Sprint and Nextel
The Potential: In 2005, Sprint paid a whopping $36 billion for a majority stake in fellow telecom company Nextel to boost its user base and revenues and create a wireless powerhouse. At least that was the idea.
Why it Failed: Both companies thought they would be able to quickly merge customers and catch up to Verizon and AT&T. But cultural clashes and incompatible wireless technologies made that impossible. Nextel executives began leaving soonafter the merger. Throughout 2008 and 2009 there were billion dollar losses, thousands of layoffs and the company’s stock plummeted.
AOL and Time Warner
The Potential: This $164 billion idea in 2000 was to create a perfect union between old media (Time Warner) and the Internet (um, AOL?). It’s considered the worst merger of all time.
Why it Failed: By 2002 AOL Time Warner reported an astonishing $99 billion loss. The two companies always seemed out of sync. The intervening years have seen massive job losses, dramatic executive departures and a free-falling stock price. In 2009, Time Warner finally set the battered AOL free as an independent company. Today, the combined values of the companies is about one-seventh of their worth in 2000.
News Corp. and Myspace
The Potential: In 2005 when Rupert Murdoch’s News Corp. bought MySpace owner Intermix Media for $580 million it seemed like a great idea. MySpace was a hot social media site that could drive traffic to all the sites in Murdoch’s media empire.
Why it Failed: Facebook happened. But Myspace didn’t help itself. It stopped innovating once it became just another property in the Murdoch domain. Meanwhile, Facebook exploded as the only social media site that mattered. This year, News Corp. sold off Myspace for just $35 million to ad company Specific Media.
eBay and Skype
The Potential: Online auction giant eBay bought an Internet telephony upstart called Skype in 2005 for $2.6 billion hoping online buyers would prefer VoIP and video calls over e-mail. Wrong!
Why it Failed: E-mail is good enough for online buyers and sellers. Nobody on eBay, it turns out, wants to talk. This was a tough and expensive lesson for eBay. After four unfulfilling years eBay sold Skype at a loss to private investors for $1.9 billion. Skype was picked up by Microsoft in May 2011 for a cool $8.5 billion.
Will Skype Be Another Microsoft License Gotcha?
Alcatel and Lucent
The Potential: These two tech giants partnered in a $13.4 billion stock-swap deal in 2006 as way to stave off telecom competitors and integrate networking technologies. But Alcatel-Lucent has been bleeding billions ever since.
Why it Failed: Many problems with this merger have been cultural. Alcatel is French and Lucent is American and when revenues started tanking there was no organized plan to fix things. Add time differences, language barriers and different approaches to crisis management, and you have a troubled company. Alcatel-Lucent remains a troubled company today. It reported a net loss of $334 million in 2010.
Hewlett-Packard and Compaq
The Potential: HP acquired PC maker Compaq in 2002 for $25 billion to challenge Dell in the PC space, but the purchase took HP’s eye off the big picture: Beating IBM in servers, storage and services.
Why it Failed: The merger made HP more narrow and shareholders and Wall Street did not like it. After the deal, HP’s share price dropped by a quarter. In 2005, CEO Carly Fiorina was forced to step down with shares at half the price they’d been when she started in 1999. The Compaq deal is seen as the genesis of Fiorina’s troubles.
Terra Network and Lycos
The Potential: Back in 2000, Lycos was the top search engine and the third-most visited U.S. site. Wanting a piece of this online hotshot, Spanish telecom company Terra Networks put up $12.5 billion. The name changed to Terra Lycos, and then the dot-com bubble blew up in everyone’s face.
Why it Failed: The acquisition was approved at $12.5 billion but almost immediately afterward the dot-com bubble started deflating and so did both companies’ stock. The value of the deal fell to $4.6 billion by the time it closed. And Lycos began its descent into has-been land. has-been land.