Cross-border-Mergers-ans-Acquisitions

ThisisasummaryofanarticlethatappearedinFinancialTimesMasteringGlobalBusiness:TheCompleteMBACompanioninGlobalBusiness,London:FinancialTimesPitmanPublishing.Finkelstein,S.1999.Safewaystocrossthemergerminefield.p.119-123.SydneyFinkelsteinistheStevenRothProfessorofManagementattheTuckSchoolofBusinessatDartmouth.FormoreinformationaboutthebookortocontactSydneypleasesee–whoaregoingglobalthemselves–astheyrespondtothepressuresofobtainingscaleinarapidlyconsolidatingglobaleconomy.Incombinationwithothertrends,suchasincreasedderegulation,privatization,andcorporaterestructuring,globalizationhasspurredanunprecedentedsurgeincross-bordermergerandacquisitionactivity.AccordingtoSecuritiesDataCorporation,thereweremorethan2000announcedcross-borderacquisitionsin1996worthover$252billion.Whilethisrepresents54%moreacquisitionsthanin1991,theincreaseindollarvaluehasbeenevenmoreremarkable,triplingduringthistimeperiod.Clearlycross-borderM&Ashavebecomeafundamentalcharacteristicoftheglobalbusinesslandscape.Evenmergersofcompanieswithheadquartersinthesamecountry–whileusuallynot“counted”ascross-border–areverymuchofthistype.Afterall,whenBoeingacquiresMcDonnellDouglas,thetwoAmericancompaniesmustintegrateoperationsindozensofcountriesaroundtheworld.Thisisjustastrueforothersupposedly“single-country”mergers,suchasthe$27billiondollarmergerofSwissdrugmakersSandozandCiba-Geigy(nowNovartis).Hence,understandingtheproblemsandopportunitiesofcross-bordermergersandacquisitionsisanessentialelementinunderstandingmostM&As,andindeedinunderstandingthenatureofglobalstrategy.Inspiteofthehugevolumeofactivityinthecross-borderM&Amarketplace,aninescapablefactemergeswhenthesedealsareexaminedmoreclosely–themajorityofcross-borderM&Asarenotsuccessful.Forexample,economistsDavidJ.RavenscraftandWilliamF.Longfoundthatmostofthe89acquisitionsofAmericancompaniesbyforeignbuyersbetween1977and1990theystudieddidnotimproveoperationalperformanceoneyearaftertheacquisition.Numerousanecdotalaccountscorroboratetheseresults.Take,forexample,theacquisitionofColumbiaPicturesbySonyCorpin1989.Afterpayingasignificantpremiumforthecompany,andkeepingahands-offattitudetowardtheirseniorexecutivesinHollywood–2whowerebusyoverspendingonofficerenovations,companyperks,andunsuccessfulmovies–Sonywasforcedtotakeanunprecedented$3.2billionwrite-downin1994.Thismergerisnowaclassiccasestudyofwhatnottodoincross-borderdeals.SomeoftheproblemsencounteredbySonyincludelegalproblemsstemmingfromtheirrecruitmentofseniormanagementwhowereundercontractatTimeWarner,lackofinternalcontrolsoverbudgeting,weakunderstandingofthefundamentalsoftheacquiredbusiness,andanoverlyoptimisticbeliefin“synergies”arisingfromverticalintegrationandfromapplyingSony’stechnologicalcompetenciestothemovieandtelevisionbusiness.Ofcourse,thesearemistakesthatcanariseinanymergeroracquisition;whatmakesthemparticularlytroublesomeincross-borderdealsaretheinherentlygreaterchallengesofmeldingcountrycultures,communicatingacrosslongdistances,dealingwithmisunderstandingsarisingfromdifferentbusinessnorms,andevenfundamentaldifferencesinmanagementstyle.Whyarecross-bordermergersandacquisitionssodifficulttoimplement?Considerallthatmustgorightinany(same-country)acquisition:Thetwocompaniesmustreachagreementonwhichproductsandserviceswillbeoffered,whichfacilityorgroupwillhaveprimaryresponsibilityformakingthishappen,whowillbeinchargeofeachofthesefacilitiesorgroups,wherewilltheexpectedcostsavingscomefrom,whatwillthedivisionoflaborlooklikeintheexecutivesuite,whattimetabletofollowthatwillbestgeneratethepotentialsynergiesofthedeal,andmyriadotherissuesthatarecomplex,detailed,andimmediate.Ontopofallthisthemergingcompaniesmustcontinuetocompeteandservetheircustomersinacompetitivemarketplace.Now,takeallthesechallenges,andaddacompletelynewsetofproblemsthatarisefromthefundamentaldifferencesthatexistacrosscountries.Consider,forexample,forallthesimilaritiesthataglobalimperativeplacesoncompanies,theveryrealdifferencesinhowbusinessisconductedin,say,Europe,Japan,andtheUnitedStates.Thesedifferencesinvolvecorporategovernance,thepowerofrankandfileemployees,workerjobsecurity,regulatoryenvironments,customerexpectations,andcountryculture–allrepresentingadditionallayersofcomplexitythatexecutivesengagedincross-borderM&Asmustmanage.Isitanywonderthatcross-bordermergersarepotentialminefieldsthatrequiretheutmostcare?Fortunately,therearesomebasicprinciplesthatwillmakecross-bordermergersworkmoresmoothly.Theycanbedividedintotheimperativesofstrategiclogicandacquisitionintegration.Whatisthestrategiclogicfortheacquisition?Inrecentyears“strategic”mergershavegottenabadname,totheextentthatsomepunditshavedefinedstrategicmergersasthosewheretheacquiringcompanyoverpays.Whilethepricepaidforacompanyisacriticaldeterminantofthesuccessoftheresultingacquisition,thereisnoinherentreasonwhymerger