Introduction In business there is one simple rule: grow or die.

Mergers and acquisitions play an important role on both sides of this cycle i.e. enabling strong companies to grow faster than their competitors thereby ensuring that the incompetent ones are absorbed efficiently (Sherman, A.J, 2006) This paper will first describe how mergers are different from acquisitions and then go onto discussing why mergers and acquisitions take place and then discuss two cases. First is the case of Akzo Nobel, which was a successful merger, followed by the case of BMW and Rover, which was an unsuccessful Merger, and then discussing what differentiates a successful from an unsuccessful Merger and Acquisition. Defining Mergers and Acquisitions The terms mergers and acquisitions are often perceived in the same light. This however, is incorrect. They are similar as far as the main idea that surrounds them is pertained. That being that by combining two or more business entities; the resulting entity unit is more powerful than the added effect produced by the individual entities. That being said, the differing factors are the path that is followed and the shape of the final result. A merger is a combination of two or more companies in which the assets and liabilities of the selling firm(s) are absorbed by the buying firm (Bernstein, P.L, 1998). An acquisition is the purchase of an asset such as a plant, a division or even an entire company. (Scott, D.L, 2006). Reasons for occurrence of Mergers and Acquisitions There are a number of reasons that mergers and acquisitions occur. These issues generally relate to business concerns such as competition, efficiency, marketing, product, resource, and tax issues. An important reason often cited is a corporate greed to acquire everything. The economic explanation for this is that the primary objective of a firm is to maximize profits and thereby maximizing shareholders wealth (Milton Friedman). Another important reason that companies combine is to eliminate competition as acquiring a competitor is an excellent way to improve a firms position in the marketplace. Companies, like humans have an innate drive towards supremacy and therefore strive to outperform themselves and their competitors in every sense. An interesting analogy is deduced that a company though performing well overall, does not manage to do the same in all spheres of its operations. Combining two such units where one excels in a hypothetical sphere A and the other in B would give rise to a unit that could possibly excel in both at the same time. This would help it achieve a strong competitive advantage over the competition and lead to increased benefits due to the synergies. M&As also reduce competition and allow the acquiring firm to use the targets resources and expertise. They improve cost efficiencies and reduce the long run average costs. Generally, the assumption is that larger firms are more costeffective than are smaller firms (i.e., that larger firms exhibit economies of scale

when compared to smaller firms)(Besanko and et al, Economics of Strategy, 2007) .If the companies are approximately the same size and have approximately the same sales, then by merging, they can eliminate the seasonal instability. Often mergers occur simply because one firm is in a market that another wants to enter. All of the target firms experience and resources (the employees expertise, business relationships, etc.) are available by buying the targeted firm. (Mullins, G.E, 2001). Akzo Nobel Case The summer of 2007 turned out to be quite an eventful one for the Paint industry. AkzoNobel, a Dutch conglomerate of Jurassic proportions had just finished selling its pharmaceutical business, Organon for a consideration of 11 billion. Therefore this was the right time to scope for intelligent ways to invest their newly acquired wealth. AkzoNobel approached the management of the Imperial Chemical Industries and offered to buy their century old decorative paints business. After two failed attempts by Akzo relating to the price of the deal, the overall consideration of the deal worked out to be 8.1 billion. By the time this acquisition would be complete, AkzoNobel would be the worlds largest Paint manufacturer. The shareholders of Akzo were skeptical about their side of the bargain as the price of the deal according to some was too high and could endanger the shareholder value. Strategic fit is not enough by itself. The right asset at the wrong price can have disastrous consequences for shareholders, TPG-Axon, a US based holder of 3.4 % of Akzo, - (Financial Times, London). Later, a revelation was made Akzo decided to sell the adhesives and electronic components business of ICI to Henkel for 2.7 billion as part of a side deal. This made the overall net worth of the deal 5.4 billion. Akzo shareholders were not happy with the price of the deal, but later got on board when they were given a lucrative rise in dividends (45% as per Financial Times) and buyback promise. With the acquisition, they had hopes of achieving cost synergies due to the similar nature of their operations. They expected pre-tax cost savings of 190 million - 85% of which would be realized in the first 3 years. (Financial Times) ICIs management was known to be skilled and competent in the industry and Akzo noble had its eyes on them to be a part of their management. ICIs decorative business was widely spread in the developing Asian markets and their products were much in demand. This enabled AkzoNobel to enter new geographic boundaries with ease. (Financial Times, London) The success of an acquisition depends largely on the efficiency of the integration between the two businesses. Managers who have been involved in mergers and acquisitions know the odds of a painless integration are low. Rarely, it seems, does combining two organizations go smoothly, at least in the short term.(Heimeriks, k and Gates, The Secrets of Successful Acquisitions, 2008). Due to the similar nature of their operations, the integration was seamless and took less than the stipulated amount of time.

Visible benefits form the deal could not be seen due to the wake of the Global economic crisis in 2008. But still, reduction could be seen in the costs incurred by the paint giant. The bursting of the housing bubble directly affected the real estate market. This in turn had a spillover effect on the raw material markets of real estate. This meant that the newly acquired decorative paints business could not perform as per the expectations and hence the success of the acquisition remained to be seen. They had to delay their share buyback program and the company decided to lay off 3500 employees as a part of their plans to reduce costs in order to achieve results during the crisis. This had a negative effect on the mindset of the existing employees. (Financial Times) However, as the markets started showing a somewhat upward trend, the success of this has started surfacing. Even though the revenue showed a downward trend, the overall profit for the shareholders did rise. Amounts in GBP (millions) (Akzo Nobel annual report, 2010) This clearly shows that the acquisition was a financial success or at least on the path of being one as the success of such a big acquisition in the present market conditions cannot be fathomed in a small period of 2 years. BMW and Rover Case Buying another business is easy but making the merger a success is full of pitfalls Robert Heller. Such was the case of the BMW and Rover that joined hands in 1994 and had its demise in 6 years time. It is often said that combining two businesses is an easy task if managed properly. However if the management wrongly interprets the end of such a merger, it is unlikely that the merger would succeed. Prior to the merger, BMW operated small top portion of the customer pyramid. It had a very small yet prestigious product portfolio. They crafted each car with utmost care and precision as they had an 8-decade brand value to live up to. With the integration of the world automobile industry, it was becoming increasingly imperative for the Bavarian automobile maker to manufacture medium to low-end vehicles and achieve mass production at that. BMW had to be careful as to how to do this as a manufacturer like that would lose a lot of brand value if its producing low end cars. Therefore BMW went for buying an automobile manufacturer that would give it this competitive edge. Rover came out to be the perfect candidate for BMWs future plans. It was able to impress the management with its quality that was as good as BMW, if not better in certain aspects. BMW wanted to introduce cars that were inexpensive and hence had a mass appeal. This worked in favor of BMW as none of Rovers cars directly competed with those of BMW except the Range Rover and the Mini brand, which had a niche market of their own. British Aerospace happily sold its 80% stake in the company for 800 million. The merger turned out to be a cunning move on BMWs part as their competitor and owner of the remaining 20%, Honda, was set back after dissolving its share.

The deal was a recipe for success but still was one of the biggest disasters in the automobile mergers history. It was speculated that BMW entered the deal primarily in order to get its hands on technology of the Rover group. According to an article written by Leslie Button, BMW wanted to get its hands on the 4x4 wheel drive technology of the Rover group that currently powers its X5 variant. As soon as it had this technological know how, it was ready to dump Rover. It also sheds light on the facts that BMW made very careful and calculated investments during their marriage, such that when the time came for the divorce, it would retain all that they had invested in or sell it for a considerable gain. Another interesting fact is that in the 5 years that they were together, only one new model of Rover 75 was developed under BMW. This car possessed the same diesel engine that powered the 5 and the 7 series, however it was tuned down to push it down, as they did not want it to compete with 5s and 7s. Therefore trends over the years of their association have shown a somewhat disturbing image. It shows that since the merger, the sales of BMW have been rising at a constant rate, while those of Rover falling in its home markets. It was argued that BMW did not evolve the Rover products excluding Range Rover and Mini during their time together and this lead to the downfall in Rovers sales. It was getting hard for BMW to sustain the loss making entity, which was reducing the overall profit of BMW by 33%, and hence their 6-year long came to a bitter end. BMW sold Rover to ford for a consideration of 1.8 Billion, 1 Billion more than what it had purchased it for. Conclusion We have something to learn from each of these cases. From Azko Nobel we learn is that the timing of the merger and cost synergies that are very important. Awareness of cultural differences, in terms of company cultures i.e. the differences between pharmaceuticals, coatings and chemicals as well as national cultures; British, Swedish, German and Dutch. Also a reconciliation of interests of various stakeholders needs. Even in a money-driven, hectic acquisition process, the focus at the end of the day is on the quality of people, interpersonal relationships, communication, etc., as the way to make mergers work. What we learn about an unsuccessful acquisition from the BMW and rover case is that there is no halfway house. Either merge with a mass-market business or remain alone, steadfastly developing distinctive products. But do not think that the magic of your core business will automatically transmit itself to a weaker acquisition. (Financial Times (London), (BMW Rover), (01/01/99) Mergers and acquisition success is not an exact science but is achievable with the right approach. Most Mergers and acquisitions fail for two basic reasons the first one being failure to assess the potential impact of attempting to merge and integrate cultures of the companies involved and failure to plan for systemic and systematic and efficient integration of those cultures (J. Robert Carleton and Claude S. Lineberry, 2001). The ability to control and co-ordinate all aspects of the companys operations, so that they are simultaneously engaged in enhancing a competitive advantage is an important reason for success (Clausewitz, 1982). References

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