The Home Affordable Modification Program that is designed to get homeowners out of their troubled mortgages is moving at a snail’s pace–and the servicers’ strategies are riddled with conflicts.
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After a year and a half of dealing, the tech giants reach a deal to take on Google, which holds a 65% market share in online search.
NEW YORK (CNNMoney.com) — Microsoft and Yahoo reached a long-awaited partnership Wednesday in a bid to challenge Google’s dominance in online search.
Under the 10-year deal, searches on Yahoo.com will be powered by Microsoft’s new Bing search engine. Yahoo, in turn, will be responsible for attracting premium advertisers.
Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo’s sites. Microsoft will also have the rights to integrate Yahoo search technology into its own existing Web search platforms.
Yahoo said the revenue sharing agreement will increase its operating income by about $500 million annually.
Embedded video from CNNMoney.com VideoAccording to Microsoft Chief Executive Steve Ballmer, the deal will allow Microsoft to “create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company.”
And in a dig against search market leader Google (GOOG, Fortune 500), the companies said in a joint statement that “advertisers no longer have to rely on one company that dominates more than 70% of all search.”
An 18-month odyssey. It was a partnership that was a long time in the making. Microsoft’s (MSFT, Fortune 500) search market share has been slipping for more than two years, and the company has struggled to make its online advertising unit profitable. Meanwhile, Yahoo (YHOO, Fortune 500), once the search market leader, dropped to a distant second place behind leader Google (GOOG, Fortune 500) by 2007.
The dealings between the two companies began Feb. 1, 2008, when Microsoft made an unsolicited $44.6 billion cash and stock bid for Yahoo. A week later, Yahoo rejected the bid, saying the $31 per share offer “massively undervalues” the company, despite the fact that the bid represented a 62% premium over Yahoo’s $19.18 closing stock price a day before the announcement.
In an attempt to fend off Microsoft, Yahoo launched a two-week trial partnership with rival Google on April 10, 2008. That involved outsourcing advertising space to Google as part of a short-term agreement that could eventually lead to a bigger partnership.
Microsoft threatened to take its bid to Yahoo’s shareholders by the end of April if a deal could not be reached, and even sweetened the pot to $33 per share. In a turnaround move, Microsoft opted to avoid a hostile takeover and simply dropped the bid for Yahoo altogether on May 5 of last year. Microsoft CEO Ballmer cited the economics of the deal as well as Yahoo’s interest in a long-term Google partnership as reasons.
Almost as soon as the deal seemingly died, signs of life re-emerged. First, activist investor Carl Icahn threatened Yahoo’s board with a proxy battle if the company’s executives didn’t return to the bargaining table with Microsoft. Then, shares of Yahoo rocketed higher on May 19, 2008, when rumors circulated that Microsoft was interested in Yahoo’s search advertisement business.
On June 12 of last year, however, Yahoo announced that discussions with Microsoft had ended without a pact. The same day, Yahoo turned around and announced a deal with Google to put Google ads on Yahoo’s search pages. That tie-up was later nixed after a Justice Department antitrust investigation prompted Google to end the partnership. Icahn and Yahoo reached a truce in late July of last year.
The situation at Yahoo took a turn for the worse after the credit crisis erupted in October. Yahoo announced it would lay off 10% of its workforce in late October, shares slipped below $9 in November and Chief Executive Jerry Yang announced his resignation.
When Carol Bartz came on as Yahoo’s new CEO in January 2009, she said she would not sell the company outright, but appeared to be more open to a sale of the company’s search business.
Rumors of a possible deal were reignited when Bartz acknowledged at the All Things Digital conference on May 27 that Yahoo and Microsoft had been talking “a little bit,” and said outright that Yahoo’s search business was for sale, albeit for “boatloads” of money.
The next day, Ballmer unveiled Microsoft’s new Bing search engine. Reports began to circulate in mid-June that Bing was a success, growing Microsoft’s beaten-down search market share and eating into Yahoo’s, and Ballmer reiterated to Fortune’s Patricia Sellers that Microsoft “remains open to a partnership with Yahoo.”
Those nasty pick-a-pay mortgages, the ones that allowed borrowers to pay less than interest thereby adding to principal balances every month, continue to be among the most worrisome mortgages still going bad.
And modification efforts are going nowhere. Lots of folks, including The Motley Fool and a Mortgage Law Network blog continue to lament the failure of modifications so far. The problems seem to be particularly acute with option ARMS. About 40% of the option adjustable rate mortgages that were underwritten in 2006 and 2007 are already delinquent. But less than 10% of those loans, which have accumulated higher balances because borrowers were allowed to defer more than just interest, have been modified. The worry is that when the interest rates and payments eventually recast to higher payments (as the loan contract calls for) yet even more borrowers will throw in the towel and go delinquent.
Ernst & Young’s recently released mid-year report, “2009 U.S. Private Equity Watch: An Industry in Flux” is a detailed and readable summary of what went on in private equity during 2008 and early 2009. The short version: things are still bad.
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At the end of 2005, Google made an interesting investment: $1 billion dollars for 5% of AOL. The move made sense for AOL – it provided it with a ton of new advertising, search, and revenue opportunities via a strong partnership with Google. Google, in return, got a 5-year deal to be AOL’s default search engine.
But the value of that deal has only dropped like a rock in a lake since then. AOL has continued to deteriorate, despite highlights like the acquisitions of Bebo and Socialthing. Thus, Google’s decided to cut its losses and has sold back its AOL stake for $283 million.
According to Business Insider, Time Warner (AOL’s parent company) has made a regulatory filing with the SEC to confirm the transaction. On top of the sale, it was also revealed this afternoon that Time Warner has filed to make AOL its own company – an expected move. According to MarketWatch, the new company will be AOL Inc.
The sale means that Google, in total, lost $717 million as a pure investment. This doesn’t include the value it generated in its search partnership, but we’re willing to bet it wasn’t worth more than $700 million. It also places AOL at a valuation of $5.7 billion, a far cry from its peak during the first dot com boom, when everyone had an AOL account.
Published By Crain’s Detroit Business
Continuity is the watchword these days at Google Inc.’s two metro Detroit offices, each of which has a recently installed leader.
“You’re going to see a lot of the same. We remain strongly committed to the community with our involvement in programs like AdWords in the Curriculum,” said Mike Miller, the new head of operations for Google’s 250-person operation in downtown Ann Arbor that services more than 10,000 Michigan businesses.
The curriculum program pairs Google Grant recipients — usually nonprofits — with students who run their online AdWords program.
Miller and Michelle Morris, Google’s new automotive national sales manager, who’s based in Birmingham, were made available to reporters Thursday.
Miller, a Grosse Pointe Farms native, returns to Michigan after two and a half years at the Mountain View, Calif.-based search engine giant’s corporate headquarters. He also spent six years at Cisco Systems in San Jose.
He replaced Grady Burnett, who led Google Inc.’s advertising operation in Ann Arbor until being poached recently by Palo Alto, Calif.-based social media giant Facebook.com to run its global online and inside sales.
The Ann Arbor office is one of several AdWords operations around the world. It opened three years ago to much fanfare and promises of 1,000 new jobs within five years, but the economic slowdown has stalled that.
“We don’t make forward-looking statements. We remain committed to (Ann Arbor). Our business will grow as the AdWords grows and as Google grows overall. Our hiring has never been linear. So we do see fluctuations. Our hope is that the business continues to grow and we grow with that,” Miller said.
Google received an estimated $38 million, 20-year Single Business Tax abatement from the Michigan Economic Development Corp. in return for creating 1,000 jobs over five years.
Failure to reach the hiring target means Google will earn less of the incentive.
AdWords is the pay-per-click search term-based advertising system that accounted for about 95 percent of Google’s $21 billion in 2008 revenue.
The company didn’t offer a specific number but said that it has “hundreds of thousands” of AdWords users.
Although publicly held, the company doesn’t divulge how much of its revenue is generated by specific offices or what it calls verticals, such as automotive or retail clients.
“(Ann Arbor) is one of our critical operations. This is one of our biggest (AdWords) operations,” Miller said. “It continues to be a healthy office and a healthy business for us.”
Net income the first three months of this year was $1.42 billion on revenue of $5.51 billion, an increase of 8 percent profit and 6 percent revenue growth over the same quarter of 2008.
The Ann Arbor office operates out of leased space on two floors of the McKinley Towne Centre on East Liberty Street at Division Street, and there are no plans to build a permanent Google-only office.
Morris, who took over as head of auto sales six weeks ago after previously running just the Midwest division, said Google believes automotive is a growth sector despite the industry’s downturn.
The search engine, which previously ran its auto operations out of New York and maintains 65 percent of the total online search market, works directly with the Detroit 3 and their advertising and digital marketing agencies, and all of them invest heavily in the analytics that measure the effectiveness of their Google campaigns, she said.
What are people at private equity firms doing all day now that so few deals getting done? Suduko? Facebook?
According to a white paper by auditors Grant Thornton and the Association for Corporate growth, a private equity industry group, people at PE firms are actually running and trying to improve the portfolio companies they own. Imagine.
The paper cites a survey done for ACG in which 42% of private equity firms responding said they were now spending 51 – 75% of their time on their portfolio companies. Thirteen percent of respondents said there were spending as much as 100% of their time dealing with the operations of their portfolio companies. ACG and Grant Thornton also asked firms if they were spending more or less time on portfolio companies this year than last. Sixty eight percent of firms said more. Only 5% said less.
ACG and Grant Thornton have surveyed private equity firms that do small to mid-sized deals for about ten years, but this year is the first they’ve asked firms how much time they were dedicating to operations. Harris Smith, Grant Thornton managing partner for private equity, says he’s sure, however, those as time goes on “those numbers can only go up.”
Here’s a surprising bit of research coming out of study by some Columbia University professors: Banks lowered their standards on underwriting because they assumed they’d push the risk and iffy loans off to investors. They were wrong. Instead, banks ended up carrying the worst of those loans on the books because investors were smart enough to “cherry pick” the best of the bunch for their own portfolio.
Bono, the U2 lead singer, seems to be the latest pitchman for BlackBerry. His band’s latest album release, No Line on the Horizon, features prominently on the mobile device maker’s home page. The company also is sponsoring the band’s current tour.
But this deal seems like a conflict of interest, as peHUB Wire, a private equity industry newsletter, recently reported. After all, Bono is a managing director and co-founder of Elevation Partners. Among the private equity firm’s biggest investments in its $1.9 billion portfolio: Palm, one of BlackBerry’s top rivals. The investment shop owns about 40% of Palm’s outstanding stock. Remember also that Bono was hawking Apple products before his BlackBerry gig, a point several readers pointed out.
By Robert Berner
After coming under increasing fire for bias towards major credit-card companies, the nation’s largest arbitration firm involved in adjudicating delinquent credit-card debt has agreed to pull out of the business, Minnesota Attorney General Lori Swanson disclosed on Sunday, July 19.
The settlement with the National Arbitration Forum comes after the Minnesota AG sued the firm on July 14 for consumer fraud, deceptive trade practices, and false advertising. The civil suit, filed in state district court in Minneapolis, alleged conflicting ties between the NAF and debt-collection law firms that represented major credit-card companies. The suit also alleged that New York hedge fund Accretive LLC owned stakes in such collection law firms and the NAF, sending arbitration business between the two.
Under the terms of the consent decree, dated July 17 and signed by the AG and NAF officials, the arbitration firm by the end of this week will stop accepting new consumer arbitrations of any sort. These include arbitrations over disputed credit-card debt as well as new lines of business the NAF has moved into, such as arbitrating consumer debts in healthcare, telecommunications, utilities, mortgages, and consumer leases. The only business NAF can now be involved with is in arbitrating Internet domain disputes, a business it has long been in.
The settlement throws in turmoil an increasingly favored venue for credit-card companies to collect disputed debts from card holders. Since the beginning of the decade, most card companies have included mandatory arbitration clauses in credit-card contracts, forcing consumers to arbitrate rather than use the courts.
The Minnesota suit said that Bank of America, JP Morgan Chase, Citigroup, Discover Card, and American Express use NAF, which is based in St. Louis Park, Minn.
In a prepared statement, NAF acknowledged that it is exiting the consumer arbitration business. “The National Arbitration Forum remains committed to consumer arbitration as the best and most affordable option for consumers to resolve disputes quickly and efficiently,” said Michael Kelly, CEO of Forthright, an NAF affiliate. “However, the Forum lacks the necessary resources to defend against increasing challenges to arbitration on all fronts, including from state Attorneys General and the class action trial bar.”