Doing the Deal is the Easy Part - Brief Article

Automotive Industries, Nov, 2000 by Maryann Keller

Acquisitions rarely live up to their expectations. Just ask the survivors at Federal Mogul and Daimler Chrysler.

Recently, Daimler Chrysler announced that it would report a third quarter loss of more than $500 million because competition in the North American light truck market drove up the cost of incentives. At about the same time, Federal Mogul announced that CEO Dick Snell had departed and Steve Miller, who oversaw the company's restructuring just a few years earlier, had arrived to once again try to fix a broken corporation.

Are these two isolated cases in which current problems are out of the control of management? Could they instead be validation of the fact that more than 70 percent of all acquisitions turn out to be failures? Both represent different reasons for the poor track record of acquisitions living up to expectations.

The takeover of Chrysler fit into Daimler Benz's global ambitions. On paper the combination looked good. Perhaps my negative view of it is tainted by the fact that I was living my own painful takeover story at the time: The once energetic and creative people of Furman Selz were struggling under the yoke of our new, foreign owner, the Dutch financial conglomerate ING. I know what it was like to work for a distant owner who had little understanding of our business or culture and only saw our company as a piece in the global financial empire they were constructing.

People's reactions are often underestimated in the hype of the deal. There is little left of Furman Selz; most of us have scattered to new jobs. The morale at Chrysler was shaky after the takeover, with Chrysler employees inevitably feeling like second-class citizens. Morale there is still deteriorating as the so-called "Chrysler Group" is being blamed for the losses without regard to turmoil within in the company that's due specifically to the takeover.

The fact that Chrysler's key management was either pushed out or left in frustration determined DaimlerChrysler's current condition as much as aging products and a more competitive light truck market.

DaimlerChrysler doesn't need brutal cost cutting now. It needs inspiration and leadership that gives the people in Auburn Hills a sense of creating their own destiny. Buying Chrysler was the easy part. Running it has proven to be tougher than either chairman anticipated.

What about Federal Mogul, once Wall Street's darling for its aggressive takeover strategy and perceived management discipline built around Economic Value Analysis (EVA)? It's now going through its second restructuring of the decade, both a result of mismanagement by senior executives.

Federal Mogul management clearly enjoyed the hunt for the next acquisition that appeared to fit their strategic view of the auto parts industry. The late 1990s were a heady time for the auto parts industry that was hell-bent on consolidating so that single companies could build modules or achieve dominant market positions.

In fact, early on the Snell-led Federal Mogul team made some great acquisitions. But the focus on acquisitions eventually resulted in over-paying for Copper Industries and underestimating the problems in others. Analysts are left to ponder why the management didn't do more careful due diligence prior to making the deals. They also wonder just how effective the EVA process was in miming the company. With the benefit of hindsight, we can definitely say that neither appeared to have been done as carefully, nor as well as shareholders and employees of the company deserved.

Experienced managers know that the odds of a successful takeover are low. Yet we still marvel at the daring of huge deals that appear daily in the press. Remember, three out 10 deals will live up to the hype. The rest will be consigned to the long list of failures, not because they weren't good ideas, but because they were poorly managed after the celebratory champagne stopped flowing.

MARYANN KELLER is president of auto services at Priceline.com and the author of the books "Rude Awakening: The Rise, Fall And Struggle To Recover At General Motors" and "Collision: GM, Toyota and Volkswagen And The Race To Own The 21st Century".