Cross-Border Mergers and Acquisitions
The globalization of business over the
past decade has spawned a search for competitive advantage that is worldwide in scale. Companies have followed their customers – who are going global themselves – as they respond to the pressures of obtaining scale in a rapidly consolidating global economy. In combination with other trends, such as increased deregulation, privatization, and corporate restructuring, globalization has spurred an unprecedented surge in cross-border merger and acquisition activity. According to Securities Data Corporation, there were more than 2000 announced cross-border acquisitions in 1996 worth over $252 ...view middle of the document...
Numerous anecdotal accounts corroborate these results. Take, for example, the acquisition of Columbia Pictures by Sony Corp in 1989. After paying a significant premium for the company, and keeping a hands-off attitude toward their senior executives in Hollywood –
This is a summary of an article that appeared in Financial Times Mastering Global Business: The Complete MBA Companion in Global Business, London: Financial Times Pitman Publishing. Finkelstein, S. 1999. "Safe ways to cross the merger minefield." p. 119-123. Sydney Finkelstein is the Steven Roth Professor of Management at the Tuck School of Business at Dartmouth. For more information about the book or to contact Sydney please see http://www.whysmartexecutivesfail.com.
who were busy overspending on office renovations, company perks, and unsuccessful movies – Sony was forced to take an unprecedented $3.2 billion write-down in 1994. This merger is now a classic case study of what not to do in cross-border deals. Some of the problems encountered by Sony include legal problems stemming from their recruitment of senior management who were under contract at Time Warner, lack of internal controls over budgeting, weak understanding of the fundamentals of the acquired business, and an overly optimistic belief in “synergies” arising from vertical integration and from applying Sony’s technological competencies to the movie and television business. Of course, these are mistakes that can arise in any merger or acquisition; what makes them particularly troublesome in cross-border deals are the inherently greater challenges of melding country cultures, communicating across long distances, dealing with misunderstandings arising from different business norms, and even fundamental differences in management style. Why are cross-border mergers and acquisitions so difficult to implement? Consider all that must go right in any (same-country) acquisition: The two companies must reach agreement on which products and services will be offered, which facility or group will have primary responsibility for making this happen, who will be in charge of each of these facilities or groups, where will the expected cost savings come from, what will the division of labor look like in the executive suite, what timetable to follow that will best generate the potential synergies of the deal, and myriad other issues that are complex, detailed, and immediate. On
top of all this the merging companies must continue to compete and serve their customers in a competitive marketplace. Now, take all these challenges, and add a completely new set of problems that arise from the fundamental differences that exist across countries. Consider, for example, for all the similarities that a global imperative places on companies, the very real differences in how business is conducted in, say, Europe, Japan, and the United States. These differences involve corporate governance, the power of rank and file employees, worker job...