The Hindu Business Line : Don't get swept by merger mania

SOUTH or West is where there is anticipation of `at least one big-ticket bank merger' this year, even as Kingfisher man Mr Vijay Mallya is busy grooming his son Siddharth to enter the company and completing the merger of his spirits companies.

Some Parliamentarians are not too happy over the delay in the merger of SAIL and IISCO, just as many accountants are averse to the very thought of amalgamating all the three professional institutes — ICAI, ICWAI and ICSI.

Abroad, the Veritas-Symantec match is acclaimed as `a different merger' with a promise to go beyond `cost synergies' and achieve `capability for the future'. And there's a new product `Mendocino' that Microsoft and SAP will jointly develop; the two companies talked of merger last year, but stopped short of walking the talk when they found things too complex.

If you're on the verge of a merger, spare a thought for "AT&T, WorldCom, DaimlerChrysler, Quaker Oats, United Airlines, Sears, and Mattel" — companies that did `megabillion-dollar flops', writes Patrick A. Gaughan in Mergers: What can go wrong and How to prevent it, from Wiley (www.wileyfinance.com). "Why do we seem to have trouble learning our merger lessons? Are companies making the same mistakes, or are the failures of the more recent merger period different from those of prior merger waves?" These are some of the questions that Gaughan takes up in his book.

What is a merger? It is "a combination of two corporations in which only one corporation survives," defines the author. At times, there is a new company that lives on. Most mergers are friendly deals, but there can be the hostile ones too, as in the case of Oracle and PeopleSoft, where "bidders try to make appeals directly to shareholders."

Economic theory classifies mergers into horizontal, such as Pfizer-Warner Lambert between competitors; vertical, that's between companies with a buyer-seller relationship, as in the case of Merck and Medco; and conglomerate, where the deal involves companies without any business relationship, like GE's failed takeover of a brokerage firm called Kidder Peabody.

An interesting chapter discusses the question `why do firms merge?'

"Many different reasons are cited to justify M&As," writes the author, and adds that stated goals may not be the true goals. Useful read if, as the cover says, "you are a CEO, COO, accountant, auditor, corporate attorney, consultant, director, or shareholder," to keep you from "being swept up by merger-mania."

BooksOfAccount@ TheHindu.co.in

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