Despite what many may think, very few major business acquisitions truly fail to create long-term value for shareholders. Often, the primary consideration is growth and it often comes at the expense of price paid and real value attained.
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A Slice of Both
Quite arguably, one of the most unsuccessful and value destroying business deals was Time Warner's (NYSE:TWX) $164 billion acquisition of AOL. To get a sense of the frenzy that the internet boom was causing at peak, the deal actually gave the AOL shareholders 55% and the Time Warner shareholders 45%, implying the smaller AOL was actually buying out the larger Time Warner.

At the time the deal was announced, the combined entity had a market cap of some $280 billion; by 2004, the market cap was $80 billion. Later this year, AOL plans to be spun out from Time Warner; today, Time Warner's market cap sits at $34 billion. (For more, check out Biggest Merger And Aquisition Disasters.)

In 2005, Procter and Gamble (NYSE:PG) bought the Gillette razor company for $57 billion in stock. In this case you could see the immediate appeal of the deal. Procter and Gamble could leverage its distribution and marketing consumer products to another well known consumer product, Gillette razors. (For more, see A Guide To Consumer Staples.)

Just as Sweet
Similar to the Procter deal, Kraft's (NYSE:KFT) attempt to buy Cadbury (NYSE:CBY) would be a phenomenal combination for Kraft. Cadbury gives Kraft some excellent emerging market exposure, especially in fast growing regions like Latin America. Also you get the combination of Kraft's overwhelming presence in grocery stores and Cadbury's dominance in convenience stores and other "instant consumption outlets."

It looks like Kraft will have to sweeten the deal a bit. The previous offer only values Cadbury at 13-times EBITDA, when recent comparable deals like the Mars/Wrigley deal was done at 19-times EBITDA. Even at the slighter higher price, Kraft will certainly reap tremendous long-term value should a deal ever get worked out.

Now Even Better
Today, investors can pick up shares of the worlds second largest food company at a fair valuation considering the quality you are picking up. While you wait, this blue chip company gives you a 4.3% dividend yield. And with the option of Cadbury on the table, holders of Kraft today could reap double digit total annual returns over the next five years.

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