For many, the business world can be viewed as an ecosystem; symbiotic relationships, perpetual cycles, and hidden yet omnipresent systems are present. Gil Forer, a Digital and Business Disruption leader, claimed that understanding the interactions in an economy is essential to a corporation’s success with 68% of corporate business leaders agreeing. As time went on, numerous companies began partnering with others to sustain themselves while continuously growing. These business relationships, such as alliances, are designed to be symbiotic, meaning that both parties benefit from each other. As time went on, acquisitions became relevant in the world of business due to their potential and promised growth, but they can also end in disaster.
What is a Business Acquisition?
According to Will Kenton, a business acquisition is “a transaction wherein one company purchases most or all of another company’s shares to gain control of that company.” Businesses often do M&As to gradually improve synergy, and diversification to stand out and soar in the market. Furthermore, it increases the market share, lowers production costs, or even eliminates competitors by buying them outright. Jeanine Skowronski, the Head of Content at Forage, stated that there are four main types of takeovers:
- Horizontal Acquisition – Buying a company that produces comparable products.Vertical Acquisition – Buying a company that produces supplies in the existing industry
- Congeneric Acquisition – Buying a company that produces different products, but they have the same consumer base
- Conglomerate Acquisition – Buying a company from another industry
Acquisitions and mergers have similar meanings, but mergers form a new legal entity. On the other hand, acquisitions still allow the “acquired” entity to operate within its boundaries, but it is still owned and affected by the owner company’s administration. In certain cases, the acquisitions can be hostile, meaning that they can occur without the consent of the acquiree.
Despite this, there are instances in which companies damage their market values due to mismanagement, sudden world events, or increased upkeep, which can discourage shareholders from investing in the company. Acquisitions can be a two-edged sword in both times of need and struggle, so a company should understand its importance and process.
1. Vodafone and Mannesmann for $180.95 Billion in 1999
Vodafone Airtouch PLC, a UK-based and American wireless telephone service provider, was one of the world’s largest telecommunications companies due to its size and expanding operations. The company’s main strategy for expansion is strategic acquisitions of smaller companies in different countries; this would allow Vodafone to purchase potential competitors outright without hassle.
Mannesmann was a German industrial conglomerate known for its high-quality steel products, mechanical and electrical engineering, and automobiles. In 1989, the German telecommunication market was liberated after the fall of the Berlin Wall; this increased the commercial and economic traffic within Germany, according to Funding Universe. Seeing an opportunity, Mannesmann raced to enter the telecommunication sector and be one of the first cellular phones and internet service providers In Germany. Combined with a German economic boom, the total sales of Mannesmann nearly quadrupled, reaching 22.3 billion Deutsche Mark in 1989. Despite this, the company still faced issues regarding high expenditures due to rapid expansion, culminating in break-even in 1992.
During Vodafone’s peak in the 2000s, the company planned on expanding to European countries, namely Germany because of its demand for telecommunications. Mannessman seemed to be one of the best choices for the company due to its influence on the German market and cheap value. On February 4th, 2000, the M&A deal was finalized with $190 billion, merging both companies into Vodafone Group PLC, according to Goldman Sachs. With Vodafone having more influence over the telecommunication market, the company was expected to expand across the globe.
Despite this, the Wall Street Journal stated that the company suffered from increasing debt, higher operational costs, and acquisition costs. Consequently, the company announced massive write-offs throughout the years to curb expenditures, resulting in the highest write-off of $22 billion in February 2006, according to the Financial Times.
2. America Online and Time Warner for $165 Billion in 2000
As an American pioneer who popularized web portals and online services, American Online (abbreviated as AOL) was a cornerstone of the telecommunication industry in the 1990s with more than one million subscribers. AOL’s strategy is similar to Vodafone’s: acquiring lesser companies to build up value and attraction eventually. The technique has proven to be successful with CompuServe and MapQuest with more users signing up, albeit with some controversy. To build room for future expansions, AOL desired to acquire a company adjacent to its line of work to eventually seep into the market. Time Magazine stated that AOl was the United States’ largest service provider with $125 billion in valuation by the year 2000.
In a different industry, Time Warner was a media and entertainment giant known for its lucrative assets, such as Warner Bros., HBO, and Cinemax, according to Britannica. The company remained successful since its founding in 1966 due to its strong corporate connections, diverse portfolio, and excellent business management, extending its relevance to the 2000s. Despite the advent of the internet, Time Warner remained mostly unaffected as the demographic shifted to a digital medium, continuing its acquisitions into the late 90s.
In late 1999, American Online initiated the deal with Time Warner to diversify its assets and content, building its dominance over the media and entertainment industry. The New York Times reported that Steven M. Case, AOL’s cofounder, initially expressed enthusiasm over the deal. Still, optimism began to fade after regulators and management of both sides approved the merger.
As both entities have diverse organizational cultures, there were instances of internal conflict and mismanagement, leading to a major accounting scandal in 2002. This was further exacerbated by the dot-com bubble burst, a decline in advertisement revenue, and heightened operational costs, plummeting AOL’s stock value from $56.60 to $14.81 in January 2001. It was the last straw before the two companies parted ways.
3. Verizon Communications and Verizon Wireless from Vodafone for $130 billion in 2013
Verizon Communications Inc., the second-largest service provider in the world, was founded after the merger between NYNEX, GTE, and Vodafone concluded in 2000 according to Nathan Reiff. During Verizon’s first merger, Verizon and Vodafone formed a long-lasting partnership and initiated a joint venture operating as Verizon Wireless (VWZ) in 2000; Verizon owned 55% of the company shares and Vodafone owned the rest, Reuters stated. Throughout the 2000s, Forbes reported that VWZ experienced increased NOPATs for over 14 years, peaking at nearly $24 billion in 2013. During their partnership, Verizon and Vodafone profited from their VWZ’s operations and collaborations.
As VWZ became one of the most prominent service providers in the United States, Vodafone initiated negotiations to sell 45% of VWZ’s stock. The decision was made to diversify Vodafone’s business portfolio outside of the United States, namely Europe, and open more opportunities for shareholders. Furthermore, Verizon was interested in the acquisition of VWZ to gain windfall cash flow, providing growth and stability against market disruptions.
On the 2nd of September, 2013, Verizon announced that Vodafone sold 45% of its VWZ stock to Verizon Communications Inc. for $130 billion. Furthermore, Verizon’s acquisition involved raising an enormous bridge loan of $61 billion, the largest bridge loan in history. Despite this, the deal resulted in an increase in net profits up to nearly $54.3 billion, according to Businesswire.
4. Dow Chemical and DuPont for $130 Billion in 2017
Ever since its founding in 1802, DuPont de Nemours, Inc., otherwise known as DuPont, has been a leading chemical conglomerate known for developing numerous revolutionizing polymers, such as Teflon, nylon, or Kevlar. According to Macrotrends, DuPont’s annual net income rose by nearly $53%, reaching roughly $7,435 billion in 2015. Similar to DuPont, the Dow Chemical Company was the world’s largest chemical producer during the early 2000s with more than $46,000 billion in sales in 2005.
In 2015, both conglomerates expressed their desire to merge to generally improve the companies’ synergy, reduce production-related costs, and accelerate material science research. Additionally, the merged company would have lower tax rates with combined market capitalization, enticing and enabling shareholders to invest more in the company, according to PR Newswire. Initially, the deal was settled at an undisclosed amount, but it had settled at $130 billion when the merger was completed on September 1st, 2017.
The newly-merged conglomerate, DowDuPont, was successful in generating income and lowering expenses. According to DealRoom, DowDuPont generated nearly $86 billion in annual net revenue in 2018, nearly eight times the 2017 net income of DuPont. However, the European Commission questioned the company’s adherence to regulations and predictiveness in the agricultural market as the company gradually dominated the market, according to Manufacturing Chemist. To comply with EU’s regulatory guidelines, DowDuPont proposed a plan to split into three companies: Dow, DuPont, and Corteva, an American agricultural and chemical company, Alexander H. Tullo stated. The deal was finalized on April 1st, 2019.
5. Raytheon and United Technologies for $121 Billion in 2020
Numerous contractors are working for the United States Department of Defense, one of which was the Raytheon Company. Known for manufacturing complex military and commercial electronics, Raytheon had more than $27.1 billion in net sales, 67,000 employees, and 80 clients across the globe in 2018 as stated in Raytheon’s 2018 annual report. According to Defense News, Raytheon was the second-largest US military contractor based on its revenue, just behind Lockheed Martin.
United Technologies was also a major producer of military and civilian electronics, amassing over $7.8 billion in annual revenue. It ranked 11th in terms of revenue. The company was well-renowned for its acquisitions of popular manufacturers, such as Pratt & Whitney, Hamilton Sundstrand, and Carrier Corporation; the company had control over the supply chain in civilian and military aircraft, air conditioning, and elevators.
On November 26th, 2018, United Technology announced its intentions to split into three separate entities to streamline manufacturing and improve shareholder value, according to SDM. United Technologies CEO, Gregory Hayes, stated that the merger of both companies would strengthen and unleash market opportunities in the long run. Additionally, the merger would lead to more synergy, monetary efficiency, and more advanced R&D as there would be more funding. Finally, the Guardian reported that the merger was finalized on the 10th of June, 2019 with $121 billion offered by Raytheon. Eventually, the merged company rebranded to RTX Corporation in 2020.
6. Anheuser-Busch InBev and SABMiller for $104 Billion in 2016
Ever since Interbrew’s founding in 1987, the Belgian company rapidly expanded over the 90s and 2000s through M&As between Ambev, InBev, and Anheuser-Busch, forming Anheuser-Busch InBev (AB InBev). According to the Guardian, the company generated roughly $47 billion in annual revenue with nearly 155,000 employees in 2015. Before the SABMiller acquisition, AB InBev purchased and sold theme parks, bought market shares, and even secured deals with popular brands, namely Budweiser and Bud Light.
On another continent, SABMiller Plc was a large South African brewing and beverage conglomerate based in Surrey, England. According to Reuters, it was the second-largest brewer in the world measured by net revenue, being one of the dominant players in the brewing industry. Notably, SABMiller was a major bottler of Coca-Cola and brewer of numerous local favorites, such as Foster’s. SABMiller generated nearly $26 billion in annual revenue with 69,000 employees in 2015.
According to the BBC, talks regarding the acquisition initiated in September 2015 with AB InBev wishing to take over SABMiller. This was due to AB InBev’s planning market expansions in Africa; however, SABMiller had always been a dominant player in the African market. Additionally, both companies would benefit from lower costs of production and higher synergies through a merger, unlocking their potential in the global market. Finally, the Chicago Tribune reported that AB InBev and SABMiller finalized the acquisition on the 10th of October, 2016 for $104 billion, the largest deal in the brewing industry. Today, Anheuser-Busch InBev is the world’s largest brewer with $59 billion in annual revenue in 2023.
7. Pfizer and Warner-Lambert for $91.5 Billion in 2000
Pfizer Inc. is a household name in the pharmaceutical and biotechnical industry known for developing and distributing COVID-19 vaccine, apixaban, and pneumococcal conjugate vaccine. According to Pfizer’s investor page, the company generated $58.5 billion in annual revenue in 2023 with 37 global manufacturing sites and roughly 88,000 personnel worldwide.
On the other side of the industry, Warner-Lambert was a pharmaceutical company that originated in 1856 as a pharmacy. William R. Warner, the founder, invented a tablet-coating process and acquired numerous cosmetic companies, eventually forming Warner-Hudnut, then Warner-Lambert. Britannica reported that the company was known for its ownership of Listerine, Bromo-Seltzer, and Smith Brothers’ cough drops.
Both companies once collaborated in the distribution of Lipitor in 1997, reaching nearly one billion dollars in sales in the first year. Due to Lipitor’s success, Pfizer saw an opportunity to lower production costs and increase the company’s portfolio from Warner-Lambert’s acquisition. Furthermore, the acquisition would reduce competition in the pharmaceutical market, opening more financial opportunities. In November 1999, Pfizer began making hostile bids to buy Warner-Lambert for $82.4 billion at first.
After three months, Pfizer finalized the takeover of Warner-Lambert for $91.5 billion on the 7th of February 2000, according to the Washington Post. The New York Times stated that the merger would form a pharmaceutical giant in the US and world pharmaceutical market based on statistics. As of 2023, Pfizer remained the top seller of pharmaceutical products with 1.6 trillion in annual revenue in 2023, Statista reported.
8. Gaz de France and Suez for $85 Billion in 2007
A major natural gas producer in France was Gaz de France (GDF) with nearly $30 billion in annual revenue in 2007 with over 30,000 staff, according to the Zonebourse. Ever since it was founded in 1946 by the French government, GDF expanded its operations to become a dominant player in the natural gas market through rapid expansion inside France. Over the years, GDF diversified its portfolio and expanded internationally, offering services relating to natural gas.
On the other hand, Suez was a French-based multinational utility company with a diverse portfolio of services spanning electricity, water, waste management, and environmental solutions. The company’s expertise is in water treatment, wastewater management, and environmental protection, according to the company’s website.
Talks regarding the merger began in February 2006 when the boards of GDF and Suez announced their intention to merge; this was to form a leading energy and utilities group catering to numerous industries. Additionally, the merger aimed to reduce competition in the energy industry, stabilize the energy market, and increase synergy within the corporation. During the acquisition deal, some regulatory and economic concerns had raised officials’ eyebrows, but the merger was approved. On the 3rd of September, 2007, the deal was finalized, and the companies merged into GDF Suez on the 22nd of July 2008, Eurofound reported.
9. AT&T and Time Warner for $85.4 Billion in 2018
AT&T Inc. is a multinational conglomerate based in the United States, operating mainly in telecommunications and media. Originally established in 1885 as the American Telephone and Telegraph Company, AT&T has grown into one of the largest and most influential companies in the world due to its influence over the entertainment industry. According to its 2022 financial report, it was the fourth-largest telecommunications company in the world and the biggest service provider in the United States.
According to the New York Times, the discussions for the merger began in October 2016 when AT&T announced its plans to acquire Time Warner for $85.4 billion, aiming to expand into new markets and dominate the telecommunication industry. The proposed merger would bring AT&T’s vast infrastructure and Time Warner’s media assets together, creating an entertainment powerhouse. However, the merger faced significant regulatory and antitrust scrutiny, as critics raised concerns about the potential for anti-competitive behavior and market consolidation.
After a legal battle, the merger was finally approved by a federal judge in June 2018, allowing AT&T to proceed with the acquisition of Time Warner according to their official website. Following the merger’s completion, AT&T integrated its operations into its broader telecommunications and media ecosystem.
The merger between AT&T and Time Warner marked a significant milestone in the convergence of media and telecommunications industries, highlighting the growing importance of content ownership and distribution in an increasingly digital and interconnected world. Despite facing regulatory challenges and legal hurdles, the merger ultimately reshaped the competitive landscape of the media and telecommunications sectors.
10. Heinz and Kraft for $45 Billion in 2015
For more than 150 years, the Heinz Company has dominated the food industry with a wide range of products that have become household names, ranging from soup to ketchup. According to Macrotrends, Heinz accumulated over $10.9 billion in annual revenue in 2014 with production plants located in more than 200 countries.
In the same field, Kraft Foods Group was an American food and beverage company known for its Kraft cheese, Toblerone, Jello, Kool-Aid, and many more delicacies. Throughout the years, Kraft has gained traction through corporate acquisitions, thus generating more products and profits with less production costs. The United States Securities and Exchange Commission documented that the company’s annual revenue for 2014 was $18.2 billion with roughly 22,000 employees around the globe.
In March 2015, H.J. Heinz Company, owned by Berkshire Hathaway and 3G Capital, announced its intention to merge with Kraft Foods Group in a transformative deal valued at $45 billion, Forbes reported. This merger aimed to create one of the largest food and beverage companies in the world, with a diverse portfolio of iconic brands spanning various categories such as condiments, snacks, dairy, and beverages. This was to curb competition by assimilating lesser rivals in the industry while rapidly expanding.
Following regulatory approvals and shareholder consent, the merger was completed in July 2015 with the deal valued at $45 billion, marking the beginning of a new chapter for both companies. The Kraft Heinz Company emerged as a global powerhouse in the food and beverage industry, emanating its presence throughout the world market. However, the merger faced challenges in the subsequent years, including shifting consumer preferences, changing market dynamics, and operational issues within the combined entity, resulting in major write-offs according to the New York Times. Despite these challenges, the Kraft Heinz Company remains a major player in the food industry, continually evolving its portfolio and strategies to adapt to the evolving market landscape.
Conclusion
Acquisitions have always been part of the economy due to their impact on corporations, the market, and investors. While a majority of M&As resulted in success for both companies and investors, some ended in disaster due to poor and hasty planning or sudden events, resulting in disagreements, deficits, or even split-ups. Thus, it takes great judgment and consideration for business owners to incorporate with other companies.
Managerial intellect wilted in competition with managerial adrenaline. The thrill of the chase blinded pursuers to the consequences of the catch.
Warren Buffet
According to David B. Jemison and Sim B. Sitkin, numerous factors affect M&As and the aftermath. Mainly, the involvement of specialists and market analysts, increasing momentum, and lack of communication can lead to ambiguity, limited consideration, and integration issues. All of this would lead to fragmented perspectives, meaning that the companies have different views and understandings of the deal, much to the confusion of both companies in the future. Consequently, both companies would face scrutiny from investors due to underwhelming performances and controversies. Despite this, mergers and acquisitions can benefit corporations if done properly, boosting their assets and access to markets. Thus, businessmen should take great consideration when negotiating M&As.
One should consider the following when doing M&As:
- Similar strategic goals, long-term visions, and business plan
- Financial health, performance, and potential synergies
- Revenue growth, cash flow, profitability, debt, valuation, etc.
- Potential risks, liability, and challenges
- Legal, operational, regulatory requirements or cultural aspects
- Market position, competitive landscape, and growth potentials
- Integration planning
- Legal and regulatory considerations
- Stakeholder communication
- Risk management
- Taking time to perform M&As to fully discuss and analyze crucial data
- Do not be swayed by momentum or pressure
- Resolve important issues before concluding the deal
Despite the complexity and dangers of M&As, they can be successful if done properly and diligently for both parties, shareholders, and the economy at large.
