Let's call the whole thing off: why mergers fail

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The Independent Online
Management experts were last night quick to point out that Glaxo Wellcome and SmithKline Beecham are not unique in calling off a merger, writes Roger Trapp.

Earlier this month, KPMG and Ernst & Young abandoned their attempt to create the world's largest accounting and management consulting firm. Recently supermarket groups Asda and Safeway, telecoms companies BT and Cable & Wireless and - according to speculation - clearing banks Barclays and NatWest have all sized each other up and then backed away from a deal.

Despite a "culture of the deal" in the City, Glaxo-SmithKline is further evidence that mergers can be easy to plan but difficult to pull off. Research suggests only a small proportion of deals of this type achieve their financial targets. According to the London Business School, only about a half of acquiring companies recoup the premium above market value that they pay.

Andrew Campbell, a director of Ashridge Strategic Management Centre and co-author of the book Synergy, published tomorrow, said talks typically fail in this way either because of "good management reasons or management intransigence".

Companies realise the "pile of gold" capable of being mined by the two parties was illusory. Sometimes the firms lacked the skills to make it happen, or the risk of weakening rather than strengthening both companies was too great.

Since both SmithKline and Glaxo have achieved successful mergers in the past, it is unlikely such factors were at play here. This leaves management squabbles or, as Mr Campbell puts it, "deeply felt differences about what to do and how to do it".