How to achieve a synergy for a successful deal?
8 August 2022
8 August 2022
Many major and emerging economies experienced a downturn throughout the last decade. This downturn forced businesses to consider measures that would allow for sustainable growth. Many businesses decide to combine their operations to create a new organization and deal with challenging circumstances with renewed vigor. In this article, we explore several well-known merger and acquisition cases from the 2010 to the 2015 in the Czech Republic and throughout the globe, including some of the largest and most successful M&As as well as some infamous M&A disasters. Read on to discover more.
According to New York Times the 2010 year was “the year of confidence returning back”. Since the world economic crisis in 2008, no one expected M&A activity to return to 2007 levels any time soon. Nevertheless, the increasing confidence in the corporate world resulted in an M&A boom that made 2010 year.
The most successful deal of this year was a merger of Switzerland-based company Alcon specializing in eye care products with Swiss pharmaceutical giant Novartis. According to Merger Market, at the beginning of the year, Novartis purchased 52% of Alcon from Nestle for $25,7 billion. And the year was closed by an additional purchase of Alcon by Novartis of a 23% stake for $12.8 billion. That was bringing Novartis a big step close to its goal of becoming a global healthcare conglomerate.
At the same time in the Czech Republic the leading owner and operator of broadcasting and telecommunication tower infrastructure České Radiokomunikace was acquired by the world’s largest infrastructure asset manager Macquarie for $764 million.
One of the failed deals of the year took place in financial services industry, where two dominant regional insurers in Asia – Prudential and AIA – were planning to merge. According to Financial Times, Prudential abandoned an agreement to buy AIA after the board of Prudential voted against cutting the purchase price from $35.5 billion.
The year was opened by the acquisition of Motorola by Google. Afterward, the company will be sold again (and for a lower price), it will be discussed later on. The biggest search engine company bought Motorola for $12.5 billion as reported by TechCrunch. The deal was not primarily made to gain Motorola’s patents, but to renovate Motorola by creating innovative mobile phones to better compete against lifelong rivals Apple and Samsung.
The most famous and successful M&A deal in the Czech Republic of the year was in the real-estate field, where UK-based real estate fund management and investment company Rockspring Property Investment Managers LLP and Germany based ECE European Prime Shopping Centre Fund acquired Somerston Olympia. The shopping center is located in the second-largest city in the Czech Republic – Brno – was sold for $354 million.
Alongside in the U.S. could be made the deal, which would have created by far the American’s largest wireless company, by merging AT&T and T-Mobile US. Nonetheless, the Federal Communications Commission (FCC) and the Department of Justice both pushed to derail the agreement, referring to the likelihood of rising prices, fewer customer options, worse service, and significant job losses. According to CNN, AT&T warned that customers will be worse off because the deal was essential in terms of the nationwide wireless spectrum crunch. As stated by AT&T CEO Randall Stephenson, the merger of AT&T and T-Mobile US would have provided a temporary fix for this spectrum issue. Moreover, customer would suffer, and essential investment will be inhibited in the absence of such initiatives.
The world’s famous tech company Facebook made a big and very successful M&A deal by buying Instagram for $1 billion. As it would be revealed later on antitrust hearings, founder of Facebook – Mark Zuckerberg – considered Instagram as a threat towards his own social network and thought it should be eliminated at significant expense.
At this year in the Czech Republic the important deal[KT1] took a place, where US-based brewer and manufacturer of beer Molson Coors acquired StarBev. The East European brewer is owning the second most popular beer brand in the Czech Republic after Pilsner Urquell, which is the Staropramen. According to MergerMarket, the deal was valued at $3.5 billion.
The biggest failed deal of the year was the $45 billion mega-merger between Britain’s largest defense contractor BAE Systems and the Franco-German owner of Airbus. They were planning to create a pan-European manufacturing powerhouse with 220.000 employees and make hi-tech products ranging from nuclear submarines and fighter jets to the A380 superjumbo (large wide-body airliner). The agreement would have formed a European aerospace giant of US Boeing-like scale. According to The Guardian, the merger collapsed due to personal resistance from the German chancellor, Angela Merkel.
One of the most powerful and popular American telecommunications companies, Verizon, signed at this year the third largest corporate deal in history by acquiring Vodafone US. According to Verizon, the transaction was valued at approximately $130 billion. The cash and equity purchase gave Verizon complete access to the revenues from the largest mobile operator in the US, providing it with extra resources for investments in its cell network and beating out rivals in a competitive market that is quickly growing much more intense.
This year could have been called as “a year of M&A deals in the telecommunications industry”. One of the most successful deals in the Czech Republic at this year was the acquisition of the biggest Czech telecommunications company Telefónica by Czech investment company PPF. It was one of the greatest deals in the history of PPF. According to the Merger Market, the deal was valued at $3.4 billion.
One of the biggest failed deals of this year was Blackstone’s attempt to acquire Dell. However, Blackstone was not the only company, that was interested in buying Dell. That is why the American investment company had prepared a counteroffer to outbid the $24.4 billion offer made by Dell's founder and CEO Michael Dell and private equity company Silver Lake Partners. Important to note, that with Blackstone's proposal, common shareholders would still own a portion of the corporation. According to Reuters’ anonymous sources, Blackstone quit due to an extraordinary 14% decline in PC sector sales in the Q1 of 2013. Moreover, the prediction from Dell’s management was not good enough, because they have seen operational income fall from $3.7 billion to $3 billion in the 2012-2013 fiscal year.
At the same time in the Czech Republic, Czech Property Investments (CPI) merged with the German GSG Group. The deal, which had a value of approximately $4 billion, contributed significantly to the country's transaction activity this year.
The greatest failed deal of this year was between Pfizer and AstraZeneca. According to Reuters, the two world’s biggest pharmaceutical companies were planning to merge for $118 billion. It would have been the world’s largest ever drug companies merger. AstraZeneca´s board was hesitant to accept Pfizer´s bid because they thought Pfizer was getting too impeccable deal. According to Forbes, AstraZeneca´s CEO Pascal Soriot claimed that AstraZeneca´s revenues, which were $25.7 billion in 2013, will increase to $45 billion in 2023, providing stunning returns very soon. With such promising prospects, there was no way the AstraZeneca board could accept Pfizer’s lowball offer.
Finally, it is time to talk about the sale of Motorola by Google. After 3 years, Google unexpectedly decided to sell Motorola to Chinese PC maker Lenovo for $2.9 billion. As you probably remember, Motorola was bought for $12.5 billion but sold for much cheaper price. In 2011, Google said that Motorola’s acquisition was not about patents, but in 3 years the opinion changed. According to The Verge, Google claimed that the Motorola acquisition was primarily driven by the firm’s patent rights. The Motorola portfolio, has not been able to generate nearly as much in royalties as Google seems to have expected and it appeared to have been greatly overvalued by Google. Additionally, while Google was trying to block sales of the iPhone with those patents, it has not been able to utilize them very forcefully. Give how challenging it has been for Google to own Motorola throughout, now it seemed like Google made the right decision, when sold Motorola back.
At the end of 2015, one of the biggest mergers in corporate history was announced, when Dow Chemical and DuPont decided to consolidate their businesses into one firm. Corresponding to the Dow website, their intent was to form a strong, independent, publicly-traded company in agriculture and materials science. The $130 billion “merger of equals”, which was completed after more than a year of deliberations and regulatory permissions, unites two titans of the chemical industry to become DowDuPont.
All along in the Czech Republic, the owner of the PPF group, Petr Kellner, sold Generali PPF Holding (GPH) remaining 24% of its shares for $1.4 billion to the country’s largest insurer Generali. With this, PPF’s involvement in the Czech Republic and other Central European nation’s insurance markets came to an end after over 20 years.
One of the largest drug makers in the world, Pfizer, after a failed merger with AstraZeneca, was trying to acquire another pharmaceutical company, the Irish Allergan, but failed again. The deal was valued at $160 billion, but in accordance with Reuters, Pfizer claimed that new U.S. Treasury regulations focused on so-called “inversions” were the driving force for the decision. It means that by establishing a domicile in Ireland, where tax rates are lower, the deal would have allowed Pfizer, a company headquartered in New York, to reduce its yearly tax by around $1 billion.
Overall, it is difficult to determine whether some deals mentioned above were the most successful or disastrous. A deal's total potential and value need time to evolve, as it did, for instance, in the case of Google and Motorola. The market leader in search engines was buying an inexpensive firm with a strong patent portfolio in an effort to eliminate rivals. At the same time, Facebook is doing a great job of competing with them. Instagram, one of Facebook's main rivals, was bought out and is now profitable for its former adversary. Not all M&A transactions involving rival businesses, though, were successful. The two largest pharmaceutical corporations, Pfizer and AstraZeneca, were intending to merge, but one of them backed out of the deal due to the rising earnings of one of them.
While M&A transactions bypass the competition, some businesses were not able to merge due to legislative restrictions. The FCC voted against the AT&T and T-Mobile merger, which was intended to address the nation's cellular shortage issue. At the same moment Angela Merkel, the head of the German government, blocked the huge deal between the two global aerospace giants. These potential mergers were supposed to carry out during a sector’s expansion era with great expectations of success. Nevertheless, failures attributed to such reasons as market dynamics, government’s restrictions, frequently spoil the success.
All reviewed cases for sure can give us certain insights and tell what pitfalls better to avoid. In the second part of the article, we will review more successful and failed deals from 2016 to 2021.