Saturday, December 31, 2005

HOOK' EM: My favorite Texan T-shirts

And there's another one I saw, but couldn't find an image - It reads:
"You all can go to hell, I'm going to Texas"


FOI: Whats in store for 2006?

1. Recession in the U.S ?
The inversion of the yield curve (short-term yields turn more than long-term yeilds) noticed in the last week of December ( the 2-year U.S Treasury bills surpassed the 5-year and 10-year Treasury bills ) has provoked economists and analysts to sit on the edge of their seats to analyze whether the yield curve inversion will result in an expected slowdown in the U.S market, or are the bond markets predictable anymore?

2. The Enron drama
With Mr. Causey pleading guilty and agreeing to support the prosectors, the securities and fraud case against the Enron, the energy giant which filed for the biggest known bankruptcy case in 2001, is set to hit the Houston federal court early in 2006

3. Who is going to file for bankruptcy in 2006?
Ford Motors OR General Motors - One of these 2 will, definitely :)
With their problems building up with the United Auto Workers (UAW) going on strikes, shares drooping (GM's shares hit 20-year low), profits plummetting, these auto firms are under tremendous pressure to continue operations

4. M&A mania
With a 47% jump in the total value of the transactions in M&As to more than $2.5 trillion,
2006 seems to be another great record year for mergers and acquisitions. Goldman leads the deals.

5. S&P 500 stock portfolio - expected to return 10% in 2006

6. Japan is expected to come out of its long-term deflation - finally
Real estate prices are increasing. Japanese investors are buying Japanese stocks for the first time.

7. Energy in 2006
Tight international supply and continued expeced shortages can be attributed to the hurricanes. Crude oil prices are expected to average $55 a barrel through the end of 2006 or longer. The 3 largest U.S oil companies - Exxon Mobil, Chevron Corp and Conocco Philips made profits of $45 billion in the first nine months of 2005. This trend is expected to continue in 2006.


SAM: The TOP 5 Acquistions of 2005

Acquiror / Target : Deal Value

1. Proctor & Gamble / Gillette Co : $57 billion

2. Bank of America Corp. / MBNA Corp : $ 37 billion

3. Conocco Philips Inc / Burlington resources Inc : $36 billion

4. SBC Communication Inc / AT & T : $22 billion

5. Boston Scientific Group / Guidant Corp : $22 billion


Monday, December 26, 2005

S^2: Start of 2006 delayed by a leap second!

CNN Uncut

Scientists are delaying the start of 2006 by the first "leap second" in seven years, a timing tweak meant to make up for the changes in the Earth's rotation. In other words, a leap second is added to keep uniform timekeeping within 0.9 second of the Earth's rotational time which can speed up or slow down because of many factors including the oceanic tides we've seen off late.

The adjustment will be carried out by sticking an extra second into the atomic clocks worldwide at the stroke of midnight Coordinated Universal time, the widely adopted international standard. So, they will read 23:59:60 at that moment before rolling over to all zeros.

Deciding when to introduce the leap second is the responsibility of International Earth Rotation and Reference Systems Service and the preference for leap seconds is Dec. 31st or June 30th.

SAM: Scandal, Lies and Courtroom drama - Enron in the limelight

WSJ Premium Uncut

  • During onetime energy giant Enron's heyday, it was Chariman Kenneth Lay and President Jeffrey Skilling who held the spotlight. Cheif Accounting Officer Richard Causey worked in the b/g
  • Now its 45-year old Mr. Causey's turn to be at the center of courtroom drama and play an leading role in determining the criminal fate of his 2 former bosses in what promises to be the capstone trial of current era of corporate scandals
  • Cheif accountant, Mr. Causey had detailed knowledge of inner financial workings of Enron which, amidst questions about its finances and accounting, collapsed into Chapter 11 Bankruptcy in 2001
  • If all the 3 make it to the defense table, their unity will be tested as there are points of potential conflict
  • But all three have pleaded not guilty
  • What a way to start the new corporate year of 2006 with the trial set to begin at the federal court in Houston, TX, on Jan 17th!


Saturday, December 24, 2005

SAM: Albertson's Inc - Collapse of Sale

WSJ Premium Uncut

Who: Investors - Cerberus Capital Management LP , Kimco Realty Corp
Retailers - CVS Corp., Supervalu Inc.

Whom: Albertson's Inc., 2nd largest supermarket chain in U.S (after Kroger Co.)

Competitors: Discounters like Walmart Stores Inc. , and quality stores like Whole Foods Market, other chains like Kruger and Safeway Inc.

Deal: Proposed, $9.6 billion

Cause and Effect:
  • CEO, Larry Johntson was originally brought to Albertson's from a strong track record spanning over 3 decades at GE. He was the comapny's first outside chief executive who won the job in 2001 over former executives of the firm.
  • Mr. Johntson was a shrewd cost-cutter, cutting over 30,000 jobs to reduce the workforce to 200,000.But his efforts to boost sales floundered due to heavy competition from Walmart's dominance of the food retail business.
  • While competitors like Kruger and Safeway lowered prices and improved merchandise quality, Mr. Johntson zigzagged b/w strategies that yielded only disappointing results
  • Albertson's shares have fallen 34% since the day Mr. Johntson was named chief executive.
  • Problems have increased over the last couple of years since 2003- SGA expenses have increased by around 16% to around $10 billion in 2005.
  • As a result, over this period its EBIT has fallen drastically by more than 30% to $1.2 billion in 2005, although sales increased by around 12% to around $40 billion
  • So, Albertson was up for sale. Supervalu was going to pick up several of Albertson's better performing divisions, CVS was going to take its freestanding drugstores. Kimco and Cerberus were planning to acquire a batch of their weakest stores, most likely to unlock their real estate value
  • While the deal was almost nearing completion, it suddenly broke down Wednesday over last minute disagreement over who should shoulder the responsibility if regulators tried to block the deal because of anti-trust concerns.
  • It was said that Supervalu assumed more of the risk that the federal anti-trust regulators would object that there would be competitive overlaps b/w Supervalu-owned stores and Albertson's stores. But Albertson's board demanded more concessions, and talks were called off
  • As a result, on Friday, Albertson's shares were down 12% to $20.54 as of 4pm on NYSE


SAM: Equity firms to acquire Affiliated Computer Services

Who: 3 private equity firms including Texas Pacific (leading the deal) , Bain Capital and Blackstone Group

Whom: Affiliated Computer Services (ACS), Inc. based in Dallas, TX - a service oriented firm which processes transactions like employee-benefit changes and accounts-payables.

Competitors: IBM Corp, EDS Corp, Computer Sciences Corp.

Deal: Proposed, $8 billion

Cause & Effect:
  • ACS posted 25% rise in revenue to $1.31 billion, reported Sep. 30
  • Companies such as ACS are attractive to private-equity firms because they have the ability to generate steady cash flows, from their growth oportunities
  • These cash flows allow the owners to take more debt in this non-'Modigliani & Miller' world, backed by that cash and hence pay themselves larger dividends.
  • Since non-financial firms have largely remained on the sidelines this year, these investment firms take the advantage of the lack of competition to bid for these companies and also get attractive financing deals from the banks and bond market.
  • As a result of this proposed deal, ACS stock on the NYSE, rose 5% to $61 yesterday, in a market that was mostly flat Friday.
  • On the bond market, ACS's bonds that were trading near par, fell to around 90 cents on the dollar in anticipation of additional debt leverage that usually follows such buyouts.


HOOK 'EM: A day in my life at McCombs 1st Sem

6:00 : alarm goes off - wake up, reset it, and sleep again
7:00 : goes off again - wake up, reset it, and sleep again
(pretend not to hear it ring again for a while, 'cos its now anyway too late for the 8:00 am class)
8:00 : the damn thing goes off yet again, but really wake up this time, or I'll miss the 9:30 class too
8:15 : get some cereals and juice quickly
8:30 : take a quick shower
8:45 : out of the house
9:30 : Accounting / Operations class
11:00 : Finance/ Statistics class
13:00 : Go to Dobie's or Jester's to pick something to eat, or do lunch at the Atrium if I had packed some sandwiches from home
14:00 : Information Management class
15:30 : Discuss group projects and assigmnments with team
17:00 : Attend a presentation by Shell CIO, Mr. Frank Torgus
18:15 : Rush to 6th Street for Deloitte Information Session
21:00 : Take the shuttle back home
21:30 : Start work on the following day's turn-in Boston Beer Accounting case or Stats assignment or the Google/Blockbuster Case for IM class
22:30 : Cook some dinner, watch half-a-movie or update myself with what WSJ or BW has to say
23:15 : Continue with individual assignments
01:00 : Work on the group projects and presentations due last week before the finals
02:00 : Very rarely, read up some case studies for the next day's class / work on my resume if I have any resume drop deadlines coming up
02:30 : yawn........and asleep
02:45 : wake up suddenly remembering that I forgot to submit my assignments, so submit them online on the BlackBoard since I won't have time in the morning, and off to sleep again....
03:00 : discover a lil' peace...finally...


HOOK 'EM: Christmas after the floods

As we all know, Hurricane Katrina (and Rita) has left many homeless in New Orleans, Texas. While the rest of U.S is celebrating the Christmas holidays in all excitement, the families from New Orleans , some still struggling to make new homes, some haunted by the loved ones they had to leave behind while the hurricane struck, are in no Christmas mood.

Earlier this year, as the hurricane survivors migrated from New Orleans to Austin, Houston etc., McCombs took in a dozen Tulane students to help them continue with their graduate education at UT, using a transfer credit from McCombs to earn a Tulane MBA. This was a well appreciated move by our Dean, and our career services brought the Tulanes access to our recruiting system, career fairs and on-campus presentations, just like any other McCombs MBA.

So, they were here all through this semester, I hope they enjoyed their stay at McCombs. Now its the time for them to go back to New Orleans, to continue their education there and work towards rebuilding the New Orleans city. And guess what, while they were leaving they expressed their gratitude by promising to cheer for the Texas Longhorns in the upcoming Rose Bowl Championship !! Hook 'em Horns!


Friday, December 23, 2005

S^2: New Moons and Rings around Planet Uranus

CNN Uncut

Pictures taken from the Hubble Space Telescope show that the planet Uranus has two additional moons and faint rings never observed before.

Like many other moons of Uranus, these have also been named after characters in Shakespeare. They are called Mab (after Queen Mab, the subject of a famous speech by Mercutio, a character in Romeo and Juliet) and Cupid (also, a character in the lesser known play - Timon of Athens). These bring the total number of satellites orbiting Uranus to 27.


SAP: 3 economists in one cab

WSJ Uncut

Thats's a terror, I know, but let's see what happens. Three economists get into a cab, they're each getting off at different places along the route. How will they share the fare?
(1) There is no rush hour
(2) cabs are plentiful
(3) each one can reach his destination at atleast the same speed, if not faster. So they have come together becuase the total fare would be cheaper than if they had travelled separately.
(4) A and B are allowed to jump out at no cost at their destinations on the way to C's.
(5) Also, say A's usual fare = $1, B's usual fare = $5 and C's usual fare = $9
(so, rather than paying $15, they would pay $9 now)

Now, how do you allocate costs and benefits among 3 people who have come together for mutual benefits. Let us explore the various ways they may think doing this.

(a) Easiest solution, all 3 share A's fare, then B and C share the fare from A's to B's, and C should pay the remaining fare from B's to C's. So, A's fare = $0.33 ; B's fare=$2.33 ; C's fare = $6.33

(b) The benefit of travelling together is the total savings of $6. They can split that up proportionately. A's savings = (1/15)*6 = $.40 ; B's savings = (5/15)*6 = $2 ; C's savings = 6-(0.4+2) = $3.6.
So, A's fare = $0.6 ; B's fare = $3 ; C's fare = $5.4
Here, every passenger pays an amount proportional to what he would have paid w/o the savings. Proportional split up of surplus and debts is a common practice under U.S law, seen mostly in bankruptcy cases

(c) Now, lets introduce the beauty of negotiations. Heard of John Nash? Yeah, the Beautiful Mind guy, some economists dug into his work on negotiation strategies in game theory to propose a solution.
Each passenger would negotiate his best outcome which turns out to be an equal split of the savings. Why? Because this whole deal of travelling together to obtain mutual benefits, would be nullified if any one party walks away. So, A has the highest bargaining power in this case.
So, A is paid $1 to travel along ; B's fare = $3, C's fare = $7

(d) The above solution is problematic because one party is paid to travel. Instead, B and C would negotiate with A and give him a freebie and split up rest of the savings equally.
So, A's fare = $0 ; B's fare = $2.5 ; C's fare = $6.5

(e) The negotiation gets further interesting if B and C form a coalition. They would argue with A that, if they travel without A, they would save $5, so they have to make atleast that now, which means only the remaining $1 of savings is up for equal splitting.
So, A's fare = $0.67 ; B's fare = 5 - (2.5+0.33) = $2.17 ; C's fare = $6.17

The conclusion one would derive, as indicated by Jonathan Gruber, Prof of Economics, MIT, is that there really is no one single solution to this problem, it depends on individual preferences and bargaining power.


Wednesday, December 21, 2005

HOOK 'EM: 1st Sem MBA - what is it all about?

Unlike others Masters programs wherein one has to attend just 2 courses per semester, the MBA requires us to take up 5 courses, that is, 15 hours per week. And for someone like me from a computer engineering and technology background, all of these courses seemed to be unheard of ever so far. So, while it adds fuel to the fire on one side, it was truly fascinating to observe that it was thus a great value for money and an opportunity to learn the most.

These were the 5 core courses that I had to take, - Financial Accounting, Financial Management, Statistics, Information Management and Microeconomics, Game theory and Operations. Phew! yes, all in one semester. Allow me to say a a few lines about what I learnt in each of these courses through this semester, mainly for the benefit of other MBA aspirants who are reading this post.

Financial Accounting: This was more of a Financial Statement Analysis course. Prior to this class, not more than once had I glimpsed at my ex-employer Netzero's financials - simply 'cos I dont understand a single word in there. This course now had me tearing apart latest balance sheets, cash flow statements and income statements of various firms. This was a 100% case-based class, we had a case to discuss every single class. We analyzed firms both within the US and International to debate the differences in accounting standards between the US GAAP and international GAAP. It was so exciting to understand and analyze all the fraudery taking place in today's accounting world.

What do CFOs and executives do to boost their income or drop it low as per their needs, how much is in their control, when will they get caught and what are the consequences, how do top firms falsely boost their profitability and efficiency? Why did WorldCom CFO, Scott Sullivan while reporting their annual earnings, move all the charges that WorldCom paid to local telephone networks into the category of capital expenditures instead of marking them as operating expenses? And, why was he imprisoned under civil fraud section for that?

Financial Management: In this course, we started by observing the differences between a partnership, an LLC and a corporation. We moved to understand the fundamental concepts of Time Value of Money. Why is a dollar today worth more than a dollar one year later? From there we grew to involve ourselves in business valuation concepts, learning how to project cash flows of a firm and value the business, especially for mergers and acquisitions. We learnt how the IPO process works. What is the motivation behind paying out dividends to stockholders and how does it differ from share repurchases? What are the benefits of leasing assets, as opposed to buying them? Upto what extent can a firm borrow? When can a firm file for bankruptcy, and if it does who will get the priority on the payments to be made - the creditors or the investors? This is a pretty tough course, I must admit.

Statistics: How do we measure uncertainity by applying statistical models? We learnt to identify random samples, for cross sectional and time-series data. We saw that stock prices of any firm follow a random sample, meaning future prices cannot be predicted based on past prices! We learnt various regression models to to identify the extent upto which the output variable depends upon the input parameters. Using the regression equation, we were able to predict the future on these models that we analyzed. We had a group project wherein each team analyzed various scenarios trying to explain the uncertainty in those with statistical models, like for example, predicting a S&P500 CEO's salary, predicting the performance of a movie in the box office, proving that starting salary is independent of the MBA student's GPA!

Information Management: I was under the impression that this is the class I would feel most comfortable with, I was totally mistaken. This had nothing to do with the technology that I knew to talk about. Here, we looked at the supply chain management of Dell, comparing it with HP. We learnt the importance of network effect, something that Google lacks yet, which it should fear.
We discussed the importance of technology in the value chain, and how the Internet has affected the Porter's 5 forces. What are the benefits of BPO? And we ended the course with an insight into the all-famous and currently rocking Sarbanes-Oxley rule.

MicroEconomics, Game theory and Operations: Microeconomics in the first semester is a boon. It just exposed us to so many differnet economic concepts, who would have known that there is something called a market for lemons or a diamond-water paradox. Game theory was pretty exciting too. On a highway, how should 2 competing gas stations position themselves such that both could not be better off by moving to any other position? Operations was more engineering than any other subject, well probably statistics too. We extended a few concepts from supply and demand in micro, and dealt in detail with queueing theory. We saw how the Japanese grill, Benihana improved its efficiency of operations and was able to have an average dining time of 45 minutes against 60-70 minutes for its competitors.

So, this is a brief overwiew of what I was trying to observe and learn during my 1st sem at McCombs, we'll be doing Marketing and more Strategy courses in the upcoming Spring semester.


HOOK 'EM: A lil' flashback....the MBA orientation, Fall 2005

So I landed at Austin in August 2005. That was the last update from me. Its about Christmas time now. So what has been happening all through? Well, I just had a warm welcome to the B-School. Its not that I couldn't find 10 minutes in a week to keep you all updated, but everytime I think of doing it, I would have some other higher priority work at school. Sorry about it.

Anyways, here we go.....We had a week long orientation program in the last week of August, that was pretty much indicative of how life was going to be thereafter. There was an accounting boot camp to show the rookies how threatening financial accounting could be, and its worth noting that these classes were at 8 am, a time of the day that I had not experienced for the last 3-4 years. Nevertheless, the camp was exciting, got to meet a lot of people from various countries and more importantly very diversified backgrounds. One the first day, if I remember right, I had a banker from Bank of America and a guy from the U.S military sitting on either side. No, I was not scared, just clinging on to my seat yet.

I've heard them say this before, but was seeing this happen now....Job search during an MBA program starts the very 1st day. To show the truth in it, we had our sophisticated Career Services division speak to us highlighting the importance of a one-page resume and iterated through all the services they can offer us, was pretty enlightening and at the same time scary.

Once the sessions were over, I made it a point to go around the campus. It took me a week to get a top-level map into my head. So huge was the campus! UT hosts more than 50,000 students and is among the largest public schools in the United States. I found that it has an awesome library, which is claimed to be the largest in the country. I've been lost there twice so far. The B-School looked elegant in its own way, but I'm pretty sure any B-School across the country is going to be this way, they are meant to be. (Photos, later). What interested me most was that the library had an audio visual section which hosted an excellent collection of movies on DVDs, both latest and classics, and this was for free! I still relish that.

It was the last day of the orientation, and we had a business dinner at the Texas Union Ballroom. Dean Gau welcomed us to the program and opened the gates for us to enter the McCombs MBA Program the following week. The following night he hosted a party at his magnificent house. I met with a lot of new friends and was excited to learn about where they came from and what they were doing prior to B-School.

A little tired. A little homesick. But excited by the second. A weekend to go through, before school begins.

[Watch out for further updates, for more information on the courses that I attended during this 1st semester and for a typical day in the life at McCombs]