ebay and skype merger failure case study

• Search Search Please fill out this field.
• What Is an M&A Strategy?
• Understanding an M&A Strategy

Bank of America and Merrill Lynch

Volvo and renault.

• Corporate Finance

4 Cases When M&A Strategy Failed for the Acquirer (EBAY, BAC)

• Mergers and Acquisitions (M&A): Types, Structures, and Valuations
• Acquisition
• Why Do Companies Merge With or Acquire Other Companies?
• How M&A Can Affect a Company
• What's the Difference Between Mergers and Acquisitions?
• What You Should Know About Corporate Mergers
• Inorganic Growth
• Merger vs. Takeover
• Takeover Bid
• Hostile Takeover
• Hostile Takeovers vs. Friendly Takeovers
• What Are Some of the Top Hostile Takeovers of All Time?
• How Can a Company Resist a Hostile Takeover?
• Poison Pill
• Reverse Takeover
• Reverse Mergers: Advantages and Disadvantages
• Reverse Triangular Merger
• A Guide to Spotting a Reverse Merger
• How Does a Merger Affect Shareholders?
• How Company Stocks Move During an Acquisition
• What Happens to Call Options If a Company Is Bought?
• Stock-for-Stock Merger
• All Cash, All Stock Offer
• Acquisition Premium
• Exchange Ratio
• SEC Form S-4
• Special Purpose Acquisition Company (SPAC)
• Understanding Leveraged Buyout Scenarios
• Vertical Merger
• Horizontal Merger
• Conglomerate Merger
• Roll-Up Merger
• The Five Biggest Mergers in History
• The 5 Biggest Acquisitions in History
• 4 Cases When M&A Strategy Failed for the Acquirer CURRENT ARTICLE

What Is an M&A Strategy?

Transforming a small business into a large one, or scaling a business, occurs in one of two ways. Companies can grow their revenues and profits from within by cultivating and growing demand for their products and services, or they can acquire other companies.

Key Takeaways

• An M&A strategy is one whereby a company seeks to acquire other companies to achieve synergies and scale.
• An M&A strategy is riskier than an organic growth strategy.
• Some mergers fail to create synergies and destroy shareholder value.

The first strategy is known as organic growth. It requires patience but pays big dividends when executed successfully. The second strategy, known as a merger or acquisition (M&A) involves more risk.

Understanding an M&A Strategy

An M&A strategy can create synergies when companies with complementary products, services, and missions unite. However, an M&A strategy can also create tensions and failure when corporate cultures clash, or the acquirer fails to successfully integrate the acquired company's assets, systems, and brands. Some corporate unions fail to create synergies and thereby destroy shareholder value. The following four case studies show how mergers can create problems.

An M&A strategy can create synergies, but it can also create cultural clashes.

eBay and Skype

In 2005, eBay Inc. (NASDAQ: EBAY ) purchased Skype for $2.6 billion. The purchase price was extremely high considering that Skype had only $7 million in revenues. Meg Whitman, eBay's CEO, justified the acquisition by arguing that Skype would improve the auction site by giving its users a better platform for communicating. Ultimately eBay's users rejected Skype's technology considering it unnecessary for conducting auctions, and the rationale for the purchase dissipated. Two years after the acquisition, eBay informed its shareholders that it would write down the value of Skype by $900 million. In 2011, eBay was fortunate to find a higher bidder for Skype. It sold Skype to Microsoft and realized a $1.4 billion profit. While the eBay and Skype merger failed because eBay miscalculated its customers' demand for Skype's product, other M&A deals have failed for completely different reasons.

Daimler-Benz and Chrysler

In 1998, German automotive company Daimler AG (OTC: DDAIY), then known as Daimler-Benz, and American car company Chrysler merged to form a transatlantic auto company. Many observers praised the merger because it combined two companies that focused on different areas of the automotive market and operated in different geographical regions. However, the financial and product synergies for this merger soon paled in comparison to the cultural conflicts the merger created. Chrysler had a loose, entrepreneurial culture, while Daimler-Benz had a very structured and hierarchical approach to business. Analysts noted clashes between the German and American managers at the companies. Ultimately, the merger dissolved when Daimler sold its remaining 19.9% stake in Chrysler in 2009.

While Bank of America Corporation (NYSE: BAC ) and Merrill Lynch remain as a united entity, the 2008 merger faced serious challenges initially. The two companies took an inordinately long time to integrate their assets and make key executive announcements. Months after the announced merger, the two companies had still not decided which executives would run key groups within the firms, such as investment banking , and which of the two company's management models would prevail. The uncertainty created by this indecision led a lot of Merrill Lynch bankers to leave the company in the months following the merger. Ultimately, these departures destroyed the rationale for the merger. This merger illustrates how a lack of communication of key decisions to stakeholders in the company can lead an M&A strategy to failure.

$2.5 trillion

The value of global M&A deals in 2023, according to the latest data by the Institute for Mergers, Acquisitions, and Alliances.

The attempted merger of Volvo (OTC: VOLVY) and Renault SA (OTC: RNLSY) in 1993 encountered trouble because the two parties failed to address the ownership structure at the outset. Unlike the Daimler and Chrysler merger, this automotive deal lacked executive and cultural clashes. Instead, the two companies began their relationship as joint venture partners, which allowed them to acclimatize to each other. The merger was expected to save the companies $5 billion. However, the two companies failed to consider the problems of combining an investor-owned entity with a government-owned company. The merger would have left Volvo shareholders with a 35% stake in the combined company while the French government controlled the remainder of the shares. Many analysts believed that shareholders of Volvo and the Swedish people found it unacceptable to sell one of its prized companies to the French government.

University of Pennsylvania, Wharton. " eBay Calling Skype: Is It a Good Connection? "

eBay. " eBay Inc. Reiterates 'The Truth About Skype .'"

Mercedes-Benz Group. “ 1995-2007 .”

Institute for Merges, Acquisitions & Alliances. “ Hindsight or Foresight: Reassessing the DaimlerChrysler Deal as Merger of Equals or Acquisition .”

U.S. Securities and Exchange Commission. “ Form 20-F ,” Page 13.

Federal Reserve Bank of St. Louis. " Bank of America Buys Merrill Lynch Creating Unique Financial Services Firm ."

U.S. Government Publishing Office. " Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? "

Seven Pillars Institute. “ Bank of America’s Takeover of Merrill Lynch .”

Institute for Mergers, Acquisitions, and Alliances (IMAA). " M&A Statistics ."

Bruner, Robert. “ An Analysis of Value Destruction and Recovery in the Alliance and Proposed Merger of Volvo and Renault .” Journal of Financial Economics , vol. 51, 1999, pp. 142-149.

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

MBA Course Case Maps

• Business Models
• Blue Ocean Strategy
• Competition & Strategy ⁄ Competitive Strategies
• Core Competency & Competitive Advantage
• Corporate Strategy
• Corporate Transformation
• Diversification Strategies
• Going Global & Managing Global Businesses
• Growth Strategies
• Industry Analysis
• Managing In Troubled Times⁄Managing a Crisis
• Market Entry Strategies
• Mergers, Acquisitions & Takeovers
• Restructuring / Turnaround Strategies
• Strategic Alliances, Collaboration & Joint Ventures
• Supply Chain Management
• Value Chain Analysis
• Vision, Mission & Goals
• Global Retailers

Business Case Studies, Mergers, Acquisitions and Takeovers Case Study, eBay's Takeover of Skype,The Strategic Fit

• Indian Retailing
• Brands & Branding and Private Labels
• Brand ⁄ Marketing Communication Strategies and Advertising & Promotional Strategies
• Consumer Behaviour
• Customer Relationship Management (CRM)
• Marketing Research
• Marketing Strategies ⁄ Strategic Marketing
• Positioning, Repositioning, Reverse Positioning Strategies
• Sales & Distribution
• Services Marketing
• Economic Crisis
• Fiscal Policy
• Government & Business Environment
• Macroeconomics
• Micro ⁄ Business ⁄ Managerial Economics
• Monetary Policy
• Public-Private Partnership
• Financial Management & Corporate Finance
• Investment & Banking
• Leadership,Organizational Change & CEOs
• Succession Planning
• Corporate Governance & Business Ethics
• Corporate Social Responsibility
• International Trade & Finance
• Family Businesses
• Entrepreneurship
• Social Entrepreneurship
• HRM ⁄ Organizational Behaviour
• Innovation & New Product Development
• Business Research Methods
• Operations & Project Management
• Operations Management
• Quantitative Methods
• Social Networking
• China-related Cases
• India-related Cases
• Women Executives ⁄ CEO's
• Course Case Maps
• Effective Executive Interviews

Video Interviews

Executive brief.

• Movie Based Case Studies
• Case Catalogues
• Case studies in Other Languages
• Multimedia Case Studies
• Textbook Adoptions
• Customized Categories
• Free Case Studies
• Faculty Zone
• Student Zone
• By CaseCode
• By CaseTitle
• By Industry
• By Keywords

Case Categories

• Corporate Governance & Business Ethics
• Investment and Banking
• Human Resource Management (HRM)⁄Organizational Behaviour
• Leadership, Organizational Change and CEOs
• Brand⁄Marketing Communication Strategies and Advertising & Promotional Strategies
• China-related cases
• India-related cases
• Women Executives/CEO's
• Aircraft & Ship Building
• Automobiles
• Home Appliances & Personal Care Products
• Minerals, Metals & Mining
• Engineering, Electrical & Electronics
• Building Materials & Construction Equipment
• Food, Diary & Agriculture Products
• Oil & Natural Gas
• Office Equipment
• Banking, Insurance & Financial Services
• Telecommunications
• e-commerce & Internet
• Freight &l Courier
• Movies,Music, Theatre & Circus
• Video Games
• Broadcasting
• Accessories & Luxury Goods
• Accounting & Audit
• IT Consulting
• Corporate Consulting
• Advertising
• IT and ITES
• Hotels & Resorts
• Theme Parks
• Health Care
• Sports & Sports Related
• General Business
• Business Law, Corporate Governence & Ethics
• Conglomerates

Popular Searches

Useful links.

• How to buy case studies?
• Pricing Information

Mergers, Acquisitions and Takeovers Case Study

Ebay's takeover of skype : the strategic fit.

Publication Year :  2005

Authors:  Nusrat Jahan Maldar, Sumit Kumar Chaudhuri

Industry:  Internet and e-commerce

Region: USA

Case Code:  MAA0021

Teaching Note:  Available

Structured Assignment:  Available

Abstract: Niklas Zennstrom and Janus Friis emerged from obscurity and became Internet legends after creating KaZaA, an illegal on-line file-sharing programme. After selling KaZaA, Zennstrom and Friis, embarked on their next project, an Internet telephony programme called Skype. Unlike KaZaA, Skype was legal, but as KaZaA had rattled the music industry, Skype's revolutionary business model was expected to threaten the traditional models of the giant telecom companies. Internet heavyweights, Microsoft, Yahoo! and Google, were said to be negotiating with Zennstrom and Friis to acquire Skype. On September 12 th 2005, eBay acquired Skype for $2.6 billion.

• To highlight the evolution of Skype and its acquisition by eBay
• To discuss the potential synergies that eBay might gain from the acquisition and the problems it might encounter in the course of a successful integration with Skype.

Keywords :  Mergers,Acquisitions,Alliances Case Study;Niklas Zennstrom; Janus Friis; KaZaA; Skype; Low cost business model; eBay; PayPal wallet; Strategic fit; Competitive advantage; Competition; Synergies; Copyrights; Lead generation; Word of mouth marketing; On-line file sharing

Contents :  From KaZaA to Skype Niklas Zennstr�m and Janus Friis eBay�s Acquisition of Skype: The Strategic Fit Skype�s Worldwide Subscribers eBay�s Growth Timeline

Related Case Studies

• � L'oreal in 2006: The Body Shop Acquisition
• � The Body Shop (Part B):L'Or�al Turning Green?
• � P&G and Gillette�s Merger: Oral Care Products (Brand) Integration Challenges
• � eBay : Bidding Big on Start-up Skype
• � Japan's Livedoor Co. Ltd: Growing through Unrelated Acquisitions

Recently Bought Case Studies

Case studies on.

• View all Casebooks »

Course Case Mapping For

• View All Course Casemaps >
• View all Video Interviews »
• Executive Briefs

Executive Interviews

• View all Executive Briefs »
• View All Executive Interviews »

Contact us: IBS Case Development Centre (IBSCDC), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad-501203, Telangana, INDIA. Mob: +91- 9640901313, E-mail: [email protected]