Monday, March 24, 2008

Car Talk Meets IAC

There’s a popular weekend show on National Public Radio called “Car Talk.” The two hosts (the very knowledgeable and funny Maggliozzi brothers) act as car docs, answering people’s questions on odd, nagging, maddening auto problems. One of the periodic features of the program is called “Stump the Chumps.” In this segment, someone who had asked the hosts a question in a prior show is brought back to tell them whether their analysis and advice had been accurate. I listen to the show only sporadically, but in my experience the hosts have been correct 100% of the time. I thought about “Stump the Chumps” when I read some reports that Barry Diller is trying to break up the conglomerate mish-mosh called IAC/InterActiveCorp—the very mish-mosh he has so assiduously put together over the past few years. IAC is a bewildering array of online sites—you know many of them: Expedia, LendingTree,, Ticketmaster, to name just a few. Two years ago, I predicted that the “synergy” that CEO Diller was touting was basically bogus. On their own, I conceded that some, maybe several, maybe even many of these companies might perform well at the operating level—if they operated as fully independent firms. But in tandem, I argued that they provided no compelling additional composite value. On the contrary, I predicted that the unfocused, practically nonexistent corporate mission of IAC (I don’t consider “synergy” a mission) and the inevitable corporate bureaucracy that would emerge would actually diminish the value that these companies could potentially offer on their own. I documented some of my thoughts in my April 4, 2005 blog “A Synergy Fantasy”—see I urge you to read it. I think you’ll find it both amusing and informative.My knowledge of company ailments is nowhere near as good as Tom and Ray Maggliozzi’s knowledge of car ailments—but if I was playing Stump the Chump about my 2005 IAC analysis, I’d have hit the bulls eye. Consider a couple extracts from a March 16, 2008 New York Times feature on the company: • “At it’s core, it is a mergers-and-acquisitions deal shop”, said one executive at the company who requested anonymity…. “IAC does not have a mission as to why you want to be all together. Its mission is nothing more than doing what is interesting to Barry.”• “If you listened to (Diller) the months before, this is a great ball of wax,” said Mr. Vogel, the media analyst. “If it was so great six months ago, how come we are breaking it up? IAC does not seem to have any strategy. You would need a playbook to figure out what was bought and what was sold and what were the gains and what were the losses.” • In testimony last week, John Malone (IAC’s largest shareholder) said IAC’s results “have lagged seriously behind Nasdaq and other indexes”.I predicted it all, but I’m no genius. It’s fairly easy to predict that companies built primarily via serial acquisition (despite their executives’ lame rationalizations of “scale, scope and synergies”) will, like Wile E. Coyote, eventually accelerate towards a cliff drop off. I remember back in 2004, Cendant (a megamix of real estate services, car rentals, hotels, mortgage brokerage, time-share, truck leasing, and more) was crawling back from some near death experiences. At the time, CFO Ronald Nelson (today the company’s CEO) told Investors Business Daily: “The market viewed us as serial acquirers who couldn’t shake the narcotic of growing by acquisition. We had to convince the market we were adamant about our strategy to improve transparency, buy back stock, make no acquisitions, and provide organic growth.” Don’t get me wrong; I’m not suggesting that M & A is a no-no. Strong successful companies are always on the prowl for judicious acquisitions. But as an investor, you’d be wise to avoid those companies whose growth depends primarily on pasting together a collage of acquisitions. That’s true even if you’ve got rock star leaders like Barry Diller and John Malone at the helm. You know, I'm thinking about calling Car Talk to tell the Maggliozzi brothers that they inspired my latest critique of IAC, but I suspect they probably wouldn’t know what the hell I’m talking about—or care! Check out the show.


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