
Why Did a Chinese Peroxide Company Pay $1B for a Talking Cat? - lumisota
https://www.bloomberg.com/news/features/2017-05-17/why-did-a-chinese-peroxide-company-pay-1-billion-for-a-talking-cat
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dannylandau
In short, pretty bizarre financial engineering going on with Chinese
industrial companies buying western gaming start-ups for enormous sums in
order to buttress their (chinese) own bottom line and keep the shares going up
on the Chinese stock market. This is a type of pyramid scheme that is bound to
come crashing down at some point, and bankrupt every single one of these
companies.

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sushid
Why couldn't these companies issue more shares in secondary offerings at 100x
their PE ratio, hoard all the cash, and wait for the crash to do a buyback?

Seems like a good way to hedge against a downturn. Of course, per usual,
retail investors will lose out as usual, but the companies could end up just
fine.

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alnitak
How did you get to know all those things you're talking about? Where does one
even start decrypting finance jargon and "possibilities"?

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lmm
Read Matt Levine's column on Bloomberg. All of them, and the ones from when he
worked for Dealbreaker as well. He tells the stories in a clear way that makes
sense, cutting through a lot of nonsense, and so you understand the key points
even without getting the jargon, and then you gradually pick up the jargon
too.

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eru
Matt Levine's column is great. The Economist can also bring similar-ish
knowledge, but its focus is broader.

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ChuckMcM
It makes me think of a recent write up on modern day money laundering. One way
to do so is to have an app with in game purchases, your mules buy burner
phones and start buying in-game stuff using their phone account. Money goes
into the wireless store, comes out of the App store. "Honey are you launding
drug proftis?", "No dear, I'm just addicted to HoneyBear Racers!"

~~~
sushid
But money laundering usually involves illicitly acquired cash and converting
that into legit money you can invest/store/etc. Seems like localbitcoin to
Monero to anything else makes more sense. No?

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YCode
In this instance isn't the money illegally acquired and then laundered by way
of app store gift cards purchased with cash?

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DanBC
Suddenly the more expensive IAPs in games such as Talking Tom Gold Run make a
lot more sense.

As you play the game you can unlock some characters. But it's a very slow
grind. You can also buy them.

The five most expensive characters cost £19.99, £28.99, £38.99, £48.99, and
5399 sticks of dynamite. You can buy 5,400 sticks of dynamite for £99.99

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vadym909
The sad thing is - Chinese investors/CEOs then need to get the money out of
China because they know it will crash eventually.

So they invest in hot real estate markets like Canada, US and Australia
causing house prices to go to stratospheric levels and make it un-affordable
for the locals.

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appleiigs
The locals sold at a price they wanted or they wouldn't have sold. The locals
who have not sold are now much wealthier.

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TheCoreh
> The locals who have not sold are now much wealthier.

And now have to pay much higher property taxes, which they might not be able
to afford with their current income. For sure, they should be able to sell the
property and buy a comparable one cheaper elsewhere (Thus netting some profit)
however they're basically being priced out of the property they own, with no
real choice. (Issue #1)

Unless they can find a similar paying job wherever they move to (which might
not be the case), they now need to face a much longer commute to work every
single day, wasting hours that could previously be spent on leisure, with
family, or doing work on the side to earn extra money. (Issue #2) The amount
of profit they net from the sale of the property might be useful to compensate
for this effect, if they're able to invest it properly, and depending on the
specifics and market conditions.

(Renting the property will probably result in a comparable outcome to
investing the profits from the sale, which might or might not be enough to
break even considered the increased commute time)

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msie
At least in the province of British Columbia (where Vancouver is), home owner
grants reduce the amount of property tax locals pay. Plus there are grants for
seniors or people with low-incomes.

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msie
And the vast majority of people who need it, get the grant.

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aub3bhat
30 Rock did it first

[http://i.onionstatic.com/avclub/5224/22/16x9/1200.jpg](http://i.onionstatic.com/avclub/5224/22/16x9/1200.jpg)

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rb808
I can remember 1999 & 2007 there was money everywhere and no one quite knew
where it was coming from. The money pouring out of China feels really similar.
It makes me nervous.

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hackunomatter
Just see SF's white-hot realestate market. I can only wonder what the hell is
going on: so many houses are going for up to 50% above asking!

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appleiigs
Maybe I'm reading a bit too much in it, but the top comments seem to have a
bit of discriminatory tone: China = pyramid scheme or money laundering. When
1997, 2007, SF real-estate, unicorns with no earnings, all happen(ed/ing) in
the US, in addition to Bernie Madoff. The original article topic is industrial
companies buying tech and the arbitraging of valuations.

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CodeWriter23
I think maybe you are reading too much into it. Adding "value" to a company's
bottom line by purchasing assets COMPLETELY outside of the core competency of
the company tilts the scales toward cooking the books and away from creating
actual value.

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sjg007
Why? Berkshire Hathaway did this in the past. Holding companies can be well
diversified.

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ionwake
Can someone be kind enough to tell me how I could get in touch with a possible
VC / or company from china who might be interested in investing in an RTS I've
spent about 4 years making?

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jerrre
They want to buy companies with revenue, not IP, if I understand correctly

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valuearb
This is one of the great things about free trade. The US sends trillions of
dollars to China to pay for manufacturing services, and the Chinese are forced
to spend that money in the US. They can buy services, or US Treasury bills, or
private investments, but sooner or latter the money has to come back. And
there is so much money involved there are some pretty dumb investments being
made.

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vacri
The money comes from US consumers, but doesn't go back to them. The circle is
not complete.

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eru
US consumer get stuff, though. (And they mostly acquire the money by working.)
So: stuff for labour.

Nothing to see here.

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aj0strow
I know a guy in Toronto who used to offer loans from the Caymans to Chinese
CEOs secured by 2x stock. If they default, he keeps the stock. So they take
out a massive loan then immediately default. He sells at market, anything
above half is profit. $100Ms.

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api
We talk about smart money and dumb money. Lately I've been calling this stuff
"weird money."

I've been hearing a lot of weird stories about weird money in the last few
years. My favorite involved an investor who could not be located when the
company was sold. Phone was disconnected, company did not exist, etc. Not sure
how that shook out. Maybe the proceeds get held in escrow for a while and then
distributed to the other investors if the owner never shows?

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AJ007
It sounds weird, but companies trying to expand to areas they don't have
experience in is nothing new. There are other unique incentives in play right
now, but they aren't particularly crazy.

Imagine your company is about to be on the ugly end of major changes to
economic policy in your country. You still have access to credit, so you may
consider buying another business. You want to hedge against currency risk, so
you buy a company in another country whose currency you think will do ok.
Also, you need a purchase that is big enough to matter and you need to do it
quickly.

If the finances are right, and the business metrics of the acquired company
doesn't decline too quickly you may make out pretty well.

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tempestn
Huh. Both my kids loved Tom the Cat around age 3-4.

From my experience, I have to assume the majority of their _hundred million
dollar_ revenue comes from kids randomly mashing on ads, or somehow managing
to make in-app purchases. (Like most free apps targeted at kids.)

Kudos to the developers, but even aside from the ethical issue (which rests
more with the ad networks than the app makers imo), seems pretty risky to
spend more than 1-2x revenue on this thing, given the risk of changes by
Apple/Google that could wreck the revenue model.

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farhang
If anyone wrote that as a story, any editor would have insisted that the
protagonist's name cannot be "Login".

~~~
projectorlochsa
Samo Login, which means Just Login (as in "just do it"). Quite amusing name :D
It was deliberate, obviously.

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nitam
Samo is Slovenian version of Sam. "samo" means "only"/"just" but pronounced a
bit differently than Samo.

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Spooky23
Some sort of laundering scheme?

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hackunomatter
Sounds like pump-and-dump to me. From what I could gather (albeit I'm not very
familiar with financial engineering): the Chinese stock market is hot, and P/E
of 100 is not uncommon. In other words: P = 100 x E.

Suppose you are a company that sells some conventional goods whose market is
tapped out, so no more growth in the "E". You find a game company (who doesn't
understand the games market, especially China, where smartphones are like
second appendages?) with earnings of, say, X. If you can buy this outfit for
something significantly lower than 100 * X, then (using the equation above),
you'll be able to boost your own company's "P" by 100 * X by acquiring the
company, at a cost much lower than 100 * X.

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mljoe
It seems super sketchy. I mean the valuations based on current P/E aren't even
terrible except for the fact that gaming especially doesn't seem an enduring
business. That E is probably going to go down as people move on to other
games.

