Culture, the Slow Killer

To set the scene for this blog, I watched a documentary called 'Mercedes Goes to Motown' which was about the 1998 merger between Daimler-Benz (Mercedes) and Chrysler. I thought this would be the perfect documentary to watch as I am currently looking through the assignment on Fiat where CEO Sergio Marchionne would like to merge with another company in the automobile industry, but more that I just bought a German made car too (not a Mercedes, I wish). This of course leads onto Fiat, as the merger dissolved in 2007, Fiat later took them over. I thought this would be really relevant and help me when looking to be more informed at whether a merger would increase shareholder value.

M&A activity as I have mentioned before is one of my favourite topics in business, it is exciting watching what happens. It was obvious that culture killed the merger in this case (I have touched on cultural importance in previous blogs). I have read many FT, Economist, Forbes and Harvard Business Review articles on culture being really important to merger success. I can name so many more mergers that have failed due to or experienced cultural problems; AOL - Time Warner, HP - Compaq, BMW - Rover, Kraft - Cadburys (do I need to go on?).

I believe that bad culture can be the silent, slow and costly killer in a business or merger, as if I was to measure culture, how would I do this? You could undertake employee satisfaction surveys, but who is going to tell the CEO they hate the company? (they think Sir Alan Sugar will come in and say 'You're Fired!'). This was the second problem of the merger, Daimler did not undertake proper due diligence which was a big mistake. I have mentioned this before, but I believe due diligence is the most important factor when thinking about M&A activity; financial checks, cultural checks (if possible) and market checks at a minimum I believe. Take myself for example, when choosing a university I went to both Northumbria and Newcastle open days. My mind said I wanted to go to Newcastle as it is considered by league tables as 'better', but in the end I chose Northumbria because once I got there it fit me better and the culture felt better. If I hadn't gone to the open days, I would have been at Newcastle for 4years. Back to business, this is what Daimler needed to do, they needed to assess whether they would be able to survive a partnership into the future and if the culture fitted them.

One part of the documentary that we had learned about in the module was M&A premiums that one company can pay for the others shares. One of the most important things for management is 'the price', if the price is too much, your shareholders will react badly. In the documentary, the CEO of Chrysler wanted 28% more than the shares were worth, which increases the overall price. What I was thinking when that figure came us was that if I was a Daimler-Benz shareholder, I would be really annoyed that the company was going into a 'merger of equals' but the Chrysler shareholders get 28% more than I do. Other M&As also have paid high premiums such as when Pfizer acquired Vicuron Pharma in 2005 and paid 78% premium on the shares.

Finally, it was obvious to see that styles of leadership and workmanship were different in the USA and Germany. Just from my own view without looking into it, I perceive German manufacturing to be efficient and good quality (which is why I bought a German made car) and US manufacturing to be not as good quality, which I do think these styles would have caused conflict for management. If management from another company/country are taking over when it is supposed to be a 'merger of two equals', employees are naturally going to resent the leadership and may become increasingly dissatisfied and demotivated. When employees are demotivated, productivity will decrease which will also lead to a failed merger.