The Biggest M&A Deals That Never Were
The handling of mergers and acquisitions is never simple, as we see in our transaction reports every month. It is all too easy for otherwise promising companies to shed value after merging, sometimes to the tune of billions of dollars. Most business students could point to the merger of America Online and Time Warner, or Daimler-Benz and Chrysler, as examples of some of the most poorly handled M&A deals in business history.
But far less known than these are the deals that never left the launch pad. In this feature, we take a close look at those mergers which never managed to achieve completion. Whether foiled by regulatory requirements or simple due diligence failure, they serve as cautionary tales for legal and business professionals – and a tantalising glimpse of what could have been.
Pfizer and AstraZeneca
In 2014, US-based pharmaceutical giant Pfizer made a play to buy its chief European rival, the British-Swedish pharmaceutical and biotechnology company AstraZeneca. The two firms engaged in aggressive negotiations for close to two months in what might have been the biggest M&A deal in the healthcare sector’s history, with Pfizer making a $118 billion offer to the AstraZeneca board for control of the company.
The deal ultimately came apart due to the buyer’s overconfidence (a theme common in many of the attempted mergers discussed here), as Pfizer’s final offer of £55 per share was rejected by both the Astrazeneca board and its shareholders. However, the move also achieved a lasting effect in the legal sphere by drawing attention to tax inversion loopholes that allowed companies to cut their tax rate by acquiring a foreign rival in a lower-tax country and moving their headquarters there. The US Treasury’s subsequent crackdown on these loopholes has greatly reduced the likelihood of Pfizer making a second play for control of AstraZeneca.
AbbVie and Shire
The regulatory impact of the failed Pfizer-AstraZeneca acquisition was felt later in 2014 – once again in the healthcare sector. US-based drug manufacturer AbbVie pursued a merger agreement with Ireland’s Shire Plc, aimed at creating a new company with a market cap of around $137 billion and an employee headcount of 30,000. While not as earth-shattering as Pfizer’s offer for its rival, the $55 billion deal was another major play in the pharmaceuticals market.
Both firms agreed to the deal, but AbbVie’s plans to move its headquarters to the UK isle of Jersey for tax purposes proved its undoing. The US Treasury’s new rule regarding the inversions loophole introduced an “unacceptable level of risk and uncertainty” for the deal as a whole, according to AbbVie chief executive Richard A Gonzalez, which ultimately prompted the buyer to pull out. AbbVie paid a $1.64 billion fee as a result of backing out of the merger, and only recently managed to escape a hedge fund lawsuit over its actions.
The Kraft Heinz Company and Unilever
Kraft Heinz’s announcement of plans to buy out consumer goods titan Unilever in 2017 came as a shock to most of the business world, though leaks regarding Kraft Heinz’s intent had begun circulating since before talks between the companies began. The deal promised a paradigm shift in consumer goods and food products, with the Berkshire Hathaway-backed buyer valuing Unilever at an eye-watering $143 billion.
However, the deal folded only two days after it was announced. Kraft Heinz stressed that the decision was made amicably, pointing to the leak of its plans as a key factor in the decision. In the end, however, many legal and business commentators speculated that a culture clash may have been to blame; Unilever was widely known as a pioneer in standards with a focus on sustainability, whereas Kraft Heinz was known as a cost-cutter. If company compatibility was the primary issue, then the collapse of the purchase can be better attributed to a lack of due diligence on the part of deal-makers.
Comcast and Disney
It is easy to overstep when attempting a hostile merger, especially when conditions are interpreted to be more favourable than they are in reality. This was the case with Comcast and its unsolicited attempt to buy out Walt Disney Co. in 2004 in a move to create one of the largest media and entertainment companies in the world. The American telecom giant made an offer that valued Disney at $54 billion, which was quickly rejected by then-chief executive Michael Eisner – who was ousted by Disney shareholders shortly afterwards.
Seeing the move as an indication of the shareholders’ willingness to agree to a merger, Comcast confidently pressed ahead with its takeover attempt. However, the shareholders proved just as reluctant as Eisner, and Comcast was forced to abandon its bid. The two companies have since clashed on a range of other M&A deals, with Comcast launching a counterbid to Disney’s plan to purchase Fox’s entertainment assets in 2017 and a looming showdown on the companies’ joint ownership of Hulu still developing.
WorldCom and Sprint
Another attempt at a seismic deal in the telecommunications industry, in 1999 MCI WorldCom made a shock announcement of plans to buy Sprint Corp – then its closest competitor – for $129 billion, outbidding BellSouth. If successful, the acquisition would have created an international telecom superpower with control over 35% of the market’s long-distance telecom infrastructure, threatening the dominance of AT&T and its 42%.WorldCom was successful in its bid, with Sprint’s board acceding to the merger.
What put the brakes on the deal was international anti-competition law. The European Commission stepped in to declare that the newly created company would squash competition, leaving the two firms with no path forwards. The deal was abandoned and WorldCom went on to suffer an accounting fraud scandal that bankrupted the company. Ultimately, Sprint was bought out by T-Mobile and WorldCom itself by Verizon in 2006, laying the foundations for the new status quo in international telecom.