Many of today's well known technology companies flirted with selling out to larger companies at what would today be considered shockingly low prices. Although these deals would have made the company founders into instant billionaires, saying no was the right choice as these businesses are now valued by the private or public markets at much higher levels. (For more, read Valuing Private Companies.)
TUTORIAL: Fundamental Analysis
Facebook is now a household name but things were a little different five years ago, and Mark Zuckerberg, the founder of Facebook, toyed with the idea of selling out. The company reportedly turned down a $750 million offer from an unidentified suitor in early 2006.
Several months later, the media reported that Facebook was again engaged in talks with various larger companies and was negotiating a sale to Yahoo (Nasdaq:YHOO) for $1 billion.
Zuckerberg ultimately decided against selling and instead accepted minority investments from outside entities, including Microsoft Corp (Nasdaq:MSFT). This turned out to be an excellent decision by the young founder of Facebook as shares of the company are actively traded in shadow marketplaces at prices that imply a valuation of $80 billion for the entire company. This valuation is considered low by many as the company's growth seems to move the valuation higher on a weekly basis. (Someone wants to help you create the next Facebook, check out Top 5 Incentives For Student Startups.)
Groupon was founded in 2008 and combines social networking with the shopping obsession and acumen of the general public. The site caught on rather quickly and, as expected, larger companies lined up to purchase this fast growing start up business. Yahoo, who seems to be the perennial bridesmaid in these deals, reportedly had Groupon locked up in late 2010 at a price of $1.7 billion, but the deal never closed.
Two months later, Google (Nasdaq:GOOG) decided that Groupon was an attractive business and entered negotiations with the company. Google offered $6 billion for Groupon only to see its offer turned down as the management of Groupon decided that its business model would be better served as an independent company.
Groupon is now considering an initial public offering in 2011, with the value of the company estimated to be in the range of $15 billion to $20 billion. Some analysts peg the valuation as high as $25 billion. (For more coupon sites, see 4 Coupon Sites Worth Checking Out.)
3. Apple Computer
Apple Computer is one of the leading technology companies of the current generation, but back in the dark days of the mid 1990s, things were a little different. Steve Jobs had left the company years earlier and Apple Computer had fallen from its previous glory as the founding company of the PC era.
In 1995, Oracle (Nasdaq:ORCL) was marshaling the resources to conduct a hostile takeover of Apple Computer and contacted Jobs to ask him to return and manage the company. Jobs decided he didn't want to lead a hostile takeover of the company he started and the deal fizzled out. This aborted offer would have valued Apple Computer at $3 billion, a pittance compared to the company's current market capitalization of $323 billion in 2011. (To learn more about Apple Computers, read The Apple Ecosystem.)
Twitter is another ubiquitous application in the wired world and the company has been lauded over the last year as many see it as a business that will transform society. The company was also the subject of various buyout offers early in its history.
In late 2008, Facebook offered $500 million, with the payment in a combination of cash and Facebook stock. Several months later, Google was mentioned as a suitor but the company's offer wasn't generous enough to interest the founders of Twitter, who reportedly said that they wouldn't sell out even for $1 billion.
Two years later, Twitter is still independent and the latest reports in the financial media have the company valued in a range of $8 billion to $10 billion. It should be noted that Twitter management denied that any discussions valued the company at this level, and the latest round of private funding for Twitter implied a valuation of $3.7 billion for the company. ( To read more on Twitter, check out Twitter: The Newest Stock Market Indicator.)
One intriguing offer from the archives of history involves a more mundane business outside of the technology industry. In 1929, Charles Guth became the President of Loft Inc., which owned a chain of confectionery stores in the eastern United States. Guth purchased large amounts of syrup from the Coca Cola Company to make beverages to sell in his stores and felt that his company wasn't getting enough of a volume discount.
In 1931, PepsiCo, a rival maker of syrup, filed for bankruptcy, and Guth was persuaded to purchase the company for $12,000. Guth started selling beverages using PepsiCo syrup instead of Coca Cola syrup. This didn't work out as planned and beverage sales plummeted as customers apparently could tell the difference between the two drinks.
After several years of owning PepsiCo and losing money, Guth grew frustrated and offered to sell the company to Coca Cola, which reportedly didn't even make an offer. Guth later found a different way to market Pepsi and the company soon became profitable. The lost opportunity cost Coca Cola dearly, as the current market capitalization of PepsiCo is $110 billion. (For more on companies like Pepsi, see Which Is Better: Dominance Or Innovation?)
The Bottom Line
Many fast growing companies that are currently worth billions once considered selling out at much lower valuations as larger and more established firms tried to buy into this growth. The founders made the right decision and stayed independent. (To learn more about companies like the ones listed above, check out Great Company Or Growing Industry?)
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