5 Biggest Acquisition Failures Of All Time
An ideal acquisition increases disparate strengths while fixing or eliminating weaknesses. When a major company joins forces with a target that fulfills a clear and unambiguous set of criteria, the whole should in theory be greater than the sum of its parts.
Some fusions of buyer and bought work beautifully, such as Exxon Mobil. Others end as badly. Here are a select few acquisitions that proved to be unsuccessful.
Hewlett-Packard's Acquisition of Autonomy
For decades, Hewlett-Packard had been one of the largest and best-respected companies in technology. Founders David Packard and Bill Hewlett founded the company in a Northern California garage in 1939, several decades before Steve Jobs and Steve Wozniak did something similar with their computer hardware upstart.
But in the last decade, a dizzying series of scandals and a rapid churn of chief executive officers have left Hewlett-Packard wondering where it went wrong. One instance would be the $10.2 billion acquisition of Autonomy, a U.K.-based enterprise software company.
Autonomy's absorption into its parent company was uneventful. However, after a few months, HP management argued that Autonomy was overpriced. CEO Meg Whitman said Autonomy was "smaller and less profitable than we had thought," leaving open the question of how convincingly a company could overstate its size to a sophisticated bidder. Legal threats notwithstanding – and as you can imagine, Autonomy's founders said they didn't do anything wrong and that HP was just covering up its own ineptitude – Hewlett-Packard ending up taking a gargantuan $8.8 billion write-off. The transition into a software company was indeed a rocky one.
Before Chrysler became a privately held company, it was a publicly held giant of American industry. It was a consistent third place among the three Detroit auto manufacturers, but still among the largest corporations in the country in absolute terms.
In 1998, it became the subject of an infamous international acquisition. That year, German carmaker Daimler, maker of Mercedes-Benz, merged with Chrysler via a $39 billion stock swap. Shortly thereafter, disgruntled Chrysler shareholders filed a class-action suit. It cost DaimlerChrysler's German CEO his job. By 2006, Daimler was actively looking to rid itself of an expensive tentacle.
The Chrysler division was eventually sold to a private equity firm, Cerberus Capital Management, in 2007. Officially, it was a $7.4 billion exchange. Two years later, Chrysler's new owners filed for bankruptcy and were rewarded with a taxpayer-funded bailout.
Microsoft and aQuantive
Even the world's definitive serial acquirer occasionally makes mistakes. In 2007, on the heels of competitor Google making similar inroads, Microsoft purchased a digital marketing company named aQuantive. It cost $6.3 billion, a price justified because online advertising was supposed to be the hot new industry. Perhaps it was, but not to the extent that an interest in aQuantive warranted paying an 85% premium. That's how much Microsoft spent over aQuantive's market price at the close of trading that day. Meanwhile, the company's online advertising efforts continue to cost it $2 billion annually.
Hewlett-Packard and Palm
In April 2010, Hewlett-Packard purchased the company synonymous with mobile devices: Palm. Unfortunately, Palm had last been synonymous with mobile devices about a decade earlier, and was reduced to being the weakling from whom BlackBerry steals its lunch money after having its own stolen by iPhone and Android. Plagued by an antiquated operating system and cheap hardware, Palm's only chance at resurrection was under the wing of a Silicon Valley titan. After a $1.2 billion purchase, Palm became a Hewlett-Packard division.
The speed with which Hewlett-Packard realized its mistake was remarkable. By the summer of 2011, HP had moved well past the point of looking to find a buyer for its Palm subsidiary and instead decided to discontinue the entire thing. Even a revamped operating system, Palm's critically acclaimed WebOS, wasn't enough to salvage the erstwhile bright star. The mobile operating system exists today as a small open-source project.
AOL Time Warner
No transaction in the history of corporate acquisitions can touch the unmitigated disaster that was AOL Time Warner. Only a few years ago, the modestly-sized company was officially the parent of Time Warner - a $30 billion media conglomerate, the world's largest.
It might be hard for younger readers to remember, but around the time of the AOL Time Warner merger, the new word "Internet" was an exciting catch-all term denoting promise, hope, efficiency and speed. At the time, AOL's chief operating officer said: "The growth rate [of the newly supercharged Time Warner] will be like an Internet company." He meant it as a compliment.
In 2000, America Online (AOL), which was then known mostly as an online access provider, bought "old media" firm Time Warner for $164 billion. Within 18 months, the company had reported a $99 billion loss and attempted to reconstitute into its original components. Also, the combined value of the company had dwindled from $226 billion to $20 billion.