29: Constellation Software's Topicus Spin-Out, When Microsoft Tried to Buy Salesforce, Bezos Preschools, and Apple Books TSMC’s Entire 5nm Production

"they went for the Trillion Dollar Coin edition of this concept."

If you don't know how to turn off the safety, being unable to fire the gun is the intended result. —NotEnoughBears

Unix was not designed to stop its users from doing stupid things, as that would also stop them from doing clever things. —Doug Gwyn

To my American readers, please register to vote and/or request your absentee ballots now. Don’t wait.

Democracy is like a muscle, it atrophies unless it is vigorously exercised at regular intervals.

Here’s a site that shows what to do for every state.

And if you live in a swing state, the reality of things is that your vote is probably worth 10,000-100,000x votes in another state, making it incredibly valuable and powerful, so don’t waste it and please vote.

Investing & Business

Constellation Software’s Topicus Spin-Out Details

The prospectus for the spin out TSS+Topicus is out. I won’t go over the whole thing here, but there are a few highlights.

They will dividend out 1.859817814 share of the new entity for every common share of CSI.

The way they’ve structured things to minimize taxes is a bit confusing, with preferred shares that at first will retain most of the value but can later be converted back to subordinated shares when certain conditions are met (see pages 40-42).

For a bit I thought they had created a clever structure where CSI and the Topicus shareholders would retain most of the current value and only future growth in free cashflow above the preferred’s dividend amount would accrue to the new shares (which would be a kind of tracking stock, but not for just an asset, but for future value creation), but now I’m back to thinking that this is a more conventional spin out and that I was confused by the tax minimization structure.

I hope that when a date for the spin is announced, management comes out with a “for dummy” explanation of the structure, either in one of their shareholder Q&As on the website or a letter from Mark or Jamal.

The new Topicus entity will be listed on the TSX Venture. They aren’t raising any new capital, they are just creating shares for the new combined entity and listing those.

Constellation will retain voting control, through a single super-voting share that gives them 50.1% of the vote, and that gives them a right of approval for acquisitions “exceeding US$100 million”. (I love how the just made 1 super voting share — usually companies create a bunch or a round number, but here they went for the Trillion Dollar Coin edition of this concept.)

It’ll have 4,250 employees in Europe, split among 85 software business units, hosted in three operating groups: TSS Public, TSS Blue, and Topicus.

The geographic markets that the Company operates in are the Netherlands, France, Romania, Denmark, Spain, Germany, Sweden, Finland, Belgium, Italy and the United Kingdom [...]

primary vertical markets in which these operating groups operate include Accountancy, Agriculture, Associations, Automotive, Central Government, Education, Facility Management, Finance, Healthcare, Hospitality, Legal, Local Government, Manufacturing, Mobility, Real Estate and Retail

I’m a little surprised at how deep in the red licenses and hardware are, but I’m not worried, since they’re a tiny fraction of revenues, and that dollar-for-dollar (or euro-for-euro), the value is coming from maintenance & recurring. Professional services are a big chunk of revenues too, and they’re often used to help acquire new customers and bring in new maintenance revenue. It can sometimes also help R&D efforts and minimize risk, if you’re working closely with customers and can basically “build to order” products that are almost pre-sold.

Otherwise, the organic growth for maintenance looks solid, and is higher than Constellation’s average as a whole (more around 3-4% in recent times). Based on some things that Mark has said, I think that organic growth at the newly acquired Topicus is significantly higher than at TSS, so hopefully by working together they can improve organic growth more widely at the combined entity.

What will be interesting is to watch how successful this experiment is, and if it is, whether we’ll then see similar spins of the other operating groups (Volaris, Harris, Vela, Jonas, Perseus) over time.

h/t @Pearnick for being the fastest gun in the West when it comes to all CSI news and to @JerryCap for helping me think through things.

Microsoft Tried to Buy Salesforce for $55bn in 2015

Chetan Puttagunta just reminded me that Microsoft had tried to buy Salesforce in the early days of Satya Nadella’s tenure as CEO, in 2015.

According to David Faber, they couldn’t agree on price, with Microsoft offering about $55bn while Benioff wanted something closer to $70bn.

This was around Spring of 2015 when Salesforce was trading around $40-45bn.

Since then, the stock is up about 300%, reaching a market cap of $220bn today. Revenue has grown about 25%/year since then and EBITDA margin has about doubled from 4-5% to 10-11% (but the company is clearly not optimizing for the bottom line yet).

Seems like it would have been quite a coup for Nadella, just 1 year into the job. The next year, in 2016, he bought LinkedIn for $26B, still his biggest acquisition to date as CEO.

Nvidia Apologizes for Selling Out New Gaming GPUs so Quickly

I guess this is what they call a “high quality problem”:

The reception to our NVIDIA Ampere architecture GPUs has been off the charts and driven interest to heights we’ve never previously experienced. A few examples compared to our previous launch - 4 times the unique visitors to our website, 10 times the peak web requests per second, and more than 15 times the out clicks to partner pages. [...] At 6 a.m. pacific we attempted to push the NVIDIA store live. Instantly, the NVIDIA store was inundated with over 10 times the traffic of our previous generation launch, which took our internal systems to a crawl [...]

When the “accelerated computing” company is having trouble keeping up with traffic, you know it’s a lot

We expected the best ever demand for the RTX 30-series, but the enthusiasm was overwhelming. We were not prepared for this level, nor were our partners. We apologize for this. [...]

The demand for the GeForce RTX 3080 was truly unprecedented. We and our partners underestimated it. [...]

We have great supply - just not for this level of demand. Source.

That’s a great line that every product company wishes they could say: “We have great supply - just not for this level of demand.”

But whenever large amounts of people are disappointed, they need someone to blame.

So the conspiracy theorists on Reddit boards come out and find elaborate reasons why this was done on purpose and everybody’s lying about the real reasons…

But in reality, Occam’s razor is most often right, and sometimes it’s just because today’s demand was underestimated by a significant amount many months ago when they planned this launch. Imagine yourself trying to forecast demand in early COVID days without the benefit of hindsight that we have now, because with physical products, it’s not like digital goods, lead times are counted in months…

‘Apple Books TSMC’s Entire 5nm Production Capability’

This reminds me a little of a few years ago, when they started doing aluminum unibody products, and for a while they bought the whole world’s production of a certain CNC machines and laser drilling equipment.

TSMC won’t have to worry about finding additional customers for its 5nm line any time soon. If reports are true, Apple bought the entire production capacity for the iPhone, iPad, and other refreshed devices it has recently launched or will launch in the coming weeks. (Source)

This includes the soon-to-be-launched Macs that used ARM-based custom silicon. A lot less units sold than iPhones and iPads, but the dies are no doubt larger, with more surface area/transistors.

Jeff Bezos Creating a Network of Free Montessori-Inspired Preschools

This classroom is just the beginning. The @bezosacademy opens its doors on Oct. 19th. This one in Des Moines, WA, is the first of many free preschools that we’ll be opening for underserved children. Extra kudos to the team for figuring out how to make this happen even amidst COVID, and to Wesley Homes for stepping up with the facility. (Source)


Amazon’s “Prime Bike”… Oh Wait, Nevermind

Yesterday, a piece of new made the rounds… Apparently, Amazon was launching an exercise bike for Prime members in partnership with fitness company Echelon. As soon as the news appeared, a common reaction was that this was Amazon attacking Peleton, going deeper into fitness, etc.

But then a few hours later:

Tuesday night, Amazon updated the product page by listing the bike as “currently unavailable” and scrubbed any mention of a partnership with Amazon.

This bike is not an Amazon product or related to Amazon Prime. Echelon does not have a formal partnership with Amazon. We are working with Echelon to clarify this in its communications, stop the sale of the product, and change the product branding,” an Amazon spokesperson said.


h/t @InvestmentTalkk

That'll really teach him a lesson…

Nikola founder Trevor Milton forfeits $166 million in stock he would have lost any way and gets to keep $3.1 billion under separation deal. Source.

Now that Milton has more free time, he may consider starting a new business. Maybe Adam Neumann is free to be a co-founder. They wouldn’t need outside capital...

Science & Technology



In 2014, the Heartbleed bug revealed a significant portion of the internet was vulnerable to attack due to a bug in OpenSSL, a free and open-source library facilitating secure communication. One headline at the time demonstrated this comic in real life: "The Internet is Being Protected by Two Guys Named Steve". The aforementioned Steves were overworked, underfunded, and largely unknown volunteers whose efforts nevertheless underpinned the security of major websites throughout the world. [...]

The current model of libraries and open-source development relies heavily on the free and continued dedication of unpaid hobbyists. Though some major projects such as Linux may be able to garner enough attention to build an organization, many smaller projects, which are in turn reused by larger projects, may only be maintained by one person, either the founder or another who has taken the torch. Maintaining libraries requires both extensive knowledge of the library itself as well as any use cases and the broader community around it, which usually is suited for maintainers who have spent years at the task, and thus cannot be easily replaced.

Source of comic at XKCD. Source of text. h/t to Shomik Ghosh for reminding me of this one.

62 Years Ago, Kilby Showed this to his Supervisor at Texas Instruments

Photo above: “Jack Kilby's original hybrid integrated circuit from 1958. This was the first integrated circuit, and was made from germanium.”

How far we’ve come… Nvidia’s Ampere A100 chip contains 54 billion transistors.

Titanic Wreck Expedition was Cover for Cold-War Nuclear Submarine Wreck Mission

The 1985 discovery of the Titanic stemmed from a secret United States Navy investigation of two wrecked nuclear submarines, according to the oceanographer who found the infamous ocean liner. [...]

Ballard met with the Navy in 1982 to request funding to develop the robotic submersible technology he needed to find the Titanic. [...] the military was interested in the technology—but for the purpose of investigating the wreckage of the [nuclear submarines] U.S.S. Thresher and U.S.S. Scorpion. [...]

The Thresher and Scorpion had sunk in the North Atlantic Ocean at depths of between 10,000 and 15,000 feet (3,000 and 4,600 meters). The military wanted to know the fate of the nuclear reactors that powered the ships, Ballard said. [...]

Once Ballard had completed his mission—if time was left—[the Navy] said, Ballard could do what he wanted, but never gave him explicit permission to search for the Titanic. [...]

"But the Navy never expected me to find the Titanic, and so when that happened, they got really nervous because of the publicity," Ballard said.

"But people were so focused on the legend of the Titanic they never connected the dots." (Source)

Real-world spy stuff always feels a lot more improvised and haphazard than in the movies… The book ‘Legacy of Ashes’ about the history of the CIA is filled to the brim with this kind of stuff, if you enjoy these anecdotes.

The Arts

Monument to Yuri Gagarin, Moscow

Maybe I’ve had Soviet aesthetics on the mind lately because I’ve started watching HBO’s ‘Chernobyl’ (I’m only 2.5 episodes in, I’ll report here when I’ve seen the whole thing, but so far it’s great), but I thought this monument to the first person to travel in space was very cool. The retrofuturism wouldn’t be totally out of place in a BioShock game…

Looking at the earth from afar you realize it is too small for conflict and just big enough for co-operation.

When I orbited the Earth in a spaceship, I saw for the first time how beautiful our planet is. Mankind, let us preserve and increase this beauty, and not destroy it! -Yuri Gagarin

The monument is apparently made of titanium, weights 12 tons, and is 42.5 meters (139 feet) high. If you’re curious, more on Gagarin. Photos: 1, 2.

Walk in the Woods


Photo I took in the woods behind my house.

Nature is so good for my brain, I should go more often…