The Latest Mergers: Why Some Will Fly, And Others Won’t
Far from being slam-dunk strategy moves, mergers and acquisitions often fail to create value for the parties involved. Now that merger mania has returned — witness the number of recently announced deals, plus other rumored ones — it’s worth considering what distinguishes successful mergers from unsuccessful ones. In the four stories below, Knowledge at Wharton looks at the proposed mergers between Procter & Gamble and Gillette, and between SBC Communications and AT&T; analyzes why many mergers fail; and examines both the ‘victims’ of mergers (those who lose their jobs) and the alleged ‘survivors’ (those who don’t).
SBC Communications’ CEO, Edward E. Whitacre Jr., sees his company’s acquisition of AT&T as a deal that will “renew America’s leadership in communications technology.” The $16 billion merger, however, also raises lots of questions that have yet to be answered, according to experts from Wharton and elsewhere. Unless these issues are resolved, according to one professor, the merger could end up as “a great opportunity to destroy value.”
The merger between Procter & Gamble and Gillette comes with the obvious chemistry of male and female product lines, but the two companies also share a culture of innovation and a history of cooperation, according to Wharton faculty and industry analysts. The combined entity will have annual sales of $60 billion and more than 200 brands. Of those 200, 21 have sales of more than $1 billion a year. Such increased market clout raises questions about the new company’s impact on other consumer goods manufacturers, on retailers, and on brand strategy in general.
With the recently announced mergers involving Procter & Gamble and Gillette, and SBC and AT&T, it’s time to ask one of the most common questions about mergers: What does it take for a company to be successful, post merger? After all, many mergers ultimately fail to add value to companies, and even end up causing serious damage. Wharton faculty and other experts discuss the unique challenges that mergers pose, and offer suggestions on how to minimize the potential downside.
The initial headlines announcing mega-corporate mergers and acquisitions typically focus on Wall Street’s appreciation for improved finances, less duplication of services and staff, the ability to grow faster, and the anticipation of higher returns for shareholders. When P&G recently announced that it would buy Gillette, for example, the fact that 6,000 people would lose their jobs was all but buried in the details of a deal that would link some of the world’s most well-known household brands. Yet, as Wharton professors point out, companies that fail to factor in the costs of layoffs, declining morale, and the chaos that comes from restructuring are headed for trouble.