Many business organisations will engage in a takeover or merger in the belief that they will benefit in the future from increased profits. However, there may be some problems that are purely transitional such as integrating operations like HRM and marketing that will eventually be resolved. Despite this, they can also be major problems that could ultimately end up in business failure, one example is a corporate culture clash. An organisational culture is ‘the way things are done’ within a business that are a set of values, beliefs and assumptions shared by members of a firm. If two firms that want to merge but have cultural differences, this could lead to big problems for the company and may affect the overall performance. One notorious failed merger is Daimler Benz and Chrysler in 1998. A merger was established in the hope that Daimler Benz would be able to increase their presence within the American market as they only reached less than 1% whereas in the European market, they were already well known. As well as this, Chrysler earned $2.8 billion in annual profits, had remarkable efficiency, low design costs, and an extensive American dealership network that DB could use to expand their markets. The two firms announced they would come together in a ‘merger of equals’ in a $37 billion stock-swap deal. Together, their market capitalisation approached $100 billion. However, problems began to arise, especially between employees of the two companies. Due to the nature of each firm, Chrysler adopting a strict cost management style with an informal, free form, relaxed and flexible culture and Daimler Benz which is an innovator with rich engineering and quality heritage, not to mention a formal, traditional and bureaucratic culture; this inevitably caused a culture clash. These disagreements and misunderstandings contributed towards the ultimate fail of the merger. For example, the alleged ‘merger of equals’ was anything but equal as Daimler Benz was said to be the most dominant partner. As a result of this, employees at Chrysler developed a growing resistance against Daimler Benz as they were unwilling to surrender their own culture and adopt theirs. The result of this meant that there were communication problems, difficulties in personal relationships and mistaken assumptions that lead to conflicts. This is represented by post merger statistics showing the market capitalisation fell to $44 billion, roughly the same value that Daimler Benz had before the takeover. This highlights the reduced productivity that has occurred since and during the takeover. Along with this, it also emphasises the lack of synergies that the merger failed to create. For example, a synergy is where combined results produce a better rate of return than would do by using the same resources independently. As both firms had an unwillingness to ‘join together’, this affected their overall business performance which again is reinforced by the market capitalisation that fell to $44 billion.
Another potential problem of takeovers and mergers is that it will be difficult to measure the performance of the overall company. This is important as it will allow the business to identify which areas of the business are performing well and which areas are weak that need development in order to make the business more efficient. To do this, an investigation into the target business should be conducted in order to establish the facts and circumstances of the transaction in order to gain complete understanding; this should be done with the shareholders best interest at heart, therefore it is essential that they get all the relevant facts. Additionally, this is known as due diligence. For example, conducting due diligence can establish whether the two firms will result in a cost synergy, extra growth or an increase in shareholder value. One example where due diligence was not carried out thoroughly was the acquisition of ABN Amro by the Royal Bank of Scotland (RBS). This was due to many reasons such as a bid from a competitor who was also interested in acquiring ABN Amro, this impact of this established an urgency for the takeover by RBS, this lead to a bidding war between RBS and Barclays which resulted in RBS playing three times the book value of ABN Amro. This reinforces the problem of time where windows of opportunity are present but may be limited, consequently encourages a firm to make quick decisions which may be ill-informed as there is a lack of knowledge of the target company and end up impacting the firm in the long term. This failure of this takeover is highlighted by the fact that without government intervention, the bank would have collapsed thus damaging the economy and society which was already suffering due to the banking crisis in the USA that was transmitted to the UK thus exposing the bank to substantial risks.
In conclusion, businesses will face many problems during an integration of firms, the extent of these problems depend on a number of factors such as the amount of planning (due diligence), management styles and the willingness of employees from both firms to compromise on their cultures thus integrate successfully. Regardless of these problems that takeovers can face, there have also been successful takeovers such as the takeover of Land Rover by Tata. The success of this takeover is shown by quarterly figures of £559m pre tax profit compared to the same period in the previous year of £300m.
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ReplyDeleteYes please! Maybe not a pint because I can't handle alcohol but a ribena would be lovely ;)
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