Mergers, they're a seductive solution to outside threats, huge loss and impending bankruptcy. Mergers have been under the spotlight lately in the wake of the failed NZME x Fairfax merger, which was declined by the Commerce Commission last week. Given that research puts the fail rate of mergers and acquisitions every year between 70 and 90 percent, perhaps that's for the best. We look at a selection of other famous merger fails.
Let’s check out some of the fails contributing to that statistic.
NZME/Fairfax and Vodafone/Sky may have had their mergers declined, but in 2001, American Online bought Time Warner in an effort to create the largest media company in the world. It was intended that Time Warner’s TV and magazine content would complement AOL’s dial-up internet business. But what followed was the loss of AOL’s main source of revenue due to broadband internet connections and in 2009, Time Warner separated entirely from AOL. It’s since been reflected on as one of the most disastrous business combinations in history.
Communications companies Sprint and Nextel Communications also attempted a merger when Sprint acquired a majority stake in Nextel in 2005. The belief was Sprint’s personal cell phones and home service would make a nice marriage with Nextel’s business, infrastructure and transportation market. But following the deal, executives and managers at Nextel left the company as they saw themselves as entrepreneurial while they saw Sprint as bureaucratic. The economy then took a turn for the worse and competition popped up from AT&T, Verizon and Apple. The merger failed and by 2008, USD$30 billion was written off in one-time charges due to impairment to goodwill and its stock was given a junk status.
Last year, there was a bitter-sweet end to a merger when Mondelez, the owner of Cadbury, Oreo and Nabisco, attempted to add Hershey to its list for USD$23 billion. A deal would have created the world's biggest candy company. However, Hershey’s demand for a higher price and legal uncertainty surrounding its shareholder saw the deal called off.
America could have had an unrivalled paperclip and Post-it note distributor if a proposed Staples/Office Depot merger had gone ahead last year. Facing competition from Amazon, they attempted to become one for the second time in two decades, only for the proposed union to be blocked on competitive grounds. It was a great day for stationery enthusiasts.
In 2008, the owner of Arby’s, a roast beef sandwich restaurant chain, bought another fast-food chain, Wendy’s in a USD$2.3 billion deal. However, Arby’s proved to be the weak link of the two chains and Wendy’s sold it on to Roark Capital Group in 2011 for USD$130 million and an 18.5 percent stake in Arby's.
A merger between New York Central Railroad and Pennsylvania Railroads in 1968 quickly went off the rails. It was put in play in an effort to keep New York Central Railroad out of bankruptcy, but the new Penn Central Transportation Company filed for bankruptcy two years later.
Childhood staple Mattel dabbled in the educational software market in 1999 and 2000, during which time, it scooped up a near-bankrupt The Learning Company. Unfortunately for Mattel, it fell victim to its acquisition’s USD$206 million loss in 1999 and had to sell The Learning Company as well as lay off staff to cut costs.
When Kmart and Sears faced competition from the likes of Target and Walmart, hedge-fund investor Eddie Lampert bought the two companies and created Sears Holdings. However, the situation didn't improve and both companies, particularly Sears, went on a downward spiral. Now, there are concerns that if Sears fades away, it would take Kmart with it. The corporate owner of the two companies has also come out this year to say the retailers may not be able to continue operating as brick-and-mortar stores.
Mercedes-Benz manufacturer Daimler-Benz and Chrysler proved it’s important to make sure each other’s cultures line up. In 1998, Daimler-Benz bought Chrysler Corporation for USD$36 billion to form DaimlerChrysler AG. However, Daimler-Benz continued its luxury car making business model while it’s new acquisition went after customers with lower incomes. The cultural differences saw the two sever their ties in 2007.
This story originally appeared on StopPress.