Many studies have shown that the most treacherous time in the failure-strewn business of mergers comes after two companies tie the knot, when they attempt to combine operations. Surprisingly, however, they often destroy value not as a result of inattention to detail but through excessive zeal in their integration efforts.
That’s because acquirers, recognizing the many potential dangers that lurk in the merger process, often attempt to immunize themselves by painstakingly mapping out comprehensive, detailed plans for blending every aspect of operations. What they don’t realize is that in following their careful, well-intentioned efforts, they could be digging their deals into the grave. The reality is that too much integration can block companies from realizing the benefits of a merger just as easily as too little can. And, in some cases, overintegrating can do far more damage.
Consider Novell Inc.’s $855 million acquisition of WordPerfect Corp. in the 1990s. The marriage between the leader in the corporate networking market and one of the historic front-runners in word-processing applications was intended to create a formidable competitor to Microsoft Corp. Once the deal was signed, Novell launched a broad and extensive integration program.“The devil is in the details,” one Novell senior vice president told Softletter, a trade publication of the software industry. As Softletter reported, “success [for Novell] depends on thousands of nitpicking decisions that can tie up senior management for a good 16 to 18 months.”
In an attempt to attend to all those details and decisions, Novell’s management team sought to fully assimilate WordPerfect’s different product and service lines, sales groups, culture and business model into its own. But Novell’s comprehensive efforts to assert control and impose the Novell personality on WordPerfect’s operations sparked intense culture clashes that sidetracked the company. While Novell was preoccupied with trying to keep integration on track, key product launches fell behind schedule. That presented Microsoft with the opportunity to muscle in on Novell’s turf and steal market share both in word-processing software and networking products. Novell’s performance and stock price dropped sharply. WordPerfect’s sales sank 17% in fiscal year 1994, the year of the merger.
In January 1996, less than two years after the acquisition, Novell unwound the deal, selling WordPerfect to Corel Corp. for about one-seventh the purchase price. By then Novell’s stock price had been cut almost in half from where it stood the day before the merger was announced.