Several Chinese companies are about to IPO in America. Mao Tse Tung’s grandchildren want to cash in some chips for western cash. Understandable we would all do the same. Weibo and Alibaba will issue IPO’s soon. Demand is strong. The market expects the IPO to increase making even more wealth for the lucky participants.
Once we get past that noise lets take a look at the fundamentals. The Chinese economy is difficult to fathom. Transparency is nowhere close to western standards. Everything is nuanced and has alternative meanings.
Following Weibo and Alibaba will give additional information into the true state of the Chinese economy. China may wish to manage the economy but these two companies will be providing some raw information. Watch for guidance and executive interviews; lots if tidbits will be falling off the table.
Just remember “Statistics is like a Bikini. What it shows is enticing. What is conceals is critical”
George Gutowski writes from a caveat emptor perspective.
Alibaba who wishes to become a publicly traded company has convinced about nine big banks to lend it $8 Billion in supposedly US Currency. Normally companies prepping for an IPO do not find it helpful to become mega-borrowers. This logic is not in play for Alibaba. The tranches are all very short-term or revolving
Some of the funds are to repay existing payables and indebtedness. The press releases also speak of anticipating an IPO where the banks would be repaid from proceeds raised. This may be sound thinking on the part of the banks but if I was an investor I would not be motivated knowing that my precious capital will repay bank loans. I would be impressed if capital would go directly into some asset of wealth generation. Basics such as R&D, product expansion, accretive acquisitions come to mind.
The pump has already begun. Investors are expected to be impressed that so many large sophisticated banks are backing this horse. The whole “China is enormous” thing will be mentioned several times.
Just remember an $8 Billion dollar short-term loan is incredibly motivating in many ways.
Alibaba coming to your broker soon.
George Gutowski writes from a caveat emptor perspective.
Alibaba (Hong Kong XHKG:0168) announced declining results for Q1 claiming they are cleaning up their act or the act of many of their vendors. The drop in recurring cash flow clocks in at a YoY drop of a mind numbing 87%. But later in the earnings release they claim their cash and bank balances improved with a 24.3 % increase year-on-year and flat from December 31, 2011. Which means the spending is being curtailed somewhere or the bank loans are coming in fast and furious. In any event that needs some splaining by management.
The party line is Alibaba.com stepped up its efforts to upgrade the trustworthiness of suppliers and enhance the user experience. They have increased staff and operating costs as they attempt to rein in some less than satisfactory market behaviours. OK so this is a classic reset of a broken business model. Some will say this is the poster child for wild west style expansion in China’s boom economy where regulators have no clue about how to regulate. Wild eyed and naïve customers had no idea they could have so many unacceptable bad customer experiences. Wondering if the translation of bad customer experience into Chinese has the same connotation or if they are using something very much stronger.
But wait no sooner were the disheartening results released than a new press release was issued by independent board members recommending acceptance of a share buy out that had been made just recently. The buy out seems generous with a 60% premium over the 60 day moving average but somewhat unsatisfactory given the last two or three-year trading range.
The combination of poor earnings results and independent recommendation puts the run on investors. There are no other possible options. But when someone who is clearly the insider is ready to offer 60% premiums you have to think in the back of your head why?
The stock becomes an allegorical tale about investing in foreign jurisdictions with different governance models. Yes the China market is huge. But western investors may not have the mindset for the nuances of Asian stock markets when a publicly traded company runs into significant trouble.
Oh wait a second Yahoo owns a signifiant amount of Alibaba. There was this really strange sale which did not seem to benefit Yahoo (Nasdaq:YHOO) and now the minority shareholders are being run off.
George Gutowski writes from a caveat emptor persepctive.
Yahoo (Nasdaq:YHOO) has walked up to the lip of a very live volcano and is preparing to sacrifice some 2,000 individuals or 14% of their workforce. Bad numbers coming in Q2 which is interesting disclosure because Q1 is about to come out and now suddenly no one cares. Ok so whats wrong with a little cost cutting? Lots of big companies take the corporate enema and lighten up; know what I mean? Well hasn’t Yahoo been restructuring already or something like that. Trying to become more relevant and finding more revenue streams.
Yeah they have and it hasn’t worked for some reason. The three crowns of internet advertising are financial services, travel and automotive. Yahoo finance is undisputedly one of the largest and most used financial web sites. Yahoo travel and Yahoo automotive? Well no dominance there. China and Japan has taken up so much executive head space that the basic nuts and bolts has not been paid attention too. Oh when considering shrinking Yahoo just think of how many people have left voluntarily. Now employees who were thinking of leaving are hoping to snag a lucrative exit package move down the street and come right back at you. Throwing employees into the volcano is very tricky.
The statement leaves out what area’s are particularly targetted. Of course they will claim to make broad cuts and the market may look at management and say why did you wait so long. The key will be in the mix. As the termination notices travel around the corridor we’ll find out anecdotally. Hopefully on the upcoming conference call on April 17, 2012 17:00 ET the sell side analysts will be able to guess at how the axe was swung.
The cut backs officially are to cut costs and goose the bottom line. The hidden agenda will be to create a better fit with potential merger or acquisition partners. Eliminate potential overlapping areas and perhaps keep a few stars that may add some sparkle and lustre. In any event its all about how lovely you look sitting up their at the bar with your legs crossed and a to die for Jimmy Choo dangling off your toe as you gently bounce you leg, while you pretend to look around the bar in a pointedly bored vacuous manner.
Special note to politicans in a presidential election year. If Yahoo crucifies 2,000 good wage earners and then substantial operations are transferred somewhere outside the US of A. God help you. Because if the working population decides we can’t even hold onto high-tech jobs what change does a regular hard-working guy have.
So Google (Nasdaq:GOOG) or maybe Alibaba (xtra:4AL) check the fit again. You know you need to go to the tailors a few times to ensure the cut and stitch work out. But here is the very big rub. When can the takeover offers start? Will the predators pony up now that the over heads are coming down. Or will they wait until the amputation cauterised some and assess from there. I’m thinking the latter so be careful before you load up on this news.
George Gutowski writes from a caveat emptor perspective.
By now Carol Bartz must have cashed her severance cheque and all is in order legally. The former CEO of Yahoo (Nasdaq:YHOO) might even be on holiday somewhere just decompressing. With over $10 million cash in the bank she probably went somewhere nice.
Suddenly Jack Ma goes to Stanford to say he, read Alibaba [maybe read Beijing], is interested in acquiring Yahoo. The CIA, Pentagon, FBI and anyone else tasked with cyber security may suddenly become alarmed at the cyber security issues. They certainly cannot view this exclusively as a commercial transaction. China has been the launch pad for several cyber security attacks so someone over there gets it big time.
Who do you get to help you out? Who has the big picture? Who has the free time? Would Carol Bartz if, as, when and maybe already take money for the assignment? Or would she be a patriot and work for a buck a year plus expenses, which may be considerable.
Far fetched. Not really. But Carol do you think Chinese spies may be already following you to see if you are consulting for Uncle Sam. The work can be the ultimate in satisfaction as the doofuses sell out.
As an aside there are probably key Yahoo personnel who may already have been recruited by Uncle Sam for purely counter-intelligence purposes, you understand. It’s the patriotic thing, of course. At least I hope it’s been done or underway. Espionage recruiting takes a long time.
Disclosure: George Gutowski writes from a caveat emptor perspective. I do not work for the CIA. No really you must trust me I do not work for the CIA. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.
Jack Ma and Alibaba say they want to take over Yahoo (Nasdaq:YHOO). Disgruntled shareholders and take over speculators are encouraged by the coming of a financial dawn. Hurray. But wait the nightmare may be over. Here are a few things that could easily will trip up the deal. BTW keep an eye on the Google angle (Nasdaq:GOOG)
What job security will Alibaba provide Yahoo employees. Surely Chinese workers are cheaper. Imagine the Silcon Valley layoffs when China beats them at their own game. Unemployment is over 9%. Yahoo has nice paying jobs. What will Obama do?
Is Yahoo a strategic American asset. Can the US of A stomach a Yahoo controlled from China.
Legally Jack Ma and Jerry Yang will need to resolve the case of transferred Chinese assets and who gets paid for what. Class action lawsuits will see to that. Not sure if the Chinese understand the class action lawsuit as a business tool.
Yahoo Finance is still one of the most heavily trafficked financial portals. China does not have credibility in the governance area. How will China restrain itself given their penchant for censorship. Markets are conversations. Beijing is still communist and does not like all conversations.
If China can play games with Google.Google will not stand by and let China take over Yahoo and have free reign throughout the United States and the rest of the world. There will be enormous pressure from Google and other very cash rich tech companies capable o big political contributions. they will not be silent.
China will have access to our digital records. We worry about our freedoms in the west. But we know China will not respect freedoms as we know them.
Then you have to wonder what Microsoft Corporation (Nasdaq:MSFT) is working on with their new China initiatives. They have been called the evil empire in the past. Microsoft that is.
Jack Ma makes a speech at Stanford University and declares Alibaba is interested in acquiring Yahoo. (Nasdaq:YHOO) Is that a take over offer or just bar talk? What price, terms and when did you want to do this? Jack are you just playing with us or is this serious? Well then make it serious and make an offer, already! A few i-bankers may be calling to represent you and guide you through the intricacies. They’ll want big fees.
How come Stanford University is a disclosure tool? SEC needs to check. When is an offer an offer? Quiet period?
Jack,we assume that you have the thumbs up from the Chinese ruling élite. Jack you better have the thumbs up because if you pull because of regulatory issues in Beijing that will be the last time a mainland Chinese business will be taken seriously. It’s on the edge, be careful.
Nice way to close off the whole governance thing about how Chinese assets were scooped out from under Yahoo’s nose and apparently that’s OK in China. Hmm never followed that line of reasoning. Somebody explain please.
Wonder if there is any accumulation in off shore accounts? Why would Jack Ma say this stuff and risk a price run up?
Disclosure: George Gutowski writes from a caveat emptor perspective. I have no opinions on shark fin soup. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.
Wall Street Journal insists that Yahoo (YHOO) is still looking to merge with AOL (AOL). Advisers have been hired. Strategic options that everyone is painfully aware of are being , whats the word they use, reviewed. AOL was ejected by Time Warner (TWX). AOL needs to do something dramatic to get into a sustainable life boat.
Yahoo, which cannot forget a major error in judgement when they refused Microsoft (MSFT), has some interesting assets namely Alibaba (HK:1688) and Yahoo Japan (TYO:4689). The remaining assets are mildly interesting. Watch for the Asian Dragons to make a bid for Yahoo. Perhaps even a reverse takeover from Alibaba. The Asian positions have the most promise. The Asian Dragons have readily available cash.
AOL cannot afford to get into a bidding war.
Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.