The ink isn’t even dry on Verizon’s (VZ) $4.4 billion buyout of AOL. But investors are already recounting some of the ugliest mergers in history – and hoping this won’t become one of them.
The rogue’s gallery of history’s all-time worst deals are so well known – they’re practically cliches. AOL and Time Warner’s marriage in 2000 and Quaker Oats’ buy of Snapple in 1994 are infamous.
But what about some of the ugliest merger deals in the past 10 years? Accounting unearths some real duds – by forcing companies to acknowledge mistakes.
Companies often go out of their way to wallpaper over deals that go bad. But one way to detect the bum deals are massive writedowns in goodwill. When a company pays up for a company – well above the value of the assets – the difference is recorded as goodwill to make sure assets equal liabilities. When a deal goes bad and a company must finally acknowledge it – there’s typically a writedown in that goodwill value.
A USA TODAY review of data from S&P Capital IQ turned up huge merger-related goodwill writedowns. These are the greatest of the worst.
* HP/Autonomy. One of the biggest goodwill writedowns in recent years goes to Hewlett-Packard from its October 2011 buyout of British software company Autonomy for $11.7 billion. The buyout was brazen from the start due to the massive premium paid over the stock price. It didn’t take long for that deal to sock HP. The company took a massive $18 billion impairment to goodwill charge in 2012, “due primarily to goodwill and intangible asset impairment charges associated with the Autonomy reporting unit,” according to HP’s filing.
* eBay/Skype. Another one of the great botched mergers in recent years is eBay’s buyout of voice calling service Skype in 2005. The theory went that eBay bidders and sellers could talk with each other. Yeah, eBayers didn’t think it made any sense either.
eBay took a $1.4 billion impairment charge in 2007 and sold the unit in 2009. Here’s what eBay said about the matter in a filing, “As a result our annual impairment test of goodwill as of August 31, 2007, we concluded that the carrying amount of our Communications reporting unit exceeded its fair value and recorded an impairment loss of approximately $1.4 billion during the year ended December 31, 2007. The impairment charge includes the impact of the earn out settlement payment with certain former shareholders of Skype and was determined by comparing the carrying value of goodwill in our Communications reporting unit with the implied fair value of the goodwill.”
* Botched bank deals. Some of the frenzied mergers during the financial crisis were so convoluted and detailed, it’s hard to know where the pain started and stopped. Bank of America has taken so many goodwill writedowns – to the tunes of billions – it’s hard to know exactly how much of them are connected with its January 2009 buy of Merrill Lynch.
But even better than that was Wachovia’s buyout of mortgage company Golden West Financial. Wachovia announced the buyout in May 2006 – just before the financial crisis got really ugly – for roughly $26 billion. Bum loans continued to accumulate even before the deal was finalized in 2008. Wachovia didn’t even survive long enough to tell its story. It was bought by Wells Fargo in 2008 in a deeply distressed deal.
Ironically, some of these horrible deals turned into great ones for subsequent buyers.
Starting today – anyone can download a new version of Skype that can do real-time translation between different languages. The company is now owned by Microsoft. And thanks to the firesale of Wachovia – Wells Fargo now has branches across the country – which could end up being one of the lowest-cost bank expansions ever.
We’ll see how AOL works out for Verizon. It can’t be any worse than these, can it?
http://americasmarkets.usatoday.com/2015/05/12/mergers-gone-wrong-a-decades-worst-deals/
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