Why the Iranian Election is Like "Deal Fever"

Dealmakers know the symptoms of "deal fever" - the blowing past objections, rationalizing higher valuations, inflating synergies and discounting diligence items that comes once management has set their eyes on the prize. We try, not always successfully, to avoid it in our own work. Some shops even try to inoculate against deal fever, setting up incentives to kill deals. The idea is to be ever-vigilant against confirmation bias - looking for those things that confirm the direction we want to go, and avoiding/downplaying evidence that runs counter to our bias.

So, Iran. We loathe the sawed-off, anti-Semitic Ahmadinejad. We feel some glimmer of hope that the opposition represents Iranians finally embracing modernity. We imagine that anyone with a brain would vote for progress rather than the incumbent. So we side with the green-clad protesters and call the election a fraud.

Like deal fever, this represents confirmation bias writ large. Leading up to the election, there was little question that Ahmadinejad was going to win at least a plurality. The hope was that he would not win outright, and that in the run-off election Mousavi would have a better shot. However, like deal-hungry CEOs dreaming of industry domination, we've chosen to largely ignore this evidence and cling to anything that confirms our bias - the unsubstantiated rumors of ballot box burning; the images of thronging urban crowds representing the will of a people that remains largely rural, poor and conservative.

Completing a deal often means taking advantage of deal fever on the other side (some might call this selling). We should not be so naive as to believe that the opposition in Iran doesn't realize how its message plays in the West. So while we're right to ask that allegations of election fraud be investigated, and that votes be recounted, we can't accept uncritically any claims made by the opposition. Just as we sometimes have to walk from a soured deal, we sometimes have to accept that the price of democracy is a democratic outcome that we don't agree with.

"Deal Tact"

Terrific post today from John Jenkins at the Deallawyers.com blog titled "A Little 'Deal Tact' Goes a Long Way." John gets right to the heart of those factors I have consistently found key to successful dealmaking, whether you are the lawyer, financial advisor or principal: Acting respectfully to everyone in the process, not engaging in negotiating "games" or pissing matches, and always focusing on moving the deal forward.

My favorite quote:

"I’m not suggesting that deal lawyers should always act like Clark Kent -- possessing a little deal tact doesn’t mean you shouldn’t play hard ball when appropriate. I’m just saying that Conan the Barbarian shouldn’t be our role model either. I mean, if you really believe that what is best in life is “to crush your enemies, to see them driven before you, and to hear the lamentation of their women,” you’d probably be much happier as a litigator anyway."

Commodity vs. Premium Legal Advice

A Financial Times piece titled "Law Firms Adapt to a Stark New World" notes:

"Many clients feel that it will no longer be acceptable for law firms to demand premium fees for legal advice that is not contextualised or couched in commercial language."

Amen. A mix of antiquated state bar regulation and attorney information-hoarding has allowed lawyers to charge high rates for what is effectively just legal issue-spotting (e.g., "doing x exposes you to a, b and c legal risks.") However, technological advances, alternative practice models and offshoring are rapidly reducing the value that lawyers can extract from this kind of commoditized counseling.

I've got very low tolerance for counseling which simply spots issues and doesn't weigh them in light of their relative risks. I am increasingly unwilling to pay anything for such advice. Technology has made it easy for me to either directly spot the issues or cheaply hire someone to do it. Those who can't contextualize their advice to my business opportunities won't be hired again.

On the other hand, I am highly insensitive to price when it comes to premium legal advice. Attorneys who understand how my business works and can provide tailored advice that weighs risk against opportunity - particularly on big ticket items - are pure gold.

Unfortunately, a lot of attorneys don't have the pragmatism and confidence to provide premium counseling (ironically, you often see the worst offenders when dealing with low-grade business problems). So, along with self-help legal products and automated solutions, I expect we'll see a continued evolution in the corporate legal world to a bifurcated structure: A small number of lawyers will be able to demand premium pricing, while a much larger cohort will find their legal work significantly devalued.

The Torture Memos, or the Lawyer as Factotum, Not Counselor

The hubbub over the "torture memos" - and particularly Judge Jay Bybee's defense of the memos he signed - illustrates a legal counseling issue deeply familiar to any corporate general counsel: A leader looking for an aggressive interpretation of existing law to support a planned course of action.

Second-guessing by ivory tower types aside, there's little doubt that the memos represent a legally-defensible interpretation of the state of the law in this area. However, in a well-functioning organization, with a strong GC and open communication, the memos would go beyond discussing the outer bounds of what is permissible under the rules to point out the potential downside versus the limited utility of these methods of interrogation.

Bybee's fault is that he's too much of a lawyer's lawyer, providing only the legal analysis and not wading into the risk/reward and policy analysis (to quote from his memo: "This memorandum expresses no view as to whether the President should decide, as a matter of policy, that the U.S. Armed Forces should adhere to lhc standards of conduct in those treaties with respect to the treatment of prisoners"). And of course, he worked within a tremendously dysfunctional structure not noted for its openness.

It's regrettable he couldn't be more of a leader at that uncertain time. However, while you might not want Bybee to be providing strategic guidance to your organization, he's certainly no criminal.

The AIG Bonuses - Pure Political Theatre

All hopes for moving beyond the banality of politics are out the window, as members of Congress stumble over themselves in populist indignation over the bonuses paid out by AIG.

Never mind that the government has known about AIG's comp structure since at least the time the insurer was bailed out last year.

If we believe that the bailout of AIG was necessary, we must also accept that those who crafted the bailout chose - wisely, I believe, given the stakes and time pressure involved - to focus on saving the patient and not to waste time on annoying-but-inconsequential details.

Look, there are lots of things about comp and benefits at Wall Street financial outfits that would make Main Street America's skin crawl. There are lots of ways any of these bailout details could have been handled with greater care and finesse. But in the pressure of the moment, we want those trying to save our economy to prioritize smartly. I just wish someone in our government would acknowledge this reality.

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Good News! Businesses Cut Legal Costs

Because sanity dictates I look for silver linings anywhere I can in this economic meltdown, let me offer one up: According to a recent article in law.com, corporate legal departments are going through an aggressive reduction in legal spend.

As I've noted before, there are benefits to a limited-resource approach when providing corporate legal guidance - whether this approach is driven by design or necessity:

- Rethinking how "goldplated" routine legal work needs to be (resulting in more responsive client service).
- Forcing inhouse teams to prioritize around where they can add the most value at the lowest cost (instead of just trying to button up every risk).
- Reducing stupid legal tricks like taking a scorched-earth approach to anything that even has a whiff of a potential trademark of copyright violation.
- Requiring inhouse attorneys to be more creative and engaged with actually driving value in their businesses.

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The Virtues of Half-Assed Legal Work

What do felony trials and bet-the-company litigation have in common? You don't want to cut any legal corners on either one - no stone can be left unturned in maximizing one's legal position. There is too much at stake to worry about the cost of all of that legal brainpower.

But not all legal work must be gold-plated. Indeed, the business world absolutely requires that attorneys be comfortable routinely doing a less-than-complete job.

Legal work is expensive. The vast majority of business legal issues don't involve fights for freedom or corporate survival - they're about opportunity and money. The legal work thrown against any issue must be justified by the stakes in play.

Lawyers have counseled businesspeople from time immemorial that investing in legal work upfront is a wise move. Absolutely true. However, and related to my earlier post about lawyers and risk aversion, the point of diminishing returns for legal work in business is often reached very quickly.

Does it make sense to negotiate a low-dollar contract the same way you negotiate a high-dollar deal? Should you aggressively ramp your defense on potential litigation that has no reasonable chance of denting your bottom line, even if everything goes wrong? What about an exhaustive review of compliance options and processes, when the need for compliance is uncertain and the consequences for non-compliance easily manageable?

I'll repeat - legal work is expensive. And there are costs to dithering and over-lawyering in lost opportunities and inability to prioritize. Marshall your legal resources and focus them on the big risks and opportunities. As for the rest of the stuff, "good enough" will almost always be just that.

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Whole Foods - A Rare Post-Closing Consent Decree

I've dealt with divestiture trusts on several occasions, both as a buyer and as a seller of assets that federal regulators required to be sold under consent decrees authorizing mergers. While these sales are concluded after the larger deal has closed, the agreement and trust has always been established prior to closing.

So this is a first - Whole Foods, which bought the Wild Oats chain in 2007, has, over 18 months after closing the deal, entered into a consent decree with the FTC to sell the "Wild Oats" name and 32 locations. As I wrote at the time, I thought both the merger AND the FTC's objections to it were out to lunch. When the FTC lost a court battle to obtain a preliminary injunction blocking the merger, Whole Foods quickly closed the deal, despite the fact that the FTC appealed the PI denial. The FTC ended up winning that appeal, and now we have this settlement.

From the perspective of Whole Foods, this settlement is no big deal. There's little chance they ever planned to use the "Wild Oats" name, and the divestitures represent little more than 25% of the total locations acquired. On the other hand, this smells strongly of face-saving by the FTC. The "Wild Oats" name has little value, and of the 32 locations in the divestiture, over half (19) have already been shuttered by Whole Foods.

Lawyers and Risk

For those running businesses, here’s a little secret about lawyers: Many of us aren’t very good when it comes to risk.

Sure, we can find risk – most lawyers can identify risks all day long. That’s what law school trains our already-skeptical minds to do. Spot the issues; identify any ways risk arises in a course of action. But balancing those risks against opportunity? Not so good.

Successful businesspeople know that you win by taking smart risks – risks that are outweighed by opportunities. These risks can be competitive, personal, financial, social or, yes, legal. The problem for most businesspeople is that the law is complex, and attorneys have done a good job making themselves its gatekeepers. How can the non-lawyer businessperson determine the size of the legal risk that lurks on the other side of an opportunity?

Your average business attorney will have little trouble assessing the potential for liability in almost any scenario. With some prodding, they will strive to give you the likelihood that liability will actually come into play. However, it can be like extracting teeth to get many attorneys to combine the element of likelihood of a risk with the likely consequences should that risk materialize.

Why is this important? Because – and I can’t emphasize this enough – legal risks are not created remotely equally. A legal risk may mean a vendor is likelier to send you a pissy letter. It may mean an increased likelihood of being sued. Or it may mean the feds raiding your office with a warrant for your arrest.

Obviously, you don’t want to take a major legal risk for a minor opportunity. Just as obviously, you shouldn’t let a little legal hand-wringing over minor risks slow down your plans. You also wouldn’t want to take those risks that are likely to result in criminal liability, bet-the-company litigation or other such unpleasantness under most any imaginable set of circumstances. Due to the gatekeeping function lawyers play, you must have input from your lawyers to tell which risk is which.

Are you getting this input? Just as potential risks are easy for attorneys to assess, the likely range of potential damages is difficult to come up with. Assessing this range requires not only understanding the worst-case outcome, but also discounting from this scenario to account for the uncertainty of the situation, the circumstances of your counterparties and the likelihood that liability will even emerge as an issue in the first place. All in all, a complex and messy process - and attorneys, being risk-adverse creatures, are often loath to wrong-set your expectations.

Much of this analysis is based on experience and judgment, not modeling or mathematical analysis (there are some exceptions I will write about down the road). If you’re lucky, you’ll work with attorneys who possess these qualities and are willing to fully deploy them for you. Ask yourself – are your attorneys walking you though this way of looking at your risks, or do you get the sense that they believe every risk needs to be eliminated? If the latter, and if getting new counsel isn’t an option, at least try the “worst case” test: Always ask your lawyer what the worst thing that could possibly happen is. You may be surprised by how often even the “worst case” is of little consequence next to the size of your opportunity.

Facebook - What Happened to the Adult Supervision?

Last year, in an attempt to address the burgeoning growth and complexity of its business, Facebook brought in some experienced senior management in the form of COO Sheryl Sandberg, VP, Communications Elliot Shrage (both Google alums) and General Counsel Ted Ullyot (Justice Dept.). Sadly, this leadership has abjectly failed Facebook in its Terms of Use imbroglio.

Last weekend, Facebook changed its TOU in certain ways that covered the more expansive ways it needs to license user content. Not to "own" user content, as many of the more hysterical voices in the blogoshere contended, but rather to reflect the many ways users distribute their content via applications and the profiles of others.

The issues raised by those objecting to the TOU changes were similarly overstated for several other reasons: First, only a vanishingly small fraction of a percent of the content on Facebook has any financial value whatsoever. Second, even with respect to that small fraction, Facebook would have no incentive for seeking to monetize it via their license. They don't have exclusive rights, it's not their core business, and they'd face a riot from users. Finally, it’s well-understood that website terms of use are only enforceable to the extent they are reasonable. It's silly for people to take strained and aggressive readings of TOUs and argue that the companies involved would evetake those positions. Their lawyers are smart enough to know that courts won't accept overly-broad or unreasonable interpretations of TOUs.

So, the TOU changes: The problem is that, for a complicated web service like Facebook, it’s really hard to draft website terms of use that are both clear and cover all of the situations the company needs to cover. It takes a lot more time, just as it’s harder to write a short, concise letter than a long one. Sure, Facebook could devote the time and legal resources to making their TOU both a model of lay-person clarity and legal coverage, but – this blogosphere dust-up notwithstanding – the ROI on doing that is very low. Even a well-funded startup like Facebook has bigger issues its counsel should be focused on.

I thought Facebook had this all figured out and had made their TOU changes understanding that they would meet with some complaints. After all, Google faced similar issues last year when it made TOU changes as part of the Chrome browser launch, and those quickly blew over.

But here's where the adult supervision broke down: Facebook has now apologized and backtracked to their old TOU. What's shocking about this is the tacit acknowledgement that the company hadn't considered the tradeoff inherent in expanding their TOU this way, hadn't considered how to communicate the changes and hadn't considered the possibility of blowback. It also shows a level of pliability to a vocal minority that in't going to serve the company well should it ever go public.

Corporate Tool Re-Tooling

I've worked with a lot of lawyers in my career, and have even done a fair impersonation of one myself (kidding, state bars - I'm actively licensed. Sheesh.) Given the moribund M&A market, the focus of my current job on the legal market - and the fact that I've exhausted most of what I could say about corporate development - I've decided to reorient "Corporate Tool" around how businesses should think about the law, and how lawyers who serve businesses should think about their clients. All the old CT archives on M&A will remain intact, but I'll add new categories for this new focus.

First post soon, on one of my favorites subjects - risk.

My Pedestrian Rant

I’ve been working in downtown Seattle for a year now, but I continue to be struck by how bad Seattle pedestrians are. They dutifully wait for the “walk” light to change to green before crossing even one-way streets that are free of traffic. Conversely, they’ll often follow, blindly and cow-like, when a more independently-minded soul decides to take a traffic-free moment to cross the street against the light.

Finally, there’s the sidewalk herding and milling about. I can walk almost anywhere in Manhattan, as quickly as I like, on sidewalks narrower and more crowded than here in Seattle. People get with the program – sidewalks are for walking, and if someone needs to make a phone call, talk to a friend, or wolf down a hotdog, they’ll stand off to the side. Here in the Northwest? People will stop abruptly mid-sidewalk and stare doe-eyed into space. They’ll talk, yell, spin around, windowshop and wait for buses, all where god intended that city people in a hurry should have an unimpeded place to walk. Perhaps instead of banning grocery bags and Styrofoam takeout containers, our city fathers’ energies could be better spent on educating our clueless pedestrians on how to properly use the public byways.

Back in NYC

I slipped into Manhattan late last night; I'm speaking this evening at the New York County Lawyers' Association on social networking and legal business development. Sure, it's a diversion from my usual M&A-related trips to NYC, but it's an age of expanding horizons, right? Event is 6:00 - 9:00 tonight at 14 Vesey Street, downtown.

M&A in this Toxic Environment

Must-read post from the Deal Professor on the complexion of dealmaking today, and what kind of stuff is likely to work (if anything): Exchange offers, vulture investing, etc.

Corporate Dealmaking in the Ruins

I moderated a panel on “extreme dealmaking” at last week’s Corporate Dealmaker Forum in New York – I don’t know that there has been a period in living memory of more “extreme” M&A than we’ve seen in the last few months. From Bear Stearns' shotgun marriage to JPMorgan to the host of bank failures and other hastily-arranged weekend tie-ups, very large enterprises have been rushing into deals at breakneck speed.

Just as surely as the process has witnessed staggering amounts of equity destruction, it will certainly offer some fantastic opportunities coming out of the other side. The remaining healthy banks think so, as they attempt to fatten up cheaply on the remains of their less-risk-averse brethren. The tussle between Citi and Wells Fargo over Wachovia is only the latest chapter. We’ll see more activity, even if things get darker, as those with the resources to do so start laying the groundwork for better days in the future.

After the conference I did an interview on ABC News Now about the economy and the election – we polled 20 of Avvo’s top-rated bankruptcy lawyers to get their thought on this topic, and the results were certainly intriguing. Check out the video.

Corporate Dealmaker Conference

I'll be moderating a panel on "extreme dealmaking" at next week's Corporate Dealmaker forum in NYC. I've also signed up for twitter - find me at @corporatetool on twitter.

Rolling Heads

Former McAfee GC Kent Roberts - rogue options backdating agent, or poor sap thrown under the wheels of the corporate bus? God knows we in-house counsel are ready and willing to take the blame for things our companies want to do or not do - within the bounds of the law, of course. But stand trial with jail time on the line? Methinks not.

Was Roberts - whose federal court trial was to start yesterday - left twisting in the wind by McAfee? The company has suddenly found a bunch of emails that apparently may exonerate Roberts. As for the company and the attorneys who missed this discovery the first time around? "Heads have to roll" - that's the word from U.S. District Judge Marilyn Hall Patel.

More on Google's EULA

PC World ran a comprehensive piece yesterday (including some analysis from yours truly) on the quirks of Google's terms of service and how the company claims a license to a whole bunch of user content across multiple products (Chrome, Picasa, Blogger, etc.).

Some people have wondered why I think Google won't use this license claim in a more affirmative fashion - as the argument goes, what's to stop Google from taking advantage of some particularly valuable piece of content that gets posted to Blogger or Picasa? I mean, what if the movie version of Corporate Tool is a global blockbuster - how can I be sure that Google isn't going to capitalize on my success?

Two reasons: First, Google's primary concern with having a license is to avoid operational or legal problems in running its site. It doesn't want to have to worry about copyright clearance or the like when making changes to its sites or products. Why does this matter? Because there is a fundamental difference in the strength of the company's claim between this "defensive" use and any use of the claim proactively to establish IP rights.

Secondly - and related to the business judgment that would make Google think twice before using its license claim proactively - Google is a multi-billion-dollar behemoth that makes money hand over fist, at unbelievable margins, from its advertising sales. Do you really think they'll see a viable business opportunity in pursuing a shaky-at-best licensing claim to your beach photos?

Overreaching Contracts

Credit card companies, telecom operators, website publishers and software developers are all familiar with the need for standard, easily-applied agreements that customers sign up to by default when using the service.

While these agreements come in many names and forms ("shrink-wrap" for packaged software, "click-wrap" for downloaded software or software-as-a-service, "End User License Agreement," "Terms of Service," "Terms of Use" or "Customer Service Agreement" for websites or telecom providers) they all have one thing in common - they are contracts of adhesion, meaning the end user is stuck with them if they want to use the service.

There's nothing wrong with this per se - some form of agreement needs to surround these services, and such terms obviously can't be negotiated individually with every user. However, as today's kerfuffle over the terms of service for Google's new Chrome web browser shows, a company's lawyers need to pay attention to what these terms say and whether they are fair in the context of a contract of adhesion.

Why? For starters, while most anything goes in a fully-negotiated agreement, courts will quickly find a contract of adhesion unconscionable if the terms are overreaching. After all, the consumer has no other choice but to vote with their feet (and sometimes they don't even have that choice). The Washington Supreme Court recently decided a case (see Groklaw for a terrific discussion) that offers a classic look at the far reaches of unconscionability - an AT&T customer service agreement that, in addition to requiring arbitration of disputes (usually OK, even in adhesive contracts), also barred class actions, required all proceedings to stay secret, shortened the statute of limitations to bring actions, and limited consumer rights to sue for attorney's fees, while giving AT&T the right to do so (this last point wouldn't fly even in a fully negotiated contract in many states, including CA and WA).

While the Google lawyers apparently were just a little sloppy in applying terms from other services to Chrome, AT&T's lawyers must have just felt compelled to make their terms as one-sided as possible.

The problem is that this kind of overreaching has its costs. If you're AT&T, the only terms above that really make much difference are the arbitration clause and the class action waiver. The rest of the stuff is noise. However, it's so blatantly one-sided that a court couldn't help but trash all of these clauses; indeed, AT&T is lucky the entire agreement wasn't stuffed.

What would have happened if they had kept the agreement scrupulously fair on the procedural side but had retained the important limitations (arbitration and class action waiver)? I say there's a fair chance the court would have upheld their agreement. Instead, their eagerness to craft a lopsided agreement cost them what they really cared about. Nitwits.

Business Performance with Integrity

WSJ law blog has a great interview today with Ben Heineman (former long-time GE general counsel), summarizing some of the key points in Heineman's new book, "High Performance with High Integrity." Lots of good points about the role of the GC, particularly the need to be neither a naysayer or a yesman.

I've pointed out before the tendency of some corporate leaders to create a culture where dissent or bad news is punished, and how much that hurts the organization. As Heineman notes, the GC has to have "the credibility, independence and guts to speak up, even in the heat of battle, about integrity issues." Too true. But organizations also need to foster cultures where such independence is encouraged (or at a minimum, tolerated) amongst as many levels of management as possible.

Microsoft and Yahoo - Saving Face All Around

According to reports today, Microsoft is floating an idea to buy Yahoo's search biz and take a "minority passive stake" in the company. Please. This is nothing more than a fig leaf to cover Microsoft's renewal of acquisition discussions.

Look, it would have made things difficult for Microsoft to simply come out and said, after two weeks of avowed denials, that they still want to buy Yahoo. And it would be similarly hard for Yahoo to say they realized they'd overplayed their hand and they're really amenable to a deal at $33 or $34 per share. So, they can both engage in this barely-plausible cover story, spend a little time "examining" the pros and cons on an asset sale + investment, before concluding that it really makes the most sense for MSFT to simply acquire YHOO outright.

Clearwire, Sprint, etc.

Congrats to my former colleagues at Clearwire for FINALLY getting the Wimax JV done with Sprint. Initial indications are that it was worth the wait - it's a full-blown, fully-funded deal that removes a huge measure of risk from Clearwire's business and allows it to roll out nationally. What's more, Clearwire - despite only owning 27% of the new JV -gets to run the whole thing.

You know the cable guys and Google insisted on Clearwire running the show for more reasons than just concern over potential conflicts between Wimax and Sprint's cellular service. One look at Sprint's operational track record over the last couple of years would have been all it took to make that decision.

Yahoo-Microsoft

It's been highly amusing watching Yahoo step in it over the Microsoft proposal - I just hope they aren't deluding themselves into thinking that anything less than $6 - $8 of their current share price is due to speculation the deal will come back on.

Will it? Ballmer has taken some heat for how this was handled (one of his folks reportedly called MSFT's handling of last weekend's events "amateur hour" - ouch!), but if this was a tactical play by the mercurial Ballmer it may have been a good one. Yang and Decker have been falling over themselves to say they'd still be happy to deal, and have all but admitted Yahoo would take $33 a share.

So - there's still a decent shot this deal gets done. The price differential just isn't that great. Frankly, I wouldn't be surprised to see it get done for a buck or two less than MSFT's last offer of $33 when Yahoo comes back hat in hand to revive the deal.

Confidently Handling Legal Matters

People ask me what, exactly, we're doing here at Avvo. It's really quite simple - despite the stakes involved, consumers have precious little in the way of resources when it comes to getting legal guidance. The #1 source for consumer legal information is the Yellow Pages!

We're trying to change that by pulling more legal information and guidance together in one place than has ever been done before. For example:

Looking for an Albany NY criminal defense lawyer, Eliot Spitzer?

Need an Orange County bankruptcy attorney now that your ARM has reset?

How about getting some free answers on what do about your first DUI?

Central to Avvo is the mixing together of public records data and user-generated content to create rich profiles of attorneys. Those profiles, along with other resources like Avvo Answers, are designed to help consumers handle their legal matters with more confidence. I'd love to hear comments and suggestions on how we can do an even better job with this.

Google Breathes a Sigh of Relief

I suspect that when we see the identity of bidders in the FCC's 700 MHz auction (Auction 73), we'll see that Google was the last bidder on the package of licenses making up the C block covering all 50 states.

The last bid on that package, at about $4.7B - which came in about a week ago - was enough to push it over the reserve price and ensure that the so-called "open access" requirements Google lobbied for will apply to whoever wins the licenses. However, bids on the individual licenses comprising the package have been increasing in the interim, and have now exceeded the package price.

These bids are, without a doubt, coming from the incumbant telecoms. Google, not wanting to get into the capital-intensive, low-margin, highly-competitive network operator business, can now sit back, secure in knowing that it has acheived its lobbying end via a shill bidding strategy. It's an open question whether the "open access" requirements are truly meaningful - they are in many ways the final battle of yesterday's war, and far more toothless than what Google originally wanted. Still, you've got to admire the execution on Google's strategy here.

Microsoft's Yahoo! Bear Hug

A tremendous amount has been written about Microsoft's bid for Yahoo!, so just a quick note on my perspective:

- I absolutely love the bold approach. The level of the bid really only gives Yahoo management two options: Sell to MSFT or find a white knight. Convincing shareholders that independence is the best route to unlocking value would be a laughable exercise.

- Watching the flailing about by the tech media and Yahoo insiders for potential alternatives to MSFT has been highly amusing. Points for creativity, but none of these fantastical imaginings will come to pass.

- Google needs to watch itself. While it has vastly expanded its lobbying resources in the last few years, Google doesn't always show a lot of maturity. As a near-monopolist in search and internet advertising markets, it needs to be careful about making overstated objections to this merger that will come back to haunt it when it goes to make a big acquisition down the road.

- Microsoft has a lot of work to do. Getting this deal past the regulators will be no mean feat, particularly in Europe. However, the bigger issue will come in dealing with merger integration on a scale Microsoft has zero experience with. We'll want to check back in a few years on how this one works out.

Diligence Stories

Absolutely terrific post by Equity Private regarding an undercover diligence mission. I agree completely that there is absolutely no reason to ever give a buyer anything resembling this kind of unfettered access. It must be controlled, time-limited and escorted - and preferably kept entirely off-site.

Note to EP - the problem with non-signed employee agreements you ran across is probably a non-issue, as standard employee non-competes are completely unenforceable in California.

More on ROWE

Cali and Jody’s ROWE (Results-Only Work Environment) blog – which hits dead-on so many of the inanities of our clock and face-time obsessed workplace culture – has a recent post regarding attorney billable hours, and the fact that clients are driving the push to rid the delivery of legal services from this archaic model.

Now, I’m sure most of these clients aren’t living the ROWE ideal, but at least there is a recognition that the results provided by legal services are not always – or even most of the time – linked to the time it takes to produce them. I spent less than three years working in a billable hours environment before entering the corporate world, but I hated it from the first. Ironically, part of the problem was the clients themselves, who had no problem paying for endless hours spent summarizing depositions or twiddling one’s thumbs in a courtroom status conference but would balk at time billed for conferences between the firm’s attorneys, to say nothing of paying on a sliding scale based on results.

On the Limits of Analysis

Ken Klee over at Corporate Dealmaker penned a brief review of a recent HBR article titled "Innovation Killers: How financial tools destroy your capacity to do new things." As Ken points out, any critique of the limitations of DCF analysis is highly applicable to dealmaking.

I've mentioned before my somewhat jaundiced view toward financial analysis and the reverence to which it is held in every big company I've worked with. While DCF analysis has its place, its limitations absolutely must be recognized.

As Ken points out, one problem is that fact that most DCF models are built on status quo assumptions (or corporate growth projections) that don't account for the strategic and competitive dimension. I would add that there is also the simple problem of garbage-in, garbage-out: the less you know about what's likely to happen (as is the case with new lines of business and transformational transactions), the less reliable the output of your DCF model becomes. The problem is that instead of acknowledging this limitation, many embrace the modeled output as Holy Writ. Besides being a false data crutch, it squeezes out consideration of other "softer" factors (like assumed competitive ramifications, or non-quantifiable synergies)that are every bit as worthy of consideration.

New Gig

One reason for the slowing pace of my posting here is a change in focus - I've moved from Clearwire to Avvo, Inc., an internet start-up in Seattle dedicated to helping consumers with the daunting task of finding a lawyer. It's fun stuff, but my new role will likely have very little to do with the M&A issues I've been dealing with over the last five years. I may post on corp dev topics from time to time, but I will still be writing my column in Corporate Dealmaker magazine and will be contributing to the Avvo blog.

Facebook and Microsoft

The long-awaited Microsoft-Facebook linkup was announced today, with my neighbors here in Redmond ponying up $240M for a minuscule 1.6% stake in Facebook.

While this deal values the fast-growing social networking site at $15B, I doubt valuation was much of an issue for Microsoft. Yes, it's huge for Facebook to get a massive infusion of cash with only nominal dilution, but Microsoft has more nuanced concerns. Whether MSFT gets a decent return on the quarter-billion invested is of far less concern than getting linkage with Facebook and beating out Google. Besides an expansion of an extant advertising deals, the remaining scope of the MSFT-Facebook linkage hasn't been disclosed.

Bottom line? Huge win for Facebook, although it won't be raising more capital at this valuation any time soon. It's also a win for Microsoft, which now gets to participate in Facebook's strategic upside, if not the financial upside it would have also gotten had it pulled the trigger a year or so ago.

Ebay's Skype Writedown

Following up and tracking the success of deals some years on is not always a strong suit for corporate dealmakers - often it's on to the next deal before the ink is dry, with little need for the nostalgia of looking back.

Accountants, however, have no such luxury, and there is a certain discipline to tracking over time how good your deals really are. With that in mind, I note Ebay's $1.4B writedown of its Skype acquisition, accompanied by the departure of Niklas Zennstrom and the announcement that the earnout in the deal had only been one-third met. With the original purchase price of $2.6B and about $500M in earnout money, the charge represents nearly 50% of deal value.

Ebay may have some internal measures that indicate the deal was a success for strategic reasons, but by any objective outside view it was a bust. I hate to say I told you so, but . . .

Facebook Bonanza

I'm loving the Facebook rumors flying around here in Redmond right now - we've even got breathless reporting on Mark Zuckerberg sightings at the airport.

Microsoft is rumored to be paying $300-$500MM for 5% of Facebook, giving the social networking site a valuation of as much as $10B(!!). This, on $150MM in annual revenue, most of which is coming from MSFT already.

Facebook has enjoyed terrific growth, particularly over the last few months, and there's no question they've created something of value. That said, it boggles the mind to think that this site is game-changing enough to merit valuations in the double-digit billions. At the end of the day, this is an advertising-supported business that only six months ago was looking like an also-ran to MySpace. And, despite the robust growth, its users are characterized by low click-through rates on the site's advertising.

All this is by way of saying that Facebook would be insane to pass up an investment in this range, given the hefty valuation and nominal percentage of the company involved. The interesting part - and the area where a deal could fall apart for Facebook - is what kind of minority rights (or ancillary commercial deals) Microsoft gets along with its investment. $500MM is chump change for Microsoft; they can certainly take a flyer on Facebook - but they aren't going to do so unless the integrative side of the deal allows them to leverage Facebook across their other lines of business. Look for the details on this once the smoke clears on the crazy valuation.

More on MAC Clauses

I've posted before about MACs (material adverse change clauses; also called MAE - material adverse effect - clauses), particularly around the use of a MAC by Johnson & Johnson in trying to negotiate a lower price for Guidant. As we saw there, exercising a MAC is not only the M&A equivalent of nuclear war, it also can lead to unforeseen effects like an ultimately HIGHER price for the target company.

For those interested in learning more about the arcana behind the legal dimensions of MACs and why they are so hard to exercise, the M&A Law Prof Blog has an excellent post on that very subject.