Business Deals Gone Bad

Business Week has an interesting article on bad business deals. This problem is far more common than most people realize. My particular concern is the mega-merger. Time and time again, these deals never seem to work out. They’re always greeted with great fanfare. You see the new CEOs smiling and shaking hands. Everyone is talking about synergy this and new markets that.
My hunch is that mega-mergers flatter the vanities of the executives who make the deal. Shareholder value, on the other, is probably more do to innovation and execution where executive decisions play a much smaller role.
So how come the mergers rarely seem to work out? I think the problem is that there are a million steps that can go wrong. You have to merge two different cultures. Your clients need to realize that. There are ego and turf wars. Shareholders must be pleased. Lawyers need to be pleased. Plus, there’s always the issue of anti-trust battles.

The wreckage of deals gone bad litters the business landscape these days. On Oct. 4, shareholders of German automaker DaimlerChrysler (DAI) are expected to approve renaming the company Daimler, jettisoning the last vestiges of the disastrous 1998 acquisition of Chrysler, for which it paid some $40 billion. While retaining a 19.9% stake in the Michigan company, Daimler’s shareholders will be more than happy to forget the whole episode, which saw litigation over the deal, a dearth of hit models, cultural and operational snags between U.S. and German managers, and heavy financial losses. In May, Daimler agreed to sell the bulk of the company to private equity firm Cerberus Capital Management for a mere $6 billion.
On Oct. 1, online auction house eBay (EBAY) conceded that it had overpaid in its $2.6 billion acquisition of Internet telephone service Skype Technologies in 2005. EBay took a writedown of $1.4 billion, and Skype founders Niklas Zennström and Janus Friis departed from their former suitor.

Here’s Business Week‘s list of the Worst Deals of All-Time.

Posted by Eddy Elfenbein on October 4th, 2007 at 11:11 am

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