Four underwhelming mega-mergers that might give Microsoft-Yahoo pause

Deal: America Online Inc. buys Time Warner Inc. (completed in 2001)
Price: $164.7 billion in stock
Why: To combine the best of new and old media, bringing together a wide variety of content (from Time Warner) and eyeballs (i.e., the user base of 20 million subscribers that AOL had at the time).
Hostile or friendly: Friendly, although the bursting of the dot-com bubble soon after the deal was announced took AOL's share price along with it — causing friction over who was really taking over who.
Post-merger: You thought Vodafone's $41 billion loss was bad? AOL Time Warner lost $100 billion in 2002, including a $99 billion write-off stemming from AOL's decimated stock price. The company has since renamed itself Time Warner Inc., but its stock price is still more than 80% below the merger-era peak. AOL LLC is now a majority-owned subsidiary of Time Warner, and its Internet access business is a shadow of its former self, with only about 10 million subscribers as of last year's third quarter -- putting it in third place overall among Internet service providers in the U.S. Time Warner today announced that the subscriber count dropped to 9.3 million during the fourth quarter. And the company said it plans to split AOL's ISP business and the subsidiary's higher-priority Web portal and online advertising unit into separate entitities — a move that could be a prelude to a sell-off of the access business.

Deal: Pfizer Inc. buys Warner-Lambert Co. (completed in 2000)
Price: $116.7 billion in stock
Why: At stake was control of the lucrative cholesterol drug Lipitor, which the two companies had previously co-marketed.
Hostile or friendly: The deal was very unfriendly. Warner-Lambert was in the midst of buying American Home Products Corp. for $70 billion in 1999 when Pfizer launched its higher bid for Warner-Lambert.
Post-merger: Pfizer's revenue nearly doubled to $30 billion after the acquisition. It became the largest pharmaceutical company in the world in 2002 after another mammoth acquisition, in which it bought Pharmacia Corp. for $59.5 billion worth of stock. Lifted by its other widely popular drug, Viagra, Pfizer in January reported revenue of $48.6 billion and net income of $8.3 billion for last year. But profits were down 57% from 2006, while revenue increased just 1%. Growth has been stagnant, partly because of the failures of several experimental drugs. Pfizer's stock price has fallen 33% since 2000, and the company has undergone several rounds of layoffs, including a cut of 10,000 workers last year.

Deal: Glaxo Wellcome PLC buys SmithKline Beecham PLC (completed in 2000)
Price: $76.0 billion in stock
Why: To keep up with Pfizer, according to comments made at the time by Glaxo Wellcome's then-CEO.
Hostile or friendly: The latter. The deal was a rekindling of an earlier failed merger attempt between the two British pharmaceutical makers.
Post-merger: The combined company, called GlaxoSmithKline PLC, became and remains the second-largest pharmaceutical company after Pfizer. But while GSK is still hugely profitable, its stock price has fallen 22% since the merger. And with business growth slowing, GSK said last October that it would lay off 5,000 employees, or about 5% of its workforce.

Sources: Computerworld, IDG News Service, SFGate.com, Wikipedia, CNNmoney.com, TimeWarner.com, The Wall Street Journal, BBC, FierceBiotech, Yahoo Finance, ISP-Planet, Morningstar.com, Crain's Chicago Business, The New York Times and the Institute of Mergers, Acquisitions and Alliances.

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