Merger mania - merger failures?

by John H.
(UK)

Given that 70% of mergers fail to add shareholder value and 40% actually reduce it, one wonders whether the leadership in the Kraft Foods' bid for Cadbury have actually analysed the cultural and wider stakeholder impacts in their quest for synergy?

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Merger Failure
by: Stephen Warrilow

In any potential merger scenario the first thing that gets decided is whether a company needs to do a deal, and if so with whom.

Given the fat fees to city advisors there is always the pressure to do a deal - under the usual guise of "unlocking the synergies"...boosting growth rapidly and non-organically...

The next step then is to work out just how much to pay, and how to finance the buy.

Crucially, management can get both of these stages completely wrong and still make a success of the deal.

That's because most of the important work is done in the post merger integration phase - the all-important process of putting the jigsaw puzzle together - finding new heads for each of the corporations divisions, standardising technology platforms and eradicating the overlaps [er stripping out the costs].

One of the major reasons for poor integration comes from the fact that culturally two companies are just not compatible.

And 70% of the time this is just way too simple to be considered up front as part of the due diligence as "hey, the numbers make sense don't they?", the strategic fit is so cosy, and the synergies [not to mention costs that can be stripped out] are so hot...[and so are the fat, juicy, "we get paid on the deal not the future succes of all this" fees].

So I would cynically say that, based on the simple law of averages, it's quite likely that they haven't factored all this in...

Would someone from Kraft care to put me right- once it's all over?

See: Avoid M&A Failure
by: Stephen Warrilow

See the new page I have just added entitled "Merger Failures" which can be accessed via the "Avoid M&A Failure" tab on the Nav Bar.


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