Perhaps it was Donald Trump, or Bernie Sanders, or all the uncertainty around the election. Or maybe it was the Federal Reserve and the fact that interest rates began to rise. Whatever the reason, even the stock market’s march to Dow 20,000 wasn’t enough to the keep the business world’s deal juices flowing. For mergers and acquisitions, and for initial public offerings in particular, 2016 was a flop.
U.S. M&A volume dropped 21% from the previous year. In terms of dollars raised, it was the lowest year for IPOs since 2003, and the second-lowest year since 1992.
But even through there were fewer deals, there were still a fair share of ones that should never have been announced in the first place (we’re looking at you, Verizon), along with a couple from past years whose glaring flaws undid them this year. Here are Fortune’s picks for the dumbest deals of 2016.
Verizon-Yahoo
Even before news surfaced that Yahoo had been the victim of two massive hacks, Verizon (VZ) looked to be overpaying for the fallen king of email. The $4.8 billion bid, announced in July, values Yahoo at 5 times cash flow. That’s not a lot for a tech company. Even troubled Twitter (TWTR), for instance, trades at 15 times cash flow. But Twitter is still growing. Yahoo (YHOO) is not.
The once-wunderkind CEO Marissa Mayer has spent the past four years trying to turn the company around—streaming football games and hiring big-name journalists like Katie Couric. It hasn’t worked. Yahoo’s core business lost $2.4 billion in value under Mayer. And cash flow is down to just over $800 million, from $1.5 billion in 2012.
Verizon, of course, thinks it can stop the decline, perhaps by combining Yahoo with AOL, which it bought in 2015, to create a competitor to Google (GOOGL) or Facebook (FB). But YahoOL has a lot of catching up to do. And now the hacking news has soured Yahoo’s main asset—secure, non-work email. Verizon is already trying to renegotiate its buying price. The market thinks it will cut its bid for Yahoo by $1 billion. That may still mean it’s paying $3.8 billion too much.
Every Deal Ever Done by Time Warner’s Jeff Bewkes
Time Warner (TWX) CEO Jeff Bewkes has long been wheeling and dealing atop the media giant, culminating in this year’s proposed mega-merger with AT&T. Only in 2016, though, did it become clear how truly dumb Bewkes’s previous deals have been.
Both AOL and Time Warner Cable (TWC) soared in value after Bewkes spun them off in 2009. Time Inc. (TIME), the parent company of Fortune, has dropped in value after being similarly cast aside in 2014, so jettisoning it perhaps saved Time Warner shareholders some money–but not nearly enough to make up for how much they’ve missed on Bewkes’ other spin-offs.
All told, Time Warner’s shares, based on what AOL and Time Warner Cable were eventually acquired for after Bewkes tossed them aside, could have been worth as much as $103.65 before the AT&T deal was announced. Instead, they currently trade at around $96. AT&T has offered to pay $107.50 per share for Time Warner; if the company still owned those spin-offs, it could be selling for much more. And that conclusion doesn’t factor in all the costs Time Warner incurred in the spin-offs. AT&T clearly thinks Time Warner is worth more when connected to a cable provider, so it’s likely that Time Warner’s shares would have been worth much more, with or without the AT&T deal, had Bewkes not spun off Time Warner Cable.
Bewkes has argued that AOL and Time Warner Cable, as well as Time Warner, have benefited from being smaller and having a tighter focus. But there’s an irony there: if that argument is right, combining his company with AT&T is, by Bewkes’s own logic, a very poor deal.
NantHealth’s IPO
In late 2015, Patrick Soon-Shiong, part owner of the Los Angeles Lakers and one of L.A.’s richest men, delayed the IPO of his company NantHealth. The company, which offers a mash-up of medical testing, payments processing, and medical infotech, eventually went public in June.
Perhaps it should have waited longer. Shares of NantHealth (NH) soared on their first day of trading to as high as $21, but have plummeted since. The stock is now down more than 50% from that peak, to around $10.50, making it one of the worst-performing IPOs of 2016. At the time of the IPO, Soon-Shiong crowed that his company was the first to match up genomic cancer testing with billing services. But it’s not clear that enough hospitals or doctors are looking for those combined services. In the first nine months of 2016, NantHealth lost $124 million, up from a loss of $54 million in the same period in 2015.
And it appears the company, less than six months after its IPO, is already hurting for cash. In late December, NantHealth raised another $100 million in a convertible-bond offering. To do so, NantHealth had to offer a 5.5% interest rate to investors. The average convertible bond pays just 3.3%.
Investing website Motley Fool’s bottom line: “NantHealth simply does not qualify as an investment; it’s a pure speculation.”
Pfizer-Allergan
It was a “read my lips” sort of moment. In November 2015, when Pfizer CEO Ian Read announced his company’s deal to buy Allergan, he stressed that while the $160 billion acquisition would move Pfizer’s official headquarters to Ireland, it was not about avoiding U.S. taxes. No, the Pfizer-Allergan combination was highly strategic. “I want to stress that we are not doing this transaction simply as a tax transaction,” Read reiterated.
Oh well, if he insists. But in April, just two days after the Treasury Department announced new rules that would significantly limit the tax savings from cross-border deal, the Pfizer-Allergan deal was called off. The cancelation of the deal made it clear that Read didn’t really have a vision for how to boost his company’s profits other than by cutting taxes. And shareholders have suffered: Despite a late 2016 rally, shares of Pfizer (PFE) are stuck roughly where they were when the deal was called off.
Nordstrom-Trunk Club
In November Nordstrom (JWN) admitted it had made a fashion faux pas. The high-end department store announced it was taking a nearly $200 million writedown on Trunk Club, about half of what it had paid for the online shopping service just two years earlier. The deal was meant to jumpstart Nordstrom’s presence online. But under Nordstrom’s command, the service has never made money. Shortly before Nordstrom bought the company, Trunk Club had started opening up its own physical stores. In hindsight, that should have been a pretty good warning sign that its online strategy wasn’t working. Nordstrom will hopefully be a more diligent shopper next time.
