30 November 2005

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC. A collection of very smart people spending a lot of OPM to buy an old fashioned telecom company.

Are old fashioned telecom companies really a stable source of cash flow? Who do you sell it to?

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29 November 2005

The Glass is Half Full; The State vs um.. the rest of us

The very clever Mr. Nash of Renaissance Capital opines that in fact the glass is half full. As he is very clever it has to be admitted that he has more than half a well argued point. It is unlikely that the Chinovniki will be any more successful at running car companies than GM for instance, albeit with lower health care costs. So let them keep their heavy machines and extractive industries and let us get on with retail banking and providing services to consumers.

My problem with his argument is that I spend most of my life (the part when I am not I am either asleep or trying to be) interacting with the the owners of the new businesses that drive VVP's economic dream. As the big bosses get their hands around such giants as Kamaz and Avtovaz (and they are welcome to both - as a Brit they equal the quality that was once Leyland, remember it? Exactly) the junior bosses are getting hungrier; the price for delivery of a container through Kotka, Finland before the end of the year increased Monday 1.8x (that's 180% for those of you who prefer stats that way). Of that 180% increase about 30% can be paid white i.e. it can be officially paid and can therefore be deducted from Net Income, in addition a special delivery by New Year price was introduced on the same day of $450 per container. So let's be clear - you could pay the 180% price increase and the risk is that the container would not make it in time for the big buying season unless you pay another $450 per container, or in reality $596 as it cannot be deducted from Net Income.

These rapidly growing businesses are always looking for more cash. In the absence of reasonable bank lending (in particular inventory financing) the private equity guys would appear to be a good port of call. But they demand that the businesses run on the white side of grey-white. Meanwhile their competitors turn to government-sponsored money and run grey-black under the quasi-government roof. Good management will win out at the end of the day, whichever way the business is run - it's just remarkable that they tend to be at the whiter end of the spectrum. But in the meantime unequal competition means that sticking to the clean road is not always easy.

The State also impacts entrepreneurial business through its access to cheap money. An infrastructure company I am a shareholder in, and board member of, was offered a 5 year 9% loan with 2 year capital repayment holiday by such a Government sponsored company. That's LIBOR plus 3 for a business that will generate $6mn in revenue in 2006 and will invest every $ it can gets its grubby hands on. In a WACC calculation that means the debt is cheaper than the equity. Not that WACC calculations are worth the time calculating, but that's another story. That's one hell of a market distortion.

So my glass remains sceptical.


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Special Economic Real Estate

Today Gref announced the formation of 6 special economic zones. I was asked to get involved with a putative bid in Academ Gorodok in Novosibirsk which failed and with the Dubna effort which subsequently succeeded and two others that never got off the ground in Moscow. I turned down all the invitations as it was clear that the real reasons behind the bids were either fantastically idealistic (i.e. had not a cats chance in hell of succeeding) or were designed to assist companies that had political clout to make money on a. real estate and b. by lowering taxes on already profitable businesses or c. assist high profile unprofitable businesses compete unfairly against lower profile profitable ones (hint: if the CEO drives a new Merc and you lose $2mn+ a year the formula should return an ERROR.


It would be fair to say that Zelenograd SEZ will not assist micro-electronics in Russia nor will Dubna assist nuclear and physics technologies (sic). Dubna will find a way to build an offshore programming center which will fail to challenge Bangalore and Zelenograd will become the center for the manufacture assembly of PC's, notebooks and servers.


But the best job to get is the real estate developer. Funnily that was never on offer.


BTW my mood and the weather are in lock step and I will retain my heightened level of cynicism for one more month until I run for the sun.



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My Friendly Local Video Kiosk Is Under Remont

According to Kommersant the reason is an order from on high to cut down on piracy. My friendly video kiosk is in the underpass that sits directly in front of MID (Ministry of Foreign Affairs) and could be relied upon to provide a never ending host of truly crap movies. You have to imagine that a number of WTO negotiators passed through the hallowed doors of MID and might have had a reason to go through the underpass.

Kommersant come up with two principal reasons both of which are probably true; firstly WTO negotiations are reaching the tipping point so Russia needed to show that it was serious about clamping down on piracy. Secondly because the Prosecutors office has pushed the Militsia to show that it can actually do something about economic crime that is just mildly obvious.

It seems that most of the kiosks closed themselves down following a friendly hint from the local police. Time to keep your head down as the Militsia will need to replace their income sources.

The interesting fact that most of the retail points was locked up by owners themselves –that was their response to the action. “Those, who stayed open, took off all counterfeited merchandises and currently sell only licensed Russian games. Those, who sells DVD has only licensed copies of “9th Regiment,” the owner of the kiosk, which is located near Komsomolskaya Square, told Kommersant. “I don’t know when all this would be over. Some people say on Wednesday and some after the elections in Moscow City Duma.”

I love the Russian cynicism about their imminent return - maybe Wednesday....

I am not sure that I understand the point that they are making about the conflict between the Prosecutors Office and the Militsia (copied below for your enlightenment). Needs to be read in the original. The Prosecutor's office was the main instrument in the attack on Yukos (no link required) but if it is going to push the Militsia in to doing their job I might even be marginally less cynical about them.

"According to another point of view, the large-scale police operation is a consequence of the conflict between the General Prosecution of the Russian Federation and the Interior Ministry of RF. In September of this year, General Prosecutor of RF Vladimir Ustinov harshly criticized police for their inability to fight with pirates. “The antagonism between Interior Ministry and Prosecution over the investigation of the crimes for Article 146 of Criminal Code, is widely known. The quality of investigation documents provided by the police to prosecution in the pirate cases is awful,” Yuri Zlobin, head of the association Russian Shield. “I think, that in this case Interior Ministry wants to prove prosecution that it can fight effectively with pirates. The ministry hopes that after this action the law would get an amendments, which would allow police investigate these cases by itself (currently it is a competence of prosecution –Kommersant). Then, police would have a better ratio of cracking media pirate cases because it would collect the evidence, interrogate suspect and make arrests without constantly asking Prosecution for orders.”

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26 November 2005

TNT, Ivanov and TV Media

MosNews reports that TNT has taken Olga Romanova off the air allegedly because she reported that Sergei Ivanov's son would not be charged for killing a elderly women whilst driving. You would have to look pretty hard to find that piece of news in the Russian language.

It does not mark the end of free speech on broadcast television; it was already dead. It is however, another example of the 5th directorate thugs believing that they can control the flow of news when it proves to be embarrassing. The good news is that the Russian narod are at least 2 steps ahead of the thugs and no longer get their news from the television.

23 November 2005

The VoIP Shakeout

The king of broadband comment correctly points out that there is the beginning of a VoIP shakeout. To give him his due he is rarely wrong and admits it when he is.

I think that the more nuanced message that should make itself heard above the din of badly researched acquistions is that very few pure VoIP service-providers pretending to be pure communication devices will survive the death rattle.

I do like the technology that underlies the game. Global IP Sound is a little overvalued (work out the link) but there are others that have been built with smart engineers with an eye on the web and telephony that will make their owners a small fortune.

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21 November 2005

Irrational Gas Exuberance

This plain stupid. Victoria found some gas in Eastern Siberia (ergo no infrastructure) in a country where gas is uneconomic sold domestically and export gas is sold by Gazprom, which also controls the pipelines. Meanwhile, value trebles. Go figure.

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Korbina Telecom

I have been a little quiet in the blogging front due to the pressure of work (and the fact that it is dark in the morning which makes getting out bed difficult).

However the purchase of Korbina Telecom by Victor Vekelsburg of Renova fame forces me back to the keyboard.

As the Kommersant article points out a part of the Renova empire is the de facto majority shareholder of Comcor TV or Moscow Cable Com a NASDAQ listed entity (MOCC). For the financially-minded amongst you ignore the per household stats which are a result of thin liquidity not meaningful numbers of around $178 per household passed. MOCC's own stats page highlight the difficulty in selling premium pay TV services to a Russian public that already has access to 14 (or so) free-to-air TV channels. The problem is exacerbated by the lack of meaningful premium content. Discovery TV can be entertaining but it does not create a ROI on network investment.

Korbina, like its privately held competitor, Korvette Telecom (Russian only) (you will find both under the moniker of Corbina and Corvette Telecom K in cyrillic is C in English) (disclosure - where I am a shareholder), is deploying 10/100 gigabit ethernet networks in the sleeping regions of Moscow providing high-speed internet connection to retail subscribers. ARPU's (including VAT/NDS) tend to be in the $22/month region. In the longer established regions penetration rates are around 18% of households passed.

MOCC on the other hand employs a traditional hybrid-fiber coax ("HFC") network. Comparable capex per household passed seem to be $60-ish for MOCC's HFC network and $17-ish for the ethernet network. A recent network audit of the ethernet network by the previous director of network at UPC Broadband was exceedingly enthusiastic. Very simple (stupid) networks with high-throughput potential, well-engineered and very cheap to maintain. Today these ethernet networks only offer retail internet and provide no other services. It is clear that ARPU's will drop over the next 3 or so years to around $14/month so other services will have to replace the lost revenues. There is work ongoing and I would not be surprised if one or other of these companies becomes a trial user of meaningful IPTV-type services.

Possibly a good example of a technology leap-frog? The question to me is whether this will create a meaningful competition to the weight of money behind MOCC and StreamTV, part of the Sistema Group (Russian only.)

I bumped into MOCC's COO in the gym yesterday; whilst he was aware of the Korbina purchase there is as yet no explicit desire to merge Korbina's internet business with MOCC (Korbina is also a MVNO). I hope it stays that way for a while as a MOCC-Korbina merger employing ethernet networks would be a major competitor, in a market where there are already enough well-funded but customer unfriendly players.

Meanwhile the ante-deluvian Mostelekom (Russian only) is being fought over. Mostelekom connects 2.5 million of Moscow's approximately 4 million households with very old copper. If some real oil money gets behind it a large part of the market will be cornered.


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10 November 2005

The Bill & Ozzie Show

From the omnipresent Om Malik on the The Bill & Ozzie Show. A bunch of people more qualified to comment than I have done so - so I won't on the story. But I will on the process. As Om states;
So Bill Gates and Ray Ozzie dropped two memos to the Microserfs, and then somehow they got leaked to the media and more importantly to Dave Winer.

Which is pretty much how I read it on the FT with my muesli this morning - that it was leaked to the mainstream press as a strategy and therefore was not a leak. If it had been a real leak the first people to have reported on it would have been the blogosphere. It was supposed to be a clever piece of marketing that not only failed to hit its mark with me but achieved the opposite aim.

Could the marketing department consult with Scoble before launching a bollocks strategy like this.

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05 November 2005

Inside Moscow

It has been 13 years since the Soviet Union added the moniker former. However, I am still asked by acquaintances outside Russia about our ability to get hold of things. As if we spend half our lives in food queues. For the longest time we were unable to get hold of "english" sausages. This problem has been solved by our friend Rostov John. Proper, as opposed to American-type, bacon is still a problem, as is Marmite. As you can see what I miss here is cultural, not shortage-created - god forbid in this city which worships consumerism.

Bread however, good bread has always been a scarce resource. Local bread has a certain similarity to the northern German variety, hard and not great for a bacon sarnie - something to do with flour varieties. There is also a hangover from Soviet days when the rumour was put out that fresh bread was bad for you. My (english) father-in-law was told the same thing during post-war (WWII) rationing. The idea being that you finished the last bread before starting in on the fresh stuff. Hard and semi-stale bread is not a great mix.

Life has just got marginally better. This post is accompanied by a cup of espresso, freshly-brewed at home, and a chocolate croissant from the new French Bakery. Not quite as good as the real butter variety I consumed in New York last week but pretty damn good all the same.

Time for another.....

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30 November 2005

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC. A collection of very smart people spending a lot of OPM to buy an old fashioned telecom company.

Are old fashioned telecom companies really a stable source of cash flow? Who do you sell it to?

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29 November 2005

The Glass is Half Full; The State vs um.. the rest of us

The very clever Mr. Nash of Renaissance Capital opines that in fact the glass is half full. As he is very clever it has to be admitted that he has more than half a well argued point. It is unlikely that the Chinovniki will be any more successful at running car companies than GM for instance, albeit with lower health care costs. So let them keep their heavy machines and extractive industries and let us get on with retail banking and providing services to consumers.

My problem with his argument is that I spend most of my life (the part when I am not I am either asleep or trying to be) interacting with the the owners of the new businesses that drive VVP's economic dream. As the big bosses get their hands around such giants as Kamaz and Avtovaz (and they are welcome to both - as a Brit they equal the quality that was once Leyland, remember it? Exactly) the junior bosses are getting hungrier; the price for delivery of a container through Kotka, Finland before the end of the year increased Monday 1.8x (that's 180% for those of you who prefer stats that way). Of that 180% increase about 30% can be paid white i.e. it can be officially paid and can therefore be deducted from Net Income, in addition a special delivery by New Year price was introduced on the same day of $450 per container. So let's be clear - you could pay the 180% price increase and the risk is that the container would not make it in time for the big buying season unless you pay another $450 per container, or in reality $596 as it cannot be deducted from Net Income.

These rapidly growing businesses are always looking for more cash. In the absence of reasonable bank lending (in particular inventory financing) the private equity guys would appear to be a good port of call. But they demand that the businesses run on the white side of grey-white. Meanwhile their competitors turn to government-sponsored money and run grey-black under the quasi-government roof. Good management will win out at the end of the day, whichever way the business is run - it's just remarkable that they tend to be at the whiter end of the spectrum. But in the meantime unequal competition means that sticking to the clean road is not always easy.

The State also impacts entrepreneurial business through its access to cheap money. An infrastructure company I am a shareholder in, and board member of, was offered a 5 year 9% loan with 2 year capital repayment holiday by such a Government sponsored company. That's LIBOR plus 3 for a business that will generate $6mn in revenue in 2006 and will invest every $ it can gets its grubby hands on. In a WACC calculation that means the debt is cheaper than the equity. Not that WACC calculations are worth the time calculating, but that's another story. That's one hell of a market distortion.

So my glass remains sceptical.


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Special Economic Real Estate

Today Gref announced the formation of 6 special economic zones. I was asked to get involved with a putative bid in Academ Gorodok in Novosibirsk which failed and with the Dubna effort which subsequently succeeded and two others that never got off the ground in Moscow. I turned down all the invitations as it was clear that the real reasons behind the bids were either fantastically idealistic (i.e. had not a cats chance in hell of succeeding) or were designed to assist companies that had political clout to make money on a. real estate and b. by lowering taxes on already profitable businesses or c. assist high profile unprofitable businesses compete unfairly against lower profile profitable ones (hint: if the CEO drives a new Merc and you lose $2mn+ a year the formula should return an ERROR.


It would be fair to say that Zelenograd SEZ will not assist micro-electronics in Russia nor will Dubna assist nuclear and physics technologies (sic). Dubna will find a way to build an offshore programming center which will fail to challenge Bangalore and Zelenograd will become the center for the manufacture assembly of PC's, notebooks and servers.


But the best job to get is the real estate developer. Funnily that was never on offer.


BTW my mood and the weather are in lock step and I will retain my heightened level of cynicism for one more month until I run for the sun.



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My Friendly Local Video Kiosk Is Under Remont

According to Kommersant the reason is an order from on high to cut down on piracy. My friendly video kiosk is in the underpass that sits directly in front of MID (Ministry of Foreign Affairs) and could be relied upon to provide a never ending host of truly crap movies. You have to imagine that a number of WTO negotiators passed through the hallowed doors of MID and might have had a reason to go through the underpass.

Kommersant come up with two principal reasons both of which are probably true; firstly WTO negotiations are reaching the tipping point so Russia needed to show that it was serious about clamping down on piracy. Secondly because the Prosecutors office has pushed the Militsia to show that it can actually do something about economic crime that is just mildly obvious.

It seems that most of the kiosks closed themselves down following a friendly hint from the local police. Time to keep your head down as the Militsia will need to replace their income sources.

The interesting fact that most of the retail points was locked up by owners themselves –that was their response to the action. “Those, who stayed open, took off all counterfeited merchandises and currently sell only licensed Russian games. Those, who sells DVD has only licensed copies of “9th Regiment,” the owner of the kiosk, which is located near Komsomolskaya Square, told Kommersant. “I don’t know when all this would be over. Some people say on Wednesday and some after the elections in Moscow City Duma.”

I love the Russian cynicism about their imminent return - maybe Wednesday....

I am not sure that I understand the point that they are making about the conflict between the Prosecutors Office and the Militsia (copied below for your enlightenment). Needs to be read in the original. The Prosecutor's office was the main instrument in the attack on Yukos (no link required) but if it is going to push the Militsia in to doing their job I might even be marginally less cynical about them.

"According to another point of view, the large-scale police operation is a consequence of the conflict between the General Prosecution of the Russian Federation and the Interior Ministry of RF. In September of this year, General Prosecutor of RF Vladimir Ustinov harshly criticized police for their inability to fight with pirates. “The antagonism between Interior Ministry and Prosecution over the investigation of the crimes for Article 146 of Criminal Code, is widely known. The quality of investigation documents provided by the police to prosecution in the pirate cases is awful,” Yuri Zlobin, head of the association Russian Shield. “I think, that in this case Interior Ministry wants to prove prosecution that it can fight effectively with pirates. The ministry hopes that after this action the law would get an amendments, which would allow police investigate these cases by itself (currently it is a competence of prosecution –Kommersant). Then, police would have a better ratio of cracking media pirate cases because it would collect the evidence, interrogate suspect and make arrests without constantly asking Prosecution for orders.”

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26 November 2005

TNT, Ivanov and TV Media

MosNews reports that TNT has taken Olga Romanova off the air allegedly because she reported that Sergei Ivanov's son would not be charged for killing a elderly women whilst driving. You would have to look pretty hard to find that piece of news in the Russian language.

It does not mark the end of free speech on broadcast television; it was already dead. It is however, another example of the 5th directorate thugs believing that they can control the flow of news when it proves to be embarrassing. The good news is that the Russian narod are at least 2 steps ahead of the thugs and no longer get their news from the television.

23 November 2005

The VoIP Shakeout

The king of broadband comment correctly points out that there is the beginning of a VoIP shakeout. To give him his due he is rarely wrong and admits it when he is.

I think that the more nuanced message that should make itself heard above the din of badly researched acquistions is that very few pure VoIP service-providers pretending to be pure communication devices will survive the death rattle.

I do like the technology that underlies the game. Global IP Sound is a little overvalued (work out the link) but there are others that have been built with smart engineers with an eye on the web and telephony that will make their owners a small fortune.

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21 November 2005

Irrational Gas Exuberance

This plain stupid. Victoria found some gas in Eastern Siberia (ergo no infrastructure) in a country where gas is uneconomic sold domestically and export gas is sold by Gazprom, which also controls the pipelines. Meanwhile, value trebles. Go figure.

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Korbina Telecom

I have been a little quiet in the blogging front due to the pressure of work (and the fact that it is dark in the morning which makes getting out bed difficult).

However the purchase of Korbina Telecom by Victor Vekelsburg of Renova fame forces me back to the keyboard.

As the Kommersant article points out a part of the Renova empire is the de facto majority shareholder of Comcor TV or Moscow Cable Com a NASDAQ listed entity (MOCC). For the financially-minded amongst you ignore the per household stats which are a result of thin liquidity not meaningful numbers of around $178 per household passed. MOCC's own stats page highlight the difficulty in selling premium pay TV services to a Russian public that already has access to 14 (or so) free-to-air TV channels. The problem is exacerbated by the lack of meaningful premium content. Discovery TV can be entertaining but it does not create a ROI on network investment.

Korbina, like its privately held competitor, Korvette Telecom (Russian only) (you will find both under the moniker of Corbina and Corvette Telecom K in cyrillic is C in English) (disclosure - where I am a shareholder), is deploying 10/100 gigabit ethernet networks in the sleeping regions of Moscow providing high-speed internet connection to retail subscribers. ARPU's (including VAT/NDS) tend to be in the $22/month region. In the longer established regions penetration rates are around 18% of households passed.

MOCC on the other hand employs a traditional hybrid-fiber coax ("HFC") network. Comparable capex per household passed seem to be $60-ish for MOCC's HFC network and $17-ish for the ethernet network. A recent network audit of the ethernet network by the previous director of network at UPC Broadband was exceedingly enthusiastic. Very simple (stupid) networks with high-throughput potential, well-engineered and very cheap to maintain. Today these ethernet networks only offer retail internet and provide no other services. It is clear that ARPU's will drop over the next 3 or so years to around $14/month so other services will have to replace the lost revenues. There is work ongoing and I would not be surprised if one or other of these companies becomes a trial user of meaningful IPTV-type services.

Possibly a good example of a technology leap-frog? The question to me is whether this will create a meaningful competition to the weight of money behind MOCC and StreamTV, part of the Sistema Group (Russian only.)

I bumped into MOCC's COO in the gym yesterday; whilst he was aware of the Korbina purchase there is as yet no explicit desire to merge Korbina's internet business with MOCC (Korbina is also a MVNO). I hope it stays that way for a while as a MOCC-Korbina merger employing ethernet networks would be a major competitor, in a market where there are already enough well-funded but customer unfriendly players.

Meanwhile the ante-deluvian Mostelekom (Russian only) is being fought over. Mostelekom connects 2.5 million of Moscow's approximately 4 million households with very old copper. If some real oil money gets behind it a large part of the market will be cornered.


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10 November 2005

The Bill & Ozzie Show

From the omnipresent Om Malik on the The Bill & Ozzie Show. A bunch of people more qualified to comment than I have done so - so I won't on the story. But I will on the process. As Om states;
So Bill Gates and Ray Ozzie dropped two memos to the Microserfs, and then somehow they got leaked to the media and more importantly to Dave Winer.

Which is pretty much how I read it on the FT with my muesli this morning - that it was leaked to the mainstream press as a strategy and therefore was not a leak. If it had been a real leak the first people to have reported on it would have been the blogosphere. It was supposed to be a clever piece of marketing that not only failed to hit its mark with me but achieved the opposite aim.

Could the marketing department consult with Scoble before launching a bollocks strategy like this.

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05 November 2005

Inside Moscow

It has been 13 years since the Soviet Union added the moniker former. However, I am still asked by acquaintances outside Russia about our ability to get hold of things. As if we spend half our lives in food queues. For the longest time we were unable to get hold of "english" sausages. This problem has been solved by our friend Rostov John. Proper, as opposed to American-type, bacon is still a problem, as is Marmite. As you can see what I miss here is cultural, not shortage-created - god forbid in this city which worships consumerism.

Bread however, good bread has always been a scarce resource. Local bread has a certain similarity to the northern German variety, hard and not great for a bacon sarnie - something to do with flour varieties. There is also a hangover from Soviet days when the rumour was put out that fresh bread was bad for you. My (english) father-in-law was told the same thing during post-war (WWII) rationing. The idea being that you finished the last bread before starting in on the fresh stuff. Hard and semi-stale bread is not a great mix.

Life has just got marginally better. This post is accompanied by a cup of espresso, freshly-brewed at home, and a chocolate croissant from the new French Bakery. Not quite as good as the real butter variety I consumed in New York last week but pretty damn good all the same.

Time for another.....

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