The world of business is dynamic, characterized by new entrants, expansions,
startups,
takeovers and more. One of the ways corporations look to grow and expand is through
mergers and acquisitions (M&A). “One plus one equals three” is the basic reasoning behind
M&A deals. These deals help companies to gain advantages like
gaining a larger customer base, global footprint, access to distribution
channels or suppliers, technical knowhow, among other things. If the
deals turn out as planned, they give the business a competitive edge and
enhance shareholder value. However, there have been cases where such
deals have not worked out well.
The chart below shows the status of mergers and acquisitions in terms
of number and value in the U.S. The chart shows a significant decline
(in terms of value) during the period of financial crisis of 2008-09,
showing recovery from 2009-10. However, the value of transactions
remained much lesser than the peaks hit during years 1999, 2000 and
2007. In terms of number of transactions, year 1998 tops the chart with
year 2007 at the second spot.
Let’s take a look at some of the biggest merger and acquisition deals
over the last few years in the United States (in no specific order).
One of the biggest deals in recent times has been the acquisition of Vodafone Group Plc’s (NASDAQ:
VOD) 45 percent stake in Verizon Wireless by Verizon Communications Inc. (NYSE:
VZ)
in a transaction worth $130 billion. Verizon Wireless which was founded
in 2000 as a joint venture of Verizon Communications and Vodafone, is
(after the deal) now wholly owned by Verizon Communications Inc. Verizon
Wireless is the largest and most profitable wireless company serving
104.6 million retail connections, operating in more than 1,700 retail
locations in the United States. The company reported annual revenue of
$81 billion in 2013.
This is an example of one of the biggest and also the most
unsuccessful merger of all times. Time Warner, one of the biggest media
and entertainment companies in the world was acquired by America Online
Inc (AOL) in 2000 for a whopping $ 182 billion. The merger was announced
by Steve Case (CEO of AOL) and Gerald Levin (CEO of Time Warner) with
an aim to “create the world’s first fully integrated media and
communication company for the internet century.” As opposed to what the
merger had proposed to do for the companies, AOL and Time Warner merger
failed miserably.
Not long after the merger, the AOL division was hit hard by the
dot-com bubble.
In 2002, the company reported an astonishing loss of approximately $99
billion, the largest annual net loss ever reported by a company
(including $54 billion
goodwill impairment). In 2003, the company dropped "AOL" from its name and simply became known as Time Warner Inc (NYSE:
TWX).
Two of the fastest growing companies from the pharmaceutical space joined hands in 2000 as Pfizer Inc (NYSE:
PFE)
acquired Warner-Lambert (WLA) in a $90 billion deal. The deal has a
background drama to it as the merger plans were originally announced by
Warner-Lambert and American Home Products in November 1999 for
approximately $70 billion. Pfizer in the next few hours attempted the
largest hostile takeover in the pharmaceutical business by announcing an
unsolicited $82 billion offer for Warner. Warner-Lambert's cholesterol
drug Lipitor is said to be the point of focus for the merger, the drug
was jointly marketed by Warner-Lambert and Pfizer since its launch in
1997. The deal which finally went through after three months of tussle
as American Home Products agreed to walk away with a breakup fee of
around $1.8 billion.
ExxonMobil Corporation (
XOM),
the largest company in the Oil & Gas sector was created in 1998 by
bringing together the fragments of Standard oil monopoly (Exxon
Corporation and Mobil Corporation) in an $80 billion deal. At the time
of the deal, Exxon and Mobil were the largest and second-largest oil
producers in the U.S. with a combined market capitalization of $237.53
billion. The company is a leader in multinational giant headquartered in
Irving, Texas, United States.
The Board of Directors of Altria Group Inc (NYSE:
MO)
in January 2008 approved the spin-off of Philip Morris International
Inc, a wholly owned subsidiary of Altria with a vision of making it the
most profitable publicly traded tobacco company and to build long-term
shareholder value. As per the laid down terms, each Altria shareholder
received one share of Philip Morris International for every share of
Altria held on March 19, 2008 (record date) and involved approximately
$107 billion.
In 2006 the largest telecommunication giant AT&T (NYSE:
T)
acquired BellSouth (BLS) another large phone company in a $67 billion
deal. The deal resulted in giving AT&T a local customer base of 70
million across 22 states further strengthening its dominance in the
industry. According to the press release by AT&T, “a combination
that will create a more effective and efficient provider in the
wireless, broadband, video, voice and data markets.” The two companies
were already joint owners of Cingular Wireless with 60% ownership with
AT&T and 40% with BellSouth. Cingular Wireless was brought under the
brand and consolidated ownership of AT&T after the acquisition of
BellSouth.
The merger of the banking giant Citicorp and Travelers Group in
1998 estimated at $70 billion is regarded as one of the biggest
corporate mergers in history as it changed the landscape of the
financial-services industry. The merger created Citigroup Inc (NYSE:
C),
one of the biggest companies in the financial services space. Citigroup
had a market capitalization of approximately $135 billion at that time
and offered services like banking, insurance and investment in over 100
countries. Today, Citigroup Inc operates in around 160 countries and has
a market capitalization is around $155 billion.
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