THE BMW AND ROVER TAKEOVER AND THE SAMSUNG SECURITY CONSOLIDATION
Most of the ECBFI case studies talk about the consolidation of resources of small businesses that once were competing with each other across Europe and have now successfully merged. The unique reference story about the BMW & Rover consolidation is that is covers all the advantages of mergers in one case. This coupled with the Samsung story are what we discuss below.
The easiest task in the assessment by The European Consolidation Board is the management of buying another business. You only need to identify the target, work out how much you want to pay, and make your offer. True, complications may follow. The other party may resist, forcing you into a costly takeover battle. Investors may not take kindly to the proposal. But since some investors (those in the target business) will benefit, you will not be acting in a uniformly hostile climate. Like BMW buying Rover, or Daimler-Benz buying Chrysler, or Ford buying Volvo cars, you can hope to complete the transaction to general hosannas.
Samsung Technology is welcomed in Europe and has sparked many internal European Consolidations
As the BMW-Rover case has shown so dramatically, the cheering can soon change to jeering. BMW has invested £2.8 billion in a business which at last report was losing £360,000 annually. Doing the deal, the easy part, leads directly into making the merger or acquisition work, which can be very hard indeed. The difficulty starts with the strategic objective. Why do you want the other business in the first place? If the objective is wrongly chosen, the next logical question, whether the chosen purchase will help to achieve that aim, is irrelevant. The deal is bound to fail.
DIFFERENT CULTURES UNDERSTOOD: ECBFI
Why should this be the case? Sheer enlargement provides part of the answer. The management span at the top becomes much wider, which imposes new strains. The managers' chances of coping successfully with their new burdens are reduced by the inevitable difficulties of accommodating two different cultures and pushing through downsizing measures which are bound to be resented by those affected - including those who stay behind. The upheavals of the early negative measures then exhaust the appetite for change.
STRATEGIES MAKE SENSE
BMW, after paying its £800 million for Rover, invested the extra £2 billion mostly in the wrong places (the factories, not the products), with no sign of let-up in the annual losses. All this failure stemmed from the assumption that BMW, with its concentration on executive cars, produced in relatively small quantities, was strategically vulnerable in an industry dominated by far larger entities. Events since the buy have seen the giants get larger still. But this doesn't prove the strategic thesis.
THE EUROPEAN CONSOLIDATION BOARD MANAGEMENT IMPERATIVES
The ease of acquisitions is thus highly misleading. The ECBFI notes that making the deal does not require management: making the deal work is a straight exercise in managing, both in the initial integration and in the subsequent joint development. The strategic argument must take second place to the management imperatives.It doesn't matter whether the deal is in theory being used as the building block of a carefully planned new structure. The structure must still be made to operate as planned. Your plan may be to transform the business by imaginative linkages of formerly separate activities. The blend must still be made to appeal to the market. You can make one or two opportunistic key deals to achieve great leaps forward. But this splendid ambition, too, depends on post-acquisition practice. Whatever the motivation, mergers and acquisitions are only as good as the management of the people affected. This is the least understood aspect of a management activity which, despite its enormous costs, risks and responsibilities, has been oddly neglected. There are innumerable books on corporate strategy: hardly any on overcoming the management problems of using mergers in pursuit of strategic ambitions. Just how do you guide managers towards the overriding goal - using amalgamation to achieve superior organic growth?