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Winning CFOs: Implementing and Applying Better Practices, with Website by David Parmenter

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CHAPTER 24

Avoiding a Rotten Takeover or Merger

It is often quoted, and even great leaders seem to forget, that “history has a habit of repeating itself.” Company executives, directors, and the major institutional investors (whose support is often a prerequisite) need to learn the lessons and think more carefully before they commit to a takeover or merger (TOM).

How Takeover or Merger Goes Wrong

The main reasons why you should beware of a TOM as set out next.

The Synergy Calculations Are Totally Flawed

The Economist1 ran a very interesting series on six major takeovers or mergers (TOMs). In the articles, the writers commented that over half of TOMs had destroyed shareholder value and a further third had made no discernible difference. In other words, according to a KPMG report discussed in one article, there is a one in six chance of increasing shareholder value.

TOM advisors and hungry executives are as accurate with potential cost savings estimates as they are with assessing the cost of their own home renovations (in other words, pretty hopeless).

Press clippings are easily gathered with CEOs stating that the anticipated savings have taken longer to eventuate. The reason: It can take up to four years to merge the information technology platforms together, and even when this is achieved, many of the future efficiency and effectiveness initiatives have been put on the back burner.

The synergy calculations never allow enough for the termination and recruitment costs involved in merging ...

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