We've noted before on this blog the
importance of negotiating on all aspects of the deal, not just price. (See, The
Interrelated Nature of Deal Design.) The recently announced mergers
of US Air and American Airlines and also Office Max and Office Depot are
good examples of the importance of social terms.
Social terms include things like the name of the merged firm,
where it will be headquartered, who will be the CEO and how the board of
directors will be constructed.
Consider the US Air - American Airlines merger. Although US
Air pursued this deal vigorously and is the acquiring firm, the combination
retains American's name and will remain headquartered at its Fort Worth
location. Doug Parker, CEO and Chairman of US Air becomes CEO and board
member of the new firm and after one year, Chairman of the Board. Thomas
Horton, Chairman, President and CEO of American Airlines will be Chairman of
the Board for only one year.
The Board of Directors of the combined firm will consist of 12
members, three from American Airlines, four from US Air, and five from
the creditors of American Airlines. I'm a bit surprised that US Air
doesn't dominate the board.
Think that board composition isn't important? Recall the
merger of Duke Energy and Progress Energy that closed in July 2012. Bill
Johnson, the former CEO of Progress was to be CEO of the new firm, but was
fired within 24 hours. Replacing him was Jim Rodgers, the former CEO of
Duke. Under the merger terms, Rodgers was supposed to have been Chairman
of the Board. Reportedly, both of these CEOs had suffered errors in their
stewardship as CEO. Why did Rodgers survive? One possibility has to
do with board composition: the combined firm had 18 board seats, 11 from
Rodger's Duke Energy and 7 from Johnson's Progress Energy.
And then there is the merger of
Office Max and Office Depot announced yesterday. According to the
announcement (which was, incidentally inadvertently leaked on
Wednesday) the name and headquarters will be announced after the company
appoints a CEO?
Huh? Social terms are important
components of any deal determined in the give and take of normal negotiations.
And social terms are costly - they involve real changes with real
economic effects. But not knowing the social terms? That, would seem to be even more costly. Not
knowing these items as a deal is announced does not seem like the start of a
prudent, coherent strategy. Integration is fraught with uncertainty in the best of deals. Starting out without knowing the basic game-plan can only increase integration costs.
Knowing your social
terms? Important.
Not knowing your board (if you are a new
CEO)? Courageous or some other adjective.
Not knowing your CEO or name or
headquarters?
Priceless. (Not.)
Just a thought,
Ralph
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