For richer or poorer, mergers are like marriages

David MoonBlog

This past week, Rupert Murdoch’s 21st Century Fox offered to acquire Time Warner, theoretically posing the prospect of the same entity controlling both CNN and Fox News.

Time Warner was previously the target in what is routinely described as one of the worst corporate marriages in history.

When AOL purchased venerable Time Warner Communications in 2001, it seemed a bit like Derek Dooley taking control of a storied SEC football program—and with similar results.

AOL effectively paid $165 billion for Time Warner, using soon-to-be almost worthless stock as currency. Today AOL is little more than a very expensive footnote in Time Warner’s annual report.

Corporate mergers are a lot like marriages; we often speculate about their likely success or failure when they are announced. And we can always learn something once we know their outcome.

Bank of America (BoA) purchased a ticking time bomb when it bought mortgage lender Countrywide Financial in 2008. BoA has recognized more than $50 billion in Countrywide-associated losses, more than 20 times what it paid for the company.

In the understatement of the year, Bank of America’s CEO Brian Moynihan said, “obviously, there aren’t many days when I get up and think positively about the Countrywide transaction.”

When Hewlett Packard CEO Carly Fiorina purchased struggling PC maker Compaq in 2002, she learned that if you mix dog food with dog crap, you get dog crap.

Some companies, like some people, are serial acquirers. Zsa Zsa Gabor, when asked how many husbands she’d had, replied “you mean other than my own?”

Microsoft is the Zsa Zsa Gabor of mergers and acquisitions.

Since 1987, Microsoft has acquired 165 companies, most with unremarkable consequences. Like someone so wealthy she can afford multiple divorces, Microsoft makes so much money on Windows and Office that its mistakes are easily overlooked.

In 2000 Spanish telecom company Terra paid $12.5 billion for the search engine Lycos, selling it four years later for a paltry $95 million. Most people have never heard of Lycos.

Terra certainly wishes it hadn’t.

The 1998 Daimler Benz acquisition of Chrysler was the cultural equivalent of pairing Angelina Jolie with Billy Bob Thornton. The automaker marriage lasted a bit longer than the Hollywood one and the breakup fee was substantially larger. Daimler lost $33 billion on its $40 billion investment.

Billy Bob lost Angelina.

In 1994 Quaker Oats paid $1.7 billion for Snapple, selling it 27 months later for $300 million. That’s a loss of $1.4 billion, or an average of $1.7 million a day.

Like marriages, most mergers and acquisitions manage to survive, and some are amazing success stories. Disney and Pixar is a fantastic success story. So are Sirius and XM Radio, the New England Patriots and Tom Brady, Exxon and Mobil, Janice and Billy Crystal, and Berkshire Hathaway’s acquisition of GEICO.

When Apple bought Next Software in 1997, it also re-acquired Next CEO and Apple co-founder Steve Jobs. Apple paid $400 million for Next, or less than two days’ worth of iPhone sales revenues.

We’ll put that one in the successful category.