M&A deal failures often lead to various consequences.
Some careers collapse, few get shunted out, while many rationalize. Deal failures often tarnish the image of managers, who have built their goodwill over the years.
The legendary CEO of GE, Jack Welch, just before his retirement and after a long and brilliant career, tainted his reputation when his bid to buy Honeywell failed.
Similarly, the reputation of Marius Kloppers, CEO of BHP Billiton, sullied with the botched-up deal for its arch-rival Rio Tinto in 2008 for $150 billion. He subsequently wanted to revive his reputation by buying Potash Corporation of Saskatchewan, a Canadian fertilizer company, for an unbelievable price of $39 billion in 2010. This, too, failed to take off. Kloppers had to leave BHP Billiton in 2013.20
There is another consequence of a failed takeover plan. In order to prevent takeovers, the target companies often prop up ambitious forecasts. But this often leads to difficulties in meeting them.
AstraZeneca, defending itself from Pfizer’s abortive attack, declared in 2014 that its sales will double by 2023 as new drugs arrive, despite its sales being stagnant when the tall claim was made. (Incidentally, AstraZeneca sales have started rebounding since end 2018, riding on new drugs).
However, sometimes frustrating deals become a blessing in disguise.
ABN AMRO in 2007 was targeted for a takeover for $92 billion by Barclays. Had this happened, Barclays perhaps would have gone under, as was the case with Royal Bank of Scotland, the ultimate victor who needed to be bailed out by the government. In fact, ABN AMRO’s disastrous $96 billion acquisition price proved RBS’s undoing.
Who wants to fail? Surely not the corporate head honchos, backed by a battery of investment bankers and advisors, working on deals to prop themselves up.
Unfortunately, most M&A deals fail to deliver. Some do not even take off. A few, the governments do not even allow. Justification starts flowing from the powers that be, in rationalizing failed developments.
Strange are the ways businesses function!
Article credits: Robin Banerjee, author of WHO BLUNDERS AND HOW
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