This article has been written by Shivani Ratour, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho.
Bigger is not necessarily better when it comes to mergers and acquisitions, as shown by the examples we found in our list of the greatest M&A failures.
In reality, if all other factors are equal, the bigger the deal, the more likely the buyer is overpaying for the target business.
That is not to suggest that large cannot be lovely! Creating a business that provides a new momentum in its market, causing everyone else to up their game in the process, increases in tandem with the chances of overpaying.
We cannot afford to miss mega deals, whether you like them or not. The ten largest M&A transactions of all time, as well as examples of the most active mergers and acquisitions, are listed below.
Disney and Pixar/Marvel
Bob Iger orchestrated the deal that took Steve Jobs’ Pixar Animation Studios to Disney just over a decade ago, securing a $7.4 billion stock acquisition that raised eyebrows at the time. But it soon proved to be Iger’s wisest decision, taking the company back to the height of the Disney Revival, which spanned 1989 to 1999 and produced classic cartoons including “The Little Mermaid,” “Beauty and the Beast,” “Aladdin,” and “The Lion King.”
The second and third highest-grossing films this year are Pixar’s “Finding Dory” and Disney’s “Zootopia,” respectively, while Disney’s “Frozen,” which debuted in 2013, holds the all-time record of $1.3 billion in global receipts.
The Pixar agreement went a long way toward assuaging Walt Disney’s nephew, Roy E. Disney, whose dissatisfaction with the company’s de-emphasis on animation contributed to Michael Eisner’s ouster in 2004. Iger bet on the two visionaries who had revolutionised the industry with their unparalleled track record of success by placing Pixar chief creative officer John Lasseter and President Ed Catmull in charge of Walt Disney Animation Studios.
The Pixar deal helped to placate Walt Disney’s nephew, Roy E. Disney, whose frustration with the company’s de-emphasis on animation led to Michael Eisner’s ouster in 2004. By putting Pixar chief creative officer John Lasseter and President Ed Catmull in control of Walt Disney Animation Studios, Iger bet on two visionaries who had revolutionised the industry with their unprecedented track record of success.
Google and Android
The acquisition of the Android operating system Google bought it for $50 million in 2005.
Android is the most commonly used mobile operating system, and it has revolutionised mobile computing. Google bought Android for $50 million in 2005, and it is one of the greatest investments the company has ever made.
By a wide margin, Android is now the most common mobile OS on the planet. According to the latest figures from Statista, Android was used in 74.13 percent of all new smartphones as of December 2019. Android also outperformed more well-known competitors such as Microsoft’s Windows Phone (and Windows Mobile), Nokia’s Symbian, and, most notably, BlackBerry.
Google purchased Android from Android Inc., a separate organisation. It was founded in the first half of 2003, a few years before Google bought it. Andy Rubin, who had previously worked for MSN and Apple, was the most well-known co-founder of the Palo Alto business. Rubin allegedly got the nickname “Android” at Apple after his co-workers discovered his fascination with robots.
Google’s $50 million investment in Android pales in comparison to its subsequent acquisitions over the next 15 years. In reality, the company only spent $130 million on acquisitions in 2005. In contrast, Google paid $1.65 billion for YouTube just over a year back. There was a lot of debate at the time about whether YouTube was worth the price, but it is definitely paid off now, even though Android has become even more popular. Nonetheless, Google is unlikely to ever get a better return on investment than it did with Android. Although the company will undoubtedly continue to purchase and invest in other businesses, there is no denying that the $50 million start-up was a huge success.
Exxon and Mobile
The merger of Exxon Corporation and Mobil Corporation, two of Standard Oil’s descendants, was one of the most successful mergers…. According to CNN Money, the transaction between Exxon Corporation and Mobil Corporation was concluded on November 30, 1998 and was a landmark $80 billion deal at the time (Exxon).
ExxonMobil was founded in 1998 when two independent American oil firms, Exxon, and Mobil, combined to create ExxonMobil. It culminated in the creation of the world’s largest oil company. It was able to cut costs as a result of this. The merger resulted in a $3.8 billion cost reduction and savings.
Vodafone and Mannesmann
In a landmark transaction that will reshape the mobile telecom industry, Vodafone AirTouch PLC of the United Kingdom acquired Mannesmann AG on February 4, 2000.
The cross-border takeover of German industrial conglomerate Mannesmann AG by Britain’s Vodafone AirTouch PLC in 2000 was the largest merger in history, estimated at more than US$190 billion. Goldman Sachs advised Vodafone on the acquisition, which resulted in the creation of the world’s largest mobile telecom provider. Another notable feature of the transaction was that it involved the uninvited acquisition of a German company, which was uncommon at the time.
The historic deal represented the European mergers and acquisitions (M&A) sector’s rapid expansion, which expanded nearly three times faster than the global M&A market. Goldman Sachs was involved in 11 of the 12 biggest M&A deals in the world at the time, reflecting the strength of the firm’s global franchise.
The successful — and complicated — acquisition of Mannesmann by Vodafone solidified Mannesmann’s already strong partnership with the telecom behemoth. As a result, Goldman Sachs was given mandates for a variety of merger-related transactions. This included working as a joint arranger on the largest ever US$30 billion Euro-bank loan, acting as a joint book runner on Vodafone’s US$5.25 billion global bond, and conducting the largest ever US$5.1 billion equity block trade in Vodafone. A number of similar divestitures were also completed by the company, including the US$46 billion sale of Orange PLC to France Telecom S. A.
Vodafone hired Goldman Sachs as a joint financial advisor in its EUR10.7 billion (US$14.1 billion) purchase of Kabel Deutschland Holding AG in 2013. By integrating Vodafone’s brand and vast distribution with Kabel’s high-speed broadband cable network and existing client base, the deal will extend Vodafone’s reach in Germany and establish an integrated telecom provider. In the same year, the company advised Vodafone on the US$130 billion sale of its US group to Verizon Communications, with its main asset being a 45 percent interest in Verizon Wireless. The deal, which included a record US$58.8 billion in cash, was the largest M&A deal in over a decade and the third largest in the world.
Pfizer and Warner-Lambert
The Warner-Lambert-Pfizer merger would result in a corporation with a large cardiovascular product portfolio, including two blockbuster drugs. Furthermore, the combined business will be especially strong in the areas of CNS and anti-infectives, both of which are expected to produce over $2 billion in revenue.
The deal was ignited by a popular cholesterol-lowering drug named Lipitor, which Warner-Lambert introduced in 1996 and co-marketed with Pfizer, which gets about half of the profits.
Pfizer was interested in Warner-Lambert because of Lipitor, a popular cholesterol drug. “Pfizer had legal rights to Lipitor, but Pfizer was sharing profits with Warner-Lambert, and Warner-Lambert sued Pfizer in 1999 to end their licencing pact.”
The deal took three months to close, and Pfizer retained ownership of Lipitor’s revenues, which totalled more than $13 billion.
Verizon and Vodafone $130B
Vodafone has been involved in so many transactions over the last two decades that they should be very proficient at this stage. Verizon was able to pay for its US wireless subsidiary with the $130 billion offer in 2013.
The transaction was the third biggest in history at the time, and Vodafone was a part of two of them. From Verizon’s viewpoint, it gave the company total leverage of its wireless division, putting an end to a turbulent ten-year partnership with Vodafone.
Investors have spoken out against the Philip Morris-Altria merger negotiations, sending both companies’ shares lower. However, that may not be the most rational reaction. The smoking landscape is evolving, and Wall Street understands that there are several compelling reasons to join forces. If investors reconsider their initial reasoning, they will realise that the new business has the potential to produce more shareholder value in the near future. Since Monday, when speculation of a merger between Philip Morris (ticker: PM) and Altria (MO) began, the combined market capitalization of the two companies has dropped $18 billion, or more than 8%. In contrast, the Dow Jones Industrial Average is up 0.6 percent.
AT&T and Time Warner merger – $108B
When the proposed merger of AT&T and Time Warner was revealed, it not only drew antitrust scrutiny, but it also brought back memories of the last time Warner was involved in a megadeal.
With almost two decades to learn from its mistakes and AT&T being a far bigger cash producer than AOL, this transaction seems to be more well-thought-out than the one that came before it.
AB InBev and SABMiller merger – $107B
If the stock price is some indicator of whether a transaction was successful or not, the merger of InBev and SABMiller in 2015 was not.
On paper, the agreement seemed to be a successful one: two of the world’s largest breweries joining forces to build a portfolio of world-class beers.
The only problem was that they did not anticipate the advent of craft beers and how it would affect the brewing industry. After many bolt-on acquisitions of craft breweries, the new business appears to be back on track.
Heinz and Kraft merger – $100B
Another megadeal that has a negative impact on stock is the merger of Heinz and Kraft to form the Kraft Heinz Company.
The transaction has been dubbed a “mega-mistake,” with the stock price plummeting by billions since it was completed. Allegations about accounting procedures at the two companies prior to the merger are one of the reasons.
Another factor is zero-based budgeting (ZBB), a stringent cost-cutting regime that arrived at a time when old brands needed to be renewed rather than having their budgets reduced.
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