There are countless reasons why businesses engage in mergers. Some are eager to synergize their practices, balancing their strengths and weaknesses; while others look to diversify their operations, and achieve stability in performance and profitability. Lastly, businesses engage in mergers to grow their market share and/or eliminate their competitors.
Business mergers have the potential to radically change operations across an industry — especially when mergers occur between some of the largest companies in the sector. Some examples of these can be seen in the following merger cases, which are some of the biggest in human history.
In the late 1990s, oil prices were consistently low, causing energy companies around the world to take financial hits. To reduce competition, oil companies Exxon and Mobil merged in 1999, consolidating their assets to produce an energy industry superpower. The merger cost $80 billion, and both companies were compelled to sell thousands of gas stations across the U.S. to ensure other companies could compete in the market. Today, the ExxonMobil merger is among the most successful of recent decades, and the company continues to set the pace for their global competitors.
By far the largest merger and acquisition deal in history, U.K.-based mobile phone operator Vodafone acquired the German company Mannesmann in 2000 for over $180 billion. When the deal concluded, Vodafone became the world’s largest mobile operator in the world — but not without trouble. Germans opposed the deal because they hoped for German businesses to remain prominent in the global marketplace, and their lack of support prompted Mannesmann to ask for double Vodafone’s initial offer. The high price tag punished Vodafone in subsequent years, as they had to write off tens of billions of dollars in losses when their mega-business failed to generate anticipated profits.
History’s second largest merger took place, when American Online (AOL) acquired Time Warner for $164 billion. In 2000, AOL was one of the largest technology companies in the world, as almost all Americans used their landline phone services to connect to the internet. Unfortunately, AOL only maintained control of Time Warner for nine years, as dial-up internet fell in popularity. In 2009, Time Warner regained its independence, and AOL continued its long decline.
Another major historic merger to occur in 2000, was when pharmaceutical company Pfizer acquired rival Warner-Lambert for $90 billion. Initially, Warner-Lambert was to be purchased by American Home Products, a consumer goods company, but American Home Products walked away from the deal at the last second, forfeiting $1.8 billion in break-up fees. Pfizer swooped in to create the world’s second-largest drug company and maintain licensing control of cholesterol medication Lipitor, which was owned by Warner-Lambert. Thanks to Lipitor alone, Pfizer was able to increase its profits by more than $13 billion annually as a result of the merger.
After antitrust initiatives broke up Bell Systems into competing telephone companies, many of those communications companies engaged in mergers and acquisitions to reform in the digital age. In 2006, AT&T made a significant move to establish itself as a major player in the wireless industry by paying $86 billion to acquire BellSouth. With the merger, AT&T was able to expand its mobile coverage to rural regions of the U.S. and bundle mobile services with television and internet to attract customers.
Dow Chemical and DuPont
Dow Chemicals and DuPont were vicious competitors in the chemicals industry — until they merged in 2015. In a deal costing $130 billion, the two companies eliminated their competition and formed the world’s largest chemical company by sales. Unfortunately, only a year after the merger was complete, despite revenues above $86 billion, the corporation announced that it would split into three separate companies each with a separate focus. As seen throughout this article, all big mergers are not necessarily successful. Executives can pursue a mergers and acquisitions certificate to learn more about the challenges involved in this type of business endeavor and perhaps avoid suffering the same fate as Vodafone, AOL and Dow Chemical. With the right knowledge and skill, business leaders can help grow their organizations to achieve much success.