Worst Business Mergers Ever
In the world of business strategy, mergers and acquisitions (M&A) are a double edged sword. In some cases, it could represent a genius business decision fosters profound growth and prosperity. On the other hand, it could also represent a massive financial failure that could result in the downfall of all parties involved. Today we are going to look at some of the biggest busts in business mergers.
In 2000, these two companies fostered a $164 billion partnership that hoped to foster long-time media giant Time Warner into the tech sector by joining forces with the then first name in internet service, America Online.
Unfortunately, the honeymoon did not last long, and by 2002 AOL Time Warner posted $99 billion in losses. Due in part to the dot-com bubble burst and the increased availability of other internet providers, subscribers fled and the value of AOL dropped significantly. By 2009, when the combined value of both companies were a fraction of their value in 2000, Time Warner let go of AOL. The failed partnership has been called the biggest mistake in corporate history.
News Corp. and MySpace
In 2005, Rupert Murdoch's News Corp. purchased the parent company of the website Myspace for $580 million. At the time Myspace was the king of social media that Murdoch saw as a key tool to drive traffic to News Corp sites.
While investing in social media was good idea, News Corp simply picked the wrong horse in the social media race. A few years later, Facebook burst on to the scene and promptly established web dominance. Users noticed a lack of innovation on Myspace's part and lost interest. In 2011, News Corp took a massive hit on the investment, selling Myspace for $35 million.
eBay and Skype
eBay bought the communication start up Skype in 2005 for $2.6 billion, hoping to add video/voice chat to the tools at the buyer and seller's disposal. It turns out that eBay users were fine with the standard email options, and after 4 years eBay was forced to sell. Private investors picked Skype up for $1.9 billion, with eBay keeping a minority investment in the company.
While this was merger will go on the books as a miss, it did not spell doom for either company. In fact, Skype was purchased by Microsoft in 2011 for $8.5 billion.
Sprint - Nextel
In 2005, Sprint wrote a check for $36 billion to acquire a majority stake in Nextel, hoping to create the next big telecom conglomerate.
The goal was to merge customer bases and become more significant competition to giants like Verizon and AT&T. But due to incompatible technologies and cultural differences, both employees and customers fled to competitors and profits plummeted. The years following saw more billion dollar losses and in 2013, Sprint shutdown the Nextel Network to focus on other aspects of the corporation.
Kmart and Sears
In 2005, Kmart acquired Sears for a whopping $11 billion. With the merger, Kmart took a gamble on the once-dominant department store chain and joined forces to create the nation's third largest retailer. In the years after, Sears decline continued while other big box retailers like Target and Walmart saw profits rise. In 2007, Sears chairman Edward Lampert was named worst CEO of 2007.
Quaker Oats and Snapple
Riding high on the success of Gatorade, Quaker Oats felt that they could manage the fast rising juice drink company Snapple to the same level of success. In 1994, Quaker shelled out $1.7 billion to take control of Snapple only to sell it off 27 months later for $300 million. Quaker made several critical mistakes, the biggest being grossly overpaying for the merger (Wall Street warned they were overpaying by $1 billion). They also tried to make a huge push to get Snapple on the shelves of supermarkets and large retailers, ignoring the fact that half of Snapple's sales came from gas stations, convenience stores and independent distributors. Top it off with a disastrous marketing campaign and the result is a $1.4 billion mistake.
A Deeper Look at the AOL-Time Warner Failure
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