Business Finance Homework Help

For my discussion post this week I have selected option 1. In searching online for mergers from the past five years that did not go as planned, I located an example which hits close to home for us as college students who use textbooks: The planned merger of McGraw-Hill with Cengage. An article from The Wall Street Journal which outlines this previously planned merger can be found here for your reference: https://www.wsj.com/articles/mcgraw-hill-cengage-plan-all-stock-merger-11556683590

On May 1, 2019, McGraw-Hill Education Inc. and Cengage Learning Holdings II Inc. announced a plan to merge the two companies to create the second-largest provider of higher education materials and college textbooks in the country (Lombardo, 2019). The deal would create a new company called McGRaw Hill and would be led by Cengage’s CEO Michael Hansen. The new company anticipated roughly $3.16 billion in annual revenue and was valued at around $5 billion, trailing the largest provider (Pearson) which is valued at closer to $8.5 billion (Lombardo, 2019). The merger was planned largely as a cost-savings measure as both companies began to struggle with the shift from print textbooks to online options. With the merger, the new company anticipated a cost savings of around $300 million in the first three years due to the expansion of digital offerings and lower prices that were planned (Lombardo, 2019).

One year after the announcement of the planned merger, the companies announced their termination of the planned merger on May 4, 2020 (Allen, 2021). After the announcement of the merger, the companies faced severe scrutiny from regulators, the Department of Justin (DOJ), as well as regulatory challenges from outside of the U.S. from countries like Britain, Australia, and New Zealand (McKenzie, 2020). Additionally, many stakeholders including students, libraries, consumer groups, bookstores, leaders in both chambers of Congress, and higher education associations voiced their concerns after the announcement of the merger as they explained that the merger would result in higher prices and less choice for students (McKenzie, 2020). Ultimately, Hansen explained that, “The U.S. Department of Justice took almost a year to review the merger and asked the publishers to sell off so many assets that the financial return on the deal diminished” (McKenzie, 2020, para. 3). It was rumored that the amount the DOJ wanted the companies to sell off as a condition of the merger was $175 million (Allen, 2021). Because of this, both company’s leaders indicated that the merger would no longer be economical.

Of Jack Welch’s (2016) “Six Deadly Sins of Mergers and Acquisitions,” I think that the sin of the “conqueror syndrome” is the closest fit to what occurred with the failed merger of McGraw-Hill and Cengage. Within this deadly sin of mergers and acquisitions, one company marches in to the new “territory” and starts to take over without a focus on the existing workforce and talent present on both sides of the merging companies (Welch, 2016). While McGraw-Hill and Cengage never had a chance to actually merge because of the year-long process that the DOJ took reviewing the proposed merger, it seems that the companies had the conqueror syndrome when thinking about the competitive market as a whole. The companies wanted to merger to become the number two largest in the space, but did not take into thorough enough consideration the consumers and others who are buying the products and how they would be impacted. To prevent this sin from occurring, perhaps the organizations could have more thoughtfully explained how consumers would benefit from the merger and how prices could be more competitive as a result versus focusing so much on the monetary gains from the merger. This could have perhaps helped to reduce the amount of opposition that they faced immediately after the announcement of the planned merger.

Allen, N. (2021, May 4). A Look Back at the Failed Cengage/McGraw-Hill Merger: One Year Later. Retrieved from https://sparcopen.org/news/2021/a-look-back-at-the-failed-cengage-mcgraw-hill-merger-one-year-later/

McKenzie, L. (2020, May 5). ‘McCengage’ Merger Called Off. Retrieved from https://www.insidehighered.com/news/2020/05/05/cengage-and-mcgraw-hill-cancel-merger-plans

Lombardo, C. (2019, May 1). McGraw-Hill to Merge With Rival Textbook Publisher. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/mcgraw-hill-cengage-plan-all-stock-merger-11556683590

Welch, J. (2016, June 19). The Six Deadly Sins of Mergers & Acquisitions (Listen Up Linkedin and Microsoft!). Retrieved from https://jackwelch.strayer.edu/winning/mergers-and-acquistions-six-deadly-sins/

Hi Dr. Sturtevant and Class,

I have chosen a Wall Street Journal article about AT&T and its failed vertical strategy (FitzGerald, 1).

While AT&T did not commit a merger of equal sin, they did misjudge the cultural challenge (Welch, 2).

Cable Mogul John Malone makes a good point on the cultural difference between running a cable company and a creative production company like Warner Bros (FitzGerald, 1). AT&T CEO Stankey commented on the telecom and media combination question: “for right now … that’s properly a mismatch at this juncture” (FitzGerald, 1).

AT&T’s deal with Discovery is taking the shape of a reverse hostage situation (BBC,3). Stankey is handing over the keys to the CEO of Discovery of a new company, where AT&T holds 71% of the new company, and Discovery has 29%. AT&T needs to hand over the reins of their investment to somebody who can run it.

AT&T did not manage to integrate Warner within the 9-month required according to Jack Welch (Welch, 2). Three years after the exercise was still ongoing (FitzGerald, 1).

AT&T fell victim to the conquer sin resulting in executives from HBO, Warner, and Turner broadcast leaving when AT&T took over and having to deal with demotivated employees.

Last, but not least, AT&T fell victim to paying too much sin, paying too much for Direct-TV near the peak of the pay for TV market, and they were late to market with Time Warners HBO streaming development with a complicated product the client did not understand.

AT&T is going back to focus on what they do the best, being a telecommunications corporation. I believe it is currently the right strategy.

Sincerely,

Pablo

Reference.

1. FitzGerald, Drew; Flint, Joe & Mullin, Benjamin. (May 17^th, 2021). Wall Street Journal. AT&T’s Hollywood Ending Erased Billions in Value. https://www.wsj.com/articles/att-hollywood-ending-erased-billions-value-hbo-discovery-warner-11621297279?page=1
2. Welch, Jack. (June 19^th, 2016). Jack Welch Management Institute. The Six Deadly Sins of Mergers & Acquisitions. https://jackwelch.strayer.edu/winning/mergers-and-acquistions-six-deadly-sins/
3. BBC. (May 17^th, 2021). BBC. AT&T and Discovery to create a new streaming giant. https://www.bbc.com/news/business-57139433