Readers will recall my many posts (start here and work forward) during the Johnson & Johnson - Guidant saga, which was a textbook example of the perils of being overly aggressive with enforcing material adverse change (MAC) clauses in deals. The deal progressed thusly:
- J&J bought Guidant, then backed out during the pre-closing period, citing the MAC clause over a product recall and SEC investigation at Guidant.
- Using this leverage, J&J extracted a reduced deal price from Guidant.
- This elicited interest from other firms, inciting a (post- deal signing) bidding war.
- Interloper Boston Scientific won out, acquiring Guidant for $2B+ more than J&J's original deal price, including a $705MM break-up fee to J&J.
Today, many months later, J&J has sued BSX for $5.5 billion. This figure presumably represents the lost deal value and the many expenses J&J incurred throughout the process. Curious to see what kind of evidence they have, as at first blush this looks like a loser. It's also - of course - a self-inflicted problem, as J&J could have avoided all of this unpleasantness by sticking with its original deal, despite Guidant's temporary setbacks. If J&J really wanted Guidant this badly, they should have kept the long view when the wheels were falling off last winter.
Tuesday, September 26, 2006
Thursday, September 21, 2006
Facebook - Yahoo
Facebook is reportedly close to selling itself to Yahoo for about $1B. Although this is less than the $2B valuation Facebook was crowing about a few months back, it seems a shockingly high valuation for a property that could be reduced to irrelevancy by MySpace or whatever the next big thing in social networking turns out to be.
It's truism in dealmaking that once you've decided you want to do the deal, you need to get the ink on paper as quickly as possible. Until that happens, too many things outside of your control can cause the deal to fall apart. You'd think this concern would ring especially true for a company like Facebook, whose potential competitors have no barriers to entry and whose popularity is dependent upon the fickle tastes of people under the age of 25. Yet the WSJ reports that Facebook founder Mark Zuckerberg couldn't even be bothered to take phone calls over the weekend as negotiations wore on, due to his girlfriend being in town. Others think the company should take its time, hire bankers and get an auction going.
There are times to stretch things out, and perhaps the people at Facebook still think $2B (or close to it) is an attainable goal. It isn't. If they get an auction going they may find little interest. Now isn't the time to worry about leaving a few dollars on the table - I'd like to see the young Mr. Zuckerberg take the life-changing $1B deal rather than risk holding out for more.
It's truism in dealmaking that once you've decided you want to do the deal, you need to get the ink on paper as quickly as possible. Until that happens, too many things outside of your control can cause the deal to fall apart. You'd think this concern would ring especially true for a company like Facebook, whose potential competitors have no barriers to entry and whose popularity is dependent upon the fickle tastes of people under the age of 25. Yet the WSJ reports that Facebook founder Mark Zuckerberg couldn't even be bothered to take phone calls over the weekend as negotiations wore on, due to his girlfriend being in town. Others think the company should take its time, hire bankers and get an auction going.
There are times to stretch things out, and perhaps the people at Facebook still think $2B (or close to it) is an attainable goal. It isn't. If they get an auction going they may find little interest. Now isn't the time to worry about leaving a few dollars on the table - I'd like to see the young Mr. Zuckerberg take the life-changing $1B deal rather than risk holding out for more.
Wednesday, September 20, 2006
HP Board Shenanigans
With my blog locked up, I haven't been able to comment on the boardroom mess over at HP, but I'll leave it at this - I am not surprised in the least that HP's Board chair pursued a take-no-prisoners investigation of boardroom leaks that included sussing out the phone records of Board members, HP employees and even several reporters. Hubris is an ugly thing.
What's disappointing is the lack of media perspective on the fact that a senior Director of a major American company was leaking confidential company information in the first place. Such disclosures are most likely violations of a Director's fiduciary duty and confidentiality agreements, have a corrosive effect on the workings of the Board, and do a disservice to the company and its shareholders. Sadly, this tale of corporate governance in breach doesn't make the juicy copy of a ham-handed pat-down by HP's investigators.
What's disappointing is the lack of media perspective on the fact that a senior Director of a major American company was leaking confidential company information in the first place. Such disclosures are most likely violations of a Director's fiduciary duty and confidentiality agreements, have a corrosive effect on the workings of the Board, and do a disservice to the company and its shareholders. Sadly, this tale of corporate governance in breach doesn't make the juicy copy of a ham-handed pat-down by HP's investigators.
Monday, September 18, 2006
Blogger in Beta
Corporate Tool has spent the last several weeks in limbo, attempting the epic migration to Blogger in Beta. Like unfortunate immigrants in the past, the erstwhile blog encountered obstacles along the way, and became "stuck" between here and there, unable to accept posts or even receive visitors. My thanks go out to Google's Chris Sacca, who led me out of the wilderness and back to old standard Blogger. I'll try the journey again in a few weeks once these kinks get worked out.
Saturday, September 02, 2006
Wal-Mart: Half-Off the Evil
Living in the middle of the Seattle metro area, I’d have to go out of my way to find a Wal-Mart. I suspect this distance from an actual Wal-Mart Supercenter is something I have in common with the vast majority of people who wring their hands over the impacts of Wal-Mart on everything from family businesses to the health care system to the labor movement.
About five years ago, I had an experience with Wal-Mart that led me to believe that the truth of its impact is far more complex. I was buying a cellular operation for AT&T Wireless on Kauai, and everything seemed to come back to Wal-Mart: Where’s the best place to keep distribution? Where should we advertise? What should we give employees as thank-yous (Wal-Mart gift cards)? Kauai may be an island paradise, but many who live there struggle to make ends meet. The conveniently located Wal-Mart turns out to be the hub of commerce for full-time residents.
While there’s little question that a Wal-Mart opening down the street is bad news for you if you’re running a convenience store, how good is it for the customers who’ve been buying your limited selection of overpriced goods? A recent article looked into this and came up with some surprising conclusions about the sheer size of the benefit to consumers of Wal-Mart’s low prices. One could quibble with the assumption that Wal-Mart’s prices are really 8% lower across the board, and commentators in the past have concluded that Wal-Mart is a sophisticated user of loss leaders and keeps many prices high. However, there’s no question that the prices and selection offered by Wal-Mart represent a major improvement for the consumers in the markets they enter.
At the same time I read the study above, I was reading Dan Baum’s otherwise excellent New Yorker article on the trials and travails of New Orleans’ Ninth Ward and was struck by this comment:
“. . . the city got a federal grant in the nineteen-nineties to raze the St. Thomas housing project, which occupied a prime spot near the Mississippi River, and replace it with mixed-income housing and resident-owned shops. . . . the result, River Garden, is a collection of simple, attractive attached houses that stood up well to Katrina. Somewhere along the way, though, the number of subsidized units fell by more than two thirds; the idea of resident management disappeared; and the small resident-owned stores became a two-hundred-thousand-square-foot Wal-Mart.”
To the residents who otherwise would have run these businesses, this is a failure. But what about the local residents who now have a reliable and inexpensive place to shop? Areas around housing projects aren’t know for having the shopping and service options a Wal-Mart brings to town. Check out the Wal-Mart “store finder” for stores near you. They are consistently in lower income and/or rural areas. Yes, the Bentonville behemoth may not be a role model for employee satisfaction or supplier relations, but like most large systems its impacts are many and varied. For many folks a new Wal-Mart coming to town is – or should be - a cause for celebration.
About five years ago, I had an experience with Wal-Mart that led me to believe that the truth of its impact is far more complex. I was buying a cellular operation for AT&T Wireless on Kauai, and everything seemed to come back to Wal-Mart: Where’s the best place to keep distribution? Where should we advertise? What should we give employees as thank-yous (Wal-Mart gift cards)? Kauai may be an island paradise, but many who live there struggle to make ends meet. The conveniently located Wal-Mart turns out to be the hub of commerce for full-time residents.
While there’s little question that a Wal-Mart opening down the street is bad news for you if you’re running a convenience store, how good is it for the customers who’ve been buying your limited selection of overpriced goods? A recent article looked into this and came up with some surprising conclusions about the sheer size of the benefit to consumers of Wal-Mart’s low prices. One could quibble with the assumption that Wal-Mart’s prices are really 8% lower across the board, and commentators in the past have concluded that Wal-Mart is a sophisticated user of loss leaders and keeps many prices high. However, there’s no question that the prices and selection offered by Wal-Mart represent a major improvement for the consumers in the markets they enter.
At the same time I read the study above, I was reading Dan Baum’s otherwise excellent New Yorker article on the trials and travails of New Orleans’ Ninth Ward and was struck by this comment:
“. . . the city got a federal grant in the nineteen-nineties to raze the St. Thomas housing project, which occupied a prime spot near the Mississippi River, and replace it with mixed-income housing and resident-owned shops. . . . the result, River Garden, is a collection of simple, attractive attached houses that stood up well to Katrina. Somewhere along the way, though, the number of subsidized units fell by more than two thirds; the idea of resident management disappeared; and the small resident-owned stores became a two-hundred-thousand-square-foot Wal-Mart.”
To the residents who otherwise would have run these businesses, this is a failure. But what about the local residents who now have a reliable and inexpensive place to shop? Areas around housing projects aren’t know for having the shopping and service options a Wal-Mart brings to town. Check out the Wal-Mart “store finder” for stores near you. They are consistently in lower income and/or rural areas. Yes, the Bentonville behemoth may not be a role model for employee satisfaction or supplier relations, but like most large systems its impacts are many and varied. For many folks a new Wal-Mart coming to town is – or should be - a cause for celebration.
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