Microhoo Or Yahsoft

Microsoft Corp. on Friday offered to buy search engine operator Yahoo! Inc. for US$44.6 billion, in an effort to better compete with online advertising giant Google Inc. Microsoftsaid its "compelling" offer of US$31 a share, half cash and half stock, represents a 62% premium on the closing price of Yahoo US$19.18on Thursday.

In a brief statement, Yahoo said its board of directors "will evaluate this proposal carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."

Yahoo shares jumped 57% to $30 in preopen U.S. trades. Microsoft shares were down 5%, while Google stock dropped 6%. Google poses a clear long-term threat to Microsoft's business, but Microsoft and Yahoo together would make a significant competitor who could fight back.

Google dominates the Internet-search business with a 56.3% market share, according to the latest report by ratings agency Nielsen Online. Yahoo! (17.7%) and Microsoft (13.8%) combined for a market share of 31.5% in December.Microsoft had tried to buy Yahoo last year, but Yahoo balked. The sharp decline in Yahoo's stock - it recently touched its lowest point since October 2003 - made a potential purchase more inviting for Microsoft. Earlier this week, Yahoo posted a sharp drop in fourth-quarter profit and said it would trim its workforce.

Microsoft said the combination would create a more "efficient" company with annual savings of US$1 billion, driven by research and development critical mass, operational efficiencies and increased value for advertisers.

Yahoo has more than 500 million unique users and over 4 billion daily page views.

There are the risks of a "culture mismatch" and potential employee attrition would have to be managed carefully. Microsoft said it would offer significant retention packages to Yahoo engineers, key leaders and employees across all disciplines. The software behemoth expects the deal to get regulatory clearance and to be completed in the second half of 2008.

Comment - About time this happened. As good as Google is, I don't think I want to be in a business world where Google is the highly dominant player, much like what Microsoft was for the last 20 years. The other thing I loved was the professional secrecy in the way the bid was announced - I don't think you will see that in Malaysia with a stock being offered at a 60% premium to closing price. If it was in Malaysia, the stock would have risen close to US$30 prior to the announcement: I wonder why!

Terms of Endearment

Important knowledge I have gained throughout my life:

If somebody greets you by calling you "brader", you can bet your sweet ass that he is not your brother and not even a close friend, more of a fly-by-night acquaintance.

You would probably call your very close friend "a total asshole or a total bastard", but someone whom you really despise and just hate their guts: you'd probably refer to them as "a bit of a bastard, or a bit of an asshole".

Somebody who slaps you on your back when greeting you, probably wants you to cough up something.

Seriously, in the end, if you have 5-10 really good close and dependable friends, that's about right.

Somebody whom can greet you by calling out only a phrase of swear words (e.g. TNMCH, KNNCCB, or just a prolonged nonchalant "tiu....") is probably a very very close friend whom you have had a long history.


... and they say don't use swear words in your blog, its unbecoming ... for me, using swear words appropriately is for emphasis and clarity.

Internet Coffee Shop Talk

Boon said...

I never regard Lee Shau-kee as the Warren Buffet of Asia anyway. Lee Ka-Shing is the Warren Buffett of Asia.

Most Wall Street 'strategists' and fund mangers were calling for a year end target of more than 15,000 and some 17,000 for the Dow when the index broke 14,000. These guys are now at huge losses, and the media has been trying to put a very good spin on the bad news.

We should see the weakness spreading to sectors other than the financials in the future.

Best wishes
Boon

boon, nice to hear fm you ... been reading yr great calls for the past few weeks from yr blog ... lol agreed on lee shau kee, thats why the tongue in cheek writing and commentary, at least he stepped down from the pedestal before being pushed from it I agree about the sector spread influence, but a bigger worry should be the collateral damage from even good sectors - even gold and silver may get whacked ... the yen has been on a tear n I suspect the yen carry trade have not been fully unwound yet... my short term watch include European banks implosion due to subprime and related bad debts, UBS figure was a start... it cannot just be the US banks with the bad news, their half yearly reporting (European) compared to the US' quarterly reporting will bring forth another round of bad news from European banks.. Wednesday’s announcement by UBS of a US$14 billion in write-downs was a shocker as this was additional losses ... UBS had said a month back that they anticipated about US$10 billion in write-downs from securities linked to U.S. subprime mortgages... hence the 40% higher figure is huge. .. more importantly, UBS only blamed US$12 billion of the write-downs on subprime. About US$2 billion in write-downs, UBS said Wednesday, are from “other positions related to the U.S. residential mortgage market.” What does that mean? Even the less-risky parts of the U.S. home-mortgage market are running into trouble ... that sounds like bullshit... less risky means what???... prime mortgages? ... or as I suspect... home equity lending??? Citigroup's US$4bn allocated on future detriration of consumer debt was the biggest catalyst for the credit bubble implosion trigger... UBS US$2bn figure though smaller, its huge because their commercial operations and branch operations are nowhere as wide as Citigroup. Citigroup was the catalyst, UBS was the confirmation... which bank will be the destruction...? now that the 50bp cut wanted by the market was given ... players know they cannot focus on the Fed to read the markets for at least a few more weeks... sigh ... what else can they be looking at ... a-ha inflation... Hershey bar up 13% ...

HK's Backdraft

Guru Lee Climbs Down From The Pedestal

HK's very own Warren Buffett has gone less bullish. OMG. When even the Supreme Venerable Grandmaster Lee Shau-kee tempers his enthusiasm for the stock market, it's time to pay attention.

The Henderson Land Development chairman yesterday revealed a much more conservative attitude toward the market, lowering his previous lofty targets. He even asked his legions of loyal followers to knock him off his pedestal as the "God of Stocks."Said Lee: "I am not the genuine 'God of Stocks.' I am only a fake please don't call me that any more. I am just a simple investor." At least he is paving the way for a cushioned fall. The man known as "Asia's Warren Buffett" said he has changed to become more stable and calm. He told reporters the Hang Seng Index will only reach 27,000 to 30,000 points by March, then the market will ease its rise in the second quarter. Guru Lee had previously said on New Year's Eve the HSI would surge past 33,000 in the spring - a level 10 to 22 percent higher than his current predictions - before hitting 36,000 in autumn.

Asked about a strategy for the second quarter, he said: "Hold on to your stocks and don't be too aggressive." Lee even said his interest in being a cornerstone investor in new listings has waned. "The share price for the newly listed stocks are rather high and I'm not too fond of it," he explained. What a difference a a couple of weeks make.

Among his portfolio, Lee said his favorite stocks are the ones related to resources that can be burned - including China Coal (1898), China Shenhua Energy (1088), CNOOC (0883), and PetroChina (0857). He also likes China Life (2628) and China Merchants Bank (3968).

Through-Train Being Downplayed Further

The central government may have new concerns about the introduction of the "through-train" policy because of the recent turmoil in financial markets, according to the Hong Kong Monetary Authority.

"The through-train policy should not be seen as a market-saving measure," HKMA chief executive Joseph Yam Chi-kwong told legislators yesterday, adding he did not have any updates about the scheme that would allow mainland individuals to invest directly in the local bourse. Meanwhile, Yam said he does not see any structural problems in the local stock market, despite recent volatility.

The authority does not intend to intervene in the stock market the way it did in 1998, he said, but the government will continue to hold its stake in Hong Kong Exchanges and Clearing. "I do not see large capital outflows, even if some foreign investors are opting to cash out. But I don't rule out the possibility that some may decide to buy now," said Yam. Given the recent financial turmoil, Yam does not think the "decoupling theory" would hold. As most Hong Kong banks follow US Federal Reserve rate cuts, Yam believed negative interest rates - which he described as "abnormal" - are inevitable.

"But economic slowdown will bring down demand and eventually drive down prices," said Yam. He did not rule out the possibility of issuing more Exchange Fund bills as that would narrow the interest rate difference between the Hong Kong interbank offered rate and bill yield.

It is important to remember that the "through-train" is a HK government initiative proposed to Beijing. Beijing had been enthusiastic about it back in August 2007. However the severe correction in China markets have basically made it "unnecessary" for now to consider the "through-train". The plan was supposed to act as another release valve for pent up liquidity in China. That does not seem to be a worrying factor these days. If it was a Beijing proposal, then there may be some follow-through in 2008, but its not.

Volatility & Warrant

Question: In view of the high volatile market, do you think one should continue to invest in warrant as doing warrant will increase one's exposure to higher volatility in the already highly volatile market. I had a discussion with on friend on that but i disagree with him on the current situation that we should be buying the underlying instead of adding more volatility by leveraging on warrant. My view is that we cannot lower the volatility through warrant but we can control the risk exposure by lowering the trade value of warrant and yet achieve a comparable risk/gain/loss. Am i right to say that? An example would be a $20 share and a 10c warrant with June/July expiry, out of money warrant. Conversion is 10. A very vague guide but what i want to say is by varying the trade size, we can achieve good exposure with comparable risk.

Comment - Warrants trading in a down trend marked with intense volatility is not for the faint hearted, but to me, a genuine warrant player absolutely loves this market. Intense volatility and grave mis-pricing, the best kind of markets to trade warrants. If you are cashed out, maybe you can risk 10%-20% of capital to do this. Its pretty simple.

Follow some basic rules:
a) Do not buy on up days, buy on down days where mis-pricing is more readily available. You also have a buffer buying on down days.
b) Throw out all warrants with less than 30 days to expiry.
c) Only consider those with Effective Gearing of more than 5x and a Premium of Less than 20%.
d) Preference to those with lower absolute prices, i.e. a 10 sen warrant is better than a 30 sen warrant.
e) Sell on up days. For the assumed risk, you should be expecting 30%-50% return per trade.
f) Because you selected those with high gearing and low premium, even on further down days, the warrant price would not fall by a big percentage. Set a cut loss level.

Like I said, this is not for everyone.

Magic Man

If you thought that David Blaine was good, wait till you see Cyril Takayama. He is more inventive, casual and likes to do multiple tricks with one magic item. You will never view Lacoste polo shirts in the same way again. The second one shows why he will never go hungry. He is an American born of French-Moroccan-Japanese parentage: with those looks he could be in anything he wants. He is very very big in Japan, and should conquer the world next. Looking more likely to be the best magician ever.

http://www.youmaker.com/video/sv?id=62f43fbc7f3c4c1c88d22b60a1df2282001&

http://www.youtube.com/watch?v=ybRNdbzMXgs&feature=related

Decoupling & Globalisation

bantersy said...

dali,

that was a long post!!! good work with patience!

btw, i wish to bring the your attention to the following.

"Lukewarm - Rest of Asia will have to come to terms with inflationary pressures as local currencies may not rise enough to counter imported inflation, thus hurting outlook for local equities."

will asia currencies rise as much and pick up steam to match the rising inflationary pressure. bearing that asia export to US is not as dependence as before, the rise of asia currencies will hurt its export to US. although euros, yuan and other major trading partners in east asia, the rising trend in their currencies is seen, thus mitigating the effect of losing its export competitiveness.

You also mentioned oil will stay above 100 and probably settling in that range for year 2008. The thing is, with global economy coming to a slowdown, wouldnt you think it will cushion the consumption of oil though it is the basic neccessity of our life. wouldn't OPEC be wary of "engineering" a high oil that will stay, for as high as possible for as long as possible, will just kill themselves in return. when everything come to a stop, their black gold will also be cheap gold? with all the curbs, measure to cool, china for one, should also tapping their brakes in an effort not to be so jerky. thus, i may be wrong, for i see oil may stay below 100 for year 2008. unless opec is so stubborn to ignore the global issues many are facing. by taking 1 dollar off the oil price, it allows many in the world to have a bit more to spend.

Maybe....

bantersy, i think the currencies that were strong in 2007 will continue to be strong. Dependence on US demand is central to the decoupling theory. I agree that most economies have been less reliant on US demand for trade. However, the flip side is the rise and rise of globalisation - which basically links all markets. A major correction in one will affect the rest.

The question which you want answered is would other markets which are more vibrant be unaffected economically. If the situation is just housing weakness in the US, I would agree to that. However, this is a credit bubble imploding owing to money supply growth for the past few years. All vibrant economies have been tainted with money supply growth as well.

Though we may see vibrancy in Europe and emerging markets, needless to say, the consumer side have been leveraging on the easy money policy as well. Just look at Singapore's luxury market and even houses costing above RM600,000 in Malaysia which is the norm now. My guess is that the "en-bloc sale" gains have been leveraged onto additional new luxury property speculation. My guess is that in Malaysia, the majority of buyers for properties more than RM600,000 over the past 2 years have more than one property and have geared up. Realistically, you need a household to have RM10,000 monthly income to afford funding a RM600,000 or higher property. Judging from the plethora of launches, I very much doubt the long term affordability. Just glance at the sale ads of new properties anywhere. Hence vibrancy in economic trade may cover the excess leverage of debt into other areas masked as positives. That's why I have not been a bull on Malaysia or Singapore property in 2007.

Your other query lies in excluding US from the global trade equation, since they are all vibrant they should be able to continue to have vibrant trade with each other - that could be the case, but not likely. If it was just US housing weakness, maybe that fairy tale scenario can pan out.

I still see delayed sub prime mess hitting European banks as they report half yearly unlike the US banks which makes quarterly reporting. Hence Europe will be affected badly in the coming weeks. This weaken the trade equation further if US and Europe experience similar problems together. Next we have Japan exhibiting another slowdown phase. Just from that, who will China, India, Malaysia export to?

Why a major correction elsewhere would affect vibrant economies elsewhere is hard to fathom as things look rosy and secure in other markets. Problems unwinding elsewhere may not hit us is the initial feeling. As you can see from the chain of events above, US-Europe-Japan, it will hit the rest of BRIC.

The problem is not in trade but "the leverage on inflated assets", that is the critical thing about a credit implosion. Housing is the easiest example to show, but there are other inflated assets that have been leveraged upon for the past few years. Things like credit card and home equity refinancing. Just look at our household debt and you can sense it. The money supply growth has pumped so much inflation into our system, everyone can feel the price of goods and services rising much faster than our salaries. Official CPIs are twisted. If the emerging markets and Europe currencies did not go up by so much, the actual inflation may have been worse.

One of the biggest con in 2007 have been the surge in almost every currency other than USD. Take USD out of the equation, we are basically ranking parri-passu with AUD, Euro, pound, yuan... when all move up, who is to say we have actually strengthened. We all strengthened against ONE currency only: that is why the Fed has done one very smart thing, being able to export inflation away to the rest of the world. Yes, US still has inflation owing to weaker USD but in a slowing economy, settling for lower growth, they will actually have less to lose.

As for the price oil, whether it averages 110 or 90, does it really matter? There are bigger problems already within the system. Even 80 won't cure inflation worry already in the system.