With the European semiconductor industry in the middle of a flurry of mergers and acquisitions, with more expected, it is worth looking at the history of these things.
These deals can only be evaluated with the benefit of hindsight to see whether, or not, they achieved their stated objectves. Studies show that most of them didn't.
"Nearly 40 per cent of the semiconductor deals done in the mid-1980s actually hurt the combined revenue potential of the companies involved" write Mark Feldman and Michael Spratt of Pricewaterhousecoopers, in their 1999 book 'Five Frogs on a Log'.
"A little over half of the acquisitions had no discernible effect on the combined companies' revenue potential", wrote Feldman and White, "and a mere eight per cent showed positive results"
Feldman and White point to a Pricewaterhousecoopers 1996 study of 124 recently merged or acquired companies which found that the objectives which drove the deal were only met half the time, and often took years to be realized. While the least-achieved objectives were the ones that had been the most sought-after.
Business Week tracked 150 M&As valued at $500 million or more done in the 1990s, and found that half had destroyed shareholder value.
The greatest financier of them all, the world's richest man, Warren Buffett reckons M&A-inclined CEOs were over-exposed in childhood to the tale of the frog and the princess.
"Consequently, they are certain that the managerial kiss will do wonders for the profitability of the target company", says Buffet.
"But why", asks Buffett, "should the shareholders of company A want to own an interest in company B at a takeover cost that is two times the market price they'd pay if they made direct purchases on their own?"
It just doesn't make sense.
"Investors", points out Buffett, "can always buy toads at the going price for toads".
So, why bankroll princesses who want to pay double the going rate for the right to kiss a toad?
Buffett concludes: "We've observed many kisses, but very few miracles."
The 2006 takeovers of NXP and Freescale have already destroyed value, with both acquisitions being marked down by their lead-owners KKR and Blackstone.
So before KKR is allowed to go on its anticipated rampage of M&A to restructure the European semiconductor industry, it's worth asking: Just how good a kisser is KKR?
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Comments (1)
there are many new developments requiring the
r&d dpt at freescale semiconductors to research.in ww2 we used synthetic desiel emulsion.requirement is that once again we,due to the high cost of oil are going to have to use this as an engine management system to save
aprox 50% of all desiel fuels used.
the deal will bring in some over 1 billion pounds over five years to freescale semiconductor plants.as every desiel engine will have to be modified to take the new ww2 synthetic desiel fuel system.
ww2 alternate fuels engineer.
Posted by gerald murphy | June 13, 2008 3:50 PM
Posted on June 13, 2008 15:50