Five Of The Worst Mergers Of All Time

The most disastrous acquisitions in history

31May

'Business merger' is not a phrase that tends to fill people with joy. It's not a surprise, given that a KPMG study indicates that 83% of mergers did not result in a boost in shareholder returns. They are also associated with culture clashes, employee dissatisfaction, and redundancies. And there have been several high-profile merger disasters that have only added fuel to the fire.

With this in mind, we look back over some of the worst mergers in history:

1. Quaker Oats and Snapple

In 1994, and despite warnings from Wall Street that the company was paying $1 billion too much, Quaker Oats acquired Snapple for $1.7 billion. Just 27 months later, Quaker Oats sold Snapple to a holding company for $300 million (that works out to a loss of $1.6 million for each day they owned Snapple).

Not only did they overpay in the first instance, but Quaker Oats made the classic mistake of not knowing how to run the company and were unable to bring specific value-added skills sets and expertise. For example, Quaker Oats' planned to leverage Snapple's existing relationships with supermarkets and large retailers. They failed to realize that about half of Snapple's sales came from smaller channels, such as convenience stores. They also mishandled Snapple's advertising, and the differing cultures translated into a disastrous marketing campaign for Snapple, their previously popular advertisements were filled with inappropriate marketing signals to customers.

2. Sprintel and Nextel Communications

Sprint and Nextel worked out a merger in 2005 valued at $35 billion. Despite both being telecommunication companies, both served very differently, Nextel placing more emphasis on the business while Sprint aimed at consumers and broadening data communications. They were also hit hard by the introduction of smartphones to the market.

Amidst these problems, high level executives began to leave almost immediately, further weakening the management structure. In 2013 the company closed it's doors completely.

3. America Online and Time Warner

Arguably, the most famous merger failure of all time was the consolidation of AOL Time Warner. In 2001, America Online acquired Time Warner in a megamerger for $165 billion – the largest business combination up until that time. Both companies expected to capitalize by converging mass media and the internet.

But, shortly after, the dot.com bubble burst, destroying that promising potential. As the company's value crashed dramatically, it was reported in 2002 than they had lost a massive $99 billion. That huge figure is the largest loss ever reported.

4. New York Central and Pennsylvania Railroad

Poor acquisitions are nothing new. Fierce rivals throughout the 19th century, New York Central and Pennsylvania Railroad applied for a merger in 1962. At the time, this acquisition would have made them the sixth largest corporation in the US. But, by the time the merger was approved in 1968, travel trends had shifted away from trains and towards superhighways and planes. This, coupled with tight regulations and leaderships conflicts, caused them to file for bankruptcy after just two years.

5. eBay and Skype

In September 2005, eBay announced that it was buying Internet telephone company Skype Technologies for $2.6 billion. The intention was to integrate the two technologies, so that the VoIP service would improve communications between potential buyers and sellers, building relationships and driving sales.

This didn't pan out, however. For most eBay purchasers, communicating via email was effective enough and, most vitally, anonymous. The merger also suffered from problems stemming from the culture clash between the two companies. Additionally, it went through several management teams over the four years the merger was active. After those four years, eBay sold off 65% of the company to Silver Lake, Andreessen Horowitz, and the Canada Pension Plan Investment Board in 2009 for $1.9 billion.

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