CAPITALIZE ON MERGER CHAOS by THOMAS M. GRUBB

Author:THOMAS M. GRUBB
Language: eng
Format: epub
Publisher: THE FREE PRESS
Published: 2000-07-15T00:00:00+00:00

THE FATAL COOKIE CUTTER

David McCourt, CEO of RNC Corporation, a New Jersey provider of communications services, recently stated, “Success breeds success formulas; success formulas breed failure.” 14 While McCourt’s statement covers immense territory, it reflects the experience of firms that conduct merger integration without a deep appreciation of the uniqueness of each integration. You must not assume a static world—the level of merger integration and the specific mix of integration tools used in one merger or acquisition will not guarantee an equation to be applied in all future combinations. Firms that adopt a static “success formula” will not be able to replicate past successes.

Sandy Weill at Citigroup learned just such a difficult lesson. Weill has been well-known as a savvy acquirer, buying or assuming control of mismanaged firms like Commercial Credit Corp., Primeamerica and Travelers. But when his Travelers acquired Citicorp (to form Citigroup) for almost $73 billion in 1998, Weill’s standard approach back-fired. Citicorp’s CEO John Reed was a very capable executive, and his company was certainly not mismanaged. Weill’s rough and tumble, take-control style led to what nine months after the merger announcement Fortune magazine labeled a “case study of trouble” in Citigroup’s corporate business unit. This new firm’s organizational structure was “terminally dysfunctional,” and so the cookie cutter merger success formula that Sandy Weill had used for thirty years initially failed. 15

Swiss Bank Corp. traveled a similar path of misfortune when it acquired UBS. While it had successfully integrated O’Connor Partners, SG Warburg, and Dillon Reed, Swiss Bank’s formula quickly became a glaring liability with UBS. Its previous acquisitions had all been much smaller firms. But UBS was even larger than Swiss Bank and UBS employees were deeply entrenched in their bureaucracy—Swiss Bank’s style was neither appreciated nor accepted. The battle lines became so clearly drawn that the new enormous organization became paralyzed with inaction. Young executives based in New York were even known to leave their offices to go to afternoon movies rather than be subjected to the abusive infighting and business paralysis the two firms were experiencing.

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