Wealth Creation in the World’s Largest Mergers and Acquisitions: Integrated Case Studies

341 Pages·2019·4.71 MB·English

by  B. Rajesh Kumar

Management for Professionals
B. Rajesh Kumar
Wealth Creation
in the World’s
Largest Mergers
and Acquisitions
Integrated Case Studies
Management for Professionals
More information about this series at http://www.springer.com/series/10101
B. Rajesh Kumar
Wealth Creation in the
World’s Largest Mergers
and Acquisitions
Integrated Case Studies
B. Rajesh Kumar
Institute of Management Technology
Dubai, United Arab Emirates
ISSN 2192-8096 ISSN 2192-810X (electronic)
Management for Professionals
ISBN 978-3-030-02362-1 ISBN 978-3-030-02363-8 (eBook)
https://doi.org/10.1007/978-3-030-02363-8
Library of Congress Control Number: 2018959863
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Preface
Mergers and acquisitions (M&As) represent a major force in modern financial and
economic environment. Whether in times of boom or bust, M&As have emerged as
a compelling strategy for growth. The modern day biggest companies have all taken
its form today on account of a series of restructuring activities like multiple merg-
ers. Acquisitions continue to remain as the quickest route companies take to operate
in new markets and to add new capabilities and resources. The value of M&A deal
rose from $200 billion in 1992 to about $4.74 trillion by 2017. The deal volume
during the historic M&A wave during the period 1995–2000 totaled more than $12
trillion. This casebook clinically analyzes the wealth created in the world’s largest
mergers and acquisitions in terms of deal value. This casebook focuses on integra-
tive approach to examine all aspects of mergers and acquisition processes.
The first chapter introduces the concept of mergers and acquisitions, processes
involved, and strategic perspectives on mergers and acquisition. The chapter also
aims for cross-fertilization in theory building and applied research by examining the
linkage between mergers, acquisitions, and wealth creation. The following chapters
discuss the largest mergers and acquisitions in terms of deal value and examine the
wealth created by the merging firms. Another objective is to examine whether cor-
porate performance has improved after merger or acquisition.
The acquisition of Mannesmann by Vodafone was aimed to consolidate
Vodafone AirTouch’s position in Europe. With the union, Vodafone and
Mannesmann had controlling stakes in ten European markets, thereby giving the
merged entity the most extensive European coverage for any wireless carrier.
The merger between AOL and Time Warner created the world’s largest verti-
cally integrated media and entertainment company. The merger was considered
as one of the biggest failed mergers as the expected synergies between AOL and
Time Warner never actually materialized. The acquisition of Verizon Wireless
by Verizon Communications elevated Verizon’s position with leadership posi-
tion in network performance, profitability, and cash flow. The combination of
highly complementary portfolios of Dow and DuPont was intended to create
leadership position for the combined company in the industry. In one of the larg-
est transatlantic deals ever, Belgian-based InBev acquired Anheuser-Busch in a
deal valued at $52 billion. The Kraft–Heinz merger resulted in the creation of
the third largest food and beverage company in North America and fifth largest
food and beverage company in the world.
v
vi Preface
Pfizer has grown by megamergers and acquisitions. In the year 2000, Pfizer
acquired Warner–Lambert for $111.8 billion. In the year 2003, Pfizer and Pharmacia
merged to become a leading research-based pharmaceutical company in the world.
During December 1998, Exxon and Mobil merged to become the third largest oil
company in the world at the time of the deal. Citicorp and Travelers Group merged
to create the world’s largest financial services company with banking, insurance,
and investment operations in 100 countries. AT&T acquired Time Warner to become
the premier integrated communications company in the world.
In 2007, ABN AMRO was acquired by a consortium of banks known as RFS
Holdings BV. This acquisition was aimed to create stronger businesses with
enhanced market presence and growth prospects. The merger between Glaxo
Wellcome and SmithKline created the world’s largest pharmaceutical company.
Royal Dutch Shell acquired BG Group for US$70 billion. This acquisition cata-
pulted Shell as the world’s second largest non-state oil company after ExxonMobil
in terms of market capitalization. AT&T and BellSouth Corporation merged to
emerge as an integrated provider in the wireless, broadband, video, voice, and
data markets. In 2001, Comcast took over AT&T broadband unit for $72 billion.
This deal created the biggest cable company in the United States with 22.3 mil-
lion subscribers. JPMorgan Chase had grown through mergers and acquisitions
over a period of time. In the year 2000, the Chase Manhattan Corporation
acquired JPMorgan & Company in an all-stock deal valued at $30.9 billion.
Charter Communications’ acquisition of Time Warner Cable and Bright House
Networks created the second largest broadband provider and third largest pay-
TV provider in the United States. In 2015, Actavis completed the acquisition of
Allergan Inc. in a cash and share transaction valued at $70.5 billion. In one of the
largest ever acquisition in the technology sector, Dell acquired EMC in a cash
and stock deal valued at $74 billion. Altria Group had spun off Philip Morris
International tobacco arm. In 1999, Vodafone Group Plc and AirTouch
Communications Inc. merged to create one of the world’s leading mobile tele-
communications group.
Verizon Communications was formed by the merger of Bell Atlantic and GTE
Corp. in one of the largest mergers in US history. British Petroleum merged with
Amoco in a deal valued at $48.2 billion. US West had merged with Qwest. Qwest
later merged with CenturyLink. WorldCom and MCI had merged in a deal valued at
$37 billion. In the year 2016, Microsoft Corp. had acquired LinkedIn for $196 per
share in an all-cash transaction valued at $26.2 billion.
In one of the biggest acquisition, P&G had acquired Gillette in a deal valued at
$57 billion. In one of the biggest hostile acquisition, Oracle took over PeopleSoft to
become the world’s second largest seller of business applications software behind
SAP. The Bank of America had undertaken a series of acquisitions as a part of its
growth strategy.
Gaz de France (GDF) was acquired by ENGIE SA in a reverse merger deal
valued at €70 billion. In the year 2004, after a bitter takeover battle, France’s larg-
est drug maker, Aventis, was acquired by a smaller rival company Sanofi-
Synthelabo SA in a deal valued for € 55.2 billion. Bayer acquired Monsanto for
Preface vii
US$128 per share in an all-cash transaction. In 2009, Roche had acquired
Genentech for $46.8 billion. The acquisition of Orange was a major step of France
Telecom toward the strategy of internationalization to become European leader
and global player. Merck and Schering-Plough Corp. merged in a deal valued at
$41.1 billion. Zeneca and Astra had merged to form a new company called
AstraZeneca in a deal valued at $67 billion. HP and Compaq had merged in a deal
valued at $25 billion. WhatsApp was acquired by Facebook in a deal valued at $19
billion. The JDS Uniphase–SDL merger was valued at $41 billion. KKR acquired
First Data Corp. in a deal valued at $29 billion. Lucent Technologies Inc., the top
maker of phone equipment, bought Ascend Communications Inc. for $20.3 billion
in stock for expansion into the fast- growing internet equipment industry. France-
based Vivendi and its television subsidiary Canal+ had acquired Canada-based
Seagram in a stock deal valued at $33.7 billion. In one of the biggest transatlantic
mergers, German automaker Daimler- Benz purchased Chrysler for $38 billion.
This merger turned out to be a colossal failure. In 2006, Mittal Steel announced a
hostile bid for Arcelor. After a bitter struggle, the two companies merged to
become the world’s largest steel company.
Dubai, United Arab Emirates B. Rajesh Kumar
Acknowledgment
I would like to thank the production and editorial staff at Springer who guided this
book through the publishing process. I wish to acknowledge the valuable guidance
and support of Matthew Amboy, Senior Editor at Springer. My thanks go to Su
Faith, Assistant Editor, and her team for all the cooperation and support for the pub-
lication of this book. I also acknowledge the content of various websites and sources
of information to which I referred.
ix
Contents
1 Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Vodafone Acquisition of Mannesmann . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3 American Online: Time Warner Merger and Other Restructuring . . 31
4 Acquisitions by Verizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5 DowDuPont Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6 Mergers and Acquisitions by Anheuser- Busch InBev . . . . . . . . . . . . . . 69
7 Merger of Kraft and Heinz Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
8 Acquisitions by Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
9 ExxonMobil Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
10 Citicorp–Travelers Group Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
11 AT&T–Time Warner Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
12 ABN AMRO Acquisition by RFS Holding . . . . . . . . . . . . . . . . . . . . . . . 131
13 GlaxoSmithKline Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
14 Acquisitions by Royal Dutch Shell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
15 Bell South Merger with AT&T. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
16 Comcast Acquisition of AT&T Broadband . . . . . . . . . . . . . . . . . . . . . . . 163
17 Key Mergers of JPMorgan Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
18 Charter Communications Acquisition of Time Warner Cable . . . . . . . 175
19 Actavis-Allergan Merger Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
20 Dell’s Acquisition of EMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
21 Altria Group’s Spin-Off of Philip Morris International Inc. . . . . . . . . 197
22 Vodafone AirTouch Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
xi