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DealBook: Zynga Files for $1 Billion I.P.O.

July 1, 2011 by Leave a Comment

Zynga's office in San Francisco.David Paul Morris/Bloomberg NewsZynga’s office in San Francisco.

With real-world profit and an inexhaustible supply of virtual cows, Zynga is gunning for a blockbuster debut on the public markets.

The online gaming company filed to go public on Friday, teeing up one of the most highly anticipated technology offerings this year. The start-up, founded four years ago by its 45-year-old chief executive, Mark Pincus, said it expected to raise about $1 billion in the offering, based on a figure used to calculate the registration fee.

But Zynga’s ambitions for its eventual I.P.O. may be substantially higher.

According to people briefed on the matter, Zynga is expected to ultimately offer up to 10 percent of its shares at a valuation near or above $20 billion. The company has selected Morgan Stanley to lead the offering; Goldman Sachs, JPMorgan Chase, Bank of America Merrill Lynch, Allen Company and Barclays Capital are also participating.

A spokeswoman for Zynga declined to comment.

The filing offers the first official glimpse inside the business model of Zynga, the company behind FarmVille and CityVille and some of the most popular games on Facebook. Unlike some of its Internet peers that have struggled to claw their way into the black, Zynga swung to a profit last year, recording profit of $90.6 million. Revenue roughly quadrupled last year, to $597.5 million. On an adjusted net income basis, the company recorded profit of $392.7 million in 2010 and has been in the black every year for the least three years.

The numbers reveal how the company’s stable of cartoonish games, has become one of the Web’s most powerful cash machines. As of the end of March, Zynga had $995.6 million in cash on hand.

Zynga’s filing comes amid a growing sense of urgency among some of the largest Web companies to go public.

For several years the I.P.O. market was effectively off limits, chilled by the financial crisis and the anemic recovery in the jobs market.

Although the global economy is still wobbly, troubled by Europe’s persistent debt crisis, a bevy of consumer Internet start-ups have flourished amid exuberant investor demand. A great deal of that enthusiasm is focused on an elite group of social Web companies — Zynga, Facebook, Groupon and LinkedIn – all of which have seen their valuations soar sharply in the last six months. Zynga, for example, raised a round in February at an approximate $10 billion valuation. The social shopping site Groupon, which was valued at $1.4 billion, just last year, is now contemplating an offering near $30 billion, according to two people close to the company.

LinkedIn, which went public in May, crushed expectations on its first trading day, its value more than doubling out of the gates. After pulling back in the days that followed, to about $60 per share, LinkedIn has rebounded to more than $92 a share – still roughly double its offer price.

Now, it’s Zynga’s turn to test investor’s appetite.

Jim Wilson/The New York TimesMark Pincus

At a $20 billion valuation, Zynga is technically cheaper than LinkedIn. At that price, Zynga is trading at 220 times last year’s profit, or 33 times revenue. LinkedIn – with a $8.8 billion market capitalization– is trading at roughly 570 times 2010’s profit and more than 36 times revenue. There are certainly a broad swath of competitors in the online gaming space, including stalwarts like Electronic Arts, but, so far, no has been able to shake Zynga’s dominance on Facebook, the world’s largest social network.

The company has 279.5 million monthly active users on the platform, according to the latest data from AppData, which tracks game developers on Facebook. Of the site’s top five games, four of them are Zynga’s, including the leader, CityVille. That game, which Zynga released just late last year, has more than 87 million monthly active users.

While Zynga has prospered on Facebook’s platform, its dependence on the social network represents one of the greatest threats to the game maker. In the risk factors section of its filing, its relationship with Facebook is listed as the first risk.

“If we are unable to maintain a good relationship with Facebook, our business will suffer,” according to the filing. “Facebook is the primary distribution, marketing, promotion and payment platform for our games.”

At times, the relationship has been strained over disputes concerning Facebook Credits, its virtual currency system, and changes to the site’s notification system. Tensions flared last year over Facebook Credits, which effectively takes a 30 percent “tax” from virtual good purchases, but the pair hammered out a five-year agreement in May to keep Zynga on the platform. Notably, the company’s revenue figures are net of Facebook’s cut.

“I think that’s the major risk in the story,” said Lou Kerner, a Wedbush Securities analyst. “They do exist at the whim of Facebook, but it’s certainly in Facebook’s own self-interest to have a vibrant gaming ecosystem.”

According to the filing, proceeds of the offering will be used “for general corporate purposes, including working capital, game development, marketing activities and capital expenditures.” In an investor letter, Mr. Pincus said he plans to continue to make big investments “in servers, data centers and other infrastructure.” And in a sign that Zynga will continue to be very active in the deals space — the company has made over a dozen acquisitions to date — Mr. Pincus said he plans “to fund the best teams around the world to build the most accessible, social and fun games.”

When Zynga finally goes public, Mr. Pincus, who founded the company in 2007, and its venture capital investors will see their fortunes multiply many times over. The group — which includes Yuri Milner’s DST Global, Kleiner Perkins Caulfield Byers, Silver Lake Partners and Andreessen Horowitz — has sunk hundreds of millions of dollars into Zynga.

Article source: http://feeds.nytimes.com/click.phdo?i=08e49e48777a21e4465d2ba57942ee5e

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DealBook: Banks Bullish on LinkedIn

June 28, 2011 by Leave a Comment

LinkedIn is a long way from its first day pop, when it traded above $100 a share.

But its underwriters are feeling pretty optimistic.

In research notes released on Tuesday, JPMorgan Chase, UBS, Morgan Stanley and Bank of America Merrill Lynch all initiated bullish ratings on the professional social networking site. Amid the vote of confidence, shares of LinkedIn jumped more than 12 percent in morning trading on Tuesday.

The lead underwriter, Morgan Stanley, placed an overweight rating on LinkedIn, with an $88 price target. LinkedIn, which the firm said might become a “standard utility for H.R. recruiters,” is expected to continue to post strong revenue growth. Although Morgan Stanley said there were some risks, like competing social networks, the firm was extremely bullish.

“Every once in a while, a company comes around that transforms an industry in such a way that investors have difficulty grasping just how big it may one day become,” the note said. “We believe LinkedIn can be one of these companies.”

JPMorgan also gave LinkedIn an overweight rating and set an $85 price target.

One of its analysts, Doug Anmuth, says LinkedIn is “disrupting both the online and offline job recruitment markets, and deeper corporate penetration and increasing member engagement will drive strong results over the next few years.”

Given its leading position as a social network for professionals, he said, LinkedIn should also be able to capture a greater share of the $27 billion global market for staffing. He cautioned, however, that if economic conditions deteriorated and the job market slowed, LinkedIn could be worth $60 a share, based on a discounted cash flow valuation.

UBS weighed in with a buy rating and a more bullish $90 price target. Like its peers, UBS called LinkedIn’s business “disruptive,” and said it would most likely record “better than expected growth in the user base, with corresponding revenue outperformance.”

Rounding out LinkedIn’s top underwriters is Bank of America Merrill Lynch. The firm gave LinkedIn a buy rating and a price target of $92. Calling it a “$10 billion long-term revenue opportunity,” the bank said LinkedIn’s shares should benefit from several key drivers: strong second-quarter results, international traction and new products, which should be a bigger focus next year.

Some of the other equity research houses on Wall Street, however, have assumed a more subdued stance. Evercore Partners, which released its note earlier this month, initiated coverage with an equal-weight rating and a price target of $70, below where the shares are trading now.

Article source: http://feeds.nytimes.com/click.phdo?i=c0048b7a27f0ad6e04e50fdbb3afa6b1

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Deutsche Bank Star Fights to Take the Reins

June 14, 2011 by Leave a Comment

A banker with a pied-piper quality, Mr. Mitchell persuaded Mr. Jain and 500 others to leave secure jobs at Merrill Lynch in the mid-1990s to help him transform Deutsche Bank from a slumbering financial institution focused mostly on traditional lending to German companies and individuals into a global powerhouse that generated half its profit from trading and deal-making. At the peak of his success, in late 2000, Mr. Mitchell was killed in a plane crash.

In building Deutsche’s investment bank, Mr. Mitchell formed the template for the global universal bank that has since been emulated — for good and ill — by Citigroup, Royal Bank of Scotland, JPMorgan Chase, UBS and Barclays.

At the age of 48 — about the same age as Mr. Mitchell when he died — Mr. Jain controls all of his former mentor’s empire, and more. In a given quarter, those operations may produce as much as 90 percent of the banking giant’s profit. Now he is confronting the same obstacle that confounded Mr. Mitchell and prompted him to start looking for another job in the days before he was killed.

As a non-German speaker and Wall Street product, Mr. Jain is facing an uphill battle to succeed Deutsche Bank’s chief executive, Josef Ackermann.

More diplomat than banker, the Swiss-born, German-speaking Mr. Ackermann and the Deutsche board have resisted persistent shareholder demands that the bank put forward a succession plan before Mr. Ackermann’s contract expires in 2013.

All of which has enhanced the view that Mr. Ackermann sees it as his legacy to crown a successor in his own statesman-like mold — perhaps Axel A. Weber, the recently departed head of the German central bank. There has been much talk of Mr. Weber becoming chief executive or coming in to share the job in some way with Mr. Jain.

Ultimately it will be a board decision, and the bank may well decide to anoint Mr. Jain. But the delay, institutional shareholders say, runs the risk of alienating Mr. Jain and might cause him to jump to another investment bank.

“In Germany, no one can imagine an Indian working in London who does not speak German being the C.E.O. of Deutsche Bank,” said Lutz Roehmeyer, a portfolio manager at LBB Invest in Berlin and a large shareholder. “But Deutsche Bank is an investment bank now, and Mr. Jain deserves to run it.”

On a narrow profit and loss calculus, that may be so. But even though Deutsche’s risk taking was not as outlandish as that of others, the bank was an enthusiastic participant in the United States mortgage boom and is being sued for $1 billion by the United States government, which contends that its mortgage unit engaged in fraud and deceived regulators to have their loans guaranteed.

While the majority of the alleged fraud took place before Deutsche acquired the mortgage operation, Mr. Ackermann and the Deutsche board may well be wary of choosing a bond and derivatives technician at a time when the practices of all major banks are still being scrutinized.

People who have spoken to Mr. Jain say that he recognizes this is a board decision and that his priority is to keep the profits coming. But, these people say, the delay and the possibility that Mr. Ackermann may not support him for the job has had its effect.

During a brief interview Tuesday, Mr. Jain took issue with rumors in the market that his relationship with Mr. Ackermann — never close to begin with — had cooled and that he might leave the bank.

“I have been given a huge new opportunity to integrate the investment bank and I am very excited about that,” he said. “As for my relationship with Joe, it is as good as it ever was in almost 15 years of working together.”

Mr. Ackermann declined to comment on the question of his successor, but he has in the past made it clear that the decision to pick the bank’s next leader is the board’s responsibility — with his input of course — and that his contract runs until 2013.

Article source: http://feeds.nytimes.com/click.phdo?i=64def651a514a7f9678e93ac795be157

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DealBook: Shunning Nasdaq, LinkedIn Prepares a Big Board I.P.O.

May 5, 2011 by Leave a Comment

In a coup for the New York Stock Exchange, the business-oriented social networking site LinkedIn said in a filing on Wednesday that it would list its new shares on the Big Board.

Last month, LinkedIn, which is expected to go public later this year, said it was still considering a listing on the Nasdaq or the New York Stock Exchange. The decision to go with the Big Board gives a boost to the exchange, which is in the midst of a takeover battle.

The Nasdaq OMX Group, best known as a popular home for technology stocks, recently teamed up with the IntercontinentalExchange to pursue a hostile $11 billion bid for NYSE Euronext, which has rebuffed the advance.

The Big Board has been a popular destination for several prominent Internet I.P.O.’s this year. On Wednesday, Renren, a Chinese social networking company based in Beijing, made its debut on the exchange.

The competition between the Nasdaq and the Big Board is expected to continue to heat up over the next two years, as more multibillion-dollar Web companies, including Groupon and Facebook, head to the public markets.

Although technology companies typically list on the Nasdaq, which is seen as friendlier to smaller, growth companies because of its flexible listing requirements, Peter Falvey, a managing director at Morgan Keegan, said the Big Board offered branding value.

“The N.Y.S.E. is often seen as on the side of bigger companies,” he said. But smaller companies might “get some benefit from saying, ‘We’re listed on the N.Y.S.E.,’ ” Mr. Falvey said. “It doesn’t get more blue chip than that.”

A representative for LinkedIn declined to comment on Wednesday.

Bank of America Merrill Lynch, Morgan Stanley and JPMorgan Chase are the lead underwriters for the offering.

Article source: http://feeds.nytimes.com/click.phdo?i=5ef212205ba49cd07cdcde51b54abbf5

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DealBook: AES to Buy Ohio Utility in $4.7 Billion Deal

April 20, 2011 by Leave a Comment

The energy producer AES said on Wednesday that it had agreed to acquire DPL, the parent company of Dayton Power Light, for $3.5 billion in cash. It will also take on DPL’s $1.2 billion in debt.

The offer of $30 a share is 8.7 percent above DPL’s closing price of $27.59 on Tuesday. It is the second big utility deal to be announced in the United States this year. Duke Energy bought Progess Energy for $13.7 billion, which represented an even smaller premium of 6.4 percent.

“We are concentrating our growth efforts in a few key markets, including the U.S. utility sector,” Paul Hanrahan, head of AES, said in a statement. He add that buying DPL would add to the company’s “regional scale provided by our nearby utility business at Indianapolis Power Light Company.”

DPL is an energy company based in west central Ohio, with about 3.8 gigawatts in power generation capacity. Coal-fired units produce 2.8 gigawatts of that total, and natural gas and diesel units produce the rest.

The company, which serves more than half a million customers, will remain an independent business with headquarters in Dayton.

The deal will be supported with bridge financing from Bank of America Merrill Lynch, the financial adviser for AES on the deal, and subsequently by a debt issue. The company hired Skadden, Arps, Slate, Meagher Flom as legal counsel.

The deal is expected to close in six to nine months, pending approval from DPL shareholders, and local and federal authorities.

DPL posted net income of $290.3 million on revenue of $1.9 billion in 2010, up from net income of $229.1 million on $1.6 billion in 2009. It is set to announce its first quarter earnings on April 28.

AES, based in Arlington, Va., has 40.5 gigawatts of generating capacity, and 11.5 million customers. It employs about 29,000 people and provides power in 28 countries. The company reported revenue of $17 billion in 2010.

This post has been revised to reflect the following correction:

Correction: April 20, 2011

An earlier version of this article incorrectly stated the power generating capacities of the two companies. All figures should have been in gigawatts.

Article source: http://feeds.nytimes.com/click.phdo?i=9a9936d2cc3cdbeb8c7eec06eb1fb35a

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DealBook: J.&J. Said to Be in Deal Talks With Synthes

April 16, 2011 by Leave a Comment

Surgical power tools made by Synthes, a Swiss-American company.Christian Hartmann/ReutersSurgical power tools made by Synthes, a Swiss-American company.

8:45 p.m. | Updated

Johnson Johnson is in talks to buy Synthes, a Swiss-American medical equipment maker, for a deal potentially worth $20 billion, according to a person briefed on the matter.

A sale would be among the biggest health care mergers in recent years and the largest ever by Johnson Johnson.

Discussions are continuing and may still fall apart, this person cautioned.

Shares in Synthes closed up 6.2 percent on Friday at 138.70 Swiss francs, amid speculation that the company was in talks for a potential transaction. The company’s market value as of Friday was about 16.5 billion Swiss francs ($18.5 billion).

Representatives for Johnson Johnson and Synthes were not immediately available for comment.

A deal would be the latest in the health care sector, as medical companies seek to fill in holes in their businesses. Earlier this year, Sanofi-Aventis agreed to buy a biotechnology pioneer, Genzyme, for about $20.1 billion.

Johnson Johnson, the giant maker of health and consumer products, has long been seen as ready to strike a big deal. Analysts at Bank of America Merrill Lynch wrote in a research note last month that the company had a relatively low amount of debt, as well as $28 billion in cash and short-term investments and $14 billion in annual free cash flow.

Johnson Johnson has struck about six deals worth more than $1 billion since 1998. Its largest takeover to date was its $16.6 billion purchase of Pfizer’s consumer health care division in 2006. That same year, the company lost a bidding war for Guidant, a maker of stents and pacemakers, to Boston Scientific, which ultimately paid nearly $27 billion.

In late December, Johnson Johnson bid $2.4 billion for the shares in Crucell, a Dutch biotechnology company, that it did not already own.

Though it is perhaps best known for making Tylenol, baby shampoo and many other consumer products, Johnson Johnson has increasingly shifted more of its business to medical devices, which was its biggest source of sales last year at $24.6 billion. Among the division’s existing offerings are knee and hip replacements, as well as endoscopy and sterilization products and Acuvue contact lenses.

Last year, the company struck a $480 million deal for Micrus Endovascular, a maker of catheters and other devices used to treat stroke victims. Johnson Johnson also reportedly approached Smith Nephew, a major British orthopedics company, about a deal in December, but was rebuffed.

Johnson Johnson has run into trouble with some of its existing device businesses. In August, the company recalled two kinds of hip implants amid more than 400 complaints received by the Food and Drug Administration that the devices failed early in some patients, requiring new hip replacements.

Synthes, which is based in West Chester, Pa., but is listed on the Swiss stock exchange, is a big manufacturer of implants to repair bone fractures, as well as surgical power tools. The company has consistently increased its revenue and profits annually, reporting about $3.7 billion in revenue and $907.7 million in net income last year. North America accounts for about 60 percent of the company’s revenue.

Analysts at Morgan Stanley wrote in a research note on Friday after The Wall Street Journal first reported the talks that a purchase of Synthes would let Johnson Johnson productively spend cash held overseas and increase its global presence. The analysts added that the potential deal would likely entail “substantial” cost savings over three years.

The largest shareholder in Synthes is its chairman and chief executive, Hansjörg Wyss, who with his family owns about 47.8 percent of the company.

A 1965 graduate of Harvard Business School who joined Synthes in 1977, Mr. Wyss is one of the wealthiest people in Switzerland, with Forbes estimating his net worth at approximately $6 billion. He donated $125 million to Harvard in 2008, the biggest single gift in the history of the school.

Article source: http://feeds.nytimes.com/click.phdo?i=2dd9a5015997cb0f42d2741382a4dffb

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