If you're a cynical person that is an easy thought... but something tells me a 3B acquisition of a company that is losing money in so many places isn't a decision taken lightly. A public company like Walmart, there's some people doing some math here.
Yahoo also reported that it's writing down $482 million
in charges related to the declining value of Tumblr,
the social-blogging service that Yahoo acquired for
$1.1 billion in 2013.
and the company is writing off $7.6 billion related to
its acquisition of the Nokia phone business. That's more
than the $7.2 billion Microsoft paid for Nokia's phone
business last year.
Public companies "do some math", but that doesn't mean their math is always right. Acquisitions are bets, and bets don't always pay off.
It seems you're pointing out the obvious: that no investment 100% guarantees any sort of return. Surely "the math" discussed internally at Walmart includes both:
1) A calculation of risk/reward on this investment
2) Determining whether result of 1 appropriately reflects Walmart's risk profile.
Given that Walmart decided to acquire, it is safe to assume this investment's risk of loss falls within Walmart's investment profile.
My own observation is that the bets hardly ever pay off. Microsoft/Nokia is a great example but there are plenty of others. Maybe it's just confirmation bias, but I have trouble thinking of one counter example.
Adobe did buy AEM "when i was little" (you know, for like 20M or something I have no idea) and it has grown to 10x as much. However that is purchasing a smaller company...kind of like venture capital investment I guess. there seem to be plenty of examples where buying companies hasn't worked out (yahoo+tumblr comes to mind, and that's only recent news).
Sorry, not familiar with the acronym AEM. But you do give me an opportunity to modify my statement - it seems that the larger and more strategic the acquisition seems, the more likely it is to fail. And even when it doesn't fail, the synergies never seem to gel - what news of Zappos lately?
The people with the best risk ratio are not the people with the most invested, therefore acquisition deals are almost always poor value for shareholders as top execs gamble other people's money with virtually no downside. Deal goes bad? Have $2m severance and get another huge job elsewhere. The incentives at play are perverse.
> A public company like Walmart, there's some people doing some math here.
Translation: "I can't see how this deal makes sense but WalMart is a huge company so it has to make sense even if to me it doesn't".
By that logic no big company would ever fail or screw up. Every time there's a huge acquisition there are some people here making this fallacious argument or a variation of it. There are always people "doing some math" inside these companies, that doesn't mean that the success of any given strategy is a given.
They're definitely doing the math, but to an objective outsider the numbers won't add up. We are all likely underestimating how hard it is to innovate inside a company the size of Walmart.
The equation they're solving for is probably not, "How can we maximize Walmart's profits?", though. It's "How can I maximize my own immediate career goals?"
