Ravi Madhavan's A&D Blog

Milken Institute panel on M&A outlook

Here. 

Roundup

Lots of interesting stuff on the "airwaves" today, here's a selection:

NYT has summary graphics, based on Thomson Reuters data, of M&A activity in 2012 Q1: down 34% at $481B worldwide.

NYT DealBook's Deal Professor on how Google's Motorola Mobility buy is awaiting approval from China's anti-trust authorities.

WSJ conducts a scenario analysis on Greece's future in or out of the EU.

China focus

Two powerful stories on China:

First, by way of James Fallows, this speech transcript by Jonathan Watts on Chinadialogue. Jonathan Watts is the outgoing Environment correspondent in China for The Guardian, whose book "When a Billion Chinese Jump" is required reading for anyone interested in China's future. Excerpt:

During the past few years, I have come to fear that the United Kingdom and China may be bookends on the most spectacular burst of development ever seen in human history. The carbon-fuelled, capital-driven model of economic growth, which started in my country 200-odd years ago, has spread across the planet and is now, I believe, reaching its apex here. We may well be blessed and cursed to be witnessing the era of “peak human” – at least in material terms. That is a huge and alarming prospect. It will require a complete readjustment of expectations.

In future, I believe there will be greater tension globally between conservers and the exploiters. This may become the new dividing line in world politics. We are already seeing the rise of Green Parties, which are scoring record success (albeit often from a low base) in Australia, the United Kingdom, New Zealand and Canada. 

I’ve come to see the environment not as a subject, but as a prism. That is important to stress. Mostly the environment is treated as a subcategory and posted away to a certain pages in newspapers and on the websites. But it should not be a niche interest, it should be mainstream. The ecology is the basis for the economy, not the other way around.   

Next, in this sobering analysis, The Economist lays out China's demographic challenge. The key point is that "China will have a bulge of pensioners before it has developed the means of looking after them. Unlike the rest of the developed world, China will grow old before it gets rich." Extended excerpt with the very surprising possibility of China needing inward immigration:

The shift spells the end of China as the world’s factory. The apparently endless stream of cheap labour is starting to run dry. Despite pools of underemployed country-dwellers, China already faces shortages of manual workers. As the workforce starts to shrink after 2013, these problems will worsen. Sarah Harper of the Oxford Institute of Population Ageing points out that China has mapped out the age structure of its jobs, and knows for each occupation when the skills shortage will hit. It is likely to try to offset the impact by looking for workers abroad. Manpower, a business-recruitment firm, says that by 2030 China will be importing workers from outside, rather than exporting them.

Large-scale immigration poses problems of its own. America is one of the rare examples of a country that has managed to use mass immigration to build a skilled labour force. But America is an open, multi-ethnic society with a long history of immigration and strong legal and political institutions. China has none of these features.

 

Extractive elites...

Excerpt (without comment) from The Economist's review of the new book, “Why Nations Fail: The Origins of Power, Prosperity and Poverty”, by Daron Acemoglu and James Robinson:

“Because elites dominating extractive institutions fear creative destruction”, the authors write, “they will resist it, and any growth that germinates under extractive institutions will be ultimately short-lived.”

There are two potential candidates for extractive elites in Western economies. The first is the banking sector. The wealth of the financial industry gives it enormous lobbying power, including as contributors to American presidential campaigns or to Britain’s ruling parties. By making themselves “too big to fail”, banks ensured that they had to be rescued in 2008.

Much of current economic policy seems to be driven by the need to prop up banks, whether it is record-low interest rates across the developed world or the recent provision of virtually unlimited liquidity by the once-staid European Central Bank. The long-term effects of these policies, which may be hard to reverse, are difficult to assess.

It is tougher to argue that the financial sector has inhibited growth in other areas of the economy. Indeed, both banks and venture-capital groups play a vital role in supporting new companies. Nevertheless, it is possible that the extremely high rewards in the financial industry might have diverted talented people away from other activities that could have helped rich economies to grow more sustainably. Furthermore, those high rewards could derive from “rent-seeking” by the financial sector, in the form of fees, charges and spreads, that have acted as a tax on the rest of the economy.

 

Some good news on global poverty

The Economist reports on some positive economic news: poverty is on the decline worldwide.

Important report on China

The World Bank released, this morning, a report on China's path to 2030. It's an important report that addresses how China's path going forward must be different from its past, if it is to acheive it's ambition to become a high-income, innovation-based society. What's also notable is that the report is co-authord with a Chinese think-tank, which implies that the Chinese elite is probably engaged in this thinking.

Shell > Cove Energy

Shell has made an offer valued at over GBP 1B for Cove Energy, a Mozambique-based producer. The news caught my eye because one doesn't often see large deals for targets in Africa. The Guardian says this may lead to more deals in the sector. 

Samsung LCD spinoff

WSJ report here on Samsung's decision to spin off its LCD business, apparently a signals that OLED investments are the future. Excerpt:

"(Shifting to OLED) is an inevitable trend now. There's no reason for Samsung to pour in more investment into its LCD business, and it would rather focus on raising its OLED technology," said HI Investment & Securities analyst Song Myung-sub[.]

The Economist - China's prosperity paradox

Leader article arguing for a new political model in China, here. Excerpt (and key takeaway):

China’s bloody past has taught the Communist Party to fear chaos above all. But history’s other lesson is that those who cling to absolute power end up with none. The paradox, as some within the party are coming to realise, is that for China to succeed it must move away from the formula that has served it so well.

Apple enters digital textbook market

Apple's news conference this morning focused on its entry into textbooks on the iPad. NYT story here.