Share Rules May Prompt Offering by FB

Facebook likes big numbers — it now has more than 500 million users, each one of whom can have as many as 5,000 friends. Yet as a privately held company, its ownership base must remain small, or it will have to disclose publicly its financial results.

A surging shadow market in the privately held shares of Facebook is making such restraint difficult and could spur the company to go public — even as its executives try to tamp down speculation about an initial public offering — much as similar pressure helped push Microsoft and Google toward their own initial public offerings.

The frenzied trading in Facebook, as well as in Twitter, Zynga and LinkedIn, has caught the eye of the Securities and Exchange Commission. The agency had asked for information about trading in all four companies. While it is unclear what exactly the S.E.C. is focusing on, legal experts say that one clear area of inquiry relates to a federal law that establishes a limit for private companies of fewer than 500 shareholders. Once a company has 500 shareholders, it must register its private shares with the S.E.C. and publicly disclose its financial results.

Facebook is well aware of this issue. In 2008, the S.E.C. allowed Facebook to issue restricted stock to employees without having to register the securities, a move that would have required the company to publicly disclose financial information.

The company has also tried to limit the number of employees selling shares. This year, it put into effect an insider trading policy that bars current employees from selling stock. But the pace of trading in Facebook shares, as well as trading in other social network companies, has accelerated nonetheless.

Like the Google founders and Mr. Gates before him, Facebook’s iconoclastic founder, 26-year-old Mark Zuckerberg, insists he is a reluctant seller. He and his fellow executives have sought to dispel expectations of a Facebook public offering any time soon. But as the company grows, it risks exceeding the 499 shareholder limit.

Enter your email address:

Goldman Adopts ‘Brake’ Provision on Bonuses

Kenneth R. Feinberg, President Obama’s former pay czar, received a lukewarm reception from Wall Street this year when he suggested that firms adopt a so-called brake provision that would allow employee compensation agreements at big banks to be broken if the government were forced to step and bail them out.

Goldman Sachs disclosed in a regulatory filing that it had adopted just such a brake proposal. The filing says that if the government is forced to bail Goldman out, most of the firm’s outstanding compensation awards “shall immediately terminate.”

The move was applauded by some pay experts as a good corporate governance practice. The brake proposal followed a broad outcry over the American International Group’s payout of millions of dollars in bonuses in 2009 even though the government had pumped billions of dollars into the company to rescue it the previous year.

Still, there is no danger that Goldman’s adoption of the provision will derail its bonuses for 2010. Goldman is thriving. It earned $5.97 billion during the first nine months of the year and put aside $13.1 billion in pay for its 35,400 employees. Goldman employees are expected to find out in the third week of January what their bonuses will be and will most likely receive them in early February.

Enter your email address:

Is Social Networking Adding Value??

Social Web darlings Facebook, Twitter and Groupon have collectively gained 70 percent in enterprise value since June — returns that make Google look like a utility stock or … Microsoft.

As of Dec. 1, institutional investors valued the trio at $49.7 billion, with Facebook weighing in at $41.2 billion, Twitter at $3.7 billion and Groupon at $4.8 billion. In essence, these private technology companies have become must-have holdings in the secondary market, where stock is purchased from current shareholders, like employees.

Nyppex, an advisory firm to sellers and buyers of private shares, tracked 11 of the largest social media companies in this report, including LinkedIn, Yelp and Zynga. Although a few lost momentum during the five-month window — notably Digg which fell 40 percent after a controversial site redesign — the vast majority were firmly in the black. Based on institutional bids, the group’s valuation gained 54.3 percent in the period.

The social-buying site Groupon, which recently rejected a $6 billion offer from Google, led the pack, up 303.4 percent. Such gains make their public counterparts look like stodgy, slow-growth stocks. Over the same five months, Apple added 25.8 percent, Google jumped 26.8 percent and Microsoft gained 13.2 percent.

Enter your email address:

Its Bonus Season on Wall Street, Many See Zeros

Bonus season is fast approaching on Wall Street, but this year the talk does not center just on multimillion-dollar paydays. It’s about a new club that no one wants to join: the Zeros. Drawn from a broad swath of back-office employees and middle-level traders, bankers and brokers, the Zeros, as they have come to be called, are facing a once-unthinkable prospect: an annual bonus of … nothing.

In some ways, a zero bonus should not come as a surprise to many bankers. As a result of the 2008 financial crisis, Wall Street firms like Goldman Sachs and banks like Citigroup raised base pay substantially in 2009 and 2010. They were seeking to placate regulators who had argued that bonuses based on performance encouraged excessive risk.

At Goldman, for instance, the base salary for managing directors rose to $500,000 from $300,000, while at Morgan Stanley and Credit Suisse it jumped to $400,000 from $200,000.

Even though employees will receive roughly the same amount of money, the psychological blow of not getting a bonus is substantial, especially in a Wall Street culture that has long equated success and prestige with bonus size. So there are sure to be plenty of long faces on employees across the financial sector who have come to expect a bonus on top of their base pay. Wall Streeters typically find out what their bonuses will be in January, with the payout coming in February. The bump in base salaries had confused people, even though their overall compensation was the same. Actually, Wall Streeters expect a big bonus, it is as if they don’t even see their base doubled last year.

Dealing with the Zeros can be complicated. It’s actually a big headache. There is so much grousing that in some cases the banks may throw $20,000 or $25,000 at each of the Zeros so they’re not discouraged. Although this may satisfy the Wall Streeters but it may placate the fear of being a part of the ZEROs.

Enter your email address:

Groupon-Google Update: Google Goes Hunting After Being Spurned by Groupon

After failing to win over Groupon with a $6 billion bid, Google is courting the social buying site’s rivals. Google is in talks with much smaller rivals of the two-year-old firm. In two years, Groupon, based in Chicago, has ballooned to 3,100 employees, 35 million users in 300 markets and more than $1 billion in annual revenue. In comparison, LivingSocial, the No. 2 player, has about 10 million subscribers in more than 120 markets. Although LivingSocial, which also generates significant cash, may be an attractive alternative for Google, a takeover deal would not come cheap or easy. LivingSocial raised $183 million this month from Amazon and LightSpeed Ventures, in a deal that valued the company at more than $1 billion. At the time, the company reiterated its commitment to flying solo.

Beyond LivingSocial, there are a couple of notable players in the market.

BuyWithMe, based in New York, operates in 12 cities. The company’s interim president, David Wolfe, declined to comment on possible talks but said, “Google needs to enter the coupon advertising market.” The company has raised over $20 million since it was founded in 2009.

Tippr, owned by software company Kashless, operates in 25 markets. Like Groupon, the company has recently expanded through acquisitions, buying FanForce and Chitown Deals in June.

According to analysts, Google was eager to acquire Groupon, which offers deeply discounted offers from vendors, to gain a stronghold in the fast-growing local advertising market. By connecting consumers to merchants in their hometowns, social buying sites have created a valuable way to tap into small and medium-size businesses. Local online advertising is expected to grow 18 percent, to $16.1 billion, next year, according to the advertising research firm Borrell Associates.

Read the previous story on Google-Groupon Deal @ Deal Market

Enter your email address:

Treasury Stock Method and its Importance

In simple terms when a company repurchases shares, they may either be canceled or held for reissue. If not canceled, such shares are referred to as treasury shares. Technically, a repurchased share is a company's own share that has been bought back after having been issued and fully paid OR in another context it can also be said that a treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market (common shares).

Stock repurchases are often used as a tax-efficient method to put cash into shareholders' hands, rather than paying dividends. Sometimes, companies do this when they feel that their stock is undervalued on the open market. Other times, companies do this to provide a "bonus" to incentive compensation plans for employees. Rather than receive cash, recipients receive an asset that might appreciate in value faster than cash saved in a bank account. Another motive for stock repurchase is to protect the company against a takeover threat.

Limitations of Treasury Stock:

·         Treasury stock does not pay a dividend

·         Treasury stock has no voting rights

·         Total treasury stock cannot exceed the maximum proportion of total capitalization specified by law in the relevant country

The possession of treasury shares does not give the company the right to vote, to exercise pre-emptive rights as a shareholder, to receive cash dividends, or to receive assets on company liquidation. Treasury shares are essentially the same as unissued capital and no one advocates classifying unissued share capital as an asset on the balance sheet, as an asset should have probable future economic benefits. Treasury shares simply reduce ordinary share capital.

Importance of the Treasury Method:

This method comes into picture when we need to deal with the reduction in earnings (EPS) of common stock that occurs through the issuance of additional shares at the exercise of stock options or warrants or the conversion of convertible securities. An investor should carefully consider the fully diluted share amount because it can cause a company’s share price to plummet significantly if a large number of option holders or convertible bond holders decide to claim their stock.

Thus method is one of the most commonly used methods to value the options/warrants for the calculation of enterprise value. The purpose of this method is to account for the cash generated by the exercise of options/ or warrants. It assumes that the proceeds that a company receives from an in-the-money (options are in the money if its exercise price is less than the share prices) option exercises are used to repurchase common shares in the market. The net new shares that are potentially created is calculated by taking the number of shares that are in-the-money options purchase, then subtracting the number of common shares that the company can purchase from the market with the option proceeds. The net new shares are added to the basic shares outstanding to get the fully diluted shares outstanding which are used to calculate the diluted equity value. An example has been illustrated for better understanding the Treasury Method concept.

Example:

Current share price:                            $50

Share outstanding:                             400mm

Options/warrants outstanding:             10mm

Exercise price:                                   $25

Proceeds from conversion:                  10*$25 = $250mm

Stock buyback (at premium):               $250/$50 = 5mm

Diluted shares:                                   400 + 10 – 5 = 405mm

Check out space for effects of convertibles on EPS……..

Enter your email address:

Bulge Bracket Vs Boutiques

The term “Bulge Bracket” generally refers to the large investment banks that cover most or all industries and offer most or all of the various types of investment banking services.   While there is no official list of bulge bracket banks, most people would consider the following banks to be bulge bracket: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.

Pretty much all banks that are not considered “Bulge Bracket” are referred to as being “Boutiques”.  Boutiques, while ranging in size from a few professionals to hundreds or even thousands of professionals, can generally be categorized into three types:  (1) those that specialize in one or more products, (2) those that specialize in one or more industries and (3) those that specialize in small or mid-sized deals and small or mid-sized clients (generally less than $500 million).

There are boutiques that specialize in any number of the products that bulge bracket banks offer.  Boutiques known for M&A, for example, often compete with the bulge bracket banks for M&A transactions.  A few examples include Lazard, Greenhill, Evercore and Gleacher.  Other boutiques offer many different products but specialize in one or more industries.  Such boutiques often compete with the bulge bracket banks on the basis of their industry knowledge and expertise.  A few examples include Cowen & Co. (healthcare), Allen & Co. (media) and Thomas Weisel Partners (technology).  The third type of boutique, those that offer many products and cover many industries but compete only for “middle market” or smaller deals include Jefferies & Co., Piper Jaffray, Raymond James and Robert W. Baird.  Many of these middle market boutiques are regionally focused. Some boutiques, including several of the M&A focused banks, are considered to be as (or even more) prestigious as the bulge bracket banks.

Enter your email address:

Novartis to be Global Leader in Eye Care, with Agreement of 100% Merger with Alcon

Novartis, the giant Swiss drug maker, announced in a press release dated December 15, 2010 that it had reached an agreement with Alcon, the eye-care company, wrapping up a yearlong effort to buy the 23 percent of Alcon it does not already own. Novartis will use its stock to pay the equivalent of $168 for each Alcon share, valuing the transaction at $12.9 billion. The new division had generated $8.7 billion in annual sales last year.

Novartis said it expected the deal to close in the first half of next year, pending shareholder approval, adding that it foresaw annual cost synergies of $300 million with full ownership.

Novartis had announced in January that it planned to acquire Alcon, first buying Nestlé’s 77 percent share in the company, but stumbling in its attempt to obtain the stock of minority shareholders, for which it had offered a lesser price. Alcon directors held up the full merger, saying the bid was “grossly inadequate” and objecting to what they called Novartis’s “coercive action.”

The drug maker bought into Alcon in three main stages, first purchasing $10.4 billion worth of Alcon shares from Nestlé for $143 a piece in 2008; then buying out the rest of the food company’s interest for $28.1 billion this year, at $180 a share. The average share price of the two transactions was $168, the same deal it is now offering minority shareholders. Altogether, the cost for Novartis comes to $51.6 billion, including a cash supplement of up to $900 million.

Novartis was able to sweeten the deal with the help of exchange rates, as the Swiss franc strengthened against the dollar and as its stock went up. It is offering 2.8 of its own shares for each Alcon share.The drug maker will offset the dilutive effects of the 108 million new shares being issued with a share buyback program.

Kevin Buehler, president and chief executive of Alcon, will lead the division when it is merged with Novartis. Alcon was advised by the law firms Cravath, Swaine & Moore and Homburger, while the independent directors were advised by Sullivan & Cromwell and Pestalozzi, Zurich.

Enter your email address:

HSBC Names Samir Assaf as New Head of Investment Banking

In a recent press release HSBC announced that it has named Samir Assaf as head of its global banking and markets business, in a second round of senior management appointments ahead of Stuart Gulliver’s taking on the role of chief executive next month. Mr. Assaf succeeds Mr. Gulliver in the global banking unit, and will report directly to him.

Mr. Assaf, 50, graduated from L’Institut d’Etudes Politiques with a degree in finance, and holds an MBA from the Sorbonne. He began his career at the French oil company Total, where he rose to head of its treasury department. From there, he moved in 1994 to CCF, which HSBC bought in 2000. He became head of the bank’s global markets unit in 2008.

Mr. Assaf will be joined by Robin Phillips and Kevin Adeson, who have been named as co-heads of the unit, which will be enlarged to integrate the bank’s global capital financing business. Mr. Assaf has been in the business for 23 years, and helped HSBC’s global markets unit grow its fixed-income operations in Europe.

Enter your email address:

EV/EBITDA and its Importance

EV/EBITDA is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. The term EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. The main advantage of EV/EBITDA over the PE ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest.

If a business has debt, then a buyer of that business clearly needs to take account of that in valuing the business. EV includes the cost of paying off debt. EBITDA measures profits before interest and before the non-cash costs of depreciation and amortisation. EV/EBITDA is harder to calculate than PE. It does not take into account the cost of assets or the effects of tax. As it is used to look at the value of the business in EV terms it does not break this value down into the value of the debt and the value of the equity.

The first advantage of EV/EBITDA is that it is not affected by the capital structure of a company, in accordance with capital structure irrelevance. This is something that it shares with EV/EBIT and EV/EBITA. Consider what happens if a company issues shares and uses the money it raises to pay off its debt. This usually means that the EPS falls and the PE looks higher (i.e. the shares look more expensive). The EV/EBITDA should be unchanged. What the “before” and “after” cases here show is that it allows fair comparison of companies with different capital structures.

EV/EBITDA also strips out the effect of depreciation and amortisation. These are non-cash items, and it is ultimately cash flows that matter to investors.

When using EV/EBITDA it is important to ensure that both the EV and the EBITDA used are calculated for the same business. If a company has subsidiaries that are not fully owned, the statement of income shows the full amount of profits from but is adjusted lower down by subtracting minority interests. So the EBITDA calculated by starting from company's operating profits will be the EBITDA for the group, not the company. There are two common ways of adjusting for this:

·         Adjust the EV by adding the value of the shares of subsidiaries not owned by the company. The end result is an EV/EBITDA for the group. This becomes complicated if there are a lot of subsidiaries.

·         Include only the proportion of EBITDA in a subsidiary that belongs to the company. So if the company has a 75% stake in a subsidiary, only include 75% of the subsidiary's EBITDA in your calculation. This is simple for companies (such as many telecoms companies) that disclose proportionate EBITDA. Otherwise, it can become difficult if the subsidiaries' results are not separately available. It also needs the corresponding adjustment to EV. In the example above, only 75% of the subsidiary's debt would be included in the group EV.

Given these complications, a sum of parts valuation may be considered as an alternative for complex groups. EV/EBITDA could still be used to value each individual part of the group.

EV/EBITDA is usually inappropriate for comparisons of companies in different industries, as their capital expenditure requirements are different. Ideally one would substitute EBITDA minus maintenance capex (capital expenditure required if the business does not expand) for EBITDA, which is difficult. Alternatively, depreciation could be used as an inaccurate but easy proxy for maintenance capex which would mean using EV/EBITA.

Also, see EV/Sales and its Importance. See the space for more on Valuation Ratios......... 

Enter your email address:

Sanofi-Genzyme Update: Sanofi Extends its $18.5bn Genzyme Offer

Sanofi Aventis said on Monday that it would extend its $18.5 billion offer for Genzyme until January 21, 2011 in a move to keep its proposed deal alive. The extension is said to provide additional time to allow holders of Genzyme common stock to tender their shares

After months of negotiations, Sanofi began a hostile takeover attempt in October, offering $69 a share. The price, which Genzyme’s board has said is too low, remains the same under Sanofi’s extension. While Sanofi has attempted to circumvent the Genzyme board and build shareholder support for its offer, the minimal response would indicate that most investors in the company are waiting for something better.

Given that they received less than 1 percent shareholder support for their bid, it is perplexing, to say the least, how Sanofi could simply renew their offer without changes. Meanwhile, the possibility of additional payments tied to the performance of Genzyme drugs, like its multiple sclerosis treatment Campath, has emerged as a way the two companies might overcome their differences. Shares of Genzyme slipped $0.17, or 0.24 percent, to settle at $69.82 at the close on Friday, December 10, 2010.

Enter your email address:

Groupon Rejects Google's $6bn Takeover Offer

Groupon has walked away from Google’s $6 billion takeover offer.  The rejection at least temporarily thwarts Google’s efforts to buy the social buying site, which would have been its largest acquisition to date. According to several people with knowledge of the takeover talks but who were not authorized to speak publicly on the matter, Google was eager to purchase the fast-growing start-up, based in Chicago, raising its bid at least once during negotiations.

Options for Groupon include the possibility of staying independent but securing a significant investment, as its rival LivingSocial did by accepting $175 million from Amazon this week. Groupon’s chief executive and founder, Andrew Mason, has also expressed his interest in taking the company public with a share offering.

Groupon’s subscriber network has expanded to 35 million users in 300 markets in North America, Latin America and Europe. It is pulling in more than $1 billion in annual revenue. It is that high-octane growth that most likely stands in the way of a deal. During discussions, estimates of Groupon’s revenue continued to rapidly climb, weakening the value of Google’s offer. So, instead  Google may acquire one of Groupon’s larger competitors, such as LivingSocial, BuyWithMe or Tippr.

The dissolution is reminiscent of Google’s attempt late last year to purchase Yelp, the Web site that lists reviews of local businesses. Google walked away from that deal for reasons that were never explained. The offer for that proposed acquisition was said to have been around $500 million.

If completed at the offered price, the Groupon deal would top Google’s $3.1 billion purchase of DoubleClick in 2007. The acquisition also would have yielded an immediate lucrative payout for the company’s 30-year-old founder and its roster of financiers, which includes Accel Partners, Digital Sky Technologies and New Enterprise Associates, who have invested more than $170 million in the company to date.

Google had set its sights on the hyperlocal market for neighborhood mom-and-pop shops, where it sees a largely untapped group of business customers and advertisers. Groupon, which offers discount coupons, could provide Google with specific insight into consumer spending habits as well as provide access to a large fleet of salespeople with intimate knowledge of local markets.

Enter your email address: