Top 10 worst acquisitions of all time across different industries

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“M&A is a mug’s game, in which typically 70%-90% of acquisitions are abysmal failures,” prominent business strategist Roger Martin once said in Harvard Business Review. 

There are many reasons for merger failures, ranging from poor strategic planning to cultural clashes. Understanding them is crucial for anyone involved in the M&A process, from executives and managers to investors and advisors.

In this article, we’ll explore ten unsuccessful mergers and acquisitions examples, investigate the key reasons why these deals failed, and discuss strategies to avoid such failures in the future.

10 worst mergers and acquisitions examples

Let’s start with a brief overview of the worst mergers in history, and then we’ll move on to a detailed description.

Companies involvedYearDeal valueFinancial losses
1. Microsoft and Nokia2013$7.2 billion$7.5 billion
2. Caterpillar and ERA2012$677 million$580 million
3. Bank of America and Countrywide2008$4 billion$9 billion
4. Kmart and Sears Roebuck2005$11 billionN/A
5. Sprint and Nextel Communications2005$35 billion$30 billion
6. America Online and Time Warner2000$164 billion$99 billion
7. Mattel and the Learning Company1998$3.8 billion$430 million
8. Daimler Benz and Chrysler1998$36 billionN/A
9. Quaker Oats sold Snapple1997$1.7 billion$1.6 billion
10. New York Central and Pennsylvania railroads1968N/AN/A

1. Microsoft and Nokia

Reasons for failure: challenges in competing effectively in the rapidly evolving mobile market dominated by other players like Apple and Samsung.

One of the worst business deals in history occurred in 2013 when Microsoft acquired Nokia’s devices and services business for $7.2 billion. The aim was to integrate Microsoft’s software with Nokia’s hardware expertise to boost Windows Phone sales, which were declining rapidly compared to Android and iOS.

However, despite the acquisition, Windows Phone’s market share continued to decline, plummeting from about 3% in 2013 to less than 1% by 2016. Nokia’s Lumia phone line, which saw its unit sales peak in 2013 at over 30 million, capturing nearly 11% of the global smartphone market, fell to just 8.6 million units by 2016.

The key reasons for this failure were challenges in integrating the two companies’ operations, confusion regarding branding strategies, and the relentless dominance of Android and iOS in the smartphone market.

The rapid decline in Lumia sales led to massive financial losses for Microsoft, prompting a $7.5 billion write-down in 2015. Thousands of workers were laid off and in 2016 Microsoft sold Nokia’s feature phone business for just $350 million. 

2. Caterpillar and ERA

Reasons for failure: inadequate and insufficient due diligence process.

Caterpillar, the world’s leading machinery manufacturer, acquired ERA Mining Machinery Ltd for $677 million in 2012. ERA was the holding company for Zhengzhou Siwei Mechanical & Electrical Equipment Manufacturing Co Ltd, one of China’s largest manufacturers of coal mine roof supports. The deal aimed to help Caterpillar gain traction in the Chinese coal market, but it soon became one of the worst acquisitions of all time.

The reason for that was significant accounting issues found shortly after the acquisition in November 2012, during an interrogation of Wang Fu, Siwei’s chairman, by Caterpillar lawyers. By January 2013, Caterpillar publicly announced the discovery of “deliberate, multi-year, coordinated accounting misconduct” at Siwei, leading to the termination of Wang’s employment.

The consequences were severe for Caterpillar, which had to take a massive non-cash charge of $580 million, 86% of the deal’s value. Despite claims of being caught off guard, evidence suggests that Caterpillar had overlooked or disregarded warning signs of accounting irregularities at Siwei before the acquisition. This negligence led to significant financial losses and damaged reputation.

3. Bank of America and Countrywide

Reasons for failure: the housing market collapse coupled with substantial legal expenses.

In 2008, the financial giant Bank of America acquired Countrywide, once the US major mortgage lender, for $4 billion. Bank of America saw the acquisition as a strategic move to solidify its position as a leading player in the commercial banking sector. But it soon turned out to be, as The Wall Street Journal put it, “the worst deal in the history of American finance”.

The reason was simple — the merger pushed Bank of America into the mortgage market just before the housing bubble burst, which led to enormous real estate losses and huge legal fees. 

More precisely, Bank of America’s mortgage business lost about $9 billion in 2010 and $4 billion in 2009. Moreover, the deal with Countrywide led to various lawsuits and the bank had to pay $600 million to pension investors who claimed losses due to Countrywide’s mortgage securities and $108 million to the SEC for alleged excessive fees charged to homeowners facing foreclosure. It also agreed to a $335 million settlement to resolve accusations of discriminatory lending practices by Countrywide.

4. Kmart and Sears, Roebuck and Co.

Reasons for failure: underinvestment in stores, increased competition from e-commerce, inherited debt burden, and a lack of innovation.

The merger turned the newly combined company, Sears Holdings Corporation, into America’s third-largest retailer, behind Walmart and Home Depot, with approximately $55 billion in annual revenues, 2,350 full-line and off-mall stores, and 1,100 specialty retail stores. But a number of reasons soon made the deal appear on the list of the worst mergers and acquisitions.

First, both Kmart and Sears had reputations for underinvesting in their stores, leading to a decline in the overall shopping experience and customer satisfaction. The emergence of online retail giants like Amazon intensified competition, and the combined company struggled to keep pace with the shift toward e-commerce. Consequently, sales and profits declined.

Moreover, Sears Holdings inherited a significant debt burden, limiting its financial flexibility and ability to invest in the business or adapt to market changes. The company’s failure to innovate and differentiate itself further increased its challenges, contributing to a loss of customers.

5. Sprint and Nextel Communications

Reasons for failure: clashes between two corporate cultures, incompatible network technologies, internal conflicts, and financial impairment.

In 2005, Sprint acquired a majority stake in Nextel Communications in a $37.8 billion stock purchase. 

Before the deal, Sprint primarily served the traditional consumer market, offering long-distance and local phone connections. Nextel had a significant presence in the business sector, mainly because its phones were known for their press-and-talk features.

After the merger, the new entity became the third-largest telecommunications provider, behind AT&T and Verizon. By gaining access to each other’s customer bases, both companies hoped to grow by cross-selling their product and service offerings. However, several challenges hindered the deal’s success.

Firstly, the merged companies’ networks used different technologies and had no overlapping coverage areas, making integration extremely difficult. This resulted in operational inefficiencies and prevented them from providing a seamless service to customers.

Cultural differences between the companies were also an obstacle. Sprint had a bureaucratic culture, while Nextel was more entrepreneurial. Nextel employees often had to seek approval from Sprint’s management in implementing corrective actions. This led to internal conflicts and a lack of trust, which made many Nextel executives leave the company.

In 2008, the company incurred a staggering $30 billion in one-time charges for impairment to goodwill, and its stock was given a junk status rating.

6. America Online and Time Warner

Reasons for failure: an economic downturn, technological shifts, and cultural clashes.

The deal between America Online and Time Warner is also among failed mergers and acquisitions examples. With the merger, America Online aimed to distribute its content across the two companies’ networks, capitalizing on its dominance. However, the synergy of these two dynamically different companies never materialized.

First of all, by May 2000, the dot-com bubble started to burst, and online advertising slowed down, making it hard for AOL to meet the financial expectations of the deal. Plus, the rise of high-speed internet threatened AOL’s dial-up service.

The second problem was cultural clashes. “It was beyond certainly my abilities to figure out how to blend the old media and the new media culture. They were like different species, and in fact, they were species that were inherently at war,” said Richard Parsons, the former CEO of Time Warner.

In 2002, the company reported a shocking loss of $99 billion, mainly due to a goodwill write-off, leading to a significant drop in its market cap from $226 billion to just $20 billion.

7. Mattel and the Learning Company

Reasons for failure: a lack of synergy and inadequate mission vision.

The deal between Mattel, a prominent toy manufacturer, and The Learning Company, an educational software firm, seemed like a great strategic move to enhance Mattel’s high-tech product line. But almost immediately after the acquisition, problems emerged as dealers returned unsold units.

Despite The Learning Company’s previous successes in the interactive gaming industry, including titles like “Where in the World is Carmen Sandiego?” and “Myst,” it failed to deliver any significant new hits in the years leading up to the acquisition. Instead, it incurred substantial losses, amounting to $206 million for the twelve months. This contributed to Mattel’s overall loss of $86 million for the 1999 calendar year.

The acquisition’s problems had far-reaching consequences, leading to the departure of Mattel’s Chief Executive Officer, Jill Barad, after a difficult three-year tenure. The deal failure also resulted in the resignation of Mattel’s Chief Financial Officer, Harry Pearce.

In October 2000, Mattel announced the selling of The Learning Company to Gores Technology Group, a closely held company that specializes in acquiring and turning around undervalued technology companies. According to the deal, Mattel received no cash upfront. Moreover, it retained $500 million in The Learning Company debt and recorded an after-tax loss of $430 million as a result of the sale.

8. Daimler Benz and Chrysler

Reasons for failure: a lack of true partnership, cultural clashes, and a lack of deep integration.

In 1998, the German automaker Daimler Benz merged with Chrysler, an American automaker, to create Daimler Chrysler in a deal valued at $37 billion. Back then, it was the biggest acquisition by a foreign buyer of any American business. Today, it’s on the list of the biggest failed mergers. 

Early signs of trouble appeared when it became apparent that the merger was more of a takeover by Daimler rather than a true partnership. Cultural clashes between the companies further complicated matters. The potential competitive advantages, such as a cohesive global brand architecture and platform strategy, were never realized due to the lack of deep integration.

Instead of leveraging each other’s strengths, Daimler and Chrysler operated as separate entities, neglecting the necessity of integrating operations and strategies. When external factors, such as rising gas prices and shifting consumer preferences, destabilized Chrysler’s recovery efforts, it became evident that the merger was unsustainable.

In 2007, Daimler Benz sold Chrysler to the Cerberus Capital Management firm, an expert in restructuring troubled companies, for $7 billion.

9. Quaker Oats sold Snapple

Reasons for failure: a mismatch between Quaker Oats’ approach and Snapple’s identity.

In 1993, Quaker, a food and beverage company, acquired Snapple for $1.7 billion, outbidding competitors like Coca-Cola, in a move to expand its beverage portfolio. Quaker Oats, known for its successful acquisition of Gatorade, wanted to replicate its triumph with Snapple, but soon appeared among the worst merger and acquisition failure examples.

Following the merger, Quaker Oats launched a new marketing campaign to expand Snapple’s presence in grocery stores and chain restaurants, seeking broad distribution. However, their efforts failed miserably. This is because a significant portion of Snapple’s sales were coming from small, independent stores, such as convenience stores and gas stations. Snapple struggled to maintain its market share in large grocery stores.

Two years following the purchase, Quaker Oats sold Snapple to a holding firm for only $300 million, resulting in a staggering loss equivalent to $1.6 million for each day that the company owned Snapple.

10. New York Central and Pennsylvania Railroads

Reasons for failure: cost-cutting, inadequate foresight and strategic planning, overly optimistic expectations regarding post-merger improvements, cultural conflicts, and ineffective execution of integration strategies.

In 1968, the New York Central and Pennsylvania railroads merged to become the sixth largest corporation (at that time) in America. However, within just two years, Penn Central faced insolvency, marking the nation’s largest bankruptcy back then.

The bankruptcy of Penn Central in 1970 had significant repercussions, indicating wider economic challenges in the railroad industry and business sector. Rapidly declining passenger train services, exacerbated by regulatory challenges, further strained Penn Central’s financial stability. Attempts to modernize passenger services with new technologies faced obstacles due to infrastructure limitations and operational issues.

Legal disputes, including the unsuccessful sale of Grand Central Terminal’s air rights, added to the company’s difficulties. By 1974, it was clear that Penn Central’s railroad operations couldn’t support its reorganization.

As a result, the federal government stepped in, taking over Penn Central’s rail operations and transferring them to the Consolidated Rail Corporation (Conrail) in 1976.

Why do M&A deals fail?

Let’s explore the key reasons why so many mergers and acquisitions fail:

  1. Poor due diligence. It can lead to unforeseen risks and liabilities, such as undisclosed financial obligations or legal issues, which may negatively impact the merger’s success. However, conducting thorough due diligence can uncover potential pitfalls and enable the acquiring company to make more informed decisions, mitigating the risk of failure.
  2. Overreliance on M&A advisors. Excessive dependence on M&A consultants, without active owner involvement, is a common pitfall leading to deal failure. Owners should take a proactive role in driving and structuring the deal, leveraging advisors as support rather than decision-makers.
  3. Overestimation of synergies. Sometimes companies overestimate the potential synergies and cost-saving opportunities of a merger, leading to disappointment when these fail to materialize.
  4. Integration challenges. Difficulties in integrating operations, systems, and processes of the merged entities can result in operational inefficiencies and decreased productivity.
  5. Financial constraints. High debt levels, poor financial performance, or inadequate funding can strain the financial resources of the merged entity, limiting its ability to invest in growth initiatives or navigate challenges effectively.
  6. Regulatory hurdles. Regulatory hurdles, such as antitrust concerns or legal obstacles, can delay or block the completion of a merger, leading to uncertainty and potential deal failure.
  7. Negotiation errors. Overpaying for acquisitions and incurring high advisory fees can lead to financial losses and eventual failure. Careful negotiation and valuation are crucial to avoid such pitfalls.
  8. Stakeholder resistance. Resistance from employees, customers, suppliers, or other stakeholders who are apprehensive about the merger can undermine its success and create obstacles to integration.
  9. External factors. Unforeseen external factors, such as economic downturns or sector-wide collapses, can significantly impact deal outcomes. Flexibility and adaptation are key in navigating external challenges.

According to several studies, a significant number of deals fail, with estimates ranging between 70-90%. To avoid becoming part of these statistics, companies should prioritize thorough due diligence, develop a robust integration plan, maintain open and transparent communication with all stakeholders, and remain flexible and responsive to changing market conditions.

Author

Ronald Hernandez

Founder, CEO at dataroom-providers.org

Data room selection & optimization expert with 10+ years of helping companies collaborate more securely on sensitive documents.

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