Lessons on Mergers and Acquisitions from the CEOs of Multi Nationals. The does and donts of M&As.

1. LESSONS FROM
MASTER ACQUIRERS
A CEO Roundtable on Making
Mergers Succeed
Rohan Solanki 1310
Kalyani Mudliar 1289
Hilda Merlin 1281

2. Objective of the Case…
 This case gives an insight on what a CEO and
the Organization thinks, before getting into the
process of restructuring or as we know it a
Merger or an Acquisition.
 It discusses the trade off between the target
company and the acquiring company. The
growth of the firm after restructuring and the
key factors to a successful integration.

3. Are Mergers & Acquisitions worth
it?
 In the early 1970s and 1980
a lot of mergers or
acquisitions ended up being
a failure. But today M&As
have become a strategy for
sustainability.
 Growth through acquisitions
has been a critical part of
success for many
companies. Acquisitions give
the companies an
opportunity to enter new
economy.
 M&As have today become
the single most important
Alex Mandl, CEO at Teligent and Ex
No.2 at AT&T. Responsible for AT&Ts
take over of McCaw Cellular
“M&As are the single most important
factor in building up market
capitalization.”
“Need for Speed forces companies to
acquire rather than build.”

4.  M&As have critically been
successful today for few very
simple reasons :
 Acquiring a firm is much easier
then building it. Helps save time
and a lot of resources.
 For IT firms M&As are certainly
the fastest way to expand and
solidify their position in the market.
M&As are a good way to add
product lines and increase
distribution channels that are
costly to build from scratch.
 But the decision to buy or to build
is a delicate decision. If the target
firm is a good strategic fit, the
management decides to buy, or
else if they have the process
knowledge to capitalize on, the
David Bohnett, Co-founder and CEO
of GeoCities which was purchased by
Yahoo! in 1999 for $3.7 billion. Today
runs a internet start up Baroda
Ventures and is on the board of several
companies.
“M&As are certainly the fastest way to
expand and solidify their businesses.”

5. How does one chose the right
companies to buy or merger with?
 It depends on company to company. Each firm
differs in strategy. For one firm the main objective
may be to reduce costs, where as for the other it
may be revenue enhancements.
 But experts believe that, acquisitions work best
when bundled with the idea of cost reductions. In
case of revenue enhancements, it’s a dicey
situation and it can go either ways.
 The reason being simple, it takes a longer time to
replace the existing strategies for selling products
with newer ones, which face a situation of being
rejected in the market. But cost reduction comes
with just changes in the implementation of
processes which posses slightly less threat.

6.  But this depends on the type of industry.
 For eg : In Pharma sector, when a firm acquires
another the focus is on revenues as once the
drug is developed the costs are minimal, and if
the company can increase its revenues its in
great shape.
 Another eg could be of an IT firm, where the
focus is on gaining market cap. IT firms focus on
acquiring the products, services or the technology
that in itself could be more beneficial for the
companies.

7. Dennis Kozlowski, Former Chairman & CEO at Tyco
International. Tyco has diversified under Kozlowski. Tyco
has made a total of $25 billion in acquisitions including the
$12 billion acquisition of AMP.
“Acquisitions work best when the main rationale is cost
reduction.”
“But, there's more risk with revenue enhancements as
they are much more difficult to implement.”
David Komansky, Chairman and CEO of
Merrill Lynch, one of America’s leading
brokerage houses and one of the top
investment banks in the world.
Merrill Lynch made over 18 acquisitions in
the period of 1995-2000, including a
purchase of $6.6 billion of Mercury Asset
Management.
“Adjusting to the new economy is like
changing a tire on a 747 in the middle of its
landing. Something is going to get squeezed
somewhere”

8. Why do companies prefer to buy in
their own business space?
 For some business’ its not worth the risk
to diversify outside their area. An
acquisition would become attractive only
if it offers a new consumer segment or
geographic area to sell their existing
products.
 So its about exploiting their core
competencies which is only possible
when its in their area of specialization.
 But in today’s competitive environment it
is very important for firms to stamp their
authority. Many firms do tend to diversify
with the help of M&As.
Mackey McDonald, Chairman and CEO of VF Corportion a leading apparel
manufacturer with sales of $5.5 billion. Brands include
Lee, Wrangler, JanSport, Vanity Fair, etc.
“Acquisitions become attractive if it offers a new consumer segment or geographic
markets to sell our products to or add new products to our core cateogaries.”

9. Are M&As a critical strategic tool
for growth in the new economy?
 For firms it is all about solidifying their position in
the economy. Companies have adopted the
strategy of acquiring rather than building. Larger
firms use their market cap to takeover companies
and enhance their positions.
 Main motive of M&As now a days is to enter the
Internet space. But it is not possible for all to
expand in such a manner.
 For eg : Mackey MacDonald says that the apparel
business’ best solution for success is to partner
with sole distributors. Apparel business heavily
dependent upon the traditional distribution
channel rather than occupying Internet space,
even in today's tech-saavy human nature.

10. Nicholas Moore, CEO at Pricewaterhouse Coopers and
Coopers & Lybrand.
“Cultural differences are not just a matter of geography. Different
companies can have different attitudes and ways of working.”
“You have to build trust and that take a lot of managerial
attention and time.”
Bill Avery, CEO of Crown Cork &
Seal, a global leader in packaging
consumer goods. Has made over 19
acquisitions.
“When you buy a company outside
US, you really need to know what
you are getting into.”
Raj Gupta,
Has worked at
speciality chemical
company Rohm and
Haas. Became
Chairman and CEO in
1999.
“Cost reduction
shouldn’t be the sole
goal, most successful
companies will be those
that can grow as well.”
“The first thing after an
acquisition you have to
do is settle the
uncertainty.”

11. Mergers & Acquisitions falling apart
due to cultural incompatibilities?
 M&As have fallen apart due to cultural
differences. Even if the negotiations go
through well, they tend to fall apart sometimes.
 This often happens during cross cultural
mergers. The reasons being :
 Difference in management styles
 Socio cultural philosophies
 Decisions regarding organizations center of
operations
 Cultural differences are eminent in all M&As.

12.  For eg :
 When a British and an American company are
poised for a merger, they totally differ in their
competence levels and management styles. They
differ in views.
 Like in US, if the firms do not cut into the budget
they would cut costs as the prices of their
products are going down. But in the same
scenario in Europe a manager would have a less
aggressive approach to cutting costs.
 But to overcome such cultural differences the
firms have to adapt the local way of doing
business to co-exist.

13. How do you approach an
integration? What are the
priorities?
•The initial step to approach
an integration is more
inclined towards the
business negotiations and
portfolio of the companies.
•Later on they have to
concentrate on the
personnel's of the
companies.
•Finally they will start to
integrate their plans and
processes.

14.  People are the most important
asset a organization has. When
there is restructuring there is lot of
uncertainty filled in the
environment. This is the time when
they lose most of their employees
and customers.
 It is essential to have the right
people and the right place to solve
such situations.
 Its often happens in such situations
that people think about themselves
rather than the organization.
 Employees start to think about
themselves,
 The change starts to affect the
customers.
 The best way to come out of such
a situation is to have constant
communication.
Jan Leschly, CEO at drug powerhouse
SmithKline Beecham for six years.
Shortly after this article SmithKline
Beecham agreed on merger with
Glaxo, a long anticipated deal. The deal
was valued at $180 billion. Today Glaxo
SmithKilne is one of the world’s leading
drug makers.
“Its true that the talk of merger makes a
lot of people unhappy. But it can also
make a lot of people very happy, and
that brings its own problems.”

15. Why do companies not take on
Directors from the acquired
companies?
 Its not about taking on
directors from the acquired
company. Its about how many
are willing to join, and take on
the challenge of representing
the shareholders and
management of not only the
company on whose board
they originally where.
 A lot of people move on and
start their own ventures.
 But incase of Mergers, some
part of the board is certainly
taken over.
Ed Liddy, CEO of Allstate Insurance
Company. Made two major acquisitions
worth $2.2 billion.
“The challenge is finding people who
are prepared to represent the interests
of all shareholders, not just the
shareholders and the management of
the company whose board they were
originally were on.”

16. What do we know?
What have we learnt?
 To conclude, every organization has a different
approach towards restructuring.
 Some firms have a motive of revenue
enhancement, where as others have a motive
of cost reductions. Its up to the management
and the CEOs to decide which approach they
chose after strategically thinking their options.
 But in the end, it all leads to one prime motive
of Sustainability.

17. THANK YOU…