In the corporate world, it seems that the common thought process is that bigger is better. When you think about legendary, industry-changing companies like Google, the most impressive plans win. Mergers and acquisitions can be interpreted in that same way. When you have successful mergers, it’s difficult to remember the time when the two companies were independent. Think about where Disney would be today without Pixar or J.P. Morgan without Chase.
On the other hand, there are a lot of mergers that fail for various reasons. It could be that the newly created company goes bankrupt, executive officers are fired, or the companies decide to separate in a corporate divorce. Mergers tend to be inherently risky, which is why they require the proper strategy, intuition and knowledge.
Let’s learn from a few of the successful and unsuccessful mergers in recent history.
Prior to the merger Disney released all of Pixar’s movies. When their contract was about to expire, the companies decided that a merger would allow the companies to collaborate freely and easily and that it made perfect sense.
This merger works well considering that the movies they put out have been successful. Pixar benefited from Disney’s expertise in advertising, marketing plugs, and merchandising. No company can market to children better than Disney. Even prior to the merger, the movie, Cars benefited from Disney’s marketing expertise. Today, Cars continues to be a top merchandise seller among four-year-old boys.
When these two companies joined forces, satellite radio was left with only one provider. The merger was announced a year before it actually took place. This was because when the FCC granted the two licenses for each independent company, the condition was that the two companies could not merge or acquire one another.
Eventually the FCC investigated the merger and approved it. Although we don’t know if this success will stay for the long run, it’s been a successful merger with big names on their roster such as Opera, Howard Stern, and Martha Stewart.
These companies signed and $81 billion deal to merge. Exxon Mobil became the largest company in the world. This deal was so big that the FTC required a major restructuring of many of Exxon and Mobil’s gas stations to prevent monopolization.
Exxon Mobil continues to be a strong leader in the oil market with a large share on the international market and substantial earnings. Exxon Mobil held all 10 spots in the top 10 corporate quarterly earnings in 2008. The company earned more than $11 billion in one quarter and is one of the world’s largest publicly held companies.
New York Central & Pennsylvania Railroad
In 1968, these companies merged and became the sixth largest corporation in America at the time. Only two years later they filed for bankruptcy protection. The merger looked appealing on paper and the companies were counting on a shift back to trains from cars and airplanes. However, people preferred cars and airplanes and the companies could not keep up with increasing costs of payroll along with government regulations. In addition, the lack of long-term planning, the clashing of cultures and poor management were also responsible for this failed merger.
This $37 billion deal ended when Daimler Benz sold Chrysler for $7 billion. It appears that this is another case of corporate culture clash. Poor sales, the recession and culture clashes caused this merger to fail.
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