E-Business Dream Mergers

Corporate matches made in heaven are rare occurrences. In many cases, merger and acquisition analysts find more fault than forte in company unions.

Opponents of the much-hyped merger between Hewlett-Packard (NYSE: HPQ) and Compaq, for example, deride the deal as an exercise in futility. Similarly, some industry watchers puzzle at the viability of Ameritrade's US$1.3 billion purchase of rival Datek Online Holdings.

"It is consolidating a market," GartnerG2 research director David Schehr told the E-Commerce Times, referring to the Ameritrade deal. "The question is, is it the right market [to consolidate]?"

In e-business, most analysts contend that the best partnerships blend virtual and physical sales channels.

Mega-Marriage?

One such "dream merger," according to some analysts, almost became reality two years ago.

Before eBay (Nasdaq: EBAY) grabbed the e-commerce spotlight, Yahoo! (Nasdaq: YHOO) was eyeing the auction site as an acquisition target.

"Yahoo! is now trying to replicate some of eBay's profitability strategies," Morningstar.com analyst David Kathman told the E-Commerce Times. "A merger would have given Yahoo! a huge revenue stream not dependent on advertising."

In addition, Kathman suggested, eBay would have gained access to Yahoo's vast user base and perhaps would have enjoyed even greater success than it subsequently achieved on its own.

Role Reversal

Had it not been for minor deal breakers involving executive appointments, Yahoo! might have punched an early ticket to sustained profitability.

Now, though, as eBay continues its skyward march and Yahoo! plods through hard times, a merger seems unlikely.

"EBay would have to take on Yahoo's liabilities, which could slow down its growth rate and hurt its profitability," Kathman said. "EBay would [have to structure the deal] for some longer-term benefits."

The Big One

E-tailers and other e-businesses may be best served by pursuing partnerships with brick-and-mortar companies, analysts agreed.

"The best e-business mergers are with 'p-businesses,'" Schehr said, alluding to physical companies.

In this vein, analysts said they can envision a large traditional retailer like Wal-Mart (NYSE: WMT) or Target snatching up e-tail powerhouse Amazon.com (Nasdaq: AMZN) within five to 10 years.

"Wal-Mart has had various e-commerce sites, but none has taken off," Kathman noted. "Amazon could [give Wal-Mart] the dominant online retailing presence."

No Sure Thing

Likewise, Target -- which is already in cahoots with Amazon -- could stage a similar coup.

In either case, Amazon would secure a more stable future, rather than remaining in the still-uncertain realm of pure e-tail.

Clearly, though, Amazon has become an e-tail model and may end up as one of a very few pure-play e-tailers, according to Kathman. The company is not likely to entertain suitors like Wal-Mart or Target unless its fortunes take an abrupt turn for the worse.

"Amazon is only seven years old," Kathman added. "A lot can happen in the next five to 10 years."

All in the Family

In these days of multichannel retailing, some intra-enterprise mergers -- or "spin-ins" -- could benefit companies that previously divested their Internet operations.

Multipronged bookseller Barnes & Noble (NYSE: BKS), for instance, could improve its performance dramatically by reabsorbing its online arm, analysts suggested.

In fact, some reports indicate that a buyout already may be in the works.

Majority Rules

"Barnes & Noble should never have separated" from its online arm, Giga Information Group analyst Andrew Bartels told the E-Commerce Times.

"BarnesandNoble.com could leverage multiple sales channels much more effectively and boost its market share" if a merger were to occur, he said.

For their part, Wal-Mart and Kmart each have rolled their Web unit back into the main corporation, and Sabre Holdings (NYSE: TSG) recently boosted its stake in Travelocity from 70 to 100 percent.

"[These roll-ups] make governance and management easier," Schehr said. "To change direction, managers do not have to check with [minority shareholders]."