Business

WHY MERGERS FAIL

A CASE STUDY OF THE DAIMLER CHYSLER MERGER AND MTN SOUTH AFRICA AND BHARTI OF INDIA’S MERGER

What would ensure the success or failure of our merger? A question that sits on the strategic table of many companies seeking to merge. Over the years we’ve had very successful mergers and others that have been nothing but a total disaster. Where would Disney be without Pixar or J.P Morgan without Chase or Sirius without XM Radio or Exxon without Mobil nonetheless we’ve had others that saw a sour and disgruntled union. We take a deeper dive into the Daimler Benz and Chrysler merger and Bharti Airtel of India and MTN Group of South Africa and why their union was a total bust.

In 1998, the two giants merged to form Daimler Chrysler for $36 billion, the reason for this unification was obvious: to create a trans-Atlantic car manufacturing live wire that would dominate and lead the market. Critics greeted this merger with utmost optimism yet not long after this merger, in 2007 the once revered union had Daimler Benz selling Chrysler to Cerberus Capital Management, a firm which specializes in restructuring distressed companies, for a mere $7 billion. What really happened? Was it a synergy problem or perhaps culture clash or leader difference or difference in objectivity? These are formulas equating to a corporate divorce.

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MTN South Africa‘s flagship phone company and Bharti India’s largest mobile company, two emerging market giants truncated a deal after months of discussion. Amit Mitra, the secretary-general of the FICCI trade group in New Delhi said “This would have been a signature deal, one that has never been done before in the world. Obviously, the deal looked immaculate on paper and promised to be a corporate union that would have better served two continents yet like every other failed merger, did not live long to breathe the fresh morning breeze.

We take a closer look individually at what caused this sudden break ups, starting with the Daimler Chrysler’s merger. In what was perceived a merger of equals’ Jürgen Schrempp, CEO of Daimler-Benz, Robert Eaton, Chairman and CEO of Chrysler Corporation met to discuss the possible merger which later gave birth to DaimlerChrysler. The merged entity ranked third in the world in terms of revenue, market capitalization and earnings within its first year yielded a revenue of $155.3 billion and sold 4 million cars and trucks. Well, the sunny day soon dwindled into shadows as they suffered third quarter losses of more than half a billion dollars and even higher projections in the fourth quarter of 2001, the merged company in order to reduce its total expenditure announced that it would slash 26,000 jobs at its bedridden Chrysler division. What could have contributed to this feat? Contrasting cultures and management styles hindered the realization of the synergies, with what was perceived as a merger of equals was clearly not the case Daimler-Benz was much of a giant than Chrysler, a synergy can only be created when two or more companies combine wholly to form a single entity that is greater than the sum of the parts if they were to be defragmented into their initial factions before they merged. Daimler-Benz attempted to run Chrysler USA operations in the same way as it would run its German operations. Daimler-Benz was characterized by rational decision-making, on the other hand Chrysler encouraged creativity. While Chrysler represented American adaptability and equal empowerment Daimler-Benz esteemed a more traditional respect for command chain and centralized decision-making. These were the values that distinguished these firms, one may refer to them as national identity barriers (National Culture Dimensions by Geert Hofstede).

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The deal was pretty much through from the companies’ perspective, but the governments could not see eye to eye,” said Kamlesh Bhatia, a principal research analyst with the consulting firm Gartner. The MTN South Africa and Bhartia merger was met by intense intervention by the South African government who seem eager to maintain MTN’s local identity. South Africa’s communications minister, Siphiwe Nyanda, said: It would be sad if we saw this entity move into the hands and management of foreign nationals. India’s financial regulatory body were not willing to change the rules pertaining to dual listings.Bharti blamed the South African government for the deal’s failure. This structure needed an approval from the government of South Africa, which has expressed its inability to accept it in the current form, the company said in a statement. A $27 billion merger that could have offered a great deal of success with regards to revolutionizing communication across borders came to a sudden halt as a result of political differences that permeated through the fronts of two nationals.

What Makes Some Mergers Work Well?

The following are a list of factors that can ensure the success of a merger but its successful implementation is based on the type of transaction.

  • Mergers that retain the main focus of the firm result in better outcomes.
  • Mergers of unequal-sized firms work less often than others.
  • Early planning for the integration of the new physical and human assets improves the

chances of success.

  • Managers must be cognizant of cultural differences between organizations and avoid

conflicts, in part, via frequent, tailored communication with employees, customers,

and stakeholders.

  • Particularly in mergers involving technology and human capital, managers must retain the talent that resides in the acquired firm.
  • Effective management of post-merger integration by designing comprehensive systems and structures to evaluate and monitor internal operations and communication to ensure both entities are in synchronization.
  • A careful understanding of regulations and the political terrain with regards to firms seeking to merge across borders.

 

 

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