The concept that Buffett is putting forth is that when there is a bidding war, the price paid by the winner is almost by definition too high. The “loser” in the bidding war may not lose at all, because they have forced a competitor to pay too much for something.
I thought about this after reading that Google (a company I love dealing with) is buying DoubleClick (a company I HATE dealing with). I don’t want to get into the validity of this buyout because I don’t know enough about it to form an opinion and my hatred for doubleclick is most likely putting a bias in my heart and head.
What I do want to discuss is that Google seems to be continually winning in bidding wars. $1.6 billion for Youtube. Almost a billion in guaranteed ad buys on myspace. Now doubleclick. I’m probably missing some, but you get the point.
They always seem to win bidding wars. If Buffett is right (which I’m NOT going to argue with), then Google is likely the long term loser as a result.
Which brings me to the real questions:
Is it POSSIBLE that Google competitors like Microsoft are willing to engage in bidding wars in the hope and expectation that Google will pay too much for something outside of its core competency (search)? After all, has Google EVER lost a bidding war?
Is it POSSIBLE that Google (rightfully) sees its stock as currency that should be taken advantage of? If so, that basically means that they think their stock is overvalued (otherwise it’s not currency)….and if they think that…..shouldn’t you?
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