The Hershey Co. (ticker: HSY) made headlines recently when it rejected a merger proposal from another food company in a high profile example of a corporation seeking to use a takeover to grow its business.
Even when buyouts come together, they don’t always go to plan.
The AOL-Time Warner merger in 2000, for instance, is a textbook example of a union gone awry. The $162 billion deal ended up being one of the most value-destructive moves of all time, and today Time Warner (TWX) is worth around $59 billion.
But when mergers and acquisitions go right, it can mean fireworks for shareholders. Here are seven moves that worked out great for investors.
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Disney buys Pixar. In 2006, Walt Disney Co. (DIS) took a major step in expanding its already sizable entertainment footprint, acquiring the Steve Jobs-led Pixar in a $7.4 billion move. At the time, Pixar had an impressive portfolio of wildly successful animated films under its belt, including the first two “Toy Story” installments, “Finding Nemo” and “The Incredibles.”
Since then, the hit factory has gone on unperturbed, with 11 movies — including “Up,” “WALL-E,” “Inside Out,” “Toy Story 3” and “Finding Dory” — generating billions in box office revenues alone. When you factor in the home video sales, streaming and merchandising revenues, Disney’s Pixar purchase was a magical move.
Disney buys Marvel. Ever the diligent chief executive, Disney’s Bob Iger wasn’t content with one blockbuster acquisition. In summer 2009, the House of Mouse pulled the trigger on Marvel Entertainment, shelling out $4 billion for the iconic superhero empire.
Since the acquisition, 11 Marvel movies have already grossed more than $3.5 billion, which yet again becomes a more impressive figure when you consider the usual revenue streams from DVDs, toys, and licensing in general.
The great thing about the Marvel franchise is the strength of its intellectual property, which will be around forever and can be leveraged into new movies, series, and merchandise.
Google buys Android. The return on tech deals can be a little harder to quantify in tech, but when an acquisition was a smart move, it’s pretty clear. That’s the dynamic for Alphabet (GOOG, GOOGL), which purchased then-unknown mobile software company Android for a rumored $50 million in 2005.
Today, Android is the top mobile operating system in the world, powering 82 percent of all smartphones through mid-2015. Since Android also heavily incorporates Google’s products and services, it’s given Google incredible mobile search engine share.
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Later this year, Google even plans to release its own Google-branded smartphone, going head-to-head more directly than ever with Apple (AAPL) and Samsung. Thanks Android!
eBay buys PayPal. In 2002, eBay (EBAY) purchased the online payment platform PayPal Holdings (PYPL) for $1.5 billion, opting to bring into the fold the very service that eBay’s own scale made so valuable. Thirteen years later, PayPal detached from eBay yet again, as activist investors like Carl Icahn agitated for a spinoff and won.
When PayPal stock hit Wall Street as its own standalone entity (for the second time) in 2015, it was worth a whopping $47 billion, yielding a return of 3,033 percent.
The Standard & Poor’s 500 index, for its part, returned 187 percent over the same period, even with all dividends reinvested.
Exxon buys Mobil. On Dec. 1, 1998, the first- and second-largest U.S. oil producers, Exxon Corp. and Mobil Corp., announced their intention to merge, forming the energy behemoth that we now know as Exxon Mobil Corp. (XOM).
The $80 billion deal, at the time, was the largest merger in U.S. history, so meteoric returns were unlikely from the get-go due to the sheer size of the deal.
However, the oligopolistic move still proved well worth it. Exxon shares are up 293 percent since then with dividends reinvested. In other words, investors have roughly quadrupled their money. The S&P 500 is up 76 percent over the same period.
Berkshire buys See’s Candy. In 1972, Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) acquired a San Francisco-based chocolatier, See’s Candy. The $25 million purchase might have seemed steep back in the day, but it ended up paying for itself over and over again.
Buffett revealed just last year that See’s had required an additional $40 million investment over the 40-plus years since the purchase, but noted that the candy-maker had thrown off an incredible $1.9 billion in pre-tax earnings since then — enormous profits that Berkshire was able to turn around and throw at more sound long-term investments.
Facebook buys Instagram. Last but not least, Facebook’s (FB) decision to buy the upstart photo-sharing social network Instagram in 2012 for $1 billion was, in retrospect, a brilliant play. At the time, Instagram had 30 million users and was just launching on Android.
Today, Instagram has 500 million monthly active users and would be considered one of the most potent threats to Facebook were it not under its purview.
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The New York Times wrote at the time of the acquisition that mobile was “an area that is seen as a weakness” for Facebook. Today, Facebook is the poster child for mobile dominance, thanks in no small part to Instagram’s addition to the team.
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The 7 Smartest Acquisitions of All Time originally appeared on usnews.com
