3 Stocks That Should Have Taken the Money and Run

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So … Groupon (NASDAQ:GRPN) … yeah.

What to say? It’s now under $5 after pricing at $20 and briefly popping to $28 for its late 2011 IPO. That’s a 75%-plus loss for Groupon stock from its offer price and more than 80% down from its peak. The company continues to see growth headwinds and suffer from messy accounting and the general impression of mismanagement.

This is a painful story for boyish Groupon CEO Andrew Mason. And it’s not just because he is the founder and because he has a tremendous holding of his company’s stock, with paper losses in the billions.

It’s because he could have completely avoided this mess in early 2011 — and walked away with his ego intact, a heck of a lot more money and a much more secure future.

That makes Groupon one of three companies in the last year or two that foolishly spurned big buyout offers only to go it alone — and fall flat on their faces.

Flop #1: Groupon

Groupon was courted by tech giant Google (NASDAQ:GOOG) for something approaching $6 billion, according to various reports. It wasn’t hard to see why — the company essentially created the daily-deals business and was growing fast as it courted advertisers.

As the king of digital ads, it was only a matter of time before Google came knocking.

But Mason didn’t want to accept because he thought Groupon could keep growing. And initially, it did — from 2009 to 2011, Groupon’s revenues went from a mere $14.5 million to $1.62 billion. During this time, the company hired more than 10,000 employees and built operations in 44 countries.

The problem was GRPN burned all its cash to expand, was paying merchants late and messed up its financial statements with sloppy accounting. As Tom Taulli put it, it was shades of dot-com flop Webvan for Groupon that should have spooked anyone close to the company.

Meanwhile, Google and Amazon (NASDAQ:AMZN) decided to get into the deals space, and still-private LivingSocial was also growing.

Now Groupon has a market cap of a mere $3 billion and could go even lower. That $6 billion price tag from Google looks mighty good now — and considering the stress of running this company has to be huge, the peace of mind alone might have been worth it for Mason and other leaders at Groupon.

Flop #2: Yahoo!

The scuttled Yahoo! (NASDAQ:YHOO) deal from 2008 is another story of tech egos gone awry.

Let’s turn back the clock to those days before the financial crisis, where Google is the undisputed king of search and the “Web 2.0” revolution was starting to show its power. The Apple (NASDAQ:AAPL) iPhone was about to make a splash with its second incarnation, Facebook (NASDAQ:FB) was coming into its own, and legacy tech giants like Microsoft (NASDAQ:MSFT) were seeing headwinds.

So in early 2008, Microsoft made a $44.6 billion bid for Yahoo, which works out to $31 per share at the time. And Yahoo’s board — prodded by the company’s co-founder, Jerry Yang — rejected it. By some reports, Yang & Co. were looking for as much as $57 billion, or $40 a share.

After gapping up to close to $30 on the rumors, Yahoo stock then proceeded to fall off a cliff as the deal unraveled, the financial crisis took hold and YHOO revenue and earnings began to disappoint.

Now the stock is languishing at $15 per share — which translates to a roughly $18 billion market cap, or less than half of what Microsoft was willing to pay.

Jerry Yang not only had to deal with that in the intervening years, but the embarrassment of a failed tenure as CEO of the company and eventually an ouster from the Yahoo board, too.

Shoulda taken the money and run, Jerry.

(Read more in my recent column about why Yahoo is one of three stocks that will NEVER turn around.)

Flop #3: Avon

Outside of tech, another spurned buyout recently made waves — the spring bid for Avon (NYSE:AVP) from private beauty products brand Coty.

But Avon rejected the buyout, which was priced at $10 billion, or $23.25 per share.

The difference is that unlike Groupon, which thought it was on the way up, Avon just thought it wasn’t quite as bad as critics claimed. The company faced a foreign bribery investigation, weakening sales and a leadership vacuum as longtime CEO Andrea Jung stepped down amid calls for a shakeup in the way AVP does business. But in 2010 and 2011, Avon was comfortably over $30 per share and seemed confident it could get back to that level.

Well, $23.25 seems like a nice premium nowadays, considering AVP stock is trading under $16 right now — 30% cheaper than Coty’s bid. Avon will have to double to get back to that $30 mark seen before recent troubles, and even then it still will be down significantly from its peak in the mid-$40s before the financial crisis.

It’s too early to know for sure, but the initial indication is that Avon might have had quite a pretty payday with Coty’s early 2012 offer.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.


Article printed from InvestorPlace Media, https://investorplace.com/2012/08/3-stocks-that-should-have-taken-the-money-and-run-grpn-yhoo-avp/.

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