M&A Consolidation and BK
Jorj: I'll take the grub assist. <g>
I knew that the M&A activity was pretty big in the airline industry and it can skew the view that everyone that isn't around today must have been a loser.
Don't forget that M&A consolidations and BK tend to go hand in hand. Anytime you see an entire industry in financial distress (e.g., railroads in the 19th century, autos in first half of the 20th century, airlines in the 1980's, steel today), you will see lots of consolidations and bankruptcies.
Most people think mergers and acquisitions provide positive returns for shareholders, but that's not necessarily true. Lots of times M&A is actually only a "lesser of two evils" exit strategy: i.e., the best alternative to bankruptcy. Not all M&A activity provides a return on investment, especially when a company is financially distressed. Many distressed companies sell for only a fraction of annual sales. For example, I'm in the process of selling two companies right now. Both are in distress. Annual sales? $100 million combined. I'll be lucky to find someone willing to pay $10 million for both.
Take a peek at the following article and you'll better understand my point. This is a classic example of an internet company in financial distress...
"Devalue America -- Or How an Underwriter Has Done It to Us Again"
-- By Christopher Byron, MSNBC
msnbc.com
The subject company will probably not be around much longer. It may not go bankrupt, but it will probably be acquired by another company. In either case, I think you will agree that the investment provided a negative return for its shareholders. The nimble players who rode the post-IPO pop probably made a bundle, but the shareholders as a whole lost big time.
Like I said before, the key success factor for long-term corporate viability is profitability. Companies that never quite figure this out usually get acquired by another company (usually a stronger competitor), or they go bankrupt. In either case, shareholders as a whole usually lose.
Razor |
