Symmetry of M&A in the last Decade (2000-2009)
The first decade of the new millennium is over. Happy New Year everyone! So along with so many other observers of the financial markets, I would like to comment on the past ten years. Some of these comments have appeared elsewhere – and in fact from me as a number of publications have asked me about my thoughts on M&A in the ‘Noughties’ (including the Financial Times, Financial News, Reuters and Bloomberg).
Most telling I think is how much HASN’T changed: I like the symmetry of the AOL / Time Warner deal: 10 days into the new year in 2000 the deal was announced and only 9 days into the last month of the decade the deal was unwound.
The new millennium started with the merger of the two companies (it was 10 January 2000 when Steve Case of AOL and Jerry Levin of Time Warner announced the deal) and, in late 2009 on 9 December and less than a month before the decade ended, the two companies finally split up again. Other deals were bigger, other deals took place first (Vodaphone Mannesmann was a great kick start to the new millennium, wasn’t it). But nothing bracketed the decade as the AOL Time Warner deal.
That particular merger was actually structured as a purchase of Time Warner by AOL. Long ago, the AOL name was dropped. Long ago did shareholders turn away from this deal. At its peak, AOL had a market capitalisation of around £242 billion. Now, it has a market value of $3 billion – a staggering loss in value of 98.8%. It is now run by a former Google exec: who would have thought a decade ago that a Google man would be running AOL?
That deal did mark the end of the dot.com hubris. We’ll need a few more years to find out, but maybe the 2009 split-up marks the end of the restructuring of the markets and could (along with some other big deals of 2009) be taking place around the time of the resurgence in the M&A market. That’s the symmetry that I like.
Intelligent Mergers 
This was the deal that, with the benefit of hindsight, was always destined to fail.
Media interest was guaranteed – because one of the biggest media companies was the target. It was the big business news story on all networks – whether traditional (rivals to CNN) or new media (rivals to AOL) because this was the deal that would show the shape of their own futures. A deal in the pharmaceutical sector, say, would never have generated the same number of headlines.
This navel gazing by journalists, I suspect, egged on the merger team to the already dizzy heights created by the dot com boom.
For a yardstick of the extra gains (and ultimately losses) created by the media interest, the Vodafone deal is perhaps a useful comparison.
It, too, was pushed upwards by the dot com bubble – reaching a peak market cap of almost 500 billion. Today, it is worth 143 billion. Still an appalling plunge for those who didn’t sell at the top, but at least they didn’t hold AOL Time Warner shares…
Alex Ritson
Saturday, 2 January 2010
Another thing which has not changed is the tendency for executives to believe they will succeed where many others have failed, and to pursue M&A with little or no outside assistance. While there are some excellent examples of firms that do a stellar job at capturing value, most acquisitions still result in high employee and customer turnover and a net reduction of total shareholder value. Building a unique, compelling culture still seems to be a rare and elusive accomplishment.
Jose Tormo
Sunday, 3 January 2010