acquired problems

This chart proves that buying companies is a terrible strategy for telecoms

September 3, 2014
September 3, 2014

Consolidation has been sweeping through the telecommunications sector for a couple of years now, both globally and inside the US.

Last year, Japan’s Softbank bought Sprint, and Verizon bought out its wireless joint venture partner, Vodafone. This year, AT&T unveiled plans to buy satellite pay-TV company DirecTV, while various parties have been circling T-Mobile US, which is majority owned by Germany’s Deutsche Telekom. (Yes, telecommunications is an incestuous, industry).

Tap image to zoom

The cable industry is also undergoing consolidation, headlined by the contentious Comcast-Time Warner Cable deal.

Morgan Stanley has crunched the numbers on telecoms industry acquisitions worth more than $1 billion since 1986 and found that the top quartile of deals typically deliver a shareholder return of just 6%. The bottom quartile typically lose 26%.

In other words, acquirers are much more likely to wipe out value than gain a small amount of value, through buying other companies.

So, maybe shareholders in Sprint and its Japanese parent Softbank should be thankful that the company walked away from T-Mobile US. And shareholders in French upstart telco Illiad—which has already put one bid on the table and looks to be pulling together a second more attractive offer—and Dish Networks, which continues to be loosely mentioned (paywall) as a possible bidder, should be wary.

 

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