Mergers and Acquisitions: A Deal Gone Wrong
November 28 2011 by Russ Banham
Bad integrations are like bad haircuts. You hope things will look better after the blessings of time. However, A.G. Lafley, former CEO and chairman of Procter & Gamble, still can’t shake the bad haircut he received by British hairdresser Vidal Sassoon, whose eponymous hair care brand P&G inherited when it bought Richardson-Vicks in 1985. After P&G discontinued sales of the products in the U.S. and Europe, Sassoon sued the company for tarnishing the brand.
Chalk up the acrimony to incompatible cultures. “Vidal is a piece of work, with an ego that goes with the fame,” says Lafley. “After we acquired the brand, we decided to get him re-engaged and paid him a fairly good chunk of money, I’m talking millions, to promote the brand and it worked well for us in Asia. But the line never really caught on in the U.S. and Europe. He just never gave it the tender, loving care he gave it in Asia. At most, it was a mixed success.” The lawsuit was settled in 1994.
Lafley—who doubled P&G’s sales and brought the number of billion dollar brands in its portfolio from 10 to 24 while CEO of the consumer products giant—says he learned a valuable lesson. “If you and the other fellow have a personality clash, it’s probably not a good idea for your companies to merge,” he explains. “Jack Welch reminded me once that one of the worst calls he ever made was buying Kidder-Peabody. Six months into it, it was clear there was a huge culture clash—Kidder was all about individual greed and making money, whereas GE was about teamwork and process control. They were two cultures passing in the night.” General Electric sold the firm in 1994.
Courting for the Duration
Smart companies ensure the union doesn’t come apart after the bloom is off the rose by paving the way for success during the courtship phase. “Often companies that seek a merger of equals talk ‘merger’ during the courtship and act ‘acquisition’ after the deal closes,” says San Francisco State University’s Mitchell Marks, author of Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions and Alliances. Marks advises acquiring enterprises to undertake a behavioral and cultural assessment of acquisition candidates before the first date, identifying potential business and cultural barriers to integration success, among them:
- The level of resistance within the target company, from the top people through the rank and file;
- The lay-off potential—how many people you can let go without it affecting the combined entity after;
- The availability of integration resources—the people on both sides who can take time away from their usual roles to plot a seamless integration;
- The language barriers and actual cultural differences, which are different than the usual CEO personality problems that daunt pure U.S. deals.
Once these are sized up, the merger must proceed with one culture and not two. “Embracing aspects of the lead company’s culture is appropriate for the combined organization,” says Marks. “The more people see a direct link between the lead company’s ways of operating, the more likely they are to accept and welcome them.”
Visit www.chiefexecutive.net/M&A for additional articles on M&A pitfalls, including “The Merger from Hell.”