Merger of Equals

A new lesson for today: Merger of Equals are dumb.

Here is a recent case of Sprint Nextel falling to pieces after attempting a merger of equals.

And for the real authority, here is what Jack Welch, the greatest CEO in the history of mankind, has to say about mergers of equals, naming :

"[One of the seven pitfalls made in merging is] believing that a merger of equals can actually occur...Despite the noble intentions of those attempting them, the vast majority of MOEs self-destruct becaues of their very premise" Welch, Jack. Winning. Harper. p220

Another great example of a MOE going south: Daimler Chrystler. The merger was made in 1998, and Daimler ended up taking charge after years of squabbling and trying to figure out how to blend together two very different cultures. In August 2007, Daimler finally sold off Chrysler to Cerberus Capital Management, a dizzyingly large PE group.

Now, to be fair, Chrysler was doing awful, consistently beat up by the drop in demand for its SUVs as gas prices rose, and the biggest reason for the split is probably still staggering losses.

Airbus is another interesting case to bring up. There was never really a merger of equals, but instead Airbus was founded as a "Eurpoean" company, blending corporate governance and financial influence from multiple countries. The same holds true here as holds true in the MOE cases, it's tough to have 2 leaders. A Business Week article from October 23, 2006, entitled "Wayward Airbus" describes the situation in great detail, having this to say:

"Far from the seamless, pan-European image it likes to project, Airbus is terribly balkanized, with its factories in Germany, France, Britain, and Spain clinging to traditional operating methods and harboring cross-border jealousies. ``It is still, in part, a juxtaposition of four companies,'' Streiff told the French newspaper Le Figaro in the only interview he has given since resigning.

The reason why this article was written was, at the time, Airbus hit a huge blunder in building its A380, which was finished recently. Factories in France and Germany were using incompatible softwares to design their own designated parts of the plane. The same article called this "one of the costliest blunders in the history of commercial aviation."