A host of companies have sold their stakes out in distressed situations in the recent past.
Another hallmark case is that of Xstrata. It took quite a while for the mining giant’s CEO Mick Davis to convince his shareholders of the value proposition in the company’s merger with Glencore. Shareholders felt that the Xstrata management had not sold the deal to them adequately. In fact, when they finally approved it after bitter negotiations, they voted for a deal that ensured that a planned retention payment of around $200 million to top Xstrata officials was not made! Finally, the $32 billion merger deal was approved by shareholders on November 20 this year after Glencore raised the ‘price’ to 3.05 Glencore shares as opposed to 2.8 – the transaction finally created the world’s fourth largest mining behemoth. The deal was done in the wake of declining commodity prices and falling demand from India and China. Financially, Glencore’s shareholders have less to complain. The combined entity will have a D/E ratio of 42% by the end of 2012, while Glencore would have the ratio at a huge 96% on a standalone basis as per BMO Capital Markets!
While many had applauded Google’s iconic $12.5 billion acquisition of the struggling Motorola Mobility – a deal that was completed in May 2012 – the financial results round the corner have been far from a scream. Mobile devices sales of Motorola crashed for the quarter ending September 2012. at $1.78 billion, 26% less compared to the same period last year. Moreover, the quarter’s losses have increased to $505 million, up from $41 million in the previous year – killing for Google by all standards.
And who can forget the United-Continental episode. United and Continental were America’s 4th and 5th largest airlines respectively. Stung by low cost airlines and struggling with their respective business models in the recessionary period, both decided to become one. Their $3 billion merger, which was initiated on October 1, 2010 (and which, officials mention, will be completed by end 2012)created the world’s largest airline by revenues and the 3rd largest by fleet count. It is well documented that aviation mergers, more often than not, tend to complicate things. Interestingly, the two had attempted to merge even in 2008, when Continental walked away owing to United’s poor financial health. United cut costs and improved its cash scenario over the next two years and the two entities got back to the negotiating table. In the interim, the United board led by Chairman Glenn F. Tilton even commenced talks with US Airways, in a move that is perceived to have been made to influence the Continental board to take the decision faster. Operationally, the merger had many disastrous consequences. Even a simple task of having a common online booking platform led to mass chaos. United is also facing trouble on the financial front with a combined loss of $103 million in the first three quarters of this year; ironically when most other large US airlines are showing profits.
The deals mentioned above were supposed to be the exemplar highlights for the M&A sycophants, peddling a straightforward ‘sellout or blowout’ punchline to companies gasping for breath. Clearly, the iconicity of these deals has had more spots than was boasted of by the brady bunch on the Street. Do such deals, then, really work?
Another hallmark case is that of Xstrata. It took quite a while for the mining giant’s CEO Mick Davis to convince his shareholders of the value proposition in the company’s merger with Glencore. Shareholders felt that the Xstrata management had not sold the deal to them adequately. In fact, when they finally approved it after bitter negotiations, they voted for a deal that ensured that a planned retention payment of around $200 million to top Xstrata officials was not made! Finally, the $32 billion merger deal was approved by shareholders on November 20 this year after Glencore raised the ‘price’ to 3.05 Glencore shares as opposed to 2.8 – the transaction finally created the world’s fourth largest mining behemoth. The deal was done in the wake of declining commodity prices and falling demand from India and China. Financially, Glencore’s shareholders have less to complain. The combined entity will have a D/E ratio of 42% by the end of 2012, while Glencore would have the ratio at a huge 96% on a standalone basis as per BMO Capital Markets!
While many had applauded Google’s iconic $12.5 billion acquisition of the struggling Motorola Mobility – a deal that was completed in May 2012 – the financial results round the corner have been far from a scream. Mobile devices sales of Motorola crashed for the quarter ending September 2012. at $1.78 billion, 26% less compared to the same period last year. Moreover, the quarter’s losses have increased to $505 million, up from $41 million in the previous year – killing for Google by all standards.
And who can forget the United-Continental episode. United and Continental were America’s 4th and 5th largest airlines respectively. Stung by low cost airlines and struggling with their respective business models in the recessionary period, both decided to become one. Their $3 billion merger, which was initiated on October 1, 2010 (and which, officials mention, will be completed by end 2012)created the world’s largest airline by revenues and the 3rd largest by fleet count. It is well documented that aviation mergers, more often than not, tend to complicate things. Interestingly, the two had attempted to merge even in 2008, when Continental walked away owing to United’s poor financial health. United cut costs and improved its cash scenario over the next two years and the two entities got back to the negotiating table. In the interim, the United board led by Chairman Glenn F. Tilton even commenced talks with US Airways, in a move that is perceived to have been made to influence the Continental board to take the decision faster. Operationally, the merger had many disastrous consequences. Even a simple task of having a common online booking platform led to mass chaos. United is also facing trouble on the financial front with a combined loss of $103 million in the first three quarters of this year; ironically when most other large US airlines are showing profits.
The deals mentioned above were supposed to be the exemplar highlights for the M&A sycophants, peddling a straightforward ‘sellout or blowout’ punchline to companies gasping for breath. Clearly, the iconicity of these deals has had more spots than was boasted of by the brady bunch on the Street. Do such deals, then, really work?
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