I Don't Understand M&A

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

I Don't Understand M&A

HP and Dell are in a bidding war for 3Par. HP (at this writing) is at $30 per share - 3x the original share price for this stock! That's almost $2B!

One thing is that all these companies - in fact, most American companies - lack R&D. That's right: We don't have R&D in America. Except from startups. So if VC money halts, so does all R&D and Innovation in this country. Think about that for a minute. (I'll wait).

The days of PARC and Bell Labs are long gone. Microsoft is a leader in R&D spending.

Apparently, so are the days of common sense. Seriously, for $2B, you couldn't have had an R&D strategy? Really?

So they will pay $2B for $200M in revenue and for the product and patents.

Just so you know, this doesn't increase the number of patents that American companies hold. M&A just changes ownership.  It also will likely mean, wait for it, less jobs.

BTW, ARS tries to explain this crazy acquisition to me, but I still don't see the $2B in value.

Then the buzz this morning is that Cisco is buying Skype because Silver Lake wants out. Didn't Silver Lake just buy Skype last year (Sept., 2009) fro $2B? And Skype just filed for an IPO for $100M. Now Cisco is buying them? Why?

The SEC filing shows that only 7M of the 500M users pay for Skype services. But this year that could still amount to $800M in revenue. But income could be as little $25M per year (based on the $13M in income so far in 2010).

It makes more sense for CenturyTel to roll up Qwest and Embarq into one wireline losing company to me than Cisco buying Skype.

Maybe Skype isn't getting business traction and Cisco isn't getting small business video traction, so get married.  It makes me wonder what happened to Webex. Cisco owns it but can't get traction. Why would spending $2B for Skype help? Are they buying revenue to shore up the financials (to confuse the stock traders)? That's the one I am going with.

You would think that with a $20M push, Webex could get more traction, but what do I know? I don't run a MNC.

The other question is why not buy Oovoo or some other (cheaper) video conferencing play?

As for Dell, follow PAETEC: buy a VAR.

PAETEC bought a couple of VAR's - US Energy Partners and Quagga Corporation - for integrated solutions, its energy play, and to confuse me. It owns USLEC and MacLeod which makes sense - all CLEC roll up with some fiber. Then it buys Allworx, a PBX company. Then PAETEC gets into energy sales. Finally, PAETEC gets into systems integration.

I don't see how half these M&A activities drive the company closed to its focus or its vision.

I'll keep watching to see if it gets any clearer, but I think the two keys are the lack of R&D and the quarterly numbers.  It doesn't create any added value and almost certainly results in more job losses.



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