Late December is supposed to be dead when it comes to business news, so the Informer must extend the hand of gratitude to BT for picking this week to announce it is hoping to acquire the UK’s largest mobile operator – EE. Now if it could just announce plans to snap up Virgin Media next week that would be perfect.
But as suggested on Telecoms.com, even if BT completes its coup it could turn out to be a Pyrrhic victory. There will be a lot of hassle associated with the move, especially from Ofcom, which is set to appoint a civil servant to as its new boss, presumably to ensure David Cameron can check Facebook no matter where in the county he is. Expect seamless 4G in the Shetland Islands to be a condition of Ofcom approval.
Even if the deal does go through, there’s no guarantee it will represent good value for current BT shareholders. £12.5 billion, including 16% of the company, must be handed over to secure EE and it will be a while before they see substantial ROI. But even the worst case scenario will represent a triumph compared to some of the catastrophic tech sector M&As we’ve seen over the past decade or two. The Informer thought it might be fun to reflect on some of them and the reasons for their failure.
The mobile handset sector has seen a fair bit of volatility in the past few years and accordingly a few casualties. The touchscreen smartphone era dominated by Apple and Android devastated the handset old guard, including Nokia, BlackBerry and Motorola. Google itself decided to snap up struggling Motorola Mobility for $12.5 billion (what is it about that number?) in 2011, but then realised business is tougher when you don’t have a near-monopoly and flogged it on to Lenovo for less than $3 billion at the start of this year.
Nokia’s fall from grace was even more rapid and, while the process was well underway, it seemed to hasten after former Microsoft exec Stephen Elop was put in charge in 2010. Within three years Nokia sold its once-dominant devices division to, you guessed it, Microsoft for a mere $7 billion. At time of writing Microsoft has already jettisoned the Nokia brand and doesn’t seem to have much of an idea what to do with the devices.
This shouldn’t come as a great surprise, considering Microsoft’s sketchy track-record on acquisitions. This is the software company that thought it would be a good idea to buy ad agency aQuantive for $6 billion in 2207, only to write the whole thing off five years later. Let’s hope it does a better job with Skype and Minecraft.
Microsoft’s in good company when it comes to shopaholic Silicon Valley companies. HP has been on a decades-long spending spree that seems designed to punish its own shareholders. It chose the middle of the post dotcom recession to drop $25 billion on PC-maker Compaq, just in time for the smartphone era. When that penny dropped HP thought it would get into the smartphone game with the acquisition of Palm for over $1 billion, but gave up on it within a year. But arguably HP’s most botched major acquisition is its most recent – Autonomy – for $11 billion, only to write-down $8.8 billion of that value within a year.
While Europe seems to be currently undergoing telco consolidation, this has been the case in the US for some time. While AT&T seems to be doing a reasonable job of diversifying through acquisition, and Comcast has arrived at its current largely through acquisition, the fortunes of Sprint are slightly more complicated. It’s acquisition of Nextel is hardly help up as a textbook corporate manoeuvre and its courtship of T-Mobile US ended in tears.
But the crowning M&A failure of the internet era has to be AOL/Time Warner. At the time nobody was even sure who was buying who and the $165 billion deal was eventually positioned as a megamerger. The cunning plan was to combine old media and new media, but the move was made at the peak of the dotcom bubble and by 2002 AOL Time Warner reported an astonishing $99 billion loss for the year, thanks mainly to a write-down of the merger.
So fear not, BT shareholders, while it remains to be seen whether trying to buy EE is a good idea, even its abject failure would be a mere footnote in the rich history of corporate disasters. Enjoy your Christmas.