Five of the worst M&A deals ever
These deals prove that M&A isn’t always the best route to growth
Looks like we’re treasure hunting again.
Mergers and acquisitions increased by a delightful 31% in Europe in the second quarter of 2012 with the UK out in front as the most active market according to research by PwC.
It’s a great sign of business confidence and hell, it’s exciting.
But what happens when M&A goes bad and the “treasure” turns out to be ASDA own-brand Christmas chocolate coins? Oh it can go so so bad.
Here’s our top sorry tales from the M&A library of doom.
Royal Bank of Scotland – ABN Amro, 2007
It’s probably the reason many taxpayers feel they can call RBS to order. It’s certainly part of the reason Fred Goodwin is at home bereft of his knighthood.
RBS’s takeover of ABN-Amro was the worst decision we’ve seen any bank make in recent times – and that’s saying something. RBS led a consortium which acquired ABN-Amro for an eye-watering $98.5bn in 2007.
The deal went pear-shaped a year later when the credit crunch hit and the bank recorded the biggest annual loss in UK corporate history and had to be bailed out by the government swallowing £45.5bn of the treasury’s stash. It is now 82% state-owned.
And it won’t ever forget it.
News Corp – MySpace, 2005
Rupert Murdoch was sitting in his ivory tower one day in the mid-naughties – thinking about things that were cool. Things that were cool that could make him more billions. Murdoch decided he needed to get into online media – this internet malarkey.
Cue a battle between News Corp and Viacom to buy MySpace. A battle which Murdoch won by catapulting an extra $50m onto the laps of the dot.com’s founders. He eventually forked out $580m.
What he didn’t realise was that MySpace wasn’t actually cool anymore. It was shot out of the stratosphere by the mighty Facebook.
Having spent a great deal of time and money trying to turn the ailing site around, News Corp. finally sold it for $35m. That’s a 16th of the original price.
AOL – Time Warner, January 2000
Time Warner chairman and chief exec said it himself back in 2010 – the AOL merger was “the biggest corporate mistake in corporate history”.
At the height of the dot.com boom, AOL completed a $164bn acquisition of Time Warner.
Excitement about the “biggest deal in history” was rife. Time Warner board member Ted Turner is quoted as saying: “I did it [cast his yes vote supporting the merger] with as much or more excitement and enthusiasm as I did on that night when I first made love some 42 years ago.”
But when the dot-com bubble burst, things went sour and Time Warner realised the deal was not in its best interests. AOL posted a $98.7bn loss for 2002 – the largest in US corporate history at the time.
The two companies de-merged in 2009.
BMW – Rover, 1994
When the deal went through the cries of British car enthusiasts were audible. “The day when the sun finally set on the British motor industry,” wailed The Independent.
The deal went through in ten days with BMW forking out £800m for Rover but it soon became apparent that the deal wasn’t as good as BMW has expected due to Rover’s inaccurate sales data.
By the time BMW sold Rover it was reportedly piling up loses of £2m per day and Phoenix consortium bought the car company for the nominal sum of £10.
Zynga – OMGPOP, 2012
Okay the jury isn’t out on this one but it doesn’t look good for this March 2012 acquisition. Online gaming supremos Zynga, famed for their popular Facebook collaboration FarmVille, bought three year old mobile gaming company OMGPOP for $210m.
OMGPOP was hot property earlier this year when its mobile game Draw Something became a smash hit and had 50 million downloads in its first 50 days.
Unfortunately, at the time of purchase Draw Something had only 15 million users and lost five million of these users a mere month after the acquisition.
Fast forward and Zynga has just announced a net loss for the year of up to $105m, having had to write off $95m related to the OMGPOP purchase and its stock price has plummeted to $2.31 having dropped from its $10 float price.
CEO Mark Pincus announced a 5% cull in staffing number on 23 October, the closure of its Boston office and the potential closure of its British and Japanese offices.
Hactivists Anonymous are threatening to take down Facebook and give away free downloads of Zynga’s games if it goes ahead with the cuts.