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The Five Biggest Tech Mega-Merger Failures
AOL Buys Time Warner In January, 2000, AOL agreed to purchase Time Warner for $162 billion, the second-largest merger in corporate history. The combined company was among the biggest in the world, with a market cap in excess of $350 billion. At the time, it was believed that AOL’s subscribers and Internet assets would offer a new outlet for Time Warner’s extensive media properties, and that AOL could take advantage of Time Warner’s fledgling cable Internet offerings.
AOL Buys Time Warner In 2009 it spun AOL off as a separate company entirely. It also divested its cable operations (Time Warner Cable) and publishing arm (Time, Inc.). The combined value of all four firms (around $140 billion) remains far below its 2001 market cap. Unfortunately, the deal proved disastrous. The company took several large write-downs as the value of its Internet assets declined, and it led to a $100 billion annual loss in 2002. The bursting of the dot.com bubble took a toll on its business, and in 2003, Time Warner dropped AOL from its name and reverted to its previous stock symbol.
Sprint Buys Nextel Sprint’s acquisition of Nextel wasn’t as large as AOL-Time Warner, but it was arguably more disastrous. In December, 2004, Sprint agreed to purchase Nextel for around $34 billion in an effort to improve its network and increase its subscriber count. Originally portrayed as a merger of equals, it was believed that the combination would lead to significant cost savings and was not unusual -- the U.S. wireless industry experienced a widespread period of consolidation in the mid 2000s.
Sprint Buys Nextel Yet no other telecom merger caused as much damage to shareholders. In 2007, Sprint began to lose subscribers, including many of Nextel’s former customers. Although they may have been near equals in size, Sprint and Nextel were said to have dramatically different corporate cultures, and in-fighting took a toll. Sprint wrote off almost the entire value of the merger in 2008. It slowly fell behind its rivals in network technology and coverage, and has struggled ever since. Its post-merger market cap of around $60 billion is almost five times greater than its current value.
Hewlett-Packard Buys Autonomy Hewlett-Packard’s purchase of Autonomy wasn’t nearly as big as Sprint-Nextel or AOL-Time Warner, but it did result in a significant write-down. In 2011, Hewlett-Packard agreed to purchase Autonomy $10.3 billion. Under the stewardship of then-CEO Leo Apotheker, Hewlett-Packard planned to shift its focus to enterprise software. Autonomy’s search technology -- which focused on unstructured data -- may have played a crucial role.
Hewlett-Packard Buys Autonomy But just one year later, in 2012, Hewlett-Packard wrote-down $8.8 billion of the acquisition, almost its entire value. Worse, the write-down was blamed on undetected accounting irregularities. It took a toll on Hewlett-Packard’s earnings, contributing to a nearly $7 billion quarterly loss.
Alcatel Buys Lucent Another supposed merger of equals, in 2006, Alcatel agreed to purchase Lucent for $13.4 billion. It was thought that the combined entity would be able to dominate the market for telecommunications equipment, and lead to significant cost-savings. With telecom providers going through their own wave of mergers, Alcatel-Lucent needed scale to achieve more favorable pricing.
Alcatel Buys Lucent Almost immediately after completing the merger, Alcatel-Lucent began posting regular annual losses, and continued to do so for several years. Cultural forces may have been at play, as Alcatel was a French firm and Lucent was based in the United States. In 2009, it suffered a $5 billion loss in the fourth quarter due to write-downs. Earlier this year, Nokia agreed to purchase the combined company for $16.6 billion -- just a bit more than what Alcatel paid for Lucent in 2006.
Microsoft Buys Nokia’s Handset Unit Microsoft’s acquisition of Nokia’s handset business is the most recent blunder. In September, 2013, Microsoft agreed to purchase the unit (along with some patents) for $9 billion. Nokia was Microsoft’s most ardent support of Windows Phone, producing the vast majority of Windows-powered handsets. At the time, Microsoft’s management argued that by acquiring Nokia, it could realize significant cost savings and help boost Windows Phone’s market share.
Microsoft Buys Nokia’s Handset Unit Less than two years later, Microsoft has taken a $7.6 billion write-down on the deal and fired almost all of Nokia’s workforce. Despite Microsoft’s best efforts, Windows Phone has failed to catch on, and its market share remains in the low-single digits. Microsoft hasn’t given up on Windows Phone entirely, but its mobile strategy now appears aimed at getting its software on rival platforms rather than pushing its own products.
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