Deals from hell

The decision by Daimler-Benz to buy Chrysler is sure to rank up there as among the most disastrous business deals in recent memory. I mean, how else do you describe one company buying another company for $36 billion and then, nine years later, selling it at a cost of $650 million? Robert Bruner, dean of the University of Virginia's Darden School of Business, offers up some other acquisitions gone bad in a book, titled “Deals From Hell: M&A Lessons That Rise Above the Ashes.” From WSJ's Deal Book:

1) Merger of Pennsylvania Railroad and New York Central Railroad, February 1968: The largest merger to date, this deal created the 6th largest corporation in the U.S. Investors in Penn Central lost $1.84 billion in stock market value. The merged company filed for Bankruptcy in June 1970.

2) The leveraged buyout of Revco Drug Stores, December 1986. At $1.4 billion, it was one of the largest LBOs to that point, a 48% premium to the stock price of 12 months earlier. Just 19 months later it filed for bankruptcy.

3) AT&T’s acquisition of NCR, September 1991: A $7.48 billion deal that was a 132% premium to NCR’s stock price of October 1990. Five years later, AT&T spun off NCR, leaving an entity with a market cap of $3.4 billion.

4) Quaker Oats’s purchase Snapple Beverage Corp., December 1994: A $1.7 billion deal, but a 48% discount to the Snapple’s highest stock price of that year. Quaker Oats stock price fell 9% the day the deal was announced, wiping out more than $1 billion of market value. Just 29 months later, Quaker sold Snapple for $300 million and took a $1.4 billion write off associated with the deal.

5) Merger of AOL Inc. and Time Warner, January 2001: A $165 billion “merger of equals,” but the combined companies’ market cap implied a deal of $350 billion. Within months, more than $200 billion of that market cap was gone. Two years later, AOL leader Steve Case was gone as chairman of AOL Time Warner and AOL soon was gone from the company’s name.