Call a MAC, ok, lets call their bluff

KKR and Goldman Sachs have threatened to back out of their $8 billion buyout of upscale audio equipment maker Harman International Industries Inc., adding that they are under no obligation to complete the merger because "a material adverse change" in its business had occurred. In deal parlance, it is "Call a MAC".

I was not surprised by the news, since that the prevalent credit crunch has forced many buyout firms to rethink their M&A deals which were negotiated when cheap credit was easily available.

The "material adverse change" is actually a clause in the merger agreement, but it is hardly invoked in the past. However, under the current circumstances, the clause, acting like an opt-out clause, started to work like a last straw for those buyout firms who have regretted on their deals.

The material adverse change, however, is hard to be invoked given the very strict criteria to be met. Therefore, the withdrawal of KKR and Goldman Sachs could result in a legal fight with Harmann.

I doubt that the two private equity firms are really serious about their withdrawal, given the uncertainty in "calling the MAC" . It could be a negotiating tactic to force Harmann to lower the price of the deal.

So lets call their bluff and look at how the drama plays out.

Dominate but Don't Abuse!

The European court upheld the ruling by EU regulators against media giant Microsoft. The ruling has more than 100 pages, but it conveys a very simple but straight message: you can dominate but can't abuse it.

There is nothing wrong with dominance, and what competition law or anti-trust law goes against is the abuse of market power. The European court found that Microsoft not only dominate but also abuse their power by those "tying" tactics or refusal to share its system with competitors. That is also why EU only focused on the anti-competitive business behavior of Microsoft, but not consider the software giant's dominance on its Office applications.

The case also evidenced the power of Europe in setting global rules of game. American business, powerful as they are, have been so committed to or reliant on European market that they have to abide by the European regulations. Microsoft even thanked European courts for the hard work put into the ruling process! You got a slap in both sides of your face, but still force your smile .....

Can Grade make the grade

Hi, Ncapitalism is back after a "dissertation leave"!

Today there have been a lot of media reports(Guardian, FT) on Michael Grade's ambitious plan to "double the ITV income by 2012". As reported, Grade wants to cut regional programming from 17 to nine, and wants to increase in-house production, among others.

Can Grade make the grade?

The regional programming cut would be very controversial and very uncertain. There is a danger of union strike in protest, since hundreds of jobs would be lost as a result of the cut. More importantly, it is still uncertain whether Ofcom would give go-ahead to the cut.

It looks like a paradox for ITV, a commercial public service broadcaster (PSB). They have enjoyed great benefits of being PSB, like very cheap spectrum and visibility at the EPG, among others. But on the other hand, the commercial broadcasters feel the PSB remit is restraining their ability to generate more advertising revenue.

However, the paradox is not an issue. ITV unnecessarily will need to cut back on their regional programming to revigorate their business. It reminds me of the book "Doing what matters", written by James Kilts et al. When Kilts took over at the Gillette, the business got many problems, like decline of market share, flat sales and earning, acquisitions not deliversing, among others. Kilts could easily go for the divesting of some acquired business, instead he chose not to divest but focus on three strategies: ZOG, FE and TI.

ZOG means zero overhead growth,aiming to control costs and invest the savings in research and marketing. FE is functional excellence, meaning achieving best-in-class capability and performance at the best possible cost. TI stands for Total Innovation, meaning that continous innovation to come up with game-changing products.

The strategy had revived Gillette, without making any divestment, and it is quite instructive for the ITV. Could ITV control the cost through other ways except the cut on regional programming? Has they achieved the best quality programming with the least cost? Has they been continously working to deliver new game-changing products?

So these are what really matters. It makes no sense to focus on the psb remit, which the ITV has really benefited a lot from.