Making Mergers Work

Executives too often overlook the vital question of identity when seeking synergies from mergers and acquisitions.

The CEO of a building products company based in Europe, which we’ll call BPC, was seeking to expand the company’s global footprint and believed that a significant presence in North America was essential. In the course of his search for acquisitions, he identified a large cement maker in the southern part of the United States and launched a takeover bid. The deal was completed after much maneuvering and arm-twisting, despite a negative recommendation from the target company’s management to its board, and the acquiring CEO kept the initially hostile management team in place. One year later, he sent two executives from the European headquarters to occupy undefined jobs. As one of them recalled: “I was assigned … to help with integration but I did not do much of that. Basically, I sold [BPC] to these guys. The CEO [of the acquired company] made all the decisions.”

For a number of years, this and other acquisitions by BPC in North America consistently failed to meet performance expectations; the individual who succeeded the dealmaker as CEO finally asked us to see if we could figure out why. Following an analysis of performance data and a series of interviews with executives in the North American subsidiaries and in the European headquarters, it became clear that the anticipated economic synergies had not materialized because little attention had been paid to achieving psychological synergies. Executives in the North American subsidiaries felt both on the peripheries of the corporation as a whole and out of the loop with respect to resource allocation decisions. There was a palpable lack of psychological engagement that manifested itself in some cases as open hostility toward the European headquarters. The gap between the parent and its subsidiaries was so wide that European managers were not allowed to visit a North American affiliate without the formal permission of its CEO.

The fashion brand Louis Vuitton is one of numerous luxury brands under the overarching LVMH umbrella.

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References

1. J. Ewers, “Cisco’s Connections: The Tech Giant Has Mastered the Art of Acquisitions,” U.S. News & World Report, June 26, 2006.

2. Ewers, “Cisco’s Connections.”

3. H. Bouchikhi, “Finally, Overcoming the Identity Disadvantage,” Business and Economy, May 12, 2011.

4. Translated by the authors. La Tribune, March 22, 2005; and H. Bouchikhi and J.R. Kimberly, “The Soul of the Corporation: How to Manage the Identity of Your Company” (Upper Saddle River, New Jersey: Wharton School Publishing, 2008).

5. J.-M. Normand, “Gourgeon, le PDG aux handicaps, reconduit à la tête d’Air France-KLM,” Le Monde, May 19, 2011.

6. “Our Company,” www.jnj.com, August 15, 2012.

7. R. Lambert, “The Schrempp Gambit: The Chairman of DaimlerChrysler Offers a Passionate Defence of His Strategy … That He Never Envisioned the Merger as a Partnership of Equals,” Financial Times, Oct. 30, 2000.

8. B. White and V. Vara, “Cisco Changes Tack in Takeover Game,” April 17, 2008, http://wsj.com.

i. A previous version of this article is available online: http://knowledge.wharton.upenn.edu/papers/download/022012_New_Merger_Math_June_15_2011.pdf.

ii. A more detailed discussion of the identity audit is available in Chapter 10 of Bouchikhi and Kimberly, “The Soul of the Corporation.”