Strange M&A

1:00 PM -- I noticed a message board posting this morning that suggested Best Buy Co. Inc. is considering a purchase of Covad Communications Inc. .

This deal reminds me of the 60s era of mergers and acquisitions that I was nowhere close to being born for, let alone old enough to remember first-hand. But based on the 10 minutes of reading I did on it, that decade marked a wave of deals between companies that had no similar businesses whatsoever. The rationale was that if one business became doomed to failure, then the other would allow the company to survive. It'd be like Exxon-Mobile deciding to acquire 1-800-FLOWERS because "if this whole oil thing we're doing doesn't work out, at least our headquarters will be well appointed from a floral perspective."

Anyway, this strategy turned out to be a complete disaster. The whole practice eliminated one of the biggest reasons for companies to do a deal in the first place -- synergy!

These days, companies are much more fascinated with the leveraged buyout -- the practice of buying a company you can't afford for more money than its worth. Oddly, this has worked out quite well.

But getting back to this whole Best Buy and Covad thing: While it seems weird on the surface, apparently Best Buy has a whole enterprise portion of its operations into which Covad would fit nicely. Best Buy already acquired Speakeasy Inc. , a DSL and VOIP service provider for small businesses, earlier this year. This seems as if it may be a good move in that it would further expand Best Buy's broadband services footprint so that, along with providing businesses with items like computers and printers, it can provide the businesses a network to run them on.

More importantly, is Best Buy heading towards becoming an honest-to-God telco carrier? Perhaps this deal is more worth following than I thought at first glance.

— Raymond McConville, Reporter, Light Reading

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