I have not so far been posting links to my TV interviews though these days, videos and transcripts are often made available on the web sites of the TV channels. I am beginning to remedy that by posting links to the video and transcripts of an interview of January 15 on CNBC about the Siemens story that I blogged about two days earlier.
Some excerpts from the interview:
It doesn’t look fair at all – both the valuation and the entire manner in which it has been done. First of all, looking at the valuations, an IT firm being sold at six months of revenues looks quite absurd. We have the mainstream IT stocks trading at something like 2-3 times revenues, and this is half a year revenues, even by price earnings multiple, which looks very low about half of what mainstream companies sell at.
The other part of the problem is the process by which it is being conducted. The day Siemens announced that they were selling; they said nothing about the valuations, they said nothing about the financial performance of the subsidiary. Couple of days later, after all hell has broken loose, they come out with details about this and the information, which they disclose is even more troubling. It even gives an impression that the financial performance has actually been turned down – the revenues have fallen, the profit margin has collapsed and there is a situation in which somebody could give a low valuation to the stock.
The entire process looks really bad and when one looks at Satyam-Maytas, at least, on day one, they told us what the valuation was. Here on day one we were told nothing about the valuation, it is really troubling.
When you are talking about something which is really captive, the margin is entirely a function of transfer price. To believe that the kind of IT that Siemens does, they are really into relatively high value IT, and to believe that the profit margins are so low it strains credibility. Moreover, these are not third party prices; these are not arm’s length prices; these are internal transfer prices.