MCI's board finally came to its senses. After months of blowing off Qwest's pursuit of acquiring them (they had the gall to offer shareholders more money), MCI finally admitted to the world that Qwest's new offer of $30.00 a share ($16 in cash and $14.00 in stock) was more than Verizon's offer of $23.10. I'll pause now while you all digest that logic...
Heck even Verizon agrees that $30 is more than $23 (see quote from linked article below).
"The MCI board decided that their bid of $30 (per share) was higher than our bid of $23.10 (per share). That shouldn't be a surprise to anybody. 30 is higher than 23," Verizon said in the transcript.
So now Qwest is in the driver's seat. Verizon may up its offer but they won't go to $30. MCI would probably prefer a Verizon offer anyway because a combined Qwest/MCI company may drag down Qwest's already dragging stock price. Since 40% of Qwest's offer is in their stock, MCI would assuredly be happy to see Verizon get into a bidding war.
But they won't. Verizon knows that despite all of the bad press around this deal, MCI desperately wants to be acquired by them. If they were to up their offer to what they gave shareholder Carlos Slim (see article bel0w) that might close the deal.
Hawk's View: Clearly Qwest's call out to all of their employees to check between the cushions of their couch for loose change worked. They are now presenting their third and final best offer. However, despite all of that and Qwest's ability to line up private equity to balance the company out, post-merger, Verizon will walk away with this one. The Hawk still feels it's MCI's duty to take Qwest offer in the spirit of shareholder return, but alas, he does not think that will happen. Look for an offer increase from Verizon within the next two weeks and MCI's board running lovingly into their arms.
Wednesday, April 27, 2005
Thursday, April 21, 2005
Allen's Folly: Not on the Chart for Consolidation
This week brought an exciting time in the cable business. One time star but currently bankrupt Adelphia was bought out by cable titan Time Warner and Comcast. The deal adds 1.8M subs to Comcast and 4M to TW. In addition, both swapped out systems to get better economies of scale (known as clustering in the cable world) and Comcast got a nice chunk of change for its former 21% stake in TW.
The deal touched off a debate as to what will happen next (regarding consolidation) in the cable world. The first name that popped up was Charter Communications (also known as Allen's Folly as it is captained by former Microsoft geek Paul Allen). Charter is logical because it is currently trading at only $1.45 a share and it has over 5M subs (ranking it the fourth largest cable co. behind Comcast, TW and privately held Cox Communications). However, The Hawk will show you just why Charter will be left at the alter.
1. $17Bilion in debt: Yes that's billion with a "b" and that number is not in pesos. Charter's debt is so high that some central African governments would feel sorry for them. The debt comes from Charter's deal daze of the late 90's where they overpaid for several cable systems and slammed them together to make what is today's Charter. Even 5M subs is not worth it for $17B .
2. Lousy systems: Yes Charter has tried to follow the cable model of "clustering" but they have bad clusters. The firm has several clusters on the outskirts of large metro areas (Seattle, Minneapolis-St. Paul and even Los Angeles) but their particular systems do not serve what we ID as high paying customers. Their best system is Saint Louis and why I love the Arch in Springtime, it is not enough to anchor a sale of the whole shootin' match.
3. Lag in roll-out of new services: Although they are run by a guy who prides himself in creating a Wired World, Charter is way behind in rolling out advanced services (HD, DVR, OnDemand, telephony and interactivity). The reason being is because they overspent so much for bad systems in bad areas they have not kicked out enough cash to upgrade their systems. This has led them to raise prices which has in turn led to massive customer defection to satellite.
Hawk's View: The way I see it is Paul Allen has to find a way to take this joint private. At the same time he needs to reach deeper into his velcro wallet and make a run at buying another cable co that has some systems that will give him bigger clusters (potentially Brighthouse in Florida or maybe Mediacom). Yes that will cost him a fortune but he is not check to check. A partnership with KKR to take Charter private and make a run at another cable co would be risky but it's his best option with the current hand he has dealt himself.
The deal touched off a debate as to what will happen next (regarding consolidation) in the cable world. The first name that popped up was Charter Communications (also known as Allen's Folly as it is captained by former Microsoft geek Paul Allen). Charter is logical because it is currently trading at only $1.45 a share and it has over 5M subs (ranking it the fourth largest cable co. behind Comcast, TW and privately held Cox Communications). However, The Hawk will show you just why Charter will be left at the alter.
1. $17Bilion in debt: Yes that's billion with a "b" and that number is not in pesos. Charter's debt is so high that some central African governments would feel sorry for them. The debt comes from Charter's deal daze of the late 90's where they overpaid for several cable systems and slammed them together to make what is today's Charter. Even 5M subs is not worth it for $17B .
2. Lousy systems: Yes Charter has tried to follow the cable model of "clustering" but they have bad clusters. The firm has several clusters on the outskirts of large metro areas (Seattle, Minneapolis-St. Paul and even Los Angeles) but their particular systems do not serve what we ID as high paying customers. Their best system is Saint Louis and why I love the Arch in Springtime, it is not enough to anchor a sale of the whole shootin' match.
3. Lag in roll-out of new services: Although they are run by a guy who prides himself in creating a Wired World, Charter is way behind in rolling out advanced services (HD, DVR, OnDemand, telephony and interactivity). The reason being is because they overspent so much for bad systems in bad areas they have not kicked out enough cash to upgrade their systems. This has led them to raise prices which has in turn led to massive customer defection to satellite.
Hawk's View: The way I see it is Paul Allen has to find a way to take this joint private. At the same time he needs to reach deeper into his velcro wallet and make a run at buying another cable co that has some systems that will give him bigger clusters (potentially Brighthouse in Florida or maybe Mediacom). Yes that will cost him a fortune but he is not check to check. A partnership with KKR to take Charter private and make a run at another cable co would be risky but it's his best option with the current hand he has dealt himself.
Sunday, April 17, 2005
Lil' Kim: The Dear Leader
So far in my very short weblog career I have kept my rants confined to the business world. However as I am wont to do I will from time to time veer off into the realm of world affairs (something that I find fascinating).
Today is one of those days and I am delighted to let you know that the topic is one of my favorite's and your's, the cuddly Kim Jong-Il.
As despots go, Mr. Kim (Lil' Kim as I like to call him), or the Dear Leader as he is known in North Korea, is not much of an imposing man. Five feet tall on a good day and sporting a wild hairdo, Lil' Kim has been running the North since 1994. He took over for his dad, the Supreme Leader, Kim Il-Sung (much cooler name).
Since then Lil' Kim has been preoccupied with starving his people, building a nuclear arsenal and pretty much going out of his way to irritate every leader in the world.
The world has put up with it because, frankly, we don't know what to do. The US is preoccupied seemingly everywhere else (except Africa of course), Russia is busy with its own internal issues, China also has its own internal issues and is preoccupied with getting rich.
The fact that Lil' Kim has a nuke is problem number 1 - 5. But the bigger problem is that China, Japan and Russia have dropped the collective baton in securing their regional issues. Each seems to be playing a game of hot potato with the other (probably hoping secretly that the Great Satan - the US - will ride in on its white tank and take over).
Only this is one where we should sit out. Yes the North has a nuke but more than likely if they get it airborne it is not going anywhere near the US (we don't even know for sure they can get it this far). Besides I still find it hard to believe that a country that can't even grow enough food to feed its people and who chief export is opium can get it done the bomb department.
Hawk's View: Bottom line is that Lil' Kim is going down soon. Either via coup, health, or family jealousy, he's going to be out. And as a result 4M North Koreans will begin to stream over the borders into Russia, China, Japan and South Korea. The influx of refugees will destabilize the regions of each of these countries that border the North and a problem that was once controllable (e.g., power and food for nuke dismantlement) will become, pardon the pun, a nuclear one.
Today is one of those days and I am delighted to let you know that the topic is one of my favorite's and your's, the cuddly Kim Jong-Il.
As despots go, Mr. Kim (Lil' Kim as I like to call him), or the Dear Leader as he is known in North Korea, is not much of an imposing man. Five feet tall on a good day and sporting a wild hairdo, Lil' Kim has been running the North since 1994. He took over for his dad, the Supreme Leader, Kim Il-Sung (much cooler name).
Since then Lil' Kim has been preoccupied with starving his people, building a nuclear arsenal and pretty much going out of his way to irritate every leader in the world.
The world has put up with it because, frankly, we don't know what to do. The US is preoccupied seemingly everywhere else (except Africa of course), Russia is busy with its own internal issues, China also has its own internal issues and is preoccupied with getting rich.
The fact that Lil' Kim has a nuke is problem number 1 - 5. But the bigger problem is that China, Japan and Russia have dropped the collective baton in securing their regional issues. Each seems to be playing a game of hot potato with the other (probably hoping secretly that the Great Satan - the US - will ride in on its white tank and take over).
Only this is one where we should sit out. Yes the North has a nuke but more than likely if they get it airborne it is not going anywhere near the US (we don't even know for sure they can get it this far). Besides I still find it hard to believe that a country that can't even grow enough food to feed its people and who chief export is opium can get it done the bomb department.
Hawk's View: Bottom line is that Lil' Kim is going down soon. Either via coup, health, or family jealousy, he's going to be out. And as a result 4M North Koreans will begin to stream over the borders into Russia, China, Japan and South Korea. The influx of refugees will destabilize the regions of each of these countries that border the North and a problem that was once controllable (e.g., power and food for nuke dismantlement) will become, pardon the pun, a nuclear one.
Saturday, April 16, 2005
The Sun Continues to Set on Japanese Economy
It was without a doubt one of the greatest success stories of 20th century. A country ravaged by war (admittedly they started it) and reeling by the only known nuclear attacks on any nation rose up from the ashes and became an economic power.
Yes, Japan had help but it was what they did with that help that made them great. They innovated, worked harder than anyone in the world and by the early 80's they were a world economic power.
The role the Japanese had in shaping the world economy cannot be understated (if you want to get a great example, watch Michael Moore's Roger and Me from 1985. It gives firsthand examples of how the Japanese competitiveness in the auto market exploited larded up American management and how that in turn sent the US auto industry reeling). What the Japanese did in the automotive, consumer electronics and real estate has been and will continue the subject of many stories and case studies for years to come.
But that domination is over and it has been over for 10 years. The problem is that no one in Japan seems to want to believe it. Not to oversimplify it but Japan simply got too much hubris. And with that hubris came bad business deal after bad business deal. In a country where banks are generally large shareholders in the companies they finance, the one group that could keep them honest had a serious conflict of interest.
For ten years Japan has been in an ongoing economic crisis that has seen bailout after bailout by the government, but never the rip the band-aid off approach that was desperately needed. The fact is that the crises going on in Japan right now (large corporations larded up with debt but dubbed too big to fail by the banks and government) are not new but just in their tenth year of existence.
The article attached covers the sad tale of long time Japanese retailer Daiei. Daiei was at one time a titan of Japanese retailing. But right now they are probably more akin to KMart (minus Eddie Lampert's shrewd real estate mind). They have been struggling to stay as a going concern for about 7 years and have continued to get bailout after bailout by the banks and government.
Hawk's View: What Japan needs is a big failure. A spectacular failure to shake up things. In 1999, South Korea got one when the government finally said you are on your own to two severly wounded Chaebol's (Daewoo and Hyundai). Both conglomerates went through a painful restructure but it was necessary. And it had a ripple effect. Today South Korea's major economic players (Samsung, LG, SK and even Hyundai) are making noise worldwide in everything from cars to consumer electronics and appliances. In the process they are cleaning Japan's clock.
Japan can still be great again, but in order to do so they must take a long hard look in the mirror...
Yes, Japan had help but it was what they did with that help that made them great. They innovated, worked harder than anyone in the world and by the early 80's they were a world economic power.
The role the Japanese had in shaping the world economy cannot be understated (if you want to get a great example, watch Michael Moore's Roger and Me from 1985. It gives firsthand examples of how the Japanese competitiveness in the auto market exploited larded up American management and how that in turn sent the US auto industry reeling). What the Japanese did in the automotive, consumer electronics and real estate has been and will continue the subject of many stories and case studies for years to come.
But that domination is over and it has been over for 10 years. The problem is that no one in Japan seems to want to believe it. Not to oversimplify it but Japan simply got too much hubris. And with that hubris came bad business deal after bad business deal. In a country where banks are generally large shareholders in the companies they finance, the one group that could keep them honest had a serious conflict of interest.
For ten years Japan has been in an ongoing economic crisis that has seen bailout after bailout by the government, but never the rip the band-aid off approach that was desperately needed. The fact is that the crises going on in Japan right now (large corporations larded up with debt but dubbed too big to fail by the banks and government) are not new but just in their tenth year of existence.
The article attached covers the sad tale of long time Japanese retailer Daiei. Daiei was at one time a titan of Japanese retailing. But right now they are probably more akin to KMart (minus Eddie Lampert's shrewd real estate mind). They have been struggling to stay as a going concern for about 7 years and have continued to get bailout after bailout by the banks and government.
Hawk's View: What Japan needs is a big failure. A spectacular failure to shake up things. In 1999, South Korea got one when the government finally said you are on your own to two severly wounded Chaebol's (Daewoo and Hyundai). Both conglomerates went through a painful restructure but it was necessary. And it had a ripple effect. Today South Korea's major economic players (Samsung, LG, SK and even Hyundai) are making noise worldwide in everything from cars to consumer electronics and appliances. In the process they are cleaning Japan's clock.
Japan can still be great again, but in order to do so they must take a long hard look in the mirror...
Wednesday, April 13, 2005
Carlos Slim Gets Fat on MCI
Yesterday the Wall Street Journal reported that billionaire telco magnate Carlos Slim got a sweetheart deal from Verizon for his substantial number of shares in MCI.
You remember MCI - the telco with a heart. Bankruptcy proved to be a boon for the boys formerly from Clinton, MS. Emerging with a clean balance sheet and solid properties they were a perfect acquisition target. Big shot telco Verizon stepped up to the plate first and promptly lowballed them. Qwest got into the mix but since Qwest can't seem to get arrested in the world of M and A's they were promptly rebuffed (despite their higher offer).
Here's where it gets fun. Verizon secretly made an offer to buy Slim's shares for $2 more than Verizon was offering EVERYONE else for their shares (plus a call option on some Verizon shares).
So picture this one. You are the Chairman of MCI and you have already stated that you are rejecting an offer from Qwest (that is $4 higher than Verizon) under the guise that the Qwest offer will crush both companies.
Now Verizon, who stated their best offer is a little over $23 a share, has now paid MCI's biggest shareholder a 10% premium for his shares. Bottom line is that if MCI accepts Verizon's offer as is, the board should be summarily fired and forced to work in MCI's customer service department.
So here's where we are. Verizon is holding firm with their $23 a share offer. Carlos Slim (clearly not check to check as he is worth over 23Billion) has cashed out and Qwest is holding at $27. MCI's board has sheepishly suggested that Verizon's offer is "too low" and would like to see it raised. Alert the media on that one. Verizon has no need to raise its offer. MCI is on record not wanting to sell to Qwest and now you own 13% of the company courtesy of Carlos' shares.
MCI is hosed. If they take Verizon's offer they will leave $4 per share on the table. If they walk away all together their shares will go in the tank. Either scenario means they will get sued early and often.
Hawk's View: MCI's best option is to sell to Qwest. It gives them the maximum return to the shareholders (and it gives Carlos the proverbial finger for breaking ranks and selling out). Damn the consequences for the future Qwest/MCI company. It is best to take the money and run...
You remember MCI - the telco with a heart. Bankruptcy proved to be a boon for the boys formerly from Clinton, MS. Emerging with a clean balance sheet and solid properties they were a perfect acquisition target. Big shot telco Verizon stepped up to the plate first and promptly lowballed them. Qwest got into the mix but since Qwest can't seem to get arrested in the world of M and A's they were promptly rebuffed (despite their higher offer).
Here's where it gets fun. Verizon secretly made an offer to buy Slim's shares for $2 more than Verizon was offering EVERYONE else for their shares (plus a call option on some Verizon shares).
So picture this one. You are the Chairman of MCI and you have already stated that you are rejecting an offer from Qwest (that is $4 higher than Verizon) under the guise that the Qwest offer will crush both companies.
Now Verizon, who stated their best offer is a little over $23 a share, has now paid MCI's biggest shareholder a 10% premium for his shares. Bottom line is that if MCI accepts Verizon's offer as is, the board should be summarily fired and forced to work in MCI's customer service department.
So here's where we are. Verizon is holding firm with their $23 a share offer. Carlos Slim (clearly not check to check as he is worth over 23Billion) has cashed out and Qwest is holding at $27. MCI's board has sheepishly suggested that Verizon's offer is "too low" and would like to see it raised. Alert the media on that one. Verizon has no need to raise its offer. MCI is on record not wanting to sell to Qwest and now you own 13% of the company courtesy of Carlos' shares.
MCI is hosed. If they take Verizon's offer they will leave $4 per share on the table. If they walk away all together their shares will go in the tank. Either scenario means they will get sued early and often.
Hawk's View: MCI's best option is to sell to Qwest. It gives them the maximum return to the shareholders (and it gives Carlos the proverbial finger for breaking ranks and selling out). Damn the consequences for the future Qwest/MCI company. It is best to take the money and run...
Monday, April 11, 2005
An Ultimate Demise
Yesterday why my wife was meandering through one of those bed, bath and various home accessories places (the kind that has that smell that gives most men headaches) I decided to slip away and head over to the Ultimate Electronics next door.
Ultimate has had a run of bad luck lately (being bankrupt with a stock worth .15 cents does damper morale) but they do have cool stores with a lot of cool products. The Ultimate in my neighborhood is a beautiful store that has all the things that we men tend to desire. Loud things that take a PhD from CalTech to install and burn so much electricity that you have to petition your local utility for a nuclear power permit.
Despite the full parking lot, there were not a lot of folks in the store. Maybe a handful of shoppers and a ton of employees. MEMO to Ultimate management (of course they read this everyday) one of your problems might be the fact that none of your employees will help people. Actually having sales people that sell stuff might help the stock price.
Anyway, I was actually their to buy my wife something she wanted. A portable stereo for her desk at work. The one I suggested (the big and loud one that shakes your fillings) was shot down. I had to find the dainty piece that any self respecting man would mock me incessantly for possessing.
I wandered aimlessly passing several employees too busy doing God knows what but I was certainly not a priority. Then it hit me. I realized why the employees were so busy, so focused on their task. They were redecorating the store. Yes right in front of me (in the area where the dainty stereo presided, thankfully it was out of stock) was a poster of Ultimate's former CEO, the great Dave Workman. Only the poster had been made over by the busy employees. This poster featured Dave with his trademark smile and his not so famous devil's mustache, beard and horns. Yes, I'm not making this up. Plain as day, Dave Workmen in a full devil's look, in front of all of the customers (all five of us) to see.
I guess that pretty much says it all. You just can't make it up. When people know the ship is sinking there is little allegiance to the captain. I suppose it is hard to blame the employees for acting that way. But I'm left to wonder more important things. Like how I can talk my wife into that cranium splitting sound system...
Ultimate has had a run of bad luck lately (being bankrupt with a stock worth .15 cents does damper morale) but they do have cool stores with a lot of cool products. The Ultimate in my neighborhood is a beautiful store that has all the things that we men tend to desire. Loud things that take a PhD from CalTech to install and burn so much electricity that you have to petition your local utility for a nuclear power permit.
Despite the full parking lot, there were not a lot of folks in the store. Maybe a handful of shoppers and a ton of employees. MEMO to Ultimate management (of course they read this everyday) one of your problems might be the fact that none of your employees will help people. Actually having sales people that sell stuff might help the stock price.
Anyway, I was actually their to buy my wife something she wanted. A portable stereo for her desk at work. The one I suggested (the big and loud one that shakes your fillings) was shot down. I had to find the dainty piece that any self respecting man would mock me incessantly for possessing.
I wandered aimlessly passing several employees too busy doing God knows what but I was certainly not a priority. Then it hit me. I realized why the employees were so busy, so focused on their task. They were redecorating the store. Yes right in front of me (in the area where the dainty stereo presided, thankfully it was out of stock) was a poster of Ultimate's former CEO, the great Dave Workman. Only the poster had been made over by the busy employees. This poster featured Dave with his trademark smile and his not so famous devil's mustache, beard and horns. Yes, I'm not making this up. Plain as day, Dave Workmen in a full devil's look, in front of all of the customers (all five of us) to see.
I guess that pretty much says it all. You just can't make it up. When people know the ship is sinking there is little allegiance to the captain. I suppose it is hard to blame the employees for acting that way. But I'm left to wonder more important things. Like how I can talk my wife into that cranium splitting sound system...
Memo to Qwest: Your Money Is No Good Here
Once again Qwest (the RBOC that time forgot) is finding that being the fourth biggest local phone company is not all that is cracked up to be. The wayward Denver telco - formerly US WEST until ethically challenged Joe Nacchio took over - finds itself in a fight for MCI (another telco with a long list of ethical issues). The rub here is that Qwest is offering MORE money in the deal than competitor Verizon yet cannot seem to close the deal.
Here's the rundown...read slow as it's a little dense.
MCI - after fleecing thousands of retirees and hard working folks out of their hard earned savings - emerges from bankruptcy with essentially a clean balance sheet (a rarity in the telco world). MCI actually owns some valuable assets - national calling network and owners of UUNET who are a major Internet backbone. Since the telcos are in a furious game of consolidation in order to get cost savings and scale, MCI was quite an attractive property.
With fellow telco SBC attempting to swallow AT&T and BellSouth doing there usual nothing, Verizon looked at MCI and saw an opportunity and jumped on it.
February 13th is when the fun began with Verizon offering 6.75 Billion for MCI. Qwest, eager to make something happen, shockingly got into the game. Only they had one problem - MCI wouldn't give them the time of day.
Now picture this as an MCI shareholder. You've bought bonds in this shamed organization and now you have equity. Someone actually wants to take MCI off of your hands (great news!) and then, in an even greater twist of fate, another company wants to get into a bidding war. You think you've died and gone to heaven.
Almost. Only MCI is still overseen by a court appointed director as part of their post-bankruptcy plan. That director clearly thought that the long term prospects for Qwest (and their $17 Billion in debt) was not prosperous. Despite their better offer (Qwest came to the table with $8 Billion), they couldn't even get a meeting.
However, Qwest CEO Richard Notebart would not go quietly into the night. He took his offer to the people and begrudginly Verizon raised their offer (all cash) to $7.5 Billion. Qwest made another offer on top of its first one and THEN another offer of $8.9 Billion (cash and stock) that was, of course, rejected by MCI.
MCI is essentially giving the proverbial finger to Qwest in favor of the much stronger Verizon. However, experts who know more about this than I do stated strongly that even though Qwest's offer was not all cash, it was still much stronger than Verizon. Regardless, it appears that MCI is headed toward a marriage with Verizon.
This is quite a dilemma. If I was a shareholder of MCI, I'm not a happy hobbit right about now. From my standpoint, who cares if Qwest is swimming in debt. Their offer is better. Give me my money. Maximized shareholder return is what it is all about. In the case of MCI the idea they would leave that amount of money on the table shows to me that shareholders are taking a backseat. But why? I'm sure we'll learn more in the coming days, but right now I'm perplexed.
By the way, Qwest stated their last offer was their final, final, double secret probation offer. Which means their next step is to set up a plasma donation area in the corporate office and use the dollars earned from that to sweeten their current offer. Stay tuned...
Here's the rundown...read slow as it's a little dense.
MCI - after fleecing thousands of retirees and hard working folks out of their hard earned savings - emerges from bankruptcy with essentially a clean balance sheet (a rarity in the telco world). MCI actually owns some valuable assets - national calling network and owners of UUNET who are a major Internet backbone. Since the telcos are in a furious game of consolidation in order to get cost savings and scale, MCI was quite an attractive property.
With fellow telco SBC attempting to swallow AT&T and BellSouth doing there usual nothing, Verizon looked at MCI and saw an opportunity and jumped on it.
February 13th is when the fun began with Verizon offering 6.75 Billion for MCI. Qwest, eager to make something happen, shockingly got into the game. Only they had one problem - MCI wouldn't give them the time of day.
Now picture this as an MCI shareholder. You've bought bonds in this shamed organization and now you have equity. Someone actually wants to take MCI off of your hands (great news!) and then, in an even greater twist of fate, another company wants to get into a bidding war. You think you've died and gone to heaven.
Almost. Only MCI is still overseen by a court appointed director as part of their post-bankruptcy plan. That director clearly thought that the long term prospects for Qwest (and their $17 Billion in debt) was not prosperous. Despite their better offer (Qwest came to the table with $8 Billion), they couldn't even get a meeting.
However, Qwest CEO Richard Notebart would not go quietly into the night. He took his offer to the people and begrudginly Verizon raised their offer (all cash) to $7.5 Billion. Qwest made another offer on top of its first one and THEN another offer of $8.9 Billion (cash and stock) that was, of course, rejected by MCI.
MCI is essentially giving the proverbial finger to Qwest in favor of the much stronger Verizon. However, experts who know more about this than I do stated strongly that even though Qwest's offer was not all cash, it was still much stronger than Verizon. Regardless, it appears that MCI is headed toward a marriage with Verizon.
This is quite a dilemma. If I was a shareholder of MCI, I'm not a happy hobbit right about now. From my standpoint, who cares if Qwest is swimming in debt. Their offer is better. Give me my money. Maximized shareholder return is what it is all about. In the case of MCI the idea they would leave that amount of money on the table shows to me that shareholders are taking a backseat. But why? I'm sure we'll learn more in the coming days, but right now I'm perplexed.
By the way, Qwest stated their last offer was their final, final, double secret probation offer. Which means their next step is to set up a plasma donation area in the corporate office and use the dollars earned from that to sweeten their current offer. Stay tuned...
Tuesday, April 05, 2005
The VOOM Saga: "The Hostility in The Hamptons"
Written April 5, 2005
Live from Oyster Bay (the Hampton home of the Dolan family) the FamilyFeud over VOOM has reached its apex. The Dolan's have outdone themselves again. Drumroll please...
March 31st was supposed to be the deadline where VOOM would shut down if Chuck Dolan (known going forward as the Old Man) did not have funding lined up to keep it running. Well March 31st came and went and no the Old Man did not have the money. In lieu of keeping his word he did the following:
1. Replace more board members: In case you're joining us in progress the Old Man removed 4 members in mid-March and replaced them with high profile bobo's loyal to him. He now wants to replace three more members. No word on whether Larry, Moe and Curly will take the gig. This is always a good move when you own 75% of the stock that allows you to pick the board members.
2. Challenge the sale of VOOM's satellite to EchoStar: Prior to the boardroom coup in February, Jim Dolan (the Old Man's son) sold the satellite to Honest Charlie Ergen of Echostar for $200M. After the Old Man ousted Jimmy he attempted to first negotiate with Charlie to get the satellite back. He soon found out that Charlie would have charged his own mother twice the price and there was no way the Old Man was going to do any better. Not to be deterred, the Old Man had his battalion of lawyers filed a complaint with the FCC that the sale of the satellite from his company to Echostar would hurt the competitive landscape of the satellite business. Now, read that last sentence again...a complaint with the FCC that the sale of the satellite from his company to Echostar would hurt the competitive landscape of the satellite business. If that doesn't make sense to you good. It means you're a sound and sane individual. Not to be outdone, Cablevision was forced to send out a letter "disavowing" their CEO for this ridiculous action. Again, if it seems ridiculous to you that a company would send out a letter disavowing it's own CEO, great news because it again reinforces you area sane, sound individual.
Where We Are At: I thought I had this one pegged. I figured the Old Man would secure funding for VOOM by selling Cablevision's sports properties (Knicks, Rangers, Liberty, Madison Square Garden). This would have raised more than enough money to run VOOM into the ground for another year or so and it had the added benefit of sticking it to Jimmy (who is known to love being known as the point man for the teams and MSG). On the other hand, Jimmy has done such a fine job running both the Knicks and the Rangers into the ground (both have the highest payrolls in their respective leagues and they both consistently miss the playoffs) that a sale would probably touch off a ticker tape parade down Times Square.
What We Have Learned:
1. Be mindful of investing in family run "public" companies: Partof the reason this clown show is taking place is because the Old Man owns majority interest in a special class of stock that allows him to replace 75% of the board at his own volition. Even though the Old Man owns less than 2% of overall Cablevision stock, this special stock lets him call the shots. But don't think this is a special case. Comcast has a similar ownership structure with the Roberts family. The moral ofthe story: when investing make sure you understand just how decision sare really made.
2. Just because you were a visionary once before, doesn't still mean you have the juice: The Old Man was a visionary. He started HBO and wired NYC with cable when everyone thought he was nuts. He was right then, but he is wrong now. VOOM simply does not have enough for the customer to make it work long term. DTV's investment in satellites to expand HD programming will bury any short term lead VOOM has incontent. Echo owns the lower end of the market and Charlie is a ruthless competitor so there is no room there either. There is a word for the Old Man's ideology here but visionary is not it. Try stubbornness.
3. If you're a moron, we'll all find out eventually (even if you are the boss's son): Jimmy Dolan still gets the Fredo Corleone Award for Family Management. He thought he could win a power struggle over the Old Man on VOOM and he was sorely mistaken. Yes, he was right in shutting VOOM, but he went about it all wrong. He knew that his father would fire the board if they tried to shut VOOM, yet he went ahead anyway. The smart move would have been to step down as CEO of Cablevision and move to split off the sports properties so he could continue to run those poorly all by himself. The capital raised would have helped VOOM stay afloat for awhile and kept him in his father's graces. It also would have given him leadership over these coveted (and very profitable) properties and kept him out of the Gone with the Wind type drama going on in Long Island.
I'll keep you posted on any other details. No word yet on whether or not the Dolan's will be guest lecturers at Wharton regarding boardroom management.
Link to latest article on VOOM http://www.newsday.com/business/ny-bzvoom4198390apr01,0,4583945.story
Link to site started by VOOM subscribers (guess who's side they are on?) http://jimdolansucks.com/
Live from Oyster Bay (the Hampton home of the Dolan family) the FamilyFeud over VOOM has reached its apex. The Dolan's have outdone themselves again. Drumroll please...
March 31st was supposed to be the deadline where VOOM would shut down if Chuck Dolan (known going forward as the Old Man) did not have funding lined up to keep it running. Well March 31st came and went and no the Old Man did not have the money. In lieu of keeping his word he did the following:
1. Replace more board members: In case you're joining us in progress the Old Man removed 4 members in mid-March and replaced them with high profile bobo's loyal to him. He now wants to replace three more members. No word on whether Larry, Moe and Curly will take the gig. This is always a good move when you own 75% of the stock that allows you to pick the board members.
2. Challenge the sale of VOOM's satellite to EchoStar: Prior to the boardroom coup in February, Jim Dolan (the Old Man's son) sold the satellite to Honest Charlie Ergen of Echostar for $200M. After the Old Man ousted Jimmy he attempted to first negotiate with Charlie to get the satellite back. He soon found out that Charlie would have charged his own mother twice the price and there was no way the Old Man was going to do any better. Not to be deterred, the Old Man had his battalion of lawyers filed a complaint with the FCC that the sale of the satellite from his company to Echostar would hurt the competitive landscape of the satellite business. Now, read that last sentence again...a complaint with the FCC that the sale of the satellite from his company to Echostar would hurt the competitive landscape of the satellite business. If that doesn't make sense to you good. It means you're a sound and sane individual. Not to be outdone, Cablevision was forced to send out a letter "disavowing" their CEO for this ridiculous action. Again, if it seems ridiculous to you that a company would send out a letter disavowing it's own CEO, great news because it again reinforces you area sane, sound individual.
Where We Are At: I thought I had this one pegged. I figured the Old Man would secure funding for VOOM by selling Cablevision's sports properties (Knicks, Rangers, Liberty, Madison Square Garden). This would have raised more than enough money to run VOOM into the ground for another year or so and it had the added benefit of sticking it to Jimmy (who is known to love being known as the point man for the teams and MSG). On the other hand, Jimmy has done such a fine job running both the Knicks and the Rangers into the ground (both have the highest payrolls in their respective leagues and they both consistently miss the playoffs) that a sale would probably touch off a ticker tape parade down Times Square.
What We Have Learned:
1. Be mindful of investing in family run "public" companies: Partof the reason this clown show is taking place is because the Old Man owns majority interest in a special class of stock that allows him to replace 75% of the board at his own volition. Even though the Old Man owns less than 2% of overall Cablevision stock, this special stock lets him call the shots. But don't think this is a special case. Comcast has a similar ownership structure with the Roberts family. The moral ofthe story: when investing make sure you understand just how decision sare really made.
2. Just because you were a visionary once before, doesn't still mean you have the juice: The Old Man was a visionary. He started HBO and wired NYC with cable when everyone thought he was nuts. He was right then, but he is wrong now. VOOM simply does not have enough for the customer to make it work long term. DTV's investment in satellites to expand HD programming will bury any short term lead VOOM has incontent. Echo owns the lower end of the market and Charlie is a ruthless competitor so there is no room there either. There is a word for the Old Man's ideology here but visionary is not it. Try stubbornness.
3. If you're a moron, we'll all find out eventually (even if you are the boss's son): Jimmy Dolan still gets the Fredo Corleone Award for Family Management. He thought he could win a power struggle over the Old Man on VOOM and he was sorely mistaken. Yes, he was right in shutting VOOM, but he went about it all wrong. He knew that his father would fire the board if they tried to shut VOOM, yet he went ahead anyway. The smart move would have been to step down as CEO of Cablevision and move to split off the sports properties so he could continue to run those poorly all by himself. The capital raised would have helped VOOM stay afloat for awhile and kept him in his father's graces. It also would have given him leadership over these coveted (and very profitable) properties and kept him out of the Gone with the Wind type drama going on in Long Island.
I'll keep you posted on any other details. No word yet on whether or not the Dolan's will be guest lecturers at Wharton regarding boardroom management.
Link to latest article on VOOM http://www.newsday.com/business/ny-bzvoom4198390apr01,0,4583945.story
Link to site started by VOOM subscribers (guess who's side they are on?) http://jimdolansucks.com/
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