Verizon
will invest $4.4 billion to acquire AOL; see http://www.nytimes.com/2015/05/13/business/dealbook/verizon-to-buy-aol-for-4-4-billion.html?emc=edit_na_20150512.
At first
blush, this makes plenty of sense: Verizon has lots of retrained earnings and
the ability to borrow billions; the company does not want to rely solely on
wireless; and moving up the vertical food chain into content helps the company
diversify and augment its home grown content.
Okay so
far, but we should not forget the billions lost in value when Time Warner,
another content distribution carrier, tried to extract the value in AOL. So what’s different this time? Bear in mind that a few years after
divestiture from AT&T, Verizon experimented with self-generated content and
failed miserably.
On the
other hand, Comcast has successfully integrated content distribution with
content generation. The company acquired
NBC-Universal and has ownership interests in many cable programming networks.
Is there a
way to predict a company’s prospects for a vertically integrating acquisition?
I can think
of two factors: the willingness of the acquiring company to encourage
management of the acquired company to stay and more broadly whether the
acquiring company can broaden its perspective.
Verizon need to expand its telephony (Bellhead) management skills to
include content and alternative distribution channel management (Cablehead/Nethead). Telephone company management skills will not
suffice.
You can
teach an old dog new tricks, but Verizon would be wise to bring in several new
breeds.
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