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The brutal truth is that most mergers fail to create market value. Here are some additional M&A pitfalls from Chief’s Russ Banham
November 28 2011 by Russ Banham
Among the myriad of failed M&As, which was the worst of all? Chief Executive called on Robert Bruner, the dean of the Darden Graduate School of Business at the University of Virginia and author of Deals from Hell to bestow the dubious distinction.
After a Chekhovian pause, his response was Sony Corp.’s purchase of Columbia Pictures in 1989. “Here you have a leader in consumer electronics that wants to integrate backwards into the production of content to be carried over its devices,’ Bruner says. “The idea was to create a ‘soup to nuts’ producer of consumer-oriented delight. The result was less delightful.’
The two companies’ cultures were night and day—a consensus-driven Japanese organization dominated by engineers, designers and an entrepreneurial co-founder (Akio Morita), and the other a prototypical, seat of the pants Hollywood studio. “Sony jettisoned the company’s leaders and put in place two aggressive company presidents (Peter Guber and Jon Peters),’ Bruner notes. “While they had some experience producing blockbuster movies, they had no experience running a studio. They spent a ton of money buying MGM’s old lot, and then refurbished it for $100 million. Then, they went out and produced a series of blockbuster movies, most of them flops.’
The earnings hit was immense, says Bruner: “Sony came in for severe criticism for its lack of oversight of the studio’s management team, which was soon cashiered, and the operation was renamed Sony Pictures Entertainment.’
The takeaway? “You need to design an integration that is both respectful of the target’s culture but also entails the values and control systems of the buyer,’ he replies. “You have two choices—either you absorb the target so there is no lingering vestige left or you preserve it in its existing identity, leave it alone and run it at arm’s length—what Warren Buffet does. You can’t do both and expect a successful integration.’