No doubt, Microsoft is Sitting on $40 billion in Cash, and that does make The Skype Acquisition Affordable. But then, does it really makes sense to buy a firm that still hasn’t figured out a way to make Profits?
What adjective would you use to describe the act of paying 30 times the EBITDA (earnings before interest, taxes, depreciation, and amortisation) and 400 times the operating income for the acquisition of a company that hasn’t figured out a way to make profits in the last five years? Irrepressible (difficult or impossible to control or restrain) fits the bill pretty well. Why? Because during the press conference (on May 10, 2011) announcing the $8.5 billion acquisition of Skype (an online phone and video calling service) Steve Ballmer, CEO, Microsoft made everyone believe that there couldn’t be a better reason for the deal than an irrepressible urge when he said: “We are irrepressible in moving forward, and pursuing new things. This Skype acquisition is entirely consistent with our ambitious, forward-looking, irrepressible nature.”
On the face of it, the acquisition looks nothing more than an attempt to project Microsoft as a company in tune with the times. But before we seal our verdict on the viability of this transaction, let us delve into the fundamentals first. Keeping aside the obscene amount that the tech giant has coughed up, what makes this deal a center of speculations & apprehensions is Ballmer’s record with respect to strategy. Apart from losing formidable competitive advantages to Apple in the form of tablets and music players, the CEO’s deal making conscience has not very been very encouraging so far. In fact, while recently speaking at the annual Ira Sohn Investment Research Conference in New York, David Einhorn, President, Greenlight Capital (the company which holds 9 million shares of Microsoft) called for Steve Ballmer to step down. Raison d’être: In 2001 & 2002, Ballmer experimented in the area of mergers & acquisitions (M&As) for the first time in his capacity as CEO by shelling out over $2 billion to take over two ERP software vendors – Great Plains Software and Navision. Microsoft estimated that the businesses would be generating more than $10 billion in combined annual revenues by the end of 2010. Come today and $1 billion per annum is what the two units are actually churning out (as of 2010). That’s exactly $9 billion short of initial predictions.
Again in 2007, the Redmond based company shelled out $6 billion (a premium of 85%) for acquiring aQuantive (an online advertising outfit). The $2.6 billion operating loss incurred by Microsoft’s online services division for the year ending March 2011 signifies that the acquisition hasn’t really paid off as of now. Even the $500 million purchase of Danger Inc. in 2008 resulted in Microsoft withdrawing the disastrous Kin line of phones from the market.
On the face of it, the acquisition looks nothing more than an attempt to project Microsoft as a company in tune with the times. But before we seal our verdict on the viability of this transaction, let us delve into the fundamentals first. Keeping aside the obscene amount that the tech giant has coughed up, what makes this deal a center of speculations & apprehensions is Ballmer’s record with respect to strategy. Apart from losing formidable competitive advantages to Apple in the form of tablets and music players, the CEO’s deal making conscience has not very been very encouraging so far. In fact, while recently speaking at the annual Ira Sohn Investment Research Conference in New York, David Einhorn, President, Greenlight Capital (the company which holds 9 million shares of Microsoft) called for Steve Ballmer to step down. Raison d’être: In 2001 & 2002, Ballmer experimented in the area of mergers & acquisitions (M&As) for the first time in his capacity as CEO by shelling out over $2 billion to take over two ERP software vendors – Great Plains Software and Navision. Microsoft estimated that the businesses would be generating more than $10 billion in combined annual revenues by the end of 2010. Come today and $1 billion per annum is what the two units are actually churning out (as of 2010). That’s exactly $9 billion short of initial predictions.
Again in 2007, the Redmond based company shelled out $6 billion (a premium of 85%) for acquiring aQuantive (an online advertising outfit). The $2.6 billion operating loss incurred by Microsoft’s online services division for the year ending March 2011 signifies that the acquisition hasn’t really paid off as of now. Even the $500 million purchase of Danger Inc. in 2008 resulted in Microsoft withdrawing the disastrous Kin line of phones from the market.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
