When Steve Ballmer’s purchase of the Los Angeles Clippers for $2 billion became official on Tuesday, the voluble former Microsoft (MSFT) chief executive officer went on a brief victory lap in the media. “It’s the price I paid, and I’m thrilled,” he told Bloomberg News. “I have a history of looking at tech companies, and I’d say, basketball teams are lower-risk,” he said of the off-the-charts price he paid for the team. In comments to ESPN, Ballmer elaborated on his tech comparison: “It’s not a cheap price, but when you’re used to looking at tech companies with huge risk, no earnings, and huge multiples, this doesn’t look like the craziest thing I’ve ever acquired.”
Ballmer is right. By the standards of tech valuations, especially during his tenure at Microsoft, the Clippers price is downright frugal. Here, from the Bloomberg archives, are three Ballmer buys—and one mad offer—at Microsoft that were arguably more insane than the $2 billion price for the Clippers.
1. Telewest Communications: In 2000, just a few months into Ballmer’s time at the helm, Microsoft bought a 22 percent stake in British cable TV provider Telewest (LBTYA) for $2.6 billion. Less than three years later, they sold it for $5 million. Microsoft was looking for entrée into the set-top box software market. It didn’t work out. “It’s one of those where you sit back and go ‘wow,’” Don Gher, then chief investment officer at Coldstream Capital told Bloomberg, “The loss in value is really incredible. But they are being more careful now. They’ve learned a lot of lessons.”
2. AQuantive: In 2007, Microsoft paid $6.3 billion for the Web advertising shop, an 85 percent markup on the company stock’s closing price the day before. It was a desperate move to keep up with Google (GOOG) in the online ad market. It didn’t work out, either. Five years later, Microsoft wrote off almost the entire purchase price of AQuantive. “This is an accounting decision that the company made based on how the business is performing relative to the projections we had made during the past five years,” Ballmer told employees in a memo.
3. Skype: Microsoft paid $8.5 billion for the Internet calling service in 2011. That was 32 times the company’s earnings and 40 percent more than the multiple the company had been using to value itself. “I just thought, ‘You’ve got to be kidding me,’” one institutional investor in Microsoft told Bloomberg. “They don’t have a great track record of ‘investments.’ It almost brings you back to those crazy valuation metrics in the late ‘90s.”
And one attempted purchase that never happened:
Yahoo! (YHOO): It wasn’t for lack of effort by Ballmer. In 2008, Microsoft bid $47.5 billion for the search engine and media company. Then-Yahoo Chief Executive Officer Jerry Yang turned Ballmer down. Six months later, Yahoo’s market value was down to $17 billion. “Nice miss by Microsoft,” said one analyst.