Showing posts with label AOL. Show all posts
Showing posts with label AOL. Show all posts

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).

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Friday, November 09, 2012

Microsoft should takeover Yahoo!!!

Over the past few days, the internet search turf has been heating up. And the evolving dynamics are changing at such a fast pace that it is becoming increasingly difficult for analysts to predict the final outcome. The recent bid by Microsoft on Yahoo would not have come as a surprise to anyone as for long it had been talked about. It all started on the 1st of February, when Microsoft, the software giant, made a staggering $44.6 billion offer for Yahoo (at $31 per share – a 61% premium on Yahoo’s previous week’s closing price).

For long, Microsoft, a compulsive monopolist in the software market, has been feeling very uncomfortable with Google’s growing dominance in the internet space. It is no secret that in the internet space, Google had been a clear market leader cornering almost 60% of the web searches on the internet, followed by Yahoo and Microsoft’s MSN Live at a distant 20% and 7% respectively. This enviable position that Google has been commanding has given the company an indisputable control over the advertisement market. And much to Microsoft’s displeasure, Google has been using its monopoly position in controlling the online advertisement revenues to such an extent that it alone manages to corner almost 42% of the ad dollars, which Microsoft, Yahoo and AOL put together earn. And that’s not all, Google’s online ad revenues have been growing almost at 30% annually! Such is the growing dominance of Google that Microsoft for long had become a follower in this virtual duopoly market. So much so that since 2004, for every acquisition that Google did, Microsoft did another.

So as Google bought Marratech, YouTube, Android, Orkut and the likes, Microsoft followed it up with Unified Communications, Soapbox, MessageCast Inc., Facebook respectively. But that’s not all, Google had been giving sleepless nights hitting into Microsoft’s bread and butter software business by offering free solutions. Consecutively, for long, Microsoft had been eyeing an opportunity to strengthen its own position; and what better than this opportunity to bid for Yahoo, and that too exactly when Yahoo had shown disappointing results in January when its share prices fell to a four year low, wherein the company announced its plan to retrench 7% of its workforce.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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