Much ado has been made about the Kraft-Cadbury deal. The consensus seems to be (especially after the overlooked pension shortfall) that Kraft overpaid for Cadbury and, even worse, used its own undervalued stock to do so. Recently, Kraft revealed CEO Irene Rosenfeld's compensation for 2009 was $26.3 million, up 41% from 2008. The compensation committee "heavily weighted the significant effort and the ultimate acquisition of Cadbury" to determine the payment. To some, the Kraft-Cadbury deal is the perfect example of empire building, suggesting that Rosenfeld executed the Cadbury deal to increase revenue (which generally determines CEO compensation) without much attention to the price. This criticism reflects the common conception that most M&A destroys value and is driven by ego and compensation. In my opinion, this view is misguided, both for M&A generally and Kraft specifically.
Thursday, April 22, 2010
Sunday, April 18, 2010
A Few Words on the SEC's Suit Against Goldman
Reading the SEC's allegations against Goldman (available here), I was reminded of the case against Bear Stearns hedge fund managers Cioffi and Tannin. From the excerpts of emails given by the prosecution during this case, it seemed that Cioffi and Tannin clearly deceived investors. However, the defense argued that the prosecution's damning quotations had been taken out of context and did not reflect the concrete views of the defendants. Furthermore, it was difficult to link these discussions to actually proving that the managers mislead investors. Cioffi and Tannin were acquitted of any criminal wrongdoing.
Saturday, April 17, 2010
Expect LBOs to Make a Comeback
Friday, April 16, 2010
Russia's Rising Influence in Its Near-Abroad
It seems as if Russian-American relations have improved significantly over the last year. The rhetoric coming out of Russia towards the US has been much milder. Russia has shown increasingly strong support for sanctions against Iran. Most importantly, Obama and Medvedev signed the new START treaty about a week ago in Prague. Perhaps Obama's push to "reset" relations with Russia have worked. However, I doubt that's the case. A country as driven by realpolitik as Russia would never compromise on personal politics alone. A closer look reveals Russia has reason to be accommodating given its strong successes in securing its "near-abroad" over the last year.
Thursday, March 25, 2010
Economic and Market Update with Prof. Spellman
Sunday, March 21, 2010
Perspectives on Chinese Currency Manipulation
Thursday, March 18, 2010
Valuation Matters
It's common sense that equity returns depend on the starting valuation. In other words, mean returns from an asset class mean little for an asset where returns are mostly dependent on capital gains. When capital gains are a significant proportion of total returns, starting valuation should be more important than historical performance. It seems simple and obvious, but most investors who are allocating a long-term portfolio still don't pay enough attention on valuation.