Six Signs of a Bad Acquisition

Takeover fever. Everyone's buying everyone else. Corporations -- and private-equity investors -- are so flush with cash that buying other companies is the easiest way to put that cash to work.

That may be OK, although in the case of publicly held corporations, I wouldn't mind seeing a little more of that cash returned to Millionaire Zone investors.

Any time I see a feeding frenzy in the markets, I start to wonder. And when I think back on previous M&A activity, I see a lot of bloopers. The recent dismantling of Daimler-Chrysler (DCX Quote - Cramer on DCX - Stock Picks) got me thinking -- couldn't we have seen this coming? And AOL-Time Warner (TWX Quote - Cramer on TWX - Stock Picks) and others?

The real question in any acquisition is this: Is value being created, or is it being destroyed? Here are some factors to consider.

• Pieces just don't fit together. Culture and process clashes really came home to roost in the Daimler-Chrysler fiasco and were most likely there when dot-commer AOL took over the established media giant Time Warner. (I would have loved to have been a fly on the wall in some of those conference rooms!)

  The tech business is rife with culture clashes, most vividly exposed with Texas-based Compaq's acquisition of New England's Digital Equipment, followed by West Coast Hewlett-Packard's (HPQ Quote - Cramer on HPQ - Stock Picks) acquisition of both. Overcoming these style discrepancies became a big challenge.

  There has been occasional talk about Coca-Cola (KO Quote - Cramer on KO - Stock Picks) buying Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks). Would it work?

  Well, they're both in the beverage industry, but that's where the similarities end. Starbucks distributes directly through specially crafted, company-owned outlets, while Coke gets to its customers in packages through a complex, multitiered mass-distribution channel.

  Also, Starbucks appeals more to upscale customers, while Coke appeals to the masses -- more on that below.

Click here for the video version of this story from Jennifer Openshaw.

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