Kryptonite's  Instablog

The rumor mill is at it again. On Friday, Nokia's shares jumped 6.7% on unconfirmed rumors that the Finnish mobile giant could be a takeover target for. For Nokia, I believe the time has come when a buyout is not a question of if, but a question of when.

Shares of Nokia are currently trading at $3.02, which is approximately a 95% discount from its all-time high of $56 in April 2000 and a 92% discount from its most recent high of $40 in October 2007. Now at such low stock prices only two options are exist, either Nokia is going bankrupt or as mentioned it is being taken over. The only thing that is not going to happen is a status quo.

Considering that Nokia has a hugely valuable patent portfolio, bankruptcy is not an option, which pretty much leaves a buyout as the way forward. A number of parties could be interested in Nokia, ranging from rivals Samsung to strategic partners such as Microsoft.

The company currently has approximately $6bn in debt (Short Term + Long Term) which amounts to a Debt/Equity ratio of around 0.45, but recent concerns about the company's ability to service its debt may deter Private Equity players from undertaking an LBO.

Now the question is that if Nokia were to be bought out, what would be a fair price? Consensus estimates obtained from Yahoo Finance indicate a mean target price of $4.2 and a median target price of $4 per share. In my opinion it would be safe to assume that any takeover bid would be at values greater than $4/sh.

Trade Strategy:

Long: Stock

Short: Call at strike $3.5 (Premium: $0.51)

Long: Call at strike $4.0 (Premium: $0.38)

Current Price of Stock: $3.02

Total Cost of Strategy: 3.02 + 0.38 - 0.51 = $2.89

So even at the current price, this strategy is profitable.

Groupon is one of those stories that the author so desparately wants to come true. From devising creative accounting, ACSOI (adjusted consolidated segment operating income), whatever that means....the CEO is hell-bent on justifying that it is the "correct" way to measure groupon's earnings considering its "unique" business model. Do all you can Mr. Mason, but nothing beats the KISS principle - Keep It Simple, Stupid. Creative accounting does not create value, solid revenues do and no one cares what your ACSOI measures as long as there are no cash flows. 

In his latest letter to employees, Mr. Mason is trying to define "marketing" and how "marketing" for groupon is different than that for other companies. So now, we have a new accounting term and a new definition for "marketing".....hmmm....did they hire some avatar of Shakespere to help in the process..!!!. I'm wondering what's next, how to define cash ?

Mr. Mason here's my two cents - "Stop fiddling with english language to make sense, just show me the money"....

Ever since the news of Steve Jobs resigning as CEO hit the streets, the stock was down around 6% in after-hours trading. So is Apple defined only by Steve Jobs?

Agreed he was the one that brought back Apple from an also-ran status to a market leader. But more than that, it was the desire to innovate that has made Apple the company it is today. It is the culture of innovation that Steve Jobs brought to Apple which makes the company what it is today. So should his stepping down from the helm have such an impact on the company, I think not. His decision to step down was not taken overnight, it had been going on for sometime ever since his health started to wear down on him. A definite roadmap was prepared on how the company would function in his absence, and he had been absent on a regular basis for some time now.

A corporation is defined as a legal entity and is not dependent on one person. Sure, there is always that one person which guides the basic principles, but more than that it is the culture embedded in the corporation which ultimately decides success or failure. If this were not the case, Walmart would have long perished with Sam Walton, after all he was the one who pioneered discount retailing. Would Facebook cease to exist the way it is if Marck Zuckerberg were to step down, no. In conclusion, it is the idea, the principles and the culture that keep a corporation running, yes there is always a leader to show the way, but in the end it's combined effort of a number of faceless people that really makes the difference.