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The 9 Worst M&A Deals In History

The 9 Worst M&A Deals In History

This month, Anheuser Busch Inbev SA (ADR) (NYSE: BUD) formally agreed to buy SABMiller in a $105.5 billion deal, one of the largest in the history of Wall Street. The new company is expected to dwarf competitors in the global market and give Anheuser Busch a favorable position in the beer space.

By combining their resources, both firms believe that the new company will be more powerful, but such deals don't always work out that way. In fact, many of the largest deals on Wall Street fall through years later when companies are unable to merge successfully. Things like corporate culture, operations and differing opinions among execs often keep deals that are meant to be great from realizing their potential.

Here's a look at 10 M&A deals that fell apart soon after the ink was dry.

Related Link: Anheuser Bush/SABMiller Deal Shows market Still Hungry For M&A

1. Fast Food Failure

In 2008, fast food chain Arby's acquired rival Wendys Co (NASDAQ: WEN) in a deal worth $2.34 billion. However, just three short years later, Wendy's decided to sell Arby's to private equity firm Roark Capital Group for $130 million.

The deal, which was meant to create a fast food behemoth that could take on the likes of McDonald's or Burger King, ultimately fell apart when Arby's restaurants were unable to draw in customers and turn a profit. The roast beef sandwich chain's struggles felt like an anchor to Wendy's, which unloaded the firm after realizing that the combination had done little to boost its market share.

2. A Costly Mistake

Bank Of America Corp (NYSE: BAC)'s purchase of Countrywide in 2008 went down as one of the worst M&A deals ever made in the financial sector.

At a time when the financial crisis was wreaking havoc on the industry, Bank of America CEO Ken Lewis announced the firm would acquire struggling mortgage lender Countrywide. The deal was expected to boost Bank of America's home loans division, but instead ended up costing the bank billions. The firm bought Countrywide for just $2.5 billion, a bargain according to Lewis. However, legal expenses and real-estate losses ended up costing the firm more than $40 billion over the next few years. The timing of the deal was unfortunate, as the U.S. housing market collapsed soon after the deal was completed.

3. Discount Disaster

Retailers Sears Holdings Corp (NASDAQ: SHLD) and Kmart merged in 2005 in a deal that was expected to help both firms recover from declining sales and sagging margins. However, the deal did little to boost either's bottom line, as the two continued to struggle in the years following the deal.

Sears saw its revenue decline further following the merge as more and more customers flocked to rivals like Wal-Mart. Eventually, the firm announced that it would be forced to close down more than 100 stores in order to cope with a lack of revenue.

What went wrong? Many blame the two stores' poor efforts to keep up with the changing preferences of the American public, citing their unsuccessful rebranding attempts.

Related Link: EBAY) decided to make a bet on its future with a $2.6 million acquisition of online communication site Skype. At the time, many were skeptical of Skype's business model, which allowed people to make phone calls over the internet, but eBay was adamant that the purchase would boost its sales.

However, four years later, the two admitted they couldn't make it work; eBay sold Skype to private investors for $1.9 billion. The idea behind eBay's original purchase was to better connect its buyers and sellers using Skype's technology. Unfortunately, eBay users decided to stick to email rather than making voice calls, making the two businesses incompatible.

5. Cable Meltdown

Perhaps the most famous failed merger was the union between AOL, Inc. (NYSE: AOL) and Time Warner Inc (NYSE: TWX), a deal worth $164 billion that still stands as one of the largest in history.

The two firms were unable to come together after the deal was made official, with the corporate cultures of the two largely different. Time Warner became increasingly resentful of AOL following the merge, as the company was struggling to retain users and stay afloat in the shifting tech landscape. Eventually, Time Warner spun off AOL Inc as a private company in 2009, just nine years after the purchase, citing the firm's ailing financials.

6. Snapple Snafu

In 1994, Quaker Oats decided to acquire beverage company Snapple for $1.7 billion. The firm believed that Snapple would fit in with its Gatorade sports drink arm and disregarded chatter on Wall Street that Snapple was overpriced.

Quaker Oats' management was unable to leverage its relationships with big-brand supermarkets to boost Snapple sales, and differing corporate cultures negatively affected Snapple's marketing efforts. Quaker Oats gave up and sold Snapple just over two years later. By then, the firm's revenue had gone from $700 million to $500 million. Snapple was sold to a holding company for just $300 million, meaning that Quaker Oats had lost around $1.6 million each day it held onto Snapple.

7. Cross-Border Crisis

Germany's Daimler-Benz made a play for Detroit's Chrysler back in 1998 in an effort to take on auto superpowers like Toyota Motor Corp (ADR) (NYSE: TM) and General Motors Company (NYSE: GM).

In a deal worth $36 billion, the two joined forces, but excitement about the merge soon faded as it became apparent that corporate cultures from two different sides of the Atlantic would be difficult to marry. Daimler had always targeted affluent customers, while Chrysler catered to the price-conscious crowd, something that led Daimler to break its parts-sharing agreement with Chrysler and worry that partnering with a lower-end brand would hurt Daimler's luxurious image. In the end, Daimler dissolved the partnership and sold Chrysler to Cerberus Capital Management in 2007.

8. Brain Pain

Toy maker Mattel, Inc. (NASDAQ: MAT) acquired interactive education firm Learning Co. for $3.6 billion in 1999, but sold the company just a year later.

Almost immediately after the merger was complete, problems began to surface as Learning Co. games lost their appeal in an age where Apple and other tech companies were beginning to gain traction. While Learning Co. had been an early success among educational game makers with popular hits like "Where in the World Is Carmen Sandiego?" and "Myst," the firm failed to deliver beyond those titles.

Mattel blamed Learning Co. for disappointing earnings in the year following the acquisition and eventually took a $430 million hit and unloaded the software firm.

Related Link: Update: Inland Real Estate Acquisitions Acquires 13 Properties For $432.2 Million

9. Communication Collapse

In 2005, Sprint Corp (NYSE: S) bought a majority stake in Nextel Communications for $35 billion to create the world's third largest telecom provider. With Sprint's expertise in the traditional consumer market and Nextel's dominance in the business and infrastructure space, many believed that the deal would propel the new company to the front of the pack.

However, blending the two corporate cultures proved difficult, and many of Nextel's execs jumped ship following the deal. The integration of the two firms was painful as communication between the Sprint and Nextel arms of the business was labored and cumbersome with each firm maintaining its own separate headquarters. In 2013, Sprint decided to shut down its Nextel network after dealing with its declining customer base for years.

Image Credit: Public Domain


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