Peace mediators of the corporate-merger battles
Washington — When one firm tries to buy another, the atmosphere is often stormy.
In Mesa Petroleum Company's current bid to buy General American Oil Company, Mesa has accused its target of ''kamikaze defensive tactics.'' Meanwhile, General American counters that certain Mesa legal maneuvers are a ''typical knee-jerk reaction by someone trying to buy a company at an inadequate price.''
The hostility surrounding corporate courting often spills over into the resulting marriage, damping the combined firm's ability to prosper.
But it is possible to make business combinations more harmonious and effective, argues John Arnold, president of ExecuTrak Systems Inc., a Waltham, Mass., consulting firm.
Mr. Arnold specializes in working with merging firms after a deal to link up has been struck. ExecuTrak consultants try to defuse hostile emotions and to find and solve hidden problems that might affect the merger's success.
''We have been able to surface issues that might have proved divisive. They are dealt with at such an early stage. . . that they get resolved and don't become'' impediments to corporate success, he says. ''There isn't the conflict that might have been.''
As a result, he says, none of the acquisitions the firm has worked on have failed. Clients include the Continental Group Inc., A. E. Staley Manufacturing Company, and the Pillsbury Company.
''I think we learned some things we would not have otherwise learned due to third-party involvement,'' said Ronald G. Anderson, vice-president of corporate development at the St. Paul Companies, a Minnesota-based insurance company. St. Paul hired ExecuTrak to facilitate its January 1982 merger with Seaboard Surety Company, a New York based seller of performance bonds for contractors.
After a tentative agreement was signed, Mr. Arnold and his associates interviewed executives at both St. Paul and Seaboard as well as outside sources like suppliers and customers. Their goal was to identify hidden issues, misconceptions, and opportunities raised by the transaction.
In most mergers ''there is very little discussion if any about what is going to happen after the deal,'' Mr. Arnold explains.
Often executives from both companies will talk more freely to a third party like Mr. Arnold than they would to their new partners. ''It is much harder to talk to people you are not familiar with in a stressful situation,'' Mr. Anderson says.
When his research on both Seaboard and St. Paul was completed, Mr. Arnold met with executives from each company to brief them on what his research had uncovered. Then the top executives met jointly to agree on the key issues they faced. This is done so participants know what information they needed to bring to a work conference.
Usually the joint work conference is held in a resort setting. The St. Paul-Seaboard sessions were held in Boca Raton, Fla. At a series of day-long meetings executives from both firms engaged in a joint effort to solve the problems and capitalize on the opportunities Mr. Arnold's research had identified.
As a result of their discussions the executives agreed on the newly merged company's objectives and strategy. Agreement was also reached on operating methods and reporting relationships.
''We learned why they wanted to be so independent and why it was valuable to them, '' Anderson said. ''We changed the way we are managing them from the way we would have.''
Another result of conferences between the two companies is to ''put together an operating plan that will lead to business results to justify the acquisition, '' says Raymond F. Good, president and chief executive officer of Munsingwear Inc. Mr. Good was formerly executive vice-president of Pillsbury's consumer group, which included the recently acquired Totino's Finer Foods Inc. (now Totino Pizza Company). ExecuTrak was hired 18 months after the deal was signed to help Totino's managers deal with merger-related problems.
Most mergers do not stand the test of time. Merger specialists say about one-third of all acquiring companies later spin off their purchases. And many others fail to meet the buyer's expectations.
For example, Exxon Corporation spent $1.17 billion in 1979 to buy Reliance Electric Company. Exxon wanted Reliance to produce an energy-efficient motor the oil company had developed. But later Exxon announced the motor technology would not produce a commercially viable product. Meanwhile, Reliance earned only a meager $31 million - or 2.5 percent - return on Exxon's investment in 1981.
Despite the hazards, firms are expected to continue looking for companies to acquire in bids to enter new markets and acquire economies of scale. In 1982, however, the pace of merger activity slowed due to high interest rates, which made purchases more expensive. According to W.T. Grimm & Co. estimates, some $60 billion worth of mergers were consummated in 1982, down from $82.6 billion in 1981.
The few consultants doing work similar to that of Mr. Arnold deal with only a handful of the mergers that take place. Some companies assign post-merger coordination to their merger and acquisition departments.
''But they tend to be staffed by numbers people, not people people,'' Mr. Arnold said. ''They are not only threats (to the acquired company's managers) because they are from the acquiring company, but they are not concerned with sensitivities, anxieties, cultures, business values, or managing styles.''
Opposition from investment bankers, who put together merger deals, is one reason more firms do not hire consultants to help smooth the course of corporate marriages. The bankers fear consultants may uncover problems which would kill the deal, Mr. Arnold says.
In addition, ''there are many executives who believe they do not need outside help,'' notes Munsingwear's president Good.
Clients say consultants who make mergers work smoothly are worth their fees. ''But Mr. Arnold is not cheap,'' one client said. On a $50 million acquisition, an investment banker might charge $500,000 to $800,000. According to a client, Mr. Arnold's fee on a similar deal would be $250,000.
''That is at the high end of most of our projects. It involved a great deal of my professional time. Most projects run between $100,000 and $150,000, which is a small cost for an acquisition ensurance policy,'' Mr. Arnold says.