Newport Beach, CA -- (SBWIRE) -- 11/27/2012 -- Jason Galanis has always tried to take a top down approach to investing because I believe the macro picture can change everything. That does not mean I do not believe in bottom up analysis; a company run well can survive in any weather. Is that true of relationships as well? In particular the supposed “special” relationship enjoyed between the United States and the UK. I believe there is a macro economic event playing out right now that may give us the clue.
The merger between EADS and BAE is not a typical merger for many reasons. For one both the French and German state hold shares in EADS. Second, BAE holds a special security arrangement with the United States, which has blossomed quite profitably in the recent expeditionary presidency of George W. Bush to $14 billion in revenues and employment of some 40,000 people in 40 states.
But, as we all know, all good things come to an end. With a war weary American public and a more laid back policy on foreign intervention (notice the back seat on Libya and the non action on Syria) BAE is not doing the kind of business it was during the Bush years. Couple that with a weakening of the financial sector-the UKs biggest industry- and European woes in general and it is not surprising that BAE would like a partner.
But does the threesome make any sense? It was argued recently that even the Franco German pairing made little sense. New products were late to market many times and factories made parts in disparate sections of the company that ultimately did not work together causing delays. The EADS CEO former German paratrooper, Tom Enders, says it is a perfect fit. Shareholder who perhaps disagreed with the CEOs position let the market know with a 12% dip in the EADS share price.
However when you are talking mergers and acquisitions this is par for the course. There is a reason information close to such deals is valuable and there is a whole hedge fund industry that makes money going long the acquiree and short the acqiuerer. However, there are those on the BAE side that say this is exactly the wrong time for a merger as the company is just starting to come out of its funk from slumping American security spending.
Is this simply posturing? Possibly yes. Each side is going to make the strongest case it can for its own interests. However, anyone in the business knows that there is no such thing as a merger of equals. And in this case BAE stands to become junior partner with 40% of the new company with 60% to the new owner. And this is where things get a bit messy. The security arrangement BAE has with America will not continue into a junior partnership with a Franco-German company.
And this is the sum of the story: a United Kingdom forced to chose between Atlanticism and further integration into the faltering union they already hold one foot out of. In a way, the British have a very privledged place in the world; coveted by both America and Europe yet coy with both. And the decision by America and the reaction by the Brits may determine where this relationship is going.
So I can here the next question; where is the punt? And that is the real trick. Rarely are things in life binary. When I touched down in Macao 10 years ago I saw it right away. A gambling hungry populace of billions of people served by a single enclave; where could things go wrong. But when you mix politics into investment the answer is almost anywhere anytime.
Do I think the merger will go forward; yes I do. Am I long on it? This to me is a microcosm of the Euro experiment; a move towards not just saving the Eurozone but enhancing it as well. And I answered this question when writing previously about the euro currency; my money is in Asia, in fact, it has been since that trip to Macao. But it does not mean I am not intrigued by this tipping point event that currently has the world in its grip. We will see how it plays out.
About Jason Galanis
Jason Woodruff Galanis is an American financier focused on structured finance in distressed debt and venture capital investments. Galanis has principally invested across two primary asset classes - financial services and intellectual property (patents; trademarks; brands; content). Galanis co-founded The Credit Store, a consumer advocacy and credit card issuer funded by Cargill and minority owned by Electronic Data Systems (now owned by HP). He led the refinancing of the $200 million Cargill credit facility with Morgans Waterfall Vintiadis & Co., a $2 billion hedge fund that Cargill introduced to The Credit Store to provide funding to buy out Cargill. He and his partner sold in a $152 million transaction The Credit Store, together with the trademarks and the patent-pending financial algorithm Galanis invented, to an investment group advised by Wasserstein Perella and financed by GE Capital and Chaired by the former President of HSBC USA. After the sale of The Credit Store in October 1996, Galanis temporarily retired and moved to London, England. Galanis had also acquired another credit card company called Service One International of Sioux Falls, South Dakota in a leveraged buy out. Service One is regarded as the pioneers in credit card products to credit impaired Americans and at one time was the largest issuer of credit cards in the United States to this demographic. Galanis financed the acquisition of a third credit card company called Internet Billing Company in 2004, previously acquired in 2002 by NASDAQ-listed Intercept Corp for $112 million in cash. iBill was the largest credit card processor of online transactions in the United States. iBill focused on processing transactions for online subscriptions and memberships, which consisted predominately access to adult themed content. The company was acquired for $34 million and resold for $54 million less than a year later. He is known for providing financing to Robert Guccione’s General Media, the owner of the PENTHOUSE trademarks and publisher of Penthouse Magazine. He provided financing prior to the bankruptcy reorganization and as part of the bankruptcy exit plan. The permanent financing was led by Post Advisory Group, a Principal Financial Group subsidiary that manages approximately $9 billion in various credit strategies. Penthouse Media Group, now known as FriendFinder Networks, is one of the largest social media companies in the world with 38,000 websites, more than 445 million registrants and more than 298 million members in more than 200 countries and $345 million in revenues in 2010. It is controlled by financier and technology entrepreneur, Marc Bell. FriendFinder completed an IPO on NASDAQ in May 2011. Galanis also completed the 2004 acquisition of the 22,000-square-foot (2,000 m2) Guccione Mansion in New York City, one of the largest residences in Manhattan. In March 2008, hedge fund manager Phil Falcone, founder of Harbinger Capital, acquired the Guccione Mansion for $49 million. Galanis has made other investments in various technology companies, including Themeware. Themeware was a software application provider to small businesses. Themeware marketed heavily on television and sold ecommerce software and credit card processing services to small businesses. Themeware was chaired by Gil Amelio, the former CEO of National Semiconductor and CEO of Apple Computer. He is the principal of IP Global Investors Ltd, an investment company that invests in intellectual property. Among its investments, IP Global is the largest investor in Fund.com, an owner of a two fund management businesses that manage over $1.4 billion in assets.
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