Tag: MSFT

Oracle’s stimulus package

Brenon Daly

Contact: Brenon Daly

One way to read Oracle’s novel announcement on Wednesday that it will start paying a dividend is that after years of handing out money to shareholders of other companies in the form of acquisitions, it will dole out some to its own investors. Word that the software giant will pay a dividend for the first time comes after a quarter in which Oracle acquired just one company, mValent. It was the lowest quarterly total for the company in recent memory, and compares with the shopping spree in the same quarter last year that saw it take home BEA Systems for $8.5bn, among other deals.

Although terms for Oracle’s most-recent acquisition weren’t released, we understand that it paid less than $10m for mValent, a change and configuration management startup. Viewed in light of the announced dividend of a nickel per share, even assuming that Oracle paid $10m for mValent, the purchase price works out to just 4% of the cash that the company is set to return to shareholders next month. (With five billion shares outstanding, Oracle’s dividend bill will be $250m per quarter, or $1bn for the full year.)

Even though time and money can only be spent once (as the saying goes), merely committing to paying a dividend doesn’t necessarily take a company out of the M&A market. Look at Microsoft, which has been a dividend-paying company since the beginning of 2003. It has inked four of its five largest deals even as it handed back billions of dollars to its own shareholders. And that corporate largess has hardly imperiled the Redmond, Washington-based behemoth. It finished last year with more than $20bn in cash and short-term investments on its balance sheet.

Oracle’s M&A, by quarter

Period Deal volume Disclosed and estimated deal value
Fiscal Q3 (December-February) 2009 1 Estimated less than $10m
Fiscal Q2 (September-November) 2008 5 $455m
Fiscal Q1 (June-August) 2008 2 Not disclosed
Fiscal Q4 (March-May) 2008 2 $100m
Fiscal Q3 (December-February) 2008 4 $8.5bn
Note: Oracle’s fiscal year ends in May

Source: The 451 M&A KnowledgeBase

Hey, big spender?

Brenon Daly

Contact: Brenon Daly

Given all the economic uncertainty, companies have made it clear that they’re not in the market for any big deals. (In our annual survey of corporate development officials, they indicated that they were least likely to pursue ‘transformative’ deals in 2009.) To put some numbers around that sentiment, we contrasted the shopping tab of four well-known tech companies in 2008 with the previous year’s tally.

The quartet we selected (IBM, SAP, Microsoft and Nokia) all announced the largest deals in their respective histories in 2007 so we naturally expected some drop-off in spending. But we were amazed at the steepness of the plunge. In 2007, the four companies announced 40 transactions with an aggregate value of $29.2bn. Last year, that dropped to 34 deals worth a paltry $4.7bn. (In fact, each of the firms inked a single transaction in 2007 that was worth more than 2008’s collective total.) And it’s not like they don’t have the resources to continue shopping. Over the past four quarters, IBM, SAP, Microsoft and Nokia have collectively generated an astounding $45bn in cash-flow operations.

Online video: boom and bust

-Contact Thomas Rasmussen

The over-hyped world of online video is going through massive turmoil at the moment. While most investors and companies agree that online video is likely the future of broadcasting, no one has been able to make any money from it so far. And it’s likely to get even harder due to tighter venture funding, the closed IPO window and next-generation Web 2.0 entrants such as Hulu and even Apple’s iTunes. These factors have left the online video players scrambling toward any exit, no matter how cheap.

Consider the case of CinemaNow, which was picked up by Sonic Solutions for a mere $3m last month. The portal never managed to turn a profit and had estimated revenue of less than $4m. Yet it secured five rounds of funding (totaling more than $40m) and brokered partnerships with major studios, VCs and strategic investors. When CinemaNow went to investors begging for another round a few months ago, it found that there was no money to be had and a quick exit became the only alternative. That’s a common occurrence these days, and may well have driven rival MovieLink to sell for a paltry $6.6m to Blockbuster last year. (Expect more of these types of deals next year. According to corporate development executives who completed our annual M&A outlook survey, lack of access to VC will be the major catalyst for deal flow in 2009.)

If this sounds eerily familiar, it’s because a similar situation played out during the music industry’s awkward and reluctant switch to digital a few years ago. Several startups, even major ones backed by large studios, tried to become the distributor of choice. Yet, many of those went away in scrap sales or had the plug pulled on them (Viacom’s Urge, Napster and Yahoo’s music service, to name just a few high-profile failures). We’re now left with just a handful of dominant distributors: iTunes, RealNetworks’ Rhapsody, Amazon and, to an increasing extent, MySpace’s heavily funded music effort. Many of these companies are likely to also dominate online video. In fact, add in Google and Microsoft, and you have a list of the companies that are likely to be buyers for the few remaining online video startups.

Recent online video M&A

Year Number of deals
2008 12
2007 10
2006 5

Source: The 451 M&A KnowledgeBase

M&A ramp-up for Facebook?

-Contact Thomas Rasmussen

Facebook’s rumored offer for micro-blogging site Twitter had the Web all atwitter recently. The $500m bid was reportedly rejected because it came in the form of a stock swap, with Facebook inflated to the infamous $15bn valuation that the social network got in Microsoft’s investment a year ago. Judging from our talks with insiders throughout the year, everyone knows this is a ludicrous valuation. Still, we wonder why some people – including big media – are still bandying this around, and more to the point, why Facebook thought Twitter would buy into the valuation. (More realistically, bringing the valuation down to earth, the offer amounts to $100-130m.) Nevertheless, the rumored run at Twitter confirms our speculation in June that Facebook, which has hardly ever dabbled in M&A, is gearing up to go on a substantive shopping spree. If that’s the case, it could do a whole lot worse than roping in Loopt.

When we first reported on this possibility, we had heard that initial talks were under way. However, the less-than-stellar adoption of the overhyped location-based services (LBS) applications probably put a damper on the enthusiasm. Nonetheless, recent developments have made LBS an attractive area again: Android devices have hit the market, the iPhone continues to sell well and Nokia is rolling out its own sleek new smartphone. Granted, the degree to which people are interested in having friends and family track their every move is debatable. But for Facebook and other social networks, which essentially base their entire business models on our instinct to pry into each other’s business, adding Loopt’s service to its currently static desktop and mobile offering is a no-brainer. And if Facebook was willing to hand over north of $100m to acquire Twitter, spending the same amount on Loopt, which is roughly where we pencil out its valuation, would make a lot more sense.

Social network M&A, 2006-2008

Period Number of deals Total known deal value
2008 YTD 32 $98.3m
2007 12 $149.7m
2006 8 $31.1m

Source: The 451 M&A KnowledgeBase

Google and Yahoo break up

-by Thomas Rasmussen

The Department of Justice announced this morning that it would file suit to block the planned advertising pact between Google and Yahoo. Google followed quickly by axing the deal. YHOO is up 8% in mid-day trading while the overall market is down sharply. The Google/Yahoo breakup has sparked renewed hope among shareholders that Microsoft could return to the table. It also opens up the possibility of a long rumored partnership between Time Warner’s AOL and Yahoo.

Ad networks: What recession?

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-by Thomas Rasmussen

Akamai just got serious about online ads. It acquired ad network acerno from i-Behavior last week for $95m in cash. (See my colleague Jim Davis’ report for more on this acquisition.) This marks not just a somewhat drastic change in focus for Akamai, but is also an encouraging sign for the remaining online advertising networks. Despite the current economic meltdown, and more specifically the declining revenue and abysmal forecasts from ad giants Yahoo and Google, everybody seems to want a slice of the multibillion-dollar online advertising market.

Including the Akamai transaction, a total of 23 online advertising deals have been inked this year. That is up more than 25% from 17 deals for all of 2007, and just four in 2006. This increase in M&A activity stands in stark contrast to the overall Internet M&A picture, where the number of deals has declined more than 10%.

Moreover, despite highly publicized warnings from VCs about the decline in available venture capital and possible exits, funding has been flowing freely and rapidly to online advertising startups. Some of the many to receive funding recently include mobile ad firm AdMob, which raised $15.7m last week for a total of $35m raised to date; Turn Inc., which raised $15m recently for a total of $37m; ContextWeb, which raised $26m in July for a total of more than $50m raised; social networking ad network Lotame, which raised $13m in August in a series B round for a total of $23m raised; and Adconion Media Group, which closed a staggering $80m in a series C round in February, bringing its total funding to more than $100m.

With IPO markets closed, these startups should all be considered M&A targets. Adconion in particular stands out because of its international reach and large base of 250 million users, 50 million of whom are in the US. It would be a nice fit for one of the large media conglomerates competing for online advertising dominance. And they have shown that they are not afraid of opening the vault to do so. VC and banker sources say funding is likely to continue for the near term since there is still a lot of buyer interest. It is unlikely to suffer the same fate as the social networking funding fad, because some online advertising companies actually make money. As this segment continues to consolidate over the next year, we suspect deal flow will likely eclipse that of the past 12 months. Mobile and video advertising ventures are likely to lead the next generation of online advertising-focused startups.

Select recent online advertising deals

Announced Acquirer Target Deal value Deal closed
October 15, 2008 Technorati AdEngage Not disclosed October 15, 2008
June 18, 2008 Microsoft Navic Networks $250m (reported) Not disclosed
April 29, 2008 Cox Enterprises Adify $300m May 2008
March 11, 2008 Qualcomm Xiam Technologies $32m March 11, 2008
February 5, 2008 AOL Perfiliate Technologies $125m February 5, 2008
November 7, 2007 AOL Quigo Technologies $346m December 20, 2007
September 4, 2007 Yahoo BlueLithium $300m October 15, 2007
May 18, 2007 Microsoft aQuantive $6.37bn August 13, 2007
May 15, 2007 AOL Third Screen Media $105m May 15, 2007
April 13, 2007 Google DoubleClick $3.1bn March 11, 2008
April 30, 2007 Yahoo Right Media $680m July 12, 2007

Source: The 451 M&A KnowledgeBase

Expensive independence

Brenon Daly

It was a rough week all around for stocks (once again), but the decline was especially galling for holders of shares in companies that had earlier attracted unsolicited offers. Two big would-be targets, neither of which is still being hunted, were in the news again this week: Yahoo and SanDisk. And the news wasn’t good.

Jerry Yang and the rest of the Yahoo-ers (at least the ones who survived the 10% job cuts) revealed that business was a bit soft in the third quarter. Sales were stagnant, and the search engine earned only one-third the amount that it did during the same period last year. So much for their go-it-alone plan. You’ll recall that Yahoo repeatedly brushed aside a $31-per-share offer from Microsoft earlier this year. The stock closed Thursday at $12.65, near its lowest level since mid-2003.

Meanwhile, SanDisk shares also hit a five-and-half-year low after Samsung on Tuesday pulled its $5.85bn unsolicited offer for the flash memory card maker. Samsung aired its offer of $26 for each SanDisk share in September, after several months of unsuccessful overtures. SanDisk shares closed Thursday at $9.14. That means the rejection by SanDisk’s board has cost shareholders more than the rejection by Yahoo’s much-pilloried board, at least on a relative basis. SanDisk shares are changing hands at about 65% below Samsung’s offer, while Yahoo stock is trading ‘only’ 59% below Microsoft’s bid.

Microsoft’s ‘paper’ trail leads to Citrix?

Brenon Daly

Shares of Citrix jumped 5% Wednesday on reheated rumors that Microsoft may be bidding for its longtime partner. Volume in Citrix shares was about 50% heavier than average. One source indicated that Microsoft would be paying $36 for each Citrix share, which is essentially where Citrix started the year.

This rumor, of course, has made the rounds before. We noted in April that although both IBM and Cisco were rumored suitors for Citrix, our top pick for the acquirer would be Microsoft. (The two companies have been close for years, with Citrix being one of just two companies with access to the Windows source code.) All that said, however, we don’t see Microsoft buying Citrix. (How would Microsoft handle the fact that XenSource, which is arguably Citrix’s most-coveted asset, is built on open source software?)

As to why the rumor resurfaced Wednesday, we might trace that back to a misread of Microsoft’s announcement the day before that it was planning to sell some $2bn of commercial paper. The thinking is that Redmond might be prepping an even larger offering. But looking at Microsoft’s current balance sheet, it could buy Citrix four times over with the cash and short-term investments it already holds.

Uptake in travel deals

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-by Thomas Rasmussen

The past year has seen a surge in online travel deals as well as venture funding of travel startups. In fact, we wonder if the industry hasn’t gotten a little too crowded. A number of startups have received funding, including Uptake, which was founded by ex-Yahoo Travel execs. Uptake brings the social aspect to the online travel world by aggregating user-generated reviews from various portals. It fetched $10m in venture funding from Trinity Ventures and Shasta Ventures last week, bringing its total raised to $14m. The company says the funds are to be used for internal expansion and acquisitions. Indeed, the current competitive landscape has presented startups like Uptake as well as established players like Expedia with one choice: grow or risk becoming irrelevant.

Against this backdrop, online travel companies have taken different approaches to M&A. Relative newcomer Kayak.com is one company that recently took a major step to buy growth. Hoping to go public eventually, the company doubled its size overnight by acquiring competitor SideStep Inc for an estimated $180m in December. Meanwhile, fellow startup Farecast worked on the other side of a transaction, opting for a sale to Microsoft in April for an estimated $115m to help Redmond shore up its ailing MSN Travel division. Meanwhile, the giant of the industry, Expedia, has been ratcheting up the M&A pace. Of the 15 acquisitions it has done, 11 were inked in the last 18 months. In a recent filing with the US Securities and Exchange Commission, Expedia said it spent $180m on five acquisitions in the first two quarters alone.

As for Uptake, we expect the small company to consider a few tuck-in acquisitions of smaller rivals to add more voices to its reviews. Potential targets include companies such as TravelMuse and TripSay, which also offer user reviews. However, while Uptake is eyeing targets, we have a feeling it may be a target itself. We suspect the social aggregation aspect of Uptake is very appealing to larger players that are trying to bring the social Web 2.0 experience to online travel. Likely acquirers include Kayak and Microsoft, which both lack a social rating system. Expedia and Yahoo Travel, an outfit Uptake’s founders know well, might also want the technology to improve on their own systems.

Number of known strategic online travel deals

Period Deal volume
September 2007-2008 14
September 2006-2007 11
September 2005-2006 6
September 2002-2005 19

Source: The 451 M&A KnowledgeBase

EA plays hardball

-by Thomas Rasmussen

Electronic Arts (EA) officially walked away from its drawn-out $2bn takeover bid of Take-Two Interactive. The move knocked Take-Two’s shares back to the level they were before EA floated its interest. The stock drop evaporated more than $500m in shareholder value overnight. Take-Two has repeatedly said that EA is not the only company with a strategic interest in them. Given the haircut shareholders just underwent, we think they would be interested in more than cryptic statements at this point. Though Activision-Blizzard, UBISoft, Microsoft, and a few other companies could pull off the acquisition, the fact that none have stepped forward yet is most likely not a good sign for shareholders. Strauss Zelnick and Take-Two management might have overplayed its hand on this one.