Here’s Why Massive Mergers Are Not Friendly to Shareholders

Huge acquisitions like AT&T’s (NYSE:T) proposed buyout of T-Mobile make headlines, alter the competitive landscape, and make bankers rich.

But they don’t do much for shareholders.

We’ve run down the top 10 tech acquisitions of all time in which the resulting company remained public.

In nearly all cases, the acquiring company’s stock price is at or below where it was when the acquisition was made.

Some of this is because of timing and market fluctuation — when times are good, big companies are tempted to use their inflated share prices to gobble up smaller ones so they can gain ground on competitors. That happened a lot in the dot-com and telecom bubbles.

It’s also possible that some acquisitions saved companies from a worse fate — it’s impossible to know what would have happened to AOL (NYSE:AOL), for instance, if it hadn’t had Time Warner (NYSE:TWX) to carry it through the dot-com bust.

But usually, big acquisitions don’t result in the kind of synergies that are promised to shareholders, and integration often takes longer and costs more than anticipated.

The charts speak for themselves: in most cases, big acquisitions do not help long-term share prices.

10. Oracle (NASDAQ:ORCL) buys BEA for $7.9 billion in Jan. 2008

Oracle buys BEA for $7.9 billion in Jan. 2008

Oracle is the exception that proves the rule: its acquisition strategy has helped it maintain slow but steady growth for the last decade or so. BEA was the last big one in the bunch, following Siebel (2005) and PeopleSoft (2004).

9. Compaq (NYSE:HPQ) buys DEC for $9.6 billion

9. Compaq buys DEC for $9.6 billion

Compaq bought pioneering hardware company Digital Equipment Corp in early 1998 after several years of negotiations, making it the biggest computer provider in the world.A year later it was surpassed by Dell, and CEO Eckhard Pfieffer, who had engineered the takeover, was forced out. In 2002, HP bought Compaq for $25 billion.

(Historical charts are hard to find because Compaq has been part of HP for so long.)

7. Symantec (NASDAQ:SYMC) buys Veritas for $10.5 billion

7. Symantec buys Veritas for $10.5 billion

When security company Symantec announced plans to buy data back up and storage Veritas in December 2004, the deal was valued at $13.5 billion. Investors hated the deal so much, they bid Symantec’s price down so the final deal was actually worth only $10.5 billion when it closed in summer 2005.

8. Oracle (NASDAQ:ORCL) buys PeopleSoft for $10.3 billion in July 2004

8. Oracle buys PeopleSoft for $10.3 billion in July 2004

Oracle launched a hostile takeover bid for HR software company Peoplesoft in 2003, and finally closed the deal in July 2004. This is one of the rare examples where it worked out pretty well for the acquiring company (Oracle).

6. HP (NYSE:HPQ) buys EDS for $13.9 billion in July 2008

6. HP buys EDS for $13.9 billion in July 2008

HP bought IT outsourcing giant EDS to boost its nascent services business. The acquisition is less than three years old, so it’s too early to judge whether this one will help HP shareholders in the long run. But so far, it hasn’t done much for HP’s share price.

5. JDS Uniphase (NASDAQ:JDSU) buys E-Tek for $15.3 billion in June 2000

5. JDS Uniphase buys E-Tek for $15.3 billion in June 2000

JDS Uniphase is a big maker of components for fiber optic and other types of networks. At the peak of the dot-com bubble, the company acquired two component makers, E-Tek (shown here) and SDL (which comes in at #2).

4. Verisign (NASDAQ:VRSN) buys Network Solutions for $20.8 million in March 2000

4. Verisign buys Network Solutions for $20.8 million in March 2000

This deal between email security provider Verisign and domain registrar Network Solutions was supposed to create a powerhouse service provider to help companies establish their Internet presence. The company’s share price collapsed after the dot-com meltdown and has never fully recovered.

3. HP (NYSE:HPQ) buys Compaq in Sept. 2001 for $25 billion.

3. HP buys Compaq in Sept. 2001 for $25 billion.

HP was the number-three PC maker when it bought number-two Compaq in 2001. The resulting company is still the largest PC vendor in the world, but its share price is only slightly ahead of where it was at the time of the acquisition.

2. JDS Uniphase (NASDAQ:JDSU) buys SDL for $41 billion in July 2000

2. JDS Uniphase buys SDL for $41 billion in July 2000

JDS Uniphase bought SDL, another optical component maker, weeks after it completed the purchase of E-Tek.

1. AOL (NYSE:AOL) buys Time Warner (NYSE:TWX) for $181.6 billion in January 2000

1. AOL buys Time Warner for $181.6 billion in January 2000

Although AOL was the buyer, Time Warner reclaimed its name and ticker symbol after a couple years. The merger was supposed to create a new media giant, but it never happened, and AOL was spun back out into an independent company in 2009.

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