Does Murdoch have shares in Facebook? Thursday, June 21, 2007
The Times ran a story yesterday that Murdoch is offering MySpace to Yahoo in exchange for 25% of Yahoo. This would put a valuation of $12bn+ on MySpace at current prices, not bad for a company bought in Summer 2005 for $580m.
The general consensus is that Yahoo would be mad to accept the deal at such a crazy valuation. But more interesting is how such a proposed price makes an alternate purchase i.e. Facebook, look such a steal at say anything less than $3-4bn. I've blogged in the past about how by introducing a competing item at a crazy price can influence choice.
So, let's assume I was sitting in Yahoo HQ. I might now conclude that I should go buy Facebook, as this will be a better deal than accepting Murdoch's terms. Why, Murdoch has already commented that he is worried about Facebook growth affecting his portfolio.
However, Murdoch is not stupid and you can see how he might win in many ways here
- They accept his offer and acquire MySpace for $12bn. RESULT. What a return on investment.
- They reject his approach and buy Facebook. Great, coz he just forced them to probably pay more than they needed by putting an overly high valuation on MySpace that upped Facebook's perceived "value". Moreover, the price Yahoo pays re-enforces the value of MySpace i.e. if Facebook sells for $3bn, then MySpace must be worth more, and so must Murdoch in turn!
But an additional cunning plan might be that he has persuaded an investment bank to sell him a synthetic long position on Facebook's value or, better yet, a synthetic pairs trade with a long position in Facebook and a short position on Yahoo. Such a deal would give him a payoff if the value of Facebook went up and the value of Yahoo declined. Consider how he could do this:
- Buying an interest in Facebook. An exising holder could "sell" their interest in Facebook at a pre-agreed price (call it $2bn equivalent price, which would have appeared to be a good price a week ago) thereby locking in the price they will receive. Murdoch "buys" at $2bn and keeps any upside above this, when it eventually sells. Putting this trade on ahead ahead of his manoeuvres this week would create an impressive profit.
- Selling an interest in Yahoo. Yahoo is a quoted stock, so getting a short position would be straight forward enough either through the options market or selling and then borrowing the shares. He clearly only profits if the price falls. It might do so if Yahoo buys Facebook at a price considered over the odds. It seems certain to fall if they accept the MySpace deal. In this latter case, if Murdoch took the 25% of the company shares and they fell in value, these would cover his short position and crystalise his short. As it happens, Yahoo could even look bad if they do nothing and see their stock price fall!
Has he really done this? Probably not and if he had it might be questioned whether he was insider trading. But what a strategy!
Labels: facebook, murdoch, myspace, Yahoo
posted by John Wilson @ 9:53 AM Permanent Link
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