Peter Lynch Lyrics: Foolish Acquisitions

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.

Lynch Lyrics

Foolish Acquisitions

"Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworseifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximized."

"Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). The same thing happens to people and their sailboats."

"These frequent episodes of acquiring and then regretting, only to divest and acquire and regret once again, could be applauded as a form of transfer payment from the shareholders of the large and cash-rich corporation to the shareholders of the smaller entity being taken over, since the large corporations so often overpay. The why of all this I've never understood, except that perhaps corporate management finds it more exciting to take over smaller companies, however expensive, than to buy back shares or mail dividend checks, which requires no imagination. Perhaps psychologists should analyze this. Some corporations, like some individuals, just can't stand prosperity."

"The 1960s was the greatest decade for diworseification since the Roman Empire diworseified all over Europe and northern Africa. It's hard to find a respectable company that didn't diworseify in the 1960s, when the best and the brightest believed they could manage one business as well as the next. Allied Chemical bought everything but the kitchen sink, and probably somewhere in there it actually took over a company that made kitchen sinks. US Industries made 300 acquisitions in a single year. They should have called themselves one-a-day. Beatrice Foods expanded from edibles into inedibles, and after that anything was possible."

"If a company must acquire something, I'd prefer it to be a related business, but acquisitions in general make me nervous. There's a strong tendency for companies that are flush with cash and feeling powerful to overpay for acquisitions, expect too much from them, and then mismanage them. I'd rather see a vigorous buyback of shares, which is the purest synergy of all."