Google's view- On Motorola acquisition

Googles view on its recent acquisition of the Handset company Motorola:


"Since its launch in November 2007, Android has not only dramatically increased consumer choice but also improved the entire mobile experience for users. Today, more than 150 million Android devices have been activated worldwide—with over 550,000 devices now lit up every day—through a network of about 39 manufacturers and 231 carriers in 123 countries. Given Android’s phenomenal success, we are always looking for new ways to supercharge the Android ecosystem. That is why I am so excited today to announce that we have agreed to acquire Motorola.

Motorola has a history of over 80 years of innovation in communications technology and products, and in the development of intellectual property, which have helped drive the remarkable revolution in mobile computing we are all enjoying today. Its many industry milestones include the introduction of the world’s first portable cell phone nearly 30 years ago, and the StarTAC—the smallest and lightest phone on earth at time of launch. In 2007, Motorola was a founding member of the Open Handset Alliance that worked to make Android the first truly open and comprehensive platform for mobile devices. I have loved my Motorola phones from the StarTAC era up to the current DROIDs.

In 2008, Motorola bet big on Android as the sole operating system across all of its smartphone devices. It was a smart bet and we’re thrilled at the success they’ve achieved so far. We believe that their mobile business is on an upward trajectory and poised for explosive growth.

Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space.

Motorola’s total commitment to Android in mobile devices is one of many reasons that there is a natural fit between our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers everywhere.

This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences.

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.

The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders."

Posted by Larry Page, CEO, Google

Understanding Behavior

This post would be slightly different from the topics generally covered in this blog. Here I talk about profiling. 
Criminal profiling is the act of developing a psychological profile of an offender based on the state of the crime scene. Profiling is most often done by a forensic psychologist -- someone who has studied the criminal mind. This profile can then be used by police departments to assist in apprehending the criminal.
Criminal Profiling essentially aims at getting into the mind of the criminal by looking at his actions. These actions help us identify whether the criminal is a kid or an adult, rich or poor, trained or untrained, all from simply the way things are at the crime scene. 
While criminal profiling is a limited field, what is relevant in business is profiling. Very commonly used in negotiations, profiling is the technique of creating a psychological sketch of the person you are dealing with. Such a profile helps us in determining the possible reactions the person might have to any of your propositions which would then enable us to be prepared in advance to counter any argument the other person may have.
It also helps us in identifying what the other person wants.Very often we come across people who would involve a salesperson for a long time to take him to a stage where he would just want to close the deal to get something out of the time spent. As a result the sales person often ends up giving a better deal to the customer. If only, the salesperson could get into the mind of the customer first he would know exactly how to counter each step. Knowing what your counter party wants is the first step at being a good negotiator, second being the ability to hide what you want.
Negotiation is about deception. It about making the other feel that you do not want what you actually want so that the other person under values it. 
Try this at a shop. Suppose you want a product A. Try giving a hint to the shopkeeper that you actually want the product B. You will notice how the shopkeeper would skip his focus to product B and start overselling it. During this process the shopkeeper actually ignores the product A. Once the shopkeeper has been engaged for some one, act disappointed and go for product A. The shopkeeper would be in no position to oversell this product since he had already oversold the product B. All this would end up in you getting a better deal. Obviously all this would depend on whether the shopkeeper is able to read you or not.
So it all comes down to the ability to read the other person whenever negotiating. Therefore even though criminal profiling may a very technical field, profiling ability in general is a useful tool to have whenever on a negotiating table.

A Good Read- Synergy Trap by Mark L Sirower

Two of the great economic phenomena of the end of the twentieth century are the bull market in stocks and the great national and international consolidation that has taken place in a wide variety of industries. While the
collapse of communism, computer technology, and the Fed’s easy money policy have been major contributors, the massive mergers and acquisitions movement has played a very direct role in both the bull market and this process of consolidation and economic development. Indeed, in each of the last several years, we have set new records for the largest single merger, the total number of mergers per year, and the total value of mergers.
Enter Mark Sirower, who asks the simple question, are mergers efficient? Do they really create synergy? And, ultimately, do they reward the shareholders of companies who make acquisitions through mergers? His surprising answer is, no. Mergers are not good for shareholders or, presumably, for the economy. This corporate self-exploitation starts with the hefty stock-price premiums that companies pay to buy or merge with their “target” company. The author finds that this premium causes a loss to the acquirer’s stockholders because the benefits of mergers, often labeled “synergy” are greatly overestimated. In addition, many mergers result in unforeseen difficulties that actually result in even worse stock performance.  While The Synergy Trap is a work in “management science,” the author is not unfamiliar with economics. He writes knowingly about “economic rents,” the competitive-market hypothesis, the winner’s curse, and he uses competitive market forces as one of his prime arguments as to why many mergers don’t work (because mergers alert competitors to changing competitive conditions and they do not sit still while the two firms merge). This, however, does not a good theory make and he provides little in the way of explaining why mergers fail to improve the
lot of stockholders. Ultimately, the author is led to an explanation of mergers based on economic
irrationality. Company executives make “value-destroying acquisitions” as a form of gambling that has their own self-aggrandizement as its goal—“from a policy perspective . . . managers make these decisions because they can.” He concludes that there are no mutual gains from exchange. The big capitalist is making irrational
bets with the money of little stockholders and destroying billions of dollars of shareholder value in the process.
Why do big corporations pay so much more than you or I do for the stock of their target company? Simple, buying stock increases the demand and price of a stock. The typical small purchase has no perceptible impact on the price of a stock, but large block trades often have a noticeable positive or negative effect on the stock price. A merger is just a stock purchase on a much larger scale and, therefore, has a much more noticeable effect on price.
The key question that the author fails to ask here is, why is the company willing to pay top dollar on every share when it could buy so many shares at much lower prices on the stock market, and thus preserve a great deal of its own shareholder’s value? Regulation causes this anomoly because it prevents companies from
acquiring large blocks of stock in companies, without registering their intentions with the government and alerting the market to their intentions. The government protects these “target firms” from “hostile takeovers.”
If mergers are so beneficial, why does the acquirer’s stock price fall when mergers are announced? Mergers, like divestitures, put the market for a stock in disequilibrium. A merger can increase the supply if the target is purchased with the company’s stock, or diminish the company’s credit rating if purchased with debt or
cash. Mergers can also affect demand if current shareholders find that the new merged company is no longer appropriate for their portfolios. A decrease in stock price for acquisition firms is, therefore, not irrational nor completely unexpected.
But why do most mergers destroy shareholder value? Here lies both the great problem and the great contribution of the book. The vast majority of mergers and acquisitions enhance shareholder wealth of both companies, but Mr. Sirower only looks at the 168 largest mergers of the 1980s. Other research has also shown that the larger the merger, the worse the stock price performance.
The largest companies are precisely the ones that are allowed the fewest opportunities to enhance shareholder value and are also the companies that come under the greatest antitrust scrutiny by government. If a large firm tries to grow too large, it can be accused of unfair trade practices, dumping, of trying to monopolize
an industry. Large companies are also more likely to be prevented from expanding their business through vertical and horizontal integration because it might violate antitrust law. Likewise large companies are also more restricted from forming the most efficient mergers possible because such mergers might create too much
market power or industry concentration. While the author does not recognize these constraints on the companies in his sample, he claims that it would be cheaper for shareholders to simply buy shares of
the target firm themselves, rather than through their company at such a big premium. This suggestion fails to recognize that such individual purchases would also increase the price, but more importantly, it neglects the fact that if the company were to distribute cash, shareholders would then immediately lose
between one-quarter and two-fifths of their dividends to taxes. The high premiums paid to acquire new companies compares favorably to paying these taxes and paying taxes is much worse for society.
Mr. Sirower has done a great service in pointing out the anomaly concerning large-company mergers. While his own interpretation and policy conclusions are far off base, he has provided good evidence for the Austrian theory that antitrust policy is harmful to the competitive process and standard of living in society.

Vodafone Piramal Deal

In 22 years, Piramal grew a pharma business valued at Rs6 crore, to finally selling its main business of drug formulations to Abbott Laboratories Inc for a king’s ransom of Rs17,000 crore. Then he vowed not to sit idly with the cash.

Although a busy Piramal flagged off a Rs2,500 crore buyback of shares from shareholders who wanted to exit and also declared a miserly dividend of Rs200 crore from the spoils of the Abbott deal. He acquired 5.5% of Vodafone’s Indian operations for Rs2,900 crore.

The valuation of Piramal Healthcare, despite holding a war-chest, fell as investors were not enthused by the deal and about the lack of clarity of what Piramal plans to do with the money.

The market capitalisation of Piramal Healthcare when the Abbott deal was announced in May 2010 was Rs10,500 crore. After the 5.5% stake in Vodafone the Piramal Healthcare’s m-cap is pegged at Rs7,833 crore, a decline of 25%. During the same period Sensex rose 3.73%.

An institutional investor which used to hold a small stake in the company told DNA that they exited after the company announced plans including a possible foray into real estate and financial services.

“The stock has been derated and the company is trading at a discount to the cash on its books,” the fund manager said.
Prior to the drug formulations sale, there were nine institutional shareholders who held more than 1% in the company. This number has since dwindled to five.

The deal that would use up at least one-third of the company’s cash reserves of Rs10,000 crore. 
At about 17-20% returns annually over two years, Piramal hopes to make a killing from his latest bet — the 5.5% equity in the Indian operations of Vodafone.

“We want to park funds for mid-to-short term periods to create superior returns from our surplus funds,” said Piramal. “We are aware of the Vodafone’s ongoing tax litigation and have made this investment knowingly.”

While Piramal repeatedly mentioned the agreement with Vodafone involving an exit option after the 24-month period, he declined to disclose whether those options involved any guaranteed valuations for his investment. Compared to the $16 billion valuation at which Essar sold its 33% stake, Piramal got his 5.5% at a significant discount, as the transaction values Vodafone’s Indian operations at about $11.6 billion.

Essar has been Vodafone’s joint venture partner since 2007 till early 2011.

The valuations are suppressed primarily on account of the hyper competition and the rock-bottom tariffs in Indian telecom industry and the resulting profit squeeze faced by mobile telephony firms operating here.

However, the next six months are expected to be critical as regulations around mergers and acquisitions will likely be simplified, leading to a consolidation phase and easing of competitive pressure.

Those developments are expected to trigger a re-rating of Indian telecom sector sending the valuations northwards, which is what Piramal is likely betting on for handsome returns on his latest investment.

Given that telecom is a curious investment choice for a pharma firm, Piramal is quick to cite the sale to Abbot as proof of his credentials in creating returns for shareholders.

The wealth created through that asset sale translates to an average return of 41% for shareholders every year for 21 years.

Even as he is investing in non-pharma sectors, Piramal is committed to investing Rs7,000 crore in pharma sector over the next five years. “I don’t think pharma sector alone can absorb all the funds,” Piramal said.

“While the announcement of investing in pharma is a positive, they should have done something more focused with the bulk of the cash. They have not rewarded their shareholders. Investors were expecting a dividend but they went in for a buyback. Large institutions which also held a stake in the company did not seem to have taken an active role over the issue,” said a veteran investor who runs a stock brokerage under his own name.

In May, Piramal Healthcare said it would invest Rs225 crore for buying into group firms Indiareit Investment Management Co and Indiareit Fund Advisors Pvt Ltd.

Entrepreneurship

Entrepreneurship is the Buzz word among all top B schools across the world. All organizations talk about hiting people with entrepreneurial abilities. Such skills are no longer limited to running one's own venture and has lead to coining of words such as intrepreneurship
So what is entrepreneurship and what are the traits of an entrepreneur
I'll try and explain using an entrepreneurship model which I call ALIVE

A- Adapt
L- Lead
I- Innovate
V- Visionary
E- Energize

Adapt- Charles Darwin once talked about the survival of the fittest. The concept, no matter how old, continues to be of relevance. Most companies wish to be of going concern and in such a long run environment kepps changing. Therefore, the ability to adapt becomes very important. Even in the short run this skill is of utmost importance. Business environment has become very dynamic and therefore an entrepreneur must keep adapting to the changing demands of this environment

Lead- An entrepreneur must strategize. The difference between strategy and operations is the path travelled. To strategize an entrepreneur must walk on unknown territories since we talk about a new way of doing something or a new domain to be present in. This is where the ability to lead becomes important. An entrepreneur must be able to lead his team, with motivation and direction, which is often unsure to tread on unknown paths.

Innovate- Getting a competitive edge is essential in today's environment. With the fast flow of information and technology a sustainable competitive edge is not possible without innovation. Stever Jobs is a name that comes to mind when we talk about innovation and his commitment towards innovation has created a separate league for Apple altogether.

Visionary- Dhirubhai Ambani is a man who has been considered one of the greatest leaders of all time. He kept doing what many others considered a mistake. This ability to see oneself at a position beyond what others can see is what is called vision. That position is like a lighthouse in a rough see. An entrepreneur must have the ability to see the light.

Energize- People are the biggest. Asset for an organization. An entrepreneur must be able to get work done from others. Many a times people do not have the will to keep moving towards the organization goal and at these times an entrepreneur must be able to energize his people to achieve those goals.

What is Strategy?

Sun Tzu and the Art of Modern Business

This article is based on Mark McNeilly's book- Sun Tzu and the Art of Modern Business. In this book Mark McNeilly talks about the application of Sun Tzu's teaching in the modern business scenario.

 

Six Strategic Principles for Managers

1) Capture Your Market Without Destroying It

“Generally in war, the best policy is to take a state intact; to ruin it is inferior to this....For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.”
--Sun Tzu

Sun Tzu calls this the need to “win-all-without-fighting”. Since the goal of your business is to survive and prosper, you must capture your market. However, you must do so in such a way that your market is not destroyed in the process. A company can do this in several ways, such as attacking parts of the market that are under-served or by using subtle, indirect, and low-key approach that will not draw a competitor's attention or response. What should be avoided at all costs is a price-war. Research has shown that price attacks draw the quickest and most aggressive responses from competitors, as well as leaving the market drained of profits.

2) Avoid your competitor's strength, and attack their weakness

“An army may be likened to water, for just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strength and strikes weakness.”
--Sun Tzu

The Western approach to warfare has spilled over into business competition, leading many companies to launch head-on, direct attacks against their competitor's strongest point. This approach to business strategy leads to battles of attrition, which end up being very costly for everyone involved. Instead, you should focus on the competition's weakness, which maximizes your gains while minimizing the use of resources. This, by definition, increases profits.

3) Use foreknowledge & deception to maximize the power of business intelligence.

“Know the enemy and know yourself; in a hundred battles you will never be in peril”
--Sun Tzu

To find and exploit your competitor's weakness requires a deep understanding of their executives' strategy, capabilities, thoughts and desires, as well as similar depth of knowledge of your own strengths and weaknesses. It is also important to understand the overall competitive and industry trends occurring around you in order to have a feel for the “terrain” on which you will do battle. Conversely, to keep your competitor from utilizing this strategy against you, it is critical to mask your plans and keep them secret.

4) Use speed and preparation to swiftly overcome the competition.

“To rely on rustics and not prepare is the greatest of crimes; to be prepared beforehand for any contingency is the greatest of virtues.”
--Sun Tzu

To fully exploit foreknowledge and deception, Sun Tzu states that you must be able to act with blinding speed. To move with speed does not mean that you do things hastily. In reality, speed requires much preparation. Reducing the time it takes your company to make decisions, develop products and service customers is critical. To think through and understand potential competitive reactions to your attacks is essential as well.

5) Use alliances and strategic control points in the industry to “shape” your opponents and make them conform to your will.

“Therefore, those skilled in war bring the enemy to the field of battle and are not brought there by him.”
--Sun Tzu

“Shaping you competition” means changing the rules of contest and making the competition conform to your desires and your actions. It means taking control of the situation away from your competitor and putting it in your own hands. One way of doing so is through the skillful use of alliances. By building a strong web of alliances, the moves of your competitors can be limited. Also, by controlling key strategic points in your industry, you will be able to call the tune to which your competitors dance.

6) Develop your character as a leader to maximize the potential of your employees.

“When one treats people with benevolence, justice and righteousness, and reposes confidence in them, the army will be united in mind and all will be happy to serve their leaders.”
--Sun Tzu

It takes a special kind of leader to implement these strategic concepts and maximize the tremendous potential of employees. Sun Tzu describes the many traits of the preferred type of leader. The leader should be wise, sincere, humane, courageous, and strict. Leaders must also always be “first in the toils and fatigues of the army”, putting their needs behind those of their troops. It is leaders with character that get the most out of their employees.
These principles have been utilized throughout time in both the military arena and the business world to build creative strategies and achieve lasting success. If you use them properly, they will bring you success as well.


(Source: http://www.suntzu1.com/content/six_strategic_principles_for_managers)