What Is a Pyrrhic Victory?
A Pyrrhic victory is a success that comes with great losses or unacceptable costs. The term may be used to describe a business move that has costs that far exceed its rewards, such as an extravagantly expensive hostile takeover bid.
- A Pyrrhic victory comes at an unacceptably high price to the apparent winner.
- In business, Pyrrhic victories often result from lengthy and expensive lawsuits or hostile takeover bids that succeed only at too great a cost.
- A prolonged lawsuit may result in a Pyrrhic victory, particularly when a business spends too much in legal fees while taking on a larger company with greater legal resources.
- A Pyrrhic victory in business may also arise from unfavorable acquisition prices, poison pill clauses, buyout agreements, or short-sighted strategies.
- The term gets its name from King Pyrrhus of ancient Greece, who defeated the Romans in battle but suffered huge losses in doing so.
Understanding a Pyrrhic Victory
The army of King Pyrrhus of ancient Greece defeated the Romans in battle, but only after suffering terrible casualties. According to the historian Plutarch, Pyrrhus said, "If we win another such battle against the Romans, we will be completely lost."A Pyrrhic victory occurs when the toll on the winning party does not offset the rewards of success.
Pyrrhic Victory in Business
In the business world, Pyrrhic victories often occur in the courtroom when a company wins a judgment but at a cost that far exceeds any monetary rewards. This situation may occur when a business sues a larger company with more funds and a legal team at its disposal. Even if the smaller business wins, it may suffer great damage due to the expenses of a lengthy lawsuit.
A Pyrrhic victory may also occur if the buyout price to execute a hostile takeover escalates during negotiations or when an acquired company does not live up to the acquiring company's anticipated returns.
An even more straightforward example may be found in the corporate defensive strategy known as a poison pill. A company struggling to fend off a hostile takeover may deliberately take on a mountain of debt or dilute its own stock shares in order to make itself unattractive as a target.
The takeover of Time Warner by AOL in 2001 is a Pyrrhic victory for the ages in the business world. The merger of a then-giant of the internet and a traditional publishing titan occurred months before the tech bubble burst, erasing billions from the valuation of the combined company.
Pyrrhic Victories in the Stock Market
King Pyrrhus might have a pointer for stock market investors anxious to avoid a Pyrrhic victory: Don't overpay. Some investors jump right in after a short down period in the markets, pleased to buy shares of a stock that were recently more expensive. Alternatively, they see a stock climbing steadily and jump into it, thinking it looks like a winner.
The short-lived success of acquiring a stock at a "discount" may be considered an example of a Pyrrhic victory as the benefit of acquiring the security at a lower cost basis may come at the cost of additional future losses. This relates to the rushed acquisition of dividend stocks; though an investor receives the benefit of ownership prior to the date of record, the owner may face capital losses as a result.
How to Avoid a Pyrrhic Victory
Whether you're considering an investment, a lawsuit, or a career change, you can avoid a Pyrrhic victory. Think through the risks as well as the benefits of your actions before you make a decision. Once you identify the risks, consider whether and how they can be limited.
Not all risks can be quantifiable into dollar amounts, but discount cash flow models can lend insight into the true financial cost of an endeavor. Management is forced to consider not only the financial numbers but the timing of the cash inflow or outflow. Then, understanding some endeavors may play out over decades, management can roll financial figures to present values and analysis whether inputs are greater than outputs.
Whenever possible, it's always favorable to identify precedent transactions. Though not everything may happen like it did before, understanding Pyrrhic victories in business from the past may yield better understanding of what to change. For example, the AOL/Time Warner merger mentioned below has provided excellent case study material for other large corporate mergers.
A company performs SWOT analysis (strength, weakness, opportunity, and threat) to identify various aspects of a transaction. By looking at a situation from different angles, a company may feel it is or is not worth pursuing certain actions. For example, having identified that a company's legal representation is not as experienced as an opponents, a company may realize a win may be a Pyrrhic victory because of the uphill battle it faces.
One of the more commonly used qualitative assessment tools for evaluating risk, the Probability and Impact Matrix is used to identify the level of probability of something occurring and the level of impact that outcome can have. For example, a company may believe a merger has a 10% chance of causing a $500 million loss. Management must assess whether the opportunity for success is worth this Pyrrhic victory exposure.
In response to the invasion of Ukraine, many government sanctions were placed on Russia. Though detrimental to the invading country, some view the sanctions as a Pyrrhic victory as the sanctions have detrimental impacts domestically as well.
Examples of Pyrrhic Victory in Business
Microsoft Antitrust Case
In 2001, Microsoft won a Pyrrhic victory in its antitrust case when an appeals court decided that the software giant should not be forced to break up. However, as a result of the case, Microsoft was deemed a monopoly, and as such, was subject to more intense regulations going forward.
AIG Lawsuit Against U.S. Government
In 2011, Hank Greenberg, former CEO of American International Group (AIG), filed a lawsuit against the U.S. government alleging that the terms of the government's bailout of his insurance company were harsher than those imposed on other financial institutions after the financial crisis of 2007-2008.
After four years, during which Greenberg is estimated to have spent millions of dollars on legal fees, the judge agreed with Greenberg's premise but did not award him any monetary compensation. Greenberg spent millions, got his Pyrrhic victory, and walked away considerably poorer.
AOL/Time Warner Merger
Early in 2000, the online company AOL announced a merger with the publishing giant Time Warner in a takeover valued at more than $160 billion. The acquisition was hailed by AOL as the deal of the millennium. Shortly after the deal closed, the tech bubble burst. The new, combined company AOL Time Warner lost $200 billion in market capitalization over the next two years. Eventually, Time Warner spun off its AOL holdings in 2009, ending what is considered to be one of the least successful mergers of all time.
What Is the Origin of the Term Pyrrhic Victory?
King Pyrrhus, who died in the year 272, was the ruler of Epirus, a part of the Grecian empire. Determined to expand his kingdom, he waged war against various neighbors, rivals, and former allies. He was at war more or less constantly and often won because he was evidently willing to suffer enormous casualties to do so.
Pyrrhus is remembered primarily for lending his name to the Pyrrhic victory, which defines a win that comes at an unacceptable cost.
What Is an Example of a Pyrrhic victory?
The Battle of Bunker Hill is frequently cited as a classic example of a Pyrrhic victory for the British. The British won that early skirmish with American revolutionaries, largely because the rebels eventually ran out of ammunition and were forced to retreat. But the British lost about 1,000 troops, compared with light losses on the American side.
What Is the Benefit of a Pyrrhic Victory?
In the example of the Battle of Bunker Hill, the result was an enormous morale boost among the revolutionaries. Some historians believe the victory led to increased determination to keep fighting. On the British side, General William Clinton is said to have remarked, "A few more such victories would have shortly put an end to British dominion in America."
What Is a Pyrrhic Victory in Business?
A Pyrrhic victory is a broad term to identify a success that came at a high cost. This concept can be applied to many aspects of life, including business, investing, and finances. Consider a company that pays a higher-than-desired acquisition price. Though the outcome of acquiring a company is generally favorable, the price paid for new company may cause the deal to be unfavorable.
The Bottom Line
Sometimes, a win doesn't feel like a win. The specific outcome might have been favorable for a company, but it might have cost more or required an excessive amount of company resources to secure the outcome. These Pyrrhic victories may leave a business in worse position than before, even if the company achieved what it was hoping to accomplish.