Heeding Lessons Already Learned

By Chris Roush
March 6, 2007

The recent coverage of deals such as Google buying YouTube, XM Satellite Radio and Sirius joining forces and others has me wondering about something: Have business journalists forgotten about the 1990s?

You remember the '90s, right? The stock market rose exponentially and was expected to keep doing so, and the Internet was going to change our lives. And companies bought each other like there was a "20 percent off" tag on every corporate door and bankers were loaning money with the caveat that corporations had to spend it immediately.

That was the problem. So many of the deals completed in the 1990s didn't work out -- for either the acquirer or the acquired. Some serial acquirers, like Tyco and Conseco, eventually ran out of the deals that had propped up their stock prices for so long and saw their shares fall dramatically. In the case of Conseco, the price fell all the way to $0.

And then there was the whopper -- the AOL/Time Warner deal for $147 billion. The only problem was that the value of AOL's assets in the deal were overstated to the tune of more than $50 billion, or about one-third of the value of the deal.

As Allan Sloan of Newsweek stated in the aftermath of the deal frenzy: "Many companies try to grow via big acquisitions. These deals are seductive, because you get lots of favorable ink and a love buzz from Wall Street. You also buy time to implement your strategy, if you actually have one, because year-to-year financials aren't comparable and outsiders can't analyze your results."

But we've seemingly forgotten about all of those deals gone bad. We're once again gushing over acquisitions like they're presents under the Christmas tree.

Go ahead and gush if you want. But also provide some perspective when writing about deals. Compare the price of the deal to the most recent deal. If Company A is buying Company B for twice as much in terms of book value than the last deal, let the reader know.

And realize that many deals aren't done for the strategic reasons that get stated when an acquisition is announced. Company executives often feel the need to make deals to eliminate a competitor, to massage their egos, to acquire executive talent or for simple survival in the corporate jungle, not for the core business. Look for those alternative reasons when reporting your stories.

That's the story your readers will want, not your drooling about some corporate match made in heaven.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism