3. The factors influencing the success of takeovers and mergers

Takeovers and Mergers are common ways for company to expand. A merger is where the companies voluntarily join together to benefit from the possible advantages of working together, however a takeover is when one company will buy another company, this will be done by buying 51% or more of the company shares to gain control, this will usually be to use its expertise and assets in order to benefit their original company.  Some takeovers can fail, resulting in little or no benefits from having joined the companies together, however some takeovers/mergers can succeed to the extent or even more so than expected, leading to the company owners having great deal of profits. There are many aspects of the takeover/merger that need to be looked at to make sure that the takeover/merger goes well.

One aspect that needs to be looked at that can influence the success of the takeover is the differences in culture. Culture is the way in which a company operates, this can include things like organisational structure, rituals and routines and leadership styles. Each company will have their own culture, in some cases, when companies take-over/merge, it is hard to find a way in which their cultures can mix. One company that did this well was Tata, they took over Land Rover and Jaguar. Tata, took into account that there might be differences between their workers and the 16,000 workers that worked for Land Rover and Jaguar, and therefore made a carefully planned integration process.  One of the main things that Tata set out to do was to make sure they kept the companies as a British company, this is due to them believing that “Ownership is not about taking over a culture” and is more about setting challenging targets and making sure that the targets are met.  Less than three years Tata bought Land Rover and Jaguar for £1.1bn from Ford, it has boosted global sales by 26% to 244,000 vehicles.  This is exactly what the companies wanted and showed that the way in which they chose to integrate was an example to future takeovers. However if companies are to ignore cultural differences, as was the case with companies Daimler and Chrysler in 1998 then the takeover/merger may fail. Daimler was a German car making company which specialised in high prices luxury cars, whereas Chrysler was an American company known for its low priced cars.  However the difference in the companies wasn’t only through the products that they produced, it was also the fact that Daimler was known as an upmarket company whereas Chrysler was a ‘blue collar worker’ factory.  This created a difference in the workers, not only could they not speak the same language, being paid considerably different amounts, but Daimler workers also had a dislike for Chrysler works, they claimed they would never drive Chrysler cars, and they was unwilling to give car parts to Chrysler.  This meant that the merger was not having the benefits that they had hoped for and was said to have cost the owner of Daimler billions pounds between the time of the merger and 2007 when the companies separated, on top of the £650 million that it cost Daimler to pay off Chryslers debts before selling it to Cerberus.  Both of these examples show that it is important to take into account cultural differences and make sure that they are dealt with at the time of the takeover/merger, if workers do not get on with other workers or the companies do not find a adequate way to share assets the both companies can suffer and make huge losses, and lower the overall worth of the company.  The companies involved could try to resolve the differences by making sure they have honest and open communication between themselves and their workers. They could use Kotters 8 step model to create urgency for the change and allow every worker to know and understand why the change is needed. If everybody involved has the same aim from the takeover then it should run more smoothly and is more likely to be successful.

               

Another aspect that can influence the success or failure of a takeover/merger is how much preparation was done for the takeover/merger, and if the companies fully understand what will be involved in the takeover or merger. Due diligence must be undertook before a takeover or merger is carried out, to ensure that the companies have full understanding of what is to be expected. One company in which did this well was Kraft when they took over Cadbury.  Kraft carried out a lot of due diligence before the takeover and they also prepared themselves financially by saving some of the profit they made from Kraft so that they would be in a good position to make the offer to Cadbury when the time came. This meant that they didn’t have any cash flow problems during/just after the takeover and they also knew what to expect of Cadburys and knew all about its British background which also helped the companies to join together culturally. However an example of when a company failed to carry out adequate due diligence is when the Royal Bank Of Scotland (RBS) took over the Dutch bank ABN Amro.  The problems with this takeover started before the deal was even made, this is due to RBS having a bidding war with Barclays Bank, which lead to RBS offering 3 times the book value for the Dutch bank. The bidding war meant that RBS didn’t carry out due diligence to the right extent, (and the little that they did do became inadequate after the collapse of Northern Rock) RBS offered the money without any real planning, due to them not wanting to be out bid by Barclays. This lead to them having losses and making the bank takeover a failure.

In conclusion there are many factors that can have an effect of the success or failure of a business, if the companies were to ignore these factors then they are putting themselves at a high risk of failure.  A report by Coopers and Lybrand in 1993 shows that cultural differences is responsible for a large amount of 85% of takeover failures, and that lack of knowledge planning is present in 80% of cases. This demonstrates why some of the companies mentioned above have survived the takeover and are preforming well as a joint company, whereas some companies then went on to regret the takeover and sell off the company that they brought.  Therefore all companies that takeover or merge with another one is advised to be careful and to gain full knowledge about the other company before going ahead with the takeover. The must make sure that they have a strategic fit, which is making sure that the company in which the wish to buy suits their current business and that the new company doesn’t contain any aspects in which will be useless to them. They must also make sure that they do a cultural audit, this is recording all qualitative factors about the business such as workers opinions and rules/ unwritten norms of workplace interactions.  These will both either show that the businesses will work well together, or it will show potential problems in which can be solved by careful planning.