590 Making Key Strategic Decisions
Only then will the bidder ’s shareholders see their wealth increase. This sounds
simple, but in a competitive market for corporate control, there must be a rel-
atively unique relationship between the bidder and the target that other firms
cannot easily match. The market must perceive the target as worth more as
part of your firm than alone or with some other firm.
There are many practical details that potentially impact the creation of
value in M&A transactions. These include the choice of payment (cash vs.
stock), the accounting method (purchase or pooling), tax considerations, and
antitrust concerns. Each of these may affect future cash f lows and synergies
and therefore must be part of the premerger due diligence process. We de-
scribe brief ly how each factor can impact value creation, but refer potential
bidders to investment bankers, professional accountants, tax experts, and attor-
neys for the most timely and customized advice.
The final and most important part of the process is the postmerger imple-
mentation plan. Managers often focus on completing the transaction, which is
unfortunate, since the transition to a single organization is where the keys to
value creation lie. A detailed implementation plan must be developed before
the transaction closes and communicated quickly and effectively to employees
by the firm’s new leadership. The plan must focus on the roots of synergy in
the deal to ensure the successful creation of the anticipated shareholder value.
In deals where there are major cultural differences, special attention must be
paid to smoothly integrating these differences. Failure to do so can doom an
other wise sound transaction.
In the end, profitable growth by acquisition is possible but difficult. The
market for corporate control is competitive and it is easy for bidders to overes-
timate potential synergies and therefore overpay for acquisitions. To avoid this,
managers must develop and stick to an acquisition plan that makes strategic
and financial sense. Only then can they hope to overcome history, human
nature, and the odds against successfully creating shareholder value through
mergers and acquisitions. Our hope is that this chapter provides the basic in-
formation needed to embark on such a course.
FOR FURTHER READING
Morosini, Piero, Managing Cultural Differences(New York: Elsevier, 1997). A com-
prehensive discussion of culture’s role in mergers and other corporate alliances.
The focus is on cross-border deals, but the strategies for effective implementa-
tion can be used by all.
Sirower, Mark L., The Synergy Trap: How Companies Lose the Acquisition Game
(New York: Free Press, 1997). Focuses on assessing the potential for synergies
and value creation in mergers.
Vlasic, Bill, and Bradley A. Stertz, Taken for a Ride: How Daimler-Benz Drove Off with
Chrysler(New York: HarperCollins, 2000). A fascinating behind-the-scenes look