American marriages have a better success rate than American mergers, according to the Harvard Business Review. Despite spending more than $2 trillion annually on acquisitions, only about 10 to 30 percent of merged companies survive. Boards pay too much for assets, underestimate what integration requires and fail to match the takeover to what they want to accomplish. Here are a few of the worst merger examples in recent years.
Retail: Kmart and Sears
This merger has been so disastrous that MarketWatch named chief Eddie Lampert the worst CEO of 2007. Lampert had taken control of newly solvent Kmart in 2003 and, when he gained power over Sears Roebuck in 2005, he merged the two into Sears Holdings Corporation. The $11 billion consolidation was supposed to leverage the nationwide scale and create more value with a differentiated shopping experience. Instead, the mishmash has highlighted poor inventory investment, subpar locations and a lack of any consumer “wow factor.” Between 2011 and 2013, the retailer had racked up more than $5.5 billion in losses. The stock price has fallen from $171.45 in 2007 to $48.41 in 2014. Sears continues to spin off subsidiaries like Lands’ End and to sell properties in hopes of gaining traction in the retail space.
Automotive: Daimler-Benz and Chrysler
In 1998, Daimler-Benz attempted to boost its North American market share by buying the number three carmaker, Chrysler. The partnership lasted eight years, but critics argue that Daimler-Benz should have cut its losses years earlier. The two corporations clashed from the beginning. The Mercedes-Benz parent had been rooted in luxury and upscale consumers, whereas Chrysler had been struggling just to sell Jeeps and minivans. High tensions, investor confusion and a lack of investment in ailing brands caused sales to fall dramatically. After the $36 billion merger price tag plus billions of Chrysler losses, Daimler still had to pay Cerberus Capital $650 million to take Chrysler away in 2006.
Telecom: Sprint and Nextel
Merging two giants can look good on paper but be devastating in real life. In 2005, Sprint and Nextel teamed up in a $36 billion deal. Sprint planned to use Nextel’s customer base to compete against powerhouses AT&T and Verizon. In the end, however, the companies’ differences were too drastic. Disparities in technology and culture caused additional problems that could not be overcome. The new company bled cash and laid off thousands of workers.
Japanese telecom firm SoftBank acquired the struggling cell phone service provider in 2013. Sprint finally shut down the Nextel network in the same year.
Finance: Bank of America and Countrywide
The final example of an epic merger failure has been called the “worst deal in the history of American finance.” In the midst of the recession in 2008, Bank of America (BoA) bought Countrywide for $2.5 billion. BoA had sought to expand its financial offerings while keeping mortgage broker Countrywide afloat. BoA inherited all of Countrywide’s problems, including poor paperwork handling, political cronyism and mortgages and mortgage securities that never should have been sold. Countrywide continues to drown Bank of America in litigation and losses, which have so far totaled more than $47 billion.
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