Microsoft Corp. (NASDAQ: MSFT) really was supposed to get a lot more out of its aQuantive acquisition from 2007. On the surface it seemed like a great fit. In the summer of 2012 Microsoft announced that it was taking a $6.2 billion goodwill write-down tied mostly to this $6.3 billion merger. Our understanding was that this helped to migrate much of the digital efforts, but Microsoft’s own words were as follows: “Bing search share in the U.S. has been increasing, revenue per search has been growing, MSN is the No. 1 portal in 29 markets worldwide and the company’s partnership with Yahoo! Inc. (NASDAQ: YHOO) has continued to expand geographically. While the Online Services Division business has been improving, the company’s expectations for future growth and profitability are lower than previous estimates.” The deal was done in cash, so that noncash accounting charge of $6.2 billion versus the $6.3 billion price hurt by more than $1 billion per year. Fortunately Microsoft has a fortress balance sheet and this charge was hardly noticed at all by investors. We might have overlooked this, but Microsoft’s own words when it disclosed this write-down have left many wondering if Microsoft should jettison all efforts outside of its core software business.
Sears Holdings Corp. (NASDAQ: SHLD) is the amalgamation of two troubled retailers after Eddie Lampert married Sears and Kmart in 2005. The stock originally rose and was touted routinely by Jim Cramer and other market pundits. That was before the Great Recession. Now the company is still just two big and troubled retailers. Sales have been in steady decline and are expected to remain that way. It is losing money and analysts expect losses to continue this year and next. Jim Cramer and almost everyone else have stopped being bullish here. Is Sears a hedge fund masquerading as a retailer under Eddie Lampert, or is it just a retailer that is down and out? Whatever happened to the endless billions of dollars that could have been unlocked in the land values? Efforts taken to unlock value have all been short-lived, as this is back to being a stock under $50. After waves and waves of store closures, and after goodwill and intangible values have been written down, no one cares any longer. With a market cap of $5.3 billion, it is a mystery as to why Lampert has not raised funds from a group that understands retail and taken this private to avoid the embarrassment.
Sprint Nextel Corp. (NYSE: S) was originally just Sprint and Nextel before the late 2004 deal was announced. The deal did not formally close until August of 2005. If you adjust for payouts and the like, Sprint shares were around $22 before the merger and were around $23 when the deal closed in August 2005. This stock was dead money for years, and then by early 2008 it had fallen to less than $10 per share. At the peak of the Great Recession, shares of Sprint Nextel were down to $2. Almost the same levels were seen in early 2012. These two cellular carriers had integration issues with different networks and technologies, and management has changed multiple times since. A massive write-down of close to $30 billion in 2008, about 85% of the implied purchase price, officially sent this merger down into the dregs of M&A over the past decade. Sprint Nextel is now going to be relegated to a Softbank USA-Communications tracking stock in this latest majority acquisition. The new management team cannot be blamed for the sins of years ago, but Sprint still sits under $6 per share and is worth only a fraction of its premerger price.
Symantec Corp. (NASDAQ: SYMC) seemed to have a match made in heaven when it acquired Veritas Software. This married a storage giant right into a security giant. The problem is that this merger destroyed what had been a massive growth engine when Symantec shares already had started to falter. These were both big growth sectors at the time of the merger, but the shares never recovered, and that was so long before the Great Recession came along. Symantec’s stock price was close to $27.00 at the time the deal was announced, and that valued the Veritas buyout at about $13.5 billion. As it turns out, the surviving company’s share price also slid after the merger closed. Since the end of 2005, investors would have done well had they sold every time Symantec hit $20 and repurchased the stock each time it got close to $15 again. Management has changed at the top, but no one has made this combined company work and sales growth has dribbled into an anemic position, with an expectation that anemic growth remains.
The Wendy’s Company (NASDAQ: WEN) made a monumental error by becoming Wendy’s/Arby’s. Arby’s went to Triarc in 2005 and then became Wendy’s/Arby’s in 2008. Maybe the Great Recession only made matters worse for the timing of this merger, but these two companies were never able to fully integrate. During this would-be restructuring period after the merger, McDonald’s Corp. (NYSE: MCD) dominated the the fast-food sector. By June of 2011, Wendy’s threw in the towel by selling out of most of the Arby’s stake. Wendy’s has just been dead money ever since. With a market value of just over $1.75 billion today, investors have to be wondering if Wendy’s can ever recapture its former glory days. To show just how bad things are valued here, McDonald’s trades at roughly three times sales and Wendy’s trades at about 0.7 times sales. At the Arby’s exit, we showed just how complicated and convoluted this deal was.
JON C. OGG
