How do mergers work? You’ve heard about Meta Platform’s successful 2014 acquisition of WhatsApp, but you wonder what is the biggest failure M&A? Keep reading and enjoy a fascinating journey.

What is the Biggest Failure M&A?

The biggest failure M&A is WorldCom’s failed acquisition of Sprint Corporation, Inc. This scuttled transaction is significant because it magnifies the challenges and inherent risk of deal completion in a highly regulated industry. Let’s meet the participants, look at the deal structure and the reason why this is the transaction-of-choice when answering; What is the biggest failure M&A?

The Participants

WorldCom, Inc. – WorldCom was a $110 billion telecommunications firm founded in 1983 under the original name Long Distance Discount Services. The U.S. company was a serial acquirer and grew exponentially expanding its fiber-optic network infrastructure. Its far-flung domestic and international services included internet, long-distance voice, and data services.

Sprint Corporation, Inc. – Sprint Corporation (Sprint) was a U.S.-based $80 billion telecommunications company originally named Brown Telephone Company and founded in 1899. A string of mergers and acquisitions formed the modern-day Sprint company. A formidable competitor of Verizon and AT&T, the firm offered internet, wireless long-distance, and data services to domestic and international consumers, B2B clients, and government agencies.

What is the biggest failure in M & A? The WorldCom/Sprint proposed combine stands out for its staggering price tag and reverberating industry dominance implications.

The Deal

WorldCom went looking for a strategic acquisition that would offer market, customer-based, and network infrastructure expansion, coupled with technology innovation and economies of scale. Sprint was a perfect fit. On October 5, 1999, the two firms entered into a tentative merger agreement, and it received overwhelming Sprint shareholder approval on April 8, 2000. Here are the details:

Transaction Value – At the time, the proposed $115 billion transaction was the largest pending merger in history.

Stock Exchange Offer – The tax-friendly all-stock remuneration was as follows:

  • Each Sprint common share will be exchanged for one WorldCom common share, valued at $76.00 at the time if the WorldCom stock closing price at merger completion is between $41.43 and $53.90.
  • Each Sprint common shareholder will receive one share of WorldCom PCS, the newly created merger shares, for every one Sprint common share owned.
  • Additionally, each Sprint shareholder will receive 0.116025 shares of WorldCom common stock for every Sprint common share owned.

Ownership Structure –WorldCom shareholders would have majority ownership in the new entity and Sprint shareholders would gain ownership in WorldCom and, by proxy, the new company.

Regulatory Hurdles – Standing in the way of the deal consummation was the Federal Communications Commission (FCC) and the Department of Justice (DOJ). Regulatory approval requirements are commonplace in M&A activity, and especially within regulated industries. However, the gargantuan transaction size and the potential consolidation of corporate pricing power attracted intense governing bodies scrutiny.

Dead Deal – Regulatory opposition to the proposed mega-merger was white hot. The DOJ objected on antitrust grounds citing a potential monopolistic presence if the merger were allowed to go forward. The FCC feared the proposed behemoth would hurt consumers through price increases leaving limited alternatives.

The firms saw no path to success and abandoned the merger agreement in 2000.

Why Do Up To 90% of Mergers and Acquisitions Fail?

Up to 90% of mergers and acquisitions fail because of cultural differences, overpayment, and regulatory challenges. Here’s the breakdown:

Cultural Differences – Corporate culture assimilation and integration are the hardest post-merger challenges. Cultural change is a slow, often-resisted process.

Overpayment – The deadly concoction of overpaying for an acquisition and unrealized synergies will quickly evaporate shareholder value.

Regulatory Challenges – Regulatory hurdles within an unfavorable market environment will poison a transaction’s approval changes and kill the merger’s closure.

What is the biggest failure in M & A? The WorldCom/Sprint 2000 debacle is the biggest M&A failure. The abandoned merger had significant industry and devastating single-firm repercussions. Intense analysis of WorldCom exposed fiscal discrepancies mushrooming into the most pervasive accounting scandal of the time. Not survivable, the firm filed for bankruptcy in 2002. Sprint continued as an independent firm and, in 2013, it was purchased by SoftBank. In 2020, Sprint merged with T-Mobile, Inc.

Read next: What are the Most Frequent Source of Failure in M&A?

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