By Stephen Gandel
December 28, 2012

Facebook IPO

The must-have deal of the year turned out to be a dud. Shares of Facebook (FB) began falling almost immediately after its IPO. The stock, which began trading at $42, sunk to as low as $17.55, before rebounding to $28.

There has been plenty of finger pointing, including: Facebook’s CFO David Ebersman pushed for the company to sell as many shares as possible; Morgan Stanley overpriced the offering and may have been involved with tipping off some investors to the fact that there were problems with the deal; Nasdaq seemed unprepared for the IPO.

There have already been two settlements to come out of the Facebook IPO, including a $5 million fine that Morgan Stanley paid to the state of Massachusetts. Numerous other shareholder lawsuits are still pending.

Freeport-McMoRan Exploration

In a year that highlighted the conflicts of interest in Wall Street deals, Freeport’s $9 billion bid to buy a former subsidiary and a related company took the prize. More than half of the directors of McMoRan (MMR) also sit on the board ofFreeport (FCX). The chairman of Freeport, Jim Bob Moffett, is also the CEO of McMoRan. So perhaps it’s not surprising that Freeport agreed to pay 74% more for McMoRan than what investors were previously saying the company was worth.

Freeport’s own board members stand to gain. And that would all be alright if investors thought the deal was a good one. They don’t. On the conference call to announce the deal, Blackrock portfolio manager Evy Hambro said, “Congratulations on making one of the worst teleconferences I’ve ever heard to justify a deal.” He didn’t think the deal was so hot either.

Kinder Morgan-El Paso

At a time when Goldman Sachs was being derided for treating its clients like “muppets,” the $21 billion acquisition of rival pipeline company El Paso by Kinder Morgan (KMI) seemed like yet another datapoint. Goldman advised El Paso on the deal. Yet, Goldman owned nearly 20% of Kinder at the time. Goldman’s lead banker, too, was a Kinder shareholder.

Goldman’s split loyalty, El Paso shareholders later said, resulted in a lower price for their company. A Delaware judge heavily criticized Goldman and El Paso’s board of directors for the conflicts of interest, but approved the deal anyway. Kinder ended up paying $110 million to settle the shareholder suit. Goldman had to forgo its $20 million fee.


While Hewlett-Packard’s (HPQ) deal to buy software company Autonomy was signed in 2011, it took until 2012 to reveal just how truly awful the deal was. In late November, HP announced that it was writing off $9 billion of the $11 billion it paid for the company. About half of that write-off was due to accounting irregularities at Autonomy that HP says it didn’t know about before the deal. Others say they should have been obvious.

A number of analysts have dubbed the deal worse than the AOL-Time Warner merger, which has long held the title as worst deal of all time. On behalf of my employer, Time Warner, I want to say, “Thank you, HP. Thank you.”

Every deal done by Microsoft

Too much. Too late. That pretty much sums up every recent Microsoft (MSFT) acquisition. Yammer was added to the list in 2012. The software giant in May paid $1.2 billion for the Facebook you’ve never heard of, despite stiff competition from, Oracle and others in the business of building corporate social networks.

Last year, Microsoft paid $8.5 billion for video-conferencing service Skype, which has lot of users but no profits. In July, Microsoft said it was writing off 98% of the $6.2 billion it spent back in 2007 on digital advertising network aQuantive, another 2012 reminder of Microsoft’s keen deal-making.


Analysts have long said that Sprint, the No. 3 U.S. mobile service carrier, needed to merge with a rival to boost market share. Instead, 70% of it was bought in October by Japanese technology company Softbank, which has a lot of debt and no experience providing cell phone service in the U.S.

And it’s unlikely Softbank underpaid. At $20 billion (a 27% premium to Sprint’s value), the deal ranks as the biggest Japanese overseas acquisitions in history. Softbank’s shares fell 20% on news of the deal.

Delta buys a refinery

Consumers have a ton of complaints about airlines. That they don’t refine their own jet fuel is not one of them. Nonetheless, in April, Delta (DAL) decided to spend $220 million to buy and restart a shuttered oil refinery on the outskirts of Philadelphia. It wasn’t Delta’s largest deal of the year. The company agreed in December to buy 49% of Virgin Atlantic airlines for $360 million (a deal that received plenty of criticism, too). But the refinery acquisition was Delta’s most controversial.

Delta’s CEO Richard Anderson said the refinery would greatly reduce the airline’s exposure to rising and falling jet fuel prices. Yes, but it will also greatly increase the company’s exposure to changes in the price of oil, which is the primary input for a refinery. And while Anderson is worried about that, passengers will be left wondering why their connecting flight in Atlanta never showed up.

Editor’s note: A previous version of this slide incorrectly stated that Delta agreed to purchase 49% of Virgin America in December. Delta agreed to purchase a stake in Virgin Atlantic.

Duke Energy -- Progress Energy

William Johnson’s reign as CEO of the utility company formed from Duke Energy’s (DUK) acquisition of Progress lasted just a few hours. Shortly after the deal closed in July, Duke’s CEO James Rogers got the board to boot Johnson, and install none other than Rogers in his place.

The boardroom coup uncovered long simmering reservations about the deal, which was inked more than a year before. Duke apparently unsuccessfully tried to get out of it. By early December, Rogers said he was leaving too, pushed out in a settlement with North Carolina regulators who were unimpressed with Rogers’ boardroom tactics.

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