IP Democracy: Weird Analyst Slap at AOL's Purchase of Bebo

This little bit is perhaps not worthy of a blog post, but for some reason it's been sticking with me all day since I listened to Time Warner's Q1 08 earnings call. During the Q and A of the call, UBS analyst Michael Morris threw a curve ball at the TW management team by asking which executives were responsible for approving AOL's $850 million acquisition of UK-centric social networking site Bebo.

At the time of the deal, some folks speculated that AOL was paying an unheard-of 160 times cash flow for the presumably attractive but still tiny social networking service. Bebo reportedly generated only $20 million in revenue and $5 million in cash flow during 2007, although with a rumored $15 billion valuation on Facebook, $850 million might seem reasonable.

Thanks to Seeking Alpha, a transcript of the exchange is available (although the transcriber spelled Bebo "Beebo"). I've edited the exchange as follows:

Michael Morris: And then second of all, just going back to the Beebo acquisition, can you talk a little bit about the due diligence on that acquisition? What level of management is involved in the approval of an $850 million acquisition? And also, can you provide any financial data around it? You know, what’s your outlook for revenue, returns -- anything like that would be helpful. Thanks.

...Specifically back to Beebo though, the due diligence around that acquisition, I mean, what -- how high up the management chain does that go in terms of being approved?

Jeffrey L. Bewkes: I don’t understand that.

John K. Martin Jr.: Well, I’ll just take a shot. There was --

Doug Shapiro: Well, it’s really two different concepts. There’s the diligence that is actually done at Beebo, which was performed by AOL with some Time Warner supervision. And then there is the approval process which went all the way up Time Warner.

Jeffrey L. Bewkes: You mean who -- did I approve acquiring Beebo, is that the question?

Michael Morris: Exactly.

Jeffrey L. Bewkes: Yes.

John K. Martin Jr.: And it also received board of director approval.

Jeffrey L. Bewkes: And the board, right.

Is Morris taking names for a shareholder lawsuit or something? The subtext to Morris' question was all too obvious to listeners even if TW management was initially thrown off-guard. Morris was asking whether some idiotic lower echelon executive had been given free rein to spend 160 x cash flow to buy a third-tier social networking service without top management's approval or...whether the top executives themselves are idiots.

Posted by Cynthia Brumfield on April 30, 2008 7:39 PM to IP Democracy