Business Blog: Hoover’s Business Insight Zone

This time around, it’s Gary Forsee at the #3 US phone carrier, Sprint Nextel. This item from the Wall Street Journal’s DealJournal blog…

Sprint-Nextel: Anatomy of a Failed Merger

…details some of what went wrong in the deal — or rather, how the deal was founded on faulty premises to begin with. Instead of improving its operations, Sprint looked to bulk them up in a hurry by acquiring Nextel. This item from ZDNet’s Between the Lines blog…

Forsee out at Sprint

…highlights the ridiculousness of the company’s financial projections, which center on a non-GAAP measure called OIBDA (i.e. “operating income before depreciation, amortization, restructuring and asset impairments and special items”) — the poor relation of the likewise specious EBIDTA.*

Regular readers of the business news — and of this blog — could be forgiven if they initially thought that the headline was about Patricia Russo, CEO of Alcatel-Lucent. She’s not gone, yet, but don’t be surprised if she takes the fall for the bad news stemming from a merger that was ill-conceived from the get-go. And I doubt it will take another couple of years for her fate to unfold, as it did in the Forsee/Sprint timeline.

Mergers of big companies are always tricky. Desperation-induced mergers are toxic.

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* During the height of the dot-com boom, when EBIDTA numbers were all the rage, Warren Buffett asked a germane question about what the real meaning of any earnings number could be after you subtracted interest, depreciation, taxation, and amortization from it. If I remember his words correctly, he asked, “Who do they think pays for all these things — the Tooth Fairy?”