Ravi Madhavan's A&D Blog

Apple post-Jobs

WSJ comments on how new CEO Tim Cook is already putting his operational stamp on Apple. Excerpt:

Former executives and people close to Apple say they also expect Mr. Cook to be more open with shareholders and customers than Mr. Jobs, citing Mr. Cook's willingness to meet fairly regularly with investors over the years.

"Steve thought he had all the answers," said Toni Sacconaghi, a research analyst who covers Apple for Sanford Bernstein & Co. "I am not sure Tim thinks he has all the answers." Mr. Sacconaghi also describes Mr. Cook as "surprisingly candid" about parts of the company, such as its iPhone expansion strategy.

One area people expect Mr. Cook to eventually focus on is what to do with Apple's $81.6 billion in cash and cash equivalents. Mr. Jobs was opposed to stock buybacks, according to former Apple executives.

But Mr. Cook seems open to more traditional options for Apple's cash hoard, such as dividends or a buyback, say people who have discussed the matter with Apple executives.

On the company's fiscal fourth quarter earnings call last month, Mr. Cook said, "I'm not religious about holding cash or not holding it."

 

Beer industry consolidation: The final chapter?

Reuters has an interesting story about speculation of a future blockbuster deal to combine AB-InBev and SABMiller. Excerpt:

In a global brewing industry marked by huge consolidation over the last decade, bankers are hopeful of an $80 billion plus deal to end all dealsbetween the industry's two giants, Anheuser-Busch InBev (ABI.BR) and SABMiller (SAB.L).

If AB InBev buys SABMiller it could be the biggest cash takeover in history and would create a group brewing a third of the world's beer. Analysts and bankers suggest 2013 as a likely time frame for a takeover that is seen as the final play in deal making in big world brewing.

They say the world's No 1 brewer AB InBev will not be deterred from making a move for SABMiller even after the No 2 brewer swallows up Australia's Foster's by the end of 2011 in a $10.2 billion deal.

A Foster's deal may delay an AB InBev-SABMiller linkup by six to twelve months pushing a possible deal to 2013, after AB InBev's Chief Executive Carlos Brito said its debt would fall during 2012 to levels which made further acquisitions possible.

A deal would close out a decade of rapid consolidation led largely by AB InBev and SABMiller and leave few remaining easy targets, with the remaining big global brewers like Heineken (HEIN.AS) and Carlsberg (CARLb.CO), as well as AB InBev, controlled by families, individuals or charity shareholders.

"The Foster's deal may delay an AB InBev-SABMiller tie up, but it doesn't change the strategic view that eventually it will make sense for these two to link up," said one banker who has worked for one of the big brewers.

Meanwhile, here's commentary from the Economist magazine on the recently concluded SABMiller acquisition of Fosters.

 

Nokia deal speculation

This NYT DealBook piece suggests some possible deals that may come out of Nokia's current turnaround efforts. Excerpt:

Nokia’s chief executive, Stephen Elop, issued a call to arms last week, warning his troops that the company was standing on a “burning platform.”

“We have more than one explosion,” he wrote in an internal memo, according to news reports and a person with knowledge of the document. “We have multiple points of scorching heat that are fueling a blazing fire around us.”

In the boldly worded memo, Mr. Elop, a Microsoft veteran, blasted the company for failing to innovate fast enough and falling behind companies like Apple and Google:

Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyze or join an ecosystem.

Among the possibilities suggested are: divesting Navteq and the wireless infrastructure business, buying apps developers, and of course the big idea that refuses to die - Microsoft buying Nokia.

A view on the commodities industry

Against the background of the very volatile couple of days for commodity prices, here's a set of interesting articles (all from WSJ) on the industry - not directly M&A-related, but certainly highlighting relevant industry dynamics.

First, this article summarizes Goldman Sachs' argument that the rare earths crisis may be over - they're predicting oversupply by 2013 as Western producers respond to last year's supply shock of China restricting exports by cranking up production. A nice graphic summary from the article:

Then, a set of articles about the steel industry: This one suggests steel demand is robust across the world, although mainly driven by growth in China and India. This one describes ThyssenKrupp's sophisticated computer network that coordinates steel production centers across three continents. (It is very interesting indeed to follow steel companies as they learn to be multinational.) Here's an analysis of what value ThyssenKrupp's new leader can add, and a report on how the company's reorganization plans have triggered a sharp share price rise.

Should Amazon buy Netflix?

WSJ's Deal Journal suggests that Amazon should buy Netflix or Sony. Excerpt:

Amazon.com Inc. is increasingly a conundrum. Is it an Internet company that deserves its premium valuation given its revenue growth rates? Or is it a mature, low-margin retailer that is overvalued?

To sustain its current growth trajectory, Amazon needs to capitalize on opportunities in digital media sales, cloud computing services and/or retail fulfillment. But, given the associated operational and capital costs in these areas recently, organic growth alone may not suffice; it may have to augment itself through acquisitions. Think what a combination of Amazon and Netflix Inc. or even Sony Corp. might look like. Both are within Amazon’s reach.

The Amazon/ Netflix combination is an interesting idea. I watched Netflix CEO Reed Hastings on Charlie Rose yesterday, and one of the things I learnt was that Amazon's cloud platform hosts Netflix. This would in effect represent vertical integration for Amazon. From another viewpoint, the competition in online video will be fierce in the future, and two factors will matter most: contracts with content providers, and advanced delivery platforms. Perhaps an Amazon/ Netflix combo will bring those two elements together seamlessly...Intriguing.

 

 

Of M&A note...

A few interesting developments over the last few days:

It's time to bet on a big year for M&A deals, according to (WSJ report) Goldman Sachs.

HP's new CEO has laid out (Business Insider summary) his new strategy: "Disciplined acquisition strategy" is one of the mantras.

There are rumors (WSJ report), again, of a merger between Sprint and T-Mobile.

Google's #2 M&A guy leaves for FaceBook, according to Business Insider. BI also has a nice overview of Google's 15 biggest deals. 

WSJ's proposal: Acquisition targets for Warren Buffett

Warren Buffett, in his much anticipated annual letter to his investors, indicated last week that he is happy with his recent acquisitions, and is ready to make some more big ones. WSJ Deal Journal has some suggestions for him, including Illinois Tool Works (a strong acquirer), Automatic Data Processing, and of local note, Kennametal. Excerpt:

Warren Buffett has loaded his "elephant gun" and says he is "itchy" to make some big-game acquisitions.

Time to go on safari. As outlined in his just-released 2010 shareholder letter, Mr. Buffett has some exacting target criteria: big, industrial businesses with near-monopoly positions and solid sales growth; at least $75 million in pretax income; market values of about $5 billion to $20 billion.

 

 

DJ IB's deal predictions

The Dow Jones Investment Banker has a some interesting predictions for deal activity in 2011 (by way of WSJ). Some are broad trends and some are specific deal predictions, classified either as "high conviction" or "provocative". Among the latter, one is especially interesting (labeled provocative): China's Haier Electronics buying GE Appliances.    

Will personalized medicine lead to M&A?

WSJ had an interesting article over the weekend about the trend toward personalized medicine, which involves using genetic testing to assess the likelihood that individual patients will respond well to particular treatments. Two interesting takeaways, for me: One, in general, treatments are ineffective in up to half the patients that receive them. Two, if the trend takes hold, we may see deals in which pharma companies buy diagnostics companies. Except:

In fact, diagnostics companies may be the big winners from the new technologies. These firms, including U.S.-listed Becton Dickinson and Beckman Coulter, already trade on average multiples of 14-16 times forecast 2011 earnings, a large premium to the pharmaceuticals sector, which trades at about 10-11 times, reflecting increased demand for accurate testing. With drug companies looking to build more links with diagnostics firms, those valuations could become further inflated by bid speculation. 

 

 

Apple and M&A

Apple's name has come up multiple times on this blog - for example, here and here, always in the M&A context. BI has a thought-provoking article with the title "Big M&A not in Apple's DNA," apparently prompted by rumors that Apple is looking for a new CFO. While the article's message - the title says it all - is well-reasoned, I wonder if Apple's evolution into a consumer electronics company rather than a computer company will necessitate a different M&A posture.