Ruinous investments multi-million dollar losses history records, from cultural shocks and clashing leaderships: these are the 8 most disastrous corporate mergers in history

Mergers between large companies have not been arrested in the past few months, especially in Spain, as the CaixaBank and Bankia or Unicaja and Liberbank in the financial sector or of Logitravel and Travel The English Court and Globalia and Ávoris on the cheap, although there are also examples in other countries, such as the Italian banks Intesa San Paolo and UBI or the oil of australian Oil Search and Santos.

Most of these operations aim to encourage the growth of merging companies, take advantage of possible synergies between them, ensure their survival, improve their position vis-à-vis competitors or increase consolidation in the sector in which they operate. However, due to different circumstances, these goals do not always end up being met, harming the companies involved and, in the worst case, forcing their closure.

In other cases, the merger does not even materialize due to disagreements in the negotiations to finalize the operation, as happened last November between BBVA and Sabadell, who rejected their merger plans due to difficulties in agreeing on the exchange price of their shares. Outside Spain there are also examples of mergers aborted before closing, such as that of British insurers Aon and Willis Towers Watson last July or that of Qantas airlines and British Airways in 2008.

Ruinous investments multi-million dollar losses history records

Meanwhile, among those operations that do pass the negotiation phase, long-term success is also not assured. Factors such as the differences between the corporate cultures of the companies involved, the clash between different leadership styles, financial problems or the emergence of external circumstances, such as economic crises or changes in consumption patterns, can end up with movements planned in detail over years.

All these factors occur, to a greater or lesser extent, in the 8 most disastrous corporate mergers in recent history, involving companies from different sectors and origins but with a common denominator: all of them caused huge losses despite being operations valued in billions of euros.

AOL and Time Warner (2001)

The union between the technology company AOL and the multinational media company Time Warner is one of the clearest examples of why a failed merger occurs. After an operation valued at 111,000 million dollars (about 93,700 million euros), the company's shares plummeted by around 80% during the following 8 years, until Time Warner announced in 2009 its definitive separation.

Among the reasons for the failure of this operation is the lack of an adequate financial review before the agreement, the absence of synergies between 2 radically different companies in their corporate culture, Time Warner's ignorance of the online environment and the bursting of the dotcom bubble a few months after closing its merger, which subtracted 91% of the stock value of AOL, and that make this operation the worst merger in history, according to Fortune.

Daimler-Benz and Chrysler (1998)

The merger between the German Daimler and the american Chrysler, which in its time was the largest corporate operation of the automotive sector with a value of 36,000 million dollars (about 30.400 million euros), is one of the most well known cases of how a business can fail because of incompatibility between its creators, according to Dealroom, which ensures that this case continues to teach in the MBA to explain how the crash of 2 corporate cultures different can derail a merger.

Thus, the German car company had a hierarchical structure, a methodical decision-making process and a conservative wage policy, a style that failed to match that of the American car company, which had more horizontal and less rigid structures and spent more on salaries than its partner. Thus, the merger only lasted 9 years and ended when Daimler sold 80% of Chrysler to Cerberus for 7,000 million dollars (about 5,900 million euros).

Ruinous investments multi-million dollar losses history records

Sprint and Nextel (2005)

The merger of 2 of the major US telecoms, valued at $ 35 billion (around € 29.5 billion), sought to create a large group with a stock value of $ 70 billion (around € 59.5 billion) and more than 40 million customers, according to The Wall Street Journal, with which to combine Sprint's telephony business and Nextel's transport and telecommunications infrastructure to compete with Verizon and Cingular (AT&T).

The clash between the different leadership styles, the incompatibility of their respective technologies and the economic crisis caused the company to show losses of 29,500 million dollars (out of 24,900 million euros) in February 2008, according to The New York Times. In 2010, Sprint announced the closure of Nextel's network, which would occur in 2013, the same year SoftBank bought the company. In 2020, it would merge with Deutsche Telekom's U.S. subsidiary, T-Mobile.

Caja Madrid, Bancaja, Caja Canarias, Caja Ávila, Caixa Laietana, Caja Segovia and Caja Rioja (2010)

The merger that led to the creation of Bankia in the middle of the crisis of savings banks brought together 7 entities that added assets valued at more than 300,000 million euros to create the largest financial group in the country and the second by industrial holdings, according to Abc. In 2011, Bankia would go public, although only 10 months after jumping on the floor, the State had to rescue it with 22,424 million euros.

The rescue was due to the Bankia accounts had been made up to not show the losses of almost 3,000 million euros that would emerge in 2012, when José Ignacio Goirigolzarri replaced Rodrigo Rato in the presidency, according to El País. The prosecutor's office asked for prison sentences for the directors responsible for the merger, but the National Court ended up acquitting them at the end of 2020.

However, 2 of them, José Luis Olivas, president of Bancaja, and Rodrigo Rato, both exalt charges of the PP, would end up in prison for other reasons. In addition, the Bank of Spain, he lost more than 60% of the public funds injected into the entity, while the state's share in the bank was diluted from 61% to 14% after the merger with CaixaBank, which means that the State has recovered just 3,300 million in the rescue and that your losses could rise 7,600 million.

Ruinous investments multi-million dollar losses history records

New York Central and Pennsylvania Railroad (1962)

In 1962, the New York Central and Pennsylvania Railroads decided to put aside their centuries-old rivalry and merge. 6 years later they managed to close the operation, which involved the creation of Penn Central, which would become after this merger into the sixth largest company in the US. However, 871 days later, they filed for bankruptcy, according to City Journal.

Despite the preparations, the merger was a fiasco due to the loss of passengers due to the rebound in the use of private vehicles and air transport, which caused Penn Central to be unable to meet the payroll of its employees and the costs associated with government regulations. In addition, the differences between the corporate cultures of both companies and the organizational and strategic deficiencies ended up making it disappear.

Alcatel and Lucent (2006)

At the end of 2006, French telecommunications giant Alcatel completed its merger with its US rival Lucent Technologies to try to strengthen itself in the face of intense competition in the sector. This operation came after a failed attempt in 2001 and involved combining 2 companies with a joint turnover of 21,000 million euros and more than 88,000 employees, according to El Mundo.

However, the cultural differences between the two companies and the financial weakness that both carried made the merger a nightmare, according to the Financial Times. A year and a half after closing the deal, Alcatel-Lucent had lost half of its market capitalization after adding 6 consecutive quarters in losses, which caused the resignation of its 2 top managers, Serge Tchuruk and Patricia Russo. In 2015, Nokia bought the company and moved its assets to Finland.

Ruinous investments multi-million dollar losses history records

Sears and Kmart (2005)

Sears, one of the longest-lived department store chains in the US, was in low hours at the beginning of the 21st century, which precipitated that investor Edward Lampert bought the company and its rival Kmart and merged them in 2005 to try to compete with rising rivals such as Target, Walmart or Saks Fifth Avenue. However, the creation of Sears Holdings failed to reverse the collapse in sales and profitability.

Thus, in 2007 Lampert was chosen as the worst CEO in the US by MarketWatch, while the company continued to make losses, make layoffs and close stores until Sears Holdings declared bankruptcy in 2018, selling part of its centers to Kmart, according to CNBC.

Ruinous investments multi-million dollar losses history records

Kraft and Heinz (2015)

The merger between the 2 US food companies served to create in 2015 the fifth largest company in this sector worldwide, with a combined annual revenue of 28,000 million dollars (about 23,600 million euros) , according to The New York Times. However, just 3 years later, its shares had plummeted by 51% after several rounds of layoffs and in full threat of denunciations by its shareholders.

Subsequently, at the beginning of 2019, it suffered a depreciation of its assets valued at 15,400 million dollars (about 13,000 million euros), cut its dividend by a third and had to depreciate its assets again another 1,200 million dollars (about 1,000 million euros) 6 months later, which caused the flight of investors such as Berkshire Hathaway or 3G Capital. Heinz has been the worst stop for this operation, for which he paid too high a price, according to the Financial Times.

# Ruinous investments multi-million dollar losses history records #