Assignment-I

Cross Cultural & Global Management

Topic:

Mergers Killed By culture

Submitted To:
Submitted By:
Dr. Mushtaq Ah. Lone

Saaleh Amin
MBA (4th Sem)
140121

Mergers and acquisitions are more common than ever in todays business
climate. Chances are, if you havent yet worked at a company going through
some sort of integration, you will. Yet studies show that manyif not most
mergers are doomed to fail. The failures result in poor shareholder results,
layoffs and in some cases a complete dissolution of the merger.
Why? Sometimes, as with MCI WorldCom and Sprint, they fall apart due to
regulatory pressure before they ever take place. Sometimes, as with Quaker
and Snapple, it is because one company overestimated the worth of the
otherand overpaid. Sometimes, as with Kmart and Sears, it is simply poor
product, market or resource synergy.
When mergers come up, these are the causes often discussed. But culture,
in part because it is so difficult to measure or manage, is all-too-often
overlooked. Yet according to SHRM, over 30% of mergers fail because of
simple culture incompatibility. Lets consider a few well-known cases of
spectacular culture clash:

1. New York Central and Pennsylvania Railroad

In 1968, two longtime railway rivals, New York Central Railroad and
Pennsylvania Railroad merged to become Penn Central, the sixth largest
corporation in America. What Penn Central did not expect was that years of
fierce competition made it impossible for the two companies to work
cooperatively together. The company filed for bankruptcy after only two
years.

2. Daimler and Chrysler

When German Daimler (the makers of Mercedes-Benz) merged with

American company Chrysler in the late 1990s, it was called a merger of
equals. A few years later it was being called a fiasco. Discordant company

cultures had the two divisions at war as soon as they merged. Differences
between the companies included their level of formality, philosophy on
issues such as pay and expenses, and operating styles. The German culture
became dominant and employee satisfaction levels at Chrysler dropped off
the map. One unhappy joke circulating at Chrysler at the time was How do
you pronounce DaimlerChrysler? Daimlerthe Chrysler is silent. By 2000,
major losses were projected and, a year later, layoffs began. In 2007,
Daimler sold Chrysler to Cerberus Capital Management for $6 billion.
3. Novell and WordPerfect

In 1986, WordPerfect was the nations best-selling word processing software.

For the next few years the private software company grew steadily, despite
being locked in a battle with rival Microsoft for market share. In March 1994,
WordPerfect signed a merger agreement with Novell, Inc. It should have been
a match made in heaven, but the management of the two companies were in
conflict from the start. The merger was followed by layoffs at both companies
and a steep drop in share value. With the focus on internal discord,
WordPerfect lost its market leadership. Two years later, Novell sold
WordPerfect to Corell for $1 billion less than they had paid.

4. AOL/Time Warner

In January of 2000, Time Warner stock sold for $71.88. By 2008 you could
buy a share of Time Warner for less than $15. What happened to the media
giant? A failed $350 billion merger with AOL. Culture clash was widely
blamed for the failure of the joint venture. Said Richard Parsons, president of
Time Warner: I remember saying at a vital board meeting where we
approved this, that life was going to be different going forward because
theyre very different cultures, but I have to tell you, I underestimated how
different It was beyond certainly my abilities to figure out how to blend the
old media and the new media culture.

5. Sprint/Nextel

In 2005, in a bid to keep pace with industry giants like Verizon & AT&T, Sprint
acquired rival Nextel for $35 billion. By 2008, the company had written down
80% of the value of the Nextel, confirming the widely held belief that the
merger had been a failure. That failure is widely attributed to a culture clash
between the entrepreneurial, khaki culture of Nextel and the buttoned-down
formality of bureaucratic Sprint. A Washington Post article written two years
into the merger stated: The two sharply different cultures have resulted in
clashes in everything from advertising strategy to cellphone technologies. In
early 2012 Sprint announced it would be ridding itself of the Nextel network,
marking what CNET calls a concluding chapter in one of the worst mergers
in history.

6. HP and Compaq

And finally, a story of hope. In 2001, struggling computing giant Hewlett

Packard announced it would acquire similarly struggling competitor Compaq.
The merger was ill-fated from the start, as critics pointed out how the HP
engineering-driven culture was based on consensus and the sales-driven
Compaq culture on rapid decision making. This poor cultural fit resulted in
years of bitter infighting in the new company, and resulted in a loss of an
estimated 13 billion dollars in market capitalization. Though the merger
itself was widely regarded as a failure, the company has hung on, and has
been able to make significant cultural and leadership changes that have
resulted in long-term success.

Not every factor in a merger is within your control. But a great, synergized
culture can certainly help protect your company against many merger bumps
and bruises. So how can you create a culture that will help ensure the
success of your merger or acquisition? Here are a few pointers:
Emphasize your core values: According to experts: an organization that
reinforces its core values is more likely to reach the kind of growth and
success that nearly all businesses seek. (Gallagher, 2003) Values which are
simply imposed will not thrive. Values must be practicable and absorbable.

Turn the blame game into the praise game: Help turn the negativity
that can accompany change into positivity by encouraging employees to
catch each other doing something right.

Stop the brain drain: One of the leading indicators of a coming failure is
the departure of key leaders and managers from the company. This
destabilizes the lower ranks and drains confidenceopening the door further
for an exodus of your top talent. Make sure you are listening and responding
to the concerns of this important bellwether group, and communicating those
issues up the chain of command.

Find your biggest influencers and encourage their buy-in: Learn to

identify those employees who are your most influential workers and
managers, (Hint: peer-to-peer recognition data is a great way to do this) and
spend extra time educating them, increasing their confidence and earning
their enthusiasm. Their attitude will cause a ripple effect.

Facilitate communication across groups and divisions: Encourage the

forging of relationships across the boundaries of the merger. Make it possible
for employees to recognize and appreciate their counterparts in other
buildings and countries and watch those bonds begin to strengthenand
with them, your merger.

Examples of Successful Mergers:

Disney & Pixar
Mickey and Nemo. Pinocchio and Buzz Lightyear. Cinderella and Lightning
McQueen. The merger of the legendary Walt Disney and everything-wecreate-kids-adore Pixar was a match made in cartoon heaven. Disney had
released all of Pixars movies before, but with their contract about to run out
after the release of Cars, the merger made perfect sense. With the merger
in 2006, the two companies could collaborate freely and easily.
Did the merger work? Well, take a look at the successful movies that DisneyPixar has given birth to since: WALL-E, Up, Brave and Inside Out. The merger
didnt just enable the two to collaborate, but also helped to breath new air
into Disneys other divisions. First Tangled and more recently Frozen have
garnered huge attention at the box office and beyond, with Frozen becoming
the fifth-highest grossing movie ever!
Sirius & XM radio
In July of 2008, satellite radio officially had one provider when Sirius Satellite
Radio joined forces with rival XM Satellite Radio. The merger was officially
announced more than a year prior, but the actual merger was delayed due to
one tiny problem when satellite radio first began in 1997, the FCC granted
only two licenses under one condition: that either of the holders would not
acquire control of the other.
Oops! So Sirius and XM filed the proper paperwork with the FCC, allowed the
FCC to investigate the merger, and waited patiently for the approval they
needed. Today, 70 percent of new cars come with SiriusXM pre-installed and
a free 3-month trial and net income and revenue continue to increase.
Exxon & Mobil
Big oil got even bigger in 1999, when Exxon and Mobil signed an $81 billion
agreement to merge and form ExxonMobil. Not only did it become the largest
company in the world, it reunited its 19th century former selves, John D.
Rockefellers Standard Oil Company of New Jersey (Exxon) and Standard Oil
Company of New York (Mobil). The merger was so big, in fact, that the FTC
required a massive restructuring of many of Exxon & Mobils gas stations, in
order to avoid outright monopolization (despite the FTCs unanimous
approval of the merger.)
ExxonMobil remains the strongest leader in the oil market, with a huge hold
on the international market and dramatic earnings. So was the merger a

success? Absolutely! Some even predict that after Shells recent acquisition
of BG Group, that ExxonMobil is about to make yet another big move in oil by
merging again. Only time will tell!