Friday, November 28, 2008

Biggest Yahoo of them all?

This week, Carl Icahn doubled down on Yahoo, adding 6.8 million shares (at $9.88 per share) to go with the 69 million he bought earlier at $25/share. Some see this as a positive sign, but increasing his stake by 10% (and net investment by 4%) seems a very weak endorsement of the company‘s future. Others speculate that he wants to influence the choice of top Yahoo to replace soon-to-be-former CEO Jerry Yang the man who turned down Microsoft’s $31/share offer.

Earlier this week, Merc columnist Mike Cassidy wondered whether Yang’s blunder counted as the “worst business decision ever.” I might have voted for worst decision of the year, but ever?

Cassidy got an earful from his readers, who suggested a range of other mistakes:

  • Big Three automakers: for killing the EV1, making gas guzzlers “nobody wanted to buy”, and taking their private jets to beg for a bailout. Comment: Not even close.
  • Xerox PARC for fumbling the future. Comment: Top 25 but not top 5.
  • WebVan and the other dot-com fools. Comment: I was tempted to list these in the top 5, but then many of the founders dumped their soon-to-be-worthless shares on greater fools and now live in Atherton or Saratoga — so who made the mistake here?
I’ve got some other nominees. How about all those banks loading up on subprime loans? The decision of GM and Ford a decade ago to plough their cash back into their declining businesses, rather than buy out their (ultimately more profitable) competitors? Railroads passing up the chance to buy airlines 90 years ago?

One guaranteed top 5 pick: IBM handing control of the PC industry over to Intel and Microsoft in 1980 (a bigger mistake by at least an order of magnitude than Yang’s). Another (as recounted by Al Chandler): RCA aggressively licensing its color TV patents to obscure, struggling overseas electronics makers; the bottom line was nicely padded by royalty income, until Sony, Panasonic, Toshiba and others drove RCA out of business.

It’s hard to see how a Yahoo acquisition that never happened could touch some of the biggest value-destroying acquisitions of all time. Cassidy’s readers mentioned Time Warner buying AOL; as with WebVan, it was dumb for the buyer but not for the seller. While this probably destroyed the most market cap, in terms of consequences I’d put Sprint buying Nextel ahead of Time Warner’s mistake: Time Warner may survive but it’s not clear that Sprint will. (And while we’re on cellular, various firms like PacTel and MCI unloading cellular franchises in the 1980s would also have to qualify as top 25 blunders). Then there’s MCI buying WorldCom, certainly a purchase that had irreversible consequences.

There’s plenty of material here for teaching undergrads and MBAs. But even if every business student learn these lessons, foolish optimism or unbounded greed will cause some to make ever-greater mistakes down the road.


Anonymous said...

Having been there, Worldcom bought MCI.

Joel West said...

I stand corrected. I was nominally a merger but of course there's no such thing -- only a euphemism for an acquisition.