Mergers and acquisitions: the pits and peaks of corporate buyouts

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In the world of mergers and acquisitions (M&A), landing a sure thing is a managerial high-wire act. Here we profile some well-known failures and successes

Egos, hopes, dreams, schemes and unimaginable amounts of money: these are the core ingredients of any high-profile buyout.

Last month the corporate world witnessed what happens when those ingredients fail to blend, as the relationship between record label EMI and its recent purchaser Terra Firma unravelled in the full glare of media attention. It was exactly the sort of deterioration that shows how carefully calibrated a buyout must be for all parties involved to feel the benefit.

Usually, the pattern runs something like this: Company A sizes up Company B in the same sector. Company B is somewhat smaller, but still pretty well off – and yet isn’t working quite as efficiently or profitably as it could be. Company A weighs in with an offer, lawyers talk about it for months on end, and eventually a merger plan is agreed.

Company A pipes its own expertise into Company B, which promptly helps Company A to access new markets. Depending on how Company A feels about life after the merger, it will either keep Company B’s brand going, or impose the Company-A banner upon the purchased firm. Ker-ching.

There are, however, all sorts of variations on this. And, as is customary when imparting information, here is the bad news first…


Terra Firma takes EMI (2007)

Led by Guy Hands, the takeover of EMI was a controversy wrapped up in a culture clash. In 2004 and 2005, the label was reeling from the draining effects of online piracy, delayed handovers of new Coldplay and Gorillaz albums and the defection of Radiohead to their own online-distribution arm. Despite that, it had a back catalogue to die for, and the Guy Hands remedy was to maximise it through all available channels.

However, lawsuits over the online distribution of songs by The Beatles and Pink Floyd sapped the label of vital momentum, and the general trend for falling album sales didn’t help matters much either.

On top of that, music journalists questioned whether a private equity chief with no discernible fan credentials could possibly hope to steer a record label. Bit by bit, EMI’s debts piled up, and in February this year Citigroup – which had facilitated the Terra Firma deal with a £2.5bn loan – assumed full control.

Daimler-Benz takes Chrysler (1998)

European luxury-car company Daimler-Benz saw a spiritual twin in US manufacturer Chrysler, and snapped it up for the princely sum of $36bn. The plan? Draw in sales revenue from one of Detroit’s original Big Three motor makers and find access roads into the US for Daimler’s own classy products.

Unfortunately, Daimler-Benz had made its approach at the very time that the tide turned in global auto sales. Asian manufacturers were in the ascendant, and US firms on the decline. Added to that, Daimler bosses proved reticent in allowing Chrysler to use some of its pristine components. The European purchaser had utterly failed in its market forecasting and cooperation, and in 2007 it offloaded Chrysler for $7.4bn.

AT&T takes NCR (1990)

Founded in 1884, the US-based National Cash Register Company (NCR) made its name building a large proportion of the country’s tills. Over time, it evolved into a full-service transactions enterprise, dealing in point-of-sale technology and hole-in-the-wall cash dispensers. As transactions and telecommunications converged, AT&T moved in for a piece of the action.

Exploding with ideas about the different technology areas that NCR could be applied to, AT&T diversified the firm – which promptly began to haemmorhage funds.

This ‘negative synergy’ was thought to have cost AT&T around $1.3bn. In 1995, AT&T announced that it would be repositioning its assets into three divisions – AT&T, Lucent and NCR – a tacit admission that the NCR buyout had not quite worked. Happily, in 1992 NCR had acquired the information-storage company Teradata, which went on to become a market leader in the field of data warehousing.


Disney takes Marvel Studios (2009)

This acquisition is turning out to be a match made in cartoon heaven.

While the companies are as similar as Daimler-Benz and Chrysler, they are different enough to make the marriage worthwhile. On one hand, the Empire of the Mouse has a glittering track record in cross-platform merchandising of the numerous characters it has created. On the other, Marvel is preparing an ambitious film slate with access to around 5,000 fictional personages.

Disney’s $4bn cheque is already paying dividends: following the success of 2010’s Iron Man 2, this year will see the big-screen debuts of Marvel’s Captain America: The First Avenger and Norse god turned superhero, Thor. Plotlines from all these films will then be intertwined for the 2012 Marvel-heroes team-up epic, The Avengers. All told, a lot of box-office to look forward to. POW!

Google takes Sprinks (2003)

Sprinks (short for ‘sponsored links’) was set up by US media company Primedia to provide content-targeted advertising across its popular website. Google paid an undisclosed, but reportedly very low, sum for Sprinks, and immediately began to transform it into a platform for its fast-growing advertising service AdWords.

For Primedia, Google added a valuable touch of finesse to’s advertising content. For Google, Sprinks gave AdWords an enormous new presence at a time when competition with Yahoo was hotting up considerably.

Two years later, the deal was sweetened even further when was acquired by the New York Times. The paper’s move enhanced’s credibility and pepped up the profile of AdWords into the bargain.

GlaxoWellcome takes SmithklineBeecham (2000)

As you can no doubt glean from the names of the parties involved in this deal, they had already been created via corporate mergers – so this was really a case of four companies piling up to make the first pharmaceutical super-giant. The result, GlaxoSmithKline (GSK), began its life with an estimated valuation of $130bn.

GSK emerged from a period of extensive consolidation in the pharmaceuticals industry, which had attained a global presence by the end of the millennium. Other companies to merge at the time were Hoechst and Rhone Poulenc, forming Aventis. GSK now stands as one of the three largest pharmaceutical companies in the world.

Find out more about mergers and acquisitions at the official Competition Commission website.

Steven Perryman is AAT Comment's former Content Editor.

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