, we expect the transaction would close by the end of the calendar year.

In addition to the compelling value offered by our proposal, there are unparalleled strategic benefits to be gained by combining these two organizations. HP is uniquely positioned to capitalize on 3PAR’s next-generation storage technology by utilizing our global reach and superior routes to market to deliver 3PAR’s products to customers around the world. Together, we will accelerate our ability to offer unmatched levels of performance, efficiency and scalability to customers deploying cloud or scale-out environments, helping drive new growth for both companies.

As a Silicon Valley-based company, we share 3PAR’s passion for innovation. We have great respect for 3PAR’s management team and its employee base, and are excited about the prospect of working together going forward. Our long track record of acquiring companies and integrating them seamlessly into our organization gives us great confidence that this will be a successful combination.

We are including with this letter a draft merger agreement with the same terms as your announced transaction with Dell but which eliminates the termination fee.

We understand that you will first need to communicate this proposal and your Board’s determinations to Dell, but we are prepared to execute the merger agreement immediately following your termination of the Dell merger agreement. We also are prepared to commence a cash tender offer reflecting our higher price. Our tender offer would, of course, be conditioned upon your Board of Directors’ approval of a transaction with HP.

We look forward to making this opportunity a reality and consummating a mutually beneficial transaction.


Shane Robison
Executive Vice President and Chief Strategy and Technology Officer

Tell your colleagues your first heard it on and follow @TheAkbasPost

Saturday, August 21, 2010

WSJ: The End of Management: Corporate bureaucracy is becoming obsolete. Why managers should act like venture capitalists.

Normally, I write about deals and new business development but there is a fundamental shift going on in our workplace today. Markets are fiercely more competitive. Velocity of change is accelerating. Many corporate icons are failing or falling behind. An ambitious executive in today's world needs to first understand the implications of a fundamentally new management approach essential to succeed in this hyper competitive world, then apply his/her such insights and talent to new partnerships and deal making. It is a brand new world out there.  Many corporate icons such as Xerox and Kodak, while they saw the upcoming market discontinuities, they opted to invest in what they have as opposed to what they should be a lot more a lot sooner. For example, it took Xerox a new CEO to transform the company with a big bet - $7 billion acquisition of ACS. Kodak could not pull it together so far....There are many more examples.

The End of Management: Corporate bureaucracy is becoming obsolete. Why managers should act like venture capitalists. By ALAN MURRAY

Corporations, whose leaders portray themselves as champions of the free market, were in fact created to circumvent that market. They were an answer to the challenge of organizing thousands of people in different places and with different skills to perform large and complex tasks, like building automobiles or providing nationwide telephone service.

In the relatively simple world of 1776, when Adam Smith wrote his classic "Wealth of Nations," the enlightened self-interest of individuals contracting separately with each other was sufficient to ensure economic progress. But 100 years later, the industrial revolution made Mr. Smith's vision seem quaint. A new means of organizing people and allocating resources for more complicated tasks was needed. Hence, the managed corporation—an answer to the central problem of the industrial age.

WSJ Deputy Managing Editor Alan Murray discusses some of the lessons new managers can learn from his new book, "The Wall Street Journal Essential Guide to Management."

.For the next 100 years, the corporation served its purpose well. From Henry Ford to Harold Geneen, the great corporate managers of the 20th century fed the rise of a vast global middle class, providing both the financial means and the goods and services to bring luxury to the masses.

In recent years, however, most of the greatest management stories have been not triumphs of the corporation, but triumphs over the corporation. General Electric's Jack Welch may have been the last of the great corporate builders. But even Mr. Welch was famous for waging war on bureaucracy. Other management icons of recent decades earned their reputations by attacking entrenched corporate cultures, bypassing corporate hierarchies, undermining corporate structures, and otherwise using the tactics of revolution in a desperate effort to make the elephants dance. The best corporate managers have become, in a sense, enemies of the corporation.

The reasons for this are clear enough. Corporations are bureaucracies and managers are bureaucrats. Their fundamental tendency is toward self-perpetuation. They are, almost by definition, resistant to change. They were designed and tasked, not with reinforcing market forces, but with supplanting and even resisting the market.

Yet in today's world, gale-like market forces—rapid globalization, accelerating innovation, relentless competition—have intensified what economist Joseph Schumpeter called the forces of "creative destruction." Decades-old institutions like Lehman Brothers and Bear Stearns now can disappear overnight, while new ones like Google and Twitter can spring up from nowhere. A popular video circulating the Internet captures the geometric nature of these trends, noting that it took radio 38 years and television 13 years to reach audiences of 50 million people, while it took the Internet only four years, the iPod three years and Facebook two years to do the same. It's no surprise that fewer than 100 of the companies in the S&P 500 stock index were around when that index started in 1957.

Even the best-managed companies aren't protected from this destructive clash between whirlwind change and corporate inertia. When I asked members of The Wall Street Journal's CEO Council, a group of chief executives who meet each year to deliberate on issues of public interest, to name the most influential business book they had read, many cited Clayton Christensen's "The Innovator's Dilemma." That book documents how market-leading companies have missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of "bad" management, but because they followed the dictates of "good" management. They listened closely to their customers. They carefully studied market trends. They allocated capital to the innovations that promised the largest returns. And in the process, they missed disruptive innovations that opened up new customers and markets for lower-margin, blockbuster products.

The weakness of managed corporations in dealing with accelerating change is only half the double-flanked attack on traditional notions of corporate management. The other half comes from the erosion of the fundamental justification for corporations in the first place.

British economist Ronald Coase laid out the basic logic of the managed corporation in his 1937 work, "The Nature of the Firm." He argued corporations were necessary because of what he called "transaction costs." It was simply too complicated and too costly to search for and find the right worker at the right moment for any given task, or to search for supplies, or to renegotiate prices, police performance and protect trade secrets in an open marketplace. The corporation might not be as good at allocating labor and capital as the marketplace; it made up for those weaknesses by reducing transaction costs.

Mr. Coase received his Nobel Prize in 1991—the very dawn of the Internet age. Since then, the ability of human beings on different continents and with vastly different skills and interests to work together and coordinate complex tasks has taken quantum leaps. Complicated enterprises, like maintaining Wikipedia or building a Linux operating system, now can be accomplished with little or no corporate management structure at all.
That's led some utopians, like Don Tapscott and Anthony Williams, authors of the book "Wikinomics," to predict the rise of "mass collaboration" as the new form of economic organization. They believe corporate hierarchies will disappear, as individuals are empowered to work together in creating "a new era, perhaps even a golden one, on par with the Italian renaissance or the rise of Athenian democracy."

That's heady stuff, and almost certainly exaggerated. Even the most starry-eyed techno-enthusiasts have a hard time imagining, say, a Boeing 787 built by "mass collaboration." Still, the trends here are big and undeniable. Change is rapidly accelerating. Transaction costs are rapidly diminishing. And as a result, everything we learned in the last century about managing large corporations is in need of a serious rethink. We have both a need and an opportunity to devise a new form of economic organization, and a new science of management, that can deal with the breakneck realities of 21st century change.

The strategy consultant Gary Hamel is a leading advocate for rethinking management. He's building a new, online management "laboratory" where leading management practitioners and thinkers can work together—a form of mass collaboration—on innovative ideas for handling modern management challenges.

What will the replacement for the corporation look like? Even Mr. Hamel doesn't have an answer for that one. "The thing that limits us," he admits, "is that we are extraordinarily familiar with the old model, but the new model, we haven't even seen yet."

This much, though, is clear: The new model will have to be more like the marketplace, and less like corporations of the past. It will need to be flexible, agile, able to quickly adjust to market developments, and ruthless in reallocating resources to new opportunities.

Resource allocation will be one of the biggest challenges. The beauty of markets is that, over time, they tend to ensure that both people and money end up employed in the highest-value enterprises. In corporations, decisions about allocating resources are made by people with a vested interest in the status quo. "The single biggest reason companies fail," says Mr. Hamel, "is that they overinvest in what is, as opposed to what might be."

This is the core of the innovator's dilemma. The big companies Mr. Christensen studied failed, not necessarily because they didn't see the coming innovations, but because they failed to adequately invest in those innovations. To avoid this problem, the people who control large pools of capital need to act more like venture capitalists, and less like corporate finance departments. They need to make lots of bets, not just a few big ones, and they need to be willing to cut their losses.

The resource allocation problem is one Google has tried to address with its "20%" policy. All engineers are allowed to spend 20% of their time working on Google-related projects other than those assigned to them. The company says this system has helped it develop innovative products, such as Google News. Because engineers don't have to compete for funds, the Google approach doesn't have the discipline of a true marketplace, and it hasn't yet proven itself as a way to generate incremental profits. But it does allow new ideas to get some attention.

Alfred P. Sloan of General Motors

.In addition to resource allocation, there's the even bigger challenge of creating structures that motivate and inspire workers. There's plenty of evidence that most workers in today's complex organizations are simply not engaged in their work. Many are like Jim Halpert from "The Office," who in season one of the popular TV show declared: "This is just a job.…If this were my career, I'd have to throw myself in front of a train."

The new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs. It will have to push power and decision-making down the organization as much as possible, rather than leave it concentrated at the top. Traditional bureaucratic structures will have to be replaced with something more like ad-hoc teams of peers, who come together to tackle individual projects, and then disband. SAS Institute Inc., the privately held software company in North Carolina that invests heavily in both research and development and in generous employee benefits, ranging from free on-site health care and elder care support to massages, is often cited as one company that could be paving the way. The company has nurtured a reputation as both a source of innovative products and a great place to work.

Information gathering also needs to be broader and more inclusive. Former Procter & Gamble CEO A.G. Lafley's demand that the company cull product ideas from outside the company, rather than developing them all from within, was a step in this direction. (It even has a website for submitting ideas.) The new model will have to go further. New mechanisms will have to be created for harnessing the "wisdom of crowds." Feedback loops will need to be built that allow products and services to constantly evolve in response to new information. Change, innovation, adaptability, all have to become orders of the day.

Can the 20th-century corporation evolve into this new, 21st-century organization? It won't be easy. The "innovator's dilemma" applies to management, as well as technology. But the time has come to find out. The old methods won't last much longer.

—Adapted from "The Wall Street Journal Essential Guide to Management" by Alan Murray. Copyright 2010 by Dow Jones & Co. Published by Harper Business, an imprint of HarperCollins Publishers.

Tell your colleagues your first heard it on

Friday, August 20, 2010

Financial Times: Turkey moves towards investment grade status

Istanbul’s ISE100 equity index has hit record highs. Yields on sovereign debt are close to historic lows. The currency is more stable than it has ever been – and strong enough to squeeze exporters. All this is the result of a new reputation for stability that Turkey has established in the past two years: its solid banking system, robust public finances and strong growth prospects led David Cameron, UK prime minister, to assert on a recent trip he paid to Ankara that “Turkey is Europe’s BRIC”.

Policymakers aim to bring inflation down from a forecast 7.5 per cent at the end of 2010 to a medium-term target of 5 per cent, and to keep interest rates in single digits for a prolonged period. Rating agencies have signalled that if a new fiscal rule is enacted and implemented, and if political uncertainties ease, the country could finally make the leap to investment grade.

“Turkey is emerging as a safer bet,” says Timothy Ash, an analyst at the Royal Bank of Scotland.

Ample liquidity and low borrowing costs have favoured an equity market heavily weighted towards financial stocks: Turkey’s MSCI index outperformed the MSCI emerging markets index by 10 per cent in 2009 and about 13 per cent in the first 7 months of 2010. Foreign investors own around two-thirds of stocks on Istanbul’s exchange.

By contrast, the bond rally that began more than a year ago was driven largely by local investors. Turkish banks were a captive market for government debt in a recession period when there was little appetite for corporate lending. Only in the past few months has foreign interest strengthened, with a net inflow of about $6bn-$7bn into lira-denominated sovereign debt since the start of the year.

US contract approval set to spur derivatives trade

TurkDex, Turkey’s derivatives exchange, yesterday said that it expected a boost in trading volumes after US regulators allowed its main futures contract to be made available to US traders and after Ankara exempted local banks and brokers from a 5 per cent tax on derivatives transactions, writes Jeremy Grant.

The Commodity Futures Trading Commission said it would allow ISE-30 stock index futures to be sold directly into the US. Previously US traders, except for a few hedge funds, were prohibited from trading Turkish derivatives.

The CFTC’s action follows similar decisions in recent years allowing the Brazilian, Mexican and Taiwanese futures exchanges to sell their key products directly to US-based traders.

Çetin Ali Dönmez, TurkDex chief executive, said exemption from a “banking and insurance transaction tax,” effective August 1, removed “a major impediment to liquidity of Turkdex futures contracts, currency futures in particular”.

Analysts say foreign investors’ relatively light positioning in the government bond market – just over 10 per cent, considerably less than in some eastern European countries – is a strength, making Turkey less vulnerable to a sudden sell-off.

Yet it also reflects a perception among investors that, with interest rates already at a historic low, there may be little scope in the short-term for bond prices to improve.

Real yields (taking inflation into account) are close to zero on lira-denominated debt and are therefore “not that attractive”, notes Tim Haaf, of Pimco Europe in Munich.

Kay Haigh, at Deutsche Bank, says “the risk premium on [lira-denominated] T-bills is very small these days ... it will be very difficult for the marginal investor to convince themselves they should be buying T-bills”.

“With yields where they are, negatives are not priced in. You can’t argue there’s a lot of bad news in the market,” adds another portfolio manager.

Most analysts think the risks this year are moderate but say Turkey’s reliance on foreign capital to finance growth – and its perennially turbulent politics – could become issues for investors early in 2011.

With a recovery driven by domestic demand, Turkey’s current account deficit is widening. Up to 2008, this was funded largely by foreign direct investment and companies’ external borrowing: now short-term portfolio inflows are more important.

“People wonder about the sustainability of financing,” says Christian Keller, an economist at Barclays Capital who recommends long bond positions at present.

By the start of 2011, investors will also be increasingly focused on elections, due to take place by next summer, which will be the first big test of the government’s commitment to fiscal discipline since it dispensed with International Monetary Fund oversight.

The ruling AK party’s ability to form a single-party government has been important to investment since it came to power in the aftermath of Turkey’s 2001 economic crisis. Now polls, although constantly shifting, suggest at least a possibility that the next government will be a coalition.

Given the prospect of a close vote, investors are also watching for signs of a pre-election spending spree that could complicate monetary policy – consistently dovish in recent months – just as the central bank governor’s term comes to an end.

“I am now a little more concerned about the fiscal outlook, the inflation outlook. The central bank still doesn’t have full inflation fighting credentials ... and the political headwinds are becoming more intense,” Mr Haaf says.

A decision to delay legislation enacting the fiscal rule raised eyebrows last month, as there is now no guarantee it will be in place for the pre-election budget.

The government should hit its fiscal targets this year with room to spare, but it appears unlikely to follow the IMF’s recommendation that it save all unbudgeted revenue to “help contain current account and inflation pressures, limit private sector crowding out, and reinforce the authorities’ fiscal discipline credentials”.

So far these worries are only small clouds on a predominantly sunny economic outlook. But as Mr Ash comments, “the big step will be to take Turkey to full investment grade – and this move will probably prove to be a more formidable hurdle.

Tell your colleagues you first heard it on

Thursday, August 19, 2010

Intel To Buy McAfee for $7.7 billion to Expand Online Security Services

Intel Corporation has entered into a definitive agreement to acquire McAfee, Inc., through the purchase of all of the company's common stock at $48 per share in cash, for approximately $7.68 billion. McAfee will operate as a wholly-owned subsidiary, reporting into Intel's Software and Services Group. The transaction price represents a 60% premium to McAfee’s August 18 closing price of $29.93 per share, and reflects a multiple of about 3.2X revenues.

On a GAAP basis, Intel expects the combination to be slightly dilutive to earnings in the first year of operations and approximately flat in the second year. On a non-GAAP basis, excluding a one-time write down of deferred revenue when the transaction closes and amortization of acquired intangibles, Intel expects the combination to be slightly accretive in the first year and improve beyond that.

McAfee may be a small buy next to Intel’s $109 billion market capitalisation, but it is the group’s largest-ever acquisition and profits at the software company must more than double for Intel to make an economic return on its investment.

The acquisition enables a combination of security software and hardware from one company to ultimately better protect consumers, corporations and governments as billions of devices - and the server and cloud networks that manage them - go online. Intel elevates focus on security on par with energy-efficient performance and connectivity. The acquisition augments Intel's mobile wireless strategy, helping to better assure customer and consumer security concerns as these billions of devices connect.

Intel’s rationale behind the transaction as twofold. In the core computing market it extends Intel’s ability to offer security functionality as part of its platform strategy – providing the CPU, chipset/graphics, etc. and now security to customers. In the emerging embedded/ultra mobile space it allows Intel to control more of the hardware/software ecosystem, similar to other leading technology companies, by offering customers the
Atom CPU/chipset, the OS from Wind River and now new security features.

We believe the McAfee acquisition should drive interest back into other software acquisitions targets in addition to many software deals you have been reading on The Akbas Post. For security software specifically, the Intel-McAfee deal does not necessarily spark renewed interest in the group. Intel is not
immediately competitive with others building out data center footprints, like HP, IBM, Oracle. Hence, we’d expect these companies to prefer a partnership route with larger vendors such as Symantec, rather than an acquisition. If they were to become more interested in security, Check Point Software would have to be on the list. However we’d expect the Intel move is more focused on system security, where Check Point Software does not have a strong position.
Tell your colleagues you first heard it on

Wednesday, August 18, 2010

Late to the Enterprise Services Market, Dell Agrees to Buy 3PAR at an Extremely High Premium; Could A Competitor Counter-Bid?

On August 16th, Dell announced it signed an agreement to acquire 3PAR, a provider of highly-virtualized storage solutions, in a transaction valued at $1.15bn. The offer was an 86% premium to Friday’s market close. Under the terms of the agreement, Dell will commence a tender offer to acquire all of the outstanding common stock of 3PAR for $18 per share in cash. The acquisition is expected to close by the end of the calendar year and retention agreements are in place for 3PAR management. The company has revenues of $200 million (only 20% of sales outside the US) with gross margins of about 65% and operating margins in its latest quarter of 2.4%.

The 3PAR acquisition marks the largest storage acquisition for Dell since the company bought EqualLogic for $1.4 billion (closed January 2008); other recent storage acquisitions include Ocarina Networks, Scalent, KACE, Exanet, and The Networked Storage Company. The acquisition will extend the Round Rock, Texas-based computer manufacturer’s storage offering. Dell was late to expand into enterprise services and has been buying companies to build out Dell Services. They recently bought Perot Systems following HP’s purchasing of EDS.

As highlighted at its recent Analyst Day in late June, Dell continues to focus on enterprise segments for future growth and margin expansion, via organic and inorganic means so the 3PAR move is not a big surprise. Even after the 3PAR deal is done, Dell might be looking to make at least one larger acquisition in software and a few smaller ones given its need to stimulate revenue growth and fill large gaps in the enterprise quickly.

With the 3PAR acquisition, Dell services meaningfully broadens its storage portfolio and provides an entry into the high-end SAN market with a Dell-owned product offering (vs. reselling EMC Symmetrix), fits well with Dells focus on scalable cloud-based solutions, and should drive revenue synergies from driving 3PAR product (and associated services attach) through Dells channel and customer relationships. According to outsourcing advisory TPI, companies are actively exploring cloud-based solutions and are ready to talk to cloud service providers. Of the 27 cloud solution areas clients TPI was testing, they were most interested in storage services as one of top 3 categories.

We expect this transaction to strain DELL’s reseller relationship with EMC. While the direct impact to EMC is likely small in the near-term (2-3% of EMC revenue), Dell is clearly executing a strategy to build-out a complete storage product family and reduce its dependence on EMC over time. The 3PAR product line directly competes with EMC’s Symmetrix product family, and gives Dell a strong technology in the high-end storage market.

Dell is paying roughly 6x sales, which is well above the current average of 2-3x for storage companies, suggesting the process was competitive. While we admit that the deal looks expensive, the price tag will ultimately be judged by how successful they are in generating revenue synergies following integration.

Despite a hefty premium Dell had to pay, we would not rule out a rival offer considering the bidding war over Data Domain just over a year ago. Data Domain entered an agreement to be acquired by NetApp only to be topped by storage giant EMC. In my opinion, a rival bid is always a possibility in any deal until it is closed. However, since Dell paid a rich price and it would be very difficult for a rival top the $1.15 billion offer. Other logical buyers include Hewlett-Packard, Oracle and NetApp. Since HP has just let go of its top dealmaker CEO, they may not participate. There is a clear strategic rationale behind each “white knight” while EMC too may decide to counter-bid.

Tell your colleagues you first heard it on

Is Electronics For Imaging (NASDAQ:EFII) A Buyout Target?

Electronics For Imaging (NASDAQ:EFII), a Foster City, California based company that makes printing software and hardware, has received interest from financial sponsors but is focused on executing on its strategic plans in the hope this will increase its market value according to company management. The company appears to be struggling with driving sustainable growth partly due to having been stuck in the printing industry that was hit hard by economic recession.

The company has $490 million market capitalization and $200 million in cash. It is speculated that the board is currently reviewing its strategic options to boost enterprise value including buyouts by management or private equity. It is believed the board may be interested in a buyout proposal exceeding $600 million. EFI reported $ 400 million in revenue and a $2 million net loss in 2009.

EFI’s largest customer was my old employer Xerox in the digital color production business. In the past five years, EFI has diversified away from the Fiery printer controller business, which now makes up just 45% of revenue. The company moved into inkjet printing, where it targets the enterprise market for such applications as wide-format printing, packaging and low-end banner printing.

While these markets have lower margins than the traditional Fiery printer controller business, the market is underpenetrated and the growth prospects look promising. Inkjet now makes up 43% of the company’s revenues.

What makes EFI an attractive buyout target is the Fiery unit that is a “cash cow” business with high margins, slow mid-single digit growth and provides the capital for investment in the inkjet business. The inkjet business is expected to grow about 15% annually. EFI also generates 12% of its revenue from the ERP business for commercial printer dating back to the PrintCafe acquisition.

One of the ways EFI could deploy cash smartly is through small complementary technology acquisitions. The company will continue to focus on software as a service (SaaS) and on-premise software targets to add functionality for its printing business customer. According to the management, they plan to make one to three small accretive acquisitions per year.

Spreadsheet and analytics software could both be complementary to its ERP software products. EFI will also continue to seek buys in Western Europe where it estimates it only has about 15% market share. In the US its market share is upwards of 60%. EFI acquired UK-based enterprise resource management software company Radius Solutions in April.

Tell your colleagues you first heard it on

NetSuite To Purse Acquisitions in Analytics and Healthcare

NetSuite (NYSE: N), a San Mateo, California-based business management software company, could use acquisitions to expand its vertical offerings according to the CEO Zachary Nelson.

Asked by an analyst about uses for the company's USD 98.2 million in cash, Nelson replied by stating, "We look around in the marketplace around verticals." He added that the software as a service (SaaS) company is "pretty judicious" with its cash. Netsuite appears to be very well-positiond in th ERP sector ready to capitalize on gold rush to cloud computing.

Netsuite's focus is to extend its applications with vertical functionality and would be interested in targets that add a complementary solution or help it move up in the market. The company's professional services application was created through the acquisition of OpenAir for USD 26 million in 2008 and QuickArrow for USD 20 million in 2009.

Many anlysts think NetSuite could make acquisitions around analytics. There are number of analytics companies in the market bu Cloud9 Analytics is probably as good a candidate as anybody for NetSuite to acquire since it could help gain access to new verticals due to its focus on financial services, retail, pharmaceuticals and manufacturing. NetSuite could move into healthcare by developing a physician practice management application that help doctors interact with their patients to provide a more comprehensive, better managed care environment.

NetSuite could target government, manufacturing, healthcare, social media monitoring and analytics, employee rewards and recognition, and non-profits. According to the CEO Nelson, the company's main competitors are Microsoft and SAP it rarely sees competition from Oracle. NetSuite is a potential target for acquisition by Oracle as well as by SAP. According to SEC filings, Larry Ellison, CEO of Oracle, owns 50.5% of NetSuite through NetSuite Restricted Holdings and his children own a further 9% of the company.

Tell your colleagues your first heard it on

Monday, August 16, 2010

IBM to Acquire Enterprise Marketing Management Leader Unica for $480M. Who Could Be The Next Target?

IBM (NYSE:IBM) and Unica Corporation (NASDAQ:UNCA) last Friday announced they have entered into a definitive agreement for IBM to acquire Unica in a cash transaction at a price of $21 per share, or at a net price of approximately $480 million, after adjusting for cash. A publicly held company in Waltham, Mass., Unica will expand IBM's ability to help organizations analyze and predict customer preferences and develop more targeted marketing campaigns. This is an industry categorized as Enterprise Marketing Management (EMM) where Unica was one of the largest pure plays. EMM includes the business strategies, workflow process automation and technologies required to effectively operate a marketing division, optimize resources, execute demand generation and drive enhanced marketing performance.

With the soft economy, few companies are considering EMM as a platform for the entire marketing function, because it can be difficult to prove return-on-investment (ROI) immediately except for campaign management and lead management that are quicker to implement.

The acquisition, which is subject to Unica shareholder approval, applicable regulatory clearances and other customary closing conditions, is expected to close in the fourth quarter of 2010. Following IBM's last weaker earnings release, we published a post signaling about IBM's strategic push toward more software acquisitions on July 22 (IBM to Buy More Software Firms. Can IBM Compete with Oracle?). So this came as no surprise to us and is only the beginning in our view.

IBM has successfully transformed the revenue mix: services and software now accounts for 80% of revenues and 90% of profitability. Their increasing focus on software acqusitions should help fuel profitable growth provided they go for substantially larger deals competing with Oracle.

According to IBM, today's leading organizations place a high value on a consistent and relevant customer experience. They must continuously focus on enhancing their brand by responding quickly to marketplace changes and differentiating themselves through more targeted, personalized marketing campaigns. In order to achieve this, marketing professionals are increasingly investing in technology to automate and manage marketing planning and execution to help them better analyze customer preferences and trends and in turn, predict buying needs and drive relevant campaigns.

To meet this demand, IBM is assembling transformational capabilities to help clients create this consistent and relevant cross-channel brand experience to promote customer loyalty and satisfaction. With sophisticated analytics and marketing process improvement, the combination of IBM and Unica will help clients streamline and integrate key processes including relationship marketing, online marketing and marketing operations.

Building on this extensive industry expertise, Unica has more than 1,500 global customers across a wide range of industries including financial services, insurance, retail telecommunications, travel and hospitality. Customers include Best Buy, eBay, ING, Monster, Starwood and US Cellular.

This acquisition expands IBM's growing portfolio of industry software solutions designed to help companies automate, manage, and accelerate core business processes across marketing, demand generation, sales, order processing and fulfillment. This acquisition along with IBM's recent acquisitions of Sterling Commerce and Coremetrics will enhance IBM's ability to support customers increasing demands in this growing market.

"IBM understands the demands on today's organizations to transform core business processes in functions such as marketing with intelligence and automation," said Craig Hayman, general manager, IBM Industry Solutions. "Unica was a clear choice for IBM based on its power to automate a broad set of marketing capabilities and its established reputation for delivering customer success in marketing to organizations around the world."

"Unica's focus is to help our customers deliver marketing messages so relevant that they are perceived as a service to our clients' customers," said Yuchun Lee, CEO, Unica Corp. "Together with IBM, we will bring our leading enterprise marketing management solutions to a wider set of customers worldwide and with a much broader, more comprehensive portfolio."

Unica's 500 employees will be integrated into IBM's Software Solutions Group, which includes a range of industry-focused offerings. Unica software will complement the capabilities of IBM's Business Analytics and Optimization Consulting organization - a team of 5,000 consultants and a network of analytics solution centers, backed by an overall investment of more than $11 billion in acquisitions in the last five years.

Overall, Unica is a good acquisition given its organic and inorganic growth track, technical platform quality, ability to sell it outright or as software-as-a-services (SaaS). Some of the shortfalls would be addressed by IBM which brings to the merger a vast global reseller and systems integrator partner channel and robust software sales and marketing management capability.

Following this acquisition, there are a few firms that would make attractive target as well as a much needed counter-move for SAP and of course Oracle.

We will be publishing a separate post on this topic.

Tell your colleagues you first heard it on

Wednesday, August 11, 2010

Mobius: Turkey’s compelling story

Here's a new blog post by Mark Mobius of Templeton Emerging Markets Group. He is a brilliant investor for whom I have a great deal of respect. I had the pleasure of having met him in Istanbul at a private gathering. He follows his gut feel first and asks some brilliant questions. Having been a dealmaker in Europe and the Middle East, I wholeheartedly agree with Mark that you can not afford not investing and dealmaking in Turkey these days...and this is only the beginning.

Mobius: Turkey’s compelling story By Mark Mobius of Templeton Emerging Markets Group:

Why is Turkey so compelling an investment destination right now? Today Turkey’s macro fundamentals remain strong and there is a marked decoupling from Eastern European peers who now have serious debt sustainability and banking sector issues.

As a result of comprehensive structure reforms in 2001, Turkey now benefits from a domestic consumption-driven economy, sound fiscal outlook (low government and private debt), solid banking system, secular disinflation trend and favourable demographics.

The picture was not so positive just two decades ago; Turkey was faced with many challenges in the 1990s. Despite periods of high growth, in some years during that decade, rising macroeconomic imbalances hampered growth, resulting in recessions. The overall picture was one of large budget deficits, political instability, high inflation and interest rates. These variables characterized an unsustainable macroeconomic framework and financial crisis.

The turning point was after 2001 when the country initiated reforms that improved economic resiliency, productiveness and efficiency. As a result of strict government fiscal discipline, the budget deficit as a percent of GDP ratio, fell sharply from more than 10 per cent in 2002 to a current 5 per cent. Also the debt to GDP ratio dropped from 73 per cent in 2002 to its current figure, below 45 per cent. The currency has become more stable and interest rates have fallen from triple digits levels to single digits.

What are the attractive sectors?

The Turkish banks are very appealing. One of the most important aspects behind the v-shaped recovery in Turkey is the strong banking system. After 2001, Turkey restructured its banking system and realized important structural reforms that many countries like Greece are currently trying to implement.

Turkey still remains an under-banked market by global standards. The low penetration in almost all areas means that there is immense growth potential. The sector accounts for 89 per cent of GDP, far behind the EU average of 320 per cent. Likewise, volumes of mortgage loans at 5 per cent of GDP (EU average: 41 per cent) also proves the under-penetrated character of the sector. Turkish banks have increased lending rapidly in the last five years to a young productive army of domestic consumers. Over the past seven years, Turkey’s banking system’s overall balance sheet has increased at a compound annual growth rate of 22 per cent now reaching over 80 per cent of GDP up from 55 per cent in 2002. Turkish banks with their very high returns on equity and growth potential are still attractive compared to their EM peers.

Automotive manufacturing is another promising sector in Turkey. Turkish manufacturers are climbing up in the value chain in production and producing their own domestically designed cars. Turkey is becoming a major hub in automotive manufacturing and producers are benefiting from the network effect in the country. With its proximity to the large European market, Turkey is well placed to compete with European automobile exporters.

Risks that investors should be aware of

The pace of recovery in domestic demand may be impressive but external demand remains weak and a further slowdown in European economies would delay the recovery in exports. Turkey lags in technology development as well as energy and those structural issues need to be addressed properly and quickly.

The country also does not have enough commodity resources to support its growth, so rising commodity prices presents challenges. There is a need for more long-term capital investments and the current savings rate with under penetration of banking is relatively low. Foreign direct investments and greenfield investments have slowed since the crisis. There is thus a need to attract foreign capital with concrete plans to attract more sophisticated value added manufacturing. While Turkey excels at the lower end of the value chain in manufacturing there is a need to move up that value chain. These problems have resulted in a chronic external deficit which continues to widen leading to questions over the sustainability of the recovery.

Finally, there are political risks with a possible change in government. For the first time since 2002 (when the current ruling party, the AKP, came into power), as a result of the upcoming election next year there is a good possibility that Turkey will lose the benefits of a strong majority party capable of instituting wide-ranging reform. Turkey could end up with an indecisive coalition government.

What is Turkey’s investment potential vs other EMs?

Turkey’s population is still quite young. The median age is 27 years, which is well below that of the rapidly aging economies of China (34), South Korea (36) and Russia (38). It is now the fastest growing economy among the G20 major economies, excluding China, and compares with essentially no growth in 14 central and eastern European countries. While in the past Turkey’s economic and political orientation was toward Western Europe, it is now diversifying its political export partners in the Middle East and Mediterranean.

The government has signed free-trade agreements with Syria and Jordan and has been conducting negotiations with Lebanon recently. Those four countries also agreed to set up a joint cooperation council with plans to wider the scope to include other countries in the region.

Currently, Turkish equities trade at a discount relative to its EMEA peers. The lower inflation and low interest rates still have not been reflected in the valuation of Turkish companies. Given its strong macroeconomic characteristics there is a good chance that Turkey will obtain an investment upgrade and thus will have a lower equity-risk premium in the eyes of investors.

Mark Mobius is Executive Chairman, Templeton Emerging Markets Group.

Tell your colleagues you first heard it on

Tuesday, August 10, 2010

After Loosing a Great Dealmaker CEO, Can HP Still Make Deals? Who Will They Target Next?

Hewlett-Packard’s (NYSE: HPQ) acquisition activity is expected to stall following the departure of its hands-on CEO Mark Hurd. Some think that his ouster might have been exaggerated and did not really protect from all the media exposure the firm has received in the last few days. Hurd was a great dealmaker having bought 3com, Palm and of course EDS. But the 53-year-old’s exit could later pave the way for his successor to bid for Teradata Corporation (NYSE:TDC), the data warehousing company Hurd previously headed.

Hurd’s resignation comes just as M&A activity in the technology sector appears to be gaining pace. Hurd stepped down on Friday after an internal investigation revealed he had manipulated expense accounts to hide a relationship with a company contractor. HP has appointed its CFO Cathie Lesjak interim CEO while it searches for a successor. HP's diversity, at the same time, has deepened its executive ranks, presenting it with a pool of potential CEOs, including: Todd Bradley, a former Palm CEO who runs HP's $28 billion computer division; Vyomesh Joshi, in charge of HP's $29 billion printer division; and Ann Livermore, who runs HP's $54 billion enterprise business. Chief Financial Officer Cathie Lesjak, now interim CEO, took herself out of the running for the permanent job. Outside contenders might include Pat Gelsinger, chief operating officer at EMC; Michael Capellas, a former Compaq CEO who was briefly president at HP; and Microsoft executive Stephen Elop, Kay and other analysts say.

Hurd has kept a tight rein on the company’s acquisition strategy, personally signing off on each of its 35 buys since joining in 2005. The company was less active by deal volume in the five years before Hurd joined, making about 20 buys, although this did include the USD 25 billion purchase of Compaq. Despite lingering uncertainty in the public markets, HP acquired two USD 1 billion-plus companies over the past nine months: Palm for USD 1.2 billion and 3Com for USD 2.7 billion.

Mark ran a tight ship over HP which is one of the few companies in the technology sector that is closely aligned to his CEO similar to perhaps Apple and HP. Hurd was in charge of every deal to be made from its conception all to the way to the board approvals. I am sure he had a large pipeline which now would be put on hold until there is a permenant replacement for him.

One pending acquisition rumored to be in the works was that of 3PAR (NYSE:PAR), a Fremont California-based storage company. 3PAR, which has a market capitalization of USD 637.7 million, has been cited as a target in recent analyst reports.

Hurd’s departure may pave the way for an acquisition of Teradata, which was spun out of NCR in 2007. Hurd ran Teradata for three years while it was a division of NCR and this connection created some resistance to bringing his old firm to HP. Teradata, a data warehousing company, would provide HP with a toehold in a market dominated by its main competitors, IBM, Microsoft and Oracle. These three companies control about 85% of the market. Sybase, which was acquired by SAP earlier this year, and Teradata are the next largest players, together owning about 6% of the data warehousing market. Teradata has a market capitalization of USD 5.3 billion, while the next largest pure play in data warehousing, Netezza (NYSE:NZ), is valued at USD 962.8 million according to industry sources.

Tell your colleagues about

Monday, August 09, 2010

International Power to Announce Takeover by GDF Suez on Tomorrow

According to The Sunday Times, International Power, the listed, UK-based energy utility, is poised to announce a takeover by GDF Suez tomorrow. The newspaper cited unspecified sources, who said there is still a chance that discussions could fail to yield a deal, but the companies plan to announce the deal alongside their half-year results.

GDF, the French government-controlled energy group, intends to merge several of its worldwide power stations with International Power, the article said. GDF Suez will take a stake of approximately two-thirds in International Power via an issue of new shares, the item added.

GDF is also to pay shareholders a GBP 1.2bn (EUR 1.44bn) to GBP 1.3bn special dividend, the report continued. The enlarged group would have a market capitalisation of EUR 58bn (USD 77.02bn), the article added.

Tell your colleagues about

SAP Puts No Price Limit for Acquisitions but Focuses on Organic Growth First

After announcing a strong quarter, SAP, the listed German software group, has no price barrier when it comes to acquisitions, Boersen-Zeitung reported. Werner Brandt, the chief financial officer at SAP, told the German daily during a lengthy interview that his company acquires to gain access to technology that can speed up its growth, which why he does not believe in price barriers or maximum result multiples. However, Brandt made clear in the paper that SAP should have a positive net liquidity at all times and that a negative net liquidity should only be tolerated for a short while after acquisitions.

Brandt reaffirmed that SAP is currently focusing on organic growth and believes that the company can grow by more than 10% organically again in the future.

SAP must catch up with Oracle, the king of dealmaking in the high-tech world. My long time friend and old colleague Bill McDermott is up to the challenge of putting SAP back on track to grown in double digits. He just might need to have a bold dealmaker on his staff to face up Oracle.
SAP itself remains as a target to IBM, HP, Oracle and Microsoft.  Microsoft and Oracle are rumored to have looked t SAP multiple times unable to close the deal.
SAP has a market cap of about 43 billion euros

Tell your colleagues about

Friday, August 06, 2010

HP CEO Mark Hurd Resigns; CFO Cathie Lesjak Appointed Interim CEO; HP Announces Preliminary Results and Raises Full-year Outlook

HP's top dealmaker and Chairman/CEO Mark Hurd's sudden resignation could have serious implications for HP and its competitive positioning going forward. Mark has accomplished a tremendous track record in buying and integrating large companies like Peregrine Systems, 3Com, EDS and Palm and positioned the company as the largest technology firm that offers solutions ranging from personal computers to enterprise class servers to printers and consulting services. He was a tough cost-cutter and aggressive executer of his key strategic, timely moves at a $125 billion monster-size firm. He resized its cost base, reshuffled old management cutting through siloed divisions immersed in an ingrained culture of slow decision making and truf wars. Considering how his predecessor Carly Fiorina left, HP's CEO spot will be a difficult one to fill after Mark Hurd.

According to a NY Times article today the contractor, an old actress Jodie Fisher came out in public and said she did not have an affair or intimate sexual relationship with Mark Hurd who is married.

 HP (NYSE: HPQ) announced last Friday that Chairman, Chief Executive Officer and President Mark Hurd has decided with the Board of Directors to resign his positions effective immediately.

The Board has appointed CFO Cathie Lesjak, 51, as CEO on an interim basis. Lesjak is a 24-year veteran of the company who has served as HP's CFO and as a member of the company's Executive Council since January 2007. She oversees all company financial matters and will retain her CFO responsibilities during the interim period.

Hurd's decision was made following an investigation by outside legal counsel and the General Counsel's Office, overseen by the Board, of the facts and circumstances surrounding a claim of sexual harassment against Hurd and HP by a former contractor to HP. The investigation determined there was no violation of HP's sexual harassment policy, but did find violations of HP's Standards of Business Conduct.

A Search Committee of the Board of Directors has been created, consisting of Marc L. Andreessen, Lawrence T. Babbio, Jr., John H. Hammergren, and Joel Z. Hyatt, which will oversee the process for the identification and selection of a new CEO and Board Chair. HP's lead independent director, Robert Ryan, will continue in that position.

Hurd said: "As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career. After a number of discussions with members of the board, I will move aside and the board will search for new leadership. This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time. I want to stress that this in no way reflects on the operating performance or financial integrity of HP."

"The corporation is exceptionally well positioned strategically," Hurd continued. "HP has an extremely talented executive team supported by a dedicated and customer focused work force. I expect that the company will continue to be successful in the future."

Robert Ryan, lead independent director of the Board, said: "The board deliberated extensively on this matter. It recognizes the considerable value that Mark has contributed to HP over the past five years in establishing us as a leader in the industry. He has worked tirelessly to improve the value of HP, and we greatly appreciate his efforts. He is leaving this company in the hands of a very talented team of executives. This departure was not related in any way to the company's operational performance or financial condition, both of which remain strong. The board recognizes that this change in leadership is unexpected news for everyone associated with HP, but we have strong leaders driving our businesses, and strong teams of employees driving performance."

"The scale, global reach, broad portfolio, financial strength and, very importantly, the depth and talent of the HP team are sustainable advantages that uniquely position the company for the future," said Lesjak. "I accept the position of interim CEO with the clear goal to move the company forward in executing HP's strategy for profitable growth. We have strong market momentum and our ability to execute is irrefutable as demonstrated by our Q3 preliminary results."

Lesjak has taken herself out of consideration as the permanent CEO but will serve as interim CEO until the selection process is complete. Candidates from both inside and outside the company will be considered. The selection of a new chairman will occur in conjunction with the CEO decision.

The company does not expect to make any additional structural changes or executive leadership changes in the near future.

HP announces preliminary third quarter results; raises full-year outlook for revenue and non-GAAP EPS

HP is announcing preliminary results for the third fiscal quarter 2010, with revenue of approximately $30.7 billion up 11% compared with the prior-year period.

In the third quarter, preliminary GAAP diluted earnings per share (EPS) were approximately $0.75 and non-GAAP diluted EPS were approximately $1.08. GAAP and non-GAAP EPS were negatively impacted by $0.02 pertaining to one-time charges relating to the previously announced U.S. Department of Justice settlement. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.33 per share, related primarily to restructuring, amortization of purchased intangible assets and acquisition-related charges.

For the fourth fiscal quarter of 2010, HP estimates revenue of approximately $32.5 billion to $32.7 billion, GAAP diluted EPS in the range of $1.03 to $1.05 and non-GAAP diluted EPS in the range of $1.25 to $1.27. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to restructuring, amortization of purchased intangible assets and acquisition-related charges.

For the full year, HP now expects revenue in the range of $125.3 billion to $125.5 billion. FY10 GAAP diluted EPS is expected to be in the range of $3.62 to $3.64 and non-GAAP diluted EPS in the ranged of $4.49 to $4.51. FY10 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.87 per share, related primarily to restructuring, amortization of purchased intangibles and acquisition-related charges.

HP plans to release its final results for the third fiscal quarter on Thursday, Aug. 19, 2010, with a conference call at 6 p.m. ET/3 p.m. PT to provide additional details.

HP to hold media and financial analyst calls today. This afternoon HP will conduct audio webcasts for the media and financial analysts to discuss today's announcement.

Conference call for the media: 4:15 p.m. ET/1:15 p.m. PT. Members of the press can dial in at +1 866 713 8567 or +1 617 597 5326, participant code 29494237.

Audio webcast for financial analysts and stockholders: 4:45 p.m. ET/1:45 p.m. PT. Access the live audio webcast at It is recommended that attendees dial in 15 minutes early to avoid registration delays.