A Tale of Two Mergers

10/26/2012 | By Matthew Bechard

Published in the May/June 2012 issue of REIT magazine.

Not every deal is created equal. And sometimes a transaction looks so good on paper it seems unfathomable that it could fail. Take a relatively recent deal between two well-known, well-established companies.

This was a merger of two corporate titans, each a leader in their industry, with expertise and reach spanning the globe. The companies seemed to be perfect complements, with enough synergies to make sense, but also with enough differentiation and value-add to make the deal compelling.

Management, among the most highly respected in the field at the time, was energized. The Street was buzzing, and even the media had high expectations. What could go wrong?

Well, plenty if we are talking about the 2000 merger of AOL and Time Warner. The deal was supposed to cement AOL’s status as the leading Internet service provider with the added weight and clout of Time Warner’s media empire. For Time Warner, the move was aimed at injecting the growth and agility of a tech company into a more traditional corporate setting.

History has shown that despite the highest of expectations, the venture was doomed to fail due to the weight of the dot.com crash, a post-9/11 economic slowdown and a failure for synergies to emerge. In 2002, AOL Time Warner reported a loss of $99 billion, the largest ever by a U.S. company to that point. Eventually, Time Warner spun off the AOL division in 2009, essentially undoing the failed attempt at merging the two entities for good.

This “merger of equals” created the world’s largest owner of industrial real estate, the new Prologis

That is just one example of how badly a seemingly great merger idea can end. Other examples include Sprint/Nextel, Quaker/Snapple and Daimler Benz/Chrysler, to name just a few.

However, like I said at the start, not every deal is created equal. For an example of how two industry leaders can successfully merge their vast global enterprises you need only look at industrial REITs AMB Property Corporation and ProLogis.

This “merger of equals” created the world’s largest owner of industrial real estate, the new Prologis (NYSE: PLD) featured in this issue’s cover story. The former AMB, the smaller of the two companies, was able to quickly amass greater scale during the early stages of the recovery in its sector. The former ProLogis benefitted from greater scale, especially given the complementary nature of the foreign markets served by the two companies.

The merger involved bringing together two complex, multi-billion-dollar organizations with very different cultures. Since the deal was completed in June 2011, co-CEOs Hamid Moghadam and Walt Rakowich have guided the transition, merged the two corporate cultures, and brought the firm to the forefront of the global economic recovery.

Matthew Bechard
Editor in Chief


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