CEOs have ripped apart shareholders’ wealth globally under the guise of M&As; Indian firms more so! B&E’s Manish K. Pandey, Deepak R. Patra and Karan Mehrishi undertake the most radical analysis of the recent past and destroy age-old perceptions!
The pity is, Indians never learn! You’ll get the drift by the time you end the introduction. First, the dirt! The year 2000 was the eve of the glorious new century, and a boon for the Big-6 M&A consulting firms. And why not! For these global consulting proponents, an example like the year 2000 Vodafone-Mannesmann merger was god’s gift multiplied many times over. It was proclaimed to be the single largest deal in history. Sir Christopher Gent, then CEO, Vodafone paid a smashing $190 billion for Germany’s Mannesmann AG, making Vodafone the biggest operator in Europe. The combined entity was valued at $365 billion, making it the world’s fourth largest company overnight. What better a gift could the M&A brayers ask for? Wasn’t this M&A deal enough proof that M&As were/are the only dynamic and rapid solution forward to mammoth growth and that all those who had criticised M&As for the past so many years were nothing but dimwits?
If Gent’s strategy cup ran full of suicidal moves, Arun Sarin – who was on the Vodafone board since June 1999 (and was equally, if not more, to blame) and who took over from Gent in April 2000 – redefined the standard of how much shareholder value could ever be destroyed from a company. Eight years since the deal, the value of Vodafone in terms of market capitalisation stands at $161.4 billion (as on July 24, 2008), down by a sickening $203.6 billion, a fall of 53%! Arun Sarin ensured that in the last eight years since the merger, Vodafone has become the biggest loss making company ever in the history of mankind! The loss: $86 billion! Both Arun Sarin (who exited in June 2008) and Christopher Gent, apart from the other top management, retired multi-millionaires, a far cry from thousands of Vodafone pauper shareholders.
If that sounded absurd, Gary Foresee took on the infamy mantle with ease. Gary joined Sprint as CEO in the year 2003. Signing bonus amount: $6 odd million! Subsequent years’ pay: Between $1.5-6 million! Gary’s claim to (in)fame was ensuring Sprint’s spectacular merger with Nextel in 2004-05. He sold the deal on the fact that the combined telecom giant would have a subscriber base of 53.8 million in the US! What he sweetly left out was the disaster the deal could be. At the time of the deal, the Sprint Nextel common stock was trading at $26.9; it’s at a sickening $8.30 today! While many shareholders got wiped out Mr. Gary Foresee was kicked out at the end of 2007. His severance package? $40 million!
Charles Prince is an equal, if not better peer for these heroes. He, as the Chief Administrative Officer, engineered the utterly disastrous $140 billion merger of Citibank with Travelers Group ten years back. Then he ensured the company jumped into the mortgage black hole. Till date, Citigroup has been forced to write off almost $41 billion because of Prince’s royal exigencies! He was “eased out” in November 2007! Apart from his wholly owned $94 million vested stock holdings in Citi, he got $28 million further stock options, (not forgetting the $53 million during his last four years as Group CEO), plus a pension of $1.74 million; and this apart from a $10.4 million “bonus” that shareholders were made to pay him. [Citi has now recruited Vikram Pandit as the CEO, paying him a cannon ball destroying never before seen signing bonus of $241 million! Since he has arrived, Citi stock prices have tumbled by 25%!].
December 31, 2007, saw Richard Parsons resigning as the greatest CEO of Time-Warner. Greatest, because he joined the board in 1991 [became President in 1995] and oversaw the supernova of a merger between Time and AOL. The companies had a combined value of $247 billion during the deal. Today, the combined entity is worth a mind numbingly low $58 billion. Parsons earned on an average $10.64 million per year. By the way, he’s now the Chairman of the group!
With $37 billion involved, Dieter Zetsche, then on the Daimler Benz board, squeezed through the merger with Chrysler. In 2007, CEO Zetsche made Daimler Chrysler part ways with a deal worth only 21.5% ($7.4 billion) of the total acquisition value! Millionaire Patricia Russo, CEO Alcatel-Lucent, has a history of destroying shareholder wealth. At the time of the merger of Alcatel and Lucent, the entity had a share price of $15.4 (March 31, 2006). July 24, 2008, the price is $6.09 (62% fall). CEO Meg Whitman, who ensured eBay bought off Skype, also ensured eBay’s price fell from close to $40 (September 9, 2005), to $25 (July 24, 2008). Shareholders be damned; she donated $30 million of her personal wealth to Princeton in 2007 to start the Whitman College!
Read more......
For More IIPM Info, Visit below mentioned IIPM articles.
The pity is, Indians never learn! You’ll get the drift by the time you end the introduction. First, the dirt! The year 2000 was the eve of the glorious new century, and a boon for the Big-6 M&A consulting firms. And why not! For these global consulting proponents, an example like the year 2000 Vodafone-Mannesmann merger was god’s gift multiplied many times over. It was proclaimed to be the single largest deal in history. Sir Christopher Gent, then CEO, Vodafone paid a smashing $190 billion for Germany’s Mannesmann AG, making Vodafone the biggest operator in Europe. The combined entity was valued at $365 billion, making it the world’s fourth largest company overnight. What better a gift could the M&A brayers ask for? Wasn’t this M&A deal enough proof that M&As were/are the only dynamic and rapid solution forward to mammoth growth and that all those who had criticised M&As for the past so many years were nothing but dimwits?
If Gent’s strategy cup ran full of suicidal moves, Arun Sarin – who was on the Vodafone board since June 1999 (and was equally, if not more, to blame) and who took over from Gent in April 2000 – redefined the standard of how much shareholder value could ever be destroyed from a company. Eight years since the deal, the value of Vodafone in terms of market capitalisation stands at $161.4 billion (as on July 24, 2008), down by a sickening $203.6 billion, a fall of 53%! Arun Sarin ensured that in the last eight years since the merger, Vodafone has become the biggest loss making company ever in the history of mankind! The loss: $86 billion! Both Arun Sarin (who exited in June 2008) and Christopher Gent, apart from the other top management, retired multi-millionaires, a far cry from thousands of Vodafone pauper shareholders.
If that sounded absurd, Gary Foresee took on the infamy mantle with ease. Gary joined Sprint as CEO in the year 2003. Signing bonus amount: $6 odd million! Subsequent years’ pay: Between $1.5-6 million! Gary’s claim to (in)fame was ensuring Sprint’s spectacular merger with Nextel in 2004-05. He sold the deal on the fact that the combined telecom giant would have a subscriber base of 53.8 million in the US! What he sweetly left out was the disaster the deal could be. At the time of the deal, the Sprint Nextel common stock was trading at $26.9; it’s at a sickening $8.30 today! While many shareholders got wiped out Mr. Gary Foresee was kicked out at the end of 2007. His severance package? $40 million!
Charles Prince is an equal, if not better peer for these heroes. He, as the Chief Administrative Officer, engineered the utterly disastrous $140 billion merger of Citibank with Travelers Group ten years back. Then he ensured the company jumped into the mortgage black hole. Till date, Citigroup has been forced to write off almost $41 billion because of Prince’s royal exigencies! He was “eased out” in November 2007! Apart from his wholly owned $94 million vested stock holdings in Citi, he got $28 million further stock options, (not forgetting the $53 million during his last four years as Group CEO), plus a pension of $1.74 million; and this apart from a $10.4 million “bonus” that shareholders were made to pay him. [Citi has now recruited Vikram Pandit as the CEO, paying him a cannon ball destroying never before seen signing bonus of $241 million! Since he has arrived, Citi stock prices have tumbled by 25%!].
December 31, 2007, saw Richard Parsons resigning as the greatest CEO of Time-Warner. Greatest, because he joined the board in 1991 [became President in 1995] and oversaw the supernova of a merger between Time and AOL. The companies had a combined value of $247 billion during the deal. Today, the combined entity is worth a mind numbingly low $58 billion. Parsons earned on an average $10.64 million per year. By the way, he’s now the Chairman of the group!
With $37 billion involved, Dieter Zetsche, then on the Daimler Benz board, squeezed through the merger with Chrysler. In 2007, CEO Zetsche made Daimler Chrysler part ways with a deal worth only 21.5% ($7.4 billion) of the total acquisition value! Millionaire Patricia Russo, CEO Alcatel-Lucent, has a history of destroying shareholder wealth. At the time of the merger of Alcatel and Lucent, the entity had a share price of $15.4 (March 31, 2006). July 24, 2008, the price is $6.09 (62% fall). CEO Meg Whitman, who ensured eBay bought off Skype, also ensured eBay’s price fell from close to $40 (September 9, 2005), to $25 (July 24, 2008). Shareholders be damned; she donated $30 million of her personal wealth to Princeton in 2007 to start the Whitman College!
Read more......
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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