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History’s 5 Worst Corporate Mergers

Companies
History’s 5 Worst Corporate Mergers

Peanut butter and jelly. Scotch and soda. All of the members of Nirvana. There are certain combinations of things that seem to yield a sum greater than their parts. Like a jigsaw puzzle they slot together and reveal a picture indiscernible from the isolated pieces. In such situations there is a palpable synergy, a sort of circumstantial kismet that breeds an intensified enjoyment of each individual element.

We all appreciate a strong partnership. When Disney bought Pixar in 2006, it was like bacon first meeting eggs in the refrigerator and deciding to hang out. It made sense. Here was a company, Disney, which had been capturing children’s imaginations for over 80 years, and another company, Pixar, which was ready to guide them into the 21st century.

All partnerships are built on trust, though, and it’s not always smooth sailing on the open seas.

Years after it merged with Kmart, Sears continues to toil. Staring down the barrel of a loaded Wal-Mart, the company struggles to maintain relevancy — and solvency — in a market where it no longer seems capable of competing. Burdened with an abundance of physical stores in undesirable locations, Sears has been ineffectually warring on two fronts.

On the first front, the company squares off against big-box, dedicated hardware stores like Lowe’s and Home Depot. On the second, they are pitted against online retailers like Amazon. On both fronts, Sears’ outdated storefronts cripple their ability to compete. Gary Balter, an analyst with Credit Suisse, said, “[i]f you’re Sears, you’ve got a problem because you’re trying to sell a product in a dilapidated building […] [h]ow do you compete?”

It is with these tragic, misguided missteps in mind that we take a look at some of the least successful combinations of yesteryear. From Cajun fried bankruptcy to a bronze medal in grocery store ninjutsu, we count down five of the most ill-advised mergers in history.

Popeye’s Chicken And Church’s Chicken

Popeyes

Final cost: $391 million

Al Copeland, founder of Popeye’s Chicken & Biscuits, was a polarizing figure. From his humble beginnings as a supermarket soda jerk and high-school dropout, the young Copeland pursued the American Dream with as much tenacity as the old Copeland lived it. He was a flamboyant big spender who lent his name to his own power boat racing team, held annual Christmas light shows at his mansion, and earned the public ire of novelist Anne Rice, who called one of his restaurants “nothing short of an abomination.”

One of Copeland’s most costly expenses was his purchase of Church’s Fried Chicken in 1989. To secure the deal, he borrowed $392 million from various Wall Street firms. Unfortunately, shortly after the deal, the junk bond market collapsed and Copeland found himself with empty pockets and a handful of redundant restaurants that couldn’t be sold off.

Unwilling to forego his bombastic lifestyle, Copeland organized a massive wedding at the New Orleans Museum of Art. Just before the big day, Copeland defaulted on his debt and found that his company was being involuntarily ushered into the waiting arms bankruptcy.

America Online And Time Warner

TimeWarner

Final cost: $300 billion

The merger between America Online (AOL) and Time Warner remains the largest merger in American history. The deal, valued at $350 billion, spurred Stephen M. Case to boldly proclaim that “new media has truly come of age.” The two parties genuinely believed that the merger was poised to herald a media revolution, where AOL’s cutting edge digital distribution would proliferate Time Warner’s wealth of content.

The problems began while the contract’s ink was still wet. By 2000, AOL’s “cutting edge” network — delivered by dial-up connection — was verging on obsolete, and facing down competitors who offered faster speeds, lower rates and more reliable connections. By 2002, AOL-Time Warner had accrued $99 billion in losses. Execs literally wrote off AOL, re-renaming the company Time Warner with the steady-handed resolve of a high school freshman scratching their crush’s initials off their Biology notebook cover.

As of last year, AOL enjoyed a market capitalization of $2.7 billion and Time Warner commanded a respectable $48 billion. While both companies walked away from the implosion, neither did so unscathed.

Sprint And Nextel

Sprint

Final cost: $30 billion

In 2005, Sprint was struggling to compete in the cellular market. Seeking ways to bolster their offerings, the company purchased Nextel Communications for $36 billion in stock. As with many shotgun weddings, the betrothed soon found themselves incompatible. In the case of Sprint Nextel, however, the incompatibilities were literal. With no overlap between iDEN and CDMA networks, Sprint Nextel faced a discouraging number of logistical issues that inhibited the effectiveness of what they believed should have been a perfect partnership.

Complicating this already complex coupling, the two companies had vastly different ideological approaches to business. Sprint was the typical 9-to-5, buttoned-down businessman; Nextel was the inquisitive, free-spirited entrepreneur. As a result of these differences, Nextel executives and managers walked away from the company.

The intellectual differences between the two companies was made even more difficult by the fact that Sprint and Nextel each maintained their own independent headquarters. With Nextel employees often required to receive approval from Sprint managers, communication between the partners ground to a halt.

The merger — which should have given Sprint a competitive edge — was ultimately written off by the company. As of this year, Nextel’s networks are still being shut down and Sprint’s stock price is still one-third of what it was before the failed merger.

eBay And Skype

eBay

Final cost: $1.4 billion

In 2005, someone at eBay was struck by the notion that it would be just swell if they could add video chat capabilities to their online auctions. This errant thought soon evolved into serious discussion, and that year, eBay coughed up $2.6 billion to purchase voice-over-Internet provider (VoIP) Skype.

After the acquisition, eBay’s interest in Skype’s offerings quickly waned. Meg Whitman, eBay’s CEO, was hesitant to rally behind Skype, and as a result the brand failed to maintain its forward momentum. Whitman’s reluctance — as untimely as it was — was not entirely unwarranted. An overwhelming number of eBay customers feel that email is adequate for most transactions.

In a post-mortem, Tom Keating, who maintains a VoIP-related blog said, “I think people like the anonymity of eBay. Talking is a great thing. You can communicate and ask more details about the product. But people prefer anonymity, and they don’t necessarily want to talk with the person on the other end.”

Snapple And Quaker Oats

Snapple

Final cost: $1.4 billion

Hailed by some analysts as the “worst acquisition in memory,” 1994’s purchase of Snapple by food conglomerate Quaker Oats for $1.7 billion highlights the importance of performing rigorous market research before making billion-dollar decisions. Quaker, which had experienced a modicum of success selling Gatorade in supermarkets, assumed that aggressive marketing and prime shelf-space would give Snapple a fighting chance against soft drink heavyweights Coca-Cola and Pepsi.

This assumption would prove fatally inaccurate when later research revealed that over half of Snapple’s sales came from convenience stores and gas stations. Even worse, the change in advertising proved unpopular. Quaker dispensed of the quirky, humorous commercials of old and replaced them with a pessimistic, resigned campaign that as much as told consumers they were content with not being as good as Coke or Pepsi.

Ultimately, buyer’s regret set in and within three years Quaker sold Snapple to Triarc for $300 million. Triarc — the only party who visibly profited on the deal — went on to sell Snapple to Cadbury Schweppes for $1.45 billion in 2000.

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