Winning - Jack Welch [77]
Yes, a merger of equals makes sense conceptually. Some companies are equal in size and strength, and yes, they should merge as such. Moreover, during heated negotiations—and almost all negotiations are that way at one point—the MOE concept cools the flames. Both sides can claim to be winners.
But something happens to the MOE concept in practice—people balk.
They balk, in fact, because of the very concept of equality. On both sides, people think, if we’re so equal, why shouldn’t we do it our way? Your way is certainly no better.
The result, ultimately, is that no one’s way gets done.
I know this negative point of view about MOEs is not shared by everyone. My friend Bill Harrison, the CEO of JPMorgan Chase during its merger with Bank One, would tell you that in the financial industry, where the assets are the brains of proud, self-confident bankers, mergers of equals are a necessity “or else everyone would walk.”
He may very well be right about this exception; the merger he is overseeing with Jamie Dimon—who will become CEO of the merged enterprise in 2006—is going very well. And Bill’s merger experience supports his argument as well, starting with his Chemical Bank MOE with Manufacturers Hanover, followed by the MOE with Chase Manhattan and J.P. Morgan & Co.
Despite this success, I’m convinced that in the industrial world, meaning just about anyplace but banking and consulting, mergers of equals are doomed.
DaimlerChrysler is the most glaring example I can think of. Remember all the crowing back in 1998 about how the two companies were truly equivalent in all their facets; they just needed each other to globalize? No, no, the companies proclaimed, this wasn’t an acquisition by a high-end, diversified German manufacturer of a low-end American car company—no way! It was two titans of industry entering a marriage made in heaven.
Some of this posturing was surely done in order to help the merger receive regulatory approvals. But some of it also had to do with ego. The directors on Chrysler’s board certainly weren’t going to admit they’d been bought by a foreign company, and their counterparts in Germany were probably no more thrilled with the prospect of being taken over by a bunch of Americans.
And so the companies tried to execute their MOE. What a mess! For two torturous years, the new company had Airbus A318s shuttling hordes of people between Detroit and Stuttgart a couple of times a week in an attempt to settle on mutually satisfactory operating processes, everything from the new company’s culture to its financial systems, manufacturing sites, and leadership team. In the meantime, the “merged” organization bumped along in chaos while managers awaited direction and shareholders awaited the realization of all those promised global opportunities, synergies, and cost savings.
The ending of the story, of course, came in 2002, when newspapers reported what many people had long suspected—that the so-called merger of equals was, in fact, a pure and simple takeover. With the reality of the situation finally out there, Daimler could start running the show as it had intended all along. It installed one management system, one culture, and one strategy, and the company’s performance pulled out of its post-“merger of equals” dive.
The point of this story is not to pile on DaimlerChrysler—that’s been done enough in the past few years. It is to illustrate the virtual impossibility of two companies with two leaders blending seamlessly into one organization with double of everything and everyone.
Forget it. People at equal companies are probably less well equipped than anyone to merge. They may claim, during deal heat, to be entering into a perfect and equivalent union, but when the integration rolls around, who is taking charge must be established quickly. Someone has to lead and someone has to follow, or both companies will end up standing still.
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The second pitfall is focusing so intently on strategic fit that you fail to assess