Anglia Polytechnic University, London

An examination of the nature of unsuccessful M&A as illustrated by the attempted BMW AG and Rover Ltd. acquisition

Sebastian Meyer

Inhaltsverzeichnis

1. Introduction ... 1

1.1 Conceptual formulation ... 1
1.2 Definitions of relevant terms ... 1
1.3 The Structure of the Dissertation ... 1
1.4 Historical background of M&A activities ... 2
1.5 Motives and objectives of mergers and acquisitions ... 3

2. Due Diligence ... 5

2.1 Explanation of the term ‘Due Diligence’ ... 5
2.2 The content of a ‘Due Diligence’ ... 6
2.2.1 Market and Commercial Due Diligence ... 6
2.2.2 Cultural Due Diligence ... 8
2.2.3 Human Resource Due Diligence ... 9

3. Post-Merger-Integration Management ... 11

3.1 Definition of the term ‘Post-Merger-Integration Management’ ... 11
3.2 Strategy of integration ... 11
3.3 Aims/objectives of integration and success factors ... 13
3.4 Implementation of Post Merger Integration ... 13
3.4.1 Organizational oriented integration ... 14
3.4.2 Personnel oriented integration ... 14
3.4.3 Cultural oriented integration ... 15

4. Methodology ... 17

4.1 Introduction ... 17
4.2 Research Design ... 17
4.3 Methods ... 18
4.4 Limitations ... 19

Discussion of the findings ... 20

Conclusion and Recommendation ... 23

Bibliography ... 25

1. Introduction

1.1 Conceptual formulation

‘An examination of the nature of unsuccessful M&A as illustrated by the attempted BMW AG and Rover Ltd. acquisition’ is the subject of the present dissertation. Furthermore, the reasons which led to the failure and what should have been done to avoid it, will be analysed and evaluated. This dissertation only deals with the most relevant stages of the M&A (Mergers and Acquisitions) process because the whole process from the first contact to the final breakdown lasts too long and would contain too much information, which could not be mentioned in total.

1.2 Definitions of relevant terms

First of all the word ‘Merger’ should be explained at this point. A merger is the purchase of one corporation by another where all assets and liabilities are absorbed by the buyer (www.trading-glossary.com). Furthermore, the expression ‘Acquisition’ is also very significant for this work and means essentially the same thing but is usually reserved for conglomerates buying other corporations. The firm that is expanding simply buys the shares of the purchased corporation. Nevertheless, this is not always as simple as it sounds. In some cases, the management and shareholders of the firm targeted for acquisition are reluctant to let their company become a subsidiary of a purchasing firm (www.acci.gr). In general, we can say that a merger is any combination of two companies.

1.3 The Structure of the Dissertation

After the introduction, the present dissertation will examine the ‘Due Diligence’. This expression will be explained and its huge importance demonstrated. Furthermore, cultural factors that are usually of note in cross-border M&A activities are assessed. ‘Due Diligence’ is followed by ‘Post-Merger-Integration’. ‘Post-Merger-Integration’ and their strategies are the core stage of the BMW-Rover merger and will be the most important aspect in this work as well. Finally, the present dissertation will provide an analysis why M&A often fail and what should have been done to avoid a collapse. Finally, a discussion as well as the author’s recommendation will conclude this work.

1.4 Historical background of M&A activities

Since the middle of the 1990s, the world economy has experienced an unprecedented number of mergers. This enormous amount of mergers and acquisitions can be identified as a ‘Merger Wave’ (Franz 2002 p. 27). From 1990 to 2000 the number of mergers and acquisitions has more than tripled and the transaction volume increased by a factor of 12 (Figure 1). The temporary peak of merger and acquisition activities was reached in the year 2000 but the merger wave has not entirely come to an end today. Figure 2 shows that the M&A activity in the automotive industry decreased from 2002 to 2003 in number of transactions but not in deal value (www.pwcglobal.com). Coming back to the already mentioned merger waves, we have to add that the current wave is the fifth of five more or less distinct waves over the past 100 years (Franz 2002 p. 28).
The first merger wave occurred from 1897 to 1904. It basically reflected the industrial revolution that enabled the exploitation of high economies of scale by the development of the steam engine and the emergence of heavy industries. It led to the establishment of large industrial trusts, which are still prevalent in the old economy of the United States and elsewhere. This first merger wave was characterized by horizontal mergers and acquisitions (www.uni-kiel.de).
In the year 1920, the second merger wave commenced. It lasted until 1929 and was dominated by vertical and conglomerate mergers. During this period of time, the new main focus was directed at branches like the energy sector, trains and railroads that were favoured by the existence of networks. In this way, new opportunities for exploiting economies of scale were opened up (Franz 2002 p. 29).
The period from 1965 to 1975 can be defined as the third merger wave in history. This time it was dominated by the endeavour for economies of scale by industrial mass production in consumer goods industries as well as by the diversification of products and by acquiring companies, which were operating in other markets (Kleinert 2000 p. 18). Within this third merger wave, Germany introduced a merger control in 1973. The United States further strengthened their merger control by the Hart-Scott-Rudino Improvement Act of 1976.
From 1984 to 1988 the fourth merger wave occurred which was less distinctive in the United States than in Europe. At that time companies in Europe were trying to prepare for the completion of the Single European Market by converting national champions into international or at least European ones. The antitrust policy, which was a result of this wave, was the EU directive on Merger Control of the year 1989. The catchwords of this fourth merger wave were synergetic effects, which should be achieved by the assembling of production activities with related technologies (Franz 2002 p. 29/30).
The fifth and last of the five merger waves began in 1995 and is still continuing. It can be typified by the catchwords globalization and deregulation. Basically globalisation leads to an extension of markets and sizes of companies. Deregulation opens up former national monopolies for international competitors. In this way, there are rich opportunities to penetrate foreign markets by cross-border mergers and acquisitions. The most active industries in the current merger wave are those where globalized markets are of particular importance. This applies for instance to the automotive or the pharmaceutical industry (www.uni-kiel.de). As an example for this we can cite that the aggregate value of M&A transactions in the global automotive sector in 2002 increased by 85% to $35.1 billion over 2001 totals. The number of transactions rose by 35% from 462 deals to 621 within the years concerned (www.pwc.com). Telecommunications and utilities where deregulation and liberalisation drastically changed the intensity of the competition are affected as well. This brief historical overview clarifies that M&A activities can be interpreted as the reaction of business to a changing environment.

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