Wall Street

by Mike Masnick




Spin 'Em Out, Buy 'Em Up, Repeat

from the deals,-deals,-deals,-deals dept

Sometimes it's amazing to watch what the Wall Street deal makers get away with. They have big companies buy up other companies (consolidation) talking up all these wonderful "synergies" and then they break up those very same companies, spinning them out and talking about "unlocking shareholder value." Funny, we thought that the shareholder value was supposed to come from the synergies -- or at least that's what they told us during the consolidation phase. Of course, the bankers make money at both ends of the transaction -- and, often, that's the only real rationale for certain deals. For example, we never quite understood why AT&T broke itself apart (after building itself up through consolidation). Years ago, it had all the makings of a dominant "quadruple play" player, which is something that everyone is so damn excited about these days. Yet, what did they do? They sold their cable division (which had both TV and cable broadband) off to Comcast, spun out the wireless division (something they quickly regretted) into a stand alone company only to watch it swallowed up by Cingular -- and then was left out in the cold as the rest of the telco world zipped right by, allowing SBC to snap up the leftovers on the way out the door. Whatever happened to all that synergy and shareholder value? It seems a lot of it went into the expensive suits you see on Wall Street. So, consider us skeptical that the next round of corporate breakups makes much sense. Of course, the "good news" is that it appears at least some folks agree. The article notes that a number of big spinoff deals aren't looking so hot, and have only made more people realize that it's all about reshuffling the deck chairs on the titanic (which giving some extra cash to Wall Street) for many of these deals.

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  • identicon
    Andrew Strasser, 10 Jan 2006 @ 4:03am

    Integration...

    The more integrated a company is the better off it is. The first thing you learn on your way to success is networking.

    reply to this | link to this | view in chronology ]

  • identicon
    Jerry Feinstein, 10 Jan 2006 @ 6:15am

    AT&T

    Note, I believe AT&T did not have much choice in the matter of the break-up. It was due to a court order because of monopoly practices and unfair competition.

    In 1982 AT&T and the DOJ signed a consent decree settling the DOJ's anti-trust case by divesting AT&T of its local telephone companies. Judge Green issues the Modified Final Judgment).

    Then, in 1984 The AT&T Divestiture created seven regional regional Bell operating companies which ended the Bell System.

    This one was not a Wall Street creation.


    Jerry

    reply to this | link to this | view in chronology ]

  • identicon
    Trent, 10 Jan 2006 @ 8:25am

    ATT

    Even at the time I thought former CEO Mike Armstrong was getting a bum rap. He did what he could do to try and position ATT ahead of the IP onslaught. What nobody knew at the time was that half the reason ATT seemed to be losing share was that WorldCom and Qwest were lying about their growth. Had WorldCom consistently told the truth, ATT would probably still be the largest cable/wireless operator today rather than a subsidiary of its government-mandated spinoff.

    reply to this | link to this | view in chronology ]

    • identicon
      Michael, 10 Jan 2006 @ 10:27am

      Re: ATT

      The problem was Armstrong way overpaid for the cable assets he had purchased. Also at the time the DOCSIS specifications, not to mention equipment, was not nearly ready for prime time. With the debt burden of the assets purchased, the company was hemorrhaging cash, and would have run out of money without selling off the assets and relieving the debt burden. When the going got tough Armstrong ran away. He gave away the part he liked best and went with it, leaving the rest of the company to wither and die.

      I agree the basic strategy was a good one, and one you see verizon and sbc trying to implement today. I also agree that ATT’s books were probably the only close to honest ones coming out of the industry at the time. I just think Armstrong’s timing and execution were piss poor.

      reply to this | link to this | view in chronology ]

      • identicon
        Trent, 11 Jan 2006 @ 11:21am

        Re: ATT

        Execution, perhaps. Timing, no. 1998 and 1999 were exactly the right time to sell telecom shares, which is in essence what he did (exchanging them for cable shares).

        reply to this | link to this | view in chronology ]

  • identicon
    TechTrader, 23 Feb 2006 @ 2:56pm

    Your blaming Wall Street for management weakness

    How is this Wall Street's issue when it is company managers that make the decisions to employ investment banks, make certain decisions and execute them. Last time I checked Wall Street doesn't occupy the C-Level seats at the companies they advise. It's the management teams that are taking these actions and if you want to bash on them...well, I have no problem with that!

    reply to this | link to this | view in chronology ]


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