Winning - Jack Welch [79]
That’s why if you want your merger to work, don’t just look at strategic fit. Cultural fit counts just as much.
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The third pitfall is entering a “reverse hostage situation,” in which the acquirer ends up making so many concessions during negotiations that the acquired company ends up calling all the shots afterward.
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Sometimes you want to own a company so badly, you end up letting it own you!
This dynamic is a real by-product of deal heat, and it’s so common, it’s frightening. Every time I talk about mergers with an experienced deal maker, it comes up.
I let it happen for the first (but unfortunately not the last) time in 1977, a few years before I became CEO. By that time, I was a veteran of dozens of mergers, so I should have known better, but I was so hot to acquire a California-based semiconductor company named Intersil that I couldn’t bring myself to say no to any of their demands. The CEO was convinced that his company was operating smoothly, and he made it perfectly clear that while he liked GE’s money, he didn’t need its advice.
Before I knew what was happening in the negotiations, I was kissing this guy’s rear end in every possible way. He wanted a special (oversize) compensation scheme for himself and his people, because that’s the way it was in his industry. I said OK. He said we couldn’t have GE people at his planning meetings. I said OK. He said we weren’t allowed to ask his finance people to change their reporting system to match ours. I said OK.*
I couldn’t pay them $300 million fast enough.
What was I thinking?
Well, obviously, I wasn’t. That’s deal heat for you.
For several years, we muddled along, “merged” with Intersil. Frequently, when we made a suggestion about how the CEO might improve his operating systems—in HR, for instance—he would brush us off with, “You don’t understand this industry. Just leave us alone and you’ll get your earnings at the end of the quarter.”
It was unpleasant, to put it mildly, and far from productive. I found that I could call their headquarters for information, but unless I asked my question in exactly the right way, I would get nothing but a head fake. GE managers stopped visiting because they were given such a cold reception. Technically, we owned the company, but for all intents and purposes, it was running the show.
Finally, we sold Intersil at about break-even. The only thing we got from the deal was an important lesson: don’t ever buy a company that makes you its hostage.
The facts are, I was hamstrung with Intersil. We didn’t have sufficient knowledge of semiconductors or a senior manager with enough stature and experience in the industry to replace the CEO, let alone his management team.
When we bought RCA ten years later, a similar situation rolled around, but we were prepared for it. During negotiations we were told that the head of NBC, Grant Tinker, was thinking of leaving. We certainly didn’t have direct experience in managing TV networks, but I knew I had the bench strength in Bob Wright, the CEO of GE Capital at the time, to put a capable all-around leader in Grant’s place quickly, should he depart. I tried hard to keep Grant but couldn’t, and when he left, Bob stepped right in and eighteen years later is still running NBC.
A couple of years later, a potential hostage situation developed in one of NBC’s divisions, News. Its leaders openly—you might say brazenly—questioned GE’s ability to manage a journalistic enterprise and started throwing up the information firewalls that are so typical of this hostage dynamic. The division’s manager, Larry Grossman, led the resistance and wasn’t willing to put together a reasonable budget—that is, a budget where we made money. We asked him to leave and brought in Michael Gartner, who had significant journalistic and business experience. Michael took a lot of heat for starting the process of ridding NBC News of its