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Synergy and
other lieS
Why takeoverS diSappoint
C
ompanies have to grow in
order to survive. One way
to make an organization
bigger is to buy (acquire) another
and make it part of the original
company. Alternatively, two
businesses can agree to merge,
forming another organization
with an entirely new identity. The
purpose of an acquisition or merger
is often to increase shareholder
value beyond the sum of the two
companies. These benefits are
known as “synergy”; the concept
being that one plus one equals three.
The reasons for two businesses
joining together might seem
compelling. The new, combined
company increases sales, market
share, and revenue. It should also
be a more efficient operation. Bigger
companies also enjoy economies ofscale: overhead costs are shared
and money can be saved from
increased buying power. Fixed
costs can also be reduced because
the combined business needs less
staff in functions such as finance,
human resources, and marketing,
than the two separate entities.
Companies’ also buy businesses to
acquire new technology, reach new
markets, or increase distribution.Corporate divorce
In practice, takeovers and mergers
are rarely marriages made in heaven,
a fact underlined by Harold Geneen
in the books he co-authored in 1997
and 1999 on the pretence of synergy.
Mergers can fail to deliver the value
promised, with one plus one often
equaling less than two. There are
many reasons for failure. Hiddenin Context
FOCus
Mergers and takeoversKey DATes
1 890–1905 The first “takeover
wave” occurs in the us and
europe, triggered by an
economic depression and
new legislation.1960s Abraham Maslow
applies the idea of “synergy”
to the way that employees in
organizations work together.2001 us companies AOL and
Time Warner merge in a deal
worth $182 billion. It does not
work out, and in 2009 the
companies become separate
entities.2007 In the us alone, 144
takeover deals worth more
than $1 billion take place.2009 Only 35 takeover deals
worth more than $1 billion
take place in the us.Synergy is the
additional value that
is created when two
business units are
joined. A holy grail in
business circles,
academics Campbell
and Goold concluded
that “synergy
initiatives often fall
short of management’s
e x p e c t at ion s”.