Anton Emmanuel's Blog

Once lauded as an unstoppable growth machine, Valeant Pharmaceuticals has been mired in controversy and has seen its stock plunge over 70% over the last three months.  Needless to say, Valeant is struggling to gain traction from its precipitous slide.

To provide some brief context, Valeant’s mass sell-off was triggered by a report released by short-seller Andrew Left. The report alleged that Valeant was complicit in an Enron-like accounting scandal in which they were reporting “phantom revenue” trough a specialty pharmacy. The overarching claim was that Valeant’s reported revenue was not in fact in line with actual earnings. With the ghosts of the past still vividly in the minds of investors, many were quick to exit the uncertain situation—irrespective of the validity of Left’s report.

This story interests me because it underscores the true nature of volatile markets, but at the same time illustrates how volatility can yield viable investment opportunities.

As Professor Stone alluded to in class, stocks have both a tangible market value, and a perceived intrinsic value. The latter is relative to individual discernment. Analysts and investors often diverge on opinion when it comes to intrinsic stock value. And to be frank, although well-built financial models incorporating hosts of financial ratios are helpful, in my opinion, intrinsic value cannot be definitely measured. For instance, would an analyst creating a DCF outlook for Valeant in July 2015 been able to predict the landslide that would occur over the upcoming months—no. Conversely, although Valeant’s stock has been battered, does that take away from its strong cash flows, expansive geographic reach, and profitable subsidiaries? No. With that said, couldn’t it be argued that Valeant’s current price undervalues the business?

As a first year business student I am understandably an amateur when it comes to market speak, and my intention isn’t to call out seasoned investors. The point I am trying to reach is that market sentiment is not always based on hard facts. With the horror stories of the past still looming, investors often have an autopilot response to concerning market reports. In my opinion, this potentially yields an opportunity to capitalize on undervalued stock, and perhaps even realize strong returns in the long-term.

I posted a comment to Wall Street Journal blog on this article. (If my comment has not shown up, please allow for a few days, the administer probably has not approved it for display as of yet.)

Further information was sourced from this article.

Apple this, Apple that. What started as a small personal computer company has now transformed into a tech industry juggernaut.

Irrespective of what your opinion may be regarding Apple’s products, there is no doubting Apple’s remarkable ability to grow.

Hailey Cole’s (section 105) blog discusses Apple’s foray into the online music streaming space. She explains how market is crowded, and how players from Spotfiy to Pandora have experienced differing levels of success. In her blog, Hailey also highlights the strength of Apple’s vast user base as it enters a new domain. I tend to agree with her.

What’s important to note is that the online music space is fairly novel. The determining factor of success is clearly the end-user experience.   Players are not only grappling to gain market share, but also touting usability as a means to retain users.

Multiple times throughout COMM101 we have explored the notion of defining a target demographic, a core customer segment if you will. Although this is integral in the effective design and marketing of a product, I feel Apple’s succcess is partially related to its ability to blur the lines between groups of users. They’re able capture the unconventional user—that same user that would have never considered upgrading to a Motorolla flip phone, let alone a ‘smartphone.’

My family would be a prime example. The idea of my parents owning smartphones was once a distant thought. But now, my household boasts 4 iPhones, 2 Ipads, a set of Macbooks, and an Apple TV. Why? Apple makes things simple. They alleviate the daunting task of embracing new technology by removing layers of complexity and designing a user-interface that can appease not only the technology enthusiast, but also a consumer who is first learning to text. In doing so, Apple is able to capture scores of users, and more importantly, foster brand loyalty.

The difference between Apple and the handful of other players in the online music streaming space is their ability to enter this market with a preexisting base of loyal customers—customers who are confident that Apple will be able to deliver the same simplified user-experience regardless of the domain. Those who are skeptical of streaming music as whole, may give the product a try, solely because ‘Apple’ is delivering the experience. As a result, the potential for quick ramp-up and lofty revenues is highly probable in any of Apple ventures.

Hey you never know, one day they may start making cars. Oh wait…I think they might have already started…or something.

Apple this, Apple that.

On scale alone, the colossal merger of beer giants Anhesuer-Busch (AB) and SABmiller warrants some appreciation. The $100 billion dollar transaction creates an unprecedented powerhouse in the global brewing market, one in which trumps its nearest competitor from a market share perspective by three fold.

Large-scale M&A deals have always fascinated me. The financials alone are staggering, but what’s even more interesting is the notion of such giant firms attempting to conflate their cultures. This said, although there are some aspects of the SABmiller acquisition that leave me puzzled, others seem fairly concrete, and point to larger trend in the M&A world; that is, businesses and financing agents alike are increasingly interested in pursuing large scale M&A — the very same M&A transactions that waned during the height of the financial crisis.

To provide context to this post, I want to point out a few very interesting facts that I noticed were imperative to the success of the SABmiller bid.

AB is backing its $100 billion bid through a $75 bridge loan, the largest loan of its type ever to be lent on global markets. Putting aside the the legal complexities, it’s important to note that underpinning such loans is the lender’s confidence in the debtor’s solvency. Solvency is not only related to the current state of business, but also in the strength of future cash flows. In essence, analysts at the lending banks must be confident in both AB’s strategy and in the future environment of the industry they operate in. The point I’m trying to reach is that ultimately, regardless of which way you look at it, the world of finance seems to boil down to the fundamentals of Present Value. In this case, even though AB’s capital structure points to a long term Net Debt to EBIDTA ratio of 2.0 (not necessarily worry-free) their strong credit rating coupled with confidence from lenders has secured the loan that makes this entire transaction possible.

On separate note, another aspect of the merger I found particularly interesting was a point raised by Jonny Forsynth, an analyst who examines the global drink industry. He states that ‘amidst the emergence of a Goliath-like megabrewers — smaller, more agile, craft brewers still do pose a significant threat.’

As we’ve discussed in COMM101 repeatedly, any successful business must have a strong value proposition. And at the root of strengthening any value proposition is: innovation.  I feel that if AB solely banks on its size, and tempers its innovative pursuits, the resulting complacency can have dire consequences.

Information was sourced from this article.

As I sifted through section 106’s blogs, a particular post caught my eye. Written by Jolena Sun, the post discussed the notion of ‘organic reach’ within Facebook’s online user interface.

Organic Reach, by definition, is the total number of unique users that are shown a Facebook post through unpaid distribution. Conversely, ‘Paid Reach’ is the total number of unique users a post is exposed to as a result of paid advertising.

Recently, in an obvious monetization effort, Facebook has limited the organic reach a particular post can attain. Now, a ‘pay-to-play model’ has been instituted in which businesses must increase their marketing spend in order to ensure their posts effectively reach their target audience — that is, their likers.

While this has raised furor amongst small businesses sounding claims of unfairness, it is equally important to consider how Facebook’s perpetual need to appease Wall Street factors into their business decisions.

The inevitable curse of being a market darling is the need to satisfy Wall Street’s hunger for quarterly growth and progressive monetization figures. Every quarter Facebook’s financials are minutely scrutinized with an overly emphasized focus on short-run results. Often, this can be done at the expense of the company’s long-run vision. With mounting pressure from analysts and investors alike, Facebook is forced to protect its stock and be innovative in spurring new revenue streams.

As the business model canvas illustrates, revenue streams are vital for the health of any business. And although I can resonate with the plight of small business owners who are stacked against the mass marketing budgets of corporate giants, I feel Facebook is not culpable of any wrongdoing. In my opinion, Facebook has been one of the greatest boons small businesses have seen over the last decade. With cerebral algorithms and global reach, Facebook offers an unprecedented marketing platform. In fact, as Jolena contends, I would also argue that a higher proportion of ‘Paid Reach’ posts reduces the mass information dump that is present on Facebook newsfeeds. As a result, the probability of the target audience actually seeing relevant posts increases.

Segueing to the value proposition canvas, does this not address a major pain that businesses have? That is, whether their posts are effectively reaching their end-user?

Without the guarantee of effectiveness, Facebook’s value proposition languishes. Therefore, it is my opinion, that the move to limit organic reach was ideal both for Facebook, and its users.

I’ve always been interested in finance. And I guess you can say having watched Michael Douglas spin off Gordon Gekko in Wall Street 4278232922335651248468 times may have augmented that interest. When I arrived at Sauder, I joined a group of first-year students and we signed up for the National Investment Banking Competition (NIBC). As I skimmed through the case however, I quickly felt way in over my head. The entire document was inundated with seemingly complex financial models, and plenty of acronyms: DCF, WACC, CAPEX, EBIDTA — all of which looked completely foreign.

Investopedia helped to a certain extent. But it was the first finance-related class of COMM101 that really crystallized what the underlying principle of finance was. In essence, it can be reduced down to the simple concept of Present Value.

I came to understand that the foreign looking models in our NIBC case simply contained an amalgamation of financial, economical, and sociological metrics in the form of a discount rate. A rate that was derived from blended assumptions of a business’s future cash flows. In turn, this metric was being used to evaluate the business’s Net Present Value.

Recently, as I was flipping through news articles, a particular post piqued my attention. Suncor was making a hostile bid for Canadian Oil Sands (COS). To summarize, a hostile bid is one in which Company A circumvents the board of Company B and proposes a purchase agreement directly to the shareholders of Company B.

I felt this article adequately illustrates the significant role valuation plays in the business world. While Suncor maintains the offer they presented COS was fair value, COS argues that it grossly undervalues their business. So who’s right? The answer is relative to perceived present value. Suncor claims certain COS assets are under-performing and therefore do not warrant such a hefty price tag. In addition, citing the recent rout in oil prices, Suncor contends that certain COS assets are encumbered by high operating costs are not as valuable. They further claiming that although once viable, specific COS production sites now face danger of operating below break-even figures. Naturally, COS executives roared back stating that Suncor is exploiting the current status of the oil price, and has advised shareholders to swiftly reject the offer.

Still, I’m having a difficult time discerning who’s right. Is Suncor’s offer just the result of astute bankers skillfully taking advantage of COS’s weak balance sheet and uncertain financial position? Or does the offer accurately reflect COS’s value? What I do know, however, is that the world of M&A seems exciting, and I can definitely see myself within the scope of investment banking sometime in the future.

For now at least, it definitely looks like my specialization at Sauder is going to be Finance.

Information was sourced from this article.

In all honesty, the article on ‘The Unintended Consequences of the One-For-One business Model’ was one of the most interesting reads from COMM101 thus far. It presented a unique perspective that I had never considered, and at the same time, struck close to home. Many of the challenges that the locals in the article faced,  paralleled with struggles my own parents had gone through during their childhood.

Let’s be clear, I have nothing but praise for Toms and businesses alike who endevour towards creating a better world. In my view, these companies should be lauded for employing a business model in which social impact and profitability can co-exist. Not surprisingly, I am in complete support of the one-for-one business model — I feel it empowers consumers to share in the message of social change.

At the same time, however, I am in disagreement with the large sum of goods being given away at absolutely no charge. Instead, I side with the viewpoints in the article that suggest contributions should have a stronger focus on developing the necessary infrastructure to enable self-sufficiency. I feel this more so addresses the poverty crisis at its root.

It’s painful to think that a seemingly altruistic business model can undercut the livelihood of business owners in these impoverished regions. In the end, we’re all human, we can all resonate with how empowering a sense of self-worth can be.

All of this in mind, implementing change is far easier said than done. Many of these regions are rife with geopolitical conflict, corruption, and intolerance. Often infrastructural changes can be exploited, and the regional population can suffer nonetheless.

In my view, the key to deploying a successful region-specific social initiative is to understand that each region has its own inherent traits. There is no one-size-fits-all solution. Rather, the underlying economical and sociological structure of a region must first be fully understood. Then, and only then, should social entrepreneurs begin implementing their initiatives.

A variety of information was sourced from this article.

Telus Corp. recently announced a $1-billion investment aimed at vastly expanding Vancouver’s fiber-optic footprint. A move mirroring that of competitor Bell Canada (BCE) in eastern Canada. Fibre-optic connections bolster speed and network capacity to a large extent. And with data demands from consumers increasingly rising, fiber-op connectivity is rapidly becoming the norm. What interests me, however, is how the various Canadian telcos are adopting, implementing, and cerebrally marketing these network upgrades to strengthen their value propositions.

As an employee of Rogers Communications, I have experienced first hand how moves like this can intensify competition

My role with Rogers is within their Consumer Retention Division focusing primarily on wireless and home-based telecommunications service. Consequently, I work extensively with groups of customer-service-reps to understand what drives customer churn. That is, why are people leaving us?   To uncover insights we looked to one of our largest competitive threats: Bell Canada.

I have listened to hundreds of calls from clients requesting to disconnect their homes services to instead connect with Bell. Their reasoning varies greatly, but a common theme is Bell’s new fiber-op network. Clients seem fascinated and allured by this new technology. This was strange, because respectfully speaking, many of the clients that I personally solicited for feedback didn’t have much understanding of what technological enhancements they would actually receive. They simply knew it was supposedly faster, more reliable, and…..Fiber! What’s more, Bell had wireless set-top boxes, a feature which seemed to resonate with clients.

As the business model canvas illustrates, a value proposition should encompass either a solution to a customer problem, or the satisfying of their needs. In essence, a  business’s key features should match a customer’s problem or need. As evidenced from my personal experience with clients, the value message does not have to be overcomplicated. In Bell’s case it was simple: customers want faster internet, check; customers want greater bandwidth availability, check; customers want mobility in their set-top boxes, check! Through a combination of addressing client needs, solving client problems, and matching key products/needs. Bell has a stepped up their game, and placed pressure on Rogers to respond with an equally, if not more, valuable proposition.

Information was sourced from this Globe and Mail article.

As the semester progresses and we delve further into the facets of business, I find myself reading business articles through an entirely different lens. And although no business problem can be entirely force fit into a framework, it is interesting to see Michael Porter’s assertions applying in the business world.

Burberry—a luxury British fashion house—is an ideal example. In 2006, as global luxury markets boomed, Burberry struggled with stale brand perception, and paltry growth. Licensing agreements with manufacturers were diluting the company’s luxury appeal, and a decentralized design process was further compounding the problem.

In enters, Angela Ahrendts. As newly minted CEO, she was tasked with returning the brand to its former heights. And surely enough, has won praise for executing a sharp turn-around. Burberry’s top-line doubled over the next five years.

Ahrendts’ strategy reduces into a few, very simple, components. First, she identified that the company’s struggles were largely related to unilateral design teams not effectively working in unison. This resulted in inconsistent and—at times—unappealing products. Second, she noted that the company’s theme had shifted. The well-cut trench coats that were synonymous with Burberry’s iconic image had been relegated behind scores of other products.

So what’s the solution? Simple. Ahrendts understood that she needed to identify a focus, and organize the company’s activities accordingly. She shut down many design functions, and consolidated the remaining into one unit. According to Ahrendts, Burberry had strayed from its roots; and therefore, her team bought back 23 licenses, and centralized Burberry’s entire brand image around its classic trench coat. Interestingly, many of Ahrendts’ decisions mirror Porter’s sentiment on strategy. Porter contends that businesses must make tradeoffs in deciding what their offering will be. Doing too much can adversely impact the delivery of value to the consumer. Instead, a company’s activities must be organized around a chosen focus. Indeed, this very rationale proved effective in levelling Burberry’s downward trajectory.

** Came across this article on Burberry’s turnaround, and was compelled to do a little more research.  Take a look at this insightful  interview Angela Ahrendts did with the Harvard Business Review. Information was also sourced from these articles.

As new entrants including Chipotle and Shake Shack emerge in the fast-food industry, the customer experience has been redefined. These new players seem to offer a more contemporary and relaxed twist to the traditional fast-paced dining experience—all the while, touting customization, and placing an emphasis on ethical food sourcing. This new market segment fittingly labeled “fast-casual” has piqued the interest of McDonalds Canada.

McDonalds recently unveiled a new restaurant model that involves customers placing customized orders through digital self-serve kiosks, and food being delivered to tables via servers. Most importantly, a restructured menu will host a line-up of customizable “premium” ingredients that will parallel existing menu items.

Thinking back to Michael Porter’s arguments on strategy, as I’m reading this article the question swirls—what strategic position is McDonalds taking? Variety-based, needs based, or perhaps a confluence of both? Is it possible for them to co-exist as an extremely low cost fast-food provider, and a trendy—perhaps more upscale—restaurant outlet?

In this case, data insights from equivalent models McDonalds has launched in other geographies point to some form of success. For instance, reports from France state that customers spend 30% more when customizing items. That said, I’m now curious—will there be a cannibalization effect on the existing menu? If so, are the margins on the new products adequate to overcome lost sales, and boost top-line performance?

Coincidentally, this article was released concurrent to our class discussion on strategy. Though intrigued, I’m not necessarily convinced this move will deliver the returns McDonalds is looking for. In my opinion, the McDonalds brand is synonymous with fast and cheap. And to a large extent, this value proposition resonates with its core base. Radically changing that perception is no light task.

I’m curious to see how this initiative unravels, and plan to follow the story. Future earnings reports and news briefs should shine light on the implications of McDonald’s strategic decision.

Information sourced from The Globe and Mail and  Financial Post articles. Great reads, have a look!

As new – and perhaps – questionable businesses are born, the notion of ethics has been a resounding theme.  One business in particular, ashleymadison.com (AM), has recently come under public scrutiny.  In essence, AM is a social network that facilitates adultery .  With a growing user base and swelling revenues, AM has seen an increase in popularity;  but at the same time, faces mounting disdain from critics who feel the site is immoral and profits from an unseemly act.

So, I raise the question, is there a role for morality in business?  Better yet, how is the distinction  between what is considered moral or immoral, made?  In my perspective, the notion of morality is relative, and is left to individual discernment.  Personal philosophy, culture, and religion are just some, of many, factors that shape moral perception.  A seemingly depraved act in the eyes of one individual has the potential to be seen by another as a conventional norm.  In the context of a free-society with instilled rights and protections, we are empowered to carry out the actions we see fit, as long as they do not infringe on regional institutions, or the rights of other individuals.

Therefore, irrespective of my personal beliefs on the matter, I would argue that morality should not have to be combed into AM’s business plan.  In fact, in the pursuit of profit, AM provides for an underserved market segment, and creates distinct value for its clients.  Although its public image may be bruised, AM does not rely on fluffy perception to attract clients, and consequently, is not significantly affected.

Honestly speaking, I’m a huge proponent of corporations working towards the betterment of society through social responsibility.  However, technically speaking, as Robert Friedman maintains, business executives have a fiduciary obligation to owners of a company.  And if said owners deem morality and social responsibility should be subordinate to maximizing profit, then respectfully so, that directive should be followed.

Check out this Financial Post article that offers further insight on ashleymadison.com.  Information was also sourced from this article.

Other sources:

Forbes