Why Mergers and Acquisitions fail?

Jai Singh

What is meaning of merger and acquisition

A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. Example-Company A+ Company Company C B =

When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. Example-Company A+ Company B = Company A

Why Mergers and Acquisition Fail?

Cultural difference

Flawed Intention
No guiding principles No ground rules

Overly conservative targets

No detailed investigating Keeping information to close

Poor stake holders outreach

Mr Steve Case and Mr Gerald Levin

AOL-Time Warner
AOL and Time Warner are merg red in 2000.

AOL was a internet company.

Time Warner was a media company. It was largest merger in American history. In January 2000, the Internet service provider America Online (AOL) announced its intention to merge the media company Time Warner. The purchase price, $165 billion in AOL stock, set a merger record.

Company Vision
To build a global medium as central to peoples lives as the telephone or televisionand even more valuable. To provide its users with a service that was fundamental to their lives.

AOL Time Warner-Goal

The goal of merging of AOL and Time Warner was to create a distribution channel whereby Time Warners media products would be delivered to millions of consumers via Internet broadband. Time Warner brought media products and a television cable network to the combination.

Case's Offer to Levin

Case eventually offered 45% of a combined AOL Time Warner to Time Warner shareholders. Under the terms of the deal, Gerald Levin would be CEO of AOL Time Warner, while Steve Case would be its chairman. Ted Turner, the creator of CNN, was a major shareholder in Time Warner. He was the vicepresident of AOL-Time warner.

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Trajectory

AOL Time Warner Market Capitalization Jan 2001 - Dec 2002

Date

Appeal of Time Warner as a target

Time Warner one of the largest media firms Publishing properties included Time, People magazines ~25% of ad revenue among U.S. magazines Warner Music group Warner Bros studios WB network, HBO

Reasons for merger: AOL

AOL/Time Warner would be first integrated Internet-powered media/communications company Complementary assets would stimulate growth of subscription and ad/commerce revenue AOL would drive digital transformation of TW divisions

AOL estimated $1 billion of synergies in first year of operation

Reasons for merger: TW

TW traditional properties would be brought into the new media age
AOLs Internet infrastructure would provide new distribution outlet TWs broadband systems would provide platform for AOLs interactive services

Cultural difference
Team member culture

AOL-centrally managed
TW-divisional structure

Employees get emotionally confused in the new environment.

Flawed Intention
Ego of executives

Top executives often tend to go for mergers under the influence of bankers, lawyers and other advisers
Due to mergers, mangers often need to concentrate and invest time to the deal.as a result, they get diverted from their work

No guiding principles and rules

Top level fail to develop and guiding principles Ample of leaders but no able leaders

No one at the top of the company really tried to persuade the people

Overly conservative targets , no detail investigation and lack of communication

AOL and Time Warner failed to implement their visions and communicate them .

Poor stake holders outreach, Keeping information to close and lack of motivation

Management didnt communicate properly internal and external stakeholders. Information kept secret in top level and mainly AOL staff AOL and Time Warner were not able to encourage a climate within the companies

Reasons for Later Disappointment

Original value of deal significantly overpriced

AOL paid for TW with stock was to fall, so TW stockholders lost out badly
Growth now very slow Many people who go high speed choose not to maintain AOL subscription The more optimistic and overconfident are executives, the more they engage in mergers, and the more they leave their investors persuation.

How to prevent the failure

Continuous communication- employees, stakeholders, customers, suppliers and government leaders. Transparency in managers operations

Capacity to meet new culture higher management professionals must be ready to greet a new or modified culture. Talent management by the management

Thank You