Breaking BlackBerry news

There is quite exciting BlackBerry news going on at the moment. The company has taken a dramatic turn for maybe the worst...their shares are suspended for trading in New York and Toronto and a 40% global workforce cut will result. The driving factor is a huge projected and somewhat unexpected Q2 loss...follow it now, if you're interested!

A busy summer for TMT

OF ALL sectors this summer, many of the largest and many of the high profile deals have originated from the TMT sector. Most recently, there was the Verizon $130 billion buyout of Vodafone's stake in Verizon Wireless. Total TMT buyouts of this past quarter amounted to $240 billion worldwide. Total M&A deals in this period reached $520 billion worldwide, surpassing many previous quarters. One recent notable M&A transaction is Microsoft's acquisition of Nokia phone business for 5.4 billion euros. 

So after a few uncertain years, it is suffice to say that the era of 'big deals' and corporate confidence are making a return. However, it is worth noting that TMT is a far more innovative and fast paced an industry than say, consumer retail. Given the speed of innovation (think how often the likes of Samsung or HTC or Blackberry release a new product/version of an existing product), strategic moves of M&A or buyouts are the easiest and quickest way to hedge against competition. Innovating organically could be too slow and ergo, useless. Further, I believe that such deals were not snap strategic decisions; in fact, they probably have been contemplated for a while. The time to execute them now is attractive because of a potential rise in interest rates, raising the cost of capital and - related to the previous point - due to the increased pace of innovation and the associated competition. 

After these strategic moves, I believe there could be more coming along. In the Vodafone and Verizon case, this deal could put pressure on competitors such as AT&T to make strategic moves, such as speeding up their plan to tap into the European market.  This transaction has also granted Vodafone with a considerable amount of cash. With this cash, it makes sense for them to enter into acquisitions. Conversely, Vodafone could be targeted themselves.  

Lenovo is looking to acquire in the area of smartphones and tablets. Blackberry is considering their sale. I don't think this would be an unlikely match as their is much synergy between the two. Much of their products are created for business but Blackberry's breakthrough to consumers in recent years coupled with Lenovo as a tech power could send more challenge to Apple/iOS or Android phones than Blackberry or Lenovo doing it alone. On a related note, Lenovo ended their interest for HTC over a year ago, blaming HTC's poor quality products. Nevertheless, Chinese firms, ZTE and Huawei, who are more equipment makers at the moment, could make a bid for HTC especially when HTC's shares are trading exceptionally low compared to two years ago. The question is when? I would say not this year. The HTC One - their flagship model - has been doing well and the company's outlook is not too weak. 

There has also been talk of Microsoft to sell its Xbox business  - now that Ballmer is leaving - as a stand alone one for around $17 billion. Xbox, despite its widespread popularity, actually produces one of the lowest margins and does not help to sell the company's core products. I think Xbox could be a successful entity by itself and there is plenty of room for growth, but only if it can access enough investment for R&D to survive competition. Microsoft's cash pot will no longer be accessible!

Meanwhile in Japan, Yahoo! Japan is also seeking out acquisitions to expand their mobile products for smartphones within Japan. I believe we can expect announcements here shortly; their hiring of former Goldman Sachs M&A VP, Ryu Hirayama, shows Yahoo! is serious.  

I think that one of the most interesting things about the current TMT sector is that it creates opportunities for other sectors. For example, apps have made digital advertising huge and we saw the $35 billion merger of Omnicom and Publicis to form one giant advertising house. 

JH

Tokyo 2020: An all-over confidence boost

And its congratulations to Toyko; commiserations to Madrid and Istanbul 

IN CASE you haven't heard the news,  earlier this week, Tokyo was selected by a majority vote to become the host city of the 2020 Olympic Games. Sure, its seven years away but the Games have already had a positive effect right from the moment of announcement. The Topix Index rose 2.2% and unsurprisingly, winners were construction,  tourism and real estate companies. The biggest performers included Taisei Corp, a building firm expected to play a role in the Games' infrastructure, who rose by 14% on the day of the announcement. This rally is of course short-lived, but the shares of companies in real estate, infrastructure, construction, transport, tourism and retail related to the Games are valuable equity to hold overall - I see growth in these. Coupled with 'Abenomics' (read about it here), the Olympics is something that will boost consumer confidence and their mood, the optimism of investors and output. It is a force that will help halt Japan's two decades of deflation. You could say that Tokyo 2020 is the fourth arrow of Abenomics. It has been predicted by Japan's bid team that the Games will create 150,000 jobs in Japan and generate $30 billion. The government estimated that an additional 0.3% of GDP will be generated. This is quite a modest amount and I believe it will be more similar to that of the UK's, at 0.6%-0.7%.

The Olympic Village will be in close proximity to Tokyo Bay, which has seen its share of problems over the past 20 years such as abandonment and deflation of property prices. With the Games, I see property price in this area rising a considerable amount due to rejuvenation - influx of people, businesses, shops, transport, parks, stadiums -  into the area, just as Tokyo 1964 turned the wasteland of Komazawa into an Olympic Village and then into a trendy neighborhood in central Tokyo. An example closer to home would be Stratford. The development of Tokyo Bay will benefit landowners - prominent corporate owners include Mitsubishi Estate and Daiwa House Industry who have already seen their stocks rally. From the property developers and real estate side, I suppose they are also eager to make Tokyo become a hot property market in Asia again. 

In the next post: I will discuss some recent M&A deals that have interested me

JH

Move over, Moshi Monsters

I HAVE a much younger sibling and about two years ago, from her, I learnt of something called Moshi Monsters. You may have heard of Moshi Monsters and you have probably 'seen' it around from their copious and varied range of merchandise that is widely available  So, what is  Moshi Monsters? Well, Moshi Monsters is an online virtual game that allows the user to choose from one of six pets to care for. It is also a social environment where users can add friends, send messages or virtual gifts.The aim of the game is for the user to create a 'home' for the pet; items are bought with 'rox' (Moshi Monster currency) earned from playing games or completing tasks. Users can purchase premium membership to access the underground disco and such like things... From seeing the game myself, the interface is relatively simple and I would say that it is aimed at the ages of 7-10. But realistically, because the interface is simple, children will bored playing the game beyond the age of 8-9, a point I will return to later.

Moshi Monsters was developed and released by Mind Candy (a UK company) in 2008 and interest in it was slow at first. But by the end of 2009, it had 10 million users. Now, there are over 80 million users globally. I believe that this success can be attributed towards Mind Candy's first mover advantage into a market  that did not really cater for young children, who are ever so comfortable with technology, games and the web. It is also built on the idea of 'nurturing' which kids love. 90s kids like me may not have played Moshi Monsters but we will fondly remember caring for the 'aliens' in eggs, Furby, Tamagotchi or even caring for our Neopets (another virtual pet game for slightly older users still up and running today). The communication and social media features of Moshi Monsters also helped it to take off. 

In terms of revenues, Moshi Monsters makes half from premium memberships which of course, all the kids want their parents to pay for. The other half comes from merchandise  where Mind Candy receives around 15-20% in royalties. Currently, there are 130 licensing deals including one with McDonald's Happy Meals. In March 2013, Mind Candy announced "£250 million of total gross retail", so approximately £37.5-£50 million could be Mind Candy revenue. The last set of results filed were in 2011, where it made £28.7 million in revenues and £7.4 million in profits.

There was talk of a Mind Candy IPO last year aimed at in a few years time. But for now, Moshi Monsters is facing considerable challenges so I believe that until Moshi Monsters can tackle its challenges head on, it shouldn't even consider an IPO.  

So if reading about Moshi Monsters makes you slightly confused, then now try to consider Bin Wheevils - Moshi Monsters' arch enemy. Without going into much detail (because I don't really understand the game myself having not played it!), Bin Wheevils, founded in 2008 under Nickelodeon is also a virtual gaming environment allowing kids to create a character (a wheevil-like creature that lives in a bin) and take it around in a virtual city on all kinds of adventures. It has a grimy and slimy undertone to it all, which is why I suppose kids love it. Currently, there are around 20 million users worldwide and 30,000 users are signing up daily. Like Moshi Monsters also, there is a premium membership option and its merchandise are fast filling up in the many aisles of major retailers globally. While it is behind Moshi Monsters in terms of user count, it will prove be far more popular with youngsters in the long term because Bin Wheevils provides a far more entertaining, fun and an interactive and social environment which makes it difficult for users to log off. I have been told by my sister that every time she visits Moshi Monsters, the virtual streets are empty but on Bin Wheevils, the streets are so crowded that she can barely see her character. This tells a story: the truth is that Moshi Monsters has become boring with its limited features and games. Kids are instead turning to Bin Wheevils. It also seems that the Bin Wheevils themselves have more persona and character than the Moshi Monsters. Mind Candy Entertainment is no longer so entertaining. 

Bin Wheevils: Here to conquer a piece of the market 

Moshi Monster's plan is to go more global - break into the US more and into the Far East as well enter into tablet gaming for children (which will be a challenging venture in itself). It is also hiring game developers for their San Francisco office to launch new games. However, no one at Mind Candy has quite realised that many of their features and the monster characters have become just dull. And dullness in the gaming market is detrimental. 

In the next post: I will discuss how Tokyo 2020 will give Japan a much needed economic (and confidence) boost

JH