tag:blogger.com,1999:blog-8152901575140311047.post5421629239975955082..comments2024-03-27T09:01:53.517-04:00Comments on Musings on Markets: Acquisition Archives: Winners and LosersAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-8152901575140311047.post-29823513095367982572013-09-10T16:23:35.816-04:002013-09-10T16:23:35.816-04:00Superb post
Easy Rider Jacket LeatherSuperb post<br /><a href="http://www.amazon.com/Easy-Rider-Leather-Biker-Jacket/dp/B00EB0I0BG/" rel="nofollow">Easy Rider Jacket Leather </a><br />Anonymoushttps://www.blogger.com/profile/02378236444802184226noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56486599761181534372013-05-01T13:41:27.791-04:002013-05-01T13:41:27.791-04:00This is great analysis! You really have a great s...This is great analysis! You really have a great skill in this field of finance.Your insightful analysis is very commendable.<br />Bookkeeper Sunshine Coasthttp://www.marketingseoboss.com.au/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84242921933350028522012-12-22T02:51:06.671-05:002012-12-22T02:51:06.671-05:00Most of the time when private equity takes over a ...Most of the time when private equity takes over a company its the workers that suffer the most.QUALITY STOCKS UNDER FIVE DOLLARShttp://www.manta.com/c/mxcpkb3/the-manhattan-calumet-value-stock-hotlinenoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2304586338348073442012-12-19T00:54:39.089-05:002012-12-19T00:54:39.089-05:00Comment on Nat's remark -
I agree with Prof.&...Comment on Nat's remark -<br /><br />I agree with Prof.'s comments in general, and these apply specifically to HP too. <br /><br />Most acquisitions are driven by overconfidence and ultra-high egos - hubris. If price paid for something is way in excess of its value, what do we have to say?<br /><br />All bad acquisitions are made by weak CEOs and poor board. HP is no exception here.<br /><br />Acquisition makes sense only when it provides excess returns. <br /><br />In HP's case it was not to be and in a shocking manner it had to reverse too quickly (Usually stupid prices paid are charged off over a period of time: slow write-offs). <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-86139463085717739362012-12-11T13:59:31.218-05:002012-12-11T13:59:31.218-05:00I think Dan's first point is actually a point ...I think Dan's first point is actually a point against acquisitions.<br /><br />It is quite possible that both companies would lose value and then the M&A stock decline isn't really the M&A's fault.<br /><br />However, most stock markets in the world go up much more frequently then they go down, no matter the timeframe. So, from that reasoning, it is very likely that most companies would see their value go up. Instead, after the M&A, the company loses not only the value from the previous point (as research sounds), but much more since the stock price should go up with the market but it doesn't do that.<br /><br />I'm not sure if I'm making myself clear (non-native english speaker). The main point is that, since usually markets go up, counting the pre-M&A price as the starting point for comparison actually understates the destruction of value on average, even though in some specific cases the M&A may prevent that uncommon decline.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2400138231799037472012-12-10T18:49:05.673-05:002012-12-10T18:49:05.673-05:00Right - the Anonymous commenter above gets what I&...Right - the Anonymous commenter above gets what I'm saying. Imagine, for example, Yahoo! had acquired Google for $10 Billion (or some huge number) very early on, such as when it passed on Google for only a millions dollars. Imagine then that it immediately wrote off the whole value - you would probably consider it evidence of hubris and value destruction.<br /><br />However, such an action would still have created value for Yahoo!, because it would have allowed it to remain the top search engine, and preserve far more than $10 Billion in market cap.<br /><br />Obviously this example is extreme and only in theory, but I believe this happens all the time, we just couldn't possibly know about it because we can't observe multiple possible outcomes.Dan Axelsenhttps://www.blogger.com/profile/08012963566731363783noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-48255772867052390012012-12-05T12:50:09.747-05:002012-12-05T12:50:09.747-05:00Not necessarily reaching for straws - it is a case...Not necessarily reaching for straws - it is a case of information asymetry. Management of a firm sees a challenging future that the market does not, and takes action to address it. Two things happen - some of the asymetric information is released, and thus the stock is discounted to reflect it, and potentially the firm improves it's future position.<br /><br />So management knows it's $10 valuation is going to $5, so it uses the $10 valuation to buy a company that helps arrest the decline and get them to $7.50.<br /><br />Without knowing what the results would have been without the merger, we can not truly assess whether the merger the rightdecision to the shareholders of the firm given the circumstances.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-74871466526787080382012-12-03T19:04:50.576-05:002012-12-03T19:04:50.576-05:00I am afraid that you are reaching for straws on th...I am afraid that you are reaching for straws on these arguments. Are there some defensive acquisitions that work? Sure. Do some companies succeed with acquisitions? Absolutely. But my point was about the aggregate evidence, which strongly suggests that even if mergers work, acquirers pay too much and target company stockholders reap too much of the benefits. Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-12884062814095764612012-12-03T17:07:27.186-05:002012-12-03T17:07:27.186-05:00Dr. Damodaran,
I hear this argument frequently, g...Dr. Damodaran,<br /><br />I hear this argument frequently, generally suggesting that M&A destroys value. I just wonder if there aren't a few fallacies that should be considered:<br /><br />1. Imagine two companies are both worth $10 ($20 in aggregate) and they merge. If the remaining company is later worth $15, one might say $5 of value has been destroyed, and one might point to the merger. However, if you'll consider an alternative universe in which both of the companies remained independent and both declined to $5 ($10 in aggregate), then it might be the case that a merger provides $5 of value in such a situation. Basically, the merger might have slowed an inevitable decline. However, in that hypothetical situation, no study will ever suggest that value was created in through M&A.<br /><br />2. It is easier to measure "value destruction" (by looking at accounting writeoffs, share price declines, etc) rather than value creation through M&A. It is actually very common for M&A to create value, we just can't tell what it is. Most of Google's lucrative businesses were acquired (their advertising businesses came from Adwords and AdMob, their phone business came from Android and Motorola, their video business came from YouTube, etc). Likewise, most of EMC's value has come from the acquisition of VMware, Isilon, and others. The best parts of many tech behemoths have come from M&A: Apple acquired NeXT, eBay acquired PayPal, Amazon acquired many of their biggest businesses such as Zappos...<br /><br />Even failed acquisitions have defensive value. If Google acquires a search engine for a huge price, and promptly shuts it down and writes off the whole value, that would still be an "NPV positive" decision, if management was sure that the target search engine was a real competitive threat. However, it is easy for an observer to criticize it as a mistake.<br /><br />Another point is that ***these acquisitions enabled the very survival of many of these companies*** (where would Apple be if they hadn't acquired NeXT?), so even if the parents companies in these cases lose money on 99% of their deals, M&A was the right way to go. Remember that Yahoo! passed on acquiring Google, Facebook, and many other companies that now threaten Yahoo!'s existence.<br /><br />I just think saying "the evidence suggests that a growth strategy built around acquisitions [...] is more likely to fail" is an easy and conventional thing to say, and probably not sufficiently considered.<br /><br />Thanks for the post, and for reading.Dan Axelsenhttps://www.blogger.com/profile/08012963566731363783noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-27546252135787528132012-12-03T16:56:53.948-05:002012-12-03T16:56:53.948-05:00This comment has been removed by the author.Dan Axelsenhttps://www.blogger.com/profile/08012963566731363783noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76584692155956592362012-12-03T09:53:57.619-05:002012-12-03T09:53:57.619-05:00Sir, the post does not talk enough about what can ...Sir, the post does not talk enough about what can be done to avoid falling in the trap of making such a deal. The incentive for an executive to push the deal can be a big bonus post closure of the deal, but what about the impact of a big deal gone bad on one's career. How can one avoid such a trap??Viveknoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-49883826047376197532012-12-03T03:14:46.520-05:002012-12-03T03:14:46.520-05:00Hey Prof
very timely piece,
agree with your anal...Hey Prof<br /><br />very timely piece,<br /><br />agree with your analysis, I know well quite a few of these top CEOs /Board directors... sadly there maybe other reasons ontop of the pressure of advisers and very sad fact is that at present capital market is about Vanity & Debt & short term incentives<br /><br />1) Vanity of "being the deal makers" , whether successful or not.. HP& Autonomy = failed but eBay & Skype was a success as Meg managed to offload it Microsoft for a profit!?<br /><br />2) Debt fueled everything era is still alive and well despite it created millions of zombie firms now worldwide.. should "efficient use of capital" still be equal to debt any longer!??<br /><br />3) shorterm-ism rules the day now, given spot price changes of share price (don't forget it is market sentiments and not equal to absolute viability of companies) and short term appointments of CEOs (max 3-5years if lucky) and their short term incentives means it makes much more sense for them to make the short term deals as they can get their bonus or options in time before they parachuted or head-hunted out (unless they mess up and get sacked with a golden goodbye)....<br /><br />plus of course the "market" fueled by likes of CNBC, reuters, bloomberg as volatility for them means better business!! (nothing wrong with that, loads of good friends for me in that sector, but this IS the status quo!!)<br /><br />Therefore, if you are doing any analysis, I would implore you to take into account for not listed firms and also family dynasties and conglomerates (mostly private now) and we should be able to really understand the real reasons behind all these.. !?? <br /><br />hope I made sense!?<br /><br />BR<br /><br />@GarethWong<br />garethwobghttp://gw.cxovip.orgnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-19722136716370605652012-12-02T20:59:58.553-05:002012-12-02T20:59:58.553-05:00People not learning from mistakes in finance? I gu...People not learning from mistakes in finance? I guess this is perhaps due to an inflated sense of intelligence, and control over things uncontrollable. Afflicts every walk of life. Fo rexample, why do people get into the movie industry. Kahneman, Tversky, Thaler & Shiller rule!Anonymoushttps://www.blogger.com/profile/03404313135033810317noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-80860309500923785382012-12-02T20:58:32.409-05:002012-12-02T20:58:32.409-05:00Hi Professor,
I was wondering if you would be able...Hi Professor,<br />I was wondering if you would be able to shed some light on the recent spat between Olam International and Muddy Waters. <br />Olam is or has been a darling on the Singapore Exchange which has been aggressive on acquisitions. The CEO claims that out of 22 acquisitions in the last few years, 11 of them were purchased below their identifiable net assets and liabilities, allowing the recording of negative goodwill. How is it possible that a company can constantly purchase companies below their book value? In your opinion, would this not be a red flag for investors that something fraudulent is going on or that management at the very least is throwing good money after the bad?<br />A second question I have is that mining/resources companies in general are probably the most aggressive in acquisitions. Would this mean that the industry as a whole destroys value, or is it a catch 22 situation where they just have to buy into more companies as their assets have a limited life or just risk being liquidated once their assets are depleted?<br />Thanks.<br />Jon<br />CF Chaserhttps://www.blogger.com/profile/05871225277041228863noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42717356762379041012012-12-02T19:20:54.944-05:002012-12-02T19:20:54.944-05:00Would suggest that one reason that acquisitions oc...Would suggest that one reason that acquisitions occur and corporations persist in acquiring other companies is that the managers bonus metrics are tied to the successfully <b>completing the acquisition</b> (immediate goal), rather than to the <b>success of the acquisition</b> (long term goal). <br /><br />Once the acquisition is done, others (often? nearly always?) within the combined company are tasked with realizing the value of the acquisition.<br /><br />This is based upon reading accounts of various acquisitions as well as a personal exposure to a very small number of them.Jonathan Breslernoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84042877942564895562012-12-02T16:00:14.413-05:002012-12-02T16:00:14.413-05:00Nat,
As I noted, I think HP is an extreme case. Th...Nat,<br />As I noted, I think HP is an extreme case. The points you make about corporate governance are general ones that I think characterize poor acquisitions, though a headstrong CEO is more common than a weak CEO. As for the accounting issues, fair enough, but the question is not about Autonomy's accounting issues and value but why HP would buy Autonomy in spite of these issues being common knowledge.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4434576309771700912012-12-02T13:45:16.404-05:002012-12-02T13:45:16.404-05:00Nice analysis but not convinced that it applies to...Nice analysis but not convinced that it applies to the HP/Autonomy case. <br /><br />HP's problem with the Autonomy acquisition was caused by the unusual combination of a weak CEO and poor board oversight. It was an open secret in the industry that Autonomy's accounting had issues.Nat Kausikhttps://www.blogger.com/profile/05739084479039380466noreply@blogger.com