Caterpillar-ERA Mining Machines
Caterpillar has long wanted a bigger presence in China. It’s acquisition of ERA, a China-based manufacture of mining machines, didn’t help. In January, Caterpillar (CAT) was forced write-off $580 million, or 90% of what it paid for the deal. Sales at ERA has been inflated by a long-running accounting fraud at one of its divisions. And Caterpillar was duped into thinking the company was worth much more than it actually was. Other U.S. companies had considered buying ERA before Caterpillar, but balked. Caterpillar might want to hire some of their advisors.
Perhaps they should have gone with Michael Scott. When Office Depot announced its merger with OfficeMax in February, the companies left open which of their CEOs would end up leading the combined office supply chain. In the end, the search committee decided neither was qualified. Worse, it seemed no one else wanted the job either. When the deal was completed in early November, Office Depot (ODP) still hadn’t found a new CEO. Eventually, the company went with Roland Smith, who came from the grocery business, and had once been the head of Wendy’s. Also complicating the merger was the fact that the Federal Trade Commission considered blocking the deal. Back in 1996, the FTC had put the kibosh on a deal between Office Depot and Staples for anti-trust reasons. This time around the FTC announced that after a lengthy investigation the agency concluded that both Office Depot and Office Max were losing sales to online competitors and lacked the ability to raise prices above Wal-Mart (WMT). Even non-superstore competitors, the FTC determined, regularly take business from Office Depot and OfficeMax. So thumbs up guys.
It was generally a good year for IPOs, but it was not without duds. Dutch biotech company Prosensa (RNA) raised $80 million in a June IPO. Its shares soared 154% in the first month of trading, despite the fact that most of the company’s prospects were based on one muscular dystrophy drug. In mid-September, the FDA said that a late stage trial had revealed that the drug, drisapersen, was not significantly better than a placebo. Prosensa’s stock plunged 70% in one day. It now trades for $4.86, far below its IPO price of $13.
Apax Partners may have taken its long-time crush on teen retailer Rue21 a little too far. In mid-May, the private equity firm said it was re-buying the retailer for $1.1 billion, paying roughly twice what Apax had sold the company for in an IPO four years earlier. Within a few months, though, the deal was struggling. Rue21’s summer and fall lines didn’t sell as well as expected. Same-store sales fell nearly 10%. That rattled investors, who didn’t want to buy the bonds to finance the deal. Apax’s bankers, including Bank of America (BAC), JPMorgan Chase (JPM), and Goldman Sachs (GS), had trouble selling the debt to back the deal. Apax eventually completed the deal, but some question whether the teen retailer will generate enough cash flow to pay for all the debt Apax took on to acquire the company, particularly if sales continue to drop. It’s a hot mess.
Microsoft’s acquisition prowess is legendary in its awfulness. And 2013 offered more evidence of that. Microsoft (MSFT) spent $7 billion for Nokia, marrying the fledgling Windows mobile software with the maker of 2005’s hottest flip phone. Nokia has been losing market share for years. And it will add 32,000 employees and $700 million in costs in the first year alone to an already bloated Microsoft. Barron’s said the Nokia deal keeps “Microsoft’s reputation for overpaying for big acquisitions” in tact. Influential tech analyst Rick Sherland called it the deal “not even a mother could love.”
Awkward. In August BlackBerry’s CEO Thornsten Heins said the maker of e-mail friendly cellphones was up for sale. But three months later, the deal was off, and Heins was out of a job. BlackBerry (BBRY) failed to get much interest, signaling to the world that the company might be in even worse shape than many thought. The company’s shares plunged 16% after BlackBerry said there would be no deal.