2. The problems of takeovers and mergers including difficulties integrating businesses successfully

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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. However takeovers and mergers don’t always go successfully, sometimes there are small problems which can be easily solved, however there can also be more deep routed problems which may lead to business failure.  All companies participate in takeovers and mergers to seek the benefits that they believe they can get, however in every takeover/merger there can be a large time lag of the rewards, and in this time it can be unsure if the company will actually receive any benefits at all, or if it will be worse off.

One problem that a companies in involved in a takeover or merger might find they have is a culture clash. 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/merger, it is hard to find a way in which their cultures can mix. This was the case with companies Daimler and Chrysler when the merged in 1998. . The merger was supposed to a merger of equals and was to provide them with a worldwide combined sales around $130bn (£78.3bn).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 even though directors of each company saw to eye to eye, the merger was not having the benefits that they had hoped for.  The failed merger 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 . However not all takeovers fail if there is a difference in the company cultures, it’s only if you neglect to look at how they differ and neglect to accommodate for this will mean the takeover will fail, When Tata took over Land Rover/Jaguar they took into account the cultural differences, and went on to make record making profits over the next few years, including a 1.1 billion pound profit in 2010.

Another problem that companies may face when taking over or merging with another company is that they aren’t prepared for the takeover or considered all factors of the takeover/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 before during and after the takeover. 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, this became more of a problem when the UK started to enter an economic crisis, meaning that RBS was now paying more than they originally needed to for the Dutch bank, as well as having problems with money themselves. 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) and RBS offered the money without any real planning, due to them not wanting to be out bid by Barclays. They didn’t do any more due diligence taking into account the external economy changes, this meant that when Northern Rock collapsed they was unable to cope with the takeover due to their poor planning.

In conclusion, poor planning and ignoring cultural differences are just two reasons in which a business takeover/merger might fail. 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. Many companies that have failed due to overlooking the importance of these factors. Not taking into account cultural differences, about how workers might feel being made to work with people that work very differently to what they are used to, this will mean that both sets of workers will want to work the way in which they are used to and not change their ways, creating a barrier between the two sets of workers. Companies could change this by applying Kotters 8 step change model, this allows the company to create a real urgency for the change, allows everyone to see the reason in which the change is important and makes sure that the change stays in the long term in every aspect of the company. Another aspect which could determine the success or failure of a takeover is the leadership style, if the leader can plan and determine the effects of change, whilst effectively managing all staff and operations in the company then the takeover should be a success. Whereas if the leadership cannot cope with all of the changes that happen during a takeover then the companies may suffer from the takeover plans.