The stocks that are mentioned below have either experienced change or are expecting change within operations due to the effects of acquisitions. I believe that each of these companies made decisions within the organization for potential growth. Here is how I believe these past, present, and future acquisitions will affect each company involved.
I believe that Google's $12.5 billion purchase of Motorola Mobility is among the greatest acquisitions I have ever seen. Prior to this purchase, the largest in Google history, the technology giant had roughly 600 patents. This number was modest at best in comparison to Google's competitor Apple (NASDAQ:AAPL) and its large patent portfolio. With the acquisition of Motorola Mobility the company now has access to nearly 17,000 additional patents.
With 600 patents I do not believe that Google would have been capable of competing long-term against Apple. Google had been placed in a situation to where it had to make a move, as partners were seeing countless lawsuits over patent related issues regarding the Android operating system. I believe the lawsuits could have drastically affected future decisions to move forward with the Android system by other companies. Google experienced a great deal of success with Android, one of the most used systems in our society. Android, along with a successful handset manufacturer, MMI, and 17,000 patents secure the future and allows the company to move forward with the Android System.
Google does not manufacturer handset products, it is simply the owner of the Android operating system. Android has been used by several successful companies, such as HTC Corporation. I believe this acquisition could give Google the flexibility and leverage to use the Android system in a way that only the company sees profit, in a way such as Apple. This fact along with patents from an innovating company is why, I feel, Google completed one of the more beneficial acquisitions in technology, that will offer a new dimension to the company's future.
Sprint Nextel Corporation (NYSE:S) and Clearwire Corporation (CLWR)
Clearwire Coporation (CLWR) gained more than 30% on Friday as the idea of Sprint Nextel (S) buying the company becomes more realistic. On Friday, news surfaced in regards to Sprint speaking with cable companies about a potential purchase of Clearwire Corporation. Prior to this news I believed that Sprint Nextel was a dying company with the inability to post a profit, in years, that remained relevant by selling assets while maintaining a high level debt. See chart below for year over year financial performance, in millions, of Sprint, numbers obtained from Google finance.
The first thing I notice when I look at this chart is negative income. The company has lost $38 billion over the last 4 years and trimmed more than $12.5 billion in assets. Even without 2007, the company is still posting large losses that do not appear to be improving.
I believe that Sprint could very easily see year-over-year profits but it would require changing the business plan. The company owns more stores that lose money than that return a profit. I believe the company should close all stores that do not return a yearly profit, or are not growing, and focus on the strong stores that produce income. The company is not AT&T (NYSE:T) or Verizon (NYSE:VZ); it is Sprint -- and until the company realizes this fact I do not see any hope for its future.
The acquisition of Clearwire could prove to be meaningful for both companies. Sprint is not going to pay a high premium for the company, because it already owns a large percentage of the company's voting shares, almost 50%. So financially the acquisition should not drastically impact the company's income statement, and so it actually makes sense. I believe the value lies within two areas: Clearwire's mobile broadband technology and its relationship with cable companies.
Clearwire created the first 4G mobile network in America, therefore the company is innovating, which provides service to over 130 million people across the U.S, many of which are Sprint customers. I find this to be important as Sprint's service is widely used, and Clearwire is a provider to a large portion of the country. In addition to providing this service, Clearwire is spending a great deal of money to upgrade the network with new speeds to compete or challenge AT&T and Verizon. This upgrade could provide Sprint with a benefit to its company vs. the competition, something it currently does not have.
Both Verizon and AT&T offer a variety of services which include mobile, Internet, and television packages. The addition of Clearwire does not provide Sprint with the many services that competitors offer, but the partnerships which Clearwire has created could offer these services. It is unlikely that Sprint will acquire the company without the consent of Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), or Brighthouse; each of these companies holds a large portion of Clearwire's voting shares, which means that Sprint will either acquire the shares or trade with assets.
This could cause a direct partnership with one of the cable companies, if not all three. Bloomberg released an article in which it covered the different ways this deal could impact each company along with cable TV providers. Most of this information is speculative, yet posses a realistic possibility. If there were a way in which these companies, that offer an array of services, could benefit from one another, then increased profits would be likely, as the consumer base would increase.
I would rate the chances of this acquisition taking place as likely. It makes sense on a variety of levels, some of which I have mentioned and others that are unknown. It would be relatively cheap for Sprint to acquire Clearwire, and it could cut down on Sprint's longterm cost. Therefore, on a long-term basis, I believe this acquisition could benefit both companies. But the question that is yet to be answered is, how much or will these companies see long term profitability with this acquisition.
I do not believe that any acquisition will bring Sprint to profitability unless the company makes changes in the areas that I have mentioned, such as closing locations with negative income or lack of growth. Sprint has posted 15 straight quarters with no profit, and Clearwire has posted more than 4 years of negative earnings. Therefore this acquisition combines two companies without profitability. If I were an investor in Sprint, I would be looking towards Clearwire and the company's growth over the last 4 years and the improved earnings. With both companies unable to post consistent profits along with debt increasing at a faster rate than assets, there must be a solid business plan in place, along with a transcendent service in order for this deal to be viewed as successful.
DISH Network (NASDAQ:DISH) and Blockbuster Inc. (OTC:BLOAQ)
I will start by saying that I believe this acquisition will completely change DISH Network, along with differentiating the company from DirecTV (NASDAQ:DTV). The benefits from this acquisition are limitless with a price of only $320 million.
DISH Networks immediately showcased the new acquisition after Netflix (NASDAQ:NFLX) announced it was increasing the price of mail order DVDs. DISH offered new customers a free 30-day trial for the mail-order DVD program under Blockbuster's name. The rates after a one-month trial increase to $9.99 for one DVD a time, which includes Blu-Ray discs. I believe this initial promotion will prove to be valuable as the company attempts to capitalize on Blockbuster's name and assets.
The company offers similar services as competitor DirecTV, with each company a patent portfolio that present individual advantages. I believe the largest difference between these two companies is that Directv does not have Blockbuster, nor any service that comes close to its ability. It is unknown how DISH plans to utilize Blockbuster; therefore one can only speculate, and hope.
DISH may have viewed the purchase price as too good to pass up, but plans to let the company revive the stores and operate as an individual business. If DISH has these intentions in mind, then this acquisition was absolutely meaningless, since the company went bankrupt with its business plan. However, if DISH plans to utilize the company with a service plan, then I believe the company will see large returns and profits.
The perfect way for DISH Networks to utilize Blockbuster is to offer the service as a premium to current customers. If DISH was to approach Blockbuster as a service, not a company, and charge $9.99 per month for customers to receive unlimited mail-order DVDs, then it would have a service no other provider could compete against. The service could still be offered to customers that are not DISH Network subscribers, but I would charge extra, and focus on the benefits of joining DISH Networks.
DISH Networks just completed one of the all time great acquisitions in the Broadcasting & Cable TV Industry. The company has made several intelligent decisions to see long term growth, and while this article is not fundamentally focused I must mention the obvious.
DISH has lost more than 30% of its value over the last month and is now trading with a P/E of 7.08. The company has announced an increase in revenue each of the last four years with 2010 seeing the largest margin. This proves the company is growing, and 2011 is on pace to outperform 2010 by a significant amount.
The company is making changes and is preparing for the future. I believe DISH will offer the Blockbuster service and see incredible results. DISH has also teamed up with Logitech (NASDAQ:LOGI) and Google to deliver Google TV, which will ultimately lead to Smartv from Intel (NASDAQ:INTC). These acquisitions and partnerships create a future that is limitless, as the company has made great decisions for both its present and future. The acquisition of Blockbuster will be no different, and should return exceptional gains for both companies. It will be remembered for changing the landscape of broadcasting and cable TV.
Disclosure: I am long GOOG, T.