Monday, February 04, 2013

Atleast, we spared their pants!

Two biggest M&As. Who lost? The shareholders. Who won? Mmmm...

When it comes to research, experts from KPMG to Booz Allen have already testified that a blood-freezing 66.67% to 78% do not work to create value or are outright failures. When it comes to examples too, the same holds true; the only difference being that in this case, we even know who the victims are! Let’s begin with the biggest M&A trophy, ever – the much discussed hostile takeover of Germany’s Mannesman AG by UK’s Vodafone Plc in February 2000, for a mammoth $183 billion. A year after the deal, the cultural differences had made living hard for the two families, and Vodafone had put Mannesman’s art collection up for sale (true!). Numerically speaking, today, the value of the duo, which once stood at $365 billion (on day #1, post-merger), stands stripped down to a pathetic $64.46 billion (as of April 27, 2009) – a fall of 83%! So why did the soup go sour? First, the deal was at ‘a wrong price with a wrong rationale…’ Ignoring issues of culture, even their business models differed. Vodafone’s concentration of wireless telephony was in stark contrast to Mannesmann’s focus on fixed-line services. Moreover, the logic behind Sir Christopher Gent (the-then CEO of Vodafone) paying a 55% premium for one Mannesmann share remains a mystery...

Then comes the next biggest from the M&A record book – the $167.4 billion merger between AOL & Time Warner in 2001, making the combine worth a gargantuan $260 billion in terms of Mcap, and the largest media & entertainment company in the world. As per the agreement, AOL shareholders held 55% of the merged entity, while the rest belonged to Time Warner shareholders. (Translation: the tuna had gobbled up the whale!) Getting straight down to statistics, today, the combine’s Mcap has fallen to a lamentable $26.7 billion – an appalling fall of 90% since the merger happened! So what really went wrong? Well, the biggest mistake with the merger was its very ‘timing’. It came just months before the Internet bubble burst in mid-2000, post which there was a huge decline in subscriber growth for AOL. First, it’s ad-revenues water-hole dried-up faster than water from a bottle cap in Sahara, and consequently, it underwent a massive goodwill write-off, due to which the company reported net losses of $99 billion for 2002 alone!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
Posted by at
Labels: , , , , , , , , , , ,