January 5 2010|07.15 AM UTC

Stan Reybern

The 12 Biggest Mergers in American History

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Mergers are fairly common as far as business activities go. In fact, it is probably safe to say that businesses of one size or another join forces every day of the week, due to the increased efficiency or market share such arrangements offer. Not all mergers are so casual, however. Indeed, some companies, simply by merging, send waves throughout the economy, sometimes changing the way business is done within entire industries. With billions of dollars, hundreds of thousands of employees and untold amounts of intellectual property changing hands, it could hardly be any other way. Today, Billshrink analyzes the 12 biggest mergers in American history with an eye toward the economic impact each of them had.

AOL Time Warner

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The biggest merger to date in U.S. history was that of Internet service provider America Online and media giant Time Warner. The merger, intended to “lead the convergence of the media, entertainment, communications and Internet industries, and provide wide-ranging, innovative benefits for consumers” according to TimeWarner.com, was worth a reported $162 billion in January, 2001. Unfortunately, the arrangement never quite worked out as either company had hoped. In December 2009, PBS panned the deal as “one of the biggest failures in merger history” – arguably a fair assessment, even in light of the tech crash that forced AOL Time Warner to take a $99 billion loss in 2002. Today, the two companies are separate entities once again.

Pfizer & Warner-Lambert

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This 1999 union of pharmaceutical companies resulted in the world’s second-largest drug maker. The deal (worth $90 billion in stock, according to CNN) followed Pfizer’s three month pursuit of Warner-Lambert, a fast-growing competitor at the time. The catalyst of the deal, CNN reports, was Warner-Lambert’s development of Lipitor, a cholesterol lowering drug that has gone on to become the top selling branded pharmaceutical in the world with 2008 U.S. sales topping $12.4 billion. Today the merged entity is known simply as “Pfizer”, and the merger is said to have been of tremendous importance to Pfizer’s continued dominance in the prescription drug market.

Exxon Mobil

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In a deal that would forever change the petroleum industry, Exxon and Mobil merged in 1999 to the tune of $82 billion. It wasn’t a smooth merger, with the Federal Trade Commission and Department of Justice sticking their noses into the deal virtually from start to finish. Indeed, according to CNN, the deal was not approved until the two entities agreed to sell off 2,431 gas stations in the northeast, “making this the largest divestiture ever required by the commission.” The FTC’s 11 month review process “was also one of the longest by the commission.” The new entity has enjoyed tremendous success, turning record profits in each of the past several years and withstanding regulatory scrutiny amidst allegations of corruption when gas prices rose in recent summers.

Citicorp & Travelers Group

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In a merger that was essentially a stock swap, Citicorp and Travelers Group teamed up for what was, at the time, the “largest corporate combination ever” according to the New York Times. All told, Travelers Group paid $70 million for Citi’s shares, issuing 2.5 shares for each that it purchased such that the existing shareholders of each company would own roughly half of the new one – Citigroup. The Times was also quick to note that with “$698 billion of assets, the merged enterprise would be the largest financial-services company in the world, slightly larger than Bank of Tokyo-Mitsubishi”, and that the new entity’s market cap of $135 billion was “by far the most valuable in the business.”

NationsBank & Bank America

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The $64 billion acquisition of Bank America Corp by NationsBank was the largest bank merger in history at the time (1998), according to Wikipedia. The combined entity, renamed to Bank of America, possessed combined assets of $570 billion. To protect against what were perceived to be monopoly dangers, federal regulators insisted upon 13 branches being divested in New Mexico, in towns which would be left with just one bank following the completion of the merger. Bank of America itself has gone on to become the largest bank holding company in America, as well as the second largest bank when ranked by market capitalization. Their 2008 acquisition of Merril-Lynch also solidified Bank of America as a serious force in investment banking.

AT&T Broadband/Comcast

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On November 18, 2002, AT&T spun off its broadband unit to Comcast, sealing the deal on a merger that created “the nation’s largest cable company valued at around $60 billion, including stock and debt” according to InternetNews. The end result was a cable company that served over 21.4 million subscribers across 41 states. Of these subscribers, the new entity boasted “6.3 million digital video customers, 3.3 million broadband customers and 1.3 million cable telephony (VoIP) customers”, placing it at or near the top of each respective category. Comcast, which was the nation’s third largest cable company prior to the merger, immediately became top dog in the market following its completion. Only recently has AT&T re-entered the broadband scene with its U-verse products.

JP Morgan Chase & Bank One Corp

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The $58 billion 2005 merger of JP Morgan Chase and Bank One marked the triumphant return to Wall Street of Jamie Dimon. “Little more than five years after being cast into exile”, USA Today reports, Dimon “returned on a chariot” to become CEO of the new combined entity, said to be the nation’s second-biggest bank with total assets of $1 trillion and 2,300 branches in 17 states. Chiefly, the deal sought to “glue J.P. Morgan’s volatile investment banking and trading conerts with the more predictable consumer and credit card businesses of Bank One.” In a quote for the story, Hoefer & Arnett managing director called Dimon’s comeback a “Horatio Alger story”, citing Dimon’s firing from Citigroup and subsequent hiatus from the financial sector.

Procter & Gamble/Gillette

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In 2005, MSNBC announced that leading U.S. household product maker Procter & Gamble was set to acquire razor and battery giant Gillette Co. for $57 billion, creating “the world’s biggest consumer-products enterprise.” The company projected to have revenues exceeding $60 billion, opening the door for greater competition against Walmart and served primarily to combine the strengths of both companies: the marketing and distribution muscle of Procter & Gamble (whose products appeal mostly to women) and the Gillette’s high-margin razor brands (which appeal mostly to men.) All told, the merger resulted in about 6,000 jobs being cut, roughly 4% of the combined work force.

Qwest & US West

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Completed in June 2000, the $56.4 merger between Qwest and U.S. West represented “a symbolic recognition of the market power of the new communications carriers some 15 years after the breakup of Ma Bell”, in the words of Motley Fool. The combined entity constituted a market force to be reckoned with, controlling “a worldwide network of some 3 million miles of cable”, as well as “the local loops for all of its customers in the current US West service area (parts of 14 Western states), an 18,000 mile fiber optic domestic backbone, a 1,400 mile backbone link to Mexico, and joint ventures on trans-Atlantic and trans-Pacific and significant gateway facilities.” As a precondition of federal regulatory approval, the new entity was obligated to divest all its long distance customers in US West’s local coverage region. Such requirements are, again, typically imposed by regulators to guard against perceived monopoly danger.

GTE & Bell Atlantic

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Upon acquiring telephone rival GTE for $53 billion, Bell Atlantic promptly changed its name to Verizon Communications, which still exists today. During the time of the merger in 1999, CNet stated that the deal “would create a company capable of providing a wide range of services, including long distance, local and wireless services, as well as Internet access”, and cited each company as calling it “a merger of equals.” The merger came on the heels of AT&T’s buyout of Tele-Communications Inc (discussed later) and MCI’s proposed but ultimately failed merger with WorldCom. Verizon was ultimately acquired by MCI in 2005, just weeks after SBC snapped up AT&T.

AT&T TCI

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On June 24, 1998, just one year after cable TV provider Tele-Communications Inc. merged with Kearns-Tribute Corp, TCI merged with AT&T. In a deal valued at a combined $48 billion ($32 million in stock and $16 billion in assumed debts), the new entity marked the first large-scale merger between cable and phone companies since the deregulation of both industries. The overall goal of the merger, according to CNET, was for AT&T to “combine its consumer long distance, wireless, and Internet services with TCI’s cable, telecommunications, and high-speed Internet business to create a new subsidiary called AT&T Consumer Services.” The new entity became America’s second largest cable TV operator (behind Time Warner) and despite fears of regulatory scrutiny (and pleas from worried competitors) the FCC did not require TCI to give other companies access to its cable lines.

SBC Ameritech

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SBC’s merger with Ameritech was one of the most controversial and scrutinized business marriages in recent memory. According to TelephonyOnline, this union of telephone giants went down in October 1999, eighteen months after it was first announced. The primary obstacle was the fear on the part of federal regulators that such a massive merger would be ruinous to market competition. Sure enough, the $42 billion merger was approved only after both companies accepted various FTC demands, including operating the merged entity as a “competitive local exchange carrier in at least 30 metro markets outside its 13 state area”, offering discounts to other CLECs wishing to compete, deploying 10% of its DSL lines to “rural or low-income markets”, and selling advanced services through separate subsidiaries.

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{ 2 comments… read them below or add one }

Money Beagle January 5, 2010 at 9:30 am

I’m assuming that both companies have to be American based to make this list. Even though only one of the two companies was American, the merger between Damiler-Benz and Chrysler (that turned out to be the former acquiring the latter) is worth noting as it had serious consequenses for both companies, the impact of which is still felt today (even though it was a complete flop similar to AOL / Time Warner). Something to keep in mind…

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mattkendrick.com January 5, 2010 at 11:07 am

Very nice article about major mergers. I think as time goes on, names of big businesses will change. Corporations will only get bigger and bigger. I think we’re in for a surprise over the next few years. The game is changing.

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