Let’s face it, who hasn't been there? Waking up next to a stranger and thinking “OMG did I drop a truck full of dough to merge with them?” But that’s OK. A number of Fortune 500 CEO’s have had that exact same experience - but with much more to lose than most of us.
Blowing billions on brain cramp acquisitions can be hard to justify in the morning’s cold light. In fact, it’s widely known that companies do a lousy job managing a merger or an acquisition. More often than not, incompatible corporate cultures clash and turn toxic.
Companies hooking up together usually results in turf fights, scared employees, frustrated customers and a crash and burn. In fact, a full 80% of mergers and acquisitions fail miserably, rewarding only the lawyers that cut the deal together.
But CEOs persist, despite the evidence. Ambition, ego and testosterone seem to inspire the judgment that failure is for the other guy. So common and so disastrous are these takeovers that the following 14 cost the buyers the better part of half a trillion dollars in total. A number of these occurred after the bursting of the legendary Dotcom Bubble around the millennium, which laid waste to the overspending orgy in Silicon Valley. These are 14 Corporate Matches Made in Hell, and their estimated total financial losses.
13 Sony/Columbia Pictures 1989: $3.2 billion
The concept of vertical integration was fashionable in business in the 1980’s and 90’s despite repeated expensive failures. Here, electronics giant Sony went after the prestigious media holding of Columbia Pictures with its vaults of movie content.
The acquisition cost $4.8 billion and the better part of another million went to settle a lawsuit and hire new executives. But Japan’s corporate culture could not have been more alien to Hollywood’s, to the extent Tinseltown has culture of any kind.
As Tokyo’s head office remained mystified and hands off, Columbia execs squandered small fortunes on perks - and on some of the worst movies ever made. ‘Blankman’ with Damon Wayans playing a lame superhero may still play in the Cineplex from Hell. It was a cross cultural disaster. Sony bailed in 1994 with a $3.2 billion write-down.
12 Yahoo/Geocities 1999: $4 billion
One of a series of epically bad decisions by Yahoo’s Merger & Acquisitions department. In fact Yahoo’s M&A department has seemed more into S&M the way they’ve spanked the company’s reputation and bank account.
Yahoo first splurged on what was basically a primitive online blogging service in a $3.6 billion stock swap. Geocities was, after all, one of the highest trafficked sites on the web. Then completely absent vision and leadership, they did next to nothing with it until they killed it ten years later.
All it really did was confirm Yahoo’s reputation for paying big money for internet snake oil, as if the money would never stop rolling in. A buy high sell low M.O. that led to the terrible reckoning of the dot com bubble bursting.
11 Pennsylvania/New York Central railroads 1968: $5 billion
A veritable train wreck of epic historical proportions. The two century old companies merged on February 1 1968 to become Penn Central. The idea was sound in theory.
The bulked up conglomerate with almost $5 billion in assets would be better able to compete against troublesome trucking and airline competitors. It went bankrupt just 28 months later, the largest corporate bankruptcy in history at the time.
Why? Because the two corporate cultures clashed badly and executives spent more time fighting each other than the competition. The railroad was hemorrhaging money and when the economy hit a glitch, it went down like the Titanic.
10 Yahoo/Broadcast.com 1999: $5.7 Billion
Picture Netflix on dial up connections. Just not feasible really. Broadcast.com was so excruciatingly slow, it might have been authorized by Dick Cheney as an “enhanced interrogation technique”.
But the DotCom bubble was entering the stratosphere. Broadcast.com was a money-losing audio and video streaming service based in Dallas, and Yahoo launched a takeover with a preemptive (i.e. exorbitant) bid of $130 per share, a total of $5.7 billion.
Having shelled out major coin to get it, they then did next to nothing with the site, as emerging formats made it obsolete. They quietly shut it down with a shrug and an oops. All it accomplished was giving Mark Cuban the money to buy the Dallas Mavericks.
Now, if you try to go to 'www.broadcast.com', you'll be redirected to Yahoo.
9 AOL/ Netscape 1999: $9 billion
1999 was a very expensive year for the tech business as everyone was caught up in the bubble. AOL bought a soon to be deceased web browser and fading website in Netscape for nearly $10 billion. But once they bought it they didn't seem to know what to do with it.
There was some vague plan about e-commerce. For its trouble and cash, AOL got a few bucks for Netscape's patents. But Netscape is long gone as is the $9 billion or so AOL shoveled out the window.
8 Terra/Lycos 2000: $12.3 billion
Lycos was a hot property in the late 1990s as one of the most popular sites on the web and the most popular search engine. Spanish Telecom liked its look so much they bet the farm on it, paying $12.4 billion in stock for the promising startup near the peak of the notorious DotCom bubble.
As gambles so often so, this one lost them most of that farm. Lycos faded and 4 years later it was sold for cab fare.
If you weren’t in the middle of the bubble it can be difficult to imagine the pressure that propels otherwise intelligent people to blow money like it was going out of style. Replacing due diligence with feeding frenzy is a very expensive hobby.
Another reasonable concept, AT&T had the distribution network. They wanted to get into the computer business. NCR had always made cash registers but had shrewdly branched out into personal computers.
The hostile negotiations spooked shareholders and AT&T shares lost $4 billion in value. AT&T paid a jaw dropping $7.48 billion, more than 6 double NCR’s worth. AT&T’s arrogant bureaucracy treated NCR’s with contempt and NCR’s entrepreneurial spirit left with the managers who were dumped.
The company went downhill right away. AT&T pumped $2.8 billion into it, took a 2 billion dollar write-down, and then dumped it for a $4 billion loss. Total haircut in cash and value destruction: $12.8 billion.
7 Vivendi's/ Seagram 2000: $23 billion
Vivendi went on a $100 billion binge in takeovers to turn a 149-year-old French water and sewage business into a huge global media con conglomerate. Thirty of those billions went to acquire Seagram Universal, itself a messy match of Hollywood studio with venerable Canadian booze giant.
All of the acquisition came at market highs. When bubbles burst, the merged company ran up debt at the rate of a billion a month. It lost $15 billion in one quarter in 2002. It was a complete mess.
Seagram disappeared off the face of the earth. Shares dropped from 50 bucks in the summer of 2000 to $6.17 the following fall. They took a $13 billion write-down in 02. Its market cap is still down $10 billion from its pre-Seagram days. That’s serious value destruction.
6 Kmart/ Sears 2005: $28 billion
It has been called Tears for Sears. It’s impossible to put an exact figure to final cost of this disaster since Sears has yet to fold completely. Emphasis on yet. Many analysts suggest it has the life expectancy of a fruit fly with Ebola. But look at it this way. Since Kmart paid $11 billion for it in 2005, market cap, i.e. the total value of outstanding shares has gone from $21.37 billion to just under $4billion. The stock which pushed $190/share in '07 now trades in the mid $30’s. This is wealth destruction of epic proportions. Eddie Lampert was named Worst CEO of 2007. The verdict from business magazine Forbes: “Lampert has singlehandedly destroyed the Sears brand. He has laid off thousands of employees as he closed stores, yet he has been unable to capture any value from the unused real estate.” Ehh, it’s a living, right Ed?
5 5 Lucent/ Alcatel 2006 $29 billion
A charter member of Stupidity Without Borders, and the definitive guide to value destruction. This $13 billion trans-Atlantic merger deal cratered right out of the gate. The historic Franco-American creation confused customers and worried employees. Before the distractions settled, competitors swooped down picking off lucrative clients at will. The stock melted 50% of its value in 18 months as the company posted 6 consecutive quarters of red ink. Need more? Shares were trading at $13.42 as the time of the merger and after billions in write-downs slumped to exactly $1 in 2010. They opened 2015 under $4. The market cap (total value of outstanding shares) began 2007 at $35 billion. It begins 2015 at just over $10 billion. Why such a disaster? One analyst offered this assessment: “The cultures could hardly have been more different. One was hierarchical and centrally controlled, the other entrepreneurial and flexible. “What is it about business executives that makes them think they will be the successful exception to the rule of failure?
4 4 Daimler buys Chrysler 1998 $31 billion
One is from Mars, the other from Venus. Let’s take two companies from different countries with different languages different cultures who sell to completely different clienteles. What could go possibly go wrong?
Daimler was a luxury car maker, Chrysler more into minvans.It remains difficult to see how the 1988 acquisition of a complete stranger could have boosted Daimler’s North American market share as they thought it would.
They looked down on the smaller, less prestigious Detroit partner to the point of reneging on a parts-sharing agreement. Despite losses and ample evidence the marriage was not working, Daimler refused to file for divorce even as the stock was dumpster diving. After 8 years they finally unloaded it for $7.5 billion, one-fifth the original purchase price.
3 Sprint and Nextel Communications 2005: $36 billion
In August 2005, Sprint swapped a whopping $36 billion in stock for a majority stake in Nextel Communications. The huge combo became the third largest telecommunications provider, behind AT&T and Verizon.
Sprint’s customer base was the individual consumer market, while Nextel’s was more company oriented. They thought they could cross pollinate their core businesses. But they had nothing in common.
In fact, they hated each other. Energy and focus went to in-fighting and refereeing while marketing and product development suffered. The cash bled like a stuck pig. After 8 years and at least $36 billion, Sprint finally shut down Nextel in 2013.
2 Bank Of America/Countrywide 2008: $47 billion
Countrywide was a prime player in the sub-prime mortgage crisis that contributed to the huge Financial Crisis of 2008. But it seems like Bank of America wasn’t aware of the bottomless pit of toxic mortgages ion the books. So it seemed like a bargain at $2.5 billion.
But it was, in fact, a wretched little corporate cesspool that should have been avoided at all costs. Bad enough on its own but add bad timing. The deal turned BofA into a huge mortgage lender just as the U.S. housing market collapsed. It has become known as the worst financial deal in history.
All those underwater mortgages, and associated real-estate losses, legal expenses and settlements with homeowners, state and federal agencies, has cost $47 billion. And counting
1 AOL/ Time Warner 2000: $299 billion
But there’s no topping the Granddaddy of them all. The AOL-Time Warner financial fiasco may be one of those records never to be equaled, like Joe DiMaggio’s 56-game hitting streak or Wilt Chamberlain’s 100 point game. The convergence of old (Time Warner) and new (AOL) media was the Holy Grail of the tech sector. All that TW content distributed over AOL, cross promotion, advertising looked like stealing candy from a baby. AOL put up $160 billion for Time Warner just as the bubble was bursting. But AOL’s dialup business got eaten up by the advent of broadband. The perceived synergies never happened. In 2002 it took a $99 billion write-down. The disaster cost Time Warner $200 billion in stock value. Jerry Levin, the Time CEO who famously oversaw the deal, admitted he “presided over the worst deal of the century.” He was being modest. He's the all time champ.