Sunday, September 6, 2009


Warren Buffett called the acquisition of Gillette by Procter & Gamble a “dream deal” that would “create the greatest consumer products company in the world.” Buffet felt so strongly about the deal that he agreed to acquire additional P&G and Gillette shares so that he would own 3.9% of the combined company upon deal completion. A P&G and Gillette combination seemed to be highly synergistic: the two companies’ products were strong in different regions of the world and focused on different genders. P&G = women ("Tide gets your clothes whiter than white"), while Gillette = men ("The Best a Man Can Get").

Disney's character portfolio, which appeals to pre-teen girls and includes the likes of "Hannah Montana" and "Disney Princess", was infused with a Gillette-like synergy when Disney announced a $4 billion plan to acquire Marvel Entertainment. Marvel has developed marvelously dark characters such as Spiderman, Captain America and X-Men, all of which are just the thing for pre-adolescent boys.

Both P&G and Disney paid "full and fair" price for their acquisitions. But both enjoy real synergy. And just as Gillette had its champion in Mr. Buffett, Marvel's creative legend Stan ("The Man") Lee, creator of many Marvel characters dubs the acquisistion: "a terrific deal that will be extremely beneficial to both companies..." It also helps that John Lasseter, chief creative officer at Pixar/Disney animation, can vouch that the Disney culture under Bob Iger is talent-friendly.

Saturday, July 25, 2009

J. Fred Weston & the origin of synergy

Professor J. Fred Weston has died at age 93. Fred was a giant in the field of M&A. He arrived at UCLA from Chicago in 1949 and over his career wrote 32 books and 147 journal articles, many of which dealt with M&A. He mentored many outstanding graduate students, including Nobel laureate Bill Sharpe.

I worked with Fred and had the privilege of taking over as Faculty Director for UCLA Anderson's Executive Program on Mergers & Acquisitions from him in 2005. Fred continued to speak in the program. When I introduced him as the "John Wooden of M&A" (referring to UCLA's legendary basketball coach), it was not an overstatement.

I recall Fred telling the story about how the word synergy came to be used in corporate deal making. The year was 1950, and Fred was at lunch in Westwood with executives from a nascent industry that would later become aerospace. Fred saw a drink menu on the table that promoted Irish Coffee, The Perfect Synergy. (Irish Coffee blends coffee and irish whiskey.)

Not knowing what synergy meant, Fred looked up the term after he returned to his office at UCLA and saw synergy = the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. "Now that's what an M&A is supposed to do," thought Fred. He started using synergy in his writings to characterize successful deals, and the term became a cornerstone of academic and professional thinking.

Fred, I miss the synergy we shared, and I know many others do also.

Friday, July 24, 2009

Changing Japan's M&A culture over a beer?

Strapping two leaky canoes together will not improve buoyancy. And merging two weak companies rarely strengthens the combined entity. M&A is no super glue for struggling enterprises.

Successful M&A activity is a thoughtful, strategic build on a company's core competency.

Nevertheless, Japan's business culture has traditionally assumed that mergers are for the weak and are an admission of failure. As The Economist (July 18, 2009) says about Japanese corporate marriages: "Most deals involve firms in distress."

So the announcement that Kirin and Suntory (both successful Japanese brewers) are discussing a $41 billion merger might signal that a new generation of corporate development thinking is arising within the country.

Indeed many Japanese middle-market firms across all industries were begun after WW II and are led by aging founders. Many of these companies have focused on a contracting local market and do not have scale and capital to compete globally.

Could Japan's M&A attitude be changed over a couple of beers?
February 8, 2010 -- Update...

The Kirin and Suntory merger talks fail to come to fruition. The collapse is viewed as a setback for strategic consolidation and efficiency in Japan.

Thursday, June 4, 2009

e-book deals heat up

M&A activity may have cooled off overall, but remains hot in select sectors. Take e-books, for example.

This month, Prime View International signed a definitive agreement to acquire E Ink Corporation for $215 million in cash. Prime View has been E Ink's largest customer and uses E Ink technology in making the Amazon Kindle and Sony Reader. Prime View is now in control of more pieces of the e-reader solution stack.

In March, Barnes & Noble acquired Fictionwise, a publisher and distributor of e-books using various PCs and handheld device formats. The purchase price was $15.7 million in cash. The deals helps position Barnes & Noble in the e-book market as it competes with as a distributor of digital content. Fictionwise also has a content-provider relationship with Plastic Logic, which has announced its own plans to release an e-reader later in 2009.

Sunday, May 3, 2009

Apple's one acquisition

Apple's only acquisition made over the past year or so has been to buy P.A. Semi, Inc. for $278 million in cash. P.A. Semi is a fabless semiconductor company that develops processors for the high-performance embedded-computing markets.

So when Apple does buy, it's time to pay attention.

The company's low-power chips might be utilized in the ongoing development of the iPhone and iPod product lines. In addition to developing chips to reduce the power consumption of its iPhone and iPod touch products, Apple might well build graphics circuitry to enable its devices play more realistic games and high-definition videos.

Notorious for its secrecy, Apple move into semiconductors also reflects its desire to keep its technology plans closer to its chest. Apple management has expressed concern that outside chip partners might be too generous in sharing information that Apple considers proprietary.

Friday, April 24, 2009

Light side or dark side?

Oracle Corp. signs a definitive agreement to acquire Sun Microsystems Inc. for $7.1 billion in cash or $9.50 per share. Sun’s core software offerings (including its Java programming language and MySQL database) are closely linked to the open source community. A key question is the extent to which Ellison would actively support these offerings. (Popular websites such as Facebook utilize MySQL.) Will Oracle build on Sun's software popularity with young programmers or will the software be undermined to protect Oracle’s current products/business model?

Will Oracle's purchase be on the light or dark side of M&A?

Friday, April 17, 2009

Cisco currency is back

Cisco announced last month that it will purchase Pure Digital Technologies, Inc. for approximately $590 million in stock. Pure Digital markets one-time-use digital cameras and video camcorders, as well as point and shoot camcorders. The group of investors/sellers includes Benchmark Capital, Crescendo Venture Management LLP, Focus Ventures, Sequoia Capital, Steamboat Ventures, LLC, and VantagePoint Venture Partners. The deal is expected to close in the fourth quarter of Cisco's 2009 FY.

Flip (Pure Digital's leading product) is designed for the YouTube uploads. Flip records videos and immediately uploads them to the Web via a USB stick. Cisco wants to stoke bandwidth use. The all-stock deal is a return to the good-old days of the 1990's when use of Cisco's stock fueled its M&A activity. Now sophisticated investors are no longer hesitant to receive Cisco stock as a currency.

Tuesday, April 14, 2009

Paper out, digital in

Google has purchased buildings and most of the Summa Mill site owned by Stora Enso Corp. for about $52 million. The site is struggling paper mill located in southeastern Finland. Google says it is planning to build a data center at the site. Google's move is symbolic of the decline of print media and the rise of digital.