Short This Stock

So the word from Oz should have the shorts doing chest bumps.  This from Magnus Nicolin, CEO of Ansell Limited (ASX: ANN), which acquired Comasec SAS:

The overall integration process will be a gradual one as we take time to get to know the Comasec business.

It would appear that even the most basic tenets of acquisition integration have not reached Australia yet.

In case The Merger Verger’s reading is unclear let me offer the shareholders of Ansell a translation:

We are standing by to flush our (your) investment in Comasec down the toilet using a process that will be slow but certain.

In fact, let me go a step further and offer a letter that you might want to send to the noble Magnus, your CEO:

Dear Mag:

We are glad that you are seeking ways to grow our investment in Ansell Limited. But I, for one, am distressed by what I read about your approach to the Comasec acquisition.  Please be aware that your future at my company will depend in large part on how well that approach plays out.

Now, me, I’m just a humble shareholder so don’t expect me to know as much as you about doing acquisitions but it occurs to me that a “gradual” process can’t be that smart. I mean, if you just sort of amble along doesn’t that merely postpone the time that any benefit might inure to us as shareholders? And wouldn’t it extend the time that we are paying for duplicated overhead? And increase the likelihood of employee defections?  And open us to competitor shenanigans? I’m just dubious.  Is “slow and steady” really the right approach here?

And another thing: you say you want some time to “get to know” the acquired company.  (Uhm … how do I say this nicely?)  I would have hoped you’d get to know the company before you spent my money to acquire it.  By the time the transaction closed, I would have expected you to know not only the target but also what you were going to do with it. You see what I’m saying?

Listen, anybody can make an acquisition.  I don’t pay you to do that; I pay you to make them work.  “Mañana” cannot possibly be the right approach.

So get on with. Today.

Cordially,

Cher Holder

The Merger Verger’s Take:

An “overall integration process [that is] a gradual one” is a failure waiting to happen.  A true short’s delight.

Meredith: Focus on the Fleet Feet

The recent acquisition by Meredith Corporation (NYSE: MDP) of Allrecipes.com strikes The Merger Verger as a strategically brilliant deal.  It doubles their digital revenues with the top food website in the world and brings them enormous digital media and social networking expertise. The leverage potential is high, with opportunities to create value from Allrecipes to Meredith and vice versa.

But, having made four acquisitions in the last eight months, the company needs to settle down and make these deals work … now.

Meredith is buying two distinct forms of fleet-footed assets: customers and tech expertise.  Blow the first few months of integration and the acquisition’s value proposition could deteriorate rapidly due to site visitors or employees taking flight. 

Allrecipes.com is a very strong site that has generated a powerful brand.  That suggests a degree of customer stickiness that would in turn suggest focusing first on retaining talent within the organization. 

 

Recommendations for Meredith:

  • Turn the new-deal tap off (or way, way down).  I know that Meredith Chairman & CEO Stephen Lacy sees a host of great media properties available in this post-recession environment but now is the time to “get right” those that he has already done, not get more to do.
  • Communication will be a key part of the integration puzzle.  With such a strong strategic intent, they should be telling anyone who will listen about the benefits available to both organizations by thoughtfully executing on it (and telling it over and over).  Touch the Allrecipes employees, particularly the key IT folks. Get down with them where they are.
  • Having purchased a company with a strong social media component, respect that society.  However alluring the opportunity might be to start selling their other products to Allrecipes customers, do not rush around stuffing them with offers.  Instead, contribute to their social experience, demonstrate the potential of cross fertilization with the other properties and invite them into the expanded world of Meredith.  Pull, do not push.
  • Incorporate Allrecipes.com thought leaders (at multiple levels) into the larger game planning for Meredith’s digital future.  It will send positive signals about the role of “new media” in a historically print-based company and increase the flow of expertise and ideas.  Oh, and listen to the ideas from the Allrecipes guys; their input is not just for show.

Bain: How to Keep Customers

Friday’s Wall Street Journal offered up an interesting piece authored by two partners from consulting firm Bain & Company on ways to keep customers following a merger.  You can find the article here: After the Merger, How Not to Lose Customers. (link may require registration or subscription)

As with most newspaper articles, this one was short but authors Laura Miles and Ted Rouse did have some sweet points that were both specific and actionable.  Integration professional will want to pack them somewhere neatly in their bag of tricks. 

The Merger Verger highlights:

  • At the very moment when many merged companies have their noses buried in books and numbers or focused on technology issues or cost cutting, customers are looking for clues as to how they will (or won’t) be served in the newly merged enterprise.  Mistiming those clues can be, well, just watch out for Mr. Chairman with a lead pipe in the boardroom.
  • Specifically, the authors state that, “Customers watch carefully after a merger to see if service falls off.  That means that early signals of improved service carry a lot of weight.”  I would go even a step further by saying “early signals of any kind of change in service – good or bad – carry a lot of weight.”
  • Miles and Rouse also suggest the bundling of good news and bad news in communications, citing an example of what sounds a lot like the United/Continental merger.  Their comment about using this technique both to keep people informed and to ease the dissemination of bad news is applicable to suppliers and investors as well as to customers.
  • Their final point was almost frustratingly underplayed, that of the need to authorize customer-facing employees to take swift and free action to ensure consumer satisfaction through a transition.  Their example came from the airline industry but the message is the same for B2B: a merger is no time to be a control freak when it comes to empowering employees to make customers happy.  Just do it.

I caught an interesting undercurrent in the Journal piece: there are inherent – sometimes invisible – conflicts in the management of mergers.  Practitioners would be wise to make them visible in their process.  One example is the conflict between the pressure to cut costs in a merger and the simultaneous pressure to focus on revenues.  Too many dealmakers turn their attention immediately to costs, largely (methinks) because they are crisp and quantifiable.  How do you measure the avoidance of loss of a customer?

Recommendation: If you can’t be in two places at once, focus first on customer retention and then on cost reduction. 

Why?  Because costs will be there to reduce once the customers have been recommitted to the new enterprise.  But the converse will not always be true: customers may not be there to retain once you’re done attending to costs. 

I would posit the following corollary to Poor Richard (with apologies):

A penny not lost is as good as a penny earned.

There are other conflicts here that we should perhaps look at another time: as Miles and Rouse imply, between the empowerment of local employees and the need for central controls in a complex, often disorderly process or between speed and thoughtfulness (an integration classic). 

Question: What are the other inherent conflicts that companies experience in the integration process and how have you dealt with them?

If I am right in sensing that the authors are talking about United and Continental when they allude to “the recent merger of two major airlines,” they should be congratulated for their role.  My reading is that the marriage of UA and CO has been extraordinarily smooth when compared to other highly complex mergers and that shareholders have done (and will continue to do) well by the deal.  Kudos (assuming…).

Earlier postings on the United merger can be found by clicking the blue “United Airlines” link in the “Tagged” section, below.