Much is being said about the announcement that Yahoo! has acquired Tumblr for $1.1 billion. It's a dangerous move. But more significantly, I think it points out how poor a strategic thinker Yahoo! CEO Marisa Mayer is.
These type acquisitions of fairly young companies that aim at major mass markets are always great unkowns. The Austrian economics insight, that the world is a very complex place, should serve as a cautionary signal for anyone making these kinds of acquisitions.You just don't know how these deals will turn out. The shrewd way to protect yourself during these type acquisitions is to structure the deal in a way, where downside is limited if things go bad,
Think about Rupert Murdoch's acquisition of MySpace. Murdoch bought MySpace for $580 million and ended up selling it for just $35 million. That still turned out a pretty good deal for him, since he was hedged a bit by the sale of ad space to Google, when he made the MySpace acquisttion. In other words ,he protected his downside, if things were to go wrong, as they did. That's a shrewd operator. Always protect your downside, when making a bold move. The selling of ad space protected Murdoch.
It does not appear Mayer built-in such a hedge in Yahoo!'s acquisition of Tumblr. It appears that it will be total free fall, not a tumble, if it doesn't work. In other words, she is nowhere near the shrewd dealmaker Murdoch is. The Tumblr deal brings to mind the Yahoo! acquisition of Broadcast.com
In 1999, during the dot com bubble, Broadcast.com was acquired by Yahoo! for $5.9 billion in Yahoo! stock. Have you heard anything about Broadcast.com since? The only thing Broadcast.com did was create multi-billionaire Mark Cuban and that's only because Cuban was shrewd enough to protect his downside when he sold to Yahoo!, unlike most other dot com players of the era, He "collared" his Yahoo! stock position, so that when the dot com bubble burst, the put side of his option collar protected his billions, until he was legally allowed to sell the position.
The Tumblr acquisition may, or may not, work for Tumblr. It is a roll of the dice, but it sure shows that Mayer is nowhere near in the same deal making league as Murdoch and Cuban, when it comes to protecting against the downside.
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