AOL’s 2000 buyout of Time Warner for $164 billion easily takes the cake as the worst deal of the decade. Inked at the height of the dotcom bubble and the pinnacle of AOL’s business, this attempted marriage of content and distribution fell on its face.
“It’s the mother of all failed mergers. It was the iconic deal from hell,” said Robert Bruner, who wrote Deals From Hell.
By trying to focus on both content and distribution, AOL Time Warner ended up not being very good at either. AOL went from having 30 million members at its peak in 2002 to just six million today. At the time, the companies said the deal would create a company valued at $350 billion. Nine years later and Time Warner is worth barely $37 billion.
Months before the lending market peaked, Wachovia acquired Golden West Financial for $25.5 billion in May 2006 -- a move that was greeted with $1 billion evaporating from Wachovia’s market cap the same day.
The markets’ instant reaction to the deal was the least of Wachovia’s problems as the acquisition eventually cost G. Kennedy Thompson, Wachovia’s CEO at the time, his job and helped contribute to the bank’s near collapse.
It’s true that BofA’s Sept. 15, 2008 $50 billion buyout of Merrill Lynch happened so recently that it may be too early to judge it. And it’s also true that Lewis likely helped save Merrill from collapsing and was under heavy pressure from regulators not to walk away from the deal.
But given the fact it came at a 70% premium to Merrill’s closing price the session before, the extra $20 billion government lifelines the deal necessitated and BofA’s (and Lewis’s) tarnished reputations, it’s a big flop at this point.
Calling it “a steal” and doubling down on the soon-to-be imploding housing market, Lewis and BofA acquired Countrywide Financial in Jan. 2008 – a month after the recession began – for $4 billion.
With 1,000 field offices, a sales force of nearly 15,000 and a portfolio of nine million loans worth $1.5 trillion, Countrywide was the nation’s largest mortgage lender. Countrywide was also one of the biggest originators of subprime and other shady loans.
However, BofA, which had already invested $2 billion in Countrywide in August at $21.82, ended up lowering its original offer by 37% to $2.5 billion, or just $4.85 a share, amid fears about future writedowns.
“With the benefit of hindsight, no one wants to be anywhere near Countrywide,” said Charles Whitehead, a professor at Cornell.
As mentioned above, heavy mortgage losses led BofA to require government assistance and its stock eventually plummeted to 24-year lows.
Derided in 2006 (pre-financial crisis) by Fortune as the second-worst deal ever , Boston Scientific’s (BSX) 2006 buyout of medical device maker Guidant for $27.3 billion wiped out $18 billion of Boston’s stock within months.
Aside from Guidant’s shareholders, the biggest winner in this deal may have been Johnson & Johnson (JNJ), which backed away from its own deal for Guidant amid Boston’s aggressive push.
Gaughan called this deal a prime example of the “winner’s curse,” likening it to when MLB’s Texas Rangers beat out rivals to acquire Alex Rodriguez for a then-record $252 million but then had no money to field a competitive team.
As a result of “winning” this price war, Boston’s borrowings rose by $8.9 billion, its credit ratings were slashed and it posted a quarterly loss of $4.26 billion during the second quarter of 2006.
With M&A activity finally picking up amid the economic recovery, now seems like a good time to look back at what might be considered the five worst acquisitions of the decade.