Mergers, the Death Star & IR

Not all mergers are marriages made in heaven, and the ongoing Bank of America-Merrill Lynch saga is providing plenty of support for the skepticism many investors hold toward M&A as a way to create value.

Today in The Wall Street Journal, Merrill ex-CEO John Thain responds to a whispering campaign blaming him for the souring of Bank of America’s ownership of Merrill (“Thain Fires Back at Bank of America”).

Thain was shown the door last week by Ken Lewis, B of A’s CEO. The parting came amid talk by sources around Bank of America that Thain surprised the new owner with Merrill’s $15 billion fourth-quarter loss – and rushed out bonuses to Merrill employees without telling B of A. Not so, Thain is now telling everyone.

But the tidbits are as revealing as the central facts …

  • Merrill Lynch employees apparently refer to Bank of America’s I-banking headquarters in midtown New York as the Death Star, the dark and dangerous fortress of the evil empire in “Star Wars.”
  • On the Bank of America equity trading floor, employees reportedly gave a standing ovation to news of the Merrill chief’s departure.
  • Some other top Merrill execs had already fled the company before Thain’s resignation, contributing to the feeling of – well, rats leaving the ship.
  • Bank of America employees, expecting their bonuses this week, reportedly are envious of Merrill people over what looks like a sweet deal – Merrill handed out its checks before the deal closed on Jan. 1.
  • Thain expresses contrition (some) over spending $1.2 million redecorating his office suite as America’s financial system was unraveling. He now says he’ll pay the firm back for the pricey curtains and fancy antiques. (BTW, Thain’s interior designer has a new gig: decorating the Obamas’ White House residence.)
  • Thain has hired PR man-to-the-stars Ken Sunshine – yes, “Mr. Sunshine” – to help spin the defense against the whispering campaign.

None of this points to the happy family image of a merger. Of course, this was a shotgun wedding negotiated at the worst moment of the financial crisis back in September. M&A under duress is bound to lead to more stress.

Forces much more powerful than investor relations, obviously, led to the B of A-Merrill Lynch acquisition. And that may always be the case. CEOs sign deals; IROs only communicate them.

But investor relations professionals should study the risks of M&A. Especially as consolidation becomes a common solution for hard times, we can counsel CEOs on the challenges they must overcome: Integrating two groups of people is the biggest issue. A clash of cultures must be addressed openly, not glossed over with handshake photo-ops. Mutual suspicion, “Us vs. Them,” and comparisons of compensation run rampant in mergers. You must deal with them proactively.

Investors know that integration – the people side of managing a newly combined business – is critical to success. So IROs should counsel management to think deeply and communicate around these issues in M&A.


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