The world of business is dynamic, characterized by new entrants, expansions,startups
and more. One of the ways corporations look to grow and expand is through mergers and acquisitions
(M&A). “One plus one equals three” is the basic reasoning behind M&A deals. These deals help companies to gain advantages like gaining a larger customer base, global footprint, access to distribution channels or suppliers, technical knowhow, among other things. If the deals turn out as planned, they give the business a competitive edge and enhance shareholder value. However, there have been cases where such deals have not worked out well. (See: Biggest Merger and Acquisition Disasters
The chart below shows the status of mergers and acquisitions in terms of number and value in the U.S. The chart shows a significant decline (in terms of value) during the period of financial crisis of 2008-09, showing recovery from
2009-10. However, the value of transactions remained much lesser than the peaks hit during years 1999, 2000 and 2007. In terms of number of transactions, year 1998 tops the chart with year 2007 at the second spot.
Let’s take a look at some of the biggest merger and acquisition deals over the last few years in the United States (in no specific order).
One of the biggest deals in recent times has been the acquisition of Vodafone Group Plc’s (NASDAQ: VOD
) 45 percent stake in Verizon Wireless by Verizon Communications Inc. (NYSE: VZ
) in a transaction worth $130 billion. Verizon Wireless which was founded in 2000 as a joint venture of Verizon Communications and Vodafone, is (after the deal) now wholly owned by Verizon Communications Inc. Verizon Wireless is the largest and most profitable wireless company serving 104.6 million retail connections, operating in more than 1,700 retail locations in the United States. The company reported annual revenue of $81 billion in 2013.
This is an example of one of the biggest and also the most unsuccessful merger of all times. Time Warner, one of the biggest media and entertainment companies in the world was acquired by America Online Inc (AOL) in 2000 for a whopping $ 182 billion. The merger was announced by Steve Case (CEO of AOL) and Gerald Levin (CEO of Time Warner) with an aim to “create the world’s first fully integrated media and communication company for the internet century.” As opposed to what the merger had proposed to do for the companies, AOL and Time Warner merger failed miserably. (Related reading:Biggest Merger and Acquisition Disasters
Not long after the merger, the AOL division was hit hard by the dot-com bubble. In 2002, the company reported an astonishing loss of approximately $99 billion, the largest annual net loss ever reported by a company (including $54 billiongoodwill impairment). In 2003, the company dropped “AOL” from its name and simply became known as Time Warner Inc (NYSE: TWX). (Related reading, How Does Goodwill Affect Stock Prices?)
Two of the fastest growing companies from the pharmaceutical space joined hands in 2000 as Pfizer Inc (NYSE: PFE
) acquired Warner-Lambert (WLA) in a $90 billion deal. The deal has a background drama to it as the merger plans were originally announced by Warner-Lambert and American Home Products in November 1999 for approximately $70 billion. Pfizer in the next few hours attempted the largest hostile takeover in the pharmaceutical business by announcing an unsolicited $82 billion offer for Warner. Warner-Lambert’s cholesterol drug Lipitor is said to be the point of focus for the merger, the drug was jointly marketed by Warner-Lambert and Pfizer since its launch in 1997. The deal which finally went through after three months of tussle as American Home Products agreed to walk away with a breakup fee of around $1.8 billion.
ExxonMobil Corporation (XOM
), the largest company in the Oil & Gas sector was created in 1998 by bringing together the fragments of Standard oil monopoly (Exxon Corporation and Mobil Corporation) in an $80 billion deal. At the time of the deal, Exxon and Mobil were the largest and second-largest oil producers in the U.S. with a combined market capitalization of $237.53 billion. The company is a leader in multinational giant headquartered in Irving, Texas, United States. (A History Of U.S. Monopolies
The Board of Directors of Altria Group Inc (NYSE: MO
) in January 2008 approved the spin-off of Philip Morris International Inc, a wholly owned subsidiary of Altria with a vision of making it the most profitable publicly traded tobacco company and to build long-term shareholder value. As per the laid down terms, each Altria shareholder received one share of Philip Morris International for every share of Altria held on March 19, 2008 (record date) and involved approximately $107 billion.
In 2006 the largest telecommunication giant AT&T (NYSE: T
) acquired BellSouth (BLS) another large phone company in a $67 billion deal. The deal resulted in giving AT&T a local customer base of 70 million across 22 states further strengthening its dominance in the industry. According to the press release by AT&T, “a combination that will create a more effective and efficient provider in the wireless, broadband, video, voice and data markets.” The two companies were already joint owners of Cingular Wireless with 60% ownership with AT&T and 40% with BellSouth. Cingular Wireless was brought under the brand and consolidated ownership of AT&T after the acquisition of BellSouth.
The merger of the banking giant Citicorp and Travelers Group in 1998 estimated at $70 billion is regarded as one of the biggest corporate mergers in history as it changed the landscape of the financial-services industry. The merger created Citigroup Inc (NYSE: C
), one of the biggest companies in the financial services space. Citigroup had a market capitalization of approximately $135 billion at that time and offered services like banking, insurance and investment in over 100 countries. Today, Citigroup Inc operates in around 160 countries and has a market capitalization is around $155 billion.
There are a number of merger and acquisition deals are signed every year in the quest to grow and expand into a more profitable and bigger venture. Many do attain what was aspired while a few crumble as the integration fails to synergize. However, M&A remain an integral part of the corporate finance world where businesses are on the constant lookout for opportunities. (See: The Basics Of Mergers And Acquisitions