5 Acquisitions That Were Disasters (And What We Can Learn From Them) | by Ash Jurberg | Aug, 2022

Including “one of the biggest disasters that have occurred to our country.”

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Elon Musk truly is a wonder.

It is rare for a person to dominate the news across so many topics — finance, dating, tech, parenting, exploration, social media, sustainability, marketing, and so on.

While it is hard to keep track of the human headline, his latest big news was pulling out of the acquisition of Twitter. And while the media had a field day over Elon’s supposed cold feet, it made sense to the world’s richest man to abort the deal.

Going through an acquisition without the strategies and tools can lead to disastrous consequences costing billions of dollars.

Here are five examples.

In 2001, America Online acquired Time Warner for $165 billion in a mega-merger. Two giant corporations came together and created the largest merger in history.

It was seen as a great combination — old media (Time Warner) with new (AOL). AOL was the largest internet service provider with millions of internet accounts, while Time Warner was one of the largest cable network providers with millions of homes connected to its networks.

It seemed like the perfect marriage, but they couldn’t make it work.

The business model sort of collapsed under us…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.” Former CEO Dick Parsons

The managers behind this deal were rushing to get into new media without truly understanding the dynamics of the new media landscape. Remarkably despite the merger, the two companies operated independently and had their own executive teams.

Stephen Case, the founder of AOL who negotiated the deal between AOL and Time Warner, blamed the failure on “culture” and too much “short-term orientation.”

They tended to play defense, trying to protect what already existed as opposed to playing offense and try to create what the future would be.”

Even their product offerings weren’t bundled, meaning the customer still had to buy the two products and didnt enjoy any savings — an offering destined to fail.

Less than a year after the mega-merger, the entity reported a loss of $99 billion — the largest annual net loss ever reported. The stock price for both companies plummeted by 90% by the end of December 2002.

The one-sentence lesson

Understand the term merge — it means “to combine or cause to combine to form a single entity.”

In 1998 automobile companies Daimler-Benz and Chrysler merged in a $36 billion deal. It was the biggest acquisition by a foreign buyer of any U.S. Company in history.

It was hoped they could create a competitive advantage based on the economies of sharing parts, operations, and knowledge. Due to the high costs of developing new vehicles, car companies will often design a process where they create multiple models of vehicles.

This merger was doomed from the outset as, despite being sold to investors as an equal pairing, it was seen as a takeover of Chrysler by Daimler. In addition, the two companies cultures were far too different.

Sense a pattern about corporate culture and acquisitions already?

The hope of the Germans and Americans working together never eventuated.

Daimler-Benz had a structured and systematic decision-making process, conservative salaries, and a top-down management structure. Conversely, Chrysler was more creative and had bigger salaries and a flat hierarchy.

They spoke different languages, had different sales and marketing strategies, and had no synergy.

By 2007 the merger was dissolved, and Daimler sold 80% of Chrysler for $7 billion. Chrysler filed for bankruptcy protection in 2009.

The one-sentence lesson

Understand the corporate culture.

In 2005, eBay looked at ways to improve communication between its buyers and sellers. They believed a better communication process would generate more sales and revenue.

So they acquired Skype for $2.6 billion, hoping the innovative peer-to-peer technology would be a positive integration for eBay customers.

But they failed to read the customer’s wishes. People didnt want to jump on a video call with a stranger to discuss a transaction; they preferred to email.

Two years after the acquisition, eBay took a $1.4 billion writedown on Skype.

After another two years, the company’s board decided to divest Skype “due to a lack of synergies with the company’s core businesses and its focus on commerce.”

They sold 66% of their shares in Skype for $1.9 billion to a group of private investors.

To illustrate the difference that good management and strategy can make in a business, by 2011, Skype was performing so well that Microsoft acquired Skype for $8.5 billion.

The one-sentence lesson

Know your customer.

In 1983, Quaker Oats bought Gatorade and turned the drink into a great commercial success. They believed they could do likewise with Snapple — the popular range of juices and bottled teas, and in 1994, Quaker purchased Snapple for $1.7 billion.

At the time, Wall St analysts said they had overpaid by $1 billion, but they were wrong — it was far worse.

The Quaker team wanted to replicate the Gatorade model without realizing that Snapple was a different product. White Gatorade — and other Quaker products — were sold in supermarkets and large retailers; most of Snapple’s sales came from convenience stores, gas stations, and related independent distributors. This meant Quaker couldn’t leverage existing relationships for better sales terms.

Or if you want a corporate spin version of that paragraph above, here it is.

We believed Snapple had tremendous possibilities. Unfortunately, the synergies did not materialize, and [Snapple] did not grow at the rate we anticipated.” Quaker spokesman Mark Dollins.

Synergies — another word that keeps popping up in these examples.

In 1997, Quaker Oats sold Snapple for $300 million — a loss of $1.6 million for each day the company owned Snapple.

The one-sentence lesson

Acquisitions aren’t just copy and paste — what worked once may not work again.

The OG social media site was Myspace.

MySpace was the world’s first popular social media website, and by June 2006, it was the most visited website in the United States; at its peak, it was receiving 77 million unique visitors a month.

This attracted the interest of media mogul Rupert Murdoch who acquired the social media network for $580M. Initially, the deal seemed like great value as MySpace rose to a valuation of $12 billion.

However, the NewsCorp team started moving MySpace away from its core of social media to more of a music and entertainment portal. It also went through several poorly received designs, allowing Facebook to gain traction.

And while Facebook allowed third-party developers to build games and applications via an API, MySpace only allowed in-house development.

The rest, as they say, is history.

The changes to MySpace saw users leave in droves, and in 2011, NewsCorp sold MySpace for $35 million to Specific Media Group and Justin Timberlake. Murdoch described the purchase as a “huge mistake.”

Interestingly, Justin Timberlake and his investing colleagues did better than Murdoch, selling MySpace in 2018 for $87 million to TIME Inc.

Timberlake 1. Murdoch 0.

The one-sentence lesson

Don’t make unnecessary changes to a successful product