WealthEsteem.org :: Psychology of the Deal

IF you believe mainstream media, Sol Trujillo is the most unpopular man in Australia and Telstra is the most unpopular company [full disclosure: I am the beneficiary of a Telstra shareholding]. I don’t think I’ve ever forgiven Telstra for its monopolistic behaviour back when it was Telecom and I didn’t have a choice of carriers.

When Telstra was booted out of the National Broadband Network tender process for submitting a non-compliant tender, pundits were eagerly predicting Telstra’s demise or other “dark and awful consequences”. Telstra had submitted a tender that suited their business model, aspirations and view of the future. They signaled the only way they’d consider lining up for the $4.7 Billion AUD the government was offering. I congratulate them for having the balls to stick to their guns.

Today the Federal Government announced none of the remaining tenders were “value for money” and instead would form a new company to build a fibre to the home network to 90% of Australians. Much ink will be spilled in the future on this deviation from the tender outcomes requested, namely 98% fibre to the node.

Here’s my quick take home analysis:

1. Submitting a tender of this size and complexity is a very expensive exercise.
2. No tenderer was awarded a contract despite complying with the guidelines.
3. Telstra spent a little money outlining the conditions they would accept.
4. Who looks smart now?

This seems like a brilliant use of game theory by Telstra. Sol and his team have been called arrogant and out-of-touch, I think they protected their shareholders interests well.

Just because a deal is on the table doesn’t mean it’s always wisest to take it.

Wow I passed the Data Analysis and Statistical Modelling exam I wrote about in August. My term result was a solid Credit grade, so I didn’t do too badly given my inability to study for the exam.

One of Corporate Finance lecturers said my trade-off of limited study time for family and a new job was rational and utility-maximising Nice economist words those.

On with Corporate Finance which is mainly math. There is an optional workshop tomorrow for those who need to brush up on their high-school math skills.

Nicely the trick to this Corporate Finance course is not about the calculations. Any monkey can push buttons on a calculator or type numbers into excel. It’s knowing when and what kind of formulas apply to various similar problems when valuing a cash flow.

My inner geek is beaming again.

I’ll be doing Corporate Finance for my next MBA (Executive) course. This is interesting as I’ll be doing a few mergers and acquisitions so hopefully I’ll learn some interesting ways  to structure a deal. So far there hasn’t been a lot of M&A focused subjects at AGSM.

Lectures start the week beginning 15 September 2008.

I should be able to post more regularly now.