Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions, and Alliances, Revised and Updated Second Edition

370 Pages·2010·2.6 MB·English

by  Mitchell Lee Marks

Joining Forces

Joining Forces
Making One Plus One
Equal Three in Mergers,
Acquisitions, and Alliances
Revised and Updated Second Edition
Mitchell Lee Marks
Philip H. Mirvis
Copyright © 2010 by Mitchell Lee Marks and Philip H. Mirvis. All rights reserved.
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Library of Congress Cataloging-in-Publication Data
Marks, Mitchell Lee.
Joining forces : making one plus one equal three in mergers, acquisitions, and alliances/Mitchell
Lee Marks, Philip H. Mirvis. — 2nd ed., rev. and updated.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-470-53737-4 (hardback)
1. Consolidation and merger of corporations. 2. Consolidation and merger of corporations—
United States. 3. Strategic alliances (Business) 4. Strategic alliances (Business)—United States.
I. Mirvis, Philip H., 1951– II. Title.
HD2746.5.M288 2010
658.1′62—dc22
2010019249
Printed in the United States of America
fi rst edition
HB Printing 10 9 8 7 6 5 4 3 2 1
Contents
Preface vii
The Authors xv
I Creating Value in Mergers, Acquisitions,
and Alliances 1
1 The Elusive Equation 3
2 What Goes Wrong and How to Make It Right 29
II The Precombination Phase 53
3 Strategic and Operational Preparation 57
4 Psychological Preparation 83
Precombination Checklist 104
III The Combination Phase 107
5 Leading the Combination 109
6 Putting Companies Together: The Transition
Structure 137
7 Managing People Through the Transition 164
8 Easing the Clash of Cultures 189
Combination Checklist 215
IV The Postcombination Phase 219
9 Building the New Organization and Culture 223
10 Joining People and Teams Together 242
11 Damage Control and Recovery 265
Postcombination Checklist 281
v
vi Contents
V Building M&A Competence 285
12 Tracking and Learning from the Combination 287
13 Joining Forces—Building M&A Competency 312
Endnotes 329
Index 341
Preface
Joining Forces
When we began studying the human, organizational, and cultural
aspects of mergers and acquisitions (M & A) over thirty years ago,
roughly 70 to 75 percent of corporate combinations failed to
achieve their desired fi nancial or strategic objectives. Since then,
scholars have generated many insights and practitioners have
honed many tactics to improve M& A success. To this day, however,
the failure rate still hovers in the same range. Although some
organizations, such as Cisco and General Electric, have developed
competencies in fi nding a good partner and managing the inte-
gration effectively, most executives remain ill - prepared for the
rigors of steering a combination through its three phases — too
often they rush through the precombination work of strategy
setting and due diligence, mishandle the melding of two organiza-
tions and their cultures, and neglect to reenlist employees in the
postcombination phase and create lasting value from promised
synergies.
“ I am really sorry about the pain and suffering and loss
caused, ” lamented Jerry Levin on a CNBC program entitled
“ Marriage from Hell: The Breakup of AOL Time Warner.” 1 In this
ten - year retrospective about the failed deal, he added, “ The
destruction of value was so painful to many people. … I invite
business schools to continue to study it. Not because it was
the worst deal of the century, but (for) the lessons to be drawn
from it.”
What did the former CEO from the Time Warner side learn?
He told viewers, “ There were a lot of psychological things going
on, ” and confi ded that he “ didn ’ t have enough compassion for
people, ” and hadn ’ t paid enough attention to the “ human side ”
of the merger.
vii
viii Preface
Steve Case, the AOL head who became chairman of the com-
bined company, added another perspective: that managers were
focused too much on “ internal politics and on Wall Street, rather
than innovating. ”
Levin refl ected on the strategy, “ I believed strongly in the
power of the idea … that AOL Time Warner would in fact change
the landscape not only of our own company, but across an indus-
try. … You get beguiled by the majesty of that language, and the
aspiration that’ s underneath it. ” Case rejoined, “ The vision is one
thing but execution is another.” Where did the execution fall
down? “ Execution is about people, ” Case said, “ Strategy is inside
people. ” Levin concurred, “ I had the missionary zeal, ” he said,
but lamented that “ not everyone did. ”
A clash of cultures? One of us worked on the Time Inc.
plus Warner Brothers plus Turner Broadcasting combination
(recounted in our 1998 edition of this book). Those fi rms, with
very different cultures, found a way to work together. Hence Levin
discounted cultural differences as a factor in the failure with AOL.
Case had a more nuanced view of the differences between “ old ”
versus “ new ” media companies.
He compared the two to venture capitalists that had very dif-
ferent views of a “ safe ” versus “ risky ” investment. To illustrate, he
used the music business where there are thousands of rock bands,
a few that create a hit, and even fewer that turn out to be a fran-
chise like U2 or the Rolling Stones. He noted that Warner Brothers
was comfortable investing a billion dollars in movie deals, because
from their side that seemed like a safe bet. By contrast, the Time
Warner board was “ out of its comfort zone ” spending $100 million
to buy Internet technology. That, of course, is how Case built the
AOL franchise.
There were, to be sure, “ exogenous ” factors that sent this
January 10, 2000 $350 billion deal to ruin. The dot.com bubble
led investors to overvalue AOL and made recouping the purchase
price implausible. That’ s why many M & A analysts and many exec-
utives within Time Warner argued against the deal at the time.
Competitors like Yahoo and Google, and the rapid development
of the Internet also overtook the combined company with innova-
tions and market appeal. In a January 10, 2010 postmortem, one
of the former executives involved summed up the failure in this