AT&T (the telephone company) has a track record of failed megamergers that few companies can match.
AT&T decided to divest its regional companies so it could move into other fields with more of a future. Robert Allen took over as chief executive in 1988 and wanted to turn AT&T into a more technology-focused company, believing that the computer sector was the best option.
AT&T decided to pursue success in the computer industry on its own, with its own business. It built and sold high-quality personal computers at a very high price, in a market full of strong rivals such as ITT, Panasonic and others.
That misguided market strategy led AT&T to its first mistake and its first major losses. It was then that it set its sights on NCR, a company with more experience in network management and a more international business than AT&T.
NCR did not want to be bought, but AT&T launched a hostile takeover battle that lasted six months. In the end, NCR was inevitably bought by AT&T in a deal worth $7 billion.
AT&T made two major mistakes:
- Divesting its regional companies, which lowered its market value.
- Overpaying for NCR, which likewise lowered its market value.
On top of that, it got no cooperation from NCR’s management because of the hostility of the negotiations.
In the end, the company it had bought for $7 billion had to be sold four years later for $3 billion.
Today, economics schools hold up the way AT&T negotiated, acquired and merged as an example of how to lead your company to failure.
Further reading
- BP and Amoco: an example of a successful merger
- Why new businesses fail
- What to invest in during a crisis
- How to become a successful entrepreneur
Featured image: roryrory, CC BY-SA 2.0, via Wikimedia Commons.
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