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    Corporate Disasters: Mergers and Acquisitions: Big Messes
    Corporate Disasters: Mergers and Acquisitions: Big Messes
    Corporate Disasters: Mergers and Acquisitions: Big Messes
    Ebook114 pages2 hours

    Corporate Disasters: Mergers and Acquisitions: Big Messes

    By Gale and Cengage

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    About this ebook

    Corporate Disasters: What Went Wrong and Why profiles the biggest corporate mistakes or misdeeds throughout history -- covering the people, the times, the decisions made. This volume covers Mergers and Acquisitions. Each essay puts the business and its operators in the context of its own time, explaining the market, social, and technology forces at play, and each explores the key make-or-break decisions that led to disaster.
    LanguageEnglish
    PublisherCengage Learning - Gale
    Release dateNov 3, 2013
    ISBN9781535821209
    Corporate Disasters: Mergers and Acquisitions: Big Messes

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      Book preview

      Corporate Disasters - Gale

      Conglomerate

      Introduction

      By all accounts, one aspect of California’s Silicon Valley differentiates it from other communities: it has a high tolerance for failure. In fact, while executives and entrepreneurs in many industries and locales take tentative steps to avoid risk of failing, in Silicon Valley these same people are encouraged to move forward aggressively and learn quickly from the failures that inevitably await them. There is no shame in failure, nor is there in highlighting failed ventures on a resume. In fact, those very failures are sometimes looked upon favorably by employers or financial backers as signs that a person has gone through some trials by fire and emerged smarter as a result.

      In every field of life, failure is often the precursor to success. This truism seems increasingly acknowledged by management consultants, political pundits, and the media. One of the most dramatic examples is Nike’s 1997 classic 9000 Shots commercial, popularly known as the Michael Jordan failure commercial, wherein the basketball superstar acknowledges his failures, only to point out how important they were:

      I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games.

      Twenty-six times I’ve been trusted to take the game winning shot...and missed.

      I’ve failed over and over and over again in my life. And that is why I succeed.

      Of course, not all players, in sport and in life, rise above their failures. But even though some stories may not be inspirational, they are still valuable, if only as examples of what not to do. In short, failure, as much as success, is worth studying for what it can teach us—providing us models of perseverance to emulate and examples of hubris to avoid.

      These are the kinds of stories we have sought to capture in this volume. They illustrate failure across industries—from retail to manufacturing to finance—and they showcase bad decisions in marketing, strategy, management and more. More than a few of them illustrate classic human foibles. Herein we see tales of crowd-induced mass delusion, underestimating threats from new competitors or new technologies, and the omnipresent temptation to bury one’s head in the sand and hope everything will just be okay.

      In some of the essays, we cover companies that ultimately learn from their failures and emerge stronger. In others, missteps bring down entire enterprises. In all cases, they serve as useful examples for students and teachers of business alike at the graduate and undergraduate level, and for advanced high school students.

      Each essay is focused on the story of a particular failure and was chosen for its ability to show, in a different time and context, why it occurred. An attempt was made to balance essays across disciplines and to be as pluralistic as possible. However, these essays tend to focus on the twentieth and twenty-first centuries. And they tend to cluster around the disruptive influences—globalization, technology, etc.—that have dramatically changed industries and markets.

      Special thanks go to Product Manager Michele LaMeau for leading this initiative. This book is the product of some innovative publishing work, as Michele applied techniques gleaned from our agile software development practice to the production of content, the result being high quality production in record time. Thanks also to Miranda Ferrara, who served as hands-on mentor to Michele, to Mark Springer, Mike Huellmantel, and Keith Jones, who played pivotal roles in making this book a reality, and to numerous others who shared their talents to create this volume. I am grateful to all of them.

      David Forman

      Vice President and Publisher

      Gale, Cengage Learning

      AOL - Time Warner Merger of 2000

      On January 10, 2000, it was announced that communication giants AOL (America On Line) and Time Warner would merge. Hailed as the corporate marriage of the century within 10 years, the companies were demerged. This case examines what went wrong and why.

      This case was prepared for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative, ethical, or legal decision by management. Information was gathered from corporate as well as public sources.

      After analyzing this case study, students should be able to do the following:

      Discuss the role of upper management in the successful mergers of major corporations

      Explain the need for media giants to stay technologically current

      It was the corporate marriage of the century, the coming together of two media giants, Time Warner Inc. and America Online, Inc. (AOL).¹ One was an old media blueblood, the other a bright new Internet star. The alliance led business writers and analysts to gush like reporters covering a royal wedding for Time Warner's own People magazine. The stunning announcement, as Sandeep Junnarker and Jim Hu of CNET described the January 10, 2000, press conference by AOL and Time Warner executives, promised the creation of almost unparalleled resources in the largest corporate merger ever. Ted Turner, holder of nine percent of Time Warner’s stock, a man whose enthusiasm for women, yacht racing, and business were well known, chose a more earthy description, according to another CNET report by Jim Hu: I did it with as much or more excitement and enthusiasm as I did on that night when I first made love some 42 years ago.

      However, as Turner could attest, marriage is a tricky affair, and this was a star-crossed match, destroyed from within, sabotaged by internal jealousies and rumors, snobbery, and disdain, not to mention plagued by ill timing as stock prices soon tumbled. The deal that brought the two companies together was valued at US$350 billion, but as the Internet stock market bubble burst the company found itself on what the New York Times' Tim Arango dubbed a trail of despair. Arango’s 10th anniversary retrospective observed that the future for the ballyhooed merger would include countless job losses, the decimation of retirement accounts, investigations by the U.S. Securities and Exchange Commission (SEC) and the Justice Department, and countless executive upheavals.

      Along the way, Turner’s passion withered. Ten years later he told Arango he would like to forget about the deal and opined it should pass into history like the Vietnam War. I lost 80 percent of my worth and subsequently lost my job, he said.

      The Pipes and the Poetry

      In the fall of 1999, Gerald M. Levin, Time Warner’s chief executive, was sitting in Beijing’s Tiananmen Square watching a celebration of the 50th anniversary of the People’s Republic of China. Sitting behind him was Steve Case, head of AOL. The two men, Levin told the New York Times' Arango, had a little chitchat. These captains of capitalism bumped into each other several times during the celebration of the world's largest Communist country, and the seeds of the biggest merger in capitalist history were sown.

      Case had founded AOL, known as America Online for most of its early years, in 1985 as Q-link, an online bulletin board service. Q-link became America Online in 1989, a service offering software, games, chat, and e-mail services, as well as news and Internet access. The service was initially offered to Macintosh users whose computers had sound capabilities. For thousands of users, America Online's sign-on Welcome and e-mail alert You've got mail! became part of the fabric of daily life. Two years later, America Online became available to PC users. The Virginia-based company went public the following year, in 1992, listed on the NASDAQ as AOL. The company quickly grew as more people bought home computers and accessed the Internet via dial-up modems connected to home telephone landlines. AOL's free software, low fees, and easy interface boosted growth, and by 1994 the company had one million subscribers. That number grew to 4.5 million a year later.

      AOL also discovered a key to increasing revenue by introducing online advertising. Increased revenue led to a number of major acquisitions, including the purchase of competitor Compuserve, the instant messaging company ICQ, and Netscape Communications, a key player in software development for the web. As the 20th century closed, AOL’s global subscriber base topped 15 million. CEO Case continued to buy up assets, some proving prescient, others

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