October 27, 2007

A $15 billion toy

In a fit of what seems to me to be utter desparation, Microsoft paid top dollar, $240 million to be precise, for 1.6% of a bit of code which enables jobless people who want to pass their time (not being judgemental here, we need to do it at some point of the day!) fill up gigabytes on the web. The entity in question is Facebook which has become a rage for the range of creative ways to network socially. I spend some time on it every now and then too. But if I knew that what I was fooling around with was a $15 billion toy, I would probably treat every word I typed like I was etching on a diamond. Spoilt brats we all are. Even so the techies at Silicon Valley who think that Moore's law applies to valuations as well.

To get a sense of why I'm so worked up lets do a little analysis here. (by the way $15 billion is Rs.60,000 crore). Bharat Petroleum is a respectable Indian company. Not the one always in the news but still walk the length and breadth of India and you will see petrol pumps, oil storage tanks the sizes of stadiums, refineries, trucks at airports ... in short a huge asset base which you and I can see. The market capitalisation of BPCL at the close of trading yesterday was Rs.13,000 odd crore. Ditto Hindustan Petroleum which at yesterday's close was worth Rs.8,000 odd crore. Siemens India, my previous employer, with concrete orders booked with extremely creditworthy clients over the next few years was worth Rs.29,000 odd crore. My point is that with tangible assets, orders, customers and employees these behemoths of Indian industry are collectively worth Rs.50,000 crore, a wee bit short Rs.10,000 crore or $2.5 billion than Facebook. Something tells me that Facebook might be worth more than the GDP of many
African countries.

My valuations based on yesterdays clsoing market price maybe too simplistic. There is a lot more to cover and account for before I put a number to the companies I have mentioned. But even then you can't pay $240 mn for a wee 1.6% for software you cant see anticipating that an 'x' percentage of the world's population will register, see your ads, click on it and make a purchase. There are too many ifs and buts in Facebooks valuation which if you remember correctly was what caused the tech meltdown 7 years ago.

To be fair to Facebook, it could be the case that the deal is structured. Maybe a significant amount of that equity is mezzanine (which is not the same as the shares traded on the market). Part of it could be a corporate loan and it slipped the Microsoft spokesperson. It could be that the guy typing the Press Release missed the decimal point courtesy some-plants-who-shall-not-be-named. ($1.5 billion is also expensive but given that its the tech industry and they have a history of such fallacies, I'll understand.) Maybe the days to come will throw some more light on the transaction.

I never understood tech. Stood far away from it during my engineering days as well. I guess its an industry I'll never understand and this proves it. I'm much better off funding infrastructure projects, things I can see, touch and feel. I wonder what Warren Buffet would say though? It would be nice to hear him wishing Microsoft all the best!

October 15, 2007

Corporate Fraud!

Having spent some time on Marketing in a BSchool and after going through the jargon that marketeers seem to pull out of their hats as frequently as Emran Hashmi's onscreen escapades, I have come to believe that there is no better way to con people into paying more or using more than what they would want than to play some Marketing jazz.

Dilbert feels the same! Marketeers! What do you have to say? ;)
Courtesy: Economic Times

October 12, 2007

SEZ Update

43 days after I made a few suggestions (about people displaced by SEZ land sharing the profits with the developer) to resolve the SEZ controversy in India, it looks like someone is listening. The National Policy on Rehabilitation and Resettlement of 2007, provides for structured solutions to help those displaced by SEZs. Relevant portions of text are reproduced here (Source: rediff)

"The new policy seeks to make those entitled for compensation stakeholders in development by allowing them to take up to 20 per cent of the amount in the form of shares if the acquiring entity is authorised to issue these instruments."

"The policy discourages speculative transactions of land acquired for public purposes. As a relief for developers, 30 per cent land can be compulsorily acquired by states for the promoters while the rest has to be bought by them."

"Reliance Industries which is in process of acquiring land for its mega SEZs welcomed the policy. "The policy will boost the industrial development as it clearly defines the land acquisition rules," a Reliance spokesman said."

Which means that the inhabitants of land notified as SEZ land will be able to share in the upside, if any, from the land. That should make them feel much better, and less jealous (refer to the italiced note at the end of this post) of capitalistic developers.

My only concern being will these inhabitants understand the complex finance behind it all? How is this process made to look fair to all parties? How will the rabble-rousers in political circles, who thrive on conflict, look at their golden goose being neutralised, react? Watch this space ... pour in your thoughts if any.