Making acquisitions just to gain market share often fails with technical companies. Trying to merge the product lines and corporate cultures is often impossible, so the weaker (or sometimes stronger) product lines lose support -- resulting in lost market share -- and your best people get fed up with the new corporate culture and go elsewhere, weakening future prospects.
My favorite example of a merger disaster is the Daisy/Cadnetix (Dazix) merger in 1988 which resulted in Chapter 11 in 1990.
OTOH, Maxim/Dallas and TI/National seem to be going OK.
It is striking how often one sees companies writing off the bloated prices they they paid to acquire other companies. I wonder how much is associated with being unable to merge the two corporate cultures - and how much is associated with intentionally taking a competitor out of business.
I would hazard a guess that it might have to do with the bonuses that the companies' executives get if the merger goes through. In how many cases does "due diligence" mean being careful to look the other way so you don't see something that would cause the merger to fail? JMO/YMMV
Possible, but risky. How many shareholder lawsuits have been based on the notions that executives should have seen problems when they did the due diligence that wound up causing major problems for the combined entity?
Look the other way now to get a big bonus, and pay several times that later on in fines because you were caught at it isn't an attractive way to proceed.
I'd hazard that a lot more of this is being so enamoured of their bright idea that they simply can't see the possible downsides, untel they get bit on the ass.
Most of what passes for rational thought consists of coming up with good reasons after the fact for why what we already decided to do is not only a good idea, but the best possible move under the circumstances. It applies to due diligence, too. Dollar sign blinders provide all too effective tunnel vision.
DMcCunney asked: How many shareholder lawsuits have been based on the notions that executives should have seen problems when they did the due diligence that wound up causing major problems for the combined entity?
I don't think these sorts of lawsuits get anywhere, because the defense is that "while it's easy to see in hindsight that the decision was imprudent, my client had to make the decision based on what information was available at the time" and these things are so subjective that even meeting the standard of "a preponderance of evidence" is hard to do. Plus, defense can argue that the investors hadn't done their own due diligence when investing in the company.
U.S. District Judge Charles Breyer of San Francisco said most of the allegations, even if proven, would show only that HP officials acted imprudently in approving the purchase and not that they knowingly misled shareholders.
On the other hand, he said, the plaintiffs provided evidence that an unidentified member of Autonomy's leadership team approached HP in May 2012 with concerns about the British company's accounting practices. [CEO Meg] Whitman immediately authorized an investigation ... but did not mention any such concerns in a May 23, 2012 conference call to investors and later public statements.
Instead, Whitman attributed Autonomy's weak performance to "classic entrepreneurial company-scaling challenges," the judge said. He also cited HP's September 2012 Securities and Exchange Commission filing that declared the company had paid "fair value" for Autonomy.
Based on the information that Whitman and HP had allegedly received about Autonomy, and the investigation they had ordered, the shareholders can proceed with their claim that Whitman and the company knowingly deceived investors, Breyer said.
So the part of the case that's going forward is not about the imprudence of the original acquisition -- hey, that's business -- but about misleading investors once the degree of imprudence had become clear.
I agree, but from what I've seen, the HP lawsuit is precisely one of those "Management should have known" accusations.
I was watching HP with interest, because I'm a long time user of Palm devices (and still use a TX daily.) Palm got a capital infusion and new management from Elevation Partners, and produced the Palm Pre and Pixi smartphones, based on a new OS called WebOS with a Linux kernel under the hood. Sales did not meet expectations, and they put themselves on the block. HP under then CEO Mark Hurd acquired them for $1.1 billion, apparently to get WebOS, and announced it would be put on everything HP made.
Hurd left under a cloud of inappropriate contact with a subordinate, Leo Apotheker took over, blaming HP's woes on the Palm acquisition, and announced plans to move HP into software and services, dropping their PC business in the process, The market was unimpressed, HP's stock price dropped, and Apotheker was out, replaced by Meg Witman from eBay.
The smoking gun in the current suit seems to be that Whitman ordered an outside investigation after concerns surfaced about Autonomy's accounting practices, but didn't mention it in an investor conference call. One question is exact timing: what concerns was she aware of, and when was the investigation ordered? I very much doubt there was time for the investigation to proceed and draw any conclusions before the call, so what could Whitman have said - "I've ordered an outside investigation into Autonomy's accounting practices"?
Things like that tend to drive stock prices down. I don't see how it might have prevented the loss in stock value the plaintiff is claiming. Perhaps they would have used it as a warning to sell HP stock and reduce their exposure. I expect this will be settled out of court.
As a scientist, I was not considering the possibility that mergers were all about the executive bonus programs. That certainly is a third possibility. I do know that my due diligence stopped at least one merger in my career (the intellectual property claimed by the company turned out not to belong to them).
Intel had it too easy for about 10 years when their lead in manufacturing ensured lower costs and consolidated the virtual monopoly on x 86. But this means that design innovatons were not all that important any more. Now Intel is paying the price by not being able to break into the Mobile market with their own designs. But they do have a large bank balance hence the attempt to buy designs by acquiring companies like Mindspeed. But being able to set a proprietary standard like the good ole days of x86 seems very unlikely.
When you're a big enough company that you can pull it off and you have market share to protect, acquisitions make sense. But that's no substitute for putting valuable R and D dollars on the line to stay ahead of the curb with in-house products and designs.