Sept. 11, 2008 Call Between Raj Rajaratnam and Anil Kumar

8/7/2019 Sept. 11, 2008 Call Between Raj Rajaratnam and Anil Kumar

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September 11, 2008

7:30 PM

· · . · \ ~ g v ~ k · ~ · ~ · ~ · N l - . ·i · · · · . · · · · · .E X H I B r r . · . · . · · i .·• •

. . · · i i ( j i 6 _ 1 ' · · · · · · · · · · · · · .S209 Cr,1184 (RJH)· .

OVER 917"907"2350

ANIL KUMAR (408-406" 1020)

RAJRAJARATNAM (917-907"2350)

Unintelligible: UI

Inaudible: IA

Phonetic Spelling: PH

Voice Overlap: II

Hi Raj.

Hi Anil, how are you?

Good, good. I'm out here in Dublin.

Hi, what are you doing there, on vacation?

No, no, I'm with my YPO guys, Sunil Mittal and Sunil Munjal and

all these guys here.

Uhhuh.

You know, we go once a year for a retreat for three days, so where

they chose this year.

How is the weather there, good?

It's actually not too bad. You know, it's reasonably good weather

and not raining and stuff.

Right.

I heard you're going overseas tomorrow, are you coming to

Europe?

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No, I'm going to Hong Kong.

Oh, okay.

Tomorrow and then I'm going to our Singapore office.

Hm.

And then from there I'm back to New York, I think, you know

because the markets are so crazy, you know?

Hm.

And Lehman is just a 3 dollars or 4 dollar stock, you know now.

Is there worse to come?

Yeah, it started the week 20, you know. 18 actually.

Mmhm.

Friday was 20/18. CUI ) Its just the crisis of confidence, you know,

selling big, selling and things like that.

And then who would thought that the dollar would strengthen so

much suddenly, huh?

Yeah, I mean, you know, it's a very simple explanation. Youknow, people say I don't understand the markets and all that, but I

said, it's a really simple and very elegant a explanation that Igot,right?

Hm.

Now, I've talked to about 30 different people in different firms,

you know, with what's going on, why is the market so wacky?

Hm. Hm.

So, the thing is, the only guys who are whipping stocks around are

hedge funds.

Hm.

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You know mutual funds are you know, longer term and you know

hey getting their (UI) right?

Hm.

If you look at the typical hedge fund, with long exposure ...

Hm.

[CALL MINIMIZED]

You lost 20% on your long side, because (UI) went 20, and then

energy went up 20%, you know, technology went down 7-8%.

Hm.

So you know, on average you lost 20-25%,

Hm.

And then on the short side, retail actually went up during the

period 17% and financials rallied, you know, from August Ist,

another 10%. Right?

Hm.

And Citi went from 16 to 19 or something.

Hm. Hm. Hm.

So you lost another 20% on the short side.

Yeah, So if you played that strategy out, you would have been

completely ...

[CALL MINIMIZED]

And there's a you know bunch of this type of silly stuff that youhearing, right?

Mmhm.

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So the pain now is becoming, and it's really ... like a casino.

Yeah.

You know, you go to the casino, you say okay, you know

Schlumberger, which is a great company was at 100, it's 82, right?

Hm.

And you just don't know whether it's gorum go to 70.

Exactly.

You know and you can do all the analysis you want, Imean ... anyway so, that is well as being very volatile and you

know, so on and so forth, So you know, I'm keeping ... everybody,

everybody's on edge.

Yeah, yeah.

[CALL MINIMIZED]

So rather than KDB stepping in, right?

KDB has said no, right? that's why the stocked tanked, you know?

Yeah. Although, yeah, yeah. I mean, I asked my guy there if KDBis gonna buy and he sort of gave this slightly, he said, don't

believe everything you read in the press kind of reply.

No, but the CEO ofKDB. ...

So it was a little circumspect.

But he walked away, right? (UI), there was speculation.

Hm.

When did you ask him?

A week ago.

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1 RAJ RAJARA TNAM: Okay. You know, the thing is, a week ago they were negotiating

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20 RAJ RAJARA TNAM: And the thing is, there's a bank like, they're cuts (UI), because you

21 know, they won't cut 25, but they'll cut 5, 7, you know? Because

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32 RAJ RAJARA TNAM: Right But you know, look, it's, very stressful, you know every

33 day you come in and it's, I feel like I'm fighting Muhammad Ali. I

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it, and, and urn... that things are gonna become worse before they

become better, at least from a, you know, overall Indian

standpoint. The, the, you know, the companies we held (UI) for a

long time, but then finally (UI) did buy them, I, I, Ijust didn't

realize it, but they did buy them a couple of, three weeks ago or

something.

Who bought them?

[CALL MINIMIZED]

And half days I'm here with these guys; overall, so I'll get a much

better picture, because they're really totally, you know, inside the

loop, right?

Yeah, they're the decision makers. How many of them are there?

Ten.

Ten of them; okay (UI).

And then also, also, in October, Anand Mahindra's got 50 people

meeting in Montauk in New York, I guess it's some suburb or

something of New York.

Mmhm.

Including Mukesh Ambani and a whole bunch of people to talkabout the future ofIndia kind of thing. He's invited me to it .

Okay.

So that'll be also interesting.

[CALL MINIMIZED]

30 percent again?

Somewhere else.

Yeah, to get even in a tough period, right?

Mmhm. Mh.

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So what we have to do is you know, give up the first ten percent

move, right?

Mmhm.

Not, not go down 20%, maybe go down 6-7 ~8%.

Hm.

Give up the first 10 percent and then when things are aligned,

right, play really hard, you know?

Mm. Mm. Mm. Mm,

Ihear funds in India, hedge funds in India like Helios and

Monsoon and New Vernon.

[CALL MINIMIZED]

So the value should, the stock price should have gone up. But Ithink we've got to be even more, you know, on top of just what of,

what's likely to be happening. You know, this whole thing you

and Ihave talked about, all year about event based ... , we just have

to do that. There's no other way we're going to be able to (UI) ...

I think there is urn track on that. ..

Yeah, it's not September 15th, I mean that's just this week. It's

gonna be October first week, but it's all on track.

Uh huh. They're moving it to October, is it?

Yeah, for the announcement.

Vhhuh.

But it's only, it's more because you know, by the time you are sortof crossing T's, dotting I's. I think all the approvals and all have

kind of happened, it's now most of, most of the details.

Right.

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There's no big road block. There was one 'till two weeks ago, but

you'd heard about that when IBM, you know, that whole thing,

right? Where IBM actually is hugely supportive. So I think that

was about clearing the last sort of big hurdle.

Right.

On the other one, I'm glad we got out of Spansion because that

one's looking really, really bad.

Yeah, you told me, yeah, and it's so, yeah. Um.

Um.

Um, go ahead.

No, and then I, you know, I think a few of these other ones that,

you know, one is at least a bit closer to like, you know, Juniper or

even frankly many of my, my colleagues know Motorola really

well 01 ' EMC. Imentioned. That whole EMC, Cisco thing is not,

not likely to work out, unless you've heard something different.

I think there, what they've done is, exactly, they've done a strate-,

they're gonna do a strategic relationship with VMWare. Where

they'll be selling VMWare products.

Mm. Mm. Mm.

You know, Juniper, Ihear the new guy, the Microsoft guy is much

more acquisitive than Scott Kreins.

Mmhm.

And he's looking to get into, kind of build a multi-product

company you know, a big, have the security and a router and he's

looking at wireless LAN and so

He was one of our three top clients at Microsoft, and I actually had

dinner with him, Kevin whatever Johnson.

Yeah.

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So I will try and just see if he, that is in fact the case, then you

know, we should be able to get some insight and also we'd be

helping him.

Ispoke to Daniel what's his name.

Pacthod.

Pacthod, today.

Hm.

He sent me a proposal, right?

Hm.

And he had 13 01' 8, 16 items, right?

Mm. Mm.

That they wanted to do within three months. Ithink that's too

much, you know?

Mm. Mm. Mm.

So what Isaid was let's narrow it down to four, right?

Mm.

And let's you know, just focus on those four. Tell me what you

can do in, S01t of a one month type of timeframe, and then three,

right.

Mm. Mm.

So then he sent me something, a reverse proposal with a four, I

can't remember, four or five, I think, and the markets are so crazy I

didn't pay attention.

Mm. Mm. Mm. Mm. Mm.

I read it, I think four items.

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Mm.

And, I, and he sent me a different proposal, you know, that he

would work for a month, right?

Mm.

In four weeks we'd review what they'd done. Right?

Mm. Mm.

And go on, you know, from there. We'd see, I, I like the narrow

focus and you know, sort of a feel.

Yeah, I think so and I think he's got the mindset, which is the right

one, Raj, which is, I basically said, you know, you've got to havethe right insights. I mean, that's all that matters in the end.

Right.

So whatever you do, you figure out, which are the ones you have,

you know, start with, and have the right insight that you feel we

are able to do something that's unique, that's distinctive that's

somewhat watertight, right? Because for whatever reason we

know, right, because we either do a survey of people, which we

know, which is routine in the firm, but we happen to know

because of suppliers or the pipeline, or whatever it is, right?

It's a collection data (UI) .

And, and ...

(UI)

Yeah, yeah, right. Some proprietary data we may have or surveys

we may conduct 01 ' whatever that is. So I think he's trying to pick

that because obviously it's also in his best interest to show you

that the value can be added, because that's, he knows that's whatgonna keep him going, right?

Right. So I think the second proposal he sent was a little more

tighter, right?

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Mm. Mm. Mm.

So I said, I'm, you know, I said, I spoke to George. You know,

because apparently the compliance guys have to sign on and all

that, so..

Mm.

You know, both sides are talking, I told George to talk. , ,

[CALL MINIMIZED]

No, I haven't spoken to him for 2-3 weeks, but very interesting

things happened, I spoke to Bobby Rao today for about an hour,

and you know, Rajat's doing this telecom fund with Parag and allthis stuff, and he's very, very keen to have Bobby as his key guy.

And it would have made an enormous amount of sense, Bobby is

just a class act. I don't think you've met him, but he's SOli of,

even, you know, two, not one notch, but two notches classier than

Ramesh, okay?

Right.

And, and he's head of strategy at Vodafone. So Rajat keeps saying

look, this guy is going to make or break the fund, I must have him,

he's actually, his experience at Vodafone has been to be investingin internet companies. The reason why I'm telling you all this is

that you know, the, the issue is that they flew him out, Parag and

Rajat, to meet them ....

[CALL MINIMIZED]

and said that, he said that Arun Sarin was there and they were

going to the US Open with him and so on, and now they want

Arun involved and Bobby's got very little regard for Arun. For

many of the reasons that you and I have talked about in the past.

Yeah, so I was at the US Open, and I was.. ,

[CALL MINIMIZED]

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Yeah, no, so Bobby says they were talking to Arun about the

Telecom fund, but they told Bobby for the first time, so some

things have obviously developed over the last 2-3 days or week,

because I haven't talked to Rajat for 2 weeks now, but the, Bobbynow says that they're now looking at bringing Arun in at the NSR

level.

Okay. Idon't know, really?

(UI)

I know that Arun was at the tennis, that's all Iknow, Idon't know

what the discussions were, you know.

Mmhm.

Andah

No, you know, in the end, that'd be

That'll be a good thing, right?

It all depends, Imean it depends on what they want him for or to

do. Icould understand Telecom, but also it all depends on what

Arun is committing to doing with them.

[CALL MINIMIZED]

And he says I'm Rajat's partner but I'm CEO, right?

Mm. Mm.

And you know, tell Victor, Victor works for us and you know

Arun C U I ) Victor (UI) and you know ...

Mm. No one's gonna question it, they're all gonna just believe it.

Shaukat, you know, they're gonna say, okay, he's assembled all-

star things, right?

Mm.

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And I think this maybe strategy to raise 10 billion dollars by (UI).

Mm.

You know? And I think you know.

Well, you know, the, their, investments in India, you know, have

very early days they have invested 22% of the fund, the ..

[CALL MINIMIZED]

But leverage has been significantly reduced or gone to

nonexistence.

Mm. Mm.

So what private equity companies are doing is they're drawing

down more of the capital.

Correct.

You know previously they would draw down some and top it up

with leverage.

Mm.

So what's happening is these guys who funded, who committed,they're not funding ...

[CALL MINIMIZED]

The whole money raising environment has become, it's almost,

you know, come to a trickle.

Mm. Mm.

So, now, the other thing that will happen is if the equity marketsdon't come back, is the interest that you thought might happen in

18 months might take 24 months. I'll give you case in point, Anil

Ambani, when he raised his money said that..

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[CALL MINIMIZED]

..he, it's gonna be a tough time, you know, I, I sit and say look,

private equity seems so easy, you know?

Mm. Mm.

Where you, you know, people were just. ..

[CALL MINIMIZED]

The actual company ... but then when you look at that, you say

now that, that first 40% is gone, you can't do that anymore. The

next 30% is also the markets kind of, potentially even going

downward. So the only possibility, the only controllable lever of

the three levers you have is to be able to look at the portfolio

coming in and doing something about it . Which is why these guysare now suddenly, and then they haven't build the capability to do

that because ....

[CALL MINIMIZED]

Stocks are trading at cash and all that, if you have patient capital,

you know?

Mm. Mm.

And the reception was good, but they are also getting very smart,you know?

Mm.

They say look, all right, you know, we'll give you capital,but we

need, if you're going to increase the duration, you need to give

something back. You have a hurdle rate, right? Which is

reasonable.

[CALL MINIMIZED]

These guys. You know I didn't realize, we went to, we have a guy

called Ayad, who's a, a guy from that part of the world, Iraqi guy

who's ..

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Yeah, I met him, I met him.

Right. Tall guy. So they went to Mubadala too. Right?

Hm.

And the guys from Mubadala were just so, they said so what do

you call it, intensely questioning our thoughts on the

semiconductor industry, on process, on fab versus fab less, and

you know.

Hm. Suddenly they got smart, *laugh* They're putting in eight

billion. Imean, that's not a small amount, you know Raj?

But you know, Idid not, prepare, Ihave not told ...

[CALL MINIMIZED]

Anything about semiconductors, just told them one or two

semiconductor companies that could be, what do you call it, the,

the first candidates for investment, right?

Hm.

And they started talking about all the supply chain and this and

that and you know, they, they picked up on concepts really fast. Ismiled at myself. *laugh*

(Laughs)

And it was so funny. I don't know ...

They've had ten McKinsey guys for nine months, training them on

what to do from their side, to do the investment.

Oh.

Obviously, but by the way, I've talked to you about this before,

because Ithink when you go Sh01t,you're a little bit more, thisyear you'd have been a bit more protected, right? So you ...

Right.

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I hope you are at least somewhat short on TSMC, huh?

Yeah, I'm short TSMC. (UI) thank you, yeah.

Urn So, yeah, no, 1. . . (Laughs) But by the way Raj, I mean the

other thing that you know, with a little bit of distance of nothaving been in the US the last two weeks and not having talked to

Rajat and all, as I think about it, you know, be a little careful, I

really feel quite, you know, ifhe's now you know, wooing Arun

(PH) trying to do something at NSR, do the Telecom fund, he's

decided to go ahead with KKR, as I think you've heard, right?

Right.

So he's gonna do ...

[CALL MINIMIZED]

(VI) trying to be, you know, overall helpful to you, but for his

agenda, which is either to come up with a negotiation for how

much of Galleon International he gets, which was, you know, was

one part of his agenda, or another part was how to get the Voyager

deal done. But quite frankly ...

And I will ...

Let. . .let me give you an example, If, if for the next two years you,

just let's take a scenario, I mean, I hope it will never come playout, but say for the next two years you, you don't perform, okay?

Right.

And there's no economic surplus to be shared ...

[CALL MINIMIZED]

Raj at, you know we need to be meeting Raj and then we get the

whole things scheduled and so on, there's no real, and maybe, he,

maybe he's expecting me to be scheduling all those and you know,making sure we meet" every two weeks or something.

(UI) Anil's in, you know, in town, let's go and meet him, and then

I sort of gave him an opening, I said, you know, let's take a part,

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you know, where you have, you know, some interest and Rajat

said, the Voyager thing, I said let's take the equity thing and we try

to manage it you know, between the three of us, just to see

whether, you know, lets do try to getting him more engaged, right?

Mmhm.

Because on this marketing thing is totally not there, right? He had

one meeting and you know, said ....

[CALL MINIMIZED]

1need credit for that, the marketing guys are saying, look, we can,

you know, we're the ones that tell the story and do all the due

diligence, question, you know the, you know what I'm saying?

Yeah, although what Iwould say, in these things it's always, youknow, everyone will claim credit for when something happens,

right? And you can, you're, the real ultimate judge is you and Ithink it's sometimes very tough because the right answer is that

everyone pitched in some way and the result happened. That's the

most important thing, right?

That's exactly, (UI) ..

The positive result.

ADIC (PH), right, ADIC (PH)? He went and met ADIC, right?

Mm. Mm.

And you know with, I had set up the thing, 1had knew the guy, but

not very well, you know, went in there, took Rajat. Rajat gave the

big picture, then that guy carne into New York a couple weeks

after the meeting.

Mm. Mm.

Right? And he came and sat in a morning meeting, and he wasvery, very, he said, Ireally was impressed with the morning

meeting, right?

Mm. Mm.

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[CALL MINIMIZED]

Let's, let's, you know, lets stop the vesting schedule this, right?

Mm. Mm.

And you don't need to do much for Galleon, right?

Mm, Mm,

And let's you know, just remain friends and you know, let's you

know, we can, look as an entrepreneur and a business owner,

right?

Mm. Mm.

I have to explore all opportunities to grow the business.

Correct. Correct.

Ialso have to make difficult decisions,

Mm.

When it needs to be made. Right?

Mm. Mm.

I'm not, you know, I don't have 18 different things going on.

Things going on..

[CALL MINIMIZED]

(UI) kids are, I mean, there's something nice about him, right?

Mmhm.

But there's also this SOli of lost soul, type of lost, there's no lack of

focus and there's no, there's no, focus, sorry. There's a lack of

focus and lack of clarity and what is it that he wants, and it seems

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like he retired too early.

Mm.

And he,just no ...

[CALL MINIMIZED]

So then there's some very advanced conversation going on with

Arun, but that's okay. I mean it should, in the end he has to, you

know, he's making the bed he's going to sleep on in the end right,

Raj? Imean, You know ... we ... you know, as an option, right?

Uhhuh.

So, so, I mean ....

(UI)?

Sorry?

How is Ramesh?

Ramesh is doing quite well. You know at one point Idid think,

Raj, whether it does make sense, because you know, to get good

talent and really strong people is also, you know, helpful, so I was

wondering, should we see if there's a role for Ramesh to play in

just SOli of managing, the."

[CALL MINIMIZED]

(UI) how much money we raise, and Bobby said listen, I'm no

fool, there's no incentive for me to help raise more, he said they

want me to leave a very, very secure job where I'm now working

on the most important part ofVodafone's growth, which he's

doing all the internet and data-related growth for Vodafone.

Mmhm.

And he said, they want me to leave this, to help them raise money,

but there's no incentive for me to help raise more money because

they're giving me a fixed amount to carry, It's actually a pretty

stupid thing to do. It really is. But it's just that whole approach

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they've taken, which is...

[CALL MINIMIZED]

(DI) just, be a bit watchful of you know that whole side of things.

(UI).

And you know, anyway, I'd, I'd always viewed as the summer is a

little bit more my, you know my transition, so I was sort of going

to be back and forth to New York quite a bit in June, July, August,

but now come October I'm just really just settling down there. I'll

be there a lot, and there's no reason you and I shouldn't meet

every week. And especially if you are gonna do this month thing, I

plan to, you know that's actually, and even ...

[CALL MINIMIZED]

[END OF CALL]

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Sept. 11, 2008 Call Between Raj Rajaratnam and Anil Kumar

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Transcript of Sept. 11, 2008 Call Between Raj Rajaratnam and Anil Kumar