Anatomy of a US corporate: Acquisition Failure

The first question that entered my mind when Cisco bought NDS for $6bn was Why?

It certainly seemed like a shrewd move by Permira, who had being spinning a refloat rumour for a while.  But what better way to sell off the company than to another company with a lot of cash sitting overseas.  Looking back now it feels a lot like Permira saw Cisco coming.

What did Cisco think they were buying?  To me NDS was a company entirely based around the production of smart cards for digital broadcasters.   A lot of ancillary services existed for other areas of digital broadcasting - but NDS never really made big on this, it was all about enabling the per subscriber sales of smart cards.

That is not to say NDS was not looking at the future and the threat of over the top services taking over in the broadcast world.  They had some niche technologies for OTT playback increasingly in a cloud context, but again nothing big and never going to be what the company was going to make money out of.   They knew they had to adapt to stay relevant to the broadcasters, but were slow in doing so - just because you are too busy keeping what you have now working.

I think Cisco saw the OTT/cloud part of the business as bigger than it really was, and much of their valuation was in thinking it was all ready to deploy when in actual fact it was years away (by which time a more nimble competitor would have done it).

Cisco saw the opportunity to build another service provider business unit this time for video.  The belief being that the reliance on services now turning back to the service provider infrastructure, hardware sales would follow.  But really they ended up taking on a mid size company that was beginning to struggle to stay relevant, and inherited all of its problems rather than the expected cash cow that could serve the corporate giant with easy revenue.

Germany 2 - England 3

An unexpected comeback from 2 - 0 by a strangely resilient England.

My usual stance for England in big away internationals is to lay, since they are in a perpetual rebuilding phase.  Hodgson has done well with the side, with a great qualifying record.

So my initial bet was to lay £10 @ 5.9   Win: £10 Lose: £49

When it reaches 2 - 2, I decide to cash out - England are playing like Germany and Germany like England!

The cash out does:

    Lay England: £10 @ 5.9: Win: £10 Lose: £49
    Lay Draw:  £47.96 @ 1.23   Win: £47.95 Lose: £11.03
    Lay Germany: £6.14 @ 9.60  Win: £6.14 Lose: £52.80

So overall we're covered with:

     England Win: £47.96 + £6.14 - £49      = £5.10
     Draw: £10 + £6.13 - £11.03             = £5.10
     Germany Win: £10 + £47.95 - £52.80     = £5.15

Ridiculous interview on leadership

From Harriet Green on Radio 5 Wake up to money this morning. She finds herself at IBM heading up an Internet of Things/Education VP role.

She kept mentioning "Cognitive" and "IoT" like they were uptopias. Never mind the massive security risks on IoT, never mind the social upheaval on massive soulless automation by big business.

The interviewer who is usually good at separating their agenda from the real world issues failed this time. No mention of what a terrible cost cutting, profits and maintaining share price at all costs company IBM has become.

It is also killing itself slowly while maintaining excessive executive pay levels who under perform. That is a better reflection on the modern IBM that the interviewer should have already been aware.

Her obsession was also "leadership", endless leadership - what this leads to is a narcissistic management culture that competes and fights amongst itself continually, we certainly do not need more of that.

The Back and the Lay

Trading on betting exchanges has been around a long time, but is probably in decline because of the perceived complexity, and lack of competition meaning that the monopoly site can keep commission charges high.  The promise over traditional bookmakers is more competitive prices, the betting site is just sitting as a middle man taking a commision on winnings and has no stake in the event outcome.

It is still an interesting thing to look at to understand the concepts.

If we have a backing bet of B and a lay bet of L at decimal odds of O_b and O_l respectively then the profit P made is:

Selection Wins:

          P =  B*O_b - L*O_l


Selection Loses:

         P = L - B

The idea with trading is to back and lay during the lifetime of the event so that you build a profit if the selection wins or loses.

So the conditions for P > 0 are:

       L > B    - i.e. your lay bet stake must exceed your back stake

     B*O_b > L*O_l  - i.e your bet odss/stake must exceed your lay odds/stake

The conditions for the value of P being some sought after profit margin after first backing, now if the offs O_l are available:

    L = B + P  - builds in P as a profit on selection win

    L = (B*O_b - P ) / O_l &nbsp - Tells us lay stake needed to profit P at the lay odds

Series: The Pacific

I finally got round to watching The Pacific mini series:

http://www.imdb.com/title/tt0374463/

Anatomy of a US corporate: Cisco

A feature of big US companies is the off shoring of large amounts of profit that they do not want to bring back to the US and face taxation on. Although never explicitly stated companies like the networking behemoth are continually acquiring companies in Europe as they seek to do something useful with the money. The intent is usually to take out a competitor, move into new market segments, and initially believing they can integrate the offering into Cisco's product line up.

Cisco are by no means the only company doing this, they have arguably being more successful than others but have had some spectacular failures in big acquisitions in recent years. Having being in one such take over I'll do a few blog posts analysing what happened and why they failed. One thing Cisco were not short of was confidence in their ability to integrate new business units, to the point of making you believe it was a well oiled machine. The truth is really a company that only runs on it's margins and numbers, completely over obsessed with how much profit can be extracted from the newly acquired entity.