Simply put, the price UTX will pay for this acquisition – which comes to ~$33 billion when accounting for all forms of debt and unfunded pension liabilities – makes it almost impossible for the deal to create long-term value for shareholders.
While this deal certainly could be good for AMZN, we believe the market may be ignoring some of Whole Foods Market’s off-balance sheet liabilities that make this acquisition more expensive than it appears.
Overpriced acquisitions are far from a new phenomenon, but they’ve been especially prevalent in recent months. As a result, we’ve gathered some ideas about the various reasons companies ignore the evidence and continue to overpay for acquisitions.
Under even the most optimistic integration scenarios, we believe that Salesforce.com’s proposed acquisition of Demandware for $75/share or $2.85 billion represents an unacceptable transfer of wealth from CRM to DWRE shareholders.
Many investors in professional services firm Towers Watson (TW) have viewed the recent merger with reinsurer Willis Group (WSH) as a raw deal for TW shareholders. The crux of their argument comes down to the fact that the value of the deal, based on share prices before the deal was announced, was a ~12% discount to where TW had been trading.
After a few weeks of rumors, on Sunday AT&T (T) confirmed its $95/share offer for DirecTV (DTV). The deal will be part stock and part cash, and is expected to close within 12 months if the deal meets regulatory approval.
One of the biggest misconceptions in the investing world is that the merit of an acquisition should be judged by whether or not it is “earnings accretive”. The impact of an acquisition on a company’s accounting earnings is not indicative of its economic value to shareholders.