The loss generation

When the German publisher Gruner + Jahr sold Fast Company and Inc. magazines to a Chicago businessman last month for under $40 million, it marked the close of an embarrassing chapter.

Gruner + Jahr was so eager to play in the US market that it plunked down $550 million in 2000 to buy Fast Company and Inc., a pair of magazines published in Boston that chronicled the entrepreneurial culture of the 1990s. It lost nearly 93 percent on its investment, while Boston's publishing industry lost two of its hottest magazines.

Gruner + Jahr wasn't the only big-spending European company to gaze longingly across the Atlantic in that age of irrational exuberance. Spain's Telefonica and France's Vivendi Universal also paid top dollar for Boston area media properties at or near the market peak, in deals that continue to reverberate through the local business scene today. All three buyers held onto their American acquisitions as the bubble burst, and all wound up selling them for a fraction of what they'd paid.

''A lot of people made mistakes in buying things that were too expensive," said Steven N. Kaplan, a professor at the University of Chicago's Graduate School of Business who has studied acquisition patterns. ''When you do a bad deal, you usually sell it at a loss."

Gruner + Jahr's loss was smaller than those of its European cohorts. Vivendi paid $2.2 billion for educational publisher Houghton Mifflin of Boston in 2001, then sold it for $1.6 billion at the end of 2002 to a private equity group that included Boston's Bain Capital and Thomas H. Lee Partners. Telefonica's Terra Networks unit ponied up $12.5 billion to buy Waltham web portal Lycos Inc. in 2000; Lycos was resold to South Korea's Daum Communications last year for just $95 million.

The chief executives leading those acquisitions, Vivendi's Jean-Marie Messier and Telefonica's Juan Villalonga, lost their jobs soon after, with board members criticizing their financial stewardship.

On the home front, the aftermath of those trans-Atlantic deals continues to be felt in different ways. Inc. was moved to New York in 2002, and Fast Company in 2003, leaving a hole in Boston's publishing industry. Gruner + Jahr slashed their budgets, reduced their paper stock quality, and combined their sales staffs with those of other magazines.

''Big companies buy small companies because they can do all kinds of things the big companies can't," observed Fast Company's founding editor William Taylor of Wellesley, who is now writing a book about workplace mavericks. ''But the minute they buy them, they always want the small companies to act exactly the way they do."

Lycos, once the vanguard of Internet content in the Boston area, gradually has been overshadowed by Google and Yahoo, and similarly cut its Waltham workforce. But the new Houghton Mifflin owners have invested in expanding its product line and sales force. Profits have increased, and the educational publisher has added more than 60 jobs in Boston and an equal number around the country.

Though plenty of US buyers also overpaid for acquisitions early in the decade, the European deals rank among the era's most spectacular failures. Many of Europe's business titans had a fatal attraction to America's business world in the booming '90s. And more than a few US dealmakers were happy to unload their businesses.

Nader F. Darehshori, the president of Houghton Mifflin, concluded in 2000 that it was too hard for an independent company like his to compete with much larger rivals. Around that time, he recalled, ''I got a call from someone saying that Messier and his team at Vivendi wanted to talk to me about American publishing."

They had several meetings at the University Club in New York. ''At one of those meetings, he said, 'How about us acquiring your company?' " Darehshori recalled. ''I thought that might happen, but I waited for him to say it." Messier initially wanted to purchase Houghton Mifflin in a stock swap, but Darehshori held out for cash.

Vivendi bailed out of its investment two years later because its new management concluded publishing was no longer a core area, said US spokeswoman Flavie Lemarchand-Wood. ''That was done during the Messier era, not ours," she said of the Houghton Mifflin deal.

Bob Davis, who grew Lycos into one of the top Internet destinations in the late 1990s, also began looking for an alliance to strengthen the company. He agreed in 1999 to sell to Barry Diller's USA Networks. But that deal was squelched by Lycos investor CMGI, which wanted a larger premium. Davis went back to the drawing board.

In early 2000, a group of executives from Spain's Terra Networks, an Internet unit of Telefonica, came to Waltham to talk about a joint venture. ''Five or 10 minutes into the dialogue, they said, 'We're not interested in a joint venture, we want to acquire you,"' Davis said. Davis later got a call from Villalonga, who invited him to a meeting in Miami.

The two men couldn't come to terms at first. Villalonga wanted to buy Lycos with Terra stock, while Davis wanted cash from Telefonica. Davis was flown back to Boston in Telefonica's private jet, but a month later he was summoned to another Miami meeting with Villalonga and Thomas Middelhoff, then CEO of Bertelsmann, the German media conglomerate. Soon after, they disclosed the deal in which Lycos would merge with Terra, Telefonica would contribute cash, and Bertelsmann agreed to buy advertising in the new company.

Davis stayed on briefly as chief executive of the new Terra Lycos, but soon resigned and joined the venture capital firm Highland Capital Partners in Lexington. From the standpoint of Lycos, the transaction has been cited as one of the best timed deals of the Internet era. ''I look back on it with not a regret in the world," Davis said.

Bertelsmann, the majority owner of Gruner + Jahr, was also involved in the purchase of the Boston business magazines. In that case, Middelhoff thought Gruner + Jahr's initial offer of $500 million for Fast Company was too high, and his investment committee conditioned its approval on a revised offer for $150 million less. Mortimer Zuckerman, the owner of Fast Company, ultimately accepted the lower $350 million deal. (Bernard Goldhirsch earlier had sold Inc. for $200 million.)

''In the end, we said OK," Middelhoff recalled. ''But it was the decision of Gruner + Jahr, not of Bertelsmann."

Alexander Adler, a spokesman for Gruner + Jahr, conceded the company had overpaid for the magazines during the bubble. Adler said his company sold them because ''we no longer saw the opportunity to reach our business goals without a major investment."

Zuckerman, for his part, claims to have been more lucky than smart in the deal. ''I'd like to think that I knew what was going to happen," he said. ''But I didn't think I was selling at the peak."

Robert Weisman can be reached at weisman@globe.com.