I agree with you ray, and I think the reason they go wrong is that they are posited on competing with Microsoft in a market segment - so IBM is losing small to mid-range server market-share. How best to fix that? Buy the next best player in the market and compete with Microsoft. What could go wrong?!
It also reminds me of the conglomerate boom in the 1970s - two companies with static or declining prospects suddenly look like one great company, but the ‘static or declining’ part doesn’t go away, the economies of scale are never realised and the attempt to impose a monolithic single culture costs more than the benefits it is supposed to bring (on a realisable timescale).
I was pointing out the huge premium over market value that IBM are paying, that’s all. I think that is hugely significant - not just in SUN’s case but for the wider market. But all I get is “Yeah, but, but…it won’t work” responses.
Who, by aquisition, have grown huge, such that, the beast is unable to feed itself. In this respect, R&D have really suffered and they are now looking to buy R&D in by further aquisitions (re Pfizer/Wyeth Merck/ Shering P)
Eventually, they will implode i believe, i have never been a big fan of “Growth is an imperrative” as a buisness ethic.
I think everyone got caught on a tangent without responding to your initial observation. It is interesting that Big Blue are willing to pay way over the odds for a smaller rival but the amount over the odds probably reflects the market as a whole being scared stiff of putting an anyway optimistic value on anything. Sun is also probably worth a bit more to IBM who would have pay a premium to get Sun onside anyway.
It’s not really significant for the wider market though, you have one tech company buying another tech company. IBM obviously fancies parts of Sun and as YM points out it is probably buying Sun to allow it to compete with other companies in market segements that it has lost share. There is nothing in this move that leads me to believe that it is a sign of a recovery. I could posit that IBM believes that the recession will last another 18 months and in that time it will be able to digest Sun and be ready for the next up-turn. Very smart guys at big blue
One swallow does not make a summer, I’ll remain in my cave, dreaming of honey for a while yet
On the other hand, it could just be wrong: google.ie/search?hl=en&safe= … en|lang_fr
The above search will give you a flavour of what IBM has bought in recent years. Do you not remember the days when IBM had the largest corporate loss in history (1992, I think) as it streamlined the bloat it acquired in the 1980s.
Look at IBMs share price over the last ten years, it’s been rangebound between 80 and 100 dollars, despite all those acquisitions. Why? Because they haven’t improved the bottom line perhaps?
And as for the price, what was Microsoft’s initial offer for Yahoo?
The only sector for this to be good news for is the M&A divisions of the large banks! (But that at least is worth one cheer, if not three… maybe they won’t need to have the begging bowl out so often).
I really think some mechanism has to be out in place to prevent companies getting so big that their failure can cause huge damage on an international scale (think AIG). There is supposed to be a competition authority both in Ireland and Europe but as far as I can see the only industry they seem to have managed to maintain competition in after a raft of mega mergers is tractor manufacture.
Well done, a banging head smilie and huge font means that you are right.
Yes, you pointed out that IBM were willing to pay “a huge premium over market value that IBM are paying, that’s all”, well in reading your original post that is not all, you justified it as interesting because IBM would know the true value of Sun, as it is a member of the same industry, more so than the actual market does in pricing Sun.
I just asked for an example of a big tech merger that has worked out which would indicate that these guys, in general, are right with their valuations. No need to get your knickers in a twist.
It always seems to happen that those companies setting themselves up as “consolidators” sooner or later screw it up. One thing that is interesting about the tech sector is that balance sheets are generally in great shape, with plenty of net cash. SUN is no exception. We could see plenty more M&A in this area.
I note your earlier point about IBM shares being range-bound, but of course it has significantly outperformed the NASDAQ over the last eighteen months. Since relative strength can be an important indicator, I’m going to keep a very close eye on this share from now on. I suspect IBM is taking advantage of market conditions to make a steal here. The purchase price of $6.5 bn is around 4x annualised R&D for SUN.
Speaking of Microhoo and M & A. Yahoo’s bill for fending off Microsoft, Carl Icahn and investigating a search relationship with Google came to €79 million, as reported by CNET here. Not sure of the breakdown but I’d imagine that the majority of the advisers that are mentioned are bankers. Some people sure make money from these things.
A great read on this sort of stuff is Barbarians at the Gate, an LBO as opposed to a merger but it is an absolute page turner.