Filed under: Deals, Newspapers, Initial public offerings

The conventional wisdom, which I would argue is largely true, is that mergers and acquisitions generally fail to produce value for the acquiring company. They distract management from the core business and, because taking out a public company requires a premium, there is a tendency for companies to overpay in buyouts.

But an Ernst & Young study examining 110 new listings in 2006 and the first half of 2007 found that, according (subscription required) to The Wall Street Journal, “Three-quarters of the companies that acquired a stake in or purchased another company after their IPOs outperformed the index, upending the notion that acquisitions distract management from focusing on performance.”

In his books, Peter Lynch has mocked most acquisitions as “diworsification”, and urged investors to seek out companies that focus on their core businesses. I’m not sure what to make of this data — could it be a short-term anomaly? There’s pretty compelling evidence going back many years showing the acquisitions just aren’t a good deal. But perhaps smaller newly-public companies making strategic deals are better-positioned?

The study, which will be released tomorrow, also found that IPOs with lots of institutional investors tend to outperform, as do larger IPOs.

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Filed under: Merrill Lynch (MER), Technology

China has gone ga-ga over online gaming. In fact, IDC projects that the market will zoom from $815 million in 2006 to $3 billion by 2011. One of the leaders in the space is Giant Interactive. And, this week, the company filed to go public.

Giant’s main game - ZT Online - was the most popular in China last year. The compound annual quarterly growth, in terms of users, has been 39.6%. As of the end of September, there were 481,054 average concurrent users.

Giant has a team of 140 game developers, which seem to have a eye for its target market (players between the ages of 18 and 40). What’s more, the firm plans to launch a new game in the fourth quarter.

For the first six months of 2007, Giant’s revenues were $90.3 million and net income was a juicy $67.3 million

The lead underwriters on the IPO include Merrill Lynch & Co., Inc. (NYSE: MER) and UBS AG (USA) (NYSE: UBS). The proposed ticker is “GA.”

The prospectus is located at the SEC website. Also, if you want to check out other IPOs, click here.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

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Filed under: Money and Finance Today, Personal finance

USA Today writes about the first baby boomers retiring next year at a rate of 365 an hour. The articles goes on to use terms for the fix that feed into the fears the current Administration is raising about the event. But is the crisis truly that bad? Yes it’s true a fix is needed for Social Security, but if you look closely at the numbers used even in the USA Today you’ll see that the fix is not that drastic. As long as we take it seriously and do something.

In the story USA Today states the fix would need to be a 16% increase in the existing payroll tax or a 13% cut in benefits. First let’s look at that 16% in actual tax rates. The current tax rate for Social Security is 15.3%, which is 7.65% paid by the employee and 7.65% paid by the employer. Were the Congress to decide to fix the system solely by using tax increases then the increase would be 2.448% or 1.224% for the employer and the employee. That added would move the total tax collected to 17.748% (or 8.874% from one’s paycheck). When a cut in benefits is discussed options always look at future promised benefits. The cut would not impact those currently collecting Social Security, but may include a number of different things such as increasing the age for retirement, reducing the COLA increase, or some other combination of benefit changes.

The fairest way to fix the problem would be a combination of tax increases and cuts in promised benefits. Let’s say we cut responsibility for the fix in half - an 8% increase in tax rates or 1.224% shared equally between employer and employee: each paying 0.612% more in taxes. Would you be willing to pay that to secure Social Security for at least 75 years? A cut of 6.5% in promised future benefits would be necessary if the fix is to be shared by all.

Continue reading Social Security: Scare tactics or true crisis?

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Filed under: China, Economic data

Peter Cohan wrote here earlier today about the boomer generation bubble, and the threat we present to Social Security when we mob the program. Unfortunately, the same problem faces a number of other countries as well.

The largest of these is China. Predictably, its policy of one child per household has sharply skewed the age distribution in its population. The U.N. study of world population prospects shows that the percentage of elderly in the Chinese population will also grow expansively over the next 30 years, from 24% in 2010 to 42.5% by 2050.

Other countries are facing this problem today. The birth rate in countries such as Italy and Germany are already well below replacement rate, meaning they will either have to depend on the reviled gastarbeiters, or watch their economies shrink.

In fact, statistics from the U.N.’s study show that the question of supporting a large elderly population will become a worldwide challenge. It found that the percentage of elderly in the human race has risen from 8% in 1950 to 11% in 2007, and projects it will climb to 22% by 2050.

From these grim statistics, I hold little hope that we can expect help with, or much sympathy for, our plight from other countries.

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Filed under: Television, Personal finance

United States treasurer Anna Escobedo Cabral believes that soap operas can serve as a valuable tool for educating the masses about financial literacy. According to The New York Times, “Ms. Cabral said last week that her department is talking to producers of English- and Spanish-language soap operas about weaving financial education issues into story lines. Telemundo, the Spanish-language television network owned by NBC Universal, has indicated that it would be willing to incorporate such information into its telenovelas, she said.”

What a great idea! Given that money woes are widely seen as a cause of relationship strife, there’s plenty of drama to be found with financial issues. Here are a few of my ideas for money-related subplots in daytime soaps. Hollywood producers: If you’re looking to hire me, contact AOL for my number:

• A hunky young male model attempts suicide after his phone rings day and night with angry collection agencies looking for a piece of the $50,000 in credit card debt he has run up. After his girlfriend finds him unconscious and rushes him to the hospital, she tells him she loves him for who he is, and that he doesn’t need to spend like a drunken sailor on shore leave to be an amazing person.
• Enrique and Jennifer’s relationship hits the rocks after Jennifer becomes a distributor for a multi-level marketing company. Enrique is convinced it’s a scam, but Jennifer spends all her time listening to motivational tapes and drives their friends away with her constant sales pitches.
• Krystal finds out her boyfriend is embezzling at his job, and doesn’t know what to do.

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Filed under: Products and services, Consumer experience, Electronic Data Systems (EDS)

Just in time for the season, I found a fabulous British gift to put on my Christmas list from Iwantoneofthose.com, the Paintball Panzer. These made-to-order miniature versions of the WWII German mainstay tank fires paintballs from its cannon. At least twice a day, I think to myself, “If I only had a paintball tank…”

While we’re on the subject of tanks, I SO wish I lived in the U.K., just so I could rent a real freakin’ Chieftain battle tank to drive to a prom, business meeting or film premiere. Better yet, for only £375, Tanks A Lot will set me up to run over a complete car with it! I wonder how much extra they would charge to allow me to pick out the car of my choice from the freeway, with its text-messaging, cigarette-butt tossing driver still inside.
via Boing Boing

Another item in our “If this isn’t the end of civilization, I bet we can see it from here” collection is the smart shopping cart concept recently unveiled by Electronic Data Systems (NYSE: EDS). According to Reuters, the carts will keep track of what we place in the basket and warn us if we’re buying too much junk food. As if, when I top off my cart full of Pepsi, Ho-Ho’s, and frozen chicken wings with a bag of pork rinds, I don’t recognize a disaster in the making. I predict a healthy business in replacing the interface on these after I beat them into submission with the business end of a Pringles can.

Finally, if you enjoy smart advertising, check out this photo from Dancewithshadows.

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Filed under: Sirius Satellite Radio (SIRI), Marketing and advertising, Media World

Once Matt Drudge’s report about Don Imus’ return to talk radio was posted, his phone probably started ringing off the hook as members of the media elite tripped over themselves to welcome the I-man back to the public airwaves.

The reason is simple” Imus’ following is too large too ignore. In this age of declining TV ratings for the network news and declining newspaper circulation, media companies want to reach out to his audience, not turn their back on them. Advertisers will eventually return too once they believe that Imus has really learned his lesson. WABC, the New York station that will be Imus’ new home, will have his show on a 40-second delay for that very reason.

The fact that Imus’ got a second chance and may even get a third or a fourth one isn’t surprising considering the terrible shape of the radio business. Radio listeners of the 1980s and 1990s are today’s Internet surfers and iPod users. Stations are desperate for talent such as Imus who already have a following. That’s why shock jocks including Opie And Anthony will always have a job in radio waiting for them whenever they get fired for saying something offensive.

Satellite radio might have been a good alternative for Imus but you have to wonder whether Sirius Satellite Radio Inc. (NASDAQ: SIRI) is big enough for Imus and his sworn mortal enemy Howard Stern. Can you imagine them bumping into each other on the elevator? It would have been great talk radio fodder.

Imus has only one hurdle to clear before he can begin his public redemption, convincing Barbara Walters that he is a changed man. That should be easy to do provided he’s sober and doesn’t sound like a man with a persecution complex. Imus should watch Babs’ Whitney Houston interview for pointers of what not to do on a Walters’ puff celebrity interview.

As I argued before, Imus deserved to be punished for what he said about the Rutgers team. Many readers pointed out, rightly so, that Revs. Al Sharpton and Jesse Jackson, two of Imus’ biggest critics, were not without considerable faults themselves. You can bet that these two publicity hounds will also ring up Imus and offer to come on his show.

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Filed under: Deals, Press releases, Products and services, Verizon Communications (VZ), Technology

The music catalog of heavy metal band Led Zeppelin will become available in all digital stores on November 13, reports Billboard this morning. Following AC/DC, the band has also entered an exclusive agreement with Verizon (NYSE: VZ), making the mobile music provider the first to offer “full-song over-the-air downloads, ring tones, ringback tones, alert tones and wallpapers.”

Warner Music Group (NYSE: WMG) will make the catalog available on the same day that a new career spanning compilation album, Mothership, will be released by Atlantic Records. A week later, a new “remixed and remastered” version of live album The Song Remains the Same will also be released and offer six new songs for the album. Finally, as was previously reported, Led Zeppelin will also play a “one-off” performance at London’s O2 Arena on November 26, to honor the memory of Atlantic Records co-founder Ahmet Ertegun.

All told, it seems that November will be a very busy month for the British band. It is quite surprising to see Led Zeppelin have waited so long to offer digital downloads, considering that the remastered versions that will likely be uploaded by Warner Music Group were first released thirteen years ago. The release of the How the West Was Won live album in 2003 seems like a more apt chance to move into the market in retrospect, but here we are four-and-a-half years later.

The only remaining major digital market holdout now is The Beatles, and their move is expected in the new year.

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Filed under: Newspapers, Motorola (MOT)

Shares of Motorola, Inc. (NYSE: MOT) ticked up today, perhaps on reports that shareholder Carl Icahn will launch another attack on the company’s management if its results don’t improve. He told the Financial Times that “There is value there, and if that value doesn’t manifest itself I, as an activist, would think very seriously about coming back.”

Back in May, Icahn was rebuffed in his quest for a seat on the company’s board of directors. Icahn still owns about 3% of the company and remains displeased with CEO Ed Zander — the two traded barbs in the media earlier this year.

In the wake of a disappointing investment in WCI Communities, Inc. (NYSE: WCI), Icahn may be getting some swagger back with the success of his investment in BEA Systems, Inc. (NASDAQ: BEAS).

Icahn’s last battle with Zander was fun to watch, even if it didn’t lead to the desired results. I’d love to see a reprise.

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Filed under: Management, Rants and raves, Employees, Scandals

Warren Buffett has said that you should never ask a barber if you need a haircut. But if a barber tells you that you don’t need a haircut, that probably means you really don’t need one.

And while most people would agree that top executives at publicly traded companies are overpaid, we now have all the evidence we need to end this debate: They think they’re overpaid too! A survey of 70 presidents and chief executives conducted by the National Association of Corporate Directors found that 2 out of 3 top executives thought chiefs were given high compensation relative to their performance. Only 2.2% thought the pay was too low!

It’s time for corporate directors to be taken out to the woodshed. They have failed mightily in their duty to shareholders. They’re supposed to be representing our interests, but instead serve as lapdogs, paying CEOs amounts of money that they themselves consider obscene!

Some have attempted to frame this as a populist issue, pointing to the fact that the gap between the rich and poor has reached its widest point in 60 years. But I’m more concerned about it as a corporate governance issue. Directors are pretty obviously wasting shareholders’ resources on excessive compensation, and it needs to stop.

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