Despite their promise, about 90% of merger or acquisition deals fail every year, resulting in significant losses for the companies involved. There are numerous reasons for that, from clashes in corporate cultures to strategic misalignment.
In this article, we’ll explore 10 examples of mergers and acquisitions that failed and provide valuable insights and lessons learned from these transactions.
10 examples of failed mergers and acquisitions deals
Explore the list of the 10 worst mergers in history and learn the key reasons why mergers and acquisitions fail.
1. AT&T and Time Warner
Year: 2018
Value: $85 billion
Goals: To merge AT&T’s distribution networks with Time Warner’s content to expand subscription offerings to an extensive customer base, including 5G users, and generate revenue from both subscribers and advertisers.
The deal between AT&T and Time Warner belongs to mergers that failed, even though it seemed promising on paper. There were several reasons for that.
Firstly, there was a misalignment in business strategies, with AT&T focused on vertical market dominance and Time Warner on horizontal market expansion. Secondly, both companies faced severe competition from industry giants like Verizon, Disney, and Comcast.
Thirdly, AT&T’s late entry into the streaming market with HBO Max during the COVID-19 pandemic put it at a disadvantage against established players like Netflix and Disney+. HBO Max’s premium pricing of $14.99 per month failed to attract subscribers compared to lower-priced competitors.
Ultimately, AT&T’s core competency in telecommunications clashed with the demands of content creation and distribution, resulting in significant financial losses and the necessity for asset divestitures regarding Warner Media.
2. Kraft Heinz and Unilever
Year: 2017
Value: $143 billion
Goals: To provide Kraft Heinz with a strategic route to market for complementary brands in emerging markets and improve its revenue growth.
Among other business mergers that failed is the deal between Kraft Heinz and Unilever. Even though the transaction was backed by Kraft Heinz’s main shareholders, Warren Buffett and 3G Capital, regulatory obstacles, management conflicts, and negotiation breakdown led to the withdrawal of the offer. This decision led to an 8% drop in Unilever’s share price.
From the beginning, the negotiation style implemented by 3G Capital clashed with the expectations of Unilever’s top management. Unilever’s CEO, Paul Polman, viewed Kraft Heinz’s offer as misguided and unfair, believing that the corporate culture at Kraft Heinz fundamentally conflicted with Unilever’s long-term focus on responsible capitalism.
Additionally, legal hurdles played a significant role, as the UK government ordered a full review of the transaction, indicating potential regulatory roadblocks. This move was likely influenced by concerns about job cuts and the political implications of a foreign acquisition of a traditional British company.
In the end, Unilever’s swift and effective counter-strategy made Kraft Heinz abandon the hostile takeover attempt.
3. Microsoft and Nokia
Year: 2014
Value: $7.2 billion
Goals: Microsoft aimed to strengthen its position in the mobile market, hoping to compete with rivals like Apple and Samsung.
The acquisition of Nokia is considered one of the worst acquisitions of all time. This is because, despite once being the world’s biggest handset manufacturer, Nokia had failed to keep up with industry developments. Another reason for the merger failure was Microsoft’s inability to integrate Nokia’s hardware with its software ecosystem effectively.
As a result, the Windows Phone operating system, which powered Nokia’s smartphones, failed to gain significant market share against competitors like Android and iOS. Moreover, the acquisition led to post-merger integration challenges like internal conflicts and cultural clashes. Microsoft struggled to align Nokia’s corporate culture with its own.
The consequences of the failed merger were significant. Microsoft announced massive layoffs, cutting nearly 18,000 jobs, mostly from the Nokia division. Additionally, Microsoft’s market share in the smartphone industry continued to decline, resulting in billions of dollars in financial losses.
4. Google and Motorola Mobility
Year: 2012
Value: $12.5 billion
Goals: To improve Motorola’s smartphone business and compete with Apple and Samsung.
Google’s acquisition of Motorola Mobility was primarily motivated by the desire to strengthen its patent portfolio and enhance its position in the smartphone market, where its Android operating system was already a major player.
However, the deal faced challenges. Despite investing in flagship phones like the Moto X and Moto G, Motorola’s sales remained unprofitable, with revenue falling nearly one-third in a quarter. Additionally, the inability to secure sufficient distribution from telecom companies further slowed Motorola’s performance.
Yet, the acquisition wasn’t a complete loss for Google. As part of the deal, Google gained access to Motorola’s 17,000 patents, offering significant value in terms of intellectual property.
In 2014, Google decided to sell Motorola to Lenovo for $2.9 billion. This move allowed Google to refocus on its core software and services business.
5. Bank of America and Countrywide
Year: 2008
Value: $4 billion
Goals: To expand Bank of America’s presence in the mortgage lending market by acquiring Countrywide’s extensive mortgage business.
The deal between Bank of America and Countrywide turned out to be one of the worst failed company mergers. This happened mainly because Countrywide ran into serious financial trouble during the mortgage crisis in 2008. Countrywide struggled to get money to fund its operations when the market for mortgage-backed securities crashed.
They also got into a lot of legal issues, including lawsuits from state attorneys general and allegations of deceptive lending practices. This damaged the company’s reputation and it ended up with big financial problems. Even after Bank of America gave them $2 billion, it wasn’t enough to save them.
The merger cost a lot of people their jobs, and Bank of America had to pay a $17 billion settlement to the government later on because of Countrywide’s role in the mortgage crisis.
6. Alcatel and Lucent
Year: 2006
Value: $13.4 billion
Goals: To create a global telecommunications equipment company with enhanced capabilities to compete in the industry.
The merger between Alcatel and Lucent faced significant challenges and ultimately failed due to a variety of reasons. In particular, the clash of personalities between CEO Patricia Russo and board member Serge Tchuruk, coupled with cross-cultural issues, led to post-merger integration issues and six quarterly losses.
Following their resignation in 2008, new executives, Ben Verwaayen and Philippe Camus, were appointed to implement changes. Their interpersonal skills and cultural understanding helped guide the company toward profitability.
Despite these improvements, Alcatel-Lucent still faced challenges, including rapid technological advancements and competition from Chinese manufacturers. In 2016, Nokia acquired Alcatel-Lucent for $15.6 billion, marking the end of the troubled merger.
7. eBay and Skype
Year: 2005
Value: $2.6 billion
Goals: To enhance the buying and selling experience on eBay by improving communication between users through voice calls.
The acquisition of Skype Technologies for $2.6 billion was heavily debated — critics pointed out that eBay was overpaying for a company with relatively low earnings (just $7 million). However, eBay’s CEO, Meg Whitman, thought that Skype’s voice calls would help foster trust and streamline transactions.
Unfortunately, the market reaction didn’t match the vision. eBay users, accustomed to the anonymity of online auctions, didn’t want to adopt Skype’s communication features. Synergies didn’t materialize and within two years eBay had to write down Skype’s value by $900 million.
However, unlike other failed mergers from this list, the deal wasn’t a complete disaster. In May 2011, eBay sold all of Skype’s equity to Microsoft for $8.5 billion. Thanks to eBay’s 30% stake in Skype at the time of the sale, the company realized a net gain of $1.4 billion on its original investment.
8. Sprint and Nextel Communications
Year: 2005
Value: $35 billion
Goals: The two companies aimed to gain access to each other’s customer bases and grow by cross-selling their product and service offerings.
Back in 2005, Sprint was a telecommunications company, while Nextel Communications was a wireless service operator. When Sprint acquired a majority stake in Nextel, the new company became the third-largest telecommunications provider in America, behind AT&T and Verizon. How did the deal then turn out to be among the worst failed acquisitions?
When Nextel managers were leaving the company, they cited cultural differences and incompatibility among the biggest reasons for the M&A failure. Cultural mismatch and communication barriers, in turn, hindered corporate integration efforts, with Nextel employees facing obstacles in implementing corrective actions due to a lack of trust and rapport with Sprint’s leadership.
In addition, Nextel, known for its customer-centric approach, struggled to align with Sprint’s poor reputation in customer service, leading to dissatisfaction among subscribers and high churn rates. On top of that, this all occurred during economic downturns.
Sprint Nextel’s efforts to handle acquisition issues took focus away from other problems, such as staying technologically competitive and keeping up with rivals like AT&T and Verizon. High expenditures and declining cash flow led to significant layoffs. Additionally, in 2008, the company suffered a massive $30 billion charge due to goodwill impairment, resulting in a downgrade of its stock rating.
9. America Online and Time Warner Inc
Year: 2001
Value: $65 billion
Goals: To capitalize on the convergence of traditional media and the burgeoning internet sector.
The merger between AOL and Time Warner stands out as one of the most notorious acquisition failures in corporate history. When America Online acquired Time Warner, the two organizations created a combined entity valued at an estimated $361 billion, the biggest merger of its kind.
However, shortly after the merger, the dot-com bubble burst, severely impacting AOL’s value and leading to substantial losses. In 2002, AOL reported a loss of $99 billion, attributed to a goodwill write-off. This was the largest annual net loss ever reported at that time.
So, why did the deal collapse? First of all, because of the culture clash. As Richard Parsons, president of Time Warner said, “It was beyond certainly my abilities to figure out how to blend the old media and the new media culture.” Indeed, AOL’s tech-focused approach and Time Warner’s traditional media mindset led to synergy challenges and problems with operational efficiency.
The failed acquisition damaged the reputation and finances of both companies. Ultimately, Verizon acquired AOL in 2015 for just $4.4 billion.
10. Snapple and Quaker Oats
Year: 1994
Value: $1.7 billion
Goals: Quaker Oats aimed to leverage Snapple’s popular drinks to expand its beverage portfolio and capitalize on Snapple’s market success.
Quaker Oats’ purchase of Snapple turned into one of the worst mergers and acquisitions failures. Despite warnings from financial experts about overpayment, the company management remained optimistic, drawing parallels to their successful acquisition of Gatorade in 1983.
However, within just two years, Quaker Oats sold Snapple for a mere $300 million, losing a lot of money — about $1.6 million for each day that the company owned Snapple.
The key problem lay in management — Quaker Oats didn’t understand how to run Snapple. The company wanted to use its established relationships with major retailers, but a significant portion of Snapple’s sales came from smaller outlets, such as corner stores and gas stations. This oversight led to a disconnect in distribution and hurt sales performance.
Another challenge was competitive pressure. Big companies like Coca-Cola and PepsiCo introduced new drinks that took away many of Snapple’s customers and hurt its market position even more.
Lessons learned from failed mergers
Along with benefits like expanding market share, enhancing capabilities, and driving growth, there are many mergers and acquisitions risks. However, they can be mitigated by learning from recent failed mergers and acquisitions examples, understanding the root causes of their failures, and implementing strategies to avoid similar pitfalls in the future.
Here are the main recommendations:
- Thorough due diligence. Due diligence lapses are a common factor in failed mergers. Companies must thoroughly assess the financial health, cultural compatibility, and strategic fit of potential partners before proceeding with a deal.
- Comprehensive cultural integration. It’s crucial to address the challenges posed by failed mergers due to cultural differences. By fostering open communication, promoting cultural awareness, and implementing training programs, companies can navigate cultural integration more effectively and prevent potential pitfalls.
- Clear strategic alignment. Mergers should be driven by clear strategic objectives and a shared vision for the future. Misalignment in goals and priorities can disrupt integration efforts and weaken the success of the combined entity.
- Effective leadership transition. Leadership plays a critical role in navigating the complexities of a merger, especially in the area of post-merger integration change management. Smooth leadership transitions, coupled with strong interpersonal skills and cultural understanding, are essential for driving post-merger integration.
- Adaptability and flexibility. Market dynamics evolve rapidly, and companies must remain adaptable to changing conditions. Being too inflexible in organizational structure or strategy can hinder the ability to respond effectively to external challenges and opportunities.
Key takeaways
- Failed mergers and acquisitions examples include Microsoft and Nokia, Sprint and Nextel Communications, eBay and Skype, America Online and Time Warner Inc, Snapple and Quaker Oats, AT&T and Time Warner, Kraft Heinz and Unilever, Google and Motorola Mobility, Bank of America and Countrywide, and Alcatel and Lucent.
- Lessons learned from these unsuccessful M&A deals include the importance of thorough due diligence, effective cultural integration, clear strategic alignment, and adaptability in responding to market dynamics.
By implementing the lessons learned from unsuccessful transactions, companies can enhance their chances of achieving successful outcomes in future M&A efforts.
