Mergers & Acquisitions � Only a few are blessed

Published on Corporate Live Wire
By George M. Mangion of PKF Malta

Mergers and acquisitions in daily news may not be major show stoppers yet but when announced some critics do question why not withstanding the hype and razzmatazz they do not always succeed as planned. Recently there was the announcement of a mega mobile deal concerning the marriage of two giants; AT & T and T-Mobile USA from Deutsche Telekom for a cool $39 billion. This acquisition is being objected to by US federal government approval and recently the Department of Justice had a filed suit to prevent the planned merger. AT & T has announced its intention to fight against the decision of the Justice Ministry. If the deal is going to fall through¸ the U.S. company has to pay a three billion dollars compensation to T-Mobile. Not a happy ending. Ironically invited guests at the wedding are hopeful that the couple gets the nod to tie the knot.

If clearance comes through the acquisition by AT & T will make it a dominant player in the US¸ giving it a total of 129 million subscribers compared to Verizon with 102 million.

Naturally there will be protests from lobbyists who oppose the creation of a dominant supplier. Critics fear an overpowering position of AT & T in the mobile market. Ironically¸ the pitfalls for mergers are high and one can recount a number of marriages that were not blessed in heaven. A glaring example is the Daimler-Benz/ Chrysler merger which demonstrates the importance of solving cultural differences between the parties. Here one can mention the culture clash between the American and German style of management. In fact it was evident that the post-merger phase highlighted the difficulty of trying to integrate two very divergent cultures. One hopes that this is overcome in the AT & T and T-Mobile acquisition.

Back to the Daimler-Benz/ Chrysler case¸ the parties started their union blessed with good intentions. They each vowed to remain faithful and solemnly expressed their commitment to work together and share work practices and product development methods. Unfortunately for a number of reasons which we shall discuss later on¸ this commitment did not materialize. It would be clearly manifest that uniformity was not achieved given Daimler management’s unwillingness to use Chrysler parts in Mercedes cars.

Still¸ there is no reason to say that all mergers fail. One swallow does not a summer make but here we shall discuss some of the factors that contribute to failure. Studies show that roughly two thirds of ‘big’ mergers will disappoint on their own terms¸ which means they will lose value on the stock market. The motivations that drive mergers can be flawed and efficiencies from perceived economies of scale prove to be elusive. It is true that due to the challenges of globalization many operators across the globe seek comfort in size¸ irrespective of internal problems that emerge. Quietly they each go through many contortions to please one another. Such sacrifices can be tolerated during a time of recession which exacerbated the drive to consolidate¸ hoping in the end to achieve cost cutting through economies of scale¸ strengthening the company’s market position¸ gaining access to new markets and retaining a talented workforce. However¸ although mergers and acquisitions are aggressively pursued by companies¸ recent studies have indicated that 60-80% of