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equipment were third-world regions. And in many companies, the computer and telephone systems
were procured and managed separately. Thus, the anticipated synergies never materialized.
Finally, the two companies had very different cultures. NCR was tightly controlled from the top,
while AT&T was less hierarchical and more politically correct. When AT&T executive Jerre Stead
took over at NCR in 1993, he billed himself as the “head coach,” passed out T-shirts, and told all of
the employees they were “empowered.” This did not go over well in the conservative environment at
NCR, and by 1994, only five of 33 top NCR managers remained with the company.
Conclusions: These three case studies highlight some of the difficulties firms face in achieving
profitable growth through acquisitions. Rather than being unique situations, they are representative of
the way many M&A transactions unfold. Managerial hubris and a competitive market make it easy to
overestimate the merger‟s benefits and therefore overpay. A deal that makes sense strategically can
still be a financial failure if the price paid for the target is too high. This is especially a problem when
economic conditions are good and high stock prices make it easy to justify almost any valuation if the
bidder‟s managers and directors really want to do a deal. Shrewd managers can sell deals that make
little strategic sense to unsuspecting shareholders and then ignore signals from the market that the deal
is not a good one.
The previous examples make it clear that it is easy to overstate the benefits that will come after the
transaction is completed. Whatever their source, these benefits are elusive, expensive to find and
implement, and subject to attack by competitors and economic conditions. Managers considering an
acquisition should be conservative in their estimates of benefits and generous in the amount of time
budgeted to achieve these benefits. The best way to accurately estimate the benefits of the merger is to
have a thorough understanding of the target‟s products, markets, and competition. This takes time and
can come only from careful due diligence, which must be conducted using a disciplined approach that
fights the tendency for managers to become emotionally attached to a deal. In spite of the time
pressures inherent in any merger transaction, this is truly a situation where haste makes waste.
A common factor in each of these transactions—and one often overlooked by managers and
researchers in finance and accounting—is culture. Two types of culture can come into play in an
acquisition. One is corporate or industry culture and the second is national culture, which is a factor in
cross-border deals. If the target is in a different industry than the bidder, a careful analysis of the
cultural differences between them is essential. Culture is especially critical in industries where the
main assets being acquired are expertise or intellectual capital. Failure to successfully merge cultures
in such industries can be particularly problematic because key employees will depart for better
working conditions. When Microsoft withdrew its “friendly” $44 billion bid for Yahoo! in 2008, it did
so partly out of fear that pursuing a hostile takeover would alienate Yahoo!‟s most valuable asset, the
employees.
However, these differences can be overcome, as illustrated by the successful 2001 combination of
Hewlett-Packard Corporation (HP) and Compaq Computer. Since the deal closed, HP‟s share price
has tripled. Later in this chapter, we discuss the keys to successful merger implementation. In the next
section we examine the acquisition strategy of Cisco Systems Inc. We do this to make it clear that
there are ways to increase your chances of success when planning and implementing an M&A
strategy.