The world of mergers and acquisitions (M&A) is tumultuous, to say the least. Countless firms and companies vie for the attention of potential investment opportunities, and the entire process often takes years to come to fruition.
Even with all the work involved, the failure rate of M&A is as high as 90%, according to Harvard Business Review. And while the majority of those are smaller deals that largely go unpublicized, the biggest acquisitions have sometimes changed entire industries and caused economic ripples whose effects can still be felt today.
To help dealmakers learn from others' missteps, here are some of the largest and worst failed mergers and acquisitions of all time. We’ll start by taking a look at those that successfully closed but ended up failing during the integration phase, and then turn our attention to the deals that didn’t even make it across the finish line.
To determine the worst acquisitions of all time, we considered not only the size of the deal (adjusted for inflation) but also the effect the failed merger had on the companies and industries involved. In some cases, the failed acquisition even included bankruptcy, signifying just how important proper deal flow and management is to business success.
The first deal on our list is arguably the most famous one. In January 2000, just before the dot-com bubble burst, AOL bought Time Warner for a staggering $165 billion ($259 billion in 2024 dollars) at a 55/45 share split. But the market crashed soon after, and within 2 years, the combined company lost $99 billion.
Unfortunately, the dot-com crash wasn't the only problem with the deal. Poor due diligence practices didn't uncover the eventual cultural mismatch and strategic conflicts. These additional challenges essentially meant the acquisition never stood a chance, and the merged company would never be able to capitalize on the potential of their combined forces.
In 2009, Time Warner spun off AOL, which meandered along by itself until it was acquired by Verizon in 2015. In 2021, the controlling shares were sold to Apollo Global Management for $5 billion ($5.8 billion after adjusting for inflation). AT&T then acquired Time Warner in June 2018 for just over $84 billion ($104 billion in 2024 dollars), and four years later, it was spun off and merged with Discovery to become Warner Bros. Discovery.
While not the largest of deals, the ultimate destruction of two former industry titans earned the Sears and KMart merger a spot in our list. Sears was an American staple since its founding in the late 1800s, but by the time of the $11 billion merger ($18 billion after adjusting for inflation) in November 2004, both it and KMart had fallen into disrepair.
By sharing buildings, suppliers, and, hopefully, customers, the combined company, now named Sears Holdings, hoped to strengthen its position, reduce competition and costs, and save both failing businesses. Unfortunately, it didn't work. Customers didn't buy into the new vision, and it was also rumored that the mind behind the merger actively worked against the company, attempting to use it as his personal cash cow.
In October 2018, Sears Holdings filed its first Chapter 11 bankruptcy. In the four years that followed, Sears continued to struggle, and in December 2022, it filed for Chapter 11 bankruptcy again. As of April 2024, just 11 stores remain open.
A story relatively similar to Sears and KMart, the idea behind the $37 billion merger ($70.5 billion in 2024 dollars) of Daimler-Benz and Chrysler in May 1998 was for two giants in the automotive industry to join forces and take it over. However, rather than two companies working together on equal footing, Daimler instead slowly took over Chrysler.
Turmoil followed, and amid major culture clashes and strategic misalignment, the two companies never integrated. By operating as two separate companies, the merger never realized any of the usual benefits of mergers, and both companies suffered.
Nine years after the deal closed, Daimler sold Chrysler in a relatively easy break to Cerberus Capital Management for $7 billion ($10.5 billion after adjusting for inflation). Chrysler filed for bankruptcy in 2009, and the company limped along under the name Chrysler Group LLC. In 2011, Fiat bought an interest in the company and, three years later, bought the remaining shares.
While the size of this merger was never released, the combination of three traditional corporate rivals — the Pennsylvania, New York Central, and the New York, New Haven and Hartford railroads — was one of the largest corporate mergers in America at the time (February 1968). Unfortunately, it also became one of the most disastrous, requiring the government to step in and create laws to prevent a recurrence.
Even though each of the three railroads had long-standing histories in the Northeastern region of the United States and sought to combine forces, the merger was riddled with problems. First, integrating the companies took years to even attempt, which led to rampant problems with operating the railroad lines.
Second, the nature of the railroad business in the region meant that the far more profitable and less costly long-haul trips were simply not possible. Penn Central's lines operated a number of different trips, from commuter trains to short-haul cargo and more. Not only did this increase risk due to different load types, but it also required more personnel to operate. On top of that, the railroad faced increased competition from cars compared to other railroads.
Just two years after the deal closed, the company filed for bankruptcy in June 1970. It then transferred its operations to Conrail six years later.
In one of the most egregious — and expensive — examples of doubling down on the wrong decision, the Bank of America acquisition of Countrywide Financial is a cautionary tale every dealmaker should know.
In early 2008, the US housing market was already beginning to fail, but Bank of America went through with purchasing mortgage lender Countrywide Financial for $4.1 billion ($6 billion after adjusting for inflation). The rationale seemed to be that Countrywide's acquisition price would be drastically reduced if the acquisition were pursued during the height of the bubble.
However, during due diligence, Bank of America failed to uncover the plethora of legal issues it would absorb upon the deal closing. Countrywide was littered with problems and lawsuits, all of which became Bank of America's legal responsibility. In the more than 16 years since the deal closed, Bank of America has paid (and continues to pay) over $40 billion in legal claims.
In addition to completed mergers and acquisitions that eventually failed, many M&A deals never even make it through the deal flow process. Since we'll never know the ramifications of a completed transaction, our list is based solely on the proposed deal size (after adjusting for inflation).
Just after the pandemic began in June 2020, AstraZeneca approached Gilead about a potential merger, which would be one of the largest of all time. But Gilead lacked interest in the deal. At the time, both companies also needed to focus on creating a COVID-19 vaccine, so the merger never even got to formal talks.
After the initial hype for and eventual downfall of vaping products, a potential merger between Altria and Philip Morris International was cut short due to poor investor reactions in 2019. Altria had previously invested $12.8 billion in Juul, but the ban on vaping products in the US and China, as well as increasing regulation of tobacco products, meant this deal never came to fruition.
In 1999, MCI Worldcom and Sprint attempted to merge in a bid to combine forces and reduce competition. However, the US Department of Justice and European Commission forbade the deal, and the former even filed a lawsuit against the transaction on the grounds of monopoly concerns.
Just before the market crashed in 2008, BHP Billiton attempted a hostile takeover of fellow mining outfit Rio Tinto for $148 billion ($209 billion after adjusting for inflation). However, as commodity prices fell and the financial markets struggled, the deal eventually fell through in November 2008. Interestingly, the two companies never lost touch, and as of 2022, formed a partnership agreement to collaborate on new mining technology.
2016 was a tough year for dealmakers and saw some of the largest and worst M&A deals in history. One of these was the potential $160 billion merger of Pfizer and Allergen. However, President Obama's proposed business tax reforms meant the two companies mutually agreed to terminate the merger.
Because deals can fall apart both before and after the transaction, there are a number of factors that contribute to failed mergers and acquisitions. However, as the worst acquisitions of all time show, many common themes do exist. Here are a few of the factors that affected the outcome of the failed acquisitions and mergers on our list:
Many of our failed mergers and acquisitions examples are on the list because the companies did not complete due diligence thoroughly enough. From Bank of America's failure to find Countryside Financial's many legal issues to AOL and Time Warner's cultural issues, due diligence is meant to uncover these types of potential challenges before entering into a deal.
Ultimately, the main consequence that organizations face from failing to examine all sides of a deal is inadequately gauging the level risk involved. After all, you can't know the right decision to make without all the data, and not knowing all the ins and outs of the deal is a recipe for disaster.
Sometimes, even when due diligence is completed properly, the two organizations in a deal just never get along, as the DaimlerChrysler failed merger exhibits. Whether that failure is from intentional deceit or changes in thinking post-transaction, the fact remains that small misalignments often cascade into larger issues.
For example, while it didn't make our failed mergers list, the deal between Sprint and Nextel ultimately failed because of critical company differences. From near-polar opposite management styles to rampant turnover post-transaction, the two organizations had integration issues from key product differences and clashing marketing strategies.
Sometimes, the market simply isn't in your favor. Outside of some of the more unpredictable occurrences (e.g., the dot-com bubble of the early 2000s), what may seem like a good idea on paper isn't always as effective in practice. The mega-merger and ultimate failure of Penn Central is a prime example, as the costs and risks of the combined company meant what was supposed to be an industry titan lasted only a few short years.
Another example of this type of challenge is eBay's failed acquisition of Skype in 2011. The CEO at the time of the deal believed buyers wanted easier communication to streamline and smooth transactions. However, the anonymity and hands-off nature of the auctions were much more amenable to eBay's customer base, and the acquisition ultimately failed.
Antitrust and anti-monopoly concerns can prevent a successful transaction, every potential deal must overcome a series of regulatory hurdles. Depending on where the organizations involved are headquartered and operate, multiple governmental agencies may be involved, including the Securities Exchange Commission (SEC), the EU Commission, and even the US Department of Justice. As we saw with the Sprint and MCI WorldCom example above, failing to pass governmental judgment means a merger or acquisition can fail before it ever has a chance to close.
Despite its high failure rate, M&A is still a foundational piece of the global economy. Successful mergers and acquisitions have the potential to positively impact everything from individual lives to entire countries and industries.
The difference between successful M&A and failed mergers and acquisitions can often be traced back to data: understanding the target market, financial or legal challenges, business culture and strategy, and more. For organizations to mitigate the risks of M&A and get ahead of potential failure points, they must start by sourcing the right opportunities.
With more information throughout the entire deal flow process, you can avoid potential missteps and be sure you're making the right decision based on objective data. Get a head start and learn what works from organizations with many successful mergers and acquisitions in their portfolios: Check out these stories from Sourcescrub's customers.
