Unlike tolstoy’s description of households, mergers and acquisitions that finish fortunately accomplish that for quite a lot of causes. It’s the sad ones which might be alike. This is especially true of m&a offers carried out on the prime of the enterprise cycle, when hubris runs amok, lofty valuations make acquirers sloppy with their cash and probably the most radical concepts are made to sound believable. In this class sits Elon Musk’s shotgun marriage ceremony to Twitter, as soon as once more within the offing after a decide gave each side till October twenty eighth to consummate it. Mr Musk’s newest try and justify it’s to explain it as a step in direction of a Chinese-style “everything app”. It is simply as more likely to go down in historical past as a top-of-the-market “deal from hell”.
The annals of enterprise have vibrant examples of such Stygian mishaps. Sony’s ill-fated acquisition of Columbia Pictures in 1989 occurred when Japan’s bosses thought they have been invincible, the bubble economic system made any worth seem value paying, and goals of the convergence of {hardware} (client devices) and software program (leisure) have been within the air. AOL’s merger with Time Warner, a fair larger mess, was first introduced in 2000 on the apogee of dotcom frothiness. The bosses of each corporations, one an web upstart, the opposite a fading media large, fantasised about making a colossus of the web age. They torched almost $200bn of worth in a matter of months. In 2007 Royal Bank of Scotland (RBS), an acquisitive monetary establishment, led a consortium to purchase ABN AMRO, a sprawling Dutch banking group. It was the largest banking takeover in historical past—but carried out with little due diligence or oversight of gung-ho executives, even because the world was on the point of the good recession. It occurred shortly earlier than RBS’s spectacular demise and a bail-out from the British taxpayer.
Mr Musk’s strategy to Twitter is completely different from these in a single vital respect. He is performing in a private capability because the world’s richest man. He has no identified plans to combine the social-media platform with Tesla and SpaceX, his electric-vehicle and rocket corporations. Mercifully.
Yet the inventory phrases that sum up such debacles—flawed goal, flawed time, flawed price ticket—already appear relevant to his pursuit of Twitter, and should clarify why he has spent so lengthy making an attempt to wriggle out of the deal. If the 2 sides don’t attain an settlement later this month, the decide says she is going to haul them again to the Delaware Court of Chancery and resolve their destiny for them. Whatever the end result, Robert Bruner, a professor of enterprise on the University of Virginia who in 2005 wrote a e book known as “Deals from Hell” to elucidate m&a fiascoes, says Mr Musk’s Twitter saga already bears many subtler hallmarks of the style.
In Mr Bruner’s analysis, the primary hints of hell come from hubris. The self-styled “Technoking” has each motive for self-belief. Tesla is the world’s most useful carmaker. SpaceX is actually rocket science in motion. Yet for executives like him it’s a high-quality line from that to overconfidence. Sony’s Morita Akio crossed it. So did AOL’s Steve Case and RBS’s Fred Goodwin. In Mr Musk’s case, extreme religion in his capacity to show Twitter round is exacerbated by a saviour complicated: his most important aim, he mentioned when he introduced the deal in April, was furthering the reason for free speech. That seems to have blinded him to the necessity for due diligence. Moreover, like different exalted leaders, he’s surrounded by yes-men. Billionaires compete to throw cash at him. No chairman of any board seems to place a restraining hand on his shoulder. For now his repute for strolling on water continues to maintain him. But if he has overplayed his hand, historical past won’t let him off calmly. Just ask Messrs Case and Goodwin (Morita handed away in 1999).
The corollary of hubris is sloppy financing, one other attribute of top-of-the-market megaflops. This is especially true on the tail finish of bull markets, such because the one just lately vanished in a puff of smoke. Not solely was Mr Musk so unconcerned about overpayment that he primarily based his $54.20-a-share provide for Twitter on an overused hashish joke. Big banks jostled to again one of many world’s largest-ever buy-outs, regardless that by then cracks had began to seem in leveraged-loan markets.
Yet as with many M&A offers, deteriorating markets can flip a flawed acquisition right into a catastrophe. That chance should hang-out Mr Musk. The digital-advertising market on which Twitter relies upon has crumbled. Tesla’s personal shares, the supply of most of his wealth, have misplaced a 3rd of their worth since he made the bid (don’t cry for him, he’s nonetheless value $220bn). The deal financing consists of $13bn of high-risk debt and spreads on this sort of instrument have soared. Whether Mr Musk reaches a take care of Twitter or the decide forces the sale to go forward, the repercussions are more likely to be troubling. Either banks are caught with hard-to-sell debt and undergo hefty losses or, within the unlikely occasion that they abandon the deal, a superhero of Twenty first-century capitalism faces a $44bn day of reckoning.
The X-factor
Finally there may be technique. In Mr Bruner’s evaluation, the worst M&A offers are carried out when the goal is in an business far past the acquirer’s “domain knowledge”. That is unquestionably true of Mr Musk and Twitter. That might clarify why he has began to supply hints of a grander strategic imaginative and prescient. He has raised the prospect of decreasing Twitter’s reliance on promoting, and as an alternative incorporating it into an “everything app”, often called X, with on-line funds that hark again to the times when he helped discovered PayPal. It is a tantalising thought. The mannequin is WeChat, Tencent’s superapp in China. Others, like Meta, have tried it with blended outcomes.
If it really works, it might present but additional testimony to Mr Musk’s ineffable genius. But it additionally has a hellish aspect. It may pit the world’s strongest businessman in opposition to tech regulators. It may fire up bother geopolitically (think about a reinstated Donald Trump weighing in, as Mr Musk has carried out, on Russia and Ukraine). And it may enrage China, thwarting Tesla’s prospects there. Another deal for the historical past books, little doubt. ■