You are here

SEC

Google misled investors about AdMob antitrust risk -- Google agreed to 23 times normal deal "kill fee"

New evidence suggests Google blatantly misled public investors about its own assessment of the antitrust risk involved in Google acquiring AdMob.

On Google's webpage on the AdMob acquisition, in the Q&A section, Google said at the time of the acquisition:   

  • Question: "Do you have any concerns about regulatory approval?"
    • Answer: "We don't see any regulatory concerns with this deal..."
  • (At the time, Precursorblog posted that Google was clearly misleading people about the antitrust risk the deal faced.)

Now we learn from a Bloomberg/Business Week story:

  • "Google CEO Eric Schmidt was so intent on buying AdMob that two people with knowledge of the deal say he agreed to pay a "kill fee" of around $700 million if the deal failed to close for some reason, such as an antitrust motion from the Justice Dept." 

It is important to put this $700m AdMob deal "kill fee" in perspective.

Google's Liability Decade: Why Google's leadership ducks investors

The abrupt change, that Google's CEO Eric Schmidt will no longer be accountable to shareholders on Google's earnings calls, should prompt investors to ask why? 

  • Google claimed that they wanted to put more focus on Google's strong financials, but they did not disclose any more than Google's usual barest of minimum of information to investors.  
  • The most obvious reason for this abrupt change is the literal explosion of real franchise liabilities and risk overhangs to Google that reared their ugly heads this past quarter. 
    • Had CEO Schmidt been available to answer investor questions, Google's exploding liabilities could have dominated the Q&A and the investment narrative coming out of the earnings call.

What has changed, and what Google has been not been open about, is the very serious ripening of three different types of going-forward franchise risks (antitrust, privacy/security, and intellectual property) that cumulatively herald a de facto change in Google eras: from the roaring "Growth Decade" of 2000-2009, to the more unpredictable "Liability Decade" of 2010- 2019.

DOJ-FTC breaking up Google's Silicon Valley Keiretsu

FTC antitrust concerns over "inter-locking-directorates" reportedly have forced Kleiner-Perkins' John Doerr, to step down from Amazon's board, because he is also on the board of Amazon, a major book and cloud-computing competitor of Google -- per Miguel Helft's and Brad Stone's scoop at the New York Times Bits post.

This is the third (Amazon, Apple, Yahoo) too-cozy-for-antitrust-authorities, Keiretsu-like, Google business relationship that either the DOJ or FTC apparently have broken up. 

  • (I will elaborate on each of these problematic Keiretsu-like relationships (Amazon, Apple and Yahoo) later in the post.)

Three different interventions by antitrust authorities involving Google's ties with three different Fortune 500 companies in eighteen months constitutes a pattern and underscores the depth and breadth of antitrust concerns that U.S. antitrust authorities have about Google.

Will Google redefine insider information/trading?

Google's unprecedented mass-accumulation of material non-public information may force a re-thinking and broader definition of the concept of insider information/trading and related securities laws/regulations, in order to continue to ensure the integrity of public markets.

  • Public statements by Google's CEO Eric Schmidt last week unwittingly unveiled a new and potentially very serious material weakness in the oversight and integrity of public markets, that should trouble those responsible for policing insider trading and other public securities laws at the SEC, CFTC, FERC, Treasury and the DOJ.
  • From Jon Fortt's outstanding not-to-be-missed post in Fortune: "Top 5 moments from Eric Schmidt's talk in Abu Dhabi:"
    • Google CEO Eric Schmidt: "One day we had a conversation where we figured we could just try and predict the stock market..." "and then we decided it was illegal. So we stopped doing that."

Public market regulators responsible for protecting the integrity of public markets are likely to be concerned by this public admission by a publicly-traded Fortune 200 CEO, especially when the statements are put in a broader perspective by connecting the relevant dots.

FERC approves Google Energy -- Keep an eye on this one...

"U.S. energy regulators approved a request by Google Inc. to become an electricity marketer, allowing the Internet giant to buy and sell bulk power like a utility" per the WSJ.

My www.GoogleMonitor.com site will keep watch over Google on Google Energy's trading in energy derivatives because it is ripe for abuse, as I explained in my earlier post: "Google's Energy trading proposal sounds eerily like Enron's disastrous derivative scheme".

Per the WSJ: "A spokeswoman for the company has said Google has no plans to sell its energy management service or speculate in energy markets. But she acknowledged the company isn't completely sure how it will proceed."

The concern here is that Google publicly has given itself wide latitutde here to speculate in energy markets in the future... because of their statement above... and because the FERC approved in its order Feb 18th  "blanket authorization... to issue securities and assume obligations or liabilities as guarantor, indorser, surety, or otherwise in respect of any security of a another person..."

Takeaways from Google's 4Q09 earnings

Google generated probably the strongest annual revenue growth, 17%, of any large U.S. company this past quarter. 

  • Given that Google is exceptionally non-transparent, the minimal guidance and insight that Google is required to provide as a public company always provides a rare glimpse into what is really going on at Google

What are the big takeaways from the earnings call?

First, Googleopoly continues to gobble revenue market share at a voracious rate because we know Google's revenues are up 17%, and Google's only significant competitors, Yahoo and Microsoft are continuing to lose ground, (as Yahoo is expected to report a revenue decrease on Tuesday so its search revenues can be assumed to badly lag Google's 17%, and Microsoft Bing's modest search share gains are not keeping up with Google's torrid search growth in a weak economy.)

Second, Googleopoly continues to show strong evidence of its dominant market power in pricing as its revenue growth of 17% is outpacing its paid click growth of 13% -- by roughly 30%. There is no stronger evidence of monopoly power than pricing power and Google clearly has pricing power aplenty.

  • Google is very good about keeping its pricing power hidden from public view by letting no relevant market information escape Google's "Black Box" auction process.    

Third, Google's CEO Eric Schmidt reaffirmed that Google is on an acquisition spree with some "big" buys coming -- and with almost $25B in cash and roughly $10B in annual free cash flow -- Google can afford to buy most whatever it wants.

Systemic Uneconomics: Financial Crisis Root Causes: Part III

To discern the real “root” causes of the financial crisis of 2008, one must probe beneath the surface and examine the health of the “root system” of our capital markets “forest.” The roots of the capital markets forest are sound economics; the natural market function of automatically equilibrating supply and demand and risk and reward, that is commonly appreciated as Adam’s Smith’s “invisible hand.” We generally assume that the natural market strength of the capital market forest’s root system ensures that all the trees are not in danger of being blown over in the crisis of a storm.

 

In the fall of 2008, we all were shocked to learn that the root system of our capital markets, that we had always assumed was healthy and strong, was actually frighteningly weak and brittle requiring the slapdash reinforcement of multi-trillion dollar emergency scaffolding of whatever material was close at hand, a TARP, bailout lifelines, capital sandbags, etc. -- to buttress the main market “trees” from toppling over, trees that the Government judged to big to be allowed to fall.

 

“Systemic Risk Laundering” -- Financial Crisis Root Causes -- Part II

How could American taxpayers get stuck with a multi-trillion dollar tab that they weren’t even aware that they were running up? How could that huge tab still be allowed to run up unchecked today? For the Financial Crisis Inquiry Commission, the sad answer is one of the biggest root causes of last fall’s devastating financial crisis and one of the biggest continuing systemic risks to the financial system and the economic recovery.  

 

A decade ago, in what may prove to be the most expensive bipartisan legislative mistake in U.S. history, a bipartisan policy became law that effectively ensured that no Federal regulator had oversight or enforcement jurisdiction over derivative financial instruments. The Commodity Futures Modernization Act of 2000 (CFMA) created “legal certainty for excluded derivative transactions.” That law allowed a shadow derivative overlay system to be built literally on top of the public financial system, with none of the inherent accountability of the underlying financial system.  In other words, a deliberate bipartisan U.S. government policy change a decade ago unwittingly created an unaccountable “black hole” market that sucked enormous value out of public markets, (Bear Stearns, Lehman, AIG, Fannie, Freddie, securitized sub-prime mortgages, etc.) while laundering the risk to the U.S. taxpayer.

The Father of Indexing Calls My Indexing Thesis "Nuts!"

When Investment News asked John Bogle, Vanguard's founder and the father of indexing, about my "Indexing into the Ditch" thesis (that indexing is one of the root causes of the financial crisis) he said: it “is nuts! Last time I looked, index funds accounted for about 0.4% of all stock trading ... Just perhaps the other 99.6% might bear a teeny-weeny bit of the responsibility.

Let me first respond to Mr. Bogle's points in order.

The thesis "is nuts! "I must admit I smiled at the ad hominum implication that my thesis was "nuts" and not worth listening to; I remembered that Bernie Ebbers called me the "idiot Washington analyst" because my research was the first to charge that WorldCom's business simply did not add up.

Pages

Q&A One Pager Debunking Net Neutrality Myths