The 11 Most Expensive Business Takeovers
We are right in the right in the middle of a new deal-making wave. There’s been a marked shift in recent years toward consolidation, particularly among the pharmaceutical and media industries. Earlier this year, for example, Facebook made a move to acquire WhatsApp, a messaging platform, for $19 billion in a deal that could become the largest Internet takeover in history. We also have yet to see the end of the ongoing controversy surrounding Comcast’s proposed takeover of Time Warner Cable, a merger which would see nearly 40 percent of the nation’s broadband customers under Comcast’s service — whether they like it or not.
Yet despite a frenzy of deal-making activity in the past few years, most of the biggest takeovers in history still stem from the dot-com bubble era, with the majority of the deals on our list taking place in 1998, 1999, or 2000.
Here’s a breakdown of the top 11 biggest takeovers in history in each of 10 different industries, including technology, airlines, finance, entertainment, automotive, medical, telecommunications, fuel, food, and beverages, according to the Gap Partnership, an expert negotiation company based in the UK, which published this infographic earlier this month.
In 1999, Yahoo! bought Broadcast.com for $5.7 billion
When you think of some of the biggest Internet takeovers in recent times, you probably think of Facebook. Mark Zuckerberg and Facebook.com have staged two massive takeovers in the past five years: Instagram and, more recently, WhatsApp (side note: if Facebook’s WhatsApp takeover is finalized, it will claim the top spot). But a long forgotten merger still takes the top spot for the biggest Internet takeover of all time: Yahoo’s Broadcast.com acquisition was six times larger than Facebook’s Instagram takeover deal, and it occurred more than a decade ago.
Yahoo’s $5.7 billion takeover of Broadcast.com in 1999 is just one in an embarrassing lineup of buys for the Internet giant. Wired reflects that the Yahoo acquisition was “one of the frothiest moments of the first dot-com bubble,” along with similar purchases by Yahoo, such as Geocities.
The acquisition, which was initially meant to “take advantage of the booming use of multimedia on the web,” according to CNET, failed miserably along with the Geocities merger. Indeed, if you search Broadcast.com today, you will simply be re-directed to Yahoo, and that’s about the extent of the merger’s legacy. Fortune has since named the acquisition among the worst Internet acquisitions of all time.
In 2001, Hewlett-Packard and Compaq Computer merged in a deal worth $25 billion
Announced in the fall of 2001, Compaq Computer and Hewlett-Packard shocked the industry, and many believed that the merger would result in a disastrous integration. But unlike many other tech acquisitions of the era, the merged company actually did quite well: as a story by The New York Times from 2001 notes, “The merger of the two computer giants could create a stronger competitor for Sun Microsystems and IBM in the server computer market while putting pressure on IBM, Dell, and Gateway in the personal computer business.”
Nowadays, Compaq’s merger with HP is considered a success, and the deal ultimately helped both businesses. “The merger worked out well in retrospect,” said Tommy Wald, CEO of White Glove Technologies, who spoke with CRN on the merger’s tenth anniversary. “I think they turned the combined company into a strong channel company, which is what we were all concerned about as partners.” Wald was one among several initial critics of the deal.
In 2013, American Airlines and U.S. Airways merged in a deal worth $11 billion
The merger of American Airways and US Airways resulted in the world’s largest airline, American Airlines, which boasts more than 6,700 flights daily to more than 336 locations and 56 countries worldwide, according to the company’s website. The airline is now the largest in the world.
Regulators initially opposed the merger based on concerns that the resulting airline would impede competition and potentially drive up ticket prices. The airline agreed to a resolution in which the company divested some of its takeoff and landing rights at major airports, including 34 slots at New York’s LaGuardia airport and 104 slots at Washington’s Reagan National airport, in addition to airport gates in some five other cities, according to the U.S. Department of Justice.
The full integration of US Airways and American Airways is still underway and is expected to be completed by late 2015; until then, the two companies, though merged, will be running as two separate airlines until they are both fully integrated, according to the American Airlines website.
In 2007, Royal Bank of Scotland Group, Fortis, and Banco Santander acquired ABN Amro Holding for $100 billion
Royal Bank of Scotland Group’s takeover of ABN Amro Holding remains the world’s biggest bank takeover ever, although, like many of the acquisitions on our list, today it’s often considered one of the worst financial acquisitions in recent history.
British newspaper The Independent notes that the consortium involving the Royal Bank of Scotland, the Belgian-Dutch bank Fortis, and the Spanish bank Banco Santander paid three times the book value for the Amsterdam-based bank, ABN Amro. Additionally, at the time of the takeover, the book price for ABN Amro was considered expensive by most experts.
RBS and its consortium struggled with the acquisition price by the time the deal closed and banks were trading at below book value. The Independent notes that as of 2009, RBS was in the midst of its second government bailout. The deal did critical damage not just to RBS, but Fortis, the Belgian-Dutch buyer, which had to be nationalized by the Dutch government in 2008 in order to avoid a liquidity crisis.
In 200, America Online bought Time Warner for $186.2 billion
In January, 2000, American Online and Time Warner announced that it would merge in a deal worth more than $160 million. The New York Times called the merger, “the best evidence yet that old and new media are converging,” and speculated that “it could be the Internet companies that do the buying and the old media that sell out.”
The historic merger is actually the largest ever in the history of American business, yet the merger failed, and has frequently been ranked among the worst takeover deals in history. The company did not live up to its potential, and a reflection on the merger written ten years after the fact noted that, similar to Yahoo’s takeover of Broadcast.com, AOL’s value was grossly inflated as a result of the dot com bubble, and, as a result, the deal became just another misstep of the era.
In 1998, Daimler-Benz bought Chrysler for $37 billion
Experts in the automotive industry had high hopes for Daimler-Benz’s takeover of the American manufacturer Chrysler back in the day. “Today we are creating the world’s leading automotive company for the 21st century,” said Jürgen Schrempp, Daimler-Benz’s Chair.
Schrempp wasn’t the only one who had high hopes for the merger; at the time, the deal was considered to have the potential to help create an international global powerhouse within the automotive industry. Yet, as Time magazine reflects, the merger “turned out to be a colossal disappointment.”
According to Time, “cultural differences immediately caused a rift between the two companies” with Daimler, a maker of luxury vehicles, finding it difficult to understand the concerns of the price-conscious American automaker (Chrysler). Daimler later reneged on it’s parts-sharing agreement with Chrysler, worrying that sharing Mercedes components could undermine the company’s brand. Eventually, in 2007, Daimler paid Cerberus Capital Management $650 million to take Chrysler off its hands.
In 2000, Pfizer bought Warner-Lambert for $110 billion
Shortly after Pfizer closed on its historic deal with Warner-Lambert, Forbes called the company “a slow, sick dinosaur.” Indeed, Pfizer has a long, shaky history of acquisitions, and it’s likely that, almost 15 years later, we’ve yet to see the end of the company’s penchant for paying a premium to secure questionable takeover deals, as evidenced by the company’s recent, failed attempt at a merger with British-based competitor AstraZeneca.
Had Pfizer’s $117 billion takeover bid for AstraZeneca been secured, it would have become the largest pharmaceutical merger in the world, shattering Pfizer’s previous record set when it acquired Warner-Lambert for $110 billion. The Warner Lambert deal effectively made Pfizer the second largest pharmaceutical company in the world.
Pfizer’s bid for Warner-Lambert was also the largest ever hostile takeover attempt in the history of the pharmaceutical business. FiercePharma notes that Pfizer was motivated by Warner-Lambert’s blockbuster cholesterol-lowering drug Lipitor, which both Pfizer and Warner-Lambert were promoting at the time.
Since the Warner Lambert merger in 2000, Pfizer has gone on to acquire Pharmacia in 2003 for $60 billion and Wyeth in 2009 for $68 billion.
In 2000, Vodafone AirTouch acquired Mannesmann for $183 billion
It’s easy to see why Vodafone wanted Mannesmann; the takeover, after all, allowed Vodafone to become the “world largest mobile phone operator” with more than 42.3 million customers in Britain, the U.S., Germany, Italy, France, and a number of other countries. Nowadays, however, it’s Vodafone that’s likely to be preyed upon.
At the time of Vodafone’s takeover, the deal represented an unprecedented shift in the telecommunications industry landscape. “The sheer scale of the union is expected to prompt other operators to merge, lower wireless rates for customers, and hasten the arrival of cell phones that work anywhere in the world,” The Wall Street Journal wrote in 2000, noting that the transaction would mostly influence Europe.
Nowadays, Vodafone continues to expand its reach throughout Europe. In August, the company announced it would purchase a stake (72.7 percent) in the Greek broadband company Hellas Online SA for $96.5 million. According to Bloomberg, the deal is part of the company’s initiative to build up its struggling business in southern Europe. The company has also recently agreed to buy similar companies in Germany and Spain, purchasing Grupo Corporativo Ono SA in March and Kabel Deutschland Holding AG in 2013.
In 1999, Exxon and Mobil merged in a deal worth $75 billion
Exxon’s merger with Mobil is perhaps one of just a few deals on our list that, years down the road, resulted in a successful outcome. The Wall Street Journal called it “the archetype of a successful deal,” in a 2010 reflection on the merger, which closed in 1999.
At the time, naysayers of the merger expressed concerns that the companies’ cultures were too different to work well together, while some in the Mobil camp protested that Exxon’s bid didn’t represent a fair valuation of the Virginia-based company, despite analysts estimates to the contrary.
In the end, however, experts estimate that, as a result of the merger, the company’s total cost savings totaled nearly $3 billion. Further, in 2008, the company posted sales of $459.58 billion and a net income of more than $45 billion, one of the biggest annual corporate profits in U.S. history, according to The Wall Street Journal.
Studies have shown that in general, most mergers fail to enhance shareholder value, so the Exxon merger deal has proven to be the exception to the rule, and today it still stands as benchmark for oil industry mergers.
In 2008, Mars merged with Wrigley in a deal worth $23 billion
Mars’ merger with Wrigley effectively created the world’s largest confectionery company, outdoing Cadbury Schweppes. Mars was backed by billionaire Warren Buffett’s Berkshire Hathaway Inc. “The deal will create a global candy giant with annual sales of $28 billion,” MarketWatch noted in 2008.
The deal may have been an unlikely one; after all, both Mars and Wrigley are named after its founders, and both, The Independent noted in 2008, still carry a family-run ethos that seemed at odds with such a merger. The idea behind the deal, however, was to “create a marketing powerhouse.” For its part, Mars had promised that it wanted to keep interference with Wrigley’s business to a minimum, Bill Wrigley, great-grandson of the original owner, told The Independent. “I’ve spent a considerable amount of time with their leadership team and the Mars family members, and I do take them at their word on this,” he added.
The merger was first among a number of confectionery mergers to follow, including Kraft’s takeover of Cadbury Schweppes in 2010 for $18.9 billion.
In 2008, InBev bought Anheuser-Busch for $52 billion
InBev’s merger with Anheuser-Busch effectively made the company the world’s largest brewing company in the world; Anheuser-Busch InBev now dominates 25 percent of the global market share, and controls 17 brands that produce more than $1 billion in revenue each year.
The Economist noted in 2008 that because of slow to non-existent growth in the American market and other mature markets, the merger was a good idea; merging large brewers allows companies to cut costs more effectively, allowing it to boost profits without relying on sales growth. A similar merger between brewers SABMiller and Molson Coors, The Economist wrote, was driven by similar motives.
Four years later, InBev’s takeover of Anheuser-Busch remains the largest ever takeover in the beverage industry, yet experts noted earlier this year that the company may soon be forced to jockey for the takeover of yet another rival to boost its growth. Indeed, the company recently acquired Mexican brewer Grupo Modelo for $20.1 billion, a move which should help it capitalize on the Latin American beer market, upon which the company is already reliant.