Bet on blood on the carpet at LucasVarity

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The Independent Online
Lucas may be throwing in the bulk of the sales and employees, its shareholders may emerge with 62 per cent of the equity, the main exchange listing may be in London and the headquarters may be in the UK. All the same, nobody should be under any illusion that the merger with Varity of the US is anything other than a reverse takeover of one of great names in British engineering.

The shots at LucasVarity will be called from Buffalo, New York, not Birmingham, England. The chief executive, Victor Rice, though British in origin and accent, is American in style and philosophy, having spent 26 years with Varity and its predecessor Massey Ferguson.

The business logic of fusing Lucas and Varity together looks compelling. Lucas is strong in Europe in foundation brakes and diesel injection systems but weak in the North American market. Varity is strong in anti-lock braking and diesel engines and has a large US presence. Moreover the recent merger of Bendix and Bosch is an example of the way the automotive components market is hurtling into consolidation.

The more interesting question, however, is whether the two cultures of Lucas and Varity can be knitted together quite so neatly. You could almost hear the sucking of teeth yesterday as Mr Rice explained his no-nonsense approach which runs along the lines of Henry Ford's famous exhortation: any culture you like as long as it's mine.

The Anglo-American cultural clash is already apparent, even in the formal merger announcement. For a start, the board of the merged company will sport only two executive directors - the other one being Lucas's finance director, John Grant - but nine non-execs. This is explained as a compromise between Anglo-Saxon and New World corporate governance practices.

For another, there is a rather nasty little poison pill tucked away in the merger agreement to the effect that if one side pulls out of the deal they will be liable to pay the other $25m. Mr Rice assures us that this type of "break-up fee" is the norm in any US merger. Not in the UK, dear boy, but perhaps you have been away too long to remember. Putting in place a deterrent of this sort to rival bidders is thought over here as pretty close to a breach of fiduciary duties.

The history of Anglo-American takeovers is littered with the corpses of deals that turned sour - Crocker, Brooks Brothers and, more recently, Mindscape being but a small sample. To be fair these were takeovers driven from this side of the Atlantic. There are also others that have worked such as Smith- kline Beecham. But meshing together two quite distinct philosophies, however complementary the business activities, is always a huge challenge. In the world of the motor industry Leyland and Daf tried and failed. Ford and Fiat called it off before they got to the altar.

Stripping away the management school mumbo-jumbo, Mr Rice shows few signs of willingness to compromise in the painful process of meshing the two companies together. There's going to be blood on the carpet, no doubt about it.