Simon Law Firm - May 2020

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MAY 2020

Look Before You Merge! 2 Massive Merger Mistakes to Avoid

T his February, Judge Victor Marrero changed the American business landscape dramatically when he greenlighted a merger between two communication giants: T-Mobile and Sprint. Attorneys general from 13 states and Washington, D.C., opposed the merger, arguing that if the two companies joined up, then competition in the industry would decline, cellphone bills would rise, and customers with low incomes would have a harder time keeping their coverage. Instead of backing the states, Marrero praised T-Mobile as a “maverick” and gave its controversial mission to go after AT&T and Verizon an enthusiastic thumbs-up. The T-Mobile-Sprint merger is just the latest in a wave of large-scale business marriages. In a recent article, The New York Times summed it up nicely, reporting, “In June 2018, AT&T’s bid to buy Time Warner was approved, giving the phone giant control of CNN, HBO, and the Warner Bros. film and TV studios. Shortly afterward, The Walt Disney Co. beat out Comcast to buy the majority of Rupert Murdoch’s Twenty- First Century Fox empire. Late last year, Shari Redstone combined her family’s two businesses, CBS and Viacom.” In the business world, mergers and acquisitions (M&As) happen all the time, but they usually only make headlines when they include household names, implode fantastically, or both. Examples include the EchoStar-DirecTV merger attempt in 2002 and the hoped-for AT&T- T-Mobile merger in 2011, both blocked by the U.S. government. It’s relatively rare for the government to block a merger — it generally only steps in if the marriage will lessen competition, create a monopoly, or harm consumers — but even mergers between small and midsize businesses face a rocky road to success. According to the Harvard Business Review, between 70%–90% of M&As fail. Companies have plenty of reasons to consider a merger, like the possibility of increasing revenue, reaching more customers, or expanding their niche. But even with the best of intentions, it’s smart to know the risks. If you’re considering an M&A deal for your own business, keep an eye out for these pitfalls.

Culture Clash Company culture is a powerful thing: It can help you bring in new hires, keep top-performing employees loyal, and win your company awards, accolades, and press. Odds are that you understand the value of company culture and have spent years honing yours, so don’t enter a merger without a plan for it. Chief Executive magazine and Investopedia rank culture differences as one of the top reasons mergers fail, particularly when they cross state or national lines. A standout example of this is the Daimler Benz-Chrysler merger of 1998, which ended dramatically when Daimler AG (their new name) sold off Chrysler nine years later. As CNBC described it, “Chrysler was nowhere near the league of high-end Daimler Benz, and many felt that Daimler strutted in and tried to tell the Chrysler side how things are done. Such clashes always work to undermine the new alliance; combine that with dragging sales and a recession, and you have a recipe for corporate divorce.” Ideally, you should aim to merge with or acquire a company with a similar culture, but if that’s not the case, it’s vital to sit down with your soon-to-be partner and discuss your differences so you don’t send employees scrambling for the exit. What can your companies learn from each other? Which facets of your company culture (e.g., CONTINUED ON PAGE 3 ...

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