Disclosure: Most of the companies mentioned as merger examples are clients of the author.
In general, there are three reasons for acquiring another company: synergy between the companies leading to competitive advantage; the elimination of a competitor; and the acquisition of critical intellectual property. I thought so after Elon Musk's attempt to buy Twitter this week. (Sounds more like an effort to buy Twitter's CEO job, rather than the company.)
This type of move is not only extremely rare, but unlikely to succeed. However, Musk has often found success when the odds are stacked against him, so it's worth watching, and the outcome is uncertain.
The impact on Twitter would certainly be negative and long lasting; Hostile takeovers tend to motivate high-value employees to leave and prevent high-value employees from taking positions with a company midway through the acquisition operation. And they can be a huge distraction, leading to overall poor performance of your hard-earned business.
Let's talk about mergers and acquisitions this week and why hostile takeovers are generally a bad idea because they can damage company morale, productivity and viability.
Mergers and Acquisitions: Why Most Fail
I used to lead what was basically a merger cleanup team at IBM, so I spent a lot of time studying mergers at IBM Competitive Analysis. What I have found is that the reasons why mergers fail are often related to a lack of detailed knowledge and skills and a lack of due diligence on the part of the acquiring company. In addition to this, the rules surrounding pre-approval of a merger limit the ability of the acquirer to get started once the process is complete.
Mergers are risky for both the acquiring company and the acquired company, especially when there are unexpected frictions between the company's operations, culture, practices and leadership. Examples of successful mergers include Lenovo's acquisition of IBM's PC business and Dell's acquisition of EMC. (Most of Dell's mergers are successful in large part because of its unique improvement on IBM's M&A process.)
Lenovo's acquisition of IBM's PC business was a success, as the transition period was long, the unit was self-contained and left alone until fully understood, and employee retention remained high throughout the process. Dell's acquisition of EMC was successful because Dell did not have a "B" plan and therefore moved aggressively and early to fully understand EMC before the merger was approved; this allowed him to act quickly once the deal was approved.
The key in both cases: eliminate the problems that damage the acquired asset, and identify and protect business assets - human and intellectual property - that add value.
hostile mergers
In a hostile merger, the acquired company does not want to be acquired. This means that there is a clear lack of knowledge of your operations on the part of the buyer and, even after approval, there may be continued resistance and open defiance of new management. You cannot keep and protect assets you do not know exist and until you have the authority to do so. For Twitter, that means the company is likely to bleed key people at an alarming rate and won't be able to replace them until the merger is complete and management changes. Buying the top job, as Musk seems to want to do, can also create animosity among senior staff, especially those who thought they were in contention for the job. Efforts to sabotage the process, or the new leader, are not uncommon.
The political and competitive aspects of this also suggest that there will be unique domestic and foreign barriers to this process that are difficult to overcome. Musk is already considered a bad actor by the United States Securities and Exchange Commission (SEC), and has not complied with previous rulings of him. (The agency could block his efforts on that basis alone.) Owning Twitter could also give both SpaceX and Tesla a lot of power, leverage that could be seen as corruption for the former and unfair competition for the latter. This could prompt governments, domestic and foreign, to block the merger to protect their auto industries and ensure their SpaceX efforts are not compromised. In the extreme, it could even lead to post-merger sanctions on Tesla and SpaceX.
Finally, buying a job to recreate the kind of extreme control Mark Zuckerberg enjoys over Facebook is ill-advised, especially when it comes to someone who refuses to comply with federal disclosure laws. In short, with most hostile takeovers, the chances of success are not good (unless the goal is to eliminate a competitor). Musk's bid to acquire Twitter is likely to be a slow-motion train wreck that cripples Twitter in the process.
In short, Musk might manage to buy Twitter's CEO job, but that would be a Pyrrhic victory at best, and a total disaster when he's done.
The difference between success and failure
Most acquisitions fail. Successful ones are either very well managed (like the Lenovo/IBM PC merger), extremely well planned and executed (like the Dell/EMC merger), or designed to eliminate a competitor (like the Oracle/Peoplesoft merger). On the other hand, hostile takeovers fail most of the time, except during the elimination of a competitor (Oracle/Peoplesoft again) because they hurt the acquired company. And as we saw with the Broadcom/Qualcomm effort, they can also be blocked to prevent a company from being attacked. A hostile takeover is definitely an attack.
Management of an attacked company should regularly meet and talk with subordinates, respond to rumors and fears, reiterate that the effort is being conducted at the highest level and with all company resources, and ask employees to stay and help fight by focusing on your work and ignoring any uncertainty.
Musk is sure to hurt Twitter, but if he can keep his employees focused and productive, and allay any concerns about the attempt, management should be able to mitigate most of the drop in productivity during the siege.
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